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Diplomacy in Action

Dynamic Threat Mitigation: Combating Transnational Threats and Dismantling Illicit Networks--The Role of Corruption Nodes

David M. Luna
Director for Anticrime Programs, Bureau of International Narcotics and Law Enforcement Affairs
APEC Anticorruption Task Force Meetings
February 26, 2009


As prepared

At the APEC Summit in Lima, Peru, November 19-23, 2008, APEC Leaders in the declaration recognized “that when criminal entities collude with corrupt public and private sector officials, it results in a culture of impunity and financial exploitation of the legitimate economy. Moreover, APEC Leaders “agreed to leverage [their] collective will to combat corruption and related transnational illicit networks by promoting clean government, supporting public-private partnerships, fostering market integrity, and transparent financial systems. . . .[and] recognize[d] that the criminalization of corruption can facilitate greater regional cooperation.” Similarly, APEC Ministers echoed this commitment and agreed to “dismantle transnational illicit networks and protect our economies against abuse of our financial system by corrupt individuals and organized criminal groups through financial intelligence and law enforcement cooperation related to corrupt payments and illicit financial flows.”

Executive Summary

Increasingly, illicit activities across the borders and communities of APEC economies not only adversely impact our joint security and economic health but contribute to a thriving illicit underworld operated by powerful and violent criminal and kleptocratic networks. These illicit criminal-kleptocratic pathways pose an immediate threat to public trust, and core democratic and free market values, especially in the midst of one of the most serious global economic and financial crises in decades. Enterprising illicit actors are smuggling billions of dollars of illegal goods into our jurisdictions – from trafficking in drugs, arms, humans, natural resources and endangered wildlife parts to the smuggling of counterfeit medicines and pirated software, to the laundering of embezzled public funds – creating insecurity, costing our economies jobs and tax revenue, endangering the welfare and safety of our families and communities, and effectively bypassing law enforcement countermeasures. While there are no reliable statistics, the World Bank and International Monetary Fund (IMF) estimate roughly that the cross-border flow of global illicit proceeds (money laundering) related to corruption, criminal activities, and tax evasion is about 3-5 percent of the world’s Gross Domestic Product (GDP) or between approximately $2.17 and $3.61 trillion a year (using the World Bank’s 2007 global GDP estimate of $72.4 trillion). As today’s transnational illicit threats continue to expand, poor governance and weak institutions will enable corrupt officials, criminals, insurgents and terrorists to operate with impunity. The challenges to freedom and security – whether emanating from crime or extreme radicalism, aided by enabling and supporting illicit power structures and safe havens -- can no longer be ignored.

The United States is committed to working with our APEC partners and the international community to strengthen law enforcement cooperation in combating transnational threats including dismantling illicit networks, prosecuting high-level corrupt officials, and disrupting the convergence of various threat networks. In his inaugural address, President Barack Obama highlighted the threat of combating high-level corruption, and we are determined to strengthen global partnerships to confront many of the related threat networks and challenges that we face today.

Since the ACT Task Force came into existence, APEC Leaders and Ministers have continually applauded our efforts to combat corruption, money laundering, and illicit crimes including encouraging all economies to implement the UN Convention against Corruption, deny safe haven to corrupt individuals, and strengthen cooperation on a number of important anticorruption areas such as asset recovery, mutual legal assistance, and extradition. From preventing, investigating, and prosecuting corruption, today APEC is a global leader in developing innovative approaches to fighting corruption. For example, in 2006, under Vietnam’s leadership, the APEC ACT Task Force expanded its work to more fully integrate public-private partnerships into our strategies to combat corruption and promote good governance. In 2007, Australia promoted Codes of Conduct and complementary Anti-Corruption Principles for business and government officials. Moreover, APEC economies such as China, Indonesia, Korea, Mexico, Peru, Russia, the United States, and others, continue to make anticorruption a top priority.

As we have underscored in our important work in the APEC Anticorruption Task Force over the years, international legal cooperation is essential in the prevention, investigation, prosecution and punishment of serious corruption and financial crimes as well as the recovery and return of proceeds of corruption. As outlined in the December 2008 Independent Assessment of the Anti-Corruption and Transparency Task Force (Report to the APEC SOM Steering Committee on Economic and Technical Cooperation), and consistent with the ACT Course of Action (Santiago Commitment) and other high-level statements and commitments, we must work to develop a strategy for cooperation with other APEC fora on such issues as the linkages among corruption, money laundering and illicit finance, counter-terrorism, and other regional threats related to criminal and illicit activities.

Particularly during the current global economic downturn, efforts to ensure the stability of the world’s financial systems and guard against the threat convergence of corruption, money laundering, organized crime and terrorist financing are vitally important. We hope that we can continue to stand together and strengthen our work in APEC to dismantle transnational criminal networks in the region, address the growing illicit trade and governance challenges, and combat corruption and those who corrupt our institutions in a manner that weakens our shared prosperity, security, and stability.

APEC's 21 Member Economies, and participants in the APEC Anticorruption Task Force, are: Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.


As we have focused in our work in the APEC ACT Task Force, corruption lies at the heart of transnational crime’s ability to thrive. International criminals have tremendous financial resources, and they spare no expense in corrupting government and law enforcement officials.

Threat Convergence and the Expansion of Illicit Trade

Since the end of the Cold War, we have seen international organized crime groups continue to branch out beyond their traditional parameters. Major international organized crime groups have become even more global in their reach, expanding geographically, diversifying across criminal markets, and pioneering increasingly sophisticated cyber and financial crimes. Crime groups’ expansion is perhaps most visible where so-called “iron triangles” form – where corrupt business leaders, corrupt government officials, and organized crime groups work together to subvert economies and public institutions.

For example, drug cartels that have long been a key security threat in the Western Hemisphere, are now brazenly expanding their illicit operations beyond traditional areas and sectors of operation. Multi-ton shipments of cocaine from Latin America now flow through West Africa as a transit/staging area for moving the product to Europe and Asia and other regions. At the same time, Latin American drug traffickers have recently been spotted moving cocaine and heroin as far away as South Asia, China and other parts of the Asia Pacific region. West African trafficking organizations have long been involved in heroin trafficking throughout Asia, but have moved into the cocaine trade as well. At numerous points along the illicit routes across our economies, these criminal organizations have corrupted border police and law enforcement officials. Narcotics groups have also expanded into human smuggling, whether engaging directly in smuggling people or taking tribute from traditionally less violent human smuggling organizations.

In today’s globalized world, it is becoming clearer that no region is immune from the consequences of transnational crime and corruption. Illicit actors and corrupt officials undermine our joint security, destabilize communities and entire economies, and cast a shadow of lawlessness that erodes public trust and core democratic values in government institutions. Moreover, transnational illicit actors can capitalize on political and economic turmoil to amass wealth, while fueling further insecurity, chaos, and lawlessness.

This is particularly worrisome in many parts of the world where economies may neither have the capacity, resources, or political will to counter these threats and enforce the rule of law. In a perfect storm, the confluence of illicit networks and corruption in an enabling environment could facilitate not only the movement of drugs, arms, stolen or pirated goods, and trafficked persons, but also smuggling of terrorists, Weapons of Mass Destruction (WMDs) and WMD materials, and other dangerous weapons and technologies that threaten our common security. The threat from the proliferation of dangerous materials and technologies remains a real concern to all of our economies.

Poly-Criminality and Digital Crimes

Many criminal groups have entrenched themselves in so many various criminal activities that they can no longer be identified by a certain criminal specialty. “Diversification” seems to be the way to go. Traffickers previously specializing in methamphetamines, for example, now use their trafficking methods and networks to smuggle humans or exotic wildlife. Drug cartels are now involved in IPR piracy and human smuggling, even “branding” their illicit products with cartel symbols. Digitalization of all kinds of information has created lucrative new vistas for human smugglers involved in fraudulent documents, corrupt public officials, money launderers, drug smugglers, and those who facilitate terrorist travel. Transnational mafias are involved in financial fraud schemes. The interwoven strands of such illicit and criminal transactions make it almost impossible to separate one from the other.

Furthermore, transnational criminals are not only expanding into multiple criminal activities, but are also pioneering new, more sophisticated types of criminal operations. Among the hottest today include cyber crime, identity theft, financial fraud, on-line gambling (money laundering), and IPR piracy. Cyber and financial crimes are becoming more prevalent throughout the world as criminals have become more computer-savvy, capitalizing on the absence of regulation and law enforcement entities’ failure to adapt to apparent “digital safe havens” and expanding through recruitment of young “techies” into their criminal organizations.

The overall economic impact in the Asia-Pacific region is alarming, especially as cybercrime threats continue to increase and as organized criminals reap billions from identity theft and extortion. In one example of the intersection between organized crime and cybercrime, authorities revealed in 2008 that traditional Eurasian organized crime figures – previously arrested for crimes such as extortion, drug trafficking, and human smuggling – are collaborating with other criminals to recruit young hackers into “cells” based on their cyber-crime specialty. In a world of instant connectivity, these “cells” then routinely target businesses and citizens in a variety of fraud schemes. Criminals and other illicit actor also continue to leverage low-tech but highly effective ways to launder their ill-gotten gains through “e-money” or “digital cash.” Examples include Internet payment services, prepaid calling and credit cards, electronic purses, and mobile payments or “m-payments.” Driven by a remarkable convergence of the financial and telecommunications sectors, the rapid global growth of m-payments demands particular attention. M-payments can take many forms but are commonly point-of-sale payments made through a mobile device such as a cellular phone, a smart phone, or a personal digital assistant (PDA). Virtual internet computer worlds provide opportunities to engage in illicit activities. For instance, in “Second Life Virtual World” people create avatars who live in a virtual electronic world where they socialize with other users (by flying or walking), conduct business, own property, and attend educational functions all by sitting at a computer screen. It is also possible to finance and plan terrorist acts, and engage in financial crimes, including money laundering through the buying and selling of virtual property.

Billions of dollars each year move through the international financial system and are lost to increasingly sophisticated criminals operating in illicit financial schemes. Organized crime groups function seamlessly with the legitimate economy through strategic mergers and acquisitions, joint ventures and front companies – masking their illicit activities through a corporate façade and trying to seal themselves off from prosecution. They move funds from one point in the financial system to another to hide the origins, ownership, or final destination of their financial illicit flows. In the digital age, these increasingly complex transnational transfers make it extremely difficult for criminal investigators to “follow the money.”

In this climate, law enforcement finds itself increasingly beleaguered by cyber criminal organizations that operate across borders. While efforts are underway to develop consistent and effective law enforcement regimes, improve transnational law enforcement cooperation, and deepen the cyber skill sets of police, prosecutors, investigators, judges and border and customs officials, it is clear that the challenges are daunting. Cross-border collaborations to counter cybercrime and corrupt virtual networks strengthen and reinforce our individual efforts. The United States therefore encourages all of its partners in APEC to accede to the Council of Europe Convention on Cyber Crime. By doing so, they will join the United States and more than forty other full members and signatories in the premier international agreement to fight criminal misuse of information technology worldwide.

The Arc of Instability: Violence and Corruption

Although not necessarily a “new” trend, recent events have highlighted the continued willingness of organized crime syndicate members to use violently ruthless means to protect and expand their criminal domains. In the past year alone in Mexico, for example, competing cartels have been engaged in their own war over trafficking routes and territorial influence. Since the beginning of 2008, nearly 6,000 people have been murdered as a result of Mexico’s drug war and clashes for control of distribution and smuggling operations into the United States, including numerous high-level assassinations that have been orchestrated by the drug cartels against the Mexican government. In Mexico, and other parts of the world, we are seeing the advent of criminal terrorists who are brutalizing communities and creating an environment of insecurity and violence. The United States and Mexico are working together to combat narco-trafficking and related narco-corruption.

The explosion of violence is the most visible and dramatic manifestation of the damage these criminal organizations inflict on societies. Less visible, but equally damaging, are the underlying corruption these syndicates promote and the enabling environment they create for terrorism. The erosion of government institutions through corruption can ultimately pose just as great a threat to democratic governments and the rule of law as the violence on which we focus today. Terrorist cells can operate more freely when governments have been subverted and weakened by organized crime.

Corruption, Crime and Narco-Trafficking: What is the Nexus with Terrorism?

Criminal syndicates have been known to support terrorist groups by facilitating their clandestine trans-border movements, weapons smuggling, and forging of documents. At the same time, terrorist groups appear to be resorting to organized criminal activity as a means of self-financing, including through drug dealing, credit card theft, and insurance scams. Such growing terrorist-criminal cooperation is of particular concern to the international community, especially because some of these criminal syndicates may be able to acquire and sell radioactive materials, chemical and biological weapons, or technologies used for weapons of mass destruction. Further, this financial independence will make it much more difficult to shut off the spigot used to finance terrorism, at least through traditional means. As terrorist groups move toward mimicking the tactics of organized crime, our international response will need to incorporate more of the tools used by law enforcement.

While it is possible that organized criminals may not want the extra attention from law enforcement by associating with terrorists, some may nevertheless consort with terrorists. Others may not care with whom they conspire, as long as they are paid for the increased risk of detection they assume when cooperating with known terrorist groups. For example, some charge extra for certain nationalities and other “special services.” And some criminals may have no idea who their clients really are.

At the same time, terrorists appear to be engaged in more organized crime-type activities, and some terrorist organizations are evolving into criminal enterprises. Terrorists who have become major actors in illicit drug trafficking are known as narco-terrorists. According to the U.S. Drug Enforcement Agency, 19 of the 44 groups that the U.S. Government has designated as Foreign Terrorist Organizations (FTOs) participate in the illegal drug trade and many also engage in financial and other forms of crime. Besides drug trafficking, these activities include direct involvement in arms smuggling, commodity smuggling, goods smuggling, migrant smuggling, trafficking in persons, extortion, kidnapping, intellectual property theft, counterfeiting, fraud, credit theft, armed robbery, and money laundering.

A convergence of crime and corruption can pave the road for terrorist organizations to finance their terror (e.g., Bali, Madrid and possibly, Mumbai). In particular, terrorist financiers are not only concealing their financing assets through complex transactions in the international banking system, but also harnessing centuries-old money laundering tactics, including exploiting informal value transfer mechanisms such as hawala or hundi, trade-based money laundering, and the misuse of cash couriers as bulk cash smugglers, particularly in countries with non-existent or weak anti-money laundering regimes.

Also of concern to many of our economies are the destructive linkages between political violence and extreme fundamentalism. Violent extremism will remain a formidable joint challenge for us all, particularly as increasing global connectivity enables terrorist groups to recruit and train new members, spread violent extremist ideologies, manage their finances, manipulate public opinion, and coordinate attacks. The increase in violent extremism will continue to not only disrupt our sense of security and our economies but also disrupt critical infrastructures. Institutional weakness, corruption, poverty, and higher levels of unrest will no doubt help fuel violence and insecurity in many parts of the region. Both radical terrorist and criminal groups could take advantage of such insecurity to strengthen their operations.

Dismantling Corruption Nodes and Financial Safe Havens

Preventing corruption is a key to combating emerging transnational criminal threats. Today, criminals and other illicit actors imperil the functioning and legitimacy of the state when they harness public institutions to facilitate their illicit activities and create a culture of impunity. In the most extreme cases, they subvert and undermine state functions to a point that official institutions become a de facto criminal enterprise. This is particularly problematic when the military, police, border control, and justice system officials align with drug traffickers, gangs, and criminal insurgencies

Government protection of criminal elements can take many forms – officials may turn a blind eye to a syndicate’s illicit activity, choose not to pursue investigative leads, opt not to enact or enforce certain criminal laws, or ignore the efforts of others to extradite a wanted criminal. In some cases, officials may actively work for criminal organizations – supplying them with information or providing other services. In the worst case scenario, a government may effectively cede complete power and authority to a criminal group, allowing them to form their own territories – criminal states within states -- and power networks. Regardless of the form that government protection takes, it fundamentally provides criminal elements safe haven – and in today’s globalized society, any safe haven can provide an opportunity for criminal groups to project their influence transnationally and undermine our joint security.

As criminal syndicates expand globally, these groups’ new trafficking routes at least one common characteristic: they include stopovers in the world’s most corrupt and politically fragile states. In West Africa, for example, where the Colombian cartels are now setting up shop, Colombian traffickers are corrupting law enforcement authorities and political officials and buying protection against prosecution. Fragile states across Africa and other regions are hanging at the precipice of a similar fate of instability and insecurity. This pattern of corruption and crime is repeating in many parts of the world and now directly poses serious threats in the Asia-Pacific region.

Money not only remains the lifeblood of many organized crime groups and networks, but when criminal entities work with corrupt business officials, the result is a culture that undermines the legitimate economy. As criminal groups continue to expand into financial crimes, they are corrupting banking officials and exploiting lax anti-money laundering protections around the world to inject illicit funds into the global money stream. In some cases, organized criminal groups, for example, working with well-placed corrupt officials, have defrauded the government and investors around the world of billions of dollars, as government industries and resources were privatized. Some are active in the energy and metallurgical industries, employing and drawing upon the expertise of attorneys, accountants, and other professionals in laundering their profits in both the legal economy and illicit underground. They have also profited through extortion and tax-evasion schemes, stock frauds and insurance scams, using law enforcement agencies and corrupt officials and their offices to help perpetrate the crimes.

Smart Power: Global Threats Require Global Responses

To gain an advantage in our battle against transnational criminals, we must root out corruption at every level of public trust – in security, law enforcement, and criminal justice sectors as well as in economic and business sectors.

This task is challenging. International criminals have extensive financial resources and they spare no expense in corrupting government and law enforcement officials. They have extensive worldwide networks to support their operations and are nimble, adapting quickly to change.

To make headway against these groups, we need to enhance international cooperation to dismantle criminal networks and combat the threats that they pose -- not only through law enforcement efforts, but also by building up governance capacity, supporting committed reformers, and strengthening the ability of citizens to monitor public functions and hold leaders accountable for providing safety, effective public services, and efficient use of public resources. These goals can be achieved through (1) the practical implementation of new and ground-breaking conventions and protocols that define and promote international standards and create roadmaps for domestic implementation; (2) the use of a broad range of bilateral, regional, and global training and technical assistance programs aimed at strengthening our foreign partners’ law enforcement and prosecutorial capacity to implement those shared standards and best practices; (3) the development and proliferation of new enforcement tools and techniques to combat these threats; and (4) the strengthening of public-private partnerships with the business and non-profit communities.

To these ends, two of the newest weapons of international law to combat organize crime threats require mention: the United Nations Convention against Transnational Organized Crime (and its Protocols) and the United Nations Convention against Corruption (UNCAC). These international instruments create a broad framework for mutual legal assistance, extradition and law enforcement cooperation. In addition, the UNCAC contains unique provisions to facilitate the recovery of stolen assets.

The two Conventions are particularly important and powerful tools but are still far from being fully appreciated or utilized. For example, they can be used to augment the range of extraditable offenses covered under existing bilateral treaties to include those offenses covered in the Conventions, as well as to obtain evidence from another state by using the Conventions’ mutual legal assistance provisions. The Convention against Transnational Organized Crime has been used at least 75 times as the basis for extradition and confiscation by at least 15 different countries. The United States has used the Convention in dozens of instances as the basis for mutual legal assistance and extradition. The Conventions are agreed international standards. We should look for ways to use them to strengthen and to expedite cooperation against international crime groups. And just as transnational organized crime groups are networked, we must foster networks that promote and sustain rapid international legal cooperation, generating personal relationships, trust, and the ability to collaborate informally among our central authorities, investigators, and prosecutors.

Investments in technical assistance and capacity building programs are important in this threat environment. They must be sustained and pragmatic. They must also be mindful of the trends described above: U.S.-supported criminal justice reform programs, for example, increasingly include elements to promote integrity and safeguards in the police, prosecution, defense bar, and judiciary themselves.

Anti-money laundering initiatives are essential for exposing and combating the infrastructure of criminal organizations, the web of corruption, and conspiracies to commit terror acts and for enabling the recovery and forfeiture of unlawfully-acquired assets. Examples of such tools include a reporting regime for entities both within and outside of the formal financial sector (including banks, money remitters, exchange houses, securities brokers, mutual funds, insurance companies, casinos, lawyers, accountants, realtors, and dealers in high-value goods such as art, precious metals and stones, and luxury vehicles); institutions including financial intelligence units (FIUs), and specialized law enforcement and prosecutorial authorities; and the sharing of non-evidentiary information and evidentiary information via Mutual Legal Assistance Treaties (MLATs) and Mutual Legal Assistance Agreements (MLAAs).

Another valuable element in the fight against organized crime and corruption is the strengthening of public-private partnerships. In today’s globalized world, where illicit criminal activities and their actors threaten both our international security and private sector interests, official institutions and private non-governmental entities can be crucial allies. Greater cooperation and coordination with non-governmental groups can serve as a force multiplier in our war against international crime.

Private sector involvement has, for example, been key to the implementation of the Financial Action Task Force (FATF) Forty Plus Nine Recommendations against money laundering and terrorist financing – without the private sector’s understanding and buy-in, jurisdictions would have incomplete and ineffective regimes. International NGOs and private firms have already helped us in the fight against transnational crime and corruption – bringing light to important issues such as corruption in the extractive industries and illegal logging, the production and trafficking of counterfeit goods, and countless others. They may themselves also bring to bear relevant expertise to transform themselves into engines of capacity building in the developing world.

Conclusion: Dynamic Threat Mitigation

Transnational criminal organizations, terrorist groups, and enterprising corrupt officials pose increasing concerns for the international community and our APEC economies. None of us should underestimate the task at hand of combating corruption and defeating these global criminal networks -- especially as organized criminal networks increase their violence, conspire with terrorists, and employ sophisticated efforts to hijack governmental functions and infiltrate legitimate commerce and industry. In the Asia-Pacific region today, and globally, we are under a threat from a growing wave of crime and transnational illicit trade that is destroying our cities and subverting governments. At stake is our joint security, the stability of entire regions and economies, and future progress against the erosions of public trust and core democratic values.

We need to drain the swamp and illicit cesspools associated with crime; corruption and terrorism; we need to replace them with a renewed hope, economic opportunities, the rule of law, and transformational freedoms so that communities that are saying “enough is enough” to terrorists, criminals and corrupt officials can have a brighter, more secured future. (David M. Luna)

To make headway against threat networks, we need to enhance our international cooperation to dismantle criminal networks and combat the threats that they pose. We also need to work more closely with each other to address our common challenges. Strengthening both the political will and capacity-building of our government partners enhances our collective capabilities to safeguard critical institutions from corruption, the integrity of our borders from smugglers, our financial system from abuse by terrorist financiers and criminals. It also helps to strengthen our respective legal, regulatory, financial intelligence, law enforcement, and prosecutorial entities to effectively combat crime and terrorism.

Prosecuting the battle against converging threat networks is not an easy endeavor – we must take the fight directly to these threats, dismantle transnational threat networks, and unravel the illicit financial nodes that sustain a web of criminality and corruption in our economies. It will require a constant evaluation of the types of illicit threats that will confront us all in the years to come. Together we can combat these threats by combining our efforts against crime and corruption across the international community, developing strong law enforcement approaches, and enhancing our cooperation through public-private partnerships.

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