Gone are the days when drug traffickers could walk into a bank with a suitcase full of cash and deposit it with no questions asked. Tough money laundering laws have been in place in the United States since 1986 and have been established more recently in most other countries. Nonetheless, professional launderers, an innovative and adept group, continue to launder billions of dollars of illegally derived funds every year through the world's financial institutions.

In his book Drugs and Money: Laundering Latin America's Cocaine Dollars, Robert E. Grosse discusses some of the many ways in which launderers hide the origin of the funds they handle to prevent law enforcement from seizing them. The book is three separate books in one, each of which could stand on its own. Although the three segments do not fit together smoothly, Drugs and Money offers something for several different audiences. Those wanting a very simple introduction to the problem of money laundering, the steps in the laundering process, and the basic structure of the Latin American cocaine trade will find these points covered in the first two chapters. Economists seeking a more detailed explanation of laundering transactions via foreign exchange black markets and their deeper implications will find it in the third, fourteenth, and fifteenth chapters, and lawyers studying money laundering cases will be interested by the second section of the book.

Those legal chapters describe in detail the most notorious Latin American laundering cases of the 1980s and 1990s. Grosses case studies are thoroughly detailed but devoid of drama. Readers looking for entertaining or sensational accounts of these cases would be better off looking at the many books written by non-academics on the subject, including Laundrymen: Inside Money Laundering, the World's Third-Largest Business by Jeffrey Robinson and Dirty Money: BCCI--the Inside Story of the World's Sleaziest Bank by Mark Potts, Nick Kochan, and Robert Whittington. The weakness of the non-academic writers on this subject is their lack of expertise. They use terms loosely or incorrectly and are not always adept at pulling together all the pieces of what are often very complex operations. Grosses treatment is less colorful, but he presents the cases as clearly as can be done and provides extremely helpful summary diagrams. These diagrams are a valuable visual aid for academics, law enforcement, and lawyers in the business of training or explaining such cases to courtrooms and classes.

The third segment of the book examines the black market peso exchange method (BMPE) of laundering funds. Although BMPE is a common term in law enforcement, Grosse does not use it even as he refers to the intermediaries by their specific names, cambistas and casas de cambio. BIPE, which has received extensive attention in the anti-laundering community in recent years, is used to describe cross-border financial transactions between the United States and Mexico or Colombia for the purpose of laundering drug-trafficking proceeds.

BMPE works in the following fashion. If a Colombian importer wishes to purchase US$1 million worth of computers manufactured in the United States, he may not want to use the official foreign exchange market because of excessive government regulations or taxes. Instead he will go to the black market and pay US$1 million worth of pesos. The black market money changer will deposit those pesos in the drug trafficker's Colombian bank account. Meanwhile, the drug trafficker's launderer will deposit US$1 million of drug revenues earned in the United States into the importer's US account or write a check for US$1 million to the US computer exporter. The attractiveness of this laundering method is based on its ability to make use of legitimate financial transfers for criminal purposes. This obviates the need to transport money across borders or wire transfer funds internationally, which could draw unwanted attention from law enforcement.

Foreign exchange black markets are Grosses main area of expertise, and this is the most intellectually compelling part of the book. He has written extensively on the foreign exchange black markets in Peru, Colombia, and Mexico in earlier journal articles, and he reiterates much of his economic research here, albeit in a more digestible fashion for non-economists. Some economists and US Department ofJustice and Drug Enforcement Agency officials will wince at Grosses repeated use of the term "cartel" when speaking about the Colombian drug trafficking organizations operating out of Medellin in the 1980s and Cali in the 1990s. A cartel is a small group of producers who control a significant share of the world market for a commodity and, through production quotas and other supply restrictions, keep prices within a target range. While some of the larger trafficking organizations operating out of Colombia did control a significant share of world cocaine production, they never tried to restrict the supply of cocaine to overseas markets or control prices. The US Drug Enforcement Agency originally coined the phrase in the early 1980s when it thought that pooled shipments exported from Medellin were an indication of production quotas, but the agency immediately stopped using the term when it discovered its error. Some journalists continue to use the term, but the word "cartel" can no longer be found in current government documents or even most media publications.

The book's conclusions are varied and are not specific to money laundering per se, but instead relate to the international drug problem in general. Grosse makes a convincing case for why the US government should end its certification requirement for countries. He also debunks the legalization option by arguing that most of the social costs associated with drug use are due to morbidity and mortality, not crime, and that these costs would only increase with legalization. But his call for demand reduction through education is not based on any empirical evidence. Numerous cost-effectiveness studies of supply and demand-side strategies have concluded that an educational prevention program is probably not cost-effective. Treatment of heavy users, on the other hand, is three- to twenty-times more cost-effective than all other antidrug strategies. Likewise, his endorsement of seizing laundered funds (asset forfeiture) is also not a promising solution. Quite apart from the moral dilemma of seizing the assets of quasi-legitimate users of the foreign exchange black markets, the solution has significant practical difficulties. Thomas Fowler estimated in a 1996 Journal of Policy Modeling article that law enforcement would need to seize 50 to 70 percent of laundered funds to put drug trafficking organizations out of business. Such a seizure rate is not realistically achievable, even if current resources devoted to the problem were doubled.