Business And Crime Trade And Trafficking
Antonio Maria Costa
Executive Director
United Nations Office on Drugs and
Crime
International conference on
TRAFFICKING:
Transnational Crime and International Terrorism
International Scientific and Professional
Advisory Council
of the United Nations Criminal Justice Programme (ISPAC)
Courmayeur, Italy, 6 December 2002
Mr. Chairman,
Ladies and Gentlemen,
I wish to thank ISPAC and the Fondazione Courmayeur on three accounts: for (i) the wonderful hospitality in such (ii) a beautiful place, and for the opportunity to address (iii) the important issues on the agenda of the Conference. In other words, we are being offered a great convivial pleasure, together with plenty of delight for the eyes and excellent food for thought.
It is indeed a great intellectual stimulus to be with you. The wealth of knowledge on crime and trafficking you all have accumulated is impressive. If we could tally it all up, I believe we could show that in this Hall contains several centuries of individual work on the two topics that underpin todays agenda: (i) the ways and the means to preserve honest practices in business and trade, and (ii) what we all can, and should do to fight the dirty dealings of crime and trafficking.
The organizers apparently thought that my professional experience could provide a platform to introduce the debate. I thank them for their trust and will do my best to stimulate discussion in a provocative, though constructive way. My approach will be broad, as my perspective is wide-ranging. I came from the world of economics and banking, having worked at the United Nations in New York (on development issues), then at the OECD in Paris (on structural questions), later on at the European Commission in Brussels (on integration matters), and finally at the European Bank in London (the investment house in transition economies). In May I took office as the Executive Director of the United Nations Office on Drugs and Crime, whose name speaks for itself regarding the mandates we address. Given this, I was glad to accept the invitation by ISPAC to address this Conference.
I will start with business and crime, asking a rhetorical question: are there sharp borders separating the one from the other?
Yes, I believe that there are clear-cut differences between them, although the borders between them should be harder to trespass and better patrolled. In fact, we cannot honestly claim that all business is honest and all white-collar work clean. Not that fast. Criminals do not always wear dark sunglasses, look smart in crocodile-leather shoes, or sport tightly fitted coats with swollen rear pockets. In this age of greed and cynicism the behavioural boundaries between business activity and dishonest dealings have become blurred. It is our role and responsibility to re-draw them, with more efficient controls and tougher policing.
The vast majority of business is of course healthy in its conduct and correct in its performance. Most countries national income is the sole result of innovation, inspiration, perspiration and risk-taking. Only a small percentage of earnings have origins in the dark alleys of organized crime: no more than an estimated 2-3 percent of global income. Of course, in some countries this percentage is higher, at times much higher than in others. Worldwide, the absolute magnitude of the illegally earned income is significant, estimated at $800 billion, perhaps up to $1 trillion with a third of it generated in narcotic-related activities. The other major source of criminal income is from the trafficking of human beings (almost one million people trafficked per year, without counting the much more significant scourge of smuggling of migrants). Major money makers are also gambling, loan sharking and commerce in counterfeited goods. The illegal trade in arms and smuggling of other commodities complete the picture of trans-national criminal activities.
Todays meeting is about fighting the origins of this criminal income, and its trafficking. Before I venture into this territory, which represents an important segment of our work in the Office on Drugs and Crime in Vienna, I wish to address a related matter: the importance of fighting business activities that, although formally legal and apparently honest, in effect are neither.
Economic historians have gathered evidence that many of todays respected businesses have been built upon yesterdays corrupt, at times violent practices.
Unfortunately, the trend continues. How many legitimate enterprises are today flourishing supported by market misbehaviours such as restricted business practices, price fixing, inside information, and the like? How many shareholders have been robbed of their equity, how many retired workers lost their pension rights because of dubious, even criminal management? How many countries assets have been stolen by corrupt leaders, then invested in bona fide securities around the world? How often has the financial sector been the conduit for hiding assets illegally acquired, turning them into fully acceptable investment means elsewhere?
Retaliation has often come with a vengeance. It is not rare nowadays to see yesterdays successful business leaders and prominent politicians, photographed in black-and-white striped suites (Europe), orange uniforms (US), or grey kimonos (Japan), sitting handcuffed at court hearings or heading towards public jails.
More of these pictures are yet to come. The recent decline in stock markets, worldwide, was determined by the highly predictable correction of earlier excessive valuations. Nevertheless, serious white-collar crime in the management of some large corporations on both sides of the Atlantic and of the Pacific has caused a concurrent crisis of confidence in the integrity of business, thus exacerbating the share values plunge.
When unethical business practices are widespread, questions are asked about the integrity of the system, and the robustness of the moral principles that guide the players therein. Should we despair? Not at all. But, as with our personal religious beliefs and ethical principles, we need to work hard to keep the faith.
Churchill once stated: "democracy is a very bad political system, if it were not for the fact that all others are even worse systems." The same is true of the market economy and of capitalism. In this day and age, we have plenty of evidence that all other economic systems have failed: they have either disappeared or have reconverted to the liberal system.
Instead, capitalism has brought wealth -- yes, unevenly distributed wealth, but a lot of it to all societies. Statistics speak loudly. The economies that have been more open and better integrated into world markets have performed better than those that have remained in state hands, unable to reap the benefits of private enterprising and free trade[1]. Capitalisms relative success, empirically verified, has provided the grounds for its legitimacy, most visibly of course in times of economic prosperity.
Yet, from both a moral and an operational viewpoint, all societies need to do something about the frequently heard accusation that the line between legitimate search for profit and criminal greed in too many instances proved to be a thin one. According to Peter Nove, from the Fraud Investigation Department of the City of London" many major crimes are committed solely for profit. In this respect, criminals are like businessmen. It is often only the methods employed that set the two apart". [2]
Organized crime is a world in itself, with its own operating rules, financial intermediaries, trafficking routes and market sharing arrangements. It is both organization and state of the mind. The former (organization) facilitates the establishment of "families" and clans; it promotes international arrangements, alliances and united fronts. The latter (the mind set) fosters fresh entries and start-ups, launching better products and charting new territories.
If we leave aside the shedding of blood and the raping of moral principles, in analogy to von Clausewitzs definition of war we could define "organized crime" as "business conducted by other means"[3]. Indeed, criminals who are interviewed on their motivations, often describe their occupation as "doing business".
What then are these "other means", used by organized crime? The two operational features that distinguish organized crime are intimidation and violence used to acquire, maintain and expand market shares.[4]
Before talking about mafia and syndicates activity, let me note that there is plenty of legitimate business that uses intimidation and violence to the advantage of their market shares. Think, for example, of companies with monopoly status or those engaged in price fixing. Arent their behaviours a form of intimidation against competitors, suppliers or clients? Or think of brokerage firms that exert the psychological violence of false market analysis to salvage themselves from exposed equity positions, or to avoid unbearable margin calls, or simply to protect unworthy business from which they can then extract premiums and commissions. In fact, the credibility of the market system was severely hurt by improper business activity which, during the stock market upswing of 1995-2001, expropriated several hundreds billions dollars -- yes!, an estimated $240 thousand million worth of income from investors and workers.
Then, what separates organized crime from such white-collar crime? Organized crime usually challenges two prerogatives of a modern state: the right of taxation and the right to use force.[5] When the institutional power is weak, organized crime can establish a state within the state, running a parallel regime for (certain) sectors of society, applying the rule of the strongest. It is gun enforcement, not law enforcement.
Dishonest business, on the other hand, while formally respecting the rule of law and the authority of the state, violates the self-regulating forces of the market. It breaks the rules of trust established by society, including those set by the business community itself. It is a (modern) form of (ancient) seignorage, a hidden taxation on certain segments of society.
Some countries have at times even sanctioned these behaviours, for example by establishing one set of rules for domestic business and another set for foreign business. Until not so long ago, offering bribes or paying secret commissions to foreign officials in exchange for preferential treatment and business contracts was seen as permissible. It was even tax deductible in some countries.[6]
Honest and legitimate business stands at one side of the spectrum of economic activity. Organized crime stands at the other end. Legitimate, but dishonest business behaviours are in the middle. Corruption is a common denominator. Hopefully, this will come to an end, as ever higher standards and better norms are demanded by voters and taxpayers. The international community is now working on a UN Convention against Corruption, following in the footsteps of the December 2000 Convention against Transnational Organized Crime.
Negotiations on a new Convention against Corruption are presently being conducted in Vienna, supported by my Office. More than two dozen countries have offered proposals on how to attack public and private corruption. They have also suggested preventive measures and methods of asset recovery. I am happy to inform you that we are making very good progress and hope to complete negotiations on the Convention against Corruption by the end of next year. We also hope that in 2003 the Convention against Transnational Organized Crime will enter into effect. At the moment over 30 countries already ratified it (a minimum of 40 are needed).
The fight against corruption is more than just cleaning up business and making organized crime more difficult. It facilitates the flow of development aid and foreign investment.[7] At the World Summit on Sustainable Development in Johannesburg last August, I stressed that development cannot cruise safely, it cannot even take off unless the problems of good governance and the rule of law are also addressed. These concerns are at the heart of my Offices mandate, which focuses on combating crime, narcotics, terrorism, and trafficking.
My first conclusion can be summarized as follows. Beauty is in the eye of the beholder. Similarly, the line between legitimate and honest business on the one hand, and dirty criminal activity on the other is difficult to define: yet the line is there and needs to be respected. The capitalist system cannot exist without ethics and integrity. If business leaders cannot guarantee honesty and transparency, the mechanism of checks and balances that governs our democratic society must allow the shares values of companies that do not behave to plunge, into bankruptcy if necessary. Business is built on trust. The Organized Crime and Corruption Conventions negotiated at the United Nations need to enter into effect soon, with teeth to guarantee that business integrity cannot be challenged with impunity.
Having discussed the interface between legal and illegal (even criminal) business, let me now turn to the dichotomy between trade and trafficking. Trade is legitimate if (i) it concerns licit goods and services; (ii) it adheres to the laws of trading (exporting and importing) countries; and (iii) it abides by the rules of arbitration bodies such as the World Trade Organization. Trafficking, on the other hand, takes place in criminal markets, and/or for illicit objects, irrespective of any rules.
We can distinguish two forms of trafficking[8]:
It is the state, and in a growing number of cases, the international community of states which decides whether a commodity or its trading are legal or not.
The UN Office on Drugs and Crime is very familiar with drugs trafficking and has fought it for a quarter century. We have measured the huge resources it generates, inside (farmers and petty criminals) and outside (traffickers) the countries where the relevant raw and/or semi-processed materials are produced (opium poppies in Central Asia, coca leaves in the Andean region and amphetamines type stimulants, ATS, in South Asia). We have verified that some of the profits are used to wage war, to protract regional conflicts and humanitarian crises, and to foment terrorism. We have learned of efforts by criminal gangs to trade million of dollars in cash and narcotics for arms. There is evidence that even weapons of mass destruction (chemical, bacteriological and nuclear) have been looked for, and negotiated, in exchange for narcotic money.
Countries like Colombia, Afghanistan and Myanmar have paid -- and continue to pay, a terrible price because of the production of cocaine, heroin and ATS. The drugs and the income they generate are harming other societies as well.
From Asia to Latin America, from the Balkans to the Caucasus and Africa, drugs have been traded for arms. In parallel to this Conference, a group of experts are drafting a legislative guide for the promotion of the ratification and implementation of the UN Protocol against Illicit Manufacturing of, and Trafficking in Firearms. This is the third expert group we have managed to put together. Similar meetings have been held in Vancouver and in Paris for the elaboration of legislative guides for the Palermo Convention and the Protocols on Trafficking in Persons and Smuggling of Migrants, respectively. We hope that the work of this expert group will facilitate the ratification of this vital addition to the Palermo Convention.
Guns are used in crime and in armed conflict. Small arms and light weapons are big killers: some 300,000 people are killed by them every year across the globe. There are up to 600 million such arms in circulation worldwide, one gun for every ten persons on earth.
The word circulation is indicative of the trafficking that takes place -- when one conflict comes to an end, the weapons are sold to the next conflict to harvest death and destruction in yet other killing fields. Of 49 major conflicts in the 1990s all but two were waged with small arms as the main weapons.[9] Some 4 million people died in these conflicts, the majority of them civilians.[10] The worst killing has taken place in Africa, where natural resources are both the prize and the exchange commodity for arms.
Despicable as the arms trafficking is, more shameful is the trafficking in human beings. It is estimated that up to two million people annually are victims of this modern form of slavery. One million of them, mainly girls, are still children. It is very urgent that the Protocol to Prevent, Suppress and Punish Trafficking, Especially Women and Children is ratified by all states. Twenty ratifications have been deposited; we need another twenty for this Protocol to enter into force.
Whether it is drugs, arms, or human beings -- trafficking often takes place by means of the same containers that carry most of world trade. About 200 million containers cross the seas every year -- a figure likely to double in ten years. At present, only about two percent of them are opened to find out whether the cargo meets the description in the bill of lading. Here we face a dilemma: most trade is run on a "just in time" delivery, in order to keep stocks and storage costs low. Intrusive and extensive controls in search of illegal merchandise would slow down world trade considerably.
We therefore need profiling and risk analysis schemes as well as state-of-the-art inspection methods to combine the need for efficient world trade with the imperative of safety and security. My Office is currently working together with the World Customs Organization and other agencies to develop a pilot programme for ports, airports and containers control. We will test this pilot in key ports in Asia, Latin America and Africa.
Adam Smith spoke of the invisible hand of the market. Yet, a market economy also needs the visible hand of the state and the community of states, to set and enforce the ground rules for business and trade. The 1990s have been characterized by: (i) the transfer of assets from the public to the private sector; (ii) a reduced role for the state in regulatory activities; and (iii) global market liberalization.
The world economy is benefiting enormously from these changes. Yet, as ever in human behaviours, this has not come without a price. (i) The enormous assets privatisation of the recent past was not always carried out in a transparent manner. In some cases -- most notably, in Eastern Europe and the former Soviet Union -- it has played into the hands of organized crime. (ii) The reduced regulatory activities, and the benign neglect of their importance have facilitated white-collar crime. (iii) The global lowering of international barriers has brought along ever more insidious forms of trafficking -- from narcotics to arms and people.
Criminal markets can be created, but also dismantled by individual government measures. This is welcome, but not efficient. Crime and trafficking tend then to move to neighbouring states, unless measures are undertaken and implemented on an international, preferably global level. This is the essence of the work of the United Nations Office on Drugs and Crime in Vienna. There is where the international community can agree on common standards of behaviour to fight uncivil society. There is where the custody of such agreements is located.
My second final conclusion is easily sketched out. Business can be the art of the possible, the creation of something out of nothing. I believe that, collectively, we should set our goals for a civil society a bit higher. Good business and fair trade need to be conducted with integrity, on the basis of accountability and fair play. They must serve the private as well as the public interest, in all countries. Let us join forces to accomplish just that.
Thank you for your attention.
[1] Havard Hegre, Ranveig Gissinger and Nils Petter Gleditsch. Globalization and Internal Conflict. Forthcoming chapter in Gerarld Schneider, Kathrerine Barbieri and Nils Petter Gleditsch (Eds.) Globalization and Conflict. Boulder, Colo., Rowman & Littlefield, 2002; quoted from World Bank Research Working Papers, at <http://www.worldbank.org/programs/conflict/topic/13188/library/doc?id=15099>, 9/22/02.
[2] Peter Nove. Underground Banking Systems. ICPR, July-August 1991, p. 7.
[3] Alfred McCoy. Organized Crime in Australia. In: R.J. Kelly. Organized Crime: A Global Perspective. Totowa, N.J., Rowan & Littlefield, 1986, as quoted in Patrick J. Ryan & Robert J. Kelly. An Analysis of RICO and OCCA: Federal and State Legislative Instruments Against Crime. Violence, Aggression, Terrorism, Vol. 3, Nos. 1-2, 1989, p. 60.
[4] cit .C.J. Wiebrens and A .Roeell. Ondernemen in de onderwereld. Justitiele Verkenningen, Nr. 2, 1988.
[5] Frank Bovenkerk. Misdaadprofielen. Amsterdam, Meulenhoff, 2002, p.21.
[6] Vincent Cable. Globalization and Global Governance. London,, Royal Institute of International Affairs, 1999, p.116.
[7] UN Conference Calls Attention to World Poverty. CSIS Globalization org, 4/1/2002, as quoted at http://www.globalization101.org/news.as?NEWS_ID=28.
[8] Petrus C. Van Duyne. Crime Enterprises and the Legitimate Industry in the Netherlands. In: C. Fijnaut and J. Jacobs (Eds.). Organized Crime and its Containment: A Transatlantic Initiative. Deventer, Kluwer, 1991, pp. 56-57.
[9] Idem. ADD Stuff on 3rd protocol.
[10] U.S. Department of State. International Information Programs.21 August 2001. UN Small Arms Conference a Success, U.S. Official Says. By Merle D. Kellerhals, Jr., Washington File Staff Writer.