International Crime Threat Assessment
Chapter III
Worldwide Areas of International Criminal Activity
The end of the Cold War and globalization of business and travel have given international criminals unprecedented freedom of movement, making it easier for them to cross borders and to expand the range and scope of their operations. As a result, virtually every region or country in the world has seen an increase in international criminal activity--as either a source or transit zone for illegal contraband or products, a venue for money laundering or illicit financial transactions, or a base of operations for criminal organizations with global networks. Many regions or countries serve all three purposes for international criminal operations. Besides making the law enforcement and security challenges for the United States more complex, the global spread of international crime threatens vital US interests at home and abroad.This chapter addresses the world's major regions and countries of international criminal activity that threaten Americans, US business and economic interests, and US security interests. Each regional or country overview focuses on three key issues:
- The dynamic forces--especially relating to political and economic change or a greater role in the global economy--in different regions or countries that are helping to drive international criminal activity there and how crime groups are taking advantage of them.
- The impact of criminal activity and crime-related corruption on political and economic stability.
- The characteristics, criminal activities, and scope of operations of major organized crime threats originating in the different regions and countries.
Western Europe
Like the United States, the West European countries are both a lucrative target and an attractive operating environment for international criminals because of their relative wealth and modern financial, telecommunications, and transportation infrastructure. The well-to-do West European population rivals the United States as the most desirable market for drugs, as well as other contraband, and an arena for financial fraud schemes victimizing individuals, businesses, and government entitlement programs. The speed and efficiency of modern commercial and banking services available in West European cities make them particularly vulnerable to illicit financial transactions-- including money laundering and arranging financing for illegal activities. The single-market reforms of the European Union (EU) under the Schengen Agreement that permit unfettered movement of goods, services, labor, and capital throughout most of Western Europe; sophisticated infrastructure for facilitating international trade; and tremendous volume of people and goods passing through commercial airports and seaports are exploited by international criminals to move drugs, arms, illegal aliens, and other contraband throughout Western Europe and to use EU gateways to reach every other region in the world.Western Europe has long been popular for money laundering and illicit financial transactions because of its advanced economies and financial systems. Terrorist groups and states of concern use West European commercial and financial centers in efforts to evade international embargoes or to acquire proscribed technologies and materials for weapons of mass destruction. Most West European governments have changed, or are changing, their domestic laws to conform to FATF anti-money-laundering standards. Despite these recent legal changes and improved enforcement mechanisms, however, Western Europe remains a primary locale for money laundering by criminal organizations operating both inside and outside the EU because it offers numerous alternative channels through which to place and legitimize illicit proceeds.
EU members are facing an increasing threat from international drug traffickers and from illegal migrants, many of whom wind up employed by ethnic-based crime groups to make their livelihood. The size and profitability of the West European drug market are close to rivaling that of the United States. Turkish and Albanian criminal groups dominate wholesale distribution of Southwest Asian heroin in most of the EU countries, according to European law enforcement information. South American drug traffickers--working closely with Italian organized crime--have been developing a growing cocaine market since the early 1980s.
- The Netherlands' deepwater ports at Amsterdam and Rotterdam and Spain's extensive rocky coastline are primary entry points for drugs--particularly South American cocaine--entering Western Europe, according to analysis of seizure data and law enforcement information. According to Interpol, cocaine seizures in Europe have more than tripled in the last decade from 14.3 metric tons in 1990 to about 44 metric tons in 1999.
Organized crime has flourished most in the poorer Mediterranean region of the continent. Relatively stagnant economic conditions and high unemployment in this region, compared to northern Europe, have helped to drive organized criminal activity. Organized criminal activity has thrived particularly in southern Italy and the Balkans, and along the traditional cross-Mediterranean and cross-Adriatic smuggling routes on historical trade arteries between Europe, North Africa, the Middle East, and Asia. Moreover, traditional cultural and societal emphases on familial ties have promoted group cohesiveness within criminal organizations. In southern Europe, particularly Italy, organized crime groups have expanded their influence through political involvement.
Playing on these historical factors, organized crime remains deeply entrenched in Italy despite the implementation of new antimafia laws and the arrests of several high-ranking crime bosses since 1990. Italian organized crime groups continue to have a significant impact on the economy. Through the companies they control, Italian organized crime groups have secured public works contracts worth billions of dollars. They have profited from cost overruns and kickbacks in fulfilling these contracts.
- According to Italian trade association estimates, Italian criminal organizations in 1997 earned more than $74 billion from illicit activities as well as involvement in legitimate economic sectors, as compared to $69 billion in 1993. The Italian trade association estimates that Italian organized crime groups have combined assets totaling $200-225 billion.
Cocaine Seizures in Europe, 1990-99
Indigenous criminal organizations are less entrenched elsewhere in Western Europe, but foreign ethnic-based crime groups have established footholds in expatriate enclaves in most EU countries. Cultural and linguistic ties between the Iberian Peninsula and Latin America are exploited by South American drug traffickers who stimulate the demand for cocaine in Western Europe's more profitable market. Liberal immigration or refugee policies have led to large migrant populations in many West European urban areas where criminal cells with ties to Turkey, Iran, the Balkan countries, North Africa, and other regions have taken root. These criminal groups are largely involved in contraband smuggling, including drugs and arms. Some--Turkish and ethnic Albanian crime groups, for example--rely on legal and illegal immigrant communities that maintain drug distribution networks in Western Europe.
- Although Turkish criminal groups remain the primary source of supply, ethnic Albanian crime groups appear to have largely replaced the Turks as the principal distributors of Southwest Asian heroin to parts of Western Europe, according to press reports. They are also challenging Italian criminal syndicates for control of other rackets in West European countries.
Public perceptions in many EU countries blame foreign ethnic organized crime groups for high crime rates as well as other societal ills. The sometimes volatile anti-immigrant sentiment and support for nationalist parties in several countries are attributed in part to the role of foreign criminal groups in drug trafficking, gunrunning, financial frauds, and alien smuggling. Although Europeans historically have tended to take a liberal view toward drug use, viewing drug addiction as a medical and social problem, EU governments have become increasingly concerned about abuse trends and have taken a more aggressive stand toward narcotics trafficking.
- Heroin remains in general the most serious drug problem facing Western Europe; it is the drug most often cited in drug-related crime, deaths, demand for treatment, and HIV infection. The cocaine problem in Europe has been growing for the last decade, and EU data since 1995 suggest that cocaine has overtaken heroin as the most frequently used hard drug in Spain and France. Meanwhile, according to annual EU reports, the use of synthetic drugs--particularly amphetamines and ecstasy--has increased markedly since 1992 in virtually all member countries, particularly among adolescents and mainstream young adults.
- The United Kingdom and Italy are particularly concerned about Nigerian criminal groups; Italy, Germany, and several Nordic countries are concerned about the growing crime role of ethnic Albanian groups; and Russian criminal groups have attracted attention throughout Western Europe. Switzerland jailed Russian crime boss Sergey Mikhaylov, leader of the powerful Solntsevo syndicate, but failed to convict, in part because of the Russian Government's lack of cooperation in the criminal investigation. France has expelled a top Russian crime figure.
in drug trafficking, financial frauds, and money laundering.
Recent scandals involving illicit financial transactions in Switzerland and Liechtenstein have focused attention on the criminal exploitation of West European banking centers. Switzerland--a former bank secrecy haven--has become significantly more active in combating money laundering in recent years, passing new money-laundering legislation in 1998 that set tighter standards for the banking sector and initiating a practice of alerting foreign governments to suspicious transactions in Switzerland. In Liechtenstein, press reports of money laundering by Russian organized crime groups have brought renewed attention to the need to reform its financial services sector. Since the early 1980s, there is evidence that major criminal organizations--including Latin American drug-trafficking groups, Italian organized crime, and Russian crime syndicates--have taken advantage of Liechtenstein's weak banking controls and strong tradition of banking secrecy to launder money and make other illicit financial transactions.
- As a result of its FATF listing as a noncooperative jurisdiction, Liechtenstein has taken several actions to try to remedy these defects.
Italian Organized Crime
Italy's largest criminal organizations--the Sicilian Mafia, Calabrian 'Ndrangheta, Neapolitan Camorra, and Puglian Sacra Corona Unita--were born and bred in rugged rural areas, where they engaged in local criminal rackets and were generally esteemed as protectors of local peasant interests. The defeat of Italian fascism in World War II allowed these groups to extend their influence into urban areas, which provided greater openings to the outside world. Many of Italy's banking, commercial, and port facilities fell under the influence or control of organized crime. In the last half century, Italian organized crime groups have become self-sustaining, multifaceted criminal organizations with considerable clout in Italy's political and economic systems. They have proven to be resilient and opportunistic, often emerging stronger from periodic government attempts to crack down on organized crime and taking advantage of new criminal opportunities.- Italian criminal organizations share the characteristic of incorporating close-knit crime families or clans. According to the FBI, the four major Italian organized crime groups comprise 540 crime families and more than 21,000 members. The Sicilian Mafia is the oldest, most powerful, and most hierarchical of Italy's crime groups.
- The January 1993 arrest of reputed Sicilian Mafia "boss of bosses" Salvatore Riina; the 1996 arrest of his heir--Giovani Brusca--who claimed responsibility for more than 100 murders, including setting off the bomb that killed Falcone; and a series of sweeping prosecutions and convictions in both Italy and the United States have weakened the power and influence of the Sicilian Mafia. The Camorra was hurt by the February 1993 arrest of one of its leaders, Rosetta Cutolo.
- In October 2000, Italian authorities captured Salvatore Genovese, one of the most wanted Sicilian Mafia leaders who had been a fugitive for seven years. Genovese is believed to have been the right-hand man of Sicilian Mafia boss Bernardo Provenzano, who is also a fugitive. Despite being on the run, Genovese, before his arrest, continued to control public works contracts.
International Connections
Italian organized crime groups have moved well beyond their home regions in southern Italy and are now firmly entrenched throughout Europe, in Central and South America, the Caribbean, Canada, and the United States. Expatriate Italian communities and established international criminal connections in these regions have given Italian organized crime groups the infrastructure and capability to move highly profitable contraband products--including drugs, arms, and cigarettes--and launder illicit proceeds on a global basis. They maintain legitimate business holdings worldwide that are often used as a cover for their criminal operations. Italian crime groups' longtime investments in real estate and entertainment enterprises--particularly gambling casinos--in Germany, France, Monaco, Spain's Costa del Sol, and the Caribbean are conduits for money laundering. Since the early 1990s, Italian criminal organizations have been reported buying properties and businesses in Eastern and Central Europe and many of the NIS of the former Soviet Union to launder money. According to media accounts, Sicilian Mafia front companies have been identified in virtually every East European country and in Russia.
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Italian Crime Groups
Although Italian criminal organizations continue to operate largely independently in their traditional contraband smuggling and extortion rackets, their extensive involvement in international drug trafficking, arms smuggling, and money laundering has caused them to develop cooperative longterm relationships with each other and with foreign criminal groups. The Sicilian Mafia, 'Ndrangheta, Camorra, and Sacra Corona Unita have shared well-established international smuggling routes and sometimes helped finance each other's trafficking operations, according to US law enforcement. Collaboration with criminal groups from Turkey, Asia, Russia, the Balkans, and Latin America has assured Italian organized crime reliable sources of supply for drugs and arms. Italian criminal syndicates have worked with Albanian crime groups in trafficking women and children from the Balkans and Nigeria and illegal migrants to Italy. They have also played a prominent role in money laundering for Colombian traffickers and other foreign criminal organizations.
Drug and Arms Trafficking
The role of Italian criminal organizations in the European drug market has diminished, but drug trafficking remains an important source of revenue for Italian crime syndicates. Italian criminal organizations have traditionally procured Southwest Asian heroin from Turkish traffickers and have more recently established heroin-trafficking links to Russian, ethnic Albanian, and Asian crime groups. Italian crime groups also collaborate with South American traffickers to acquire cocaine.
Since the collapse of the Soviet Bloc, local crime groups in the volatile Balkan states have become a major source of arms and explosives for Italian organized crime. The former Yugoslavia and Albania appear to be the primary arena for Italian criminal organizations to both acquire and sell illicit weapons. Press reports in 1998 and 1999 indicated that black-market prices for Yugoslav-origin infantry weapons ranged from 100 to 500 percent more than the commercial prices for those weapons, and profits on explosives are enormous.
- With its traditional base of operations along Italy's southern Adriatic coast, the Sacra Corona Unita is extensively involved in smuggling arms from the Balkans.
The illicit trafficking and disposal of hazardous wastes and trash is emerging as one of the most lucrative activities for Italian organized crime groups. The leading environmental group in Italy estimates that Italian syndicates earn $3.5-8.5 billion annually from the illegal dumping of hazardous wastes and from other environmental crimes, such as trafficking in endangered species. According to Italian press reports, front companies and legitimate waste-removal businesses controlled by Italian crime groups dominate both the legal and illicit waste disposal business throughout Italy and in parts of France and Switzerland.
- In 1999, Italian law enforcement officials reported more than 26,000 crimes against the environment and identified 138 criminal groups involved in such activity.
US Presence
Italian criminal organizations maintain an active presence in the United States and are involved in drug trafficking, arms smuggling, financial frauds, extortion, illegal gambling, counterfeiting, and money laundering. US law enforcement indicates that the Sicilian Mafia is the most active Italian organized crime group in the United States and maintains close contact with US La Cosa Nostra crime families in New York, Newark, Los Angeles, Chicago, Philadelphia, Detroit, Buffalo, and Tampa. 'Ndrangheta, Camora, and Sacra Corona groups also operate in the United States, particularly in Florida.
Italian organized crime groups continue to be involved in smuggling drugs into the United States, although they no longer are as significant as they had been in the 1960s and 1970s, when they were responsible for as much as 85 percent of the US heroin trade, according to DEA information. A series of investigations and prosecutions in Italy, Turkey, and the United States targeting Italian networks supplying heroin to the United States in the 1970s and 1980s substantially reduced the role of Italian organized crime in the US drug market. Italian crime groups make extensive use of specialty companies as fronts to move drugs and probably to launder drug money in both the United States and Canada.
Several Italian organized crime families continue to smuggle heroin into the United States using connections in Venezuela and Canada.
Eastern and Central Europe
In Eastern and Central Europe, the fall of Communist regimes and end of tight border controls have attracted foreign criminal organizations. International criminal activity in the region increased rapidly in the early 1990s as new democratic governments focused on more fundamental political, social, and economic problems. Russian, Italian, ethnic Albanian, Nigerian, and Chinese criminal organizations and Colombian drug-trafficking groups have all made inroads into this region since the breakdown of the old order. In addition to developing these countries as targets for criminal activity, international organized crime groups are exploiting their relatively weak law enforcement and loose border controls to circumvent traditional points of entry into Western Europe, where customs and law enforcement measures have become more stringent. Several of the region's countries are transit routes for Southwest Asian heroin, and Poland and Croatia may be emerging as transportation routes for South American cocaine destined for Western Europe and new markets in Eastern and Central Europe.- Italian and Russian criminal organizations, in particular, have been active in developing mutually beneficial relationships with local criminal groups in transitioning former Communist countries that help facilitate their drug and arms trafficking operations.
- Hungary's borders with seven countries and relatively well-developed transportation system make it a major transit zone for all kinds of contraband smuggling. Stricter border controls and concerted efforts against organized crime in recent years have helped alter drug-trafficking routes and shipping methods, but Hungarian officials caution that the amount of drugs moving through the country probably has not decreased.
- Poland and the Czech Republic are also crossroads for smuggling directed at West European markets and extensive traffic in stolen vehicles being moved from Western Europe to the East. EU officials considering Poland's admittance to the European Union fear that weak border controls on Poland's eastern border with Ukraine could provide a gateway for illegal immigrants and organized crime into northern Europe.
- Bulgaria and Romania remain key countries on the traditional Balkan route between Turkey and central and northern Europe. Criminal groups in the region take advantage of the heavy volume of commercial traffic along this route to conceal and smuggle contraband. The Balkan route--with Bulgaria as its gateway--has traditionally been the major avenue for smuggling Southwest Asian heroin to profitable West European markets. In the busiest months, some 1,000 vehicles--including trucks bonded and sealed under International Truck Route (TIR) procedures-- cross from Turkey into Bulgaria on their way to other European destinations.
- Bulgaria was the world's second-largest source-- after China--of pirated and counterfeit CDs in 1997, according to US Justice Department information. The government has cracked down on violators since early 1998 by introducing licensing procedures and raiding illicit CD-production operations. Because of its geographic location, Bulgaria is also a significant transit country for illegal CDs produced throughout the region, with pirated goods produced in Greece, Moldova, and Ukraine moving easily across its borders.
- Some 75,000 of the women and children caught in trafficking rings in 1997, more than 10 percent of the worldwide total, were from Eastern Europe, according to US Government estimates.
- The multilateral Financial Action Task Force has estimated that money laundering in Poland alone has grown from $2 billion to $8 billion per year during the 1990s.
The impact of criminal activity within their borders has focused the concerns of government and law enforcement officials in Eastern and Central Europe. As they have transitioned from a socialist system to market-oriented economies, the formerly Communist Eastern and Central European countries have had to confront crimes that were previously nonexistent. The previous regimes had no laws or regulations for dealing with crimes such as money laundering, stock market fraud, and theft of intellectual property rights.
- Criminal activities, often abetted by corrupt officials, have undermined the economy in many of the region's countries. For example, unsecured insider lending and laundering of the proceeds through financial outflows contributed to the collapse of Bulgaria's banking sector in 1996. The Romanian Government recently estimated that at least 40 percent of the country's finances flow from the "gray" economy. Corruption in Slovakia, particularly relating to privatization, has slowed economic growth. Polish officials estimated $60 million in revenue was lost from pirated music CDs in 1997. IPR legislation enacted by Poland in 2000 has the potential to reduce this problem.
Bulgaria's government, elected in 1997, also made combating organized crime and corruption a policy priority, including cracking down on product piracy. In December 1999, the prime minister sacked two-thirds of his cabinet, in part in response to allegations of corruption, according to local media. In August 2000, Bulgaria ordered the expulsion of eight international crime figures, according to media accounts.
The interest of most of the region's countries in becoming members of the European Union has encouraged them to consider regulations and legislation to deal more effectively with a broad range of criminal activities, including cross-border smuggling and money laundering. Government and law enforcement officials from these countries have been meeting with their West European and US counterparts to set up training and assistance programs for combating international criminal activity within their borders.
Russia, the Baltics, and the Newly Independent States
A major side effect of the end of the Cold War is that Russia and the NIS that were part of the former Soviet Union have become fertile ground for organized crime to expand its illicit activities. The end of police states, the relaxation of social controls, and the opening of borders in these formerly "closed" societies have allowed both local and foreign criminal organizations unprecedented freedom to operate. Criminal networks comprised of traditional organized crime groups, highly skilled professionals, and corrupt officials and politicians have moved quickly to fill vacuums created in climates of radical political, economic, and social change.- The intertwining of organized crime and official corruption in Russia is undermining development of democratic and free market institutions.
The greater integration of Russia and the other states of the former Soviet Union with much of the rest of the world since the end of the Cold War has opened new avenues for international criminal activity. Russian crime groups are using the region's fledgling free market and banking sectors to move large amounts of capital across borders, to launder money, and to transact a variety of financial frauds. The removal of Moscow's formerly tight control over travel between different regions of the former Soviet Union and open borders with Europe in particular has greatly facilitated the smuggling of drugs, arms, illegal immigrants--including trafficking of women and children--stolen vehicles, alcohol, cigarettes, and other illicit contraband.
- The former Soviet Union has become a significant market and international transit route for hashish, opium, and heroin from Southwest Asia, particularly Afghanistan. With several Central Asian countries bordering on Afghanistan, good east-west rail connections from Central Asia to Ukraine and western Russia, and lax enforcement, the former Soviet Union has become very attractive to international traffickers as an alternative to the traditional "Balkan Route" through Turkey and the former Yugoslavia for moving drugs and other contraband to Western Europe.
- Russia passed a criminal code in 1996, but implementation and enforcement have been weak. With a draft criminal procedure code having languished in the Duma for several years, the Russians are relying on a heavily amended criminal procedure code from the Soviet era. Inconsistencies between the new criminal code and the criminal procedure code now in use impede the effective prosecution of crimes.
- Russia has drafted anti-money-laundering legislation that generally meets international standards, but has yet to submit it to the Duma for ratification.
- None of the countries in the former Soviet Union have legislation that would enable law enforcement to arrest those who conspire in criminal activity, not just those who actually commit the crime.
- While most of the NIS in the former Soviet Union are improving IPR laws for their admission to the World Trade Organization, none consistently enforce them, and few impose criminal penalties. IPR reform in the Eurasia region faces opposition by organized crime groups trafficking in counterfeit and pirated products.
Russia
Political ContextEconomic and political instability following the dissolution of the Soviet Union in 1991 allowed organized crime to consolidate its position in Russian society. The government's continued ownership of major enterprises and role in regulating the economy created enormous opportunities for bribery and corruption of government officials in economic ministries and throughout government bureaucracies. Besides profiting from insider influence in privatization offerings and a broad range of economic-related criminal activities, Russian organized crime on occasion has been able to influence the legislative agenda.
Russian criminals continue to buy political influence to protect their assets, to facilitate criminal activities, and to avoid prosecution. Some crime groups invested in the political process by participating--directly and indirectly--in election campaigns, including funding parties and candidates. Corruption in Russia's security and law enforcement institutions is an additional impediment to dealing effectively with the power of Russian crime groups.
Economic Penetrations
Crime and corruption have had a significant impact on the Russian economy. Russian organized crime groups have cashed in on privatization of formerly state-owned industries. Most significantly, Russian criminals have made substantial inroads into lucrative strategic sectors of the economy. Russian criminal experts say that organized crime is present in practically all of Russia's regions.
Russian organized crime is invested in Russia's developing financial sector. To some extent, Russian criminal groups have penetrated the banking sector by periodically providing cash infusions to financially troubled banks, using extortion or intimidation, and purchasing existing banks outright or establishing new ones, according to media accounts. They use their control or influence over banking institutions to launder illicit proceeds, to obtain financial information about competitors or potential extortion targets, and to withhold financial information from government regulators. By early 1998, Russian criminal groups had penetrated more than 550 banks, according to one Russian Government estimate.
Some of the business enterprises associated with criminal organizations in Russia are large transnational corporations engaged in import/export trade and commodities brokering whose networks and assets deprive the Russian Government of substantial legitimate revenues. Like many legitimate enterprises, businesses associated with crime --groups appear to be well-connected to political elites in Russia and other NIS and use their political ties, as well as bribery, to win concessionary contracts or to protect criminal transactions.
The hard-currency-earning oil and gas trading sector of the Russian economy is one of the most lucrative havens for organized crime. The international scope and relative profitability of Russia's oil and gas industry are attractive for conducting money laundering and other illicit financial activity. Criminal groups are involved primarily in oil and gas distribution, embezzlement, extortion, oil theft, and money laundering. Russian crime groups gained considerable clout in fuel and energy industries by supplying short-term business loans to oil companies and providing access to corrupted government officials who can lobby for favorable legislation, or influence business deals.
Russia's aluminum industry has been a target of criminal groups because of its multibillion-dollar revenues. In addition, the fact that the aluminum industry is highly concentrated--four plants produce more than 75 percent of Russia's total output--allows criminal groups to infiltrate this industrial sector with relative ease.
Russian organized crime has also been extensively involved in smuggling gems and precious metals out of the country. According to Russian Government estimates, $100-300 million worth of diamonds are smuggled out of Russia each year. In 1998 and 1999, Russian law enforcement removed from illegal circulation about 1 metric ton of gold, more than 1 metric ton of silver, and 28,000 carats of uncut diamonds, cut gems, emeralds, rubies, sapphires, and pearls.
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Russia: Criminal Penetrations of Key Economic Sectors
Impact on Russia's Financial System
Although not directly responsible for Russia's fiscal, banking, and investment problems, Russian organized crime groups have contributed to their severity by exacerbating systemic problems. Capital flight, estimated by the Russian Government to be about $1 billion a month, almost certainly includes some laundering of money from organized criminal activity. Russian crime groups reinvest little of their profits from even ostensibly legitimate business activity--such as hotels, restaurants, and casinos--domestically, instead frequently transferring their proceeds to more secure West European and offshore financial centers. Failure to repatriate export earnings and fictitious import deals reportedly are the most common methods used by Russian criminals to move capital abroad.
- A researcher at the UK-based Organized Russian and Eurasian Crime Research Center conservatively has estimated that organized crime money accounts for about 25 percent of total capital flight from Russia. Using the recent estimate of $1 billion-per-month capital flight from Russia, this would mean that Russian crime groups are sending about $3 billion annually overseas to launder or hide.
- According to a 1997 study by then-President Yeltsin's staff, 70 to 80 percent of private businesses paid extortion fees to organized crime amounting to 10 to 20 percent of their revenue, making them unlikely to meet their full tax obligations.
US and other foreign businesses interested in investment and joint-venture opportunities not only cannot compete on a level playing field due to the poor investment climate, but must also cope with criminal extortion and racketeering to do business in Russia. In the absence of effective legal protections, Russian businesses often rely on criminal groups and pay significant fees for protection, debt collection, capital, and information gathering. Representing their business "clients," criminal groups often play a role in negotiating contracts or resolving business disputes, which often end violently.
- Western businessmen are not immune from criminal strong-arm tactics. In November, 1996 US businessman Paul Tatum, part owner of a major hotel in Moscow who was involved in a financial dispute with his Russian business partners, was killed in a "contract style" shooting. Although no one has ever been brought to justice for the crime, Russian investigators suspect organized crime was involved.
Besides its significant impact on the economy, criminal activity has taken a substantial toll on Russian society. Rising crime rates are overwhelming judicial systems in Russia, which are woefully underfunded and vulnerable to bribes from criminals, according to Russian press accounts. Criminal violence remains rampant, with crime groups targeting rivals, uncooperative businessmen and bankers, and anticrime media, enforcement, or political crusaders for assassination. Many Russian citizens have been victimized in robberies and elaborate schemes defrauding them of property and savings, some of which end in murder.
Over the past five years, Russia's domestic market for illegal drugs has grown substantially as the flow-through of hashish, heroin, and other opiates from Southwest Asia, through Central Asia and Russia, to Western Europe--fed by the surge in Afghan opium production--increased with the end of Soviet travel controls and the opening of borders with Europe. Official Russian data show dramatic increases in drug addiction and crime rates since the collapse of the Soviet Union. In 1999, according to Russian data, there were 350,000 officially registered drug users in Russia, of which 175,000 were considered drug addicts. The Russian Ministry of Interior (MVD) and Health Ministry, however, estimate that the actual totals are 10 times greater--more than 3 million users and almost 2 million addicts; 3 million users would be about 2 percent of the Russian population. Russian and international health officials estimate that intravenous drug users are responsible for 80 to 90 percent of the 36,000 officially registered HIV cases; because of the lack of comprehensive HIV testing and reliable reporting methods, government officials and international experts suspect the actual number of Russian HIV cases may be five to 10 times higher than official estimates.
The growth of crime and widespread corruption, together with Russia's struggling economy, is undermining Russia's transition to a fully functioning democracy and free market economy. Many Russians blame free market reforms for the breakdown of law and order and for having benefited primarily criminal entrepreneurs. Discredited for corruption and political ineffectiveness, it has become increasingly difficult for the Russian Government to meet its citizens' expectations for social justice, equality of opportunity, and improved living standards. Popular perceptions of liberal democracy as ineffectual, corrupt, and even in league with organized crime may boost the appeal of antidemocratic politicians opposed to further reform.
The Baltic States
The relative dependence of Estonia, Latvia, and Lithuania on Russian energy supplies and the importance of Baltic ports for Russian transit trade provide significant opportunities for Russian and other organized crime groups. Although all three countries have reoriented their trade more toward the West, Russia remains a major trading partner for Latvia and Lithuania. The Baltic states are the major commercial outlet between Russia and the West; according to Interfax Foreign Trade Report figures, the major Baltic ports handle nearly 13 million tons of Russian cargo annually. Russian and other organized crime groups are taking advantage of the high volume of trade through these ports to smuggle contraband both ways, including drugs transiting Russia to Western markets and automobiles stolen in Europe for Russian buyers. The trade in strategic commodities--particularly fuel and energy resources--is a particularly lucrative target for criminal groups.- Operating within the sizable ethnic Russian population in the Baltic countries, Russian crime groups have taken advantage of the privatization process to buy business enterprises that became part of their criminal empires. They have established numerous front companies, particularly in the import/export sector for the purposes of facilitating illicit trade and laundering money.
Ukraine and Moldova
As a strategic crossroads between East and West, Ukraine has experienced a significant increase in all forms of organized criminal activity during the 1990s. Transportation routes through Ukraine are used by Russian and Ukrainian organized crime groups to smuggle arms, drugs, other contraband, illegal immigrants, and trafficked women between Russia, Ukraine, and Western Europe. The volume of legitimate trade, including in strategic commodities such as oil, make Black Sea ports in Odesa and in the Crimea attractive to organized crime. Russian organized crime groups are particularly well-connected in Crimea and Odesa--dating back to Soviet rule.Organized crime has flourished in Moldova over the past decade, especially in the breakaway Transnistria Region. Moldova's local crime groups have established close ties to Russian, Ukrainian, and other foreign criminal syndicates that also act in the country. Criminal groups in Moldova are frustrating government efforts to attract needed foreign investment and are contributing to political and social instability.
Moldova is one of the largest per capita sources of trafficked women and girls in the NIS, primarily for the sex industry in Turkey, Greece, Italy, and the Balkans.
As in Russia, the overlapping connections among the new business class, criminal groups, and government officials have made corruption a significant problem for Ukraine and Moldova. Political connections have assisted criminal groups and their front companies' efforts to acquire lucrative contracts or state-issued licenses for exports, particularly in the energy and metals-trading industries. Corruption in Ukraine has contributed to a significant level of gangland violence that has involved or targeted government officials.
The Caucasus and Central Asia
In both regions, criminal groups are taking advantage of nominal border controls and weak law enforcement. The mountainous, remote Caucasus countries of Georgia, Armenia, and Azerbaijan, have traditionally not had the benefit of active control by law enforcement. Criminal activity there has been largely local and focused on extortion, robbery, smuggling, and kidnapping. The Central Asian countries have become an increasingly important alternative to traditional Southwest Asian-Balkans routes for heroin and hashish shipments from Afghanistan destined for Russia and Europe. Tajikistan is the major gateway for Afghan heroin being smuggled into Russia. Organized crime groups in Central Asia and the Caucasus will look to take advantage of development in the Caspian Sea oil basin, which gives them potential access to lucrative oil revenues.The Central Asian countries are increasingly calling for action against the expanding drug trade from Afghanistan. Uzbekistan, Kyrgyzstan, and Tajikistan in particular believe that drug trafficking is a major source of funds for insurgencies threatening their national security.
Russian Organized Crime
Powerful Russian criminal organizations with international networks are one of the most troubling and dangerous legacies of the former Soviet Union. Russian criminal groups had their genesis in the Soviet era when the black market helped to grease the wheels of the command economy, including ensuring that large state-owned factories received the necessary supplies to keep operating. They also developed allies among Soviet officials by providing them goods and services difficult to obtain in the USSR. While in Soviet prisons during the 1970s and 1980s, some of the top crime leaders forged personal ties that today facilitate occasional coordination of activities, sharing of business investments, and support for one another when in trouble. Russian organized crime groups exploited the privatization of state-owned resources and systemic weaknesses in Russia's fledgling market economy following the collapse of the Communist system to build powerful criminal empires. They cultivated mutually beneficial relationships with government officials and politicians to become powerful players in Russian politics and society.According to the MVD, there are 89 major criminal communities in Russia that comprise about 1,000 smaller criminal groups. Eleven of these communities, made up of 243 groups with some 50,000 members, also operate in 44 other countries. The US Government estimates there are about 200 sophisticated organized crime groups in Russia with a broad range of operations, some of which extend beyond Russia's borders in some 60 different countries. Most Russian criminal organizations are located in industrial and commercial centers, giving them opportunity to make inroads into lucrative sectors of the Russian economy.
Russian crime groups are characterized by ruthlessness and violence, and many are very well armed-- presenting a formidable challenge to Russian law enforcement elements, which are often outgunned, and underfunded particularly at the local level. There is no apparent supreme hierarchy among Russian organized crime groups, nor is any one group masterminding the activities of the others. Instead, Russian criminal organizations have their own spheres of influence that are generally defined by geography, ethnicity, and, in some cases, specific criminal activity.
International Bases of Operation
From their Russian base, the leaders of major Russian organized crime groups have broadened their influence worldwide through political and business contacts, which they have used to facilitate their legitimate and illicit business interests on a global scale. Since the collapse of the Soviet Union, Russian organized crime groups have spread rapidly beyond the former Soviet borders and have a presence in some 60 countries in Europe, North and South America, the Caribbean, Asia, and Africa. The international presence of Russian organized crime, however, is most pronounced in Eastern and Central Europe, where Russian crime groups are involved in narcotics and weapons trafficking, car theft, and financial crimes. Russian organized crime money-laundering operations have been observed in offshore banking centers in the South Pacific, Cyprus, and various Caribbean islands as well as in East European economies. These groups tend to mount sophisticated large-scale financial fraud schemes.
Map
Drug-Trafficking Routes From Northern Afghanistan
| Solntsevo: Russian Organized Crime Group With International Dimensions The Solntsevo criminal organization is widely perceived to be the most powerful Russian crime syndicate in terms of wealth, influence, and financial control. Its leadership, structure, and operations exemplify the new breed of Russian criminals that emerged with the breakup of the Soviet system. Rather than the traditional "thieves-in-law" who dominated the criminal underworld during the Soviet period and played more of a "godfather" role in overseeing loosely organized criminal networks, the leaders of Solntsevo and other post-Soviet Russian criminal groups are not only more flamboyant, aggressive, and politically savvy, but also well-versed in modern technology and business practices that allow them to operate efficiently across international borders. The power and wealth of the Solntsevo crime group derive largely from its financial and business network in Russia and highly placed political connections. According to press reports, Solntsevo benefits from Moscow city projects through its reported links to a construction, tourism, real estate, and utility conglomerate that obtained many of its properties from the city and holds others jointly with the municipal government. While dominating Moscow's criminal underworld-- including the market for drugs, particularly cocaine-- Solntsevo also has extensive worldwide operations. Solntsevo's international criminal activities are said to include trafficking narcotics and arms and money laundering. |
Russian crime groups are also attracted to countries that have liberal cash circulation laws, few restrictions on direct investment, and allow nonresidents to establish businesses. Investments in the real estate, tourist, and entertainment sectors, interest in banks and financial services companies, and the establishment of front companies in countries frequented by tourists and businessmen from the former Soviet Union provide a ready haven for laundering and hiding illicit proceeds earned there and smuggled out of Russia and the NIS.
- Russian organized crime groups have affiliated themselves with Italian criminal organizations to increase their illicit profits and range of operations, according to press reporting. They have used their ties to Italian criminal groups to establish extensive businesses in Italy--investing as much as $4-7 billion between 1993 and 1995 alone, according to Italian trade industry estimates--primarily to facilitate money laundering. Russian and Italian criminals cooperate in international drug trafficking, arms smuggling, and counterfeiting.
Transnational Crimes
Russian organized crime groups are heavily involved in economic crimes. The bulk of the most serious economic crimes are in the credit and financial spheres; the Russian Government reported more than 300,000 economic crimes in 1999, about 10 percent of the total crimes registered. The most common financial crimes include credit defaults, theft by bank employees, and forging of documents.
Russian criminal groups take advantage of the tourist industry and prey on Russian tourists and Russian-owned businesses overseas, particularly in the countries they most frequent. Tourism industries abroad catering to Russian visitors are shaken down and exploited by Russian organized crime. According to Russian press reporting in 1998, Russian crime groups routinely demand 10 to 15 percent of the revenue from hotels, casinos, and restaurants frequented by Russian speakers. Crime groups from the former Soviet Union use the tourism industry to move women--posing as tourists or members of large tour groups--overseas to serve in prostitution rings. Some, if not most, of the women reportedly are held in virtual slavery.
Some Russian crime groups own interests in several airlines, air charters, and travel agencies operating in the former Soviet Union and elsewhere that they use to facilitate and conceal their criminal operations overseas. The travel industry provides Russian criminals with cover and the means to smuggle contraband from abroad into Russia, including drugs and electronic appliances, clothing, and other consumer goods that they sell on the black market.
With the former Soviet Union having opened as an avenue for narcotics shipments from Afghanistan, Russian criminal organizations have gotten increasingly involved in the drug trade. There is little information confirming major Russian involvement in the transit of narcotics across the former Soviet Union, but Russian organized crime groups dominate the domestic drug market and take advantage of Baltic seaports and Russia's now-porous borders with Eastern Europe to smuggle heroin into West European markets and bring cocaine into Russia.
- Press reporting from the region says that Russian troops in Tajikistan have accepted large bribes to facilitate the movement of Afghanistan-produced narcotics into Central Asia and are themselves involved in drug trafficking. In the most notable incident, Tajikistan officials seized 109 kilograms of opium from a Russian Border Guards helicopter in August 1996.
With close ties to corrupt officers and soldiers in the Russian armed forces, Russian organized crime groups are heavily involved in illicit arms trafficking. Most Russian criminal arms deals involve sales within Russia and other countries of the former Soviet Union, including to combatants in ethnic conflicts in Chechnya, Georgia, Armenia, and Azerbaijan. Some Russian arms trafficking has been to countries in the throes of civil conflict. Unconfirmed press reporting indicates that Russian criminal groups have sold large caliber weapons to Latin American drug traffickers in exchange for cocaine.
Russian Organized Crime in the United States
Russian organized crime has been a growing law enforcement problem in the United States since small groups began establishing a foothold in this country in the late 1970s. Although many Russian crime groups are based in the United States, others are cells of criminal organizations based overseas. As in Russia, there is no supreme authority tying these groups together in the United States.
Graphic
Most Frequent Violations Found in US Investigations Involving Russian Organized Crime, FY 2000
Larger Russian criminal organizations based in Moscow and other locations overseas have become an increasing law enforcement concern since they began establishing a US presence after the 1991 dissolution of the Soviet Union. Unlike the smaller gangs that were already established in Russian-speaking enclaves--whose criminal focus is on white-collar fraud crimes and which do not have any specific ties to Russian organized crime abroad--these larger groups are involved in large-scale criminal activities, with international dimensions, that generate enormous profits. Their connections to powerful criminal organizations in Russia provide them a source of illicit contraband and criminal expertise. The US-based members or affiliates of these groups provide services like laundering large sums of money or acquiring drugs for the Russian market.
- Russian criminal organizations in the United States are adept at moving funds through a global complex of front companies, offshore financial service centers, and crime-controlled banks to facilitate extraction of criminal proceeds originating in Russia, as well as to launder funds generated from US-based criminal operations.
- Russian criminal organizations operating in the United States are primarily involved in extortion, drug trafficking, auto theft, cigarette smuggling, trafficking in stolen art and icons, and money laundering. Russian crime groups are not major players in the US drug market--although the potential is there--but use the United States as a transit avenue for cocaine destined for Russia.
- Russian criminals are also extensively involved in a wide array of fraudulent schemes, including health care fraud and defrauding financial institutions. Some of these scams are in league with La Cosa Nostra. Insurance fraud schemes in the United States by Russian crime groups netted $2 billion from California's subscribers to one insurance company in the 1990s, according to press reports, and $200,000 from an insurance company in Boston in the late 1990s.
The Balkans
The breakup of the former Yugoslavia and ensuing regional conflicts there have led to a sharp rise in criminal activity in the region. Previous Serbian, Croatian, and Bosnian Governments all used criminal networks as a means to evade international sanctions and acquire material necessary for the war effort. The collusion between governments and local criminal gangs weakened law enforcement and provided an environment ripe for corruption. Under Milosevic, the Serbian Government colluded with criminal smuggling networks to evade Western sanctions. These networks were critical in supplying the black market, which served as Serbia's de facto service economy, and may have accounted for some 20 to 40 percent of the country's GDP.Many of the criminal business enterprises set up to circumvent earlier sanctions are still operating. The lifting of many sanctions since the Dayton peace accord in 1995 did not diminish the activities and local influence of criminal groups in the region because they were now firmly rooted in society. As the region struggles to rebuild local economies, criminal groups have little trouble finding gang-member recruits from the large number of unemployed and underemployed, many of whom view crime as an attractive source of income. Organized crime in the former Yugoslavia also continues to benefit from corruption and weak law enforcement.
Local crime groups in all the countries of the former Yugoslavia are taking advantage of opportunities for gunrunning, smuggling liquor and cigarettes, trafficking in women for prostitution, extortion, and money laundering. Trafficking of heroin through the former Yugoslavia toward markets in Western Europe has become a major business for organized crime groups. Criminal groups tied into manufacturing enterprises are engaged in theft of intellectual property rights. Moreover, the region's local crime groups have established cooperative networks to move relatively freely across borders.
Local crime groups not only threatened implementation of police and justice provisions of the Dayton peace accord, but their activities also impeded efforts to promote political reconciliation and economic reconstruction. Criminal gangs remain a significant problem throughout Bosnia.
Kosovo remains plagued by criminal activity. Ethnic Albanian, Bosnian, Croatian, and Serbian organized crime groups are taking advantage of corruption and the region's porous borders to traffic women, drugs, arms, and other contraband. The former Kosovo Liberation Army may have used its organized crime links to Europe to obtain arms and ammunition.
Organized crime groups from outside the region, primarily from Italy, have forged ties to local criminal groups in the former Yugoslavia to facilitate their own international criminal activities--particularly arms and drug smuggling. They have also used the opportunity to set up various criminal rackets in the region, including financial fraud schemes involving investments that can destabilize the economy. Italian organized crime groups have strengthened criminal relationships across the Adriatic, according to press reporting.
Albania, once the most isolated country in Europe, became a haven for local and foreign criminal groups after the collapse of its Stalinist regime. The opening of the country's borders and political disarray in Tirana have allowed Albania to become a primary alternative to traditional Balkan smuggling routes through the former Yugoslavia that were disrupted by the breakout of ethnic fighting in the early 1990s. Italian organized crime groups--particularly the Sacra Corona Unita from Italy's Puglian region across the Adriatic Sea--were quick to establish a presence in Albania. They routinely use Albania's long and now virtually unguarded coastline as a staging area for smuggling drugs, arms, and other contraband across the Adriatic Sea to Italy.
Albanian crime gangs flourished in the political and economic chaos that followed the Hoxha regime's downfall. They are very well armed--having acquired sizable quantities of weapons from former government stocks--and dominate much of the rural countryside, particularly in the southern part of the country. Criminal syndicates have a powerful presence in the port cities of Durres and Vlore and other major cities. Relying on longstanding cross-Adriatic and Balkans smuggling routes, Albanian crime gangs control the local black market in consumer goods, weapons, and narcotics. In addition to acquiring heroin from Turkish criminal organizations, Albanian crime groups have become involved in cocaine trafficking, with some South American cocaine being shipped directly into Albania. Albanian crime groups are cultivating marijuana throughout Albania for distribution in both the domestic and broader European market, particularly Italy and Greece.
- As a result, Albania has become a Balkans hub for drug trafficking--including cocaine and heroin for the European market--alien smuggling, and other contraband smuggling. Albanian crime groups have expanded their criminal operations across the Adriatic into Italy, where they have become a significant criminal threat.
Ethnic Albanian Criminal Groups
Ethnic Albanian criminal syndicates are one of the most significant of the smaller, more local crime groups that have recently expanded beyond their country's borders. Primarily a legacy of the political, social, and economic chaos that resulted from the downfall of Albania's Stalinist regime and the breakup of the former Yugoslavia in the early 1990s, ethnic Albanian crime groups have established a presence throughout Europe and are becoming a growing problem for European law enforcement. Albanian crime groups, whether originating in Kosovo or Albania itself, are typically from tightly knit clans.Map
Smuggling Routes Through the Balkans
By collaborating with criminal organizations in neighboring countries and with Italian organized crime groups, ethnic Albanian crime gangs have become very active in smuggling drugs, arms, cigarettes, and illegal aliens and trafficking women throughout the region. Ethnic Albanian criminal gangs have also used ties to foreign organized crime groups and the large number of expatriate Albanians to expand their operations into the European Union countries. While relying on Turkish traffickers as a source for heroin, ethnic Albanian groups have become major competitors of Turkish criminal groups in trafficking drugs-- particularly Southwest Asian heroin--to parts of central and northern Europe, according to police agencies throughout the continent. Police officials have been quoted in the media as saying that Albanians now dominate local sales of heroin in Norway, Sweden, southern Germany, and Switzerland. Albanian criminal groups may also be challenging Italian organized crime interests in Italy, including heroin distribution and movement of illegal aliens from southern Italy to the north. According to Italian law enforcement, Albanian crime syndicates by 1999 controlled most of the prostitution rackets in Italy and were smuggling heroin, hashish, cigarettes, weapons, and other contraband into Italy for shipment to Western Europe. Italian law enforcement officials claim ethnic Albanian crime groups also traffic women and children to Italy.
- Albanian criminal syndicates are moving into the northeastern United States, although their criminal activities are still small-scale.
South Asia, Turkey, the Middle East, and Eastern Mediterranean
Criminal organizations with international networks centered in Turkey, Pakistan, India, the United Arab Emirates (UAE), and Cyprus operate within a centuries-old commercial tradition of moving contraband merchandise through the South Asia-Middle East-Eastern Mediterranean region. The region is a focal point for narcotics and arms smuggling between Europe and Asia and for brokering a wide range of illicit deals, including to evade US or international sanctions and to transfer controlled technologies and materials associated with weapons of mass destruction. Major port and commercial cities in the region-- particularly Istanbul, Karachi, Mumbai (Bombay), and Dubai--are key centers of criminal activity. Criminal organizations in these cities exploit extensive underworld connections, pervasive political and business corruption, and the large volume of trade and financial transactions. Although commercial centers now have modern financial services, criminals also hide their funds and arrange illicit financing through complex, virtually impenetrable underground banking systems.South Asia
The South Asia region is a primary source of heroin for the international drug trade, primarily for the West Asian, European, and Eurasian markets. Afghanistan is the world's largest producer of illicit opium. Pakistan is a major transit country for Afghan-produced opiates and is also a source of illicit opium poppy. In India, substantial amounts of opium are diverted to the black market from legal production for pharmaceutical industries in the United States and elsewhere. South Asian heroin traffickers maintain extensive networks throughout the region in commercial centers and port cities to arrange financing and movement of drugs. Interpol reports that some 80 percent of the heroin used in Western Europe comes from South Asia.
- The US Government's annual crop estimates show that opium production in Afghanistan is more than eight times higher than in 1990. Illicit opium poppy cultivation has increased despite public pronouncements by the Taliban, which controls most of Afghanistan, that they were cutting back on the opium industry. Afghanistan by itself now accounts for 72 percent of illicit worldwide global opium production.
- Illicit opium poppy cultivation in Pakistan, on the other hand, has declined from once significant to marginal levels, in large part because of intensive eradication efforts. Pakistan now accounts for less than 1 percent of the world's illicit opium production.
- Illegal drug abuse has skyrocketed in the major source and transit countries that are at the crossroads of the Southwest Asia heroin trade: 3.5-5 million local addicts consume much of the region's opium and heroin production, according to UN estimates. In Pakistan alone, the heroin addict population has grown from virtually none in 1980 to more than 2 million and perhaps as high as 4 million, according to some estimates.
Iran remains the most important conduit for Afghan drugs being moved toward lucrative markets in Western Europe. Traffickers use historical trade routes to move drugs, as well as other contraband, from Southwest Asia through Iran to Turkey, or to Iranian Persian Gulf coast seaports and harbors for shipment to the Arabian Peninsula. Bedeviled by its own large opium and heroin abuse problem, Iran has given high priority to drug interdiction and harsh punishment for captured traffickers. In recent years, Iran has been among the top countries in making drug seizures and has paid a high price in lives with more than 3,000 killed in armed confrontations with traffickers since 1988.
Pakistan and India both have traditional and modernizing criminal underworlds involved in contraband smuggling, including drugs, gold, and consumer goods. Until Afghanistan began emerging as a major center for refining opiates into morphine base and heroin in the mid-1990s, most of the region's opiate processing laboratories were located in remote Pakistani territory adjacent to the Afghan border. With its better-developed infrastructure, including a major regional commercial center and port in Karachi, Pakistan remains a major transshipment route for Afghan-produced opiates. India's well-developed transportation infrastructure, long and porous coastline, and lenient export policies and controls have played into the hands of criminal smuggling operations for drugs, gems, and other prized contraband. Inland container depots provide an easy means of smuggling drugs and other contraband from the interior to Indian seaports like Mumbai, Goa, Chennai (Madras), and Calcutta that handle a large volume of international trade.
India's legitimate industries that support the world's pharmaceutical markets are a source of supply for raw materials and precursor chemicals for the illicit drug trade. Indian officials acknowledge a significant problem of diversion from India's extensive legitimate opium industry--which supplies much of the world's pharmaceutical market--to the more lucrative black market. As much as 25 percent of India's projected 1999 opium crop may have been diverted to the black market, according to Indian officials. In addition, some Indian-produced ephedrine and pseudoephedrine intended for pharmaceutical manufacturers has gone toward the production of methamphetamine in Southeast Asia.
Turkey
Astride the Europe-Asia continental divide, Turkey also has a traditional criminal underworld and history of smuggling. While traffickers are making greater use of the former Soviet Union as an alternative route for moving Southwest Asian heroin to Western markets, Turkey remains a linchpin in the region's heroin trade. Narcotics brokers in Turkey play a critical role in buying morphine base and heroin from producers in Southwest Asia and moving the drug to distribution networks in Europe and North America. Much of the heroin entering Turkey passes through territory in the southeast controlled by the Kurdistan Workers Party (PKK), which is considered a terrorist group. The PKK reportedly levies taxes on traffickers moving drugs through border crossings with Iran or territory in southeastern Turkey that it controls.
- PKK members in Europe have been involved in wholesale and retail distribution of heroin, as well as other criminal activities, to help fund their operations. Some may funnel narcotics and criminal proceeds into party coffers. It is unclear, however, whether or to what extent the PKK central command may direct or participate in such activities, or has ties to other drug-trafficking groups in Turkey.
Afghanistan Opium Cultivation
The United Arab Emirates
As a regional transportation, banking, and commercial crossroads between Europe, the Middle East, North Africa, and Asia, the UAE--with its permissive business environment--has emerged as an important locus of criminal activity. The UAE maintains an advanced maritime shipping infrastructure, including at least 15 commercial seaports, to facilitate international trade. According to the international shipping industry, UAE seaports are handling nearly 5 million containers per year, 2.8 million in Dubai alone. More than 70 percent of containers arriving in UAE ports are in transit and are not inspected by customs officials, making them an attractive shipping option for criminals trafficking contraband through the region. The UAE also has extensive international air connections; more than 60 airlines provide scheduled passenger service between Dubai and more than 150 foreign destinations. Some UAE-based firms are probably front companies for criminal organizations or states of concern.
- There is extensive smuggling of contraband through Dubai, into whose ports more than half of the containers shipped to and through the UAE arrive. Dubai is an important transit point for precursor chemicals required for the production of heroin in Afghanistan and Pakistan. The UAE is becoming a more important transit avenue for drug shipments from Southwest Asia on their way to Turkey, Europe, and Africa.
- Organized crime groups from Russia and other former Soviet countries--particularly from Central Asia--have established criminal and money-laundering networks in Dubai.
- According to press reports, money-laundering activity in the UAE may total $1 billion annually. The UAE is actively considering statutes that would make money laundering a crime, and the UAE Central Bank has recently issued new regulations to combat money laundering.
| South Asian Heroin Trafficking and Criminal Networks Much of the Afghan opium industry and drug trafficking in Southwest Asia is controlled by a network of traffickers based in Pakistan and Afghanistan. Their ethnic, tribal, and political affiliations give them the connections and capability to negotiate drug transactions, assemble drug loads, and transport shipments to wholesale buyers in Turkey and other international markets. This network of loosely affiliated traffickers frequently cooperates with other traffickers based in Pakistan, Afghanistan, Iran, and the UAE. Powerful Indian criminal syndicates, particularly Mumbai-based crime groups, became involved in international drug trafficking in the mid-to-late 1980s when the Iran-Iraq war disrupted traditional Southwest Asian heroin trafficking routes from Pakistan, through Iran, to Turkey. Relying on Indian expatriates living in the UAE, Indian crime syndicates use long-established networks for smuggling gold, silver, counterfeit currency, electronic goods, and other contraband to transship heroin from South Asia to markets in Europe and, to a lesser extent, North America. Indian criminal syndicates also may be involved in arms trafficking, alien smuggling, and trafficking in women. Narcotics trafficking may be an important source of revenue for Indian crime syndicates; trafficking patterns show connections to Europe, Africa, Southeast Asia, and regionally to Sri Lanka. Indian crime groups also dominate the methaqualone drug trade in eastern and southern Africa; South Africa is a particularly important market for methaqualone, also known as mandrax, which is produced primarily in India. |
Although its political situation is stabilizing, Lebanon remains a haven for terrorist training, as well as a minor drug-trafficking and processing center. Several Islamic extremist and Middle East terrorist factions continue to maintain training camps in the Bekaa Valley, and some have used the country as a staging area for terrorist attacks against Israel. Syrian and Lebanese authorities cracked down on opium and cannabis cultivation in the 1990s, but drug traffickers continue to operate in the area. Opiates from Southwest Asia and cocaine from South America appear to be moving through Lebanon into Turkey, Syria, Israel, Jordan, the Arabian Peninsula, and other destinations.
Israel
Since the collapse of the Soviet Union, Israel has become a significant operating area for Russian criminals, who take advantage of Israel's large Russian immigrant community of more than 600,000 to conduct criminal activities in Israel and abroad and launder illicit proceeds. Several international criminal figures from Russia, Ukraine, and other NIS have obtained Israeli citizenship and passports, often fraudulently, for the purpose of establishing a safehaven in Israel and to facilitate their international travel. According to press reports, Israeli police officials have estimated that 10 to 15 organized crime groups from the former Soviet Union, including Solntsevo, have a presence in Israel.
- Russian criminals who have obtained Israeli citizenship appear to believe they are protected from foreign law enforcement investigations and that they will not be extradited to a foreign country to stand trial for crimes committed there.
The growing presence of Russian crime groups has exacerbated the organized crime problem in Israel. Russian crime groups traffic women into Israel from Russia and the NIS, control prostitution rackets, and illegally produce and import music and computer software CDs. Russian criminals in Israel may also be involved in diamond smuggling; Israel is a hub of the legitimate international diamond trade, importing more than half of worldwide diamond production.
Cyprus With a business environment that features a minimum of regulations and a location astride major commercial routes, Cyprus has been a regional center for arms trafficking, sanctions evasions, and trade in dual-use goods related to weapons of mass destruction. Nicosia's focus on developing the island's offshore business sector through corporate-friendly policies intended to lure legitimate businesses to Cyprus also attracted firms and individuals involved in illicit international trade and illicit financial transactions. Banking and corporate secrecy, little or no taxes, and simplified incorporation procedures have made it easy for states of concern, terrorist groups, and organized crime groups to set up numerous front companies to facilitate illicit arms transshipments, acquire proscribed technologies, and launder funds. Commercial information indicates that the island's development of free ports and free trade zones in Limassol and Larnaca have been attractive to businesses seeking to transship illicit cargo because goods in transit are rarely inspected; according to industry journals, about 5,000 ships from some 100 shipping lines call at Cypriot ports annually.
- There are some 24,000 offshore firms registered in Cyprus, of which approximately 1,100 maintain a physical presence on the island.
With its extensive Mediterranean and Aegean coastlines, numerous islands, overland borders with the Balkans, and vibrant banking sector, Greece has emerged as an increasingly active hub for international criminal activity. Greece is located along two spurs of the traditional Balkans route for drug trafficking. Crime syndicates from the Balkans--including ethnic Albanian crime groups--Western and Central Europe, Africa, and the former Soviet Union use Greek territory to smuggle drugs, arms, cigarettes, and illegal migrants to Western Europe. Italian criminal organizations control the illegal cigarette trade in Greece, according to press reports, and earn as much as $500 million per year from cigarette smuggling. Greek law enforcement officials are particularly worried about the presence of Russian criminal groups that are engaged in money laundering, extortion, and trafficking women for the sex industry.
- According to Greek police officials, international crime syndicates operating in Greece take in as much as $11.5 billion annually from their criminal operations.
- Weak enforcement of money-laundering laws has made Greece an attractive locale for money laundering, particularly by Russian organized crime.
| Southeast Asian Drug-Trafficking Networks Heroin and methamphetamine production in Southeast Asia is dominated by ethnic drug-trafficking armies operating mostly in Burma's remote opium-producing region. The drug-trafficking armies had begun as insurgent groups and still claim to have an ethnic-based social and political agenda, but the largest have become primarily engaged in the production and trafficking of heroin and methamphetamine and in other illicit and lucrative economic activities--including gem smuggling and illegal logging and timber smuggling. Since its continuing crackdown on the prodemocracy movement began in 1988, the military regime in Burma has reached agreements with most of these ethnic armies in remote regions which have allowed the regime to focus on prodemocracy threats in critical urban areas while turning a blind eye to drug trafficking and other criminal activities.
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Southeast Asia
The export-oriented economies of Southeast Asia provide both opportunity and cover for international criminal activities, as well as a market for drugs, counterfeit products, and other contraband. Bangkok, Singapore, and Kuala Lumpur are attractive locales for international criminal activity because they are the region's largest commercial centers. The high volume of land and maritime trade, particularly containerized shipping, extensive manufacturing industries, and breadth of financial activity facilitate contraband smuggling, money laundering, and violations of trademark and intellectual property rights. Firms in Malaysia are major counterfeiters of US audio, visual, and software products. Nearly one-third of all the women and children victimized by trafficking rings for the worldwide sex industry are from Southeast Asia. Singapore is an increasingly important hub for drug and other contraband smuggling because of its high-volume seaport.- According to trade data, Singapore vies with Hong Kong as one of the world's busiest container ports, handling 15.3 million containers; 80 percent of all Southeast Asian maritime traffic destined for US west coast seaports has a Singapore nexus, according to the US Customs Service. Singapore's international airport is Asia's busiest air cargo terminal.
Opium poppy growing regions in remote areas of Burma and Laos make Southeast Asia the world's second-largest source region, after Southwest Asia, for illicit opium for the international heroin trade.(1)Opium poppy cultivation is an important income-earner for the hill tribes residing in these impoverished regions, where the infrastructure for supporting legitimate economic activity is either lacking or in poor repair.
- Southeast Asia accounts for more than half of illicit opium poppy cultivation, according to the US Government's narcotics production estimates, despite poor growing weather from 1997 to 2000 that substantially reduced the size of the crop. Nonetheless, Burma alone accounted for about 50 percent of the world's illicit opium cultivation in 2000. In contrast to its high cultivation, Burma produced only 21 percent of the world total of illicit opium. Laos ranked third with 4 percent of illicit global production. Southeast Asia's opium production is substantially lower than Southwest Asia's only because opium yields are about one-fourth those of Afghanistan.
The social and political consequences of criminal activity have been considerable for all countries in the region. A large criminal underground largely immune from law enforcement and judicial actions because of bribes and favors bestowed on powerful politicians, bureaucrats, police, and military figures has helped undermine the credibility of Southeast Asian institutions. Criminal earnings, especially from the drug trade, underpin important new investments in Southeast Asia. Russian crime groups, for example, are involved in the tourism industry in Ban Phattha Ya, Thailand. Meanwhile, Southeast Asia's longtime role as a major conduit for Burma-produced narcotics-- both heroin and, more recently, methamphetamine-- has fed a growing drug addiction problem.
- About 800,000 Thai are infected by HIV, some 10 percent from heroin abuse, according to Bangkok's Ministry of Health.
Graphic
Burma's Opium Production, 1988-2000
China
China's increasing role as a source area of international criminal activity, including greater worldwide influence of Chinese criminal syndicates, has paralleled its emergence as a global economic power and Beijing's opening to foreign investment. US law enforcement reporting indicates that, since the early 1990s, more than half of the heroin produced in Burma now transits Yunnan Province and other regions of China on its way to drug markets in China itself and in North America and Australia. Fujian Province is a major base of operations for criminal brokers known as "snakeheads" who, using contacts around the world, orchestrate the movement of illegal Chinese immigrants to the United States, Canada, Europe, Latin America, Asia, and Australia. Legitimate textile works, factories, and high-tech manufacturers in Guangdong Province are major producers of pirated and counterfeit products; according to the International Intellectual Property Alliance, China is a leading violator of US intellectual property rights.- Criminal activity flourishes in China despite extremely strict penalties, including death, for many crimes.
- Economic liberalization has allowed criminal syndicates to establish front companies and to invest in legitimate business enterprises. As in legitimate ventures, government officials and enterprises are often enlisted as partners to help facilitate business operations. In some cases, participation of Chinese authorities in criminal business ventures helps shield them from investigations and prosecutions.
- The substantial improvements being undertaken or planned for mainland China's seaport facilities-- including expanded capacity to handle large container ships--open more options for Chinese criminals using international trade as a cover for their operations. Larger capacity ports allow them to diversify routes by transporting illicit cargoes, including drugs and arms, directly across the Pacific to major seaports in the United States, Canada, or Panama without having to transit Hong Kong, Taiwan, Singapore, or Japan. Moreover, technology improvements at the new port facilities--together with corrupt local customs enforcement--allow criminals to move goods faster, cheaper, and often with less risk.
- The decline of some traditional Communist social policies in China has given criminal groups unprecedented flexibility. The abolition of internal travel controls facilitates moving drugs, arms, and illegal migrants to coastal ports for smuggling out of the country, as well as the movement of contraband to big city markets inside China. Moreover, the large "floating population" of rural migrants seeking work provides a steady source of recruits for Chinese crime groups.
The entrepreneurial stake of many Chinese officials in various business enterprises--fully legitimate and otherwise--lends itself to criminal activity for profit. Chinese arms factories under pressure to earn hard currency and attracted to easy money on the black market may be a source of weapons for Chinese arms traffickers. Ephedrine and pseudoephedrine produced in China for the world's legitimate pharmaceutical markets are also illegally exported or diverted to the international illicit drug-producing market, where these commodities are key components in the production of methamphetamine; in November 1997, authorities in Shaanxi Province seized 10 metric tons of ephedrine that was on its way to Burma.
These developments, together with Beijing's policy of inviting overseas Chinese businessmen to trade and invest in China, have allowed powerful Chinese triad criminal organizations from Hong Kong, Macau, and Taiwan to establish strong footholds on the mainland, especially southern China. The triads have set up many varied businesses in Guangdong and Fujian Provinces, the Shenzhen and Xiamen Special Economic Zones, and Beijing where there is a significant international business presence and a substantial volume of trade and financial transactions. Firms associated with import/export trade and manufacturing may be used as cover for drug trafficking, arms trafficking, alien smuggling, and the piracy and distribution of products protected by intellectual property rights. Entertainment businesses--such as gambling, prostitution, nightclubs, karaoke parlors--that cater to Chinese elites and foreign businessmen are cash-intensive and provide excellent cover for money-laundering schemes.
- Press reporting indicates the Hong Kong triads have been cultivating Chinese officials since the early 1990s to ease their way into mainland China.
Political and Economic Impact
Chinese authorities are increasingly concerned about the impact of criminal activity on Chinese society. Drug abuse and violent crime have become more pronounced, challenging China's police and social services and undermining Communist Party authority. The impact on the Chinese economy has been significant; criminal activities have cost the Chinese Government sizable losses in tax revenues, impeded industrial growth, and aggravated the difficulties facing legitimate state-owned enterprises. The Chinese leadership is particularly focused on corruption because the perception of widespread corruption at all levels of government and law enforcement is corroding the credibility and performance of Chinese leaders and law enforcement personnel.
- Public concerns about corruption were a factor in the social tensions leading up to the Tiananmen protests and crackdown on the prodemocracy movement in 1989.
- In the last year in particular, China has selectively investigated, prosecuted, convicted, and punished several high-level provincial officials for criminal corruption, including trade frauds. The dynamics of leadership politics and rivalries, however, have kept several high-level political and military leaders and their families safe from prosecution despite credible allegations of their involvement in criminal or corrupt activities.
Southern China's Criminal Infrastructure
Heroin addiction has become an enormous problem since China became an increasingly important transshipment route for heroin produced in Burma. Before 1990, when most Southeast Asian heroin transited Thailand, China had few problems with drug trafficking or addiction. Between 1990 and 1998, however, the number of registered drug abusers in China increased by a factor of 10 from some 70,000 to nearly 700,000, according to official Chinese statistics; unofficial estimates of drug addiction in China range from 1 to 12 million.(2) A January 1998 Chinese press article reported that addicts in China spend some $17 billion annually on illicit drugs.
- Intravenous heroin use is contributing to a significant HIV/AIDS problem in China, accounting for 70 to 90 percent of HIV transmissions, according to Chinese press reporting. In late 1998, Chinese officials estimated there were some 300,000 HIV/AIDS cases in China, but this figure is probably conservative given weaknesses in China's HIV/AIDS reporting and monitoring system. The Chinese Academy of Preventive Medicine forecasts more than 10 million by 2010 if control efforts are not successful.
- Local press reports in 1998 indicated that the value of goods smuggled into China totals about $12 billion annually. During the first eight months of 1998, Chinese officials seized more than $650 million in smuggled goods that would have netted $200 million in customs duties. A good portion of China's capital flight--estimated by one business industry journal at $20 billion for 1998--is said to go toward smuggled goods.
Infrastructure development projects in China designed to attract and support foreign trade and investors are a major draw for investment by Chinese criminal groups. Some Chinese criminal syndicates try to profit from ambitiously planned infrastructure development projects in China by direct investment, offering loans, or arranging financing.
- Chinese authorities report that organized crime groups target legitimate investors in large-scale scams. According to 1998 press reports, Beijing closed down 25 large-scale investment scams each involving $125,000, and in the last half of 1998 the Chinese broke up pyramid schemes worth more than $250,000.
As one of the world's leading commercial, financial, and transportation centers, Hong Kong has long been a hub of criminal activity in East Asia--a status that has not changed since China assumed sovereignty over the territory in 1997. The massive volume of trade in containerized shipping through Hong Kong offers substantial opportunity for criminals to smuggle all kinds of contraband, including drugs and arms, and illegal migrants.
- Handling some 16 million containers annually, according to Hong Kong Government data, Hong Kong vies with Singapore as the busiest container port in the world.
- In October 2000, Hong Kong Customs officials discovered 26 illegal Chinese migrants hidden in a maritime container about to be shipped to Long Beach, California.
China's Registered Drug Addicts, 1990-99
The volume of traffic between Hong Kong and the Chinese mainland provides enhanced cover for international criminal transactions. In 1999, according to Hong Kong Government data, some 12 million travelers and 700,000 vehicles crossed the land border from China.
- The projected growth in Hong Kong's international transportation connections is expanding the options available to Chinese criminal syndicates for smuggling drugs, arms, and other contraband products.
- Daily foreign exchange turnover amounted to about $90 billion and total bank deposits approached $280 billion at the time of Hong Kong's reversion to China in 1997, according to press reports, illustrating both the potential scope and the difficulty of monitoring illicit transactions.
- Hong Kong is one of East Asia's major sanctuaries for heroin drug profits. Heroin traffickers launder proceeds through numerous businesses in Hong Kong that are associated with Chinese triads.
Hong Kong's two largest triads, the 14K and Sun Yee On, protect many of the retail businesses involved in manufacturing and distributing counterfeit compact discs and are engaged in buying, moving, and selling contraband CDs. A series of raids against several compact disc factories by Hong Kong authorities in 1998 resulted in the seizure of more than 1.8 million pirated discs. Moreover, Hong Kong's lucrative film industry is widely regarded as controlled by the triads.
As an international commercial and financial center, Hong Kong probably continues to attract both legitimate and illicit business enterprises from the Chinese mainland. Relatively simple procedures for registering companies allow criminals to establish front companies, particularly export/import firms, to facilitate their attempts at smuggling and money laundering. At the same time, however, increasing direct interactions between southern China's major commercial centers and the international business community reduce the incentive for criminal groups or illicit businessmen to move to Hong Kong's much stricter law enforcement environment.
In stark contrast to much of the rest of China, Hong Kong has made major headway against corruption, primarily because of its strong and effective anticorruption agency, deeply entrenched common law system, strong rule of law tradition, and well-organized and well-equipped law enforcement bodies. Over the years, Hong Kong has developed strong legal and financial systems to counter money laundering. It is substantially in compliance with the standards set by the FATF, and Hong Kong is a leader in the regulation and supervision of its financial sector. Nevertheless, despite recent legislative improvements, banking and other financial institutions in Hong Kong continue to operate with loopholes that can be exploited by international criminals, including the lack of mandatory reporting for currency deposits exceeding certain levels, tight bank secrecy laws, low taxation rates, the absence of controls on money flows into and out of Hong Kong, and the availability of underground banking networks.
Macau
Since Macau's reversion to Chinese administration in 1999, organized crime continues to have substantial influence over the enclave's economy. Organized crime groups still dominate Macau's gaming industry, the primary engine of the economy. In addition to the substantial revenues they generate of their own accord, gambling and prostitution rackets in Macau are used by local and other crime groups for money laundering.
- Macau business tycoon Stanley Ho, a reputed organized crime figure, controls the gaming monopoly that has the sole license for casino gambling in Macau. In 1999, according to press reports, Ho's gaming monopoly generated a net profit of about $100 million.
- Turf wars to control gaming parlors, loan-sharking, protection rackets, and prostitution rings were widespread in Macau before the handover.
- The weakness of Macau laws to combat money laundering remains a serious problem.
Taiwan
Organized crime is deeply entrenched in Taiwan's business and political sectors. Large ethnic Chinese criminal syndicates such as the United Bamboo and Four Seas triads--which followed the ruling Kuomingtang party from the mainland to Taiwan in the late 1940s--and Taiwanese criminal gangs have established strong influence in Taiwan's local communities. Criminal groups are extensively involved in feeding off Taiwan's generally strong economy. They reportedly have been involved in direct extortion of "protection" money from construction firms, engage in bid-rigging for public works projects, and have tried to manipulate the island's stock market.- Three gangs were said in 1997 to be taking 8 to 15 percent of southern Taiwan's budget for public engineering contracts, according to press reporting.
Increasing indirect trade between China and Taiwan, and Beijing's policy of encouraging investment by Taiwan businessmen, probably is contributing to growing contacts between Taiwan and mainland Chinese criminal syndicates. Some Taiwan-based triads have links to Hong Kong and China, including establishing front companies or investing in specific criminal ventures. In 1998, Chinese authorities discovered two Taiwanese-financed methamphetamine drug laboratories in Hunan Province.
Vote buying has provided criminals significant influence within Taiwan's political system, especially at the local level. Members of crime groups themselves seek, and often win, public office, which allows them access to lucrative public contracts and offers limited immunity from prosecution and a chance to cleanse criminal reputations.
- Political corruption and the ties of former ruling party politicians to organized crime continue to be potent political issues in Taiwan. Taiwan's new President, who won election in March 2000 largely on an anticorruption, clean government platform, has pledged to make this one of his highest domestic priorities.
Ethnic Chinese Criminal Networks
The international criminal threat posed by ethnic Chinese criminal networks has become more complex as crime groups originating in mainland China have joined the traditional triad societies of Hong Kong, Macau, and Taiwan in expanding their networks far beyond China's borders. While the powerful triads, which trace their origins to Chinese secret societies in the 17th century, are the largest of the Chinese criminal associations, they continue to operate largely according to traditional practices and their criminal activities are largely focused on more traditional extortion, gambling, drug trafficking, gunrunning, and alien smuggling enterprises. The upstart Chinese criminal groups from mainland China, on the other hand, are more loosely organized, their members more flamboyant, and their criminal operations often more sophisticated. These groups are also extensively involved in international drug trafficking, alien smuggling, arms trafficking, and money laundering, but they have also moved more aggressively than the triads into more sophisticated and highly profitable areas of credit card fraud, theft of computer chips, software piracy, and other intellectual property violations.Both the triads and crime groups originating in mainland China have established relationships with ethnic Chinese crime groups in countries throughout the Pacific Rim, Europe, and the Western Hemisphere. Using traditional Chinese practices of networking, ethnic Chinese crime groups rely on a broad criminal fraternity that can broker contacts in any country where there is a large ethnic Chinese community and help facilitate transnational criminal activity.
- Chinese organized crime has strong roots in Chinese ethnic enclaves around the world. Local Chinese crime groups--ranging from street gangs to more formally structured groups modeled after, or affiliated with, traditional triads--typically are extensively involved in local rackets like gambling, loan sharking, narcotics distribution, prostitution, and business extortion.
Europe and North America are major targets for Chinese criminal networks. Although ethnic Chinese groups are not as powerful as Italian or Russian organized crime in Europe, they have long-established footholds in the Chinese communities of several European nations from which they appear to conduct most of their illegal operations. International Chinese organized crime groups are particularly strong in the Netherlands, the United Kingdom, and Germany. Since the late 1980s, Chinese criminal organizations have also established themselves in Central Europe, which has become a major conduit for moving illegal Chinese immigrants to Western Europe.
Map
Worldwide Triad Activity, 1998
Triads Versus Mainland Chinese Criminal Groups
Most triad societies are based in Hong Kong, Taiwan, or Macau, but their influence spans international boundaries with members located in virtually every country that has a sizable Chinese community. Triads, which collectively have an estimated worldwide membership that exceeds 100,000, are fluid associations of ethnic Chinese criminals and quasi-legitimate businessmen involved in an array of criminal enterprises. Most Hong Kong triads have evolved into loose-knit groups operating and cooperating with each other on the basis of personal introductions and mutual interests. Triad leaders do not dictate to members what criminal activities they should pursue and generally do not receive monetary benefits unless they are directly involved with the actual criminal enterprise.
- Hong Kong police estimate there are 50 to 60 different triad societies operating in Hong Kong. Currently, Hong Kong's largest triad, Sun Yee On, is the only one with a true hierarchical structure. By contrast, the 14K triad, still one of the most powerful, is comprised of more than 15 loosely affiliated groups.
- In addition to their traditional criminal enterprises, Hong Kong triads have diversified more into sophisticated white-collar crimes. Recent Hong Kong government figures suggest increased triad involvement in high-tech computer crimes and criminal activities such as possible manipulation of the stock and futures markets. Using connections in mainland China and taking advantage of the different legal systems in Hong Kong and the Guangdong region of southern China, the Hong Kong triads have also increased their cross-border criminal activities.
- It is not unusual for different triad groups, both in Hong Kong and abroad, to work together where there is a specific opportunity for mutual profit. Hong Kong police, however, maintain that there is no international triad network or centralized control over cross-border activities, such as drug trafficking or alien smuggling, between mainland China and Hong Kong. Most cooperation in such criminal enterprises is more ad hoc collusion, according to Hong Kong authorities.
- US and Canadian law enforcement reporting indicates the Big Circle Gang, which is the dominant organized crime group in China, has in a short time become one of the most active Asian criminal organizations in the world. By the early 1990s, the Big Circle Gang had established criminal cells in Canada, the United States, and Europe, It is extensively involved in drug trafficking, alien smuggling, vehicle theft and trafficking, and various financial, intellectual property rights, and high-tech crimes. Big Circle Gang cells are also highly sophisticated in their use of technology to thwart law enforcement investigations, according to US law enforcement. Since first appearing in the United States in the early 1990s, Big Circle Gang members have been detected in New York, Boston, Seattle, San Francisco, and Los Angeles.
- The Fuk Ching Gang is most notorious for alien smuggling, including the Golden Venture tragedy off New York in 1993.
The United States faces a growing threat from Chinese organized crime groups that are using Canada as a base from which to conduct criminal activities that impact our country. Members of ethnic Chinese criminal groups from China, Hong Kong, Taiwan, and Macau have exploited Ottawa's immigration policies and entrepreneur program to enter the country and become Canadian residents, which makes it easier for them to cross into the United States. Canada has become a gateway for Chinese criminal activity directed at the United States, particularly heroin trafficking, credit card fraud, and software piracy.
The two largest Hong Kong triads, 14K and Sun Yee On, increased their presence and made substantial property investments in Canada during the 1990s. Prominent 14K members from Hong Kong and Macau have emigrated to Canada during this time, and Sun Yee On triad members have settled in Toronto, Edmonton, and Vancouver. The 14K, which maintains a chapter in Toronto, also has been tied to Asian criminal activities in New York and other US cities. Sun Yee On members are involved in trafficking heroin and methamphetamine, as well as alien smuggling, to the United States, where the triad has ties to New York's Tung On Gang.
The most active Asian criminal group operating in Canada, however, is the Big Circle Gang. The Big Circle Gang is responsible for importing much of the Southeast Asian heroin entering Canada--much of which is then smuggled into the United States--and the source for many of the counterfeit credit cards used in North America.
Japan
Over the years, Japanese crime syndicates, known as yakuza, have exploited their traditional roles in arbitrating disputes and loan collection to gain a wide measure of public acceptance. The yakuza's practice of "sokaiya," corporate extortion, often by threatening to disrupt corporate shareholders meetings, has been generally tolerated by Japanese society, despite the economic influence it has given organized crime. Their role in local communities has sometimes placed the yakuza in a better position than the government to respond to civic emergencies, such as when they responded more quickly and efficiently than the Japanese Government in bringing relief aid to victims of the 1996 earthquake in Kobe. The yakuza have also benefitted from historically weak anti-crime legislation and limited law enforcement investigative authority. By adhering to rules of conduct that preclude violence against the police and innocent civilians, Japanese crime syndicates traditionally have been able to operate largely in the open, including highlighting the location of their headquarters in local communities.The yakuza were able to cash in on Japan's economic and real estate boom in the 1980s to expand their profit-making activities beyond their traditional criminal arenas of drugs, gambling, prostitution, and corporate extortion. Housing loan companies, jusen, that were affiliated with major Japanese banks reportedly issued a portion of their loans, many of which were not repaid, to yakuza-tied firms as part of the speculative boom in real estate in the 1980s. As a result, the yakuza were behind many of the problem loans leading to the 1996 collapse of the jusen mortgage industry.
- One expert on Japanese crime believes that yakuza interests may have directly accounted for 10 percent of the banking industry's bad loans, which he estimated as high has $700 billion, and an additional 30 percent of the bad loans may have been indirectly tied to yakuza affiliations.(3) The president of a Japanese corporation assigned to help collect the bad debts stated in 1998 that yakuza-affiliated companies tied to billions of dollars of bad debt were the most formidable obstacle to recovering those loans. In some cases, the yakuza sought to block the disposal of real estate assets that underlie the bad loans.
Despite the longstanding tradition of tolerance for the yakuza, the Japanese have become less accepting of organized crime activities in recent years, primarily because of public concerns about increasing street crime and drug abuse, rather than the yakuza role in the financial crisis and banking scandals. "Anti-yakuza" legislation implemented in the early 1990s and updated in 1997, such as recently implemented legislation allowing wiretaps in some criminal investigations and a nationwide crackdown on sokaiya, appears to have helped curb some organized crime activities. Despite the yakuza, ethnic Chinese criminal gangs linked to illegal immigration, drug smuggling, and arms trafficking are publicly perceived as the most serious criminal threats to Japan.
Japanese Yakuza
Taken as a whole, the yakuza are among the world's largest and most powerful criminal confederations. The yakuza are highly structured and criminally diverse organizations that have thoroughly penetrated Japanese society, including the legitimate economic sphere, through their extortion-like practice of "sokaiya." There are an estimated 3,000 yakuza groups and subgroups based in Japan. According to Japan's National Police Agency, 60 percent of the estimated 90,000 members and associates of yakuza families are affiliated with one of three groups: the Yamaguchi-Gumi, Sumiyoshi-Kai, and Inagawa-Kai. These groups control most organized criminal activity in Japan, including gun trafficking, drug smuggling, alien smuggling, prostitution, illegal gambling, extortion, and white-collar crime through infiltration of legitimate businesses.- Academic specialists on Japanese organized crime have estimated the annual revenue of the yakuza at about $13 billion.
- Yakuza groups acquire most of their heroin and methamphetamine from Chinese criminal groups in Taiwan and Hong Kong and may have established relationships with South American trafficking organizations for obtaining cocaine.
- China, Taiwan, and Russia are major sources of firearms for the yakuza; Japanese police officials have estimated that 90 percent of the illegal weapons seized each year come from overseas because of Japan's strict gun control laws.
- The yakuza also rely on their international connections for illegal aliens to work in the prostitution, entertainment, and construction enterprises they control in Japan. The Yamaguchi-Gumi group, which includes 900 affiliated gangs throughout Japan, runs extensive prostitution rings that prey on women from Latin America, Russia, and Southeast Asia.
- Some of the Chinese migrants smuggled into Japan continue on to the United States, but there is only fragmentary evidence indicating that yakuza groups are directly involved in smuggling illegal aliens into this country.
| North Korea's Role in International Drug Trafficking A large share of the methamphetamine consumed in Japan comes from North Korea, according to media reports; more than 40 percent of the methamphetamine seized in Japan in 1999 came from North Korea. There have been regular reports from many official and unofficial sources that impoverished North Korea has engaged in drug trafficking--mostly to Japan, Russia, and China--as a criminal state enterprise to raise badly needed revenue. Over the years, customs and police officials of many countries have apprehended North Korean persons employed as diplomats or in quasi-official capacities at North Korean state trading companies trying to smuggle drugs produced elsewhere. |
- Japanese criminal activity in the United States has primarily involved fraud and money-laundering activity.
- The Inagawa-Kai yakuza crime group, which is involved in drug and arms trafficking, extortion, investment frauds, and money laundering, has invested heavily in Hawaii and the states on the west coast of the United States.
Africa
Porous borders, ample routes for smuggling drugs, weapons, explosives, and other contraband, and corruptible police and security forces make Sub-Saharan Africa an inviting operational environment for international criminals, drug traffickers, and terrorists. Major Sub-Saharan cities with extensive commercial, financial, and sea and air transportation links to Europe, the Middle East, and Asia are hubs for international criminal activity, particularly by Nigerian criminalsyndicates. These include Nairobi and Mombasa in Kenya, Addis Ababa in Ethiopia, Abidjan in Cote d'Ivoire, Johannesburg in South Africa, and Lagos in Nigeria.
NigeriaNigeria is at the center of international criminal activity coming from Africa. Powerful and sophisticated criminal syndicates based in Nigeria have extensive networks that reach into the Western Hemisphere, Europe, Russia and the NIS, Southeast and Southwest Asia, Australia, and Africa. With Nigeria an historical trading crossroads both in Africa and along maritime routes between East and West, the international criminal operations of Nigerian syndicates are the legacy of a history of moving capital and commodities on a global scale.
Nigerian criminal syndicates centered in Lagos, many of which have global networks, operate with virtual impunity in an environment of pervasive corruption. Decades of mostly military rule in Nigeria have exacerbated the problem, ruining the Nigerian economy and nearly bankrupting the Nigerian Government. Moreover, decades of gross economic mismanagement, with which the newly elected civilian government has just begun to grapple, have left not only private citizens but also government and law enforcement officials and junior and noncommissioned military officers with great incentive to engage in criminal activity to make ends meet. Under the recent military regime, many of Nigeria's political and military leaders, government bureaucrats, and business elites routinely accepted and demanded bribes or kickbacks in return for facilitating profitable business activity-- whether in the lucrative oil sector, competitive procurement contracts, or the drug trade.
Corruption and resource constraints have made meaningful law enforcement investigations and prosecutions against the crime barons very difficult in Nigeria. Corruption extends to all levels of the military, which has dominated politics in Nigeria for most years since independence. Likewise, civilian politicians and bureaucrats have engaged in massive corruption, whether during periods of civilian or military rule. Nigerian sea and airports are rife with corruption, and borders are porous to criminals, terrorists, and illegal migrants. The decades-long history of corruption and mismanaged exchange rates has also benefited the money-laundering activities of Nigerian criminal syndicates.
Past Nigerian regimes have typically tried to cast the drug trafficking and financial frauds committed by Nigerian criminal syndicates as victimless crimes that are driven by demand in Western countries. Anticorruption campaigns mounted by military and civilian governments alike have yet to alter the culture of corruption in Nigeria. Nevertheless, some Nigerian elites, including in the military, have come to recognize that pervasive crime and corruption in Nigeria have crippled the economy, contributed to social and political tensions, and undermined relations with major historical trading partners, including the United States and West European countries. Widespread fraud has caused Nigeria to lose billions of dollars in business and foreign investment, according to press reporting. These factors have caused many Nigerian elites to advocate a crack down on corrupt officials and criminal activity, and the new civilian government seems much more inclined to take up this challenge.
Nigeria's President Obasanjo, elected in the aftermath of a highly corrupt military regime, has pledged institutional reforms to cut down on pervasive corruption and to crack down on criminal activity, particularly drug trafficking. The country's history of widespread corruption, however, and the influence of powerful crime barons make effective follow-through on these promises highly problematic.
South Africa
As a major locus of maritime trade and air traffic between Asia, Europe, and the Western Hemisphere, South Africa is emerging as a significant hub of international criminal activity. The lifting of international trade sanctions with the end of apartheid has made South Africa readily accessible to international criminals whose operations take place within the framework of legitimate commercial business activities. South Africa's modern airports and harbors--including container ports at Durban, Cape Town, Port Elizabeth, and East London--are attractive to criminals smuggling narcotics and other contraband. South Africa's well-developed business connections to the West and political connections to some states of concern can be used by criminals to broker illicit transactions involving arms, controlled technologies, or strategic commodities. For criminal organizations, South Africa also has the advantage of a modern financial system linked to financial markets worldwide, which facilitates money laundering. And, as happened in Russia, criminal organizations recruit professionals with skills well-suited to competing in the modern business environment who were pushed aside or sidelined by the political and economic changes taking place in South Africa.
Map
Major Nigerian Drug Trafficking Routes
With the increase in international travel and business since the apartheid government turned over power in 1994, the scope of organized crime in South Africa has evolved from generally small-scale operations centered in localities to nationwide syndicates. South African police officials have identified almost 200 organized crime groups operating throughout the country, with at least 32 having international connections, according to press reports in 1998. Almost half of the 200 groups were reported to be primarily involved in drug trafficking, and approximately 60 groups were associated with financial crimes. Foreign organized crime groups, primarily Nigerian, Russian, and Chinese syndicates, have established bases of operations in South Africa since the mid-1990s for a variety of illegal activity, including drug trafficking and other contraband smuggling, poaching and trafficking in endangered species, money laundering, and financial crimes.
- The South African police estimated in 1998 that more than 30 Asian, Italian, Nigerian, and Russian crime groups operating in the country were responsible for direct and indirect losses of government revenue totaling more than $3 billion annually.
South African authorities are most alarmed by the presence and activities of Nigerian, Indian, and Russian criminal organizations. They are becoming concerned by growing numbers of Chinese triad criminal groups operating in South Africa. Nigerian criminal groups have established cells in expatriate communities in South Africa's major commercial centers, while Indian criminal organizations operate within the country's substantial South Asian population. Russian criminals have exploited legitimate business opportunities in South Africa to launder money and reportedly engage in money laundering, arms smuggling, automobile theft rings, and illicit strategic commodities transactions, including in gold and other minerals.
The dramatic increase in criminal activity in South Africa initially caught the government unprepared. Violent crime and drug abuse have grown substantially since the early 1990s. In late 1997, South African police estimated that there were between 5 and 8 million illegal firearms in the country. Efforts to confront organized crime are undermined by widespread corruption in the police and the lack of tough laws. This environment has contributed to the rise of ethnic-based vigilante gangs, particularly among the Muslim minority, that have taken the law into their own hands. Alarmed by these developments, the South African Government has begun taking measures to improve its anticrime legislation and enforcement capabilities. In 1998, South Africa passed the Prevention of Organized Crime Act, which is similar to the US racketeer-influenced corrupt organization (RICO) statute, and which also contains anti-money laundering provisions.
East Africa
Having a long tradition of contraband smuggling, the countries along Africa's Indian Ocean coast are emerging as significant transit points for international drug traffickers, particularly in the Southwest Asian heroin trade. The large volume of cargo handled by major East African seaports in Mombasa, Kenya, and Dar es Salaam, Tanzania, probably hides substantial amounts of contraband trade, including drugs, coming from the Middle East, Pakistan, India, and Southeast Asia. In addition, Nairobi and Addis Ababa are major international air hubs in the region.
- An increasing amount of Southwest Asian heroin is appearing in Kenya, some reportedly en route to Chicago and New York.
- Sudan remains a safehaven for terrorist groups.
- Allegations of official complicity in drug trafficking through Kenya have increased in the last year, given impetus by a multi-ton seizure of hashish in Mombasa in January 2000. Members of parliament and high-ranking police and administrative officials have been linked to facilitating or protecting that shipment.
Nigerian Criminal Enterprises
Worldwide, there are hundreds of Nigerian criminal cells located primarily in major metropolitan centers in North America, Europe, and Asia. Recent estimates suggest that more than 500 Nigerian crime cells are operating in at least 80 countries. Nigerian criminals take advantage of large West African ethnic communities in these cities to establish the infrastructure needed to support a wide range of criminal activity-- foremost among them drug trafficking and sophisticated schemes to defraud individuals, businesses, and governments--which reap billions of dollars in illicit proceeds. Nigerian crime groups also facilitate illegal immigration of Nigerian nationals to metropolitan areas around the world, whom they then use for filling high-risk, low-level roles in drug trafficking, and are involved in trafficking women and children to Europe, especially Italy. The United States and Britain are the primary targets of Nigerian criminal activity, with Nigerian crime cells elsewhere in the world purchasing drugs or providing financial and logistical support.- Between 25 and 30 percent of the heroin seized at US international airports in recent years was taken from couriers employed by Nigerian trafficking groups, according to US Customs data.
Drug Trafficking
Nigerian criminal syndicates are among the world's most active traffickers in Asian heroin--particularly to the United States--and are increasingly trafficking South American cocaine to various regions in Africa and throughout Europe. Producing no heroin of their own, Nigerian traffickers have well-established networks in Southeast and Southwest Asian countries to acquire the drug. The steady and virtually uninterrupted flow of Nigerian-controlled heroin from these source regions is facilitated by criminal cells in transit countries along the way. Nigerian traffickers typically smuggle only small quantities of drugs, using both express mail services and thousands of individual couriers in an effort to overwhelm market country customs and law enforcement capabilities and to lessen the cost of any seizures. They tend to avoid sending drug couriers on direct flights from drug-producing and key transit countries to market countries, relying instead on a widely diverse number of routes transiting airports throughout Asia, Africa, and Latin America.
- Using techniques and concealment methods similar to those used to smuggle heroin from Asia, Nigerian criminal syndicates dominate transatlantic cocaine shipments between Brazil and Africa, from where the drug is transshipped to markets in South Africa and Europe.
- In planning their drug courier runs, Nigerian traffickers make careful study of customs and security procedures in producer, transit, and market country air and sea ports. They readily adapt to international law enforcement measures against them. Nigerian traffickers, for example, are now recruiting "low profile" couriers who are less likely to draw the attention of international customs agents. These include Caucasians, women (often with children), and the elderly. To avoid scrutiny at US international airports, Nigerian traffickers sometimes deliver drugs to Canada or Mexico for overland transshipment into the United States.
In addition to their significant role in narcotics smuggling, Nigerian criminal syndicates are involved in a wide variety of financial fraud schemes that target private citizens as well as businesses, particularly in the United States and the United Kingdom. The most notorious of these are advance fee scams, in which thousands of unsolicited letters and faxes based on fraudulent representation are sent by Nigerian criminals to businessmen worldwide with the promise of great profits at the cost of upfront cash investment. The letters and faxes set forth simple investment schemes, promises of "easy money," elaborate assurances, and extraordinarily low risk. They provide detailed instructions for establishing linked bank accounts and exchange of authorization letters and account numbers to give the appearance of legitimacy, then require various transaction fees before any moneys can be released. Victims of Nigerian fraud schemes may be strung along for months or years paying transactions fees and taxes before realizing they are being conned.
- In 1999, US victims reported several hundred million dollars of losses to Nigerian advance fee frauds, according to US law enforcement. These figures do not include losses to victims from outside the United States. In addition, many people do not report being victimized by advance fee fraud schemes because of fear or embarrassment.
- During one six-week period in 1998, US postal authorities destroyed some 700,000 advance fee letters that had arrived in New York's JFK International Airport.
South America
As the exclusive source of cocaine for the world market, South America is a primary locus of the international drug trade. Colombian traffickers are responsible for producing most of the world supply of finished cocaine, and they have established drug-trafficking networks throughout the Western Hemisphere. Analysis of cocaine flows data from US detection and monitoring assets and data on cocaine use elsewhere in the world show that most of the cocaine produced in Colombia is for the US market. Colombia, Venezuela, and Ecuador are the primary staging areas for drug exports destined for the United States.In the last decade, however, international criminal activities linked to South America have expanded beyond the drug trade and become more multifaceted. The continent's increased commercial and transportation links to Europe and Africa, as well as to the Caribbean basin and the United States, have attracted an increased presence of foreign criminal organizations. Greater regional economic integration has helped South America emerge as a significant source of counterfeit products for the international market. Money launderers are exploiting the region's weak enforcement against illicit transactions to move and shelter criminal proceeds.
The power and influence of criminal organizations have eroded good governance, diverted attention and resources away from more pressing political and security problems, and skewed the economies of many South American countries. Throughout the region, the activities of local criminal mafias have become a significant political, as well as law enforcement, concern. Crime groups in many countries have suborned local police officers and other public officials to safeguard their illegal activities.
Colombia
The drug trade in Colombia has helped fuel decades of violence, corruption, political strife, and, particularly in recent years, insurgency. Colombian drug profits since the 1970s have bought power and influence at the highest levels of the government, judiciary, and financial institutions. Government leaders have faced daunting obstacles, including bribes, threats, violence, and other tactics, as they to control drug-trafficking operations. The level of violence and narco-terrorism reached its apex in the late 1980s and early 1990s when countless police were killed by traffickers, a major presidential candidate was assassinated, the headquarters of Colombia's lead investigative agency was destroyed in a high-casualty bombing, and an airliner was destroyed in flight. In 1994, trafficker financial support may have been influential in the victory of President Samper in a close election. Bogota's antidrug efforts since the mid-1990s--including arrests of key traffickers, increased interdiction, and recent extradition of three traffickers to face drug-trafficking charges in the United States--have reduced much of the overt influence exercised by powerful trafficking organizations, but Colombian traffickers have adapted to stay atop the worldwide cocaine trade.
- The dramatic increase in coca cultivation in Colombia--from less than 20 percent of the Andean total in 1994 to 67 percent in 1999--is the primary catalyst of the current crisis.
- The United States is committed to substantial support for Plan Colombia, Bogota's response to the crisis developed in close collaboration with Washington. Central to Plan Colombia's success will be crippling the drug trade by substantially reducing coca cultivation and the processing and movement of cocaine and heroin within three years.
- US Government analysts estimate that the FARC could potentially earn nearly half of its total revenues from taxing the drug trade. Other illicit activities, which include kidnappings, robberies, and other crimes, account for most of the rest.
- Meanwhile, paramilitary involvement in drug trafficking is also increasing. The leader of the most notorious paramilitary group stated publicly that 70 percent of his budget comes from the drug trade.
Andean Coca Cultivation, 1999
Along with guerrilla attacks against economic targets, the drug trade has been a major factor in Colombia's economic difficulties. The black-market peso exchange used extensively by Colombian traffickers, through which drug proceeds in the United States are exchanged for trade goods that are smuggled into Colombia, has caused the contraband import industry to capture more than 25 percent of the country's retail market. Contraband trade goods financed largely by cocaine profits entering the Colombian marketplace were estimated to be as high as $1.7 billion in 1999; the value of Colombia's legal imports in 1999 was about $12 billion, according to the former Colombian trade minister.
- Colombia's imports from Panama, whose robust financial and commercial sectors make it an outlet in the black-market peso exchange, are now dominated by contraband. The Colombian comptroller's office reports that of $1.3 billion worth of reexport goods entering Colombia from Panama's Colon Free Zone in 1997, only $170 million was recorded as legal commerce.
- Colombian money transmitters have adapted to disruptions caused by successful enforcement operations--such as the 1998 Operation Casablanca, which targeted the Mexican financial system--and to US regulatory efforts, such as the Geographic Targeting Order in New York, to continue laundering drug proceeds through the black-market peso exchange.
- Since 1986, some $187 million in counterfeit US currency seized or passed in the United States and abroad was manufactured in Colombia.
Along with Colombia, the other Andean countries are integral to the South American drug trade. Peru and Bolivia are major sources of coca for the cocaine trade; Venezuela is a major transshipment avenue for drug shipments destined for US and European markets through the Caribbean; and Ecuador's harbors and seaports have become more important as Colombian traffickers make greater use of eastern Pacific maritime routes to move cocaine to Mexico and on to the United States. Bolivia and Peru in recent years have had success in attacking the large coca economies in their countries through alternative development, voluntary eradication, and forcible eradication of coca crops. Although both countries have achieved substantial reductions in their coca crop--more than half in both countries between 1995 and 1999, according to US Government estimates--their coca constituencies remain strong. In Bolivia, powerful unions supporting their coca growing constituencies continue to stage protests and blockades to impede the government's eradication efforts. In Peru, there are indications that a rebound in coca leaf prices is causing some farmers to return to coca cultivation.
- Ecuador and Venezuela are most vulnerable to coca cultivation spreading to their countries if the Colombian Government is successful in meeting its goal of substantially reducing drug crops and crippling the drug trade. Such a development would also increase the incentive for traffickers and farmers in Peru and Bolivia to grow more coca.
Brazil and the Southern Cone
Expanding trade relations within the region and between South America and the rest of the world have helped make Brazil and the Southern Cone countries major venues for international contraband smuggling and economic crimes. Modern manufacturing capabilities in several South American countries have opened the door to illegal duplication of CDs, videos, and cassettes; illegal production of these products is centered in Brazil and Argentina, whose governments have toughened their IPR laws. Growing consumerism and middle class prosperity in the largest South American countries has made them an important market for drugs, pirated or counterfeit products, and other illicit contraband.
- Patent and trademark infringements in Argentina and Brazil cost US firms $500 million in lost sales annually, according to a 1998 estimate by the International Intellectual Property Alliance.
| Evolution of the Colombian Drug Trade Colombia's drug-trafficking organizations are the most powerful and influential in South America. Prior to the incarceration of its top leaders in 1995 and 1996, Colombia's Cali drug mafia was believed by several international crime experts to be the world's most profitable criminal organization. Although the setbacks suffered by Cali traffickers have ended their dominance, Colombian traffickers not only continue to meet most of the world's cocaine demand, but have become the largest supplier of heroin available in the United States. Nevertheless, the disruptions caused to Colombian trafficking operations have allowed rival groups in Peru and Bolivia to increase their share of the international cocaine market--primarily in Europe and South America--by establishing direct relationships with foreign criminal organizations. Despite the dismantling of the Cali cartel in the mid-1990s, the continuing shift in coca cultivation from Peru and Bolivia to Colombia that began then has increased the central role that Colombia plays in the Andean cocaine trade. Reinforced by substantially greater coca production in Colombia, Colombian traffickers continue to process most of the world's finished cocaine. Smaller, less powerful trafficking groups have emerged since the powerful Cali drug lords were imprisoned. While becoming less dependent on Peru and Bolivia for supplies of cocaine base, Colombian traffickers have greater expertise, more capital, and better overseas networks than emerging rivals from Peru and Bolivia. This new generation of Colombian trafficking groups maintains lower profiles, focuses on limited aspects of the drug trade, and forms more ad hoc alliances that make them more difficult law enforcement targets. In addition, Colombian traffickers have adjusted their routes and methods for moving cocaine. |
The Southern Cone countries have been hard pressed to cope with rising crime rates and criminal violence. Criminality is most severe in Brazil, where the illegal import of firearms, used frequently to protect turf and resolve disputes with rival crime gangs, and rising street crime, kidnappings for profit, and drug addiction have exacerbated social tensions. Allegations of criminal corruption have contributed to political scandals or crises in several countries, including Brazil, Argentina, and Paraguay.
The Caribbean
The Caribbean has long been a major transit route for cocaine, marijuana, and more recently smaller quantities of heroin moving from South America to the United States and Europe. It is also an avenue for smuggling illegal migrants and other contraband, including arms. The Caribbean's vast stretches of open water and thousands of islands and cays--too numerous for law enforcement to effectively patrol-- afford drug traffickers and other smugglers many and varying transshipment routes. The Bahamas alone has some 700 islands and more than 2,000 cays.- About one-third of the cocaine entering the United States transits the Caribbean, according to US Government estimates.
- Jamaica is the largest exporter of marijuana in the Caribbean and has well-established networks of crime gangs with ties to both Colombia and the United States.
Caribbean Offshore Financial Centers That Facilitate Money Laundering
Puerto Rico is a primary target of drug-trafficking flows in the Caribbean because of its central location astride the three major trans-Caribbean smuggling routes--directly from South America, through the Hispaniola countries of Haiti and the Dominican Republic, and through the Lesser Antilles island chain--and its attractiveness as a point of entry into the United States. Puerto Rico is a major commercial transit center in the Caribbean, with more than 14 million tons of cargo handled in San Juan alone each year. Once drug shipments or any contraband have been smuggled into Puerto Rico, they have entered the United States and can be moved to the mainland by commercial ships and planes generally not subject to US Customs inspections.
- Although Colombian traffickers are the prominent driving force in moving drugs through the Caribbean, Dominican trafficking groups dominate the transportation of cocaine and heroin from Puerto Rico to the US mainland. Their ties to Colombian traffickers, direct connections to the Dominican Republic--the primary staging area for drug shipments into Puerto Rico--and associations with Dominican criminal cells in major US eastern seaboard markets make them uniquely positioned to perform this role.
one-third of the 15 countries and territories listed by the FATF as non-cooperating in combating money laundering.
International criminal activity in the Caribbean has inculcated an environment of widespread corruption, and most Caribbean island nations have weak law enforcement capabilities. Because Caribbean countries have economies reliant on financial services or tourism and gambling, they are particularly vulnerable to high-level criminal influence. Faced with few economic alternatives to these industries and the overwhelming amounts of illicit money that typically help to sustain them, few Caribbean islands have the resources or legislative framework to fight money laundering through Internet gaming establishments and effectively control economic citizenship programs. Powerful local criminals also rely on bribes and strong-arm tactics to supplement their economic clout.
Central America
The Central American isthmus is a major corridor to Mexico for the movement of US-bound illegal aliens and a significant avenue for drug shipments. It is also an avenue for arms shipments of weapons stocks from previous conflicts in Guatemala, El Salvador, and Nicaragua to Colombia. Alien smugglers and drug traffickers take particular advantage of the all-weather Pan-American Highway that runs the length of the isthmus from Panama into Mexico, bypasses virtually all of the region's major international airports, and is within 80 kilometers of most of Central America's major seaports on the Pacific Coast. To improve their odds of success, smugglers often fan out from the highway when approaching border points and cross in remote locations where inspection is more lax or nonexistent. Airlines operating in Central America have extensive routes to South America, offering attractive options for drug traffickers and alien smugglers alike. The many miles of unpatrolled Caribbean coastline in Central America, as well as several commercial seaports, have long been integral to maritime drug smuggling into the region. Guatemala is the primary staging area for moving both drugs and illegal migrants into Mexico, from where they are smuggled across the US border.| Cuba: Emerging Criminal Hub in the Western Hemisphere? Economic and, to a lesser extent, political change in Cuba may make the island a major hub for criminal activity in the near future. As the Cuban economy becomes more liberalized and tourism increases, international organized crime groups would probably view Cuba as an attractive location for criminal activities, particularly if the Communist regime collapses and restrictions on travel are lifted. There are many favorable conditions in Cuba that could facilitate the penetration and growth of organized crime. Cuba's geographic position astride Caribbean sea lanes between South America and the United States and its close proximity to US shores make it ideally situated as a potential hub for contraband smuggling. Its seaports already handle a significant volume of commercial maritime trade with South America, Europe, and Africa.
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As illegal migration from Latin America to the United States has increased, Panama's accessibility from South America has helped make it a key transit point for regional alien smugglers. According to US Government data, some 30,000 northbound migrants-- including Ecuadorians, Peruvians, Colombians, Dominicans, Chinese, and Indians--transit Panama annually on their way to the United States. Dozens of alien smugglers are entrenched in the country, where they exploit porous borders, corrupt officials, and lax inspections by immigration authorities and airlines.
The huge volume of financial transactions handled by Panamanian banks has made Panama a significant offshore money-laundering center. Panama's dollar-based economy, robust offshore banking and company-formation sector, and extensive use of cash in the loosely regulated Colon Free Zone allow money launderers to conceal the origin of their funds.
- The value of the import/export trade turnover in the Colon Free Zone alone is estimated by trade journals at $10 billion annually. The amount of money laundered in the Colon Free Zone has been estimated at $1-4 billion annually, much of it through the black-market peso exchange.
After Mexico, Central America is by far the largest source of illicit migration to the United States. The US Government estimates that some 325,000 US-bound migrants originate from or transit through Central America annually before entering Mexico en route to the US border. This is equivalent to about two-thirds of the 500,000 non-Mexican illegal migrants who enter the United States each year.
- About 225,000 illegal migrants being smuggled through Central America on their way to the United States are native to the region. Most are from Guatemala, Honduras, and El Salvador, which have large immigrant communities in the United States that represent a pull factor by verifying the availability of jobs, providing housing upon US arrival, and sending remittances to family members considering immigration.
- Because alien smuggling networks are able to operate with virtually no constraints in the region, Central America is also a major gateway into Mexico and on to the United States for illegal aliens from outside the region. The US Government estimates that some 100,000 US-bound migrants from other regions--including 40,000 from South America, 12,000 from China, 6,000 from India, and the remainder from other Asian, African, and Middle Eastern countries--transit Central America each year. The 12,000 Chinese passing through Central America and Mexico account for about one-third of the total 30,000 to 40,000 illegal Chinese migrants estimated by the US Government to have been smuggled into the United States in 1999.
Most US-bound illegal migrants from outside the region arrive in Central America by air, mostly on flights from South America. Several of the region's airlines regularly carry illegal migrants. Smugglers take advantage of corrupt employees, lax controls, and the extensive air service offered throughout the hemisphere by these airlines. Many Chinese migrants are brought to Central America by freighters; the US Government estimates that several thousand Chinese arrive by boat directly into the Central American region each year.
Alien smugglers in Central America rely on the Pan-American Highway as the main route for transporting their clients into Mexico. Its ready access to the coast and to international airports helps facilitate the efficient movement of US-bound illegal migrants coming from South America or Asia. Boats are sometimes used by smugglers to bypass part of their overland journey, particularly across the Golfo de Fonseca between Nicaragua and El Salvador and between Guatemala and Mexico.
In the last four years, nearly one-third of the South American cocaine transported to Mexico to be smuggled across the US southwest border transited through Central American countries, according to US Governments estimates. Central America's importance has grown as drug flows to Mexico through the western Caribbean to the Yucatan Peninsula have declined in recent years because of increased maritime interdiction efforts. Panamanian sea and air ports are pivotal entry points for drugs entering Central America, but South American traffickers also deliver cocaine by boat to remote beaches and harbors on both the Pacific and Caribbean coastlines. Colombian traffickers own most of the cocaine transiting Central America, but rely on regional organizations to arrange and coordinate overland transportation of drug shipments to Mexico.
Poorly policed borders and corrupt officials, some at the highest levels of government and law enforcement, are routinely exploited by drug traffickers and alien smugglers operating in Central America. Relatively low pay and standards of living for law enforcement officers and overburdened police and judicial systems allow drug traffickers considerable room for maneuvering. Corruption involving alien smuggling is particularly widespread, because most officials perceive they are committing no crimes against their own country since the migrants are only transiting en route to the United States. Corrupt officials in the Central American countries accept handsome bribes to assist alien smugglers by providing legitimate documentation, actively facilitating the movement of US-bound illegal migrants through airports and border crossings, or turning a blind eye to such activities.
While most Central American governments are in various stages of boosting their antidrug efforts, they are generally reluctant to deal with the problem of alien smuggling through their countries. Instead, press reports show that the region's governments tend to view the flight of poor citizens to the United States as a way to relieve pressure on their economies and provide a source of revenue for families in the form of remittances. Moreover, US-bound migrants from within and outside Central America may be seen as helpful to their economies because they fill hotels, buy food, clothing, and supplies, and use transportation services.
In most of Central America--with the exception of Nicaragua and Honduras, which have poor enforcement records--it is not illegal to aid and abet illegal migrants. Without antismuggling legislation, law enforcement agencies have few tools other than enforcing laws against illegal documents to deal with the problem. Constrained by small budgets and not enough law enforcement personnel, the region's governments give greater priority to committing resources against rising crime rates than to targeting alien smuggling networks.
Central American Alien Smuggling Networks
There are no major organizations or cartels that control or dominate alien smuggling through Central America or any particular country. The 325,000 US-bound migrants that are estimated to move through Central America are handled by several hundred independent smugglers who cooperate in loosely linked networks stretching across the region; a small number have extensive networks throughout Central America. Most smugglers cover a specific territory--one or two countries--from which they pass clients to other smugglers or guides known as "coyotes," rather than accompanying or having control over them for the full trip into the United States.- The US Government estimates that alien smuggling networks in Central America generate up to $1 billion in gross annual revenue.
Some alien smugglers in Central America specialize in moving US-bound illegal migrants from Asia, especially China and India. They serve largely as regional subcontractors--with associates in Asia, South America, and the United States--that oversee the movement of US-bound illegal aliens through Central America. Unlike most of the other smugglers who organize alien smuggling runs on an ad hoc though frequent basis, these specialists tend to operate pipelines in which people movements are preplanned and consistent. Careful planning is essential because they must coordinate arrangements with the arrival of boats, from which their clients are often off-loaded offshore rather than in port, and flights carrying illegal migrants.
- A regionwide law enforcement effort against alien smuggling in 2000 resulted in Costa Rica's arrest of Gloria Nino Canales, who headed one of Central America's largest migrant-smuggling networks.
Mexico
Sharing a long 3,300-kilometer border with the United States, Mexico historically has been a hideaway for bandits and a staging area for cross-border smuggling. Terrain features ranging from the easily crossed Rio Grande to expansive stretches of remote, rugged, and inhospitable desert along the US southwest border have long been used by migrants and contraband smugglers to move back and forth across the border illegally. The urban sprawl that straddles both sides of the border in twin cities like San Diego-Tijuana and El Paso-Juarez has complicated the problem. In addition, inadequate law enforcement coverage of remote regions allows criminals to fly small aircraft or land small boats in US territory unnoticed. Multiple jurisdictions on both sides of the border further complicate organized, coherent efforts to control the border.Criminal activity across the US southwest border has been aided by the increased volume of legitimate commerce, comparatively lower industrial wages that attract US manufacturing firms, and expanded bilateral trade agreements. The substantially increased volume of trade between the United States and Mexico resulting from NAFTA, while greatly benefiting legitimate business interests on both sides of the border, has also generated greater opportunity for traffickers smuggling drugs, as well as illegal migrants and other contraband, across the US southwest border. Extensive legitimate commerce and traffic make the border between the United States and Mexico the busiest in the world.
- The tremendous amount of legitimate commercial traffic that crosses the border on a daily basis makes effective interdiction an even more difficult challenge. Since 1993, when NAFTA went into effect, according to US Customs information, the number of commercial trucks legally crossing the US-Mexican border has increased by more than 70 percent, and the number of railcars entering the United States has increased about 60 percent.
- According to US Customs, 295 million people, 88 million automobiles, and 4.5 million trucks and railroad cars entered the United States from Mexico through 38 official points of entry in 1999. Mexico is the United States' second-largest trading partner, with more than $100 billion of legitimate commercial trade crossing the US southwest border each year.
- More than half of the cocaine smuggled into the United States comes across the southwest border with Mexico.
- Mexican traffickers have also come to dominate methamphetamine production and distribution in the United States, which had been controlled by outlaw elements in US motorcycle gangs.
Mexico is the top money-laundering country in Latin America. Mexican drug traffickers reportedly repatriate much of their profits in bulk cash shipments directly from the United States to Mexico and launder funds using money exchange houses along the US-Mexican border, Mexican banks, stocks and commodities markets, and other financial institutions. Laundered funds have been used by Mexican criminal kingpins to invest in Mexico.
- Cross-border currency smuggling continues to be linked to both Mexican and Colombian drug money laundering, according to US law enforcement. There is evidence that dollar-denominated non-negotiable monetary instruments are being exported to Mexico from the United States as a way to avoid large bulk movement of paper currency across the border.
- Despite progress in Mexico's national money-laundering control policies and regulations, recent law enforcement initiatives indicate there are continued problems involving Mexican financial institutions.
- A major concern is the potential threat posed by particularly violent drug traffickers based in Tijuana and Juarez not only to Mexican rivals and law enforcement officers, but also to US enforcement officers operating on the US side of the border.
| Mexican Drug-Trafficking Organizations The Mexican drug-trafficking organizations that control cocaine movements through Mexico and are major distributors of cocaine, heroin, marijuana, and methamphetamine in the United States continue to grow. Powerful Mexican trafficking organizations receive up to half of each Colombian cocaine shipment moving through Mexico as payment for a successful smuggling operation, according to DEA. They also appear to have increased outright purchases of Colombian cocaine and have taken other measures to assert their independence from Colombian traffickers. The Mexican drug trade is controlled by several powerful trafficking organizations, most notably the Arellano Felix organization and elements of the Carrillo Fuentes organization, which split into factions since the death of drug lord Amado Carrillo Fuentes in 1997. These drug-trafficking organizations control most acquisition and transportation of drugs through Mexico and its trafficking across the US border. The Arellano Felix organization is considered by US law enforcement officials to be the most ruthless and violent drug-trafficking organization in Mexico.
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Graphic
Commercial Trucks Entering the United States Through Southwest Border Crossings With Mexico, 1992-99
The fundamental change in Mexico's political landscape caused by Vicente Fox's election following 71 years of one-party rule presents an opportunity to attack corruption. Fox has called narcocorruption a "national cancer," promised to launch an aggressive campaign against Mexico's drug-trafficking organizations, and proposed changes to federal law enforcement agencies that would restructure the country's antidrug forces. Nonetheless, rooting out corrupt officials and reversing ingrained patterns of institutional corruption will be difficult and meet significant bureaucratic and political obstacles.
United States
The same factors of size, population diversity, economic strength, modern business and transportation infrastructure, and legal protections that make the United States a lucrative target for international criminals provide an environment that supports and sustains international criminal activity originating in this country and extending well beyond US borders:- Continental breadth and extensive Atlantic and Pacific coastlines make the United States a trading crossroads to Europe, Asia, and the rest of the world--an advantage exploited by international criminals as well as by legitimate commercial and financial businesses.
- Both foreign and domestic crime groups are able to mask their criminal networks and activities within the broad ethnic diversity of the US population.
- With the world's largest and most diversified economy, and a high standard of living, the United States provides numerous opportunities for lucrative criminal ventures.
- International criminals operating in the United States also take advantage of the world's most modern telecommunications, transportation, and financial systems; extensive legal protection of intellectual and real property rights; and policies and laws that promote the free exchange of ideas and products that have contributed to the US global dominance as an economic and commercial power.
- Although the investigative and enforcement capabilities and effectiveness of US law enforcement agencies pose a considerable threat to organized crime, international criminals using the United States as a base of operations gamble that the legal protection of individual liberties and due process in this country and the integrity of the US judicial system will reduce their exposure and risk.
The tremendous volume of goods entering and leaving the United States in legitimate trade provides criminal groups with unparalleled opportunities to smuggle contraband through US ports to overseas destinations. In addition to being a point of origin for contraband smuggled overseas, the United States is used by international criminals as a transit country for contraband being shipped from one foreign destination to another. International criminals know that containers arriving from the United States are less likely to arouse suspicion in most destination countries. According to the US Customs Service, more than 14 million standard shipping containers entered the United States by maritime, rail, and truck transport in 1998, most of which contained products for the US market. Some containers, however, transited in bond to other countries; criminals transshipping contraband through US ports seek to hide the true country of origin of contraband products and hope to avoid rigorous US customs scrutiny.
While the United States is the world's leading importer of illicit drugs, it is also a major source of illegal drugs--some of which are smuggled overseas. The United States is one of the world's leading producers of marijuana, crack cocaine, and methamphetamine.
Latin American drug traffickers acquire many of the precursor chemicals they require for producing cocaine and heroin from US sources. They rely on US chemical sources of supply because the distance and transportation required to ship often unstable chemicals are shorter and more reliable than from other producers. Most of these chemicals are produced legally and exported overseas legally to legitimate users. Despite the enactment of sweeping US and international chemical control regulations, however, many chemical shipments are diverted from licit channels for use in the manufacturing of illegal drugs. Drug traffickers establish front companies, fraudulently obtain dealer licenses for chemical transactions, or acquire precursors through corrupt officials in chemical companies.
- In an effort to evade US interdiction, foreign drug-trafficking groups typically import chemicals into neighboring countries in an attempt to disguise their purpose and destination, before diverting and smuggling the chemicals to their drug-producing laboratories.
US Crime Groups Abroad
Some US crime groups have established cells and networks in foreign countries, and are engaged in a wide range of criminal activities. In many cases, the US crime groups use their overseas networks to acquire drugs and other illicit contraband or to prey upon US businesses, as they do in the United States. Law enforcement authorities in other countries also report that US crime groups are involved in money laundering, extortion, prostitution, drug trafficking, firearms smuggling, car theft, street crimes, and contract murders.
Map
US Motorcycle Clubs: Presence Overseas
- The most notorious US crime groups operating overseas are outlaw elements of motorcycle gangs, according to US law enforcement agencies. Some of the approximately 900 motorcycle gangs that have been identified as having outlaw elements by US law enforcement have worldwide chapters and are expanding into other countries at a significant rate. The increasing overseas presence of US motorcycle gangs, together with their criminal members' tendency to associate with other crime groups to further their criminal ends, are causing increasing concern among law enforcement authorities around the world. Law enforcement authorities in countries where motorcycle gangs have established themselves indicate that the motorcycle gangs are extensively involved in organized crime and have particularly bad reputations for violence, property crimes, prostitution and extortion rackets, and trafficking in drugs and firearms.
- According to US law enforcement agencies, the oldest and largest organized crime group in the United States, La Cosa Nostra, has extensive international connections. La Cosa Nostra has been historically linked to the Sicilian Mafia and other Italian criminal organizations, particularly for smuggling heroin and contraband into North America and firearms and cocaine to Canada and Europe. Some La Cosa Nostra members are involved in international racketeering activities, and the crime group controls several offshore casinos and Internet gambling sites. La Cosa Nostra's influence and control over certain labor unions in the United States has a far-reaching impact on some international commerce. Moreover, La Cosa Nostra's extortion and fraud schemes directed against US businesses may extend to their foreign operations. La Cosa Nostra launders illegal proceeds through offshore banks in the Caribbean, as well as through European and South American financial institutions and businesses. Of particular concern is La Cosa Nostra involvement in illegal stock market fraud and stock manipulation, which affects international investments and has the potential to destabilize US financial markets.
Footnotes
(1) Thailand, which in the past had been a larger producer of opium, now accounts for less than 1 percent of the region's total opium production because of effective crop eradication efforts.(2) The reliability of some Chinese statistics is questionable, particularly for much of the data dealing with the societal consequences of crime. In some cases, China does not have good data collection, which almost certainly underestimated--perhaps significantly--the scale of these problems. Since 1997, Beijing has waged an intensive publicity campaign to encourage honesty and accuracy in reporting data.
(3) One press report estimated the banking industry's bad loans to be as high as $1 trillion.
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