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Frank G. Madsen
Queens’ College
University of Cambridge

International Monetary Flows of Non-Declared Origin

This dissertation is submitted to the University of Cambridge to Fulfil the Requirements for the Degree of Doctor of Philosophy

April 2008

Ambrogio Lorenzetti,

Effetti del Buon Governo

Siena, Palazzo Pubblico
Sala dei Nove
1337-1340

Declaration
This dissertation is the result of my own work and includes nothing, which is the outcome of work done in collaboration.
Chapter 3, “Complexity, TOC and Terrorism”, was presented in an embryonic form at the ISA conference in Chicago, USA, March 2007.
Chapter 4, “Organised Crime”, is the further elaboration of a chapter of the same title published in 2007 in the Oxford Handbook on the United Nations

Statement of Length
The dissertation does not exceed the word limit of 80,000 words

Fieldwork
Thailand (money laundering); Indonesia and Burma (deforestation);
New York (US money supply);
Washington DC and Fort Worth, Texas (Organised Crime linked to terrorist funding);
Australia (Sydney, (APG) and Canberra (money laundering, South Pacific); and Rome, Italy (Chinese organised crime).

Contact
Frank.Madsen@cantab.net
Abstract
Through an analysis of the presence and nature of international monetary flows of non-declared origin and their relation to deviant knowledge, the thesis determines that both terrorism and organised crime are nurtured by a constant trickle from minor sources rather than by large financial transfers; and that anti-money laundering provisions are misapplied, taken too far, too expensive, and incapable of demonstrating their effectiveness. In lieu of more traditional policy recommendations, the thesis develops a complexity-theory based intelligence function, capillary intelligence, to improve the present information-gathering systems and generate consistent and context-relevant intelligence for the consideration of policy-makers. The intelligence function takes into account also the concept of self-organised criticality. The thesis fully adheres to the principle that efficiently applied intelligence-led approaches for detection of organised crime are demonstrably superior to a “follow the money” approach. An extended concept of deviant knowledge is developed and five methodological techniques employed: Complexity theory, network theory, self-organised criticality, scaling theory, and intelligence treatment. The thesis is multidisciplinary and calls on contributions from International Law, Economics, Criminal Justice Studies, and Governance and Ethics. Its approach is illustrative and fits Baudrillard’s 1981 methodological principles known as bricolage. Using five methodologies and six major case studies, the thesis reaches four conclusions. First, the rapid expansion in the currency component of the US money supply (M1) has no domestic explanation and can best be explained by an increase in overseas illegal traffics of various sorts. Second, terrorism and major organised crime are, for a large part, nurtured by a constant trickle of funds originating from minor crime, such as, respectively, smuggling of tobacco product and retail fencing, and sale of counterfeit luxury goods. Third, calculation of the cost of the application of anti-money laundering shows these to be cost-inefficient, apart from being highly intrusive. The thesis’ calculations as well as prior literature makes it certain that such provisions, although inefficient, are enforced in a forceful exemplification of the deviant knowledge concept. Fourth, the thesis demonstrates the importance of organised crime in resource depletion and emphasises the nefarious consequences of such criminal behaviour, in particular as regards deforestation, since organised crime can apply the necessary pressure on the local population—in conjunction with extensive corruption of police or military personnel—and provide the managerial expertise to have the trees felled, transported internationally by ship and sold in another country often with false documentation as to the origins of the forest product. In a final case study, the tragic concept of resource curse is considered, in casu the island of Bougainville, PNG.

Contents

Acknowledgements

Introduction General Remarks The Thesis Argument Methodological Considerations Taxonomical Considerations A Main Case Study A Road Map of the Thesis The Centre

Chapter 1 Deviant Knowledge and Governance 1.0 Introduction 1.1 Foucault, Habermas 1.1.1. Michel Foucault 1.1.2. Jürgen Habermas 1.2 Governance 1.2.1. Transnational Economic Enterprises 1.3 Deviant Knowledge 1.3.1. Counter-Intuition

Chapter 2 Capital Movements, Globalisation, and Money Supply 2.0 Introduction 2.1 Globalisation and Crime 2.1.1 Foreign Direct Investment 2.1.2 International Trade 2.1.3 Gross Domestic Product, GDP 2.1.4 Population 2.2 Economics and Organised Crime 2.2.1 The Scope of the Problem 2.3 The Money Supply 2.3.1 Measuring Expatriate Currency 2.3.1 §1 The Shipments Proxy Method 2.3.1 §2 The Biometric Method 2.3.2 Evaluation of the Results 2.4 Errors and Omissions

Chapter 3 Complexity, TOC, and Terrorism 3.0 Introduction 3.1 Intelligence 3.2 Complexity: At the Edge of Chaos 3.3 Networks 3.4 The Sand Grain Complexity Representation 3.4.1 Notations & Rules 3.4.2 The Initial Situation 3.4.3 Initial Status Plus One Step: Reactions 3.4.4 The Global Event 3.4.5 Self-Organised Criticality 3.4.6 Practical Applications 3.4.7 Conclusions Annexes to Chapter 1. Mustafa Setmariam Nasar 2. Nasar: Packets of Information

Chapter 4 Transnational Organised Crime 4.0 Introduction 4.1 History and Development of Concept of Organised Crime 4.2 Transnational and International Criminal Law 4.3 The 'Organised' in Organised Crime 4.3.1 The Management Talents of Organised Crime 4.4 Illicit Trafficking in Licit Product 4.4.1 Cigarettes Smuggling 4.4.2 Cigarette Smuggling and Organised Crime 4.4.3 Law Suits Against Multinational Tobacco Companies 4.4.4 Counterfeiting of Brand Cigarette Product 4.4.5 Cigarette Smuggling and Terrorism 4.4.6 WHO Framework Convention on Tobacco Control 4.4.7 Concluding Remarks 4.5 Organised Crime and Terrorism 4.6 Contemporary Debate and Future Trends

Chapter 5 Money Laundering 5.0 Introduction 5.1 Money Laundering: A Brief History 5.1.1. The United States 5.1.1 §1 Criminal Liability of the US Banking Community 5.1.1 §2 Correspondent Banks 5.1.2. The International Scene 5.1.2 §1 Thailand’s AMLO 5.1.2 §2 Thailand's AMLO and Illegal Logging 5.1.2 §3 The Asia/Pacific Group on Money Laundering 5.1.2 §4 HCBC Money Laundering in the United Arab Emirates 5.1.2 §5 The Russian Factor 5.2 Money Laundering and the South Pacific 5.2.1 Vanuatu 5.2.2 The Cook Islands 5.2.3 Western Samoa 5.2.4 Tonga 5.2.5 Niue 5.2.6 The Marshall Islands 5.2.7 Fiji Islands 5.2.8 Nauru 5.3 Money Laundering: Cost 5.3.1 Introduction 5.3.2 Cost of US Anti-Money Laundering Regime 5.4 Money Laundering: Effectiveness 5.5 Operation Green Quest 5.6 Money Laundering: Financing of Terrorism 5.6.1 Intellectual Property Crime 5.7 Summing Up Annexes 1 Map of the South Pacific 2 US Inter-Agency Evaluation of Tax Havens and Money Laundering 3 Money Laundering Regimes: Timeline

Chapter 6 Abuse of the Environment 6.0 Introduction 6.1 Illegal Logging: An Organised Criminal Activity? 6.1.1. Organised Crime 6.2 The Mechanism of the Trade 6.2.1. Transborder Trade 6.2.2. Corruption 6.3 Trafficking in Illicit Timber 6.4 Conflict Timber 6.4.1. Concept and Definition 6.5 Commodity Abuse and Conflict 6.5.1. Conflicts 6.5.1 §1 The Number, Length, and Character of Commodity Abuse Conflicts 6.5.2. Commodity Abuse in Conflicts 6.5.3. Conflict for Commodity Abuse 6.5.3 §1 The Scope of the Problem 6.5.3 §2 Baluchistan 6.5.3 §3 Coltan 6.5.4. Conflict from Commodity Abuse 6.5.5. Resource Abuse and Security 6.6 Traffic in Arms and Illicit Logging

Chapter 7 Mineral Abuse: A Case Study in Bougainville 7.0 Introduction 7.1 Natural Resources 7.2 The Secession 7.3 Sarei v. Rio Tinto Annexes 1. Timeline: Bougainville 2. Rio Tinto Corporate Structure 3. Sarei v. Rio Tinto: Iter

Chapter 8 Conclusions

APPENDICES

1 Abbreviations & Acronyms
2 FDI, Five-Year Totals. 12 European Countries
3 Five-Year Geometric Means of Growth in Trade
4 Trade as Percentage of GDP, 12 European Countries, 1950 - 2001
5 Trade as Percentage of GDP. 12 European Countries. 1950 – 2001
Acknowledgements
I would like to express my appreciation to my supervisor, Dr Kern Alexander of the University of Cambridge, for his patience with a student, who did not fit the common pattern, and to my second supervisor, Mr Daniel Fontanaud of the EU Commission, Brussels, Belgium (Direction Générale, Justice et Affaires Intérieures). To Professor Arthur Gibson for sharing his philosophical insights and for helping transforming what I thought was English into something closer to English. To Professor Imre Leader of Trinity College, Cambridge, for help and advice. To John T. Murray, formerly of the Australian Federal Police, for assistance, advice, hospitality at his home in Canberra, Australia, and for making me jettison any romantic ideas I might have harboured concerning the South Pacific. To Police Major General Krerkphong Pukprayura of the Royal Thai Police for guidance and, more importantly, for almost thirty years of friendship. My appreciation to Scott Ritter of the US Homeland Security Department and to Detective Scott Campbell of Fort Worth Police Department for a thorough initiation into the intricacies of organised retail and fencing crime. To Messrs. Jonathan I. Polk and Jeffrey B. Pruiksma of the Federal Reserve Bank of New York for their time and patience. To Denise Steward of Westlaw for teaching me the use of Westlaw's online services and for permitting me to use the Westlaw Online Law School facility. And finally to my wife, Bernadette Surya, for providing insights into Arabic and for putting up with me during my rather difficult life transition from corporate America to academia. The "errors and omissions" (to paraphrase the IMF) in the following text are quite obviously not attributable in any form to these very helpful persons; furthermore, some of them would most certainly disagree with some of my conclusions, in particular those of chapters 2 (money supply) and 5 (money laundering).
Introduction
The Introduction to the thesis serves to present some general observations that form the intellectual framework for the work. These are followed by the thesis argument as well as related methodological and taxonomical considerations. After initial analysis of one of the most illustrative case studies, the Introduction ends by a road map to the work.

General Remarks
The title-page illustration of this thesis, Ambrogio Lorenzetti's Results of Good Governance, was chosen to emphasise, at the earliest possible opportunity, that subtending this thesis—notwithstanding a sometimes technical level of discussion and a consideration of the disquieting phenomenon of organised crime—are the identity and role of that most important societal virtue good governance. This virtue, however, is both the resultant and the cause of the exercise of other virtues; in other words, good governance is the expression, in political activity, of ethics and, concurrently, the cause of ethical virtues, in the case of the present thesis on international level. Customary international law is the observance, in the interaction between states, of the ways in which a majority of states deal with each other. In the same way, Aristotle in the Nicomachean Ethics claims, in my view correctly, that ethics is the observance of the ways, in which a majority of citizens deal with each other in society, i.e. ethics is a resultant of politics (in the sense of the interaction of citizens) and at the same time its cause. It follows that normative ethics is, ipso facto, a contradiction in terms. It is on this background that the thesis boldly and admittedly sceptically examines the costs of the latest criminal justice transient fashion, namely the attention given to money laundering, that it marvels at the continuance of supply interdiction efforts in the face of the continuous failure of such efforts, that it, counter-intuitively,[1] investigates if the direction of monetary flows nourishing terrorism is East-West, as uniformly claimed by the authorities in the Occident, or rather West-East, and that it questions the "expatriate" use of currency, i.e. the use of currency outside of the issuing country. This introduces the main strand permeating the thesis, deviant knowledge,[2] as a violation of the ethical concept outlined above. This thesis is collocated within the general area of global governance, which is the internationalisation of good governance as illustrated by Ambrogio Lorenzetti’s Results of Good Governance placed as title-page illustration. While it is clear that well-functioning international commercial and finance markets are indispensible for the well-being of the international system and thus for global governance, yet events over the last couple of decades have emphasised the nefarious nature of parts of the international financial markets, namely those parts one could term “international financial flows of non-declared origin”. This part of the international flows of monetary funds was therefore identified as a relevant subject area for inquiry.

The Thesis Argument
Based on the above considerations, the following thesis argument was therefore identified for consideration:

Through an analysis of the presence and nature of international monetary flows of non-declared origin and their relation to deviant knowledge

to determine that

both terrorism and organised crime are nurtured by a constant trickle from minor sources rather than by large financial transfers; and anti-money laundering provisions are misapplied, taken too far, too expensive, and incapable of demonstrating their effectiveness.

In lieu of more traditional policy recommendations, the thesis develops a complexity-theory based intelligence function to improve the present information-gathering systems and generate consistent and context-relevant intelligence for the consideration of policy-makers. The thesis fully adheres to the principle that intelligence-led approaches for detection of organised crime are demonstrably superior to a “follow the money” approach.[3]

An extended concept of deviant knowledge has been developed to mean “embedded, insidious, inherent, demand-based conscious deviance in the application of knowledge”. It will be further discussed in chapter 1, Deviant Knowledge and Governance. Deviant knowledge refers, on a pragmatic level, to professionals (lawyers, accountants, etc.), who knowingly place their professional knowledge at the disposal of organised crime (or terrorists) in order to further or protect the criminal activities of these, and to government officials, including politicians, who insist on continuing a number of government programmes knowing that these are ineffective. Organised crime is thus anchored in deviant knowledge, which is embedded in and often pervades local culture. In order to explore the thesis argument, above, five methodological techniques are employed: Complexity theory, network theory, self-organised criticality, scaling theory, and intelligence treatment. The thesis is multidisciplinary and calls on contributions from International Law (chapters 4-7), Economics (chapter 2), Criminal Justice Studies (chapter 4), and Governance and Ethics (chapter 1). Its approach is illustrative and fits with Baudrillard’s 1981 methodological principles known as bricolage. The remaining part of the Introduction is structured as follows: After a further elaboration of some key terms, including a thorough presentation of the five methodological techniques, the last section of the Introduction presents the thesis, chapter by chapter.

Methodological Considerations
Apart from a theoretical consideration, above, of the subject matter, "International flows of monetary instruments of non-declared origin", I apply network, scaling, and complexity theory to the areas of organised crime and terrorism, which, to the best of my knowledge, never before has been attempted. Network theory helps us better perceive the structure and functioning of organised crime, while complexity theory, and in particular a concept of self-organising criticality, proposes a theoretical basis for a more efficient application of the so-called intelligence cycle. Scaling theory explicates the failure of not seeing the overall structure while looking at individual elements of the structure and, visa versa, of not appreciating the scale and importance of individual structural elements while examining the overall structure. The title of this work, Internationa monetary flows of non-declared origin, is construed within the perspective of the following constraints. Many approaches to the subject-matter are both interesting and useful, spanning the spectrum from a political or an ethical to an economic appreciation of the phenomenon and its consequences on national, international, geo-strategic, and geo-financial levels; only some of these approaches will be considered in the following. For the present purposes, "funds" will be taken to mean monetary instruments whether in tangible or electronic form and "non-declared origin" will signify that the ownership and origin of the funds under consideration are deliberately being concealed, for whatever reason. Complexity theory, which is also the subject of Section 3.2, will be treated at some length since it is of fundamental methodological importance to the thesis. The theory was developed from the 1970s as a main explicatory theory, first in the earth sciences, in particular biology, and later in economics; a thorough discussion of its theoretical underpinnings would, however, exceed the present work.[4] For the present purposes the following characteristics of complexity theory are essential, though:

A system is considered complex if and only if it consists of a number of interacting elements and if the future result of the interaction of these elements cannot be predicted even from perfect knowledge of each element in the system.[5]

This view has linked complexity theory to the term perpetual novelty since the system throws up such novelties, one after another, although it also pauses in pseudo-stability, cf. below under self-organised criticality. The concept—in a form further developed by Holland—reposes on the idea of clusters, i.e. a subset of elements making up an entity (a cluster) that is coherent and stable enough to serve as a building block for a further, larger cluster. This leads to the crucial and much discussed concept of emergence:

Building blocks at one level combining into new building blocks at a higher level. It seems to be one of the fundamental organizing principles of the world. It certainly seemed to appear in every complex adaptive system that you looked at.[6]

Examples of clusters are computer subroutines, government departments, and specialised cell tissue in an organism. The theory was first elaborated in biology, sc.

cells make tissues tissues make organs organs make organisms organisms make ecosystems.[7]

The last step brought complexity theory from the biological to the social sciences sphere. The term “complex” is often used, however, as a synonym for “large” or “opaque”. In this sense, for example, a database containing the social security numbers of the population of the United States is “complex”. On the definition used in complexity theory it is not, though, since the elements making up the system (the database) do not interact. In the context of the present work, the theory is applied metaphorically to the subject matter.[8] The theory quite obviously subtends the development of the capillary intelligence function in chapter 3, but not only. Complexity theory is essential, on this view, in understanding how very minor criminality, for example the possession of counterfeit cigarette tax stamps by Egyptians in New York (subsection 4.4.5), can provide clarity for one part of the funding mechanism for the 1993 World Trade Center bombing or how unsophisticated retail theft in Texas (section 5.5) may explain part of the surprising success of Hezbollah in the Lebanon. In fact, knowing everything knowable about these crimes would not have allowed one to draw relevant conclusions about the overall structure and scope of the activities. These considerations lead to a further important concept in the thesis, sc. scaling theory. The Portuguese scholar de Sousa Santos notes that laws are maps and that maps distort by scale, projection, and symbolism. Scale distortion is of particular import: “Each scale reveals a phenomenon and distorts or hides others”.[9] In this work, de Sousa Santos’ scaling theory is of import in two contexts. First, minor crime is regarded using a scale which does not allow a full appreciation. The “phenomenon” presented by the scale is the one corresponding to the scale—partly because society, in accordance with Foucault’s determination of the security apparatus (see “Foucault”, subsection 1.1.1), has decided that such crime to a large degree falls within the acceptable bandwidth, partly because prosecutorial officials skirt such criminality as being unsuited at providing notoriety. Second, de Sousa Santos applies his theory to local, national, and “world” law[10] and thereby draws attention to the phenomenon of interlegality, i.e. not only are the three indicated layers of law all part of the legal conception of an individual, since they all act on the same social object, but also in the sense that discontinued legal systems, e.g. colonial law, continue to influence the legal conception: “Legal revocation is not social eradication”.[11] Scaling theory in this, second, legal sense is crucial in the evaluation of events in Baluchistan (6.5.3.§2) and Bougainville (chapter 7). Self-organised criticality is a notion developed by the physicist Per Bak.[12] It denotes a situation in a rapidly developing system, where the system pauses in a pseudo-stable status, which can becomes highly unstable by a minor event. Self-organised criticality is exemplified in the board game in chapter 3. Applied to organised criminality, one might argue that every group or organisation is in a state of self-organised criticality: Any minor stimulus will render the group unstable. This stimulus can be external, e.g. the arrest or death of a member, or internal, e.g. a leadership challenge or a scission. The group will remain unstable until it, by itself, i.e. self-organised, finds a new equilibrium (criticality, i.e. pseudo-stability), which, however, is still critical. Self-organised criticality is linked to complexity theory on one side and to network theory on the other. Network theory has over the last decades grown and diversified. In the thesis are used the approach and terminology of Daniel Parrochia (Penser les réseaux, 2001), namely a coherent and ordered distribution in space of a plurality of relations. Criminal systems are examples of self-organised criticality because of tensions within the networks, between the networks, and between these and the socio-legal environment. The thesis also draws on the work done, in Physics, by Gustav Robert Kirchhoff in the 19th C. in particular the junction theorem (“current into a junction equals current out of the junction” i.e. flow conservation in each network vertex) and the loop equation (also known as his circuit rules: input minus work minus dispersal equals zero). I apply Kirchhoff to criminal networks, in particular narcotic drugs organisations, but only for illustrative purposes. The last of the five methodologies to be discussed it that of intelligence, cf. section 3.1. At this point only a few general remarks will be proffered. Intelligence—and in particular intelligence-led policing—is increasingly being presented as a panacea for all law enforcement problems. Proper intelligence has to steer a delicate course between Scylla and Charybdis or between “following the leads” and “intelligence for the sake of intelligence”. In the former case, law enforcement wrongly believe that following specific information constitutes intelligence and in the latter that any large collection of information equals intelligence. With reference to the intelligence cycle, figure 3.1, in the former case, the cycle is never started, while in the second, the loop becomes infinite and never stops. Also, one needs to emphasise that the establishment of intelligence organisation in the sphere of interior security is not without its dangers, since, apart from obvious concerns regarding the constitution and citizens’ privacy rights, history looms large, namely the danger that the databases be appropriated by an occupational force, cf. the Anschluss in Austria, whereby Interpol’s total systems, then in Vienna, were seized and misused by the Gestapo. See further discussion of intelligence matters in chapter 3. Only the collection of information, which yields new information, is intelligence and only intelligence, which is either actionable or provides new insights for decision-makers, is proper intelligence. It is hardly necessary to adduce examples of the violation of these very simple rules, since the number of such violations is legion. Suffice it to point to the reported failure of the UK SOCA organisation, which was created among much media and institutional expectation (active from April 2006),[13] a failure it shares with that of ARA (section 5.4), which it absorbed in April 2007.

Taxonomical Considerations
This thesis is resolutely multidisciplinary, since fully to appreciate the subject-matter this needs to be analysed from the vantage point of several academic fields, the most obvious of which are international law, international relations, and international economics.[14] The research question considered in this study is the presence and role of international flows of monetary funds of non-declared origin in the financial system, examined on the background of and in relation to deviant knowledge. The thesis will draw on scaling theory (and related theories in chapter 3) to analyse the phenomenon of organised crime and similar phenomena as they relate to undeclared origin of financial flows. In doing so, it will argue that an at least tacit complicity exists between the actors in the—opaque—field and those, who are meant and claim they desire to interdict such flows. The conceptual collocation of the subject-matter in the present context can best be illustrated by the use of a Venn diagram, Figure 1.0. This diagram is of importance because, in addition to providing a visual representation of the conceptual difficulties inherent in the subject-matter, it also functions to introduce the concept of aspect, which, while in some respects a subject of scaling theory, yet is very different. Scaling theory has as its object the larger and the smaller, while aspect is horizontal, being the angle, from which one decides to apprehend something. Obviously, one could have chosen other circles, e.g. municipal law instead of international law; but for the present purposes the international law circle has been retained, since major conceptual difficulties obtain in the interception between international criminal law and transnational crime. The concept of aspect, I now define as “the conceptual basis from which one decides to perceive a subject”. This concept circumscribes the two dimensions under which one perceives a given transnational criminal phenomenon, either by scaling theory (looking at the disparate, multiple, relatively minor criminal events or taking an overall view from a distance studying the flows involved); or by aspect, studying the phenomenon from its aspect of being organised criminality, of being transnational, or of being a violation of international law by custom or treaty. The intersections of the three circles in this diagram depict four distinct areas of study as follows:

A. IL ∩ TC ∩ -OC. Crimes that are transnational and a violation of international law, yet not part of organised crime, e.g. a parental dispute over custody of a child, where one parent "snatches" the child in one country and transfers it to another. B. IL ∩ OC ∩ -TC. Crimes that are organised and a violation of international law, but which do not cross borders, e.g. slave trade within a country; organised crime's involvement in modern slavery (ius cogens, but not transnational). See also Sarei v. Rio Tinto (United States Court of Appeals, Ninth Circuit, 7 August 2006, cf. chapter 7 of present work) C. IL ∩ TC ∩ OC. Crimes that are transnational, organised, and a violation of international law, e.g. international drug trafficking by organised crime. D. TC ∩ OC ∩ -IL. Crimes that are organised and transnational, but not violations of international law. E.g. the smuggling of genuine, but non-taxed tobacco products from one country to another. (In the occasional use of set theory, -A signifies "non-A" and U refers to the universal domain).

In the parts of the following dealing with crime, intersections C and D will be at the centre of interest, although also intersection B will be touched upon, sc. in chapter 7 dealing with the island of Bougainville, Papua New Guinea. The core significance of the thesis has become of generalised and specialist interest, since the terrorist attacks on the United States of America on 11 September, 2001, led to a heightened awareness of the complex linkages between corruption, organised crime, and terrorism, and the interrelationship between these and money laundering; as a result, the literature, scholarly and less scholarly, is by now immense and growing.

Figure 1.0. The intercepts between Organised Crime, Transnational Crime, and International Law[15]

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Legend: TC: Transnational Crime OC: Organised Crime IL: International Criminal Law

A Main Case Study
The thesis, in a very general way, uses an illustrative approach and introduces six case studies[16] that will be further considered, below. At this stage the most central of these will be introduced. The Ghali Organisation, cf. section 5.5, was investigated in Texas, United States. The organisation engaged in organised retail fencing, parts of the profits of which were transferred to the Middle East. The organisation was furthermore known to be connected to identified members of international terrorist organisations. This case study is of particular import to the thesis argument, because it illustrates a number of the key arguments. First, the individual crimes were too small in value terms to warrant federal prosecution, which, had it taken place, might have identified major characteristics of the workings of the organisation, namely, synchronically:

• the extent of the crime throughout the United States; • the total annual criminal income from this crime, alone; • the identities of the ultimate receivers of large parts of the income; • the remarkable fact that so much income was generated through many, relatively small crimes. The image is that of many trickles from many taps: Not only will the flow continue if a couple of taps are closed down, but the taps can easily be reopened. It is to be emphasised that section 4.3 illustrates the same point but in a case without any political undertones, sc. that of Chinese organised crime in Italy; and diachronically, • the crime and the corresponding income flow has been ongoing for some twenty years; • a more thorough consideration of the historical development and function of the organisation might have led to more proper sentencing based on the criminal facts, rather than—as was the case—on inappropriate money laundering provisions.[17]

The extent, scope, and functioning of the Ghali Organisation and similar organisations throughout the United States could have been disclosed quite early in their development by the national application of capillary intelligence procedures as outlined in chapter 3. This case study is therefore a pertinent example of (i) the importance of scaling theory in the study of organised crime and, (ii) an illustration of how the application of appropriately tuned intelligence procedures not only can play a pivotal role in discovering transnational organised crime with wide-ranging—and not initially perceptible—consequences, but might very well be the only relevant approach. Furthermore, since in the case at hand the relationship between minor street crime (retail theft and retail fencing) and financial support of international terrorism was not immediately deducible from the facts, only a complexity based intelligence treatment would have been efficient, cf. chapter 3. Therefore, to sum up, this case study assists in illustrating several of the themes of the thesis, sc. the use of minor crime to nurture terrorism and organised crime; the inappropriate use of AML;[18] the lack of the use of capillary intelligence procedures; and the importance of scaling theory. The case study, at least in part, substantiates several of the conclusions of the thesis, sc. (i) both terrorism and organised crime are to a large degree funded by accrued income from many, relatively minor crimes; and (ii) AML provisions and their implementation are inefficient in disclosing the crime—furthermore such provisions are often improperly applied, once the crime has been disclosed and investigated.

A Road Map of the Thesis
The thesis argument indicates deviant knowledge as a core concept of the thesis, since international monetary flows of non-declared origin are analysed as is their relation to deviant knowledge. Chapter 1 of the work examines deviant knowledge and governance. The juxtaposition of these concepts is not fortuitous; in fact, one important strand of deviant knowledge concerns the knowingly inefficient application of knowledge by governmental officials or politicians. Chapter 2 points to the research of Loretta Napoleoni[19] as a suitable starting point, being the work of an international economist. In a paper written for the Center for Contemporary Conflict at the Naval Postgraduate School in Monterey, California, USA,[20] Napoleoni claims that the subject matter of this thesis, namely International flows of monetary instruments of non-declared origin, consists of three 'species,' sc. funds from capital flight, funds from criminality and funds linked to terrorism. It is notoriously difficult to evaluate the magnitude of the funds involved; nevertheless, Napoleoni proposes that each species consists of $500 x 10E9 per year and, thus, in total $1.5 x 10E12 p.a.[21] The thesis will attempt to evaluate these claims, but it must be emphasised that since one is dealing in "dark numbers”, i.e. numbers that are thus obscure, not only because one does not know them, but because it is in the interest of the agents in the field that they remain unknown, one does encounter a series of difficulties of appreciation. In the shadow economy, it is a main purpose of economic actors to conceal not only their assets, but also their acts. Therefore, it is not possible to obtain information directly, but only by resorting to indirect methods. Furthermore, as will be pointed out below, observers, both scholars and practitioners, have been bandying around various estimates, which, euphemistically, would not be considered “robust” by economists. Although Napoleoni's work should be treated with care as it is speculative, one valuable question, however, she and a number of other scholars bring up is simply this: If these flows are interdependent with legitimate Western economies, is it possible or, indeed, advisable, to attempt to sever such links? One possible indicator might be the influence that the so-called Patriot Act[22] may have had on the markets, and in particular in the currency markets.19 The theory here, propounded inter alia by Loretta Napoleoni,[23] is that the restrictions imposed by the USA Patriot Act have induced many, in particular illicit, actors in Asia and Africa to exchange the US dollar for the Euro as a means of wealth storage and as a means of trade settlement with a fall in the value of the dollar as a result. Chapter 3 contains an attempt to apply complexity theory, flow theory, and self-organised criticality to the intelligence function and, through this, proposes a concept of functionality for application of the intelligence function to the investigation of and research into organised crime and terrorism. Several scholars, in particular in Sociology, have argued that academic preoccupation with organised crime data, which are at best uncertain and always by their very nature fragmentary, is neither helpful nor warranted.[24] Nevertheless, chapter 4 has organised crime as its subject in recognition of the fact that the influence of crime in a very large sense on the socio-economic texture of our societies is now of a scale that indicates it should no longer be ignored. This influence of crime, it should be noted, stretches from the possible exposure of children to the temptations of narcotic drugs—also in schools and leisure centres—to the sphere of geo-economics. Manuel Castells, in his recent, widely appreciated work on the information age,[25] is a proponent of just such an approach, as he claims that since the phenomenon of global crime and of its impact on economies and societies are acknowledged and, although the phenomenon "is excluded from the social sciences because the underlying data are perceived to be based on sensationalism”, the phenomenon is a fundamental dimension of contemporary societies and must be based on available evidence such as it is.23 This is the philosophy that underlies the following; on the one hand it is acknowledged that one works with incomplete data, on the other that the subject matter under discussion is of such socio-cultural import that one will have to proceed, even in near-darkness. After a more conventional consideration of organised crime paradigmata, chapter 4 concentrates on trafficking and management talent in acknowledgement of the fact that most if not all organised crime is profit oriented. Much work has been done lately on the subject of money laundering; so to avoid duplication of effort, chapter 5, Money laundering, concentrates on two subjects. First is presented an overall view, i.e. the analysis of the process from the more simple predicate crimes to the more complicated, connected money laundering. This first part of chapter 5, analyses the so-called Operation Green Quest, i.e. organised retail and fencing crime. The relevant structural, spatio-temporal, and methodological characteristics of the criminal organisation in question, the so-called Ghali Organization, represent a unique opportunity for studying a criminal enterprise from its first, rather common, origin, viz. organised retail theft, through to its possible and, indeed, probable end, namely the financing of terrorism. Secondly, the question is raised, if the cost of AML, anti-money laundering, corresponds to the results obtained. The second part of the chapter examines two separate but at the same time, connected issues, sc. the cost-benefit ratio of anti-money laundering efforts and the very severe limitations on individual privacy rights, which is part of the overall cost that society pays for such efforts. The origin of this thesis was a personal interest[26] in "the money behind deforestation”, since one realised that behind that part of the illicit deforestation, which is commercial, there would appear to be very qualified managerial efforts. Although this personal interest remains vivid, relatively early on it became clear that it would perhaps not be very helpful or, indeed, useful, to examine only the financial aspects of deforestation, without seeing the latter in a larger context, first of all of climate change and, second, of conflict; these issues are the subjects of chapter 6. The illicit traffic in timber is fully within ambit of organised crime, since only an organised, criminal effort can apply the necessary pressure on the local population—in conjunction with extensive corruption of police or military personnel—and provide the managerial expertise to have the trees felled, transported internationally by ship and sold in another country often with false documentation as to the origins of the forest product. Climate change is linked to deforestation because deforested areas will further reinforce the malicious effects of climate change inter alia in the intensity and frequency of tempests, and by creating extensive soil erosion, which will lead to sand storms, land slides, etc. A more central concern—because it is clearly linked to the flows of finance—in the area of abuse of the environment in general and of deforestation in particular is resource-related conflict. Natural resource extraction in general and deforestation in particular have clear financial motives and the funds, thus generated, place natural resources centrally in relation to conflicts, internal and external, first as cause of internal conflict, i.e. conflict to determine control over the resources; secondly, as a lubricant for internal conflict, since funds generated by exercising control over natural resources or by rent-seeking from those, who do control such resources, are used to purchase arms and ammunition; and, finally, as a cause of international conflict, where serious environmental damage in one country leads to tension with a neighbouring country, e.g. deterioration of water quality or quantity in shared river systems caused by environmental abuse in one of the riparian states. The final chapter in the thesis, chapter 7, is a case study, Mineral Abuse: A Case Study in Bougainville, which attempts to show the full depth of the so-called resource curse. The island of Bougainville, PNG, was selected, because it presents a number of specific issues that are relevant as background to chapter 6, in particular of the so-called resource curse. The focus of my analysis in this chapter remains the question of how a natural resource, in casu copper, which should have represented a clear comparative economic advantage for the small island province, developed into a curse, whilst causing the death of a large proportion of the population. The Bougainville chapter, in its role as case study, should be read in conjunction with chapter 6, since it presents an exemplum of how the possession of natural resources, in this case a rich subsoil, may effect devastating results on the population, either through warfare or, as here, because of ruthless exploitation ending in civil war.

The Centre
The French literary critic Maurice Blanchot (1955) postulates that every literary work must have a centre, which, however, does not need to be in the centre of the work. The centre of this thesis is figure 2.8.

Wēi jī

Chapter 1. Deviant Knowledge and Governance
1.0. Introduction
The Introduction presented the thesis, its argument, and some methodological and taxonomical considerations. This chapter serves to introduce some general remarks that form the intellectual framework for the work. After a brief presentation of the main theses of two seminal philosophers in the area, Foucault and Habermas, the chapter considers governance and deviant knowledge, which are two main concepts in the thesis.

1. Foucault, Habermas
Two philosophers have been seminal in the conceptualisation of the issues under consideration in this thesis and, in particular, in the development of what, somewhat briefly, could be called the society – normativity[27] – law nexus, Michel Foucault and Jürgen Habermas. The rest of this section will consider the contributions of the two thinkers that are of central relevance to the philosophical background of the thesis.

1.1.1. Michel Foucault
Foucault’s contribution to the development of conceptualisation within the subject area of this thesis is immense, but more precisely so the first three of his 1977-1978 lectures at the Collège de France in Paris.[28] In a more general way, Foucault is preoccupied by the knowledge-power dyad, which he so forcefully introduced on the international academic scene in the late 1970s. Foucault examines how law, discipline, and security deal with space, the event, and normalisation. However, in the years preceding these lectures, he had developed the concept of bio-power, the set of mechanisms through which the basic biological features of the human species became the object of a political strategy, of a general strategy of power, or how from the beginning of the 18th C. modern Western societies took on board the fundamental biological fact that human beings are a species. The latter attitude is most evident in the consideration of the size of a population as being an allegedly linear expression of power (the larger the population, the more powerful the state). This attitude was supported by the mercantilists and resulted in important advances in medicine and public hygiene to reduce infant mortality, since it became a priority to keep individuals, be they undistinguished and indistinguishable elements of a mass, alive.[29] Foucault now postulates that the penal order has traversed three stages. First, the legal or judicial system, an archaic form, which obtained in Europe from the Middle Ages until the 17th and 18th C. It consists in laying down a law, a punishment for breaking it, a coupling between the prohibited action, and the type of punishment, and a binary division between the permitted and the prohibited. Second, the disciplinary system:[30] The culprit appears within the binary relationship between prohibited and permitted acts, but alongside a series of adjacent, detective, medical, and psychological techniques, which fall within the domain of surveillance. Even at the pre-lawbreaking stage, the criminal act is under surveillance (supervision, inspections, and controls). Finally, the security apparatus, in which the phenomenon (the crime) is set within a series of probable events, the reaction to the phenomenon is inserted in a calculation of cost, and, most importantly, instead of a binary relationship between the prohibited and the permitted, an average, considered optimal, is established on one hand, and, on the other, a bandwidth of the acceptable. The security apparatus looks to the nature of things and relationships, and it sees its subject matter as what is rather than a transcendental value of what should be or what should have been. It is the latter that has proven fruitful in the interrelationship with International Relations Studies, including the emphasis on the relation between the cost of repression and the cost of delinquency, which, in particular on international level, is of extreme importance. Furthermore, while the disciplinary policy is centripetal, isolationist and protectionist, the apparatuses of security are centrifugal—they have a tendency to expand, new elements are constantly being added: Production, psychology, behaviour, the ways of doing things of producers, buyers, consumers, importers, and exporters, and the world market. Security therefore involves organising, or at the least allowing the development of ever-widening circuits. Discipline regulates everything, while security “lets things happen”, has an element of laissez-faire, which is indispensable to its functioning; in the crime area by establishing an average within a bandwidth.[31] While law prohibits and discipline prescribes, security, without prohibiting or prescribing, but when necessary making use of prohibition and prescription as instruments, is a response to a reality in such a way that this response cancels out the reality to which it responds, by nullifying, limiting, checking, or regulating it. In an interesting dialogue with and opposition to Hans Kelsen’s work, Foucault notes that, considering that “Every system of law is related to a system of norms”,[32] one observes an important difference, sc. that in the disciplinary regime, the norm is established first and the normal in training (discipline) with relation to the norm. What could be brought into the norm, by training, was “normal”, what not, “abnormal”. In the security regime, on the other hand, the norm is established on the basis of the normal. In other words, the security regime considers reality and establishes several normal distributions—the norm is interplay between differential normalities. Thus, the normal comes first and the norm is deduced from it.

1.1.2. Jürgen Habermas
The German philosopher Jürgen Habermas has—alongside Emile Durkheim and Michel Foucault, but also Anthony Giddens—been extremely influential in forging the conceptual appreciations of the society—normativity—law nexus. The following is meant to provide a brief summary of his philosophy in this regard, while remaining acutely conscious that it can at best be a brief summary and that the nexus considered constitutes but a very minor—and late—aspect of his authorship. Habermas has treated democracy and democratic theory from several aspects and, in considering the development of his thinking concerning normativity and law, it is imperative to emphasise that his central concern is “to provide a normative account of legitimate law”.[33] Habermas’ path to the provision of such legitimacy of the law followed, initially at least, clearly counter-factual idealisations. It reposes on two key Habermasian concepts, namely, first, the discourse principle, which postulates that “A rule of action or of choice is justified, and thus valid, only if those affected by the rule or choice could accept it as reasonable discourse”. By applying the principle to the subject of moral discourse and legal-political discourse, he arrives at the second concept, namely the dialectic principle of universalisation, namely: “A [moral norm] is valid just in case the foreseeable consequences and side-effects of its general observance for the interests and value-orientations of each individual could be jointly accepted by all concerned without coercion” (in a sufficiently reasonable discourse).[34] It should be emphasised that this requires not only that one seeks the input of others in forming one’s conscience, but that one gains their reasonable agreement. Since individuation, however, depends on socialisation, any system of morality must thus protect the integrity both of the individual and of the web of relationships and cultural forms, within which the individual operates.[35] This, again, means that each individual must condition his or her judgment about the moral import of his or her values and interests on what all participants can freely accept. The pluralistic and pluri-cultural character of modern, Western society makes the prospect of legitimacy on these terms extremely unlikely. Habermas therefore claims that

the democratic principle should refer not to consensus, but rather to something like a warranted presumption of reasonableness … citizens may regard their laws as legitimate insofar as the democratic process, as it is institutionally organized and conducted, warrants the presumption that outcomes are reasonable products of a sufficiently inclusive process of opinion- and will formation.[36]

1.2. Governance
Times of systemic change in international governance arrangements are generally regarded as the most dangerous. In this context, one may wish to recall the fact that the Chinese written symbol for crisis consists of the two characters, which are placed as a sort of incipit to this chapter. Each character, however, singly constitutes a word and when used alone, the first means “danger”, the second “opportunity”.[37] The apparently inexorable imposition of the globalisation phenomenon and the collapse of the Soviet Union, paired perhaps with the fear of existing and potential pandemics, have created a quasi-certainty that the world and its systemic governance structure are living through a major crisis, which, so it has been claimed, the existing world governance arrangements will not survive. If, indeed, the world is living through a governance crisis, then the question must be asked—to return to the notion of wisdom embedded in the Chinese symbol for crisis—if observers have unduly emphasised one aspect over the other, and in particular have concentrated on the undeniable danger inherent in change rather than on the, equally undeniable, opportunity offered by change. Be that as it may, the present thesis examines one of the arguments advanced in support of the view that globalisation represents a danger, viz. that the increase in trade, the astonishing advancements in information and communication technology, and the deregulation of the financial markets, have created the ideal conditions not only for an intensification of international trade, for more liquid, and therefore more efficient financial markets, and, perhaps, for better and deeper inter-cultural understanding, but also for economic actors, who wish to profit from these conditions of alleged openness to further their own nefarious purposes. With the emphasis being on economic actors[38] and on their nefarious acts, it seemed intuitively appealing to concentrate on the core preoccupations of such actors in a globalised world, sc. international flows of monetary funds. The “nefarious” acts and purposes of such actors suggested in and by themselves that such funds, by necessity, would be of non-declared origin. Although Combating the Financing of Terrorism (CFT) [39] programmes had been in existence prior to 11 September 2001, the terrorist attacks in New York and Arlington, United States, [40] led to the intensification of their application. This development showed that the presupposition that international flows of monetary funds for use in terrorism by necessity must be of non-declared origin, does not hold because some funds, used to further terrorist activity, have been proven to originate from perfectly legitimate—“declared”—sources. Notwithstanding this theoretical difficulty, which also sits ill with so-called money laundering studies[41]—on a theoretical as well as on a practical level—the term “non-declared origin” has been retained although a minority of terrorist funding does not conform to it since it is not the origin but the purpose, which is “non-declared”.

1.2.1. Transnational Economic Enterprises
In the present context, the astonishing growth and influence of so-called transnational enterprises (TNEs) is of core import on two levels. First, their diffusion across the planet, cosmopolitan ideology, and local and global socio-political influence have had immense influence on the way we look at ourselves and the world.[42] Second, the development of TNEs, as an important part and to a certain degree one of the originating forces of globalisation, therefore plays an important model role in organised crime’s mimetic relationship to the surrounding world (Findlay, 1999, 2008; Auerbach 1953). The Economic and Social Council of the United Nations proposed a definition of the term "transnational corporations" for the Code of Conduct for Transnational Corporations.[43] The approach agreed upon was to specify the main characteristics of a transnational corporation, by defining it as an enterprise that (a) comprises entities in two or more countries, regardless of the legal form and fields of activity of those entities; (b) operates under a system of decision-making, permitting coherent policies and a common strategy through one or more decision-making centres; and (c) in which the entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the activities of others and, in particular, to share knowledge, resources and responsibilities with the others. Panić[44] points to the transnational enterprises, TNEs, as having played and, indeed, as playing a major role in the globalisation of the world economy: “The growth of transnationals in virtually every sector of modern economies, especially since the 1970s, has added a completely new dimension to global specialization and exchange”.[45] Globalisation is considered in chapter 2, viz. if, indeed, globalisation exists in the sense of the liberalisation of financial markets and of the markets in goods and service, the effects of which have been made so much more intensive by the qualitatively and quantitatively remarkable developments in communication and data storage technology. But not only in the sphere of economics has globalisation had a transformative influence. An obvious example is the international distribution of phonographic and cinematographic products, which, on the one hand, is the response to globalised taste, while, on the other, also serves to create globalised taste. The propagation of, in particular US, transnational enterprises across the planet has, however, had another, less known but rather important effect, which in shorthand is referred to as Faci, i.e. forensic accounting and corporate investigations. In order to appreciate and correctly report their financial status, transnational enterprises had to streamline the record-keeping of their domestic as well as non-domestic branches by imposing uniform accounting regulations throughout each individual transnational enterprise and by establishing world-wide auditing functions consisting of teams, who inspect and audit each branch office in an unending cycle according to the centrally determined accounting and auditing guidelines. In this way, commonly accepted and, indeed, commonly understandable, transparent accounting and auditing rules were slowly established around the world. Likewise, the use, based on the ultimate, central corporate authority, of corporate investigations imposed, step by step, US concepts of corporate governance around the world, e.g. in matters as disparate as the prevention of corruption of foreign officials and of sexual harassment. This implementation was, as is only understandable, unequal both between countries and inside countries. Some countries more readily accepted principles of US corporate governance. For instance, by the establishment of so-called joint ventures (JVs) in the People’s Republic of China, the Chinese partner insisted from the beginning of such JVs on training by the US partner not only in technology but also in corporate governance.[46] Similar partners in the Middle East did not make the same requests. But also within countries differences in adaptation of such governance systems are unequal: Service organisations and industries that are exposed to international markets and, indeed, to international corporate or trading partners, are much more prone to accept at least parts of US governance that entities that are not thus exposed. The influence of transnational enterprises has also been experienced, over the last thirty years or so, on the level of national and international legislation, but not, however, as a simple, linear development, but rather in a kind of "zigzag" manner, in that transnational enterprises move to exploit opportunities created by deregulation and liberalisation and then, once invested, demand further deregulation and liberalisation. Although world or, indeed, corporate governance on the one hand is not the primary subject matter of this thesis and, on the other, is too vast to be dealt with in any meaningful way in a shortened form, yet subsections of governance are of import in the context of an evaluation of the flows in and through financial systems of monetary funds of non-declared origin. There are two major issues that render the subject matter non-transparent and, as a consequence, call for its study to be based on indirect methods, i.e. methods that acknowledge a lack of directly observable data and that therefore are based partly on such quantitative and qualitative data as are, indeed, extant, but partly, and more importantly, on the study of the effects of the unobserved parts of the dataset. First, funds of non-declared origin are of non-declared origin because it is in the owners' interest that they should be so. Existing and proposed legislation could, at least in theory, alleviate this problem by establishing various forms of financial regulation. Secondly, however, the financial transactions of this nature, i.e. of funds of non-declared origin transiting the international financial system, constitute an immensely small part of daily financial transactions that are not only perfectly legitimate, but are also vital for the well-functioning of the international capitalist system, to which no alternative is immediately apparent. As it has been expressed in a well-formed quip, looking for illicit transactions in the international financial system is not at all like looking for a needle in a haystack, it is like looking for a needle in a needle stack. The question could reasonably be asked why, in the first place, one would want to use time and limited resources on tracing such financial transactions? After all, whatever the origin of such funds, the crime or illegal or illicit action,[47] which generated the funds, is prior in time to their being present in the international financial system, and it would make more sense to inquire into the fund-generating circumstances, be they illicit traffics of various kinds, criminal acts, tax evasion, or the exploitation by the ruler of the riches of his or her country. Secondly, one might inquire if the efforts and costs put into so-called AML, i.e. anti-money laundering measures, are in any way commensurate not with the hoped-for results, but with the results actually obtained. When one compares the rather meagre results of a multi-billion dollar anti-money laundering programme in the United States with the vastly inferior financial and other efforts put into controlling the incoming sea-borne container traffic, which one would have thought much more dangerous from a societal point of view,[48] it does become legitimate to ask if the funds disbursed for anti-money laundering measures are the most efficient allocation of homeland security funding and of investigative efforts. This leaves one with two core questions that, unfortunately, transcend the scope of the present work, sc. who interprets and represents a (global) public good and how is it represented to the public. It remains clear, however, that global public goods are not normally generated and delivered by the major players on today's globalised international scene, i.e. the transnational enterprises, but by public institutions such as governments, or regional or international organisations. One scholar in the field, M. Panić, claims that TNEs will not invest in public goods or, indeed, in global public goods, and uses law enforcement as an example of such a public good, which TNEs will not provide. Panić's example, however, rather serves to illustrate the complexities of globalisation since, on the one hand, one does intuitively share his opinion that law enforcement is a public good exclusively and intimately linked with concepts such as sovereignty and jurisdiction, while, on the other, TNEs have created private security, i.e. private police forces, in circumstances, where often the public services should have provided the service. TNEs also act as subcontractors to law enforcement in a large sense, e.g. in the prison system on national level and in operative as well as educative security on international level.[49] In fact, there are today in the world more private than public police personnel.[50] Thirdly, it could be argued that the influx of capital into the legitimate economy is positive whatever the origin of the funds, since they make the markets more liquid and therefore more competitive, and, as the emperor Vespasianus taught us, pecunia non olet.[51]

1.3. Deviant Knowledge
When governments—on national and international levels—insist on continuing or[52] presupposing the efficacy of for example drug supply interdiction efforts, well knowing that use of assumptions about induction should inform them that such efforts will have no effect, these governmental decisions constitute uses of deviant knowledge. Deviant use of knowledge in this context can take at least two forms, either, as above, in the knowingly inefficient application of effort, or in ways in which legitimate uses of knowledge can be harnessed for criminal purposes through lawful economic activity. A relevantly typical example here is the use of highly skilled legal and accountancy advisers by criminals in particular in the money laundering phase. Wilful blindness can be classified a subset of deviant knowledge since if one decides not to avail oneself of a body of knowledge, which is implicit in the term "wilful”, then one must be aware of the existence of such knowledge and one must realise that by investigating one would gain access to it.243 Willingly closing one's eyes to knowledge available and relevant to one's decision process is thus factually deviant application of knowledge. The concept of deviant knowledge is formed from deviance studies. It should be distinguished from, indeed, it has hard boundaries towards medical deviance and deviant logic. In the aria of medical (psychiatric) deviance, the patient deviates from a norm, but does so under the impulsion of socio-psychological or hereditary stimuli and, although he or she may realise the impulsive non-normative nature of the act, can be said not to be able not to engage in it. This does not obtain for deviant knowledge. Likewise, deviant logic as developed by Susan Haack (Haack 1974), inter alia interrogates two-valued propositional and predicate calculi. My use of deviant knowledge does not encompass the questioning of so-called classical or Russellian logic. Instead, deviant knowledge refers to the deviant use of knowledge, typically by two sets of actions, (i) those of the liberal professions, who knowingly sell their knowledge set to organised crime or terrorist organisations; and (ii) those government officials, who sell their knowledge set to create an illusion of rule of law by implementing criminal justice programmes, for example supply-side narcotics enforcement and anti-money laundering, well-knowing that these are inefficient, intrusive, and expensive. For application of deviant knowledge in evaluating the criminal responsibility of US banking institutions, cf. 5.1.1.§1.
1.3.1. Counter-Intuition
“Counter-intuitive” is a much used or overused tag, which might not have been the subject of published research work before Arthur Gibson (2003). Although counter-intuition is applied also in mathematics, for example about Gödel’s proofs of the non-provability of the foundations of arithmetic (Gibson 2003, 16), the concept is perhaps best known from literary criticism. The birth of new literature is creative counter-intuition and its identity is not composed of that which it violates (Gibson 2007, 101). It is in analogy to the latter that I use the concept. The expectations of most observers, academic as well as lay, are that terrorism has been perpetrated and is being prepared for execution in the West and adequate funding therefore transferred to the West. To elaborate and test the inverse hypothesis is, therefore, counter-intuitive. Likewise, the US authorities have consistently claimed that the well-recognised presence of US dollar notes outside the issuing jurisdiction and the ensuing seigniorage accruing to the US Treasury are linked to the use of the US currency as a store of value and a means of exchange. To posit and test the hypothesis that the US dollar notes are, indeed, used as a means of exchange, but mostly in illegal commercial transactions, again constitutes counter-intuition. These are, in fact, the subjects of the following chapter.

Chapter 2

[pic]
Funds seized at drug raid in Mexico, 11 August 2007

Capital Movements, Globalisation, and Money Supply

2.0. Introduction
This chapter examines the flows of monetary funds in the world abetted by a discussion of globalisation and it provides the basis for the more specialised treatment in chapters four to six. It therefore rolls out three main issues of import for the discussion, sc. globalisation and crime, the economics of organised crime, and, most importantly, the use of the expatriate dollar. Giddens’ warning is noted in the chapter, namely that one should be careful not to perceive globalisation only in its economic aspects; nevertheless, because of the specificity of the thesis, this has to concentrate on economic globalisation. Spurred on by Naylor’s doubts that globalisation exists at all, in this chapter, the trade figures (imports and exports) for 12 European countries, chosen at random, are considered. In particular chart 2.3, trade (imports plus exports) as a percentage of GDP for the twelve countries, is persuasive in demonstrating a sharp increase in this ratio from 1954 to 2001.[53] In a second part of the chapter it is noted, emphatically, that “the economics of crime and crime control are now squarely within global political discourse”—in this following the Australian criminologist Mark Findlay. Napoleoni’s work is considered and her challenge of a possible interrelationship between transnational organised crime and the money supply is taken up. Maurice Blanchot, in L’Espace littéraire, from 1955, observes that every text needs a centre, but that the centre does not have to be in the physical centre of the text. In this thesis, one might argue that Chart 2.8 constitutes its centre. The chart shows decisively that the ratio between the currency component of M1 (physical money, cf. Appendix 1) and M2 (i.e. M1 plus all time-related deposits, cf. Appendix 1) behaves just as one would expect from 1950 to 1985, that is that it diminishes as cash is used less and less in the American economy being replaced by credit cards, direct debit, repayment of increased mortgage obligations, etc. From 1986, however, the ratio, inexplicably, increases. The most important of the results of the research is that the increase in US money supply cannot be explained by domestic use, at all, but only by an export of US dollar notes and that—contrary to the affirmations of the US Federal Reserve—such notes to a large degree are explainable by their use to settle illicit traffics. The chapter serves to illustrate, in particular, the use of the expatriate dollar for the settlement of illicit traffics of various kinds on the background of deviant knowledge. A cross reference between this chapter and subsections 6.2.1 and 6.2.2 will show where some of the expatriate notes are brought into use, sc. in the corruption payments of $200,000 per shipment of merbau (a Malay-Indonesian hardwood used in particular for flooring). The economist referred to in chapter 1, Loretta Napoleoni,19 claims that one of the most far-reaching and damaging effects of the deregulation of markets, in particular the financial markets, has been, first, the creation of the new economy of terror, i.e. that part of the international economic system run primarily by armed organisations to self-finance the armed struggle and, secondly, "the merging of the new economics of terror with the international illegal and criminal economy”. If we term the total amount of funds in the international flows of non-declared origin MS, MCF the part of MS, which originates from capital flight, MCR the part of criminal origin, and MTE the part, which is connected with the so-called new economy of terror, 19 then a first, central dynamic of the flows under consideration can be depicted as:

MS = MCF + MCR + MTE

It is clear that one needs, initially, to raise a question of logic regarding Napoleoni's taxonomy, as she claims, based on her own, non-published calculations, that one third of the funds in the new economy of terror (MTE) is of legal and two thirds of illegal origin. It is not evident why the latter two thirds should be included in a separate category, rather than be counted within MCR, funds of criminal origin, if one is to consider the origin of the funds, rather than their potential use. In order to determine if globalisation has led also to globalisation of crime,[54] two questions impose themselves: (i) what is meant by globalisation and (ii) does globalisation exist and, if so, in what does it consist. According to the OECD, economic globalisation can be measured in four ways: (i) international trade as a percentage of GDP, (ii) FDI (foreign direct investment), (iii) activity of MNEs,[55] and (iv) production and international distribution of technology.[56] Panić[57] notes with regard to globalisation that: "There is little agreement about the meaning of the term, even less agreement about the processes that bring globalization about, and no agreement at all about its effects”. Nevertheless, most scholars agree that the term is in some way linked to the economy. For example Clark,[58] who in 1997 reviewed the then available literature, concluded that “the vast majority of globalization theorists present it as a characteristic of economic activity”.[59] Some scholars, e.g. Robin Thomas Naylor,[60] do not believe that there has been an economic globalisation measured as international trade[61] (global imports and exports) versus world GDP. They furthermore doubt that the technological development has had a major influence on illegality compared, say, with the development of the steam engine and the telegraph. A third issue connected with an alleged globalisation is hotly disputed, viz. the unequal distribution throughout the world of its benefits, if benefits there are. This discussion, although of obvious import, lies outside the perimeters of the present thesis and will not be evaluated. Rather, this chapter will examine the main competing claims, i.e. the sceptical view that there is no globalisation, and the more radical view that an important change, primarily but not only economic, whereby economies around the world are becoming intertwined and interdependent, is taking place. It is important to emphasise that the concepts touched upon above are not synonyms for another hotly disputed term, the Gross Criminal Product, GCP, but that they are much wider. In fact, GCP may constitute only one third of the funds of non-declared origin, with which the present work is concerned.[62] It is presumably not possible, at our present state of knowledge, to evaluate the so-called GCP in any meaningful manner. The chapter will, nevertheless, approach this problem by examining, as a starting point, the claims made by one scholar, sc. the economist Napoleoni. If globalisation exists, if one of its major characteristics is the expansion—and interdependence—of international trade, and if transnational crime follows in its footsteps,[63] it is logical to presume that such international illegality consists in international traffics of various kinds, in arms, humans, drugs, etc. Such traffics necessitate payment settlement in order to be completed and, therefore, a means of payment, which necessarily must be easy to transport, non-traceable, and highly liquid, i.e. easily acceptable almost globally. The US currency has, traditionally, played this role, although the Yen, the Swiss Franc, and the Deutsche Mark (prior to its replacement by the Euro in 2002) have also played a role in the settlement of international criminal transactions, albeit minimal when compared with the usage of the US currency. The almost monopolistic status of the US dollar as the preferred means of settlement of international criminal traffics may be somewhat threatened by the creation of the European Union currency, the Euro. A report from January 2005 questioned central bankers from around the world: two thirds of these explained that they, over the preceding two years (January 2003 – January 2005), had been buying Euros and selling US dollars.[64] The same report makes reference to a number of experts, who believe that the Euro will replace the dollar as the currency of reference, a role the US dollar has played since the Second World War. To some degree this might be reinforced by examination of the photograph placed by way of an illustration at the beginning of this chapter. This depicts funds seized at an illicit drugs enforcement action in Mexico on 11 August, 2007. Although the vast majority of the seized notes are US currency, one does note, in the foreground, stacks of Euros. In particular the €500 note is vulnerable to use in the settlement of illegal trade: it is, however, surprising to find these € notes so far from Europe and in the very backyard of the USA. Finally, the French daily newspaper Le Monde claimed that the Euro might have replaced the US dollar as currency of reference on 20 September 2007, the day the Euro broke through the barrier of €1.00 = $1.40.[65] Nevertheless, the US dollar is still believed[66] to be the trafficker’s currency par excellence, inter alia because the decision-makers in the so-called Euro zone are viscerally opposed to the use of the Euro outside the zone.[67] It is self-evident that to measure the use of the US currency for the settlement of international criminal traffics, is not possible. Nevertheless, as a proxy, albeit admittedly not a very precise one, the chapter will attempt to examine the important question of expatriate US currency, i.e. US currency circulating in the world outside the USA. The photography, referred to above, sc. of the seizure of funds at an illicit drugs enforcement action in Mexico on 11 August, 2007, in an exemplary way exemplifies two main concepts discussed in this thesis, (i) deviant knowledge and (ii) network theory. Deviant knowledge because the seized funds clearly show the use of US dollar notes for illicit trafficking, an idea not officially entertained by the US authorities; network theory because of the obvious malfunctioning of a part of the network, cf. section 3.3 for a furthermore discussion of this seizure and its illustrative value in the context of this thesis.

2.1. Globalisation and Crime
As noted in the introduction to this chapter, there is no agreement about the term globalisation, although most scholars concur that the term is in some way linked to the economy and, as Clark (1977) concluded, they often present globalisation as a characteristic of economic activity”.[68] Anthony Giddens reviewed the status of the discussion in 1999, from his presuppositional viewpoint. He observed on this occasion that there seemed to be two sets of opinions, those who maintain that there have been no major changes and that therefore the discussion of globalisation was just that, a discussion, and those with a more radical view, sc. that “the current world economy has no parallel in earlier times”.[69] Giddens accepted the latter point of view, but warned that it would be a mistake to see the phenomenon almost solely in economic terms: “Globalization is political, technological and cultural, as well as economic”.68 The world-wide distribution of technological innovations, from the computer chip itself to more and more sophisticated hand-held communication and data storage devices not to mention the conception and implementation of a world-wide geostationary positioning system, GPS, seems to make any discussion of the existence or otherwise of a technological globalisation superfluous. The existence of a globalising influence on cultural phenomena is difficult to substantiate with hard proof, although for example the world-wide recognition of non-verbal trademarks, so-called logos,[70] is a persuasive element, as is the world-wide distribution of musical and cinematographic creations. One only needs to think of the logo used by the sports equipment company, Nike, which is immediately recognised in every part of the world, to see the point. Furthermore, the political repercussions of the alleged globalisation may, according to Giddens, be discernable in the resurgence of local nationalisms as “a response to globalizing tendencies, as the hold of older nation-states weakens”.68 It is far from certain that Giddens is right on this point. One would suggest that an alternative explanation suits the circumstances better, sc. the movement from the centre to the periphery and from the periphery to the centre to use an expression from Dante Alighieri, who observed this contrariwise, but complementary movement:[71]

Dal centro al cerchio, e sí dal cerchio al centro movesi l'acqua in un ritondo vaso, secondo ch'è percosso fuori o dentro (:)[72]

In a wider context, this gives rise to considerations of the movement from the centre to the circumference, and from the circumference to the centre. This dual movement is not restricted to organised crime and one can observe the same movement both as regards globalisation in a "world" context and in a more regional one. For instance in the second half of the twentieth century, which saw the creation of the European Union, one notices, on the one hand, a strong force of concentration (sc. in a central administration), and, on the other, a clear revival of regional identities and cultural values (the Basque and the Breton cultures, for example, including their languages). In the wider globalisation the same phenomenon obtains, i.e. at the same time the intensification of the local and of the global. A full discussion of this fascinating subject unfortunately lies outside the scope of the present work, with the exception of the globalisation and at the same time very territorial aspects of organised crime.[73] Adrian Hastings notes that

It is precisely the evil of nationalism, when it is fully blown, to deny both the divisibility of sovereignty and the reality of a plurality of loyalties and identities within a healthy world. What we should rather look for are ways of ensuring that movements, at present so clamant, towards both ever larger and ever smaller units of power (for instance the EC on one hand, and independent Scotland on the other) do not undermine either the diversity of local ethnicities or the sense of far wider communions.[74]

Amartya Sen[75] takes up a similar point in Identity and Violence, sc. that society consists of a large number of “collectivities” (the term is used in a broad sense) and that one and the same person can belong to many such collectivities at the same time, without any inner contradiction. One obviously must agree with both Hastings and Sen, while concurrently sounding two warnings: (i) if belonging to one or more specific collectivities becomes an alienating experience, then the societal consequences may be considerable as, indeed, more directly (ii) if the purpose and operation of one or more of such collectivities are at odds with the general values of the society of which they are part. In the former case the resultant will be societal unrest of various sorts, while in the latter the very survival of society in that particular form will be in danger. This concurrent centripetal and centrifugal action has been described by a neologism, glocal. International crime represents both a cultural and a political exemplification of the internal logic of globalisation; if, as the present writer, one perceives international organised crime as a reflection of society and international society, then there is nothing particularly strange in this phenomenon, which obtains in complete parallel with globalisation, viz. that organised crime at one and the same time extends its reach, internationally, and concurrently strengthens its local grip. Most, albeit not all crime on international level has economic gain as its purpose and therefore, in a large sense, is linked with the economy. Likewise, so-called globalisation is mainly economic as observed by the OECD: [76]

The term “globalisation” has been widely used to describe the increasing internationalisation of financial markets and of markets for goods and services. Globalisation refers above all to a dynamic and multidimensional process of economic integration whereby national resources become more and more internationally mobile while national economies become increasingly interdependent.

In the following subsection, economic globalisation will therefore be substantiated as a necessary background to the following section, Economics and Organised Crime. Economic globalisation can, undoubtedly, be measured in many ways, but several aspects of international economy seem to offer themselves up as potential proxies for the phenomenon, sc. foreign direct investment (FDI), international trade, and the gross domestic product.

2.1.1. Foreign Direct Investment
FDI may consist in the creation or expansion of a subsidiary in another country, but may also be the investment in an already existing corporation. FDI, however, involves not only transfer of resources, but also control over the subsidiary, which is generally defined as the possession of a minimum of ten percent of the ordinary shares or stock held for a minimum of one year.[77] Conversely, according to US collection of statistics methodology, a US company is considered foreign-owned if ten percent or more of its stock is held by a foreign company.[78] This definition obviously gives rise to the interesting situation that a US multinational enterprise, i.e. incorporated in the United States, for statistical reasons can be considered a foreign-owned company, viz. if more than ten percent of its stock is held by a foreign company. FDI thus involves transnational control and, although it is easy to forget, transnational risk and since investments in general seek security and profit in that order, over time the sheer existence of FDI is a proxy for economic internationalisation and FDI volatility a proxy for confidence in the international political economy. Since the progression or otherwise of foreign direct investment flows therefore constitutes a major element in the appreciation of economic internationalisation—and therefore globalisation—as well as a gauge of the status of international political economy, Appendix 2 indicates quinquennial totals of FDI flows to avoid peaks for individual years and instead permit a longer-term view of the data.[79] Twelve European countries have been chosen to constitute the “sample”.[80] Chart 2.1, below, illustrates FDI flows, i.e. the sum of inflows and outflows, for Sweden, the United Kingdom, and for the sample. Foreign direct investment is one of a number of proxies for globalisation and the chart clearly portrays the amazing growth in FDI. The results for the 12 European countries, which constitute the sample, are indicated on the chart as are those of two of the twelve countries, chosen totally at random, in order to show that the overall growth is generated by the totality of the countries in the sample and not by one or two economic "locomotives”. The geometric mean of the quinquennial growth figures is 76.9%, i.e. in average each five-year period from 1970 to 2005 shows a 76.9% growth on the preceding five-year period. Although the sample is limited to Europe and while much of the FDI growth observed will have been between European countries or between European countries and the United States, i.e. intra-Western investment, the growth nevertheless shows a clear economic interdependency between the countries sending and receiving FDI.

Chart 2.1. FDI 5-Year Totals. 12 European Countries; Sweden; UK

Underlying dataset: UNCTAD (WIR 2008)[81]

2.1.2 International Trade As trade restrictions have been progressively abolished after the Second World War through negotiations in the framework of GATT and its successor, WTO, one would expect international trade to expand. The year-on-year growth in trade as percentage of GDP for 12 European countries is indicated in Appendix 4. Chart 2.2, below, illustrates the quinquennial growth in trade for the 12-country sample as a whole for the years 1955 to 2003. There is a healthy expansion of growth of international trade from 1955 to 1970 of a few percentage points over growth rates of preceding five-year period. Then an important expansion from 1970 to 1975, followed by an overall contraction in the growth rate until 2000, and a renewed expansion from 2000 to 2003. [82]

[pic]

Growth rates in trade in chart 2.2 are based on totals of trade figures in Appendix 4. Underlying dataset is from UNCTAD (2005)

Trade should, however, be seen in parallel with foreign direct investment since the latter implies overseas investment and thus “overseas production”, whereby the internal market in the host country is supplied from within the country. Such intra-host country supply will not only not be reflected in international trade statistics, but will also have a negative impact on same as previous international exports to the host country will no longer take place. A persuasive element in an evaluation of the existence or otherwise of globalisation is the part trade plays in the creation of GDP. Appendix 4 shows the year-to-year trade (imports + exports) figures as a percentage of GDP for twelve European countries and Chart 2.3, below, shows trade as a percentage of GDP for the twelve European countries in question, but as quinquennial geometric means.

[pic]

The table shows a very strong expansion of international trade measured as a percentage of GDP of the twelve countries, which constitute the sample, and is therefore another core indicator of that expanding interdependency, which is one of the leading characteristics of globalisation.

2.1.3. Gross Domestic Product, GDP
The growth in the gross domestic product in itself, i.e. irrespective of international trade, might be used as a further proxy for globalisation. Chart 2.4 illustrates the development of GDP in the 12 European ‘sample’ countries and in the world in so-called international dollars.[83] Although the development of the GDP in the 12 European countries is somewhat slower than that of World GDP, yet the very robust overall expansion may be attributable to the liberalisation of financial markets—and subsequent cross-border investment, inter alia via foreign direct investment—and deregulation of trade.

[pic]

Chart 2.4
(Source: Maddison (2006, 439-441) and underlying dataset.
1990 International Geary-Khamis dollars x 10E681 )

2.1.4. Population
Population growth[84] is, as such, not an indicator of globalisation, but chart 2.5 has been adduced to show that the observed, continuous growth in foreign direct investment, growth in international trade when measured against GDP, and, in particular, growth in GDP are not ascribable to population growth, as the latter is much less important than the former three. In other words, the population growth rate in itself is obviously not sufficient to explain the expansion in FDI, GDP, and international trade.

[pic]
Source: Maddison (2006), vol. 2, Table 1a

2.2 Economics and Organised Crime
On the empirical level, the term the Economics of Crime typically refers to the question of the profits that organised crime may generate and on the theoretical level to the much more substantive question of organised crime as an economic actor. Among scholars there is an ongoing, rather heated debate between those who think that the profits of crime are over-estimated, e.g. Besozzi (1999),[85] and those who take a more alarmist view of the role of ‘criminal’ profits in the world economy, e.g. Fabre (1999).[86] A second debate has as its main opponents those who—apart from the profits of crime—are worried about the reach of crime, i.e. crime as a global phenomenon. For example, on the one hand consider Jean Ziegler[87] and Louise Shelley,[88] and, on the other, a minority of scholars, who are very critical of the issue of organised crime in general and transnational organised crime in particular. The latter argue that the phenomenon is being exaggerated by the law enforcement community with a view to obtain increased budget allocations and by the political class as a means of gaining democratic consensus for societal control mechanisms, which otherwise would not have been acceptable. They point to two main areas, which they see as representative, sc. the “militarization” of interior security and the growing influence of International Law on public national policy. These scholars are perhaps best represented by David Nelken[89] and Maria Luisa Cesoni.[90] However, when evaluating these arguments, one needs to keep in mind Giddens’ general definition of Modernisation as “a capitalist system of commodity production, industrialism, developed state surveillance techniques, and militarised order”.[91] One might therefore ask if control mechanisms, militarization, and so forth, are organic reactions to the complexities of modern and post-modern society rather than conscious designs on the part of government officials or the political class. As regards the more crucial problem and consequent analysis of the function of organised crime as an economic actor[92] or as organised crime in the international economy, Mark Findlay quite rightly observes that[93]

Just as international treaties are becoming identified with such management initiatives,[94] and crime is identified amongst the problems to be 'managed,' so too the internationalisation of crime control is being promoted as a reaction to the assumed expansion of crime in a global economic context (…) The economies of crime and crime control are now squarely within global political discourse.

Findlay’s use of the designation “the economies of crime” emphasises the need to view crime as a process of interconnected relationship working towards the maximisation of profit[95] or, one might say with Jean de Maillard, with regard to organised crime and globalisation, that one witnesses the consubstantiality of crime and globalisation, which is an organic part of the economic and financial basis for the new forms of production:

(L)a mondialisation, fondée sur le principe de la déréglementation, sécrète une criminalité consubstantielle, inscrite dans la logique des nouvelle formes de production économiques et financières.[96]
2.2.1. The Scope of the Problem
Initially, a consideration of the work of the previously mentioned scholar, Napoleoni,[97] will be helpful. She claims19 that the New Economy of Terror (a concept developed in her 2003 book, Modern Jihad, cf. infra) has merged with the international illegal and criminal economy. The resultant yearly flows of funds, which she calculates at $1.5 x 10E12, consist in three parts:

1. Capital Flight, $5 x 10E11, i.e. money, which "moves illegally from country to country, undetected and unreported”.[98] Here is considered that part of Capital Flight, which neither consists of legitimate legal transactions, permitted under local laws, nor includes illegally derived funds. 2. The Gross Criminal Product, $5 x 10E11. Money generated primarily by criminal organisations.[99] 3. The New Economy of Terror. $5 x 10E11. Money produced by terrorist organisations; approximately one third is from legitimate businesses and the rest from criminal activities, primarily the drug trade and smuggling.[100]

In summary form, the three categories are: illegal, criminal, and terrorist funds, the latter consisting partly in funds of legitimate origin. They are definitely overlapping. The resultant $1.5 x 10E12 flows into the European and North American economies every year and constitutes a vital element in the cash flow of these economies. It is not clear from Napoleoni nor is it, indeed, from other scholars, if this influx of funds of non-declared origin into the European and North American economies from a purely economic point of view is positive, negative, or neutral with regard to the economies in question. Raymond W. Baker paints an alarmist image of the noxiousness of money laundering for the United States as well as for the international economy in his 2005 book[101] as well as in his testimony to the US Senate.[102] His main concern is that so-called capital flight is used as a cover for money laundering (cf. chapter 5), "thereby weakening our ability to prevail in facing some of the most perilous threats to our society”.100 Surprisingly—and excitingly—Napoleoni makes the claim that not only are the above flows known or to a certain degree calculable, but so is their growth. She points out that there is a clear interdependency between the growth of the terror, criminal and illegal economy, and the growth of the U.S. money supply.[103] This is an exciting venue of investigation, for which see below, Section 2.3, The Money Supply. As a final point, Napoleoni maintains that an attempt to sever the interdependency between the Western economies and the illegal and terrorism economies might have negative consequences on the Western economy in general and the U.S. economy in particular. She points to the Patriot Act as such an attempt that has had negative impact on the dollar, since legal and illegal businesses in Asia and Africa are induced to switch to the Euro (€) as a kind of "international currency", one is tempted to say pecunia franca, in order to avoid the restrictions imposed by the Patriot Act.

2.3. The Money Supply
Before assessing Napoleoni's claim, above, concerning the US money supply, it is important to underline at least two hidden premises. These are, first, that if U.S. currency is taken out of the United States to exercise, on international level, the three main functions of currency, i.e. a means of exchange, a counting unit, and, indeed, a store of value, it would be in the form of notes not coins.[104] Secondly, it is assumed—and will be assessed below—that for ease of transportation, the biggest denomination notes are exported, i.e. the US $100 notes,[105] rather than the smaller denomination notes. In fact the U.S. Federal Reserve System issues new currency, i.e. M1 (see appendix 1) expands, in a way for which there since the 1980s has been no purely domestic explanation. Only the exportation of such currency and its circulation abroad would be a satisfactory hypothesis. For the year 2000, as much as two thirds of M1,[106] i.e. $5 x 10E11, was reportedly taken abroad and held abroad. It is probably the case that so much US currency is held abroad because it is highly liquid, universally accepted, and untraceable. Since this study excludes vault cash, bank holdings are ipso facto excluded and US currency held outside of the United States can, from the standpoint of empirical logic, only take one of two forms; it is either circulating or it is being hoarded. In the period of liberalisation of the financial markets and the considerable reduction in commerce restrictions, it is perhaps not surprising that also the amount of illegal traffics would appear to have increased, drugs, humans, arms, etc. It is reasonable to think that the US dollar—and in particular US $100s—is the preferred means for settling such deals. Therefore, if such traffics expand in a manner so significant that the expansion would have an influence on currency demand, then one would expect to see an expansion in US money supply, too. Also, when considering the period after the Second World War, in which the use of the US dollars has been internationalised, if the world traverses a period characterised by many, large or relatively large civil wars, then one would expect the US money supply to expand since at least one side in such intra-national conflicts would have to buy weapons, explosives, ammunition, and other supplies on the so-called black market and, one may suppose, settle such purchases with hard currency. Nothing in the above is meant to indicate that only an increase in illegal traffics can cause the US money supply to expand. What one does attempt to imply is (i) that the consistent expansion in the US money supply from 1985 coincides with the increase in illegal traffics; (ii) that there is no domestic explanation for the expansion of the currency part of US M1, which in fact should have continued to contract; and (iii) that there does not seem to be any external explanation of the expansion and in particular of the fact that this began in 1985. There are many ways of evaluating the amount of US expatriate currency, cf. Porter and Judson (1996)[107] and Brian Doyle (2000).[108] There are likewise many explanations of this phenomenon, cf. e.g. Allison and Pianalto,[109] who believe that the liberalisation and "democratisation" of economic systems around the world have led to the creation of inflation and inadequate financial sectors. The latter have then induced the population in such countries to use the US dollar both as a means of exchange on business level and as a store of wealth on household level. In the period after the Second World War, a series of household settlement methods were introduced in the developed world, which have consistently diminished the need for using cash: cheques, directs debit arrangements, and, in particular, credit and debit cards. A 1995 study[110] in the USA clearly showed the decreasing use of cash in US households. One would expect the amount of currency outstanding to grow at approximately the growth rate of consumption or, rather, a little less, since the growth in consumption—and therefore the growth in payment settlements—is offset by the gradual shift in payment settlement patterns away from cash and towards non-cash settlement, cf. table 2.6.

Table 2.6. Use of Cash, US Households, 1984 - 1995[111]
|Year |Monthly transactions|Monthly cash |Average cash on a |Cash in hand before |Cash Acquired in |
| | |payments |given day[112] |replenishment[113] |$100 (%) |
|June 1984 |15.6 |$633 |$148 |$50 ($196) |n/a |
|June 1986 |15.3 |$669 |$153 |$50 ($207) |n/a |
|May 1995 |7.2 |$301 |$100 |$27 ($149) |23 |

Also in the non-cash payments, methods have changed significantly. In particular, credit and debit card payments have increased and cheque payments decreased as shown in table 2.7. A further point, brought up by the Economist, is that since household debt in the US and in the UK has gone up at least from 1987, then that fact alone—and even more so if combined with an increase in the use of non-cash payment methods—must mean that currency in circulation in the US and UK has decreased substantially, since a larger and larger part of disposable income is absorbed by debt repayment, which does not involve the use of cash.[114] In this context, chart 2.8 is very persuasive. It shows the ratio between M1c and M2 (cf. appendix 1) for the period 1960 to 1995. As one would expect, the ratio sharply decreases, as funds are moved from non-interest bearing accounts in M1 to interest-bearing instruments in M2 and as the use of currency in the USA diminishes. From the mid-1980s, however, this trend is sharply inversed; no purely domestic explanation exists for this sudden trend, since, cf. table 2.6, domestic demand contracted substantially from average monthly US household payments in cash of $633 in 1984 to $301 in 1995.

Table 2.7. Percentage of Non-Cash Payments, USA, 1983 – 1995
|Year |Cheques |Credit cards |Debit card |Paperless and |Direct debit |
| | | |at POS |paper-based current | |
| | | | |transactions | |
|1983[115] |91.4 |7.2 |0 |0.9 |< 1 |
|1987 |82.9 |15.3 |0.1 |1.1 |0.5 |
|1991 |81.6 |16.0 |0 |1.6 |0.8 |
|1995 |76.5 |20.1 |0 |2.3 |1.2 |

(POS: Point of Service)
Source: BIS (1985, 100)[116]

The US Federal Reserve System perceives Federal Reserve notes, i.e. US dollars notes, uniquely in terms of a commodity; the Federal Reserve System provides this commodity to whoever is willing to buy.[117] Furthermore, such expatriate currency, in casu the US dollars, also provides the issuing country, USA, with an appreciable income through seigniorage, cf. e.g. F. Mishkin[118] and the US Department of the Treasury, which states that in 2005, seigniorage (defined as “earnings from the assets that back the currency”) totalled $29 x 10E9, of which $21 x 10E9 in earnings, about one percent of federal receipts, was remitted to the Treasury.[119] In the same report, the Treasury estimates that nearly sixty percent of all banknotes in circulation, or about $450 x 10E9 of the $760 x 10E9 in circulation as of December 2005, are now held abroad.[120]

Chart 2.8.
[pic]
Source: Porter & Judson (1996, 889, Fig. 1)

2.3.1. Measuring Expatriate Currency
There are few direct data sources available on currency circulating outside of the issuing country. For example, for the United States there are two such sources, viz. the United States Customs Service Reports on International Transportation of Currency and Other Monetary Instruments and the reporting submitted to the Federal Reserve Bank of New York by commercial banks exporting funds. However, of these the former is not reliable, because of under- and possible double reports, and the latter is confidential and thus not available to researchers. Therefore, in order to evaluate the magnitude of such funds, one needs to use indirect procedures, which are not absolutely precise; nevertheless, since the results of several of the more common of the indirect methodologies converge, their overall robustness appears validated. For the USA, the Federal Reserve Banks are responsible for the emission of US dollar notes of the denominations $1, $5, $10, $20, $50, $100 (the issuance of coinage is under the tutelage of the US Treasury Department) and also for receiving excess funds held by the more than 3,000 member banks. $20s are in more common use than $100s in the United States, but $100s make up sixty percent of the dollar value of all outstanding US currency.[121] The Federal Reserve System also receives and destroys notes that are soiled, torn, or otherwise no longer useable; the amounts involved, however, are so small that they can be disregarded in the present context. Federal Reserve notes, i.e. US dollar notes, are exported by commercial banks. Unfortunately, although the commercial banks do report to the Federal Reserve System the amounts of notes exported, such data are considered proprietary information belonging to the banks in question and the Federal Reserve System cannot make the information available outside of the Bank.[122] Federal Reserve System statistics for the 4th quarter of 1995 show, cf. table 2.9, that the New York City FRCO[123] issued nearly 83% of all $100s (in value from 1974 to 1995, incl.)

Table 2.9. US Currency Issues. 12 Federal Reserve Banks. 4Q95
|Federal Reserve District |$100s Issued |All Denominations Issued |
| |(%) |(%) |
|Boston |4.4 |10.7 |
|New York |82.8 |80.5 |
|Philadelphia |3.0 |-0.7 |
|Cleveland |4.5 |13.0 |
|Richmond |6.7 |9.4 |
|Atlanta |-15.9 |-34.8 |
|Chicago |13.8 |29.0 |
|St. Louis |3.7 |3.8 |
|Minneapolis |1.7 |1.9 |
|Kansas City |3.0 |4.3 |
|Dallas |1.2 |-3.6 |
|San Francisco |-9.1 |-13.4 |
|Total[124] |99.8 |99.1 |

A further restriction in the data collection and in research in the present context, i.e. the evaluation of expatriate currency in what some authors have called the shadow economy, is that Federal Reserve researchers assume that all or the vast majority of US dollar notes being exported are exported by commercial banks (with the exception of small amounts that are imported and exported by travelling business persons or by tourists). That this is an obvious weakness is made clear both from anecdotal evidence of the use of so-called body-wraps[125] and by well-known examples, the best known of which is the so-called Crazy Eddie Case, cf. box 2.10, in which at least $7 million were brought out of the USA taped to the bodies of couriers.

Box 2.10. Crazy Eddie[126]

| |
|Crazy Eddie was a chain of stores in New York selling electronics, which was started in 1971 by Eddie Antar and |
|his father, Sam M. Antar. The chain’s exuberant advertising in local television and radio is well known to |
|anybody, who visited the states of New York or New Jersey, while the company was still active. Yearly sales at |
|the peak of the company’s life were in excess of $300 million. |
| |
|Co-founder Eddie Antar cashed in millions of dollars worth of stock and resigned from the company in December |
|1986. |
| |
|In February 1987, the United States Attorney's Office for the District of New Jersey commenced a federal grand |
|jury investigation into the financial activities of Crazy Eddie and in September 1987, the SEC initiated an |
|investigation into alleged violations of federal securities laws by certain company officers and employees. |
| |
|Eddie Antar became the focus of SEC and Federal investigations, and he was eventually charged with a series of |
|crimes. He fled to Israel in February 1990, but was returned to the United States in January 1993 to stand |
|trial. His 1993 conviction on fraud charges was overturned, but he eventually pleaded guilty in 1996 and in 1997|
|was sentenced to eight years in prison and received fines of $150 million. |
| |
|[pic] |
|Almost from the beginning, Crazy Eddie's management was engaged in various forms of fraud. The Antars paid |
|employees off the books, and regularly skimmed thousands of dollars (in cash) earned at the stores. For every $5|
|Crazy Eddie reported as income, $1 was taken by the Antars off the books. In 1979, the Antars began depositing |
|much of this money in overseas bank accounts. The Antar family skimmed an estimated US $3-$4 million per year at|
|the height of their fraud. In one offshore bank account, the family deposited more than $6 million between 1980 |
|and 1983. [edit]After a hostile take-over in 1987, the new owners instituted a preliminary audit. The auditors |
|estimated that Crazy Eddie’s inventory was short by $40-50 million, but the final figure was twice as much, $80 |
|million. |

We can furthermore recognise this in the massive discrepancies between the reporting of currency on Customs form CMIR[127] by arriving and departing passengers. The latter set of individuals, in fact, have little inducement to report funds they are carrying as the probability of their being subjected to Customs inspection on departure is close to non-existent. Thus, in 1994, approximately the same number of travellers arrived in and left the United States, sc. 45 million. Of these 170,000 arriving passengers filed the CMIR form with US Customs, but only 34,000 departing passengers.
2.3.1 §1. The Shipments Proxy Method
Several methods have been established to attempt to evaluate the scope of the flux of US dollars bills out of the US or, to put it differently, to estimate the scope of the fluxes of US dollar bills outside of the United States. The Shipments methodology is the one adopted by the Federal Reserve System, the theoretical underpinnings of which are a further elaboration of the work, inter alia, of Edgar Feige. It is the officially adopted methodology, in so far as it makes sense to designate any methodology for measuring the amounts of Federal Reserve notes circulating outside of the United States as ‘official’. It reposes on three presuppositions, sc.

1. Most foreign-held US currency is in the form of $100s. 2. All or most exports of $100s occur at one Federal Reserve Cash Office.[128] As most of the currency-exporting banks referred to above are located in New York City, it is obvious that the Federal Reserve Bank Cash Office in New York City plays a predominant role. 3. No or little part of the flow of $100s through the Cash Offices mentioned under (2) reflects changes in domestic (US) demand for $100s.

Currency receipts and shipments for the 37 Federal Reserve Cash Offices (FRCOs) are recorded by denomination. On the presumption that currency once exported remains abroad, one may conclude that Rt = RtD, i.e. that all receipts are from the domestic market,[129] where Rt are receipts by the FRCOs over a given period, t, and RtD receipts over a given period from the domestic market. If one considers the two fractions (Et / Rt)NYC and (Et / Rt)XNYC, where EtNYC and EtXNYC are, respectively, emissions from the Federal Reserve Bank in New York City and the emissions from the remaining eleven Federal Reserve Banks and RtNY and RtXNY receipt respectively from the Federal Reserve Bank in New York and from the remaining eleven Federal Reserve Banks, with t = January 1965 to August 1999, then it is possible to establish the ratio between the two, i.e.

(Et / Rt)NYC / (Et / Rt)XNYC

For $10s, the mean of the numerator is 1.11 and that of the denominator, 0.998. This ratio means that the non-New York City Federal Reserve Cash Offices receive approximately the same amount of $10s as they ship, while the New York City office ships more than it receives. However, the receipts and emissions of $10s from all 37 FRCOs follow relatively stable mean and seasonable patterns[130] as do $1s and $5s. Already $20s, however, “display relatively less constant mean and seasonal patterns”.[131] (Et100 / Rt100)NYC is very different from (Et100 / Rt100)XNYC, where Et100 is emission of $100s in period t and Rt100 receipts of $100s in period t (superscripts NYC and XNYC as above). For the sampling period, (Et100 / Rt100)NYC is 2.3 and (Et100 / Rt100)XNYC is 1.3. In other words, the emission rate of $100s from the New York office is atypical when compared to the other issuing offices in the United States: the non-New York offices issue a little more $100s than they receive, whereas the New York office issues more than twice as many $100s as they receive. As noted above, high ratios of emission of this magnitude are not seen for the smaller denominations. A first conclusion is that not all growth in the emissions of $100s originates from the Federal Reserve Office of New York City, contrary to the assumptions of Feige (1996)[132] and Porter and Judson (1996),[133] although the ratio for FRCO NYC is indeed much higher than for the non-NYC FRCOs; New York City therefore does account for a very high proportion of the growth in the emission of $100s. By observing the two ratios in the sampling period, i.e. January 1965 to August 1999, one can derive a second conclusion from the charts, sc. that before the 1980s, the FRCO NYC ratio is not significantly different from the non-NYC FRCOs. Since it is inconceivable that $100 emissions for overseas use were uniform throughout the 37 FRCOs and only in the 1980s developed the present pattern (that most expatriate $100s are issued by the NYC FRCO), it is safe to draw a third conclusion, viz. that the intensive use of the US dollar outside of the United States commenced in the 1980s.

Box 2.11. Seasonality
| |
|Emissions of Federal Reserve notes follow a seasonal pattern—for the domestic part—as they |
|increase in the beginning of December and just before the summer vacation time, while receipts |
|increase in the beginning of January and just after the summer vacation time, when businesses |
|deposit their cash in banks, who then transmit the excess to the Federal Reserve Bank in their |
|region. This seasonality is characteristic for domestically circulating currency, but thought by |
|both the Federal Reserve System and international scholarship not to apply for currency |
|circulating outside of the United States. |

In a relatively recent, authoritative study by the United States Treasury Department,[134] the authors, formed as a tripartite working group called ICAP (the International Currency Awareness Program) from the US Treasury, the Federal Reserve System, and the US Secret Service, emphasise that:

Residents of many countries outside the United States use U.S. banknotes as a store of value and as a medium of exchange[135]

and that:

U.S. dollars (USD) are often found in countries with volatile political and economic conditions.[136]

It is not immediately clear that the world had more volatile political and economic conditions after, say, the mid-1980s than before. It is worth emphasising that the fall of the Soviet Union was economic not ideological. As a consequence, already by the mid-1980s, the Soviet Union had to restrain or discontinue aid to insurgency movements. The latter were forced to have recourse to resource extraction—and therefore to the use of the international reserve currency, the US dollar—in order to finance their activities. I would argue that what did happen in the mid-1980s was an important expansion of illegal trafficking, in particular in drugs and arms, which required settlement in a portable, divisible, liquid currency, the US dollar. If, namely, overseas use of the US dollar notes were linked to ordinary commerce, such notes would, at least in part, be deposited with the central bank and ultimately remitted to the Federal Reserve Bank. Secondly, the argument, above, that Residents of many countries outside the United States use U.S. banknotes as ... a means of exchange133 calls for critical engagement. While one cannot exclude a certain amount of hoarding, usage, i.e. U.S. banknotes used as a “means of exchange”, cannot explain why the preferred overseas "means of exchange" should be the $100s, if, that is, such use was common day-to-day "means of exchange”, which would necessitate banknotes of all denominations in order to be executed smoothly. In this context it is important to recall that the United States has a vested interest in the off-shore use of its currency; in 2005, the seigniorage connected with this usage was $29 x 10E9.[137] Therefore, the US government and its various departments desire to stress the benevolent uses of the expatriate dollars, rather than highlight its malevolent uses for settlement of illegal traffics of various kinds. When evaluating the cumulative stocks of $100s, domestically and foreign-held, one encounters a weakness inherent in the Shipments Proxy method, sc. that the method evaluates flows—not stock. To determine the magnitude of stock, one therefore has to select, more or less arbitrarily, a zero point; that is to say a point at which there were no or few $100s in circulation outside of the United States. Anderson and Rasche (2000) choose December 1964 as the zero point for $100s. Net change in foreign-held $100s is determined by EtF100 alone because the assumption is that $100s once abroad remain abroad and that therefore RtF100 = 0. Anderson and Rasche arrive at the following results:

January 1965 – August 1999 Emissions, net, $100s: $336 billion Of which Remaining in domestic circulation $116 billion (34.5%) Foreign-held $220 billion (65.5%)

August 1999: Cumulative exports of $100s accounted for ± 45% of total US currency held outside banks (M1c)[138] In the same manner, Anderson and Rasche provide the following results for Federal Reserve $50 notes:

January 1965 – August 1999 Emissions, net, $50s: $49.9 billion Of which Remaining in domestic circulation $20.3 billion (40.7%) Foreign-held $29.6 billion (59.3%)

August 1999: Cumulative exports of US $50s accounted for ± 6% of total US currency held outside banks, i.e. M1c.

Changes of consequence during the sampling period, January 1965 to August 1999

1. Until the 1980s, no major differences in the ratios of emission to receipts between the Federal Reserve Cash Office in New York City and the remaining Federal Reserve Cash Offices. 2. The peaks and troughs of seasonality tend to flatten out over the period. This is presumably due to the increasing weight of foreign-held currency, which is not believed to be subject to seasonality. 3. From late 1991, (Et100 / Rt100)LA < 1.0, i.e. the Federal Reserve Cash Office in Los Angeles receives more $100s than it emits. This situation remains unexplained, but it may be connected with underground activity along the US – Mexico border or with a change in pattern as relative growth in (Rt100)NYC slowed concurrently, or both.

Box 2.12. The Zero Point
|Although I noted in the text that a weakness in the Shipments Proxy method is that to calculate stock from |
|flows, one needs to elect a zero point (or a point with an arbitrarily determined stock; it obviously does not|
|have to be zero); this observation, however, must be qualified in the following way. |
|The two authors, Anderson and Rasche, who, in 1996, wrote a seminal paper in this subject matter, chose |
|December 1964 as zero point and attributed to it a foreign-held stock of US $100s of 0. In December 1964, the |
|total value of $100s in circulation was $7.6 x 10E9. Even if fifty percent of this amount was in circulation |
|abroad, which is highly unlikely for that period, i.e. $3.8 x 10E9, this additional accumulated stock of |
|foreign-held $100s is relatively insignificant and would not change the results in any significant manner. |
|For US $50s, the zero point was chosen as December 1968. For both denominations, $100s and $50s, the dates, |
|December 1964 and December 1968, were chosen because appropriate records within the Federal Reserve System |
|begin, respectively, in January 1965 and in January 1969. |

2.3.1 §2. The Biometric Method
In their 1996 paper, Porter and Judson131 apply ten different methods to assess the amount of US currency in circulation outside of the United States and use the median of the results thus obtained to estimate expatriate US currency.[139] Using the median of a series of tests, the two economists arrive at results that are not significantly different from those obtained by Anderson and Rasche, examined above, sc. in summary form:

• £200 – 250 billion of US currency was abroad at the end of 1995, which constituted 53.3 – 66.7% of the then outstanding base of approximately $375 billion in circulation outside of banks, i.e. the currency component of M1. • The proportion of US currency outside of the US, i.e. expatriate US currency, of all issued US currency, had been steadily rising. • Growth in foreign demand for US currency and in particular for US $100s was far stronger than growth in US demand. • Over the 1990s, overseas stock of US currency grew at a rate of approximately three times the growth of the domestic stock.

As one of the ten tests, Porter and Judson attempt a rather innovative approach to the evaluation of expatriate US currency, viz. the Carl Petersen or Biometric Method. The motivation for developing indirect methods such as the biometric method is that of attempting to capture flows that might not show up in direct methods, in particular flows that do not pass through the banking system. The authors initially observe that the share of $100s attributable to the four Reserve Districts of New York, Atlanta, Dallas, and San Francisco in the period 1974 – 1995, inclusive, are out of proportion to the economic characteristics (e.g. industrialisation, import and export businesses, presence of major national banks with international business relations) of these districts.[140] In the context of the allocation of currency, the pertinent economic variables used are: regional share of vault cash, population, income, and deposits. The available data seem to confirm the preconceived understanding of Federal Reserve officials, sc. small net inflows through Atlanta and Dallas Districts (from Latin America), small net inflow through the San Francisco District (from the Far East), and the fact that most in and outflows of currency pass through the New York District. Although the Carl Petersen Method,[141] cf. box 2.13 was developed to quantify animal populations, its use to determine flows and stock of circulating currency is based on the fortuitous circumstance that the Federal Reserve System in 1990 created a new series of $100s that were slowly introduced in the circulation beginning in August 1991. The new series, the “1990 series” contains an embedded security thread. Whenever a Federal Reserve $100 note of the pre-1990 series is receipted at a FRCO, it is replaced by a $100 note of the 1990 series. Bills are returned to the Federal Reserve FRCOs by participating banks because they are in excess of the individual banks’ requirements. Bills are non-differentiated, i.e. not sorted at participating banks into 1990-series and pre-1990 series. However, once at the Federal Reserve, the 1990 series $100 notes, replacing the sampled pre-1990 series notes, are the equivalent, in the Carl Petersen method, to the fish that are caught, marked, and released. The 1990-series notes, in this model, are therefore “marked”. Applying the method, data from the Federal Reserve Cash Offices on currency shipped to and from local banks correspond to virtually continuous "samples" of currency, since one knows how many 1990-series notes have been issued by each FRCO and how many have been returned to each FRCO in later samples. Statistics for the pre-1990-series notes are maintained separately from those for the 1990-series $100 notes. With reference to the summary of the Carl Petersen Method in box 2.13, one must emphasise two aspects of the procedures applied. First, that the method only accounts for notes in circulation; hoarded notes do not circulate; they are therefore not counted. Second, it is further known that the FRCO in New York City handles relatively few cash shipments to and from domestic banks. Therefore, if one can assess the “population” of dollars in the “pool” served by each FRCO, the currency abroad can be calculated as the population of the NYC FRCO. For the USA, the method assesses the ratio of notes that pass through the New York District with those that pass through the remaining districts. Notes that do not pass through the New York District are implicitly assumed to be in the pool of the other districts. The latter generalisation presumably is correct for less than the total purported instances of currency circulation between the United States and foreign jurisdictions. It is an underlying assumption of the method that notes circulate freely and randomly, so that the sampled proportions of marked notes are representative of the notes circulating in the area chosen.

Box 2.13. The Carl Petersen Method[142]
|Carl Petersen (1893) asked himself the question of how one might estimate the total number of animals |
|in an animal population (in casu flat-fish in a given habitat). |
| |
|He proposed the following solution: |
| |
|Assume that the total population is N (unknown). |
|In a given year, one captures a certain number of the animals in the population, say M, and one marks |
|them but in such a way that the mark does not impede their ability to function and survive. |
|A little later, say three months later, one again captures a number of animals from the animal |
|population, say n animals. Of these a certain number, m, will be marked, i.e. they belong to the |
|original M group of animals, or, in other words, they have been caught a second time. |
| |
|Petersen then claims that |
| |
|M / N = m / n |
| |
|i.e. the ratio between the animals marked in the first catch and the total population is equal to the |
|ratio between marked animals in the second catch and the total number of animals caught in the second |
|catch. |
| |
|Since M, m, and n are known, it is a simple matter to calculate N as: |
| |
|N = (M x n) / m |

Applied to the flow of currency, if

M: the total number of "marked" notes, i.e. notes of the 1990 series; n: the number of notes in a sample; m: the number of marked (i.e. 1990 series) notes in a sample.

M is known from the outflows of the 1990-series $100s and $50s from each of the Federal Reserve Cash Offices; n/m, i.e. the ratio of total sampled notes to marked sampled notes is known from notes that are received from circulation at each Cash Office. Almost all currency sent and received from foreign countries passes through the NYC Cash Office. Therefore, the NYC Cash Office is taken to constitute the foreign pool and the rest of the offices together constitute the domestic pool. Total notes in circulation throughout the United States, excluding NYC, Nxnyc, are obtained by applying the equation N = (n/m) * (M) to the domestic pool. Foreign aid by the US government does not normally pass through the FRCOs, since such aid takes the form of transfer from US Treasury to foreign central bank or of the opening of a credit line in the United States, which the foreign aid receiver can draw down against purchases in the United States (an example would be military equipment). Government-guaranteed private bank loans could perhaps be in the form of cash, although this would be an exception. Such shipments would be effectuated from the large banking centres, e.g. Citibank, not the FRCOs. Information on such shipments is, however confidential and only available to the governors of the Federal Reserve Bank. To obtain an estimate of total domestic circulation (including NYC), Nd, one must scale up: Nd = Nxnyc ( 1 + (popnyc / popxnyc)), where popnyc is the population served by the NYC Cash Office and popxnyc the population served by the rest of the Cash Offices combined. The estimate of total amount of notes in circulation is Ň = Nnyc + Nxnyc; and the number of notes held in foreign countries: Nf = Ň - Nd, while the share of notes abroad is Nf / Ň It should be noted that this method cannot account for hoarded notes. The estimate Nf / Ň assumes that notes are hoarded abroad in the same proportion as they are domestically. There is no compelling reason to believe that is the case, although there is no evidence pointing to the opposite, either.

Chart 2.14. 1988 – 1995. Shipments of US Currency by Destination (%)
[pic]

2.3.2. Evaluation of the Results
From the mid 1980s, substantial amounts of US currency have been shipped overseas through the banking system. In the period 1988 – 1991, the bulk was sent to South and Latin America, in particular to Argentina, but from 1991 the major part has been shipped to Europe. In the two years 1994 and 1995, Russia alone received in excess of $20 billion each year.[143] For the whole period, 1988 – 1995, incl., the split is indicated in Chart 2.14, while Chart 2.15 conclusively depicts the concurrent decrease in growth in domestically held and the concurrent—remarkable—increase in the growth in overseas held US currency. Banking statistics indicate that US funds only flow from the Caribbean to the United States, not from the United States to the Caribbean. Porter and Judson131 surmise that the flows from the United States to the Caribbean takes place via the pockets of American and non-American tourists. There can be little doubt that this is an explanatory argument, although I argue that it is far from exhaustive. Along with Mexico, the Caribbean has become the major intermediary stage in the illicit traffic in cocaine from South America to the United States. This state of affairs constitutes a sufficient condition as a basis for explaining at least a large part of the accumulation of US currency in the region. The currency would have been brought out of the United States without CMIR reporting to be used for settlement of illegal trafficking in drugs, arms, etc., and brought back with declaration either by courier after the funds had been appropriately laundered or repatriated by business persons, who, in the course of normal business transactions, had obtained the funds. A last, important issue, remains, however, viz. the currency velocity. The American economist Edgar Feige has undertaken a study, in which he compared wear and tear, i.e. age and quality of notes returned from abroad with notes returned from the US. He found no difference. Therefore, "the velocity of domestically held currency is on average not different from the velocity of foreign held currency, which means that foreigners' US currency holding would generate a flow of annual cash payments approaching the size of the GDP of the US". His conclusion can represent a very suitable end to this subsection, i.e.[144]

The world economy appears to subsume a US-sized unrecorded economy that employs US currency as its medium of exchange.

Feige’s important study of currency velocity and his conclusions can reasonably be taken as pointing to the movement of US currency also between foreign countries. The tear and wear patterns of expatriate dollar notes indicate intensive use, fully compatible, in fact, with notes circulating in the United States. If the hypothesis of the thesis is correct, namely that a large proportion of such expatriate currency is used for often international illicit traffics, such notes would circulate also between foreign jurisdictions. For the sake of completeness, one obviously needs to consider the issue of (i) tourists’ use of dollar notes, (ii) the possible payment of foreign workforces in US dollar notes by US multinational corporations, and, (iii), foreign aid by the United States. Of these, the two former cannot be of major import, since, as Bach (1997, 49) notes:

mostly lower denomination notes ($5s, $10s, $20s and $50s) circulate in the U.S. economy, whereas mostly $100 notes circulate abroad.

If tourists brought sizeable amount of US dollar notes abroad and if foreign workforces of US multinational companies were paid in cash in US currency, it is difficult to understand why such notes would be of $100 denomination, only. And, indeed, it is worth underlining that for the purposes of the study of the US money supply undertaken here, it is clear that the aggregate value of all lower denomination notes held abroad is non-significant when compared with the aggregate value of $100s held. Such lower denomination notes as tourists do bring abroad, are returned to FRCOs in patterns not dissimilar to those that obtain for dollar notes circulating inside the United States. To the degree foreign aid is provided in US dollar notes—and it is not clear that this is often the case—rather than by a credit line in the United States or an electronic transfer from US Treasury to foreign central bank, it is conceivable that such notes will be $100s. Since purchases made from such funds will be perfectly legitimate (goods and services, including salary payments to officials), the means of settlement, i.e. the US dollar notes, must ultimately end in the foreign central bank and increase the bank’s foreign reserves or be returned to the United States (FRCOs). Even if the foreign central bank elects to retain US currency to increase its foreign exchange position, more often than not it would still transfer the physical bank notes to the United States and obtain a corresponding position with the US Treasury.[145] This, however, does not happen as $100s, once abroad, remain abroad, as substantiated by the fact that for $100s, the emission-receipt ratio is approximately 1 for FRCOs apart from New York, but approximately 2.2. for the New York FRCO (Anderson & Rasche 2000, 4, 12). Since New York is the issuer of US dollars for export, the conclusion must be that $100s abroad remain abroad. However, contrarily one might argue that US dollar notes exported as foreign aid do not necessarily end in a foreign central bank, but on the contrary—as means of exchange—are applied in trade, national or international. One is led to surmise that such trade mostly would be illicit, since, otherwise, sooner or later a trading entity would deposit these notes and they would be returned to the Federal Reserve, which, as pointed out above, they are not.

[pic]
Source: Elaborated from dataset in Porter and Judson (1996, 896)

2.4. Errors and Omissions.
The definitional properties of the balance of payments ensure that when some countries have pluses in their balance of payments, others have corresponding minuses. In actual calculations, there were always little discrepancies, things did not quite add up to zero. But the minor differences could be sloughed off as "errors and omissions”. However, in the late 1970s, something began to change. Computations of the world balance of payments revealed systematic and growing discrepancies. One such calculation showed that by the early 1980s the world was running an annual balance-of-payments deficit with itself in the vicinity of $100 billion.[146] In other words, it was running a balance of payments deficit with the Moon equal to about 10% of the total value of world market trade. The International Monetary Fund (IMF) had a useful explanation for such statistical holes. They were due to "asymmetries".[147] It is a current account discrepancy, which has been growing steadily from the mid-1980s to reach 1 percent of world imports in 1998, before jumping to 3 percent the following year. IMF studies show that the current account discrepancy is mostly due to the investment income account, with “smaller, but still significant deficits on the transfer account”.[148] The IMF, using an unpublished US Federal Reserve Board study, proposes four possible causes for the discrepancy: (i) transportation delays; (ii) asymmetric valuation; (iii) data quality; and (iv) under-reporting of investment income.[149] Transportation delays are probably the least interesting in this context because a delay in export compared to import reporting will, by necessity, be positive as long as trade expands. Data quality, point (iii), obviously can vary from country to country. Furthermore, workers’ remittances will be unreported in many jurisdictions. The IMF explains point (ii), Asymmetric valuation, by a difference in import and export pricing due to the use of differing foreign exchange rates or the registration in one country of the export at full price, but in the other the registration of the import at a subsidised price. I would suggest that there are more likely explanations, viz. a voluntary under-reporting of an export or over-reporting of an import in order to move funds in and out of jurisdictions with currency restraints, or to effectuate money laundering. As finally regards point (iv), Underreporting of investment income, the IMF observes that “The growth of off-shore financial centers is making it more difficult for statistical agencies to track financial transactions”. One could, certainly, surmise that the IMF explanation of point (iv) reinforces my explanation of point (ii). The use of financial off-shore centres shows conclusively that these provide services, which the users cannot find in on-shore financial centres. Banking confidentiality undoubtedly plays an important role in this choice, although “secrecy” comes at a price, cf. Figure 2.16. Point (ii), valuation asymmetries may very well serve to generate funds in jurisdictions that are financial off-shore centres or from where funds can be transferred to such centres without notification to the home country of the owner of the funds. Obviously, if the over- or under-reporting takes place in a financial off-shore centre further transfers are unnecessary, on condition that an invoicing entity has been created in an appropriate jurisdiction. There are a number of such “invoicing companies”, e.g. in Lugano in the canton of Ticino in Switzerland. Each invoicing company operates as invoicing front for numerous trading companies, who, in this way, can maximise profits by creating these in the most advantageous jurisdiction. If the funds remain invested in the off-shore centre jurisdiction, the investment income will, in most cases, not be reported and thus will not show in international statistics or in any other statistics for that sake.

[pic]

From Ingo Walter (1987)

In Figure 2.16, the operator will move on the three-dimensional plane defined by A, B, and C. On condition, however, that all three market-determining trade-offs are linear. If, for example, an operator chooses a secrecy level of Bx this choice will determine both the level of return, Cx, and the level of safety (risk) he or she has to accept, Ax. This chapter has considered two main subjects, sc. globalisation and the US money supply. The former subject was introduced in order to place the thesis argument within the ambit of the rapidly expanding socio-political, cultural, and economic developments that make up globalisation. The latter subject, money supply, has a dual referential sphere within the thesis, partly as an illustration of the concept of deviant knowledge, sc. the use of the “reserve currency” for illegal traffics, and partly as proof of the presence in the international system of substantial amounts of this currency in flows of non-declared origin. Also, if money supply was part of the capillary intelligence gathering capabilities, such “information packages”, as outlined in the next chapter, would or should alert the authorities to instigate further inquiries. The subsection The Thesis Argument, in the Introduction, references the development of a complexity-theory based intelligence function as an investigative remedy. This intelligence function is the subject of the following chapter.

Chapter 3. Complexity, TOC, and Terrorism

The important thing about analogical extensions of a concept is that we should know (in practice at any rate) how far to carry the analogy. P. Geach (1957, 101)

3.0. Introduction[150]
This chapter presents one of the methodologies, which underpin the thesis, sc. Complexity Theory. It contains an attempt to apply complexity theory and self-organised criticality to the intelligence function and, through this, proposes a concept of functionality for application of the intelligence function to the investigation of and research into organised crime and terrorism. This chapter acts as the methodological model, which explicitly and implicitly applies to the thesis in its totality. In order to create the basis for an understanding, not of complexity, but of its application to the pragmatic world of transnational organised crime and of terrorism studies, the chapter contains a section, 3.1, which sets out the main concepts of intelligence. Approximately from the end of the Second World War, the importance of information processing has been recognised as crucial for successful law enforcement; methodological data treatment, based on a series of precisely delineated steps ensuring the collection, collation and analysis of the information, and its subsequent dissemination, is what is known as intelligence. The application of complexity theory, flow theory, and self-organised criticality to organised crime and terrorism studies has, to the best of my knowledge, never before been attempted. Furthermore, the complexity theory-based intelligence function, developed in this chapter, is proposed—in lieu of policy recommendations—as a tool in the information collection and collation process that will assist in disclosing crime and in particular minor crime with initially not identifiable serious consequences.

3.1. Intelligence
Over the last decade or so, a number of scholars and practitioners have emphasised the need for introducing intelligence-led policing, presented as a “new” and exciting advance in criminal justice. This chapter will examine one possible, but unusual aspect of the use of intelligence in law enforcement, complexity theory, and will, albeit sotto voce, attempt to underline the necessity for law enforcement and intelligence entities to share low-level information, if they are to increase efficiency. At every malfunctioning of the intelligence or law enforcement apparatus, the concerned officials promise to share information with each other, etc., a litany all interested observers have heard repeated many times. The next following intelligence or law enforcement failure seems to show that such promises have not been honoured. This, however, is not necessarily the case. The salient point in this context is the meaning of the term "information". If one were to ask if the relevant agencies have increased their exchange of actionable information, the answer presumably is affirmative.[151] The thesis is not making an umpteenth recommendation for exchange of actionable information; it is, rather, recommending the exchange, on a much lower level and at a much earlier date, of non-actionable "information packets" (see below), which, as this chapter shows by its application of complexity theory, in relevant cases can have major effects. From approximately the early 1970s, the use of intelligence has slowly been introduced in law enforcement; this use has, quite obviously, been accelerated by the endogenous and exogenous terrorist groups, which operated in Europe also from the beginning of the 1970s. The term intelligence, used in the ambit of information collection and treatment, can perhaps best be described as a methodology, in particular developed during the Second World War, for treating information in an ordered manner in order to extract the maximum usability. At least from the Second World War, intelligence has been characterised by the so-called Intelligence Cycle, which I would argue would be better named the Intelligence Loop, since it is a continuous loop, which only comes to a halt when certain predetermined conditions are met. In Figure 3.1, the user, typically a government or a government department (in the following referred to as “the User”), initially expresses a desire for an intelligence treatment of a given subject. This leads to the initial tasking, whereby the User will state the informational needs, to which the intelligence treatment is to seek an answer. The intelligence circle then runs through its usual stages of collection, collation, and analysis, and disseminates the result to the User. The latter may now require further clarification or expand the subject under consideration, whereupon the cycle is restarted in a loop, which continues until either the User is satisfied or until it becomes clear that the necessary information cannot be obtained within the given timeframe. In this context it is important to emphasise that with the advent of more and more powerful data processing apparatus, the notion of absolute or definitive disappeared from the security and intelligence vocabulary and was replaced by a time notion. The latter concept took its origin at a time when it was noticed that as more and more sources

Figure 3.1. The Intelligence Cycle

[pic] of information became available as result of the remarkable advances in data storage and data processing technology, obtaining every little piece of data that might or might not be relevant to the User’s purpose was no longer possible, or to put it more precisely, was no longer possible within the timeframe, within which the information required remained relevant to the User. In pragmatic terms, this is often expressed by: “Rather ninety-five percent now than one hundred percent when it is no longer of any use”. Likewise, in the fields of security it was acknowledged that absolute security was no longer possible, e.g. in the protection of information, and that the purpose was not to secure information, but to secure it just for so long that its dissemination was no longer of any consequence. With further reference to Figure 3.1, it is noteworthy that in most professional intelligence systems, it has been recognised as absolutely essential that (i) the User must never get into direct contact with any member of the Intelligence Cycle, nor (ii) must the collection agents and the analysts meet, as such interaction “pollutes” the cycle because of additional tasking by analysts of and influence on collectors.

3.2. Complexity: At the Edge of Chaos
The title of this section has a rather obvious intertextual reference to Roger Lewin’s Complexity: Life at the Edge of Chaos (1992).[152] Lewin’s book is a reflection on and a summary of the previous two or three decades of research into complexity and chaos theory, which slowly gained a central place in many fields of study and also had an impact on a number of interdisciplinary fields. The chapter will ask if, when looking at societal phenomena like organised crime and terrorism, it is possible that one should apply concepts such as macro– and microeconomics, complexity, chaos and scaling theory, as well as the theory of self-organised criticality. And, indeed, if it is possible that one can find the same set of conceptual problems in Criminology as in Physics, i.e. that one set of terms may describe the macro- and the micro-world, but that these two worlds require different discourses; there is no grand unified theory here, either.[153] Consider the sometimes acerbic dispute, which obtains in Criminology between those scholars who claim that there exist extended networks carrying products and funds around the world and those who maintain that traffickers in various forms of illicit products are just social losers. If, however, one were to use terms from scaling—one of the components of complexity—then one might arrive at a better understanding. Looking for instance at drug trafficking or, say, international CSEC (Commercial Sexual Exploitation of Children) from “far away”, then one can observe the large flows of money and product (drugs and children, respectively) around the planet, but one cannot necessarily see the individual deal or deals. Or, to take another example from Section 5.5 of the present thesis, Operation Green Quest, concerning organised retail theft, one can observe the theft and receiving of stolen goods on local level and the transfer to and use of funds in the Middle East, but not both, concurrently. The closer one gets to the individual deal, the more difficult it becomes to discern the fluctuating movement of funds and to identify the origin and destination of these. And inversely, the further away one gets from the original criminal behaviour, while investigating the use of the illegally obtained funds, the more difficult it becomes to identify their origin. This is a rather typical example of scaling theory. An even more poignant example, since it is within the field of experiences common to every citizen in the western world, is the sale on streets and piazzas of counterfeit "Louis Vuitton" bags, "luxury" watches, etc. The individual ($25) deal is easily observed—and provides a certain amount of amusement to many individuals—while the underlying organisation and the daily transfers of large amounts of monetary funds back to the People's Republic of China, is not so easily apprehended. Contrariwise, banking regulators may observe daily transfers from, say, Italy to the PRC by "outstanding" members of the Chinese community in Italy, but will not be able fully to understand the origin of the funds and will, presumably, surmise that these accrue from legitimate businesses, including the high number of Chinese-owned establishments in the food and entertainment industry, cf. section 4.3. The chapter first considers the various concepts, which are central to the subject matter, sc. complexity and networks, as well as a number of terms connected in various ways to the core concepts. It will then introduce the notion of self-organised criticality, and apply this notion to a specific example. The term complexity is from the Latin complexus, i.e. entwined. It evokes the idea of parts that are at the same time distinct and connected.[154] Complexity is at a midpoint between order and disorder and an apt entry to the subject, albeit by no means the only one, would be from the following definition of a complex system:[155]

a system whose properties are not fully explained by an understanding of its component parts.

It is crucial to underline the point that Complexity Theory demands that the individual elements in a system must interact with each other for the system to be denominated "complex”. Sheer bulk, i.e. the fact that a system contains a large number of elements, does not in itself make a system complex.

3.3. Networks
The French scholar, Daniel Parrochia, in his recent volume on networks, stipulated that a network is A coherent and ordered distribution in space of a plurality of relations.[156] It could be argued that criminal networks fit extremely well with this topological definition. Criminal networks are, furthermore, self-repairing and they are, I would argue, prime examples of self-organised criticality.[157] For instance, consider the super-abundance of possible neural pathways from a given point to another given point, which was developed by the US military to ensure information and communications survival after a hostile, military attack on the United States and that led to the development of the Internet. This state of affairs can, mutatis mutandis, be used to describe criminal networks, their national and international modes of co-operation, the functioning of money laundering structures, and, perhaps, the operation of terrorist networks. It is argued in the following that criminal networks are self-organised critical systems because of the tension between the elements in the system itself, between the system and similar systems, and between the system and its legal and socio-political environment. As I show below, it is clear that a minor event can have a major local or even global effect, which lends emphasis to my postulate that such systems are in a critical state. This intrinsic state of affairs is exacerbated by the lack of an external conflict resolution mechanism; nevertheless, the magnitude of the disturbance will be absorbed by the self-repairing property, which characterises such systems. In this respect and, I believe in other respects, too, it is more helpful to compare criminal networks with organic, self-repairing, horizontally organised organisms rather than with the vertical command structures, which are most often taken as their paragon. Network theory has identified two laws, which obtain and that apply to the rheological aspects of networks, i.e. they are conditions for the flow within networks, sc. Kirchhoff's First and Kirchhoff's Second Law of networks, known, respectively, as the junction theorem and the loop equation.[158] Kirchhoff's First Law, the junction theorem, states that the sum of the currents into a specific junction in the circuit equals the sum of the currents out of the same junction; in other words, it postulates flow conservation in each network vertex. The Second Theorem in a very simplified form states that “All the energy imparted by the energy sources to the charged particles that carry the current is just equivalent to that lost by the charge carriers in useful work and heat dissipation around each loop of the circuit”.[159] The crucial question, on this background, is if, when attempting to apply network theory to organised crime, the two Kirchhoff laws apply, albeit "metaphorically", since Kirchhoff is applied to electricity flows, while I am attempting to apply them to social networks. As far as the first law is concerned, this will quite obviously depend on the definition within organised crime theory of “vertex”, which in its normal acceptation is taken to mean an apex or the high point of something; in flow theory, rheology, this high point is understood to mean the junction. It should be stressed that Kirchhoff’s theorems are here being applied to criminal networks engaged in illicit traffic by way of an analogy. It is argued, however, with reference to Peter Geach’s wise words placed as a vignette at the beginning of this chapter, that the analogical extension of the concept of network has not been carried too far. Nevertheless, the photography, which as an illustration is incorporated in the title page to chapter 2 (funds seized, 11 August 2007, Mexico), vividly illustrates the network theory here exposed. The—from the point of view of the traffickers—embarrassing presence of these funds demonstrates that one of the vertices in the network, the money laundering or in general the financial engineering function, did not work efficiently. The malfunctioning, from a criminal point of view, is due to a violation of Kirchhoff's First Law, the junction theorem, which states that the sum of the currents into a specific junction in the circuit equals the sum of the currents out of the same junction; in other words, it postulates flow conservation in each network vertex. In this case, malfunctioning has occasioned the accrual of funds in a way one might compare with the use of a gardening hose. If the input (from the tap) is larger than the outflow (from the nozzle), the water will, by necessity accumulate inside the plastic hose—until an eventual puncture. Metaphorically8 the inputs (the tap) are the funds created by the illicit traffic in narcotic drugs; the hose is the criminal network; and the nozzle the money laundering or financial engineering function.

Box 3. 2. Criminal Networks and Kirchhoff’s Theorems
| |
|(Cnx x Qnx) - Lnx - Fdep.nx - Fdis.nx = 0 |
|where |
|Cnx: cost of “product” (e.g. drugs or humans) at the point of entry into network nx |
|Qnx: Qnx: mark-up quotient in network nx, i.e. (cost of purchase + transaction cost + profit) |
|/ (cost of purchase + transaction cost) |
|Lnx: product lost (at cost) in network nx |
|Fdep.nx: funds deposited by network nx |
|Fdis.n: fund disbursed[160] by network nx |
|Note that nx is just one of the networks making up the overall network, n. |

It can obviously be argued that the equation in box 3.2 is trivial and it is, indeed. All it says is “money in minus money spent minus money invested equals zero”. But is that not exactly what Kirchhoff’s Second Theorem states, sc. that the energy in an electric system used for useful work plus the energy lost to heat dispersion equals the initial energy injected into the system. Therefore, however trivial the equation in box 3.2 and Kirchhoff’s Second Theorem may be, the analogy between the two is clear. As noted above, the analogy with Kirchhoff’s First Theorem very much depends on one’s definition of vertex or junction. Inside each criminal network, nx, of the larger criminal network, n, there are a number of circuits, for example an enforcement group, a counter-surveillance group, etc. Although these very much are part of the criminal organisation, from a network point of view, it may be better to assign their expenditures to Fdis.nx, funds distributed by network nx rather than to consider them circuits making up the individual network. In this sense they become the equivalent of "heat lost to dispersion" in Kirchhoff's Second Theorem. In figure 3.3, individual circles represent networks, e.g. ny. nx, and nz. Each network is acephalous. The points, where the perimeters of the circles intersect with each other, are called nodes; they are indicated by arrows in the figure and I argue that

Figure 3. 3. Networks. Olympic Rings Representation

[pic]

they are polycephalous. Below, I shall argue the point that the networks are in a state of self-organised criticality and that they are self-repairing. The polycephalous nodes consist not of so-called kingpins but of information and—to a certain degree—of power brokers and agents, i.e. of those agents, who manipulate information rather than product (drugs, humans, organs …). The acephalous part of each circle consists of national "groups"; these are not hierarchically organised but operate in a fluid, almost "biological" manner, forming and dissolving relationships, following their best interests in the circumstances prevailing at that particular moment. Only at the nodes, e.g. where a local distribution network needs to enter into contact with a transportation structure, a money laundering structure, or a lobbying (corruption) structure, i.e. when the individual rings form nodes, does one see an aggregation of information and the nodes become polycephalous, albeit often—inter alia for security reasons—only for the time necessary to execute the required illegal or illicit operation. For the sake of clarity and precision, it should be stressed that strict network theory demands miscibility, i.e. that the flows are indiscriminate and, therefore, that they can pass through any circuit.[161] This will only very rarely obtain in a societal context. For instance, in respect of drug trafficking miscibility may be an obtainable goal in most of the sub-networks, as disparate flow forms can all be transformed into one, sc. currency; in some, however, e.g. the lobbying or corruption sub-network, this is not the case. Parrochia also introduces the two concepts, The Theorem of Compatible Flow and The Theorem of Maximum Flow. The former states, according to Parrochia, that a necessary and sufficient condition for the existence of a flow is that the capacity of the exit vertex is equal or superior to the capacity of the entry vertex. He defines The Theorem of Maximum Flow as the flow that saturates the vertex with the smallest capacity.[162] The first theorem, the Theorem of Compatible Flow, as defined by Parrochia, fits organised crime admirably: indeed, a flow in this context can only exist if the outlet capacity is equal to or larger than the input capacity. This formulation sounds very learned, but if one were to consider flows of water instead of flows of electricity, this point of this theorem becomes clear. If one were to pump more water into a plastic hose than could be discharged from the aperture of the hose, the sink, the result would initially be a swallowing of the hose, in order to store the excess water, and then, once the plastic material could no longer expand, a rupture. The theorem is of particular interest when seen in conjunction with the complementary Theorem of Maximum Flow. This rheological theorem has deep applications in the study of organised crime theory, as it states that one should not increase input beyond the capacity of the smallest intermediary or, of the final vertex in the system. On the one hand, in the case of drug trafficking, for example, a violation of this theorem would lead to saturation of the drug marketplace, lowering of the quotient, i.e. the profit mark-up, and would, possibly, entail a deterioration of discipline in the marketplace. On the other hand, seizures of very large quantities of cash in the homes of drug dealers prove this point since it shows that the input of cash into a given network, nx, a sub-network of the overall network, n, exceeds the capacity of at least one of the vertices of the network, sc. the vertex of the money laundering structure. A central part of complexity studies is the concept of self-organising criticality; one should recall that network theory is seen as a part of complexity studies.

3.4. The Sand Grain Complexity Representation
I argue in the following that an important concept when studying both organised crime and terrorism is Self-Organised Criticality. This concept was developed more than ten years ago by the physicist, Per Bak.[163] It is informative to apply it to these areas of the social sciences, viz. organised crime and terrorism, since in these areas it has so far not been possible to arrive at generally accepted models. In many respects such organisations remain in a state of self-organised criticality almost at all times; when an event happens, which forces one or more reactions, as outlined below, they become self-repairing in the sense that they arrive at a new state that is self-organised critical, i.e. stable, but in such a way that a minor issue can lead to substantial transformation; in the model below, the addition of a grain of sand, in a criminal organisation, one or more arrests, defections, or the like. Already at this point it is important to underline that although the example, below, which is being considered for practical implementation, is a terrorism case, sc. the Nasar Case, one might as well have used a case from organised crime. Indeed, one could apply the self-organised criticality concept also to the intelligence and security forces, as is being done, at least partially, infra. The grains of sand used for the physics example in that case become packets of information.
3.4.1. Notation & Rules
The model, as exemplified in the following pages in figures entitled Local Event and Global Event, consists of a simple board, 10 columns by 10 rows, the cells of which are marked respectively A-J and 1-10. The 100 resulting cells are indicated by the use of simple two-dimensional, Cartesian coordinates, [A,1], [B,4], [C,1],… The model premises "the perfect sand grain", i.e. each sand grain is a perfect cube, allowing each grain to be stacked on top of another grain, and it operates by adding one sand grain to the board at a time by randomly choosing the cell, which will receive the grain.

Box 3.4. Self-Organised Criticality. States, Notation and Production Rules
|States: The model has three possible states: (i) stable (no cell contains more than two sand grains), (ii) |
|self-organised criticality (SOC) (at least one cell contains three sand grains, but no cell contains more than three |
|grains), and (iii) unstable (at least one cell contains four or more grains). |
| |
|Notation: Model: 10 columns by 10 rows constitute 100 cells indicated by the use of two-dimensional coordinates, |
|[A,1], [B,4], … R(x,y) indicates contents of each cell, i.e. the number of grains in each cell. Cells are indicated |
|by the use of sharp parentheses: [ ]. R, a function of cell [x,y], is indicated by the use of ordinary parentheses: (|
|) |
| |
|Cell colours |
|R ≥ 4: red |
|R = 3: blue |
|R < 3: black |
|The cell [E,5] is indicated in bold as the origin of the reaction |
| |
|Production Rule: If R(x, y) > 3, then R(x±1, y) = R(x±1, y) + 1, R(x, y±1) = R(x, y±1) + 1, and R(x,y) = R(x,y) – 4 |
| |
|SOC (Self-Organised Criticality): state in which the model is self-organised, stable but critical as a minor event, |
|sc. the addition of one sand grain, could cause the state to change significantly. |

As per the production rule in box 3.4, if R(x, y) > 3, then R(x±1, y) = (x±1, y) + 1, R(x, y±1) = R(x, y±1) + 1, and R(x,y) = R(x,y) – 4. Therefore, since in figure 3.6, infra, R(E,5)) = 4, this cell must shed one sand grain to each of the four cells around it, sc. [E,4], [D,5], [E,6], [F,5]. For one of these cells, however, sc. [E,4], R(E,4) = 3 and the cell therefore enters into a critical state, when it receives a grain from [E,5] and must itself shed the four grains that it now contains.

Figure 3.5. "Given Status”, in casu SOC
| |A |B |C |D |E |F |
|2 | |1 |1 |2 |
|3 | |2 |0 |1 |
|4 | |1 |2 |2 |
|5 | | |2 |3 |
|6 | | | |1 |
|7 | | | |2 |
|8 | | | |2 |
|9 | | | |
|10 | |3 | |
| | |x |
|01 |Pale skin; red hair; green eyes |Unusual features for person born in Syria. These physical features |
| | |facilitate observation, e.g. at border crossings |
|02 |Member of the Muslim Brotherhood |One can presume or at least hope that his membership of the Muslim |
| | |Brotherhood was known to the intelligence & security community in Europe |
| | |in general and in Spain in particular in 1985. |
|03 |Participated in an armed uprising |Presumably known to the intelligence & security community in Europe in |
| |in Syria |general and in Spain in particular in 1985 that he had participated in an |
| | |armed uprising in the Middle East. |
|04 |Entry into Spain, 1985 |If enough information packets had been available could one —already at |
| | |this stage—have suspected or hoped for an initial reaction based on an |
| | |informational mini – avalanche when he attempted to enter a Western |
| | |country? A local event. |
|05 |First stay in Spain, 1985-1987 |Although immigrant communities are not necessarily highly |
| | |criminogenous,[170] their role in assisting, supporting, and hiding |
| | |"travellers" should be noted. For example, when major cocaine trafficking |
| | |into Europe was first organised in the late 1970s and early 1980s, the |
| | |initial port of call was Spain, which did not have a particular drug abuse|
| | |culture, but which could provide traffickers with linguistic and logistic |
| | |support. Should the presence in Spain of an immense number of Arabic |
| | |immigrants have created an individual information packet pointing out that|
| | |such a presence ipso facto represents a danger? Although not known for |
| | |this early period, one can take it for granted that he sought refuge in |
| | |the immigrant community in Spain. |
| | | |
| | |Once admitted, he was apparently not of interest to the Spanish |
| | |authorities during this, his first stay in Spain, 1985 – 1987. |
|06 |In possession of an engineering |The mere fact that he had studied engineering should have attracted the |
| |degree. |attention of the security authorities. After all, Europe had by then lived|
| | |through almost 15 years of bombings, home-grown (the Action Directe, the |
| | |ETA, the CCC, Brigate Rosse, Rote Armee Fraktion) and Middle Eastern (e.g.|
| | |FPLP). |
|07 |In possession of dual nationality.|Dual nationality. It is not immediately apparent why Western governments |
| | |permit dual nationality. Once it was, nevertheless, conceded, his freedom |
| | |of movement within Europe should have been seen as another packet of |
| | |information and communicated. |
|08 |1987 – 1992, he was in Afghanistan|The US authorities reportedly supported the idea of foreign, i.e. |
| |and Pakistan, fighting against the|non-Afghan, Mujahideen fighting in Afghanistan. It is difficult to believe|
| |Soviet invader of Afghanistan |that the intelligence services did not at least ask themselves if the |
| | |motivation of these foreign Mujahideen was purely anti-Soviet, or if there|
| | |was a larger, but partly hidden agenda, and as a result logged the persons|
| | |concerned. |
|09 |Notification of Spain by the US |As a minimum, one would have thought that the US authorities would have |
| |that a "Spanish national" is |identified and logged foreign Mujahideen in Afghanistan and informed |
| |fighting in Afghanistan |interested countries, in casu Spain, accordingly. If his presence was not |
| | |logged or, if logged, not communicated, the efficiency of the services |
| | |concerned must be questioned. |
|10 |Second stay in Spain, 1992 – 1995.|His return from Afghanistan in itself constitutes a packet of information.|
|11 |1992 – 1995. Travelling in Europe |During this second stay in Spain, 1992 – 1995, he was interviewed by the |
| | |Spanish authorities with no tangible result. The interest shown him did |
| | |not discourage him from continuing and intensifying his terrorist |
| | |activities. 1992 – 1995. Travelling unfettered in Europe, he set up his |
| | |own cells as well of al-Qaeda cells in Spain, France, and Italy. |
|12 |1992 – 1995. |A consideration of the man and his work should lead one to ask the |
| |The man and his work. |question if he might have created networks in this period, which have |
| | |remained unknown to this date. This incertitude should have been noted, |
| | |logged, and should constitute an independent packet of information, albeit|
| | |of non-information. |
|13 |1995, moved to London |This move should have been logged & questions asked. |
|14 |1995-1998 |Evaluation of subject as an intellectual. In this period his activities |
| |Engaged in virulent pro-GIA |bring up the question of "encouragement of terrorist activities, including|
| |activity in al-Ansar. |murder of civilian populations". Again, the legality of his activities |
| | |could perhaps be questioned; his influence on "Western Muslims”, not. |
|15 |1998, left for Afghanistan |He left for Afghanistan to join the Taliban. The question of travel |
| | |restrictions on persons connected to or advocating terrorism comes to |
| | |mind. His departure is an obvious packet of information. |
|16 |1998-2001 |An obvious information package, which depending on the sources available |
| |Fought in Afghanistan. |could give rise to more information (with whom did he associate, etc). |
|17 |2001 – 2005 |His absence constitutes an information packet. We now know that was in |
| |In hiding |hiding and travelling between Iran, northern Iraq, and Pakistan. |
|18 |2005. Arrested in Quetta in |The place of his arrest could lead to an evaluation of his role on |
| |Pakistan on border with |international level, as Quetta is the capital on Baluchistan, which has |
| |Afghanistan. |been a scene of civil war for many years. This fact could point to a |
| | |relationship between the Baluchistan uprising and radical Islam, depending|
| | |on Nasar's loyalties in this period (the early 2000s). Highway from Quetta|
| | |to Kandahar. |

Chapter 4. Transnational Organised Crime

“As long as we live in a world where a seventeenth-century philosophy of sovereignty is reinforced with an eighteenth-century judicial model, defended by a nineteenth-century concept of law enforcement that is still trying to come to terms with twentieth-century technology, the twenty-first century will belong to transnational crime”.
Robinson (2000, 9)

4.0. Introduction
This chapter deals specifically with transnational organised crime and is subdivided into five parts. [171] The first part is a brief survey of the history of organised crime before turning to the problem, which has preoccupied a majority of scholars, namely modelling. Although, as Holland (1998, 26) notes, in models equivalences are obtained by dropping details, the modelling of organised crime, in my opinion, has not been fully successful. There are a whole host of reasons for this, of which the most important presumably is that parts of scholarship have attempted to fit a world-wide phenomenon into the lest of a Sicilian organised crime model, which itself was contested. This became refashioned in the United States into the so-called alien conspiracy model. Transnational is not a term normally used in international law, so the next section, the second, considers this term and in particular makes reference to the work of Bossard, before analysing, in the third section, in some detail “the organised” or the management talent in organised crime using a couple of case studies as evidence. One aspect of transnational organised crime, which complicates relevant conceptualisation, is the fact that criminal organisations to some degree have shifted their attention from illicit traffic in illicit product to illicit traffic in licit product. The following, fourth, section therefore examines—in some detail—the phenomenon of cigarette smuggling, which is widely believed to have become one of the major sources of revenue for transnational organised crime and therefore a major part of international monetary flows of non-declared origin. Also terrorist organisations are shown to avail themselves of this kind of trafficking as a means of funding. This observation leads to the fifth and last section, namely the relationship between organised crime and terrorism, including the concept of identity. In figure 4.5, a simple procedure is proposed whereby terrorist organisations can transfer whichever amounts of funds they may require into the United States or Europe, without the funds ever transiting the banking system or crossing a border, and with the added advantage that the funds made available will be in small denominations and untraceable. This analysis leads naturally into the following chapter five, Money Laundering. The influential essayist Walter Lippmann famously stated of US society that: “the high level of lawlessness is maintained by the fact that Americans desire so many things which they also desire to prohibit”.[172] Our many desires, for example drugs, prostitution, and gambling, constitute the demand side of a market, which is being satisfied on the supply side by commercial structures, albeit illegal commercial structures. The commercial structure that provides the “many things” we—and not only Americans—both desire and desire to prohibit is called Organised Crime.[173] This chapter will examine and analyse the concept of organised crime in general and its involvement in illicit traffics in particular, since the latter represent a substantial part of the funds of non-declared origin, which are the overarching concern of the thesis. For the purposes of this thesis I have not elaborated a personal definition of “organised crime”, since I concur with the United Nations definition contained in the December 2000 Convention Against Transnational Organised Crime, cf. below.

4.1. History and Development of Concept of Organised Crime
The earliest formulation of the concept of organised crime was born in the USA in the 19th century; it is possible that the term was first used in the 1896 annual report of the New York Society for the Prevention of Crime[174] and it has been widely used ever since. Nevertheless, there has been little agreement throughout history as to the contents of the concept. The two criminologists, Dorr and Simpson,[175] claimed in their 1929 publication that organised crime consists in two activities, criminal fraud and the protection racket, thus concentrating on the behavioural aspect of organised crime instead of on racial and ethnic aspects. Unfortunately, the US government, and a large part of scholarship, did not follow Dorr and Simpson’s advice, but concentrated on a perceived collective identity rather than on behavioural characteristics. There seems to be little doubt that such an approach by the US government was much influenced by the-then recent Saint Valentine’s Day Massacre on Saint Valentine’s day 1929 in Chicago, in the course of which a crime group of Italian origin, under the leadership of the later rather notorious criminal Al Capone, killed seven members of a rival group of Irish origin in what appeared to be an execution; this event quite understandably caused a public outcry.[176] The perceptual outcome, which obtains today in many parts of scholarship, and certainly in the public perception, is the view of organised crime as a closed ethnic group, typically of recurrent identities, e.g. of Italian origin, based on kin relationship, etc.[177] Scholarship[178] has been gravely impeded in relevant conceptualization of the subject matter by the so-called Sicilian syndrome or the alien conspiracy model. This is based on important studies of Sicilian organised crime over the last one hundred and fifty years,[179] which have been used as a model for the bulk of subsequent studies elsewhere in the world. This choice was also based on political expediency, since it, politically, was preferable to apprehend the phenomenon as a conspiracy of foreigners against a basically sound domestic society. Nevertheless, it is by now clear that the Sicilian model cannot be exported and that it does not fit organised crime in other times and other countries with different societal problems and policies. It is equally clear that organised crime is not necessarily imported into the country in which it operates. Rather, it is or can be a symbiotic societal phenomenon, which furthermore satisfies demands for illicit goods and services that are generated by the allegedly “sound” domestic society. An explanatory differentiation between Sicilian organised crime (the Mafia) and other organised crime, in Italy and elsewhere, may well be at the very core of the structure and operational choices of organised crime organisations. Therefore, if this modality is true, this explanatory differentiation is of crucial importance in any attempted conceptualisation of such organisations, viz. that in the Mafia the quest for power is more important that the quest for riches, the secret society characteristic more important than the entrepreneurial one, and the political aspect than the economical.[180] The US governmental paradigm,[181] which served as inspiration for the so-called RICO[182] statute, took the view that organised crime has many of the structures of legitimate corporations, in particular both articulate an innate wish to obtain market monopoly. The paradigm postulates an ethnic or racial identity as a necessary but not sufficient condition for membership and it thereby has a certain commonality with the alien conspiracy model. Mastrofski and Potter[183] isolate four assertions from the officially adopted theory, which together inform the ‘official’ view of organised crime:

1. Organised crime groups exhibit many structural features of legitimate corporate sector enterprise. 2. Like their upperworld counterparts, they seek to monopolise criminal enterprises by expanding in size and forming large cartels of national and international scope. 3. Ethnic or racial identity is the key to determining group membership in OC. 4. OC groups undermine the very foundations of democracy by corrupting public servants and professionals to serve the criminal enterprise.

The officially adopted theory, which constituted the official organised crime paradigm and as such served as a basis for policy determination, was widely rejected by scholars. In reaction, Mastrofski and Potter[184] proposed a flexible network model, which saw organised crime as an informal, loosely structured, open system reactive to fluctuations in the economic, political and legal environment and which postulated a symbiosis between the upperworld and the underworld, making it very difficult to distinguish the corrupter from the corrupted. This and similar conceptual views of organised crime are perhaps the most appropriate ones developed so far and they have gained the approval of an important part of modern scholarship. Whatever one might think about the various paradigmata proposed by scholarship, it is important to keep in mind that overwhelmingly organised crime in general and transnational organised crime in particular is a response to demand. It is fully realised that demand to a certain degree may be supply-driven; in other words, the availability of firearms, drugs, and prostitutes may induce some to desire such goods and services. It is, however, part of our make-up as humans that we need little inducement to form “illicit desires” and the demand originating therefrom. The term organised crime is a generalisation, which covers a highly complex matter that, as a result, is difficult to define in a meaningful manner, inter alia because to formulate a fully generalised concept, it would have to be stretched to incorporate a whole series of criminal behavioural patterns in a multitude of spatio-temporal relationships. Also, the sharply expressed conceptual differences are influenced by individual scholars’ political standpoints and their political opinions of the importance or otherwise of international organised crime for the development of the socio-economical aspects of society. A similar predicament also obtains for other subsections of organised crime, so to speak, including the best known of these, the Mafia, although the conceptual difficulties are further exacerbated by the fact that even the origins and etymology of the name itself, are unknown. If one considers these conceptual difficulties, it is somewhat difficult to understand that a law has been promulgated in Italy, Law 575,[185] which uses this well-known but little understood term, the mafia, in the text itself, notwithstanding that no two scholars seem to be able to agree on the contents of this term. The conceptual structure that subtends the Italian anti-mafia efforts and in particular the notion of the criminalisation of “belonging to a criminal organisation” as a separate and individual offence were, unhelpfully, forced on the world.[186] The philosophy behind the Italian anti-mafia efforts are difficult, not to say impossible, to export and its legal underpinnings, in particular the offence of belonging to a criminal association, sit very uncomfortably with the juridical systems in many countries.[187] I argue that organised crime is first and foremost a commercial entity; therefore a comparison with the franchising industry appears justified and provides an interesting way of improving the imagery of organised crime and also allows for a better understanding of density differential. One can compare organised crime with McDonald’s restaurant franchises. In rural areas there is a great distance between each such restaurant, in suburbia less, and in city centres, in particular in the United States, there is one every few blocks. Organised crime and gangs follow the same pattern, which explains why the “turf", the jurisdiction, of each gang chief in city centres is exiguous, but nevertheless the object of fierce competition as neighbouring gangs eye it covetously.[188] A further issue, which renders conceptualisation difficult, is the increasing co-mingling of illicit and licit businesses run by organised crime groups. An interesting example is constituted by the case of Amsterdam, the Netherlands, where Ah Kong, an "ethnic Chinese" organised crime group originating in Singapore replaced the Hong Kong based Triad 14K and from the mid-1970s has controlled the heroin market. It imports heroin from the Golden Triangle to Amsterdam and from there to the rest of Europe. From the usual organised crimes of drug trafficking, loan sharking, and gambling, however, Ah Kong has diversified into legitimate business: restaurants, diamond-dealing, travel agencies, nightclubs, horse-racing, and the distribution of Hong Kong kung-fu films.[189] Also the illicit trade in licit product by organised crime, cf. Section 4.4, increases the conceptual complexity. The most authoritative definition of organised crime to date is without doubt the one adopted in the December 2000 UN Convention against Transnational Organized Crime (CATOC), according to which organised crime is a

structured group of three of more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes or offences in order to obtain, directly or indirectly, financial or other material benefit.[190]

The UN Office on Drugs and Crime[191] opined in 2002—perhaps somewhat hastily—that "by providing a standard set of agreed upon definitions …., the Convention and its Protocols have in effect established a base-line for future research and analysis”. Already, one of the major scholars in the field, Margaret E. Beare,[192] has dismissed the CATOC definition as being "way too broad" just as she, for the same reason, rejected the definition proposed by Sam Porteous[193] in his report to the Solicitor General of Canada, which was adopted by the Canadian government, sc. that organised crime is

economically motivated illicit activity undertaken by any group, association or other body consisting of two or more individuals, whether formally or informally organised, where the negative impact of said activity could be considered significant from an economic, social, violence generation, health, and safety and/or environmental perspective.

In the United States, the Federal Bureau of Investigation defines organised crime as

any group having some manner of a formalized structure and whose primary objective is to obtain money through illegal activities. Such groups maintain their position through the use of actual or threatened violence, corrupt public officials, graft, or extortion, and generally have a significant impact on the people in their locales, region, or the country as a whole.[194]

A comparison between the Canadian and the US FBI definitions shows first and foremost that in the US case, a group must have a “formalized” structure, in Canada not necessarily. Secondly, the Canadian definition refers in a more general way to the social damage caused by organised crime, and refers in particular to environmental damage, whereas the American definition underlines the corrupting influence of this form of crime. Friman and Andreas, on the other hand, turn the question upside-down and ask neither who commits the criminal acts, nor in which such criminalised behaviour might consist, but instead where such activities take place. And they furnish the answer themselves: “The gap between the state’s metapolitical authority to pass prohibition laws and its ability to enforce such laws fully is the space where clandestine transnational actors operate”.[195]

4.2. Transnational and International Criminal Law
Today, the term transnational organised crime is commonly used to describe the international cooperation and in general the international aspects of organised crime. The distinction between international criminal law and transnational crime will be further discussed, below, but at this point it is useful to consider the terminological question from a typical range of current socio-political and psycholinguistic points of view, since it has been questioned by a number of scholars. The objections most often marshalled against the term transnational organised crime are of three orders, (i) what the term says (the denotative meaning), (ii) what the term does not say but implies (the connotative meaning), and (iii) what the term excludes (the “socio-political exclusionary meaning”).[196] Scholars object to the term because the nucleus of it, organised crime, is in itself a term, which gives rise to much discussion and which is not defined in the criminal codes of a number of jurisdictions, e.g. the UK.[197] To increase the confusion, according to these critics, the adjective transnational is then added without a proper explanation of the difference, if any, between that and international. On the second point, scholars claim that the term transnational organised crime carries the connotation of “foreign” and as such is xenophobic and racist, notwithstanding the fact that the vast majority of organised criminals are indigenous to the country in which they operate. Finally, it is objected that the term excludes crimes such as corporate crime, white collar crime and in general crimes committed by “the powerful”:

That is why some concepts articulated within the discourse, those to do with financial crime, economic crime, white-collar crime, crimes of the powerful, serious fraud in the private sector, corporate crime and corruption, environmental crime, war crimes, and state crime are only heard sotto voce”.[198]

However, Sheptycki's argument that white collar and corporate crime are excluded from the definition of organised crimes could perhaps be countered in two ways, (i) the use in white collar and corporate crimes of RICO, the organised crime provision par excellence in the USA; and (ii) the sentencing levels in e.g. corporate crimes, which would appear to be on the same level as sentencing in organised crime cases—or, indeed, higher. In fact, although RICO was enacted to counter "the infiltration of organized crime and racketeering into legitimate organizations operated in interstate commerce",[199] instead prosecutors have relied on the Act to

strike at those—whether or not they fit the ordinary definition of "racketeerer" or "organized criminal"—who commit crimes in conducting the affairs of business, labor unions, and government offices.[200]

From a taxonomic point of view, the notion transnational crime poses a certain difficulty if one considers my present analysis. “Transnational” is, in a criminal context, meant to reflect the definition thereof proposed by André Bossard, cf. later in this paragraph. As municipal law via the Criminal Code criminalises and codifies behaviour within the borders of a nation, and international law criminalises certain kinds of behaviour either in and by the codification of the international law itself, or by the incorporation into municipal law of international law, one might reasonably expect “transnational crimes” to have been criminalised and codified in a body of law, which one would conjecture were denominated “transnational criminal law”. This is not true since it is not the case that the hypothetical body of law called “transnational criminal law", above, is a synonym for international criminal law. Transnational crimes, as the name indicates, require the involvement of at least two countries, whereas this is not necessarily the case for international criminal law, e.g. in the case of slavery or torture. One of the earliest writers in the field, André Bossard,[201] informally ‘defined’ transnational crimes as crimes, which call for cooperation between two or more countries, either because the crime itself is transnational in so far as it implies crossing at least one border before, during, or after the fact, e.g. international drug trafficking, or by the consequences[202] or by the transnational character of the crime.[203] Bossard notes that the constitutive elements of transnational crime are two, (i) the crossing of a border by people (e.g. the criminal), objects (e.g. firearms), or even the intent or will as in computer fraud, when a cybercriminal gives an order from one country, which is transmitted to and executed in another country: (ii) the “international” recognition of a crime, through international conventions, extradition treaties, or concordant national laws.[204] Bossard’s views are obviously influenced by his having served for many years as a high-ranking official at the General Secretariat of Interpol, then in Saint Cloud, France, and he is, quite understandably, pragmatic, having observed the difficulties in transborder law enforcement cooperation for a number of years.[205] Nevertheless, I find that—at least for the purposes of the present thesis—his insistence on the definitional aspect of cooperation is stimulating and fruitful compared to a more legalistic approach. After all, it is fairly clear that the difficulties inherent in the subject-matter Bossard treats and, indeed, in the thesis as a whole, are not necessarily legal; rather they are linked to the issue of cooperation and—in the ultimate analysis—to political will. Finally, it should be noted that the term transnational crime is codified also in US legislation, e.g. US Pub. L. 106-386, October 28, 2000, SEC.102.b.24: “Trafficking in persons is a transnational crime with national implications”.

4.3. The 'Organised' in Organised Crime
As will be clear from the above, the question of what exactly constitutes organised crime is far from having been satisfactorily solved on academic level. Nevertheless, a first approach might be to focus on the term organised, i.e. not only crime, but crime that has been organised, one might even say managed. It is obviously not the purpose of this thesis to present a concatenation of case stories; instead, very consciously, cases have been chosen that have one thing in common: they serve to show the management effort inherent in the execution of even the simplest or simpler criminal acts, when these are perpetrated on a level that renders them "organised". One such case is presented, below, box 4.1 under the somewhat unfortunate title chosen by Italian law enforcement for the operation, viz. Operation the Last Emperor.[206] The core criminal act of this criminal association was the smuggling into and sale in Italy of counterfeit products of various kinds. Considering the pure scale of counterfeit products from the PRC available on street level in Italy, which Confesercenti[207] estimates at €7 x 10E9 in yearly turn-over,[208] one can easily imagine the managerial effort involved in the manufacturing and smuggling phase, alone, without even mentioning the highly complex distribution level. It is worth mentioning though, en passant, that on the distribution level a considerable number of persons are employed and that, as pointed out, inter alia, by Liddick, a "disenfranchised population sees organized crime as an opportunity for jobs and as a way to a better life”.[209] From the point of view of “citizen safety”, though, one notes with concern in the listing in box 4.1 of counterfeit products offered for sale by the association several items that—apart from being illegal for sale—are also extremely dangerous, sc. counterfeit motor vehicle and aircraft spare parts. These are inevitably manufactured from sub-standard steel and the use of such spare parts in the disks of braking systems on high performance automobiles such as Mercedes and BMW has, in the past, led to mortal accidents. The same holds true for the use of similar spare parts in aircraft. The Italian law enforcement officials, who investigated Operation the Last Emperor, opined that over the last couple of years, one has seen the so-called “Triads” (Chinese organised crime) in Italy develop from the "usual" abductions and blackmail (“protection”) within the immigrant society to new, managerial aspects of crime. In the present context and the better to be able to analyse one criminal organisation in the socio-political environment of another, it is necessary to consider the emergence of Chinese organised crime in southern Italy, in Palermo itself, the role of which as historical capital of Sicilian organised crime is documented from 1863.[210] As noted below, subsection 4.3.1, Chinese criminals in the counterfeit goods industry show noticeable flexibility in networking with operatives from other ethnic backgrounds. There can be little doubt, however, that in the case of Palermo, Sicilian organised crime has understood the financial advantage it could obtain from the Chinese production and distribution of counterfeit and illegally imported goods. Italian law enforcement officials are of the opinion that the role of Sicilian organised crime in this context is a furtherance of one of the oldest specialities of Sicilian organised crime, namely the so-called “protection racket”, but in this case directed against illegal operators in the marketplace rather than against the legal commercial operators, who constitute their traditional victims. I would maintain that this hypothesis is not necessarily the most likely. The depositories discovered in Palermo, cf. below, and in Rome, cf. box 4.1, The Last Emperor, were not in the retail business at all. They were regional, national, and Europe-wide distribution centres. Why, indeed, would Chinese organised crime install such depositories in Rome and in Palermo, two cities where they must have known that they would immediately be subjected to an important protection tax by local organised crime, when they could have chosen any place in Europe? Furthermore, Chinese organised crime itself derives an important part of its income from extortion, i.e. from the protection racket; wherefore protection tax claims from local organised crime could hardly have come as a surprise. I would argue that it is much more likely that the locations for the depositories for counterfeit and illegally imported goods were carefully chosen and that the Chinese organisers do not pay a protection tax to, but that they cooperate with local organised crime. Chinese organised crime needs to bring into the European Union large quantities of relatively bulky, illegal goods. Once, however, such goods are inside the borders of the European Union they can circulate virtually freely. Sicilian organised crime has a proven track record in clandestine transportation, in facilitating the customs inspection process by corruption, etc. The two organisations fit like hand in glove. This hypothesis has the further advantage of better explaining the somewhat unusual choices of Rome and Palermo as depositories. In Palermo, in January 2006, law enforcement searched 13 storage facilities (depositories) located in the vicinity of the railway station. They seized 80,000 illegally imported toys, which had not and could not be licensed for sale in Europe, since they were not “child safe” and therefore could not obtain the “CE” certification.[211] The toys did, however, carry the “CE” sign but, as the arrested Chinese nationals explained with a rare display of humour, it meant “Chinese Exportation”.[212] They also seized 50,000 pieces of counterfeit luxury items. All the arrested Chinese nationals were from the province of Zhejiang. Chinese organised crime in Italy provides a rare and fascinating insight into the intractable question of the value of organised crime. Six month prior to the Palermo seizures just referred to, the authorities in Rome arrested a number of Chinese nationals, who ran a Europe-wide distribution centre for counterfeit goods.[213] Linked to the group were a couple of financial companies, run by Italian nationals, who managed the proceeds from the counterfeit goods business. Apart from investing these proceeds in local real estate, a further €1 x 10E6 a day was transferred to China by the financial companies in question.[214] Operation The Last Emperor provides an instructive example of Transnational Organised Crime, since it exposes a series of salient organisational characteristics: The apparently unfettered international transportation of illicit goods and monetary instruments, the horizontal management cooperation between several ethnic groups (Chinese, Italian, Sub-Saharan), and a disregard for the security and safety regulations of the country in which the goods are commercialised. One cannot but point to a justly famous scene in a novel by Leonardo Sciascia, in which an old Mafioso speaks to a recent recruit: “The people were cuckolds and they still are”. "'But we, my dear boy, walk on the horns of others, like dancers”.[215] The disdain speaks for itself. The less elegant US organised crime (mob) equivalent is: “Only suckers work”.[216]

Box 4.1. The Last Emperor
| |
|In July 2005, the Italian national organised crime investigative agency DIA,[217] disclosed a series of business |
|transactions, which in reality were a cover for the laundering of funds by |
|Chinese nationals living in Italy or naturalised Chinese, who constituted a mafia-type association.[218] The |
|activity of these individuals was the marketing of counterfeit product in violation of the rights of trademark |
|holders. Proceeds were used, inter alia, to purchase high-value property in the centre of Rome as well as |
|warehouses and commercial property. The investigation was run under the name The Last Emperor |
|However, the investigation continued and some 20 months later in the night between 23 and 24 March 2007, the DIA |
|executed search warrants in the centre of Rome.[219] They seized counterfeit product,[220] imported from the PRC, |
|to a street value of €20 x 10E6: |
| |
|Textiles |
|Electronics |
|Computers |
|Auto spare parts |
|Aircraft spare parts |
| |
|Thirty individuals were charged with belonging to a criminal organisation, as well as with other criminal charges. |
|The law enforcement officials also found a showroom for counterfeit product, where counterfeit product wholesalers |
|could review the products before ordering. The operation was a ramification of above mentioned July 2005 |
|investigation into money laundering, in the course of which clandestine banks were discovered, some run by |
|outstanding members of the Chinese community in Italy. |

4.3.1. The Management Talents of Organised Crime
This heading refers to the issue of the postulated 'corporate' nature of organised crime. In the past, this point has been overemphasised in particular in the work of US crime commissions, but one needs to avoid oscillating from one extreme to another. Management is obviously linked with economy, since economic gains are the raison d'être for attempting to manage something as unmanageable as crime. However, in the very notion of the economy of crime, two major issues are collocated and sometimes conflated, sc. the question of the profits that organised crime may generate and the much more substantial question of organised crime as an economic actor. Economics of crime is discussed in chapter 2, while at this point two crucial concepts will be introduced, sc. organisational talent and speed of execution. They are both part of organised crime viewed as business and as such linked to the economics of crime, but are treated here since they illustrate the real capabilities of organised crime in a more meaningful way than recitals of shootings, etc.[221] To illustrate the two points, the reader is referred to table 4.2, which represents a factual credit card fraud. Column 2 read from top to bottom provides a series of events, while column 4 is the time line in hours counted from the initial criminal act on the West Coast of the United States of America. At hour 0, a Vietnamese shopkeeper in California, USA, working with organised crime performs a “double sweep”: the customer buys a couple of bottles of wine, paying with his credit card. The shopkeeper swipes the card through the credit card machine on top of the desk and, while detracting the customer's attention, sweeps the card a second time in a credit card reader under the desk. This second reader only stores the credit card information; it does not transmit it. Once the customer has left the shop, the information is electronically transferred to organised crime in Hong Kong, where it is collated with information from other credit cards obtained simultaneously from other operatives in the USA. The information is then transhipped to Kuala Lumpur, Malaysia, where it is embossed on false credit cards. These are sent by courier by air to Milan, Italy, where the Neapolitan organised crime group, the Camorra, takes control of them. They are then sold and brought by air to Russian organised crime in Prague, Czechoslovakia. From here a number of “purchasers” are sent to the luxury goods shops in Paris, Rome, and London, where each purchaser buys articles totalling almost, but not quite, the credit card maxima, i.e. $20,000. The goods are then flown to Moscow, Russia, for sale in a shop on the Red Square, where they are available at hour 200. There are a number of major observations to be made from this case: First, pragmatic cooperation between organised crime groups, in casu Hong Kong organised crime (Triads), Italian organised crime (the Camorra), and Russian organised crime. It should be emphasised that such cooperation is horizontal, among equals; it is not the result of a fiat from a supranational crime director or directorate. In fact, networking is presumably a sounder term than organisation. Secondly, the international production line, with parts of the operation being executed in various countries, mimics the organisation of production in a modern multinational company. It obviously obfuscates any attempt at interruption of the activity in real time, as well as at investigation of same ex post, and it poses innumerable legal problems should prosecution be attempted. Thirdly, the speed of execution is such that very few, if any, legitimate commercial companies could match it. The speed obviously reduces any possibility of discovery in the course of execution of the criminal conspiracy, since the handling of the incriminating material on each step is the shortest possible. Fourthly, one observes a certain level of specialisation. Step 3 in table 4.2 indicates that the false credit cards were manufactured in Kuala Lumpur. Already in 1991, the French authorities identified trafficking in false credit cards from Kuala Lumpur. The criminal activities were directed by a triad from Hong Kong (cf. step 2 in referenced table), but they used francophone overseas Chinese from Vietnam and Cambodia to use the cards for purchases throughout France.[222] Finally, questions have been raised, but never adequately answered, as to the organisational talents and capabilities inherent in an operation of this type. Indeed, such skills are rare outside of the top-level multinational corporate world. In this context, one can also adduce the organisational skills involved in distributing counterfeit consumer goods, e.g. luxury watches, from production in the Far East to informal retail trade basically all over the Western world,[223] involving seamless cooperation between individuals of many different cultural backgrounds, stretching from the, typically, Chinese manufacturer in the PRC to the, typically, sub-Saharan salesperson on the streets of, say, Western Europe. One of the management techniques this kind of organised crime organisation seems to have adopted successfully is JIT, i.e. Just in Time. In the corporate world, this refers to a strict management of warehouse inventories; to cut down on inventories and therefore on the financial cost of warehousing caused by an increase in stock, sub-contractors and suppliers are requested to supply materials and semi-finished goods at the shortest notice possible before the goods are used in production. Organised crime seems to use the same techniques, partly, it can be presumed, for the same reasons, i.e. cost-cutting, but partly, and presumably more importantly, to cut down on the time the organisation is in possession of incriminating materials, in the course of which the organisation is in its most vulnerable position. In summary form: highly efficient, intercultural, networked cooperative capabilities comparable to the most efficient modern management techniques. Without needing to be overly philosophical, one might surmise that organised crime in its entrepreneurial aspects in some way is mimetic in respect of transnational enterprises and their techniques, from global supply lines to jurisdictional arbitrage.

Table 4.2. A Credit Card Scheme.[224]
|Step |Where |What |Who |Time of Execution: |
| | | | |Hours from initial act|
| | | | |(credit card swipe) |
|1 |West Coast, USA |Credit card swiped under the|Vietnamese gang members |0 |
| | |counter; credit card |working ‘on contract’ for | |
| | |information obtained. |HK triad | |
| | |Electronic transfer to: | | |
| | |( | |3 |
|2 |Hong Kong |Collation |Triad | |
| | |Ship by air: | | |
| | |( | | |
|3 |Kuala Lumpur |Production of false credit | | |
| | |cards with information from | | |
| | |US cards. | | |
| | |Ship by air: | | |
| | |( | |27 |
|4 |Milan, Italy |Reception of cards.[225] |Camorra, Neapolitan | |
| | |Transhipment |organised crime (who "has | |
| | |by air: |the client") | |
| | |( | |61 |
|5 |Prague, Czechoslovakia |Reception. Dispatch of |Russian Organised Crime | |
| | |agents who are to use cards | | |
| | |for purchases | | |
| | |( | |123 |
|6 |London, Paris, Rome. |Purchase of luxury goods by |Agents acting for Russian | |
| | |agents almost to $20,000 |Organised Crime in Prague | |
| | |limit of cards. | | |
| | |By Air: | | |
| | |( | |181 |
|7 |Prague, Czechoslovakia |Delivery of goods. Then by |Agents of Russian OC | |
| | |truck: |organisers | |
| | |( | |200 |
|8 |Moscow, Russia |Sale to shops |Gum Store, Red Square | |

4.4. Illicit Trafficking in Licit Product [226]
The term traffic covers, as Duffield notes, both illicit trade in illegal product and illicit trade in legal product, including the domain of illicit trade in illegally obtained legal, product (e.g. organised car thefts). In fact, he operates with two related, but separate terms, viz. transborder trade and parallel trade.[227] Transborder trade is a wider term than parallel trade in so far as it encompasses both legal and illegal products, while parallel trade is the “informal” trade in products that are themselves legal. The cross-border smuggling of legal product, i.e. parallel trade, is believed to have developed into a major source of income for organised crime, which already was deeply involved in the illicit trade in illicit product. It is not immediately clear that Duffield’s classification of transborder trade is very helpful, since all three sub-species (illicit trade in illicit product, illicit trade in legal product, and illicit trade in illegally obtained legal product) are mainly within the managerial sphere of organised crime. However, since the illicit trade in legal product is less well known than illicit traffic in illegal product and since income generated from this activity nourishes the international flows of monetary funds of non-declared origin, the most prominent and most lucrative product in illicit transnational trade, tobacco, is considered in the following.[228]

4.4.1. Cigarette Smuggling
In Europe and elsewhere, e.g. in the United States, governments have substantially increased the amount of taxes paid on tobacco products, partly—allegedly—to discourage their use, partly to raise revenue.[229] Throughout the thesis, the question of criminogenesis, e.g. of international law in the imposition of so-called sanctions, is treated and it is evident that the customs and similar revenue-raising regulations have a strong criminogenic effect. There is no reason not to see the imposition of exorbitant taxes on a fully legal product, tobacco, as serving the same role as the imposition of sanctions on a foreign jurisdiction, viz. to induce the subject jurisdiction to adopt a specific behaviour or to encourage it to abstain from it; not only does exorbitant taxation of a legal product resemble a sanctions regime, it also has the same unintended consequences, i.e. it creates a parallel market, which is—gratefully—satisfied by criminals, that is highly organised criminal organisations, who deliver counterfeit or smuggled tobacco products at a lower price than that imposed by governments. Cigarettes are the world’s most widely smuggled legal consumer product: Each year 400 billion cigarettes or one third of all legally exported cigarettes in the world are smuggled.[230][pic], [231] Cigarettes, and in particular brand cigarettes, can be considered not only a commodity, but a currency: the product has been de-reified and its price basically represents a monetary value equal to the imposed tax.[232] It is therefore not surprising that cigarettes have been and are being smuggled to exploit the arbitrage mentioned above, nor that cigarettes—like other currencies—are being counterfeited, cf. subsection 4.4.4. Indeed, the anecdotal evidence of Italian organised crime smuggling untaxed cigarettes across the Adriatic Sea from Yugoslavia in fast motor vessels are legion and most travellers to Italy have been offered "duty-free" cigarettes by ambulant sellers in trains and in streets in particular in harbour cities such as Naples and Genoa. This section, however, will concentrate on the rather surprising subject of the involvement of the tobacco industry in the smuggling activities. Suspicions of tobacco industry involvement in cigarette smuggling have grown since 1997 when researchers demonstrated, by comparing annual global exports with global imports, that about a third of all cigarettes entering international markets each year could not be accounted for.[233] From approximately 1992, tobacco companies and in particular the American tobacco multinational Philip Morris experienced difficulties in increasing sales of their brand cigarettes[234] in the high-income markets in the western world and determined that the reason or a contributing reason was the high retail price caused by the very heavy duties levied by the governments of the countries concerned. Since many—in particular poorer smokers—understandably perceive the high duties as targeting them, unjustly, they see smugglers of tobacco products not as criminals but rather as individuals doing "the people" a favour.[235] That "the people" has understood that they are the being victimised by their own governments is clearly spelt out in the condescending wording of a WHO informational leaflet, which in one of several so-called bullet points explaining the FCTC and its proposed Protocol states:[236]

Smuggling makes top international brands available at affordable prices to low-income consumers, and to image-conscious young people who often regard such products as sophisticated and stylish.

Since the income to the tobacco companies, but obviously not to the governments concerned, remains unchanged whether the product is sold with or without taxes paid, the companies encouraged smuggling operations based, economically, on the price differential between duty-free and duty-paid cigarettes. Philip Morris delivers "duty-free" cigarettes to duty-free outlets such as airports and to embassies, since diplomatic personnel does not pay taxes on such product. In order to increase sales by reaching the segment of the European customers, who could no longer afford brand cigarettes or could no longer afford as many and therefore changed to cheaper brands or to self-roll cigarettes, a "duty-free diversion scheme" was imagined within the tobacco industry. Within Philip Morris International, headquartered in Lausanne, Switzerland, a vice-president, Mr A.R.,[237] established a smuggling route for duty-free cigarettes from the USA to either Panama or Aruba and from there to Antwerp, Belgium, where the product was re-packaged.[238] The cigarettes were then shipped to Italy via Rotterdam. A secondary smuggling route led to Andorra and later to Cyprus, which developed into a main transhipment centre for smuggled tobacco product en route for the Middle East. In other words, the "duty-free" product never arrived in the duty-free outlets and in the embassies, for which it, allegedly, was destined. In this manner, the duty-free tobacco trade, which hitherto had been a niche business within Philip Morris, developed into a multi-billion dollar profit centre. The Duty-Free Diversion Scheme became known to the authorities, in particular in Italy, where arrest warrants were issued against board members and executives of Philip Morris, Italy. Italian top management fled Italy overnight to Switzerland, where office space was made available for them at the headquarters of Philip Morris International, Lausanne. Here they joined above mentioned Mr A. R., against whom an arrest warrant reportedly had been issued by US authorities. Although the issuance of arrest warrants is not of core importance to the thesis, the information has been adduced in order to show the absurd and unusual situation that an important number of executives of top management of a US company were the subjects of arrest warrants issuing from several countries.[239]

Box 4.3. Cigarette Smuggling: Evaluation of Quantities Involved[240]
| |
|The British government claims about one in every three cigarettes smoked is smuggled. British Customs officers seized a |
|record 2 billion smuggled cigarettes in 2000 compared with 1.3 billion in 1999. This led to annual losses climbing to |
|about $3.75 x 10E9 in 2000 for the Treasury in Great Britain, according to the British government. |
|British Customs and Excise claimed in 2001 that about 6 billion British brand cigarettes are exported to Cyprus each year |
|even though the island has only 700,000 people. British Customs believe that the vast majority end up right back in Great |
|Britain brought in by a number of criminal organizations. |
|After Britain imposed steep tax increases on cigarettes sold in the U.K. in the beginning of the 1990s, exports to Andorra|
|from the UK increased from 13 million cigarettes in 1993 to 1.52 billion in 1997. This represented a 116-fold increase and|
|a 140-a-day habit for every man, woman and child in Andorra. Spanish and Andorran Customs stopped the tax-free imports and|
|by January 1998, British exports to Andorra had dried up. |
|Only 435 million British cigarettes were shipped annually to Cyprus before Andorra was closed to smugglers, according to |
|UK press reports. After the crackdown on tax-free imports to Andorra, that figure skyrocketed to 11 billion, before |
|stabilizing at 6 billion. |
|A large portion of these cigarettes comes from Imperial's UK factory. In 1999, Imperial exported 16.5 billion cigarettes, |
|brands smoked almost exclusively in Britain. This represents a 40 percent increase over 1998. The company's international |
|operating profit in the first half of 2000 was £115 ($172.5) x 10E6 compared with £93 ($153.5) x 10E6 in 1999. |

4.4.2. Cigarette Smuggling and Organised Crime
There is little doubt that organised crime is involved in the illicit trade in tobacco products and have been so for as long as governments have used these products an a convenient way of raising considerable revenue. In 2000, then U.S. Customs Commissioner Kelly stated that "Profits from cigarette smuggling rival those of narcotic trafficking" and that "the United States plays an important role as a source and transhipment country”. He also claimed, that “International cigarette smuggling has grown to a multi-billion dollar a year illegal enterprise linked to transnational organised crime and international terrorism”. However, some organised crime would appear to have moved from the smuggling of narcotic drugs, arms, and people to smuggling cigarettes; while the profits are roughly the same,[241] yet the risk of being apprehended is much lower, and the sentences, if apprehended, considerably lighter. As one law enforcement officer working in the Balkans said: “What people in our business sometimes forget is that if serious criminals move from smuggling drugs, people or guns into cigarettes, that might be a better thing from everyone's point of view”.[242] The involvement of Organised Crime in the illicit cigarette trade and its sometimes international character was demonstrated in August 2002, when the US authorities partially by chance disrupted a sophisticated smuggling operation: Customs inspectors in Miami discovered more than $300,000 worth of false tax stamps manufactured in Paraguay en route for New York.[243] Tobacco manufacturers often claim that the international smuggling of their products is the work of international organised crime. That is undoubtedly true; however, an in-dept inquiry by the Center for Public Integrity[244] seems to indicate that tobacco company officials at BAT, Philip Morris, and RJ Reynolds have worked closely with companies and individuals directly connected to organised crime in Hong Kong, Canada, Colombia, Italy, and the United States. From an academic—and indeed prosecutorial—point of view, the almost insurmountable difficulty becomes to prove the level of knowledge on the part of top management. Several approaches obviously are available but they do not lead to certain knowledge:

i) Negative responsibility; if they top executives did not know with whom they were dealing, they should have known or taken appropriate precautions; their attitude might, in this case, be described as “wilful blindness”.[245] ii) The numbers; it is possible to believe that top executives could have initiated business relations with organised crime once or twice, in good faith. However, it stretches one's credulity to believe that it could have happened as often as it reportedly did without the executives ever doubting that they were dealing with organised crime. iii) The most disturbing fact, however, is that on many occasions former tobacco industry executives have set themselves up as wholesale dealers, but, in fact, act as a cut-out between the tobacco industry and organised crime. This seems to happen so often that one can legitimately ask oneself if it is a coincidence or a carefully planned governance pattern.

Box 4.4. The Tommy Chui Case
| |
|Tommy Chui was a former director of BAT's biggest distributor of contraband cigarettes to China and |
|Taiwan. In 1995, he was scheduled to be the leading prosecution witness in a prosecution in Hong Kong|
|brought by Hong Kong's Independent Commission Against Corruption (ICAC), in a case concerning a $1.2 |
|x 10E9 smuggling operation to China and Taiwan. The case itself implicated three former BAT |
|executives in a HK$100 x 10E6 ($12.8 x 10E6) bribery scandal, as well as the bribing of Chui's two |
|former business associates, corrupt customs officers, and alleged members of the Triads. On 29 March |
|1995, his body was found in the harbour of Singapore.[246] He had been abducted, ritually tortured, |
|suffocated, and thrown into the harbour "just weeks before he was to testify against his |
|ex-associates”.[247] |

4.4.3. Law Suits Against Multinational Tobacco Companies
Multinational tobacco companies have been sued on numerous occasions and for various reasons by members of the public, but also governments have sued the tobacco companies, albeit for smuggling or for conspiracy in the smuggling of tobacco product; several such law suits will be analysed below. The cases have several characteristics in common, however, of which the most important are that (i) they were brought in the United States; (ii) although the written submissions emphasise various forms of organised crime, money laundering, etc., nevertheless, at the core they allege revenue violations; and (iii) as a result of (ii), they were all dismissed by the US judiciary with reference to the so-called revenue rule, a common law rule that provides that the United States “Courts will normally not enforce foreign tax judgments, the rationale for which is that issues of foreign relations are assigned to, and better handled by, the legislative and executive branches of the government”.[248] The European Union brought its action in the Eastern District of New York originally as two law suits, respectively by the European Union and by a number of Departments of Colombia. Since the two suits in many respects were identical, they were initially connected, then disconnected and finally “marked related”. The allegations made by the European Union[249] were, mildly put, breathtaking. Paragraphs 1-3 of the complaint contain a summary of the allegations raised against RJR Nabsico, Inc., et al, sc. that the latter[250]

• for more than a decade have directed and controlled money laundering operations, which directly damaged the plaintiffs; • engaged in and facilitated organised crime by laundering the proceeds of narcotics trafficking and other crimes; • knowingly sell their products to organised crime, arrange for secret payments from organised crime, and launder such proceeds in the United States or offshore venues known for bank secrecy; • have laundered the illegal proceeds of members of Italian, Russian, and Colombian organized crime through financial institutions in New York City, including The Bank of New York, Citibank N.A., and Chase Manhattan Bank; • have engaged in business in Iraq, in violation of U.S. sanctions, in transactions that financed both the Iraqi regime and terrorist groups; • at the highest corporate level, determined that it will be a part of their operating business plan to sell cigarettes to and through criminal organisations and to accept criminal proceeds in payment for cigarettes by secret and surreptitious means, which under United States law constitutes money laundering; • the officers and directors of RJR Nabisco, Inc., et al., facilitated this overarching money-laundering scheme by restructuring the corporate structure, for example, by establishing subsidiaries in locations known for bank secrecy such as Switzerland to direct and implement their money-laundering schemes and to avoid detection by U.S. and European law enforcement.

The merits of these allegations were never tested in court; therefore it is impossible to gauge the veracity and solidity of these. In July 2004, the European Community and Philip Morris Inc. entered into an out-of-court agreement, only parts of which are in the public domain, sc. that Philip Morris will voluntarily donate $1.2 x 10E9 to the European Community over 12 years, without interest, and will pay $1,500 for every master case[251] of cigarettes seized by European Community customs services on their being smuggled into the European Community. Furthermore, non-public information indicates that as a counterpart, the European Community and the ten member states, who participated in the action, will not seek legal redress for any violations prior to and including the year 2004. The European Community initiated the civil action under RICO in the United States. In fact, one would have expected that if, indeed, the Community had been in possession of criminal law level evidence backing up the very serious allegations referred to above, then it could have brought criminal charges within the European Community and obtained adequate forfeiture orders. However, a source (one of the lead investigators) within the EC Commission confirmed that the evidence, which the European Community did possess, could not have been presented in criminal court, but only in civil court, where the burden of evidence is much lower than in criminal court.[252] The settlement is incomprehensible. Apart from the exiguity of the amount to be donated by Philip Morris, the totality of which represents less that the losses incurred by any major European country in a year, is the fact that it would, at least at first sight, seem to lay Philip Morris open to a shareholder class action suit, since US corporate law deems that donations are not part of the business responsibilities of the board of directors, who therefore does not have the right to make such donations.

4.4.4. The Counterfeiting of Brand Cigarette Product
Bulgarian security sources claim that they presently seize container loads of counterfeit cigarette arriving from Dubai, but allegedly manufactured in China.[253] WCO estimates the annual production of counterfeit cigarettes in the PRC at 190 x 10E9. Furthermore, sources at the World Customs Organisation have informed me that there is a clear increase in the seizures of counterfeit cigarettes within the European Community subsequent to the July 2004 agreement between Philip Morris, Inc., and the European Community. With reference to the remarks in the very beginning of subsection 4.4.1 concerning demand and supply, this is hardly surprising, since the demand for low-price tobacco product persists and will be met by an adequate supply. If this, at least temporarily, cannot be sourced from the tobacco industry itself, it will be met with counterfeit product. Also, seizures of counterfeit cigarettes are welcome in the tobacco industry, since they place the industry in the role of victims.[254]

4.4.5. Cigarette Smuggling and Terrorism
Considering the arbitrage made possible by the price differential on a popular, legal consumer goods between countries and, indeed, even within a country such as the United States ($7.50 in New York City; $4.62 in Long Island), it is hardly surprising that also terrorists have used—and presumably are using—cigarette smuggling to raise funds. A number of cases have come to the attention so far:

• 21 January 2002, Charlotte, North Carolina, USA. 25 individuals were indicted for moving cigarettes by rental vehicles from Charlotte, North Carolina to Detroit, Michigan, where they sold the tobacco products in the streets, exploiting the price differential between the two states. Proceeds were then transferred by wire and by courier to Beirut, the Lebanon.[255] Two individuals, Mohamad Hammoud and his brother, were sentenced at the US District Court for the Western District of North Carolina inter alia for smuggling cigarettes within the United States in order to raise funds for Hezbollah; the case was then appealed to the US District (4th Circuit).[256] The two brothers had committed a number of offences, inter alia immigration violations, sale of contraband cigarettes, money laundering, mail fraud, credit card fraud, racketeering, conspiracy to provide material support to a designated FTO, and providing material support to a designated FTO. In the present context, the noteworthy part is the sale of contraband cigarettes. At the time of the offences, there was a price differential between North Carolina, where the cigarette tax was $0.50 per carton and Michigan, where the same tax was $7.50 per carton. The two individuals exploited this differential by trafficking cigarettes for a total value of $7.5 x 10E6 from North Carolina to Michigan with a resultant revenue loss of $3 x 10E6 for the State of Michigan. Parts of the proceeds were donated to Hezbollah, an organisation, which by the US State Department had been placed on a list of Foreign Terrorist Organizations (FTOs), providing material assistance to whom therefore is a violation of 18 USCA §2339B (“Providing material support or resources to designated foreign terrorist organizations”). • Counterfeit cigarette tax stamps were found in an apartment in New York, USA, used by members of the Egyptian Islamic Jihad cell that carried out the 1993 bombing of the World Trade Center.[257] • One of the individuals, who was accused of being part of an al-Qaeda sleeper cell outside Buffalo, NY, USA, had a criminal history involving the smuggling of cigarettes a.k.a. cigarette bootlegging.[258]

These three cases, subsection 4.4.1 and section 5.5 of the present thesis, Operation Green Quest, exemplify three main concepts in the thesis: Deviant knowledge (company officials), complexity theory (“minor” crime), and flow imaging (taps), and thereby allow the full appreciation of the main tenets of the thesis: international terrorism is financed, not by large sophisticated international electronic funds transfers, but by a continuous trickle of funds originating from the kind of common crime that do not attract much attention from law enforcement, because of the sheer number of individual acts, e.g. organised retail theft and cigarette smuggling. For illustrative purposes, one could consider each minimalist operation (group) a tap, from which spouts out, not water, but money (not liquid, but liquidity). There are many such taps, all nourished by the proceeds from common crime; it is, however, not possible to identify the taps, whose flows are destined for terrorism, from those destined to enrich common or organised criminals, or to fund further criminal activity. This form of funding represents several distinctive characteristics. (i) Invisibility: the individual criminal acts are invisible, exactly because there are too many of them[259] and the quantities and values involved in each individual instance do not attract law enforcement attention. (ii) Immunity: even if one or more individual funding taps are closed by law enforcement activity, in the overall funding structure, such disruption would be negligible. (iii) Self-repair: since the demand subsists, any non-identified member of the closed-down tap can step in and re-open the tap. It is obvious that this concept of terrorist funding can best be apprehended, closely followed, and subjected to interdictory measures by regarding it and its manifestations through the kind of intelligence processes outlined in annexes 3.1 and 3.2. The kind of criminality discussed in this section is such that in a modern criminal justice system it consistently remains unavailable for centralised analysis for three reasons, (i) each individual crime, if detected, has a minor monetary value; (ii) the criminal activity is spread over a large geographical area; and (iii), the typology of the crime (in casu retail theft) is such that it does not constitute a law enforcement priority. In this context it is of import to emphasise that criminal justice presently is positioned in the third of Foucault’s tripartite social functioning concepts, namely security apparatus, cf. chapter 1. This further explains the lack of immediate interest on the part of the criminal justice system, as such crime falls both within the optimal average and the acceptable bandwidth.

4.4.6. The WHO Framework Convention on Tobacco Control
In May 2003, the WHO adopted a treaty on tobacco control, the Framework Convention on Tobacco: A WHO Treaty (FCTC), which entered into force 27 February 2005.[260] Two years later, 19 April 2007, the WHO issued an Elaboration of protocol to the FCTC.[261] In the following, certain aspects of the Convention and of the proposed protocol will be analysed, not because of their intrinsic interest or value, nor because of their perceived importance for international law enforcement, but rather because they represent an example—perhaps the most extreme example—of the limits, to which or beyond which law enforcement and law enforcement techniques are being pushed in new areas. When one considers that law enforcement and, in particular, the use of modern law enforcement techniques by necessity entail a concurrent and proportional loss of individual rights for citizens, some observers might conclude that the use of such investigative and prosecutorial strategies in cases concerning what in the ultimate analysis are illicit border trade or revenue cases is, surely, an aberration. The WHO FCTC criminalises, in Art. 5, "unauthorized possession of raw leaf tobacco", i.e. the possession of a naturally occurring, fully legal plant or part of plant. Art. 15 of the WHO FCTC,[262] proposes to use anti-money laundering provisions and in particular the Know-Your-Customer (KYC) requirements to ensure that payments for tobacco product are made solely from legal sources. Sale, storage, and distribution should be subjected to the same provisions according to the treaty. Just as one can reasonably doubt the reasonableness in charging the banking community with reporting totally legal banking transactions by clients, against whom not the slightest suspicion of criminal activity exists, one could argue that this is a disturbing proposal in that it puts the onus on a perfectly legitimate manufacturer or major wholesaler of a commonly used consumer product to ensure the legitimate origin of funds used by retailers or wholesalers to settle the purchase of product. This, surely, is another example of anti-money laundering legislation being taken too far. The excessive cost, ineffectiveness, and overextended application of AML will be discussed in chapter 5, in particular in section 5.3 and 5.4. Articles 16 and 17 contain provisions for a product tracing system, which does not even exist in the potentially much more worrying case of distribution within the pharmaceutical industry.[263] Articles 29, 48 and 65 encourage the use of very specific law enforcement methodologies in the investigation of these alleged "crimes”, such as the electronic surveillance to record meetings and conversations, the use of undercover agents, and controlled deliveries, while art. 53 contains a provision for the extradition also of own nationals (sic) and art. 76 of the potential protocol proposes itself as extradition treaty for extradition between Parties, who have not concluded bilateral or multinational extradition treaties, but who do require one. All of this, according to art. 50, for the alleged purpose of effectively combating organised crime involvement in illicit trade in cigarettes.

4.4.7. Concluding Remarks
While on the one hand one can easily understand that individual governments attempt to claw in duties and taxes they have imposed on individuals or on product, two questions can reasonably be asked, sc. (i) to which degree have governments themselves created the tendency to evade such duties, and (ii) to which degree and by which means should governments go to investigate such evasion. Any law enforcement type investigation involves, by necessity, an infringement of individual rights to privacy, to freedom, etc. Investigations into duty evasion are, after all, inquiries into the violation of revenue regulations. Some might feel that the drastic measures proposed in the Protocol to the WHO Framework Convention on Tobacco Control, mentioned above, subsection 4.4.6, by far exceed what is reasonable for an infringement of such revenue regulations. Norms that are seen to be unreasonable, as for example the exaggerated revenue-generating import and sales duties on tobacco product, are by their very nature criminogenic, since unreasonable provisions will be tacitly and openly violated by a large proportion of a population. Tobacco product is taxed by a duty many times the value of the product itself; it could be argued that imposing a duty higher than the value of the product itself not only is unreasonable, it is a clear invitation to norm disobedience, since the product loses its intrinsic value and, instead, only represents yet another tax. The series of propositions, cf. 4.4.6, for enforcement measures hitherto only used in the investigation of drug trafficking and other very serious crimes could and should be seen as rather surprising considering that the product, which the convention attempts to control, is perfectly legal and freely available in all countries in the world. Observing the very substantial legal remedies being put in place in simple cases of violation of revenue regulations, one cannot but point to the far more important subject of commercial sexual exploitation of children. The paltry results obtained, on international level, in this serious area are in stark contrast to the measures proposed when the issue is not the lives of innocent children, but government revenue. On the other hand, the proposals and, indeed, the fact that proposals of this nature could see the light of day, could be part of a more general trend identified by Anthony Giddens in his general definition of Modernisation as “a capitalist system of commodity production, industrialism, developed state surveillance techniques, and militarised order”.89 One might therefore ask if control mechanisms, militarization, and so forth, are organic reactions to the complexities of modern and post-modern society rather than conscious designs on the part of government officials or the political class. Whether part of the very texture of Modernisation or a very conscious, but misguided and ill-informed,[264] attempt by the ruler to ensure the flow of revenue, the use of such heavy enforcement and judicial methodologies is and must be seen by every citizen as very worrying. It is somewhat of an amusing fact that in a period where more and more people talk more and more about human rights, individual rights such as rights to privacy, the right not to be the object of criminal investigations without probable cause, etc., are being curtailed every day.

4.5. Organised Crime and Terrorism
The intensification of interest in terrorism in the beginning of the twenty-first century, in particular as a result of the two terrorist attacks perpetrated in the heart of the Western economic centres, “9/11” (11 September, 2001, New York) and “7/7” (7 July, 2005, London) has, quite understandably, led to the question, if there is a relation, operational or conceptual, between organised crime and terrorism. Terrorism, like organised crime but even more so because of the political and emotional undertones, has not been defined, be it on international level (the United Nations agreed to disagree and instead adopted a thematic approach) or on national level. For the purposes of this discussion, terrorism is to be seen as triangular and communicative usage by one or more sub-state actors of illegal acts: the originator (the terrorist) sends a message via the transmitter (the victim) to the receiver (an authority) with a view to influence the outcome of the latter’s administrative, judicial or political processes. This view excludes the use of the term to cover so-called “state terror”, i.e. a ruler’s use of terror on own population to impose his or her will, since it is not triangular and as the message is not aimed at an authority. The term "state terror" is furthermore used by contemporary scholarship in many senses that are mostly not made explicit: apart from the sense indicated in the text, supra, the term is often taken to mean a state using its own agents to perpetrate acts of violence in another state or a state funding organisations that it knows or does not know may engage in terrorism. Since this work is not specifically about terrorism and since no commonly accepted definition of “terrorism” is available from the United Nations, a definition is proposed in this paragraph, which is value-neutral and comprehensive. The lack of definitional consent on international level has led to a crop of definitions in the literature of such dimensions and representing such a variety of value systems that an analysis of these would seem to be not only excluded for reasons of space but also rather pointless. Without entering into an academic polemic, one must, nevertheless, in this context point to Susan Haack’s incisive comment (2008, 98):

A third pitfall (to which all investigation is susceptible, but social-scientific investigation probably especially so) is allowing what ought to be inquiry, an effort to discover the truth of some question, to turn into advocacy, an effort to make a case for some proposition determined in advance. Of course, it’s perfectly fine for sociologists, economists, etc., as it is for environmental scientists, epidemiologists, and so on, to have views, and to make recommendations, about matters of policy; but it’s disastrous if they confuse this with the quite different enterprise of investigating the causes of inflation, of rising mercury levels in fish, or whatever.

Terrorism and organised crime have little in common on an intellectual level, since the former is based on ideological, religious or political, whilst the latter on profit motives. It is clear, nevertheless, that one may use the methodology of the other, so that terrorists will engage in common crime, typically armed robberies, extortion, criminal abduction, or drug trafficking, to fund their operations, while organised crime may use “terrorist methodology” to “send messages”. Furthermore, terrorists and organised criminals may cooperate as is the case in Colombia, where “terrorist groups” (some of which have now grown into insurgency movements) against remuneration “protect”’ drug convoys. It is not clear to which degree terrorists and organised criminals cooperate in other parts of the world, but so-called pentiti in Italy, i.e. former criminals who "regret"—as the term pentito stresses—and now assist the judicial authorities, have pointed to a series of meetings in Western Sicily between terrorist groups from the Middle East and Italian organised crime elements (Francesco Messina Denaro, the Trapani (Sicily) mafia "boss”.)[265] The veracity of such statements has not yet been confirmed, and a fair amount of scepticism should be exercised when evaluating allegedly repentant criminals’ statements and their motives. If, however, such meetings did take place the ramifications could be important. Indeed, it is easy to perceive the complementary opportunities presented by cooperation between the two. On the one hand, a Middle Eastern terrorist organisation has easy access to unlimited quantities of narcotic drugs, while, on the other, Sicilian organised crime has a proven track record in working with the Middle East (Turkey) and in smuggling narcotics to the developed world. The situation can be summarised thus: Middle East terrorist groups have access to unlimited quantities of drugs in the Middle East, but lack expertise in smuggling it to the developed world and lack ready access to funds in-country in the developed world, where they might wish to commit terrorist acts or where they need to maintain, and thus fund, a sleeper network. Sicilian organised crime, on the other hand, can smuggle such drugs, but will need to smuggle substantial amounts of funds back from the developed world to the Middle East in order to pay for the delivered drugs. They furthermore generate substantial quantities of banknotes in US and other currency that they have difficulties in moving and laundering. The solution is very simple: organised crime pays Middle Eastern groups in the developed world in bills that do not attract attention (small denomination—as obtained from the clients purchasing drugs—dirty, etc.) instead of paying in the production or transit countries such as Afghanistan, the Lebanon, and Morocco. Cf. figure 4.5. The end result is that terrorist organisations by this very simple means in fact have moved as large a quantity of monetary funds as they like without ever coming into contact with a banking organisation, without ever crossing an international border in possession of drugs or substantial amounts of money, and without attracting attention. If the two parties have not yet elaborated this very simple technique into a routine operation, then they most certainly will. Although this modus operandi presumably already is operational or will be so, I, nevertheless, contend that more funds destined for use in terrorism (maintenance of personnel (in arms) and purchase of equipment) transit from the developed countries in the West to the Middle East than in the opposite direction, cf. section 5.5, Operation Green Quest. As noted above, terrorists may use organised crime methodology and vice versa. Such use is not without its danger, however; organised crime might attract unwarranted attention if they attack the governmental apparatus in a visible way (“high profile attention drawing actions tend to be anathema to the Mafioso”[266]), while terrorists may slowly lose sight of their ideological goals under the influence of the luxuries of an easy life based on easy gains.[267] One might argue that terrorism thus becomes a kind of continuum from the “pure” terrorist to the “pure” organised criminal. As noted above, the main difference between the two is the profit motive and therefore, somewhere in the continuum, one finds a line, where the terrorist becomes a profit-motivated criminal. A less kind analysis would see terrorists’ ultimate search for power as equivalent to organised criminals’ search for profit and treat both as organised criminals. There is no easy solution to this analytical dilemma, which, in practical terms, manifests itself in particular when the Political Offence exception is invoked in extradition cases. The General Assembly of the United Nations met the problem head on and declared that

In conformity with the Charter of the United Nations and taking into account all the relevant General Assembly resolutions, we shall together, …, take effective, resolute and speedy measures with respect to preventing and combating criminal activities carried out for the purpose of furthering terrorism in all its form and manifestations.[268]

By way of a conclusion of this subsection on organised crime and terrorism, I would argue that the main problem is that there is no accepted definition of either term. For many years, the United Nations has attempted but failed to arrive at a definition of terrorism, which would be acceptable to its membership. The efforts have failed, I would sustain, for two reasons. First, many countries, including many in the developed world, want to retain the capability of deciding, on a case-by-case basis, who is and who is not a terrorist or a terrorist financer; one thinks for example of the ambiguity of the position of the various US governments over the last thirty years towards the Irish-American community in the US as obvious financers of terrorism in Great Britain.[269] Secondly, many countries, mostly in the developing world, insist on having a definition of terrorism include what they refer to as "causes”, e.g. poverty, despair, the Palestine question. Although one can understand—and some may perhaps share—the (political) reasoning behind such demands, they are nevertheless not very helpful as such "causes" would exclude, inter alia, the major indigenous terrorist movements that were active in Western Europe in the 1970s, which certainly were not "caused" by poverty, despair, or the Palestinian question. In the case of organised crime, the situation is not much better. There are many definitions of organised crime, in fact almost one per scholar, which admittedly is not very helpful, either. Present scholarship concentrates on certain "overlaps" between the two species; I would argue that this may not be best approach to analysing the problem. Instead, one presumably would need to examine the concepts intent and motivation. The intent for specific acts committed by the two groups might overlap, their motivations do not; the terrorist's is purely political, the organised crime's purely financial. A third concept, which undoubtedly would need serious treatment in this context, is that of identity, i.e. one would need to establish how "the world" looks at each group, i.e. which identity do we establish for them, and how do they look at themselves, i.e. which identity do they establish for themselves.

Figure 4.5
[pic]
4.6. Contemporary Debate and Future Trends
Naím[270] observes, in my view correctly, that transnational organised crime will continue to expand. The networks are not bound by geography and defy traditional notions of sovereignty. They furthermore “pitch” governments against market forces, and bureaucracies against networks; both unequal matches. In more practical terms, one might state that the foreseeable developments all play into the hands of organised crime. Technology will evolve and organised crime, being much more flexible than governmental agencies, will exploit such new technological means before governments and it will furthermore be able to hide its commercial activities within the rapidly expanding operations in world trade as well as in the financial markets. An important part of the revenues of organised crime originates from both trafficking in human beings and human smuggling; not only, but both are fast expanding activities.[271] They constitute the third largest source of income, but are the fastest developing activities of organised crime; everything leads to believe that this expansion will continue. In this way, not only does organised crime generate income, via the rapidly growing ethnic communities, it also gains access to an ever increasing pool of recruits and of victims. The now more and more common use of trade embargoes and trade sanctions under international law will supply organised crime with ample opportunities for revenue since they will invest their commercial and organisational skills in providing the goods and services, which cannot be supplied by legitimate trade; in reality this only constitutes an example of the horror vacui principle. The subject of the criminogenesis inherent in this use of international law has already been touched upon and is a general theme throughout the thesis. The severity of environmental legislation will also, indeed already has opened new venues for organised crime, in the illicit exploitation of natural resources,[272] as well as in the, illicit, disposal of toxic waste.[273] Finally, the ageing of the population of the Western world will lead to a whole range of opportunities for organised crime, the most obvious of which is the supply of replacement organs from willing or, if necessary, unwilling donors. It should be noted that I have underlined the possibility of trafficking in organs obtained from non-willing donors for several years in a number of international conferences. Unfortunately, my predictions would seem to have been only too accurate: On 28 January 2008, Indian authorities discovered a trade in organs harvested from poor persons and sold to rich clients. Hundreds of donors had been ensnared, often with false promises of work. They were then threatened with a weapon to donate one of their kidneys against a payment of $1,250. The kidneys were resold at ten times this price.[274] Also the counterfeiting of highly priced cutting-edge pharmaceuticals holds promises for substantial earnings for organised crime. The profit from such activity equals that of drug trafficking, but is virtually risk-free; even in case of a successful prosecution the risk of a lengthy custodial sentence is remote. As more and more elderly in the western world will require protected residences and connected nursing services, the opportunities for health care fraud will increase commensurately. In order to conceptualise, investigate, and successfully prosecute perpetrators of transnational organised crime, law enforcement and in general the judicial authorities have strongly emphasised the use of a technique commonly known as “follow the money”. The following chapter, chapter 5, will review this technique and in particular Anti-Money Laundering efforts, and will critically examine the relationship between money laundering and deviant knowledge.

Chapter 5. Money Laundering

Parturiunt montes, nascetur ridiculus mus
Horace, De Arte Poetica, v. 139

5.0. Introduction
In the first section, the chapter analyses the taxonomical difficulties inherent in the very notion of “funds of non-declared origin”, in particular the three, partially overlapping subspecies: capital flight, criminal proceeds, and terror finance The issue of money laundering is then considered and, at this stage, its severe costs in terms of diminution of privacy rights are noted (for the monetary costs, see section 5.3). The money laundering regime in the United States is examined with special emphasis on the banking community and its criminal liability. Also Thailand’s anti-money laundering legislation is analysed. Thailand has chosen a thematic approach contrary to, say, the United States and western European countries. By nature, a thematic approach is selective and the thesis raises the question if legislation proposed in Thailand and recommended by the IMF, will be passed by Parliament since it seems to infringe on established interests. A strange anomaly or omission is noted, namely that trafficking in human beings and migrant smuggling is not a predicate offence for money laundering unless the scope is sexual. As an example of money laundering within the banking system, a case study is then undertaken involving HSBC branches in the Emirates. The study shows how two HSBC branch offices have been used for quite unsophisticated money laundering by Russian nationals. In view of the lack of sophistication, the question of corruption is raised; although, based on the material at disposal, it is not possible to show corruption payments. However, reasonable inferences from a consideration of the modus operandi adopted and of the fact that the laundering took place only in two of the banks many branches, are worrying. The case study of Russian nationals in the Emirates leads to a more general consideration of Russian money laundering in other parts of the world. This part of the thesis continues with a brief overview of the so-called off-shore banking community in the South Pacific. Each of these illustrates an approach to money laundering. The middle part of the chapter (sections 5.3 and 5.4) evaluates the monetary cost and efficiency of anti-money laundering provisions. The evidence collected shows that the implementation and functioning of anti-money laundering provisions are very costly, in particular when measured against the efficiency of such measures in leading to forfeiture of assets. Assets forfeited in the two jurisdictions that perhaps have been most active in this area, the United States and the UK, constitute approximately twenty percent of the cost of running the system. It is quite clearly a political and not an academic question to decide if such results are acceptable or not. The following section is a case study called Operation Green Quest, the material of which was collected in Texas and Washington. The evidence underlines a series of important issues: (i) The importance of organised retail fencing as an organised crime activity per se; (ii) the use of this kind of often insufficiently appreciated low-level criminality for terrorist funding; and, (iii), the establishment of the notion of identity for an organisation that remains through the years although both the individuals making it up and the product involved fully changed. These issues naturally lead to the final section, which is an analysis of money laundering and the financing of terrorism. The criticism not only of money laundering as such but also of the way the provisions are applied, sc. without the government having to show an attempt at concealing the origin of the funds was vindicated by the Supreme Court of the United States. The February 2008 9-0 decision in Cuellar v United States namely points out that concealing something is not the same as concealing the origin of something. The chapter further develops the issue of deviant knowledge. In a relatively well-known money laundering case involving the Bank of America, some 3.7 billion US dollars ($3.7 x 10E9) passed through the bank’s accounts from February 1998 to June 2002. The total fines and costs paid by the bank, once the case was disclosed, amounted to 0.12% of the funds transferred or 4.5 million dollars ($4.5 x 10E6). This amount would strike most as considerable until, that is, one considers that although the fees and commissions accrued by the bank from the transfers have not been disclosed, it is reasonably to suspect that they are superior to the fines and costs ultimately imposed. Finally is should be noted that the chapter discloses the way retail theft and retail fencing are used to finance terrorism. The funds generated by retail crime become part of the international monetary flows of non-declared origin, but they also serve to emphasise, not to say prove the point that only by applying the kind of capillary intelligence procedures introduced in chapter 3 of this thesis would one be able to identify and monitor such flows. The concept of money laundering sits in the crossways of three issues that are of major importance in today's world, sc. the accumulation of criminal proceeds, capital flight (KF), and so-called financing of terrorism.[275] The interrelationship between the three and them and money laundering can best be illustrated by use of a Venn diagram enhanced by relevant mathematical analysis:

Figure 5.1. Capital Flight, Criminal Proceeds, and Terror Finance

[pic] The numbers 1-7 indicate the interceptions between the three circles A, B, and C.
The Venn diagram 5.1 is explicated in tabular form by table 5.2., below.

Table 5.2. The Taxonomy of Funds of Possible Tri-Partite Origin
|Row |Venn |Set Theory |Explanation |
|No. |No. |Intersections[276] | |
|I |II |III |IV |
|1 | |U |Monetary funds of non-declared origin in the world |
|2 |1+3+ |A |Funds resulting from capital flight (KF) |
| |4+5 | | |
|3 |2+3+ |B |Funds of criminal origin |
| |4+6 | | |
|4 |4+5+ |C |Funds used for or destined to be used for the financing of |
| |6+7 | |terrorism (CFT) |
|5 |3+4 |A ∩ B |Funds resulting from capital flight, which are of criminal |
| | | |origin, e.g. corruption |
|6 |4+5 |A ∩ C |That part of the financing of terrorism, which originates |
| | | |from capital flight. |
|7 |4+6 |B ∩ C |Funds of criminal origin used for the financing of terrorism|
|8 |4 |A ∩ B ∩ C |That part of capital flight that is of criminal origin and |
| | | |which is used for the financing of terrorism |
|9 |5 |A ∩ -B ∩ C |That part of capital flight that is not of criminal origin, |
| | | |but which is used for the financing of terrorism |
|10 |1 |A ∩ -B ∩ -C |Capital flight that is not of criminal origin and which is |
| | | |not used for the financing of terrorism |
|11 |2 |B ∩ -A ∩ -C |Funds of criminal origin that do not result from capital |
| | | |flight and which are not used for the financing of terrorism|
|12 |7 |C ∩ -A ∩ -B |Funds used for the financing of terrorism, but that are |
| | | |neither of criminal origin not the result of capital flight,|
| | | |e.g. funds funnelled thorough the zakat structures (charity)|
|13 |3 |A ∩ B ∩ -C |Funds from capital flight that are of criminal origin but |
| | | |which are not used for the financing of terrorism |
|14 |6 |B ∩ C ∩ -A |Funds of criminal origin that are used for the financing of |
| | | |terrorism, but which are not the result of capital flight |

It should be noted that the size of the circles and of the areas denominated by the numbers 1 to 7 in figure 5.1 makes no attempt at proportionality. The Venn diagram in figure 5.1 does, however, clearly demonstrate some degree of the taxonomical complexities one encounters, when attempting to determine if monies are of criminal origin, or the result of capital flight, or used or to be used for the financing of terrorism, or concurrently several of these. Using the symbols commonly employed in Set Theory, Table 5.2 sets out nine of the possible but context relevant intersections, all of which have obvious implications for any law enforcement evaluation of the funds under discussion. In fact, area 1 in figure 5.1, referred to in row 10 of table 5.2, A ∩ -B ∩ -C, does not refer to funds that are of criminal origin obtained or destined for use in the financing of terrorism, keeping in mind that tax evasion, which may play a role in the funds in this area, is not a criminal offence in many jurisdictions. The present chapter deals with an issue, money laundering, the investigation and interdiction of which over the last fifteen years or so have become the foci of much national and international law enforcement. On the present author’s view, however, anti-money laundering measures constitute an over-inflated, inefficient, and exceedingly costly tool, in terms both of the monetary cost to society as a whole and of the non-monetary cost in the resultant, severe diminution of privacy rights of the citizenry. The monetary costs of so-called AML (anti-money laundering measures) are dealt with below, cf. section 5.3. They are part of the Thesis Argument (see Introduction). As far as the non-monetary costs are concerned, the main question can be clad in the following terms: It is perhaps the case that so-called money laundering represents a clear criminal danger to society; that being the case, informed citizens may be willing to forego a certain amount of privacy rights in order to establish a transparent banking environment, which might assist law enforcement in elucidating such crime. Nevertheless, it must be considered a condition sine qua non that the diminution of rights be proportional to the tangible results obtained as a result of such enforcement measures. It is highly dubious if such is the case. The privacy rights of the population, which have been sacrificed in the imposition of anti-money laundering measures, can perhaps best be summed up in an analogy with telephone intercepts. In most countries, law enforcement would not be able to obtain a telephone interception order without being able to show probable cause and even so would have difficulties in obtaining a blanket order involving the use by one or more identified persons of e.g. a number of clearly identified public telephones.[277] That, however, is exactly what the suspicious banking transactions reporting requirement orders banks to do as part of anti-money laundering legislation. Under these circumstances, it is difficult not to agree with R. T. Naylor’s judgment, “money laundering is an artificial and contrived offense that has no place in the statute books of a civilized country”.[278] Disregarding the natural repugnance one must feel at the idea of turning bank employees into unpaid police informers and the widely exaggerated emphasis on anti-money laundering measures in the so-called fight against terrorist funding, which followed the terrorist acts perpetrated in the United States on 11 September 2001,[279] the question remains, yet it has never been adequately answered, if the means employed correspond to the results obtained. In this chapter, a modest attempt will be made to provide a beginning of an answer to just this question. It is the opinion of the present author that while the present anti-money laundering measures are invasive and inefficient, yet they are also being applied in a manner that is not consistent with their very definition. In fact, in most jurisdictions defendants are sentenced not for the laundering, i.e. the manipulation of monetary funds in such a way that not only is their criminal origin concealed, rather “a legend” is created to explain their origin, but for the very transformation of the funds, e.g. from cash to real estate. That, however, is not money laundering, as the funds invested in the real estate will still need to be explainable, which admittedly they are not just by changing their form. In a 9-0 decision, February 2008, the US Supreme Court in Cuellar v United States decided against the government. Cuellar was arrested in Texas driving towards Mexico, when $83,000 was found concealed in a hidden compartment under floor boards of car. He was initially sentenced for money laundering (78 months’ imprisonment). A divided Appeal Court acquitted, but the Appeal Court en banc reinstated conviction. The Supreme Court acquitted and noted that there is a difference between concealing something and concealing the origin of something. The literature on money laundering is by now immense and growing almost daily. It would be impossible to provide a full overview of money laundering and anti-money laundering provisions in all regions of the world. In consequence, one region has been chosen in this chapter, the South Pacific, which is a region that is often invoked when the subject of money laundering is brought up by the media. As these, typically very small, countries are not necessarily that well known, a few more prefatory remarks will be found in the beginning of each subsection treating the individual island nations. Similarly, the number of institutions involved in the alleged fight against money laundering has grown in a rather surprising manner on national, regional and international level. Two such institutions will be briefly described: At national level, the Thai anti-money laundering group, AMLO, and, on regional level, the Asia/Pacific Group, APG.

5.1. Money Laundering: A Brief History
Money Laundering is, according to The Economist’s definition, “the processing through the banking system of the proceeds of crime, in order to disguise their illegal origin”.[280] By way of a generalisation, money laundering is commonly considered a cycle consisting of three stages: placement, layering, and integration. Like all generalisations, this is not always correct since in some cases, there is an overlap between two of the three steps or, occasionally, the whole process only consists of two steps, which happens when two of the three steps are fused into one. The Board of Governors of the Federal Reserve System in the USA explains the terms in the following way:[281]

The first stage of the process is placement. The placement stage involves the physical movement of currency or other funds derived from illegal activities to a place or into a form that is less suspicious to law enforcement authorities and more convenient to the criminal. The proceeds are introduced into traditional or nontraditional financial institutions or into the retail economy. The second stage is layering. The layering stage involves the separation of proceeds from their illegal source by using multiple complex financial transactions (e.g. wire transfers, monetary instruments) to obscure the audit trail and hide the proceeds. The third stage in the money laundering process is integration. During the integration stage, illegal proceeds are converted into apparently legitimate business earnings through normal financial or commercial operations.

Table 5.3 is a graphic representation, adapted from Pierre Kopp, of two of the money laundering steps, sc. layering and integration. The table is on three levels, the most important of these being the top-level. In two quadrants of the usual Cartesian coordinate system, the equivalent of the y (vertical) axis indicates “transaction costs”, while the x (horizontal) axis represents the level of complexity of the money laundering typology. The left quadrant is the layering quadrant, that on the right the integration quadrant. In the first, the layering quadrant, the further one travels to the left, i.e. the larger the negative x value, the less complex the methodology; in the right quadrant, the further one goes to the right, i.e. the larger the positive x becomes, the more complex the integration typology used. Transaction costs increase as one travels up the y-axis. Placed within these Cartesian coordinates is a selection of money laundering methodologies, so-called typologies, and their transaction costs in terms of their complexity. It is generally agreed that the impetus for the creation of anti-money laundering measures originated in the United States, whence it spread—partially under pressure from the US—to the rest of the world. This section therefore consists in two major subsections dealing, respectively, with the United States and with the international scene.

Pierre Kopp (2002) Table 5.3 Transaction Cost

H Purchase of commercial group by criminal organisation G -Off-shore trusts -Jurisdiction arbitrage -Fictitious bearer-bonds Loans to company (10)

Company income (9)

F Trusts offshore International real estate brokerage (7) E Off-shore firms Payments from off-shore Gains on securities or accounts (6) options (8) B

-Sale of real C D

estate Banking Numbered Bank transfers (3) A -Sale of raw clearing accounts Fictitious fees (5)
-Lottery materials house Bank draft (2)
-Races - Brokerage Use of foreign credit Proceeds disguised as
-Casino cards (1) casino gains (4)

Raw materials Property Two or different Commercial & Legal bank system Legal commercial activities
Stock rights banking industry secrets exchange systems Bank secrecy

5.1.1. The United States
The origins of the anti-money laundering thinking are to be found in the United States, where as early as the 1960s the idea of depriving the criminals of the proceeds of their crimes, took root. The necessary legislation to do so already existed in the various seizure and forfeiture provisions on state and federal level, which allowed law enforcement authorities to seize and later, for the judicial authorities, to order the confiscation or forfeiture of assets originating from crime. The idea, however, slowly emerged to make certain types of investment of funds of illegal origin as well as the very concealment of the origin of such funds, illegal. The novelty of so-called anti-money laundering measures in reality consists only in the criminalisation of the attempt to conceal the origin of the funds concerned by a number of often otherwise legitimate actions, such as investment in real estate, bank transfers, etc. The concomitant novelty was that much of the effort was to be carried out and the cost borne by the private sector. Reinicke[282] developed the term horizontal subsidiarity to describe this new process of increasingly assigning and delegating information and analysis responsibilities to the private sector. It is perhaps no coincidence that the United States already had obtained the sentencing of a major, if not the major crime figure of the time, Alphonse Gabriel Capone (1899-1947), not for the crimes, which so much had upset public opinion, such as the 1929 Saint Valentine Day’s Massacre, but for tax evasion.174 Levi[283] argues, very credibly, that "Relatively trivial events can be used for tactical reasons against major offenders simply because they are the most serious offences with demonstrable connections to the targets. Al Capone's conviction for tax evasion was merely one early example …". One could obviously argue that if the legal system in a country has to have recourse to such indirect approaches in cases concerning major crime, then one should closely examine and over-haul the justice system, including criminal justice legislation and procedure, and law enforcement efficiency, rather than engaging in invasive, and ultimately inefficient legislative efforts. The counter-productive results of the anti-money laundering legislation are illustrated by the case study in section 5.5 of this thesis, Operation Green Quest. Not only was anti-money laundering provisions applied to what was not really money laundering, since the tainted money was simply transferred from one form to another—it is, indeed, in the very nature of money to be fungible—but the extremely serious organised crime, which constituted the predicate offences for the application of anti-money laundering legislation, was penalised less severely than the alleged money laundering offence; indeed, one might argue that because of a preoccupation with the money laundering offences, the full implications of the predicate offences were not fully understood. However that may be—and it is realised that a typical judgement of the appropriateness of anti-money laundering legislation to a large degree is dependent on one’s view of society[284]—it was natural that the ideas underlying such legislation should develop in the United States, which for years had associated the application of in rem civil forfeiture to criminal cases. The underlying basis was that "When the government institute proceedings in rem for the forfeiture of property involved in criminal proceedings, the Double Jeopardy Clause does not apply so long as the forfeiture proceeding is civil rather than criminal and the forfeiture is not part of the punishment for the criminal offense”.[285] Some of the major steps in the development of the legislative basis for the US anti-money laundering regime are indicated in table 5.4.

Table 5.4. The Anti-Money Laundering Regime in the USA
| |Bank Secrecy Act (BSA) |
|1970 | |
| |Racketeer Influenced and Corrupt Organizations Act (RICO) |
|1986 |Money Laundering Control Act (MLCA) |
|1988 |Money Laundering Prosecution Improvements Act |
|1992 |Annunzio-Wylie Money Laundering Act |
|1994 |Money Laundering Suppression Act (MLSA) |
|1998 |Money Laundering and Financial Crimes Strategy Act |
|1999 |First National Money Laundering Strategy Report[286] |
|2001 |US PATRIOT act: International Money-Laundering Abatement and Anti-Terrorist Financing Act |
| |(Title III) |

Source: Reuter and Truman[287]

18 USC §1961 of 1970 designates “racketeering activity” as “(A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (….), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18 United States Code: …… section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity) …”. Section 1956 in particular would appear to demand a two-step approach, since, namely, money laundering first needs to be substantiated by reference to one or more predicate offences, whereupon the money laundering itself becomes, so to speak, the predicate offence for the use of the RICO provisions. One of the major preoccupations of the American legislator—on the present author’s view quite correctly—is not so much a concern that criminals succeed in obtaining and concealing their ill-gotten gains, rather it is the use to which such funds are put. 18 USC §1962(a) addresses this concern:

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or though collection of unlawful debt …. to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise, which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern of racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

In other words, the legislator attempts to prevent organised crime from engaging in interstate or foreign commerce or from taking a controlling interest in a securities-issuing corporation. Elsewhere in the thesis, subsections 1.2.1 and 2.2.1, the following question is asked: In the case where funds are obtained from criminal activity and then injected into the legitimate economy, is such activity pernicious to the economy or perhaps beneficial. The US legislator as mirrored in the above legislation would appear to provide a beginning of an answer, viz. that such funds are harmful to the economy either if they are used to constitute a commercial entity or if their use entails the control by the criminal actor or his or her family or accomplices of a corporation. It is obviously not clear from this piece of legislation if one can conclude, e contrario, that such funds, if placed in a non-controlling position, contribute positively to the economy, although one might be permitted to think so, since they help render the financial markets more liquid. The point, however, that the US legislator seems to make is that funds originating from organised crime activities, if used to create commercial entities trading in interstate or foreign markets or to take control over securities-issuing corporations, are harmful to the economy precisely because such companies, if necessary, will have access to almost unlimited funds and therefore will not be subject to the vagaries of the market, to which other companies need to submit; in other words, such companies would be able to engage in market manipulation. Without a controlling position, they cannot. The capitalist system, the legislator seems to say, only functions in an environment of full equality, i.e. on a level playing field. The investment of laundered funds in the market may present two further dangers, placement risk and investment manipulation. If such funds do not reach a controlling position in an officially quoted company, it is difficult to see how the funds would be able to manipulate other investors’ decisions or indeed present a placement risk for such investors’ placements. The danger is otherwise real with non-quoted companies, in particular in situations where they could obtain market dominance by accepting initial losses. The 1986 Money Laundering Control Act was the world’s first law explicitly directed at money laundering. The Act made it a crime for a person knowingly to engage in a financial transaction involving the proceeds of a “specified unlawful activity”.[288] The 1992 Annunzio-Wylie Anti-Money Laundering Act allows for the closure of a bank that has engaged in or allowed money laundering. Under the auspices of the Act, the regulatory authority supervising the bank would hold a hearing to decide if the bank should be closed down as a penalty. To proceed with criminal charges against a bank, one would need to show that the bank knew or was “wilfully blind”243 to the illegal source of funds, the latter of which is notoriously difficult, albeit not impossible. On October 26, 2001, as Title III of the USA Patriot Act,21 the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 was signed into law. This Act made changes in the fight against money laundering, in particular by setting new conditions to do business in the United States for foreign financial institutions with assets in the United States in order to “close certain loopholes whereby U.S. financial institutions were caught up in unscrupulous overseas practices” (sic).[289] One of the core provisions in the Act, section 319(a) states that funds deposited at a foreign financial institution that maintains an interbank account[290] in the United States are deemed to have been deposited in the US interbank account with the “covered institution” and can be subject to forfeiture as if they were in the United States.[291] A “covered institution” is, in summary form, any insured bank in the United States, cf. box 5.5. As of 2002, a large number of institutions were subject to reporting requirements, sc.[292]

• 24,000 depository institutions • 160,000 money service businesses • 40,000 US Post Office sites • 600 casinos • 5,000 securities firms • An undetermined number of other institutions such as insurance companies

Box 5.5. Covered Institutions
|US legal term. According to Treasury Interim Guidance Concerning Compliance by Covered Financial |
|Institutions With New Statutory Anti-Money Laundering Requirements Regarding Correspondent Accounts|
|Established or Maintained for Foreign Banking Institutions also known as the Interim Guidance on |
|Compliance with the USA PATRIOT Act, of 27 November 2001, 66 Fed. Reg. 59342 (Nov. 27, 2001), a |
|“covered institution” is any insured bank as defined under section 3(h) of the Federal Deposit |
|Insurance Act, a commercial bank or trust company, a private banker, an agency or branch of a |
|foreign bank in the United States, a credit union, a thrift institution, or a broker or dealer |
|registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. |

5.1.1 §1. Criminal Liability of the US Banking Community
The February 2001 investigation by the Permanent Subcommittee on Investigations of the US Senate’s Committee on Governmental Affairs (in the following “the 2001 Levin report”) estimated that US banks condoned or actively participated in the laundering of more than $250 x 10E9 p.a., “primarily from drug trafficking and organized crime”. The Celent Communications LLC group (a Boston-based financial research company) in a report of September 2003 stated that internationally money laundering through banks had increased through the preceding four years and for 2004 was projected to reach $424 x 10E9.[293] It is, however, doubtful if major banks will be charged, as noted by Jack Blum:[294] “The money center banks are beyond regulation. There’s no capacity to regulate or punish them because they’re too big to be threatened with failure”. A case in point is the Beacon Hill operation[295] conducted by Robert Morgenthau, the Manhattan District Attorney, in which on 4 February 2003, a small financial company, Beacon Hill, operating out of rented offices in Manhattan, was the subject of a search warrant. Beacon Hill wired monetary funds in and out of the United States for its clients and by the time it went out of business, the day after the search of its premises, it had wire-transferred $6.5 x 10E9 through three dozen accounts it held with J. P. Morgan Chase & Co. (the second-largest US bank by assets). According to the prosecutorial authorities,[296] the monetary funds transferred in and out of the United States consisted partly of funds moved out of the United States for tax evasion, partly of proceeds of political corruption, including bribes, being moved out of Brazil and into the United States. Beacon Hill was indicted by a New York grand jury for receiving and transmitting money without a New York State Banking Department licence. J. P. Morgan Chase was not charged with any crime. The investigation into Beacon Hill Service Corporation disclosed a large number of illegal money transmitters, who led the investigators first to investigate Hudson United Bank, which had engaged in unrecorded money transfers for individuals in the Tri-Border Area,[297] and from Hudson United Bank to the Israel Discount Bank of New York, which over the period 2000-2005 had allowed its customers to move $2.2 x 10E9 illegally from Brazil into its accounts. The first bank to be charged was Broadway National Bank, which serves New York’s Korean community. In November 2002, it was charged with failing to file Suspicious Activity Reports (SARs) and fined $4 x 10E6 for failing to file reports on the cash deposits of $123 x 10E6. However encouraging this might seem, it is to be emphasised that this is a very small bank as is Banco Popular in Puerto Rico, which has 3% of Citigroup’s assets, but was fined $21.6 x 10E6 in January 2003—basically for the same offence for which Citigroup and, indeed, J. P. Morgan Chase (cf. above) were not punished. The argument for being lenient on major banks, which violate anti-money laundering or, indeed, other provisions, could well be the quite rational fear that such governmental action against major financial institutions might create panic among investors, which would entail turmoil in world financial markets. The irrational run on the Northern Rock bank, based in Great Britain, in the early autumn 2007 lends weight to this argument. I would argue that anybody, who witnessed, albeit in the media, the significantly irrational behaviour of deposit holders in the British bank in question, must remain extremely concerned over the possible, world-wide consequences of a “run” on a major financial institution such as Citigroup or J. P. Morgan Chase, the consequences of which would be unimaginable.[298] Finally, in connection with the transfers by illegal Brazilian money transmitters, referred to above, further inquires showed large unreported flows from off-shore accounts in Panama and the Virgin Islands through Bank of America accounts. In late September 2006, Bank of America settled with the New York County District Attorney's office for having allowed Valley National Bank to use 39 accounts with Bank of America to launder $3.7 x 10E9 from February 1998 to June 2002. Bank of America paid the City and State of New York $3 x 10E6 plus $1.5 x 10E6 in costs, a total of $4.5 x 10E6.[299] It is not easy to gauge the gains that Bank of America might have had in allowing the money laundering to take place, but one would guess that it is a lot more than the fine plus costs, (4.5 x 10E6 x 100/(3.7 x 10E9)) % = 0.12% of illegally transferred funds, which the bank, furthermore, had been able to invest gainfully for varying periods. By presenting to the public what sounded like a fine plus cost, but which in reality was repayment of part of the bank’s gains, the prosecutorial authorities fully exemplified the concept of deviant knowledge, which is applied throughout the thesis. Taking a global view, Levi notes, succinctly, that "Levels of visible enforcement of antilaundering provisions—prosecutions or deauthorizations of financial and professional intermediaries for money laundering or failing to institute proper measures of regulation—have been extremely modest”.[300]

5.1.1 §2. Correspondent Banks
In the Autumn of 1999, the issue of correspondent banks came to the fore when the Bank of New York was discovered to be a conduit for billions of dollars of suspect Russian money in the so-called Benex scandal, in which a total of $4.2 x 10E9, believed to be linked to Russian organised crime, passed through a correspondent bank account at the Bank of New York[301] (later reports, however, puts this number at $10 x 10E9 or even higher), cf. US v Berlin and Edwards.300 In this particular case, a couple of computers were housed at an unregistered money-transmission business with full access to the Bank of New York’s international wire-transfer service and unregulated financial institutions in Nauru, with no physical presence anywhere, were used, successfully, to conceal the real ownership of the laundered funds.[302] A correspondent bank, as the name indicates, is a bank, which opens a bank account in another bank, typically in another jurisdiction. Such correspondent bank accounts are vital to the well-functioning of the international banking system. Thus, the so-called Levin Senate Report on Money Laundering from 2001 found that as of mid-1999, the five American banks with most correspondent account held $17 x 10E9 of assets in those account, and the top 75 banks $75 x 10E9. The problem surrounding correspondent bank accounts such as those documented above—in a money laundering context—arises because some of the overseas banks opening correspondent bank accounts in, say, the United States, may be banks that are not under appropriate banking supervision or, indeed, they may not exist or may use a conduit, which does not exist. An example is provided in Senator Levin’s report’s review of Operation Casablanca, run by the US Department of Justice. The DoJ investigation disclosed that large amounts of funds originating from drug trafficking had been transferred from the USA to another country (“A”). The banking authorities in “A” could not be helpful, as the bank and bank account, to which the funds in question had been transferred, did not exist since they were located in another country (“B”). The authorities in “B” could not seize the funds, either, since the alleged bank had no branch or building in “B”. Finally, the funds were found: Having made the circuit, described above, they had been returned to the USA, where they were held in the alleged “bank’s” correspondent account in a major US bank in New York. Judging from the media reports, this case might be a case of so-called nesting, i.e. when a foreign bank opens an account at another foreign bank, which has a correspondent relationship with, say, an American bank.278 This subsection underlines, again, the concept of deviant knowledge, namely in the regulation of the banking community in the country, which has established some of the most stringent banking supervision mechanisms, the USA. When the regulatory subject belongs to the very narrow group of banking institutions, the mere hint of instability of which may lead to unrest on the international financial markets, regulatory double standards seem to apply.

5.1.2. The International Scene
One might take July 1989 as the crucial date for the imposition of anti-money laundering measures at an international level. In July 1989, at the G7 Arche Summit in France, the G7 began an in-depth treatment of the question of money laundering and, in cooperation with the members of the OECD, the G7 developed a series of projects and recommendations. Among the former was the creation of FATF,[303] which took place in May 1990; among the latter a set of recommendations, which were later issued under the auspices of FATF, the so-called Forty Recommendations.[304] The core proposal and the most transformative policy change, on international level, encompassed the general emphasis on the active participation by financial institutions in the fight against money laundering by spontaneous transfer of data to state institutions of a non-repressive character. In other words, banks had to transfer financial data, hitherto thought to belong to the individual banks and to the individual customers, to a governmental institution, albeit in most countries non-repressive. This institution would serve as a filter between the banking community and the repressive authorities, and it would pass on to the latter only such information as was estimated necessary, but not necessarily sufficient (as further investigative steps might have to be taken) for prosecution.[305] These institutions were created in many, if not most, countries and, although they are known under various denominations in different countries, they are generically called Financial Intelligence Units (FIUs). The FATF works out of offices in the OECD building in Paris, but is not part of the OECD, while the FIUs are located in the individual member countries. The coordinating unit of the FIUs (the "FIU cooperation council"), known as the Egmont Group of Financial Investigation Units, created 1995, has a secretariat, which for some time and on an temporary basis was run by the NCIS in London, UK, but which, as of the spring of 2007, was established permanently in Toronto, Canada; the Group has only FIUs as members, at present 106.[306] One might be forgiven if one were to believe that this impressive array of money laundering fighting institutions constituted an ample sufficiency, but one would be wrong. Between the country level FIU and the overarching, international Egmont Group and the FATF itself, a string of regional organisations have seen the light of day, concurrently creating a number of rather bewildering acronyms:

• Asia/Pacific Group on Money Laundering (APG) • Caribbean Financial Action Task Force on Money Laundering (CFATF) • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) • Financial Action Task Force of South America (GAFISUD) • Middle East & North Africa Financial Task Force (MENAFATF)[307] • Eurasian Group on Combating Money Laundering and Financing of Terrorism (EGC)[308]

These regional groupings collect and disseminate case histories, trends, and typologies, since such information may very well be urgently needed on a regional basis, rather than awaiting a dissemination on international level. They also examine how FATF recommendations can be best implemented considering the specificities of each region. Finally, in accordance with the forty recommendations of the FATF, they perform mutual evaluations of AML/CTF within a regional framework. An example is the February 2007 evaluation by the EGC of Kyrgyzstan. The mutual evaluation[309] was based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2002 and 2004[310] of the FATF using the AML/CFT Methodology 2004 as updated in June 2006. It should be noted, however, that the FATF and regional institutions’ mandate to organise mutual evaluation studies only extend to the evaluation of the establishment of laws and structures, not to enforcement. One discerns a clear regulatory deficiency in this approach, the results of which are very clear when one examines the efficiency of the AML regime (section 5.4) and, in a different area, the lack of enforcement of CSEC international legislation. A rather convincing argument strengthening the mentioned deficiency can be adduced from the FATF criteria for defining a country or a territory as “non-cooperative”. These criteria are all regulatory and no emphasis seems to be placed on the actual enforcement of such regulations.[311] A part, but from a ML point of view not necessarily the most important part, of the international scene is constituted by so-called off-shore centres, which, in summary form, provide two services, (i) banking services and (ii) corporate services, including a relatively uncomplicated incorporation procedure, as well as tax-free or lenient tax systems. A 1998 survey showed that there were approximately 4,000 offshore banks licensed by nearly 60 offshore jurisdictions. These offshore banks controlled some $5 x 10E12 in assets and were spread throughout the world as indicated in table 5.6.

Table 5. 6. Location of Offshore Banks
|Location |Number |
| |(%) |
|The Caribbean and Latin America |44 |
|Europe |28 |
|Asia |18 |
|Middle East and Africa |10 |

Source: The Economist278

5.1.2§1. Thailand’s AMLO[312]
In Thailand, the laundering of criminal proceeds is deemed by Peeraphan Prempooti to pose a threat both to the Kingdom’s financial stability and to national security.[313] The Thai Anti-Money Laundering Act[314] of B.E.[315] 2542 (1999) became effective on 19 August 1999.[316] The Act criminalises “the act of money laundering and related conspiracy, creates a(nd) establishes a civil forfeiture system for confiscating assets identified as having been acquired with the proceeds of specific predicate criminal offences and creates an Office of Anti-Money Laundering”.[317] Thailand has chosen what one could term a thematic, rather than a generic approach to establishing what constitutes predicate offences. By “a generic approach” is meant that predicate offences are not enumerated, but are referred to with a generic term, such as: “All crimes for which a maximum custodial sentence of at least one year’s imprisonment is prescribed”. The Thai money-laundering act instead enumerates the predicate offences in section 3 of the Act:

• Narcotic offences (Sec. 3, §1) • Sexual Offences in particular procurement of women and children (Sec. 3, §2) • Fraud (Sec. 3, §3) • Securities offences (Sec. 3, §4) • Corruption (Sec. 3, §5) • Extortion or blackmail by “member of an unlawful secret society or organized criminal association”. (Sec. 3, §6) • Customs evasion (Sec. 3, §7) • Offences related to terrorism (Sec. 3, §8)

The money laundering offence was initially predicated on the first seven crimes enumerated above, i.e. Sec. 3, §§1-7; yet, after the 11 September, 2001, terrorist attacks in the USA these were supplemented by an 8th offence, sc. terrorism, Sec. 3, §8, which was enacted to comply with UN Resolution 1373 and enacted into Thai law by The Amendment to the Penal Code Section 135; it became effective on 11 August 2003. Thailand has established a suspicious transactions reporting requirement by means of section 13 of the Act, which stipulates that:

Whenever a transaction takes place at a financial institution, the financial institution has a responsibility to file a report of that transaction with the Office, if any transaction appears to be one of the following: 1. A transaction involving cash in an amount equal to or exceeding the significant amount set forth in the Ministerial Regulations; 2. A transaction involving an asset equal to or exceeding the significant value set forth in the Ministerial Regulation; or 3. Any suspicious transaction, whether or not it is in accordance with (1) or (2).

It is noteworthy that, in section 3 of the Act, the Thai legislator defines suspicious transaction as "a transaction that is more complicated than the norm by which that transaction is usually conducted, a transaction that lacks economic rationale; a transaction where there is probably cause to believe that it was conducted for the purpose of avoiding the compliance of (sic) this Act; or a transaction related to or possibly related to a commission of any predicate offense, whether the commission of such transaction is conducted once or more; … "[318] Thai legislation contains further reporting requirements, which concern real estate and investment transactions; the circumstances and reporting limits of which are stipulated by Ministerial Regulations. Section 15 of the Act enjoins the Land Office with a reporting responsibility regarding trade in immovable assets and section 16 obliges the owner of an investment business to report investment transactions. Finally, section 20 of the Act establishes a customer due diligence (CDD) regime. Section 60 of the Act sets out the general penal provisions: "Any individual who is found guilty of the crime of money laundering shall receive a term of imprisonment of one to ten years, or a fine of twenty thousand to two hundred thousand Baht,[319] or both”. In consequence of Thailand's adhesion to the 1988 Vienna Convention, the ONCB (the Office of the Narcotics Control Board),[320] under the leadership of Pol. Gen. Chaovalit Yodmanni, then the Secretary General of ONCB, had drawn up the first draft law criminalising conspiracy, which to some degree permitted the seizure of funds originating from the illicit traffic in narcotic substances, the so-called Conspiracy Act, enacted in Thailand in 1991. The drafting of anti-money laundering legislation had begun in 1994 and the law was passed on 21 April 1999, entering into force on 19 August 1999. In June 2005, a new law proposal was introduced in the Thai Parliament, which would further expand the number of predicate offences, cf. above. Among predicate offences would be included currency exchange offences, smuggling, fraud in financial institutions, labour fraud, excise fraud, gambling and forestry offences. The proposed legislation was then, June 2005, widely expected not to be adopted, since two of the proposed predicate offences, sc. the gambling and forestry offences, would infringe on the interests of too many Thai deputies and senators. In fact, as of December 2007, the proposed legislation had not been adopted. The IMF, on the view of the present author somewhat naively, states that

AMLO has drafted a proposal to add eight additional categories of offences under section 5 of the AMLA. The proposal was approved by Thailand’s Cabinet on 27 February 2007 and it is now expected to be sent to the Council of State for scrutiny and then to parliament for deliberation and final approval. The eight additional categories of offenses that would eventually be added if the proposal is approved by Parliament include: environmental crime, foreign exchange crime, unfair securities trading (securities fraud), gambling, firearms trafficking, conspiracy to defraud the government in projectbidding, labor-cheating, and customs and excise crime.[321]

The IMF observes that the following offences are not predicate offences for the purposes of money laundering in Thailand:[322]

(1) the participation in an organized criminal group and racketeering, (2) trafficking in human beings and migrant smuggling, (3) illicit arms trafficking, (4) illicit trafficking in stolen and other goods, (5) counterfeiting currency, (6) counterfeiting and piracy of products, (7) environmental crime, (8) murder and grievous bodily injury, (9) kidnapping, (10) illegal restraint and hostage-taking, (11) robbery or theft, (12) forgery, (13) piracy, and, (14) insider trading and market manipulation.

This is only partly correct. For instance, re point (1) above, one should note that the “participation in an organized criminal group” is a notion, which—as pointed out in chapter 4 of the present thesis—is problematic from a legislative point of view in many jurisdictions. Thailand has included one of the main offences typically committed by participants in such groups, sc. extortion, as a predicate offence (Sec. 3, §6). Also, re point (2) the IMF statement is true, as such, but on condition that the trafficking in humans does not have a sexual scope. If it does, the offence is a predicate offence for money laundering, cf. Sec. 3, §2. In April 2000, AMLO became a member of the Asia-Pacific Group on Money Laundering (APG) and in June 2001 of the Egmont Group of Financial Intelligence Units. As regards the existing legislation, it was my impression, confirmed in conversations with members of the Thai intelligence community,[323] that the Anti-Money Laundering Act was not really being used to suppress money laundering, but simply as a further weapon against criminals, whereby their assets, which for evidentiary or other reasons could not be forfeited under the 1991 Conspiracy Act, are seized in a civil lawsuit by the AMLO. The Act has, embedded in it, a strange contradiction: Sec.3, §2 of the Act does not allow for the Act to be used in cases of smuggling of persons (Trafficking in Humans), unless the reason for the smuggling is sexual exploitation. I have not so far been able to ascertain the reason for this unusual drafting of the legislation; yet I am mostly inclined to believe that it is due to an oversight in the drafting phase. A less benign, alternative suggestion would be that it was not in the interest of a number of influential individuals or groups to subject profits from the trafficking in humans to the rigor of the money laundering regime, but that it was necessary to do so in the area of sexual exploitation, since Thailand had signed the relevant international treaties obliging it to do so.

5.1.2 §2. Thailand’s AMLO and Illegal Logging
Of particular interest, with regards to chapter 6, Abuse of the Environment, of the present thesis, is the fact that AMLO as of June 2005 had only treated one case, which involved, in a sense, illegal logging. The case had its origin some fifteen years earlier and involved, as in most of such cases around the world, corruption. The case concerned common land situated on a mountain side in one of the from a developer’s point of view most desirable areas in Thailand, sc. Phuket. Licences to build on common land are issued by the Land Department, but in this case, a non-authorised land inspector from the Land Department apparently (against a monetary consideration) had issued one or more false licences, which allowed a developer to split up the land in question into 100 lots for individual development, after having obtained the necessary financial backing from Siam Commercial Bank by presenting the false licences. The bank had made available to the developer a total amount of Bath 10 x 10E9, at the 2005 exchange rate (US$1=Bath41), $244x10E6. In 2005, AMLO had seized the land and other assets.[324] On the present author’s view, this case is rather symptomatic for developing countries, both in itself, and in its implications. At the origin of the case, one finds a corruption payment, without which there would be no case. This leads to common land situated on a mountain side being logged in order to allow for unlicensed development. Thailand has already known very serious landslides, with severe loss of human life, partially as a result of similar practices and this development would create a clear risk for a similar natural event. In fact, Thailand imposed a complete logging ban effective 1 January, 1989, after floods and landslides had killed in excess of 350 people in November 1988 in North-Western Thailand.[325] Finally, one can contemplate the role of the Siam Commercial Bank in the case. Were bank officials innocently misled by the use of false licences, were they knowledgeable about the deception, or were they wilfully blind? It is rather difficult to believe that a major bank, when considering the investment of very substantial funds in a development project in a provincial town, and knowing full well the government’s firm intention to avoid further landslides as a result of unlicensed development, would not or could not have contacted a government official on central level, had they so desired, to confirm the legality of the licences. However, as is pointed out elsewhere in this chapter, the responsibility of banks are rarely engaged, cf. regarding the USA 5.1.1. §1 in this chapter. As far as classical prosecutions (theft, receiving stolen goods, etc.) for illegal logging are concerned, AMLO takes the view that the big problem is that “wood is wood”. It is difficult, not to say impossible to say, from where wood originates and therefore difficult to trace it back to illegal or illicit origins. AMLO’s point of view is understandable considering today’s enforcement priorities, but I would argue that this is one precise area, where important advances are possible. To do so, however, would demand that individual countries, regions, and the alleged international community re-prioritise law enforcement objectives and understand that, for example, continuing the supply-side narcotic drugs interdiction efforts,[326] the alleged War on Drugs, is costly in enforcement time, and with very limited results. Time and funds would be better applied to issues, which represent “a clear and present danger” to Humanity. That must mean, in particular, environmental crime, among which illicit and illegal logging must be considered a leading priority. In the 1970s, US, but not only US, narcotics law enforcement created central databases, which allowed its users, from the chemical composition of seized narcotic drugs, to identify the place of production, not only the country or region, but also the very laboratory, which had effectuated the transformation, e.g. of opium into morphine base. Without being an expert in forestry or chemistry, I would hypothesise that trees presumably imbed in their wood, in the course of their growing, enough markers to determine at least the country and presumably also the region whence they originate. To create a central world-wide database of such markers would provide a very important enforcement tool, which would be of crucial importance in combating illegal logging, including the concurrent money laundering.

5.1.2 §3. The Asia/Pacific Group on Money Laundering[327]
As an example of the regional anti-money laundering institutions, the genesis and work of the APG will be considered further. In February 1997, at the Fourth Asia/Pacific Money Laundering Symposium in Bangkok, the APG was officially created "as an autonomous regional anti-money laundering body" with the purpose to "facilitate the adoption, implementation and enforcement of internationally accepted anti-money laundering and anti-terrorist financing standards”.[328] The Asia/Pacific Money Laundering Symposia had been organised by the FATF Asia Secretariat, the Commonwealth Secretariat, and other international bodies. In the Reference for the Asia/Pacific group is stipulated that the group is voluntary and cooperative. Its mandate is, at least initially, limited until 2012 to correspond with the time limit of FATF. The AGP collects typologies from its member countries; provides training, and assists member countries with implementation of the FATF recommendations (40+9). To an unbiased observer, however, its international role would seem to be rather slim. Indeed, initially the group played a decisive role in establishing the so-called Mutual Evaluation Reports, yet, over the last five years or so, major international organisations, such as IMF and, to a lesser degree, the World Bank, have taken over most of the oversight of mutual evaluation reports; for example, the recent DAR (Detailed Assessment Report) of Thailand was performed by the IMF with an observer from AGP.

5..1.2.§4. HSBC Money-Laundering in the United Arab Emirates[329]

Over the last ten years, the United Arab Emirates have emerged as an off-shore tax haven, whose facilities, however, also attract a number of individuals and groups, who use them to launder the proceeds of their illegal activities. In this paragraph, a specific case involving the use, by Russian nationals, of HSBC banking facilities in the United Arab Emirates will be considered. As of the year 2000, there were a total of 1,186 Russian individuals and companies, who possessed open accounts in one of the branches of HSBC in the United Arab Emirates, without being domiciled in the country. Information obtained by the Central Bank of the UAE indicated that certain financial movements are parts of a massive money laundering operation and that a number of local HSBC executives would appear to have been guilty of "passive complicity" in the money laundering operations. The Central Bank of the United Arab Emirates' review of two years' activities of the HSBC disclosed irregularities in two of HSBC's branches, sc. in Sharjah and Deira.[330] Their summary conclusions were that the turnover on Russian accounts in the two branches over the two years examined were "indicative of money laundering on a massive scale", that the management at the two branches "failed to observed their internal policy guidelines with regard to 'Know Your Customer' (KYC) and review of the daily large transactions report", and that incoming remittances on some of the accounts were incommensurate with the level of disclosed income of accountholders. The summary conclusion of the review was that:

The Bank is not following our instructions contained in the Circular No. 163/98 dated 28/02/1998 concerning unusual transactions in an account. They did not report to the Central Bank details of such accounts involving dubious transactions. They also quietly closed some accounts involving money laundering and did not report them to the Central Bank.[331]

The Central Bank examiners found that in 2000, despite closing a number of Russian HSBC accounts in the UAE there were a total of 1,186 such HSBC accounts, with a total deposit base of AED 125.3 x 10E6 ($34.2 x 10E6).[332] Perusal of box 5.7 immediately draws one's attention to the two branches in question, Deira and Sharjah. It should be noted, as, indeed, it was noted by the UAE Central Bank examiners that in the cases where HSBC did close down accounts, the balance on the accounts was paid to the accountholders in the form of Banker’s Cheques, which admittedly allowed these individuals to re-start the money laundering cycle elsewhere with the least possible obstacles. In the following will be found three tables numbered 5.7, 5.8, and 5.9, which are meant to provide a more vivid insight into the opportunistic—and corrupt—misuse of banking facilities for money laundering. Table 5.7 indicates the number and deposits on Russian bank accounts with the HSBC throughout the United Arab Emirates. Russian bank account is defined, by HSBC itself, as a bank account, the holder of which is from Russia or from one of the republics making up the former Soviet Union. One notes—and this is the reason for adducing this particular box—how accounts and deposits are concentrated in two or three branches, from which one can make two deductions: (i) As pointed out elsewhere, even very simple software could have flagged the peaks of such accounts to management, had they desired to know; and (ii) that the very penetrability of only a couple of branch offices should have alerted supervisory management to the strong possibility of corruption. Again, the movements on the accounts indicated in Table 5.8, in particular the high percentage of transfers from one group account to another, raise questions that should have been properly examined by bank management. Finally, the money laundering pattern surfaces indisputably when one examines a sample of account movements, table 5.8, and a sample listing of individual accountholders indicating their declared monthly income and the account movements, table 5.9.
Table 5. 7. Russian Bank Accounts with HSBC, UAE
|Branch |Number of |Amount on Deposit |
| |Accounts |(AED x 10E6) |
| | | |
|Deira |514 |64.9 |
|Sharjah |413 |46.4 |
|Bur Dubai |181 |12.5 |
|Abu Dhabi |40 |0.8 |
|Jebel Ali |12 |0.2 |
|Fujairah |11 |0.7 |
|Ras Al Khaimah |4 |0.1 |
|Alain |11 |(0.3)[333] |
|Total |1,186 |125.3 |

Source: Report, p. 1.

Table 5. 8. Sample Summary of Account Movements[334]
|Deposits |Withdrawals |
| |Amount |% | |Amount |% |
| |(AED x 10E6) | | |(AED x 10E6) | |
|Cash |14.8 |2.3 |Cash |203.6 |31.8 |
|Cheques |22.9 |3.5 |Cheques |65.6 |10.3 |
|Inward TTs[335] |258.6 |40.5 |Outward TTs |125.8 |19.7 |
|Transfer from other |343.2 |53.7 |Transfer to other |241.0 |37.7 |
|group A/c[336] | | |group A/c | | |
| | | |Sub Total |636.0 |99.5 |
| | | |Balance |3.5 |0.5 |
|Total |639.5 |100.0 |Total |639.5 |100.0 |

Table 5.9. Listing. Sample of Individual Accountholders
|Kakharov, |Declared income: AED 3,000/month. Deposits over two years exceed AED 6 x 10E6, of |
|Mardiboy |which 94% via inward TTs. All withdrawals via outward TTs |
|Mamedov, |Declared income: AED 200,000/month. Deposits (October l, 1998, to March 2000) AED 17|
|Hafiz |x 10E6, of which 82% inward TTs. Withdrawal AED 15 x 10E6, of which 29% via outward |
| |TTs |
|Motorin, Igor |Declared income: AED 7,500/month. Inward TTs: AED 25 x 10E6, all withdraws via |
| |outward TTs. (Cf. sub Al Saqr) |
|Belvita Shipping |Account was opened April 1997 and closed in February 2000, since transactions on |
|(Owner: Alexandre Spirine) |account were not commensurate with nature of business. Inward TTs: AED 71 x 10E6, |
| |outward AED 28 x 10E6 |
|LBS General Trading (Introduced |Inward TTs: AED 82 x 10E6; outward AED 33 x 10E6. Frequent transfer between subject |
|by Belvita) |and Belvita |
|GMS General Trading (Part of |Account commenced on 28 December 1998 with two inward TTs of a total of AED 2 x 10E6|
|Semenchenko Group) |from Mardiboy Kakharov and, the same day, an outward transfer, also for AED 2 x 10E6|
|San Air General Trading (Part of |Inward TTs of AED 22.1 x 10E6; outward same day, same amounts |
|Semenchenko Group) | |
|Semenchenko, Andrij (Group). |Inward TTs of AED 2.8 x 10E6; outward TTs, same day, same amounts |
|Al Saqr LLC |Inward TTs: AED 6.5 x 10E6. Transfer from group account of AED 31.3 x 10E6 used to |
|(Owner: Igor Motorin) |effect outward TTs of AED 27.8 x 10E6 |
|Golden Crown Trading Est. |Account opened in January 1999 and closed by the bank in January 2000, since the |
| |account was conducted with frequent cash transactions, which did not conform to bank|
| |policy |
|Dadaniva, Leila |Inward TTs of AED 26.9 x 10E6 and subsequent withdrawals. Account connected to |
| |credit card with limit AED 200,000. Bank of opinion that this, personal, account is |
| |used by Dadaniva to route her business deals through it. She also had a personal |
| |account at HBSC Deira branch with balance of AED 3.8 x 10E6 |

The HSBC Deira branch held 381 active Russian accounts with a total balance of AED 64.9 x 10E6 and 133 inactive accounts aggregating AED 17.0 x 10E6 (respectively $17.7 x 10E6 and $4.6 x 10E6). It can be taken for granted that one is here in the presence of one step in stage two of the money laundering cycle, layering. Two of the most basic observations, one can make, based on the information contained in table 5.7 and table 5.8, sc. the disparity between the number of Russian accounts and their balances in the various HSBC branches throughout the UAE and the use, on those accounts, of inward and outward TTs, would have been easily detectable using a not very sophisticated computer software programme. A question that has been brought up elsewhere in this chapter (cf. 5.1.1.§1) therefore surfaces again, sc. the degree of responsibility, ether direct knowledge or wilful blindness, one must allot to the bank, in which the accounts were held, i.e. HSBC, one of the largest banks in the world. Considering the size and sophistication of HSBC’s world-wide operations, it is difficult to believe that the bank was not in possession of the management tools, the experience, and the technological expertise necessary to detect the quite obvious money laundering oriented banking patterns that emerge from the very simple listings contained in the boxes in this paragraph. The Central Bank examiners moreover found two accounts at the HSBC Fujairah branch in the name of Warm Seas Development, owned by a Sudanese national, Abdulla Zarroug, and M. K. International, owned by a Sudanese national, Mutasim Abdulla Kanoon. The two accounts were in receipt of "huge inward remittances". The alleged business purpose of the two companies was the commerce of oil. Trade in oil, however, is normally settled by letters of credit, not by bank transfers. It is therefore legitimate to assume that the oil is of illegal origin or destination, presumably in violation of US/UN sanctions.

5.1.2. §5. The Russian Factor
Paragraph 5.1.2.§4 examined the use of HSCB banking facilities in the United Arab Emirates for money laundering. It is perhaps not surprising that Russian nationals have also used banking and in particular off-shore banking facilities in the world, e.g. in the South Pacific, for the same purpose. In fact, the money flows of US cash from commercial banking institutions in the United States into and of funds of non-declared origin out of Russia have touched many regions of the world. Before mid-1994, cash was not imported into Russia, but already by August 1995, US$2 x 10E9 in 100 dollar bills were imported in that month alone. One US bank, Citicorp, exported $100 x 10E6 per working day in the mid-nineties.[337] Likewise, Cyprus and Israel have seen an influx of Russian banking institutions and, indeed, Russian and Israeli networks have collaborated in Cyprus in setting up cover companies to facilitate money laundering. Also Italy was used for money laundering of Russian funds. Thus, an Italian mafia expert estimated in 1997 that almost one half of the $13 x 10E9, which had been laundered in Italy between 1993 and 1994 by external organised crime groups, came from Russian organised crime.[338] The outflows from Russia were so important that a “Russian bank”, The Imperial Bank of Russia, incorporated as an off-shore entity in Vanuatu, purchased 51% of a Luxembourg bank; through the Luxembourg bank it attempted to purchase controlling interest in a UK bank, through which a great part of the outflows from Russia passed. As this example shows, the South Pacific is attractive to Russians; most of them, however, travel on second country passports.[339] A novel typology was introduced by Russian nationals, who obtained credit cards from one off-shore South Pacific bank. The latter had obtained the credit card issuing facility from a reputable bank in New Zealand. It should be stressed that a credit card does not necessarily show the identity of the issuing bank, e.g. for VISA cards. Approximately 50 credit cards were issued to Russians (with accounts in the off-shore facility) with minimum credit card limits of $10,000, but often much higher. The card usage was mostly limited to Western Europe and North America. Credit card bills were transmitted to the New Zealand bank for payment, and from there forwarded to the off-shore bank centre, where they were, ultimately, honoured. This constitutes a very simple construction, whereby the off-shore accountholder has access to his or her capital in the off-shore facility and can use it in on-shore jurisdictions, but without disclosing the location of the funds at the moment of use. Also Russia's neighbour, Ukraine, has known serious money laundering. Thus, in February 2007, the Ukrainian Security Service's (SBU) organised crime directorate closed down large-scale money laundering operations in the Dnipropetrovsk region of the country and in the Crimea. An SBU report from the same month claims that the Dnipropetrovsk operation laundered more than $1 x 10E9 from January 2006 to February 2007 before it was shut down.[340]

5.2. Money Laundering and the South Pacific[341]
South Pacific island nations typically have very few natural resources; where some resources are available, appropriate expertise is rarely at hand. Some of these appear to have sought revenues without regard to their origin, such as off-shore banking facilities, tax havens. Four main conditions have to be met to be attractive to overseas investors:

1. Off-shore banking facilities. 2. High level of banking secrecy. 3. Provision of passports (some diplomatic). 4. Citizenship, provision of which is conditional.

Norfolk Island adopted this strategy first (by 1964 it permitted registration of off-shore companies, having 1,500 such companies at a high-point). Such domains passed appropriate legislation for development projects, e.g. hospitality, which fast-tracked money laundering. Perhaps at least forty percent of banking system funds was of criminal origin. So-called investors defrauded local governments, and injected monetary instruments of various kinds into the international financial channels. Among other corruption, such investors obtained timber concessions and widely exceeded them.

5.2.1. Vanuatu
Economically, subsistence agriculture has traditionally been the economic base of Vanuatu, together with an elaborate commercial exchange network within and between islands. The French colonisers imported Vietnamese labour in the 1920s, which in subsequent years led to political tension. Copra, cocoa, fish, and beef remain the most important exports, while the country’s main imports, food and manufactured goods, come principally from Australia. By the late 1990s, this country earned 12-15% of its GDP from so-called “registration fees”, i.e. fees for the registration of companies and banks, cf. table 5.10, "Vanuatu, Company Creation”.

Table 5.10. Vanuatu: Company Creation
| |Early 1990s |1997 |
|Registered “exempt |1000 |>700 |
|companies”[342] | | |
|of which |
|with banking licence |104 |80 |

The off-shore banking industry emerged in the 1970s and off-shore banking legislation was enacted in 1971. At the apex, 1991, the country’s off-shore banking industry registered an influx of $29 x 10E6 p.a. In 1994 legislation was introduced for confiscation of criminal assets, which led to confiscation of $2 x 10E6 from USA drug trafficking – based not on money laundering legislation, but legislation re. seizure and confiscation of assets derived from crime. Later in the 1990s a substantial part of the investment was provided by Russian nationals with Israeli passports.[343] Vanuatu is one of the few "complete" tax havens, i.e. ones with no tax imposition. Herman[344] claims that "Vanuatu’s legitimate Finance Center is the ideal superstructure in which criminal enterprise such as money laundering may flourish and develop" and, in fact, the Secretariat of the Asia-Pacific Group on Money Laundering has reported a number of cases of Vanuatu-based money-laundering.[345] Consequent corruption is evident. In 1996, Vanuatu’s Ombudsman reported that a fraudulent financial scheme, "could lead to the bankruptcy of the Republic of Vanuatu”, noting that "Vanuatu will now be regarded as a money laundering center by its involvement in this scam through the participation of the Prime Minister and the Minister of Finance".[346]

5.2.2. The Cook Islands
The Cook Islands constitute an internally self-governing island state in free association with New Zealand. It has no natural resources at all and relies on revenue from off-shore banking, introducing off-shore banking in 1981. In 1989 the Asset Protection Trust Act,[347] was passed to protect investors. A statute of limitation stipulated that in cases of suspected fraud, legal action in the Cook Islands must be initiated within one year of the funds having been transferred to the country. As of 1997, 3,000 overseas companies were registered in the country, of which 25 banks in the capital. Only three of the latter have “A” class licences (permitting unrestricted currency activities) and it is noticeable that several of the banks are Indonesian. By the late 1990s, the government of the Cook Islands received approximately NZ$2 x 10E6 p.a. from company and banking registration fees. Politically the Cook Islands are deeply corrupt, with contacts in organised crime in Australia and to the Italian Mafia.[348] In March 1996, a former Cook Island Government auditor gave evidence in the so-called wine-box inquiry in New Zealand, in the course of which he claimed that the Cook Islands government participated in the US$1 x 10E9 fraud attempt.[349] In summary, company A sought tax relief (reimbursement) in New Zealand for taxes paid in Cook Islands. The company did not disclose that the Cook Islands government simultaneously had repaid the taxes to company B, which was part of the same groups as company A. Cook Islands were on FATF’s list of non-cooperative countries and territories (NCCT) 2001.[350]

5.2.3. Western Samoa (from 1997, Samoa)
A 1983 Act, revised in 1988, allowed for the setting up of off-shore banks. By 1995, 600 off-shore companies were registered, of which 13 had banking licences (one of these with “A” class licence was controlled by Russian interests). Most of the companies were from the US and Asia. By 1997, the number of off-shore companies had grown to 1000. In 1991, a US company linked to money laundering sought to invest US$500 x 10E6, but declined in front of due diligence inquiries.[351] This example shows that even in a very remote jurisdiction, preventive due diligence, which—apart from any money laundering considerations—should be a routine procedure in the banking industry, can be an efficient means to secure banking integrity.

5.2.4. Tonga
Its off-shore Banking Act was enacted in 1984. In 1985 the Tongan royal family was associated with the setting-up of Pacific International Bank. The country is known for the difficulty in obtaining details of financial matters, since many "adventurous" deals involve the royal family, which seriously hinders transparency in business dealings. Since the late 1990s, Tonga has not issued new banking licences, nor has it revoked the existing ones.

5.2.5. Niue
Niue is an internally self-governing island state in free association with New Zealand.[352]
Legislation enabling off-shore banking was passed in 1995. However, lack of infrastructures and poor management militated against the development of the sector. One year later, 1996, Niue had attracted only one off-shore bank.

5.2.6. The Marshall Islands
By 1998, the Marshall Islands was the world's 10th largest “flag of convenience” shipping registry, with more than 230 vessels registered, the governmental revenues from fisheries revenues doubled over 1998, and Majuro was a major transhipment point for the U.S. market. The Marshall Islands is the most important financial centre in Micronesia; in March 1983 it authorised off-shore banking. It has promoted banking and commercial secrecy, high interest rates, and low costs (e.g. US$ 600 per year for an off-shore company).

5.2.7. Fiji Islands
Among the policies in Fiji of importance in the present context are the following:[353]

• The Fiji Trade & Investment Board is the regulatory authority regarding foreign investment in Fiji. • Non-residents may open non-resident bank accounts in foreign currency or in Fiji dollars at commercial banks. • Foreign investors may repatriate all funds brought into Fiji and recorded with the Fiji Reserve Bank, as well as all income earned from the business operation.

A close reading of the incentives offered by the Fiji Trade and Investment Board, FTIB, in order to attract foreign investment, gives pause for thought:[354]

1. Tax break for 13 years to individuals or companies investing F$500,000[355] or more in potentially viable enterprises. 2. Duty free importation of machinery 3. Free entry of skilled workers. 4. Right of residence in Fiji for company principals or major investors for seven years without checks being make in country of origin.

Fiji Customs determined that 120 of 214 "tax free" companies on record produce nothing; (1), above, combined with (4) is an open invitation to money laundering, while (3) is known to have been used by Hong Kong Chinese, who as "directors" (point (4)) used this concession to traffic humans. One could nurture the suspicion that, even with good will, the Fijian authorities do not have the necessary competence to perform effective banking supervision. This is to some degree confirmed by the 1995 collapse of the National Bank of Fiji, the causes of which were retrospectively determined to be:

• the granting of loans on uninsured mortgaged properties • the granting of unsecured commercial loans • the granting of personal loans without adequate evaluation of value of assets offered as security

Efficient banking supervision should have identified some if not all of these imprudent banking decisions, before they led to the collapse of the island nation's largest bank.

5.2.8. Nauru
The quality of Nauru's phosphate is the highest in the world—mined since 1907. On a per capita basis, Nauru is one of the wealthiest countries in the world. Nauru enacted legislation covering banking, insurance, and corporations in 1972. All off-shore activities are under the umbrella of the Nauru Agency Corporation. By mid-1996, there were 600 companies and 250 banks. Although Nauru has no taxation, it has not played a major role as a financial centre for several reasons. First, the country was, on a per capita basis, rather wealthy. Secondly, the country is rather remote. Thirdly, visitors are not encouraged and work permits almost impossible to obtain. FATF: Nauru was on FATF’s list of non-cooperative countries and territories (NCCT) 2001,[356] but was removed from the FATF NCCT list in October 2005, after “Nauru abolished its 400 shell banks and therefore removed the major money laundering risk”.354 One or more of these Nauru “shell bank” were at the heart of the so-called Benex Scandal in New York in 1999, cf. 5.1.1.§2.

5.3. Money Laundering: Cost
As noted in the introduction to this chapter, anti-money laundering and combating financing of terrorism (AML/CFT) measures have a very serious cost in terms both of diminution of private rights and of monetary costs. In this subsection, only the monetary cost will be considered.

5.3.1. Introduction
The monetary costs of AML/CFT can conveniently be subdivided into three groups, (i) costs supported by the government; (ii) costs supported by private industry and commerce; and (iii) costs to society as such. It is estimated that the yearly, total costs to the United States is $7 x 10E9, cf., infra, subsection 5.3.2. It is difficult to calculate the costs accruing to the rest of the world, as these, to large degree, are dependent on the degree of AML/CFT measures each individual jurisdiction has decided to adopt. Nevertheless, as least as a thought experiment—although in the author's view the result is believable—one can make a first estimate using the following parameters:

Table 5.11. AML Cost, US and OECD GDP
|Yearly cost of AML/CFT to US Economy[357] |$7 x 10E9 |
|GDP 2005, USA[358] (x 10E9) |$12,428.5 |
|GDP 2005, OECD356 (x 10E9) |$34,013.0 |

One could then, very approximately, calculate the yearly cost to the OECD countries' economy as: $(7 x 10E9) * (34013/12428.5) ≈ $19.2 x 10E9

5.3.2. Cost of US Anti-Money Laundering Regime
Quantitative information on the costs of AML regime is sparse, but Reuter and Truman arrive at an estimate for 2003 of approximately $7 x 10E9 (or approx. $25 per cap). p.a.[359] It should be recalled that since 1986, four major pieces of legislation were adopted in the area:

1. Money Laundering Control Act, 1986 2. Annunzio-Wyllie Act, 1992 3. Money Laundering Suppression Act, 1994 4. USA PATRIOT Act, 2002

Reuter and Truman note that an "anti-money laundering regime imposes both direct and indirect as well as financial and nonfinancial costs”. These can take three forms:357

1. Costs incurred by the government or public sector in establishing and administering the regime. 2. Costs incurred by the private sector in carrying out the requirements of government. 3. Costs borne by the general public.

Whereas (1) and (2) are rather self-explaining, it is perhaps useful to consider point 3, Costs borne by the public. These costs are more nebulous, but no less real, than those absorbed by the government or by private sector implementation. The costs assumed by the general public are, in summary form, of three kinds, transaction costs, opportunity costs, and compliance costs. Transaction costs are costs generated e.g. by the burden put on the public to produce more documents than in the past, time lost, and costs passed on from banks and other financial institutions, which may decide in particular less affluent members of the public not to use the banking system, but rather to turn to alternatives. Opportunity costs are costs incurred because of delays caused by the AML regime. Compliance costs are non-financial costs, e.g. the "cost" of the very clear loss of privacy, which, again, might decide some fully law-abiding citizens not to use the banking system rather than being subjected to what they, perhaps quite rightly, see as an intolerable invasion of their privacy. As Reuter and Truman point out, part of the compliance costs arise when the public discovers that the AML requirements are being applied more harshly to individuals than to corporations.[360] Besides, World Bank research (2004) shows that more regulation in general is associated with lower labour productivity, greater use of the informal economy, increased corruption, and higher costs.[361] The US government estimates that 2-3% of total US expenditures on prevention and enforcement are attributable to the AML regime. For 2004 (in 1995 constant dollars), US federal expenditures to prevention and enforcement were, respectively, $39 and $2.8 or a total of $41.8 x 10E9. Taking the higher estimate, i.e. 3% of total expenditures, one arrives at a US federal cost of AML regulations of $1.25 x 10E9. Added to this should be State and local level expenditures, which may be more than on federal level. One therefore arrives at a government spending on AML regulations of, at the most, $3 x 10E9. Only few studies are available estimating the cost to the private sector. For example the KPMG 2003 study for the UK estimates the cost of UK SARs alone to £90 x 10E6. Converting this estimate into US dollars and scaling it up for the US economy, one arrives at $1.1 x 10E9, keeping in mind that his only covers the cost of SAR reporting, which is but one element in AML regime. Studies by PriceWaterhouse Coopers (2003) for the UK (scaled up to match the US) and Celent Communications for the US, arrive respectively at $2.1 and $3.5 x 10E9 for total costs. Again, as an estimate, one might claim that costs to the private sector are approximately the same as those to the government, i.e. $3 x 10E9 at the most. Finally, as regards the costs to the public, Reuter and Truman estimate that financial institutions are capable of passing on approximately one third of the theirs costs to their customers, i.e. $1 x 10E9 and that a similar amount is absorbed by the public. In summary therefore total yearly AML costs in the USA are $(3+3+1) = $7 x 10E9 as an upper limit. Pieth and Aiolfi,[362] as well as several US governmental reports, e.g. GAO,[363] point to the potential problem of information overflow, which generates unnecessary costs to the private sector in generating them, to the public sector in processing them and, perhaps most importantly, renders the AML regime less efficient as the potentially useable data becomes less and less easily identifiable. Thus in 2003, the US FIU, FinCEN, set a goal of reducing by thirty percent the number of CTRs they receive, which for 2003 was 12 million reports. The same problem was identified in the United Kingdom in KPMG report (2003)[364] and by Gold and Levi (1994).[365] It is not clear that at the time of writing (2007) the goals set in the two mentioned countries have been met.

5.4. Money Laundering: Effectiveness
Discussing the effectiveness of anti-money laundering measures, R. T. Naylor notes that “(T)here is not a shred of evidence that the increasingly intrusive and expensive protective measures intended to combat the supposed menace are effective or even necessary”.[366] Judging the effectiveness of the anti-money laundering regime is a subjective matter, since there are no commonly accepted criteria available for determining what characterises success or the opposite. Nevertheless, information of funds seized and forfeited is available for some countries; it is less evident to find information with which to compare such seizures. For the United States, information is available for the year 2001, in which total seizures and forfeitures in money laundering cases totalled $627 x 10E6, respectively, $386 x 10E6 in seizures and $241 x 10E6 in forfeitures.[367] If one accepts the lower estimate for money laundering in the US at $300 x 10E9,[368] then the total seizures and forfeitures represent 0.2% of the totality of laundered funds and 9% of total costs of AML. The government also levied fines and restitution penalties in the same cases of $665 x 10E6. If one were to include these monetary penalties in the seizures and forfeitures, which they are not, one arrives at $1.292 x 10E9 or 0.4% of the total funds laundered. From a cost analysis point of view, the total amount recovered by the government, $1.292 x 10E9, represents 19% of total AML costs. Reuter and Truman[369] argue that if the total amount of funds laundered in the United States of the forms of “money laundering of greatest social concern are only a few tens of billions”, then the level of penalties, i.e. seizures, fines and restitution, might be 1 to 3 percent, “perhaps enough to have a modest deterrent effect on those tempted to commit the predicate crimes”. In the 12-year period from 1987-1998, according to a KPMG 2003 study, in England and Wales, there were only 357 prosecutions for violations of money laundering statutes.[370] A 2003 IMF study found that although the United Kingdom had enacted the laws and put in place the structures necessary, enforcement of the money laundering laws was very limited. Also a UK Cabinet Office study reached this conclusion, since for 1998 for non-drugs crimes 136 confiscations were ordered for a total of £22.3 x 10E6, of which £10.5 x 10E6 were collected. In drug cases, some £4.4 x 10E6 were forfeited, which is a rather modest result, considering that the yearly sale of narcotic drugs in the UK is estimated at several billion (thousands of millions) pounds.[371] A further indication of the lack of effectiveness of the "follow the money" methodology is provided by the UK Assets Recovery Agency, ARA. The agency was set up in 2003 (with much media attention) and was closed in April 2007. When ARA was set up, it was meant to recuperate some £60 x 10E6 per year in assets from organised crime, to do which it was provided with unique powers to launch civil recovery proceedings. For the almost four years the agency had run before closure, it had cost £90 x 10E6 in running costs, but had not lived up to its recovery targets. Thus, for the year 2004-2005, where it had cost £20 x 10E6 to run, it had only recovered some £4.4 x 10E6 or 22% of its own running costs.[372]

5.5. Operation Green Quest[373]
Since money laundering should ideally be analytically characterised in its context, i.e. from the predicative crime until the final disposition of the funds, this case study was chosen for its illustrative qualities. The case, the investigation of which commenced in September 2001 in Texas, USA, covers the whole spectrum of criminal activities, from the most uncomplicated, sc. retail theft, to the more complicated, sc. international money laundering and, almost certainly, the financing of terrorism, while including also the attempted use of professional assassins in order to neutralise the lead investigative officials, and the use of businesses and the falsification of business records in the execution of the criminal enterprise. Furthermore, although the crime was disclosed in one particular location, Texas, and those responsible have been sentenced and incarcerated, the "criminal model" has spread throughout the USA. In fact, the spatio-temporal implications of the case have not been fully understood by US prosecutorial authorities, who realise neither the extent in time and space of the modus operandi nor the impact of same on the rather nebulous concept of financing of terrorism. The specific investigation considered in this subsection concerns a criminal organisation, known as the Ghali Organisation from the name of the lead member, which was active in the state of Texas, USA, and consisted of persons mostly of Middle Eastern descent. They recruited hundreds of shoplifters, drug addicts, and other marginalised persons to engage in a variety of criminal activities in order to obtain the higher value products typically sold in an American convenience store, inter alia OTC[374] medicinal products, infant formula, glucose (diabetes) test strips, razors, and pregnancy test kits, acting in their choice of products in accordance with instructions received from the organisation. The street level criminals used a variety of methods to obtain such products in high volume, e.g. by filling up a shopping trolley with the merchandise, pretending to approach the check-out positions near the exit, and then "racing" the cart out of the exit and up into the back of a waiting van. Also armed robberies and warehouse thefts were used, as well as counterfeit merchandising coupons, counterfeit WIC[375] coupons, and food stamp fraud.

Box 5.12. Women, Infants and Children Program (WIC)
|The WIC programme is administered by the FNS (Food and Nutrition Service, a federal service |
|under the US Department of Agriculture). It serves to safeguard the health of low-income |
|women, infants & children up to the age of 5, who are at nutritional risk, by providing |
|nutritious foods to supplement diets, information on health eating, and referrals to health |
|care. |

The stolen and fraudulently obtained goods were aggregated in warehouses belonging to the Ghali organisation, where security tags and price stickers were removed. Other targets related to Ghali, including his son, also engaged in trafficking in counterfeit pharmaceuticals; this part of the case is still under investigation, though. False accounting entries were made in the Ghali organisation's company books in order to "legitimise" the origin of the products, which in bi-weekly, interstate shipments were then sold to wholesalers, some of whom were aware of the origin of the goods, some were not. The resultant profits were regularly deposited in the organisation's bank accounts. Part of the profits was employed to buy residences in Texas, using intermediaries as so-called "straw" persons, while the rest was transformed into Banker's Cheques and hand-carried, concealed by a variety of methods, to Amman, Jordan, where the proceeds, at least in part, were invested in real estate. Government informants advised that some of the proceeds were concealed in baby diapers worn by infants at departure from the United States. The final destination of the funds that were successfully transferred to the Middle East is under investigation by the appropriate security services; it would be unhelpful to examine that final leg of the criminal enterprise at this time, although the implications of the transfers and the interest of mentioned security services are self-evident. It can be noted that several Middle Eastern individuals that conducted business with the Ghali organisation have suspected terrorism links. One of Ghali’s associates, Samih Jammal trading as Jammal Trading, was the target of a FISA wiretap and subsequently indicted on a variety of criminal charges. Another associate, Mohammed Shalash trading as Unity Wholesale allegedly smuggled $78 x 10E6 to Palestine and fled the United States. The illegal proceeds derived from the sale of stolen property including infant formula, test strips, etc., i.e. the same modus operandi as the one used by the Ghali organisation. Ali Alidimi, another Ghali associate, recently pled guilty to federal charges and agreed to the forfeiture of approximately $800,000 in illegal proceeds that were seized in 1999 by federal agents. The currency was discovered by agents when Alidimi attempted to ship the money to Yemen concealed in hair dye boxes. Federal investigators allege that Alidimi has known ties to Hamas and was involved in terrorist financing. In 1999, U.S. Customs and the Fort Worth Police Department arrested and indicted several members of the so-called Saadat organisation for trafficking in counterfeit goods and money laundering. One of the members of the Saadat family, by his own admission, had been trained in a Bin Laden terrorist camp. After this organisation was dismantled, the Ghali organization began conducting business with those remaining members of the organisation that had escaped indictment. The investigative methodology, which included the establishment of a cover front and sale of product to the criminals, although impressive, is not relevant in this context. What is of pertinent value here, since it shows the seriousness, with which the Ghali Organization regarded the disruption of its activities, is that, after having been arrested, but before having been sentenced, members of the organisation attempted to have charges dismissed by offering bribes and after having been sentenced the organisation attempted to obtain the services of professional assassins in order to liquidate the two lead investigators in the case.

Box 5.13. Ghali: Sentencing
|Mohammed Khalil Ghali was convicted in April 2005 in Dallas, Texas, to 14 years imprisonment as|
|follows |
|Conspiracy (one count), 60 months. |
|Theft (one count), 120 months. |
|Money Laundering (nine counts), 168 months. |
|Plus three counts of interstate transportation of stolen goods. |
|Forfeiture of $528,627 in cash as well as two residences located in Arlington, Texas. |
|The custodial sentences to run concurrently. |

Source: ICE News Release (2 February 2005, 1)

One may note, with concern, that prosecution concentrated on, and obtained the heaviest custodial sentence for, money laundering charges and not on the predicate, very serious organised crime offences. It is perhaps judicially expedient to sanction the money laundering aspects of a case more severely than the underlying criminality, yet I would argue that such an approach to criminal jurisdiction undermines the societal consent, which condemns the crime itself, rather than the subsequent movements of the proceeds from this, and thus exsanguinates the universal condemnation of the crime, without which criminal jurisdiction has little meaning or, indeed, little raison d'être. Although interesting in se et per se, the case is only fully to be understood when seen in its larger context. In a conversation with one of the two lead investigators, he informed that the modus operandi had been known to him for more than twenty year.[376] Persons of Middle Eastern origin[377] set up small convenience stores in low-income urban areas; the "seed money", i.e. the start-up capital was, to the best of his knowledge, provided by Hamas and Hezbollah operatives; however, there is no firm evidence at this point to prove this. Being in a low-income area, the convenience store owners then made it known that they were in the market for product "of whatever origin”. In order to render local prosecution for receiving stolen goods more difficult, store owners would often make the seller sign a declaration that the goods were not stolen. After consolidation, goods would then be shipped in interstate commerce to wholesalers or retailers. A part of the resultant profits would be shipped to the Middle East, more often than not Amman, Jordan. Not only is this modus operandi known to have been going on in Texas, USA, for more than twenty years, similar groups using similar methods are active in Utah, California, Florida, and other states in the United States. The modus operandi of the Ghali Organization is of crucial interest to students of organised crime, since the organisation retains its character of an institution throughout the years, even when individuals change. An obvious question, which comes to mind, is: Why is not an end brought to the existence of the organisation, i.e. to the modus operandi, considering it is built on flagrant criminality? The answer presumably has many facets. First, looked at from the local prosecutorial level, the individual cases are small. Thus, the investigative methodology, which so far has given the best result, is to create a front cover and to use this to sell product to the organisation, making it clear to the purchaser that the product is stolen. The product is marked, so that at any time during the following steps it can be recognised as the product injected into the chain by law enforcement. Consequently, at the main shipping points—typically at the Federal Express terminals—shipments from the organisation are clandestinely opened and the presence of "law enforcement product" documented before being repackaged and shipped. The undercover sales typically are of product adding up to less than $30,000 and local prosecution (the US attorney) is in general not eager to prosecute since the amounts are considered too small. To a non-American such an attitude might appear incomprehensible and inappropriate, but it should be recalled that most US attorneys are young prosecutors, who have elected prosecution only as a way of making a name for themselves, so that they can advance to high-salaried positions, either in large private law firms or in elected office. They therefore need to prosecute cases, which attract the maximum media attention. Secondly, this modus operandi is an example of not being able to see the local and the global at the same time, cf. the discussion of scaling theory in chapter 3. It is not unknown that US Attorneys on local level cannot make the not obvious, but very real, connection between a small retail theft or retail fencing offence and the financing behind, say, a major international terrorist attack or the funding of the successful Hezbollah resistance to the Israeli army in the course of the 2006 Israeli invasion of Lebanon. Elsewhere, box 4.1, The Last Emperor, and table 4.2, A Credit Card Scheme, it has been stressed that the inability of decision-makers as well as of analysts to perceive the totality of a network of individuals and their actions severely limits both our conceptualisation of organised crime and, indeed, of the relationship between organised crime and globalisation. Thirdly, although economists have proven that an illicit market, a grey market, has never been defeated from the supply side, a large part of US—and indeed other countries'—drug law enforcement is concentrated on the supply side, crop eradication, drug interception overseas, etc. This irrational approach presumably covers two major defaults, political expediency and pride. As pointed out elsewhere (subsection 4.1), it is politically expedient to perceive all imperfections as exogenous. In the present context, it is politically more acceptable to see terrorism financing as an activity undertaken "overseas" in order for foreigners to perform terrorist acts "here”, rather than acknowledging that the major parts of the flows are quite the reverse, i.e. funds generated in the USA, by US nationals or immigrants, who allegedly have been successfully integrated into the US culture, and transferred overseas to finance violent acts in foreign jurisdictions. Fourthly, the role of the diaspora populations should be noted, albeit not exaggerated:

Collecting funds from the diaspora, although a long-standing practice has become a significant source of financing. The IRA has drawn a large part of its revenues from the Irish community in the United States, and this has also been done by the GIA in Algeria, by the Al-Qaeda, Sri Lankan rebels, Armenian terrorists,…[378]

Box 5.14. The Modus Operandi re OTC Pharmaceuticals & Baby Formula
|On 4 June 2007, the United States Department of Justice informed in a press release that one Eyad |
|Suleiman aka Abu Zacheria, owner of the Alpha Trading Company, on 31 May 2007 in the United States |
|District Court, Louisville, Kentucky, by a federal jury had been found guilty of knowingly |
|receiving and possessing stolen OTC pharmaceuticals. One of his former employees testified that in |
|an eight-month period in 2005, Suleiman sold over $6 x 10E6 of stolen pharmaceuticals, which he had|
|purchased for $4 x 10E6. Another witness explained that people walked in from the street and sold |
|OTC pharmaceuticals to Suleiman for approximately one third of retail price. She, herself, on any |
|given day would steal $10 – 20,000 of OTC pharmaceuticals and sell them to Suleiman. A |
|representative from the Organized Retail Crime Division Coordinator for Walgreens Corporation |
|testified that this type of theft cost the company Walgreens approximately $700 x 10E6 per year |
|throughout the United States and that organised shoplifting in general cost retail business in the |
|United States $34 x 10E9 per year. |
|Sentencing was scheduled for September 17, 2007, but Suleiman appealed the May 2007 guilty |
|conviction of the District Court of Louisville, Kentucky.[379] All other persons indicted in the |
|case have pled out, most notably Abduhl Sulaiman, who was accused with the laundering of $70 x 10E6|
|in cheques, which he cashed for Eyad Suleiman.[380] |
|This case has a further commonality with the Ghali case, referred to in the text, viz. |
|intimidation. In this case, one Mohammed Alhandan has now been charged with endeavouring to |
|intimidate a juror in the May 2007, Louisville District Court case against Eyad Suleiman.[381] |

Source: United States Department of Justice (2007)

It is significant to note, in this context, that already in April 2001, media in Chicago, Ill., reported that the theft of baby formula was becoming so prevalent in the state of Illinois that many pharmacists were beginning to keep the product behind the counter rather than on open shelving.[382] One of the shoplifters caught in a police operation, Gregg Rokosz, explained to the Chicago newspaper Chicago Tribune that he himself would steal from fifteen to forty cans a day, which he would sell to a small grocery store. He estimated that the grocery store received approximately 500-600 stolen cans per day. The store would sell the cans of baby formula a couple of dollars cheaper than the normal retail price as well as sell the stolen cans into the WIC programme (box 5.12). The economics of the retail fencing operation was that the store paid the thief $3.00 for a can, which normally retailed for $13.50, but sold it in the store for approximately $7.00, thus making a profit of $4.00 per can. When the cans were introduced into the WIC programme, the store would receive $7.50 per can and thus make a slightly larger profit. Considering the quantities involved, the profits were considerable. The Chicago operation, however, remained on the retail level, whereas the Ghali Operation, referred to above, was a wholesale operation. The available media report does not specify ethnicity, nationality, or origin of the storeowners, but based on the general configuration throughout the United States, it is perhaps safe to assume that they were of Middle Eastern origin. It was not determined at this stage that the case was so well developed that organised crime charges should have been considered, nor that the final destination of the considerable funds flowing from the many, smaller taps, should have been investigated. It is, unfortunately, to be feared that this modus operandi continues throughout the United States and perhaps elsewhere in the world. This situation underlines two points: first, the fact that we need to consider the possibility that terrorism, including the maintenance of a minor army under arms, is funded by many distinct, small, but constantly spouting taps rather than from massive transfers of funds, and, second, the need for the kind of national, regional, and international law enforcement intelligence cooperation discussed in chapter 3. In fact, looked at from a macro level, I argue that only the kind of intelligence operation, knowledge accrual, determined by the Self-Organised Criticality model in chapter 3, may accelerate the "data avalanche" needed fully to comprehend the magnitude and ultimate purpose of many, disparate, seemingly irrelevant or minor facts. Concurrently, Operation Green Quest presents the scholar with an important insight into the concept of identity, which might very well be a constituent part of organised crime. In investigating the issue of organised retail theft in the state of Texas, the investigators disclosed that the particular organisation of the crime had barely changed over twenty years. The major commodities targeted had changed, from cigarettes to baby formula and similar high-prices items, the players—both the street-level thieves and robbers and the organisers, acting as wholesalers for the illegally obtained goods—had changed, but “the organisation” remains. The changes have obviously been very slow with one commodity being replaced by another and one player with another. At the end, everything has changed, while everything has remained the same. One cannot but be reminded of the words of Tancredi in Tomasi di Lampedusa’s Il Gattopardo (1958): “Se vogliamo che tutto rimanga com’è, bisogna che tutto cambi”.[383] Although not part of the present thesis, I argue that the concept of identity is underdeveloped in the study of organised crime.

5.6. Money Laundering: Financing of Terrorism
The financing of terrorist activities, CFT ("combat financing of terrorism") was not studied in depth before the terrorist attacks perpetrated in the United States on 11 September 2001. The reason for this was, presumably, that most, but by no means all, terrorist organisations concentrated their activities in one country, where they also raised the—mostly very modest—funds needed, e.g. The Rote Armee Fraktion (Germany), the Red Brigades (Italy), and Combatant Communist Cells (Belgium). In fact, to demonstrate the financing of terrorism, one could use three concentric circles, which also indicated the quantitative differences between the functions exercised within the organisation, cf. figure 5.15. The inner circle consists of persons, who are willing and capable of killing. Since the mentioned terrorist organisations operated in representative democracies, in non-insurgency situations, and without any general support by the population, the number of individuals in this circle, in figure 5.15 denominated "C", is very limited and, in fact, much more limited than most observers would suppose.[384] The second circle, "B" in figure 5.15, is made up of individuals, who provide direct logistic support to the individuals in circle "C", e.g. by renting flats, obtaining motor vehicles, and providing the daily necessities. The persons in circle "B" are well aware of the activities of the people in circle "C" and they act as intermediaries between the people in circle "A", the donor circle, who prefer not to know, and those in circle "C", the killing circle. Finally, individuals in circle "A" are donors, who can claim to give to a good cause and feign ignorance of the existence and activities of the individuals in circle "C". It should be stressed that the use of the circles does not indicate that all or most persons in one circle know all of most of the other people in the same circle. Some of the individuals in circle "B" know some of the individuals in circle "A"; likewise some of the persons in circle "B" know some of those in circle "C", but it is not given that any one person in "B" knows both individuals in "A" and in "C". This proviso serves to allow for this model to be operative also in the case of terrorist cell structures. It should also be stressed that the depiction is for illustrative purposes, as there definitely is in existence terrorism, which does not fit the pattern, e.g. very small, independent terrorist cells; likewise, the multiplication factor of one power, when moving from the inner to the middle and from the middle to the outer circle is very approximate, but not necessarily wrong, since it was elaborated on empirical basis in the 1970s European terrorism environment.
Figure 5.15. Terrorist Financing: The Three Concentric Circles

[pic]

C: Individuals, who are willing and capable of killing. Number of individuals in circle C: x.

B: Individuals, whose role with the organisation is logistic. They are neither willing nor capable of killing; however, they are fully aware of and support the activities of the individuals in circle C. Number of individuals in circle B: x2.

A: Individuals, whose role in the organisation is limited to the raising of funds. Although overall supportive of the activities of the individuals in circle C, they have deniable knowledge. Number of individuals in circle A: x2*2 = x4.

As pointed out, supra, not all "pre-9/11 terrorism" was confined to one territory; there were at least three major exceptions:

1. The IRA. Although this terrorist organisation confined its terrorist operations to one country, the United Kingdom, a substantial part of its fund-raising took place in the north-eastern part of the United States, with the full, but deniable, knowledge of the donors as well as of the government of the United States. 2. The Liberation Tigers of Tamil Eelam (LTTE). Operationally, this group was and is active in Sri Lanka, but funding originates from the Tamil diaspora around the world. 3. Middle East terrorist groups, such as, e.g., the PFLP (Popular Front for the Liberation of Palestine).[385]

For the present purposes, the last point, i.e. the Middle East terrorist groups, is the most noticeable. They committed terrorist attacks outside of a given territory, i.e. from Vienna, Austria, to Israel, but also their funding had world-wide sources, in the form of donations as well as the proceeds of criminal activity. The terrorist organisations from the Middle East from the 1970s and 1980s can be taken to be precursors for today's Middle East terrorists in many ways, e.g. the world-wide outlook in target selection and in funding sources. They differ, however, on two important points; (i) the pre-9/11 Middle East terrorists did commit terrorist acts outside of the Middle East, but they travelled there to do so, they did not rely on local sympathisers—or "franchises"—to engage in the actual terrorist acts as has become the case now; and (ii) many, albeit not all, pre-9/11 Middle East terrorist groups were influenced by Marxist or Maoist, not religious ideology. As regards (ii), in 1968, eight of the eleven (73%) identifiable terrorist organisations could be characterised as "left-wing, revolutionary Marxist-Leninist ideological organizations, the remaining three being ethno-nationalist Palestinian groups”.[386] By 1995, 26 of the 56 then known, active international terrorist groups were predominantly religious in nature and as of October 2005, fifty percent (21 of 42) of organisations classed as international terrorist organisations by the US State Department, were religious in nature.[387] This development is of interest as some scholars, e.g. Siobhan O'Neill,385 opine that the Marxist-Leninist groups were less inclined to engage in terrorist funding by criminal activity since this, in some sense, would tarnish the image they had created or were creating for themselves. One can speculate that religiously-inspired groups might take the view that although criminality, e.g. theft and fraud, is against the religious tenets, to which they adhere, the pursuit of an ultimate, in their eyes highly laudable goal would invalidate such prohibitions. Indeed, the extremist movement Takfir wal-Hijra (Excommunication and Hegira) or, commonly Takfir, encourages theft and drug trafficking, on condition that one fifth of the proceeds of the crime is destined for the Islamic cause.[388] Two cases, displaying many similar traits albeit from almost opposite sides of the world (Los Angeles and Denmark), illustrate the funding mechanism referred to above. In a case investigated 2000-2002 in Los Angeles, but the operations of which are believed still to be ongoing, US Customs intercepted an outgoing box, addressed to an individual in the Lebanon. The box, shipped from a textile company in the Los Angeles area, contained coats, in which, between the coat itself and the lining, had been inserted (sowed) $280,000. The textile business, whence the box had been shipped, did not have a profitability, which would explain funds of this magnitude. In fact, it was suspected that the funds originated from drug trafficking. Search of sender's premises disclosed a further $1.5 x 10E6. The individual sending the box was the brother of a Hizballah operative, who shortly before had been killed by the Israeli forces.[389] Box 5.16, Terrorism: Armed Robbery, is an example of terrorist funding by criminality by a 1970s - 1980s Palestinian group, the PFLP. The case story narrated in the box is self-explanatory, yet some salient points should be underlined since they are as valid today as they were then.

Box 5.16. Terrorism: Armed Robbery
|On 23 March 1983, in Lyngby, Denmark, a number of individuals committed an armed robbery against a money |
|transport and secured DKr 6 x 10E6 ($ 655,638 at the then exchange rate of $1 = DKr 9.15). Three days |
|later, two Palestinians were arrested at the Charles de Gaulle Airport in Paris, as they attempted to |
|board Air France flight 142 for Damascus. In the course of the boarding security process, security |
|operatives discovered a considerable amount of Danish currency concealed in the space between the outer |
|tissue and the lining of the jackets, the two men wore, and subsequent examination of their luggage |
|disclosed further Danish currency, leading to a total of DKr 6 x 10E6. They were relatively easily |
|identified by the security services as the "head and treasurer for Western Europe" of the PFLP, Ghazi |
|Massoud, and the "head of the FRG" of the PFLP, Mohammed Toman. |
|A Danish official attempted to act as interpreter and as negotiator in Paris for four parties at the same|
|time, i.e. the Danish Police, the French Police, the Danish intelligence services and the French |
|intelligence services.[390] The French authorities, however, refused the Danish authorities access to the|
|seized bills and refused to exchange these against fresh bills from the Central Bank of Denmark, most |
|certainly for fear fingerprints or body fluids on the seized money would establish a firm relationship |
|between the funds seized, the two arrestees, and the crime committed three days earlier. The money was |
|seized and the two individuals expelled. The attitude of the Danish authorities was equally ambiguous. |

As pointed out above, section 5.5, Operation Green Quest, the events in box 5.16 conform to the general pattern, which I attempt to show, viz. that terrorism to a large degree is funded by common criminality and that the "route of the funds" is from the developed world to the Middle East, and not necessarily the opposite. Secondly, the resolution of the Paris end of the case, if one can call it a resolution, showed unequivocally that the fear, which governments exhibit when faced with international terrorism, supersedes any treaty obligations. In the case at hand, it is clear that the French authorities wanted to expel the two individuals before a link between the robbery on 23 March 1983 in Denmark and the seizure of the money three days later in Paris could be proven. Had such a link been proven, the Danish authorities would have had great difficulties in not requesting the extradition of the two individuals, and the French authorities would have had considerable difficulties in denying extradition, considering that both countries were and are members of the Council of Europe and that both are frequents signees of (bombastic) declarations of the hard line they—sometime in the future—will take against violent crime and terrorism. The fear of the French authorities of having the two individuals in prison or of having to extradite them to what would have been a lengthy custodial sentence, quite clearly assisted the Danish authorities in not having to ask for an extradition, for which they were afraid to ask. I argue that one here, again, is faced with deviant knowledge, since the decision makers were in possession of the knowledge, which would have allowed the arrest and sentencing of two individuals responsible for the robbery (as being behind it and profiting from it). The exercise of deviant knowledge by the French and perhaps—even presumably—also by the Danish authorities not only protected the two Palestinian terrorists, but also the group, which in Denmark had been the executors of the crime. Once the two individuals had been set free, the link between the money seized and the original crime, the armed robbery, was easily proven. However, the application of deviant knowledge—as one could have presumed—had as a result that not only could the two individuals continue their terrorist activities, but their contacts in Denmark could do so, too. The latter consisted in a small group of seven males, formed into a Maoist cell. After the events described in box 5.16—as a result of which they were not identified—they continued their fundraising by criminal means by committing at least three major armed robberies, in the course of one of which they shot and killed a police official. This thesis argues that there is no fundamental difference between lawyers, accountants, and other professionals, who for short-term gain place themselves at the disposal of people, who need to launder monetary funds, in order to find ways of doing so, and governments and government officials, who deviate the use of their knowledge in order to circumvent laws, in particular international agreements, for some short-term political goal or more precisely to assist the political powers, who hold sway at that particular moment.

5.6.1. Intellectual Property Crime
Intellectual Property Crime, IPC, more commonly called counterfeiting has been identified as a major source of income for terrorist organisations. The overall market value of counterfeit goods has been estimated by the World Customs Organization at $500 x 10E9 p.a.; approximately one half of this accrues from the sale of counterfeit goods in the USA. The earnings to investment ratio is approximately the same as the one that obtains for narcotic drugs, i.e. 1:10 (one dollar invested, ten dollars earned), and the penalties, if caught, are negligible compared with the illicit traffic in drugs.[391] The entry-level investment and knowledge requirements are—obviously depending on the sector—very limited. A counterfeit audio CD costs €0.20 to produce and only requires a very basic modern computer for the production, plus a label printer. Finally, this particular crime, IPC, does not cause the same opprobrium as other profitable crimes, which do not require particular skills or citizenship, such as drugs trafficking, pimping, and violent crime. It is therefore small wonder that many terrorist organisations have chosen intellectual property crime as an easy and relatively risk-free means of funding. The first terrorist organisation to have used counterfeiting for fundraising may very well have been the IRA, who already in the early 1980s sold counterfeit veterinary medicines before passing on to counterfeit CDs and DVDs. Since they also control the markets throughout at least parts of Northern Ireland, they have no difficulty in placing the counterfeit goods for sale. It is not of core interest to the present thesis to enumerate the terrorist groups that engage in these activities, from Kosovo to South America (via the Tri-Border Area).[392] It is, however, worth noting that as considerable efforts have been made to limit or eliminate the smuggling of cigarettes, the countries in the developed world, where tobacco products have been de-reified and instead monetised, are now ripe for a serious onslaught of counterfeit tobacco products, which will profit organised crime and terrorist organisations, alike, cf. subsection 4.4.1 in the present thesis.

5.7. Summing Up In this thesis, Baker's view (which is quite common, albeit erroneous) is contested on three counts: (i) it is not money laundering but the underlying predicate crimes that constitute a potential threat to society; (ii) an unstated premise for Baker's view is that an effective money laundering regime would contribute to a decline in predicate crime; it will not and Baker's non-stated premise is the more surprising as he, himself, has arrived at the conclusion—correct in my view—that "Anti-money laundering efforts are a failure”.100 One might add that the failure is very costly: Approximately $7 x 10E9 p.a. for the United States alone, cf. section 5.3; finally, (iii) the question remains, if the so-called laundered funds, once injected into the international financial markets, do not, after all, constitute a vast benefit to the markets by rendering these more liquid. Such investment would not present excessive placement risk to the launderers if these were to respect common rules of prudential investment. Having considered the international monetary flows of non-declared origin in the context of traditional transnational organised crime (chapter 4) and the counter-measure presently in vogue (chapter 5), the following chapter will examine the thesis argument in the context of the abuse of the environment and will, again, place this examination in relation to deviant knowledge, inter alia as regards the international financing by governmental or quasi-governmental Export Credit Agencies, the vast majority of whom do not have environmental standards as part of their lending criteria.[393] Also the well-documented role played by the PRC in the international trade of illicit forest product gives rise to serious concerns here referred to as deviant knowledge or to its subset, wilful blindness, cf. section 1.3. It should be noted that subsection 6.1.1 considers the economic agents, who are part of the commerce of illegal forest product, organised crime. The chapter also considers the tragic subject known as resource conflict. The case study that makes up chapter 7 and which, in particular, illustrates chapter 6, Mineral Abuse: A Case Study in Bougainville, takes one step further, namely to so-called resource curse.
Annexe 5.1

Map of South Pacific

[pic]

Annexe 5.2

US Inter-Agency Evaluation of Tax Havens and Money Laundering

Who Are the Real Money Laundering Jurisdictions?
| |FATF |CIA Money |State Department Money Laundering |
| | |Laundering Center |Vulnerability |
| |Non-Cooperative |Yes |Vulnerable |Primary |Secondary |
| |Jurisdictions | | | | |
|Tax Havens |8 (0) |4 (3) |5 (3) |14 (8) |16 (8) |
|Non-Tax Havens |11 (1) |11 (4) |6 (1) |38 (17) |33 (7) |

Source: Daniel J. Mitchell (2002), l

The numbers in parentheses indicate the number of jurisdictions in each category that were given a clean bill of health by the IRS and they show that the so-called tax havens received significantly better grades than the non-tax havens examined.

Annexe 5.3

Money Laundering Regimes: Timeline[394]

|Year |United States |Europe |Global |
|1970 |Bank Secrecy Act (BSA) | | |
|1970 |Racketeer Influenced and Corrupt | | |
| |Organizations Act (RICO) | | |
|1977 |Foreign Corrupt Practices Act (FCPA) | | |
|1980 | |Measures Against the Transfer and |Offshore Group of Banking |
| | |Safekeeping of Funds of Criminal Origin |Supervisors established |
| | |(CoE) | |
|1986 |Money Laundering Control Act (MLCA) |Drug Trafficking Offences Act (United |Inter-American Drug Abuse Control |
| | |Kingdom) |Commission of the Organization of |
| | | |African States (OAS/CICAD) |
| | | |established |
|1986 | | |ICPO-Interpol resolution on |
| | | |economic and financial crime |
|1988 |Anti-Drug Abuse Act | |Statement of Principles (Basel |
| | | |Committee) |
|1988 |Money Laundering Prosecution | |UN (Vienna) Convention Against |
| |Improvements Act | |Illicit Traffic in Narcotic Drugs |
| | | |and Psychotropic Substances |
|1989 | | |Financial Action Task Force (FATF) |
| | | |established |
|1990 |Crime Control Act |Convention (Strasbourg) on Laundering, |FATF Forty Recommendations released|
| | |Search, Seizure and Confiscation of | |
| | |Proceeds from Crime (CoE) | |
|1990 | | |Caribbean FATF established at Aruba|
| | | |meeting of Caricom |
|1991 | |First Money Laundering Directive | |
| | |(European Commission) | |
|1992 |Annunzio-Wylie Money Laundering Act | |Model Regulations Concerning |
| | | |Laundering Offences Connected to |
| | | |Illicit Drug Trafficking and Other |
| | | |Serious Offences released |
| | | |(OAS/CICAD) |
|1992 | | |International Organization of |
| | | |Securities Commissions (IOSCO) |
| | | |resolution on money laundering |
|1994 |Money Laundering Suppression Act | |OAS/CICAD declaration of Principles|
| | | |and Plan of Action at Summit of the|
| | | |Americas |
|1995 |Regulation of funds transfers |Europol created |Egmont Group of Financial |
| | | |Intelligence Units of the World |
| | | |established |
|1995 |Revision of currency transaction |Europol Drugs Unit (EDU) established |Communiqué of Summit of the |
| |report (TR) | |Americas Ministerial Conference |
| | | |Concerning the Laundering of |
| | | |Proceeds and Instrumentalities of |
| | | |Crime (OAS/CICAD) |
|1996 |Simplified suspicious activity report | |FATF Forty Recommendations revised |
| |(SAR), tribal casinos regulated, | | |
| |exemptions to CTR reporting | | |
|1996 | | |International Money Laundering |
| | | |Network (IMoLIN) established |
|1997 |Proposed rules for money service |Action Plan to Combat Organized Crime |OECD Convention on Combating |
| |businesses |(EU) |Bribery of Foreign Officials in |
| | | |International Business Transactions|
| | | |adopted |
|1997 | |CoE establishes the Select Committee of | |
| | |Experts on the Evaluation of Anti-Money | |
| | |Laundering Measures (PC-R-EV) | |
|1998 |Money Laundering and Financial Crime |Joint Action on corruption in the |OECD report on Harmful Tax |
| |Strategy Act |private sector (EU) |Practices |
|1998 |SARs for casinos and card clubs | |Asia/Pacific Group on Money |
| | | |Laundering (APG) established |
|1998 | | |UN Political Declaration and Action|
| | | |Plan against Money Laundering |
|1998 | | |Model Regulations Concerning |
| | | |Laundering Offences Connection to |
| | | |Drug Trafficking and Other Serious |
| | | |Offences (OAS/CICAD) |
|1999 |Money service business regulation | |Model Legislation of Laundering, |
| |issued | |Confiscation and International |
| | | |Co-Operation in Relation to the |
| | | |Proceeds of Crime (for civil law |
| | | |jurisdictions) released by the UN |
| | | |Office for Drug Control and Crime |
| | | |Prevention (UNDCCP) |
|1999 |First National Money Laundering | |OECD Convention of Combating |
| |Strategy | |Bribery of Foreign Officials in |
| | | |International Business Transactions|
| | | |entered into force |
|1999 |Foreign Narcotics Kingpin Designation | |Eastern and Southern Africa |
| |Act | |Anti-Money Laundering Group |
| | | |(ESAAMLG) established |
|1999 | | |UN Convention for the Suppression |
| | | |of the Financing of Terrorism |
|2000 | |Recovering the Proceeds of Crime Report |Wolfsberg Global Anti-Money |
| | |(United Kingdom) |Laundering Guidelines for Private |
| | | |Banking (Wolfsberg Principles) |
| | | |issued |
|2000 | | |FATF Report on Non-Cooperative |
| | | |Countries and Territories |
|2000 | | |OECD list of 35 tax havens with |
| | | |harmful tax practices released |
|2000 | | |Model Legislation on Money |
| | | |Laundering and Proceeds of Crime |
| | | |(for common law countries)(UNDCCP) |
|2000 | | |Okinawa G-7 Summit endorses G-7 |
| | | |Finance Ministers' Report on |
| | | |Actions Against Abuse of the Global|
| | | |Financial System |
|2000 | | |Financial Stability Forum Report of|
| | | |Working Group on Offshore Financial|
| | | |Centers |
|2000 | | |Regional Task Force on Anti-Money |
| | | |Laundering in Latin America |
| | | |(GAFISUD) |
|2000 | | |UN (Palermo) Convention Against |
| | | |Transnational Organized Crime |
|2001 |US Patriot Act: International |Second Money Laundering Directive (EU) |Report on Customer Due Diligence |
| |Money-Laundering Abatement and | |for Banks (Basel Committee) |
| |Anti-Terrorist Financing Act (Title | | |
| |III) | | |
|2001 | | |FATF Eight Special Recommendations |
| | | |on Terrorist Financing released |
|2002 | |Europol mandate expanded |FATF Consultation Paper on |
| | | |Revisions to Forty Recommendations |
| | | |released |
|2002 | |Proceeds of Crime Act (UK) |FATF/IMF/Word Bank Agreement on AML|
| | | |Pilot Project for Assessing |
| | | |Compliance with Anti-Money |
| | | |Laundering and Combating the |
| | | |Financing of Terrorism Standards |
|2002 | | |Wolfsberg Anti-Money Laundering |
| | | |Principles for Correspondent |
| | | |Banking |
|2002 | | |International Association of |
| | | |Insurance Supervisors (IAIS) |
| | | |Anti-Money Laundering Guidance |
| | | |Notes for Insurance Supervisors and|
| | | |Insurance Entities |
|2003 | |Money Laundering Regulations revised |New FATF Forty Recommendations |
| | |(UK) |released |
|2003 | | |UN Convention Against Corruption |
|2003 | | |Wolfsberg Statement on Monitoring, |
| | | |Screening, and Searching |
|2007 | |Money Laundering Regulations 2007 (UK) | |
|2008 |US Supreme Court in 9-0 decision in | | |
| |Cuellar v US (26 February 2008) | | |
| |commences delimitation of the ML | | |
| |provisions. Prosecutor has to show | | |
| |that intent of act was to conceal | | |
| |origin or control. | | |

Chapter 6. Abuse of the Environment

L’on peut contester que les arbres pensent, mais ils font penser.
Théodore Rousseau (†1867)

6.0. Introduction
Chapters 6 and 7 deal with two main issues, namely illicit logging and the relationship between conflict and abuse of the environment—in chapter 7 leading to the issue of resource curse. Illegal logging is defined in the introduction to chapter 6, whereupon its relationship to organised crime is outlined. The trade in timber that is illegal at source is a major example of the application of deviant knowledge, namely on the part of the receiving countries. This first part of the chapter also critically examines the role played by China in the international trade in forest product of illegal origin, including the well-documented, substantial corruption payments made on shipment from countries of origin. The second part of the chapter analyses commodity abuse and conflict. Here one takes up the notion of “the expatriate dollar” which was introduced in chapter 2, since trade, be it in illegal forest product or arms, must be settled in a liquid currency, sc. the US dollar. The thesis rather follows Berdal and Malone (2000) in the appreciation that insurgencies are ascribable to greed rather than grievance, at least since the mid-1980s, cf. chart 2.8, and the discontinuation of state sponsorship. This leads to a consideration of the time consistency problem, which implicates a prolongation of intra-national conflicts. A particular issue, the resource curse, is treated at some length in chapter 6 and, extensively in the case study, chapter 7. Natural resources should constitute an important asset for a country and in some cases they do, e.g. the gas and oil resources in Norway. In other cases, however, the presence of such resources hampers the development of a country and its population, e.g. Saudi Arabia. In the thesis, however, is considered the more serious, but not uncommon phenomenon that natural resources lead to violent conflict. The latter is declined in three scenarios, (i) violence to establish who will control the resources—and thus the riches; the control of the resources becomes an end in itself, sc. the enrichment of the controlling classes; (ii) the control of the resources is a means, namely to obtain funding for the continuance of insurrection or counter-insurrection; (iii) conflict arises because the abuse of the environment leads to environmental degradation in a neighbouring country. Chapter 7 deals with the devastating civil war in Bougainville, an example of war for greed, while a number of well-known examples from Africa illustrate the use of natural resources as a means of funding of the purchase of arms and other supplies. The concept of resource curse is highlighted in the thesis, because such abuse of the environment is almost always illicit and often illegal. The end product is a commodity, timber or precious stones, for example, that are sold on the world markets and which, both then and when invested in arms (legal and illegal), give rise to flows of monetary instruments of non-declared origin. When considering complex systems one sets out with a set of interacting elements that generates configurations, which were not or not all immediately identifiable by a consideration of the initial state. If such configurations are of a high amount, one talks about perpetual novelty. In the context of chapter 6, a series of elements or building blocks seems to create such sets of configurations, namely—to mention only a few—degree of greed, the import of the time consistency problem,[395] and, as regards deforestation, climatic consequences. The major US studies only consider resource conflict in the context of an end to riches or as a means to initiate or continue hostilities. The thesis adduce the scenario of conflict between two nations, when abuse of the environment leads to environmental degradation in the other. The forest has provided the human being with cover, food, fuel wood, wood for construction and furniture and other amenities throughout human existence on the earth. With time also its role in providing a habitat for biodiversity and, crucially, in acting as the earth’s breathing system, was recognised; for instance, the Amazon Rainforest has been described as the "Lungs of our Planet" because it continuously recycles dioxide into oxygen and produces more than 20 percent of the world oxygen.[396] Now, however, for the first time do human beings have the means and the financial incentive to do irreversible damage to this same forest. The so-called international community has been able to do very little to stem the irrational destruction of a natural resource, on whose continuing existence humankind possibly depends for its very survival. Notwithstanding ecological concerns, the present inquiry will concentrate on illegal logging as the activity, which generates funds of non-declared origin. As in other, related areas, e.g. conflict timber, cf. below, an agreed definition is not available. The following is often used in scholarly work and in publications by NGOs:[397]

Illegal logging takes place when timber is harvested, transported, bought or sold in violation of national laws. Illegalities occur right through the chain from source to consumer, from illegal extraction, illegal transport and processing through to illegal export and sale where timber is often laundered before entering the legal market.

This chapter will, after this brief introduction, consider two separate, albeit related subjects, sc. illegal logging and conflict timber.

6.1. Illegal Logging: An Organised Criminal Activity?
The natural resources of the earth are restricted commodities; therefore, cf. chapter 4, they are coveted and traded by organised crime. Diamonds and in particular so-called “conflict diamonds” constitute an example as does coltan (used for electronic devices), but still more insidious is the involvement of organised crime in the illicit trade in timber, since deforestation deprives a local population not only of primary resources, but more importantly of its livelihood.[398] Hardwood in particular has become a restricted commodity as more and more producer countries are attempting to manage the remaining stock. This has led to timber entering into the category of “conflict commodities”, but in two ways, i.e. in the normally accepted sense of a commodity generating profits to sustain conflict, e.g. war, civil war, or terrorism, but also in the sense of a commodity causing conflict in regard to ownership and control. In the first sense, a common phenomenon in West Africa, timber is bartered directly against arms or the funds obtained from its sale are disbursed for the purchase of arms. In the second sense, conflicts, more often than not leading to violence and unlawful killings, arise between the local population and persons or groups of persons, who claim ownership. Such disagreements can almost always be traced back to a disharmony between long-established tribal law and more recent national law. The illicit traffic in timber lies, however, first and foremost in the ambit of organised crime, since the latter can apply the necessary pressure on the local population—in conjunction with extensive corruption to police or military personnel—and provide the managerial expertise to have the trees felled, transported internationally by ship, and sold in another country often with false documentation of origin. In South-East Asia, where most of the world’s remaining high-value hardwood grows, the “organisers” pay $11 to the local population per cubic meter of illegally logged hardwood and then resell the same logs in another country in the region for up to $270 (factory gate price). The logs are then cut into planks and used, in particular, for floorboards at a mark-up on the factory gate price of approximately five hundred percent. The profits accruing to organised crime are staggering, even considering that they pay an average of $200,000 in corruption payments for each shipload.[399] Apart from the societal damages usually connected with organised crime, i.e. corruption, lack of respect for the rule of law, etc., this particular commodity also entails revenue losses and environmental costs to the producer countries. It is difficult to hold an uneducated, exceedingly poor lumberjack responsible for the acts, whereby he earns a meagre living for himself and his family, whereas the responsibility for the international traffic in illicitly logged timber fully lies with the end-users, who import or allow the importation of such merchandise, while fully cognizant of the fact that some fifty percent of it is illegal at source, cf. 6.5.[400] It is worth recalling from previous discussion in this thesis that economists[401] are agreed that no grey market has ever been defeated from the supply side, which is what the Western World attempts to do in this regard as in many others. This is an example of wilful blindness, i.e. the application of deviant knowledge in the sense that the importing governments know as well as the mentioned economists that such markets cannot be suppressed from the supply side. If they insist on a supply side approach, one must surmise that it is because other, domestic, forces are so strong that efforts on the demand side are—economically and therefore politically—unacceptable. Even a cursory reading of the subject matter of logging reveals the use of the two terms illegal and illicit, sc. logging. The semantic difference between the terms discloses one of the major issues in forest management in developing countries today, as illicit means “forbidden by law, rules, or custom”, while illegal means “contrary to or forbidden by law”.[402] This nuance mirrors the fact that land rights, including rights to flora and fauna, originally were vested in the local population of a given territory and administered in accordance with customary or tribal law. Depending on the socio-political development of the individual country, of which the territory was or became a part, such customary or tribal law might become superseded first by colonial and then, after decolonisation, by national law. All benefits from exploitation of the land in question accrued to the colonial administration and—even more so—accrue to the central government of the subsequently decolonised country. This created and creates an easily understandable resentment on the part of the local population, who saw their ancestral customary laws discarded,[403] their natural habitat—and pluricentennial source of living—destroyed by logging roads, mines, and mine tailings, while the benefits and other advantages, in particular development of infrastructure such a educational and health institutions, accrued to others. The result often is intra-communal strife since individual members of the community, once the authority of the customary system is discontinued, ally themselves with foreign commercial interests, often through the central government, and sell off concessions rights in the area. The resultant may, however, also be an internal armed conflict, civil war, between the local population and the central government. One of the most tragic examples of the latter is the case of the island Bougainville, situated off the south-eastern part of Papua New Guinea, cf. ch. 7.

6.1.1. Organised Crime
There is no agreed definition of organised crime, cf. chapter 4, but most scholars would agree that one of the main roles, indeed the defining characteristic of organised crime, is the trade in prohibited or restricted merchandise, which, for the purposes of this discussion, will be seen as an essential constituent of organised crime. On this definition, illegal logging and the transportation and commercialisation of wood and forestry product, which is illegal at source, is organised crime. A chain of operators intervene in the international trade in illegal timber (“illegal at source”) from lumberjack to consumer, as the logged timber is traded, transported, transformed (e.g. from round logs to planks), and commercialised. Because of the important bulk to value ratio, it is relatively easy for interested observers, e.g. from concerned NGOs, to follow the forest products from forest to end user, cf. e.g. the role played by the P.R.C. (section 6.3). Nevertheless, there are two crucial, but less transparent aspects of the trade, which by their very nature are more difficult to examine and which constitute, so to speak, the lubricant of this illegal trade, sc. corruption and finance; together, they constitute the core of the mechanics of the trade.

6.2. The Mechanism of the Trade
This paragraph considers the mechanisms of the trade and, as such, concentrates on two main issues, which are perceived to be crucial, sc. transborder trade and corruption, keeping in mind that “[B]orders are little more that ‘a fantasy of foreign ministers”.[404]

6.2.1. Transborder Trade
Since the products here under consideration often are either totally prohibited for exportation, e.g. ramin[405] from Indonesia, which is on the Cites II schedule with export prohibition,[406] or limited, as e.g. merbau,[407] where forest product, but not logs, may be exported from Indonesia, and furthermore more often than not illegal at source, i.e. acquired without permission from owner and without payment of appropriate dues, the only way to export such products and thus to enter into the lucrative international markets, is by transborder trade. In general terms, without specific reference to primary products, the growth in transborder trade has been encouraged by globalisation, structural adjustment, and the changing competence of the nation-state.[408] The concept of transborder trade should be distinguished from that of parallel or informal trade, cf. section 4.4. The legality of the commodities involved in transborder trade is a relative rather than an absolute difference, cigarette smuggling being an example.404 Both parallel trade and transborder trade are parts of the more generic term of smuggling, which, as Peter Andreas observes, is defined at “the practice of bringing in or taking out illicitly or by stealth”.[409] The perception of transborder trade has changed over the last twenty years,[410] from being frowned upon in the early 1980s as a threat to the free market projects of the newly decolonised countries[411] via being seen as the South’s resistance to adjustment measures to being viewed, anew, with concern as a further weakening of already week states. A crucial point is that the social and political interests, who control transborder trade, are opposed to economic regionalism, since their status and income depend partly on control, partly and in particular on the arbitrage between differing price structures.[412] As regards illegal logging, the transborder trade in merbau provides a typical example, albeit atypical by its mere scale. The data are available from the excellent “undercover” work done by the London-based NGO Environmental Investigation Agency (EIA) and its partner, the NGO Telapak, based in Bogor, Java, Indonesia. 300,000 m³ of merbau are smuggled out of the Indonesian Papua Province every month. The traffic involves middlemen in Jakarta, Singapore, and Hong Kong, but the product itself, the logs, are smuggled via Malaysia to the PRC. The product is smuggled out of Indonesia, where a ban of the exportation of logs has been in existence since October 2001, by means of corruption payments of US$200,000 per shipment.395 In Malaysia, the product is issued with new (false) paperwork showing its origin as Malaysia. The product is then exported to the port of Shangjingang near Shanghai, from where it is transported over land to the city of Nanxun south of Shanghai. In Nanxun, 200 saw mills cut only merbau logs to provide flooring planks.

Box 6.1. The merbau economics
|Phase of trade |US$ / m³ |
|Price paid to Papuan community |11 |
|Price paid at point of export from Papua |120 |
|Price of logs at entry to the PRC |240 |
|Flooring[413] price in the PRC |468 |
|Flooring price in UK or USA |2288 |

6.2.2. Corruption
Apart from the case of conflict timber, which will be dealt with below and that mostly involve an armed group taking control of the extraction in a given area or seeking rent from such extraction, illegal logging cannot take place without corruption. Corrupt payments are the lubricant, which allow logging rights to be improperly assigned, logging to be done outside properly or improperly assigned logging concessions, the resultant timber to be exported in violation of national law, and the extraction of natural resources to be done without appropriate tax and concession revenues accruing to the government.

6.3. Trafficking in Illicit Timber
This section examines the question of the receiving countries, e.g. the EU and USA, who import wood and forest product, e.g. furniture from the PRC, well knowing that some fifty percent of it is illegal at source,396 or it has been illegally exported, transported, or commercialised. The unsustainable exploitation of the forests in the western province of Yunnan, PRC, led to a series of landslides in late 1995 and early 1996, in which a large number of people were killed. The government drew the consequences and imposed a quasi total logging ban in Yunnan in 1996, which in 1998 was extended to cover the totality of the PRC. However, this placed the Chinese leadership in front of a serious problem: The PRC was in full expansion and needed vast amounts of forestry product to sustain domestic growth. And not only: over the decade preceding the 1998 logging ban, the PRC had developed into one of the world's biggest exporters of wood and forestry product, inter alia by very important exportations of wood furniture to the United States. To maintain its presence on the international markets, the PRC became responsible for most of the degradation to Burma’s forests, which has occurred since approximately 1999. Prior to that date, Thai logging companies in particular were active in Burma. The better to understand the political choices of the PRC in its relationship to Burma, it is necessary to study a rather simple political time sequence. In July 1988, the PRC government suppressed the pro-democracy demonstrations in the Tien An Men Square in Beijing, PRC. In August of the same year, PRC concluded the first border trade agreement with the government of Burma having hitherto been a supporter of such groups as the Communist Party of Burma (CPB). The PRC now became a staunch supporter of the Burmese government. The so-called Tien An Men Uprising left its mark on Chinese leadership, who feared concurrent Kachin disorder on both sides of the Sino-Burmese border along the lines of the similar unrest in Nāgāland on both sides of the Indian-Burmese border. The Chinese leadership felt that it could better stabilise its western border to Burma by a cooperation with the Burmese government, be it a military dictatorship; lending support to the fledging Communist Party inside Burma could have a series of consequences, including transborder unrest, the prospect of which the government might have been willing to entertain prior to the Tien An Mien Uprising in July 1988, but certainly not after.

6.4. Conflict Timber
The so-called globalisation may represent a new departure in world history[414] by increasing growth, prosperity, and stability; in the area of natural resources, however, globalisation has created a series of problems in development and security thinking, a paradigm Duffield410 calls the durable disorder interpretation of globalisation. One of the interesting developments, on this view, is the tendency of the North to create regional alliances in order to exploit comparative advantages—to speak with Ricardo—while the South has not been able to do the same. As a result, the much discussed weakening of the nation-state—to the degree it exists—has had two almost opposed effects: In the North, the nation-state has relinquished some of its powers to various supranational arrangements, while in the South the changing role of the nation-state has been imposed by pressures from supranational actors such as international organisations, sub-national actors including criminal and political-criminal commercial or political networks, and by international commercial interests, in particular so-called transnational enterprises. These pressures exerted on the South have been particularly pernicious in the exploitation of natural resources, since the state, faced with the corrupting influence from various interested groups spanning from commercial and political networks to criminal organisations, has not been able to impose the concept of sustainability on such exploitation. As a result, the abundance of natural resources, which should have been a blessing, has become a curse as in particular one aspect of crime, viz. corruption, weakens governance. The governance deficit, in turn, often opens the way for rebellious conflict. In the following in particular so-called conflict timber is considered, but it should be borne in mind that almost all natural resources can become conflict resources, e.g. oil, timber, diamonds, coltan, etc. Although an ideal study of conflict timber should consist of an analysis of the economic, financial, political, ecological, social, and security aspects,[415] this chapter limits itself to examining the role played by natural resources and in particular by timber in funding and maintaining conflict, as a raison d’être for the conflict itself, and, potentially, by creating conflictual situations by their very depletion.

6.4.1. Concept and Definition
While the first part of this chapter pointed out some of the difficulties inherent in the concept of illicit or illegal logging, Alice Blondel notes that timber is a commodity, which is easy to negotiate and trade, and which therefore has become of great interest to warring factions, organised crime, and arms dealers.[416] The term conflict timber was first used in a report by a UN expert group;[417] it builds, to some extent, on the not very clearly defined notion of illicit logging, since by conflict timber one refers to a subsection of the case of commodity abuse, where timber in one sense or another becomes related to a conflict. There are several attempts of defining the concept, e.g. the one proposed by the NGO Global Witness:

[Conflict timber is] [t]imber that has been traded at some point in the chain of custody by armed groups, be they rebel factions or regular soldiers, or by a civilian administration involved in armed conflict or its representatives, either to perpetuate conflict or take advantage of conflict situations for personal gain ... Conflict timber is not necessarily illegal, as the legality (or otherwise) of timber is a product of national laws.[418]

On this definition, therefore, the timber in question need not be ‘illicit;’ the characteristic trait is its being logged, transported, or commercialised by members of a military force. The definition suffers from the weakness that it employs the somewhat vague term regular soldiers. Neither the definition itself nor its context makes it clear if this expression refers to governmental troops dealing on their own behalf or on behalf and on the orders of the government. The distinction is of the utmost importance since the governments of several of the countries, in which the most extensive non-sustainable logging takes place, e.g. Burma and Indonesia, have ordered the military to earn most or all of their upkeep themselves and they have, explicitly or implicitly, pointed to forestry exploitation as a means to do so. It is far from clear if such timber falls within the definition or not. Another definitional approach was chosen in the authoritative USAID report on conflict timber from 2003,[419] one based on a division of the types of conflict, in which so-called conflict timber played a role, viz.

Type I: “conflict financed or sustained through the harvest and sale of timber” Type II: “conflict emerging as a result of competition over timber or other forest resources”.

Although this is a logical distinction, it nevertheless leaves out a third type of conflict linked to natural resources exploitation, viz. conflict arising as a result of the consequences of natural resource depletion. The USAID report does not envisage this kind of conflict, which one could term Type III. I argue that Type III situations present a higher degree of potential danger to international peace and security than Types I and II. As has been seen, the term conflict timber is not clearly defined. From a purely taxonomical point of view, one can subdivide the subject in several ways, e.g. by emphasising the relationship between the resource and the conflict or, on the contrary, by exploring the relationship between the resource and the groups of people profiting from it. In the former, polemocentric sense, one needs to envisage at least three divisions: (i) where control over the commodity—in casu timber—provides the necessary means to one or both parties to commence or sustain a conflict; (ii) where control over the commodity becomes the very reason for initiating and maintaining the conflict; (iii) where, potentially, the result of the commodity abuse, e.g. in the form of illicit logging, will have had environmental consequences—unforeseen or wilfully ignored by the parties—which over time may become belliferous in and by themselves. One could, however, also look at conflict timber or more broadly at conflict commodities in a more group oriented way, viz. by considering, not the relationship between the commodity and the conflict, but between the commodity and the groups, who profit from the commodity. Winer and Roule in their 2003 study[420] adopt this approach and identify four distinct typologies of the systematic use of funds from illicit commodities as a means of funding security operations in areas of conflict

• Governments financed by illicit commodities • Rebel groups financed by illicit commodities • Organised crime financed by illicit commodities • Terrorists financed by illicit commodities

They furthermore maintain that when the first of these four typologies is present in a country, i.e. when the government is financed by illicit commodities, the other three typologies are rarely far behind, since the former is a sign of poor governance and as such inexorably leads to one or more of the other three.

6.5. Commodity Abuse and Conflict
Since the end of the Cold War also meant the discontinuation of or severe decrease in “external patronage” for local or internal wars, the warring parties had to turn to other sources of income in order to initiate or maintain conflicts; in the abuse of commodities and in the depletion of natural resources they found just such a source of income.[421] As the end of the Cold War coincided with the beginning of globalisation, it was natural that they should look to the international scene, and in particular to international trade, for sustenance. As pointed out below, 6.5.1, this new situation gave rise to or reinforced two paradoxical aspects of international importance: the decrease of external sponsorship meant that the conflicts have become longer and more international.[422] First, the rebel troops often did not and do not want to end the conflict, they do not want “to win”. Since the basis for the conflict is greed, the so-called time consistency problem encourages the continuation of the conflict and the immediate gratification of wants, rather than an intertemporal investment in an uncertain future, cf. below. Second, the very structure of the funding and procurement function of resource-based rebel groups has a number of interesting consequences. The structure—and thus in a sense the conflict—becomes international as the rebels, nolens volens, must sell their resources and purchase their supplies of weapons and ammunition on the international markets. The flux of funds, mostly of illicit origin, in payment of the, often illegal, transborder trade, then enters the global financial circuit, where it is suitably laundered. Along with illicit traffic in drugs and trafficking in humans, the transborder trade in arms, in particular to rebel groups, presumably constitutes one of the major influxes of funds of non-declared origin into the financial system. The means used to settle such trades is the expatriate US dollar, cf. section 2.3.

6.5.1. Conflicts
Collier and Hoeffler[423] find evidence that conflict can more easily be predicated on greed rather than on grievance. They use the Singer and Small (1994) data set[424] and find that neither “social fractionalization by ethnicity and religion nor inequality of income and assets” increase the probability of civil conflict. Indeed, where these variables are significant, they actually make societies safer.419 Opposing these observations are rebel narratives, which invariably fall within one or more of four classes; (i) ethnic or religious hatred; (ii) economic inequality (income or assets); (iii) lack of political rights; or (iv) governmental economic incompetence. However, Collier and Hoeffler, using the Singer and Small COW data set for conflicts, the Polity III[425] data set, and the ELF and ERF[426] indices do not find a statistically significant correlation between conflict and any of the four rebel narratives. In other words, rebellions are based on kleptocracy, not ideology or grievance. This, again, explains why intra-national conflicts have tended to become longer after the end of the Cold War and perhaps before: it is not in the interest of at least one of the warfaring parties that the conflict ends, since the purpose of the conflict is not the overthrow of the government, but the continuous control over natural resources, which provides either direct income or rents.[427] This is obviously a counter-intuitive concept as one might have thought that the rebels would want to overthrow the government and thus take control of the country and all its resources; this is not the case because of the so-called time consistency problem. History shows, and insurgents know, that a rebel leader, once in power, easily forgets and easily becomes like the leader he or she replaced. Since the rebels make rational choices, they foresee that they might not be compensated after a victory, whereas they are compensated daily as long as the conflict continues.[428] It is of importance to note that whereas conflict seems influenced by general income levels (richer countries have a lesser possibility of internal conflict than poorer ones[429]), an increased income inequality does not appear to increase risk of conflict. Whereas income and asset inequality would appear to be strongly associated with higher levels of criminal violence,[430] yet natural resource exports are strongly associated with an increased probability of civil conflict. The relationship is non-monotonic, but at the peak, where approximately a quarter of GDP is generated by natural resource exports, the risk of conflict is around five times higher than in societies without such resources, controlling for other characteristics. Comparable data for organised crime are not available. Economic models have typically treated rebellion as a form of crime or banditry. Paul Collier develops the concept of rebellion as a distinctive form of organised crime that differs from other crime in its objective, which is the predation of the rents on natural resource exports. Under these circumstances, violence is born when the government attempts to protect such rents.[431] The view of rebellion as greed-based is being contested in particular by sociologists such as David Keen.[432] Their argumentation appears discursive and subjective, whilst Collier and Collier and Hoeffler’s refutation of so-called rebel narratives[433] seems robust and decisive. The two schools of thought are quite distinct, inter alia, because one takes the traditional view that “greed leads to grievance”, whereas “the economical way of looking at behaviour” —to use Gary S. Becker’s expression—sees greed using grievance as a catalyst, which provides greed with the start-up capital needed to pass the threshold, where effective rent-seeking becomes possible.[434]

6.5.1 §1. The Number, Length, and Character of Commodity Abuse Conflicts
Conflicts are ongoing at any given time but their number is now increasing.[435] The exact number of such conflicts at a given moment is subject to empirical argument, but evidence seems to suggest that the number of active conflicts is increasing, as is their length.[436] Finally, although it is often stated that the vast majority of the post-WW2 conflicts are “internal”, it is doubtful if the term internal conflict is very helpful in particular in the twenty-five per cent or so of conflicts that are commodity abuse conflicts, i.e. conflicts that commence or are maintained by means of commodity abuse, or that are initiated in order to gain control over such resources. As noted above, section 6.5, the end of the Cold War meant that so-called “external patronage” dried out and rebellious fractions had to finance themselves. This took several forms, from kidnappings of local foreign business executives for ransom to drug trafficking and rent-seeking from drug trafficking. By the kidnap-and-ransom activity, rebel groups were able to draw some international attention to their alleged cause, while at the same time generating income for the continuation of their operations. Nevertheless, it was the exploitation of natural resources, which lent an unmistakably international aspect to such operations, since the rebel groups had to generate funding by disposing of natural resources on the international markets and had to obtain weapons and ammunitions on the same markets. Concurrently, rebel groups displayed a highly developed sensitivity to foreign interference or direction, perhaps as a result of the “external patronage”, with which and under which they and similar groups had operated in the course of the Cold War.

6.5.2. Commodity Abuse in Conflict
The NGO Global Witness has proposed the definition of conflict timber indicated above, section 6.4.1. Natural resources play a key role in conflict and in several ways, as indicated above, i.e. both as the means to wage the war and at the reason for waging it. Although several scholars, in particular sociologists, and the USAID agency maintain the differentiation between conflicts funded by commodity abuse and conflicts for the control of natural resources, it should be emphasised that recent economic studies by Paul Collier and others have not lent support to this view, but have rather suggested that all conflict is resource motivated, rather than grievance motivated. Therefore, this paragraph is a general consideration of the problem, whereas the more substantive treatment of the matter can be found in the following.

6.5.3. Conflict for Commodity Abuse
Resource-based conflicts inject funds of non-declared origin into the international financial system as rebel groups purchase armaments and other supplies on the international markets in trades, where the funds have been obtained from commodity abuse and are thus illegal at source, whereas the selling party more often than not will also be in an irregular or illegal situation regarding the origin of the weapons and ammunition or regarding the pretences under which they, and their end user certificate, have been obtained.

6.5.3 §1. The Scope of the Problem
It is fair to say that in the vast majority of the countries, in particular in the developing world, where natural resources are extant, internal strife over such resources has followed, spanning the spectre from political dissent to civil war. In the following only two examples will be considered, viz. Baluchistan and coltan (in the Democratic Republic of Congo).

6.5.3 §2. Baluchistan
Somewhat similar to the situation of the island of Bougainville, Ch. 7, but potentially dangerous to international security, is the situation in the Pakistani province Baluchistan.[437] The case of Baluchistan has been included here, partly because the situation of the Baluchi has attracted less attention than other, similar conflicts, but partly because the conflict, by distracting military attention from the Pakistani – Afghan border, in the circumstances of the alleged War against Terrorism and in the generally delicate diplomatic situation surrounding Iran, could become a lever in the region and thus lead to substantial regional violence. The Baluchi ethnic group is divided between Pakistan, Iran, and Afghanistan. The Pakistani province of Baluchistan borders on Iran to the west, Afghanistan to the north-west, and to the Punjabi and Sindhi provinces in Pakistan respectively to the north and to the east. The province with its approximately 4.5 million inhabitants was incorporated into Pakistan at its creation in 1947 against the wishes of a majority of the Baluchi. The province has rebelled twice, in 1958 and 1962, and there was a long, drawn-out struggle from 1973 to 1977, tying down 50,000 Pakistani troops. From approximately the end of January 2006, there is a renewed insurgency in the province, in which 25,000 Pakistani troops face the Baluchi Liberation Army. On the other side of the Iranian border, in the Baluchi province in Iran, opposition to the central government at Teheran is slowly growing, but has, so far, not developed into an open insurgency. The latest rebellion in Pakistani Baluchistan does not aim at independence, but at control over the natural resources in the Baluchi province, where most of Pakistan’s natural resources are located: natural gas, uranium, copper, and potentially rich oil deposits, on-shore as well as off-shore. In multiethnic Pakistan, the dominant Punjabi control the army and exercise economic discrimination against the lesser ethnic groups, as, e.g., the Baluchi and the Sindhi. The result is that notwithstanding its natural resources the Baluchi province remains “the most impoverished area in Pakistan”.432 Carlotta Gall[438] disagrees, at least in part, as she claims that “[t]he insurgency in Baluchistan is about ethnic rights and self-rule of the Baluch people. The Baluch have their own language, Baluchi, which has its roots in Persian, and they are probably the oldest settlers in the region”. Nevertheless, although the rebellious narrative—to speak with Paul Collier—is that of grievance, the goal of the insurgency is the domination of the natural resources situated in the Baluchi province. Baluchistan furthermore represents one of the sixteen worst areas of soil erosion in the world.[439]

6.5.3 §3. Coltan
The country of the Democratic Republic of Congo (DRC) would be one of the richest countries in the world if only natural resources were taken into consideration; unfortunately, it is also one of the countries in the world to have suffered most from the resource curse.[440] The DRC could constitute a prime example of resource abuse in almost every category, but in this context only the case of Coltan will be considered. The main supply of Coltan is in Australia, but large deposits are found in the east of the Democratic Republic of the Congo. Coltan is mostly used in the production of so-called capacitors, i.e. energy-storing devices, which are vital in all electronic devices. The increase of the use of such products from approximately 1990 has obviously led to a corresponding increase in demand for the mineral and corresponding price increases. These price increases have contributed to tension in the producing countries, particularly between Congo and Rwanda, and to environmental concerns. The latter are linked to the damages caused by the exploitation of Coltan deposits to the habitat of several threatened species[441] and to the forest; these concerns, however, are not within the scope of the present work. The Democratic Republic of Congo, previously known as Zaire, is not very stable, politically; furthermore, the Coltan deposits are situated in the eastern parts of the country, which are difficult to control. The Rwandan army, under the pretext of controlling attacks by the Hutu refugees, who left Rwanda after the 1994 attempted genocide of the Tutsis, occupied the east of the Congo. Their very presence placed the Coltan deposits outside of the reach of the DRC central government. A UN SC report[442] charged that a great deal of the ore is mined illegally and smuggled over the country's eastern borders by militias from neighbouring Uganda, Burundi, and Rwanda. According to some estimates, in a year and a half, the Rwandan army profited by a minimum of $250 x 10E6 from the sale of Coltan.[443] Coltan smuggling has also been implicated as a major source of income for the military occupation of Congo by foreign forces. To many, this raises ethical questions akin to those of conflict diamonds. All three countries named by the UN as smugglers of Coltan have denied being involved. The Tantalum-Niobium International Study Centre in Belgium (a country with traditionally close links to the Congo), nevertheless encouraged international buyers to avoid Congolese Coltan on ethical grounds:

The central African countries of Democratic Republic of Congo and Rwanda and their neighbours used to be the source of significant tonnages. But civil war, plundering of national parks and exporting of minerals, diamonds and other natural resources to provide funding of militias has caused the Tantalum-Niobium International Study Center to call on its members to take care in obtaining their raw materials from lawful sources. Harm, or the threat of harm, to local people, wildlife or the environment is unacceptable”.[444]

6.5.4. Conflict from Commodity Abuse
The third taxonomical division to consider is the case, where the result of commodity abuse becomes a casus belli, in other words cases where the resultant environmental damage becomes belliferous. Although at this stage, there might not be examples of conflicts caused by the depletion or destruction of natural resources, it is almost certain that such conflicts will take place in the future. By way of a rather innocuous example, one notes that in January 2006, the extensive desertification caused by deforestation in Mongolia created a series of violent sand storms, which affected not only Beijing, but the effects of which were felt as far away as Japan and Korea.[445] It is more than plausible that environmental issues of this nature in future could lead to conflicts between neighbours, in casu between China and its neighbours. But the phenomenon is not recent. Thus in 1988, denuded watersheds in Ethiopia’s highlands exacerbated floods in neighbouring Sudan, which devastated its capital, Khartoum. This caused tension in the relations between the two countries. Also in 1988, a flood in Bangladesh left 25 million people homeless. This flooding was just one example of the fact that the frequency and magnitude of flooding in Bangladesh have markedly increased, partly due to deforestation in the Himalayas since the middle of the 20th century.[446] The case, however, that has attracted most attention, because it has been brought to the highest international jurisdiction, the International Court of Justice in the Hague, is the dispute between Argentina and Uruguay, at the core of which are allegations by Argentina that planned industrial activities in Uruguay will, inter alia, generate environmental damage in Argentina.[447] On 4 May 2006, Argentina instituted proceeding before the ICJ against Uruguay concerning the planned construction by Uruguay of two greenfield eucalyptus pulp mills on the Uruguayan side of the River Uruguay. The plants will use so-called ECF (elemental chlorine free) technology to produce 1.4 million tons of air-dried pulp per year, which is the primary raw material for the production of paper and paper products. The ECF process, however, results in the emission of dioxins through the use of chlorine dioxide. In the submission to the ICJ, Argentina expresses its concerns that

toxic air and liquid emissions and the release of malodorous vapours from the two paper mills will damage the fragile ecosystem of the River Uruguay (including the local flora and fauna) and will be harmful to the health of over 300,000 local residents.

Argentina equally claims that

the mills will cause material damage in that they will have harmful effects on fisheries resources and the local Argentina economy (especially the tourism and fisheries industries and the employment and real estate markets).

Towards the end of 2006, Argentine furthermore submitted a request that the ICJ issue an intermediary order that Uruguay do not continue with the building of the two plants. In a decision of 23 January 2007, the ICJ refused this request. Of more importance, however, in the present context, since it shows the potential for violence in cases, where environmental damage in one jurisdiction is caused by industrial activity in another, is the fact that the court, in section 8 of its decision, notes that

Whereas Uruguay explained that since 20 November 2006, “[o]rganized groups of Argentine citizens have blockaded a vital international bridge over the Uruguay River, shutting off commercial and tourist travel from Argentina to Uruguay”, that “the blockade . . . is planned to continue without interruption for at least the next three months”, that is to say during the whole of the South American summer tourist season, and that the blockade “will deprive Uruguay of hundreds of millions of dollars in foregone trade and tourism”; ….. whereas it pointed out that the leaders of the blockade “are planning to extend the blockades beyond the bridges to the river itself ‘to prevent river traffic with supplies for Botnia’”[448]; whereas Uruguay added that it is not the first time that Argentina has unlawfully allowed the blockade of international bridges; whereas it recalled that Argentina previously “allowed a similar blockade by the same Argentine citizen groups” for the purpose of forcing “Uruguay to terminate construction of the cellulose plants”.[449]

6.5.5. Resource Abuse and Security
There has been a vivid discussion of the relationship between international or ‘national’ security and the environment from approximately the mid-1990s. In the discussion, two camps oppose each other, the traditionalists, who see security in terms of military threat, only, and the oppositionists, who take a broader view of security as a kind of “freedom” in accordance with the etymology of the term security, i.e. the Latin se (without) plus cura, without preoccupation for one’s life and property, in this context. The discussion is well summed up by Foster.[450] It may well be that the answer to the somewhat heated disagreement is to be found somewhere in the middle, viz. in the position that although the result of commodity abuse will not lead to international conflict—and here the “traditionalists” are right—such abuse will increase the probability and the severity of climate change, which, almost certainly, will lead to international conflict. Therefore, although the issue itself, i.e. that the result of resource abuse could lead to conflict, has perhaps not yet been treated at any length, one can arrive at the same conclusion in a more circuitous way, sc. by considering climate change, which to some degree is related to the result of commodity abuse. A consideration of climate change models must take into account the dichotomy between gradual and abrupt climate change. In the former instance, certain regions of the world, e.g. Northern Europe, Russia, Northern America, will be able to increase agricultural output since the growing seasons are prolonged, while other, more southern regions will suffer prolonged droughts. The main authority, IPCC,[451] does not believe the impact of the changes will reach the level of a threat to national or international security, inter alia because the gradual changes will provide the scientific community with sufficient time to develop a number of countermeasures, e.g. genetically modified grain better able to withstand drought. This relatively optimistic view might be dangerously complacent, since a series of data, e.g. the decrease in salinity in the North Atlantic, point to the possibility of more abrupt climate changes. These, in turn, will almost certainly have security implications. US scholars and members of the US intelligence community have recently studied the possible implications of sudden climate change in a report commissioned by the US Department of Defence. [452] Peter Schwartz and Doug Randall[453] use a climate model, which calls for a sudden rather than slower climate change, in order to evaluate the possible national security issues such change might have for the USA. The report claims that some scholars expect the scarcity of natural resources to cause war, while others think that it will be the trigger of conflict between countries, which already have a conflictual relationship with each other. However, all seem to agree that serious environmental problems are likely to lead to an increase in conflicts in the world. In the context of the present chapter it must be noted that such climate change, while on the one hand cyclical,[454]on the other is expected to be more sudden because of “global warming”. In summary form, the conclusion of this first major study is that paleoclimatic evidence, in particular from Greenland’s ice cap, paired with observations from 1965 to date of the decreasing salinity levels of the Northeast Atlantic, indicate that it is likely that the thermohaline cycle of the ocean’s global conveyor will collapse.[455] This will lead to a substantial lowering of the average temperature in North America and Europe, a temperature increase in Africa and South America, and a disruption of the monsoons in South East Asia, i.e. the somewhat counterintuitive result is that global warming will lead to the disruption of the ocean currents and thus to a substantial lowering of the average temperatures in the temperate parts of the northern hemisphere.[456] Based on recent data, in particular a noticeable decrease in salinity in the North Atlantic, the time horizon for such climatic events might be as short as 15-30 years. Although the authors concede that the predictive climatic models are far from perfect and that the scenario, as well as the time horizon indicated above, is extreme, they are far from impossible.

Box 6.2. Europe’s Cold Cycles
|Europe, for example, has recorded eight cold cycles in the ice in Greenland over the past 730,000 years and |
|reductions in the ocean conveyer are suspected of having caused such climate shifts. Three of those cycles are|
|of particular interest in the present context. |
|The most dramatic of the eight cycles happened about 12,700 years ago and was apparently caused by a collapse |
|of the thermohaline circulation. It led to a lowering of the temperature in Greenland by 27°F (15.1ºC) through|
|decadal drops of 5°F (2.8ºC). The cold weather persisted for 1,000 years. |
|The climatic model in the Schwartz and Randall report is adopted from the 100-year long cold cycle of 8,200 |
|years ago. The average temperature in Greenland fell by 5°F (2.8ºC) and a similar drop in temperature is |
|likely to have happened in the North Atlantic, freezing a number of rivers and severely decreasing |
|agricultural output. |
|The cold cycle closest to the present time is the so-called Little Ice Age, which lasted from 1300 to 1850. |
|The period “brought severe winters, sudden climate shifts, and profound agricultural, economic, and political |
|impacts to Europe”.[457] |

The question obviously is, which consequences such climate changes, were they to occur, would have on national security. Apart from migratory pressures,269 the study points to three major resource-related areas, which would be negatively impacted by such changes, sc. food, fresh water, and access to strategic minerals; this, in turn, leads to one of the conclusions of the report and an implicit policy recommendation is: “The most combative societies are the ones that survive”.[458] The temperate climate in Europe is made possible by the warm flows of the Gulf Stream. However, since the Gulf Stream is the North Atlantic arm of the thermohaline conveyor, a collapse of the conveyor would cause an immediate shift in the weather in Northern Europe and eastern North America.[459] As abrupt climate change lowers the world’s carrying capacity aggressive wars are likely to be fought over food, water, and energy. With time death from war, starvation, and disease will “decrease population size and thus re-balance with carrying capacity”.453 Countries with a high carrying capacity, as e.g. the USA and the EU, will, relatively speaking, adapt better to climate change since they possess the necessary economical weight to invest in “adaptive technologies”, for example to develop new crops and to increase agricultural, silvicultural and pescicultural productivity, in order to raise output while controlling input. The dichotomy between those areas better suited to resist climate changes and those less suited to do so will become a serious cause for resentment. The poorer countries will blame the richer ones, claiming that their elevated energy consumption has released greenhouse gasses such as CO2 and SO2 into the atmosphere, thus precipitating the climate changes. The richer countries will point to abuse of natural resources as a major contributing cause, since e.g. deforestation leads to desertification, which, in turn will aggravate the violent storms one may expect as a result of climate change. If such mutual recriminations were to commence, scientific data would not play a major part in the discussion, since facts would be overshadowed by perceptions.[460] Whilst it is clear that abuse of natural resources, such as deforestation, cannot in itself create climate change, it is certain that such abuse can be a contributing factor. This fact puts this activity in a new light and links resource abuse to national security. On the other hand, however, Carl Wunsch of MIT strongly disagrees with the thermohaline theory as briefly exposed above. He claims[461] that currents in the ocean are determined by surface wind phenomena and not by the thermohaline conveyor as suggested by many scholars, e.g. by Schwartz and Randall (2003). Peter Gleick is of the opinion that in case of sudden climate change, at first the constraints on food, water and energy will be managed by diplomatic, political, and economic means, as e.g. international conventions, embargoes, etc. In a second time, however, conflict will arise concerning the use of such, by then scarce, resources.[462] All three issues (diminished food production, decrease in fresh water supply due to, say, inundations and mud slides (often caused by desertification caused by deforestation), and limited access to strategic and by then scarce minerals will be influenced not only by sudden climate change, but also by depletion caused by conflict and greed. Irrespective of climate change, food production and access to fresh water will decrease also by land and resource abuse as e.g. deforestation leads to desertification and inundations with subsequent land slides. Strategic minerals will become scarce by depletion and access will be further restricted by conflicts in the extraction areas. In this context, it is of obvious importance that the concern for the environment in general and the climate changes in particular becomes the subject of discussion in as wide an audience as possible. The choice by the Nobel Prize Committee, on 12 October 2007, of Mr Al Gore and the experts of the IPCC as recipients of the Nobel Peace Prize for 2007 is highly significant, since—to the extent the Nobel Prize Committee can be seen as expressing, albeit on high level, the preoccupations and concerns of a large part of informed citizens of the world—this selection can be seen as a strong encouragement for governments to place climate and environmental concerns at the heart of their priorities. Furthermore, since the Nobel Prize allotted is that of Peace, it is clear that the Committee strongly links climate (and environmental) concerns with international security. The French newspaper Le Monde observes—in my view correctly—that the Nobel Peace Prize this year was not offered to a person or institution that had distinguished themselves in the resolution of a classical conflict, but that the Prize

attire l'attention sur de nouveaux types de menace à la sécurité internationale dont les gouvernements ont tardé à prendre conscience. Le changement climatique, le réchauffement de la planète est de ceux-là, comme l'accès aux sources énergétiques, le contrôle de l'approvisionnement en eau, etc. Des phénomènes considérés parfois comme "naturels" peuvent être à l'origine d'affrontements entre les peuples et les Etats tout aussi sanglants que les guerres de frontières menées par les nations européennes aux XIXe et XXe siècles.[463] [464]

6.6. Traffic in Arms and Illicit Logging
Arms dealers, be they individual businessmen, governments or quasi-governmental business entities, often trade in situations of direct or indirect barter; at the very least, they see natural resources as commodities providing their clients with the necessary funding for arms purchases. Although the link between the prevailing conflicts in West Africa and Liberian timber was obvious, the Security Council did not include timber in the sanctions imposed on Liberia, since France and China, which import a major part of Liberian timber, obstructed the UN Security Council on this point.[465] Interestingly enough, the French argument was that the ordinary Liberian people would suffer if timber sanctions were imposed. [466] An issue which has not attracted much attention is that of the armed militias employed by the timber companies. As funds originating from the forestry sector are used by local militias to purchase or barter weapons, in the same way such funds are used by timber companies to buy local armed militias. The trade in arms—and its relationship to illegal timber—is by its very nature secretive. A couple of the individuals involved in the traffic, i.e. direct or indirect barter arms against timber, have now become known to a wider public. The following examines one so-called Merchant of Death. Although he is a substantial violator, it is not known if he is the biggest or, indeed, if he is typical. Guus van Kouwenhoven is a Dutch businessman, born in 1943, who was close to former President of Liberia, Charles Taylor.[467] He was arrested in the Netherlands on 18 March 2005. Throughout the civil war, which raged for seven years in Liberia and caused the death of approximately 250,000 people, the parties to the conflict financed their war activities through overly exploiting and exporting the natural resources of the country. In particular, Charles Taylor used the funds generated by the excessive exploitation of timber and diamond extraction illegally to acquire large quantities of arms. In his position as Director of Operations of the Oriental Timber Company (OTC)[468] and of the Royal Timber Company (RTC) in Liberia, van Kouwenhoven managed the biggest timber operations in Liberia. Having very close relations with Charles Taylor, he facilitated the import of arms for the latter thereby infringing resolutions of the UN Security Council.[469] The United Nations consequently issued an order in 2001 banning Guus van Kouwenhoven from travelling, qualifying him as “an arms trafficker in breach of Resolution 1343 of the Security Council” in addition to being “someone who supported the efforts of ex-President Taylor in destabilising Sierra Leone to gain illegal access to its diamonds”. As indicated, supra, this individual was arrested in the Netherlands in March 2005. His arrest resulted from the cooperation between The Special Court for Sierra Leone, which had assisted Dutch investigators, and the Dutch authorities. In the case, in which he is a defendant, he seems to be accused of having delivered arms to Liberia in violation of UN sanctions and to be involved in war crimes committed in Liberia. It also seems to deal with his relationship with and employment of militia groups, whose main activity was the security of his timber companies, but who as such became involved in the civil war, which was then ravaging the country. According to the prosecution “the militias hired by the former timber companies belonging to this Dutchman, are accused of participating in the massacre of civilians not even sparing the life of babies. Guus van Kouwenhoven is accused of having supplied the arms to the militias to enable them to carry out these crimes”.[470] On 7 June 2006 in the Netherlands, he was sentenced to 8 years' imprisonment for arms smuggling, but was not found guilty of war crimes. Both the Public Prosecutor and Kouwenhoven are appealing the sentence. The following chapter highlights the issue of resource curse, in other words the situation where rich natural resources, which should have been a blessing to the local population, not only lead to organised crime, corruption of public institutions, and the creation of alleged religio-political groups, but also to a decimation of the population as relations between a local population and the central government develop into open and in this case violent hostility.
Chapter 7. Mineral Abuse: A Case Study in Bougainville

7.0. Introduction
This chapter serves to illustrate the concept of resource curse. It will assist for our present purposes, and perhaps generally, if we make more explicit our grasp of some uses of this expression by proposing that this denomination embraces the paradoxical situation where the natural resources of a country—instead of assisting in the development of that country—develops into a major detrimental force, a curse of the country. Chapter 6 examined one aspect of the abuse of natural resources, sc. deforestation. It will further our purpose to show, in this chapter, that not only can natural resources develop into a casus belli, but, as is the case in this chapter, the legitimate outsourcing of the exploitation of a natural resources by a central government, can become a bone of contention between the central government and a local population, leading, in this case, to the death of a considerable part of the latter. Bougainville is an island situated in the south-western Pacific at 6’ S, 155’ E, east of Papua New Guinea, which geographically belongs to the western Solomon Islands and politically to Papua New Guinea. The population of Bougainville was estimated at 109,000 in 1980. The city of Arawa is the island's administrative headquarters and the city of Kieta is where most of the island's commercial enterprise is found. From the early 1970s, an international mining company and the PNG government, in a venture in which the PNG held approximately 20%, exploited a major copper mine situated on the island. The local population claimed that the environment had been abused by the exploitation, that serious violations of human rights had taken place, and that these constituted ius cogens under international law. Although the alleged violations had taken place in a sovereign country, Papua New Guinea, a country formerly under territorial supervision by Australia, and although the accusations of the population were directed partly against the central government of the country and partly against the British and British-Australian multinational mining company, who held the mining concession rights in the area in question, the population, represented by a number of individuals, nevertheless brought a law suit in the United States under the United States Alien Torts Claim Act. The consequences of successful claims in US courts of this kind of cases involving, inter alia, vicarious corporate responsibility, and which have no relationship to the US at all, have implications that are difficult to fathom, partly of a political nature, since the United States implicitly is assuming an extraterritorial role in cases of this nature and partly as the number of future suits might be overwhelming since the United States will be chosen as forum considering the generous compensatory and punitive rewards typically awarded in US courts as compared with courts in the rest of the world. Unless the decision is overturned in a future certiorari test, one can presumably envision an avalanche of similar cases from around the world to be presented in US courts over the next, many, years. The United States will then, de facto, have turned itself into a kind of ultimate world appeals court for such cases. It is important to examine the history of this small island to assist in a better comprehension of the matter that arose on that island, cf. Timeline, annexe 1. Although at the independence, 1975, there were two parties in the PNG, respectively roughly left- and right-leaning, this dichotomy was crosscut by regional linguistic loyalties, economic interests, religious affiliations, and personal obligations. All four points can be summed up in one, sc. wantokism, from wantok, a pidgin derivation from the English One talk, i.e. one language.[471] On the neighbouring Solomon Islands, of which Bougainville is a part, geographically and culturally, but not politically, there are 87 languages. The number of languages spoken in Papua New Guinea itself is approximately 1,300 or 45% of all known languages in the world.[472] This diversity has persisted in the PNG and remains the defining issue for building a national identity.[473]

7.1. Natural Resources
A few years before Independence, in 1972, copper extraction began at Panguna, which with time became the largest open-cut copper mine in the world and one of the largest open-cut mines, overall. The mining rights had been accorded to an Australian firm, Bougainville Copper Ltd. (BCL), a subsidiary of the British company, Rio Tinto Zinc, RTZ,[474] the largest diversified mining multinational company in the world. A feeling of having been left out soon seized the inhabitants, who felt that all benefits from the very profitable mine accrued to the central government in Port-Moresby, while the local management of the mine engaged in unacceptable methods for the discarding of ore tailings by depositing these directly in the river system, which became polluted and unstable as prone to flooding. Bougainvilleans grew increasingly resentful of the fact that mining revenues went to RTZ[475] (eighty percent) and the national government (twenty percent), and that many of the mining jobs went to workers from other parts of PNG. Compounding matters, poisonous tailings and chemical pollutants stemming from mining operations destroyed local fisheries, contaminated drinking water, and undermined crop production, threatening the livelihoods of local landowners.[476] Accordingly, on the islanders’ view, the advantages, within Papua New Guinea, went to the central government in Port-Moresby and the disadvantages, including a stark reduction in the local population’s possibility of exploitation of the river system to provide their living, fell on the island. In fact, over the seventeen years—1972 to 1989—the mine was active, its open pit developed into covering some 400 hectares and, in the same period, generated one billion tonnes of ore tailings.[477] According to Miriori of the Bougainville Information Office in neighbouring Salomon Islands, anecdotal evidence indicates that one river system became light blue and was biologically dead.[478] On Bougainville, such sentiments were superimposed on the collective memory of two centuries of foreign domination, German, British and Australian, and led to a secessionist guerrilla war, which lasted from 1988 to the late 1990s. Summed up by Miriori, the grievances of the Bougainvilleans were:

• The environmental destruction caused by the huge opencast mine. • The increasing implantation of Papua New Guineans in Bougainville. • A cultural break-down. • Lack of government funding. • The growing political power of the Papua New Guinean state, "built with Bougainvillean finance”,[479] over people and resources on Bougainville.

It should be noted, en passant, that the majority of these grievances are not of the same order and do not at all reflect the types of issues later presented during the ATCA suit in the United States, cf. below, section 7.3. Other scholars, e.g. Pascal Boniface,[480] maintain that the cause of the conflict was that the inhabitants of Bougainville, an island he described as "a mountain of copper”, did not wish to share their—relative—richness with the relatively poorer inhabitants of the rest of the country, i.e. of Papua New Guinea.

7.2. The Secession
In 1989, after a series of sabotage acts, the copper mine at Panguna closed. The Bougainville copper represented in 1989, the year the mine was closed, forty-five percent of all exports from the PNG and seventeen percent of the total revenue of the central government. In April 1990, the PNG military and civil service had to leave the island, and on 22 April 1990, the PNG central government declared a total blockade against Bougainville. Approximately 10,000 Bougainvilleans or 5-10% of the population were killed in the course of the civil war.[481] In 1997, after several unsuccessful attempts to land government troops on the island it became clear to the government of Papua New Guinea that a military solution could not be deemed to be an option at that time, considering the equipment, troops and military training available. In a desperate attempt to find a solution, the Prime Minister, Sir Julius Chan, retained a private military company, Sandline, to plan and lead an invasion of Bougainville. However, the senior officers of the PNG military establishment revolted and the military action was called off. PNG refused payment of the second instalment and Sandline's claim was referred to international arbitration, which the PNG lost. After intense diplomatic activity by New Zealand and Australia, a cease-fire was finally agreed in 1998 leading, in March 2002, to a declaration by the Parliament of PNG of autonomy for Bougainville and stating that a referendum on independence would be held ten to fifteen years later.[482] Once the PNG military could return to the island, they destroyed a number of dwellings and created "care centres", i.e. de facto concentration camps, which contained upwards of 24,000 persons. The secessionist crisis should also be seen on the background of a conflict between a Western juridical view, which by regal (sovereign) rights accords the property ownership of subsoil assets to the national government, while customary (tribal) law sees soil and underground as one. The guardians of the traditional view in Bougainville were in particular the women, since the society is matrilineal and the women the traditional land-owners. Although, initially, the latter point might not appear of great import in the present context, i.e. if society was matri- or patrilineal, yet the subsequent dealings with a western patrilineal legal concept set, which diluted the traditional matrilineal role in property ownership, put severe strain also on the traditional, cultural welfare of the population and led to a partial break-down of the value system that organised society and the relationship between generations within society. To complicate matters, the Melanesian business concept includes re-negotiation of the distribution of profits, e.g. from a mining concession, even after the signature of a contract. On this point the inhabitants encountered the Western juridical culture of the Australian and British owners of the mining rights. The result, obviously, was incomprehension on both sides.[483] The local community, i.e. the local landowners, in April 1988 lodged a claim for kina 10 x 10E9 or US$5.3 x 10E9 at the exchange rate prevailing on 10 April 1988 of kina 1.00 = US$ 1.8813.[484]

7.3. Sarei v. Rio Tinto
The so-called Sarei case, which was brought in the United States in 2002 under the Alien Tort Claims Act (ATCA) of 1789 (28 USC §1350), has developed into a so-called landmark case. Cf. Annexe 3 to this chapter for the iter of the case. In 2002, a number of plaintiffs from the PNG brought a claim at the District Court of Central California under ATCA alleging that they or their family members were victims of international law violations committed in connection with the operations of a copper mine in the PNG by the mining company Rio Tinto Ltd.[485] The District Court found that the plaintiffs had stated cognisable ATCA claims for racial discrimination, crimes against humanity and violations of the laws of war, but dismissed the claims with reference for one claim to the state action doctrine and for the rest to the political questions doctrine. The plaintiffs appealed. In a significant ruling in 2006,[486] which is ground-breaking, but the future consequences of which are not easily ascertained, unless the case is reversed in a possible certiorari, the US Ninth Circuit (Central California) overturned the decision of the 2002 trial court and ruled, inter alia, that (i) ius cogens claims are actionable under the US ATCA as per Sosa v. Alvarez-Machain,[487] (ii) violations of UNCLOS (United Nations Convention of the Law of the Sea) claims are not necessarily ius cogens claims, but the widespread ratification of that treaty can provide the basis for an ATCA claim; (iii) corporations can be held vicariously liable for violations of ius cogens norms, (iv) ius cogens violations cannot be "official acts" under the act of state doctrine, and (v) ATCA does not require that claimants exhaust local remedies. The defendant in the case, Rio Tinto PLC, then submitted a petition for rehearing and rehearing en banc, which the Appeals Court (9th Cir.) granted on 12 April 2007. The most important finding of the 2007 court was that (aliens’) “nonfrivolous claims against international mining company for vicarious liability for violations of jus cogens norms were actionable under ATCA”. It seems logical that ius cogens norms should be actionable under ATCA since States are justified “in asserting universal civil jurisdiction for the purpose of enforcing civil remedies for breaches of peremptory norms”.[488] As, more narrowly, concerns the ATCA, in US case law, sc. in Trajano v. Marcos,[489] the court was faced with the plea that ATCA did not cover acts of torture having no nexus with the United States. The court felt constrained by what the statute showed on its face: “no limitations as to the citizenship of the defendants, or the locus of the injury”. Inversely, the Appeals Court referred the plaintiffs’ claims under UNCLOS back to the District Court for reviewed consideration with reference to the state act doctrine. One can infer from this that had the court thought UNCLOS part of ius cogens, it would not have accepted the state act doctrine argument, as this would have been nullified by the peremptory character of ius cogens. Rather, the court took the view that that the UNCLOS—because it had been widely ratified—was part of customary international law, but not necessarily or not yet ius cogens. Finally, the court touched upon the very interesting question of exhaustion, in other words should plaintiffs have exhausted all local remedies before seeking relief in the United States under ATCA? The court discussed the question at length before answering in the negative. However, what is striking, one would have thought, is that “exhausting all local remedies” must mean that plaintiffs, in this argument, should have sought relief locally against defendant. A more interesting question, surely, must be if a court should accept as actionable a plea for vicarious liability, when no attempt, whatsoever, has been made to establish direct liability. In the case at hand, plaintiffs should reasonably have sought relief against the party directly responsible for the imputed acts, sc. the PNG Defence Force, rather that the private part, on whose behalf such acts allegedly were committed. Keeping in mind that the alleged violations had not occurred on US territory, that the corporations, against which the claims were made, were not incorporated in the USA, and that the claimants were not US nationals, one can presumably envision an avalanche of similar cases to be presented to US courts over the next, many, years.

Chapter 7, Annexe 1

Timeline: Bougainville

|30,000 BC (approx.) |The island of Bougainville was populated, probably by migration from New Ireland |
|1500 AD (approx.) |300 – 400 years ago a further immigration wave arrived on the islands, but from what is now |
| |Papua/Papua New Guinea.[490] |
|1768 |Discovery of Buka (Bouka) and Bougainville by Louis Antoine Bougainville. |
|1800s |The Netherlands occupied the western half of the island of the present Papua/Papua New Guinea |
|1884 |Germany takes over the north-eastern and Great Britain the south-eastern quadrant of present |
| |Papua/Papua New Guinea |
|1899 |Exchange of letters between Germany and Great Britain, whereby Bougainville was separated from the |
| |rest of the Solomon Islands and attached to the north-eastern quadrant of Papua New Guinea (then |
| |held by Germany) against German concessions re the settlement of Samoa. |
|1906 |Britain transfers the south-eastern quadrant, Papuasia, to Australia |
|1914 |1914 Australian forces occupied also the German part, i.e. the north-eastern quadrant, and thus |
| |possessed the eastern half of the island, including Buka and Bougainville. |
|1918 |After the defeat of Germany in WW1, the German territories, collectively called New Guinea, became |
| |part of a League of Nations mandate and were placed under Australian administration along with the |
| |Australian territory of Papua (1920) |
|1945 |After a Japanese occupation in the Second World War 1942-1944, the island of Bougainville was |
| |returned to Australian administration as part of the UN Trust Territory of Papua New Guinea. |
|1962 |Australia was rebuked by the United Nations for the slow progress toward independence.[491] |
|1964 |Australia creates the House of Assembly in Papua New Guinea, in which Bougainville received one |
| |seat |
|1966 |The rich mineral deposits at Panguna were discovered in 1960. The Australian colonial authorities |
| |reportedly dealt very harshly with the inhabitants, who were forced off their land without |
| |compensation, and homes, gardens, traditions, etc. were destroyed. In 1966, the Australian colonial|
| |administration of the Territory of Papua and New Guinea forced the Bougainvilleans to accept the |
| |opening of the Panguna mine, which was to bring profit to the company (CRA) and shareholders, but |
| |also assist Australia in funding the administration of the Territory.[492] |
|1972 |BCL initiates operations (however, preliminary work had been going on from 1966) |
|1974, |As part of an expansion of autonomy, Bougainville, the neighbouring Buka island, and a few atolls |
|July |were formed into the North Solomons Province |
|1975, |PNG independent; Bougainville and Buka remain the North Solomons Province, as part of the new |
|16 September |nation-state PNG |
|1979 |Creation of the Panguna Landowners’ Association (PLA) – formed to facilitate the relationship |
| |between locals and the mining company. |
|1988 |The New Panguna Landowners’ Association (New PLA) breaks away from the Panguna Landowners’ |
| |Association. It is headed by Francis Ona. |
|1988 |Creation of BRA, headed by one Sam Savona, a former PNGDF officer. The BRA had its origin in the |
| |New Panguna Landowners' Association. |
|1988, November |BRA attacks—sabotage—against BCL commence |
|1989, |BCL close down |
|15 May | |
|1990, |Cease-fire agreed; effective March 2, 1990; total blockade of goods and services by PNG |
|February | |
|1990, |The Bougainville Revolutionary Army declares Bougainville independent and forms the Bougainville |
|17 May |Interim Government (BIG). |
| |BIG consists of |
| |Francis Ona, President, Republic of Bougainville |
| |Sam Kauona, Minister of Defence |
| |Joseph Kabui, Minister of Justice |
|1997, |In accordance with agreement of January 1997, the private military company Sandline sets up an |
|March |operational HQ in Papua New Guinea to commence planning of a military invasion of Bougainville. The|
| |PNG Defence Force rebels and Sandline has to leave the PNG. |
|1998, |Cease-fire brokered predominantly by New Zealand and Australia |
|2001 |Peace Agreement |
|2002, |The PNG parliament approves autonomy status for Bougainville |
|March | |
|2005, |Election of first autonomous government of Bougainville headed by Joseph Kabui |
|15 June | |
|2005, |Francis Ona dies after a short illness |
|25 July | |
|2008, |Acerbic discussions between PNG central government and the ABG; ABG will have supervisory powers |
|February |over mining in Bougainville, but wants full ownership, which the central government is not willing |
| |to relinquish[493] |
|2015-2020 |In accordance with peace agreement of 2001, referendum on independence will be held |

Chapter 7, Annexe 2
Rio Tinto Corporate Structure

(Relevant parts, only)

[pic]

RTZ: Rio Tinto Zinc PLC (UK). In 1997, the RTZ Corporation PLC changed its name to Rio Tinto plc, cf. next page
CRA: Conzinc Riotinto of Australia Ltd
BCL: Bougainville Copper Ltd.
Rio Tinto

is the group name for the international mining group headquartered in London, which consists of two incorporated companies:

• Rio Tinto plc, listed in London[494] • Rio Tinto Ltd, listed in Australia

The consolidated results are:

Rio Tinto, 2002 – 2006 (US$ x 10E6)
|Year |Revenue |Pretax Earnings[495] |Pretax/Revenue |
| | | |(%) |
|2002 |10,828 |3,844 |36.5 |
|2003 |11,755 |3,764 |32.0 |
|2004 |14,530 |6,111 |42.1 |
|2005 |20,742 |9,739 |47.0 |
|2006 |25,440 |12,566 |49.4 |

Chapter 7, Annexe 3

Sarei v. Rio Tinto: Iter

[pic]

Chapter 8. Conclusions
The thesis is multi-disciplinary and it applies a hybrid methodology to the subject-matter, inter alia a novel approach by the use of network, scaling, and complexity theories. Nevertheless, I have aimed to devise various means to achieve a synthesis of these elements, which, hopefully, will be of further use beyond the thesis for other currently emerging and future threats and problems. The eight chapters of the thesis are permeated by my formulation of the concept of deviant knowledge, of which wilful blindness is taken to be a subset. Taking its point of departure in the concept of Good Governance, that I take to involve both cause and effect of ethics, the thesis has examined the typical ways in which international flows of non-declared origin may interact with governance. The thesis questions not only the efficacy of but also the officially proposed reasons for the methods presented to counter such flows. An example is that of money laundering. Although the appreciation of acceptable and non-acceptable criminal behaviour to a large degree is subjective, one might contend that it is not money laundering but the underlying predicate crimes that constitute a potential threat to society. Second, most informed observers agree that the application of costly and invasive anti-money laundering measures has not contributed to a decline in predicate crime. Furthermore, the thesis calculates the monetary cost of this failure at approximately $7 x 10E9 p.a. for the United States alone and approximate $19 x 10E9 p.a. for the OECD countries, cf. section 5.3. The intrusion into and violation of totally innocent citizens’ privacy rights are immense. A further exemplification of deviant knowledge is presented in paragraph 5.1.1. §1, when it is noted that a major US bank was sentenced to pay fines and cost in a very major money laundering case of 0.12% of the funds that had transited its accounts. It is submitted that this amount (0.12%) represents less than the income which the bank accrued from the transactions (fees, commissions, short-term lending interest gain). Also the very rigorous provisions planned for the countering of the illicit traffic in a licit product, namely tobacco, would appear to be exaggerated. While on the one hand one can easily understand that individual governments attempt to claw in duties and taxes they have imposed on individuals or on product, two questions can reasonably be asked, sc. (i) to which degree have governments themselves created the tendency to evade such duties, and (ii) to which degree and by which means should governments go to investigate such evasion. Norms that are seen to be unreasonable, as for example the exaggerated revenue-generating import and sales duties on tobacco product, are by their very nature criminogenic, since unreasonable provisions will be tacitly and openly violated by a large proportion of a population and invite a not unreasonable norm disobedience. Cf. 4.4.6. Observing the very substantial legal remedies being put in place in simple cases of violation of revenue regulations, one cannot but point to the far more important subject of commercial sexual exploitation of children. The paltry results obtained, on international level, in this serious area are in stark contrast to the measures proposed when the issue is not the lives of innocent children, but government revenue. The thesis argument is examined in the context of the abuse of the environment deviant knowledge. The thesis notes that international financing by governmental or quasi-governmental Export Credit Agencies can be directed at illicit resource extraction activities, since the vast majority of such agencies do not have environmental standards as part of their lending criteria. The thesis documents the role played by the PRC in the international trade of illicit forest product and the connected concerns that the attitude of Western importing countries is an exemplification of the concept of deviant knowledge or, more precisely, its subset, wilful blindness. Subsection 6.1.1 considers the economic agents, who are part of the commerce of illegal forest product, organised crime. One of the main conclusions of the thesis is that (i) beginning in the mid-1980s the currency component of the US M1 started expanding; (ii) there is no domestic (US) explanation for this expansion, and (iii) the use of US dollar notes to settle overseas illegal transactions of various kinds best explains the phenomenon. The attitude of the US authorities, who acknowledge the use of “expatriate US currency” but without accepting the probable use in illegal trading, is another exemplification of deviant knowledge.[496] Finally, a main conclusion is that terrorism financing and the accrual of revenue by organised crime to a large degree are based on a constant trickling flow originating from crime that is mostly considered minor. This conclusion builds on information on retail fencing (Texas), armed robbery (Denmark), and the implantation of Chinese organised crime in Italy. The thesis also proves the management talent and speed of execution exhibited by organised crime in a mimesis of legitimate transnational enterprises. Much research still needs to be done in this area. First priority attention should obviously be directed against particularly heinous crimes, which raise monetary funds of non-declared origin, such as commercial sexual exploitation of children; nevertheless, I would suggest that backing away, so to speak, from the crimes themselves to achieve a satisfactory analytical perspective by using scaling theory (chapter 3) would allow one new perceptual approaches. As an example, a fine-tuned mapping of intra-national wars against the expansion or contraction of money supply in the major Western economies could ascertain if a correlation exists or not between such wars and the money supply. Similar models could consider the major illegal traffics in world, based on such information as is available, in relation to money supply. Although it is a truism that money is fungible, yet one thing remains certain, sc. that settlement of illegal trades must be made; that the trust level in such milieux is rather limited; and that cash therefore remains a favourite means of payment. Only via the money supply can we procure an approximate idea of the level of activities in the illegal international markets. So-called financing of terrorism is an issue which seems to retain the attention of policy makers and scholars alike. I am of the opinion that studies in that area repose on two false premises. First, that the terrorism implied by “funding of terrorism” is of the ilk we have known in the West since the 1970s. Secondly, that such funding, if it exists, consists in large monetary transfers from more or less mysterious backers (individuals or countries) to the West, in particular to the USA. As pointed out in the thesis, section 5.5, I am of the firm opinion that “terrorism” is mostly funded by a constant sprouting of many small taps, and secondly that a large part of such funding is destined for keeping large militia-type armies in the field, e.g. the Hezbollah in the Lebanon. Apart from the information obtained in the course of my field research on the thesis, as well as the singular observation that the greatest difficulty facing European rulers at least from the Renaissance was how to pay a standing (often mercenary) army, it would seem self-evident for us to inquire as to how the militias throughout the Middle East are funded. And that obviously entails that the bulk of such funding follows the route West-East and not the opposite, as seems to be the preferred official thesis, since the bulk of terrorist funding is needed in the Middle East and elsewhere—e.g. in Mindanao, the Philippines—rather than in the Occident. Again, the concept of deviant knowledge is highly visible, underpinned by a series of political considerations, which, as Bismarck would have noted, are domestic in nature rather than international (Bismarck: "All politics are local politics"). This same area, however, profitably lends itself to an in-depth application of the scaling and complexity (in particular self-organised criticality) theories, which are proposed in the body of the thesis. In summary, this thesis examines the impact on Good Governance of the use of deviant knowledge in such areas as money laundering and terrorist financing, and its severely damaging effects in the abuse of the environment. Concurrent with this examination, the thesis proposes the use of intelligence at a fundamental rather than at an actionable level as a suitable resource for constructing a methodology to obtain sounder and more robust knowledge, and it scrutinises the potential instrumentality of this methodology in the interdiction efforts undertaken in areas of particular concern, e.g. drug trafficking and the financing of terrorism. Finally, while the thesis regards the obstinate insistence on inefficient supply-side interdiction with some concern, yet it proposes the creation, on international level, of databases, e.g. within the forestry field. This proposal presupposes the acknowledgement that the area of illicit logging is a prime example of the use of deviant knowledge, and it therefore posits a pragmatic intelligence tool, thereby perhaps—since the interests involved are very important—countering this unacceptable and undignified use of wilful blindness in the continuing importation into the Occident of illicitly harvested forest product.

Vale libellus

APPENDICES
APPENDIX 1

ABBREVIATIONS & ACRONYMS

|Acronym |Meaning |

|A/c |Account |
|ABG |Autonomous Government of Bougainville |
|AED |United Arab Emirates Dirhams |
|AFP |Australian Federal Police |
|AML |Anti-Money Laundering (regime) |
|APG |Asia/Pacific Group on Money Laundering |
|ARA |Assets Recovery Agency (UK) |
|ATCA |(US) Alien Tort Claims Act (28 U.S.C. §1350) |
|BAT |British American Tobacco p.l.c. |
|BIG |Bougainville Interim Government |
|BRA |Bougainville Revolutionary Army |
|C.D.Cal. |Central District of California (jurisdiction) |
|CDD |Customer Due Diligence (AML regime) same as KYC, Know Your Customer |
|CFATF |Caribbean Financial Action Task Force on Money Laundering |
|CFT |Combating the Financing of Terrorism |
|CoE |Council of Europe |
|CPB |Communist Party of Burma |
|CSEC |Commercial Sexual Exploitation of Children |
|CTF |Combating Terrorist Funding |
|DoJ |Department of Justice (US) |
|EAG |Eurasian group on combating money laundering and financing of terrorism |
|EGC |Eurasian Group on Combating Money Laundering and Financing of Terrorism |
|ESAAMLG |Eastern and Southern Africa Anti-Money Laundering Group |
|FATF |Financial Action Task Force. Created by G-7, 1989 |
|FCTC |(WHO) Framework Convention on Tobacco. Adopted May 2003; entered into force 27 February 2005 |
|FDI |Foreign Direct Investment |
|FinCEN |Financial Crimes Enforcement Network (US Treasury Department) |
|FIS |Financial Intelligence Service |
|FISA |US Foreign Intelligence Surveillance Act (FISC: Foreign Intelligence Surveillance Court) |
|FIU |Financial Intelligence Unit (AML regime) |
|FRCO |Federal Reserve Cash Office |
|FTO |Foreign Terrorist Organisation |
|GAFISUD |Regional Task Force on Anti-Money Laundering in Latin America |
|GDP |Gross Domestic Product |
|HK |Hong Kong |
|HSBC |Hong Kong and Shanghai Banking Corporation. For more than a century incorporated in Hong Kong. |
| |Now incorporated in London |
|I$ |International dollars, I$, has the same purchasing power of total GDP as the US dollar in a |
| |given year |
|ILO |International Labour Office |
|IMF |International Monetary Fund |
|International dollar |= Geary-Khamis dollar, q.v. |
|IPCC |Intergovernmental Panel on Climate Change |
|IRA |Irish Republican Army |
|KYC |Know Your Customer (AML regime) same as CDD, Customer Due Diligence |
|M (1, 1c, 2) |Money Supply. M1: Physical money such as coins and currency, demand deposits, and negotiable |
| |orders of withdrawal accounts). M1c: The currency component of M1. |
| |M2: M1 plus all time-related deposits, savings deposits, and non-institutional money-market |
| |funds |
|MENAFATF |Middle East & North Africa Financial Action Task Force |
|MER |Mutual evaluation report |
|ML |Money laundering |
|MLCA |Money Laundering Control Act of 1968 (USA) |
|MLTA |Money Laundering Threat Assessment (US, interagency, 2005) |
|NCCT |Non-Cooperative Countries and Territories (FATF) |
|NMLS |National Money Laundering Strategy (so far: 1999-2003; 2007) |
|NTFP |Non-Timber Forest Product |
|NYC |New York City |
|OC |Organised Crime |
|ONCB |Office of the Narcotics Control Board (Thailand) |
|OTC |Over the Counter, i.e. pharmaceuticals sold without a prescription |
|PNG |Papua New Guinea |
|PNGFD |Papua New Guinea Defence Force |
|POS |Point of Service |
|PPP |Purchasing Power Parity; the number of currency units required to buy goods equivalent to what |
| |can be bought with one unit of the base country (e.g. with one US dollar) |
|PRC |People’s Republic of China |
|SILIC |Severely Indebted Low-Income Countries |
|SPILO |South Pacific Islands Liaison Officer (AFP official) |
|STR |Suspicious Transaction Report |
|TOC |Transnational Organised Crime |
|TT |Telegraphic Transfer |
|Type I |Conflict financed and sustained through the harvest and sale of forest products |
|Conflict | |
|Type II |Conflict which emerges as a result of competition over forest resources |
|Conflict | |
|Type III |Conflict emerges as a result of the – intended or unintended – consequences of abuse of the |
|Conflict |environment, where these lead to adverse situation for other party. |
|UAE |United Arab Emirates |
|UN |United Nations |
|UNCLOS |United Nations Convention of the Law of the Sea |
|UNDCCP |UN Office for Drug Control and Crime Prevention |
|UNDCP |United Nations Drug Control Programme |
|UNDP |United Nations Development Programme |
|UNEP |United Nations Environment Programme |
|UNICEF |United Nations Children’s Fund |
|UNODC |United Nations Office on Drugs and Crime |
|UNSC |United Nations Security Council |
|UNSCR |United Nations Security Council Resolution |
|USAID |United States Agency for International Development |
|WB |World Bank |
|WEO |World Economic Outlook. (Twice-yearly IMF publication) |

APPENDIX 2

FDI. Five-Year Totals. 12 European Countries.[497]

$ x 10E6 | |1975 |1980 |1985 |1990 |1995 |2000 |2005 | |
Austria |Inwards |738.6 |597 |1106.1 |1775.5 |5684.9 |16491.4 |26149.8 | | |Outwards |141.6 |342.8 |709.9 |1799.7 |7138.5 |11095.9 |30120.8 | | |Total flows |880.2 |939.8 |1816 |3575.2 |12823.4 |27587.3 |56270.6 | |
Belgium* |Inwards |2984 |5667.2 |6082.5 |16369 |47958.7 |179134.3 |282390.5 | | |Outwards |2984 |5667.2 |6082.5 |16369 |47958.7 |179134.3 |282390.5 | | |Total flows |4289 |8622.5 |6960.8 |31441.1 |78226 |357165 |570009.8 | |
Denmark |Inwards |845 |465.8 |382.2 |1960.7 |10421 |32237.2 |43878.4 | | |Outwards |335 |422.9 |753 |4498 |11105 |31262.3 |34582.1 | | |Total flows |1180 |888.7 |1135.2 |6458.7 |21526 |63499.5 |78460.5 | |
Finland |Inwards |128 |234.1 |344.2 |1732.9 |3390.6 |21039.7 |26757 | | |Outwards |203 |316.8 |986.2 |7787.5 |7534.2 |35641.8 |36412.6 | | |Total flows |331 |550.9 |1330.4 |9520.4 |10924.8 |56681.5 |63169.6 | |
France |Inwards |4775.7 |9436.5 |11140.8 |29864.8 |80740.8 |146338.6 |217822.8 | | |Outwards |2982.6 |8098.4 |14782.3 |47048.5 |89574.7 |257227.9 |424538.2 | | |Total flows |7758.3 |17534.9 |25923.1 |76913.3 |170315.5 |403566.5 |642361 | |
Germany* |Inwards |8067.2 |6296.7 |3626.6 |11513.3 |13103.2 |111511.7 |300391.9 | | |Outwards |8141.8 |16047.6 |20619.1 |54084.3 |101827.6 |329165.2 |135836 | | |Total flows |16209 |22344.3 |24245.7 |65597.6 |114930.8 |440676.9 |436227.9 | |
Italy |Inwards |3108.5 |2773.7 |4831 |14404.2 |18018.8 |24504.5 |76020 | | |Outwards |1220.9 |1760.4 |7004.7 |12991.5 |33217.2 |47240.2 |79243.8 | | |Total flows |4329.4 |4534.1 |11835.7 |27395.7 |51236 |71744.7 |155263.8 | |
Netherlands |Inwards |4362.2 |5216.1 |5769.2 |18777.3 |36063.9 |118244.9 |166462.5 | | |Outwards |9182 |17577.5 |17684.3 |35311.1 |66796.9 |170889.6 |228850.9 | | |Total flows |13544.2 |22793.6 |23453.5 |54088.4 |102860.8 |289134.5 |395313.4 | |
Norway |Inwards |834 |2250.5 |1292.8 |3162.7 |4966 |20326.9 |16018.6 | | |Outwards |262 |598.7 |1688.1 |6181.6 |6754.2 |22624.8 |27452 | | |Total flows |1096 |2849.2 |2980.9 |9344.3 |11720.2 |42951.7 |43470.6 | |
Sweden |Inwards |418.2 |348.7 |1430.3 |5633.5 |18478.9 |111649.4 |62947 | | |Outwards |1376.1 |2801.1 |5891.1 |28322.1 |30268.7 |75185.8 |101758 | | |Total flows |1794.3 |3149.8 |7321.4 |33955.6 |48747.6 |186835.2 |164705 | |
Switzerland* |Inwards |0 |0 |806.8 |7774.7 |11820.9 |32596.8 |51823.4 | | |Outwards |0 |0 |1631.4 |25027.7 |39329.1 |98137 |112911.6 | | |Total flows |0 |0 |2438.2 |32802.4 |51150 |130733.8 |164735 | |
U.K. |Inwards |11563.7 |21008.2 |26246.9 |77672.6 |84837.3 |239931.6 |268158.1 | | |Outwards |15040.6 |30865.9 |34009.4 |132041.2 |110328.5 |463462.1 |474372.9 | | |Total flows |26604.3 |51874.1 |60256.3 |209713.8 |195165.8 |703393.7 |742531 | |
Europe -12 Countries |Inwards |37825.1 |54294.5 |63059.4 |190641.2 |335485 |1054007 |1538820 | | |Outwards |40190.6 |81787.4 |106637.8 |370165.3 |534141.9 |1719963 |1973698 | | |Total flows |78015.7 |136081.9 |169697.2 |560806.5 |869626.9 |2773971 |3512518 | |
Notes: “Belgium:” includes Luxembourg; “Germany:” until 1990 only the Federal Republic of Germany. “Switzerland:” includes Liechtenstein; data only available from 1983.
APPENDIX 3

Five-Year Geometric Means of Growth in Trade. For 2001-2003 Only Three Years[498]

|1955 |1960 |1965 |1970 |1975 |1980 |1985 |1990 |1995 |2000 |2003 | | | | | | | | | | | | | | |Austria |10.5 |8.1 |8.4 |12.9 |22.2 |13 |6 |13.2 |6.4 |3 |14.4 | |Belgium-Luxembourg |4.4 |4.7 |11.5 |11.9 |22.8 |11.5 |3.1 |11.6 |6.8 |2.1 |17 | |Denmark |5.5 |7.1 |9.8 |8.7 |21.1 |9.3 |5.6 |9.1 |6.7 |0.5 |13.8 | |Finland |1.5 |5.9 |7.9 |9.9 |21.6 |15.5 |2.3 |7.2 |8.6 |2.3 |13.5 | |France |3.1 |6.2 |10.3 |13.1 |23.5 |13.5 |2.3 |12 |4.9 |2.8 |10 | |Germany |16.2 |9.9 |10.1 |13.8 |21.1 |12.3 |5 |12.8 |4.4 |1.5 |55.1 | |Italy |6.9 |12.1 |12.1 |13.3 |21.2 |16.1 |2.8 |12.4 |5.5 |0.9 |12.9 | |Netherlands |7.9 |7.4 |9.4 |14.6 |22.3 |11 |3 |10.7 |7.8 |3.1 |11 | |Norway |5.8 |5.1 |9.3 |10.8 |23.5 |12.2 |2.5 |9.2 |7.4 |1.6 |12.1 | | Sweden |3.2 |6.4 |9.3 |10.4 |21.3 |8.6 |4 |8.5 |7.6 |-1.8 |16.6 | |Switzerland |5.4 |8.2 |8.8 |12.6 |18.1 |14.3 |6.4 |10.3 |3.3 |2 |11.4 | |United Kingdom |1.7 |3.4 |5.7 |7.9 |17.1 |15.2 |2.6 |11.1 |6.7 |2 |9.4 | |Total for 12 countries |5.7 |6.8 |9.3 |12 |21.1 |13 |3.6 |11.6 |5.8 |1.8 |13 | |

Cf. Chart 2.2

APPENDIX 4

Trade as Percentage of GDP, 12 European Countries, 1950 - 2001

1950 |1951 |1952 |1953 |1954 |1955 |1956 |1957 |1958 |1959 | |3.3 |4.4 |4.2 |3.9 |4 |4.2 |4.5 |4.7 |4.3 |4.5 | | | | | | | | | | | | |1960 |1961 |1962 |1963 |1964 |1965 |1966 |1967 |1968 |1969 | |4.9 |5 |5.1 |5.4 |5.7 |6 |6.3 |6.4 |6.7 |7.4 | | | | | | | | | | | | |1970 |1971 |1972 |1973 |1974 |1975 |1976 |1997 |1978 |1979 | |8.3 |9 |10.4 |13.6 |17.9 |18.9 |20.3 |66.4 |26.1 |32 | | | | | | | | | | | | |1980 |1981 |1982 |1983 |1984 |1985 |1986 |1987 |1988 |1989 | |37.2 |33.6 |31.8 |30.3 |30.1 |30.7 |36.2 |42.7 |31.5 |47.2 | | | | | | | | | | | | |1990 |1991 |1992 |1993 |1994 |1995 |1996 |1997 |1998 |1999 | |56.5 |55.7 |57.4 |51.9 |57.1 |67.8 |68.3 |66.4 |66.7 |67.5 | | | | | | | | | | | | |2000 |2001 | | | | | | | | | |68.2 |66.4 | | | | | | | | | |

APPENDIX 5

Trade as Percentage of GDP. 12 European Countries. 1950 – 2001

1954 |1959 |1964 |1969 |1974 |1979 |1984 |1989 |1994 |1999 |2001 | |3.9 |4.4 |5.2 |6.5 |11.4 |29.2 |32.5 |37.1 |55.7 |67.3 |67.3 | |

Quinquennial geometric means. Cf. Chart 2.3

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B. Chapters
Andreas, Peter
1999 Smuggling Wars: Law Enforcement and Law Evasion in a Changing World, in Tom Farer (ed.), q.v.
Baker, Estella
2003 The legal regulation of transnational organised crime: Opportunities and limitations, in Adam Edwards and Peter Gill, q.v.
Bergeron, James Henry
1998 Europe’s emprise: Symbolic economy and the post-modern condition”, in Fitzpatrick and Bergeron, q. v.
Bohman, James and William Rehg
2009 Jürgen Habermas. In Zalta (ed.), q.v.

Collier, Paul
2000 Doing Well out of War: An Economic Perspective. In Mats Berdal and David M. Malone (eds), q.v.
Duffield, Mark
2000 Globalization, Transborder Trade, and War Economies. In Mats Berdal and David M. Malone (eds), q.v.
Feige, Edgar L.
1994 The Underground Economy and the Currency Enigma. In Pommerehne (ed.), q.v.
1996b Overseas Holdings of U.S. Currency and the Underground Economy. In Susan Pozo (ed.), q.v.
Friman, H. Richard and Peter Andreas
1999 Introduction: International Relations and Illicit Global Economy. In Friman and Andreas, q.v.
Gantzel, K. J.
1997 War in the Post-World-War-II-World: Empirical Trends, Theoretical Approaches and Problems on the Concept of ‘Ethnic War. In David Trenton (ed.), q.v.
German, Michael
2005 Squaring the Error. In Boyne, German, Pillar, and Owens, q.v.
Kahl, Colin
2005 Plight or Plunder? Natural Resources and Civil War. In Dombrowski (2005), q.v.
Keen, David
2000 Incentives and Disincentives for Violence. In Berdal and Malone (eds)(2000), q.v.
Lambert, Richard
1999 International Co-operation Against Drugs and Crime: Are Societies Losing the War?” in Jennings and Hopkinson (1999), q.v.
Levi, Michael
2002 The Organisation of Serious Crime. In Maguire, Morgan and Reiner (eds), q.v.
Madsen, Frank G.
2007 Organized Crime, In Sam Daws and Thomas Weiss (eds)(2007), q.v.
2009 International Organizations and Crime, and Corruption. In Robert A Denemark and Andrea K. Gerlak (eds), International Studies Encyclopedia. New York and Oxford: Wiley-Blackwell (forthcoming) and International Studies On-Line (forthcoming).
Meagher, Kate
1997 Informal Integration or Economic Subversion? Parallel Trade in West Africa. In Real Lavergne (ed.), q.v.
Nelken, David
1997 The Globalization of Crime and Criminal Justice: Prospects and Problems. In Michael D. A. Freeman and A D. Lewis, q.v.
Shelley, Louise
1999 Transnational Organized Crime: The New Authoritarianism. In Friman and Andreas, q.v.
Walter, Ingo
1987 The Mechanism of Capital Flight. In Donald R. Lessard and John Williamson (eds), q.v.

Wilson-Roberts, Guy
2000 The Bougainville Conflict: An Historical Overview” in Adams, q.v.
Winer, Jonathan M. and Trifin J. Roule
2003 Follow the Money: The Finance of Illicit Resource Extraction. In Ian Bannon and Paul Collier, q.v.

C. Articles

Crime, Enforcement, and Terrorism
Arlacchi, Pino
1988 Saggio Sui Mercati Illegali. Rasegna Italiana di Sociologia 4.
Barnett, Neil
2005 Cigarette Smuggling in Europe. Jane's Intelligence Review (1 August)
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1968 Crime and Punishment: An Economic Approach. Journal of Political Economy 76(2).
1993 The Economic Way of Looking at Behaviour. Journal of Political Economy 101(3), 385-409.
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1974 Law Enforcement, Malfeasance, and Compensation of Enforcers. Journal of Legal Studies 3(1), 21-35.
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1988 A Theory of Rational Addiction. Journal of Political Economy 96(4), 675-700.
Billingslea, William
2004 Illicit Cigarette Trafficking and the Funding of Terrorism. The Police Chief 71(2).
Bisso, Marino and Anna Maria Liguori
2005 A Roma il Centrale Cinese per il Riciclaggio del Denaro. La Repubblica - Sezione Roma (2 July), 3.
Black, Ian and Jan Martinson
2000 Tobacco Firms Sued over EU Smuggling. The Guardian (7 November).
Boniface, Pascal
1999 Danger! Prolifération étatique. Le Monde diplomatique (January).
Bossard, André
1988 La Criminalité Transfrontière Multidisciplinaire. Revue des Sciences Criminelles.
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1998 Le Crime Organisé hors de lui-même: Tendances Récentes dans la Recherche. Revue internationale de criminologie et de police scientifique 1.
Brzezinsky, Matthew
2004 Hillbangers. New York Times (15 August), Sec. 6.
Burns, Jimmy; Michael Holman, and Mark Huband
1997 How Mobutu Built Up His $4 bn Fortune: Zaire’s Dictator Plundered IMF Loans. Financial Times (12 May), 1.
Cartier-Bresson, J.
1998 Les Analyses Economiques des Causes et des Conséquences de la Corruption: Quelques Enseignements pour les PED. Mondes en développement CII, 25-40.

Cesoni, Maria Luisa
1993 Organisations de Type Mafieux: La Restauration des Droits comme Politique de Prévention. Revue de droit pénal et de criminologie 3.
1995 L'économie Mafieuse en Italie: A la Recherche d'un Paradigme. Déviance et société 15(1).
Chomsky, N.
2001 Terrorisme, l'arme des Puissants. Le Monde diplomatique (December).
Dalla Chiesa, N.
1981 Del Sessantotto e del Terrorismo: Cultura e Politica tra Continuità e Rottura. Il Mulino (January-February), 53-94.
Deffarges, Thierry
2004 Terrorisme: une revue de la littérature économique. Problèmes économiques 2.838, 23-32.
Dubois, Christophe
2002 Terrorisme. Quand le banditisme finance les islamistes. Le Parisien (8 October).
Fajnzylber, Pablo; Daniel Liberman, and Norman Loayza
2002 Inequality and Violent Crime. Journal of Law and Economics XLV, 1-40.
Gezari, Vanessa
2001 Supermarket thieves target baby formula. Chicago Tribune (29 March)
Halstead, Boronia
1998 The use of models in the analysis of organized crime and development of policy. Transnational Organized Crime 1(IV).
Jennings, W. P.
1984 A Note on the Economics of Organized Crime. Eastern Economic Journal 10(3), 315-321.
Kaufmann, Daniel
1997 Economic Corruption: The Facts: Foreign Policy 107, 114-131.
Klerks, Peter
2001 The Network Paradigm Applied to Criminal Organizations: Theoretical Nitpicking or a Relevant Doctrine for Investigators? Recent Developments in the Netherlands. Connections 24(3), 53-65.
Krueger, Anne Osborne
1974 The Political Economy of the Rent-Seeking Society. American Economic Review 64 (1974): 291-303.
Lallerstedt, Karl and Francesco Marelli
2003 Organised Crime and International Terrorism: Dancing Together. Institute Journal 1.
Lambsdorff, Johann Graf
2000 De la Propension des Exportateurs à Verser des Pots-de-Vin. L'impact sur les Echanges. Revue du Tiers Monde 161.
Lampe, Klaus von and Per Ole Johansen
2004 Organized Crime and Trust: On the Conceptualization and Empirical Reliance on Trust in the Context of Criminal Networks. Global Crime 6(2), 159-184
Lancaster, T. D. and G. R. Montinola
1997 Toward a Methodology for the Comparative Study of Political Corruption. Crime, Law and Social Change XXVII, 185-206.
Léauthier, Alain
1992 Cartes Bleues Made in Hongkong. Libération (24 June).
Lederman, David; Norman Loayza, and Ana Maria Menendez
2002 Violent Crime: Does Social Capital Matter?” Economic Development and Cultural Change 50(3), 509-539.
Leiken, Robert S.
1997 Controlling the Global Corruption Epidemic. Foreign Policy 105, 55-76.
Levi, Michael
1998 Perspectives on Crime: An Overview. The Howard Journal of Criminal Justice 37, 335-345.
2002 Money Laundering and its Regulation", Annals of the American Academy of Political and Social Sciences 582.
2002b Suite Justice or Sweet Charity? Some Explorations of Shaming and Incapacitating Business Fraudsters. Punishment and Society, 4(2), 147-163.
Levi, Michael and D. Nelken
1997 The corruption of politics and the politics of corruption. Journal of law and society.
Lo Forte, Guido
2004 The Sicilian Mafia: A Profile Based on Judicially Confirmed Evidence. Modern Italy 9(1), 69-94.
Lugli, Massimo
2007 Business della Triadi, 30 Indagati. La Repubblica - Cronaca Roma (24 March), viii.
Marruzzo, F.
1997 Les organisations de type mafieux à l'horizon 2000", Revue internationale de criminologie et de police scientifique 2.
Mastrofski, S. and G. Potter
1987 Controlling Organized Crime: A Critique of Law Enforcement Policy. Criminal Justice Policy Review 2(3).
Mauro, Paolo
1995 Corruption and Growth. Quarterly Journal of Economics 110(3), 681-712.
1998 Corruption: Causes, Consequences and Agenda for Further Research. Finance and Development 35(1), 11-14.
Musgrave, Beth
2007 Grocers Agree to Plea Deal. Lexington Herald (31 August), B1.
Napoleoni, Loretta
2004 Money and Terrorism. Strategic Insights 3(4).
Naylor, Robin Thomas
1995 From Cold War to Crime War: The Search for a New "National Security" Threat. Transnational Organized Crime 1(4).
2005 The Underworld of Diamonds. Crime, Law, and Social Change 42(4-5), 261-295.
Onishi, Norimitsu
1999 Going After ‘Big Fish,’ New Nigerian President Trawls for Corruption. International Herald Tribune (25 November), 2.
Palazzolo, Salvo
2005 Trapani, fra Mafia e Servizi Deviati. Limes 2, 101-110.
2006 False Griffe per Abiti e Borse, il Business in Mano ai Cinesi", La Repubblica - Sezione Palermo (22 January), 10.
Passas, N. and D. Nelken
1993 The Thin Line between Legitimate and Criminal Enterprises: Subsidy Frauds in the European Community. Crime, Law and Social Change 19.

Pieth, M.
1998 The Prevention of Money Laundering: A Comparative Analysis. European Journal of Crime, Criminal Law and Criminal Justice 6.
Pisani, M.
1999 L'Italie: Criminalité Organisée et Coopération Internationale", RIDP
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1985 A Transaction Cost Approach to Families and Households. Journal of Economic Literature (23 June), 581-608.
Purdy, Matthew and Lowell Bergman
2003 Unclear Danger: Inside the Lackawanna Terror Case. New York Times (12 November)
Ruggiero, Vincenzo
1995 Drug Economics: A Fordist Model of Criminal Capital. Capital and Class 55.
Sciarrone, Rocco
2000 Réseaux Mafieux et Capital Social. Politix 13 (49).
Sheptycki, L. W.
1996 Law enforcement, justice and democracy in the transnational arena. International Journal of Sociology of Law 24.
Sing, H. H.
1983 Ah Kong: The Singapore Connection. Police 15(2).

Smith, Dwight. C.
1991 Wickersham to Sutherland to Katzenbach: Evolving an 'Official' Definition for Organized Crime. Crime, Law and Social Change 16, 135-154.
Stiles, Matt
2005 Assassination Plot Part of Theft Ring Case. The Dallas Morning News (4 February).
Sutherland, E. H.
1945 Is ‘White Collar Crime’ crime? American Sociological Review 10.
Thachuk, Kimberly L.
2002 Terrorism's Financial Lifeline: Can It Be Severed. Strategic Forum (Institute for the National Strategic Studies Defense University, Washington DC). (May).
Tiedemann, K.
1991 Tendances mondiales d'introduction de sanctions nouvelles pour les crimes en col blanc. Revue internationale de criminologie 2.
Tonry, M. and A. J. Reiss
1994 Beyond the law: Crime in complex organizations", Crime and Justice, A Review of Research Vol. 18. Chicago: Chicago University Press, 1994.
Travis, Alan
2007 Agency Which Targeted Criminals' Assets to be Axed. The Guardian (12 January), 14.
Van Duyne, P.
1993 Implications of Cross-Border Crime Risks in an Open Europe. Crime, Law and Social Change 20.
Winer, Jonathan M. and Trifin J. Roule
2002 Fighting Terrorism Finance. Survival, 44(3).
Wright, Susan
2002 Les Etats-Unis et la Menace Biologique. Le Monde diplomatique. (January).

Money Supply. Legal. Environment
Allison, Theodore E. and Rosanna S. Pianalto
1997 The Issuance of Series-1996 $100 Federal Reserve Notes: Goals, Strategy and Likely Results. Federal Reserve Bulletin (July).
Bach, Christopher L.
1997 U.S. International Transactions, Revised Estimates for 1974-96. Survey of Current Business (July).
Bekker, Pieter H. F.
2006 Argentina-Uruguay Environmental Border Dispute Before the World Court. American Society of International Law Insight 10(11).
Blondel, Alice
2003 Dérive Criminelle de l’Economie du Bois. Le Monde diplomatique (December), 29.
Collier, Paul
2000 Rebellion as a Quasi-Criminal Activity. Journal of Conflict Resolution 44(6), 839-853.
Collier, Paul; A. Hoeffler, and C. Pattillo
2001 Flight Capital as a Portfolio Choice. World Bank Economic Review 15(1), 55-80
Doig, A. and M. Levi
1996 Délinquance économique et justice pénale: le cas du Royaume Uni. Déviance et Société 3.
Dommel, Daniel
2001 La corruption internationale au tournant du siècle. La revue internationale et stratégique 43.
Geeroms, S.
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-----------------------
[1] Cf. chapter 1 for a discussion of counter-intuition.
[2] Cf. chapter 1 for a discussion of this term.
[3] The term “intelligence-led” e.g. policing has become somewhat of a fashion concept. It should be stressed, however, that “intelligence-led” is not a panacea in law enforcement and, secondly, that the establishment of intelligence organisations in the sphere of interior security is not without its dangers. While, on the one hand, “following leads” is not intelligence, yet, on the other, “intelligence collection for the sake of intelligence collection” at the other extreme is not intelligence, either. With reference to the intelligence cycle, figure 3.1, in the former case, the cycle is never started, while in the second, the loop becomes infinite and never stops. See further discussion of intelligence matters in chapter 3.
[4] But see Lewin (1999), Waldrop (1992), Holland (1998).
[5] Present author’s definition.
[6] Holland quoted in Waldrop (1992, 169).
[7] Waldrop (1992, 169).
[8] The term “metaphorical” as used here should not be taken to mean that the application of complexity theory to the subject area is more or less metaphorical than its application, say, to economics or other subject areas of the social sciences.
[9] Boaventura de Sousa Santos (1987, 284).
[10] de Sousa Santos (1987, 287, 289).
[11] de Sousa Santos (1987, 282).
[12] Bak (1997).
[13] Sandra Lavilla (2009), No 10 Steps in as Agency Fails to Tackle Organised Crime Gangs. The Guardian (27 April), 10-11. Having assisted at the presentation of the underlying tactical and strategic philosophy of SOCA by its newly appointed Director General, Sir Stephen Lander, on 4 March 2004 at Corpus Christi College, Cambridge, the present author is less than surprised by the reported failure of the agency.
[14] Nevertheless, it is vital not to underestimate the insights appropriate of the Humanities, even in the present context. As an example, one could point to chapter 4, below, which deals with organised crime. Analysing a few of the novels of the Sicilian writer Leonardo Sciascia yields a deeper insight into the spheres of political corruption and into the thought process of organised crime than the perusal of numerous tomes of relevant scholarly work would do, since Sciascia or critical use of his insight is capable of penetrating a range of observable facts and depict the socio-psychological facets behind the facts.

[15] Boxes, charts, tables, and figures are numbered consecutively in each chapter without differentiation between boxes, charts, etc.
[16] The Ghali Organisation (5.5), The Last Emperor (4.3), The Lyngby-Damascus Case (5.6-box 5.16), Bougainville (chapter 7), A Major Credit Card Case (4.3.1), and Russian money laundering in the United Arab Emirates (5.1.2 §4).
[17] It is of vital interest to emphasise that the hugely expensive AML provisions (bank reporting requirements, etc.) played no role, whatsoever, in disclosing the existence of the long-lasting, almost daily repeated crime, but were only invoked – and presumably improperly so – once the crimes had been investigated by other means.
[18] It will be stressed throughout the thesis that to hide something is not the same as to hide the origin of something, cf. Cueller v United States (2009).
[19] Napoleoni (2003). Napoleoni is by some considered one of the leading intellectuals in the world in the subject matter considered in this thesis. She has been appointed by UNICRI to put together a team to fight CFT. In an article entitled “Dream Team 2009”, La Repubblica delle Donne (December 2008) asked 15 of “the best brains in the world” to imagine our future; Napoleoni was one.
[20] Napoleoni (2004).
[21] Throughout the thesis "$" means US$, unless the opposite is stated. To avoid misunderstandings between millions, billions, etc. an exponential notation form is often used, e.g. 2 x 10E6 meaning "2 million”, etc.
[22] Publ. L. 107-56 of October 26, 2001, 115 Stat. 272 (2001), Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, commonly known as the U.S.A. Patriot Act (2001).
[23] Napoleoni (2004, 3).
[24] Castells Vol. III (2000, 171).
[25] Castells Vol. III (2000).
[26] For the sake of full disclosure: My interest in the financial crime inherent, at least partially, in deforestation is linked to my having served as advisor to the EEC Commission on the illicit financial circuit behind deforestation.
[27] Including legitimation. For the term normativity, cf. Zaibert and Smith (forthcoming).
[28] Foucault (2007).
[29] The concept of bio-power has been further developed by the Italian philosopher Giorgio Agamben, inter alia in Homo Sacer: Sovereign Power and Bare Life (1998).
[30] With reference to his Surveiller et punir (1975).
[31] Foucault (2007, 47).
[32] Foucault (2007, 56).
[33] Bohman and Rehg (2009, 25). Bohman and Rehg (2009) has been extensively used for the rest of this subsection as has White (1995). For an insightful comparison of the development of “justice” by Lyotard and Derrida, see Honneth (1995).
[34] Bohman and Rehg (2009), 21. Baynes (1995), 211.
[35] Bohman and Rehg (2009), 23-23.
[36] Bohman and Rehg (2009), 29.
[37] I thank Ms Emma Wu of the Faculty of Oriental Languages for having confirmed this information in conversations on 22 May 2007 in the Faculty of Oriental Languages, University of Cambridge and on 13 February 2008 in the Faculty of Law, University of Cambridge, in the course of which she also kindly provided the calligraphy of the Chinese characters, as well as their representation as printed characters and in pin yin transliteration.
[38] Although the vast majority of criminal actors, who engage in activities that generate substantial funds and international monetary flows, are economic actors, some may be spurred by motives other than lucre, for example political, ideological, or various personal incentives may play a determining role.
[39] For abbreviations, cf. appendix 1.
[40] "US" is used as the adjective for “U.S”. or “American”, “United States” for "The United States of America. “UK” and “UN” are used, respectively, for “U.K”. and “U.N”.
[41] Cf. chapter 5. The issue of “international flows of monetary funds of declared origin” used for the purposes of terrorism is extremely thorny since it involves such issues as prior knowledge and intent. One only needs to think of the multi-decadal financial support by the Irish-American community in the United States of the Irish Republican Army (IRA) in order to appreciate the problem.
[42] International news organisations and NGOs have played an important role in this development, too.
[43] E/C. 10/1984/S/5 29 May 1984 in 23 I.L.M. 602 (1984), 607.
[44] Panić (2003), p. xxi and chapter 6 (pp. 148-176).
[45] Panić, op. cit., 5.
[46] From author’s personal experience as corporate executive in the PRC.
[47] Throughout the thesis, the two terms illegal and illicit will be used. Although the terms are sometimes used as synonyms, in the thesis the definition of each term as proposed by the Oxford Dictionary of English will be applied, i.e. illegal will be taken to mean “contrary to or forbidden by law” and illicit “forbidden by law, rules, or custom”. This semantic distinction is of import, in particular in chapters 6 and 7 regarding resource extraction, since the formal legality of such extraction may or may not be questioned; that it is illicit, as being against tribal laws, rules, and customs, rarely is queried. It should be noted, however, that often in the literature, “illegal” refers to the nature of an act and “illicit” to the source of the funds under consideration”.
[48] Steil and Litan, (2006, 44). Mr Fred Walsh, Homeland Security Department, meeting in his offices in I Street, Washington DC, USA on 14 March 2007.
[49] The examples are legion; a recent one is the use of private contractors for much of the operative security in Iraq as well as in the training of Iraqi security forces.
[50] Cunningham, Strauchs, and Van Meter (1990, 230).
[51] C. Suetonius Tranquillus, Vesp. 23.
[52] Unless stated to the contrary, “or” is the inclusive disjunction.
[53] In the thesis are in general used data up to and including 2001. The exception is section 2.3 on the US money supply where, at the time of writing, relevant data were only available up to 1995.
[54] Findlay (1999).
[55] Another term for TNEs.
[56] OECD (2005, 12).
[57] Panić (2003, 3).
[58] Clark (1997, 21).
[59] Emphasis mine.
[60] Naylor (2002, 5) .
[61] Trade is taken to mean “exports + imports”.
[62] Cf. Napoleoni, supra.
[63] The author of this work firmly believes that a vast part of crime in general and international crime in particular is economic in nature and that it “mimics” legitimate business patterns, cf. 4.3.1.
[64] RBS (2005).
[65] Le Monde Online (20 September 2007); contra: Whitehouse (2007).
[66] Steil (2007, 94).
[67] Steil & Litan (2006, 156-158). In this respect, the European Central Bank seems to hold a view diametrically opposite to that of the Board of the Federal Reserve System in the US, which encourages such overseas usage of their currency.
[68] Emphasis mine.
[69] Giddens (1999).
[70] Cf. Bergeron in Fitzpatrick and Bergeron (1998).
[71] Dante Alighieri, Paradiso, 14. 1-3.
[72] “From the centre to the circumference and thus from the circumference to the centre / water moves in a round container, / depending on whether it is struck on the outside or inside” (present author’s translation).
[73] Cf. in general Hastings (1997).
[74] Hastings, op. cit., 182.
[75] Sen (2006, p. xii et passim).
[76] OECD (2005, 1).
[77] Krugman and Obstfeld (2006, 157).
[78] Loc. cit.
[79] Appendices contain reference material and are at the end of the thesis, while Annexes follow individual chapters, to the understanding of which they are necessary.
[80] Austria, Belgium-Luxembourg, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. Throughout the remaining part of this chapter, the sample is referred to as “twelve European countries”.
[81] Data have been summed up in five-year periods, using programme written in VBA by this author. Cf. Appendix 2 for dataset.
[82] Trade is the sum of imports and exports.
[83] International or Geary-Khamis dollars: A sophisticated aggregation method for calculating economic comparisons between countries; based on the twin concepts of purchasing power parities of currencies and the international average prices of commodities. The year 1990 is often used as the benchmark year for comparisons that run through a time series.
[84] P: population; ΔP: population growth.
[85] Claudio Besozzi in Bauhofer, Queloz, Wyss (1999), quoted in IHESI (1999, 34).
[86] Fabre (1999, 158-162).
[87] Ziegler (1998).
[88] Shelley in Friman and Andreas (1999).
[89] Nelken (1997).
[90] Cesoni (1999).
[91] Giddens (1991, 15).
[92] The key publication remains Gary S. Becker’s Nobel Lecture from December 1992, which is available in print in a slightly modified form: Gary S. Becker (1993).
[93] Findlay (2000, 138).
[94] Viz. of management problems linked to global economic interdependence.
[95] Findlay, op. cit., 105.
[96] "Globalisation is based on deregulation and oozes a consubstantial criminality, which is part of a new logic of economic and financial production forms" (Jean de Maillard (2001, 105). Translation by present author.
[97] Loretta Napoleoni, an economist, is best know for her book on funds used in terrorism, Modern Jihad: Tracing the Dollars Behind the Terror Networks (London: Pluto Press, 2003).
[98] Napoleoni, loc. cit. Baker (10 November 1999). Boyce (1993, 335-349).
[99] Thachuk (2002, 191).
[100] Calculation done by Napoleoni herself, loc. cit.
[101] Baker (2005).
[102] Baker (10 November 1999).
[103] Napoleoni, loc. cit. My emphasis.
[104] It should be emphasised that the following considerations are concerned with “currency” in the sense of bank notes, only. Bank account transfers and electronic transfers are not part of these concerns.
[105] In the following referred to as $100s.
[106] Excluding vault cash.
[107] Porter and Judson (1996, 883).
[108] Doyle (2000).
[109] Allison and Pianalto (1997).
[110] University of Michigan Survey Research Center, quoted in Porter and Judson, op. cit., 887.
[111] Loc. cit.
[112] Calculated as cash in hand plus ½ of cash acquired.
[113] In parentheses: Amount of replenishment.
[114] The Economist (22 September 2007, 34).
[115] For 1983, the numbers have been rearranged for uniformity from original, since in that document “cheques” include credit card payments for that year (98.6%, including credit cards, 91.4% without). BIS (1985, 100 (table C)).
[116] Bank for International Settlements, Committee on Payment and Settlement Systems (1989)
[117] Meeting with Mr Jonathan I. Polk, Counsel and Vice President, Federal Reserve Bank of New York, at the Bank’s seat in Liberty Street, New York, on 8 March 2007.
[118] Mishkin (2003), 514. Mr Jonathan I. Polk at above referenced interview.
[119] US Department of the Treasury (September 2006), p. v.
[120] Op. cit., p. iv.
[121] Porter and Judson, op. cit., 887.
[122] Bank (with capital “B”) is sometimes used colloquially for “The Federal Reserve System”.
[123] FRCO: Federal Reserve Cash Office.
[124] Different from 100% because of rounding.
[125] The term is self-explanatory: Large amounts of notes are wrapped around the courier’s body under the clothing in order to avoid detection by officials, e.g. at border crossings.
[126] United States v. Eddie Antar 53 F.3d 568, C.A. 3 (N.J.), 1995, 12 April 1995. Box 2.10 is my summary of and comments to the Westlaw's KeyCite resume of the appeal to the 3rd Circuit.
[127] Reports of International Transportation of Currency and Other Monetary Instruments (submitted to the US Customs service on arrival and departure from the USA). Reporting threshold is now $10,000. Until 1980 it was $5,000. Cf. 31 U.S.C. 5316(a).
[128] The Federal Reserve System consists of the Board and twelve regional Federal Reserve Banks. Each Federal Reserve Bank has one or more Cash Offices (FRCO); there are in total 37 FRCOs.
[129] For the Shipments Proxy Method, cf. Anderson and Rasche (2000); Feige (1994); Feige (1996).
[130] Cf. box 2.11.
[131] Anderson and Rasche, op. cit., 6.
[132] Feige in Pozo (ed.)(1996b, 5-62).
[133] Porter and Judson (1996, 883-903).
[134] U.S. Department of the Treasury (September 2006).
[135] Op. cit., p. iv.
[136] Op. cit., p. v.
[137] Op. cit. p. v.
[138] Anderson and Rasche, op. cit., 12. M1C approximately $489 x 10E9.
[139] The term “currency” is used to designate US dollar notes; therefore currency expansion is not linked to foreign real estate purchases in the United States, or to investment of sovereign wealth funds or currency speculation, since all are done through the banking system and not by use of bank notes.

[140] Porter and Judson (1996, 888, table 2).
[141] Porter and Judson (1996, 892).
[142] I have summarised the Carl Petersen Method from Porter and Judson (1996, 892-894). Original journal article is Petersen (1893).
[143] Porter and Judson, op. cit., 886.
[144] Feige (1996b).
[145] Indeed, that was how the United States was able to seize a relatively large amount of funds in the aftermath of September 11: The US government simply declared a number of jurisdictions “rogue states” and seized their central banks’ dollar positions in the United States. This seizure is used to explain the alleged success of the US CTF venture. Subsequent seizures have been exceedingly modest.
[146] Herald Tribune (August 2, 1983); IMF, World Economic Conditions (1984)
[147] Naylor (1987b, 11)
[148] IMF (2000, 46-47).
[149] Marquez and Workman (July 2000), cf. IMF (1987).
[150] This chapter is an elaboration of Madsen, “Complexity” (2007)
[151] "Presumably" because it is difficult to ascertain from the outside what is actually done. "Secrecy" or "confidentiality" claims from such agencies can be the result of a genuine need to keep certain information confidential, but often such terms cover simple ignorance, in the sense of lack of information. Most observers have remained aghast, even six years later, by the information, which surfaced in the hearings after the alleged WMD intelligence failure in the US, sc. that the US intelligence community did not have one single well-placed agent in Iraq.
[152] Lewin (1999).
[153] Even so, Lord Runciman suggested in his British Academy Centenary Lecture (4 July 2002) that a common epistemological continuum is shared by Humanities and Sciences.
[154] The etymology of complexus is noted here, in spite of the obvious synchronic discrepancies such use might entail, because it is important to emphasise the notion of “entwine”.
[155] Gallagher and Appelzeller (1999), 79.
[156] “Relations” translates the French liaisons. Daniel Parrochia, "La rationalité réticulaire”, in Daniel Parrochia (ed.) (2001, 13)
[157] This concept is described in Introduction, under “Methodological Considerations” and is exemplified and further discussed in section 3.4.
[158] Gustav Robert Kirchhoff (1824-1887), German physicist.
[159] “Kirchhoff’s circuit rules”. Encyclopaedia Britannica (2007).
[160] I.e. cost of purchase + transaction cost + funds dispersed on maintaining life style (typically very high; restaurants, night clubs, cars, etc.)
[161] Parrochia (2001, 18).
[162] Loc. cit. Prof. Imre Leader of Trinity College, University of Cambridge, has drawn my attention to the fact that this theorem is more commonly defined in a different manner. For the purpose of the present discussion, Parrochia's definition, even if perhaps idiosyncratic, has been retained.
[163] Bak (1996, 53).
[164] These considerations only deal with the intelligence and security measures surrounding terrorism and, indeed, other related subjects. No attempt is made or is meant to be made to express any political opinion, e.g. on subjects such as free circulation of individuals within the EU, of immigration, of conversion to Islam, or, indeed, on Islam as such. However, without objectively considering how such illegal acts, which at least for a short time upset the populations throughout the developed world, could have been perpetrated, one cannot improve and fine-tune the intelligence function.
[165] In the following Nasar.
[166] I cattivi maestri: Italian expression, "The wicked masters", which refers to the master-thinkers, often, but not always university lecturers, e.g. Antonio Negri, who created the intellectual environment and the more or less directly expressed justification for "Direct Action", i.e. direct, armed attack on the governments of Italy, France, and Belgium in the 1970s and 1980s. This subject-matter is of particular importance as an underdeveloped area of research.
[167] The radical stamping ground: For the Communist radicals in the 1930s, the Spanish Civil War (1936 – 1939); for the 1980s and 1990s radicals, the mujahideen's fight against the Soviet invader in Afghanistan; and, one may legitimately fear, for the two first decades of the twenty-first century, the mujahideen's fight against the American invader in Iraq.
[168] Jihad is from the Arabic triconsonantal root J-H-D, meaning "effort". This is the root for both Jihad (struggle) and mujahid (plural mujahideen) (somebody who struggles). I thank my wife, Bernadette Surya, an Arabist student, for this information.
[169] Border town between Pakistan and Afghanistan. The town is the capital of the Pakistani province of Balūchistan, where a civil war has been waged, on and off, since 1958 (1958; 1962; 1973-1977; 2006 – date), although it has received only limited coverage in western media. There is a road from Quetta to Kandahar. One must ask if his presence in Quetta, the capital of a province, in which a civil war raged, was fortuitous. Present (April 2008) whereabouts of individual unknown.
[170] In fact, recent research shows that first generation immigrants commit less criminality than the average population, second and third generation more, cf. e.g. Rumbaut, Gonzales, Komaie, and Morgan (2007).
[171] This chapter has been kept somewhat briefer than the subject matter demanded, brevitatis causa. Reference is, immodestly, made to Madsen in Daws and Weiss (eds.)(2007) and to Madsen (2009) for a more general discussion. One possible way of viewing organised crime—in opposition to “ordinary” crime—is to see its members as purveyors of illegal goods and services.
[172] Walter Lippmann in G. Tyler (ed.), Organized Crime in America (Detroit: Ann Arbor, 1967), 59-69.
[173] The subject of Organised Crime has given rise to heated discussions among scholars, often holding very extreme views. For a thorough, well-balanced treatment of the subject, cf. Michael Levi in Maguire, Morgan, and Reiner (eds)(2002).
[174] Gilfoyle (1992, 251-269, 418).
[175] The Wickersham Commission, 1929-31, quoted in Smith, D. C., Jr. (1991, 135-154). The Commission was set up in 1929 by President Hoover.
[176] Cf. “Capone Bio”. On 17 October 1931, Capone was sentenced for tax evasion to 11 years' imprisonment and a fine of $50,000.
[177] A well-known exponent for this concept (ethnic relationship, world conspiracy of organised crime, etc.) is Claire Sterling (1990) and (1994). For a more nuanced view, cf. Liddick (1999, 5).
[178] For a thorough discussion of Organised Crime paradigmata, see Halstead (1998, 1–24) and Lampe (2003).
[179] The most influential work was Franchetti and Sonnino (1877).
[180] Sciarrone (2000, 42).
[181] Lynch (1987, 661-764, 664).
[182] Racketeer Influenced and Criminal Organizations statute, 1970, 18 U.S.C.A. §1961 et seqq. The Act is analysed in Lynch, op. cit.
[183] Mastrofski and Potter (1987, 271).
[184] Mastrofski and Potter op. cit., 275.
[185] Anti-mafia Act (Law 575 1965).
[186] Arlacchi, Keynote Address (2001).
[187] For an overview of the difficulties inherent in the concept of “belonging to a criminal association”, cf. Estella Baker (2003, 188).
[188] Brzezinsky (2004, 38).
[189] Sing (1983).
[190] Convention Against Transnational Organised Crime (A/RES/55/25), Art. 2(a).
[191] United Nations (September 2002, 2).
[192] Margaret E. Beare, "Introduction”, in Beare (ed.)(2003, p. xxiv).
[193] Porteous (1998, 2).
[194] Cf. FBI, Organized Crime, “Glossary”.
[195] Friman and Andreas in Friman and Andreas (eds.)(1999, 10).
[196] Sheptycki in Beare (ed.)(2003, 120-144) .
[197] The UK seems to have introduced yet another concept, sc. “Serious Organised Crime”, cf. the Serious Organised Crime and Police Act, 2005.
[198] Sheptycki, op. cit., 134.
[199] Senate Committee on the Judiciary (1969).
[200] Lynch (1987, 661).
[201] Bossard (1990), 3. André Bossard was the Secretary General of the International Criminal Police Organisation, ICPO, Interpol, at Saint-Cloud, France.
[202] E.g. currency counterfeiting in one country, but introduction of counterfeit currency in the financial system of another jurisdiction.
[203] E.g. gangs of professional pickpockets, who ply their trade for a couple of days in one country and then moves on to another before law enforcement authorities realise that an organised crime is in execution.
[204] Bossard, op. cit., p. 5.
[205] Friman and Andreas in Friman and Andreas (eds.)(1999, 5).
[206] The name of the law enforcement operation is an unhelpful reference to a cinematographic creation: Bernardo Bertolucci, The Last Emperor (20th Century Fox, 1987).
[207] Organisation created 1971, which represents some 260,000 firms mostly small and medium-size companies in commerce and service sector.
[208] The price at which the counterfeit item is sold, not the price of the product it imitates.
[209] Liddick (1999, 3).
[210] The word “mafioso” first became of common usage in Italy after the production in 1863 of a play, which takes place in Palermo’s prison: Giuseppe Rizzotto, I mafiusi di La Vicaria (2,000 representations from 1863 to 1886).
[211] CE is a declaration of conformity. The symbol is an abbreviation of the French conformité européenne, i.e. in accordance with Directive 93/68/EEC (1993); it signifies that the product, which carries the symbol, complies with the EU conformity assessment procedure.
[212] Palazzolo (2006, 10).
[213] Bisso and Liguori (2005, 3).
[214] Not all of the illegally transferred currency originated from the counterfeit business, but telephone intercepts showed that €150 x 10E6 per year did. Any further funds transferred to China, via the financial companies in question, have a different, albeit still criminal provenance.
[215] Leonardo Sciascia (1993, 54-55). English translation The Day of the Owl (Manchester: Carcanet Press, 1984), 51.
[216] “Only suckers work”. Expression first found in writing as being used by a bootlegger only identified as “Callano”, American Life Histories: Manuscripts from the Federal Writers’ Project, 1936-1940. Bootlegger in question was interviewed by Roaldus Richmond; expression is from p. 1 of interview, which is deposited in the Federal Writers’ Project, 1936-1940, in the Library of Congress, Washington D.C., USA.
[217] Direzione Investigativa Anti-Mafia created by law 410 of 30 December 1991 is an investigative law enforcement structure consisting of personnel from the three major Italian law enforcement organisations, the Corps of the Carabinieri (Ministry of Defence), the Police (Ministry of the Interior), and the Guardia della Finanza (Ministry of Finance) with a headquarters in Rome and regional offices throughout Italy.
[218] Source: DIA.
[219] Cf. Lugli (2007, p. viii).
[220] Counterfeit product is product violating the rights of the trademark owner; the best known examples are fake “Rolex” watches and “Louis Vuitton” luggage, i.e. respectively watches and luggage bearing the trademarks “Rolex” and “Louis Vuitton”, but which were not manufactured by these companies.
[221] The violence exerted by organised crime has influenced many scholars in a less than helpful manner. Organised crime has no adequate conflict resolution mechanism and therefore has to resort to violence to resolve problems of territoriality and market share.
[222] Cf. Faligot (2001, 162-164); Léauthier (1992).
[223] Naím (2005, 99). See discussion of aspects of Chinese organised crime in Italy, above.
[224] Robinson (2000, 21-23).
[225] Cards concealed inside cigarette packs, which were resealed, placed in resealed duty-free cigarette cartons, and carried, along with a duty-free bottle of alcohol, in "duty-free plastic bags" as transported by a large number of international travellers.
[226] I thank my friend and former colleague, Mr D'Arcy Quinn, Counsel, Counterfeit Enforcement, Philip Morris International Tobacco Company, Lausanne, Switzerland, for both general and specific information pertaining to this section as well a for numerous references to sources.
[227] Duffield (2000, 76).
[228] Barnett (2005).
[229] As per July 2007, the prices on brand cigarettes were, very approximately, for one packet containing twenty cigarettes: in the USA, $5.00 (taxes paid); in the United Kingdom, £5.00 (taxes paid); "duty-free”, $1.00. However, in the USA, there is a price differential between the various states: Virginia, $5.00; New York City, $7.50; Long Island, $4.60, which quite obviously constitutes an inducement to interstate smuggling of such product.
[230] Campaign for Tobacco-Free Kids (30 April 2004).
[231] The British-American Tobacco company, BAT, estimates that 30% of cigarettes and 70% of self-rolled cigarettes used in the United Kingdom have not be subjected to taxation, entailing a loss in government revenue of £2.6 x 10E9. Neil Barnett (2005).
[232] Radford (1945, 189-201).
[233] Black and Martinson (2000).
[234] Philip Morris' best known brand cigarette is Marlboro.
[235] Wiltshire, Bancroft, Amos, Parry (2001).
[236] Framework Convention Alliance – Building Support for Global Tobacco Control (9 May 2007).
[237] Sources within PMI claim that Mr A.R. for a time was the subject of an arrest warrant issued by the US authorities (Southern District, New York) for his participation in this scheme, but that this warrant now—reportedly temporarily—has been withdrawn. He is also mentioned in the EU complaint against NJR Nabisco, Inc, et al., 57.
[238] Re-packaging also took place in Switzerland, since what is commonly called "cigarette smuggling" is not illegal in that country as long as the product does not remain in the country.
[239] Although Philip Morris International is incorporated under the laws of the Canton de Vaud in Switzerland, it is a wholly owned subsidiary of Philip Morris Inc. in the USA. Therefore, it is subject to US legislation, inter alia in the area of FCPA (1977).
[240] Source: Center for Public Integrity, Tobacco Companies Linked to Criminal Organizations in Cigarette Smuggling – Cyprus and Middle East.
[241] Likewise, the counterfeiting of cutting-edge pharmaceutical products bring the same profits as the illicit traffic in narcotics, but the risk of apprehension is very low, and the possibility of receiving a custodial sentence, if apprehended, basically non-existent.
[242] Barnett (2005).
[243] Fleenor (2003, 14).
[244] The International Consortium of Investigative Journalists (3 March 2001).
[245] Cf. LaFave (2003), §5.2(b), who notes that the Model Penal Code in §2.02(7) defines “wilful blindness”. When “knowledge of the existence of a particular fact is an element of an offense, such knowledge is established if a person is aware of a high probability of its existence, unless he actually believes that it does not exist”. The court in United States v. Burns (683 F.2d 1056. 9th Circuit, 1982) upheld instruction of lower court and stated: “No person can intentionally avoid knowledge by closing his eyes to facts which should prompt him to investigate”.
[246] The Guardian (2 February 2000).
[247] The International Consortium of Investigative Journalists (2001), op. cit.
[248] United States v. Trapilo 130 F.3d 547, 550 (2nd Circ. 1997), certiorari denied, 525 U.S. 812 119 S.Ct. 45, 142 L.Ed 2d 35 (1998); cf. United States v. Boots 80 F.3d 580, 587 (1st Circ.), certiorari denied, 519 U.S. 905, 117 S.Ct. 263 L.Ed. 2d 188 (1996). Her Majesty the Queen in Right Of the Province of Colombia v. Gilbertson 597 F.2d 1161, 1164 (9th Circ. 1979), quoting Lord Mansfield’s proclamation in Holman v Johnson 98 Eng. Rep. 1120, 1121 (1775) that “no country ever takes notice of the revenue laws of another”.
[249] The European Community, acting on its own behalf and on behalf of the member states it has power to represent, and the Kingdom of Belgium, Republic of Finland, French Republic, Hellenic Republic, Federal Republic of Germany, Italian Republic, Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, and Kingdom of Spain, individually.
[250] Viz. RJR Nabisco, Inc., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International, Inc., RJR Acquisition Corp., f/k/a Nabisco Group Holdings Corp., RJR Nabisco Holdings Corp, and R.J. Reynolds Tobacco Holdings, Inc.
[251] 50 cartons of 200 cigarettes each, in total 10,000 cigarettes.
[252] Meeting with the official in question on 6 September 2007. The official has, however, requested to remain anonymous.
[253] Barnett (2005).
[254] Cynical, but anonymous sources are of the opinion that the tobacco industry might not be extraneous to the counterfeiting of its own products or, as a minimum, might encourage such counterfeiting.
[255] Billingslea (2004).
[256] United States v Hammoud, 381 F.3d 316.
[257] Fleenor (2003, 13).
[258] Fleenor, loc. cit.; cf. Purdy and Bergman (2003).
[259] Cf. Edgar Allan Poe, The Purloined Letter (1844.) The best way to hide something is to hide it in full view, where everybody can see it, but where it “belongs”, e.g. among other items of the same kind.
[260] As per May 2007, there were 147 parties to the Convention.
[261] WHO Conference of the Parties to the WHO Framework Convention on Tobacco Control, Second session, provisional agenda item 5.4.1, "Elaboration of a template for a protocol on illicit trade in tobacco product”, A/FCTC/COP/2/9, 19 April 2007.
[262] Proposed FCTC Protocol (April 2007/A/FCTC/COP/2/9 §11.
[263] In the pharmaceutical industry, batch numbers allow a pharmaceutical company to state where and to whom the batch was sold. Batches, however, are very large and one batch number will therefore cover the needs of all wholesalers in a (small) country for several months. Furthermore, there is no requirement for due diligence, although individual companies may conduct limited financial due diligence.
[264] Since it will have no influence on the quantities smuggled, cf. the discussion throughout the thesis of the futility of attempting to defeat an illicit market from the supply side.
[265] Statements by former Sicilian local boss Nino Giuffrè, Il Siciliano (22 October 2003). Cf. Palazzolo (2005, 101-110).
[266] Lallerstedt and Marelli (2003).
[267] Baumann (2001, 117-118); quoted in Laqueur (1977, 89). Experts in Irish terrorism argue that the same phenomenon holds true for the IRA, i.e. from a revolutionary terrorist organisation, the IRA basically developed into organised crime.
[268] “Vienna Declaration on Crime and Justice: Meeting the Challenge on the Twenty-fist Century”, UN General Assembly Resolution 55/59, 17 January, 2001, art. 19.
[269] Encyclopaedia Britannica, "Irish Republican Army" (Encyclopaedia Britannica: Deluxe CD Edition, 2002).
[270] Naím (2003, 35).
[271] Ian Taylor (2008, 6-7).
[272] Cf. chapter 6.
[273] Saviano (2006), passim. Without discussing toxic waste, it should be noted that garbage pick-up from commercial sites in New York City alone at the end of the 1990s represented a $1.5 x 10E9 business. The following scenario is already developing: Organised crime will use its expertise in corruption in particular in developing countries to develop dump sites—and a reverse traffic of illicit timber, plants, animals, ivory, and minerals. They will likewise use their influence in the construction industry to dump toxic waste in roadbeds. Such traffic would to a large degree be disclosed by the use of capillary intelligence.
[274] Le Monde 31 January 2008, 4.
[275] Cf. Napoleoni in chapters 1 and 2 and her tripartite division of funds of non-declared origin
[276] In the occasional use of set theory, -A signifies "non-A" and U refers to the universal domain.

[277] Based on my Interpol HQ experience: A major Pakistani heroin importer (later convicted) received telephone calls originating from Pakistan in telephone boots near his residence in Denmark.
[278] R. T. Naylor (2002, p. ix).
[279] Cf. section 5.6 of present thesis.
[280] "Money Laundering: Through the Wringer".
[281] Board of Governors of the Federal Reserve System, Report to Congress in Accordance with Sections 356(c) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) (Washington DC: Board of Governors of the Federal Reserve System, 31 December, 2002, 7).
[282] Reinicke (1998, 135-137).
[283] Levi (2002, 183 footnote 3).
[284] Some citizens may have concerns over some of the characteristics of modernism, viz., according to Anthony Giddens, developed state surveillance and militarised order: Giddens (1991, 15). Cf. Cesoni (1995, 51-83).
[285] Cf. "AMJUR CRIMLAW §331”, American Jurisprudence, Second Edition (updated November 2007): s. v. "Forfeiture of property involved in criminal proceeding”.
[286] There were five such yearly reports, 1999-2003, issued by the Treasury Department. After the MLTA of 2005, a further NMLS was issued in 2007 as a response.
[287] Reuter and Truman (2004, 50-53).
[288] Updated 1994, Money Laundering Suppression Act, cf. Annexe 4.5. "Specified unlawful activity" is defined in 18 U.S.C.A. §1956(c)(7)
[289] Krauland and Logonico (2002, 1). It is worth underlining, as has been done elsewhere in the thesis, section 4.1, that, as is often the case in US Criminal Justice thinking, the evil comes from outside.
[290] An interbank account is defined in Title I, §1351 of Public Law 99-170 of 27 October 1986, codified as 18 U.S.C. §984 (c)(2)(B).
[291] An example of the extraterritorial reach of US legislation.
[292] The Secretary of the Treasury, A Report to Congress in Accordance with §357 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) (Washington DC: The US Treasury, 26 April 2002), 5.
[293] Evans (2004, 42).
[294] A former US Senate investigator, in Evans (2004), loc. cit.
[295] Evans (2004), loc. cit.
[296] Morgenthau v Contreras.
[297] On 2 March 2004, Hudson United Bank reached an agreement with the District Attorney's Office, according to which they paid $5 x 10E6 to the City of New York, plus cost.
[298] When the British government tried to reassure the public that the bank was safe, some investors took the very government reassurance as proof that the bank was unsafe, cf. Catherine Bennett (2007) "Something gone wrong with the bank? Blame the panicking customers". The Guardian (20 September).
[299] "Bank of America Settles Money Laundering Probe".
[300] Levi (2002, 189).
[301] Fried (1999, B1).
[302] Winer and Roule (2002, 87). Cf. Transcript of allocution hearing pursuant to guilty plea of Lucy Edwards.
[303] FATF: Financial Action Task Force.
[304] Financial Action Task Force on Money Laundering, The Forty Recommendations (20 June 2003).
[305] François, Chaigneau, and Chesney (2002, 57).
[306] Cf. Egmont website.
[307] Cf. Johnston (2004).
[308] Consists of Belarus, PRC, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan.
[309] The Mutual Evaluation Report (MER) by EGC was issued on 14 June 2007.
[310] Known as The FATF 40 + 9 Recommendations.
[311] The list of criteria can be found in FATF-GAFI, Annual Review of Non-Cooperative Countries and Territories 2005-2006 Annexe 1, “List of Criteria for Defining Non-Cooperative Countries or Territories”, (Paris: FATF/OECD, 23 June 2006, 13).
[312] For this paragraph I gratefully note the assistance given to me by my friend and former colleague, Pol. Maj. Gen., Krerkphong Pukprayura of the Royal Thai Police, both for information and for introducing me to a number of relevantly knowledgeable Thai officials.
[313] Pol. Maj. Gen. Peeraphan Prempooti, Secretary-General, Anti-Money Laundering Board, “Foreword”, in Anti-Money Laundering Office, Thailand (Bangkok, Thailand: AMLO, w/o year, 2).
[314]Meeting, 20 June 2005, with Pol. Col. Yuthabool Dissamarn, Deputy Secretary-General, AMLO, in his offices in Bangkok, Thailand. Unless explicitly stated to contrary, the remaining part of this paragraph is based on information obtained during this meeting.
[315] "B.E”. means "Buddhist Era" and translates into A.D. by the subtraction of 543.
[316] In this paragraph referred to as “the Act”.
[317] Anti-Money Laundering Office, Thailand (Bangkok, Thailand: AMLO, w/o year, 7).
[318] All extracts from the Thai law Anti-Money Laundering Act of B.E. 2542 (1999) were translated from the Thai by Pol. Maj. Gen. Peeraphan Prempooti, Secretary General of AMLO.
[319] 20,000 to 200,000 Baht equals $488 to $4,878 at an exchange rate of $1.00 = Baht 41.
[320] The Office of the Narcotics Control Board was established by the Royal Thai Government on 16 November 1976.
[321] IMF, Thailand : Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism. IMF Country Report No. 07/376 (December 2007), §117.
[322] Loc. cit.
[323] June 2005. Identity withheld for obvious reasons.
[324] Meeting, 20 June 2005, with Pol. Col. Yuthabool Dissamarn Deputy Secretary-General, AMLO, in his offices in Bangkok, Thailand.
[325] Brunner, Talbott, and Elkin (1998, 14).
[326] Nadelmann (2007).
[327] Information obtained during my meeting with Mr Rick McDonnel, Head of Secretariat, APG, on 27 July 2005 in his offices in Sydney, Australia.
[328] Asia/Pacific Group on Money Laundering, Annual Report 1 October 2003 – 30 June 2004 (November 2004, 5).
[329] Most of the information in this paragraph originates from a confidential document obtained from Géopolitique, a Paris-based intelligence research organisation. The nine-page document contains a two-page inter-office memorandum dated 8 June 2000, from the Banking Supervision and Examination Department of the Central Bank of the United Arab Emirates to the Governor of the Bank, entitled Accounts of Russian Nationals at UAE Branches of HSBC Bank Middle East – Money Laundering (in the following "Inter-Office Memorandum") by which the examiners submit a seven-page report (in the following "Report") to H. E. the Governor of the Central Bank of the UAE.
[330] Sherjah is one of the smallest of the emirates making up the United Arab Emirates; Deira is an area in Dubai, one of the largest and, economically, the most important of the emirates.
[331] Inter-Office Memorandum, p. 2.
[332] Throughout, AED (Arab Emirate Dinars) have been calculated at the exchange rate valid on 17 November 2007, sc. $1.00 = AED 3.6685. It is realised that the exchange rate at the time of these events was somewhat different, but in this paragraph, the denomination in US dollars is for illustrative purposes, only.
[333] I.e. debit.
[334] Source: Report, 2. Based on a review by the UAE Central Bank of all bank statements for two years pertaining to Russian accounts opened in the HSBC's branches in Sharjah and Deira (Report p. 2).
[335] TTs: Telegraphic Transfers.
[336] A/c: Account.
[337] Information provided by Mr Paul DeMatteis, formerly the Director of Security, Citicorp, now Assistant Professor, John Jay College, CUNY, New York, USA, at meeting 27 September 2007 in New York, USA.
[338] Murray (1997, 4).
[339] Information provided by John T. Murray, cf. below, Australia, July 2005.
[340] Jane’s Intelligence Digest (3 April 2007).
[341]Mr John T. Murray formerly SPILO of the AFP drew my attention to several issues, e.g. influx of Russian funds and “second passports”. Meeting, Canberra, Australia, 28-29 July, 2005.
[342] Cost to run: US$ 1,000 p.a.
[343] Information obtained from knowledgeable source, who asked for anonymity.
[344] Herman (1999).
[345] Mr Rick McDonnel, Head of Secretariat, APG, informed me (27 July 2005) of an example where American citizen who was convicted of defrauding more than 800 people of US $6,097,155.
[346] Vanuatu, Reports of the Ombudsman’s Office; report of 16 October 1996.
[347] Enforcement of any foreign judgements against a locally registered international trust is excluded
[348] “South Pacific: Money Laundering” (1997, 7).
[349] For example consider the case of 3 NZLR 744 Peters v Davison, Auckland High Court, 20 August 1999.
[350] See FATF (2001).
[351] “South Pacific: Money Laundering” (1997, 8).
[352] The population declined to 1492 in 2007.
[353] Herman (1999).
[354] Murray (2006, 15).
[355] $324,055 at a November 2007 exchange rate of $1.00 = F$1.543.
[356] FATF 2000-2001 (22 June 2001).
[357] Cf. section 5.3.2.
[358] Current PPP. OECD (2007, 12-13).
[359] Reuter and Truman (2004, 93).
[360] Reuter and Truman (2004, 95).
[361] Reuter and Truman (2004, 101).
[362] Pieth and Aiolfi (June 2003).
[363] General Accounting Office, Money Laundering: A Framework for Understanding US Efforts Overseas. GAO/GGD 02-670 (Washington DC: General Accounting Office, 1996).
[364] KPMG (2003, 16); Gold and Levi, (1994). Both quoted by Reuter and Truman, loc. cit.
[365] Gold and Levi (1994).
[366] Naylor (2002, 134).
[367] US Treasury, NMLS (2002, 11).
[368] It would not seem possible to determine the scope of money laundering in the world. The then director of the IMF, Michel Camdessus, in 1998 estimated that 2-5 percent of global GDP or $600 x 10E9 to $1.8 x 10E12 was laundered. Michel Camdessus, Speech to the Plenary Session of the Financial Action Task Force (Paris, France, 10 February 1998). Senator Carl Levin (Hearing before the Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, United States Senate, 106th Congress, 9-10 November 1999, page 4) estimates that one half of this comes to the USA.
[369] Reuter and Truman (2004, 114).
[370] Reuter and Truman (2004, 115).
[371] Performance and Innovations Unit of the Cabinet Office, Recovering the Proceeds of Crime (London, 2000, 30, 32).
[372] Travis (2007, 14).
[373] Sources: Derived from the author's meetings with case investigators 13 March 2007 and 12 June 2007 in Washington D.C., USA. Matt Stiles (February 2005). Cf. also ICE (US Immigration and Customs Enforcement, part of the Homeland Security Department) News Release, "Leader of Organized Infant Formula Theft Ring Sentenced to 14 Years in Federal Prison”, (Dallas, 2 February 2005).
[374] Over the counter medicinal products, i.e. medicines sold without a prescription.
[375] An incomprehensible, but significant development of this particular aspect was that a high-ranking official in the WIC administration assisted investigators with information in order to bring this fraud to an end. She was fired from her position as a result. (Source: Det. Scott Campbell, Fort Worth Police Department. Meeting in Fort Worth, Texas, 19 June 2007).
[376] Conversation with Detective Scott Campbell, Fort Worth Police Department, in Fort Worth, Texas, 19 June 2007.
[377] The vast majority of these are Palestinians or Jordanians. However, it should be emphatically noted that not all persons of Middle Eastern origin setting up convenience stores in low-income urban areas are involved in the kind of criminality considered here. The case investigators, with whom I discussed the issue, were eager to stress this point.
[378] Jean-François Thony (10 May 2000, 5).
[379] US District Court, Louisville, Kentucky, 31 May 2007, Action No. 3:03CR-116-C.
[380] Musgrave (2007, B1).
[381] US Fed News Service (1 May 2006).
[382] Gezari (2001).
[383] “For everything to remain the same, everything must change”. Tomasi di Lampedusa, Il Gattopardo (Milan: Feltrinelli, 1994, 41) (Present author's translation).
[384] For a more elaborate five concentric circles concept, cf. Michael German, “Squaring the Error” in Law vs. War: Competing Approaches to Fighting Terrorism (2005, 12).
[385] al-Jabha al-Shabiyah li-Tahrir Filastin.
[386] RAND-St. Andrews Chronology of International Terrorism.
[387] O'Neil (2007, 6); US State Department (2005).
[388] Dubois (2002).
[389] Source: Mr Fred Walsh, US Homeland Security Department, formerly ICE, 14 March 2007. Meeting in his offices in Washington DC.
[390] For the sake of full disclosure: The author of the present thesis admits to being that hapless official.
[391] Noble (2003).
[392] Formed by the borders of Paraguay, Argentina, and Brazil.
[393] Export Credit Agencies (ECAs) are now the world’s biggest class of public International Financial Institutions (IFIs), collectively exceeding the World Bank in size.
[394] Based on Reuter and Truman (2004, Table 4.1, pp. 50 sqq.)
[395] Time consistency problem. Rebel leaders may promise justice, etc., in case of victory, but once in power, they often behave like the previous government. Also, they may promise advantages to their troops, but often forget to honour such promises. It is therefore in the interest of such troops to prolong sub-national fighting for as long as possible, since, in the meantime, they are certain to earn a living. Berdal and Malone (2000, 99).
[396] Cf. “Rainforest Facts”.
[397] Cf. Timber Trafficking.
[398] Newman and Valentinus (2005). Baker, Clausen, Kanaan, N’Goma, Roule, and Thomson (2003).
[399] “Third largest rainforest illegally felled for flooring” (2005).
[400] An estimate. In 2001, EIA estimated illegal logging in Indonesia to 73%, Brazil 80%, and Cameron, 50% (Timber Trafficking, 1), cf. Failing the Forests.
[401] E.g. Naylor (2002, 1-11).
[402] Cf. The Concise Oxford Dictionary of English, s. v.
[403] Cf. chapter 7, Bougainville.
[404] Lambert (1999, 63).
[405] A tropical hardwood tree, Gonystylus spp., which yields valuable timber. Native to Malaysia and Indonesia, it grows in peat swamps and freshwater swamp forest in Borneo, Sumatra, and Peninsular Malaysia. It is the most valuable commercial tree species in Indonesia and fetches $368-710 /m3 on the Malay market and $1,000/m3 on the international markets once processed.
[406] Roberts and Travers (2004).
[407] A tropical hardwood tree, which yields valuable timber. Native to Malaysia and Indonesia. Merbau is the Malay name. Of the several species, Intsia palembanica is of most concern in the present context.
[408] Duffield (2000, 76).
[409] Andreas (1999, 86).
[410] Duffield (2000, 76-77).
[411] World Bank (1981).
[412] Duffield (2000, 79); Kate Meagher (1997, 182).
[413] 1m³ provides 26m² of flooring.
[414] Duffield (2000, 70).
[415] Thomson and Kanaan (2002, 2).
[416] Blondel (2003, 29).
[417] United Nations Rapport Final du groupe d’experts (2002).
[418] Global Witness (March 2002, 7).
[419] Thomson and Kanaan (2002, p. iii).
[420] Winer and Roule (2003, 168-169).
[421] Duffield (2000, 73).
[422] The number of conflicts has also increased but at the present stage of my research, it is not clear if there is a correlation between the “end of sponsorship” and the increased number of conflicts or, indeed, between the end of the Cold War and the increased number of conflicts.
[423] Collier (2000, 840); Collier and Hoeffler (1998, 563-573); Collier and Hoeffler (2000).
[424] Singer and Small (1994).
[425] This data set is used for the classification of political regimes according to the degree of political rights. Jaggers and Gurr (1996).
[426] Respectively the Ethno-Linguistic Fractionalization index and the Ethno-Religious Fractionalization index. The indices indicate the probability that two persons chosen at random among the citizen of a country, will be of different ethno-linguistic or ethno-religious background.
[427] The term rent is used here in the sense commonly adopted in Economics literature.
[428] Collier (2007, 27).
[429] Shayo (2004); Collier, Hoeffler, and Söderblom (2001, 4).
[430] Cf. Lederman, Loayza, and Menendez (2002, 509-539). Fajnzylber, Liberman, Loayza (2002, 1-40).
[431] Collier (2000. 839).
[432] Keen (2000, 31).
[433] Collier in Berdal and Malone (eds.)(2000, 95).
[434] Collier (2000, 852).
[435] Gantzel (1997, 115-130).
[436] World Bank (1997).
[437] Cf. Harrison (2006, A21)
[438] Gall (2006, 1)
[439] Mannion (1991, 232).
[440] Collier (2007, 39).
[441] In particular the Eastern Lowland Gorilla.
[442] By letter, S/20001/357 of 12 April 2001, the Secretary General of the United Nations transmitted the report of The Expert Panel on the Illegal Exploitation of National Resources and Other Forms of Wealth in the Democratic Republic of the Congo to the Security Council; cf. subsequent Statement of the President of the Security Council of 3 May 2001.
[443] It should be recalled that Rwanda has some Coltan deposits, so it is difficult to calculate exactly how much of the Coltan leaving Rwanda is of Congolese origin.
[444] Cf. “Tantalum”.
[445] Voice of America, January 11, 2006, “China Exports Environmental Problems”. May Ng, Friends of the Earth, provided the information in the course of this programme.
[446] Jacobson (1987).
[447] Bekker (2006).
[448] “Botnia” is the abbreviated name of the Finnish company, who has built and will run the plants (Oy Metsa-Botnia AB and Kymmene Corp.). The construction price is $1.2 x 10E9.
[449] General List Case No. 135.
[450] Foster (2005).
[451] See Appendix 1, Abbreviations.
[452] Schwartz and Randall (2003).
[453] Respectively from the Central Intelligence Agency of the USA and from Global Business Network (California).
[454] Europe, for example, has recorded a number of cold cycles, cf. box 6.2.
[455] The ocean conveyer last collapsed 8,200 years ago; the altered climatic pattern lasted for approximately 100 years, cf. Schwartz and Randall (2003, 2).
[456] Cf. Foster (2005, 40).
[457] Schwartz and Randall (2003, 7).
[458] Op. cit., 16.
[459] Op. cit., 14.
[460] Op. cit. p. 16. The scenario outlined here is also based on the historical record, cf. LeBlanc (2003), who reviews the relationship between carrying capacity and warfare, and arrives at the perhaps not very surprising conclusion that “humans fight when they outstrip the carrying capacity of their natural environment”.
[461] Wunsch (2006).
[462] Schwartz and Randall (2003, 15); Gleick, Singh and Shi (2001, 51)
[463] “Draws attention to new kinds of threats against international security, of which governments have been slow in becoming aware. Climate change and the warming of the planet are part of these threats as are the access to energy sources, the control of water supplies, etc. These phenomena, which are sometimes considered “natural”, can be at the origin of conflicts between peoples as bloody as the border wars of European nations in the 19th and 20th centuries”. Present author’s translation.
[464] Editorial Le Monde (14-15 October 2007).
[465] Renner (2002, 54).
[466] “Alley Interview“.
[467] ”Kouwenhoven”.
[468] This company—like a high proportion of all international tropical forest product companies—is incorporated in Malaysia and its main corporate officers are Malay nationals.
[469] United Nations Security Resolution 1343.
[470] Agence France Presse, 21 March 2005.
[471] Examples of other pidgin derivations from English are sup-sup gadin (vegetable garden) and, less amusingly, Bitin Meré (Beaten Mary, i.e. battered women.) Cf. Chesneaux (1994).
[472] Smith (2001).
[473] Dorney (1990, 24).
[474] Cf. Annexe 2 to this chapter for an overview of the company structure.
[475] Cf. Annexe 7.2.
[476] Kahl in Dombrowski (2005, 89).
[477] Guy Wilson-Roberts in Adams (2000, 25).
[478] Miriori (1996, 59-62).
[479] Miriori (1996, 3).
[480] Boniface (1999).
[481] The numbers advanced by the parties vary from 8,000 to 20,000; most scholars, however, have rejected the higher estimate of 20,000 dead. Cf. Guy Wilson-Roberts, “The Bougainville Conflict: An Historical Overview” in Adams (2000). It should be emphasised that both violence and tropical diseases, which could not be treated because of the blockade, were responsible for the casualties.
[482] "Autonomy Approved for Bougainville”, UN Wire (28 March 2002).
[483] I owe the information on Melanesian business mores as well as the subsequent information on clan structure and clan inheritance to Dr Matthew Leavesley of the Leverhulme Centre for Human Evolutionary Studies, University of Cambridge. E-mail from Dr Leavesley, 9 March 2006.
[484] The closure of the mine, which contributed approximately 20% of government revenue, combined with falling agricultural commodity prices (coffee, copra, and cocoa) led to devaluation of the currency (the kina.) Value of one kina in US dollars: 10 April 1988: 1.8813; end 1989: 1.1631; February 1990: 1.04931. A devaluation over 20 months of 44%. This, obviously, had a severe impact on the current account, since PNG exports were denominated in dollars and since the country relies very heavily on imports. Substantial cuts in government expenditure followed.
[485] Sarei v. Rio Tinto plc 211 F. Supp. 2d 1116 C. D. Cal, Jul 9, 2002.
[486] Summary of case, Opinio Juris. Last accessed 24 August 2006.
[487] 542 U.S. 692, 124 S. Ct. 2739, 159 L.ed. 2nd 718 (2004).
[488] Orakhelashvili (2006, 308).
[489] 978 F.2d 493, 527; 116 A.L.R.. Fed 765, 61 USLW 2237.
[490] Guy Wilson-Roberts in Adams (2000).
[491] Sc. in United Nations (1962, 24-26).
[492] Miriori (1996, 2).
[493] "Explosive mines".
[494] Until 1997, known as RTZ Corporation PLC.
[495] I.e. Earning before interest, taxes, depreciation, and amortisation.

[496] The US authorities are not responsible for the use of US currency outside of the United States and, indeed, need not provide any explication at all. The US dollar is, however, the global reserve currency and as such provides immense economic advantages to the United States. Therefore, the use of the currency outside of the United States is of concern since a perceived misuse lends additional credit to the proposal to replace the dollar with an international currency composed of several weighted currency, as proposed by the PRC delegation to the G8 meeting, Aquila, Italy, July 2009.
[497] Underlying dataset is from UNCTAD, Handbook of Statistics 2008: Major FDI Indicators (WIR 20008) (Geneva: United Nations, Online.) The data entries have been summed in five-year periods, so that the year indicated in head of each column indicates the sum of the preceding five years. The summing was done on an Excel 2007 worksheet using a programme written in VBA by author.
[498] The underlying dataset on exports and imports is from UNCTAD, Handbook of Statistics (Geneva: United Nations, 2005). This was imported into an Excel spreadsheet. A VBA programme then calculated trade as the sum of imports and exports, the yearly growth in percentage, and from the latter the Five-Year Geometric Means of Growth in Trade. The geometric mean is calculated by multiplying the growth rates for the five years in a period, e.g. 1951 – 1955, and then taking the fifth root of the results ( (n1 x n2 x n3 x n4 x n5) ^(1/5) )

-----------------------
IL

Year

OC

Chart 2.2 Five-Year Growth Rates
12 European Countries. 1950-2003

0

5

10

15

20

25

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2003

Quinquennial Geometric Means

%

Chart 2.3 Trade as Percentage of GDP, 1950-2001
12 European Countries

0

10

20

30

40

50

60

70

80

1954

1959

1964

1969

1974

1979

1984

1989

1994

1999

2001

Year

O

AOB forms the horizontal plane,
OC a plane in 90° on AOB, and
ACB a plane, which is sloping with regard to the two mentioned planes. A, B, and C indicate the maximal achievable values, respectively for safety, secrecy, and return.

Ax

Cx

Bx

A

B

C

Safety

Secrecy

Return

1. Collection

Based on tasking from the user outside cycle

2. Collation
&
Analysis

3. Dissemination

M.E. Terrorist Organisation.
Sale of large quantities of narcotic drugs in the Middle East or Europe

Sicilian Organised Crime. Purchases in Middle East or Europe and then transports the merchandise e.g. to the United States

Sicilian Organised Crime in the US, sells narcotic drugs to US distributing systems; OC generates large quantities of funds in US $, small denominations, well used.

OC pays M.E. Terrorist Organisation in the USA. These organisations can thereby generate whichever amounts of funds they need in the US.

Funds have never transited a deposit-taking institution (bank, etc.) and have never crossed an international border.

A
Capital Flight

C
Terror Finance

B Criminal Proceeds

1

2

3

4

5

6

7

Integration

Establishing procedures that legitimise the possession and legal investment of proceeds.

Layering

Stacking of layers of complex transactions to separate proceeds from their criminal source

A
=
x4

B = x2

C
= x

RTZ
(UK)

Rio Algom
(Canada)

CRA (Australia)

PNG Government

BCL
(Bougainville)

55%

61%

53.6%

19.05%

Alexis Holyweek Sarei v. Rio Tinto PLC. 9th Circ. Apr. 12, 2007
Affirming in Part, Vacating in Part, Reversing in Part 221.Supp
Withdrawing and Superseding Opinion on Rehearing in Part 456 F.3d 1069
--- F.3d --- 2007 WL 1079901

Sarei v. Rio Tinto Plc 456 F.3d 1069
9th Circ. (Cal.) Aug. 7, 2006
Affirming in Part, Vacating in Part, Reversing in Part 211 F. Supp. 2d 1116

Sarei v. Rio Tinto Plc 211 F. Supp. 2d 1116 C. D. Cal, Jul 9, 2002
Dismisses claim under ATCA (28 USC §1350)

Trial Court

Appeals Court

Network nx Network nz Network ny 1995

1993

TC

1991

1989

1987

1985

1983

1981

1979

1977

80

70

60

50

40

30

20

%

10

0

Chart 2.15 M1c Growth
Triennial Moving Geometric Means

Foreign

Domestic

Figure 2.16. The Return-Safety-Secrecy Choice