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Diplomacy in Action

How Criminal Entrepreneurs are Confiscating the Economic Potential of Communities and Corrupting Governments and the Integrity of Markets

David M. Luna
Senior Director for Anticrime Programs, Bureau of International Narcotics and Law Enforcement Affairs
UNICRI Impact of Organized Crime Workshop
Rome, Italy
June 16, 2014


Buon giorno!

On behalf of the United States, I would like to thank the Government of Italy’s Ministry of Economic Development and the United Nations Interregional Crime and Justice Research Institute (UNICRI) for co-hosting this week’s workshop with the U.S. Department of State, and for our partnership on developing methodologies to identify strategies to measure and reduce the impact of transnational organized crime (TOC) on the legal economy.

The topics that we will be addressing are critically important to the international community as we work together to:

  • inform the public on the harms and impacts of organized crime;
  • strengthen cooperation to disrupt and dismantle illicit networks across borders, including through tracking illicit financial flows and identifying, freezing or seizing, and confiscating illicit assets;
  • ensure that the global illegal economy does not continue to expand at the expense of the legal one; and
  • safeguard tomorrow’s growth markets and investment frontiers so that they do not become corrupted by criminal entrepreneurs determined to further diversify their illicit portfolios and perpetuate criminal acivity.

The focus of this workshop is timely. Today’s reality across the global threat environment is one of convergence: where criminals and illicit traders are networked across borders and are continuously expanding their tentacles to all parts of the world, infiltrating public and market-based institutions alike.

The illicit activities of organized criminals threaten not only the interdependent commercial, transportation, and transactional systems that facilitate free trade and the movement of people throughout the global economy, but jeopardize governance structures, economic development, security, and supply chain integrity.

Of equal concern is their penetration into the fabric of our daily lives by capitalizing on our vulnerabilities, and through a variety of criminal schemes, including money laundering, reinvesting their criminally-derived proceeds to create parallel markets based on corruption and criminality, and hubs of fear.

Toxicity to Communities: TOC Impact on Public Health and Safety

Ladies and gentlemen, organized criminals are neither the noble protectors nor the business providers that they claim to be to the public.

How can they be, especially when they engage in unconscionable usury (“loan sharking”), extortion, bribery and corruption that continue to decay the foundations for resilient economies?

When they lend money to hard-working people at exorbitant interest rates and then resort to threats and violence to recoup their monies?

Moreover, when tens of thousands of small- and medium-sized companies and “mom and pop” businesses across Europe and elsewhere have to close their doors due to the high prevalence of usurious debt, this is harmful to both economic growth and market resiliency, as well as efforts by our families to improve their livelihoods, and those of their children.

When criminal syndicates engage in the illegal dumping of hazardous waste, it not only impacts our environment, it also imperils the health and safety of our children when such mafia toxic waste ends up in rivers, lakes, water wells, and farming lands that are poisoning agricultural crops. In essence, toxic water streams are now becoming toxic streams in people’s blood systems.

When organized crime perpetuates modern slavery and human trafficking including luring women and young girls to be physically exploited and abused, and forced to pay their bondage debts through prostitution and other forms of indentured work, it corrupts our human capital and dispirits the soul of our humanity.

No these are not “friends,” but rapacious and violent thugs whose greed and wealth is derived from drug addicts, the hard work of entrapped, exploited modern slaves, and the most vulnerable members of our communities: the sick, poor, desperate, and innocent.

Toxicity of TOC to the Licit Economy: Blood Money is Financing Booming Black Markets

In addition to harming the welfare of our people, transnational organized criminal networks are imperiling the global legal economy.

In his book Illicit, Moises Naim underscores how “global criminal activities are transforming the international system, upending the rules, creating new players, and reconfiguring power in international politics and economics.” Professors Louise Shelley, Ernesto Savona, Xavier Raufer, and others have similarly done pioneering research on today’s threat hybrids and new actors (“el dorados”) and their powerful economic influence across sectors and industries.

I agree with Naim and these distinguished criminologists: global criminal activities have transformed the system, changed the rules, and altered power dynamics across the globe. According to some estimates, the illegal economy accounts for 8 to 15 percent of world GDP, distorting local economies, diminishing legitimate business revenues, fueling conflict, and deteriorating social conditions in many of today global security “hot spots.”

A report by A.T. Kearney titled, “The Shadow Economy in Europe, 2013”, estimates the shadow economy in Europe at €2.15 trillion, which is 18.5 per cent of the total economy. Here in Italy, over the past 10 years, there have been numerous estimates placing the major Italian mafias’ market share at around 3 to 7 percent of Italy’s GDP. In fact, recently Italy’s national statistical service, Istat, decided that it was including the black market in its GDP calculations and illicit enterprises such as drug trafficking, human trafficking, prostitution, counterfeits, and other criminal activities.

Of particular significance are the specific sectors that they invest in, consolidate, and now control. Media reports have estimated that the major Italian organized crime families control about one in five business in Italy.

I earlier underscored how criminals have diversified their portfolios in areas, for example, such as narcotics and human trafficking, usury, and environmental crime. But irrespective of which illicit trade areas criminals gravitate to, when it comes time to reinvesting their profits, there are certain sectors that are equally very attractive for them to influence and control, including banking, real estate, tourism, fashion, and the arts, sports, and entertainment industries.

While some argue that injecting any capital, licit or illicit, into local economies can help some communities in times of financial austerity – especially when citizens perceive that their own governments have failed to provide good governance and basic services – I would assert that filthy lucre or blood money that corrupts markets is not a desirable business model in any situation.

It has been well reported how money from the sale of cocaine, heroin, and other drugs in illicit markets is reinvested in numerous sectors where laundering illicit proceeds, often paid in cash, is easy and undetected. Among the alluring choices for criminals to disguise and reinvest their illicit proceeds from drugs and other crimes and integrate them into the formal economy include construction and real estate. Flushed with cash, organized crime has invested heavily in snapping up bars, restaurants, supermarkets, shops, hotels, resorts and other high-end luxury developments.

This is why asset recovery is important to our discussion this week and how the international community can work together to identify and recover illicit assets. When criminals are deprived of the fruits of their criminal activity, their overall economic and corruptive power is reduced and we can further prevent the infiltration of criminal money into the legitimate economy.

TOC Toxicity to National Economic Security and Market Integrity

Let me say a few words on the damage that transnational organized crime can inflict on market integrity, entrepreneurial innovation, brand integrity, and legitimate private enterprise.

As we are keenly aware, another profitable area for criminals these days is counterfeiting and pirated goods, including wine and liquor, cigarettes, pharmaceuticals, computers and electronics, and other products. Trafficking in counterfeit luxury and designer goods and accessories has become more profitable to organized crime than narcotics trafficking.

If one were to walk in some of our major cities, one could easily confront vendors selling some of these goods and others who are hawking designer bags, watches, eyewear, jewelry, footwear, and other luxury knockoffs, that have been counterfeited or smuggled by criminals across borders including such iconic brands such as GUCCI, Prada, Fendi, Louis Vuitton, Giorgio Armani, Polo, and others. Last year, I even learned that one could buy a fake Ferrari, with an unfashionable “turbocharged” Toyota Corolla engine. This is unfortunate because all over the world, smart consumers celebrate the real brands, trust their quality, and love their style.

Of course, the illegal economy and demand for fake handbags, shoes, perfumes, apparel and other luxury products make it harder for legitimate business to compete against these imported fake products. In these instances, illicit trade results in lost profits for companies, job displacements for workers, and with business closures, governments too are economically impacted as less revenue is brought into the treasuries to fund public services.

However, economic loss is not the only harm that results from fake goods. Companies also have to address the diminished integrity and market reputation of their venerable brands that they have worked hard to build and innovate upon over many years.

The same bad actors and networks who reinvest their blood money into the legal economy and who are undermining the good efforts of dedicated public servants and businesses to spur ethical, rule-of-law based markets and to broaden prosperity across communities—these bad actors and networks remain winners in the illegal economy.

We need to drain the swamp of criminality and cesspools of illicit activity that are corrupting our institutions, markets, and iconic brands.

We must not allow any further opportunities for criminal entrepreneurs to fill the role of governments and private enterprise as service providers in our societies nor allow their blood money to become the currency that sustains the global or local economy.

U.S. and International Efforts to Combat TOC and Illicit Trade

Finally, let me outline some of the efforts that the United States is undertaking to combat the threats posed by TOC, recover illicit assets, and shut down the illegal economy.

Recognizing the expanding size, scope, and influence of TOC and its impact on U.S. and international security and governance, in July 2011 the White House released the Strategy to Combat Transnational Organized Crime: Addressing Converging Threats to National Security.

The Strategy calls on all departments and agencies to “build, balance, and integrate the tools of American power to combat transnational organized crime…and urge our foreign partners to do the same.”

The Strategy also calls for the U.S. government and our international partners to work together to combat transnational illicit networks, and take that fight to the next level by breaking their corruptive power, attacking their financial underpinnings, stripping them of their illicit wealth, and severing their access to the financial system.

In support of the Strategy, the U.S. Congress established the Transnational Organized Crime Rewards Program (TOCRP) in order to assist efforts to dismantle transnational criminal organizations and bring their leaders and members to justice.

The new TOCRP program complements the Narcotics Rewards Program by offering rewards up to $5 million for information on significant transnational criminal organizations involved in activities beyond drug trafficking, such as human trafficking, money laundering, trafficking in arms, counterfeits and pirated goods, and other illicit trade areas.

We anticipate that by rewarding informants who provide leads and tips that help hobble transnational criminal organizations, we can protect our citizens, economies, and homeland.

On the issue of how best to administer and dispose of confiscated illicit assets, our governments should strive to ensure that funds are disposed of in a manner that recognizes and compensates legitimate victims, addresses legitimate law enforcement needs, and promotes enhanced governmental transparency and accountability.

Italy has taken note of this goal, using confiscated assets from organized crime for numerous causes that support social good. In fact, confiscated properties have been used for social centers to help children, individuals with special needs, and for other communal functions that serve the public interest.

Efforts consistent with international standards as set forth in the FATF Recommendations and law enforcement cooperation within the frameworks of multilateral instruments such as the United Nations Conventions against Corruption (UNCAC) and Transnational Organized Crime (UNTOC) are used successfully by governments to facilitate mutual legal assistance and other forms of international cooperation, including the exchange of intelligence and information between law enforcement. These tools are also very effective in preventing criminals from acquiring and enjoying the fruits of their criminal activity.

Consistent with international standards and our treaty obligations, I believe that it is important for countries to have a strong legislative framework for effective detection and prevention of illicit financial activity and the means to identify illicit assets, freeze or seize, and confiscate the same. This would include implementation of powerful asset recovery tools such as non-conviction based forfeiture, which is key to overcoming common hurdles to asset recovery such as the death, flight, or immunity of an offender; mechanisms to ensure that identified assets are properly preserved and managed until a final confiscation judgment is obtained; and processes to ensure the transparent and responsible disposition of confiscated property.

At INL, through many of our anti-crime training programs, including our network of International Law Enforcement Academies, we are integrating aspects of asset recovery training in our projects and courses, and helping to improve the capacity of partners to undertake complex asset recovery investigations.

And of course diplomatically, we continue to strengthen international cooperation between U.S. law enforcement authorities with committed partners such as Italy and other G7 countries, international organizations including the European Union, the Council of Europe, UNODC, UNICRI, INTERPOL, the Egmont Group of Financial Intelligence Units, EUROPOL’s Camden Asset Recovery Interagency Network, the OECD Task Force on Charting Illicit Trade, and many others.

Converging against Criminal Entrepreneurs and Confiscating their Assets

In closing, convergence defines the global economy today. We live in a world in which legal business transactions and legitimate commerce both facilitate and feed off the illegal economy.

Crimes such as counterfeiting, human trafficking, money laundering and corruption are often interconnected, with profits from one illicit trade area used to advance further criminal complicity in other areas.

If we are not vigilant, the illegal economy presents an existential threat that we cannot afford to ignore.

But there is hope including in efforts such as the addiopizzo campaign in Palermo where citizens have mobilized to say that “enough is enough” can make a difference in our fight against organized crime and for communities to denounce their extorters. As the campaign rightly underscores: “As long as somebody continues to pay the pizzo, we will not be free.”

My hope is that by the end of tomorrow, we can have some good solutions to devise better ways of recovering illicit assets, and ensuring that we are disposing of the same in a way that creates better lives and sustainable futures for impacted communities, while recognizing that the real threat of the illegal economy centers in convergence, and that we can no longer turn a blind eye on corruption and organized crime.

Thank you.

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