Black market

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Grey market
A black market in Shinbashi in 1946.
A black market salesman (fly by night) depicted in graffiti in Kharkiv, Ukraine (2008)
Barcelona 2015

A black market, underground economy, or shadow economy is a clandestine market or transaction which has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules.[1] If the rule defines the set of goods and services whose production and distribution is prohibited by law, non-compliance with the rule constitutes a black market trade since the transaction itself is illegal. Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the drug trade, prostitution, illegal currency transactions and human trafficking. Violations of the tax code involving income tax evasion constitutes membership in the unreported economy.[2][3] Because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority.[4] Cash usage is the preferred medium of exchange in illegal transactions since cash usage does not leave a footprint.[5] Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or skirt price controls or rationing. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services, e.g. "the black market in bush meat".


Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid, and which can only be legitimised by some form of money laundering. Because of the clandestine nature of the black economy it is not possible to determine its size and scope.


Mercado Negro, so called "Black Market", in La 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.[6]


  1. the illegal economy
  2. the unreported economy
  3. the unrecorded economy
  4. the informal economy



The "unrecorded economy" consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies.[8] 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 in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded (non-observed) economy.[11] But there is still little consensus concerning the size of the unreported economies of transition countries.[12]

The "informal economy" comprises those economic activities that circumvent the costs and are 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.[8] A summary measure of the informal economy is the income generated by economic agents that operate informally.[13][14] The informal sector is defined as the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy. In developed countries the informal sector is characterized by unreported employment. This is hidden from the state for tax, social security or labour law purposes but is legal in all other aspects.[15] On the other hand, the term black market can be used in reference to a specific part of the economy in which contraband is traded.


Goods acquired illegally may exchange above or below the price of legal market transactions:

  • They may be more expensive than legal market prices. For example, the product is difficult to acquire or produce, dangerous to handle, or not easily available legally, if at all. If exchange of goods are made illegal by some sort of state sanction, such as is often seen with certain pharmaceutical drugs, their prices will tend to rise as a result of that sanction.


Consumer issues[edit]

Global Bazaar, Scientific American[16]


  • In some[17] jurisdictions,[which?] customers may be charged with a criminal offense if they knowingly participate in the black economy, even as a consumer;
  • They may have a moral dislike of black marketing;



Traded goods and services[edit]

Some examples of underground economic activities include:

Sexual exploitation and forced labor[edit]

Main article: Human trafficking

Illegal drugs[edit]

Main article: Illegal drug trade





Prostitution is illegal or highly regulated in most countries across the world. These places form a classic study of 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.[20] 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.[21]


In other countries, such as Nicaragua, where legal prostitution is regulated, hotels may require both parties to identify themselves, to prevent the rise of child prostitution.


Main article: Arms trafficking



Illegally logged timber[edit]

Main article: Illegal logging

Illegally logged timber is a huge problem. According to Interpol, the illegal logging industry is worth almost as much as drug production industry, in some countries.[22][23]

Animals and animal products[edit]

Main articles: Ivory trade and Wildlife trade




Main article: Rum-running
Broken barrels of liquor after a police raid in 1925, in Elk Lake, Ontario



It has been reported that smuggling one truckload of cigarettes from a low-tax US state to a high-tax state can lead to a profit of up to $2 million.[26] The low-tax states are generally the major tobacco producers, and have come under enormous 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.[27] But South Carolina has so far refused to follow suit and raise taxes from seven cents per pack (the lowest in the USA).[28]


Biological organs[edit]

According to the World Health Organization (WHO), illegal organ trade occurs when organs are removed from the body for the purpose of commercial transactions.[30] The WHO justifies these actions by stating that, “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.”[31] Despite these ordinances, it was estimated that 5% of all organ recipients engaged in commercial organ transplant in 2005.[32] Research indicates that illegal organ trade is on the rise, with a recent report by Global Financial Integrity estimating that the illegal organ trade generates profits between $600 million and $1.2 billion per year with a span over many countries.


Main article: Racket (crime)

A racket is a service that is fraudulently offered to solve a problem, such as for a problem that does not actually exist, that will not be put into effect, or that would not otherwise exist if the racket did not exist. Conducting a racket is racketeering.[33] Particularly, the potential problem may be caused by the same party that offers to solve it, although that fact may be concealed, with the specific intent to engender continual patronage for this party. An archetype is the protection racket, wherein a person or group (e.g., a criminal gang) indicates to a store owner that they could protect her 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 of extortion. Racketeering is often associated with organized crime, and the term was coined by the Employers' Association of Chicago in June 1927 in a statement about the influence of organized crime in the Teamsters union.[34]

Transportation providers[edit]


Housing rental[edit]

In places where there is rent control there may be a black market for housing. For instance, in the UK there is illegal subletting of social housing homes where the tenant illegally rents out the home at a higher rent.[35] In Sweden, rental contracts with regulated rent can be bought on the black market,[36] either from the current tenant or sometimes directly from the property owner. Specialised black-market dealers assist the property owners with such transactions.[37] In India, places like Kota, New Delhi where students are coming from all over India, getting high rented PG (paying guests) or other forms of rented apartments without any taxation or regulations.

Counterfeit medicine, essential aircraft and automobile parts[edit]


Copyrighted media[edit]



The comparison to car-theft, although common, is not truly analogous. Automobile theft results in an item being removed from the owner with the ownership transferred to a second party. Media piracy is a crime of duplication, with no physical property being stolen. Copyright infringement law goes as far as to deem illegal "mix-tapes" 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 through file sharing or other means. Copyright holders also say that they did some work for creating their copyrighted material and they wish to get compensated for their work. No other system than copyright has been found to compensate the artists and other creators for their work[citation needed], and many artists do not have any alternative source of income or another job. Many artists and film producers have accepted the role of piracy in media distribution.[39] The spread of material through file sharing is a major source of publicity for artists and has been shown to build fan bases that may be more inclined to see the performer live[40] (live performances make up the bulk of successful artists' revenues,[41] however not all artists can make live performances, for example photographers typically only have a single source of income which is the licensing of their photos).


Main article: Fixed exchange rate


  • The currency is counterfeit.
  • The currency has been acquired illegally and needs to be laundered before the money can be used.[42]


In situations of financial instability and inflation, citizens may substitute a foreign currency for the local currency. The U.S. dollar is viewed as a relatively stable and safe currency and is often used abroad as a second currency. In 2012, $340 billion, roughly 37 percent[43] of all U.S. currency, was believed to be circulating abroad.[44] The most recent study of the amount of currency held overseas suggests that only 25 percent of U.S. currency is presently held abroad.[45] The widespread substitution of U.S. currency for local currency is known as de facto dollarisation, and has been observed in transition countries such as Cambodia[46] and in some Latin American countries.[47] Some countries, such as Ecuador, abandoned their local currency and now use US dollars, essentially for this reason, a process known as de jure dollarization. See also the example of the Ghanaian cedi from the 1970s and 1980s.


More recently cryptocurrencies such as bitcoin have been used as medium of exchange in black market transactions. Cryptocurrencies are sometimes favored over centralized currency due to their anonymous nature and their ability to be traded over the internet.[49]



Between the Republic of Ireland and Northern Ireland, there has often been a black market in petrol and diesel.[50][51] The direction of smuggling can change depending on the variation of the taxes and the exchange rate between the Euro and Pound Sterling; indeed sometimes diesel will be smuggled in one direction and petrol the other.[citation needed]


in countries like India and Nepal, the price of fuel is set by the government, and it is illegal to sell the fuel over the set price. Due to the petrol crisis in Nepal, black marketing in fuel has been a common trend, especially during mass petrol shortage. At times, people need to queue for hours or even sometimes overnight to get the fuel. On the other hand, the petrol pump operators are alleged to hoarding the fuel, and selling it to black marketers. Black marketing in vehicle/cooking fuel became widespread during the 2015 economic blockade imposed on Nepal. Even after the economic blockade was eased, and petrol imports resumed, people are not getting the fuel as they were supposed to and are resort to buying from the black market.

Organized crime[edit]

Main article: Organized crime


Often, certain types of illegal products are traded against one another, depending on the geographical location.[53]



Black markets flourish in most countries during wartime. States that are engaged in total war or other large-scale, extended wars often impose restrictions on home use of critical resources that are needed for the war effort, such as food, gasoline, rubber, metal, etc., typically through rationing. In most cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity.[54] One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the Ministry of Food than actually happened. Another in Britain was supplies from the US, intended only for use in US army bases on British land, but leaked into the local native British black market.

For example, in the Parliament of the United Kingdom on 17 February 1945[55]members said that "the whole turkey production of East 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 at Diss in Norfolk) was to sell live poultry to members of the public, and each purchaser would sign a form promising that he was buying the birds to breed from, and then take them home for eating.


Laws and regulations[edit]

A classic example of new regulation creating a black market is the Prohibition of alcohol. Similarly when the law disappears, so does the black market, which is why of the arguments for marijuana legalization is the elimination of the black market, and thus taxes from that economy being used by the government.

Black markets by country[edit]


In India, "black money" refers to funds earned on the black market, on which income and other taxes have not been paid. The black money market situation in India is epidemic. India currently tops the list for illegal monies in the entire world, estimated to be almost US$1,456 billion stored in Swiss banks in the form of unaccounted money.[56] According to the data provided by the Swiss Banking Association, India has more black money than the rest of the world combined.[57][58][59] Indian Swiss bank account assets are worth 13 times (1300%) the country’s national debt, and, if this black money is seized and brought back to the country, India has the potential to become one of the richest countries in the world.[60] Allegations of Indians holding trillions in black money in Switzerland are, however, in dispute. Later reports, including those by Swiss Bankers Association and the Government of Switzerland, claim that these allegations are false and fabricated, and the total amount held in all Swiss banks by citizens of India is about US$2 billion.[61][62]

See also[edit]


  1. ^ Feige, 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). 
  2. ^ “Internal Revenue Service Summary of Estimation Methods”
  3. ^ Edgar L. Feige (1989). Edgar L.Feige, ed. The Underground Economies:Tax Evasion and Information Distortion. Cambridge University Press. 
  4. ^ Feige, Edgar L. (1990). "Defining and Estimating Underground and Informal Economies: The New Institutional Economics Approach". World Development (18/7). 
  5. ^ Feige, Edgar L. (2012). pp. 239-263. "New Estimates of U.S. Currency Abroad, the Domestic Money Supply and the Unreported Economy". Crime,Law and Social Change (57(3)). 
  6. ^ Feige, Edgar L. (December 11, 2003). "Defining And Estimating Underground And Informal Economies: The New Institutional Economics Approach". World Development. Elsevier,. 18 (7): 989–1002. doi:10.1016/0305-750x(90)90081-8. Retrieved 2012-03-05. 
  7. ^ Feige, Edgar L. (1990). "Defining and Estimating Underground and Informal Economies: The New Institutional Economics Approach". World Development (vol.18, No.7): 989–1002. 
  9. ^ Feige, Edgar L. & Cebula, Richard (January 2011). "America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S.". Retrieved 2012-03-05. 
  10. ^ Feige, Edgar L. (September 2009). "New estimates of overseas U.S. currency holdings, the Underground economy and the "Tax Gap"". Retrieved 2012-03-05. 
  12. ^ Feige, Edgar L.; Urban, Ivica (2008). "Measuring underground (unobserved, non-observed, unrecorded) economies in transition countries: Can we trust GDP?". Journal of Comparative Economics. 36 (2): 287–306. doi:10.1016/j.jce.2008.02.003. 
  14. ^ Portes, Alejandro; Sassen-Koob, Saskia (1987). "Making it underground: Comparative material on the informal sector in western market economies". American Journal of Sociology. 93 (1): 30–61. doi:10.1086/228705. 
  20. ^ Lena Edlund & Evelyn Korn (2002). "A Theory of Prostitution" (pdf). 110 (1). Journal of Political Economy. Retrieved 2012-03-06. 
  21. ^ Cunningham, S., & Kendall, T. D. (2011). Men in transit and prostitution: using political conventions as a natural experiment. B.E. Journal of Economic Analysis & Policy, 11(1). doi:10.1515/1935-1682.3059
  22. ^ "Illegal logging news". Retrieved 14 September 2014. 
  23. ^ Illegal logging industry worth almost as much as drug production industry
  24. ^ Murphy, Mary (1994). "Bootlegging Mothers and Drinking Daughters: Gender and Prohibition in Butte Montana". American Quarterly. 46 (2). 
  27. ^ Matthew L. Myers (August 5, 2005). "North Carolina's Cigarette Tax Increase Is A Small Step In The Right Direction But Kids and Taxpayers Will Miss Benefits of Greater Increase". Campaign for Tobacco-Free Kids. Retrieved 2012-03-06. 
  28. ^ "State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State, 2000–2010". Tax Foundation. April 1, 2010. Retrieved 2012-03-06. 
  30. ^ Jafar, Tazeen H. (2009). "Organ Trafficking: Global Solutions for a Global Problem". American Journal of Kidney Diseases. 54 (6): 1145–57. doi:10.1053/j.ajkd.2009.08.014. 
  31. ^ Ambagtsheer, F.; Weimar, W. (2011). "A Criminological Perspective: Why Prohibition of Organ Trade Is Not Effective and How the Declaration of Istanbul Can Move Forward". American Journal of Transplantation. 12 (3): 571–75. doi:10.1111/j.1600-6143.2011.03864.x. 
  32. ^ Shimazono, Yosuke (2007). "The State of the International Organ Trade: A Provisional Picture Based on Integration of Available Information". Bulletin of the WHO. 85 (12). doi:10.1590/S0042-96862007001200017. 
  33. ^ "Racketeering". Retrieved 2012-06-29. 
  34. ^ David Witwer, "'The Most Racketeer-Ridden Union in America': The Problem of Corruption in the Teamsters Union During the 1930s", in Kreike, Emmanuel, Ed.; Jordan, William Chester, Ed. (2004). Corrupt histories. Rochester, New York: University of Rochester Press. ISBN 1-58046-173-5. 
  36. ^ 'Egalitarian' Stockholm rents feed black market, The Local, 30 Aug 2010
  37. ^ "Hyrestvåan är din för 300 000" (in Swedish, "The rental one-bedroom [apartment] is yours for 300 000 [SEK]"), Svenska Dagbladet, 5 May 2013
  40. ^ Verkaik, Robert (8 July 2009). "Illegal downloading: What happens if you're caught?". The Independent. London. Retrieved 2012-03-05. 
  45. ^ Feige, Edgar L. (2 February 2012). "The myth of the "cashless society": How much of America's currency is overseas?". Retrieved 14 September 2014. 
  50. ^ Tom Peterkin (January 31, 2006). "IRA fuel smuggling 'drove oil giants to abandon Ulster'". The Daily Telegraph. London. Archived from the original on 2011-05-01. Retrieved 2012-03-06. 
  52. ^ "Red diesel abuse costs UK millions". What Car?. Haymarket Group. November 7, 2007. Retrieved 2012-03-06. 
  53. ^ "Organized Crime: The World's Largest Social Network". WIRED. Retrieved 14 September 2014. 
  55. ^ Daily Telegraph Saturday 17 February 1945, reprinted on page 30 Daily Telegraph Tuesday 17 February 2015
  57. ^
  62. ^ "White Paper on Black Money" (PDF). Ministry of Finance, Government of India. 2012. 

Further reading[edit]

External links[edit]