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Thursday, August 27, 2015

Federation of American Scientists: International Crime Threat Assessment - Introduction and Sections 1 & 2

International Crime Threat Assessment


The rapid spread of international crime since the end of the Cold War is unprecedented in scale, facilitated by globalization and technological advances, and poses a significant challenge to the United States and democratic governments and free market economies around the world. The President has identified international crime as a direct and immediate threat to the national security of the United States. To meet this challenge, the Departments of Justice, State, and Treasury--working closely with numerous federal agencies--jointly developed a comprehensive national strategy to fight international crime and reduce its impact on Americans. The International Crime Control Strategy, which was released in May 1998, provides a dynamic action plan that serves as a roadmap for a coordinated, effective, long-term attack on international crime. The Strategy's eight overarching goals, supported by implementing objectives, are as follows:
  • Extend the first line of defense beyond US borders.
  • Protect US borders by attacking smuggling and smuggling-related crimes.
  • Deny safehaven to international criminals.
  • Counter international financial crime.
  • Prevent criminal exploitation of international trade.
  • Respond to emerging international crime threats.
  • Foster international cooperation and the rule of law.
  • Optimize the full range of US efforts.
At the direction of the President and as part of the International Crime Control Strategy, a US Government interagency working group has prepared the following comprehensive assessment of the threat posed by international crime to Americans and their communities, US businesses and financial institutions, and global security and stability. The assessment is divided into five parts:
  • Chapter I addresses the Global Context of International Crime, identifying those factors--including the implications of a changing world, the greater sophistication of criminal organizations, and institutional shortcomings elsewhere in the world--that have contributed to the growing problem of international crime.
  • Chapter II provides a comprehensive overview of specific International Crimes Affecting US Interests--including their effect on American lives and livelihood, costs to US business interests at home and abroad, and impact on US national security interests around the world.
  • Chapter III addresses Worldwide Areas of International Criminal Activity, particularly as source areas for specific crimes and bases of operations for international criminal organizations. This section includes an analysis of the driving factors in different countries and regions that allow criminal organizations and international criminal activity to flourish, as well as an assessment of the impact of international criminal activity on stability in these countries and regions, including threats to the growth and nurturing of democratic and free market systems. Finally, this section discusses the characteristics, criminal operations, and international presence of organized crime groups originating in these countries or regions.
  • Chapter IV addresses the Consequences of International Crime for US Strategic Interests, including the ability to work cooperatively with foreign governments and the problem of criminal safehavens, kleptocracies, and failed states.
  • Chapter V offers a perspective on the Future of International Crime as it develops in the next 10 years.

International Crime Threat Assessment

Chapter I


Global Context of International Crime
Implications of a Changing World
Growing Global Reach of Organized Crime Groups
Greater Sophistication of Criminal Organizations
Insurgency and Extremist Group Involvement in Organized Crime Activities
Corruption and the Political-Criminal Nexus
Institutional Shortcomings

Global Context of International Crime

Implications of a Changing World

Law enforcement officials around the world have reported a significant increase in the range and scope of international criminal activity since the early 1990s. The level and severity of this activity and the accompanying growth in the power and influence of international criminal organizations have raised concerns among governments all over the world--particularly in Western democracies--about the threat criminals pose to governability and stability in many countries and to the global economy. International criminal networks have been quick to take advantage of the opportunities resulting from the revolutionary changes in world politics, business, technology, and communications that have strengthened democracy and free markets, brought the world's nations closer together, and given the United States unprecedented security and prosperity:
  • Post-Cold War landscape. The end of the Cold War resulted in the breakdown of political and economic barriers not only in Europe but also around the world. This change opened the way for substantially increased trade, movement of people, and capital flows between democracies and free market countries and the formerly closed societies and markets that had been controlled by Soviet power. The end of the Cold War also brought with it an end to superpower rivalry in other regions of the world, encouraging movement toward peace and more open borders. These developments have allowed international criminals to expand their networks and increase their cooperation in illicit activities and financial transactions.
  • Economic and trade liberalization. Increasing economic interdependence has both promoted and benefited from reforms in many countries opening or liberalizing state-controlled economies with the intention of boosting trade and becoming more competitive in the global marketplace. Criminals have taken advantage of transitioning and more open economies to establish front companies and quasi-legitimate businesses that facilitate smuggling, money laundering, financial frauds, intellectual property piracy, and other illicit ventures. Multilateral economic agreements reducing trade barriers in North America, Europe, Asia, and other regions of the world have substantially increased the volume of international trade. In the United States, the volume of trade has doubled since 1994, according to the US Customs Service, and will double again by 2005. Criminal groups have taken advantage of the high volume of legitimate trade to smuggle drugs, arms, and other contraband across national boundaries.
The advent of intermodal commercial shipping-- including standardized cargo containers, computerized cargo tracking, and automated cargo-transfer equipment--enables shippers to securely and efficiently transfer containers delivered by sea to other ships for onward shipment or to commercial railroads and trucks for overland transportation. Criminals are able to exploit the complexity of the intermodal system to hide drugs or other contraband or to conceal the true origin and ownership of cargo within which contraband is hidden.
  • Technological advances. The last decade has presented revolutionary advances in information and communications technologies that have brought the world closer together. Modern telecommunications and information systems that underpin legitimate commercial activity in today's fast-paced global market are as easily used by criminal networks. Commercially available state-of-the-art communications equipment greatly facilitates international criminal transactions--including making deals and coordinating the large volume of illicit trade. In addition to the reliability and swiftness of the communications, this also affords criminals considerable security from law enforcement operations. According to US law enforcement agencies, many international crime groups and drug traffickers use a combination of pirated and encrypted cellular phones and bootleg or stolen phone cards that they replace after short periods of use.
Through the use of computers, international criminals have an unprecedented capability to obtain, process, and protect information and sidestep law enforcement investigations. They can use the interactive capabilities of advanced computers and telecommunications systems to plot marketing strategies for drugs and other illicit commodities, to find the most efficient routes and methods for smuggling and moving money in the financial system, and to create false trails for law enforcement or banking security. International criminals also take advantage of the speed and magnitude of financial transactions and the fact that there are few safeguards to prevent abuse of the system to move large amounts of money without scrutiny. More threateningly, some criminal organizations appear to be adept at using technology for counterintelligence purposes and for tracking law enforcement

  • Globalization of business. The revolution in modern telecommunications and information systems and lowering of political and economic barriers that have so greatly quickened the pace, volume, and scope of international commerce are daily being exploited by criminal networks worldwide. International criminals are attracted to major global commercial and banking centers where they take advantage of gateway seaports and airports, the high volume of international trade, the concentration of modern telecommunications and information systems, and the presence of major financial institutions. They count on avoiding close scrutiny of their activities because of the importance to businesses and governments of facilitating commercial and financial transactions and rapid transshipment of products.
  • Explosion in international travel. With the breaking down of international political and economic barriers and the globalization of business, there is more freedom of movement, and international transportation of goods and services is easier. The proliferation of air transportation connections and easing of immigration and visa restrictions in many countries to promote international commerce, especially within regional trade blocs, have also facilitated criminal activity. In the past, more limited travel options between countries and more stringent border checks made crossing national boundaries difficult for international criminals. Now, criminals have a great many choices of travel routes and can arrange itineraries to minimize risk. Border controls within many regional economic blocs--such as the European Union--are often nonexistent.
In 1999, some 395 million people entered the United States overland from Mexico and Canada, 76 million people arrived on more than 928,000 commercial airline and private flights, and 9 million arrived by sea, according to the US Customs Service. In addition, 135 million vehicles--including automobiles and commercial trucks--crossed US borders with Mexico and Canada, and more than 200,000 merchant and passenger ships and other maritime vessels docked at US seaports or US coastal harbors. US seaports handled more than 4.4 million shipping containers and 400 million tons of cargo in 1999. US Customs is able to inspect only about 3 percent of the goods entering the United States, a figure that will drop to about 1 percent in the next five years as the volume of trade continues to grow. This tremendous volume of traffic and trade into the United States provides international criminals tremendous opportunity to smuggle contraband--including drugs and counterfeit products--into the country, as well as to illegally export firearms, stolen vehicles, and other contraband overseas.

Growing Global Reach of Organized Crime Groups

The phenomenon of international organized crime is not new. Italian, Chinese, and Nigerian criminal groups, for example, have long had members or cells in foreign countries and international connections to obtain, distribute, or market contraband. In general, however, their international criminal activities were more limited in scope, and their foreign cells operated mostly autonomously or performed a few specific functions for the larger group. Border controls, the slower pace of transportation and communication, and the requirement to move illicit money in bulk cash were significant impediments to international criminal activity. For many organized crime groups, their international criminal activities were more regional than global. For those with a more worldwide presence, their operations were mostly confined to countries with a large ethnic expatriate population.
Total Persons Entering the United States, 1990-99

GraphicMaritime Containers Entering US Commercial Seaports, 1990-99
GraphicInternational Commercial Flights and Persons Entering the United States By Air Transport, 1990-99
The dynamics of globalization, however, particularly the reduction of barriers to movement of people, goods, and financial transactions across borders, have enabled international organized crime groups to expand both their global reach and criminal business interests. International organized crime groups are able to operate increasingly outside traditional parameters, take quick advantage of new opportunities, and move more readily into new geographic areas. The major international organized crime groups have become more global in their operations, while many smaller and more local crime groups have expanded beyond their country's borders to become regional crime threats.
Since the end of the Cold War, organized crime groups from Russia, China, Italy, Nigeria, and Japan have increased their international presence and worldwide networks or have become involved in more transnational criminal activities. Most of the world's major international organized crime groups are present in the United States.

General Characteristics Common to Organized Crime Groups

Organized crime is defined by US law enforcement as a "continuing and self-perpetuating criminal conspiracy, having an organized structure, fed by fear and corruption, and motivated by greed." Organized crime groups often have a family or ethnic base, but members usually identify more closely with the organization than they do with blood relatives. They typically maintain their position through the threat or use of violence, corruption of public officials, graft, or extortion. The widespread political, economic, social, and technological changes occurring within the world have allowed organized crime groups to become increasingly active worldwide. The ability of organized crime groups to adapt to these changes and their use of improved transportation and communication technology have hindered law enforcement efforts against them.
Most organized crime groups have the following characteristics in common:
  • Seeking financial gain. A business must profit to survive, and organized crime functions in much the same way. Greed and the quest for profits probably dictate more organized crime decisions than any other single motive. It is this consuming desire for money, and the power that typically goes with it, which drives and sustains organized crime.
  • Requiring member loyalty through ethnicity and family considerations. Although not an absolute mandate for every organized crime group, most groups require their members to be of the same ethnic background. The purpose of this preference is twofold. First, criminals generally believe they can better trust those people they know, or know of, thereby reducing the likelihood of law enforcement infiltrating the group. Second, some of these groups originated from the pursuit of a common goal or scheme, whether economic, societal, or political.
  • Pursuing corruption of government officials. Most organized crime groups have been enormously successful in their illegal ventures because they have successfully corrupted those persons charged with investigating and prosecuting them. In fact, some of these groups have so thoroughly and utterly corrupted those officials that it is no longer possible to distinguish between the two.
  • Hierarchical structure. Generally, organized crime groups maintain a structure with defined leadership-subordinate roles, through which the group's objectives are achieved.
  • Criminal diversity. Typically, organized crime groups engage in more than one type of crime.
  • Organizational maturity. In most cases organized crime groups have some permanence and do not depend on the continuing participation of one or a few individuals for their existence.
  • Multijurisdictional activities. Usually, organized crime groups operate or have influence over large areas of a region, country, or countries.

Greater Sophistication of Criminal Organizations

International criminal networks--including traditional organized crime groups and drug-trafficking organizations--have taken advantage of the dramatic changes in technology, world politics, and the global economy to become more sophisticated and flexible in their operations. They have extensive worldwide networks and infrastructure to support their criminal operations; they are inherently flexible in their operations, adapting quickly to challenges from rivals and from law enforcement; they have tremendous financial resources to draw upon; and they are completely ruthless. International criminals spare no expense to corrupt government and law enforcement officials in foreign countries that serve as their bases of operation or as critical avenues for transshipment of drugs, arms, other contraband, illegal aliens, or trafficked women and children. Organized crime groups routinely resort to violence to advance and protect their interests.
  • Organized crime groups remain ruthless in protecting their interests from rivals and law enforcement alike. Criminal violence--contract killings, vendetta murders, kidnappings, bondage, even occasional small-scale massacres--has increased with competition for illicit markets and resources, and it often has spilled over into society at large.
Globalization has bred a more professional criminal element. International criminals make use of the latest commercial and technological developments to expand and improve the efficiency of their operations, and they have the financial resources to obtain whatever access, know-how, and technology they may need or desire. Many criminal groups employ individuals with specific expertise to facilitate their operations. As a result, they are able to quickly identify and adapt to market changes.
  • Major drug smuggling and other international criminal groups use transportation specialists and legal experts to research commercial flows and to learn about tariff laws and administrative procedures in the world's major commercial ports. With such information, they are able to exploit international air, sea, and land shipping to move drugs, arms, other contraband, illegal aliens, and even money past customs and law enforcement.
  • International criminal organizations use financial experts (some trained in the world's best business schools) to identify new money-laundering mechanisms, to manage investments, and to establish fronts that can be used as covers for smuggling and fraud schemes. This has allowed criminal groups to increasingly diversify their financial operations on a global scale.
  • Legal expertise is effectively used by international criminals to protect themselves from investigations and prosecutions. Lawyers in their pay have used detailed knowledge of the law to manipulate the judicial system and to influence law enforcement legislation to protect criminal interests in countries around the world.
Globalization has enabled organized crime groups to diversify their criminal activities. Colombian drug-trafficking organizations, for example, are also involved in counterfeiting; Nigerian and Asian crime groups engage in alien smuggling; Russian and Asian crime groups traffic women for worldwide sex industries; and Russian, Asian, Nigerian, and Italian criminal syndicates engage in sophisticated, high-tech financial crimes. Many of the larger criminal organizations have established business-like structures to facilitate and provide cover for their operations, including front companies, quasi-legitimate businesses, and investments in fully legitimate firms.
Much more than in the past, criminal organizations are networking and cooperating with one another, enabling them to merge expertise and to broaden the scope of their activities. Rather than treat each other as rivals, many criminal organizations are sharing information, services, resources, and market access according to the principle of comparative advantage. By doing so, they can reduce their risks and costs and are better able to exploit illicit criminal opportunities. Although most cooperation between criminal organizations so far has been largely tactical--such as collaborating in smuggling ventures, arranging illicit financial transactions, or laundering money--the potential for broader alliances to undertake more complex criminal schemes in an increasingly global economy is significant. The willingness and capability of large, well-established international organized crime groups to move into new areas and develop mutually beneficial relationships with local criminal groups is unprecedented.

Insurgency and Extremist Group Involvement in Organized Crime Activities

One of the more significant developments since the end of the Cold War has been the growing involvement of insurgent, paramilitary, and extremist groups--whose crimes are primarily against the state--in criminal activities more associated with traditional organized crime groups and drug-trafficking syndicates. Although various insurgent and extremist groups had been involved in traditional criminal activities before, particularly the drug trade, their role typically was more a subsidiary one of extorting or offering protection to drug trafficking and crime groups operating in areas they controlled. Partnerships that some of these insurgent or extremist groups had with drug traffickers and other criminal organizations were often fleeting, but sometimes longer-standing symbiotic arrangements based on a coincidence of interests. In either case, the relationship was often strained and marked by mutual suspicion and wariness. For example:
  • In Peru from the late 1980s until the early 1990s, the extremist Sendero Luminoso insurgents profited from protecting coca fields and extorting drug traffickers operating in the Andean region they controlled.
  • In Western Europe, members of the terrorist Kurdistan Workers' Party (PKK) in Turkey have engaged in drug trafficking and other crimes to help finance local operations.
Among the changes brought by the end of the Cold War, however, was the loss of Soviet, Cuban, and other Communist benefactors for many regional insurgencies and extremist groups. Unable to rely on aid from state sponsors, many insurgent and extremist groups were forced to find alternative sources of funds to remain militarily relevant, and involvement in drug trafficking and other criminal activity became a priority as an independent source of revenue.
  • In Colombia, since the late 1980s, Marxist insurgents have not been able to rely on financial support from Cuba and Russia. Some insurgent fronts of the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN) generate substantial revenue by taxing and protecting coca cultivation, cocaine processing, and drug shipments in the areas they control. The US Government estimates that the FARC may earn as much as half of its revenue from involvement in the Colombian drug trade.
  • In Africa, both the National Union for the Total Independance of Angola (UNITA) in Angola and the Revolutionary United Front (RUF) in Sierra Leone raise most of the revenue to pay the costs of their insurgencies from mining and illegally exporting diamonds in the areas their forces control. For UNITA, exploiting the diamond industry became critical to its survival once Cuban and more limited Soviet aid dried up by the early 1990s. The RUF's principal external supporter, neighboring Liberia, receives payment in diamonds as the price for its troop, logistics, and material support.
Besides engaging in drug trafficking and other criminal activity to raise needed revenue, insurgent and extremist groups have other motivations for involvement. Among the most important is to advance their political objectives by isolating the regions they control from the national economy. By so doing, they deprive the government of the region's economic productivity--as is most notably the case with the diamond mines held by the insurgents in Angola and Sierra Leone--and increase the dependence of the local population on their control and authority. In some cases--such as in the drug-producing regions of Colombia, largely controlled by the FARC and rightwing paramilitary forces--insurgent and extremist groups support a widespread illegal economy or illicit activity that is the primary source of income for the local population.
With the substantial decline in state-sponsored support, many insurgencies and extremist groups reach out to criminal networks to acquire arms and supplies that cannot be obtained through more traditional or legitimate channels. Unlike insurgent groups, criminal groups are well-connected to outside gray arms merchants, transportation coordinators, money launderers, and other specialists who can provide the weapons and other logistics support once given by state sponsors. Organized crime groups are also more likely than armed illegal political, ideological, or religious movements to have stables of corrupt contacts in customs, immigration, and other law enforcement authorities to facilitate the smuggling of weapons and other contraband to extremist and insurgent groups. Armed groups are also turning to criminals to acquire high-technology items, like encryption software or global positioning equipment, that are otherwise unobtainable.
For some insurgent groups involved in criminal activity, the activity itself may eventually become their primary motivation. In Burma, for example, ethnic-based insurgent armies that were originally formed as national liberation movements supported by Communist China have become drug-trafficking armies. Particularly since Burma's military regime negotiated cease-fire agreements that leave them alone, insurgent armies like the United Wa State Army--the largest producer of heroin and methamphetamine in Southeast Asia--are now engaged almost exclusively in the lucrative business of drug trafficking. They turned increasingly to drug trafficking when China began substantially reducing its support in the 1970s.

Corruption and the Political-Criminal Nexus

While organized crime groups and other criminal networks have become more sophisticated in their operations and capabilities, corruption remains an indispensable tool of the criminal trade. Corruption is inherent to criminal activity; criminal groups corrupt society, business, law enforcement, and government. Beyond corrupting mid- and low-level law enforcement personnel and government bureaucrats to turn a blind eye or proactively facilitate their on-site criminal activities, crime groups seek to corrupt high-level politicians and government officials for a variety of reasons, including to:
  • Gain high-level protection for themselves and their activities. Implicit alliances with senior officials in a position to head off or limit policy or law enforcement initiatives that could interfere with their criminal activities allow crime groups to operate in a relatively benign environment. In some circumstances, the relative power of their high-level political protectors may be the most important factor in how well or poorly a criminal group prospers.
  • Gain insider information on national-level law enforcement investigations. Access to senior officials in a position to authorize or influence investigations and prosecutions provides major crime figures with warning of governments' attempts to target them, the potential to learn about the sources and direction of investigations, and the possibility to terminate or sidetrack investigations or to target a rival criminal group instead.
  • Gain insider information on national economic planning. Unsavory businessmen and many
    organized crime groups seek to invest in productive business enterprises and to profit from economic and infrastructure development projects, both to use as fronts for their criminal operations and to legitimize their income and their role in society. Having advanced knowledge of government plans for privatization offerings or competitive bidding for development projects, for example, gives them a potential advantage over individuals and businesses without criminal ties. In many cases, criminal groups try to use their high-level official connections to ensure they win competitive bids.
  • Influence legislation or statutory regulations that could affect their interests. High-level politicians in league with crime figures could sidetrack or weaken provisions in key legislation that would threaten their safety, such as extradition, or push for laws that would promote their interests--such as their ability to launder money, make illicit financial transactions, engage in illegal trade practices, or move contraband products.
Criminal groups are most successful in corrupting high-level politicians and government officials in countries that are their home base of operations. Countries with policies that favor government subsidies and foreign trade restrictions to protect domestic industries, foreign exchange controls, and state control of utilities and natural resources are particularly vulnerable to high-level corruption. Senior officials who have authority to grant import or export permits, fix import and export duties, determine preferential exchange rates, decide on government-let contracts or privatization offerings, or waive internal taxes are routinely targeted by criminal groups or may themselves seek out a relationship with criminal interests. High-level politicians and government officials enter into corrupt alliances with criminal groups to:
  • Avoid pressure and reprisals from criminal groups demanding favors. Politicians and officials who doubt the willingness or capability of their government to protect them from criminal threats are most vulnerable to the combination of lucrative bribe offers and intimidation.
  • Use their public position or potential leverage for financial payoffs from criminal groups. Officials in a position to decide or influence law enforcement operations or investigations may demand bribes either to preclude government interference in the activities of criminal groups or to help facilitate their operations.
  • Exploit their public authority for personal profit from illicit activities. High-level politicians and officials profit by using their ability to influence government economic decisions on behalf of criminal interests. For example, they may accept financial kickbacks for awarding contracts to business enterprises controlled or influenced by crime figures.
  • Gain personal or political favors from criminal associations. In some cases, senior politicians and officials seek criminal associations to obtain funds or assets that they can personally use for legitimate investments or for their own involvement in quasi-legitimate or illicit profitable business activities. Criminal associations can also help them to launder and hide illicit proceeds garnered through abuse of their positions of authority. In other cases, they rely on criminal groups for information that can discredit political or bureaucratic rivals or to provide under-the-table campaign financing.
Corruption on a grand scale weakens social, political, and legal institutions and acts as a catalyst for further criminal activity--including drug and contraband smuggling, illegal migration, and the penetration of criminal groups into the legitimate economy. This is particularly true in countries that are making the difficult transition to market economies, where widespread corruption degrades their ability to enforce the rule of law.
In addition to undermining the political legitimacy of the government, the consequences of corruption can be severe for a country's economic performance. Corruption reduces incentives for investment because businessmen perceive whatever portion of an investment is claimed by corrupt officials as a tax. Corruption disrupts the productive allocation of talent and labor in society and distorts the composition of fiscal expenditure, since corrupt officials make key economic decisions that are often based on their own personal best interests, rather than those of the country. High levels of corruption are also associated with lower-quality public infrastructure projects and services, because productive expenditures are cut to offset costly kickbacks or the firms involved are inefficient or incompetent. Finally, in countries that are recipients of foreign assistance, the diversion of foreign aid flows from their intended projects by corrupt officials reduces the effectiveness of international donor efforts.
  • As a result of foreign aid diversion, many donor countries have focused increasingly on issues of good governance. In some cases where corruption has significantly eroded the ability of the recipient country to use the aid as intended, international donors have scaled back their assistance.

A Global Forum on Fighting Corruption: Safeguarding Integrity among Justice and Security Officials

In February 1999, the United States hosted the first global forum to fight corruption among government officials responsible for upholding the rule of law. Officials from 90 countries participated and agreed on a declaration that calls on governments to adopt effective practices to promote integrity and fight corruption among justice, security, and other public officials and to assist each other in this regard through mutual evaluation. As a result of this initiative, several nations--such as Romania and South Africa--convened their own regional conferences in the past year to continue the work on a more local level. The Netherlands, with help from the United States, will host a follow-up global forum at the Hague in May 2001. The Dutch anticipate officials from 135-to-140 countries will attend.

Institutional Shortcomings

The growth and spread of international crime have also fed off the many institutional shortcomings of countries around the world. Police and judicial systems in many countries are ill-prepared to combat sophisticated criminal organizations because they lack adequate resources, have limited investigative authorities, or are plagued by corruption. Many countries have outdated or nonexistent laws to address corruption, money laundering, financial and high-tech crimes, intellectual property piracy, corrupt business practices, or immigration. Moreover, many governments have been slow to recognize the threat posed by criminal activities and increasingly powerful organized crime groups. Criminals use these shortcomings--and their tremendous resources to corrupt and intimidate public officials and business leaders--to find safehavens for themselves, their illicit operations, and their tainted money.
  • Countries that do not allow or limit extradition or mutual legal assistance, do not recognize the relevance of some US laws, or that have no legal statutes to deal with some criminal activities are often ideal sanctuaries for criminals seeking to evade justice in the United States.
International Crimes Affecting US Interests

The resourcefulness of organized crime groups worldwide in acquiring sophisticated technology is posing unprecedented challenges for law enforcement and security forces. Many law enforcement agencies in world regions hard hit by criminal activity are poorly funded and equipped and are increasingly outmaneuvered by crime syndicates using state-of-the-art technology. Technological sophistication gives crime groups more options to target or retaliate against the police, judicial, or government officials if law enforcement pressure becomes too threatening to their operations.
Law enforcement and security agencies increasingly may need to treat the security apparatus of sophisticated international criminal organizations the same as hostile intelligence services.
Finally, while globalization has allowed international criminals to operate virtually without regard to borders, governments and law enforcement agencies remain limited by national boundaries. National sovereignty concerns and jurisdictional restrictions are impediments to targeting criminal activities that cross international boundaries. Unlike criminals, governments and law enforcement agencies must respect other nations' sovereignty and legal statutes in law enforcement operations.


International Crime Threat Assessment

Chapter II

International Crimes Affecting US Interests
Drug Trafficking
Alien Smuggling
Trafficking in Women and Children
Environmental Crimes
Sanctions Violations
Illicit Technology Transfers and Smuggling of Materials
for Weapons of Mass Destruction

Arms Trafficking
Trafficking in Precious Gems
Nondrug Contraband Smuggling
Intellectual Property Rights (IPR) Violations
Foreign Economic Espionage
Foreign Corrupt Business Practices
Financial Fraud
High-Tech Crime
Money Laundering

International Crimes Affecting US Interests

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:
  • Threats to Americans and their communities, which affect the lives, livelihood, and social welfare of US citizens living in the United States and abroad.
  • Threats to American businesses and financial institutions, which affect US trade, the competitiveness of US products, and the US interest in a stable worldwide financial system.
  • Threats to global security and stability, which affect the broader US national security interest in promoting regional peace and democratic and free market systems, particularly in regions where outlaw regimes aspire to develop weapons of mass destruction or where US forces may be deployed.
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.
  • International terrorism and drug trafficking most directly threaten American lives and property. These international crimes are addressed in greater detail in the State Department's annual Patterns of Global Terrorism and International Narcotics Control Strategy Reports and the administration's annual National Drug Control Strategy.
  • Illegal immigration, worldwide trafficking of women and children, and environmental crimes may pose direct threats to safety, health, stability, values, and other interests of American communities--as well as to the entire world community of which the United States is a leading member.
  • The illicit transfer or trafficking of products across international borders--including the violation of US or international sanctions, illicit transfer and smuggling of materials for weapons of mass destruction, arms trafficking, and trafficking in diamonds and other precious gems--undermines US national security objectives of isolating pariah regimes and promoting regional stability.
  • Economic trade crimes such as piracy, the smuggling of contraband, the violation of intellectual property rights (IPR) through product piracy and counterfeiting, industrial theft and economic espionage, and foreign corrupt business practices rob US companies of substantial commercial revenues and affect their competitiveness in world markets.
  • Financial crimes such as counterfeiting US currency and other monetary instruments, sophisticated fraud schemes directed at both individuals and businesses, high-tech computer crimes targeting businesses and financial institutions, and money laundering cause significant financial losses to American citizens and companies at home and overseas and contribute to instability in the international financial system.


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.
  • In 1999, there were 169 terrorist attacks against US targets worldwide, a 52 percent increase from 1998, when there were 111 anti-US terrorist attacks-- including the bombing of US Embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania.
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.
  • The group led by Ramzi Yousef, the convicted mastermind of the World Trade Center bombing, and the network maintained by Afghanistan-based terrorist Usama Bin Laden are prime examples of this evolution in the international terrorist threat.
  • Algerian national Ahmed Ressam, who was arrested in Port Angeles, Washington, attempting to smuggle bombmaking material into the United States from Canada, was associated with an extremist group based in Algeria that has ties to Bin Ladin's organization.
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.
  • Some terrorist groups that lack a single state sponsor may use criminal activities to help finance their operations.
  • Some terrorist groups look to organized crime groups to assist them in acquiring more sophisticated weapons or materials.

Drug Trafficking

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.
  • Results from the most recent National Household Survey on Drug Abuse indicated that 14.8 million Americans--about 6.7 percent of the population 12 years or older--were current users of illicit drugs, having used them within the previous 30 days.
  • In 1999, according to a study sponsored by the Office of National Drug Control Policy (ONDCP), there were about 3.3 million hard-core users of cocaine and 977,000 hard-core heroin users in the United States.
  • ONDCP estimates there were 52,600 drug-related deaths in 1995, including 14,200 who died directly from drug consumption. This was the only year for which this estimate, derived from a methodology that incorporates deaths from other drug-related causes, was made.
  • Medical examiners from 42 metropolitan areas in the United States reported more than 10,000 direct drug abuse deaths in 1998, the latest year for which figures are available, according to a survey conducted by the Drug Abuse Warning Network.
  • Drug-related causes accounted for about 33 percent of new AIDS cases for men and 42 percent of new AIDS cases for women in the United States in 1998, according to data from the Centers of Disease Control and Prevention.
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.
  • In 1999, Americans spent $63 billion on illegal drugs, according to a study sponsored by ONDCP.
  • The estimated total costs of drug abuse in the United States--including health care and lost productivity--were $110 billion in 1995, the latest year for which data are available, according to the US National Institute for Drug Abuse (NIDA). Nearly $12 billion of that was for health-care costs and medical consequences.
  • US Department of Labor studies have shown that drug users are less dependable than other workers; they are twice as likely as nonusers to take unexcused absences from work, are nearly twice as likely to switch jobs, and are more than three times as likely to be terminated.
  • More than 8.3 million Americans in the work force age 18 and older used illicit drugs in 1998, according to the National Household Survey on Drug Abuse; 6.4 percent of full-time workers and 7.4 percent of part-time workers reported current illicit use in the survey.
  • Drug use is estimated to cost $77 billion a year in decreased productivity and lost earnings in the United States, according to a 1998 report by NIDA.
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.
  • More than two-thirds of the adult males arrested for crimes tested positive for at least one drug in 1998, according to the Arrestee Drug Abuse Monitoring Program sponsored by the National Institute of Justice.
  • In 1995, the latest year for which data are available, almost 225,000 people were incarcerated in state prisons and nearly 52,000 in federal prisons for drug offenses. About 60 percent of the federal prison population was incarcerated for drug-related crimes.
Estimated US Hard-Core User Population for Heroin and Cocaine, 1988-98

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.

  • In 1999, the United States seized some 73 metric tons of cocaine at its borders, according to the US Customs Service.
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.
  • About 875 kilograms of heroin were seized at US ports-of-entry in 1999, according to US Customs Service data.
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.
  • The majority of methamphetamine available in the US market is produced by Mexican traffickers operating in the United States or in Mexico; the US Drug Enforcement Administration (DEA) estimates that Mexican trafficking groups control 70 to 90 percent of the US methamphetamine supply. There has been a significant increase in methamphetamine production in Southeast Asia in recent years. Although little has found its way to the US market from Southeast Asia, increasing quantities of "Thai Tabs" have been seized in the western United States.
  • Most of the ecstasy in the US market is produced in the Netherlands. Amsterdam, Brussels, Frankfurt, and Paris are major European hubs for transshipping ecstasy to foreign markets, including the United States. US law enforcement reporting indicates that the Dominican Republic, Suriname, and Curacao are used as transshipment points for US-bound ecstasy from Europe and that Mexican and South American traffickers are becoming involved in the ecstasy trade. In FY 1999, according to the US Customs Service, 3.5 million ecstasy tablets were seized being smuggled into the United States--a sevenfold increase over the 400,000 tablets seized in 1997. For FY 2000, more than 9.3 million tablets were seized.
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.
  • In 1999, some 536 metric tons of marijuana were seized entering the United States, most of which came from Mexico.
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

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.
  • The US Government estimates that 500,000 illegal migrants are brought into the United States annually by organized alien smuggling networks; another estimated half-million enter without the assistance of alien smugglers. Most illegal migrants enter the United States overland from Mexico or Canada.
  • According to US Government estimates, some 500,000 to 600,000 illegal migrants who entered the United States in 1999 were Mexican nationals, and another 225,000 were Central American nationals.
  • Chinese smugglers, known as snakeheads, often move aliens into the United States by maritime vessels, including offshore transfers of migrants, but also transit South and Central America, Mexico, and Canada. The US Government estimates that 30,000 to 40,000 Chinese were smuggled into the United States in 1999.
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.
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.
  • Several of the conspirators in the 1993 World Trade Center bombing entered the United States with false documents.
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)
  • To avoid US law enforcement authorities, it is not uncommon for smugglers to abandon their clients in the desert without food or water, or to toss them in frigid waters. On Chinese alien smuggling vessels in 1999, a number of migrants were beaten by smugglers until they lost consciousness, according to the US Coast Guard. Smugglers also coerced female migrants into sex by withholding food or otherwise making the journey miserable for noncompliant females.
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.

  • The UN estimates that migrant smuggling worldwide involves 4 million people and $7 billion annually, according to a report in December 1997.
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.
  • The Chinese Fuk Ching Gang, for example, has engaged in large-scale smuggling of illegal immigrants by sea. This group was reportedly responsible for organizing the voyage of the Golden Venture, which ran aground off New York City in 1993 with hundreds of illegal Chinese aliens from Fujian Province aboard.

Trafficking in Women and Children

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.
  • The US Government estimated in 1997 that 700,000 women and children were moved across international borders by trafficking rings each year. Some nongovernmental organizations estimate the number to be significantly higher.
  • The worldwide brothel industry earns at least $4 billion from trafficking victims, according to US Government estimates.
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.
  • Trafficking to the United States violates US criminal, immigration, and labor laws, as well as the Victims of Trafficking and Violence Protection Act. Trafficking also usually involves conspiracy and visa, mail, and wire fraud. The gross, systematic violation of human rights, which often includes kidnapping, extortion, and enslavement, is also a violation of US laws.
  • In 1997, Florida police arrested a brothel operator who smuggled Mexican women and underage children into the United States and forced them to work as prostitutes to pay off their $2,000 smuggle fee.
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.
  • Typically, the children--some not yet teenagers-- are victims of trafficking, having been sold by their families or kidnapped and forced into bondage.
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.

  • According to the US Government, an estimated 225,000 women and children from Southeast Asia were trafficked across international borders in 1997, accounting for nearly one-third of the worldwide total. Nearly half are younger than 18, and most--60 percent--are trafficked within the East Asia-Pacific region, primarily to wealthier markets such as Thailand, Hong Kong, Singapore, Japan, and Australia. An estimated 30,000 women from Southeast Asia were trafficked to the US market in 1997, about two-thirds of the total trafficking victims brought into the United States that year.
  • Latin America was the second-largest source region for women and children trafficked to the United States in 1997. About 10,000 of the total 100,000 women and children caught in Latin American trafficking rings in 1997 were sent to the United States, according to US Government estimates.
  • The former Soviet Union and Eastern Europe is becoming an important center for trafficking in women and children. The US Government estimates that about 175,000 of the women and children from countries in these regions were caught in trafficking rings in 1997. Most--an estimated 120,000--were sent to Western Europe, with Germany, Italy, and the Netherlands the most likely destinations. About 4,000 women and children from the former Soviet Union and Eastern Europe were brought to the United States.
  • Some 150,000 victims from South Asia were trafficked to buyers elsewhere in the region, in the Middle East, and in Southeast Asia in 1997.
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.
  • In Bulgaria, four senior officials--including two involved in security or anticrime forces--were fired in April 1997 because of their links to an organized crime group involved in procuring women for forced prostitution, according to Bulgarian press.
  • In Thailand, traffickers recruit military and police force members to serve as escorts for women who are being trafficked to foreign sex markets.
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.
  • These concerns are leading to increased international countermeasures. In 1998, the G-8 heads of state, for example, used their communique at Birmingham to call for activities to prevent trafficking, prosecute the criminals, and protect the victims.
  • In 1998, the United States introduced a resolution on trafficking in women and children that was adopted by the UN Crime Commission. The resulting protocol on trafficking in persons, cosponsored by the United States and Argentina, will be attached to the UN Convention Against Transnational Organized Crime.

Environmental Crimes

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.
  • The US Government estimates that local and international crime syndicates worldwide earn $22-31 billion annually from hazardous waste dumping, smuggling proscribed hazardous materials, and exploiting and trafficking protected natural resources.
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.
  • About half the 80 million metric tons of waste produced annually in Italy disappears and is presumed to be illegally dumped, according to Italian press sources. In 1997, Italian law enforcement authorities investigating the role of Italian organized crime in the illegal export and dumping of hazardous wastes claimed that criminal groups control most of Italy's waste disposal contracts.
  • Italian authorities claimed in 1997 that 11 million metric tons of toxic and industrial waste are deposited annually in some 2,000 illegal domestic dump sites in local waterways or in the Mediterranean.
  • In 1997, there were at least 53 Italian crime groups trafficking and disposing of hazardous waste, which was shipped to dumpsites in Albania, Eastern Europe, and the African west coast, according to European law enforcement officials cited in the press.
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.
  • European authorities are investigating illegal dumping of radioactive wastes from Austria, France, and Germany--all of which have good, but costly, disposal options--and Eastern Europe into the Mediterranean and Adriatic Seas by companies purportedly hired by Italian organized crime groups. In 1998, an 'Ndrangheta Italian organized crime family was being investigated by Italian authorities for dumping radioactive waste off Italy's southern coast, according to press reports.
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 size of the global black market for ozone-depleting substances is estimated by the UN to range from 20,000 to 30,000 metric tons annually, with more than half entering the United States. Illegal imports of these substances are far cheaper than CFCs that are legally recycled or obtained from limited existing stocks.
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.
  • Russian crime syndicates are believed to earn as much as $4 billion annually from the illegal export of some 2 million metric tons of seafood, according to press reports citing Russian law enforcement estimates. The poaching of sturgeon from the northern Caspian Sea and the sale of crab and other seafood to Japan make up much of the trade. Japan, in 1997, imported more than $1 billion worth of fish from Russia--six times the volume that Moscow says it exported, according to trade data.
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.

Sanctions Violations

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.
  • In the 1990s, trade and other sanctions on Serbia and Montenegro in the former Yugoslavia, Iraq, Libya, and Haiti were imposed by Western countries or the United Nations. In addition to these sanctions, the United States has maintained financial sanctions, as well as extensive trade embargoes, on Cuba, North Korea, Iran, and several other countries.
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.

Illicit Technology Transfers and Smuggling of Materials for Weapons of Mass Destruction

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.

  • To date, there have been a total of 14 confirmed seizures totaling 15.3 kilograms of weapons-usable uranium at various enrichments and 368.8 grams of plutonium--far less than what is necessary for a nuclear weapon.

Arms Trafficking

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.
  • The US Government estimates that military equipment worth several hundred million dollars is sold annually on the illegal arms market to countries under UN arms embargoes. Insurgents, terrorists, and organized criminal groups acquire smaller quantities of small arms and other light infantry weapons on the illegal arms market.
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.
  • In some cases, however, large illegal arms shipments arranged by gray arms brokers will be smuggled as contraband. Illicit arms sold or transferred to combatants in Afghanistan and the former republics of Yugoslavia were often provided by foreign suppliers donating and transporting tens of millions of dollars worth of weapons disguised as "humanitarian aid."
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.
  • In the midst of conflicts in the former Yugoslavia, Italian and Russian criminal organizations have been buying and selling military-style arms on the black market, and criminal groups operating in the region are increasingly well armed.
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.

Trafficking in Precious Gems

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.
  • Nearly three-quarters of the world's rough diamonds--valued at about $5.2 billion on the open market--are mined in Africa, according to 1998 industry estimates. Of the total 1998 diamond production in Africa, 13 percent was mined informally, mostly by insurgent groups.
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.
  • Russian crime groups illegally extract and sell 300 metric tons of amber worth an estimated $1 billion each year, according to 1998 press reports.
  • Criminal syndicates operating in South Africa stole 20 metric tons of gold and diamonds valued at $350 million in 1996, according to press reports citing South African police.
  • In Southeast Asia, smuggling of precious gems was a major source of revenue for the Khmer Rouge insurgency in Cambodia and remains a secondary source of income for drug-trafficking insurgent armies based in Burma.
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.
  • According to an industry estimate, the value of rough-cut diamonds trafficked by UNITA rebels in 1998 was about $300 million, as compared to earnings of about $230 million for producing mines in areas controlled by the Angolan Government. Since the government offensive in late 1999, however, the loss of diamond mines and international sanctions have curtailed UNITA's diamond production in 1999-2000 to about $100 million.
  • The same industry source indicates that rough-cut diamonds from source-areas partly controlled by insurgent groups in DROC were valued at about $338 million in 1998.
  • Most of the diamond trade in Sierra Leone, earning about $45 million annually, is controlled by the RUF insurgents.
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.
  • According to data made available by the US Coast Guard, direct financial losses incurred as a result of high-seas piracy are estimated at about $450 million per year.
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.
  • In 1999, there were 285 attacks on ships at sea, at anchor, or in port, according to the International Maritime Bureau's Piracy Reporting Center. Piracy attacks increased by 25 percent from 1998 to 1999, with 408 crewmembers taken hostage in ship boardings.
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.
  • Of the total piracy incidents reported for 1999, eight ships were hijacked, mostly in the waters off Southeast Asia and Somalia.
  • Pirate groups generally appear to operate independently, but some may be linked to more traditional organized crime groups.
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

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.
  • High profits and lighter penalties in contraband smuggling have attracted criminal organizations from Asia, the former Soviet Union, the Middle East, and Central and South America.
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.
  • Russia, China, and countries of the former Yugoslavia are among those with the highest tariffs on luxury imports, making them prime markets for contraband smuggling.
  • Colombian drug traffickers often use illicit drug proceeds to purchase cigarettes that they smuggle into Colombia for black-market sales, avoiding high tariffs and taxes on legal tobacco imports, according to the US Bureau of Alcohol, Tobacco, and Firearms.
  • Cigarette smuggling into European Union countries cost them $3.7 billion in 1999, according to an EU study. The Scandinavian countries have also suffered major revenue losses because of trafficking and black-market sales of tobacco and alcohol by crime groups, primarily from the former Soviet Bloc and former Yugoslavia, that circumvent their import, excise, and value-added taxes.
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.
  • US Customs data indicate more than 1.3 million people, 341,000 vehicles, and more than 45,000 trucks and containers enter the United States daily. The Customs Service is able to physically examine only about 3 percent of all goods crossing US borders each day. Five years from now, US Customs will be able to inspect only 1 percent of all goods entering the United States if resource levels remain unchanged.
  • Contraband, such as firearms, alcohol, or cigarettes, is frequently concealed in shipping containers or packaging for seemingly legitimate goods.
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.
  • Brokers in Mexico can purchase freon, much of it legally imported from China, for less than $2 per kilogram and sell it in Los Angeles for 10 times as much, according to US Customs officials.
  • Industry estimates in 1998 indicated that smugglers of ozone-depleting substances earn as much as $600 million annually from sales to buyers in Europe and North America and deprive the US Government of some $150 million in excise tax revenues each year.
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.

  • Illegal trafficking in US-origin firearms has become a security issue of concern for many foreign governments. Foreign law enforcement agencies continue to uncover US-manufactured firearms owned by narcotics traffickers, insurgents, terrorists, and organized crime groups. Several foreign governments are pressing the US Government to stem the international flow of weapons from the United States. The US Customs Service seized nearly $4.6 million in arms and ammunition at US ports-of-entry and exit in 1999.
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.
  • In 1997 the FBI Uniform Crime Report estimated that 1.4-1.6 million automobiles are stolen annually in the United States, of which 200,000 valued at approximately $20,000 each are illegally transported out of the country--making the overseas black market for stolen US vehicles worth about $4 billion. Fewer than 1 percent of US stolen vehicles smuggled overseas are repatriated.
  • European law enforcement agencies report that 300,000 vehicles worth some $5 billion are acquired by car theft rings annually in the European Union countries.
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.
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.
  • International car theft rings run by Russian, Asian, and other crime groups appear to be increasingly organized and professional in their operations, according to US Customs reporting. Their operations include altering vehicle identification numbers so the stolen vehicles cannot be traced. Many countries in which these vehicles are sold lack the technical expertise to detect such tampering.
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.

Intellectual Property Rights (IPR) Violations

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.
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.
  • Globally, one in every three compact discs (CDs) sold is a counterfeit copy, according to an estimate published in 1998. Data provided by the International Federation of the Phonographic Industry indicate that, in 1999, worldwide sales of pirated sound recordings totaled more than $4 billion.
  • The situation is as bad for computer software. According to current estimates by the Business Software Alliance, stolen software costs the industry $12 billion globally and topped $59 billion during the last five years. The average global piracy rate for software is 38 percent of total sales, with a US rate of about 25 percent. In 1997, Global Software Piracy Report estimated that 225 of the 523 new business software applications sold worldwide in 1996 were pirated copies.
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.
  • The Pharmaceutical Research and Manufacturers Association estimates that the pharmaceutical industry loses more than $2 billion annually due to counterfeit medications sold on the open market. US nongeneric pharmaceutical sales totaled $110.8 billion worldwide in 1997; estimated sales for 1998 were $124.6 billion.
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.
  • The World Health Organization estimated in 1997 that at least 7 percent of the medicines sold worldwide are counterfeit products. US authorities have confiscated misbranded and counterfeit pharmaceuticals, including birth control pills and AIDS, heart, diabetes, cancer, and diet medications.
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.

  • East and Southeast Asia are primary regions of IPR violations that cause significant losses to US businesses. China and Hong Kong harbor major duplicators of Western toys and clothing, while firms in Malaysia, Singapore, and Taiwan copy US audio, video, and software products. According to the US Customs Service, 56 percent of US IPR seizures (mostly music CDs, computer software packages, and movies) in the first half of 1999 were from China and Taiwan.
  • In Eastern Europe, Ukraine has emerged as the leading producer of illegal optical disc pirated products, exporting pirated CDs for distribution throughout the world. Most of the NIS in the former Soviet Union are improving IPR laws for their admission to the World Trade Organization, but implementation and enforcement are uncertain.
  • Israel's substantive laws remain deficient under the 1995 TRIPS Agreement, and it remains a key distribution hub in a regional network for pirated optical media products that extends into Russia and Eastern Europe.
  • Latin America is the third-largest market for illegal duplication of CDs, videos, and cassettes, according to the International Intellectual Property Alliance. Illegal production of these products is centered in Brazil and Argentina, whose governments have toughened their IPR laws but nonetheless are resisting further IPR improvements. Paraguay continues to be a regional center for pirated goods, especially optical media, and serves as a transshipment point for large volumes of IPR-infringing products from Asia to the larger markets bordering Paraguay, particularly Brazil.
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.
  • In New York City, ethnic Chinese crime syndicates are increasingly counterfeiting consumer products as a source of tax-free income. The Vietnamese gang "Born to Kill" reportedly relies on the sale of counterfeit Rolex and Cartier watches to fund gang activities. The group's founder has claimed earnings exceeding $35 million from counterfeit product sales.
  • In 1995, law enforcement officials in Los Angeles discovered several Chinese criminal groups-- including the Wah Ching, the Big Circle Boys, and the Four Seas triad--engaged in counterfeiting floppy discs and CD-ROMs. Asset seizures totaled more than $17 million in illicit products and manufacturing equipment, plastic explosives, TNT, and firearms.
  • Past press reporting indicated that the Provisional Irish Republican Army funded some of its terrorist activities through the sale of counterfeit perfumes, veterinary products, home videos, computer software, and pharmaceuticals.

Foreign Economic Espionage

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.
  • Foreign companies and governments routinely take advantage of technological advances in global communications, such as the Internet and digital communications, that have increased opportunities for industrial theft and the ease of information transfers.
  • The potential losses to all US industry resulting from economic espionage were estimated to be about $300 billion, according to a 2000 estimate by the American Society for Industrial Security, which conducts a comprehensive survey of industrial theft. This figure is three times what it was a few years ago.
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

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 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions does not directly address the once-common practice of permitting businesses to deduct bribes paid to foreign officials from their income taxes, but the OECD has recommended that all member states act to eliminate the tax deductibility of bribes. Most member countries have begun to implement such a change.
  • Effective enforcement of laws against foreign commercial bribery will remain a longer term goal. To date, no country other than the United States is known to have prosecuted anyone for violation of a law passed to implement the OECD convention.
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.
  • About one-third of US counterfeit currency distributed in the United States in the past three years originated in Colombia, according to US Secret Service data. Lax counterfeiting laws and established drug-trafficking networks in Colombia are key factors that facilitate the production and distribution of counterfeit US dollars.
GraphicUS 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.
  • Continued improvements in counterfeiting technology would enhance the quality and increase the quantity of counterfeit US currency in circulation, making it more difficult for law enforcement and financial institutions to identify false currency.
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.

  • Some Italian and Russian crime groups may be involved in printing counterfeit US dollars, possibly to purchase narcotics, military weapons, and other contraband.
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.

Financial Fraud

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.

  • Advance fee frauds committed largely by Nigerian criminal syndicates are among the most lucrative financial crimes targeting individuals and businesses worldwide. Criminals purporting to be officials of their government, banking system, or oil companies mail or fax letters to individuals and businesses in the United States that entice victims with the opportunity to take part in million-dollar windfalls, provided up-front fees are paid for necessary expenses such as bribes, taxes, and legal fees. In 1999, US victims reported losses of several hundred million dollars to advance fee frauds, according to US law enforcement. The Secret Service has reported receiving approximately 100 calls and 300 to 500 pieces of correspondence per day from potential victims.
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.
  • Within a one-month period, EUB's advertisement was accessed 7 million times, which led to 10,000 e-mail messages from potential clients and almost 150 activated accounts for the bank, according to press reporting. The EUB Web site was so successful, it was the recipient of a 1997 "Top Business Site" award by ComFind, an Internet business directory.
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.

  • In 1996, the Association of Certified Fraud Examiners estimated financial losses from fraud perpetrated by domestic and international criminals in the United States at more than $200 billion per year.
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.
  • According to current industry estimates, fraudulent credit cards cost the US banking industry at least $2 billion annually; losses worldwide are estimated to be an additional $1 billion each year.
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.
  • A crackdown on counterfeit credit card manufacturing in southern China resulted in the seizure of thousands of fraudulent cards, uncut blank credit cards, magnetic strips, issuer holograms, encoders, laptop computers, and extensive manufacturing equipment. Law enforcement investigations revealed that the scheme stretched to Hong Kong, Macau, Taiwan, Bangkok, Canada, Honolulu, and Buffalo.
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.
  • Nigerian and Russian criminal groups have been implicated in these kinds of financial fraud crimes. Russian crime groups in the United States also orchestrate computer, telecommunications, and consumer goods contract fraud.

High-Tech Crime

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.
  • Illegal penetration of computer systems provides criminals the ability to access and manipulate personal, financial, commercial, and government data. The introduction of computer viruses can compromise data system integrity. Hostile hackers-- whether individuals, industrial spies, foreign governments, terrorist or criminal organizations--could potentially disrupt critical public-sector assets.
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.
  • Attacks on computer and information systems of US corporations, financial institutions, universities, and government agencies through unauthorized access by employees and external system penetration ranged from denial of service and sabotage to financial fraud and theft of proprietary information, according to surveys jointly conducted by the FBI and Computer Security Institute.
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.
  • According to the joint 2000 FBI-Computer Security Institute survey of security practitioners in US corporations, financial institutions, universities, and government agencies, 273 of the respondents cited financial losses of $265.5 million from computer crime--almost double the reported losses of $136.8 million in 1998.
  • The number of US businesses reporting computer intrusions through Internet connections rose from 37 percent in 1996 to 70 percent in 1998, according to the joint survey.
  • A significant percentage of the information needed to carry out essential government functions is processed at some point by information systems in the nonfederal sector of the national information infrastructure.
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.
  • Criminal groups may also exploit businesses and government agencies using programmers, many of whom are lesser paid foreigners, to make software fixes or write new programs to gain access to computer systems and the information they contain. Press reports indicate that a Russian-speaking crime group in the United States recruited unemployed programmers in Russia to hack into other syndicates' computer systems, embezzle funds, and create programs to protect its funds in US banks.
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.
  • US Customs investigations show that many Internet sellers of contraband materials openly advertise that they have been in operation for many years without being caught by law enforcement. In December 1999, there were about 100 ongoing US Customs investigations involving the sale of counterfeit goods over the Internet.
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.
  • According to a joint FBI-Computer Security Institute survey in 1998, 241 US business respondents reported $11.2 million in losses caused by computer financial frauds. Telecommunications fraud from computer attacks cost these companies an additional $17.2 million in losses.
  • In March 1999, hackers pleaded guilty to breaking into US phone companies for calling card numbers that eventually made their way to organized crime syndicates in Italy. US law enforcement information indicates that this high-tech theft cost the US phone companies an estimated $2 million.
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.
  • In October 2000, according to press reports, Italian authorities dismantled a Sicilian Mafia-led crime group that was planning to steal as much as $900 million in European Union aid earmarked for Sicily. Employing corrupt officials from the targeted bank and a telecommunications firm, the crime syndicate broke into the bank's computer network, created a virtual banking site linked to the interbank payments network, and was able to divert $115 million of the EU aid to Mafia-controlled bank accounts in Italy and abroad before they were discovered.
  • In China, a computer hacker was convicted in November 1999 of breaking into the Shanghai Securities Exchange, where he changed transaction records that cost two Chinese companies more than $300,000, according to Chinese press reports.
  • In South Africa in November 1999, an unidentified crime syndicate stole hundreds of thousands of dollars from local banks by using the Internet and bank-by-telephone services to hack into financial institutions, according to press reports.
  • In 1994, individuals in St. Petersburg, Russia-- aided by insider access--attempted to steal more than $10 million from a US bank by making approximately 40 wire transfers to accounts around the world. Members of the gang have since been arrested in several countries, and most of the stolen funds have been recovered.

Money Laundering

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)
  • According to one recent estimate, worldwide money-laundering activity is roughly $1 trillion per year, with $300-500 billion of that representing laundering related to drug trafficking. A former Managing Director of the International Monetary Fund (IMF) has estimated worldwide money laundering at 2 to 5 percent of the world's gross domestic product--some $800 billion at the low end of the range and perhaps as high as $2 trillion.
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 Latin America, money-laundering investigations are hamstrung by bank secrecy laws, lack of trained personnel, inadequate legislation, or corruption. Weak enforcement of existing legislation in some countries does little to discourage illicit financial activities. In addition, many countries have only drug-related money-laundering laws, which limit the government's ability to prosecute the laundering of proceeds from other crimes.
  • In Russia and the NIS, which are transitioning to free market economies and developing their financial sectors, organized crime groups have capitalized on industry privatization programs to gain a foothold in the legitimate economy. Weak banking regulations, lax law enforcement, and a general lack of money-laundering controls provide a favorable environment for illicit financial activity.
  • Offshore banking centers--such as Liechtenstein, The Bahamas, Nauru, and Lebanon--typically offer bank and corporate secrecy, low tax rates, ease of corporate formation, and low incorporation fees. These provisions can provide incentives for criminals to conduct illicit financial activities in these countries. Moreover, smaller, emerging offshore havens, typically in the South Pacific, lack money-laundering legislation and are less regulated than some established offshore financial centers.
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 multinational Financial Action Task Force (FATF), established at the G-7 summit in 1989 to examine measures to combat money laundering, has noted the significant role that alternative remittance systems are playing to facilitate money laundering worldwide.
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.
  • The Colombian black-market peso exchange is a primary money-laundering system used by Colombian drug traffickers, according to the US Treasury Department. This laundering system works by traffickers selling their US-dollar drug proceeds at a discount to brokers who credit them with an equivalent amount of pesos in Colombian banks. The dollars in the United States are then sold to Colombian businessmen at an exchange rate better than the official Colombian rate, who then use these funds to finance the purchase and export of dollar-denominated goods from the United States. In this way, the dollars that began as drug proceeds are laundered through a process that effectively circumvents both US and Colombian currency reporting requirements: Colombian drug profits in the United States, in effect, are repatriated in the form of trade goods. US law enforcement estimates that the black-market peso exchange may be responsible for laundering up to $5 billion in drug proceeds annually.
  • Colombian, Mexican, and Dominican drug cartels are suspected of using certain money remitters to launder drug proceeds. These businesses arrange payments to recipients in exchange for a commission, usually up to 10 percent of the transaction value. In the United States, money remitters are now required to report suspicious activity, file currency transactions reports for transfers exceeding $10,000, and register with the federal government. They will soon be required to conduct enhanced recordkeeping and reporting for certain high-risk transactions.
  • Casinos and other forms of gaming establishments are popular for money laundering because of the large, daily volumes of cash transactions that help hide money-laundering activity. Furthermore, launderers can take advantage of the increasingly sophisticated financial services offered by gaming establishments. Organized crime groups and narcotics traffickers are opening new casinos and other gaming establishments or acquiring existing ones. In the United States, reporting of suspicious activity by casinos will soon be mandatory.
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.
  • Widespread money laundering and fraudulent pyramid investment schemes orchestrated by Italian and Albanian criminal groups in the mid-1990s led to significant political instability in Albania, the effects of which are still being felt.
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.
  • Since 1994, 53 countries have implemented legislation or regulations requiring banks to maintain records of large currency transactions. During the same time period, the number of countries requiring banks to maintain uniform financial records grew from 25 to 82.
  • In addition, more countries are beginning to establish controls over nonbank financial institutions. Currently, 47 countries require these institutions to meet the same customer identification standards and reporting requirements required of domestic banks.
  • In June 2000, the FATF publicly named 15 jurisdictions--The Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis, and St. Vincent and the Grenadines--as being noncooperative and deficient in their anti-money-laundering regulatory systems and practices. In July 2000, the US Government issued advisories to US financial institutions noting that the anti-money-laundering regimes in these jurisdictions were deficient. Other members of the G-7 issued similar financial advisories.


(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.


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