1. NS3040 Fall Term 2018 Economic Security: Illicit Activities
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Economic Security: Illicit Activities
Illicit activities are one of the fastest growing businesses in the global economy:
Documented by Moises Naim:
The Five Wars of Globalization, Foreign Policy, December 2003
Mafia States: Organized Crime Takes Office, Foreign Affairs, May/June 2012
Both articles document the nature of the globalization of illegal activities and the difficulties of combatting the spread of these activities.
Between the time articles written many aspects of the problem had become much more serious

3. Naim: Five Wars of Globalization I
Main areas of illegal trade:
Drugs
Arms Trafficking
Intellectual Property
Alien smuggling
Money Laundering
Drug Trade
At the time this article written – drug trade was about $400 billion – roughly size of Spanish economy
U.S. was sending about $35-$40 billion on war on drugs
Once one area controlled, another sprang up – case for both production and routes

4. Naim: Five Wars of Globalization II
Arms Trafficking
Illicit trade accounts for almost 20 percent of total small arms trade
Generates more than $ 1 billion a year
Helped fuel 46 of the 49 largest conflicts in 1990s
Threat of growing trade in biological and nuclear materials
Problem: restricted supply, high demand = profitable prices
Alien Smuggling
About $7 billion a year business
Many pay smugglers high fees
Women, children often victims
Intellectual Property
Some success through WTO and other organizations to get better compliance of patient, copyright laws.

5. Naim: Five Wars of Globalization III
Money Laundering
Caymen Islands has population of 36,000 but
2,200 mutual funds,
500 insurance companies
60,000 businesses and
600 banks
Efforts to crack down on banks have had some success – new regulations, reporting and oversight -- FATIF
Banks do not want their reputations harmed so many voluntarily police activities

6. Naim: Five Wars of Globalization IV
Why Government’s Can’t Win – criminals:
Not bound by geography
Not even clear where the war against a certain illegal activity should be fought
Defy Traditional Notions of Sovereignty
CIA official – they can move money around world faster than I can shift it in my department
Pit governments against market forces
Mark-up of a gram of Cocaine from Bogota to Kansas City is 17,000 percent.
Pit Bureaucracy Against Networks
Networks to adaptable for most bureaucracies to adjust to

7. Naim: Five Wars of Globalization V
Possible Solutions
Develop more Flexible Notions of Sovereignty
Strengthen existing multilateral institutions
Interpol very underfunded
Devise new mechanisms and institutions
Move from repression to regulation
All difficult and unclear as to proper course of action

8. Naim: Mafia States I
The global economic crisis has been a boom for transnational criminals
Weak economy – cash rich criminal organizations can acquire financially distressed companies
Fiscal austerity – governments cut back on enforcement
Those laid off tempted to break the law
Many very talented people willing to work for organized crime
Major problem
Criminals have penetrated governments to an unpredecented degree
After being penetrated, many governments have taken over illegal operations – Mafia states

9. Naim: Mafia States II
Conventional wisdom about international criminal networks rests on three faulty assumptions
1. Everything has been done before
Reality – criminal networks have expanded beyond their traditional markets and started taking advantages of political and economic transformations – exploiting new technologies
2. International crime is an underground phenomenon operating at margins of societies
Reality -- in many countries criminals today do not bother staying underground at all – some celebrities, own newspapers etc.
3 International crime is strictly a matter of law enforcement, best managed by police departments, prosecutors and judges
Reality -- better understood as a political problem with national security implications
Some organizations have vast resources and significant political influence

10. Naim: Mafia States III
Some countries where organized crime has taken hold of government – to one extent or another:
Russia
Kosovo
Afghanistan
Guinea
Bolivia
Mexico
Venezuela

11. Naim: Mafia States IV Solutions:
Need to do more than curbing the traffic of illegal activity
Must also prevent and reverse criminalization of governments
Problem – today’s law enforcement agencies no match for criminal organizations – especially those with government protection
Even Interpol’s credibility damaged by corruption at the top
Combatting international crime cannot be purely national effort – requires international action –
“Coalition of the honest”
a long way from this however
Public needs to be made aware of the problem
Need broad based support and citizen involvement