Chapter IV

Consequences for US Strategic Interests

The Problem of Criminal Safehavens, Kleptocracies, and Failed States

Consequences for US Strategic Interests

Consistent with the priority of protecting the lives, property, and livelihood of US citizens at home and abroad, the United States has a fundamental strategic interest in supporting democracy and free markets around the world. These are critical factors underpinning global political and economic stability. Increasing worldwide criminal activity and the growing power and influence of organized crime groups are significant threats to democratic institutions and free market systems in many countries and regions. Emerging democracies engaged in wide-ranging reforms to meet these objectives, including the former Soviet Union and Eastern Europe, are most vulnerable. Organized crime threatens democratic and free market systems, as well as vital US national interests, by:

  • Increasing crime and societal problems. The activities of organized crime groups undermine societal values, lead to increased crime rates, and raise social expenditures. Crime groups seek to establish and enlarge local markets for drugs and other illicit contraband that earn substantial profits, which contributes to police corruption and street crimes. The social consequences of these activities can be severe; they include drug addiction, violence, property and financial fraud crimes, decreased respect for legitimate authorities, and increased medical and social welfare costs.
  • Corrupting public officials. Although criminal groups rarely organize politically, they can and do gain considerable power over politicians and government officials through corruption and the economic influence they exercise. Criminal groups cultivate and rely on corrupt political elites, government officials, and law enforcement and security personnel to protect their operations and to provide cover for expanding their activities, often into the legitimate economy. They use their leverage to protect their illicit operations from public scrutiny and law enforcement pressure; to push for legislative and administrative regulations favorable to their criminal business interests; and to gain insider access and information to government economic strategy and plans that give them an unfair advantage over legitimate business competitors.
  • Compromising the integrity of democratic institutions. Corruption of public officials inevitably erodes the integrity of democratic institutions, including legislatures and judiciaries. Criminal organizations attempt to manipulate political and legal systems to their advantage. They use illicit proceeds to help fund the campaigns of preferred candidates or to buy votes in the legislature in efforts to protect their safety, freedom, and criminal operations. Criminal influence in the legal system may short-circuit law enforcement investigations, preempt prosecutions, prevent convictions, or preclude long sentences. Damage to the integrity of democratic political and judicial institutions undermines their credibility and erodes public support for democracy.
  • Penetrating the legitimate economy. Through investments in legitimate enterprises, criminal organizations can gain substantial interests in, or even control over, critical sectors of the national economy. Criminally controlled or influenced businesses have ready access to considerable amounts of interest-free capital to invest in productive enterprises, an advantage legitimate businessmen do not have. Such unfair competition may put legitimate business enterprises at a competitive disadvantage. Criminal groups tend to invest more in high-volume cash-flow businesses that provide good cover for money laundering or contraband smuggling. Business enterprises influenced or controlled by criminal groups also put them in position to "steal" legitimate government and business revenue. Moreover, companies controlled by organized crime frequently create cost overruns or demand kickbacks in sectors such as public works projects.
  • Damaging the credibility of banking and financial institutions. The use of banks and financial institutions to launder money and for other illicit financial transactions undermines their credibility. Poorly capitalized banks established by criminal organizations weaken the banking system and may increase the likelihood of a major domestic financial crisis. A weakened banking system increases the danger of domestic liquidity crises and can magnify the impact of foreign financial shocks on the economy. These developments can undermine confidence in a country's financial system, leading to extensive capital flight and depriving the country of investment resources. If the financial system is closely integrated into global financial markets, the risk of contagion--the crisis spreading to other countries-- increases.
  • Undermining support for democratic and free market reforms. In countries with weak or developing democratic institutions or transitioning economies, like Russia, the NIS, and several in Eastern Europe, the intersection of organized crime with corrupt political elites can erode the public credibility of reforms and prevent democratic and free market systems from being consolidated and institutionalized. The general public feels it has no stake in political and economic reforms when reforms appear to benefit organized crime, unscrupulous businessmen, and corrupt politicians and government officials, rather than aiding citizens. Rising crime and societal problems intensify public disillusionment. Loss of faith in a newly democratic government's ability to cope with the power and influence of criminal networks and corrupt officials may result in stronger political support for antidemocratic hardliners.

The Problem of Criminal Safehavens, Kleptocracies, and Failed States

Increasing power and influence of criminal organizations over political and economic structures may cause some countries to become "safehavens" where criminals can operate with virtual impunity. Criminal groups rely on safehavens as staging or transit areas for moving illicit contraband--particularly drugs, arms, and illegal immigrants--and for laundering, hiding, or investing their illicit proceeds. They also use these countries' financial and commercial sectors to arrange illicit financing of criminal activities and to broker prohibited transactions, including those for regulated and proscribed materials and technologies of interest to states of concern or terrorist groups. Countries that limit extradition, do not recognize the relevance of some US laws, or that have no legal statutes to deal with some criminal activities are often home to criminals seeking to evade justice in the United States and other countries their criminal acts victimize.

  • Weak financial regulatory systems, lax enforcement measures, and high-level corruption are key factors that make certain countries particularly attractive to international criminals as safehavens.

In some cases, state-sanctioned criminality and corruption may be so corrosive that the country itself has become a "kleptocracy." Rather than serve the public interest, the top leaders in such countries use the resources of the state solely to enrich themselves and keep themselves and their cronies in power. Ruling their countries as virtually a personal business enterprise, kleptocratic leaders exploit the most profitable areas of the national economy for personal gain, often resulting in losses for the state treasury and sometimes impoverishing the country. Gross corruption aimed principally at enriching the political leadership leads to distorted economic decision making that weakens a sound economy. Kleptocratic governments also set the stage for social and political upheavals.

  • Nigeria under Abacha, Zaire under Mobuto, Indonesia under Soeharto, and the Philippines under Marcos are examples of kleptocratic states. All of these leaders used their authority to exploit their countries' economic resources for personal gain and demanded sizable kickbacks as the cost of doing business. They amassed fortunes worth billions of dollars, but also sowed the seeds that led to their downfall.

Organized Crime Threat to Society

Unconstrained criminal activity may so corrupt and compromise the integrity of law enforcement and other government institutions that a country becomes a "failed state" incapable of meeting many of the accepted standards and responsibilities of sovereign control over its territory. In failed states, government institutions responsible for law enforcement, maintaining public order, or regulating the financial sector have broken down to such an extent that they are unable to maintain rule of law or to develop sufficient political motivation to act against criminal groups and activities operating in the country. Their governments are unable or unwilling to fulfill international obligations that would help prevent their countries from becoming major bases for global crime. The failure of institutions to fulfill the public responsibilities expected of them and any substantial breakdown of the rule of law may lead to significant economic deterioration and political unrest that threatens both internal and regional stability.

The international scope of the global crime threat places a premium on bilateral and international cooperation to prevent organized crime, drug trafficking, and terrorist groups and other criminal networks from establishing secure bases of operations. Without effective law enforcement throughout the international community, criminals will continue to threaten US interests, as well as those of other democratic and free market countries, simply by conducting their activities from, and through, those jurisdictions where law enforcement is weak. The absence of effective law enforcement or political willingness to grapple with the problem in countries that are safehavens or failed states precludes effective counterdrug and law enforcement cooperation with the United States and other countries, stymies US efforts to enhance international measures against money laundering, corrupt business practices, and IPR violations, and complicates broader US political and security interests.

  • Increasingly, however, many governments in countries criminals are exploiting as safehavens are coming to realize the far-reaching consequences of international criminal activity in their countries. In particular, in an increasingly global economy where any one country's economic growth and prosperity are to a significant degree dependent on international trade and commerce, more and more governments recognize that criminal activity can undermine the credibility and competitiveness of their country's financial and commercial sectors, which is bad for business and the economy.

President and First Lady | Vice President and Mrs. Gore
Record of Progress | The Briefing Room
Gateway to Government | Contacting the White House
White House for Kids | White House History
White House Tours | Help | Text Only

Privacy Statement

What's Happening at the White House

Recent Additions