Much trade occurs outside formal law enforcement, even in highly developed economies. We explain the persistence of informal trade in countries with high institutional capacity by showing that extensive informal markets may be in the government's interest. We develop models of enforcement when trade is subject to predation. Private monopoly enforcement competes with self enforcement on the one hand and State enforcement on the other hand. Operating in parallel formal and informal markets, State and private enforcement are ordinarily stratetgic complements in our model. State policy aimed at shrinking grey market or illegal exchange can often be perverse.