Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy 
by Moisés Naím.
Arrow, 352 pp., £8.99, March 2007, 978 0 09 948424 0
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Moisés Naím identifies a new connection between world economics and world politics: ‘Global criminal activities are transforming the international system.’ This transformation, he argues, requires a wholly new response: biometrics and other new technologies are needed to track perpetrators; fancier security devices will be needed to detect fakes and copies; and governments will have to make bureaucracies more flexible. These, you could say, are alarming developments, and Naím should be congratulated for bringing them so forcibly to public attention. The only problem is to find evidence that any of them is actually true.

Naím’s book lays out several familiar propositions. First, while smuggling is an old story, something changed dramatically in the 1990s. ‘Globalisation’, along with unprecedented technological change, caused government control of borders to weaken, just when the variety and volume of goods (and money) crossing them accelerated. Second, today’s smugglers do not conform to the old ‘organised crime’ model, of centrally administered, transnational hierarchies typical of the time when narcotics dominated underground traffic. What we have now are informal networks embracing people, companies, even countries. These networks can decentralise and disperse, making them harder to crack, and since they pay no taxes or royalties and use sweated labour, they can face down legitimate competitors, who may be forced to enter into partnerships with them. True, this is not unprecedented, but the forms are new, and there are more places of refuge and more corrupt officials and bent businessmen to make it all work. Third, while part of this illicit trade takes the form of the usual banned commodities, especially problematic is the growing propensity of fakes and counterfeits to crowd markets and drive legitimate firms out of business. Fourth, illegal trade is no longer just an economic and moral challenge: it also ‘offers terrorists and other miscreants means of survival and methods of financial transfer and exchange’. Finally, the explosive growth of illicit traffic has undermined governmental powers, not just at the borders but deep within them. Traffickers have become so rich as to corrupt not just this or that official, but entire political parties and systems.

This sky-is-falling hypothesis hinges on the purported effects of ‘globalisation’, a term which, by really meaning nothing, can be used as a surrogate for just about anything. Does it mean that there is more international trade? No doubt there is much more today. But relative volume is just as important as rate of increase; and the problem with the ‘burgeoning trade’ notion is that it takes, as its implicit base of comparison, the disturbed conditions of the 1930s and 1940s rather than the much more expansive late 19th and early 20th centuries.

Or does globalisation refer to the propensity of purely speculative money flows to shake the international financial system? Perhaps, but in the late 1920s, a bank crash in Austria set off a liquidity crisis which helped tip the world into a massive depression. By contrast, in 1997, a huge meltdown of financial markets in Asia was followed by four years of the greatest bull market in history, as the economies of North America and Western Europe continued an unprecedented surge.

‘Globalisation’ is often taken also to mean that today’s businesses source things from many locations, depending on availability and cost, including the cost of labour. But isn’t that what trade has always been about? When (if ever) is it reasonable to declare that a certain point in a long-term quantitative process has signalled a revolutionary qualitative transformation?

At best ‘globalisation’ seems to be a modern term for something which began at least as far back as the time of Marco Polo, if not well before, when information about trade and financial opportunities started to spread across national and/or regional frontiers, and goods and money followed. If this is the case, then citing ‘globalism’ as a criminogenic factor in world trade is the same as saying that over time illicit entrepreneurs, like legitimate business people, expand their geopolitical horizons in line with the opportunities offered by greater ease of long-distance communication and travel. This might be true, but it isn’t very helpful. And while it is doubtless true that there is more economic crime across borders today, there is also much more legal business, and no proof that the proportion of illegality is increasing faster. Indeed, to the extent that exchanges are becoming liberalised, flows more transparent, taxes cut and regulations relaxed, illicit traffic across borders is more likely to be shrinking relative to total economic transactions. What is increasing is the amount of noise made about it.

There is a corollary insistence that recent developments in communications technology have had an unprecedented impact in broadening the range over which economic transactions, legal and illegal, occur. Obviously, modern communications and transport technology can have a major effect on economic exchanges (illegal as well as legal). Still, the fact that people use fancy technology simply means that it is available, not that it is necessary. And although technological advances are genuinely important, their impact is quite likely to be no greater than the effect of the railway, steamship and telegraph in the first half of the 19th century, and far smaller than that of the automobile, passenger plane, telephone and radio decades later. The real reason for the hike in long-distance trade is not some magical spirit of globalism but the post-World War Two (soon to end?) glut of oil, which in turn reflects the success of British and American petroleum companies, backed by their respective intelligence services and military forces, in ousting any leaders in the Middle East who threatened to get too big for their own good.

Similarly, all the hype over today’s international mobility must be taken with a grain of salt, if not the entire shaker. Before World War One, people who had the means were able to cross frontiers at will. Those who utter platitudes about today’s borderless world might try crossing the US-Mexico border during a trade dispute or drug alert. They will soon discover why it has been called the new Iron Curtain. All that has really happened is that borders which once had a fiscal (or conventional military) purpose now have more of a political one – for example, to interdict ‘criminals’ or ‘terrorists’.

The second alleged characteristic of this new economic age is that smugglers are abandoning the old model of transnational hierarchies in favour of loose and adaptable networks with which the authorities have more trouble coping. One problem with this theory is that the ‘organised crime’ model was always a myth put about by the police, politicians and the press, to be recycled to the point where anyone pointing out that ‘the Mafia’ (as an organisation rather than a pattern of behaviour) did not exist was treated with wide-eyed disbelief. But profit-driven crimes have always been the preserve of individuals or informal groupings. Nor is there anything surprising or novel about the way underworld entrepreneurs merge seamlessly with the upper world of legitimate business. The only question is the direction of causation.

Take the way that traffic in the most important of legal drugs is structured. While the so-called Medellín Cartel, which reputedly controlled billions of dollars annually in cocaine sales, was in some ways a figment of the imagination of US law-enforcement, the Virginia Cartel, made up of the Anglo-American tobacco companies who have for decades orchestrated the worldwide smuggling of cigarettes, is all too real. The big tobacco companies ship en masse to what are euphemistically called ‘free-trade’ centres and sell the cigarettes, often on credit, to wholesalers. They, in turn, hire or sell the merchandise to career smugglers who move it into the target country, along with loads of whisky, weapons and electronics. Since any sensible smuggler wants a two-way flow of cargo, on the return leg their boats or planes carry everything from cocaine to illegal immigrants. The practice began in South America, and was later repeated in South-East Asia and in Eastern Europe.

In other words, the tobacco smuggling apparatus operates not because smugglers have suborned the tobacco companies, but precisely the reverse: the tobacco companies have recruited, financed and even advertised on behalf of smugglers, some of whom have done remarkably well. The richest underworld entrepreneur in Colombia was known not as Don Perica (Andean slang for ‘cocaine’) but as the Marlboro Man. He was so proud of his vocation that, when extradited to the US, he left his Colombian jail cell wearing a tracksuit with a big Marlboro logo on the back.

Not only is a much wider range of goods smuggled than in the past, Naím claims, but most are intrinsically legal. No doubt prohibitions (such as those on recreational drugs) still contribute substantially to the underground freight manifests. No doubt, too, high taxes still stimulate contraband in cigarettes and alcohol. But a big chunk of smuggling now involves goods that violate regulations, particularly with respect to patents, copyrights and industrial designs. Yet what is new here may not be the spread of intellectual property crime so much as who is responsible for it and, consequently, the response to it.

For centuries, Britain protected its industries with high tariffs and subsidies while destroying those of other countries through economic warfare and military conquest. Then, when its manufacturers had built up a sufficient lead, it launched a crusade to sell the virtues of free trade to the rest of the world. Similarly, the US in the 19th century openly copied industrial designs and technologies from other countries and enticed away their skilled craftsmen, while drawing up its own intellectual property laws to preclude legal recourse. As the 20th century wore on, some producers, especially in the US, complained of counterfeits, but for a long time the issue was not regarded as significant for the economy as a whole.

By the 1980s, however, an increasing share of world trade depended on brand recognition; and ever more production was outsourced to places that offered the contradictory combination of virtual slave labour to enhance profits and a lax attitude towards ‘intellectual property rights’ that would threaten those same profits. So in the 1990s, the US, backed by an ever faithful Britain, led not a worldwide campaign against sweated labour but a global war on counterfeiting. To make it work they had to persuade the public, police and prosecutors alike that something serious was afoot. True, some people had been poisoned by fake drugs. However, laws already protected the afflicted consumer as distinct from the holder of a patent or trademark. Rolex watches don’t pose the same threat as contraband prescription drugs. Nor is it clear how much they actually dampen the market. People willing to shell out $4000 for a watch are hardly likely to buy a $40 replica. In any case, it is at least arguable that the real fakery is not the imitation but the con job perpetrated by the legitimate companies against clients foolish enough to pay full price – which makes product counterfeiting a rip-off of a rip-off.

The US brought in increasingly draconian anti-counterfeiting laws, but these were useless if police agencies (and the general public) refused to take them seriously. Historically, collaring counterfeit goods lacked the sex appeal of chasing Communists or crack dealers; and judges balked at imposing stiff fines and long sentences whose main effect was to raise the share price of companies which made the ‘real’ article.

Part of the problem was solved when industry discovered the menace of Organised Crime. At the end of the 1980s and on into the early 1990s, the media peddled tales of Triads, sometimes in league with the People’s Liberation Army, trafficking fake goods. An even greater boost came after 9/11, with the realisation that behind so much product piracy stood Osama bin Laden and his minions. Consumers who bought these goods, and merchants who sold them, were no longer just greedy and shortsighted; they were complicit in high treason and mass murder.

Among the greatest shocks of this supposed New Economic Age was the realisation that terrorist groups had made not just key infrastructure like the World Trade Center but the US economy itself the target of their holy war. The sale of fake consumer goods could not only be lucrative, but if conducted on a large enough scale, could erode customer confidence in the high-tech marvels of modern American industry – something to which any Indonesian worker toiling through a 12-hour shift for paltry pay in a Nike sweatshop could readily attest. The hysteria was stoked further by Interpol, the Paris-based organisation which serves as an information clearing house for police forces around the world. Its secretary general, Ronald Noble, a former senior official of both the US Treasury and the Justice Department, in the first ever address of an Interpol boss to Congress, informed the legislators that ‘intellectual property crime is becoming the preferred method of funding for a number of terrorist groups.’ The proof? Allegedly, a ‘suspected al-Qaida member’ once sent a crate of counterfeit cosmetics from Dubai to Copenhagen, perhaps en route to the US. ‘It is possible,’ Noble said, ‘that the funds generated are remitted to al-Qaida indirectly through zakat-based . . . giving.’ (It was also possible that the funds were remitted to the US Treasury directly through quarterly tax instalments.)

Of course, the problem was not entirely of al-Qaida’s making; nor was the US the only country to suffer. Noble noted IRA involvement in smuggling cigarettes and the actions of ethnic Albanian extremist groups in Kosovo, where a ‘significant proportion’ of consumer goods were fakes. Still, the US was the prime target, and had been for years – the first World Trade Center attack in 1993 had supposedly been partly financed by the sale of fake T-shirts.

Others agreed with the Interpol chief that the world had witnessed ‘a steady increase in counterfeited brands’ since 9/11 which had ‘created a deep concern among intelligence agents, who fear many of these criminal organisations are tied directly to al-Qaida’. Still, the story was not all bad. Industry representatives told Congress that the very success of the anti-terror effort in drying up funding in the Middle East had driven terrorists to counterfeit goods. It was time, the affected industries felt, for the world’s law enforcement agencies, prosecutors and judges to take the threat from intellectual property crime more seriously. Noble made the connection quite clear: ‘In general, law enforcement does not treat intellectual property crime as a high priority crime . . . In contrast, terrorist financing is regarded as a high priority for law enforcement agencies.’ What more needed to be said?

As for corruption, its existence in the world’s poorer countries is expected: it can be taken either as a symptom of failure to pay civil servants adequately (perhaps because the IMF, in the name of ‘efficiency’, has forced the country to slash public expenditure) or accepted as a second-best means of keeping a creaking bureaucratic apparatus at least partially functional. However, Illicit raises concerns to another level by asserting that the spread of trafficking allows corruption to reach its tentacles into Western countries from which it was previously absent.

Contemporary corruption in the West, of which there is plenty, has little or nothing to do with ‘globalisation’, or with any supposed shifts in the nature and volume of world trade flows. And it usually takes more subtle forms than the payment of easily traced bribes. It manifests itself most dangerously in the form of regulatory agencies in thrall to the industries they supposedly regulate, of a revolving door relationship between government and business through which top personnel routinely come and go, and of the ability of the powerful, directly through campaign contributions and lobbying, and indirectly through moulding public opinion, to shape the regulations and influence the degree of enthusiasm with which they are enforced. By comparison, a few bribes, even substantial ones, seem inconsequential.

Naím stresses that data to back up his assertions are readily available from reputable sources. Consider the claim that laundered money, apparently to be taken as a rough indicator of the spread of illegal international activity, represents between 2 and 5 per cent of world GDP. That number comes from no less an authority than the IMF. However, far from being the result of assiduous research, it was invented on the spot by an aide to the IMF chief when he desperately needed a figure to give to eager reporters at a press conference.

On the other hand, Naím is quick to point out that the figure is probably conservative: ‘Some estimates run as high as 10 per cent of global GDP.’ The ‘scientific’ basis of that 10 per cent has been amply confirmed by the frequency with which it has been used to explain the scope and dimensions of illicit activities around the world. For example, Raúl Salinas, the brother of a former Mexican president, allegedly took a 10 per cent kickback on Mexican privatisation deals, the same cut of public contracts siphoned off by the husband of Benazir Bhutto in Pakistan during her tenure as president. The same figure has been cited as the percentage of fraudulent claims on the American Medicaid/Medicare programmes, of smuggled CFCs intercepted by US Customs, and of US airline spare parts that are fake, stolen or sold without proper paperwork. It has been quoted as the share of stolen art recovered by customs and police, the proportion of Russian art treasures not yet stolen, the percentage of appraised value demanded in ransom cases involving stolen art, and the proportion of Rodin drawings on the market that are actually genuine. Ten per cent is also the tax rate imposed by guerrilla groups on illegal gems mined in Afghanistan, and the share of Zambian emeralds reported to the official monopoly – it’s the same with Myanmar rubies and Tanzanian tanzanite. It represents the percentage of retail coupons fraudulently cashed in the US, of Miami cops on the take, and of al-Qaida members killed or captured in the invasion of Afghanistan. And so on.

The claim that trafficking in illicit goods and services is so much easier today because there are many more places to hide and institutions to service the smugglers would have been news to the superpower of the 18th and 19th centuries. Back then, the British coast was dotted with sanctuaries for smugglers who exported things like wool and gold, and imported tea, gin and fancy French clothing – with the active support of the population at large, who not only told the smugglers where the revenue cutters were but usually refused to convict them during jury trials. Indeed, the rot went much further: respectable merchants, even Members of Parliament, invested in smuggling ventures. If the British government wanted to blame some rogue state for aiding and abetting, it had only to point a finger at the Netherlands, which hosted large distilleries set up specifically to sate the British thirst for bootleg gin, along with shipyards which specialised in vessels adapted to the quick freight business.

From the middle of the 19th century, however, the story is one of almost unrelenting progress among the major maritime powers in stamping out smuggling and privateering centres and improving their public administrations. That story continues to this day. Driven partly by drug war hysteria and more recently by the frenzy over alleged Islamic terrorist financing, anti-money laundering campaigns led by the US have succeeded in breaking open most offshore centres and turned the international financial system into a global espionage apparatus. Today, the best place to hide illicit economic activity is not within the institutional confines of a tax haven or free-trade centre, but in the bowels of a giant transnational corporation. These corporations alone have the freedom to move goods and money from place to place without the risk of any regulatory agency being able to probe much below the surface.

That, of course, raises the ultimate criticism to be made of Illicit. Today, the real socio-economic problems have nothing to do with the production of a few fake Rolex watches. Rather, they are the spread of irresponsible corporate power and, along with it, the progressive disenfranchisement of peoples, the destruction of social safety nets, the gross deterioration in the distribution of income and wealth, and rampant ecological brigandage across the world. On these subjects, Illicit is silent.

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