The threat to the United States from international crime continues to grow as criminals exploit the globalization of trade and finance and rapid changes in technology. These developments have helped create new mechanisms for trafficking contraband, conducting illicit trade, laundering money, and engaging in large-scale economic crimes. They have also opened the door to new criminal opportunities. While organized crime groups have greatly benefited from these developments, the pace of globalization and technological advancements also have inadvertently resulted in some legitimate businesses becoming engaged in economic criminal activity.
The President's International Crime Control Strategy states that international crime threatens vital US interests in three broad, interrelated categories:
This chapter addresses the major international crimes identified as a threat to US interests in the International Crime Control Strategy, including their impact and costs to American citizens, businesses, or national security interests. This survey does not address them in any priority order indicating severity of threat to US interests.
Many international terrorist groups continue to see US interests as prime targets. Terrorists continue to demonstrate their operational ability to strike at a broad array of targets using both crude and sophisticated methods. The 1993 World Trade Center bombing in New York City; the 1995 and 1996 bombings in Saudi Arabia; the 1997 massacre of Western tourists in Luxor, Egypt; the 1998 bombings of US Embassies in Kenya and Tanzania; and the October 2000 suicide attack on the USS Cole in Yemen highlight the international terrorist threat posed to American lives and property, at home and abroad.
Graphic
Anti-US Terrorist Incidents 1990-2000
The terrorist threat to US citizens and national security interests comes principally from organized groups with political, ethnic, or religious agendas in their countries, state sponsors of terrorist organizations, and transnational groups with broader goals. Traditional, established terrorist organizations--some backed by state sponsors such as Iran, Iraq, Syria, Libya, Sudan, North Korea, and Cuba--remain a dangerous threat. Iran, which still considers terrorism a legitimate foreign policy tool, maintains a terrorist infrastructure and ties to Islamic extremists and Palestinian groups that give it a worldwide terrorist capability.
Islamic terrorist groups with vague international agendas have become a growing threat in recent years. These groups are sometimes loosely organized, draw their membership from communities in several different countries, and obtain support from an informal international network of like-minded extremists rather than from state sponsors of terrorism. Many of these terrorists met while fighting against the Soviets in Afghanistan or have since received military and explosives training there.
Graphic
Total Persons Killed Worldwide in International Terrorist Incidents, 1990-2000
The international political and economic changes that drug-trafficking and organized crime groups are exploiting to facilitate their activities are enhancing the ability of terrorist groups to operate worldwide. International terrorist groups are particularly adept at exploiting the advantages of more open borders and the globalization of international commerce to move people, money, and material across national borders. Like drug trafficking and other criminal organizations, terrorist groups are becoming more sophisticated in the use of computer technology that enhances their communications and logistic networks.
Although terrorist groups and criminal organizations have similar requirements for moving people, money, and material across international borders, traditionally there has been minimal cooperation between them. Terrorist groups maintain their own clandestine networks and typically control all aspects of their operations to minimize the risk of exposure. There is the potential, however, for cooperation between transnational terrorist groups and criminal organizations.
The worldwide illicit drug industry is one of the greatest threats to social stability and welfare in the United States. In addition to the terrible human cost of addiction and associated health concerns--including HIV and AIDS--endured by users of illicit narcotics, drug abuse has a significant impact on the social fabric that affects all Americans. Drug abuse undermines family cohesion and has a terrible daily and often lifelong effect on the lives of children across the country.
The economic costs of drug abuse to US citizens and society are substantial. These include significant personal spending of disposable income on illegal drugs; costs associated with medical care and drug rehabilitation programs for drug abusers; lost productivity in the workplace; and spending required by federal, state, and local law enforcement agencies and judicial and penal systems to deal with drug-related crimes.
Drug abuse also leads to antisocial behavior and promotes disrespect for laws and institutions. The drug trade brings with it high levels of street crime and violence by addicts needing to pay for drugs and by drug groups fighting for turf. There is a strong correlation between drug abuse and crime.
Graphic
Estimated US Hard-Core User Population for Heroin and Cocaine, 1988-98
Graphic
US Customs Seizures of MDMA (Ecstasy), 1997-2000
Illicit Drug Production
The most dangerous drugs of abuse in the United States--cocaine, heroin, MDMA
(also known as ecstasy), and much of the methamphetamine--are smuggled into
the country by international criminal organizations from source countries in
Latin America, Asia, and--for MDMA--Europe. Cocaine consumption in the
United States, the world's most important and largest market, has declined somewhat
since its peak in the late 1980s, but has remained relatively stable for most
of the last decade. Cocaine is produced in the South American Andean countries
of Colombia, Peru, and Bolivia; Colombia is the source of an estimated 90 percent
of the cocaine supply in the US market.
Fueled by high-purity, low-cost heroin introduced into the US market by Southeast Asian and Colombian traffickers, heroin use in the United States increased significantly in the early-to-mid 1990s and has leveled off in recent years. The purity of heroin currently available in the United States is higher than ever. Southwest Asia's "Golden Crescent" (Afghanistan and Pakistan) and Southeast Asia's "Golden Triangle" (Burma, Laos, and Thailand) are the world's major sources of heroin for the international market, but Colombia is the largest source of supply for the US heroin market and Mexico the second largest. Colombia and Mexico account for about 75 percent of the US heroin market, with heroin from Southeast Asia making up most of the remainder.
The use of synthetic drugs in the United States, many of which come from abroad, has become a more significant problem over the last decade. Beginning in the 1990s, there has been a dramatic surge in the worldwide production and consumption of synthetic drugs--particularly amphetamine-type stimulants, including methamphetamine and ecstasy.
Marijuana remains the most widely used and readily available illicit drug in the United States. It is the gateway drug for nearly all users of more dangerous illicit drugs. While most of the marijuana consumed in the United States is from domestic sources, including both outdoor and indoor cannabis cultivation in every state, a significant share of the US market is met by marijuana grown in Mexico, with lesser amounts coming from Jamaica, Colombia, and Canada. Very little of the cannabis grown in other major producers--including Morocco, Lebanon, Afghanistan, Thailand, and Cambodia--comes to the United States.
Drug-Trafficking Networks
International drug-trafficking organizations have extensive networks of suppliers
and front companies and businesses to facilitate narcotics smuggling and laundering
of illicit proceeds. Colombian and Mexican trafficking organizations dominate
the drug trade in the Western Hemisphere. Colombia supplies most of the cocaine
and contributes the largest share of heroin to the US market, and Mexico is
the major avenue for cocaine trafficking into the United States as well as a
major supplier of heroin, marijuana, and methamphetamine. In the Asian source
regions, heroin production is dominated by large trafficking organizations,
but the trafficking networks smuggling heroin from Asia are more diffuse. Asian
heroin shipments typically change hands among criminal organizations as the
drug is smuggled to markets in the United States and elsewhere.
The evolution of the international drug trade in the last decade has included greater involvement by a growing number of players and more worldwide trafficking of synthetic drugs. Criminal organizations whose principal activities focus more on traditional contraband smuggling, racketeering enterprises, and fraud schemes have become increasingly involved in international drug trafficking. Although they generally are not narcotics producers themselves, many organized crime groups--including those from Russia, China, Italy, and Albania--have cultivated and expanded ties to drug-trafficking organizations to obtain cocaine, heroin, and synthetic drugs for their own distribution markets and trafficking networks. Traffickers from many countries increasingly are eschewing traditional preferences for criminal partnerships with single ethnic groups and collaborating in the purchase, transportation, and distribution of illegal drugs. Nontraditional trafficking groups--including rebel armies and extremist organizations--have also turned to the drug trade as a means of raising revenue.
Taking advantage of more open borders and modern telecommunications technology, international drug-trafficking organizations are sophisticated and flexible in their operations. They adapt quickly to law enforcement pressures by finding new methods for smuggling drugs, new transshipment routes, and new mechanisms to launder money. In many of the major cocaine- and heroin-producing and transit countries, drug traffickers have acquired significant power and wealth through the use of violence, intimidation, and payoffs of corrupt officials. They are ruthless in protecting their operations, threatening and sometimes resorting to violence against US law enforcement officers and Americans working and living in drug-producing and transit countries.
Global Implications
The consequences of drug abuse and trafficking are also a major challenge to
countries worldwide, and they have become serious enough in recent years to
affect regional stability. Countries that today are major narcotics producing
or transit areas have significant drug addiction problems that grew with their
involvement in the drug trade. In some countries, large segments of the population
are stricken by AIDS, undermining economic growth and future prospects. The
social, economic, and political stresses these problems cause are felt across
national borders, contributing to regional economic problems and political tensions.
Alien smuggling groups traffic in "human cargo," criminally orchestrating the movement of undocumented or fraudulently documented foreign nationals to the United States and other prosperous countries in often cramped, unhealthy, and dangerous conditions. Countries under economic or demographic stress-- particularly China, India, and Pakistan in Asia, and Mexico, Caribbean island nations, and Central American states in the Western Hemisphere--are the major sources of illegal migrants seeking new homes and livelihoods in the United States and Canada. While most illegal migrants come for economic reasons, some are criminals and associates of extremist groups. Once in their destination country, illegal immigrants disappear into ethnic communities to find work and avoid the authorities.
The US Immigration and Naturalization Service (INS) estimated in 1996 that there were about 5 million undocumented aliens illegally in the United States, representing about 2 percent of the total US population. More than half of the illegal immigrants in the United States--some 2.7 million--are Mexican nationals; another 700,000 came from Central America. Most illegal aliens entered the United States without passing through immigration controls. The remainder--about 40 percent--overstayed their visas. Nearly 80 percent of foreign nationals illegally living or working in the United States are concentrated in five states: California, Texas, New York, Florida, and Illinois. Forty percent live in California alone.
Alien smuggling contributes to the broader problem of increasing numbers of foreign nationals illegally resident in the United States, as well as in other relatively prosperous countries, who are straining social and economic resources and contributing to rising crime and anti-immigrant sentiment. Illegal aliens undermine wages and working conditions for legal employees, increasing the potential health and safety risks to the work force. Illegal immigration also increases the burden and cost of some government social programs.
Map
The Illicit Chinese Migrant Flow to the United States, 2000
Indications of links connecting some alien smuggling to drug trafficking, terrorist or extremist political organizations, and other organized crime groups are a major cause for concern. Persistent--but largely unverified--reporting from a variety of sources suggests that drug shipments are sometimes collocated with illegal aliens in transit to the United States. Some primarily drug-trafficking groups are believed to include or work with alien smugglers. Many ethnic-based criminal organizations--particularly Nigerian, Chinese, and Russian crime groups--employ illegal aliens smuggled into the country to undertake higher-risk criminal activities. Terrorists and members of extremist organizations seeking to enter the United States and wanting to avoid detection at ports-of-entry sometimes use the services of alien smuggling networks, including document forging services.
Alien smuggling also raises serious human rights concerns. Most illegal migrants come to the United States willingly in search of a better livelihood and higher standard of living, and they pay alien smugglers high prices for that opportunity. However, because they lack legal status and rights, they are often abused en route and once they reach their destinations. Some illegal migrants die in transit from cramped, unhealthy, and unsafe conditions or from abusive treatment by their handlers. Once in the United States, most illegal aliens work in menial jobs with few benefits, and their status puts them very often at the mercy of exploitative employers. To pay off large debts to their smugglers, many illegal immigrants wind up working in unregulated and untaxed industries. Some alien smuggling evolves into trafficking situations where the illegal migrants are forced by their smugglers into other crimes or virtual slavery to pay off their debts. (1)
In the last two years there have been several major incidents involving would-be illegal Chinese immigrants found dead inside cargo containers, including three in Seattle in January 2000 and 58 in Britain in June 2000.
Alien Smuggling Networks
Illegal migration facilitated by organized alien smuggling networks is on the
rise. The easing of national border controls worldwide, growth of commercial
travel options, availability of technology that can be readily adapted to forge
identification and travel documents, and the rising sophistication of global
criminal networks are key factors contributing to this development. The vast
pool of potential migrants seeking economic opportunity in the United States
and other developed countries, diminished opportunities for legal migration
as the world's more prosperous countries seek to reduce immigration, and increased
border enforcement and interdiction of illegal migrants have translated into
substantial profits for alien smuggling groups.
Besides being a profitable criminal business, smuggling illegal immigrants is less risky than trafficking in other illicit contraband, such as drugs. Only a handful of source and transit countries have enacted criminal statutes against alien smuggling, and virtually no ethnic group stigmatizes the practice. Most governments--including those in Central America, a primary conduit for smuggling illegal migrants into the United States--are lax toward alien smuggling because they view it largely as a US problem and perceive higher bilateral priorities with Washington.
Alien smuggling thrives in corrupt environments, and bribery undermines effective enforcement against illegal border crossings and false documentation where corruption is less endemic. The ready availability of means to counterfeit and forge travel documents also minimizes the risks for traffickers in "human cargo."
The networks involved in alien smuggling are highly efficient movers of people across national frontiers. Unlike other international criminal organizations, some of which smuggle illegal aliens as an adjunct to other criminal activities, alien smuggling groups typically are less hierarchical and more characterized by loose networks of associates to facilitate the movement of illegal migrants across regions and continents. These networks typically include local agents who recruit people interested in illegal immigration to the United States and elsewhere and bring them together for departure; travel processors who arrange for identification and any necessary travel documents; and international "brokers" along the way who facilitate intermediate passages and make arrangements for arrival at final destinations. The widespread dispersion of associates gives alien smuggling groups the flexibility to quickly and easily shift routes or call upon different operatives if law enforcement or other conditions disrupt their operations. The fact that groups of illegal aliens are typically handed from smuggler to smuggler during portions of their journey makes it difficult to target and disrupt alien smuggling networks.
Central America has emerged as the primary gateway for US-bound illegal migrants from all over the world. Scores of loosely linked networks that span the region and extend into Asia facilitate their movement. These networks include an abundance of smugglers and escorts, fraudulent document vendors, safehouse keepers, corrupt airline and bus company employees, and corrupt officials. While illegal migrants from China and elsewhere outside the Western Hemisphere have handlers for all stages of their journey through Central America, many Central American migrants do not enlist the services of a smuggler until they independently reach Mexico. Many illegal migrants caught in Central America are deported to the country from which they most recently arrived, which is usually another country in the region or hemisphere, because they travel without documents indicating their country of origin. From there, they usually resume traveling northward.
Although many alien smuggling groups are highly specialized, the growing profitability of this criminal business has increased the involvement of larger polycrime syndicates. Some groups have engaged in moving both drugs and people, although not necessarily at the same time.
Trafficking in human beings, especially women and children, across international borders for sexual exploitation and forced labor is an increasing crime problem as well as a grave violation of human rights. People caught in human trafficking rings are placed in situations of abuse and exploitation--including enforced prostitution, sexual slavery, sweatshop labor, domestic servitude or other forms of coerced labor, service, or subjugation--that subject them to the threat of violence, rape, battery, and extreme cruelty.
Map
Global Trafficking in Women in Women and Children: Major Source Regions and
Destinations
Some 45,000 to 50,000 women and children were trafficked to the United States, according to US Government estimates for 1997, about 6 to 7 percent of the worldwide total. Most are from Southeast Asia and Latin America. There have also been a few cases where American women have been trafficked abroad. US international airports in New York, Miami, Chicago, Los Angeles, and San Francisco are major entry points for traffickers bringing women and children into the United States. Greater Customs and Immigration scrutiny at these airports have caused the District of Columbia, Cleveland, Orlando, Atlanta, and Houston to emerge as significant ports-of-entry for victims of trafficking rings. Like alien smuggling in general, trafficking in women and children helps build criminal support structures in the United States.
The dramatic rise in cross-border crimes against children is a growing concern. US law enforcement agencies also report an increase in international sex tourism in which adults--including US citizens-- travel to foreign countries to have sex with children.
Trafficking Networks
Traffickers of women and children, much like narcotics traffickers, operate
boldly across sovereign borders. They prey on women from countries where economic
and employment prospects are bleak, organized crime is rampant, and females
have a subordinate role in society. Often these women are tricked into leaving
their countries by false promises of a better economic life abroad; traffickers
lure victims with false advertisements and promises of jobs as models, dancers,
waitresses, and maids. Once the women are abroad, traffickers use a variety
of coercive means to sell and enslave them. In other instances, traffickers
buy young girls from their relatives. The UN Commission on Crime Prevention
and Criminal Justice has reported a dramatic increase in the abduction of children
for commercial purposes by organized crime syndicates.
Traffickers of women and children use a variety of methods to move their victims across national and international boundaries. They sometimes operate through nominally reputable employment agencies, travel agencies, entertainment companies, or marriage agencies. Legitimate travel documents are often obtained and used to cross international borders, after which the trafficking victims disappear or overstay their visas. Traffickers, however, also use fraudulent documents to obtain genuine travel documents or use altered or counterfeit documents to move the women and children. Victims caught in these trafficking rings are most often moved out of their home countries and regions by commercial airlines. Traffickers typically move them in small groups, change flights frequently, and vary their routes in efforts to avoid being caught.
While small trafficking groups with loosely connected networks and affiliates dominate the global trade in women and children, the role of large, polycrime international criminal organizations is becoming an increasing problem. Because women and children are seen as a reusable commodity, trafficking in human beings is becoming a major source of income for some organized crime groups. Profits from this activity are laundered and fed into other illicit activities, including narcotics and arms trafficking.
Corrupt officials often facilitate trafficking in the source, transit, or destination countries. Law enforcement officials in the source countries often ignore the recruitment process, since they believe that in most cases the actual coercion takes place at the final destination.
Trafficking in women and children to the United States and abroad is likely to continue increasing in the years ahead given the large profits, relatively low risk, and rare convictions for traffickers. Lack of visa and border controls, as well as almost nonexistent antitrafficking legislation in many source and transit countries, will only further embolden the traffickers. Economic hardship, poor employment prospects, and the low status of females in many source countries will continue to underpin the problem.
Environmental crime is one of the most profitable and fastest growing new areas of international criminal activity. Growing international environmental concerns have led to the proliferation of multilateral conventions and national laws and regulations to control pollutants that are health or environmental hazards, to prevent wanton exploitation of scarce natural resources, and to protect endangered plant and animal species. Criminal organizations around the world-- most notably in Italy, Russia, China, and Japan--have taken advantage of the significantly greater costs for waste disposal, as well as the much-increased value of rare or precious natural resource commodities that are the subject of tight trade and sale restrictions, to earn substantial illicit income from circumventing environmental laws and regulations.
Graphic
Selected Criminal Groups' Involvement in Environmental Abuses
The tremendous costs for legally disposing of pollutants and dangerous chemicals have created new illicit business opportunities for criminal organizations, who earn $10-12 billion per year for dumping trash and hazardous waste materials. Organized crime groups are taking increasing advantage of the multibillion-dollar legal trade in recyclable materials, such as scrap metals, to comingle or illegally export or dump toxic wastes. Most of these wastes are shipped in "trash-for-cash" schemes to countries in Eastern and Central Europe, Asia, and Africa where disposal costs and enforcement of environmental regulations are lower. The lack of specific legislation governing such crimes in many countries and poor enforcement or limited legal penalties in many others (often only fines that are insignificant in comparison to the millions in profits that can be made from this activity) reduce the risks for international crime groups involved in dumping hazardous wastes.
While crime groups in Russia, Japan, and elsewhere have increasingly moved into illegal waste disposal, Italian criminal organizations are the most involved largely because of their success in infiltrating Italy's industrial waste disposal sector. They have used their control over waste-disposal businesses, both legitimate and front companies, to secure contracts in Italy and elsewhere in Europe and illegally dump wastes to boost profits.
The lack of inexpensive, adequate, safe disposal options for radioactive waste is also attracting the increased involvement of organized crime groups throughout Europe. In many cases, these groups appear to be using illicit networks already in place for smuggling arms, drugs, and other contraband.
Criminal groups also smuggle environmentally harmful products, particularly ozone-depleting chlorofluorocarbons (CFCs) whose legal trade is subject to stringent international restrictions. The illegal trade of these substances into the United States and other markets is accomplished through false labeling, counterfeit paperwork, and bogus export corporations.
The stealing and illicit trade of natural resources is also a significant income generator for criminal organizations, earning them $5-8 billion per year. Well-organized criminal groups in Africa, Eastern Europe, Latin America, China, and Southeast and Southwest Asia are heavily involved in illegal logging and trade of forest timber. Illegal logging threatens bio-diversity and has contributed to the significant decline in forest areas worldwide. Russian and Chinese crime groups earn substantial income from illegal fishing. Poaching not only depletes seafood stocks, but also deprives seafood industries of legitimate earnings and government authorities of import and export revenues.
The illegal trade in animal parts--in particular elephant, whale, and hawksbill turtle parts--and endangered animal species has also become a lucrative business, particularly for Chinese and other Asian criminal groups. The illegal trade in exotic birds, ivory and rhino horn, reptiles and insects, rare tigers, and wild game is estimated to earn criminal groups $6-10 billion per year. In April 1999, waiver of the international ban on the African ivory trade to allow shipments to Japan caused a surge in poaching and smuggling of African and Asian elephant ivory.
Some states of concern use international criminal networks to help in their efforts to undermine US and multilateral sanctions aimed at isolating those states from the global community. Regional and international networks of front companies, unethical businessmen, and crime groups help these regimes evade trade, military, and financial sanctions by facilitating clandestine shipments of embargoed products, including weapons, and executing financial transfers.
Iraq, which unlike the other states of concern is currently under comprehensive trade sanctions, has used traditional means for smuggling contraband to earn substantial illicit export revenue that Baghdad uses to fund procurement of embargoed goods. Much of Iraq's smuggling-derived income comes from Baghdad's illicit exports of gasoil through Iran's territorial waters and across its land borders. Barges, small tankers, cargo ships, and dhows are used by the Iraqis for maritime smuggling of gasoil exports.
In most cases, states of concern make use of legitimate and illicit business infrastructures to circumvent sanctions. Much of this activity takes place in countries with a high volume of commercial trade, including legal commerce with the regime, that could mask surreptitious dealings. In some cases, organized crime groups have played a significant role in attempts to circumvent trade sanctions. Most notably in the former Yugoslavia, local crime groups have flourished by stepping in to arrange clandestine shipments of embargoed goods and to provide covert financing.
Several countries--including Iran, Iraq, Libya, Pakistan, and North Korea--have relied on networks of independent brokers and front companies to acquire controlled technology and circumvent US and international efforts to prevent them from developing weapons of mass destruction. The threat posed by continuing indications that states of concern and terrorist groups are intent on acquiring nuclear, chemical, or biological weapons increases the likelihood that international criminal networks may be used to smuggle the materials needed for their production.
There is no confirmed reporting that organized criminal groups have planned
or attempted to steal nuclear warheads or weapons-usable nuclear material
(uranium with greater than 90-percent uranium-235 concentration and plutonium).
Known thefts of weapons-usable nuclear material have primarily been committed
by opportunists with insider knowledge of the facility storing nuclear material
but without buyers identified prior to the theft.
Illicit gray- and black-market arms sales became an increasing problem during the 1990s and pose an array of threats to US national security and foreign policy interests. The end of the Cold War and the winding down of several regional conflicts, such as those in Lebanon and Central America, increased the availability of both newly produced and used weapons. The items typically sold on the illegal arms market include spare parts for large weapons systems, particularly for clients under UN embargoes or sanctioned by the original seller; small arms, including assault rifles, and man-portable antitank and antiaircraft weapons; and ammunition for both small arms and larger artillery and armor systems. In some cases, however, larger military systems also are sold.
Most illegal arms sales are through the gray arms market, which has been dominated by individual brokers--and their arms brokering firms--during the past decade. Gray-market arms transfers exploit legitimate export licensing processes, usually by using false paperwork to disguise the recipient, the military nature of the goods involved, or--more rarely--the supplier. Obtaining licenses, however fraudulent, allows gray-market players to make deals appear legitimate, helping them to arrange payment and international transportation for transactions that can be valued at millions of dollars and involve hundreds of tons of weapons.
The end of the Cold War has made the bloated defense industry and large inventory of weapons in Russia and other former Warsaw Pact countries an easy mark for gray-market brokers. Since 1992, for example, combatants in civil conflicts in Afghanistan and the republics of the former Yugoslavia have purchased dozens of complete helicopters and fighter aircraft from gray arms suppliers. Brokers also acquire military equipment from US and other Western suppliers.
Black-market arms transfers do not go through an export licensing process. Rather, smugglers rely exclusively on hiding contraband arms from government officials. Black-market transfers usually involve smaller quantities of weapons, often pilfered from military stocks or gunshops. The theft and illegal sales of weapons and other military stocks has become a significant problem in Russia.
Organized crime groups have become increasingly involved in arms trafficking since the end of the Cold War, taking advantage of both the availability of large numbers of infantry weapons from the former Soviet Bloc countries and regional conflicts.
Threats to US Security Interests
Illicit arms sales help fuel conflicts and undermine US political and military
efforts to promote stability in several regions of the world. The illegal arms
trade has helped arm combatants in the former Yugoslavia and Africa. Countries
under UN or other international arms embargoes in which the United States participates
are major clients in the illicit arms market. Purchases by insurgents and factions
in civil war increase the risk to US military personnel and law enforcement
officers operating in hostile environments overseas.
Insurgents and extremists acquire some small arms and ammunition to augment their own inventories of weapons. Although terrorist groups frequently try to obtain weapons on their own, their greatest source of conventional military weapons continues to be state sponsors like Iran and Libya.
Drug traffickers and organized criminal groups have increasingly turned to
the illicit arms market in the 1990s. In addition to smuggling weapons via
the black market, these organizations have used
gray-market acquisitions of military weapons to strengthen their ability to
defend their operations from government forces and rival organizations.
The lucrative market for diamonds, gold, and other precious gems has attracted the interest of organized crime groups as well as become the dominant source of revenue for warlords and insurgent groups in war-torn diamond-rich areas in Africa. Diamond brokers traditionally have given little scrutiny to the source of rough diamonds they purchase for the global industry in precious gems and jewelry. Trafficking in diamonds, gold, and other precious gems has not generally undercut the profits of legitimate mining industries, but has deprived national governments of significant export-related revenues.
Russian, Chinese, Italian, and African criminal groups are involved in the illegal trade of precious minerals and gems. Russian crime groups are believed to have infiltrated the legitimate diamond and gold industries in Russia to smuggle precious gems out of the country. They use an array of front companies to conceal and facilitate smuggling operations. Payoffs to local authorities allow them to avoid customs duties and other tariffs, increasing their profit potential when they sell these precious gems at market value to industry brokers.
Map
Diamond Mining in African Conflict Areas
In recent years, trafficking in diamonds by insurgent groups in Africa to finance their wars in the face of regional and international efforts and embargoes to end the fighting has become a significant problem. The UNITA insurgent group in Angola, rebel militias in the Democratic Republic of the Congo (DROC), and the Revolutionary United Front (RUF) in Sierra Leone exploit the lucrative diamond mines located in areas they control to raise revenue for arms purchases and other operational expenses. The RUF's principal supporter--neighboring Liberia--also profits from the illicit diamond trade in Sierra Leone.
The sale of diamonds for arms and other supplies by insurgent groups in Africa has stymied regional and international peace efforts and kept the fighting at high levels, resulting in significant casualties and displacement of civilian populations. Insurgents' control of most of their countries' diamond mines has also deprived the governments of substantial revenues.
Growing international concern about the ability of African insurgent groups noted for their atrocities against civilians to finance their operations through the trafficking in rough-cut diamonds has led to movements for international certification regimes, although much work remains to be done.
Maritime piracy, which is particularly prevalent off the coasts of Southeast Asia and Africa, threatens the security of some of the world's most important sea lanes as well as the safe and orderly flow of international maritime commerce. Piracy raises insurance rates, restricts free trade, increases tensions between the affected littoral states, their neighbors, and the countries whose flagged ships are attacked or hijacked. This criminal activity also has the potential to cause enormous damage to the sea and shorelines when ships carrying environmentally hazardous cargoes are targeted. Pirates endanger navigation by leaving vessels, including fully laden tankers, under way and not in command, increasing the risk of collision or grounding.
Reported incidents of maritime piracy have more than doubled since 1994, according to data from the International Maritime Bureau (IMB) Piracy Reporting Center based in Malaysia, averaging between 200 and 300 per year over the last five years as compared to an average of less than 100 piracy incidents between 1990 and 1994. These figures, however, understate the extent of the problem because most piracy attacks go unreported. In particular, incidents involving coastal fishermen and recreational boaters are heavily under-reported.
Most acts of maritime piracy take place in poorly patrolled straits and coastal waterways, where pirates are able to strike quickly with little warning. Piracy is a significant problem (as it has been for centuries) along the coasts of Indonesia, Malaysia, Thailand, and the Philippines, where numerous maritime chokepoints channel large numbers of merchant ships into coastal waters where they are most vulnerable to attack. The west coast of Africa, off Nigeria and Senegal, and Somalia's east coast are the most piracy-prone areas in Africa. In East Africa, the ports of Mombasa, Kenya, and Dar es Salaam, Tanzania, are plagued by pirate attacks against berthed or anchored ships. While a large number of piracy attacks are targets of opportunity, local press reporting indicates that in some cases ships are specifically targeted for their cargo and the sale of their goods is prearranged on the black market.
The growing sophistication and increasing violence of piracy is a major concern to the maritime industry and to governments, particularly in Asia where piracy is having greater impact on maritime commerce. There are increasing incidents of maritime pirates coordinating multiship attacks and attempting to disguise their vessels. They often appear to be familiar with shipping schedules, plotting their attacks and hijackings of cargo accordingly. In some cases, pirates target only local shipping lines, which may own only one or two vessels, rather than ships from larger shipping companies. In addition, many of the pirate ships are increasingly well-armed and inclined to use force when seizing targeted vessels. From 1995 to 1998, the number of crewmembers assaulted, injured, or killed increased each year, according to data from the International Maritime Bureau in Malaysia.
Nondrug contraband smuggling across international borders--including illegal import and export of legitimate goods such as alcohol, cigarettes, textiles, and manufactured products--is a highly profitable criminal activity that typically carries lighter criminal penalties than narcotics trafficking. The evasion of tariffs and taxes on commodities can reap sizable illicit profits for criminal organizations or companies engaged in illegal trade--often at the expense of US companies-- both by saving tax payments and by undercutting the market price of legitimate sales. The trafficking of contraband across international borders is prevalent in countries with large volumes of commercial trade, which helps minimize the risk of law enforcement detection and high import duties.
Consumer demand for contraband--particularly tobacco and alcohol products and expensive items such as luxury automobiles--is especially high in countries where high-import tariffs and excise taxes add significantly to the price of legitimate sales. International contraband smuggling rings cater to consumers seeking to acquire luxury items cheaply by avoiding customs duties and other taxes. Revenue losses caused by the trafficking and black-market sale of contraband commodities can be significant.
Illegal imports and exports are a particular problem for the United States, which is considered by criminals with international connections to be both a major market and source for contraband as well as a transit avenue for international contraband smuggling. Criminals involved in smuggling contraband rely on the volume of export trade in the United States to conceal their illicit activities.
In addition, the United States is frequently a transit country for merchandise being shipped to another foreign destination. Routing contraband through a transit country helps to conceal the true country of origin on merchandise that is controlled or restricted by the importing country.
Most contraband smuggling is facilitated by physical concealment of the illicit goods or by a fraudulent misrepresentation of facts. False invoicing, over or under valuation of goods, and transfer price mechanisms are frequently used to misrepresent the value of smuggled goods; undervaluation of goods allows contraband traffickers to avoid tariffs or excise taxes, while overvaluation is used either to disguise the true identity of the item or to launder illicitly derived proceeds.
Contraband Smuggling Into the United States
The volume of contraband commercial goods entering the United States skews the
marketplace for some manufacturing, retail, and even high-tech industries by
providing consumers with less expensive substitutes for legitimate products,
hindering the competitiveness of US businesses. Moreover, many contraband imports
are substandard products--such as tainted foods, substandard automotive
parts, or dangerous imitation pharmaceutical drugs--that may threaten public
health and safety.
The uncontrolled movement and disposal of hazardous wastes and material into and within the United States may cause harm to public safety and the ecosystem. The black market for chloroflourocarbons (CFCs), which deplete ozone from the atmosphere, in the United States and Europe is an extremely lucrative illicit business for international criminals. Russia, China, Mexico, and India are major sources of the approximately 10,000 to 20,000 metric tons of CFCs that US Customs has reported are smuggled into the United States each year. In addition to undermining international progress toward eliminating the use of ozone-depleting substances, the illegal CFC trade evades the high cost of US excise taxes on legally imported CFCs and takes business away from US companies developing ozone-safe chemicals and the equipment that uses them.
The United States is most often the destination of illicit trade in protected wildlife and rare plants, although both the United States and Canada are also raided to obtain exotic plants and animals. Trafficking in exotic species threatens bio-diversity and could expose unsuspecting Americans to deadly diseases.
Contraband Smuggling Out of the United States
Illegal exports of contraband leaving the United States are a significant problem,
with criminal networks engaged in this activity taking advantage of US federal
and state laws as well as the border control focus on the smuggling of drugs,
illegal immigrants, and other contraband into the United States. Commodities
smuggled out of the United States are often items restricted for export by US
law and involve munitions list items, firearms, and defense-related technologies
tightly controlled for export by the US Government. Other items frequently smuggled
out of the United States include stolen automobiles, dual-use items, and other
goods that are difficult to obtain.
The illegal smuggling and trafficking of US-manufactured cigarettes and alcohol by worldwide criminal networks results in major losses of legitimate state revenues in Europe, Russia, Asia, and the Western Hemisphere. Some alcohol and tobacco contraband are legally exported but stolen in transit--often at an intermediate stop--or after they legally entered the destination country for black-market sales. Some US cigarette manufacturers sell directly to known smugglers. If US taxes on cigarettes rise over the next several years, international crime syndicates may expand smuggling operations into the United States to circumvent import taxes.
Contraband smuggling groups with worldwide networks are meeting a growing demand for stolen vehicles from the United States, as well as Western Europe and Japan. Luxury and sports utility vehicles are in particular high demand by criminals because of their high international black-market values and low probability of being detected by law enforcement in overseas markets. The annual global contraband trade in stolen vehicles is estimated at $10-15 billion.
The demand for stolen luxury cars is especially high in Russia and China, where import tariffs average more than 100 percent for most types of luxury vehicles, according to data from the US Commerce Department and industry sources. According to estimates by the National Insurance Crime Bureau, stolen vehicles sold in Europe fetch three to four times their US market value.
Map
Major US Ports-of-Exit for Stolen Vehicles Being Smuggled Abroad, 1988
Crime syndicates from China, Russia, Eastern Europe, and Mexico dominate much of the world trade in stolen cars. Russian and Asian crime groups rely on members or associates in the United States, who often collaborate with local theft gangs in US cities, to steal vehicles and arrange for transport overseas. Both Russian and Asian criminal groups cooperate with Mexican smuggling rings that appear to be responsible for moving stolen vehicles across the US-Mexican border for re-export to Russia and China, according to insurance industry and press sources. Automobile smuggling syndicates export most of the vehicles stolen in the United States in maritime shipping containers either directly from US seaports, or after driving the vehicles into Mexico. Most vehicles stolen in Western Europe, on the other hand, are simply driven to Russia or other destinations.
Trafficking stolen vehicles also helps crime groups facilitate other international criminal activities. Stolen vehicles, for example, sometimes are used to conceal and transport narcotics or other smuggled contraband.
Most intellectual property rights (IPR) crimes affecting US businesses involve the theft of trade secrets and copyright, trademark, and patent violations. Criminal violations of intellectual property rights--particularly the sale of counterfeit or illegally manufactured products--distort international trade, undermine the legitimate marketplace, and cause extensive revenue losses to legitimate industries. The explosion of digitization and the Internet have further enabled IPR violators to easily copy and illegally distribute trade secrets, trademarks, and logos.
US businesses are particularly vulnerable and especially hard hit by counterfeiting and other forms of copyright, trademark, and patent infringement because the United States leads the world in the creation and export of intellectual property--primarily in motion pictures, computer software, sound recording, and book publishing. These industries contributed more than $270 billion to the US economy in 1996, or approximately 3.65 percent of GDP, according to International Intellectual Property Association estimates. Copyright industry products have surpassed agricultural products as the single-largest export sector in the US economy, and America's three largest software companies are now worth more than the steel, automotive, aerospace, chemical, and plastics industries combined.
Counterfeit or illegally manufactured products compete with, and often displace, legitimate sales. US businesses increasingly are losing legitimate sales due to the manufacture and distribution of illegal products that violate intellectual property rights. Many of these illegal products are exported to the United States, but most are circulated in markets abroad in direct competition with the legitimate products of US firms. In some countries, illicit products saturate the domestic market so completely that it is impossible for owners of intellectual property copyrights and trademarks to establish legitimate manufacturing or distribution interests.
US businesses experience significant profit and market loss due to the theft of trade secrets. Foreign companies seek to steal US trade secrets--particularly theft of sensitive information pertaining to research and development, production processes, and corporate strategies--to erode US companies' overseas market competitiveness and technological leadership. By so doing, they also try to outmaneuver or underbid US companies, hoping to tilt the playing field in their favor. The American Society for Industrial Security, which conducts a comprehensive survey of Fortune 500 companies, estimated in 2000 that potential known losses to all American industry resulting from the theft of proprietary information amounted to $45 billion.
Graphic
US Customs Intellectual Property Rights (IPR) Seizures, 1995-99
Copyright violations primarily involve the illicit production and sale of computer software, recorded music, and videos. The International Intellectual Property Alliance estimated that, in 1998, trade losses suffered by US-based industries due to copyright violations totaled nearly $12.4 billion, with losses to the motion picture industry of $1.7 billion, the sound recording and music publishing industry at $1.7 billion, the business software industry at nearly $4.6 billion, the entertainment software industry at $3.4 billion, and the book publishing industry at $685 million. In 1996, law enforcement raids around the world resulted in the seizure of nearly 5.1 million unauthorized copies of motion picture videocassettes, according to the Motion Picture Association; also seized were more than 25,000 VCRs with an estimated production capacity of almost 33 million pirate videos per year.
Trademark violations include the counterfeiting of certain products and trademark goods. According to current estimates by the International Chamber of Commerce (ICC), counterfeit trademarked products account for approximately 8 percent of world trade-- roughly $200 billion annually. A recent survey of 10 leading apparel and footwear companies by the International Trademark Association indicated annual losses of nearly $2 billion. Online counterfeit sales may exceed $25 billion annually worldwide, according to ICC estimates.
In 1999, US Customs seized a record $98.5 million in counterfeit imported merchandise, an increase of $22 million during the previous year. Record media-- including audiocassettes, videocassettes, and CDs-- computer parts, sunglasses, and clothing were the commodities most commonly seized.
Patent violations involve the illegal manufacture of products using production processes, designs, or materials that are protected by patents giving the holder the right to exclude others from making, using, or selling an invention for a specified period of time. The 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) requires that members of the World Trade Organization protect most inventions for a period of 20 years and that their domestic laws permit effective action against patent infringement.
Besides significant business losses, IPR crime costs the US Government tax revenue and reduces potential jobs available to US citizens. The International Anti-Counterfeiting Coalition (IACC) estimated in 1998 that product and software counterfeiting costs the United States more than $200 billion per year in lost sales, jobs, and tax revenues. The US Customs Service has estimated that foreign counterfeiting of US products has caused the loss of 750,000 jobs in the United States.
IPR crimes threaten consumer interests in the United States and elsewhere when counterfeit products are reproduced using bogus or inferior materials and poor quality controls that can affect public safety and health. Since 1990, US authorities have identified or seized nonconforming parts in US-produced automobiles and commercial airplanes and substandard materials used in household products and consumables such as infant formula and pharmaceuticals.
Global Dimensions
IPR violations are a global phenomenon. Most countries have brought laws protecting
intellectual property rights up to international standards, but few are devoting
the political or budgetary support necessary to enforce the laws. Intellectual
property violations are flourishing because of ineffective laws, weak enforcement,
inadequate resources devoted to investigations and prosecutions, corrupt government
officials, and uninformed or inadequately trained law enforcement officers.
In many of the countries that are major IPR violators, the government turns
a blind eye to the activity in the interest of boosting its industries' competitiveness
in the international marketplace.
Although many IPR crimes are committed by ostensibly legitimate foreign manufacturing, business, and import/export enterprises to enhance their competitiveness, criminal organizations are becoming common players in all stages of IPR crime, from manufacture to distribution. Product piracy and counterfeiting are attractive to criminal organizations because of the absence of strong criminal counterfeiting laws and the potential for large profits in the counterfeit goods market. Moreover, some criminal and terrorist organizations use the proceeds from producing and selling counterfeit brand name consumer goods to fund other types of criminal activity, both in the United States and elsewhere.
The stealing of trade secrets from the US Government and from US businesses through economic espionage, in addition to industrial theft, is a growing threat to US global economic competitiveness. These activities are typically carried out by foreign governments, intelligence agencies, or industries to illicitly acquire sensitive or restricted information related to critical technologies, trade, finance, or corporate strategy. The United States has enacted the Economic Espionage Act of 1996 to criminalize both state-sponsored and commercial theft of trade secrets, but few other countries have similar laws. Indeed, collecting "business intelligence"--including by means considered foreign economic espionage--is a commonly accepted business practice in many countries.
Some foreign governments engage in economic espionage to acquire US trade secrets involving sophisticated technologies with potential military applications or to help enhance the global competitiveness of their commercial industries. Economic espionage supporting commercial industries is directed against corporate strategies, marketing plans, or bidding strategies of US businesses or US Government positions in bilateral or multilateral trade negotiations.
Foreign corrupt business practices cost US firms billions of dollars each year in lost contracts. While the United States banned bribery of foreign government officials more than 20 years ago with the Foreign Corrupt Practices Act, other industrialized countries continue to permit overseas bribery, and some still allow tax deductions for such payments. However, bribery of government officials is against the law in virtually every country where it might occur.
Foreign firms often use bribes to help win international contracts. About half of the known bribes in the last five years were for defense contracts, with the other offers directed at major purchases by governments and parastatal organizations for telecommunications, infrastructure, energy, and transportation projects. The actual extent of the practice is probably much larger than available evidence indicates. Procurement corruption is common in virtually all parts of the developing world in Asia, Africa, and Latin America, as well as parts of Europe.
Global Implications
Corrupt business practices have significant costs for the governments that allow
them. Governments that regularly allow bribery may ultimately undermine legitimate
business activity, creating disincentives for US and other foreign firms to
invest in their countries. Domestic companies that are allowed to use bribes
to exclude foreign competitors may create undeserved monopolies that deter healthy
economic growth and development. Bribery also contributes to poverty and instability
in developing countries by undermining the legitimacy of state structures and
wasting government resources.
Bribes related to government or parastatal contracts promote official corruption--including at the highest political levels--which adversely affects internal government operations and fosters negative foreign perceptions of such governments. In recent years, government leaders in South Korea, Pakistan, India, Greece, and elsewhere have become enmeshed in procurement corruption scandals. Bribe recipients are vulnerable to exposure in countries with alternating political parties, a free press, or independent judicial authorities.
Although international initiatives are under way to limit international bribery, effective curbs may be years away. In December 1997, member states of the Organization for Economic Cooperation and Development (OECD)--a group of the major industrialized countries--signed an international convention obliging them to pass laws comparable to the US Foreign Corrupt Practices Act.
The implementing laws of many countries for the OECD antibribery convention--which had been ratified by 21 of the 34 signatory countries as of July 2000--may take years of negotiation and further legislative action to finalize. The Inter-American Convention Against Corruption, which entered into force in 1998 and which the United States ratified in September 2000, and the Criminal Law Convention Against Corruption of the Council of Europe, which the United States signed in October 2000, both require state parties to pass laws against the bribery of foreign public officials in business transactions. In addition, multilateral lending institutions such as the World Bank and the International Monetary Fund are making efforts to combat corruption by addressing it in the context of their lending programs and by supporting governmental anticorruption efforts.
US dollars are the most commonly counterfeited currency in the world because they are the currency of choice worldwide. International criminals produce, distribute, and use counterfeit US money for profit, to make illicit transactions, to finance illegal operations, and to promote illicit activities. Profits for criminal groups placing counterfeit US money into circulation are close to 40 cents per dollar, according to the US Secret Service. Moreover, selling counterfeit currency can provide criminal organizations with capital to invest in other illicit activities, such as the purchase and distribution of illegal weapons and narcotics.
International counterfeiting schemes also include reproducing financial instruments such as commercial checks, traveler's checks, and money orders. Fictitious securities and negotiable instruments are increasingly being used by international criminal enterprises to defraud governments, individuals, corporations, and financial institutions. Criminals have used bogus instruments to obtain government benefits, to underwrite loans, to serve as insurance collateral, and to defraud individual investors, pension funds, and retirement accounts.
About half of counterfeit US currency is produced abroad, where many of the illicit financial transactions by terrorist, drug trafficking, and organized crime groups take place. The US Federal Reserve estimates that about $570 billion of genuine US currency is in circulation worldwide, of which two-thirds circulates outside the United States.
Graphic
US Counterfeit Currency Activity
The circulation of counterfeit US currency is growing worldwide despite vigorous anticounterfeiting measures in the United States and overseas. This increase is due in part to the improved quality and modernization of reproduction equipment. Advanced design, copying, and publishing technology has enhanced production of high-quality counterfeit US currency and other financial instruments. Counterfeit US currency produced with advanced reprographic capabilities and distributed in the United States has increased from less than 1 percent in 1995 to 50 percent in 2000.
Counterfeit currency and financial instruments are also a problem for other governments. Foreign countries lacking adequate government oversight and enforcement of counterfeiting regulations are often susceptible to domestic production and distribution of counterfeit currency. Counterfeiters are also able to take advantage of countries with corrupt, poorly regulated, or poorly equipped financial institutions.
Threats to US Interests
While, at present, the production and circulation of counterfeit US currency
present a minimal threat to the US economy, technological advances in counterfeiting
and the extension of counterfeiting knowledge to more criminal groups may, in
some circumstances, undermine US economic interests. US interests are most threatened
by the use of counterfeit currency by some criminal organizations--including
terrorist groups--to expand and finance activities and purchases that such groups
could otherwise not afford. Some organized crime groups, drug traffickers, and
terrorist organizations appear to be involved in producing and distributing
counterfeit currency to reap profits and to finance other illegal activities.
The international expansion of these criminal organizations has helped increase
distribution of counterfeit currency.
Internationally isolated states of concern, like North Korea and Iran, that have in the past resorted to illegal means to finance their operations may be involved in printing or distributing counterfeit US currency.
Wide-ranging and complex financial fraud schemes by international criminal organizations are stealing billions of dollars annually from US citizens, businesses, and government entitlement programs. Financial fraud crimes have become more prevalent in recent years as greater amounts of personal and corporate financial information are made available through computer technology and access devices, such as credit cards, debit cards, and smart cards. Worldwide economic and financial systems are continuing to evolve toward a cashless society; plastic cards containing digitized financial information are increasingly being used to effect commerce. In addition, Internet-related financial crime is of growing international concern. Criminal organizations--including Russian, Nigerian, and Asian groups--have taken advantage of these developments to become involved in a wide range of sophisticated fraud schemes.
Financial Fraud Against Individuals
US citizens are direct targets of many fraud schemes originating outside the
United States. These include soliciting money for ostensibly legitimate charities
or overseas investment or business opportunities. In addition, the accessibility
of personal financial information and the ability to gain access to financial
accounts, through stolen bank cards or fraudulent means, allow criminals to
steal personal savings or use personal financial assets as collateral for their
own investments or transactions such as setting up illicit front companies.
To a limited extent, international criminals have also used Internet banking to target individuals in financial fraud schemes. The 1997 collapse of the Antigua-based European Union Bank (EUB), whose Russian owners fled Antigua with perhaps as much as $10 million in depositors' funds, highlights the threat posed to individuals from financial frauds facilitated by evolving Internet-enabled banking services. The first offshore bank to operate exclusively on the Internet, EUB actively solicited depositors over the Internet with offers of complete privacy, confidentiality, and security. The bank's collapse was precipitated by substantial loans to shell companies owned by EUB shareholders.
Financial Fraud Against Businesses
The victimization of US businesses and financial institutions through sophisticated
financial fraud schemes results in substantial lost revenue, as well as less
tangible but nonetheless real lost opportunities and jobs. International criminals
are able to use computer technology and access devices to manipulate accounts
and direct the illicit transfer of funds. The ability to rapidly move funds
between distant banks or financial institutions hinders law enforcement's ability
to track financial transactions and allows sophisticated criminal organizations
to mount complex financial fraud schemes.
Frauds involving credit, debit, and smart cards and communications systems that transfer financial data are a growing problem. International criminals are exploiting electronic payment technology through false purchases and by producing counterfeit cards for the commercial marketplace, according to industry and law enforcement reporting. The huge profits and relatively minor penalties associated with the crime make these kinds of financial frauds attractive to criminal groups that have the capability to pull them off.
Industry experts indicate that organized crime groups play a significant role in credit card frauds and other schemes to defraud banks and financial institutions. Nigerian crime groups capitalize on their ability to produce fraudulent identities and to suborn key employees of banks and companies in order to steal customer credit card data. Chinese and Japanese criminal groups are adept at producing forged credit cards. Russian criminal syndicates are using their access to computers and technological expertise to access account data.
While South America and Mexico are emerging as centers for producing counterfeit credit cards in the Western Hemisphere, Chinese crime groups with operations in major commercial centers in East Asia (particularly Hong Kong) and North America are most notorious for fraudulent credit card activity.
Graphic
CSI/FBI 2000 Computer Crime and Security Survey
Financial fraud schemes are also directed against the insurance industry, government entitlement programs, and government tax revenues. Medical fraud scams-- including staged accidents and false billing to insurance companies--are a particularly lucrative source of income. Fraudulent claims from theft, property damage, and automobile accidents cost insurance companies millions of dollars each year. The federal medicare and welfare systems suffer substantial losses due to fraudulent claims for benefits, including false medical billings and false identities, many of which victimize real intended beneficiaries.
High-tech crimes targeting computer networks are becoming an increasing law enforcement and national security problem because of the growing reliance in the United States of government entities, public utilities, industries, businesses, and financial institutions on electronic data and information storage, retrieval, and transmission. Increasingly, other countries around the world face the same vulnerability. The creation of complex computer networks on which many government, public, private, and financial services depend has created opportunities for illicit access, disruption, and destruction of information by a wide range of hackers. Although most computer attacks are conducted by disgruntled employees and independent hackers, according to US law enforcement information, the threat from foreign intelligence services and foreign corporate competitors is significant for US national security interests. Moreover, international terrorist and criminal organizations have increasing capability to penetrate and exploit computer-based information and data systems.
The greater dependence on computer systems for daily business and administrative functions--and the increasing interconnections between computer networks--has increased both the vulnerability and potential costs of systems penetration. US communications and information industries have developed the most technologically advanced systems and networks in the world. Many critical public infrastructure industries--including power and energy, telecommunications, and transportation systems--are operated or managed by computer networks. According to the US Customs Service, all major international industries, businesses, and financial institutions rely on interconnected computer systems for commercial and financial transactions to remain competitive.
Illegal intrusion and exploitation of computer networks in the United States have sizably increased over the last several years, causing millions of dollars in losses to US businesses and potentially threatening the reliability of public services.
Criminals Exploiting High Technology
As worldwide dependence on technology increases, high-tech crime is becoming
an increasingly attractive source of revenue for organized crime groups, as
well as an attractive option for them to make commercial and financial transactions
that support their criminal activities. With little of the risks and penalties
associated with more traditional criminal activity, high-tech crime allows criminals
to operate in the relative security of computer networks, often beyond the reach
of law enforcement where the crime was committed.
International criminals, including members of traditional organized crime groups, are increasingly computer-literate, enabling them to use cutting-edge technologies for illicit gain. International criminals rely on publicly available sources to obtain information on system vulnerabilities. E-mail mailing lists routinely distribute vulnerability information and software that can be used to exploit computer systems. In addition, vulnerabilities are publicly exposed in books, magazine and newspaper articles, electronic bulletin board messages, and a growing list of Web sites that are targeted at informing a wide-ranging global network of potential hackers about the latest methodology for staging computer attacks.
International criminals are using computers to support a wide range of criminal activity, including as an innovative alternative means to commit many traditional crimes. The use of computer networks allows criminals to more securely and efficiently orchestrate and implement crimes without regard to national borders. Drug traffickers, for example, are using encrypted e-mail and the Internet to avoid detection and monitoring of their communications over normal telephone and communications channels.
The Internet has also become the primary means used by international child pornography rings to disseminate their material worldwide. International child pornography rings are operating in dozens of countries, peddling their illicit wares through the Internet and other global distribution networks. Modern technology allows these child pornographers to store vast quantities of digital images on small portable computers easily smuggled into the United States and elsewhere.
Moreover, criminal commercial and financial transactions through computers occur amidst countless legitimate public, business, and personal uses of computer networks, making them especially difficult to identify. Transactions involving technology or components for weapons of mass destruction or embargoed items under US or international sanctions are being done through computers. Virtually any commodity, including weapons of mass destruction and their component parts and delivery systems, is being offered for international sale on Internet sites.
Computers are also exploited by international criminals to facilitate a wide range of economic crime-- particularly targeting US commercial interests. High-tech financial fraud through illicit access to credit card numbers and commercial accounts has the potential to cause serious losses for US businesses conducting electronic commerce over the Internet.
Intellectual property rights violations through the penetration of computer networks are also an increasing threat to US businesses. US businesses responding in the 1998 survey reported losses of $33.5 million in theft of proprietary information from computer attacks.
International criminals may be using computer hacking and related methods for financial gain. Industry and law enforcement reporting indicates that high-tech criminals are using advances in technology to target banks and other financial institutions. The anonymity and speed of electronic transactions may encourage criminal exploitation of these technologies. While US and many Western and Asian banks and financial institutions maintain adequate security safeguards to prevent outside penetration of computer-based data financial transaction systems, some have outdated or lax security practices that high-tech criminals are able to exploit.
Money laundering allows criminals to hide and legitimize illicit proceeds derived from criminal activities. Money laundering hinders efforts by regulatory and law enforcement agencies to identify the source of illegal proceeds, trace the funds to specific criminal activities, and confiscate criminals' financial assets. Moreover, the successful laundering of illicit funds helps to support and finance future criminal activity, including any of the international crimes identified in this assessment. While international law enforcement, intelligence, and financial experts agree that the amount of illegal proceeds in the world is huge and growing, there is little analytical work supporting most estimates of money laundering. A few estimates have been attempted, but no consensus view has emerged about the magnitude of money laundering on a global, regional, or national scale. (2)
The infrastructure used by international crime groups to launder illicit proceeds--which must be placed, layered, and integrated to be "legitimized" in the legal economy--is extensive and worldwide. There are many methods for laundering money. Among those favored by criminal organizations is to establish seemingly legitimate businesses as fronts for illegal activity and money laundering. These tend to be cash-based businesses--such as hotels, casinos, restaurants, financial service firms, construction companies, and travel agencies--whose ostensibly legitimate operations involve substantial cash-flow. This makes it difficult for law enforcement agencies to identify illegal proceeds. Front companies enable criminals to combine legitimate and illicit funds in the business, in addition to providing a plausible source of wealth to deny involvement in criminal activity.
The international banking and financial systems are routinely used to legitimize and transfer criminal proceeds. Huge sums of money are laundered in the world's largest financial markets--such as Hong Kong, Japan, Germany, the United Kingdom, and the United States--even though extensive legislation and enforcement measures make it more difficult and risky to conduct illicit financial transactions in these jurisdictions. Launderers also use banks located in secrecy havens to hide illicit funds. In some cases, money launderers may recruit bank employees to conduct money-laundering transactions on behalf of the criminal organization. Some organized crime groups have sought to gain ownership of banks to facilitate their own money-laundering activity.
Several factors contribute to a country's vulnerability to money laundering: a lack of adequate legislation or appropriate enforcement to address the problem, bank secrecy laws, weak or corrupt financial institutions, and inadequate or ineffective regulatory supervision of the financial sector.
In Southeast and Southwest Asia and the Middle East, parallel informal banking systems--known primarily as the hawala, hundi, or hui kuan--offer an alternative for laundering funds outside the formal banking system. These traditional nonbanking systems are increasingly being used by criminals, drug traffickers, and terrorist organizations operating throughout the world to launder and move illicit funds across long distances because they facilitate the rapid and cost-effective transfer of money and leave virtually no useful paper trail for law enforcement investigators or financial regulators.
The FATF has also observed an increase in illicit funds being laundered through nonbank financial institutions, such as currency exchange houses, money remitters, and gaming establishments. These organizations tend to be less regulated than banking organizations and are often used to place money into the legitimate economy.
Securities brokers and dealers and money service businesses, such as check cashers and money order sellers, are also vulnerable to money laundering. There are an estimated 200,000 money service businesses in the United States. Like money remitters, these businesses will soon be required to register with the federal government and to report suspicious transactions. Within three years, US regulations will require securities brokers and dealers to report suspicious activity, which they may now do voluntarily.
Threats From Money Laundering to World Economies
The International Monetary Fund has identified a number of adverse macroeconomic
effects resulting from money laundering, such as greater volatility in foreign
exchange markets and interest rates and distortions in market expectations.
While current money-laundering activity in the United States has not undermined
economic stability, it has hindered US Government efforts to collect taxes and
resulted in greater government expenditures in regulating the banking sector,
financial markets, and the business environment.
In developing economies, the accumulation and movement of large quantities of illicit funds can destabilize the economy. Investments by criminal groups in licit business enterprises can scare away honest investors and place companies owned by legitimate businessmen at a comparative disadvantage. Widespread money laundering can undermine the solvency and credibility of banks and other financial institutions and erode the public's trust in the financial system. It can also drive away potential investors and place legal investors at risk. Small economies are also vulnerable to destabilization from sophisticated fraud schemes that are attracted to large amounts of free-flowing cash. Finally, developing economies are particularly vulnerable to attempts by money launderers to corrupt institutions and key individuals with large amounts of cash, potentially undermining political stability.
Efforts by some countries, such as those in the former Soviet Bloc, to develop modern banking systems can be greatly inhibited by criminal involvement in their financial sectors. Criminal infiltration into the banking sector can impede government efforts to reform the banking industry. Moreover, criminal organizations with control or significant influence over domestic banks are not likely to use sound banking practices. Rather, criminals may use bank capital to finance illicit activities, acquire businesses, or make bad loans, raising the risk of bank insolvency and disruption of domestic financial markets.
Increasing international attention to money laundering has led many countries to implement money-laundering legislation and other preventative measures. In addition, international standards are being established to increase banking transparency and to reduce bank secrecy and other processes that disguise asset ownership.
(1) The US Government and two different UN protocols make a distinction between alien smuggling--in which foreign individuals willingly contract to be smuggled into a country by persons who gain financial or other material personal benefit from procuring the illegal entry--and trafficking in persons, in which individuals (particularly women and children) are recruited or transported, by means of fraud, deception, coercion, abduction, or the abuse of power, for purposes of exploitation, including sexual exploitation, forced labor or services, or slavery. Often illegal aliens who are voluntarily smuggled into the United States are thereafter forced into virtual slavery in unregulated industries by their smugglers. US law prohibits forced labor regardless of the victim’s initial consent to work; an undocumented person who is brought into the United States and maintained in service of another by force or coercion is treated by law and policy as a trafficked person, not merely an illegal alien.
(2) There is uncertainty about the feasibility of measuring the amount of money laundering because of the difficulty in obtaining consistent data. Money laundering is a crime in the United States, but is still not a distinct criminal offense in many other countries, especially when the laundering is not related to illicit drug proceeds. Even where money laundering is a distinct crime, estimates are usually measured in connection with one or more of a wide variety of underlying and predicate criminal offenses--which differ markedly between countries.
