THE GLOBAL BLACK MARKET
Beginning in the 1960s and largely hidden from public view, a completely new institutional support structure for transnational crime was put in place. It now consists of several million shell companies (corporations with unidentifiable owners and assets), and over 70 “tax havens,” most of them in small former British colonies and current dependencies.
This internationally distributed system evolved from the drug-related operations that British corporations took underground after the 1912 Opium Convention banned their once imperially promoted trade. Consequently, its global hub is the world’s largest offshore tax haven, The City (financial center) of London. As in the heyday of Empire, the system receives the support and guidance of its primary beneficiary, the British political elite.
Other national elites also support it because the system now manages not only the proceeds of organized crime, but “flight capital” from developing countries, the earnings from graft of corrupt officials, proceeds from the sale of natural resources stolen from developing countries, and the multi-billion dollar flow from corporate mispricing of exports and imports.
The losses to developing countries have been steep. Global Financial Integrity (GFI), a Washington-based non-governmental organization run by a former World Bank economist, has estimated that over the last decade developing countries have lost $5.86 trillion in illicit transfers.
The London-based Tax Justice Network (TJN) has estimated that offshore tax havens hold assets of over $30 trillion, with the world’s High Net-Worth Individuals owning over a third of that.
In 2010 the International Monetary Fund estimated that just the “small financial centers” (i.e. excluding Switzerland and London), held some $18 trillion in secret assets. The overall size of the underground economy is anyone’s guess but there have been expert estimates of its magnitude at the regional and national levels.
About 50 to 60 percent of economic activity in sub Saharan Africa is off the books; in the Russian Federation it is 40 to 50 percent, in China about 20 percent, the United States eight percent, and Japan six percent. The United Nations estimated money laundering in 2010 at two to five percent of global GDP: $800 billion to $2 trillion.
These criminal flows have become indistinguishable from the aboveground economy which processes electronically over $1.9 trillion per day, or nearly as much as the total annual amount of U.S. exports and imports. Much of the illicit flow is from tax havens into the aboveground economy; the available estimates do not include assets moved in the form of cash and other untraceable items, but even incomplete, they are impressive.
CORRUPTING THE UNITED NATIONS
The United Nations Conference on Trade and Development (UNCTAD) reported in its 2010 World Investment Report that the flow of Foreign Direct Investment (FDI) from Hong Kong in 2009 was more ($52.2 billion) than those of mainland China ($48 billion). Tiny British Virgin Islands had more outgoing FDI ($26 billion) than all of oil-rich West Asia ($23 billion) or the “Tiger” economies of South-East Asia ($21 billion). In comparison, India’s outflow of FDI in 2009 was $14.8 billion. As for FDI stock (cumulative total), Hong Kong was reported to have $834 billion and the British Virgin Islands $224.8 billion, dwarfing China’s $229 billion and India’s $77 billion.
UNCTAD has not updated the crime-related aspect of international investment flows since Mukhisa Kituyi of Kenya became its Secretary-General in 2013. Like UN Secretary-General Antonio Guterres, who in May 2018 made no mention of British-managed tax havens in a major speech on global corruption, Kituyi seems reluctant to call attention to London’s enormously corrupting global influence. Both men are officially pledged to act only in the interests of the United Nations but seem to have joined the throng corrupted by Britain’s criminal empire.
No UN agency has attempted even a tentative mapping of the global underground economy or tried to bring into focus the mechanisms and elite groups which launder and manage illicit money. International Conventions have been adopted against Transnational Organized Crime (2000) and Corruption (2003), but action against money laundering has been stuck at the level of intergovernmental coordination based on guidelines agreed among major industrialized countries. Most of the estimates about the flow of funds into tax havens have come from non-governmental organizations, with the World Bank and the IMF occasionally playing catch-up.
The studied neglect of a nexus of corruption that underpins the rampant growth of organized crime and the entire neo-colonial system of violence and exploitation indicates the extent to which the political systems of powerful countries have been compromised.
democracies like the United States and India the existence of that black economy is a more potent threat than any military adversary could pose, for all those who use it could be blackmailed and manipulated into antinational activities. If politicians, military leaders, or mass media personnel were trapped in this manner, the internal security of open societies would be seriously compromised.
That is especially so because the global black market has empowered three countries that have the worst anti-democratic record in the world: Britain, the architect and overall manager of the system, the kleptocracy of China, and the world hub of religious intolerance, drug trafficking and terrorism, Pakistan.
States have been very half-hearted in coming to grips with money laundering; there is no mandatory international framework of rules and regulations, and no initiative to ban shell companies or tax havens. The main vehicle for preventive action is a Financial Action Task Force (FATF) which has issued 40 non-binding guidelines.
COLONIAL SHELL GAME
Tax havens and secretive financial centers have a long history, for there has always been a need for hot money to escape the police or taxman. But what has happened since the 1960s is unprecedented. As European empires were receding from Africa and Asia, colonial arrangements gained new life as international organized crime.
Departing colonial rulers created violent proxies and the conflicts they initiated served as cover for the theft of natural resources. For no more than the cost of arms necessary to sustain conflicts the neocolonialists procured what had previously required conquering armies and civil administrations.
The “shell companies” and numbered accounts in “off-shore tax havens” have provided anonymity to the elite groups profiting from this criminality but the scale of operations leave little doubt that the people involved were – and are – part of the power structure of the former imperial Powers. Their governments have talked up the human rights agenda in international forums even as proxies committed the most heinous villainies.
HOW BRITAIN EXCHANGED ITS EMPIRE FOR A GLOBAL CRIMINAL ENTERPRISE
BANK OF CROOKS AND CONMEN
In 1972, a British national of Pakistani origin, Agha Hasan Abedi, founded the Bank of Credit and Commerce International (BCCI) in London. Staffed almost entirely by Pakistanis and calling itself a “Third World bank,” BCCI became a runaway success. It expanded from 19 branches in five countries in 1973 to 108 branches in 1976, with assets growing from $200 million to $1.6 billion. In less than two decades, it was operating in 73 countries with $23 billion in assets.
BCCI acquired other banks; created offshoots in Luxembourg and Grand Cayman; its senior staff hobnobbed with presidents and prime ministers and garnered the business of many governments. Through its Third World Foundation BCCI handed out awards to luminaries like President Julius Nyerere of Tanzania (with Indira Gandhi making the presentation), Prime Minister Zhao Ziyang of China, and Nelson and Winnie Mandela. It became the first foreign bank to open a branch in China, and as its network grew in developing countries, tens of thousands of small depositors trusted it with their life savings.
What almost nobody knew was that BCCI also held the accounts of Abu Nidal the terrorist and members of the Medellin drug cartel in Colombia. It collaborated with the governor of Pakistan’s North-West Frontier Province, Lieutenant-General Fazle Haq, who had set up hundreds of heroin processing plants close to the Afghan border and trucked their output to Karachi on military vehicles with passes issued by the Directorate of Inter-Services Intelligence (ISI), the country’s powerful spy agency. White House aide Colonel Oliver North used a BCCI account to receive funds from covert arms sales to Iran and channel them illegally to the Contras in Nicaragua.
Without requiring collateral, the bank gave out multi-million dollar loans to favored clients and its own major shareholders. It paid large bribes to get business, threw lavish parties and arranged for prostitutes and shopping sprees for rich clients. (Abu Nidal bought a tie in London.)
BIGGER CROOKS AND CONMEN
If BCCI’s regulatory authority, the Bank of England, or its auditors, Price Waterhouse and Ernst & Young, had done their job properly, BCCI would have been shown up as a classic Ponzi scheme, using deposits to pay expenses and present a show of success. After American pressure forced its closure in 1991, the bank’s auditors claimed that its operations under different jurisdictions had prevented a clear overview. Outraged depositors sued the Bank of England for a billion dollars but it dodged the bullet by invoking sovereign immunity; the auditors settled for $175 million.
The unraveling of BCCI began in the late 1980s, when a United States Customs Agent, Robert Mazur, became suspicious about the bank’s Latin American clientele. After a two-year investigation, he invited number of them and their BCCI personal bankers to a fake wedding reception in Miami and arrested them all on charges of laundering drug money. During the six-month trial that followed cooperating witnesses spilled a great deal of unexpected dirt: TIME magazine reported that BCCI had “a clandestine division ... called the 'black network,' which” functioned “as a global intelligence operation and a Mafia-like enforcement squad.” Operating “primarily out of the bank's offices in Karachi, Pakistan, the 1,500-employee ‘black network’ used sophisticated spy equipment and techniques, along with bribery, extortion, kidnapping and even, by some accounts, murder” to “further the bank's aims the world over.”
That was not the only allegation of the bank’s involvement with espionage. It had Saudi Arabia’s Intelligence Chief as a shareholder and worked with the CIA to funnel funds to the Mujaheddin in Afghanistan. Top CIA officials told a Senate sub-committee chaired by Senator John Kerry in 1991 that the agency had not been involved with BCCI’s stealthy illegal takeover of two American banks, about which it had issued written warnings.
What role MI-6 (the foreign arm of Britain’s spy agency), had in that effort and other skullduggery is hard to say, for shortly after Kerry wrote asking for information the Bank of England closed BCCI and MI-5 (the domestic twin of MI-6), sealed relevant records from scrutiny. Because of that and the “secrecy jurisdictions” from which BCCI conducted much of its business, the full story of its two decades of criminality has remained hidden.
Ironically, in the absence of verifiable information many of the people in developing countries ruined by BCCI became its defenders, arguing that the undeserved closure was to protect the underworld business of major Western banks. That cynical reading of the situation is as much a part of the BCCI story as its financial shenanigans, and perhaps more deserving of attention than anything else, for it indicates a widespread belief that the entire world order is corrupt. Opinion polls have shown consistently that politicians and big corporations have the lowest levels of public trust. Around the world, very large majorities – 75 to 90 percent of people – consider all politicians corrupt. We need to see this widespread distrust of authority in the context of the overall growth of criminality in the last century.
THE GLOBALIZATION OF CRIME
The complex criminality revealed by the fall of BCCI is without historical precedent. That is not because Abedi was particularly inventive but because crime itself was rarely transnational before the 20th Century. The corporations that spread colonial rule and ran the transatlantic slave trade committed more than their share of murder and fraud, but because the victims belonged to other nations, it fell into the category of war, not crime. Despite its inherently criminal nature, people have always considered war honorable, even at times noble and patriotic.
It was only in the 20th Century that trans-border crime came to be organized outside the framework of international hostilities, and that phenomenon did not come into focus until the United Nations began conducting global surveys of crime. It reported in 1980 that violent crime had doubled in a decade and property-related crimes had tripled. The UN reported that three types of crime had increased in nearly all countries: “offences involving violence of an organized, premeditated kind, committed usually either for substantial material gain or from a political motivation ... offences against property both State and individually owned ... [and] white-collar crime, including fraud, embezzlement, corruption, smuggling, black-market operations and crimes involving computer abuse.” Across the world, drug trafficking had emerged as the fastest growing sector of international crime.
A UN report on “New Dimensions” of criminality in 1985 said that on average international drug trafficking had increased 120 percent in five years. In the worst affected countries, it had increased by 400 percent. Rising street crime linked to addicts and murderous drug-related turf wars among gangs became political issues in the United States the world’s largest consumer of cocaine, and Colombia, the top supplier.
Meanwhile, on the other side of the world, under cover of the struggle against Soviet occupation, Afghanistan emerged as the world’s top supplier of illicit opium and heroin, eclipsing the “Golden Triangle” of Laos, Burma and Thailand that had been the primary supplier of those drugs during the Vietnam War.
Remedial actions focused initially on taking down the drug cartels in Colombia but when that was done, it was found to have no effect on the inflow of cocaine; nor did the Soviet pullout from Afghanistan reduce opium trafficking from there. On the contrary, production surged as the end of the Cold War opened up a huge new market in Russia where the Interior Ministry reported that between 1990 and 1997 the number of criminal groups had jumped from 785 to 9,000, with a combined membership of more than 100,000. Just in the city of Moscow, there were 189 criminal organizations, of which 23 had branches abroad.
Governments responded to these unprecedented developments with reinvigorated anti-crime efforts domestically, broader international cooperation and toughened punishments; but nothing had any effect. A UNESCO study on Globalization, Drugs and Criminalization during the 1990s found there had been an “explosion in the production of drugs of all kinds in every region of the world.”
The cultivation of Coca, once confined mainly to Bolivia, Peru and Colombia, had spread to other countries within the region and beyond. Opium poppy cultivation had spread to all continents. The “most lucrative markets, both for coca and opiates” were still the United States and Western Europe, but consumption was “spreading much faster ... in the new business markets of Eastern Europe and South-East Asia, and more generally in a large number of developing countries.”
The report said that revenues from illicit drugs were going not only to criminals but also to “offset budget deficits” and benefit “companies and even countries.” Laundered drug money was having “a direct effect on the heart of the economy and society (on land, property and financial assets), at the same time directly involving business enterprises and financial institutions.” An ancillary development has been deepening corruption, “capable of threatening social, economic and political development and undermining democracy and morality”
Trans-border organized crime was initially almost entirely drug-related and drug trafficking continues to account for the lion’s share of criminal proceeds, over $500 billion in 2008. Other criminal activities – people smuggling, gun-running, piracy, theft of natural resources cyber-crime etc. – are sideshows in terms of revenue. Tax evasion by individuals and corporate mispricing of trade generate a greater volume of illicit funds – see below – but they have not been treated as forms of organized crime except in their money-laundering aspect.
Mass media coverage has made it seem as if drug money goes mainly to the savage cartels and gangs that dominate production and supply. In reality, they are only bit players. The producers of cocaine in Colombia, Peru and Venezuela, the Mexican gangs that carried the drug into the United States, and those who provided transport all together got only 10 percent of the total proceeds from trafficking. Afghan opium farmers are estimated to get no more than two percent of the $60 billion earned by their product.
To understand the economics of drug trafficking and its central importance in the development of modern organized crime we must look at how opium, a minor item in intra-Asian commerce before the colonial era, became under the aegis of the British Empire, the most valuable commodity in world trade. Traditionally, Asian societies mixed opium in small quantities with food or drink on festive occasions to give people a pleasant temporary high; the diarrhea that resulted from larger doses of the drug restricted overuse.
In the 18th Century, Dutch sailors began smoking opium in their pipes to get a quick and dreamy release from hard shipboard reality, and the practice caught on among dock workers in Canton, the only Chinese port then open to Western trade. The hunger-dampening effect of the drug quickly made it popular among the poor in China, who could smoke themselves pleasantly to death by starvation.
The East India Company saw in the growing popularity of opium in China a way to end the growing drain of bullion imposed on it by Europe’s booming demand for Chinese silks, handicrafts and tea. After becoming the Mughal tax collector in Bengal in 1768 the Company began expanding opium production in India for export to China, where the demand seemed limitless. Exports grew from 280 tons in 1779 to 6,700 tons in 1879.
THE CREAM OF SOCIETY
In addition to China, opium went also to countries in South East Asia, Europe and the United States. Those profiting from the trade were the cream of European and American society. The British Crown acquired much of its current wealth from its one-third interest in the East India Company, which had a monopoly of Indian opium exports from 1757 to 1834. Other shareholders in the Company were all members of Britain’s social elite. In the United States, the “China trade” accounted for many fortunes, including that of John Jacob Astor, who at his death in 1848 was the wealthiest man in the country.
As the debilitating and deadly effects of opium smoking became widely apparent in Chinese society, Peking banned the trade and then prohibited use of the drug. These edicts proved futile, for they could not be enforced. British companies paid off corrupt Manchu officials to look the other way as they landed their drug shipments.
OPIUM WARS & UNINTENDED CONSEQUENCES
When an incorruptible official assigned to Canton confiscated and burned the opium stocks in European warehouses, the British launched the first “Opium War” (1839-1841). Peking was forced not only to lift the ban but also to cede the island of Hong Kong to Britain. A second Opium War (1856-1860) required Peking to open up the whole country to the drug trade, hold Europeans immune from Chinese law, and lift the ban on the outflow of indentured labor.
The demand for unrestricted export of Chinese workers reflected the need for cheap labor after the end of slavery in the United States. Chinese laborers built the railways, roads and other infrastructure America’s rapid industrialization, and that had unforseen consequences. As Asian immigration into the United States surged in the next few decades “Chinatowns” developed in many urban areas, and among the comforts they provided for newcomers were “opium dens.” That in itself was not a major concern to Americans, for opium was already widely available in the country, peddled by snake-oil salesmen and sold at corner drug stores under various brand names, including Heroin, the Bayer Corporation’s patented remedy for feminine discomforts and colic in babies.
What did raise public concern was the allegation, made in the most vividly racist terms by a California newspaper, that Chinese men were using opium to debauch White women. The sensational charges were debated all the way up to the United States Congress, which banned opium in 1905. Meanwhile Protestant missionaries in the Philippines (which the United States acquired after its 1898 war with Spain), had begun a campaign to stop the opium trade. Washington took up the cause as it maneuvered to distance itself from European Powers in Asia, and under American pressure, an International Opium Convention was agreed to in 1912.
A trade that had been a significant source of colonial revenues for some 150 years was thus banned; but the Opium Convention had no immediate effect because the First World War broke out in 1914 and nothing was done to enforce it. When the League of Nations tried to enforce the Convention in 1920 it was no more successful than the Manchu court in the 19th century, and for the same reason: determined British opposition.
As in the 19th Century, British traders resorted to smuggling. They enlisted Chinese Tongs (criminal secret societies) to retail the drug wherever there was a market. For the Tongs the drug trade was an attractive proposition, generating such enormous profits that the police and other authorities could be easily corrupted and even turned into active partners. For the British, the arrangement was even more attractive. Prohibition increased the market price of opium in all markets, and they could pretend to be solid law abiding burghers as they stashed away the enormous profits of drug trafficking.
In 1865, British traders in China formed the Hong Kong and Shanghai Banking Corporation (now HSBC) to do the stashing, and it is now Britain's (and Europe's) largest bank. The bank remained at the center of the drug trade as it became global; in 2012, HSBC agreed to pay a fine of $1.92 billion in the United States for laundering money out of Mexico and ignoring American sanctions on several nations, including Iran Sudan and Myanmar.
The criminal gangs that “respectable” British companies enlisted to do the dirty work served also as imperial enforcers, the “deniable” instruments of murder and riot. This empowerment of criminals set a pattern: in Egypt, the British helped established The Muslim Brotherhood in the colonized Suez Canal Zone, and it became the vehicle for "Muslim extremism" throughout the Islamic world. In Europe, the British worked with the Sicilian Mafia, an association that metastasized to the United States.
During the Cold War drug trafficking provided the “black funding” for subversion and “secret” wars the US Congress had not funded. The various ethnic mafias working closely with Intelligence agencies gained official sanction and became, in fact, the criminal arms of legitimate governments. That association is the primary reason drug trafficking has been impervious to law enforcement. It is why many veterans of the "War on Drugs" support the legalization of all drugs: that would end all trafficking by making it entirely unprofitable.
COCAINE BECOMES BIG BUSINESS
British territories in the Caribbean helped support the expansion of the drug trade to the Americas in the 1970s. The Bahamas, which gained independence in 1973 and became a tax haven with close links with London, became a key logistical center. The arrangements were made in 1979 by Carlos Lehder, a Colombian with a German father who bought a 165-acre property in the Bahamas and turned it into a refueling point for small planes smuggling cocaine from Colombia to the United States.
In very short order cocaine use in the United States went from being a high-society indulgence – described by Newsweek in 1977 as “de rigueur at dinners” of the smart set, passed around “like Dom Perignon and Beluga caviar” – to a street drug in America’s decaying inner cities.
In the 1980s cocaine replaced coffee as Colombia’s main crop and Lehder went on to become a key member of the Medellin cartel. The “Leftist” FARQ guerrilla movement took on the government of Colombia as it tried to bring drug traffickers under control, subjecting large parts of the country to a rule of terror for decades. In September 2012, weeks after the Obama administration hit HSBC Bank with the threat of license revocation, FARQ sued to end the conflict in Colombia.
That coincidence escaped the attention of mass media, which generally reported without irony that the money laundering had been a matter of managerial oversight. In a masterpiece of comic understatement an analyst on the BBC even described HSBC’s multibillion money laundering business as an “amazing lapse of concentration.” The charges leveled against HSBC resulted in a rare shift of Mass media attention the supply-side violence and criminality of the drug trade to its financial aspects. But as usual, there was little investigative zeal: no one really knows to whom HSBC handed over its drug business.
THE DISASTROUS WAR ON DRUGS
International efforts to deal with the wave of criminality let loose by drug trafficking has been a saga of continuous failure. To shore up the 1912 Convention the League of Nations adopted a number of instruments but succeeded only in spreading corruption to new areas. In 1923, a Vienna-based International Criminal Police Organization was established, but it too made little difference, especially after the Nazis overran Austria and moved the ICPO headquarters to Berlin. After a post-war cleansing the ICPO changed its name to its telegraphic address and continued to be ineffective as Interpol.
In 1961 the United Nations rationalized the various international drug laws into a Single Convention, to which a decade later was added the Convention on Psychotropic Substances (amphetamine-type drugs). By then the punitive approach had ramified widely. States were required to punish “cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, delivery on any terms whatsoever, brokerage, dispatch, dispatch in transit, transport, importation and exportation of drugs.”
The banks that have always financed drug trafficking are not mentioned in UN conventions. Their CEOs and senior managers have been magically exempt from the requirement that “imprisonment or other penalties of deprivation of liberty” be the punishment for “any other action which in the opinion of such Party may be contrary to the provisions of this Convention.”
None of the punishments has had the least effect because the enormous profits of the drug trade ensured that those imprisoned or killed could be easily replaced. In the mistaken belief that more rigorous punishments would deter trafficking the United Nations upped the ante with the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which launched the modern “war on drugs.” It imposed on States the obligation “to extradite or prosecute accused drug offenders, to provide mutual legal assistance, to cooperate in restraining and confiscating drug proceeds or property of corresponding value and to engage in law enforcement cooperation.”
The United Nations continues to hail the 1988 Convention as a “significant landmark for international cooperation in criminal matters” but its effects have been disastrous. The provisions covering “precursor chemicals” – including such common substances as acetone, hydrochloric acid and sulfuric acid – created new opportunities for organized crime. Other provisions allowed governments to ride roughshod over the right to privacy. If banks refused to volunteer financial records of clients, the police could seize them. Surveillance extended to pharmacists and employees of stores selling drug-related materials or paraphernalia in “suspicious” quantities; major retail chains were asked to participate “voluntarily” in control programs.
None of this made a dent in the drug problem, but it legitimized the practices of autocratic regimes and seriously eroded the basic norms of democratic societies. The scare tactics also allowed rogue elements in police forces and intelligence agencies to invoke the threat of drugs in mistreating, imprisoning, and murdering people with impunity. In South-East Asia and Iran, execution became a routine punishment for drug trafficking; India executed its first drug trafficker in 2012. In the Philippines under the presidency of Rodrigo Duterte (since 2016) the police have taken to murdering suspected traffickers without any legal procedures whatever.
TRAFFICKING GUNS AND PEOPLE
Two forms of organized crime, gunrunning and trafficking in people, boomed after the end of the Cold War. As major Powers downsized their arsenals by selling off millions of weapons at fire-sale prices, brokers channeled them to conflict areas in developing countries.
A UN report in 2003 said that in the decade since 1990, arms trafficked into areas of conflict in West Africa had been used to kill two million people, 90 percent of them civilians. It said that in East Africa the boom in supplies had made weapons so cheap that in Uganda an AK-47 assault rifle cost no more than a chicken. Most African conflicts were (and continue to be) “commercial wars” serving as cover for the large-scale theft of natural resources (see Chapter 10).
As adults were often unwilling to join these brutal enterprises, there was massive use of children, kidnapped and brutalized to become ruthless killers. This was not just an African phenomenon. National terrorist movements in Sri Lanka, Nepal and Colombia, and al Qaeda internationally, used children in combat, often on suicide missions. In the decade after the end of the Cold War the United Nations estimated that there were some 300,000 child-combatants overall.
Meanwhile, in Eastern Europe, a new traffic developed to supply women and children to brothels in Western Europe and Asia. The European Union estimated in 2000 that about half a million women from outside the region were working as prostitutes in its member countries and that an estimated 175,000 were being trafficked in every year. More recent statistics show a continued decline in that number.
The EU estimated that the traffickers grossed $3 billion. This was not a purely European phenomenon. In 2010 people from at least 127 countries were trapped in involuntary servitude in 137 countries. Not all trafficked people were under duress. In the Americas an estimated three million Latin Americans paid about $7 billion in 2008 to be smuggled illegally into the United States. Illegal African migration to Europe has been far less: some 55,000 in 2008, with payments to smugglers of about $150 million.
An altogether new form of organized crime developed in the last quarter of the 20th Century as governments put in place laws to protect the natural environment. With almost total impunity corporations set about breaking air and water pollution laws, ignoring guidelines for the treatment of hazardous wastes, trading in ozone-depleting chemicals and endangered species, and stealing the natural wealth of poor countries. African countries caught in conflict and thus unable to defend their territorial integrity, Somalia in particular, became dumping grounds for European toxic waste.
These crimes, even when committed entirely within one country, had international implications, for air, water and land exist in complex globally interconnected systems. The exploitation of endangered animals has been almost all transnational, for the demand for animals or their body parts is mainly East Asian, and supply comes from Africa and the rest of Asia.
The money generated by the grisly trade in tiger parts, rhino horn and elephant ivory is not large by world standards, but is enough to drive those animals towards extinction. Tiger parts are estimated to generate sales of $5 million per year. Poachers kill between 5,000 and 12,000 African elephants every year to supply the market with between 50 and 120 tons of ivory, valued at about $62 million. Rhino horn sales of some 800 kilograms generate some $8 million per year.
The trade in hardwoods is much more lucrative, and again, is largely corporate, with supplies valued at $2.6 billion going from East and South East Asia to the European Union, and another $870 million supply chain bringing stolen South-East Asian forest products to China.
Criminal counterfeiting has piggybacked on the trend to outsource production of luxury brands from the industrialized world to China. According to the World Customs Organization two-thirds of counterfeit products are shipped from China. The main market for these products is in the European Union, where vending them involves people who are themselves victims of traffickers. Based on seizures by police and consumer surveys, the EU estimates the trade at over $8 billion per year.
At the ground level those involved in these activities continue to be the minimally functional and violent individuals who have always gravitated towards crime; but those at the organizational level are no longer the snatch-and-grab captains of earlier generations.
A UN report on the State of Crime and Criminal Justice Worldwide in 2000 noted that in response to “changing structures of trade, finance, communication and information” criminals had become businessmen. They had “established networks in their home countries as well as abroad in an effort to carry out activities more effectively in both licit and illicit markets” and were “able to infiltrate financial, economic and political systems of countries all over the world.” They had “adopted corporate-like structures ... employing highly skilled persons and mechanisms to assist in generating and concealing profits.
In addition, much like organizations in the legitimate economy” criminals were adapting to changes in market conditions, reorganizing their operations to counter police strategies and coming up with new derivatives to meet consumer demand. Law enforcement personnel were “struggling to contain the new diversity of criminality” which was increasingly “a genuine threat to the international community.”
In October 2010, an independent expert appointed by the Human Rights Council in Geneva told the UN General Assembly that anti-drug measures were both unfair and destructive. That view is gaining currency among expert analysts and honest people in the front lines of the “War on Drugs.” There has been a rising volume of criticism of a policy that has not only been wholly counterproductive, but the cause of many other problems. An increasing number of those involved in the “War” have been questioning its basic premises. Is prohibition the best approach to reducing drug use when it is the primary reason for cheap vegetable products becoming astronomically priced and serving as an incentive for criminal gangs to get involved in their production and sale? Why focus billions of dollars on fighting the so-called “illicit drugs” when the “legitimate drugs” tobacco and alcohol cause so much more harm? According to the World Health Organization (WHO), of the two billion people who drink alcohol 76.3 million have “diagnosable alcohol use disorders.” There is also “a causal relationship between alcohol consumption and more than 60 types of disease and injury. Alcohol is estimated to cause about 20 to 30 percent of esophageal cancer, liver cancer, Cirrhosis of the liver, homicide, epileptic seizures, and motor vehicle accidents worldwide.” Tobacco is also vastly destructive. Used by a billion people, it is the world’s leading cause of preventable death, taking 5 million lives every year. In contrast, the high-end estimate of the number of those who use the “illicit drugs” (opium, heroin, cocaine and amphetamines) – counting everyone who used one of them at least once in the preceding year – is under 150 million. Between 15 to 19.3 million use cocaine; between 12.8 and 21.8 million use opiates; and between 13.7 and 52.9 million use amphetamines. The most widely used “illicit drug” is cannabis: UNODC estimates that it was smoked “at least once a year” by 130 to 190 million people. Given those statistics, it is hardly surprising that advocates of prohibitionist policy never try to argue that narcotic and psychotropic drugs are more destructive than alcohol or tobacco.
Over the past two decades, there has been a growing demand that governments move away from prohibitionist drug policies because they only create lucrative markets for organized crime. In recent years, some European countries have quietly moved to decriminalize drug use; others have eased enforcement of drug use laws. In 2003, a committee of the European Parliament called for a wholesale reversal of prohibitionist policy. It said the “policy of prohibiting drugs, based on the UN Conventions of 1961, 1971 and 1988, is the true cause of the increasing damage that the production of, trafficking in, and sale and use of illegal substances are inflicting on whole sectors of society, on the economy and on public institutions, eroding the health, freedom and life of individuals.” The “massive deployment of police and other resources to implement the UN Conventions, production and consumption of, and trafficking in, prohibited substances have increased exponentially over the past 30 years, representing what can only be described as a failure, which the police and judicial authorities also recognize as such.” The committee’s recommendation had little impact on policy or the perceptions of mainstream media. The UN Office on Drugs and Crime cannot act on the recommendation for prohibitionist international law frames its mandate.
The general institutional reluctance to address the issue should be taken as an indication of the extent to which the global underground economy is tied into the world’s aboveground power structure. More direct evidence of those ties can found in the numerous drug-related cases of corruption involving police, military, judicial, banking and political personnel. In the case of Afghanistan, Colombia, Equatorial Guinea, Jamaica, Mexico and Pakistan, those links have become international threats. The swift recovery of major Banks from the global financial crisis of 2008, and the resumption of massive “bonuses” to their senior staff should also be taken as an indication of the extent to which the black economy has penetrated the core of the world’s financial system. “These are not boom times for financial firms,” The New York Times reported in October 2010. “Trading is down and new regulations threaten to take a bite out of future profits. Some firms have been handing out pink slips. Morgan Stanley even posted a loss in its last quarter. Yet, Wall Street pay seems to defy gravity. Bonuses will be up this year ... overall compensation in financial services will rise 5 percent, with employees in some businesses like asset management getting 15 percent.” In 2010, with the national economy in doldrums and unemployment at 10 percent, Wall Street’s 35 major financial institutions paid out $144 billion in bonuses to its senior staff. The criminal underground economy was taking care of its own.
Corruption has spread widely from the corporations directly engaged in the operations of the global black market; the “independent” watchdog firms auditing their books have been sucked into the sleaze. The consolidation of the auditing industry into five giant firms in the 1990s facilitated the hiding of crooked operations. After the Enron Corporation filed for bankruptcy in December 2001 and investigators found that the firm listed seventh on Fortune magazine’s list of top American businesses had been a complex shell game, its auditor, Arthur Andersen, also came in for close examination. The company collaborated in the swindles perpetrated by Enron and systematically destroyed documents in its Atlanta offices to prevent discovery of the extent of its criminality. When David B. Duncan, Andersen’s lead partner on the Enron account was called to testify before Congressional committee he invoked his Constitutional right not to incriminate himself and remained silent. Andersen was punished by being disbanded, but nothing really changed, for its staff and business were absorbed by the other four giant auditing firms. Each one of them has a record of convictions for malfeasance and/or out of court settlements ranging into the hundreds of millions of dollars.
When both oversight and enforcement machinery has been corrupted beyond redemption it is futile to call on governments to implement the UN Convention against Corruption adopted in 2003, as the UNODC did in its main submission to the 12th Congress on Crime Prevention and Criminal Justice in April 2010. The document, which made only passing references to money laundering, nevertheless urged governments to act against “informal money transfers (hawala), offshore banking and the recycling through real estate that make it possible to launder money.” In particular, it said, “governments and financial institutions should implement Article 52 of the anti-corruption Convention” requiring them to “know their customers, determine the beneficial owners of funds and prevent banking secrecy from protecting proceeds from crime.” The report reflected a fond belief that rules and regulations can redirect market forces, especially those under the control of criminals: it is axiomatic that any such effort will only result in more corruption and economic inefficiencies, for effective laws and regulations must be narrowly defined, making it possible for fluid economic forces flow easily around or through enforcement machinery. UN analysts seem determined to ignore the fact that economic problems must have economic solutions, and that the most that governmental policy can do is ensure that there is a premium on honesty instead of corruption.
An Effective Strategy on Crime
The problems described in this chapter cannot be resolved piece-meal; nor can we craft effective policy without an understanding that the world is in its current deplorable state because of deliberate policy. A very powerful and corrupt elite group profits from international crime. It is futile to adopt a Convention on Corruption when a multi-trillion dollar black-market economy is sustained by and benefits global power elites. A prohibitionist drug policy will not work for the simple reason that it will always be self-defeating: by making the drug trade enormously profitable, it ensures that organized crime and corrupt elite groups will collude in trafficking. A far more effective strategy would be to drain the profitability of the drug trade and thus remove the incentive for criminal involvement. If corporations are prevented from entering the market for narcotics and psychotropic drugs, the problem would rapidly dwindle to its public health aspect, the treatment and care of addicts. This can be achieved by decriminalizing all drugs and making them available by doctors’ prescription at less than the cost of production. As the end of alcohol Prohibition did in the United States, that will immediately knock the criminal element out of the picture. A new international Convention could prevent corporations from entering the field and establish the system to distribute drugs noted above.
To deal with the underground economy, governments should adopt a multi-pronged approach to: (a) Eliminate shell corporations by requiring all beneficial owners to be registered with real addresses and contact information. (b) Adopt an international convention to eliminate all income taxes. (c) Shift from the current rampantly corrupt system of tax-based national budgets to project-based funding, with specific bond issues supporting clearly defined activities. It should also be possible, within the new framework for international cooperation recommended in the final section of the book, to move towards a uniform system of corporate governance to remove the incentive for manipulating trade revenues. In sum, these measures would eliminate the underground economy. However, none of these changes is likely to happen without civil society taking the initiative. There is need for activists around the world to cooperate and coordinate in pressing for broad changes in how the world conceptualizes and deals with organized crime.
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