The end of the Cold War and globalization of business and travel have given international criminals unprecedented freedom of movement, making it easier for them to cross borders and to expand the range and scope of their operations. As a result, virtually every region or country in the world has seen an increase in international criminal activity--as either a source or transit zone for illegal contraband or products, a venue for money laundering or illicit financial transactions, or a base of operations for criminal organizations with global networks. Many regions or countries serve all three purposes for international criminal operations. Besides making the law enforcement and security challenges for the United States more complex, the global spread of international crime threatens vital US interests at home and abroad.
This chapter addresses the world's major regions and countries of international criminal activity that threaten Americans, US business and economic interests, and US security interests. Each regional or country overview focuses on three key issues:
Like the United States, the West European countries are both a lucrative target and an attractive operating environment for international criminals because of their relative wealth and modern financial, telecommunications, and transportation infrastructure. The well-to-do West European population rivals the United States as the most desirable market for drugs, as well as other contraband, and an arena for financial fraud schemes victimizing individuals, businesses, and government entitlement programs. The speed and efficiency of modern commercial and banking services available in West European cities make them particularly vulnerable to illicit financial transactions-- including money laundering and arranging financing for illegal activities. The single-market reforms of the European Union (EU) under the Schengen Agreement that permit unfettered movement of goods, services, labor, and capital throughout most of Western Europe; sophisticated infrastructure for facilitating international trade; and tremendous volume of people and goods passing through commercial airports and seaports are exploited by international criminals to move drugs, arms, illegal aliens, and other contraband throughout Western Europe and to use EU gateways to reach every other region in the world.
Western Europe has long been popular for money laundering and illicit financial transactions because of its advanced economies and financial systems. Terrorist groups and states of concern use West European commercial and financial centers in efforts to evade international embargoes or to acquire proscribed technologies and materials for weapons of mass destruction. Most West European governments have changed, or are changing, their domestic laws to conform to FATF anti-money-laundering standards. Despite these recent legal changes and improved enforcement mechanisms, however, Western Europe remains a primary locale for money laundering by criminal organizations operating both inside and outside the EU because it offers numerous alternative channels through which to place and legitimize illicit proceeds.
EU members are facing an increasing threat from international drug traffickers and from illegal migrants, many of whom wind up employed by ethnic-based crime groups to make their livelihood. The size and profitability of the West European drug market are close to rivaling that of the United States. Turkish and Albanian criminal groups dominate wholesale distribution of Southwest Asian heroin in most of the EU countries, according to European law enforcement information. South American drug traffickers--working closely with Italian organized crime--have been developing a growing cocaine market since the early 1980s.
The EU countries are also a primary destination for illegal migrants, including women and children smuggled into the continent for prostitution and entertainment businesses controlled by organized crime.
Organized crime has flourished most in the poorer Mediterranean region of the continent. Relatively stagnant economic conditions and high unemployment in this region, compared to northern Europe, have helped to drive organized criminal activity. Organized criminal activity has thrived particularly in southern Italy and the Balkans, and along the traditional cross-Mediterranean and cross-Adriatic smuggling routes on historical trade arteries between Europe, North Africa, the Middle East, and Asia. Moreover, traditional cultural and societal emphases on familial ties have promoted group cohesiveness within criminal organizations. In southern Europe, particularly Italy, organized crime groups have expanded their influence through political involvement.
Playing on these historical factors, organized crime remains deeply entrenched in Italy despite the implementation of new antimafia laws and the arrests of several high-ranking crime bosses since 1990. Italian organized crime groups continue to have a significant impact on the economy. Through the companies they control, Italian organized crime groups have secured public works contracts worth billions of dollars. They have profited from cost overruns and kickbacks in fulfilling these contracts.
Cocaine Seizures in Europe, 1990-99
Indigenous criminal organizations are less entrenched elsewhere in Western Europe, but foreign ethnic-based crime groups have established footholds in expatriate enclaves in most EU countries. Cultural and linguistic ties between the Iberian Peninsula and Latin America are exploited by South American drug traffickers who stimulate the demand for cocaine in Western Europe's more profitable market. Liberal immigration or refugee policies have led to large migrant populations in many West European urban areas where criminal cells with ties to Turkey, Iran, the Balkan countries, North Africa, and other regions have taken root. These criminal groups are largely involved in contraband smuggling, including drugs and arms. Some--Turkish and ethnic Albanian crime groups, for example--rely on legal and illegal immigrant communities that maintain drug distribution networks in Western Europe.
The Political Dimension
Public perceptions in many EU countries blame foreign ethnic organized crime groups for high crime rates as well as other societal ills. The sometimes volatile anti-immigrant sentiment and support for nationalist parties in several countries are attributed in part to the role of foreign criminal groups in drug trafficking, gunrunning, financial frauds, and alien smuggling. Although Europeans historically have tended to take a liberal view toward drug use, viewing drug addiction as a medical and social problem, EU governments have become increasingly concerned about abuse trends and have taken a more aggressive stand toward narcotics trafficking.
With the criminal threat they face having become more multidimensional in the last decade because of the collapse of Cold War barriers, the implementation of the Schengen Agreement, and the growing presence of Russian and ethnic Albanian criminal groups, the West European countries in general have increased their attention to the problem. Italy's aggressive law enforcement campaign targeting the Sicilian Mafia in the early 1990s that resulted in the arrests of several key Mafia bosses has weakened its power and influence. Other West European countries are more focused on foreign ethnic organized crime groups operating inside their borders.
Greater awareness of the international criminal threat has increased anticrime
cooperation within Western Europe. In the mid-1990s Europol was established
for sharing information and to help stimulate law enforcement collaboration.
Police cooperation among EU members against international criminal networks
has been enhanced, particularly against groups involved
in drug trafficking, financial frauds, and money laundering.
Recent scandals involving illicit financial transactions in Switzerland and Liechtenstein have focused attention on the criminal exploitation of West European banking centers. Switzerland--a former bank secrecy haven--has become significantly more active in combating money laundering in recent years, passing new money-laundering legislation in 1998 that set tighter standards for the banking sector and initiating a practice of alerting foreign governments to suspicious transactions in Switzerland. In Liechtenstein, press reports of money laundering by Russian organized crime groups have brought renewed attention to the need to reform its financial services sector. Since the early 1980s, there is evidence that major criminal organizations--including Latin American drug-trafficking groups, Italian organized crime, and Russian crime syndicates--have taken advantage of Liechtenstein's weak banking controls and strong tradition of banking secrecy to launder money and make other illicit financial transactions.
Italy's largest criminal organizations--the Sicilian Mafia, Calabrian 'Ndrangheta, Neapolitan Camorra, and Puglian Sacra Corona Unita--were born and bred in rugged rural areas, where they engaged in local criminal rackets and were generally esteemed as protectors of local peasant interests. The defeat of Italian fascism in World War II allowed these groups to extend their influence into urban areas, which provided greater openings to the outside world. Many of Italy's banking, commercial, and port facilities fell under the influence or control of organized crime. In the last half century, Italian organized crime groups have become self-sustaining, multifaceted criminal organizations with considerable clout in Italy's political and economic systems. They have proven to be resilient and opportunistic, often emerging stronger from periodic government attempts to crack down on organized crime and taking advantage of new criminal opportunities.
As Italian criminal organizations became more ruthless and concerned with accruing power and wealth, there was increasingly strong public support in Italy for a crackdown against organized crime. By largely abandoning their traditional "code of honor," which, for example, did not tolerate common crime or violence against women and children, the Sicilian Mafia in particular began forfeiting public acquiescence; unlike in the past, large numbers of Sicilians now publicly oppose the Mafia. Encouraged by strong public outcry--including outrage over two particularly notorious Mafia assassinations of leading Italian anticrime prosecutors Falcone and Borsellino in 1992--authorities have mounted an aggressive campaign against organized crime. Aided by informants, Italian law enforcement authorities have made some significant arrests that have disrupted Italian criminal organizations.
The testimony of informants indicates that Italian criminal organizations have responded by making organizational and operational adjustments, including restructuring into smaller compartmented cells, that have tightened security and allowed them to continue widespread international criminal activities.
Italian organized crime groups have moved well beyond their home regions in southern Italy and are now firmly entrenched throughout Europe, in Central and South America, the Caribbean, Canada, and the United States. Expatriate Italian communities and established international criminal connections in these regions have given Italian organized crime groups the infrastructure and capability to move highly profitable contraband products--including drugs, arms, and cigarettes--and launder illicit proceeds on a global basis. They maintain legitimate business holdings worldwide that are often used as a cover for their criminal operations. Italian crime groups' longtime investments in real estate and entertainment enterprises--particularly gambling casinos--in Germany, France, Monaco, Spain's Costa del Sol, and the Caribbean are conduits for money laundering. Since the early 1990s, Italian criminal organizations have been reported buying properties and businesses in Eastern and Central Europe and many of the NIS of the former Soviet Union to launder money. According to media accounts, Sicilian Mafia front companies have been identified in virtually every East European country and in Russia.
Italian Crime Groups
Although Italian criminal organizations continue to operate largely independently in their traditional contraband smuggling and extortion rackets, their extensive involvement in international drug trafficking, arms smuggling, and money laundering has caused them to develop cooperative longterm relationships with each other and with foreign criminal groups. The Sicilian Mafia, 'Ndrangheta, Camorra, and Sacra Corona Unita have shared well-established international smuggling routes and sometimes helped finance each other's trafficking operations, according to US law enforcement. Collaboration with criminal groups from Turkey, Asia, Russia, the Balkans, and Latin America has assured Italian organized crime reliable sources of supply for drugs and arms. Italian criminal syndicates have worked with Albanian crime groups in trafficking women and children from the Balkans and Nigeria and illegal migrants to Italy. They have also played a prominent role in money laundering for Colombian traffickers and other foreign criminal organizations.
Drug and Arms Trafficking
The role of Italian criminal organizations in the European drug market has diminished, but drug trafficking remains an important source of revenue for Italian crime syndicates. Italian criminal organizations have traditionally procured Southwest Asian heroin from Turkish traffickers and have more recently established heroin-trafficking links to Russian, ethnic Albanian, and Asian crime groups. Italian crime groups also collaborate with South American traffickers to acquire cocaine.
Since the collapse of the Soviet Bloc, local crime groups in the volatile Balkan states have become a major source of arms and explosives for Italian organized crime. The former Yugoslavia and Albania appear to be the primary arena for Italian criminal organizations to both acquire and sell illicit weapons. Press reports in 1998 and 1999 indicated that black-market prices for Yugoslav-origin infantry weapons ranged from 100 to 500 percent more than the commercial prices for those weapons, and profits on explosives are enormous.
The illicit trafficking and disposal of hazardous wastes and trash is emerging as one of the most lucrative activities for Italian organized crime groups. The leading environmental group in Italy estimates that Italian syndicates earn $3.5-8.5 billion annually from the illegal dumping of hazardous wastes and from other environmental crimes, such as trafficking in endangered species. According to Italian press reports, front companies and legitimate waste-removal businesses controlled by Italian crime groups dominate both the legal and illicit waste disposal business throughout Italy and in parts of France and Switzerland.
The dumping of hazardous wastes and trash appears to be the most significant source of illicit income for Italy's Camorra crime syndicates, topping their narcotics, prostitution, and embezzlement activities. Camorra clans control the collection of solid waste in Naples and surrounding municipalities. At the regional level, Camorra crime groups collect, transport, and dispose of hazardous and noxious wastes coming from other regions.
Italian criminal organizations maintain an active presence in the United States and are involved in drug trafficking, arms smuggling, financial frauds, extortion, illegal gambling, counterfeiting, and money laundering. US law enforcement indicates that the Sicilian Mafia is the most active Italian organized crime group in the United States and maintains close contact with US La Cosa Nostra crime families in New York, Newark, Los Angeles, Chicago, Philadelphia, Detroit, Buffalo, and Tampa. 'Ndrangheta, Camora, and Sacra Corona groups also operate in the United States, particularly in Florida.
Italian organized crime groups continue to be involved in smuggling drugs into the United States, although they no longer are as significant as they had been in the 1960s and 1970s, when they were responsible for as much as 85 percent of the US heroin trade, according to DEA information. A series of investigations and prosecutions in Italy, Turkey, and the United States targeting Italian networks supplying heroin to the United States in the 1970s and 1980s substantially reduced the role of Italian organized crime in the US drug market. Italian crime groups make extensive use of specialty companies as fronts to move drugs and probably to launder drug money in both the United States and Canada.
Several Italian organized crime families continue to smuggle heroin into the United States using connections in Venezuela and Canada.
In Eastern and Central Europe, the fall of Communist regimes and end of tight border controls have attracted foreign criminal organizations. International criminal activity in the region increased rapidly in the early 1990s as new democratic governments focused on more fundamental political, social, and economic problems. Russian, Italian, ethnic Albanian, Nigerian, and Chinese criminal organizations and Colombian drug-trafficking groups have all made inroads into this region since the breakdown of the old order. In addition to developing these countries as targets for criminal activity, international organized crime groups are exploiting their relatively weak law enforcement and loose border controls to circumvent traditional points of entry into Western Europe, where customs and law enforcement measures have become more stringent. Several of the region's countries are transit routes for Southwest Asian heroin, and Poland and Croatia may be emerging as transportation routes for South American cocaine destined for Western Europe and new markets in Eastern and Central Europe.
Geography is one of the primary factors in the growth of organized crime in Eastern and Central Europe. The region is a strategic crossroads between Russia and the NIS--major "source" areas for international criminal activity--and Western Europe, a primary market for drugs and other illicit products. Contraband trade also crosses the region from West to East, as international criminal organizations--primarily Russian--smuggle alcohol and tobacco products, luxury automobiles, and other high-demand consumer items generally unavailable or prohibitively expensive in Russia from Western Europe.
Criminals in Eastern and Central Europe have taken advantage of increased trade and commercial relations with Western Europe. Many criminal gangs from these countries have expanded their local criminal rackets into Western Europe. Polish crime gangs, for example, are now competing with the Netherlands as a significant source of amphetamines for Western Europe. Polish-produced amphetamines, known for their purity, make up at least 25 percent of the European market, according to European law enforcement officials. Poland, the Czech Republic, and Romania are key sources for women and children illegally transported to Western Europe and elsewhere, including the United States.
Since the European Union countries began implementing and enforcing tougher regulations against money laundering in the early 1990s, criminal organizations from both East and West have moved some of their money-laundering activities into the transitioning economies of Eastern and Central Europe. They have taken advantage of inadequate legislation--including lack of laws granting government agencies regulatory and criminal investigation powers--and poor enforcement of the region's developing modern banking and financial systems to smuggle cash and legitimize large sums of illicit profits.
In recent years, press reporting citing government and law enforcement officials indicates that Italian and Russian criminal organizations have moved aggressively into the legitimate economy of many formerly Communist East and Central European countries. These criminal organizations and unscrupulous businessmen have taken advantage of poor regulations guiding privatization of national assets and capitalization of banks to purchase or invest heavily in banks, financial institutions, and businesses and to defraud fledgling stock markets. These activities have enabled criminal organizations to operate companies as fronts for smuggling contraband between East and West and for laundering illicit proceeds. Concerns that criminal elements have tried to take advantage of the privatization process has made officials in some of these countries more cautious about foreign investment.
The impact of criminal activity within their borders has focused the concerns of government and law enforcement officials in Eastern and Central Europe. As they have transitioned from a socialist system to market-oriented economies, the formerly Communist Eastern and Central European countries have had to confront crimes that were previously nonexistent. The previous regimes had no laws or regulations for dealing with crimes such as money laundering, stock market fraud, and theft of intellectual property rights.
Crime, corruption, and drug addiction have become salient political issues in many East and Central European countries. According to a November 2000 public poll in the Czech Republic, 80 percent of that country's citizens believe economic crime and corruption are the country's most serious problems. Crime was a major issue in the May 1998 elections in Hungary that toppled the former socialist government and brought in a new center-right administration; the new government's Interior Minister declared that an appropriate response to organized crime was one of the new government's top priorities.
Bulgaria's government, elected in 1997, also made combating organized crime and corruption a policy priority, including cracking down on product piracy. In December 1999, the prime minister sacked two-thirds of his cabinet, in part in response to allegations of corruption, according to local media. In August 2000, Bulgaria ordered the expulsion of eight international crime figures, according to media accounts.
The interest of most of the region's countries in becoming members of the European Union has encouraged them to consider regulations and legislation to deal more effectively with a broad range of criminal activities, including cross-border smuggling and money laundering. Government and law enforcement officials from these countries have been meeting with their West European and US counterparts to set up training and assistance programs for combating international criminal activity within their borders.
A major side effect of the end of the Cold War is that Russia and the NIS that were part of the former Soviet Union have become fertile ground for organized crime to expand its illicit activities. The end of police states, the relaxation of social controls, and the opening of borders in these formerly "closed" societies have allowed both local and foreign criminal organizations unprecedented freedom to operate. Criminal networks comprised of traditional organized crime groups, highly skilled professionals, and corrupt officials and politicians have moved quickly to fill vacuums created in climates of radical political, economic, and social change.
Criminal groups have been aggressive in cultivating business relationships with politicians, government officials, and business magnates--a major factor in their becoming a pervasive and powerful force in Russia, the Baltics, and other NIS countries. Corrupt officials in Russia have also provided criminal front companies with export licenses, customs exemptions, and government contracts.
The greater integration of Russia and the other states of the former Soviet Union with much of the rest of the world since the end of the Cold War has opened new avenues for international criminal activity. Russian crime groups are using the region's fledgling free market and banking sectors to move large amounts of capital across borders, to launder money, and to transact a variety of financial frauds. The removal of Moscow's formerly tight control over travel between different regions of the former Soviet Union and open borders with Europe in particular has greatly facilitated the smuggling of drugs, arms, illegal immigrants--including trafficking of women and children--stolen vehicles, alcohol, cigarettes, and other illicit contraband.
In Russia and many of the NIS, an alliance of corrupt government, criminal, and business elements resisted the effective implementation and enforcement of legal and economic reforms that would have inhibited their ability to gain control or substantial influence over the productive resources formerly owned by the Soviet state and to expand their illegal activities. Russian organized crime groups have capitalized on weak enforcement of existing regulations and inadequate or nonexistent legislation. They exploited the fitful growth of the private sector by investing in banks and businesses, providing protection of persons and property, settling disputes and contract fulfillment, and offering seemingly affordable loans with expensive strings attached. Law enforcement capabilities are hamstrung by cutbacks in funding, poor training and equipment, lack of sophisticated investigative techniques, and laws that do not apply to many of the illicit activities carried out by criminal groups, particularly financial crimes.
Economic and political instability following the dissolution of the Soviet Union in 1991 allowed organized crime to consolidate its position in Russian society. The government's continued ownership of major enterprises and role in regulating the economy created enormous opportunities for bribery and corruption of government officials in economic ministries and throughout government bureaucracies. Besides profiting from insider influence in privatization offerings and a broad range of economic-related criminal activities, Russian organized crime on occasion has been able to influence the legislative agenda.
Russian criminals continue to buy political influence to protect their assets, to facilitate criminal activities, and to avoid prosecution. Some crime groups invested in the political process by participating--directly and indirectly--in election campaigns, including funding parties and candidates. Corruption in Russia's security and law enforcement institutions is an additional impediment to dealing effectively with the power of Russian crime groups.
Crime and corruption have had a significant impact on the Russian economy. Russian organized crime groups have cashed in on privatization of formerly state-owned industries. Most significantly, Russian criminals have made substantial inroads into lucrative strategic sectors of the economy. Russian criminal experts say that organized crime is present in practically all of Russia's regions.
Russian organized crime is invested in Russia's developing financial sector. To some extent, Russian criminal groups have penetrated the banking sector by periodically providing cash infusions to financially troubled banks, using extortion or intimidation, and purchasing existing banks outright or establishing new ones, according to media accounts. They use their control or influence over banking institutions to launder illicit proceeds, to obtain financial information about competitors or potential extortion targets, and to withhold financial information from government regulators. By early 1998, Russian criminal groups had penetrated more than 550 banks, according to one Russian Government estimate.
Some of the business enterprises associated with criminal organizations in Russia are large transnational corporations engaged in import/export trade and commodities brokering whose networks and assets deprive the Russian Government of substantial legitimate revenues. Like many legitimate enterprises, businesses associated with crime --groups appear to be well-connected to political elites in Russia and other NIS and use their political ties, as well as bribery, to win concessionary contracts or to protect criminal transactions.
The hard-currency-earning oil and gas trading sector of the Russian economy is one of the most lucrative havens for organized crime. The international scope and relative profitability of Russia's oil and gas industry are attractive for conducting money laundering and other illicit financial activity. Criminal groups are involved primarily in oil and gas distribution, embezzlement, extortion, oil theft, and money laundering. Russian crime groups gained considerable clout in fuel and energy industries by supplying short-term business loans to oil companies and providing access to corrupted government officials who can lobby for favorable legislation, or influence business deals.
Russia's aluminum industry has been a target of criminal groups because of its multibillion-dollar revenues. In addition, the fact that the aluminum industry is highly concentrated--four plants produce more than 75 percent of Russia's total output--allows criminal groups to infiltrate this industrial sector with relative ease.
Russian organized crime has also been extensively involved in smuggling gems and precious metals out of the country. According to Russian Government estimates, $100-300 million worth of diamonds are smuggled out of Russia each year. In 1998 and 1999, Russian law enforcement removed from illegal circulation about 1 metric ton of gold, more than 1 metric ton of silver, and 28,000 carats of uncut diamonds, cut gems, emeralds, rubies, sapphires, and pearls.
Russia: Criminal Penetrations of Key Economic Sectors
Impact on Russia's Financial System
Although not directly responsible for Russia's fiscal, banking, and investment problems, Russian organized crime groups have contributed to their severity by exacerbating systemic problems. Capital flight, estimated by the Russian Government to be about $1 billion a month, almost certainly includes some laundering of money from organized criminal activity. Russian crime groups reinvest little of their profits from even ostensibly legitimate business activity--such as hotels, restaurants, and casinos--domestically, instead frequently transferring their proceeds to more secure West European and offshore financial centers. Failure to repatriate export earnings and fictitious import deals reportedly are the most common methods used by Russian criminals to move capital abroad.
According to one Russian estimate, the underground economy accounted for 40 percent of the country's GDP in 1996. Moreover, Russian crime syndicates almost certainly conceal all or part of the income generated by businesses they control from tax authorities by sending most of the money outside Russia.
Russia's financial problems are primarily exacerbated by a poor investment climate that fails to attract the capital necessary for economic growth. Besides government corruption, weak enforcement of contracts, and high taxes, legitimate investors--both domestic and foreign--are deterred by widespread extortion and the violence associated with having to deal with organized crime. According to published Russian figures, 79 Russian bankers and at least twice as many businessmen were assassinated in contract killings between 1994 and 1997. In 1999, there were 155 contract killings in Russia, according to published figures.
US and other foreign businesses interested in investment and joint-venture opportunities not only cannot compete on a level playing field due to the poor investment climate, but must also cope with criminal extortion and racketeering to do business in Russia. In the absence of effective legal protections, Russian businesses often rely on criminal groups and pay significant fees for protection, debt collection, capital, and information gathering. Representing their business "clients," criminal groups often play a role in negotiating contracts or resolving business disputes, which often end violently.
Social and Political Implications
Besides its significant impact on the economy, criminal activity has taken a substantial toll on Russian society. Rising crime rates are overwhelming judicial systems in Russia, which are woefully underfunded and vulnerable to bribes from criminals, according to Russian press accounts. Criminal violence remains rampant, with crime groups targeting rivals, uncooperative businessmen and bankers, and anticrime media, enforcement, or political crusaders for assassination. Many Russian citizens have been victimized in robberies and elaborate schemes defrauding them of property and savings, some of which end in murder.
Over the past five years, Russia's domestic market for illegal drugs has grown substantially as the flow-through of hashish, heroin, and other opiates from Southwest Asia, through Central Asia and Russia, to Western Europe--fed by the surge in Afghan opium production--increased with the end of Soviet travel controls and the opening of borders with Europe. Official Russian data show dramatic increases in drug addiction and crime rates since the collapse of the Soviet Union. In 1999, according to Russian data, there were 350,000 officially registered drug users in Russia, of which 175,000 were considered drug addicts. The Russian Ministry of Interior (MVD) and Health Ministry, however, estimate that the actual totals are 10 times greater--more than 3 million users and almost 2 million addicts; 3 million users would be about 2 percent of the Russian population. Russian and international health officials estimate that intravenous drug users are responsible for 80 to 90 percent of the 36,000 officially registered HIV cases; because of the lack of comprehensive HIV testing and reliable reporting methods, government officials and international experts suspect the actual number of Russian HIV cases may be five to 10 times higher than official estimates.
The growth of crime and widespread corruption, together with Russia's struggling economy, is undermining Russia's transition to a fully functioning democracy and free market economy. Many Russians blame free market reforms for the breakdown of law and order and for having benefited primarily criminal entrepreneurs. Discredited for corruption and political ineffectiveness, it has become increasingly difficult for the Russian Government to meet its citizens' expectations for social justice, equality of opportunity, and improved living standards. Popular perceptions of liberal democracy as ineffectual, corrupt, and even in league with organized crime may boost the appeal of antidemocratic politicians opposed to further reform.
The relative dependence of Estonia, Latvia, and Lithuania on Russian energy supplies and the importance of Baltic ports for Russian transit trade provide significant opportunities for Russian and other organized crime groups. Although all three countries have reoriented their trade more toward the West, Russia remains a major trading partner for Latvia and Lithuania. The Baltic states are the major commercial outlet between Russia and the West; according to Interfax Foreign Trade Report figures, the major Baltic ports handle nearly 13 million tons of Russian cargo annually. Russian and other organized crime groups are taking advantage of the high volume of trade through these ports to smuggle contraband both ways, including drugs transiting Russia to Western markets and automobiles stolen in Europe for Russian buyers. The trade in strategic commodities--particularly fuel and energy resources--is a particularly lucrative target for criminal groups.
The rapid growth and poor government oversight of the Baltic countries' financial sectors enabled a few Russian criminal groups to acquire some control or influence in banking institutions to launder money and to make insider loans to their own front companies. The collapse of Latvia's Bank Baltja--the largest commercial bank in Latvia at the time of its failure in August 1995--illustrates the potentially severe implications of this trend. Bank Baltija was the centerpiece of a Russian and Latvian crime syndicate that used the bank to make bad loans to its own companies, defrauding the bank's accounts of as much as $40 million. The bank's collapse provoked a major financial crisis in Latvia, contributed to the fall of the government, and forced Latvia to seek short-term assistance from the International Monetary Fund. This episode prompted Latvia to adopt tougher laws regulating the banking sector.
As a strategic crossroads between East and West, Ukraine has experienced a significant increase in all forms of organized criminal activity during the 1990s. Transportation routes through Ukraine are used by Russian and Ukrainian organized crime groups to smuggle arms, drugs, other contraband, illegal immigrants, and trafficked women between Russia, Ukraine, and Western Europe. The volume of legitimate trade, including in strategic commodities such as oil, make Black Sea ports in Odesa and in the Crimea attractive to organized crime. Russian organized crime groups are particularly well-connected in Crimea and Odesa--dating back to Soviet rule.
Organized crime has flourished in Moldova over the past decade, especially in the breakaway Transnistria Region. Moldova's local crime groups have established close ties to Russian, Ukrainian, and other foreign criminal syndicates that also act in the country. Criminal groups in Moldova are frustrating government efforts to attract needed foreign investment and are contributing to political and social instability.
Moldova is one of the largest per capita sources of trafficked women and girls in the NIS, primarily for the sex industry in Turkey, Greece, Italy, and the Balkans.
As in Russia, the overlapping connections among the new business class, criminal groups, and government officials have made corruption a significant problem for Ukraine and Moldova. Political connections have assisted criminal groups and their front companies' efforts to acquire lucrative contracts or state-issued licenses for exports, particularly in the energy and metals-trading industries. Corruption in Ukraine has contributed to a significant level of gangland violence that has involved or targeted government officials.
In both regions, criminal groups are taking advantage of nominal border controls and weak law enforcement. The mountainous, remote Caucasus countries of Georgia, Armenia, and Azerbaijan, have traditionally not had the benefit of active control by law enforcement. Criminal activity there has been largely local and focused on extortion, robbery, smuggling, and kidnapping. The Central Asian countries have become an increasingly important alternative to traditional Southwest Asian-Balkans routes for heroin and hashish shipments from Afghanistan destined for Russia and Europe. Tajikistan is the major gateway for Afghan heroin being smuggled into Russia. Organized crime groups in Central Asia and the Caucasus will look to take advantage of development in the Caspian Sea oil basin, which gives them potential access to lucrative oil revenues.
The Central Asian countries are increasingly calling for action against the expanding drug trade from Afghanistan. Uzbekistan, Kyrgyzstan, and Tajikistan in particular believe that drug trafficking is a major source of funds for insurgencies threatening their national security.
Powerful Russian criminal organizations with international networks are one of the most troubling and dangerous legacies of the former Soviet Union. Russian criminal groups had their genesis in the Soviet era when the black market helped to grease the wheels of the command economy, including ensuring that large state-owned factories received the necessary supplies to keep operating. They also developed allies among Soviet officials by providing them goods and services difficult to obtain in the USSR. While in Soviet prisons during the 1970s and 1980s, some of the top crime leaders forged personal ties that today facilitate occasional coordination of activities, sharing of business investments, and support for one another when in trouble. Russian organized crime groups exploited the privatization of state-owned resources and systemic weaknesses in Russia's fledgling market economy following the collapse of the Communist system to build powerful criminal empires. They cultivated mutually beneficial relationships with government officials and politicians to become powerful players in Russian politics and society.
According to the MVD, there are 89 major criminal communities in Russia that comprise about 1,000 smaller criminal groups. Eleven of these communities, made up of 243 groups with some 50,000 members, also operate in 44 other countries. The US Government estimates there are about 200 sophisticated organized crime groups in Russia with a broad range of operations, some of which extend beyond Russia's borders in some 60 different countries. Most Russian criminal organizations are located in industrial and commercial centers, giving them opportunity to make inroads into lucrative sectors of the Russian economy.
Russian crime groups are characterized by ruthlessness and violence, and many are very well armed-- presenting a formidable challenge to Russian law enforcement elements, which are often outgunned, and underfunded particularly at the local level. There is no apparent supreme hierarchy among Russian organized crime groups, nor is any one group masterminding the activities of the others. Instead, Russian criminal organizations have their own spheres of influence that are generally defined by geography, ethnicity, and, in some cases, specific criminal activity.
International Bases of Operation
From their Russian base, the leaders of major Russian organized crime groups have broadened their influence worldwide through political and business contacts, which they have used to facilitate their legitimate and illicit business interests on a global scale. Since the collapse of the Soviet Union, Russian organized crime groups have spread rapidly beyond the former Soviet borders and have a presence in some 60 countries in Europe, North and South America, the Caribbean, Asia, and Africa. The international presence of Russian organized crime, however, is most pronounced in Eastern and Central Europe, where Russian crime groups are involved in narcotics and weapons trafficking, car theft, and financial crimes. Russian organized crime money-laundering operations have been observed in offshore banking centers in the South Pacific, Cyprus, and various Caribbean islands as well as in East European economies. These groups tend to mount sophisticated large-scale financial fraud schemes.
Drug-Trafficking Routes From Northern Afghanistan
Solntsevo: Russian Organized Crime Group With International Dimensions
The Solntsevo criminal organization is widely perceived to be the most powerful Russian crime syndicate in terms of wealth, influence, and financial control. Its leadership, structure, and operations exemplify the new breed of Russian criminals that emerged with the breakup of the Soviet system. Rather than the traditional "thieves-in-law" who dominated the criminal underworld during the Soviet period and played more of a "godfather" role in overseeing loosely organized criminal networks, the leaders of Solntsevo and other post-Soviet Russian criminal groups are not only more flamboyant, aggressive, and politically savvy, but also well-versed in modern technology and business practices that allow them to operate efficiently across international borders.
The power and wealth of the Solntsevo crime group derive largely from its financial and business network in Russia and highly placed political connections. According to press reports, Solntsevo benefits from Moscow city projects through its reported links to a construction, tourism, real estate, and utility conglomerate that obtained many of its properties from the city and holds others jointly with the municipal government.
While dominating Moscow's criminal underworld-- including the market for drugs, particularly cocaine-- Solntsevo also has extensive worldwide operations. Solntsevo's international criminal activities are said to include trafficking narcotics and arms and money laundering.
Outside former Soviet Bloc borders, Russian criminals take advantage of places that are most attractive to Russian businessmen and tourists, using them as cover and opportunity to engage in a broad range of criminal activities. Russian criminals use overseas resorts frequented by Russian speakers to run extortion rackets and prostitution rings, trade in black-market consumer goods and drugs, and to launder money.
Russian crime groups are also attracted to countries that have liberal cash circulation laws, few restrictions on direct investment, and allow nonresidents to establish businesses. Investments in the real estate, tourist, and entertainment sectors, interest in banks and financial services companies, and the establishment of front companies in countries frequented by tourists and businessmen from the former Soviet Union provide a ready haven for laundering and hiding illicit proceeds earned there and smuggled out of Russia and the NIS.
Over the last several years, Russian organized crime groups have been expanding their operations internationally by establishing international business enterprises in offshore financial centers. Low incorporation fees and quick startup provisions in many offshore havens have enabled Russian criminals to change firm names--complicating any law enforcement investigations against them--with relative ease and low cost. The use of nominee shareholders and directors also hides ownership and helps to avoid account inquiries in the case of litigation or criminal investigations. Once Russian criminal proceeds have been placed in an offshore firm, they can be moved quickly and relatively safely through the global electronic funds transfer network supporting international banking and commerce.
Russian organized crime groups are heavily involved in economic crimes. The bulk of the most serious economic crimes are in the credit and financial spheres; the Russian Government reported more than 300,000 economic crimes in 1999, about 10 percent of the total crimes registered. The most common financial crimes include credit defaults, theft by bank employees, and forging of documents.
Russian criminal groups take advantage of the tourist industry and prey on Russian tourists and Russian-owned businesses overseas, particularly in the countries they most frequent. Tourism industries abroad catering to Russian visitors are shaken down and exploited by Russian organized crime. According to Russian press reporting in 1998, Russian crime groups routinely demand 10 to 15 percent of the revenue from hotels, casinos, and restaurants frequented by Russian speakers. Crime groups from the former Soviet Union use the tourism industry to move women--posing as tourists or members of large tour groups--overseas to serve in prostitution rings. Some, if not most, of the women reportedly are held in virtual slavery.
Some Russian crime groups own interests in several airlines, air charters, and travel agencies operating in the former Soviet Union and elsewhere that they use to facilitate and conceal their criminal operations overseas. The travel industry provides Russian criminals with cover and the means to smuggle contraband from abroad into Russia, including drugs and electronic appliances, clothing, and other consumer goods that they sell on the black market.
With the former Soviet Union having opened as an avenue for narcotics shipments from Afghanistan, Russian criminal organizations have gotten increasingly involved in the drug trade. There is little information confirming major Russian involvement in the transit of narcotics across the former Soviet Union, but Russian organized crime groups dominate the domestic drug market and take advantage of Baltic seaports and Russia's now-porous borders with Eastern Europe to smuggle heroin into West European markets and bring cocaine into Russia.
International drug traffickers and Russian criminal groups have established relationships both to move narcotics through the former Soviet Union and to supply the Russian market. Press reporting, which cited Russian law enforcement and Interpol information, indicates that by the mid-1990s Italian and Russian crime groups had at least tacit agreements to cooperate in the movement of narcotics through the former Soviet Union.
With close ties to corrupt officers and soldiers in the Russian armed forces, Russian organized crime groups are heavily involved in illicit arms trafficking. Most Russian criminal arms deals involve sales within Russia and other countries of the former Soviet Union, including to combatants in ethnic conflicts in Chechnya, Georgia, Armenia, and Azerbaijan. Some Russian arms trafficking has been to countries in the throes of civil conflict. Unconfirmed press reporting indicates that Russian criminal groups have sold large caliber weapons to Latin American drug traffickers in exchange for cocaine.
Russian Organized Crime in the United States
Russian organized crime has been a growing law enforcement problem in the United States since small groups began establishing a foothold in this country in the late 1970s. Although many Russian crime groups are based in the United States, others are cells of criminal organizations based overseas. As in Russia, there is no supreme authority tying these groups together in the United States.
Most Frequent Violations Found in US Investigations Involving Russian Organized Crime, FY 2000
Larger Russian criminal organizations based in Moscow and other locations overseas have become an increasing law enforcement concern since they began establishing a US presence after the 1991 dissolution of the Soviet Union. Unlike the smaller gangs that were already established in Russian-speaking enclaves--whose criminal focus is on white-collar fraud crimes and which do not have any specific ties to Russian organized crime abroad--these larger groups are involved in large-scale criminal activities, with international dimensions, that generate enormous profits. Their connections to powerful criminal organizations in Russia provide them a source of illicit contraband and criminal expertise. The US-based members or affiliates of these groups provide services like laundering large sums of money or acquiring drugs for the Russian market.
Although Russian organized crime is still not as significant a threat in the United States as La Cosa Nostra and some other ethnic-based crime groups, the sophistication and international connections of Russian crime groups in the US make them well-positioned to expand their criminal operations. US law enforcement indicates that Russian criminals in the United States are, in general, better educated and more skilled than members of La Cosa Nostra; law enforcement analysts consider Russians among the best in the world in orchestrating economic and financial crimes.
The breakup of the former Yugoslavia and ensuing regional conflicts there have led to a sharp rise in criminal activity in the region. Previous Serbian, Croatian, and Bosnian Governments all used criminal networks as a means to evade international sanctions and acquire material necessary for the war effort. The collusion between governments and local criminal gangs weakened law enforcement and provided an environment ripe for corruption. Under Milosevic, the Serbian Government colluded with criminal smuggling networks to evade Western sanctions. These networks were critical in supplying the black market, which served as Serbia's de facto service economy, and may have accounted for some 20 to 40 percent of the country's GDP.
Many of the criminal business enterprises set up to circumvent earlier sanctions are still operating. The lifting of many sanctions since the Dayton peace accord in 1995 did not diminish the activities and local influence of criminal groups in the region because they were now firmly rooted in society. As the region struggles to rebuild local economies, criminal groups have little trouble finding gang-member recruits from the large number of unemployed and underemployed, many of whom view crime as an attractive source of income. Organized crime in the former Yugoslavia also continues to benefit from corruption and weak law enforcement.
Local crime groups in all the countries of the former Yugoslavia are taking advantage of opportunities for gunrunning, smuggling liquor and cigarettes, trafficking in women for prostitution, extortion, and money laundering. Trafficking of heroin through the former Yugoslavia toward markets in Western Europe has become a major business for organized crime groups. Criminal groups tied into manufacturing enterprises are engaged in theft of intellectual property rights. Moreover, the region's local crime groups have established cooperative networks to move relatively freely across borders.
Local crime groups not only threatened implementation of police and justice provisions of the Dayton peace accord, but their activities also impeded efforts to promote political reconciliation and economic reconstruction. Criminal gangs remain a significant problem throughout Bosnia.
Kosovo remains plagued by criminal activity. Ethnic Albanian, Bosnian, Croatian, and Serbian organized crime groups are taking advantage of corruption and the region's porous borders to traffic women, drugs, arms, and other contraband. The former Kosovo Liberation Army may have used its organized crime links to Europe to obtain arms and ammunition.
Organized crime groups from outside the region, primarily from Italy, have forged ties to local criminal groups in the former Yugoslavia to facilitate their own international criminal activities--particularly arms and drug smuggling. They have also used the opportunity to set up various criminal rackets in the region, including financial fraud schemes involving investments that can destabilize the economy. Italian organized crime groups have strengthened criminal relationships across the Adriatic, according to press reporting.
Albania, once the most isolated country in Europe, became a haven for local and foreign criminal groups after the collapse of its Stalinist regime. The opening of the country's borders and political disarray in Tirana have allowed Albania to become a primary alternative to traditional Balkan smuggling routes through the former Yugoslavia that were disrupted by the breakout of ethnic fighting in the early 1990s. Italian organized crime groups--particularly the Sacra Corona Unita from Italy's Puglian region across the Adriatic Sea--were quick to establish a presence in Albania. They routinely use Albania's long and now virtually unguarded coastline as a staging area for smuggling drugs, arms, and other contraband across the Adriatic Sea to Italy.
Albanian crime gangs flourished in the political and economic chaos that followed the Hoxha regime's downfall. They are very well armed--having acquired sizable quantities of weapons from former government stocks--and dominate much of the rural countryside, particularly in the southern part of the country. Criminal syndicates have a powerful presence in the port cities of Durres and Vlore and other major cities. Relying on longstanding cross-Adriatic and Balkans smuggling routes, Albanian crime gangs control the local black market in consumer goods, weapons, and narcotics. In addition to acquiring heroin from Turkish criminal organizations, Albanian crime groups have become involved in cocaine trafficking, with some South American cocaine being shipped directly into Albania. Albanian crime groups are cultivating marijuana throughout Albania for distribution in both the domestic and broader European market, particularly Italy and Greece.
Organized crime has influenced political and economic developments in Albania. Thousands of Albanians lost their life savings to complex countrywide pyramid investment fraud schemes run by Albanian crime gangs and largely stage-managed by Italian criminal organizations. The collapse of the pyramid firms in late 1996 provoked a political crisis so severe it toppled the central government. Despite the restoration of public order since then and efforts by the government and police to curb their activities, Albanian crime groups remain powerful and a corrupt influence on Albania's fragile institutions.
Ethnic Albanian criminal syndicates are one of the most significant of the smaller, more local crime groups that have recently expanded beyond their country's borders. Primarily a legacy of the political, social, and economic chaos that resulted from the downfall of Albania's Stalinist regime and the breakup of the former Yugoslavia in the early 1990s, ethnic Albanian crime groups have established a presence throughout Europe and are becoming a growing problem for European law enforcement. Albanian crime groups, whether originating in Kosovo or Albania itself, are typically from tightly knit clans.
Smuggling Routes Through the Balkans
By collaborating with criminal organizations in neighboring countries and with Italian organized crime groups, ethnic Albanian crime gangs have become very active in smuggling drugs, arms, cigarettes, and illegal aliens and trafficking women throughout the region. Ethnic Albanian criminal gangs have also used ties to foreign organized crime groups and the large number of expatriate Albanians to expand their operations into the European Union countries. While relying on Turkish traffickers as a source for heroin, ethnic Albanian groups have become major competitors of Turkish criminal groups in trafficking drugs-- particularly Southwest Asian heroin--to parts of central and northern Europe, according to police agencies throughout the continent. Police officials have been quoted in the media as saying that Albanians now dominate local sales of heroin in Norway, Sweden, southern Germany, and Switzerland. Albanian criminal groups may also be challenging Italian organized crime interests in Italy, including heroin distribution and movement of illegal aliens from southern Italy to the north. According to Italian law enforcement, Albanian crime syndicates by 1999 controlled most of the prostitution rackets in Italy and were smuggling heroin, hashish, cigarettes, weapons, and other contraband into Italy for shipment to Western Europe. Italian law enforcement officials claim ethnic Albanian crime groups also traffic women and children to Italy.
Criminal organizations with international networks centered in Turkey, Pakistan, India, the United Arab Emirates (UAE), and Cyprus operate within a centuries-old commercial tradition of moving contraband merchandise through the South Asia-Middle East-Eastern Mediterranean region. The region is a focal point for narcotics and arms smuggling between Europe and Asia and for brokering a wide range of illicit deals, including to evade US or international sanctions and to transfer controlled technologies and materials associated with weapons of mass destruction. Major port and commercial cities in the region-- particularly Istanbul, Karachi, Mumbai (Bombay), and Dubai--are key centers of criminal activity. Criminal organizations in these cities exploit extensive underworld connections, pervasive political and business corruption, and the large volume of trade and financial transactions. Although commercial centers now have modern financial services, criminals also hide their funds and arrange illicit financing through complex, virtually impenetrable underground banking systems.
The South Asia region is a primary source of heroin for the international drug trade, primarily for the West Asian, European, and Eurasian markets. Afghanistan is the world's largest producer of illicit opium. Pakistan is a major transit country for Afghan-produced opiates and is also a source of illicit opium poppy. In India, substantial amounts of opium are diverted to the black market from legal production for pharmaceutical industries in the United States and elsewhere. South Asian heroin traffickers maintain extensive networks throughout the region in commercial centers and port cities to arrange financing and movement of drugs. Interpol reports that some 80 percent of the heroin used in Western Europe comes from South Asia.
Under predominantly Taliban rule, international terrorists and drug traffickers have been able to operate with impunity in Afghanistan. The Taliban have given sanctuary to renegade Saudi terrorist Usama Bin Ladin, allowing him and other terrorist groups to operate training camps in Afghanistan. Bin Ladin, in return, has used his extensive wealth and business network to help financially support the Taliban. Despite the Taliban's public condemnation of the illicit narcotics industry, virtually all of Afghanistan's opium poppy cultivation and morphine base and heroin processing laboratories are located in Taliban-controlled territory. The Taliban profits from the Afghan drug trade by taxing opium production and drug movements.
Iran remains the most important conduit for Afghan drugs being moved toward lucrative markets in Western Europe. Traffickers use historical trade routes to move drugs, as well as other contraband, from Southwest Asia through Iran to Turkey, or to Iranian Persian Gulf coast seaports and harbors for shipment to the Arabian Peninsula. Bedeviled by its own large opium and heroin abuse problem, Iran has given high priority to drug interdiction and harsh punishment for captured traffickers. In recent years, Iran has been among the top countries in making drug seizures and has paid a high price in lives with more than 3,000 killed in armed confrontations with traffickers since 1988.
Pakistan and India both have traditional and modernizing criminal underworlds involved in contraband smuggling, including drugs, gold, and consumer goods. Until Afghanistan began emerging as a major center for refining opiates into morphine base and heroin in the mid-1990s, most of the region's opiate processing laboratories were located in remote Pakistani territory adjacent to the Afghan border. With its better-developed infrastructure, including a major regional commercial center and port in Karachi, Pakistan remains a major transshipment route for Afghan-produced opiates. India's well-developed transportation infrastructure, long and porous coastline, and lenient export policies and controls have played into the hands of criminal smuggling operations for drugs, gems, and other prized contraband. Inland container depots provide an easy means of smuggling drugs and other contraband from the interior to Indian seaports like Mumbai, Goa, Chennai (Madras), and Calcutta that handle a large volume of international trade.
India's legitimate industries that support the world's pharmaceutical markets are a source of supply for raw materials and precursor chemicals for the illicit drug trade. Indian officials acknowledge a significant problem of diversion from India's extensive legitimate opium industry--which supplies much of the world's pharmaceutical market--to the more lucrative black market. As much as 25 percent of India's projected 1999 opium crop may have been diverted to the black market, according to Indian officials. In addition, some Indian-produced ephedrine and pseudoephedrine intended for pharmaceutical manufacturers has gone toward the production of methamphetamine in Southeast Asia.
Astride the Europe-Asia continental divide, Turkey also has a traditional criminal underworld and history of smuggling. While traffickers are making greater use of the former Soviet Union as an alternative route for moving Southwest Asian heroin to Western markets, Turkey remains a linchpin in the region's heroin trade. Narcotics brokers in Turkey play a critical role in buying morphine base and heroin from producers in Southwest Asia and moving the drug to distribution networks in Europe and North America. Much of the heroin entering Turkey passes through territory in the southeast controlled by the Kurdistan Workers Party (PKK), which is considered a terrorist group. The PKK reportedly levies taxes on traffickers moving drugs through border crossings with Iran or territory in southeastern Turkey that it controls.
Afghanistan Opium Cultivation
The United Arab Emirates
As a regional transportation, banking, and commercial crossroads between Europe, the Middle East, North Africa, and Asia, the UAE--with its permissive business environment--has emerged as an important locus of criminal activity. The UAE maintains an advanced maritime shipping infrastructure, including at least 15 commercial seaports, to facilitate international trade. According to the international shipping industry, UAE seaports are handling nearly 5 million containers per year, 2.8 million in Dubai alone. More than 70 percent of containers arriving in UAE ports are in transit and are not inspected by customs officials, making them an attractive shipping option for criminals trafficking contraband through the region. The UAE also has extensive international air connections; more than 60 airlines provide scheduled passenger service between Dubai and more than 150 foreign destinations. Some UAE-based firms are probably front companies for criminal organizations or states of concern.
Dubai has become a significant center for financing illicit activities, in part because the preference of many businesses to deal in large amounts of cash makes it difficult for banks to distinguish between legitimate and illicit transactions. Drug traffickers, criminal organizations, and terrorist groups appear to use the Dubai banking system to launder money and conduct major financial transactions. The UAE is also a major center for underground banking hawala networks tied to India and Pakistan.
South Asian Heroin Trafficking and Criminal Networks
Much of the Afghan opium industry and drug trafficking in Southwest Asia is controlled by a network of traffickers based in Pakistan and Afghanistan. Their ethnic, tribal, and political affiliations give them the connections and capability to negotiate drug transactions, assemble drug loads, and transport shipments to wholesale buyers in Turkey and other international markets. This network of loosely affiliated traffickers frequently cooperates with other traffickers based in Pakistan, Afghanistan, Iran, and the UAE.
Powerful Indian criminal syndicates, particularly Mumbai-based crime groups, became involved in international drug trafficking in the mid-to-late 1980s when the Iran-Iraq war disrupted traditional Southwest Asian heroin trafficking routes from Pakistan, through Iran, to Turkey. Relying on Indian expatriates living in the UAE, Indian crime syndicates use long-established networks for smuggling gold, silver, counterfeit currency, electronic goods, and other contraband to transship heroin from South Asia to markets in Europe and, to a lesser extent, North America.
Indian criminal syndicates also may be involved in arms trafficking, alien smuggling, and trafficking in women. Narcotics trafficking may be an important source of revenue for Indian crime syndicates; trafficking patterns show connections to Europe, Africa, Southeast Asia, and regionally to Sri Lanka. Indian crime groups also dominate the methaqualone drug trade in eastern and southern Africa; South Africa is a particularly important market for methaqualone, also known as mandrax, which is produced primarily in India.
Although its political situation is stabilizing, Lebanon remains a haven for terrorist training, as well as a minor drug-trafficking and processing center. Several Islamic extremist and Middle East terrorist factions continue to maintain training camps in the Bekaa Valley, and some have used the country as a staging area for terrorist attacks against Israel. Syrian and Lebanese authorities cracked down on opium and cannabis cultivation in the 1990s, but drug traffickers continue to operate in the area. Opiates from Southwest Asia and cocaine from South America appear to be moving through Lebanon into Turkey, Syria, Israel, Jordan, the Arabian Peninsula, and other destinations.
Since the collapse of the Soviet Union, Israel has become a significant operating area for Russian criminals, who take advantage of Israel's large Russian immigrant community of more than 600,000 to conduct criminal activities in Israel and abroad and launder illicit proceeds. Several international criminal figures from Russia, Ukraine, and other NIS have obtained Israeli citizenship and passports, often fraudulently, for the purpose of establishing a safehaven in Israel and to facilitate their international travel. According to press reports, Israeli police officials have estimated that 10 to 15 organized crime groups from the former Soviet Union, including Solntsevo, have a presence in Israel.
Prior to Israel's passing a law making money laundering a crime in August 2000, strict bank secrecy laws and the absence of currency import controls and bank reporting requirements made Israel a major haven for money laundering by Russian criminal syndicates. Israeli police sources estimate that organized crime groups have invested as much as $4.5 billion in Israel since the early 1990s. The security of Israeli investments and the stability and growth of the Israeli economy are attractive to criminals seeking investment opportunities for their illicit proceeds. One recent press report cited Israeli police sources as saying about $5 billion of Israel's $17 billion in foreign exchange reserves may be attributed to money belonging to Russian organized crime.
The growing presence of Russian crime groups has exacerbated the organized crime problem in Israel. Russian crime groups traffic women into Israel from Russia and the NIS, control prostitution rackets, and illegally produce and import music and computer software CDs. Russian criminals in Israel may also be involved in diamond smuggling; Israel is a hub of the legitimate international diamond trade, importing more than half of worldwide diamond production.
Cyprus With a business environment that features a minimum of regulations and a location astride major commercial routes, Cyprus has been a regional center for arms trafficking, sanctions evasions, and trade in dual-use goods related to weapons of mass destruction. Nicosia's focus on developing the island's offshore business sector through corporate-friendly policies intended to lure legitimate businesses to Cyprus also attracted firms and individuals involved in illicit international trade and illicit financial transactions. Banking and corporate secrecy, little or no taxes, and simplified incorporation procedures have made it easy for states of concern, terrorist groups, and organized crime groups to set up numerous front companies to facilitate illicit arms transshipments, acquire proscribed technologies, and launder funds. Commercial information indicates that the island's development of free ports and free trade zones in Limassol and Larnaca have been attractive to businesses seeking to transship illicit cargo because goods in transit are rarely inspected; according to industry journals, about 5,000 ships from some 100 shipping lines call at Cypriot ports annually.
With its extensive Mediterranean and Aegean coastlines, numerous islands, overland borders with the Balkans, and vibrant banking sector, Greece has emerged as an increasingly active hub for international criminal activity. Greece is located along two spurs of the traditional Balkans route for drug trafficking. Crime syndicates from the Balkans--including ethnic Albanian crime groups--Western and Central Europe, Africa, and the former Soviet Union use Greek territory to smuggle drugs, arms, cigarettes, and illegal migrants to Western Europe. Italian criminal organizations control the illegal cigarette trade in Greece, according to press reports, and earn as much as $500 million per year from cigarette smuggling. Greek law enforcement officials are particularly worried about the presence of Russian criminal groups that are engaged in money laundering, extortion, and trafficking women for the sex industry.
Southeast Asian Drug-Trafficking Networks
Heroin and methamphetamine production in Southeast Asia is dominated by ethnic drug-trafficking armies operating mostly in Burma's remote opium-producing region. The drug-trafficking armies had begun as insurgent groups and still claim to have an ethnic-based social and political agenda, but the largest have become primarily engaged in the production and trafficking of heroin and methamphetamine and in other illicit and lucrative economic activities--including gem smuggling and illegal logging and timber smuggling. Since its continuing crackdown on the prodemocracy movement began in 1988, the military regime in Burma has reached agreements with most of these ethnic armies in remote regions which have allowed the regime to focus on prodemocracy threats in critical urban areas while turning a blind eye to drug trafficking and other criminal activities.
Ethnic Chinese and Thai criminal networks in Thailand and Burma play a major role as brokers, financial backers, and transporters in the Southeast Asian heroin trade. Operating in major regional commercial centers like Bangkok, Hong Kong, Singapore, and Taiwan and using a wide array of interchangeable front companies and legitimate businesses, Chinese and Thai criminal networks also arrange financing and transportation of drugs, routing drugs through many different ports--largely by commercial shipping--to their final destination.
The export-oriented economies of Southeast Asia provide both opportunity and cover for international criminal activities, as well as a market for drugs, counterfeit products, and other contraband. Bangkok, Singapore, and Kuala Lumpur are attractive locales for international criminal activity because they are the region's largest commercial centers. The high volume of land and maritime trade, particularly containerized shipping, extensive manufacturing industries, and breadth of financial activity facilitate contraband smuggling, money laundering, and violations of trademark and intellectual property rights. Firms in Malaysia are major counterfeiters of US audio, visual, and software products. Nearly one-third of all the women and children victimized by trafficking rings for the worldwide sex industry are from Southeast Asia. Singapore is an increasingly important hub for drug and other contraband smuggling because of its high-volume seaport.
Investments in the region's infrastructure development by businessmen engaged in a wide variety of illegal trade activities have facilitated contraband smuggling and money laundering. Unscrupulous businessmen in all of the region's countries, many of whom had long been involved in drug or contraband smuggling, exploited Southeast Asia's economic boom prior to late 1997 to raise wealth and significant political influence. In Thailand and Singapore in particular, they took advantage of ambitious government programs for economic growth and infrastructure development to establish lucrative criminal enterprises alongside legitimate businesses. Some have accumulated significant wealth through dealings in narcotics, illegal gambling, lotteries, illegal logging, prostitution, extortion, contraband smuggling, and arms trafficking. Major drug traffickers in Burma reportedly have become significant investors in infrastructure development, which can be used to facilitate both drug smuggling and money laundering.
Opium poppy growing regions in remote areas of Burma and Laos make Southeast Asia the world's second-largest source region, after Southwest Asia, for illicit opium for the international heroin trade.(1) Opium poppy cultivation is an important income-earner for the hill tribes residing in these impoverished regions, where the infrastructure for supporting legitimate economic activity is either lacking or in poor repair.
Unskilled young males in or from these regions-- especially those who have migrated to urban areas where they have few job prospects--are a prime source of recruits by drug trafficking and other criminal organizations. Many of the crews of fishing boats used to smuggle heroin through the Gulf of Thailand to major commercial maritime transshipment ports in the region--Singapore and Hong Kong, for example--are migrants from northeastern Thailand and similarly impoverished regions in Burma and Cambodia.
The social and political consequences of criminal activity have been considerable for all countries in the region. A large criminal underground largely immune from law enforcement and judicial actions because of bribes and favors bestowed on powerful politicians, bureaucrats, police, and military figures has helped undermine the credibility of Southeast Asian institutions. Criminal earnings, especially from the drug trade, underpin important new investments in Southeast Asia. Russian crime groups, for example, are involved in the tourism industry in Ban Phattha Ya, Thailand. Meanwhile, Southeast Asia's longtime role as a major conduit for Burma-produced narcotics-- both heroin and, more recently, methamphetamine-- has fed a growing drug addiction problem.
In recent years, international criminal activity has become a more significant problem for Indochina. As a result of Thailand's intensified efforts against drug smuggling, traffickers primarily use southern China as a transit route but have also increased their use of Cambodia and Vietnam as an alternative transshipment route. Opium poppy cultivation has become established in northern Vietnam, and Hanoi's efforts to improve the country's transportation and import/ export infrastructure are making Vietnam more attractive to drug traffickers and other criminals. Phnom Penh's renewed emphasis on economic development has increased opportunities for corrupt business entrepreneurs like Teng Boonma, a longtime reputed drug trafficker in Southeast Asia. According to the Cambodian press, Teng owns most of Kampong Saom--the country's most important port city--and a key transit point for Cambodian marijuana.
Burma's Opium Production, 1988-2000
China's increasing role as a source area of international criminal activity, including greater worldwide influence of Chinese criminal syndicates, has paralleled its emergence as a global economic power and Beijing's opening to foreign investment. US law enforcement reporting indicates that, since the early 1990s, more than half of the heroin produced in Burma now transits Yunnan Province and other regions of China on its way to drug markets in China itself and in North America and Australia. Fujian Province is a major base of operations for criminal brokers known as "snakeheads" who, using contacts around the world, orchestrate the movement of illegal Chinese immigrants to the United States, Canada, Europe, Latin America, Asia, and Australia. Legitimate textile works, factories, and high-tech manufacturers in Guangdong Province are major producers of pirated and counterfeit products; according to the International Intellectual Property Alliance, China is a leading violator of US intellectual property rights.
Beijing's economic reforms and priority given to promoting international trade and investment have created opportunities for both mainland and overseas Chinese organized crime syndicates.
Widespread corruption, particularly at the local level, has contributed to increasing international criminal activity in China. Often lacking modern equipment and training in modern police tactics, China's police are ill-equipped to deal with the growing crime problem. In some regions of China, local military units have supplemented the police in law enforcement operations, especially against smuggling networks. Corrupt officials in some Chinese Government organizations and state-run business enterprises have been involved in illicit activities ranging from facilitating drug trafficking and alien smuggling, to providing arms to criminal groups in the black market, to smuggling strategic materials--particularly petroleum products--into the country.
The entrepreneurial stake of many Chinese officials in various business enterprises--fully legitimate and otherwise--lends itself to criminal activity for profit. Chinese arms factories under pressure to earn hard currency and attracted to easy money on the black market may be a source of weapons for Chinese arms traffickers. Ephedrine and pseudoephedrine produced in China for the world's legitimate pharmaceutical markets are also illegally exported or diverted to the international illicit drug-producing market, where these commodities are key components in the production of methamphetamine; in November 1997, authorities in Shaanxi Province seized 10 metric tons of ephedrine that was on its way to Burma.
These developments, together with Beijing's policy of inviting overseas Chinese businessmen to trade and invest in China, have allowed powerful Chinese triad criminal organizations from Hong Kong, Macau, and Taiwan to establish strong footholds on the mainland, especially southern China. The triads have set up many varied businesses in Guangdong and Fujian Provinces, the Shenzhen and Xiamen Special Economic Zones, and Beijing where there is a significant international business presence and a substantial volume of trade and financial transactions. Firms associated with import/export trade and manufacturing may be used as cover for drug trafficking, arms trafficking, alien smuggling, and the piracy and distribution of products protected by intellectual property rights. Entertainment businesses--such as gambling, prostitution, nightclubs, karaoke parlors--that cater to Chinese elites and foreign businessmen are cash-intensive and provide excellent cover for money-laundering schemes.
Mainland Chinese crime groups exploiting widespread corruption have established strong ties of their own to Chinese officials and entrepreneurs. In Fujian Province, Chinese alien smuggling networks operate with the assistance of corrupt officials, local police, and customs officers. Through these activities and the establishment of international networks, mainland Chinese criminal syndicates may be eclipsing the once-dominant role played by triad members from Hong Kong and Macau.
Political and Economic Impact
Chinese authorities are increasingly concerned about the impact of criminal activity on Chinese society. Drug abuse and violent crime have become more pronounced, challenging China's police and social services and undermining Communist Party authority. The impact on the Chinese economy has been significant; criminal activities have cost the Chinese Government sizable losses in tax revenues, impeded industrial growth, and aggravated the difficulties facing legitimate state-owned enterprises. The Chinese leadership is particularly focused on corruption because the perception of widespread corruption at all levels of government and law enforcement is corroding the credibility and performance of Chinese leaders and law enforcement personnel.
Southern China's Criminal Infrastructure
Heroin addiction has become an enormous problem since China became an increasingly important transshipment route for heroin produced in Burma. Before 1990, when most Southeast Asian heroin transited Thailand, China had few problems with drug trafficking or addiction. Between 1990 and 1998, however, the number of registered drug abusers in China increased by a factor of 10 from some 70,000 to nearly 700,000, according to official Chinese statistics; unofficial estimates of drug addiction in China range from 1 to 12 million.(2) A January 1998 Chinese press article reported that addicts in China spend some $17 billion annually on illicit drugs.
Contraband smuggling has become a target for a major law enforcement crackdown beginning in July 1998. Chinese Premier Zhu Rongji in August 1998 announced that rampant smuggling had reached unprecedented levels in terms of its scope and quantity of products. He also blamed smuggling for corrupting government officials, poisoning social morals, and a surge in other crimes. China's high tariffs and taxes, as well as nontariff barriers to trade, make smuggling of foreign-produced automobiles, cigarettes, computer software and equipment, electronics, petroleum products, and other goods extremely lucrative for criminal groups and corrupt officials. Illegal imports, besides depriving the government of substantial customs revenue, have seriously disrupted China's key oil industry, as well as the country's computer, automobile, and cigarette sectors, according to press reports. Organized crime syndicates, including Hong Kong's 14K triad and mainland criminal groups, are heavily involved in the smuggling of automobiles and cigarettes into China for Chinese consumers and for reexport to foreign markets.
China is also struggling to control a growing black market in small arms, including military weapons, that are sold to criminal groups throughout East Asia. Increasing quantities of firearms have shown up inside China, contributing to the crime problem and sometimes challenging the firepower available to local Chinese police and security officers. Chinese police in Guangdong and Liaoning Provinces have encountered crime gangs armed with military-style assault rifles. A portion of the weapons traded on China's black arms market are sold to criminal groups in Hong Kong and Macau, adding to Beijing's concern about crime and social order in both enclaves. Chinese authorities claim most of the arms come from Vietnam and that Vietnamese gunrunners dominate the trade, but many of the weapons trafficked in China probably are from police and military stocks or from Chinese arms factories.
Infrastructure development projects in China designed to attract and support foreign trade and investors are a major draw for investment by Chinese criminal groups. Some Chinese criminal syndicates try to profit from ambitiously planned infrastructure development projects in China by direct investment, offering loans, or arranging financing.
As one of the world's leading commercial, financial, and transportation centers, Hong Kong has long been a hub of criminal activity in East Asia--a status that has not changed since China assumed sovereignty over the territory in 1997. The massive volume of trade in containerized shipping through Hong Kong offers substantial opportunity for criminals to smuggle all kinds of contraband, including drugs and arms, and illegal migrants.
China's Registered Drug Addicts, 1990-99
The volume of traffic between Hong Kong and the Chinese mainland provides enhanced cover for international criminal transactions. In 1999, according to Hong Kong Government data, some 12 million travelers and 700,000 vehicles crossed the land border from China.
Hong Kong's status as one of the world's most developed financial centers makes it vulnerable to attempts to use its financial institutions for laundering illicit proceeds. Wide-ranging links to the international business community and the modern banking sector in Hong Kong provide extensive cover for money-laundering operations and for financing illicit activities.
Hong Kong's ethnic Chinese organized crime groups, commonly known as triads, control local criminal activity. As they did during the former British colonial rule, triad members continue to infiltrate and cultivate contacts in Hong Kong's civil service, political parties, news media, and stock exchange who can help protect or further their interests. While they do not monopolize international smuggling and illicit financial transactions, triad members frequently help broker deals and facilitate shipments of drugs, arms, and other illicit contraband through Hong Kong to overseas destinations.
Hong Kong's two largest triads, the 14K and Sun Yee On, protect many of the retail businesses involved in manufacturing and distributing counterfeit compact discs and are engaged in buying, moving, and selling contraband CDs. A series of raids against several compact disc factories by Hong Kong authorities in 1998 resulted in the seizure of more than 1.8 million pirated discs. Moreover, Hong Kong's lucrative film industry is widely regarded as controlled by the triads.
As an international commercial and financial center, Hong Kong probably continues to attract both legitimate and illicit business enterprises from the Chinese mainland. Relatively simple procedures for registering companies allow criminals to establish front companies, particularly export/import firms, to facilitate their attempts at smuggling and money laundering. At the same time, however, increasing direct interactions between southern China's major commercial centers and the international business community reduce the incentive for criminal groups or illicit businessmen to move to Hong Kong's much stricter law enforcement environment.
In stark contrast to much of the rest of China, Hong Kong has made major headway against corruption, primarily because of its strong and effective anticorruption agency, deeply entrenched common law system, strong rule of law tradition, and well-organized and well-equipped law enforcement bodies. Over the years, Hong Kong has developed strong legal and financial systems to counter money laundering. It is substantially in compliance with the standards set by the FATF, and Hong Kong is a leader in the regulation and supervision of its financial sector. Nevertheless, despite recent legislative improvements, banking and other financial institutions in Hong Kong continue to operate with loopholes that can be exploited by international criminals, including the lack of mandatory reporting for currency deposits exceeding certain levels, tight bank secrecy laws, low taxation rates, the absence of controls on money flows into and out of Hong Kong, and the availability of underground banking networks.
Since Macau's reversion to Chinese administration in 1999, organized crime continues to have substantial influence over the enclave's economy. Organized crime groups still dominate Macau's gaming industry, the primary engine of the economy. In addition to the substantial revenues they generate of their own accord, gambling and prostitution rackets in Macau are used by local and other crime groups for money laundering.
Contributing to and exploiting pervasive corruption and lax law enforcement in Macau before the colony's handover to China, triad criminal groups also controlled or had substantial influence in many legitimate business enterprises, including manufacturing plants, some of which were used to cover for criminal activities. With easy access to Hong Kong, a more open border with the mainland, and few extradition or mutual legal assistance treaties with other jurisdictions, Macau had also become a transit route for arms traffickers and alien smuggling groups.
Local and national Chinese law enforcement authorities have been working to diminish the power of organized crime in Macau since its reversion to China. Although triad involvement in casinos and other businesses remains a serious problem, there has been a marked decline in organized-crime-related violence in Macau: there were only seven murders in Macau in the first 10 months of 2000, compared to 37 murders the previous year.
Organized crime is deeply entrenched in Taiwan's business and political sectors. Large ethnic Chinese criminal syndicates such as the United Bamboo and Four Seas triads--which followed the ruling Kuomingtang party from the mainland to Taiwan in the late 1940s--and Taiwanese criminal gangs have established strong influence in Taiwan's local communities. Criminal groups are extensively involved in feeding off Taiwan's generally strong economy. They reportedly have been involved in direct extortion of "protection" money from construction firms, engage in bid-rigging for public works projects, and have tried to manipulate the island's stock market.
Although the organized crime problem in Taiwan is largely domestic, Taiwan-based criminal groups use the island's extensive international trade and financial links to further their illegal activities overseas. According to world trade data, the port of Kao-hsiung handles some 5 million containers annually, the third largest volume after Singapore and Hong Kong, making it vulnerable to narcotics and contraband smuggling through Taiwan to other international destinations. Shipping and other businesses in Taiwan, some influenced by organized crime, that have established subsidiaries and partners in major commercial centers in other countries, particularly Panama and elsewhere in Latin America, are believed to be used as fronts for smuggling, illicit transactions, and money laundering.
Increasing indirect trade between China and Taiwan, and Beijing's policy of encouraging investment by Taiwan businessmen, probably is contributing to growing contacts between Taiwan and mainland Chinese criminal syndicates. Some Taiwan-based triads have links to Hong Kong and China, including establishing front companies or investing in specific criminal ventures. In 1998, Chinese authorities discovered two Taiwanese-financed methamphetamine drug laboratories in Hunan Province.
Vote buying has provided criminals significant influence within Taiwan's political system, especially at the local level. Members of crime groups themselves seek, and often win, public office, which allows them access to lucrative public contracts and offers limited immunity from prosecution and a chance to cleanse criminal reputations.
The international criminal threat posed by ethnic Chinese criminal networks has become more complex as crime groups originating in mainland China have joined the traditional triad societies of Hong Kong, Macau, and Taiwan in expanding their networks far beyond China's borders. While the powerful triads, which trace their origins to Chinese secret societies in the 17th century, are the largest of the Chinese criminal associations, they continue to operate largely according to traditional practices and their criminal activities are largely focused on more traditional extortion, gambling, drug trafficking, gunrunning, and alien smuggling enterprises. The upstart Chinese criminal groups from mainland China, on the other hand, are more loosely organized, their members more flamboyant, and their criminal operations often more sophisticated. These groups are also extensively involved in international drug trafficking, alien smuggling, arms trafficking, and money laundering, but they have also moved more aggressively than the triads into more sophisticated and highly profitable areas of credit card fraud, theft of computer chips, software piracy, and other intellectual property violations.
Both the triads and crime groups originating in mainland China have established relationships with ethnic Chinese crime groups in countries throughout the Pacific Rim, Europe, and the Western Hemisphere. Using traditional Chinese practices of networking, ethnic Chinese crime groups rely on a broad criminal fraternity that can broker contacts in any country where there is a large ethnic Chinese community and help facilitate transnational criminal activity.
While they are closed and secretive to outsiders, Chinese criminal organizations generally have few qualms about cooperating with other ethnic criminal groups in profitable joint ventures. For example, in the United States, Canada, and Europe, Chinese organized crime groups have worked with Italian and Dominican criminal organizations in trafficking heroin.
Europe and North America are major targets for Chinese criminal networks. Although ethnic Chinese groups are not as powerful as Italian or Russian organized crime in Europe, they have long-established footholds in the Chinese communities of several European nations from which they appear to conduct most of their illegal operations. International Chinese organized crime groups are particularly strong in the Netherlands, the United Kingdom, and Germany. Since the late 1980s, Chinese criminal organizations have also established themselves in Central Europe, which has become a major conduit for moving illegal Chinese immigrants to Western Europe.
Worldwide Triad Activity, 1998
Triads Versus Mainland Chinese Criminal Groups
Most triad societies are based in Hong Kong, Taiwan, or Macau, but their influence spans international boundaries with members located in virtually every country that has a sizable Chinese community. Triads, which collectively have an estimated worldwide membership that exceeds 100,000, are fluid associations of ethnic Chinese criminals and quasi-legitimate businessmen involved in an array of criminal enterprises. Most Hong Kong triads have evolved into loose-knit groups operating and cooperating with each other on the basis of personal introductions and mutual interests. Triad leaders do not dictate to members what criminal activities they should pursue and generally do not receive monetary benefits unless they are directly involved with the actual criminal enterprise.
The major triads like 14K and Sun Yee On, both based in Hong Kong, and the United Bamboo Gang, based in Taiwan, have autonomous branches extending worldwide that help to facilitate transnational criminal activities. In the 1990s, Hong Kong triads strengthened their presence and relationships in Western countries, including by making various investments in legitimate businesses, as a hedge against the political, economic, and law enforcement uncertainties of Hong Kong's reversion to China in 1997. The two largest Hong Kong triads, 14K and Sun Yee On, have made substantial property investments in Canada this decade. The 14K reportedly is the fastest growing triad in Canada. The FBI also reports there is a substantial 14K presence in the United States.
Criminal groups from mainland China, typified by the Big Circle Gang and the Fuk Ching Gang, have cells operating in countries around the world that cooperate with one another on an ad hoc basis to conduct far-reaching criminal schemes. These criminal cells typically operate autonomously with no known central authority controlling them. Cell leaders use their extensive connections to organize often very complex criminal operations that require a high degree of organization and planning. The coordinated efforts of members in various countries enable them to carry out international drug trafficking, arms trafficking, alien smuggling operations, as well as a variety of more sophisticated financial fraud crimes.
Chinese Criminal Threat to the United States
The United States faces a growing threat from Chinese organized crime groups that are using Canada as a base from which to conduct criminal activities that impact our country. Members of ethnic Chinese criminal groups from China, Hong Kong, Taiwan, and Macau have exploited Ottawa's immigration policies and entrepreneur program to enter the country and become Canadian residents, which makes it easier for them to cross into the United States. Canada has become a gateway for Chinese criminal activity directed at the United States, particularly heroin trafficking, credit card fraud, and software piracy.
The two largest Hong Kong triads, 14K and Sun Yee On, increased their presence and made substantial property investments in Canada during the 1990s. Prominent 14K members from Hong Kong and Macau have emigrated to Canada during this time, and Sun Yee On triad members have settled in Toronto, Edmonton, and Vancouver. The 14K, which maintains a chapter in Toronto, also has been tied to Asian criminal activities in New York and other US cities. Sun Yee On members are involved in trafficking heroin and methamphetamine, as well as alien smuggling, to the United States, where the triad has ties to New York's Tung On Gang.
The most active Asian criminal group operating in Canada, however, is the Big Circle Gang. The Big Circle Gang is responsible for importing much of the Southeast Asian heroin entering Canada--much of which is then smuggled into the United States--and the source for many of the counterfeit credit cards used in North America.
Over the years, Japanese crime syndicates, known as yakuza, have exploited their traditional roles in arbitrating disputes and loan collection to gain a wide measure of public acceptance. The yakuza's practice of "sokaiya," corporate extortion, often by threatening to disrupt corporate shareholders meetings, has been generally tolerated by Japanese society, despite the economic influence it has given organized crime. Their role in local communities has sometimes placed the yakuza in a better position than the government to respond to civic emergencies, such as when they responded more quickly and efficiently than the Japanese Government in bringing relief aid to victims of the 1996 earthquake in Kobe. The yakuza have also benefitted from historically weak anti-crime legislation and limited law enforcement investigative authority. By adhering to rules of conduct that preclude violence against the police and innocent civilians, Japanese crime syndicates traditionally have been able to operate largely in the open, including highlighting the location of their headquarters in local communities.
The yakuza were able to cash in on Japan's economic and real estate boom in the 1980s to expand their profit-making activities beyond their traditional criminal arenas of drugs, gambling, prostitution, and corporate extortion. Housing loan companies, jusen, that were affiliated with major Japanese banks reportedly issued a portion of their loans, many of which were not repaid, to yakuza-tied firms as part of the speculative boom in real estate in the 1980s. As a result, the yakuza were behind many of the problem loans leading to the 1996 collapse of the jusen mortgage industry.
Although information is limited, press accounts indicate it is very likely that the yakuza have links to Japanese Government officials and have influenced some government decisions. Few of these incidents are widely publicized. In November 1997, however, yakuza connections to sokaiya scandals involving major Japanese banks and similar related allegations against members of the powerful Finance Ministry were widely reported in the Japanese media.
Despite the longstanding tradition of tolerance for the yakuza, the Japanese have become less accepting of organized crime activities in recent years, primarily because of public concerns about increasing street crime and drug abuse, rather than the yakuza role in the financial crisis and banking scandals. "Anti-yakuza" legislation implemented in the early 1990s and updated in 1997, such as recently implemented legislation allowing wiretaps in some criminal investigations and a nationwide crackdown on sokaiya, appears to have helped curb some organized crime activities. Despite the yakuza, ethnic Chinese criminal gangs linked to illegal immigration, drug smuggling, and arms trafficking are publicly perceived as the most serious criminal threats to Japan.
Taken as a whole, the yakuza are among the world's largest and most powerful criminal confederations. The yakuza are highly structured and criminally diverse organizations that have thoroughly penetrated Japanese society, including the legitimate economic sphere, through their extortion-like practice of "sokaiya." There are an estimated 3,000 yakuza groups and subgroups based in Japan. According to Japan's National Police Agency, 60 percent of the estimated 90,000 members and associates of yakuza families are affiliated with one of three groups: the Yamaguchi-Gumi, Sumiyoshi-Kai, and Inagawa-Kai. These groups control most organized criminal activity in Japan, including gun trafficking, drug smuggling, alien smuggling, prostitution, illegal gambling, extortion, and white-collar crime through infiltration of legitimate businesses.
While most of their criminal operations are in Japan, yakuza groups have established a presence throughout Asia, Australia, and the Western Hemisphere. The yakuza have used their international networks primarily to acquire narcotics, guns, or illegal immigrants-- particularly women for prostitution--for the Japanese market.
Although most yakuza criminal relationships overseas are used to facilitate their own criminal activities, some yakuza families are establishing more longterm alliances with other international crime organizations. The Russian connection appears to be particularly important to yakuza groups; in 1992 the Japanese press reported that the head of the Yamaguchi-Gumi had announced his intention to establish working relationships with the Russian mafia. Russia has become a major source of firearms and prostitutes, and a growing source of drugs, for the Japanese yakuza. The establishment of regular flights between major Japanese and Russian cities and relaxed travel restrictions are likely to facilitate long-term ties between Russian and Japanese crime groups.
North Korea's Role in International Drug Trafficking
A large share of the methamphetamine consumed in Japan comes from North Korea, according to media reports; more than 40 percent of the methamphetamine seized in Japan in 1999 came from North Korea. There have been regular reports from many official and unofficial sources that impoverished North Korea has engaged in drug trafficking--mostly to Japan, Russia, and China--as a criminal state enterprise to raise badly needed revenue. Over the years, customs and police officials of many countries have apprehended North Korean persons employed as diplomats or in quasi-official capacities at North Korean state trading companies trying to smuggle drugs produced elsewhere.
Yakuza Threat to the United States
One of the most significant threats posed by Japanese organized crime groups is their investment in legitimate businesses in foreign countries to launder proceeds from their criminal operations in Japan. The yakuza reportedly have invested heavily in US and Canadian real estate, ranging from golf courses to hotels. By playing the stock market, yakuza groups have also laundered criminal proceeds through US financial institutions, according to US law enforcement.
Porous borders, ample routes for smuggling drugs, weapons, explosives, and
other contraband, and corruptible police and security forces make Sub-Saharan
Africa an inviting operational environment for international criminals, drug
traffickers, and terrorists. Major Sub-Saharan cities with extensive commercial,
financial, and sea and air transportation links to Europe, the Middle East,
and Asia are hubs for international criminal activity, particularly by Nigerian
syndicates. These include Nairobi and Mombasa in Kenya, Addis Ababa in Ethiopia, Abidjan in Cote d'Ivoire, Johannesburg in South Africa, and Lagos in Nigeria.
Nigeria is at the center of international criminal activity coming from Africa. Powerful and sophisticated criminal syndicates based in Nigeria have extensive networks that reach into the Western Hemisphere, Europe, Russia and the NIS, Southeast and Southwest Asia, Australia, and Africa. With Nigeria an historical trading crossroads both in Africa and along maritime routes between East and West, the international criminal operations of Nigerian syndicates are the legacy of a history of moving capital and commodities on a global scale.
Nigerian criminal syndicates centered in Lagos, many of which have global networks, operate with virtual impunity in an environment of pervasive corruption. Decades of mostly military rule in Nigeria have exacerbated the problem, ruining the Nigerian economy and nearly bankrupting the Nigerian Government. Moreover, decades of gross economic mismanagement, with which the newly elected civilian government has just begun to grapple, have left not only private citizens but also government and law enforcement officials and junior and noncommissioned military officers with great incentive to engage in criminal activity to make ends meet. Under the recent military regime, many of Nigeria's political and military leaders, government bureaucrats, and business elites routinely accepted and demanded bribes or kickbacks in return for facilitating profitable business activity-- whether in the lucrative oil sector, competitive procurement contracts, or the drug trade.
Corruption and resource constraints have made meaningful law enforcement investigations and prosecutions against the crime barons very difficult in Nigeria. Corruption extends to all levels of the military, which has dominated politics in Nigeria for most years since independence. Likewise, civilian politicians and bureaucrats have engaged in massive corruption, whether during periods of civilian or military rule. Nigerian sea and airports are rife with corruption, and borders are porous to criminals, terrorists, and illegal migrants. The decades-long history of corruption and mismanaged exchange rates has also benefited the money-laundering activities of Nigerian criminal syndicates.
Past Nigerian regimes have typically tried to cast the drug trafficking and financial frauds committed by Nigerian criminal syndicates as victimless crimes that are driven by demand in Western countries. Anticorruption campaigns mounted by military and civilian governments alike have yet to alter the culture of corruption in Nigeria. Nevertheless, some Nigerian elites, including in the military, have come to recognize that pervasive crime and corruption in Nigeria have crippled the economy, contributed to social and political tensions, and undermined relations with major historical trading partners, including the United States and West European countries. Widespread fraud has caused Nigeria to lose billions of dollars in business and foreign investment, according to press reporting. These factors have caused many Nigerian elites to advocate a crack down on corrupt officials and criminal activity, and the new civilian government seems much more inclined to take up this challenge.
Nigeria's President Obasanjo, elected in the aftermath of a highly corrupt military regime, has pledged institutional reforms to cut down on pervasive corruption and to crack down on criminal activity, particularly drug trafficking. The country's history of widespread corruption, however, and the influence of powerful crime barons make effective follow-through on these promises highly problematic.
As a major locus of maritime trade and air traffic between Asia, Europe, and the Western Hemisphere, South Africa is emerging as a significant hub of international criminal activity. The lifting of international trade sanctions with the end of apartheid has made South Africa readily accessible to international criminals whose operations take place within the framework of legitimate commercial business activities. South Africa's modern airports and harbors--including container ports at Durban, Cape Town, Port Elizabeth, and East London--are attractive to criminals smuggling narcotics and other contraband. South Africa's well-developed business connections to the West and political connections to some states of concern can be used by criminals to broker illicit transactions involving arms, controlled technologies, or strategic commodities. For criminal organizations, South Africa also has the advantage of a modern financial system linked to financial markets worldwide, which facilitates money laundering. And, as happened in Russia, criminal organizations recruit professionals with skills well-suited to competing in the modern business environment who were pushed aside or sidelined by the political and economic changes taking place in South Africa.
Major Nigerian Drug Trafficking Routes
With the increase in international travel and business since the apartheid government turned over power in 1994, the scope of organized crime in South Africa has evolved from generally small-scale operations centered in localities to nationwide syndicates. South African police officials have identified almost 200 organized crime groups operating throughout the country, with at least 32 having international connections, according to press reports in 1998. Almost half of the 200 groups were reported to be primarily involved in drug trafficking, and approximately 60 groups were associated with financial crimes. Foreign organized crime groups, primarily Nigerian, Russian, and Chinese syndicates, have established bases of operations in South Africa since the mid-1990s for a variety of illegal activity, including drug trafficking and other contraband smuggling, poaching and trafficking in endangered species, money laundering, and financial crimes.
The international drug trade has become a particularly serious problem for South Africa. Nigerian traffickers are finding South African air and seaports to be attractive gateways for transshipping both cocaine and heroin into the West European market. South Africa's growing role in the international drug trade has increased its domestic addiction problem, especially for cocaine, which Nigerian traffickers have made widely available at low prices.
South African authorities are most alarmed by the presence and activities of Nigerian, Indian, and Russian criminal organizations. They are becoming concerned by growing numbers of Chinese triad criminal groups operating in South Africa. Nigerian criminal groups have established cells in expatriate communities in South Africa's major commercial centers, while Indian criminal organizations operate within the country's substantial South Asian population. Russian criminals have exploited legitimate business opportunities in South Africa to launder money and reportedly engage in money laundering, arms smuggling, automobile theft rings, and illicit strategic commodities transactions, including in gold and other minerals.
The dramatic increase in criminal activity in South Africa initially caught the government unprepared. Violent crime and drug abuse have grown substantially since the early 1990s. In late 1997, South African police estimated that there were between 5 and 8 million illegal firearms in the country. Efforts to confront organized crime are undermined by widespread corruption in the police and the lack of tough laws. This environment has contributed to the rise of ethnic-based vigilante gangs, particularly among the Muslim minority, that have taken the law into their own hands. Alarmed by these developments, the South African Government has begun taking measures to improve its anticrime legislation and enforcement capabilities. In 1998, South Africa passed the Prevention of Organized Crime Act, which is similar to the US racketeer-influenced corrupt organization (RICO) statute, and which also contains anti-money laundering provisions.
Having a long tradition of contraband smuggling, the countries along Africa's Indian Ocean coast are emerging as significant transit points for international drug traffickers, particularly in the Southwest Asian heroin trade. The large volume of cargo handled by major East African seaports in Mombasa, Kenya, and Dar es Salaam, Tanzania, probably hides substantial amounts of contraband trade, including drugs, coming from the Middle East, Pakistan, India, and Southeast Asia. In addition, Nairobi and Addis Ababa are major international air hubs in the region.
Trade and customs agreements among the East African countries are probably widely exploited by international criminals and traffickers, including to move drugs and contraband into southern Africa. This route is used by South Asian criminal organizations smuggling methaqualone, also known as mandrax, produced primarily in India to the lucrative South African market. The terrorists who bombed the US Embassies in Kenya and Tanzania in 1998 took advantage of lax border controls in the region and immigration procedures to move materials and personnel into place.
As countries along the traditional routes used for trafficking Southwest Asian hashish and heroin have given more emphasis to drug interdiction, East Africa has become more attractive as a transshipment point not only because of its international transportation and commercial connections to the rest of the world but also because of lax law enforcement capabilities. Preoccupied with regional crises and substantial domestic problems, including high local crime rates, East African governments so far have not given priority to targeting international criminal activity, and they lack the resources to do so effectively. In addition, international criminals and drug traffickers routinely bribe customs and law officials to ignore contraband trade.
Worldwide, there are hundreds of Nigerian criminal cells located primarily in major metropolitan centers in North America, Europe, and Asia. Recent estimates suggest that more than 500 Nigerian crime cells are operating in at least 80 countries. Nigerian criminals take advantage of large West African ethnic communities in these cities to establish the infrastructure needed to support a wide range of criminal activity-- foremost among them drug trafficking and sophisticated schemes to defraud individuals, businesses, and governments--which reap billions of dollars in illicit proceeds. Nigerian crime groups also facilitate illegal immigration of Nigerian nationals to metropolitan areas around the world, whom they then use for filling high-risk, low-level roles in drug trafficking, and are involved in trafficking women and children to Europe, especially Italy. The United States and Britain are the primary targets of Nigerian criminal activity, with Nigerian crime cells elsewhere in the world purchasing drugs or providing financial and logistical support.
While a large number of Nigerian criminal groups operating overseas appear to be small and autonomous, many others belong to large criminal syndicates based in Nigeria. The smaller groups frequently pool resources and are able to tap into highly fluid networks in countries around the world to facilitate their criminal operations. Many Nigerian crime groups in countries around the world appear to be compartmented cells of larger syndicates controlled by crime barons based primarily in Lagos. The barons, some of whom have substantial economic and political clout in Nigeria, oversee the day-to-day operations of a network of crime cells deployed worldwide to undertake or support a wide range of criminal activities.
Nigerian criminal syndicates are among the world's most active traffickers in Asian heroin--particularly to the United States--and are increasingly trafficking South American cocaine to various regions in Africa and throughout Europe. Producing no heroin of their own, Nigerian traffickers have well-established networks in Southeast and Southwest Asian countries to acquire the drug. The steady and virtually uninterrupted flow of Nigerian-controlled heroin from these source regions is facilitated by criminal cells in transit countries along the way. Nigerian traffickers typically smuggle only small quantities of drugs, using both express mail services and thousands of individual couriers in an effort to overwhelm market country customs and law enforcement capabilities and to lessen the cost of any seizures. They tend to avoid sending drug couriers on direct flights from drug-producing and key transit countries to market countries, relying instead on a widely diverse number of routes transiting airports throughout Asia, Africa, and Latin America.
Financial Fraud Schemes
In addition to their significant role in narcotics smuggling, Nigerian criminal syndicates are involved in a wide variety of financial fraud schemes that target private citizens as well as businesses, particularly in the United States and the United Kingdom. The most notorious of these are advance fee scams, in which thousands of unsolicited letters and faxes based on fraudulent representation are sent by Nigerian criminals to businessmen worldwide with the promise of great profits at the cost of upfront cash investment. The letters and faxes set forth simple investment schemes, promises of "easy money," elaborate assurances, and extraordinarily low risk. They provide detailed instructions for establishing linked bank accounts and exchange of authorization letters and account numbers to give the appearance of legitimacy, then require various transaction fees before any moneys can be released. Victims of Nigerian fraud schemes may be strung along for months or years paying transactions fees and taxes before realizing they are being conned.
Nigerian criminal cells worldwide also specialize in sophisticated schemes targeting banks and financial institutions through credit card and check fraud, student loan and mortgage frauds; insurance companies through fraudulent claims for automobile accidents, personal injuries, and life insurance; and government entitlement programs through false or appropriated identifications and theft from legitimate recipients. Illicit funds raised through financial fraud schemes are often used to capitalize narcotics trafficking. The penetration of government bureaucracies in many countries has enabled local Nigerian cells to defraud government entitlement programs.
As the exclusive source of cocaine for the world market, South America is a primary locus of the international drug trade. Colombian traffickers are responsible for producing most of the world supply of finished cocaine, and they have established drug-trafficking networks throughout the Western Hemisphere. Analysis of cocaine flows data from US detection and monitoring assets and data on cocaine use elsewhere in the world show that most of the cocaine produced in Colombia is for the US market. Colombia, Venezuela, and Ecuador are the primary staging areas for drug exports destined for the United States.
In the last decade, however, international criminal activities linked to South America have expanded beyond the drug trade and become more multifaceted. The continent's increased commercial and transportation links to Europe and Africa, as well as to the Caribbean basin and the United States, have attracted an increased presence of foreign criminal organizations. Greater regional economic integration has helped South America emerge as a significant source of counterfeit products for the international market. Money launderers are exploiting the region's weak enforcement against illicit transactions to move and shelter criminal proceeds.
The power and influence of criminal organizations have eroded good governance, diverted attention and resources away from more pressing political and security problems, and skewed the economies of many South American countries. Throughout the region, the activities of local criminal mafias have become a significant political, as well as law enforcement, concern. Crime groups in many countries have suborned local police officers and other public officials to safeguard their illegal activities.
The drug trade in Colombia has helped fuel decades of violence, corruption, political strife, and, particularly in recent years, insurgency. Colombian drug profits since the 1970s have bought power and influence at the highest levels of the government, judiciary, and financial institutions. Government leaders have faced daunting obstacles, including bribes, threats, violence, and other tactics, as they to control drug-trafficking operations. The level of violence and narco-terrorism reached its apex in the late 1980s and early 1990s when countless police were killed by traffickers, a major presidential candidate was assassinated, the headquarters of Colombia's lead investigative agency was destroyed in a high-casualty bombing, and an airliner was destroyed in flight. In 1994, trafficker financial support may have been influential in the victory of President Samper in a close election. Bogota's antidrug efforts since the mid-1990s--including arrests of key traffickers, increased interdiction, and recent extradition of three traffickers to face drug-trafficking charges in the United States--have reduced much of the overt influence exercised by powerful trafficking organizations, but Colombian traffickers have adapted to stay atop the worldwide cocaine trade.
Of particular significance in Colombia's current crisis, surging drug production is providing substantial resources to insurgent and paramilitary groups that threaten the country's stability. In more than half of Colombia's national territory, the FARC and ELN rebel groups or the paramilitaries have free rein. Promoting and protecting coca cultivation in the areas it controls, the FARC has emerged as a major player in the drug trade throughout Colombia, particularly in the south where cultivation increases have been the greatest. The substantial revenues raised by the FARC through its involvement in the drug trade have increased the ability of the insurgents to operate freely throughout the country and to finance growing numbers of armed combatants.
Andean Coca Cultivation, 1999
Along with guerrilla attacks against economic targets, the drug trade has been a major factor in Colombia's economic difficulties. The black-market peso exchange used extensively by Colombian traffickers, through which drug proceeds in the United States are exchanged for trade goods that are smuggled into Colombia, has caused the contraband import industry to capture more than 25 percent of the country's retail market. Contraband trade goods financed largely by cocaine profits entering the Colombian marketplace were estimated to be as high as $1.7 billion in 1999; the value of Colombia's legal imports in 1999 was about $12 billion, according to the former Colombian trade minister.
Colombia is also the world leader in the production of counterfeit US currency. Ongoing investigations in Colombia indicate that drug trafficking and counterfeiting are linked; the same courier networks are often used for trafficking drugs and counterfeit US dollars. Many of the crime groups involved in producing and trafficking counterfeit currency originated from areas controlled by the FARC and ELN.
Along with Colombia, the other Andean countries are integral to the South American drug trade. Peru and Bolivia are major sources of coca for the cocaine trade; Venezuela is a major transshipment avenue for drug shipments destined for US and European markets through the Caribbean; and Ecuador's harbors and seaports have become more important as Colombian traffickers make greater use of eastern Pacific maritime routes to move cocaine to Mexico and on to the United States. Bolivia and Peru in recent years have had success in attacking the large coca economies in their countries through alternative development, voluntary eradication, and forcible eradication of coca crops. Although both countries have achieved substantial reductions in their coca crop--more than half in both countries between 1995 and 1999, according to US Government estimates--their coca constituencies remain strong. In Bolivia, powerful unions supporting their coca growing constituencies continue to stage protests and blockades to impede the government's eradication efforts. In Peru, there are indications that a rebound in coca leaf prices is causing some farmers to return to coca cultivation.
The role of foreign crime groups has been most pronounced in Bolivia, whose reputation as one of the world's most corrupt countries is attractive to international criminals. In recent years, Bolivia has been rocked by a corruption scandal involving ties that a Sicilian Mafia crime group has to high-level military, police, and political leaders. Pervasive corruption has also contributed to Bolivia being a major staging area for thousands of US-bound migrants from China and the Middle East.
Brazil and the Southern Cone
Expanding trade relations within the region and between South America and the rest of the world have helped make Brazil and the Southern Cone countries major venues for international contraband smuggling and economic crimes. Modern manufacturing capabilities in several South American countries have opened the door to illegal duplication of CDs, videos, and cassettes; illegal production of these products is centered in Brazil and Argentina, whose governments have toughened their IPR laws. Growing consumerism and middle class prosperity in the largest South American countries has made them an important market for drugs, pirated or counterfeit products, and other illicit contraband.
Evolution of the Colombian Drug Trade
Colombia's drug-trafficking organizations are the most powerful and influential in South America. Prior to the incarceration of its top leaders in 1995 and 1996, Colombia's Cali drug mafia was believed by several international crime experts to be the world's most profitable criminal organization. Although the setbacks suffered by Cali traffickers have ended their dominance, Colombian traffickers not only continue to meet most of the world's cocaine demand, but have become the largest supplier of heroin available in the United States. Nevertheless, the disruptions caused to Colombian trafficking operations have allowed rival groups in Peru and Bolivia to increase their share of the international cocaine market--primarily in Europe and South America--by establishing direct relationships with foreign criminal organizations.
Despite the dismantling of the Cali cartel in the mid-1990s, the continuing shift in coca cultivation from Peru and Bolivia to Colombia that began then has increased the central role that Colombia plays in the Andean cocaine trade. Reinforced by substantially greater coca production in Colombia, Colombian traffickers continue to process most of the world's finished cocaine. Smaller, less powerful trafficking groups have emerged since the powerful Cali drug lords were imprisoned. While becoming less dependent on Peru and Bolivia for supplies of cocaine base, Colombian traffickers have greater expertise, more capital, and better overseas networks than emerging rivals from Peru and Bolivia. This new generation of Colombian trafficking groups maintains lower profiles, focuses on limited aspects of the drug trade, and forms more ad hoc alliances that make them more difficult law enforcement targets. In addition, Colombian traffickers have adjusted their routes and methods for moving cocaine.
International crime groups from outside the Western Hemisphere involved in drug trafficking, particularly Italian, Russian, and Nigerian syndicates, have increased their presence in Brazil, Argentina, and Paraguay to take advantage of these countries' well-developed transportation and commercial connections to Europe and Africa. Asian criminal groups appear to be involved in a network of smuggling and counterfeiting enterprises in the "tri-border" region of Brazil, Paraguay, and Argentina. Some foreign criminal organizations have also established a foothold in South America's money laundering, gambling, racketeering, alien smuggling and trafficking in women, and auto theft crime sectors--although local crime groups dominate most criminal enterprises in the region. A 1996 UN study estimated that $20 billion is laundered through Brazil annually from drug trafficking and contraband trade.
The Southern Cone countries have been hard pressed to cope with rising crime rates and criminal violence. Criminality is most severe in Brazil, where the illegal import of firearms, used frequently to protect turf and resolve disputes with rival crime gangs, and rising street crime, kidnappings for profit, and drug addiction have exacerbated social tensions. Allegations of criminal corruption have contributed to political scandals or crises in several countries, including Brazil, Argentina, and Paraguay.
The Caribbean has long been a major transit route for cocaine, marijuana, and more recently smaller quantities of heroin moving from South America to the United States and Europe. It is also an avenue for smuggling illegal migrants and other contraband, including arms. The Caribbean's vast stretches of open water and thousands of islands and cays--too numerous for law enforcement to effectively patrol-- afford drug traffickers and other smugglers many and varying transshipment routes. The Bahamas alone has some 700 islands and more than 2,000 cays.
Caribbean Offshore Financial Centers That Facilitate Money Laundering
Puerto Rico is a primary target of drug-trafficking flows in the Caribbean because of its central location astride the three major trans-Caribbean smuggling routes--directly from South America, through the Hispaniola countries of Haiti and the Dominican Republic, and through the Lesser Antilles island chain--and its attractiveness as a point of entry into the United States. Puerto Rico is a major commercial transit center in the Caribbean, with more than 14 million tons of cargo handled in San Juan alone each year. Once drug shipments or any contraband have been smuggled into Puerto Rico, they have entered the United States and can be moved to the mainland by commercial ships and planes generally not subject to US Customs inspections.
Drug traffickers and other international criminals also use offshore financial
service centers in the Caribbean to launder their proceeds. Caribbean-based
offshore and onshore banks, trust companies, international business corporations,
casinos, and Internet gaming establishments are used by drug traffickers and
Russian and Italian organized crime groups to launder illicitly derived funds.
Many Caribbean financial centers, which were once characterized by strictly
enforced bank secrecy legislation, have passed strong legislation that criminalizes
money laundering related to drug trafficking and other crimes. Nonetheless,
Panama and four Caribbean countries account for
one-third of the 15 countries and territories listed by the FATF as non-cooperating in combating money laundering.
International criminal activity in the Caribbean has inculcated an environment of widespread corruption, and most Caribbean island nations have weak law enforcement capabilities. Because Caribbean countries have economies reliant on financial services or tourism and gambling, they are particularly vulnerable to high-level criminal influence. Faced with few economic alternatives to these industries and the overwhelming amounts of illicit money that typically help to sustain them, few Caribbean islands have the resources or legislative framework to fight money laundering through Internet gaming establishments and effectively control economic citizenship programs. Powerful local criminals also rely on bribes and strong-arm tactics to supplement their economic clout.
The Central American isthmus is a major corridor to Mexico for the movement of US-bound illegal aliens and a significant avenue for drug shipments. It is also an avenue for arms shipments of weapons stocks from previous conflicts in Guatemala, El Salvador, and Nicaragua to Colombia. Alien smugglers and drug traffickers take particular advantage of the all-weather Pan-American Highway that runs the length of the isthmus from Panama into Mexico, bypasses virtually all of the region's major international airports, and is within 80 kilometers of most of Central America's major seaports on the Pacific Coast. To improve their odds of success, smugglers often fan out from the highway when approaching border points and cross in remote locations where inspection is more lax or nonexistent. Airlines operating in Central America have extensive routes to South America, offering attractive options for drug traffickers and alien smugglers alike. The many miles of unpatrolled Caribbean coastline in Central America, as well as several commercial seaports, have long been integral to maritime drug smuggling into the region. Guatemala is the primary staging area for moving both drugs and illegal migrants into Mexico, from where they are smuggled across the US border.
Cuba: Emerging Criminal Hub in the Western Hemisphere?
Economic and, to a lesser extent, political change in Cuba may make the island a major hub for criminal activity in the near future. As the Cuban economy becomes more liberalized and tourism increases, international organized crime groups would probably view Cuba as an attractive location for criminal activities, particularly if the Communist regime collapses and restrictions on travel are lifted. There are many favorable conditions in Cuba that could facilitate the penetration and growth of organized crime.
Cuba's geographic position astride Caribbean sea lanes between South America and the United States and its close proximity to US shores make it ideally situated as a potential hub for contraband smuggling. Its seaports already handle a significant volume of commercial maritime trade with South America, Europe, and Africa.
Panama's position as a crossroads between the Atlantic and Pacific Oceans and between North and South America, and its modern and vibrant international trade and financial sectors, makes it one of the most attractive sectors for criminal activity in the Western Hemisphere. As a major hub of commercial activity, Panama has long been an important transit site for drugs smuggled in commercial maritime cargo and a major offshore center for laundering criminal proceeds. Modern seaports adjacent to the Colon Free Zone and at the Pacific end of the Panama Canal handle large volumes of containerized and bulk cargo and are important terminals for transshipping Colombian cocaine in and out of Panama. Trafficker penetration of the shipping industry, corrupt port and Colon Free Zone authorities, and extensive use of front companies facilitate drug shipments. Drug traffickers and other criminals give significant priority to courting politicians and government officials, as well as executives in the financial sector.
As illegal migration from Latin America to the United States has increased, Panama's accessibility from South America has helped make it a key transit point for regional alien smugglers. According to US Government data, some 30,000 northbound migrants-- including Ecuadorians, Peruvians, Colombians, Dominicans, Chinese, and Indians--transit Panama annually on their way to the United States. Dozens of alien smugglers are entrenched in the country, where they exploit porous borders, corrupt officials, and lax inspections by immigration authorities and airlines.
The huge volume of financial transactions handled by Panamanian banks has made Panama a significant offshore money-laundering center. Panama's dollar-based economy, robust offshore banking and company-formation sector, and extensive use of cash in the loosely regulated Colon Free Zone allow money launderers to conceal the origin of their funds.
Money-laundering investigations in Panama remain hampered by their complexity, the amount of time and resources required, and by inadequate anti-money- laundering legislation, which requires prosecutors to tie money laundering directly to drug trafficking. Following Panama's inclusion on the multilateral FATF noncooperative list in 2000, the new Panamanian administration has passed new legislation expanding the list of predicate crimes and permitting Panama's financial analysis unit to share information with other countries.
After Mexico, Central America is by far the largest source of illicit migration to the United States. The US Government estimates that some 325,000 US-bound migrants originate from or transit through Central America annually before entering Mexico en route to the US border. This is equivalent to about two-thirds of the 500,000 non-Mexican illegal migrants who enter the United States each year.
The Central American countries, along with Mexico, the Dominican Republic, and Colombia, are primary source countries for women and children trafficked throughout Latin America and to Western Europe, especially Spain.
Most US-bound illegal migrants from outside the region arrive in Central America by air, mostly on flights from South America. Several of the region's airlines regularly carry illegal migrants. Smugglers take advantage of corrupt employees, lax controls, and the extensive air service offered throughout the hemisphere by these airlines. Many Chinese migrants are brought to Central America by freighters; the US Government estimates that several thousand Chinese arrive by boat directly into the Central American region each year.
Alien smugglers in Central America rely on the Pan-American Highway as the main route for transporting their clients into Mexico. Its ready access to the coast and to international airports helps facilitate the efficient movement of US-bound illegal migrants coming from South America or Asia. Boats are sometimes used by smugglers to bypass part of their overland journey, particularly across the Golfo de Fonseca between Nicaragua and El Salvador and between Guatemala and Mexico.
In the last four years, nearly one-third of the South American cocaine transported to Mexico to be smuggled across the US southwest border transited through Central American countries, according to US Governments estimates. Central America's importance has grown as drug flows to Mexico through the western Caribbean to the Yucatan Peninsula have declined in recent years because of increased maritime interdiction efforts. Panamanian sea and air ports are pivotal entry points for drugs entering Central America, but South American traffickers also deliver cocaine by boat to remote beaches and harbors on both the Pacific and Caribbean coastlines. Colombian traffickers own most of the cocaine transiting Central America, but rely on regional organizations to arrange and coordinate overland transportation of drug shipments to Mexico.
Poorly policed borders and corrupt officials, some at the highest levels of government and law enforcement, are routinely exploited by drug traffickers and alien smugglers operating in Central America. Relatively low pay and standards of living for law enforcement officers and overburdened police and judicial systems allow drug traffickers considerable room for maneuvering. Corruption involving alien smuggling is particularly widespread, because most officials perceive they are committing no crimes against their own country since the migrants are only transiting en route to the United States. Corrupt officials in the Central American countries accept handsome bribes to assist alien smugglers by providing legitimate documentation, actively facilitating the movement of US-bound illegal migrants through airports and border crossings, or turning a blind eye to such activities.
While most Central American governments are in various stages of boosting their antidrug efforts, they are generally reluctant to deal with the problem of alien smuggling through their countries. Instead, press reports show that the region's governments tend to view the flight of poor citizens to the United States as a way to relieve pressure on their economies and provide a source of revenue for families in the form of remittances. Moreover, US-bound migrants from within and outside Central America may be seen as helpful to their economies because they fill hotels, buy food, clothing, and supplies, and use transportation services.
In most of Central America--with the exception of Nicaragua and Honduras, which have poor enforcement records--it is not illegal to aid and abet illegal migrants. Without antismuggling legislation, law enforcement agencies have few tools other than enforcing laws against illegal documents to deal with the problem. Constrained by small budgets and not enough law enforcement personnel, the region's governments give greater priority to committing resources against rising crime rates than to targeting alien smuggling networks.
There are no major organizations or cartels that control or dominate alien smuggling through Central America or any particular country. The 325,000 US-bound migrants that are estimated to move through Central America are handled by several hundred independent smugglers who cooperate in loosely linked networks stretching across the region; a small number have extensive networks throughout Central America. Most smugglers cover a specific territory--one or two countries--from which they pass clients to other smugglers or guides known as "coyotes," rather than accompanying or having control over them for the full trip into the United States.
Almost all Central American alien smugglers rely on widespread, illicit partnerships with agents in the travel industry to move their clients northward. Travel agencies, many of which are owned and operated by the smugglers themselves, arrange tickets and provide cover for groups of aliens moving through the region. Hotels and safehouses serve as rest stops and rendezvous points on each leg of a typical smuggling trip. Bus lines and rental car companies provide transportation. Alien smugglers also depend on corrupt officials to obtain travel documents or to facilitate the movement of US-bound illegal migrants across borders.
Some alien smugglers in Central America specialize in moving US-bound illegal migrants from Asia, especially China and India. They serve largely as regional subcontractors--with associates in Asia, South America, and the United States--that oversee the movement of US-bound illegal aliens through Central America. Unlike most of the other smugglers who organize alien smuggling runs on an ad hoc though frequent basis, these specialists tend to operate pipelines in which people movements are preplanned and consistent. Careful planning is essential because they must coordinate arrangements with the arrival of boats, from which their clients are often off-loaded offshore rather than in port, and flights carrying illegal migrants.
Sharing a long 3,300-kilometer border with the United States, Mexico historically has been a hideaway for bandits and a staging area for cross-border smuggling. Terrain features ranging from the easily crossed Rio Grande to expansive stretches of remote, rugged, and inhospitable desert along the US southwest border have long been used by migrants and contraband smugglers to move back and forth across the border illegally. The urban sprawl that straddles both sides of the border in twin cities like San Diego-Tijuana and El Paso-Juarez has complicated the problem. In addition, inadequate law enforcement coverage of remote regions allows criminals to fly small aircraft or land small boats in US territory unnoticed. Multiple jurisdictions on both sides of the border further complicate organized, coherent efforts to control the border.
Criminal activity across the US southwest border has been aided by the increased volume of legitimate commerce, comparatively lower industrial wages that attract US manufacturing firms, and expanded bilateral trade agreements. The substantially increased volume of trade between the United States and Mexico resulting from NAFTA, while greatly benefiting legitimate business interests on both sides of the border, has also generated greater opportunity for traffickers smuggling drugs, as well as illegal migrants and other contraband, across the US southwest border. Extensive legitimate commerce and traffic make the border between the United States and Mexico the busiest in the world.
Powerful Mexican drug-trafficking organizations exert considerable influence on the Mexican side of the border, where they use bribes and violence in efforts to corrupt or intimidate police officials and private businessmen into allowing them to operate with limited constraint. They take advantage of the tremendous volume of cross-border trade to smuggle cocaine, heroin, marijuana, and methamphetamine into the United States.
Besides drug smuggling, Mexican criminal groups are involved in illegal alien smuggling, product piracy, and cross-border trafficking--from the United States into Mexico--of stolen vehicles, firearms, tobacco, alcohol, and other contraband. Mexico has become a key way station in the pipeline of illegal migrants, including large numbers from Asia, traveling from South and Central America to the United States. Mexico also has a problem with businesses violating patent and trademark protections. From January to October 1998, Mexican authorities seized 23.4 million pirated goods, up from 12.6 million pirated items seized in all of 1997.
Mexico is the top money-laundering country in Latin America. Mexican drug traffickers reportedly repatriate much of their profits in bulk cash shipments directly from the United States to Mexico and launder funds using money exchange houses along the US-Mexican border, Mexican banks, stocks and commodities markets, and other financial institutions. Laundered funds have been used by Mexican criminal kingpins to invest in Mexico.
The power and influence of Mexican criminal organizations are having a significant political and economic impact in Mexico. Law enforcement and press reporting clearly indicates that criminal violence--including between rival drug-trafficking organizations--kidnappings for profit, carjackings, and extortions have increased in recent years, making Mexico's rising crime rate a major political issue. Drug violence has been particularly noxious--from the 1993 killing of the Archbishop in Guadalajara, gunned down in crossfire between rival drug-trafficking groups, to killings of law enforcement officials, to small-scale massacres in vendettas by one drug trafficking or criminal group against another.
Mexican Drug-Trafficking Organizations
The Mexican drug-trafficking organizations that control cocaine movements through Mexico and are major distributors of cocaine, heroin, marijuana, and methamphetamine in the United States continue to grow. Powerful Mexican trafficking organizations receive up to half of each Colombian cocaine shipment moving through Mexico as payment for a successful smuggling operation, according to DEA. They also appear to have increased outright purchases of Colombian cocaine and have taken other measures to assert their independence from Colombian traffickers.
The Mexican drug trade is controlled by several powerful trafficking organizations, most notably the Arellano Felix organization and elements of the Carrillo Fuentes organization, which split into factions since the death of drug lord Amado Carrillo Fuentes in 1997. These drug-trafficking organizations control most acquisition and transportation of drugs through Mexico and its trafficking across the US border. The Arellano Felix organization is considered by US law enforcement officials to be the most ruthless and violent drug-trafficking organization in Mexico.
Widespread corruption associated with the drug trade has challenged the Mexican Government's ability to operate effectively. Corruption has certainly impaired Mexico's ability to target major drug traffickers. In several high-profile cases, senior officials, including the former Mexican drug czar, and police officers have been implicated in drug-related corruption.
Commercial Trucks Entering the United States Through Southwest Border Crossings With Mexico, 1992-99
The fundamental change in Mexico's political landscape caused by Vicente Fox's election following 71 years of one-party rule presents an opportunity to attack corruption. Fox has called narcocorruption a "national cancer," promised to launch an aggressive campaign against Mexico's drug-trafficking organizations, and proposed changes to federal law enforcement agencies that would restructure the country's antidrug forces. Nonetheless, rooting out corrupt officials and reversing ingrained patterns of institutional corruption will be difficult and meet significant bureaucratic and political obstacles.
The same factors of size, population diversity, economic strength, modern business and transportation infrastructure, and legal protections that make the United States a lucrative target for international criminals provide an environment that supports and sustains international criminal activity originating in this country and extending well beyond US borders:
The United States is one of the world's leading sources of contraband luxury goods, firearms, tobacco products, and alcohol smuggled and sold overseas. Both US and foreign crime groups operating in the United States are involved in rackets stealing cars and other high-priced items and illegally shipping them out of the country. International criminal groups profit from evading import and other taxes in countries of destination and selling them below retail price to consumers unwilling to pay exorbitant markups and taxes in the legitimate marketplace. The smuggling of US-produced firearms to other countries is also a significant international problem; the United States is a primary source for criminal groups involved in the international smuggling of firearms because there are fewer restrictions on manufacture and sale of firearms than in most other countries.
The tremendous volume of goods entering and leaving the United States in legitimate trade provides criminal groups with unparalleled opportunities to smuggle contraband through US ports to overseas destinations. In addition to being a point of origin for contraband smuggled overseas, the United States is used by international criminals as a transit country for contraband being shipped from one foreign destination to another. International criminals know that containers arriving from the United States are less likely to arouse suspicion in most destination countries. According to the US Customs Service, more than 14 million standard shipping containers entered the United States by maritime, rail, and truck transport in 1998, most of which contained products for the US market. Some containers, however, transited in bond to other countries; criminals transshipping contraband through US ports seek to hide the true country of origin of contraband products and hope to avoid rigorous US customs scrutiny.
While the United States is the world's leading importer of illicit drugs, it is also a major source of illegal drugs--some of which are smuggled overseas. The United States is one of the world's leading producers of marijuana, crack cocaine, and methamphetamine.
Latin American drug traffickers acquire many of the precursor chemicals they require for producing cocaine and heroin from US sources. They rely on US chemical sources of supply because the distance and transportation required to ship often unstable chemicals are shorter and more reliable than from other producers. Most of these chemicals are produced legally and exported overseas legally to legitimate users. Despite the enactment of sweeping US and international chemical control regulations, however, many chemical shipments are diverted from licit channels for use in the manufacturing of illegal drugs. Drug traffickers establish front companies, fraudulently obtain dealer licenses for chemical transactions, or acquire precursors through corrupt officials in chemical companies.
Despite strict regulations and currency reporting requirements, the United States continues to be attractive to international criminals seeking to launder money because of the complexity, strength, and stability of the US economy and financial system. Some international criminals exploit private or personal banking services to establish accounts for money laundering purposes. The wide variety of nonbank financial institutions that are more difficult for US law enforcement to monitor for illegal activity provide launderers with many different options to dispose of criminal proceeds. These include brokers and dealers of securities, money order vendors, casinos, money transmitters, check cashiers, change bureaus, and the US Postal Service. Many foreign crime groups, particularly Latin American drug-trafficking organizations, use illicit proceeds to purchase consumer goods in the United States, which are then exported to their home countries for sale in the local currency. Moreover, international money launderers operating in the United States are increasingly using professional facilitators such as accountants, notaries, lawyers, real estate agents, and brokers to mask the origin of tainted funds.
US Crime Groups Abroad
Some US crime groups have established cells and networks in foreign countries, and are engaged in a wide range of criminal activities. In many cases, the US crime groups use their overseas networks to acquire drugs and other illicit contraband or to prey upon US businesses, as they do in the United States. Law enforcement authorities in other countries also report that US crime groups are involved in money laundering, extortion, prostitution, drug trafficking, firearms smuggling, car theft, street crimes, and contract murders.
US Motorcycle Clubs: Presence Overseas
(1) Thailand, which in the past had been a larger producer of opium, now accounts for less than 1 percent of the region's total opium production because of effective crop eradication efforts.
(2) The reliability of some Chinese statistics is questionable, particularly for much of the data dealing with the societal consequences of crime. In some cases, China does not have good data collection, which almost certainly underestimated--perhaps significantly--the scale of these problems. Since 1997, Beijing has waged an intensive publicity campaign to encourage honesty and accuracy in reporting data.
(3) One press report estimated the banking industry's bad loans to be as high as $1 trillion.