A black market inShinbashi in 1946Illegal street traders inBarcelona in 2015
Ablack market[a] is aclandestinemarket or series of transactions that has some aspect of illegality, or is not compliant with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution are prohibited or restricted by law, non-compliance with the rule constitutes a black-market trade since the transaction itself is illegal. Such transactions include theillegal drug trade,[clarification needed]prostitution (where prohibited), illegal currency transactions, andhuman trafficking.[1][2][3]
Participants often conceal illegal behavior from government authorities or regulators.[4] Cash remains the preferred medium of exchange for illegal transactions, as it is more difficult to trace.[5] Common reasons for engaging in black market activity include trading contraband, avoiding taxes or regulations, or evading price controls and rationing. Such activities are generally referred to using the definite article, e.g., "the black market in bush meat".
The black market is distinct from thegrey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market, in which trade is legal and official.
Black money is the proceeds of an illegal transaction, on which income and othertaxes have not been paid. Black money is often associated withmoney laundering, a process used to conceal the illegitimate source of the money. Because of the clandestine nature of the black economy, it is not possible to determine its size and scope.[6]
Mercado Negro, so called "Black Market", inLa Paz, Bolivia
The literature on the black market has not established a common terminology and has instead offered many synonyms including subterranean, hidden,grey, shadow, informal, clandestine, illegal, unobserved, unreported, unrecorded, second, parallel, and black.[4]
There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape, or are excluded from the institutional system of rules, rights, regulations, and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate:[4][7]
The illegal economy
The unreported economy
The unrecorded economy
The informal economy
The "illegal economy" consists of economic activities pursued in violation of legal statutes that define the scope of legitimate forms of commerce. Illegal-economy participants produce and distribute prohibitedgoods andservices, such asdrugs,weapons, andprostitution.[7]
The "unreported economy" circumvents or evades institutionally established fiscal rules as codified in the tax code. A summary measure of the unreported economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the unreported economy is the "tax gap": the difference between the amount of tax revenues due the fiscal authority and the amount of tax revenue actually collected. In the U.S. unreported income is estimated to be $2 trillion resulting in a "tax gap" of $450–600 billion.[8][9]
The "unrecorded economy" circumvents the institutional rules that define the reporting requirements of government statistical agencies.[7] A summary measure of the unrecorded economy is the amount of unrecorded income, namely the amount of income that should (under existing rules and conventions) be recorded in national accounting systems (e.g.,National Income and Product Accounts) but is not. Unrecorded income is a particular problem intransition countries that switched from asocialist accounting system toUN standard national accounting. New methods have been proposed for estimating the size of the unrecorded (non-observed) economy.[10] However little consensus exists on the size of the unreported economies of transitional countries.[11]
The "informal economy" circumvents the costs of, and is excluded from the benefits and rights incorporated in, the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit, and social security systems.[7] A summary measure of the informal economy is the income generated by economic agents that operate informally.[12] The informal sector is part of an economy that isnot taxed, monitored by thegovernment, or included in thegross national product (GNP), unlike the formal economy. Indeveloped countries, the informal sector is characterized byunreported employment. This is hidden from the state for tax, social security, or labor law purposes but is legal in other aspects.[13]
The termblack market can also be used in reference to a specific part of the economy in whichcontraband is traded.
Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions:
They may be cheaper than legal market prices. Thesupplier does not have to pay for production costs and/or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. When someone is hired to perform work and the client is unable to write off the expense (particularly common for work such ashome renovations orCosmetology services), the client may be inclined to request a lower price (usually paid in cash) in exchange for foregoing a receipt, which enables the service provider to avoid reporting the income on his or her tax return.
They may be more expensive than legal market prices. For example, if the product is difficult to acquire or produce, dangerous to handle, is strictly rationed, or is not easily available legally if at all. If the exchange of goods is made illegal by some sort ofstate sanction, such as with certain drugs orwildlife trafficking,[14] their prices will tend to rise as a result of that sanction.
No government, no global nonprofit, no multinational enterprise can seriously claim to be able to replace the 1.8 billion jobs created by the economic underground. In truth, the best hope for growth in most emerging economies lies in the shadows.
Even when the underground market offers lower prices, consumers may still buy on the legal market, when possible, because:
They may prefer legal suppliers, as these are strictly regulated and easier to contact. In contrast, black market vendors are unregulated and difficult to hold accountable.
In some jurisdictions such as theUnited States, customers may be charged with acriminal offense if they knowingly participate in the black economy;[16]
They may have a moral dislike of black marketing.
In some jurisdictions such asEngland and Wales, consumers found in possession of stolen goods can have them confiscated if they are traced, even if they did not know they were stolen. Though they themselves do not usually face criminal prosecution, they are still left without the goods they paid for and have little if any recourse to get their money back. This may make some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate (for example, items sold at acar boot sale).
However, in some situations, consumers may conclude that they are better off using black market services, particularly when government regulations hinder what would otherwise be a legitimate competitive service. For example, inBaltimore, many consumers actively preferillegal taxi operations, citing that they are more available, convenient, and fairly priced.[17]
Prostitution is illegal or highly regulated in some countries. This demonstrates the underground economy, because of consistent high demand from customers, relatively high pay, but labor-intensive and low-skilled work, which attracts a continual supply of workers. While prostitution exists in every country, studies show that it tends to flourish more in poorer countries, and in areas with large numbers of unattached men, such as around military bases.[18] For instance, an empirical study showed that the supply of prostitutes rose abruptly in Denver and Minneapolis in 2008 when the Democratic and Republican National Conventions took place there.[19]
Prostitutes in the black market generally operate with some degree of secrecy, sometimes negotiating prices and activities throughcodewords and subtle gestures. In countries such asGermany or theNetherlands, where prostitution is legal but regulated, illegal prostitutes exist whose services are offered more cheaply without regard for the legal requirements or procedures—health checks, standards of accommodation, and so on.[citation needed]
In other countries, such asNicaragua, where legal prostitution is regulated, hotels may require both parties to identify themselves, to preventchild prostitution.
Personally identifying information, financial information like credit card and bank account information, andmedical data are bought and sold, mostly indarknet markets.[20] People increase the value of the stolen data by aggregating it with publicly available data, and selling it again for a profit, increasing the damage that can be done to the people whose data was stolen.[21]
From the late 19th and early 20th centuries, many countries began to ban the possession or use of somerecreational drugs, such as in the United States'war on drugs. Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. Despite law enforcement efforts to intercept them, demand remains high, providing a largeprofit motive fororganized criminal groups to keep drugs supplied. The United Nations has reported that the retail market value of illegal drugs is $518 billion.[22]
Although law enforcement agencies intercept a fraction of drug traffickers and incarcerate thousands of wholesale and retail sellers and users,[23] the demand for such drugs and profit margins encourage new distributors to enter the market.Drug legalization activists draw parallels between the illegal drug trade and theProhibition of alcohol in the United States in the 1920s.
A tower of confiscated smuggled weapons about to be incinerated inNairobi,Kenya
The laws of many countries forbid or restrict the personalownership ofweapons. These restrictions can range from smallknives tofirearms, either altogether or by classification (e.g.,caliber,handguns,automatic weapons, andexplosives). The black market supplies the demands for weaponry that cannot be obtained legally or may only be obtained legally after obtaining permits and paying fees. This may be bysmuggling the arms from countries where they were bought legally or stolen, or by stealing from arms manufacturers within the country itself, using insiders. In cases where the underground economy is unable to smuggle firearms, they can also satisfy requests bygunsmithing their own firearms. Those who may buy this way includecriminals to use for illegal activities, gun collectors, and otherwise law-abiding citizens interested in protecting their dwellings, families, or businesses.
In England and Wales, certain categories of weapons used for hunting may be owned by qualified residents but must be registered with the local police force and kept within a locked cabinet. Among those who may purchase weapons on the black market are people who are unable to pass the legal requirements for registration—convicted felons or those suffering from mental illness for example.
In many developing countries, living animals are captured in the wild and sold as pets. Wild animals are also hunted and killed for theirmeat, hide, and organs, the latter of which and other animal parts are sold for use in traditional medicine.
In several states in theUnited States, laws requiring the pasteurization of milk have created black markets inraw milk, and sometimes in raw milk cheese which is legal in a number of EU countries but banned in the U.S. if aged less than 60 days.[26]
Broken barrels of liquor after a police raid in 1925, inElk Lake, Ontario
Rum-running, or bootlegging, is the illegal business of transporting (smuggling)alcoholic beverages where such transportation is forbidden by law. Smuggling is usually done to circumventtaxation orprohibition laws. The termrum-running is more commonly applied to smuggling over water;bootlegging is applied to smuggling over land. According to thePBS documentaryProhibition, the term "bootlegging" was popularized when thousands of city dwellers would sell liquor from flasks they kept in their bootleg all across major cities and rural areas.[27] The term "rum-running" most likely originated at the start ofProhibition in the United States (1920–1933), when ships fromBimini in the western Bahamas transported cheap Caribbeanrum to Floridaspeakeasies. Rum's cheapness made it a low-profit item for the rumrunners, and they moved on to smugglingCanadian whisky, Frenchchampagne, and Englishgin to major cities likeNew York City andBoston, where prices ran high. It was said that some ships carried $200,000 (roughly equivalent to US$4.5 million in 2022[28]) in contraband in a single run.
The United Kingdom has some of the highest taxes ontobacco products in the world and strict limits on the amount of tobacco that can be imported duty-free from other countries, leading to widespread attempts to smuggle relatively cheap tobacco from low tax countries into the U.K. Such smuggling efforts range from vacationers concealing relatively small quantities of tobacco in their luggage to large-scale enterprises linked toorganized crime. British authorities have aggressively tried to detect and confiscate such illegal imports, and to prosecute those caught. Nevertheless, it has been reported that "27% of cigarettes and 68% of roll your own tobacco is purchased on the black market".[29]
Smuggling one truckload of cigarettes from a low-taxU.S. state to a high-tax state can result in a profit of up to $3 million.[30] Because traffic crossing U.S. state borders is not usually stopped or inspected to the same extent as happens at the country's international borders, interdicting this sort of smuggling (especially without causing major disruption to interstate commerce) is difficult. Low-tax states are generally the major tobacco producers and have come under criticism for their reluctance to increase taxes.North Carolina eventually agreed to raise its taxes from 5 cents to 35 cents per pack of 20 cigarettes, although this remains far below the national average.[31] As of 2010[update],South Carolina has refused to follow suit and raise taxes from seven cents per pack (the lowest in the USA).[32]
According to theWorld Health Organization (WHO), illegal organ trade occurs when organs are removed from the body for the purpose of commercial transactions.[33] TheWHO justifies its stance on the issue by stating, "Payment for... organs is likely to take unfair advantage of the poorest and most vulnerable groups, undermines altruistic donation and leads to profiteering and human trafficking."[34] Despite prohibitions, it was estimated that 5% of all organ recipients engaged in commercial organ transplant in 2005.[35] Research indicates that illegal organ trade is on the rise, with a recent report[citation needed] byGlobal Financial Integrity estimating that the illegal organ trade generates profits between $600 million and $1.2 billion per year across many countries.
Aracket is a service that isfraudulently offered to solve a problem, such as for a problem that does not actually exist or that would not otherwise exist if the racket did not exist. Conducting a racket is called racketeering.[36] The potential problem may be caused by the same party that offers to solve it, although that fact may be concealed, with the intent to engender continual patronage for the racketeer. An archetype is theprotection racket, wherein a person or group (e.g., a criminal gang) indicates to a store owner that they could protect her/his store from potential damage, damage that the same person or group would otherwise inflict, while the correlation of threat and protection may be more or less deniably veiled, distinguishing it from the more direct act ofextortion.Racketeering is often associated withorganized crime. The term was coined by theEmployers' Association of Chicago in June 1927 in a statement about the influence of organized crime in theTeamsters union.[37]
Where taxicabs, buses, and other transportation providers are strictly regulated or monopolized by government, a black market typically flourishes to provide transportation to poorly served or overpriced communities. In the United States, some cities restrict entry to the taxicab market with a medallion system (taxicabs must get a special license and display it on a medallion in the vehicle). In most such jurisdictions it is legal to sell the medallions, but the limited supply and resulting high prices of medallions have led to a market in unlicensedcarpooling/illegal taxi operation. InBaltimore,Maryland, for example, it is not uncommon for private individuals to provideillegal taxi operation services[17] for city residents.
In places where there isrent control and subsidizedaffordable housing, which provide housing below the market cost, there may be a black market for housing rentals. For instance, in the UK there is illegalsubletting ofsocial housing homes where the tenant illegally rents out the government-subsidized home at a higher rent.[38] In Sweden, rental contracts with regulated rent can be bought on the black market,[39] either from the current tenant or sometimes directly from the property owner. Specialized black-market dealers assist the property owners with such transactions.[40][clarification needed]
Counterfeit medicine, essential aircraft and automobile parts
Items such as medicines as well as essential aircraft and automobile parts (e.g. brakes, motor parts, etc.) are counterfeited on a large scale.[citation needed]
A street vendor in Thailand has set up a display of illegal copies of DVD movies.
Street vendors in countries where there is little enforcement ofcopyright law, particularly in Asia and Latin America, often sell copies offilms, musicCDs, and computersoftware such asvideo games, sometimes even before the official release of the title. A determined counterfeiter with a few hundred dollars can make copies that are digitally identical to an original with no loss in quality; innovations in consumerDVD andCD writers and the widespread availability ofcracks on theInternet for most forms ofcopy protection technology make this cheap and easy to do. Copyright-holders and other proponents of copyright laws have found this phenomenon hard to stop through the courts, as the operations are distributed and widespread,[citation needed] traversing national borders and thus legal systems. Since digital information can be duplicated repeatedly with no loss of quality, and passed on electronically at little to no cost, the effective underground market value of media is zero, differentiating it from nearly all other forms of underground economic activity. The issue is compounded by widespread indifference to enforcing copyright law, both with governments and the public at large. Additionally,not all people agree with copyright laws, on the grounds that they unfairly criminalize competition, allowing the copyright-holder to effectively monopolize related industries. Copyright-holders also may useregion-coding to discriminate against selected populations pricewise and availability-wise.
Copyright infringement law goes as far as to deem illegal "mixtapes" and other such material copied to tape or disk. Copyright holders typically attest the act of theft to be in the profits forgone to the pirates. However, this makes the unsubstantiated assumption that the pirates would have bought the copyrighted material if it had not been available throughfile sharing or other means. Copyright holders also say that they did work creating their copyrighted material and they wish to get compensated for their work. No other system than copyright has been found to compensate artists and other creators for their work,[citation needed] and many artists do not have an alternative source of income or another job. Many artists and film producers have accepted the role of piracy in media distribution.[41] The spread of material through file sharing is a source of publicity for artists and builds fan bases that may be inclined to see the performer live[42] (live performances make up the bulk of successful artists' revenues,[43] however not all artists can make live performances, for example, photographers typically only have a single source of income: the licensing of their photos).
Money itself may be subject to a black market. Money may be exchangeable for a differing amount of the same currency if it has been acquired illegally and needs to belaundered before the money can be used.[44]Counterfeit money may be sold for a lesser amount of genuine currency.
The rate of exchange between a local and foreign currency may be subject to a black market, often described as a "parallel exchange rate" or similar terms. This may happen for one or more of several reasons:
The government sets ("pegs") the local currency at some arbitrary level to another currency that does not reflect its true market value. Certain purchases of foreign currency may be permitted at the official rate; otherwise, a less favorable black-market rate applies.
A government makes it difficult or illegal for its citizens to own much or any foreign currency.
The government taxes officially exchanging the local currency for another currency, or vice versa.
A government may officially set the rate of exchange of its currency with that of other, "harder" currencies. When it does so, the peg may overvalue the local currency relative to what its market value would be if it were afloating currency. Those in possession of the harder currency, for exampleexpatriate workers, may be able to use the black market to buy the local currency at better exchange rates than they can get officially.
In situations of financial instability and inflation, citizens may substitute a foreign currency for the local currency. TheU.S. dollar is viewed as a relatively stable and safe currency and is often used abroad as a second currency. In 2012, US$340 billion, roughly 37 percent[45] of all U.S. currency, were believed to be circulating abroad.[46] Themost recent[clarification needed] study of the amount of currency held overseas suggests that only 25 percent of U.S. currency was held abroad in 2014.[47] The widespread substitution of U.S. currency for local currency is known asde factodollarisation and has been observed in transitioning countries such as Cambodia[48] and in some Latin American countries.[49] Some countries, such as Ecuador, abandoned their local currency and used U.S. dollars, essentially for this reason, a process known asde jure dollarization (see also the example of theGhanaian cedi from the 1970s and 1980s).
If foreign currency is difficult or illegal for local citizens to acquire, they will pay a premium to acquire it. U.S. currency is viewed as a relatively stable store of value and, since it does not leave a paper trail,[dubious –discuss] it is also a convenient medium of exchange for both illegal transactions and forunreported income both in the U.S. and abroad.[8]
A black-market fuel vendor in Tunisia sells smuggled gasoline to a passerby at a roadside stand.
Within theEuropean single market, it is legal for a person or business to buy fuel in one EU state for use in a vehicle in another, as well as a small amount of fuel in a container,[51] but as with other goods, taxes (such asVAT) will generally be payable by the final customer at the physical place of making the purchase. When fuel is transported across borders for resale, such taxes can often be recovered and then relevant taxes are payable in the country of sale, but there are no customs checks on borders between countries within theEuropean Union Customs Union. Differences in tax rates can thus lead to opportunities forarbitrage even when prices before tax are equal, in a form that is illegal as a form oftax evasion.
In some countries, diesel fuel for agricultural vehicles or domestic use is taxed at a much lower rate than that for other vehicles. This is known asdyed fuel, because a colored dye is added so it can be detected if used in other vehicles (e.g. a red dye in the UK, a green dye in Ireland). The saving is attractive enough to make for a black market in agricultural diesel, which was estimated in 2007 to cost the UK £350 million annually in lost tax.[53]
In countries including India and Nepal, the price of fuel is set by the government, and it is illegal to sell the fuel at a higher price. During the petrol crisis in Nepal, black marketing in fuel became common, especially during mass petrol shortage. At times, people queued for hours or even overnight to get fuel. Petrol pump operators were alleged to hoard the fuel and sell it to black marketeers. Black marketing in vehicle/cooking fuel became widespread during the2015 Nepal blockade; even after it was eased and petrol imports resumed, people were not getting the fuel as intended and resorted to the black market.
In some countries including Saudi Arabia, Thailand, and India sex toys are illegal, and are sold illegally, without compliance with regulations on safety, etc. Platforms used to sell sex toys on the black market include consumer-to-consumer online auction websites and private pages on social media websites.[54] In black market venues in Cambodia, sex toys have been seized alongside aphrodisiac products.[55] It has been suggested that if efforts in North America to ban realistic lookingsexbots succeed, it may result in a black market.[56]
Black markets flourish duringwartime. States engaged intotal war or other large-scale, extendedwars often impose restrictions on the use of critical resources that are needed for the war effort, such asfood,gasoline,rubber,metal, etc., typically throughrationing. A black market then develops to supply rationed goods at exorbitant prices. Therationing andprice controls enforced in many countries duringWorld War II encouraged widespread black market activity.[58] One source of black-market meat under wartime rationing was farmers declaring fewer domestic animal births to theMinistry of Food than had actually happened. Another in Britain was supplies from the U.S., intended only for use on U.S. army bases on British land, but leaked into the local native British black market.
For example, in theParliament of the United Kingdom on February 17, 1945,[59]members said that "the wholeturkey production ofEast Anglia had gone to the black market" and "prosecutions [for black-marketing] were like trying to stop a leak in a battleship", and it was said that official prices of such foods were set so low that their producers often sold their produce on the black market for higher prices; one such route (seen to operate at the market atDiss, Norfolk) was to sell live poultry to members of the public; each purchaser would sign a form promising that he was buying the birds to breed from, but then take them home for eating.
During theVietnam War, American soldiers would spendMilitary Payment Certificates onmaid service andsexual entertainment.[citation needed] Also if a Vietnamese civilian wanted something that was hard to get, he would buy it at double the price from one of the soldiers, who had a monthly ration card and thus had access to the military stores.[citation needed] The transactionsran through[clarification needed] the on-base maids to the local populace. Although these activities were illegal, only flagrant or large-scale black marketeers were prosecuted by the military.[citation needed]
A classic example of new regulation creating a black market is theprohibition of alcohol. When such a law disappears, so does the black market.Sin taxes – taxes levied on products deemed harmful such as alcohol and tobacco – may increase the black market supply.[60] One argument for legalizing marijuana is the elimination of the black market, and taxes from that economy becoming available for the government.[citation needed]
^abcdFeige, Edgar L. (2016). "The Meaning and Measurement of Unobserved Economies: What do we really know about the "Shadow Economy"?".Journal of Tax Administration (30/1).
^Lena Edlund & Evelyn Korn (2002)."A Theory of Prostitution"(PDF).110 (1). Journal of Political Economy. Archived fromthe original(PDF) on October 5, 2013. RetrievedMarch 6, 2012.{{cite journal}}:Cite journal requires|journal= (help)
^Cunningham, S.; Kendall, T. D. (2011). "The Economic Returns to Good Looks and Risky Sex in the Bangladesh Commercial Sex Market".The B.E. Journal of Economic Analysis & Policy.11.doi:10.1515/1935-1682.3059.S2CID1230622.
^Holt, Thomas J.; Smirnova, Olga; Chua, Yi-Ting (2016).Data thieves in action : examining the international market for stolen personal information. Palgrave Macmillan.ISBN978-1-137-58904-0.
^Witwer, David (2004). "'The Most Racketeer-Ridden Union in America': The Problem of Corruption in the Teamsters Union During the 1930s". In Kreike, Emmanuel; Jordan, William Chester (eds.).Corrupt histories. Rochester, New York:University of Rochester Press.ISBN978-1-58046-173-3.
^Edgar L. Feige, "Dynamics of Currency Substitution, Asset Substitution and De facto Dollarisation and Euroisation in Transition Countries",Comparative Economic Studies, September 2003, Vol. 45 #3 pp. 358–383.
^E. L. Feige et al. "Unofficial Dollarization in Latin America: Currency Substitution, Network Externalities and Irreversibility", in Dean, Salvatore and Willett (eds.)The Dollarization Debate, Oxford Press, 2003.
^"Alcohol, tobacco and excise duties".Your Europe. RetrievedJune 2, 2024.You can carry 10 litres (maximum) in a portable container, in addition to the fuel contained in your fuel tank. This rule applies to any type of motorised vehicle.
^Klein, Wilhelm EJ, and Vivian Wenli Lin. "Sex robots revisited: A reply to the campaign against sex robots." ACM SIGCAS Computers and Society 47.4 (2018): 107-121
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