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:
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 EU countries are also a primary destination for illegal migrants, including women and children smuggled into the continent for prostitution and entertainment businesses controlled by organized crime.
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.
Graphic
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.
The Political Dimension
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.
With the criminal threat they face having become more multidimensional in the last decade because of the collapse of Cold War barriers, the implementation of the Schengen Agreement, and the growing presence of Russian and ethnic Albanian criminal groups, the West European countries in general have increased their attention to the problem. Italy's aggressive law enforcement campaign targeting the Sicilian Mafia in the early 1990s that resulted in the arrests of several key Mafia bosses has weakened its power and influence. Other West European countries are more focused on foreign ethnic organized crime groups operating inside their borders.
Greater awareness of the international criminal threat has increased anticrime
cooperation within Western Europe. In the mid-1990s Europol was established
for sharing information and to help stimulate law enforcement collaboration.
Police cooperation among EU members against international criminal networks
has been enhanced, particularly against groups involved
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.
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.
As Italian criminal organizations became more ruthless and concerned with accruing power and wealth, there was increasingly strong public support in Italy for a crackdown against organized crime. By largely abandoning their traditional "code of honor," which, for example, did not tolerate common crime or violence against women and children, the Sicilian Mafia in particular began forfeiting public acquiescence; unlike in the past, large numbers of Sicilians now publicly oppose the Mafia. Encouraged by strong public outcry--including outrage over two particularly notorious Mafia assassinations of leading Italian anticrime prosecutors Falcone and Borsellino in 1992--authorities have mounted an aggressive campaign against organized crime. Aided by informants, Italian law enforcement authorities have made some significant arrests that have disrupted Italian criminal organizations.
The testimony of informants indicates that Italian criminal organizations have responded by making organizational and operational adjustments, including restructuring into smaller compartmented cells, that have tightened security and allowed them to continue widespread international criminal activities.
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.
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.
Environmental Crimes
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.
The dumping of hazardous wastes and trash appears to be the most significant source of illicit income for Italy's Camorra crime syndicates, topping their narcotics, prostitution, and embezzlement activities. Camorra clans control the collection of solid waste in Naples and surrounding municipalities. At the regional level, Camorra crime groups collect, transport, and dispose of hazardous and noxious wastes coming from other regions.
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.
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.
Geography is one of the primary factors in the growth of organized crime in Eastern and Central Europe. The region is a strategic crossroads between Russia and the NIS--major "source" areas for international criminal activity--and Western Europe, a primary market for drugs and other illicit products. Contraband trade also crosses the region from West to East, as international criminal organizations--primarily Russian--smuggle alcohol and tobacco products, luxury automobiles, and other high-demand consumer items generally unavailable or prohibitively expensive in Russia from Western Europe.
Criminals in Eastern and Central Europe have taken advantage of increased trade and commercial relations with Western Europe. Many criminal gangs from these countries have expanded their local criminal rackets into Western Europe. Polish crime gangs, for example, are now competing with the Netherlands as a significant source of amphetamines for Western Europe. Polish-produced amphetamines, known for their purity, make up at least 25 percent of the European market, according to European law enforcement officials. Poland, the Czech Republic, and Romania are key sources for women and children illegally transported to Western Europe and elsewhere, including the United States.
Since the European Union countries began implementing and enforcing tougher regulations against money laundering in the early 1990s, criminal organizations from both East and West have moved some of their money-laundering activities into the transitioning economies of Eastern and Central Europe. They have taken advantage of inadequate legislation--including lack of laws granting government agencies regulatory and criminal investigation powers--and poor enforcement of the region's developing modern banking and financial systems to smuggle cash and legitimize large sums of illicit profits.
In recent years, press reporting citing government and law enforcement officials indicates that Italian and Russian criminal organizations have moved aggressively into the legitimate economy of many formerly Communist East and Central European countries. These criminal organizations and unscrupulous businessmen have taken advantage of poor regulations guiding privatization of national assets and capitalization of banks to purchase or invest heavily in banks, financial institutions, and businesses and to defraud fledgling stock markets. These activities have enabled criminal organizations to operate companies as fronts for smuggling contraband between East and West and for laundering illicit proceeds. Concerns that criminal elements have tried to take advantage of the privatization process has made officials in some of these countries more cautious about foreign investment.
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.
Crime, corruption, and drug addiction have become salient political issues in many East and Central European countries. According to a November 2000 public poll in the Czech Republic, 80 percent of that country's citizens believe economic crime and corruption are the country's most serious problems. Crime was a major issue in the May 1998 elections in Hungary that toppled the former socialist government and brought in a new center-right administration; the new government's Interior Minister declared that an appropriate response to organized crime was one of the new government's top priorities.
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.
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.
Criminal groups have been aggressive in cultivating business relationships with politicians, government officials, and business magnates--a major factor in their becoming a pervasive and powerful force in Russia, the Baltics, and other NIS countries. Corrupt officials in Russia have also provided criminal front companies with export licenses, customs exemptions, and government contracts.
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.
In Russia and many of the NIS, an alliance of corrupt government, criminal, and business elements resisted the effective implementation and enforcement of legal and economic reforms that would have inhibited their ability to gain control or substantial influence over the productive resources formerly owned by the Soviet state and to expand their illegal activities. Russian organized crime groups have capitalized on weak enforcement of existing regulations and inadequate or nonexistent legislation. They exploited the fitful growth of the private sector by investing in banks and businesses, providing protection of persons and property, settling disputes and contract fulfillment, and offering seemingly affordable loans with expensive strings attached. Law enforcement capabilities are hamstrung by cutbacks in funding, poor training and equipment, lack of sophisticated investigative techniques, and laws that do not apply to many of the illicit activities carried out by criminal groups, particularly financial crimes.
Political Context
Economic 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.
Map
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.
According to one Russian estimate, the underground economy accounted for 40 percent of the country's GDP in 1996. Moreover, Russian crime syndicates almost certainly conceal all or part of the income generated by businesses they control from tax authorities by sending most of the money outside Russia.
Russia's financial problems are primarily exacerbated by a poor investment climate that fails to attract the capital necessary for economic growth. Besides government corruption, weak enforcement of contracts, and high taxes, legitimate investors--both domestic and foreign--are deterred by widespread extortion and the violence associated with having to deal with organized crime. According to published Russian figures, 79 Russian bankers and at least twice as many businessmen were assassinated in contract killings between 1994 and 1997. In 1999, there were 155 contract killings in Russia, according to published figures.
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.
Social and Political Implications
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 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.
The rapid growth and poor government oversight of the Baltic countries' financial sectors enabled a few Russian criminal groups to acquire some control or influence in banking institutions to launder money and to make insider loans to their own front companies. The collapse of Latvia's Bank Baltja--the largest commercial bank in Latvia at the time of its failure in August 1995--illustrates the potentially severe implications of this trend. Bank Baltija was the centerpiece of a Russian and Latvian crime syndicate that used the bank to make bad loans to its own companies, defrauding the bank's accounts of as much as $40 million. The bank's collapse provoked a major financial crisis in Latvia, contributed to the fall of the government, and forced Latvia to seek short-term assistance from the International Monetary Fund. This episode prompted Latvia to adopt tougher laws regulating the banking sector.
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.
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.
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
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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. |
Outside former Soviet Bloc borders, Russian criminals take advantage of places that are most attractive to Russian businessmen and tourists, using them as cover and opportunity to engage in a broad range of criminal activities. Russian criminals use overseas resorts frequented by Russian speakers to run extortion rackets and prostitution rings, trade in black-market consumer goods and drugs, and to launder money.
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.
Over the last several years, Russian organized crime groups have been expanding their operations internationally by establishing international business enterprises in offshore financial centers. Low incorporation fees and quick startup provisions in many offshore havens have enabled Russian criminals to change firm names--complicating any law enforcement investigations against them--with relative ease and low cost. The use of nominee shareholders and directors also hides ownership and helps to avoid account inquiries in the case of litigation or criminal investigations. Once Russian criminal proceeds have been placed in an offshore firm, they can be moved quickly and relatively safely through the global electronic funds transfer network supporting international banking and commerce.
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.
International drug traffickers and Russian criminal groups have established relationships both to move narcotics through the former Soviet Union and to supply the Russian market. Press reporting, which cited Russian law enforcement and Interpol information, indicates that by the mid-1990s Italian and Russian crime groups had at least tacit agreements to cooperate in the movement of narcotics through the former Soviet Union.
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.
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.
Although Russian organized crime is still not as significant a threat in the United States as La Cosa Nostra and some other ethnic-based crime groups, the sophistication and international connections of Russian crime groups in the US make them well-positioned to expand their criminal operations. US law enforcement indicates that Russian criminals in the United States are, in general, better educated and more skilled than members of La Cosa Nostra; law enforcement analysts consider Russians among the best in the world in orchestrating economic and financial crimes.
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.
Organized crime has influenced political and economic developments in Albania. Thousands of Albanians lost their life savings to complex countrywide pyramid investment fraud schemes run by Albanian crime gangs and largely stage-managed by Italian criminal organizations. The collapse of the pyramid firms in late 1996 provoked a political crisis so severe it toppled the central government. Despite the restoration of public order since then and efforts by the government and police to curb their activities, Albanian crime groups remain powerful and a corrupt influence on Albania's fragile institutions.
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.
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.
Under predominantly Taliban rule, international terrorists and drug traffickers have been able to operate with impunity in Afghanistan. The Taliban have given sanctuary to renegade Saudi terrorist Usama Bin Ladin, allowing him and other terrorist groups to operate training camps in Afghanistan. Bin Ladin, in return, has used his extensive wealth and business network to help financially support the Taliban. Despite the Taliban's public condemnation of the illicit narcotics industry, virtually all of Afghanistan's opium poppy cultivation and morphine base and heroin processing laboratories are located in Taliban-controlled territory. The Taliban profits from the Afghan drug trade by taxing opium production and drug movements.
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.
Graphic
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.
Dubai has become a significant center for financing illicit activities, in part because the preference of many businesses to deal in large amounts of cash makes it difficult for banks to distinguish between legitimate and illicit transactions. Drug traffickers, criminal organizations, and terrorist groups appear to use the Dubai banking system to launder money and conduct major financial transactions. The UAE is also a major center for underground banking hawala networks tied to India and Pakistan.
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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. |
Lebanon
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.
Prior to Israel's passing a law making money laundering a crime in August 2000, strict bank secrecy laws and the absence of currency import controls and bank reporting requirements made Israel a major haven for money laundering by Russian criminal syndicates. Israeli police sources estimate that organized crime groups have invested as much as $4.5 billion in Israel since the early 1990s. The security of Israeli investments and the stability and growth of the Israeli economy are attractive to criminals seeking investment opportunities for their illicit proceeds. One recent press report cited Israeli police sources as saying about $5 billion of Israel's $17 billion in foreign exchange reserves may be attributed to money belonging to Russian organized crime.
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.
Greece
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.
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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.
Ethnic Chinese and Thai criminal networks in Thailand and Burma play a major role as brokers, financial backers, and transporters in the Southeast Asian heroin trade. Operating in major regional commercial centers like Bangkok, Hong Kong, Singapore, and Taiwan and using a wide array of interchangeable front companies and legitimate businesses, Chinese and Thai criminal networks also arrange financing and transportation of drugs, routing drugs through many different ports--largely by commercial shipping--to their final destination. |
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.
Investments in the region's infrastructure development by businessmen engaged in a wide variety of illegal trade activities have facilitated contraband smuggling and money laundering. Unscrupulous businessmen in all of the region's countries, many of whom had long been involved in drug or contraband smuggling, exploited Southeast Asia's economic boom prior to late 1997 to raise wealth and significant political influence. In Thailand and Singapore in particular, they took advantage of ambitious government programs for economic growth and infrastructure development to establish lucrative criminal enterprises alongside legitimate businesses. Some have accumulated significant wealth through dealings in narcotics, illegal gambling, lotteries, illegal logging, prostitution, extortion, contraband smuggling, and arms trafficking. Major drug traffickers in Burma reportedly have become significant investors in infrastructure development, which can be used to facilitate both drug smuggling and money laundering.
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.
Unskilled young males in or from these regions-- especially those who have migrated to urban areas where they have few job prospects--are a prime source of recruits by drug trafficking and other criminal organizations. Many of the crews of fishing boats used to smuggle heroin through the Gulf of Thailand to major commercial maritime transshipment ports in the region--Singapore and Hong Kong, for example--are migrants from northeastern Thailand and similarly impoverished regions in Burma and Cambodia.
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.
In recent years, international criminal activity has become a more significant problem for Indochina. As a result of Thailand's intensified efforts against drug smuggling, traffickers primarily use southern China as a transit route but have also increased their use of Cambodia and Vietnam as an alternative transshipment route. Opium poppy cultivation has become established in northern Vietnam, and Hanoi's efforts to improve the country's transportation and import/ export infrastructure are making Vietnam more attractive to drug traffickers and other criminals. Phnom Penh's renewed emphasis on economic development has increased opportunities for corrupt business entrepreneurs like Teng Boonma, a longtime reputed drug trafficker in Southeast Asia. According to the Cambodian press, Teng owns most of Kampong Saom--the country's most important port city--and a key transit point for Cambodian marijuana.
Graphic
Burma's Opium Production, 1988-2000
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.
Beijing's economic reforms and priority given to promoting international trade and investment have created opportunities for both mainland and overseas Chinese organized crime syndicates.
Widespread corruption, particularly at the local level, has contributed to increasing international criminal activity in China. Often lacking modern equipment and training in modern police tactics, China's police are ill-equipped to deal with the growing crime problem. In some regions of China, local military units have supplemented the police in law enforcement operations, especially against smuggling networks. Corrupt officials in some Chinese Government organizations and state-run business enterprises have been involved in illicit activities ranging from facilitating drug trafficking and alien smuggling, to providing arms to criminal groups in the black market, to smuggling strategic materials--particularly petroleum products--into the country.
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.
Mainland Chinese crime groups exploiting widespread corruption have established strong ties of their own to Chinese officials and entrepreneurs. In Fujian Province, Chinese alien smuggling networks operate with the assistance of corrupt officials, local police, and customs officers. Through these activities and the establishment of international networks, mainland Chinese criminal syndicates may be eclipsing the once-dominant role played by triad members from Hong Kong and Macau.
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.
Map
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.
Contraband smuggling has become a target for a major law enforcement crackdown beginning in July 1998. Chinese Premier Zhu Rongji in August 1998 announced that rampant smuggling had reached unprecedented levels in terms of its scope and quantity of products. He also blamed smuggling for corrupting government officials, poisoning social morals, and a surge in other crimes. China's high tariffs and taxes, as well as nontariff barriers to trade, make smuggling of foreign-produced automobiles, cigarettes, computer software and equipment, electronics, petroleum products, and other goods extremely lucrative for criminal groups and corrupt officials. Illegal imports, besides depriving the government of substantial customs revenue, have seriously disrupted China's key oil industry, as well as the country's computer, automobile, and cigarette sectors, according to press reports. Organized crime syndicates, including Hong Kong's 14K triad and mainland criminal groups, are heavily involved in the smuggling of automobiles and cigarettes into China for Chinese consumers and for reexport to foreign markets.
China is also struggling to control a growing black market in small arms, including military weapons, that are sold to criminal groups throughout East Asia. Increasing quantities of firearms have shown up inside China, contributing to the crime problem and sometimes challenging the firepower available to local Chinese police and security officers. Chinese police in Guangdong and Liaoning Provinces have encountered crime gangs armed with military-style assault rifles. A portion of the weapons traded on China's black arms market are sold to criminal groups in Hong Kong and Macau, adding to Beijing's concern about crime and social order in both enclaves. Chinese authorities claim most of the arms come from Vietnam and that Vietnamese gunrunners dominate the trade, but many of the weapons trafficked in China probably are from police and military stocks or from Chinese arms factories.
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.
Hong Kong
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.
Graphic
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.
Hong Kong's status as one of the world's most developed financial centers makes it vulnerable to attempts to use its financial institutions for laundering illicit proceeds. Wide-ranging links to the international business community and the modern banking sector in Hong Kong provide extensive cover for money-laundering operations and for financing illicit activities.
Hong Kong's ethnic Chinese organized crime groups, commonly known as triads, control local criminal activity. As they did during the former British colonial rule, triad members continue to infiltrate and cultivate contacts in Hong Kong's civil service, political parties, news media, and stock exchange who can help protect or further their interests. While they do not monopolize international smuggling and illicit financial transactions, triad members frequently help broker deals and facilitate shipments of drugs, arms, and other illicit contraband through Hong Kong to overseas destinations.
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.
Contributing to and exploiting pervasive corruption and lax law enforcement in Macau before the colony's handover to China, triad criminal groups also controlled or had substantial influence in many legitimate business enterprises, including manufacturing plants, some of which were used to cover for criminal activities. With easy access to Hong Kong, a more open border with the mainland, and few extradition or mutual legal assistance treaties with other jurisdictions, Macau had also become a transit route for arms traffickers and alien smuggling groups.
Local and national Chinese law enforcement authorities have been working to diminish the power of organized crime in Macau since its reversion to China. Although triad involvement in casinos and other businesses remains a serious problem, there has been a marked decline in organized-crime-related violence in Macau: there were only seven murders in Macau in the first 10 months of 2000, compared to 37 murders the previous year.
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.
Although the organized crime problem in Taiwan is largely domestic, Taiwan-based criminal groups use the island's extensive international trade and financial links to further their illegal activities overseas. According to world trade data, the port of Kao-hsiung handles some 5 million containers annually, the third largest volume after Singapore and Hong Kong, making it vulnerable to narcotics and contraband smuggling through Taiwan to other international destinations. Shipping and other businesses in Taiwan, some influenced by organized crime, that have established subsidiaries and partners in major commercial centers in other countries, particularly Panama and elsewhere in Latin America, are believed to be used as fronts for smuggling, illicit transactions, and money laundering.
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.
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 t
