Invisible Threats: Financial and Information Technology Crimes and National Security, Volume 10 NATO Security through Science Series: Human and Societal Dynamics (Nato Security Through Science)

INVISIBLE THREATS: FINANCIAL AND INFORMATION TECHNOLOGY CRIMES AND NATIONAL SECURITY

NATO Security through Science Series This Series presents the results of scientific meetings supported under the NATO Programme for Security through Science (STS). Meetings supported by the NATO STS Programme are in security-related priority areas of Defence Against Terrorism or Countering Other Threats to Security. The types of meeting supported are generally “Advanced Study Institutes” and “Advanced Research Workshops”. The NATO STS Series collects together the results of these meetings. The meetings are co-organized by scientists from NATO countries and scientists from NATO’s “Partner” or “Mediterranean Dialogue” countries. The observations and recommendations made at the meetings, as well as the contents of the volumes in the Series, reflect those of participants and contributors only; they should not necessarily be regarded as reflecting NATO views or policy. Advanced Study Institutes (ASI) are high-level tutorial courses to convey the latest developments in a subject to an advanced-level audience Advanced Research Workshops (ARW) are expert meetings where an intense but informal exchange of views at the frontiers of a subject aims at identifying directions for future action Following a transformation of the programme in 2004 the Series has been re-named and reorganised. Recent volumes on topics not related to security, which result from meetings supported under the programme earlier, may be found in the NATO Science Series. The Series is published by IOS Press, Amsterdam, and Springer Science and Business Media, Dordrecht, in conjunction with the NATO Public Diplomacy Division. Sub-Series A. B. C. D. E.

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Sub-Series E: Human and Societal Dynamics – Vol. 10

ISSN: 1574-5597

Invisible Threats: Financial and Information Technology Crimes and National Security

Edited by

Umberto Gori Department of Political Science and Sociology and CSSI (Centre for Strategic and International Studies), University of Florence, Italy

and

Ivo Paparela Finance Management and International Management, University of Dubrovnik, Croatia and University of Paris, France

Amsterdam • Berlin • Oxford • Tokyo • Washington, DC Published in cooperation with NATO Public Diplomacy Division

Proceedings of the NATO Advanced Research Workshop on Invisible Threats; Financial and Information Technology Crimes Against National Security Dubrovnik, Croatia 18–22 October 2004

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Preface Umberto GORI University of Florence, Italy President of CSSI Director of ISPRI

The problems this ARW has to analyze and discuss are of paramount importance, perhaps the most important ones among those we have to face in the years ahead of us. Technology and the information revolution have changed the balance of power, both domestically and internationally, and are altering the dynamics of international relations. Technology has altered and corroded the State’s authority and strengthened nonstate actors, in particular transnational crime and terrorist organizations. The technological revolution, though positive in itself, is nonetheless successful in corrupting markets and weakening security. As has been said, cybercriminals and terrorists have already “crossed into the spectrum of information warfare”. This simply means that the same bases of sovereignty and state legitimacy are in jeopardy. The traditional paradigms of international relations are challenged. Postinternational global theories, such as the turbulence paradigm, are now trying to read with new lenses the new state of the world. As a consequence, states are not – or are not yet – “equipped or capable of controlling cybercrime at the individual state level”. At the same time, compliance with international agreements reduces the ability of our states to engage in information warfare. To put it briefly, cyberspace is to our societies what the nervous system is to our bodies. The increasing dependence of our societies on technology makes it possible for organized groups of cybercriminals and cyberterrorists to inflict serious damage on our economies and national security. The more we become technologically sophisticated, the more we are vulnerable and possible targets of attacks of many types, also because cyberterrorism is “one of the fastest evolving areas of criminal behaviour”. Moreover, as a recent case study shows (J.L. Olson, 2004), “organized groups of cybercriminals carrying out coordinated attacks have a higher potential to inflict damage than do lone perpetrators”. Research shows that defensive measures taken by governments focus at present on individual rather than on organized cybercriminality, though – as above said – the damage inflicted is higher when the criminals are organized. There are different types of hackers. One possible categorization of them is based on their intent and motivation: interest, political protest, religion, and so on. It is also possible that cybercriminals are at the service of governments or corporations which engage them for economic or strategic intelligence reasons. The tools hackers have at their disposal are many, and more and more easy to use. The threats against our societies will grow both in seriousness and in frequency. So our national security will be more and more in jeopardy.

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The Internet offers an ideal opportunity to cybercriminals to make money and to remain anonymous. Illicit profits can be made, laundered and transferred everywhere in the world in no time and with little or no risk. These profits, many times, serve to fund other criminal or terrorist activities. The link between organized criminality and terrorism being money, it is of enormous importance to elaborate measures, national and international, against criminal high-tech behaviour. One of the major problems to be solved is related to the difficulty, or even impossibility, to detect and prosecute illicit activities which cross geographic and legal boundaries, and which, at the same time, expand exponentially due to broadband connections. CERT/CC – the Computer Emergency Response Team/Coordination Center – has identified 1,090 computer vulnerabilities in 2001 and 4,129 in 2002, namely 4 times as much in only one year. This is also because the private sector obeys the law of profit and does not care as much about national security. One can understand the seriousness of the problem considering the state of dependence of critical infrastructures on the private sector. In the United States, for instance, “the military currently relies on commercial networks for 95% of its essential communications”. The only way to protect our economies and military systems – I think – is to provide and increase state-dependent mechanisms of layered defences, including also encryption products which now operate with practically uncrackable 128-bit keys, and increase international cooperation among states as suggested, for example, by the Convention on Cybercrime of the Council of Europe of 2001. Obviously, these security systems imply high costs estimated to reach up to several billion dollars, but the consequences, financial, industrial as well as strategic, of a cyber-attack on sensitive I-structures of a country risk having calamitous effects, also because the number of cyber-attacks increases at exponential rate every year. As far as investigation is concerned, it is evident that traditional methods cannot cope with the new reality of cybercrime. Legislations and the legal sector at large should be revisited to deal efficiently with cyber illicit acts. According to Interpol, “while organized crime groups have wasted no time in adapting new technologies to their ends, the efforts of the international community have remained fragmented and weapons of law enforcement almost obsolete”. Moreover, there is normally a time lag of some years between the upgrading of technological tools by the States vis-à-vis the immediate upgrading made by the rich criminal and terrorist groups. Here, however, there is a problem with the enjoyment of civil rights, with particular reference to privacy, as proved by the provisions of the Patriot Act in the U.S. Another serious problem is the absence of expertise among members of the judicial sector. New training on computer forensics is needed both for them and for members of the intelligence community. Data-mining software is also needed to track cyber-trails. Obviously, the use of encryption by criminal groups is a serious obstacle for investigations. The situation is very difficult, but we cannot simply accept the statement of Europol’s crime Department Director when he says: “With cybercrime, it’s become obvious that we’ve lost the battle even before we’ve begun to fight. We can’t keep up”. A strong international cooperation is the key to try to be on the winning side. The afore mentioned Convention on Cybercrime, adopted by the Council of Europe, is a good example of what should be done.

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From the legal and judicial point of view, it is evident that we are far behind the necessary level of modernization and harmonization of our juridical systems. Our traditional laws were devised to protect physical property and physical “goods”, and not the virtual assets of the world of computers. Moreover, as it has been said, “many cybercrime investigations are ineffective because they focus on evidence, quantity, tracking, location, injury, and loss, just as though these physical elements are pertinent in the virtual world of cyberspace”. On its side, the Internet offers cybercriminals and terrorists many opportunities, among which it: can be used anonymously, helps in raising money, is a recruiting tool, is an information gathering system, can be used to steal information and manipulate data, can be used to make propaganda, allows a group to appear more dangerous than in reality is the case, etc. In short, it is an extremely dangerous weapon in the hands of people who do not put limits, juridical or moral, to their actions. Some other remarks concerning NATO seem to be important. During these last years, the Atlantic Alliance and the European Union have contributed consistently to European security, freedom and prosperity, with a partnership that has proved beneficial. With the enlargement of the E.U. and the perspective of the adhesion of the Balkan countries to the European Union, NATO is slowly handing over to the E.U. the responsibility of security in some Balkan states, with European forces engaged in peace support operations. The objective of peace-enforcing-making-keeping missions is to stabilize the region in order to be able to withdraw from it after the local authorities have full control of the situation. But, obviously, organized crime and its bedfellows, corruption and violence, appear currently as the main actors that hinder the achievement of this objective. These criminal activities pollute politics, economy and reconstruction, and fuel disturbances, ethnic rivalry and violence. In areas of conflict the main threats are not only those created by war, material and humanitarian devastation, but also those created by the vacuum of legitimate and strong authority. This vacuum has given space to all kinds of crimes, both local and international, making the convergence of criminal activities with extremism and terrorism much easier. Local police forces have problems of legitimacy, while international ones have problems of training and understanding of the local realities. Military forces in peace operations are visible, predictable, and rational and, therefore, easy to be bypassed by local criminal ‘forces’ that are invisible, unpredictable and do not act rationally, at least in western eyes. To see does not mean to understand. Intelligence is fundamental for foreign troops in areas of crisis, and has to go hand in hand with the operations. This synergy has however been often prevented by national approaches and susceptibilities. It is obvious that fighting against the “untouchables” of the local society and the criminal organizations ruling in some countries of the area requires a type of knowledge and tools that the military and police did not have until now. The actors in the fight against these structures should therefore adopt the same global approach, adopting a functional and flexible network security disposal, with operations based on shared information and common analysis of the ‘enemies’ and of the objectives to be reached.

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It is my hope that this Workshop, enriched by the contribution of so many experts coming from different countries and cultures will contribute to the solution of at least some of the problems and ‘invisible threats’ – corruption, trafficking in documents, high-tech crime and money laundering – that are challenging our societies and our security1. Umberto Gori University Centre for Strategic and International Studies (CSSI) Florence, 2006

1

I am deeply indebted to J.L. Olson (The Threats of Systematic and Organized Cybercrime and Information Warfare, 2004) for many of the ideas expressed in these few pages, as well as to M. Coen, PhD, Belgian Counsellor of Embassy, for her valuable advice. The editors wish to thank Silvia Ciotti Galletti for her invaluable assistance.

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Introduction Luigi CALIGARIS Military and Intelligence Lecturer, Italy

It is both an honour and a challenge to open the Advanced Research Workshop (ARW) with my paper, entitled “Invisible Threats: Financial and Information Technology Crimes against National Security”. Before dealing with the specific issues on the agenda, let me say that Dubrovnik is not only a beautiful place to mix business and pleasure by holding a conference such as this one, but is also important as part of the Balkan peninsula, with both historical significance and great political importance, thereby adding considerable value to the conference. It is well known that the Balkans, as a crossroads between the East and the South, have played an most important and critical role in European history acting either as a bridge or as barrier between Europe and bordering countries or as catalysts of major events and wars. Such an important and often dramatic geopolitical role has inevitably contributed to their recurrent internal and internecine conflicts in recent years and, consequently, to their uncertain and troubled relationship with the rest of Europe. Such a crucial and problematic history contributes in no minor measure to the difficulties stabilizing and de-marginalizing the Balkans in order to include them within the enlarged E.U. borders under the overarching protective shield of NATO. Europe is where they do belong and where they must be, provided the conditions are ripe for such a step. Slovenia, which has opened the way by entering both in NATO and the E.U., is a successful test case but it should not remain the only one. In due time, the others should follow, provided they fit within the conditions set by the multinational institutions now attempting to guarantee European security. Incidentally, it is here in the Balkans where this new positive cooperative trend is most visible, with the E.U. progressively taking control of NATO’s three Peace Support operations, first in Macedonia, then Bosnia, with Kosovo hopefully following. The E.U.’s willingness to take care of the security of the three Balkan states has both positive and counterproductive aspects. On the positive side it contributes to local and regional peace, shows the E.U.’s willingness to accept increasing responsibility for European security and it frees American troops, currently short of military manpower, for global engagements. It may be, however, somewhat counterproductive since it may increase those three countries’ reluctance to accept democratic responsibility for law and order on their soil and reluctance to participate in common European security. It may also be counterproductive because it compels other European countries, also short of military manpower, to engage large amounts of their forces in Europe, when other parts of the world are in urgent need of peacekeeping operations for humanitarian purposes.

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One word about the title of the conference, which suggests that the seminar will deal with terrorism against, I quote, “national security” as if the issues on the agenda were only a national matter. Should it be so? Or should we discuss them in the broader “international” context since today’s terrorism, thanks to globalization, moves, communicates and operates ever more freely beyond national borders? The answer is simple. If terrorism aims to disrupt the international system it must concentrate its threat against the homelands of individual states where lie most of the vulnerabilities and strengths. Each of these countries has a role in the interstate system and influences multinational decision-making. Each directly rules over its citizens, is responsible for their security and holds the sovereign right to the use of force. Security of the homeland is therefore the main concern of counter-terrorism, which must combine intelligence and internal defensive measures, dissuasive and preventive measures both on the home front and with others in an international context. That dual requirement has contributed to the creation of a counter-terrorism cooperative network for multinational cooperation and functional linkages between states and multinational institutions, such as the UN, E.U. and NATO, to share intelligence, policies and measures. The formulas “coalition of the willing” and “burden sharing” functions better in terms of homeland security than in terms of overseas commitments. Such a national – international cooperative mix against terrorism is, within Europe, best represented by the combination of national counter-terrorism agencies and the European Union which, with its evolving “Third Pillar” (Home and Justice Affairs), provides the framework for common European behaviour. NATO, while being responsible for the protection of it own forces and structures and not of civilian societies, may also concur indirectly to improve the “mix” of institutional cooperation between Europe and the United States. Because of these considerations and the ability of terrorists to ignore or exploit such institutional distinctions as they wish, it would be impractical if the two multinational institutions were not to share their knowledge and to collaborate. This point offers the opportunity to stress an aspect of the counter-terrorism battle where collaboration may be frustrated by the reluctance of institutions and nations to share their intelligence and to take common action. If this problem is still prevalent in countries with over fifty years of collaborative experiences, as is the case among most senior NATO members, it is not arbitrary to believe that in the war-torn Balkans, it can be a most difficult obstacle to cooperative efforts. It is hoped that the cooperative attitude among NATO and E.U. members will also manifest itself in the Balkans to overcome these counterproductive trends. The first issue on the agenda is financial in nature and the choice is correct. International terrorism is a very costly business; it needs large amounts of money to pay for its organization, communications, movement, arms, training, propaganda, and proselytism, all activities that cannot be openly financed but require surreptitious measures such as money laundering to move funds in an encrypted format to private international networks. Corruption is the human nature which makes such business prospers. The problem, however, does not end with the ascertainment of the misdeed but also requires the collaboration of both the justice system, and of law enforcement on an international scale, to implement countermeasures beyond national borders. This is a highly complex matter which demands a high degree of foreign collaboration in both fields. This is not, however an unexplored field, since most NATO and E.U. nations have built, over the years, a considerable base of knowledge and cooperation. Partici-

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pants from countries with these experiences will say have a wealth of knowledge to impart to others from countries with less experience in these areas. Other issues worth discussing at this seminar are the possible links between international criminality and international terrorism, which are quite strong according to Americans and less so for Europeans. In the specific case of the Balkans, however, both agree that there is no serious interaction between terrorists and criminals and that general criminality prevails by far over the terrorist threat. Generally speaking, this is not a simple matter since the view that international terrorism and criminality may collaborate, while it helps to simplify and energize law enforcement efforts, may also unnecessarily increase their powers and those of their governments with the risk of infringing upon guarantees of freedom and individual liberties. As William Safire, a leading American conservative journalist has warned “in times of conflict, governments increase their power ... parliaments cannot always be counted upon to stand up to them”. Another important subject discussed is the net war, a product of the rapidly evolving information age fought in the virtual dimension of cyberspace. Terrorism and crime, by avoiding centralized structures and by investing in human and computer intelligences rather than on cumbersome and costly security structures, can compete with governments that are also highly vulnerable because their societies depend on computer networks. It is a domain where the confrontation is no longer asymmetrical, as in traditional warfare, and opposing sides possess similar strength. For instance, while precision guided munitions (PGM) easily defeated the Taliban, in three years the huge and powerful American counter-terrorism organisation has not yet succeeded penetrating al-Qaeda’s network. Such rough parity in the war between international crime and terrorism against national and multinational institutions is, by the way, due both to software and hardware spin-offs from the military towards the civilian sector. Terrorists and criminals share some of the opportunities offered by this area, but their objectives differ. Terrorist efforts are more comprehensive and aggressive since their aim, the disruption of societies as a step towards their domination, has a strategic dimension which does not pertain to criminality. This is, however, a subject worth being further debated since terrorism and criminality, in different political conditions, have shown in the past great flexibility in respect of their relations. Since net war, however, is the domain of terrorism, it is worth trying to understand what its methods will be and which suit it best. The internet, invented by the Americans in the late sixties, will continue to be a most cost-effective and versatile instrument. It is more than a tool for communicating and distributing information; it is also a catalyst of actions and reactions, and a pathway for the dissemination of viruses against selected targets. It can also be an instrument for proselytism, recruitment, mobilization, indoctrination and organization and for access to sensitive data. According to the State Department, 28 terrorist groups have Web sites and email. More impressive but less probable, at least for now, are terrorist cyber warfare and cyber attacks. At present their sources are mostly recreational hackers, while in the last eight years no terrorist cyber attack has been directed at the United States. Terrorists seem still to believe that explosives are more effective and have much greater impact on public opinions. Returning to the problems of freedom, it is worth debating whether the use of cyberspace by terrorists may allow governments, when monitoring its communications in name of national security, to adopt too intrusive measures which could restrict civil liberties beyond acceptable limits.

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From cyberspace to solid ground, from virtual reality to actual reality, the concept of control of territory with or without peacekeepers, and with collaboration between militaries and civilians in counterterrorism is paramount. In some Balkan countries, attention inevitably is directed to external forces engaged in peace support operations. It is worth debating in a positive but critical way what are the advantages and disadvantages of their possible involvement in such activities after a too prolonged presence in the region. Recently, severe criticism has been addressed to international peacekeeping forces for having adopted too low a profile and for not having protected civilians in Kosovo. However, they would probably be subjected to even sharper criticism if they engaged in heavy handed intrusive control of the territory. It is probable that this criticism will not fade away, while their presence will increasingly become less bearable. As mentioned above, NATO is slowly handing over to the E.U. the responsibility for security in some Balkan states, with European forces engaged in peace support operations. This friendly protective shield has already lasted too long and cannot go on forever, implying that the states in the region are not able to govern themselves. Such unresolved problems prolong indefinitely the ascension of the Balkan states to the E.U. It is disconcerting to read in an American editorial that the Balkan region is an important corridor for trafficking in weapons, drugs, and illegal migrants and that the level of criminality has been facilitated by rampant corruption. It is not yet a haven for terrorists and their activities but, if the law and order problems persist and the internal security of some countries does not improve, such an eventuality can no longer be excluded. The problem is mainly political, which renders effective control the territory out of the reach of peacekeepers. After so many years, their role has lost some of its initial legitimacy and strength, transforming them in the perception of the populations into a neutral and passive occupation force. In the meantime, terrorism and criminality are dealt with mainly by local law enforcement and intelligence bodies, as the experience of UN police has not been encouraging. Cooperation among both local law enforcement bodies and those of some E.U./NATO member states already exists but there is room for improvement. In the last three years, the E.U. has endeavoured to improve such collaboration among its members as well as with other states; this seems the direction in which to move. In this general context, the seminar will also cover the collaboration between military polices forces and counter-terrorism agencies in tracking terrorists. In this field there is not much experience in the E.U., with the exception of Great Britain and Spain, with their respective Northern Irish and Basque security problems. It will be interesting, however, to exchange views on this subject with Balkan exponents. An aspect worth discussing is the collaboration between law enforcement bodies and the military, since most European nations are reluctant to make such collaboration permanent, acting in the field together only for exceptional and brief contingencies. A last subject is the “area of freedom, security and justice” broached in 1999 among E.U. member states by the Treaty of Shengen, which postulated freedom of movement within the E.U. While an important gift for Europeans, it has been a greater one for terrorists and criminals. Since 9/11, 36 restrictions have been introduced to allow for greater control of borders and movements. On a positive note, however, such demarcation better marks the common space which E.U. members share and which, is to be hoped, the Balkans states will also share one day.

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In sum, this seminar, concentrating on aspects of the struggle against terrorism and criminality, hopes to promote greater functional cooperation among Europeans, whether or not NATO members offer to participate further in the Balkans. It would be one additional step of many in the difficult ascension process of the entry of the Balkans countries in both the E.U. and NATO. NATO and the E.U. have contributed enormously to European security, freedom and prosperity with a “partnership in leadership” that has proved beneficial. No time should be wasted before the construction of Europe is completed; therefore, the Balkan countries should be included as soon as possible.

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Contents Preface Umberto Gori Introduction Luigi Caligaris

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Public Administration and Public Services: New Challenges, New Solutions Homeland Security and the Fight Against Terrorism Luigi Caligaris

3

Trafficking of Documents, Key for Criminal Networks Myrianne Coen

6

Protecting National Security: Financial and Information Technology Crimes François Franchi

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Terrorism and Organised Crime: Finances, Economy and Investments The Fight Against Money Laundering: The Challenges to NATO Michael Levi

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Developments in Money Laundering Aude Dufetel and Henri Quintard

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Financing Terrorism and Criminal Organisations: Differences and Similarities Silvia Ciotti Galletti

36

Combating Financial and Information Technology Crime in the Balkans L. Robev

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Corruption: Fertiliser for Fleurs du Mal Ivo Paparela

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Investigating Money Laundering: The Case of Italy Tommaso Solazzo

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New Threats and Information Technology Transnational Crime: Challenges for Law Enforcement Umberto Rapetto Jr.

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Social Consensus and Law Enforcement Perceptions of Security: Local Safety Councils in Slovenia Gorazd Meško

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The European Perspectives of the Western Balkans: “Invisible Threats” vs. Visible Opportunities Milica Uvalic

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The Unholy Trinity: Transnational Crime, Corruption, and Terrorism Louise Shelley

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The Control of Post-War Balkan Territory Fabio Mini

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Smuggling Through Conflict Zones in Georgia and Security in the Caucasus Alexander Kukhianidze

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Chechen Criminal and Terrorist Groups: Points of Convergence Nabi Abdullaev

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Author Index

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Public Administration and Public Services: New Challenges, New Solutions

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Homeland Security and the Fight against Terrorism Luigi CALIGARIS Military and Intelligence Lecturer, Italy Abstract. Besides the role played by internal institutions, as the Ministries of Interior or of Foreign Affairs, in the field of homeland security and fight against terrorism, certainly the E.U. has important duties and competences. Most of all, the cooperation between E.U. and the U.S.A. can become more and more intensive, even if sometimes it appears to be a bit difficult. In the following work, European roles and experiences about fighting and preventing terrorism are examined, also considering future perspectives. Keywords. Internal security; E.U. and U.S.A. cooperation, European measures against terrorism.

Because international terrorists have elected as their top priority the disruption of the state systems2 and the intimidation of public opinion and governments, internal security has become the first and foremost priority. Such a commitment by many sovereign governments is generally led by the Ministries of the Interior3 involving as well other Ministries such as those of Foreign Affairs, to coordinate homelands’ policies with external ones, that of Defence to protect military forces and to contribute to law enforcement efforts and, last but not least, that of Justice whose understanding of the problem is essential. An important aspect of multinational relations in this respect is the cooperation between the United States and Europe, which could become a permanent Euro-Atlantic consultation. However, because the E.U. is not a federal power and an institution similar to NATO for homeland security does not exist, such cooperation must work through three channels, the E.U., NATO and individual European nations. NATO’s role in this field is relatively modest, aiming mostly to protect its structures, bases and forces in Europe. Since the E.U., not being a federal power, acts as a cooperative network among member states, a large share of the exchanges between the US and Europe works along bilateral national lines. Agreements between Europe and the United States are sometimes difficult4 but essential since without US pressure little progress would be made.5 Important results have been reached in fields where terrorism may endanger more than one country, such as the protection of movement of persons and goods6 and the promotion of initiatives against 2

In its September 2004 Plan of Action, the E.U. stressed the competence of Ministries of the Interior. It gives great attention to homeland security and to the exchange of information within the E.U. Disagreement exists, for instance, on extradition to the United States where the death penalty is practiced, on the exchange of data of passengers flying to the US, on the presence of US inspection personnel at European airports, on a common database, and on interception policies on the juridical system. 4 In the last 2004 G8 meeting, 20 measures were approved out of 40 proposed by the G8. 5 The most important agreement is the Secure and Facilitated Travel Initiative (SAFTY) and the collection and destruction of manpads. 6 Some disagreement between Europeans and Americans exists concerning the relationship between criminality and terrorism. Europeans believe the relationship is not very close, while Americans see a much closer and intertwined relationship between criminality and terrorism. 3

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L. Caligaris / Homeland Security and the Fight Against Terrorism

international criminality and terrorism.7 Europeans see great importance for the E.U. in building a common ground in counterterrorism on their common homeland and in endeavouring to match security, freedom and justice in line with the Third Pillar of the Maastricht Treaty. To this end, it has also created an appropriate body, Eurojust, which is to cooperate with Europol.8 In spite of the importance of the challenge and of the E.U. itself, the latter can count upon limited support and its anti-terrorism bodies have modest structures9 and do not hold much power. Instead, they are places to exchange opinions, gather intelligence, and agree on policies and measures on cases of common concern. Although the E.U. is not short on pronouncements, its capabilities still lag behind its intentions, as is the case of its 2004 Plan of Action with its seven strategic objectives which are little more than a list of possible improvements to the collaboration among European states and between them and the E.U. Two different cases demonstrate E.U. efforts to overcome its liabilities and ongoing problems: the Shengen and Europol issues. The 1999 Shengen agreement, meant to promote within the E.U. “an area of liberty, security and justice” in which free circulation is granted to Europeans, instead was an enormous gift to terrorists and criminals. After 9/11, 36 restrictions were introduced to allow for greater control of borders and movements. This would be complicated by the ascension of such insecure Balkan countries as Bulgaria and Romania, who have failed to secure their borders. Among the most important of the Shengen agreement’s proposed measures were the External Borders Agency and the European Corps of Border Guards; however, while the Agency was created in 2004, the creation of common border guards will take a long time and will meet opposition by member countries. Joint police actions to control movements and borders are rare, and joint police teams are even rarer.10 Clandestine immigration, with its potential for infiltration of terrorists, is only beginning to be considered an E.U.-wide problem. Another case demonstrates the E.U. member states’ reluctance to create a common law enforcement response even when problems are common to the Union’s members. In 2002, the E.U. decided to re-invigorate Europol11 but it has only brought its structure to 400 people and when re-establishing in it the Counter-Terrorism Task Force, the Union gave the structure operational commitments, but limited its tasks to collecting intelligence from member states, creating a common database and promoting collaboration among police forces. If the E.U. has had difficulty in running an internal common security policy while acting within a cumbersome intergovernmental structure requiring unanimous decision making, it has nevertheless been generous in creating new bodies for counter-terrorism. Committees have been formed within the E.U. Triad (Council, Commission, and Parliament), a Police Chiefs Task Force (PCTF) has been formed to improve operational capabilities and, in 2004, a counter-terrorism coordinator was appointed. A positive sign, however, since the perception of the gravity of the threat is increasing, resistance from national authorities and rivalries among national law enforcement bodies are both declining. 7 Ideally, the third pillar should have given life to a permanent institution linking the various Ministries of the Interior and Justice and to coordinate national police forces, custom, immigration etc. 8 Joint measures are being examined in order to increase capacities to detect and investigate, to carry out cross-border pursuits, and to protect witnesses, to issue arrest warrants. This is a field, however, where progress is slow since it interferes with the sovereignty of individual countries. 9 Europol was created in 1995 by the E.U. and became active in 1999. 10 Congress and media in the United States have been very critical of the Patriot Act since it considerably limits individual freedom and may be used not only against terrorism but also to increase the scope of law enforcement. According to a study by the U.S. General Accounting Office, 75% of arrests made under the accusation of “international terrorism” were instead related to criminal acts. 11 International Herald Tribune.

L. Caligaris / Homeland Security and the Fight Against Terrorism

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Improving security without negatively impacting freedoms and justice has been undertaken utilizing different approaches by Europeans and Americans. While both believe in the importance of those two issues, the Europeans are also convinced that12 even with the toughest measures, a Fortress Europe is not realistic and have, therefore, shown greater moderation. No E.U. country would have approved a law like the American Patriot Act while the American Congress has intervened to moderate initiatives by the Minister of Justice. On this critical issue, William Safire, a leading American conservative journalist has warned “in times of conflict, governments increase their power…parliaments cannot always be counted upon to stand up to them”. At present the Congress is endeavouring to abolish regulations that are considered unacceptable to American liberties. The problem is much more serious in countries where the culture of freedom and justice are weak, parliaments hold limited power, media have a difficult time, security and stability are endangered and governments are inclined to adopt heavy law enforcement measures. A comparison between reactions taken by the Americans after “Ground Zero” and by the Russian government after the Beslan attack, should make this point clear. The complex challenge for the future will be to combine the desire for a more accurate and penetrating intelligence with the desire to protect freedom and individual rights.

12

International Herald Tribune, 11 April 2005. The leading article’s title is “Revising the Patriot Act to restore American liberties”.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

Trafficking of Documents, Key for Criminal Networks13 Myrianne COEN Phd, Counselor of Embassy, Belgium « Clearly our system is not able to prevent a terrorist from getting a visa legally 14 » Abstract. Terrorist and people belonging to criminal networks always use fake or illegally obtained documents and visas to cover and hide their real identity. Sometimes these documents (most of all passports) are stolen in western countries by criminal organisations, or people connected with them, and used by terrorists and criminals to travel from a country to another. Usually, at an international level, this kind of thefts is seriously unevaluated, and investigations are not properly organised or co-ordinated: this allows criminal networks to carry on in a profitable way their illegal activities. Keywords. Fake documents and visas; investigations about documents; use of fake and illegally obtained documents and visas.

Since September 11th, much has been said about the fact that Ministries of Interior, Justice, Defence and Foreign Affairs, on a national and international scale, don’t collaborate extensively enough; as a consequence, criminal networks find open doors that they are always keen to exploit. The murderers of the Afghan rebel commander Ahmed Shah Massoud were holding Belgian passports, stolen in 1999 in the Consulate in Strasbourg and in the Embassy in The Hague15. In the shadow of this murder dissimulated by stolen documents emerged the most serious threat against the West for the last fifty years. For those who know that a threat appears where capacities and intentions are combined, the assaults in the U.S.A. were thus a "symptom", the consequence of a situation that has been developing for about ten years. Two thefts of passports that had not attracted anyone's attention in 1999, appeared to fall into the sequence of preparatory actions of an aggression that would cause 3,000 deaths. A total of about 200 passports had been stolen in the concerned diplomatic services. About a dozen have been intercepted in Rome, Washington and in Gambia. Nobody had ever bothered to begin a judicial inquiry. 13 A first version of this presentation has been published in French in Défense Nationale, Paris, mars’04, p.98-108. 14 “State Department records make clear that 15 of the men applied in Saudi Arabia and listed themselves as Saudi citizens, although it is still possible that some could have used phoney documents. Saudi officials insist that “identity theft” is likely and that the true names of some of the men remain in doubt … Clearly our system is not able to prevent a terrorist from getting a visa legally”, from “15 hijackers obtained visas in Saudi Arabia”, in The Washington Post, 31/10/01. 15 "DE.U.x terroristes "belges" inconnus", in Le Soir, 18/9/01.

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A specialist in stolen passports then declared "All I want is that these passports stop circulating"16. But is that really all to desire? Is that enough? In March 2001, 50 passports disappeared, this time at the Belgium Consulate in Toronto and, three months later, a diplomatic suitcase with 25 passports vanished. Facing this leakage, the Belgium Ministry of Foreign Affairs centralized the issuing of passports, entrusting them to a private society, “Groupe 4 Securitas”. For its greatest resentment, 300 passports have also disappeared from this society and were later discovered in Spain, Canada, and so on. Although attention has been substantially raised after the sequences of terrorist attacks around the world, trafficking in passports and visas are still nowadays flourishing.

1. Fake documents, key for illegality Inquiries on terrorism have shown that fake documents are one of the main keys to clandestine life. Ten passports stolen in Koln in 1999 (almost another 500 being still missing), were found with a French citizen, arrested in Rotterdam, an accomplice in the Trabelsi cell, the Tunisian arrested in Brussels on 13 September 2001 and condemned in the inquiries on Islamic terrorist networks. On the very morning preceding the assaults in the U.S.A., the Italian newspaper Corriere della Sera17 wrote that some Italian Embassies could have given illegal visas to members of terrorist networks. In the UK, Italy, U.S.A., Netherlands, and Spain, almost every arrest has led to the sequestration of forged passports and other fake documents. According to a repentant from the Al Qaeda network, the forged passport is the most precious instrument of a terrorist18. However, this statement is not a new one. During the investigation on hold-ups committed in the North of France (Roubaix) in 1996, the French police discovered not only arms but also a bag of fake documents. Behind these gangster attacks, the inquiry brought to light a network leading to the Bin Laden networks, passing via Bosnia. In the trafficking of documents, criminal networks are closely interrelated. In fact, documents required by these networks are extremely diversified. In Canada, 3 people suspected of being in touch with Osama Bin Laden’s organization were arrested. During the search were found: 6 driving licenses issued from 3 continents, a dozen bank cards and 13 credit cards, 7 passports, namely Jordanian, Swedish, Australian, and American, to different names, certificates of birth, social security cards and student cards as well as various currencies comprising a total of several thousand US dollars. Note that one of these people did subscribe for flight training at least twice in 1994 (Illinois) and 1998 (Texas). Visas acquired by fraud complete the panoply of criminal and terrorist candidates. 15 out of the 19 11th September air highjackers had obtained their visas in the US Embassy in 16

« Ik wil dat ze uit de omloop verdwijnen, dat is alles », in de Morgen, 9/2/02. “Visti facili, si indaga sulle ambasciate” (“Easy visas: inquires in the ambassies”) in Corriere della Sera (I), 10/9/01; “Decine di indagati per i visti facili, Si allarga l’inchiesta sulle ambasciate, spunta la mafia russa. Forse i documenti utilizzati da terroristi” (“Tens of inquired for the easy visas. The inquiry on the embassies grows, russian mafia appears. Maybe the documents were used by terrorists” in Corriere della Sera (I) 11/9/01 18 “Alfahdi fu mandato in un campo afgano per la resistenza. ‘Può raccontarci quella esperienza? Quando viaggiavate all’estero, … usavate il passaporto con il nome vero?’ ‘No... Se dovevi andare all’estero ti davano un passaporto e un biglietto … Stava per scadere ed era lo strumento più prezioso per viaggiare’”) (“Alfahdi was sent to an Afghan camp for resistance ‘Can you tell us that experience? When you were travelling abroad, … did you use the passport with your real name?’ ‘No... If you had to go abroad, they gave you a passport and a ticket … It was near the expiry date, and it was the most precious instrument to travel’”), in “Tutti i segreti di Bin Laden” (“All Bin Laden’s secrets”), in La Repubblica (I), 21/9/01. 17

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Saudi Arabia, taking advantage of the confidence granted by the US to citizens of this country. One should also mention fraudulent acquisition of work permits allowing residence permits to be obtained, as well as fraudulent acquisition of nationality allowing a cascade of abusive acquisitions like identity cards and authentic passports. It is also worth mentioning that a member of the Russian mafia, involved in arms trafficking, tried to corrupt a Member of Parliament, who has been indicted, in order to obtain Belgian nationality. Not to speak about documents in specific sectors. Arms dealers do not only look for visas for their pilots, but also for various licenses, certificates and permits for transportation of arms and piloting airplanes. In this sector, embassies as well as ministries of Foreign Affairs, Communications, Economy, as well as diverse national and international institutions in charge of regulation, inspections and controls are first line targets for corruption. Taken together, these elements give an idea of the movements of contemporary criminals and the needs of clandestine life. In fact, the mobility and the spatial compartmentalisation of actions are two essential elements of organized criminality19. Such an organized network will probably never be dismantled. Because, in the case of potential interception, no trace of passports and their sponsors will ever be found, the omertà keeping the witnesses silent, considering that these crime are always related to public administration, and the power that this implies. An eventual arrest would than most often result from breaking immigration laws, considered as a minor crime, therefore deserving little attention.

2. The neglected track of documents This is how we arrive at the importance of a regular supply in forged documents, which conceal the tracks of the members of criminal networks that circulate through the borders. From there on, we see the importance they give in having a number of stable stopping-off places in the administration to provide these documents. However, most of the time, we do not pay much attention to documents. Basic data (name, nationality, etc.) are generally registered during an arrest. However, this is not always done very precisely. How often do we still fail to differentiate between native citizens, and ethnic nationals from other States? There are so many lost tracks, while it matters for retracing the networks. If basic data are registered, this happens much more rarely, for example, for visas on the passports. However, these elements do not only make it possible to retrace the route of the apprehended individual, but also give indications to identify his/her contacts: in the Schengen space, a visa granted to a national of a Balkan State is based on an invitation coming from a national of the visited country. This is also therefore that traffickers seize the passports of their victims in the framework of trade in human beings.

19 The mobility permits division of labour in order not only to assure a maximal profit but also the flexibility needed for immediate adaptation to a changing environment (growing repression in a country, war blocking frontiers, …) The partition of action guaranties escape from punishment by both reducing the traces accessible to the repressive forces and by masking the criminal character of the acts committed making them less intelligible. For instance, a company in the country A invites a citizen from the country B, the latter applies for and receives a visa to visit the company in question. The person never visits the latter, but bearing in mind the facilities offered by the Schengen Agreement, is guided to a country C, a member of the Agreement. A citizen of the country D then takes her passport and in order to procure this person with an official status justifying a temporary stay asks her to apply for political asylum. Thereafter, he forces her to prostitute in Schengen country E.

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Until today, these data have hardly ever been collected, and to gather them seems a task almost impossible even for a diligent police service. They are therefore almost never subjected to comparison and computer consolidation – which, however, is the only process capable of upstream retracing of routes and responsibilities that give to these unwanted guests access to our territories, an obvious procedure to attack the channels for illegal trafficking right to the heart. Considering the current technological means available, we must presume that this is due to a misconception of the interest in such an exercise. Indeed, it is not an easy job to make inquiries through rogatory commissions, inside foreign public administrations, but the job seems even not been done on a national scale either. Taking into consideration the number of data that could be collected concerning, for example, the illegal nationals of the Central and Eastern European countries, including judicial and administrative arrests in the framework of the victims of illegal immigration in particular, the results should already be illuminating. Concerning border controls, or for those which are posted in the Balkans, you may not be astonished to hear that a passenger travelling on a regular bus route to Italy not very long after the attacks against the United States, estimated, on the basis of his conversations with the other travellers, that half the passengers were candidates for illegal immigration. With regards to border crossings, they relied less on valid documents than on generously distributed cartons of cigarettes. At the judicial level, documents are generally neglected, too, and magistrates rarely investigate into the ways in which arrested foreigners have obtained their passports and visas. As for the victims of the traffic of human beings, they are very often expelled before any inquiry is made on the subject. Still more uncommon, or even non-existent, are the judicial investigations which intend to establish the link between these documents intercepted from all parts of the planet, in order to examine "coincidences" between them. In any case, an accumulation of chances that are too favourable to hostile hands, especially if they reproduce themselves in time, is a serious indication of organized networks. Due to the influx of illegal migrants in our countries, a trend developed – at least before September 11th –in favour of the abrogation of visas, considered as ineffective and unfit in mastering the illegal access to our territories. However, unofficial statistical data of the number of a Balkan national temporarily arrested for having committed crimes or offences in one of the Schengen countries, should give us sufficient food for thought. After the abolition of visas, this number of interpellations had doubled over an equivalent period of time : 102 arrests for the sixteen months between January 1st, 2000 and April 30th, 2001; 101 arrests between May 1st and December 31st, 2001 – which covers a period of eight months.

3. Indication of criminal networks The examples quoted below demonstrate the multiple connections needed in order to benefit from fake documents. When hundreds of passports, visa logos, excise stamps and other attributes of public power, such as seals and stamps, disappear in several embassies of the same country within one year, it is difficult to believe that every time it is a thief who, accidentally passing near the respective diplomatic premises, had the good luck to find the door of the embassy open, the alarm switched off, and the door of the safe with coded combination lock opened, quite by mistake. The judicial investigations which were initiated in connection with visa trafficking in Belgium, France (an ex ambassador to Bulgaria having been charged), Italy, Germany (Ukraine, 2005), and with work permits for Romanians and Bulgarians in Great Britain

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(2004), as well as in other countries of the European Union, are the numerous signs of active organisations existing within the administrations, especially when local nationals notify of the existence of co-ordination between embassies in some of the concerned countries. We should perhaps ask ourselves whether the staff recruitment policy is so weak, or whether there is an organisation infiltrated in the public administrations, which would make "careless" or "susceptible" staff circulate between visa departments? Ten years after the first cases of trafficking in documents through embassies were observed, in the mid nineties, there are still more cases coming to light, and the problem is far from being under control. In many cases, no responsibles have yet been indicted, and are then able to pursue their damages against the public administration not only through trafficking in documents, but also exercising coercion in order to constrain other civil servants to collaborate either through their silence, or to committing new crimes. Apparently, it is precisely that conclusion, to which the Member States of Schengen have reached, when they discussed the establishment of common offices in the so-called "sensitive" countries, to issue visas. In a context as described, the traffic of documents has become child’s play. It is, for example, particularly easy to fraudulently issue visas in an embassy, and this is due to several reasons. The checking of documents simply depends on the integrity of the staff; an embassy is an island where it is easy to establish the rule of silence; control is almost nonexistent. Besides, experience shows that there is an almost absolute exemption from punishment for swindlers, which is widely known. As long as responsibilities of these traffics are not formally identified and the persons responsible isolated, there will always be an open door for these networks, even when another door gets closed. Hence, the resentment of a Ministry of Foreign Affairs when it states that, having decentralised the issuing of passports, the latter continue to disappear, this time from the premises of the security company to which they were entrusted. Finally, let us quote Ronald Noble, the General Secretary of Interpol: "If corrupt civil servants supply false identity documents, terrorists will circulate more freely in the world, and we shall all be put in danger." In a democracy, only a judge, supported by effective and competent police services, can transform these indications into proofs, and issue a judgment to definitely isolate those who place the safety of individuals and of States in danger … . As a rule, it is not the laws that are to blame, but the will to enforce them … . What is more: to enforce them in the same way for all, would add the Italian magistrates, who have a long experience in the fight against the Mafia.

Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Protecting National Security: Financial and Information Technology Crimes François FRANCHI Counsellor to the Paris Court of Appeal, France Abstract. Criminal groups are characterised by various elements, as hierarchy, connection with a defined territory, permanence; but all their characteristics are devoted, at the end, to maintain the existence of the group, and to grant financial advantages to its members. To obtain the maximum of the economical profit, these groups are not devoted to a single, typical kind of traffic, but are involved in very different kind of criminal activities: cigarettes trafficking, prostitution, smuggling of migrants, and so on. We can trace many reasons owing to, at the date, is really difficult to fight and defeat organised crime; but the concrete threats that these organised criminal groups are carrying against legal economies, and the dangerous effects that they demonstrated to have on legal finances, make more and more urgent a common strategy in trying to stop their illegal behaviours. Keywords. Criminal groups characteristics; trafficking; impact of criminal activities.

1. The different faces of organized crime Organized crime consists of organized criminal groups engaging in complex delinquencies, making necessary a specific consideration for this criminal activity. 1.1 The forms of organized criminal groups These are material activities carried out by "professionals" and even by "associations", in other words by a permanent criminal conspiracy, that holds or shares the monopoly of one or more crime sectors in a given territory. In the first development stage, these criminal groups engage in various illegal activities, of proximity (theft, acts of violence, small-time dealings and racketeering), they reign over specific territories, usually not attempting to overstep their sphere of influence and but rarely cooperating with other organizations. They resemble gangs. Then, expanding in number and spheres of influence, thanks to the profit made, they enter into more complex forms of delinquency presupposing a certain form of cooperation. The notion of specialized crime and territory fades and the organizations become flexible, complex, extremely opportunistic and involved in a whole range of illegal and legal activities, making them more delicate to locate. The money made out of their illegal activities is used to finance legal activities, via money-laundering mechanisms to further heighten the profit. They apply a large number of their criminal tactics in these legal affairs, and never hesitate to turn to violence or corruption. The organized criminal group is

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therefore defined as the collective and combined action of individuals gathered together in a structure more or less organized around a profit-making objective. 1.2 The characteristics of organized criminal groups The organizational structure generally comprises the following characteristics: organizational outline: the group is structured according to it’s own particular outline: family, clan, presupposing a minimum internal hierarchy, strategy, necessary to adapt to the environment, that resorts to division of labour and to sharing out roles (resorting to specialists), permanence: the group is organized to survive the leader’s death, secret: the code of silence and clandestine nature are two characteristics of organized crime. 1.3 The pursuit of a material or financial advantage The criminal group is structured to commit serious offences in order to gain a financial or material advantage. The criminal organization is in pursuit of profits. This is its single purpose. Once the functioning expenses (personnel expenses), the general expenses and the extras (corruption), the financial expenses (losses from fund-laundering) and the exceptional expenses (losses or seizures of the merchandise) have been financed, the illgotten booty ensures a comfortable lifestyle for the organisation’s leaders and members, and to enable them to invest in movable property and real estate, at the end of fundlaundering operations, allowing them to enter into the legal economy and to remove the risk of legal inspection of their activities. Its functioning thereby makes it closer to a commercial enterprise. With the need to pool capital and competence, need to structure the activities, to have suppliers (forged documents, weapons, basic products) and clients: intermediate, wholesalers or retailers or final clients; to establish alliances and to make sure the traffic is profitable in order to survive because, in this field of activity, one fights to the death.

2. Complex events The activities of criminal groups are part of a plan of actions, in the plural, intended to favour the existence and survival of the group, through the sharing out of tasks that goes well beyond the allocation of a role in committing one or more offences. Organized crime is not characterized by the material carrying out of an offence or localized traffic, but by a series of events that cover the different aspects of an organization designed to carry out a number of activities, and is therefore open to various legal penalties. One may therefore face: 2.1 Events included as trafficking by the penal code This refers to events that the legislator has qualified in a broad sense so as to include all of their aspects, as well as the methods for enacting them. • drugs trafficking: the Balkans, which have long been the crossroads of the heroin route out of the Middle and Near East, have seen the development of cannabis production and trade, and the opening of an entry route for South American cocaine toward Western Europe. • trafficking of counterfeit currency and payment methods: groups of Bulgarian money forgers disquiet the specialists in the matter, and we see a development

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•

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in that region of professional printing presses for the forging of traveller’s cheques and a ride in criminality related to credit cards. arms dealing: the Balkans has become an area for the manufacture, supply and transit of weapons bound for organized crime groups, as well as for Western European terrorist movements.

2.2 Trafficking may constitute several combined offences: Cigarette trafficking: The illegal manufacture, brand imitation, aggravated robbery, and tax evasion related to the illegal cigarette trade has become more extensive after the disappearance of control structures. Prostitution: Prostitution is associated with the committing of several other offences: • human trafficking/illegal • immigration, holding and use of false official documents. Albanians, Kosovars and Romanians constitute • the main leaders of the prostitution rings ravaging Western Europe. Trafficking in illegal immigrants: Illegal immigration encompasses the penal penalties not only of trafficking in persons, • of smuggling of immigrants, but also of manufacture, holding and use of false documents, and even illegal labour or • exploitation of women, children or vulnerable persons in networks of begging, robbery or looting of parking ticket machines. The Balkans are currently the crossroads of routes coming from Asia via the Eastern countries and routes from the Middle East and Africa via the Mediterranean. Freight trafficking: Freight trafficking is based on the theft of merchandise from warehouses (breaking and entering, sometimes with internal complicity) and on the armed robbery of heavy goods vehicles, which in turn lead to the purchase of luxury goods or hardware, hi-fi equipment, or telephones. This merchandise then fuels a black economy, of which the Balkan nationals, particularly Romanians, have become leaders. Trafficking of counterfeited objects: The precarious conditions in the rebuilding economies, that have at their disposal a particularly able and trading workforce, favour counterfeiting and the fuelling of a parallel market, of which enterprises complain more and more to the authorities of the European Union. • •

•

Trafficking of stolen vehicles: The trafficking of stolen vehicles combines theft, general cunning (car jacking) or theft requiring complicity within the manufacturing company in order to obtain either the key or the plate containing the chip that enables one to start up the vehicle and to re-encode it the manufacture, installation and use of fake license plates

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• • • •

occasionally car cloning (striking of serial number with the number of a vehicle already in circulation – registration in prefecture on the basis of the previous foreign registration certificate or presentation of stolen identity papers) fuelling of a parallel market of spare parts, based on non declared labour = parallel economy of stripped vehicles – mechanic and metalwork workshops in city parking lots. This traffic is based on an indispensable organization: thieves, drivers, car mechanics, vehicle export rings, as well as document forgery specialists.

Organization of clandestine gambling: This is one of the most important fields of current organized crime, as well as one of the most profitable, be it the installation and exploitation of video games, like video poker, bingo or slot machines, and the opening of casinos that are in fact money-laundering operations. Attacks on the European Union’s financial interests: Embezzlement of funds allocated by the European Union to foreign aid or activity support programs takes place both within as well as outside of the Union, since economies of prospective member States also benefit from these programs. This embezzlement presupposes the use of false documents, resorting to front companies, and because of the methods used it constitutes actual fraud. These criminal activities include but are not limited to: • Assassinations and physical assaults. Assassination is the ultimate disciplinary sanction for those who do not respect the functioning rules of the organization, thereby jeopardizing its survival. It is also the final means of settling a quarrel between gangs, and of subduing recalcitrant residents in the dominated territory to the organization’s law. Also known as settling of scores. • Violent extortion and damage to or destruction of possessions. This may include abductions and ransom demands, often involving night clubs and gambling companies. In the current context, it is necessary to add computer crime, henceforth a part of the arsenal of transnational organized criminal groups. The growth of computerized finance networks on a global scale allows these organizations to rapidly and easily launder the profits of their illegal activities, thanks to instantaneous transactions that are practically impossible to detect. The complex nature of these events, and the interlocking of individual actions in order for several people to commit one or more material events constituting the preparation or the carrying out of one or more crimes or offences, has induced legislators to add a specific statutes to the penal arsenal: criminal conspiracy, which is aimed at every person who, with full knowledge, is involved in preparatory deeds or deeds that consummate the offence, without these acts themselves necessarily constituting an offence. These criminal statutes, however, have proven insufficient in addressing the real nature of organized crime. While it is aimed at the persons who prepare or carry out an operation, it fails to address those affiliated to the criminal group. This has motivated people concerned with these issues to pursue a definition of transnational crime that addresses the issue in its entirety.

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3. The pursuit of criminal statutes unique to organized crime 3.1 An internationally accepted definition For a long time, the crime phenomenon has been not only underestimated, but each State has considered it an internal affair, and consequently developed its own conception of this phenomenon and the required suppression methods. The importance taken on by this phenomenon, and its largely international character, have lead many to consider organized crime as a matter that goes beyond the dimension of the individual State, placing concept in an international context. The United Nations Convention on organized crime, the so-called Palermo convention, adopted in New York on November 15, 2000, signed by France on December 12, 2000 and integrated into national legislation by the decree of 08/09/2003, defines the phenomenon as: "Organized criminal group 'shall mean a structured group of three or more persons existing for a period of time and acting in concert with the aim of committing one or more serious crimes or offences established pursuant to this Convention, in order to obtain, directly, or indirectly, a financial or other material benefit". This convention asks the States to establish real and deterrent criminal statutes, in the form of a particular offence or as aggravating circumstances, applying to one of the following two behaviours: • the behaviour of any person who, intentionally and with full knowledge of the organization’s goal and general criminal activity, or of its intention to commit the offences in question, actively participates: • either in the organization’s criminal activities, even when this person does not participate in the execution itself of the offences in question (this is still on the level of classic criminal conspiracies) or in the organization’s other activities with the knowledge that this participation will contribute to the carrying out of the organization’s criminal activities • the behaviour of any person consisting of closing a deal with one or several persons regarding the exercise of an activity which, were it to be carried out, would amount to committing the offences, even when this person does not participate in the execution itself of the activity. (this is outside the boundaries of criminal conspiracy) Thus, the policing of organized crime takes place not only through the lens of criminal activities, but also in light of linkages between the criminal groups. France has recently revised its system with regard to organized crime through the law of 09/03/2004, in force since 01/10/2004, and has chosen to attack organized crime, without attempting to define it, by laying down the principle that certain offences come into this category: either offences traditionally regarded as such, or offences whose characteristic is to have been committed by organized gangs, whose definition is juxtaposed with the definition of criminal conspiracy. Other States have gone further, making involvement with an organized criminal group, not with criminal conspiracies, an offence. Finally, the international texts provide for the States’ obligation to pursue criminals on their territory wherever the activities have taken place, as well as moral persons on the penal level, and as civilly liable for the criminal behaviours of their leaders or representatives, without this liability excluding that of physical persons, perpetrators or accomplices.

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3.2 The justification for the recourse to this concept This modification addressing new factors of the crime phenomenon was indispensable in combating a criminal phenomenon that is difficult to stop, while the stake is considerable for all democracies. 3.2.1 Difficulties in stopping the phenomenon of transnational crime They relate to: • the opacity of organized criminal groups: the desire of the heads of a criminal group to make it permanent leads them to establish a structure that is as opaque as possible, integrated into the economic and social fabric, and invisible from the outside. But it is also a matter of making it internally strong, with a high degree of difficulty to join. The stronger the criminal group’s internal structure, the stronger the hierarchy’s hold over its members. This results in a very strong commitment to the structure from the individuals’ side and in a very strong support of these individuals and their families by the organization in case of difficulties with the authorities. Recent analysis demonstrates that the tie only loosens when the social pressure on the criminal group becomes too strong and the risk for each member in remaining tied to it becomes higher than the cost of choosing to follow the law. • the partitioning of criminal organizations: the caution of the leaders of the organized criminal groups leads them to establish a strict division of the structure, which causes each cell to be autonomous and to have little or no knowledge of other cell groups. Also, resorting to sidekicks, subcontractors, front men, and middlemen as interfaces complicates the identification of the organizers and the perception of the actual size and the real influence of the organization. • the code of silence within organized criminal groups: the absolute respect of the pledge and of secrecy is assured by internal discipline, which favours the group’s cohesion. The sanction for violating the rule is always the same: indictment in front of the organization’s disciplinary organs and a conviction that can reach as far as death penalty. • the mobility of organized criminal groups: the necessity for organized crime to manufacture or acquire, and then sell the goods, leads the persons responsible for “business development” to consider the market opportunities and to transfer their activity centres to more fruitful areas, which ignore all borders or defy them by taking advantage of the discrepancies between national legislations. • the volatile nature of organized criminal groups: the lack of market discipline and the reign of the survival of the fittest causes clan wars in the race for new opportunities and profit sources, and difficulty in keeping their structure up to date. These reasons not only limit the efficiency of anti-crime measures, but also inhibit reaching the leaders of the criminal group, who are never the actual perpetrators of the traffic in question, but are individuals perfectly integrated into society, are well-established and sometimes even enjoy high social status. Although they are behind the traffic and draw their income from it, often it is not possible to catch them through these ways of participation in the following offences:

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• • •

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complicity, concealment, or criminal conspiracy,

because the link is too weak between the offence and the act of complicity, between the perpetrator and the accomplice – between the offence, its profit and the funds or objects from which this possessor of stolen goods benefits, because of the interposing of people, structures or companies between the backer and the one that recovers the product of the trafficking, and of operations between the handing over of the goods to the backer and the product of the offence. 3.2.2 Political, economic and social impacts of criminal activities 3.2.2.1 A challenge for the international community Organized crime constitutes a challenge for the international community in terms of security and stability. According to the estimates of the Secretary General of the UN, nearly $500 billion US yearly is handled by transnational organized crime. At the dawning of the 21st century, the rapid progress in communications technology offers new technical possibilities to organized crime, the extent of which is still hard to define, but that open the gates to economic and cyber crimes. 3.2.2.2 A challenge for the States International crime is a challenge to the States themselves and to the maintenance of democratic regimes. The criminal groups’ illegal activities threaten public order, directly undermining the sense of security, confidence, justice and the spirit of community upon which democratic societies are based. These organizations regularly try to bribe civil servants, offering them large sums of money, thereby compromising the integrity of the governmental institutions and programmes and forcing the governments to devote a greater part of their ever-decreasing budgets to the application of law. The term corruption in reality covers all behaviours in which a corrupt person puts his own self-interest before the common good, by taking advantage of his power or his position. It is therefore an abuse of power, both the power of the elected representative who draws legitimacy from the election – or the power of the civil servant who draws legitimacy from the status and powers linked to the occupied position. There may also be abuse of power by a private person who, by participating in a service of general interest, draws the awarding of public power prerogatives, or who draws the same powers from the appointment as manager or salaried employee of a public enterprise. This abuse takes the shape of a submission of power to an exchange relation, in that one person wants to obtain a decision but doesn’t have the power to and the other has the power and wants to capitalize on it. The first one buys from the second one, in a client/supplier kind of relationship, not merchandise, a product or a service, but a benefit of access to power. This kind of corruption is just as difficult to fight as organized crime because: • it is a secret crime: the perpetrator of the offence is the very one that should denounce it, • the direct victim does not exist: it is the community, which has no other representative but the perpetrator, • it is a crime that is difficult to denounce because the lawbreaker is the one who holds the power and, a priori, the one who is believed.

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• •

it is an insidious and creeping phenomenon that affects the entire society, making its denunciation even more difficult. it is a many-sided phenomenon.

Admittedly, corruption is facilitated by poverty, which brings about clienteles by lowpaid civil servants, and by the concentration of power or the piling up of responsibilities in the hands of a few, which favours corruption, or by the dispersion of power, which makes abuse control difficult. Corruption is also facilitated by the absence of control corps, the diminution of forces of opposition, and a lack of transparency in financial management. Corruption, however, is not absent from developed economies and from countries with a high standard of living. It simply takes on different shapes, more covert (more layers of people), more hidden (use of legal and financial set-ups), more pernicious (exchange of favours) and is carried out in different ways, such as information leaks, market fixing through secret preference, unjustified deductions. Corruption is often able to hide behind other crimes, such as social property abuse, offences committed in town planning, and tax fraud. This corruption is favoured by the inter-penetration of the public sphere and the private sphere (grey zone), which results from: • the vague limits between these two spheres, • lack of compatibility between government duties and private activity, • placement of senior civil servants in large enterprises, • the insufficiently controlled cooperation mechanisms in place between these two spheres, • development of a mixed economy, • the non-transparent activity transfer operations from one sphere to another: • nationalizations of businesses or holdings in their capital, • privatization of businesses or deregulation, • the existence of a strong State interventionism in economy, in case of a nonfunctioning market economy, • the absence of legal security. This corruption tends to develop during tumultuous periods of political and economic transition, such as the transition from planned economy to market economy. However, the disappearance of repressive state rule in favour of freedom of action must not lead to the reign of the survival of the fittest. Economic liberalism is not laisser-faire. Rather, it is an increase in freedom of action for everyone, with concomitant responsibilities. If a collective and imposed way of thinking is substituted by freedom of thought and personal action, this free will must not result in a loss of values and the sense of right and wrong, in particular with the development of materialism and “wheeling and dealing” that corresponds to an over-promotion of money at the expense of labour value, and the pursuit of profit at all costs. Corruption upsets the economic system, changing the rules of competition by introducing a disparity factor between the actors, and results in serious indirect consequences: • buildings or public works collapsing because the quality of the building materials does not comply with construction standards. • citizens ruined by a flood that destroys their property constructed in a flood-risk zone after obtaining of a building permit as part of a property programme carried out in a zone illegally reclassified as suitable for development. Corruption is also the main vehicle for the introduction of organized criminal groups in the economic and political game.

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3.2.2.3 A threat to economies It is necessary to understand that organized crime in fact represents a serious threat to a country’s economic security because its activities undermine the wheels of the economy. By engaging in illegal activities, criminal groups have access to enormous amounts of money that need to be laundered. Laundering operations thus carried out damage the credibility of financial institutions, keystone of the economies, but also disrupt competition since the goal of money laundering is to give the leaders of organized criminal groups the means to: • make the integration of criminals and their families easier (for instance by paying their children’s tuition fees for the best schools), • investing in legitimate businesses, which increases their social respectability, • create market share for them, either by purchasing it with laundered funds at market price, or by robbing or seizing sectors or businesses through corrupt mechanisms. And yet it is difficult to fight money laundering because for the beneficiary of the laundered funds, the game consists of interposing various persons and structures between himself and the criminal or mafia activity in order to prevent the discovery of the connection. Similarly, intermediaries other than financial institutions intervene in the laundering, such as civil servants and elected representatives who have public and political decision-making power – or lawyers paid to legally dress up the operations of seizure of economic assets. Depending on the circumstances, it is a matter of use, joint action, parallel action or interpenetration of these intermediaries and the criminal groups, seeing as it is a question of forming and concealing bribes, slush funds – of resorting to screen companies and trusts, based off-shore – to put operations through off-shore places or tax havens. This creates a lawful and unlawful mix, making the phenomenon difficult to combat. However, it would be wrong to believe that the leaders of the criminal or mafia organizations ultimately want to enter into the legitimate world. They buy themselves a façade, but their legal economic activity is too high-risk to put an end to the criminal activity, and the fierce competition within the criminal economy makes a decline in activity result in a loss of market share, if not in elimination. This means that a loss of vigilance is impossible. Therefore, fighting organized crime requires fighting against corruption and laundering, because these phenomena go hand in hand. This also shows that organized crime resembles a gangrenous wound, or an untreated virus that becomes an epidemic. According to the United Nations, at least $200 billion from the illegal drug trade are laundered every year, largely by means of international electronic banking transfers. As a result, it is important to consider the necessary fighting arsenal.

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Terrorism and Organised Crime: Finances, Economy and Investments

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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The Fight against Money Laundering: The Challenges to NATO Michael LEVI Professor of Criminology Cardiff University, Wales, U.K. Abstract. Analysing the actual nature, and effects, and skills, of organised criminal groups, we can see that the term “organised crime” is not still adequate to the criminal situation all over the world; so, examining the real situation, considering the connection among these groups in the NATO and Western countries, we can say that the more appropriate term at date is “networked crime”. A deep and sharp analysis of the crime situation all over the world can suggest us that a final defeat of criminal networks is quite unrealistic: it’s more affordable a containment strategy of their threats. In this containment strategy, control and fight against money laundering are absolutely essential: besides a continue adaptation of the legislation, a serious control on financial Havens can help the international community to break the boundaries among different criminal networks, interfering with their financial activities. Keywords. Networked crime; money laundering; financial Havens.

1. Organised crime is dead: long live networked crime The term ‘organised crime’ has outlived its analytical usefulness, whatever it’s political and resource benefits. But when we have a concept that contains more variation within it – from the Mafia at one end to three burglars and a window cleaning business who launder their money overseas, which would also meet the UN transnational organised crime convention 2000 definition – than there is between ‘organised’ and ‘disorganised’ crime, we have to be concerned about how helpful the term is anymore. We have to ask ourselves what kinds of behaviours could plausibly be defined as organised crime yet are not particularly threatening to any of our States. The term ‘organised crime’ is applied to denote not just a set of criminal people but also a set of criminal activities, thereby adding confusion. Logically, there are no organised criminals if there is no organised crime. But if crime really is ‘networked’ rather than committed by a hierarchical organisation, then where does this place our precious kingpin strategies of removing the key ‘organisers’? What difference do individuals or even particular groups make to the general threat from crime? There is little evidence of any particular desire on the part of criminals to take over Western nations in the traditional sense; rather, there may be threats to security and stability by attacks for financial and political gain, carried out from within and from outside NATO member countries. The conceptual problem is that, given that security/insecurity should properly be regarded as a continuum rather than binary categories, at what point is it rational to fear that the problem will ‘tip’ into real danger, and can we predict it? Within Russia and some other FSU countries, there clearly are relationship networks that have been reinforced by the opportunistic exploitation of privatisation and bankruptcies manipulated by favouritism in judicial process. What problems does this create for NATO

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countries? This is not clear. Is this simply a delayed action replay of the American robber barons of the 19th and early 20th centuries, which precipitated the Sherman Anti-Trust Act? Of course, they may cause problems if civil forfeiture and even criminal forfeiture in rigged court systems threaten their asset base. But as other expansionist crime groups have discovered, it may be difficult to establish levels of control outside one’s own territorial stronghold. Some of the difficulties in South-Eastern Europe have arisen partly from legacy and partly from the absence of governance structures (in more than a tautological sense). We all start from different points: differences in levels of corruption – administrative, law enforcement and political - differences in legitimate opportunities, differences of geography, and differences in political power. As the Financial Action Task Force (FATF) has shown, it is possible to force some rather dramatic changes in financial services regimes in non-FATF countries that are relatively powerless politically and/or that need substantial aid. Requiring (a) identification of beneficial ownership and (b) money-laundering reports from lawyers has proven to be a hard struggle in the E.U. and harder still in North America. It is helpful to think of the tasks that need to be performed to commit serious crimes over a long period: • Obtain finances for crime; • Find people willing to commit crimes (though this may not always be necessary); • Obtain equipment and transportation necessary to commit the crimes; • Convert, where necessary, products of crime into money or other usable assets; • Find people and places willing to store proceeds (and perhaps transmit and conceal their origin); • Neutralise law enforcement by technical skill, by corruption, and/or by legal arbitrage, using legal obstacles to enforcement operations and prosecutions which vary between States. These procedural elements can be broken down further into much more concrete steps, when analysing the dynamics of particular crimes. In human trafficking, for example, many (though not all) are volunteers wanting to escape to what they think will be a better economic or spiritual life, and must know who traffickers – ‘snakeheads’ or not - are in order to achieve their mutual objectives. If migrants never repatriate funds, then one presumes some feedback mechanism that will dry up the source of supply for any particular set of traffickers, though pure kidnappers may still continue to operate. The key point is that whereas some of these functional components of crime may involve or even require transnational movement and all may require some criminal collaboration, many actions from fraud to drug sales to ‘sauna parlours’ to funds placement remain local. Nevertheless, whether reactive or proactive, and allowing for rivalries between sub-sets, the role of diasporas – Colombian, Albanian, Russian, Turkish, Nigerian, Israeli, Canadian (in fraud), Jamaicans, former Yugoslavians – is crucial in comprehending the trust (and extortion) capacities of criminals. The demand side is also important. As current debates indicate, declining birth rates and increasing longevity in more affluent NATO member countries have created a demographic crisis, into which cheap and often illegal labour fills the need, given current legal migration policies. There is some structured hypocrisy in our attitudes to this, highlighted by the occasional raids in the US and the UK on sub-contracted labour and the attempts to hold large corporate retailers and manufacturers liable for these employment malpractices. As house prices rise in major conurbations, the low-paid service sector is put under increasing strain and racketeering becomes a logical business opportunity, especially for those (usually ethnic) groups who enjoy a fearsome reputation (reinforced unwittingly, though for profit, by our media and sometimes our own threat statements). Finally, it is important to

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distinguish between threats (a) to the internal integrity and future of some nation states and regions – e.g. unregulated or ill-regulated privatisations at well below market value, allowing covert takeover of assets – and (b) to other states as a result of crime toleration or even promotion of predatory raids by the 21st century equivalents of the American ‘Hole in the Wall Gang’. It is plausible that some crime entrepreneurs may wish to establish States that effectively are under their control and within which they can continue with crimes and exploitative conduct unconstrained, but most will not, though they may not desist from crime, out of habit or out of fear that if they do, they will become targets themselves – targets of other criminals as much as of the State. The conditions underlying serious criminal desistance or non-desistance would repay serious examination. Most criminals have a limited range of ‘criminal transferable skills’ and limited ambition. Some of these may be marshalled into a more powerful net effect by charismatic or, less successfully in the long term, merely very frightening individuals or small groups. What is difficult is to work out what counts as ‘adequate’ evidence in relation to: • vertical integration, or how criminal behaviour is structured (e.g. hierarchical to loose networks); • horizontal integration, or the range of criminal behaviours that come under the umbrella of any group of criminals (fraud to drugs trafficking and distribution); and • how far up the political chain ‘organised criminals’ are to be found. We should not expect these to be constant between countries or over time and especially given our interventions, takeover of nation states or economies is not the natural state to which criminals tend. It is vital to comprehend the different conditions underlying market crimes – including the supply of illegal goods and services in popular demand – and predatory crimes (involving direct loss from crime). But prevention is unlikely to be complete and if we want to be honest with ourselves and the societies that we serve, we have to devise measures that will enable us to tell when there is displacement and whether elimination of key personnel is having any effect on the supply of illegal goods and services. Even if it does not have such an effect, there may be a point in doing it, to prevent those individuals from increasing their skills, contacts and range of activities, as a demonstration effect on others and as an issue of moral principle, no one should be beyond incrimination if they break the law. But we should be clearer about what it is we are trying to achieve and what we are actually achieving, even if it is depressing. Containment of the threat from organised criminal activities (whether or not committed by people in permanent crime groupings) and of the threat from crime networks or groups (which, as Al-Qaeda has shown, may be no less threatening because they are merely networked) rather than abolition of crime is hard to sell to politicians, but I think that is the only realistic option.

2. Money-laundering threats – some qualifications It is important to examine the sources of criminal finance, which affects its lumpiness and the needs of transformation. Criminals may have to sell goods or move capital to some secure location, and by secure location I mean not just physically secure, but legally secure places where other people will not be able to get either information or your actual money back. You move and then launder the unspent proceeds. What is spent on immediate logistics (including clothing, feeding and transporting members of the criminal/terrorist network) need not be laundered since there is no need to sanitise it – rather the reverse, since legitimately obtained money may need to be transformed into cash or ‘unlaundered’. Many criminals just spend their money as they go along. It is only when you have more

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money than you wish to spend immediately or soon that you are going to launder it. If you have nothing to recycle, then you have no need to launder. From the UN Transnational Organised Crime Convention 2000, I selected some highlights that relate to laundering and proceeds of crime. We have comprehensive monitoring of cash and non-cash transfers, customer identification, record keeping, and the reporting of suspicious transactions. We have exchange of information between administrative, regulatory, law enforcement, and judicial authorities to centralised financial intelligence units, including cross border information exchanges between those bodies. This is not quite the free movement of information about criminal capital, but it is close. We have feasible measures to detect and monitor cash movements and to enable the identification, tracing, seizing, and freezing of assets and substitute assets. We have no bank secrecy, and the possibility of requiring a reversal of the burden of the proof for asset confiscation purposes. What is the impact on regulation and law enforcement? Everywhere we are seeing increased resourcing, particularly after September 11th. We have a different priority given to financial investigation and international financial intelligence sharing, more pressure to report, more convictions from suspicious transaction reports - something that no country in the world has yet been very successful at. The number of suspicious activity/transaction reports has escalated several times since ‘9/11’ – though we should properly call these ‘suspected’ rather than ‘suspicious’, since they are little more than subjective judgements about transfers that are hard to explain in terms of what bankers and others know about their clients. What are the correct performance indicators for reporting suspicious transactions and investigation of them? These are very important questions that have not been worked out anywhere, including in the revised IMF methodology of 2005. And what about the important question of what NATO and the UN can do that the Financial Action Task Force, the International Monitory Fund, and the World Bank cannot? We can say that not so long ago there was a division of labour in the world: the E.U. did things within the fifteen States, the Council of Europe within the larger forty-three states; NATO did military things; and the UN did things that needed to be done on a global basis, perhaps not always the most effective or efficient administration, but nevertheless the most universal one. It may have been rational for NATO to take an interest in asymmetric threats and how they were financed before ‘9/11’ but there is no point in re-fighting past wars unless one can learn something relevant from them. This situation has changed after September 11th, and since the Financial Action Task Force developed its “non co-operative countries and territories” initiative. In some sense, the need for the UN to do many things is less than was the case before, although it still can perform a very important role in global technical assistance, in encouraging using a different, more traditional mode of legitimacy then the FATF. There has been a lot of controversy about why we should have a regional body in the Caribbean, in Asia Pacific, in the Council of Europe, and increasingly in Africa if what the big countries - the G7 Countries- do is imposed without any consultation. The UN, because of its different processes, has a different form of legitimisation; NATO has yet another. In a sense, the perceived local legitimacy of many organised crime networks – for example the fight for survival in areas of the former Yugoslavia – pose continuing threats to security in the region and offer laundering and smuggling traditions that overlap in certain ways. We have different access to opportunities: accounts manipulation, theft, corruption by insiders, setting up dummy offices in overseas countries versus external attacks and drug gangs. And we also have a varied willingness to review and act against such risks. For example, one of the problems the Japanese have in reconstructing their banking debts is that certain owners of real estate are so influential that the banks are afraid to write these

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bad debts off, otherwise they may have their necks as well as their fingers cut. So you can have very important aspects here. There are also the risks of subversion by gangs targeting insiders, and insiders seeking out organised criminals, with these factors varying widely over time and place. In the UN Report of 1998 on Financial Havens, Banking Secrecy and MoneyLaundering (J. Blum, M. Levi, T. Naylor and P. Williams), the major characteristics of ideal financial havens were described as: • corporate secrecy laws; • no tax information sharing agreements; • the availability of instant corporations; • excellent electronic communications; • tight bank secrecy laws; • a large tourist trade to explain major inflows of cash; • use of a major world currency (the Dollar or Euro) as the local money; • governments relatively invulnerable to outside pressure; • high degree of economic dependence on a financial services sector; • a geographic location that facilitates business travel to and from rich neighbours; • convenient time zone location; • free-trade zone, and flag of convenient shipping registry. We might ask ourselves how far the international bodies have gone in eliminating these financial heavens in countries of the north and south. We have to come back and ask ourselves what the need to launder is. If you have a large amount of cash to deal with, where can you store it? There is only so much space in the deposit accounts. You can buy diamonds, gold and other low-volume, high-value commodities, or transfer value across borders even less visibly by over or under-pricing of commodities or, better still, services whose value is even harder to determine. You need a safe medium of storage for investments and this depends on what you think about the relative safety of the location or the device. There is the option of asset protection trusts. However, there is no point in keeping your money in jurisdictions which are unsafe from embezzlement. There is no deposit protection unless you have a certain kind of enforcement. You need people who are trustworthy and politically safe to keep your money.

3. Conclusion Finally, the impact of money laundering regulation is important to understand. At the international level, pressure works when the Financial Action Task Force, IMF/World Bank and/or the Americans threaten that if you do not conform to the policies you cannot move your money through an American clearer. This works, but it does create a legitimacy issue on sovereignty. There is a sovereignty issue that also undermines regional peer control. UN bodies have been established, and there are the regional financial action task force groups. How important is it that you have this legitimacy encouraging people to judge each other in their local groups? If we want people to obey because they believe in the values rather than simply that there is a deterrent punishment awaiting them, then this creates an issue. It reveals pirate states, that intentionally or not, imperils crime control efforts in other nations, and can lead to international commercial sanctions. Those countries that have been blacklisted usually lose a lot of business. At the national level, it creates or reveals pirate institutions as well as a network of wilfully blind professionals. At an individual institutional level, there is pressure to corrupt staff that too can be blackmailed or encouraged to do crimes against the institution. However the intelligence ‘collections’

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process becomes important – to what extent do NATO countries or NATO collectively analyse the process of laundering, in those cases that they define as ‘threats’ and ask how or indeed whether they could have been prevented, how they could have been reported (or reported sooner) and acted upon (or acted upon sooner). Regulators can also de-authorise banks or individuals for failure to implement money laundering rules, though how often does this happen? And too, where you have corporate criminal liability you can have corporate prosecutions but also individual prosecutions, although these two are rare. NATO does not need to be a core player in the anti-laundering assessment process, but it can and should contribute because of its collective commitment to security and because financing security threats and laundering the proceeds of insecurity are core parts of its mission. Total prevention of the financing of terrorism is almost certainly an illusion – the costs of individual operations are too low to be preventable – but preventing the flow of harms from crimes and funds to crimes is a worthy containment objective. The threats, however, are more commonly loose associations that are more dangerous than the sum of their parts rather than the hierarchical Mafia-type associations.

Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Developments in Money Laundering Aude DUFETEL Henri QUINTARD BNP PARIBAS, France Abstract. The legal framework concerning money laundering is absolutely fundamental in fighting criminal financial activities; and the FATF Recommendations and the E.U. Directives are a central part of this international framework. In details, French legislation attempts to prevent and fight money laundering activities with legal interventions about the duties of vigilance imposed to the banks and some specific obligations to report (internally and externally) anomalies and “doubts”. Keywords. Money laundering definition; legal framework; French legislation; FAFT Recommendations; E.U. Directives.

Introduction Money laundering can be defined as the recycling of funds originating from illegal or criminal offences for use in legal activities. It comprises different stages and takes various routes, chief among which are the financial channels. There must be an initial desire to fight: • against drug trafficking • organised crime I. I-1 I-1.1

The legal framework for money laundering

International Mobilisation United Nations Convention of December 1988 effective in France since 31 March 1991 I-1.2 Declaration of principles by the Basel Committee in December 1988 I-1.3 FATF created in 1989 by the G7 I-1.3.1 FATF Recommendations: • Ratify the Vienna Convention, • Put in place the recommendations of the Basel Committee, • Introduce the offence of money laundering into the Penal Code (criminal law), • Reinforce international cooperation, • Publish a list of “non-cooperative countries”, i.e. a “Black List”.

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I-1.3.2 New FATF recommendations of 20 June 2003 • Knowledge of the beneficial owners of companies and legal structures. • Information concerning the object and nature of the proposed relationship. • Constant vigilance during the entire business relationship. • Transactions to be coherent with the knowledge of the customer ‘s activities, risk profile, origin of funds • Enhanced due diligence for the higher risk categories “sensitive clients”. List of non-cooperative countries and territories published by FATF 1. Cook Islands 2. Indonesia 3. Myanmar (Burma) 4. Nauru 5. Nigeria 6. Philippines I-2 I-2.1 I-2.2

Europe The Strasburg Convention of 1990 The European Directive of 10 June 1991 modified by the European Directive of 4 December 2001 Incorporated into French Law on 11 February 2004

A) The Directive of 2001 defines criminal activity: • As any type of criminal participation in serious offences such as: • Drug trafficking, • Organised crime and terrorism, • Fraud against European Community interests, • Corruption, • Offences likely to generate substantial gains and be subject to a severe term of imprisonment under the criminal law of a member state. B) Under the Directive, the number of professions subject to these obligations is enlarged: • To investment companies and fund transfer companies, • Solicitors, • Accountants and fiscal advisors, • Estate agents, • Dealers in high value goods such as precious stones and metals or works of art and auctioneers when payment is made in cash for a sum equal to or more than 15.000 Euros. • Independent legal professions including lawyers (Barristers).

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I-2.3

I-3 I-3.1 I-3.2 I-3.3

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Draft third European Directive (2004) Objectives: • Reinforce the European defences and • Apply FATF recommendations against: • money laundering • financing of terrorism • Demands • A better knowledge of the client, • A detailed analysis of risk situations, • Definition of the more serious offences : prisons terms equal to or above 1 year, • Identification of the requirements for suspicious activity reporting and money laundering as an offence. French legislation The law of 21 December 1987 created the offence of money laundering The decree of 9 May 1990 created TRACFIN (FIU) intelligence service The law of 12 July 1990: Preventative actions

This law and those that follow provided for the participation of financial organisations in the fight against money laundering in connection with drug offences. The regulating bodies of the professions concerned must ensure that this participation is effective. I-3.3.1 Professions concerned (article L 562-2 of the Financial and Monetary Code) • Financial bodies • Financial institutions • Insurance companies • Investment companies • Foreign exchange bureaux • Persons who carry on, control or advice on transactions concerning the acquisition, sale, assignment or letting of real estate property: the law of 12 July 1998. Extension to other professions under the laws of 1 August 2003 and 11 February 2004. Articles L 562-2 and following of the Monetary and Financial Code: • Members of regulated financial instruments markets and legal entities, as well as collective investment organisations, to investment management companies and to intermediaries of various products. • Legal representatives and managers responsible for casinos. • Persons habitually dealing in, or organising the sale of precious stones and precious materials, antiques and works of art. • Accountants and auditors.

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• • •

Solicitors, bailiffs, legal administrators and court liquidators as well as lawyers to the State Council and the Court of Annulment, as well as lawyers and attorneys to the Court of Appeal. Auctioneers and public auction companies (law of 11 February 2004). Circles and companies organising games of chance, lotteries, betting on sporting forecasts or horse racing (Law of Perben of 11 March 2004).

I-3.3.2 Obligation to file reports I-3.3.2.1 Suspicion of money laundering • Sums from drug trafficking, • Organised criminal activity (Law of 15 May 2001), • Corruption, • Fraud against European Community interests (Law of 11 February 2004), • Financing of terrorism (Perben’s Law). I-3.3.2.2 Automatic reports • •

•

For “operations in respect of which the identity of the order giver or the beneficiary remains doubtful in spite of the due diligence undertaken according to article L 563-1 of the Financial and Monetary Code”. For “operations undertaken by financial entities for their own account or for account of third parties with individuals or corporate entities including their subsidiaries or establishments acting as, or on behalf of, trust funds or any other type of portfolio/wealth management structure in respect of which the identity of the constituent parties or beneficiaries is not known” (NRE law of 15 May 2001). All transactions above 8.000 Euros in favour of or originating from Nauru or Myanmar.

I-3.3.3 Obligation to report internally: • Transactions above 150.000 Euros or more than the amount usually handled by the order giver. • Presented under unusual and complex conditions, • And which appear to be illicit or to have no economic justification. I-3.3.4 Duty of vigilance by financial entities • On the occasion of a transaction with an occasional customer. • Verification of the identity of a client before entering into a relationship (Law of 11 February 2004). • By the presentation of any convincing document. • Or when the co-contracting party could not act for its own account. • Vigilance and internal procedures to ensure that anti-money laundering rules are respected. • Staff training,

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Fig. 1. Practical Applications from Detection to Reporting

• • • • • • •

Audits verifying that procedures are respected, Nomination of a Money Laundering Reporting Officer (MRLO), Verification of these procedures within overseas branches and subsidiaries. If not possible, this must be reported to the French FIU (CRBF rule of 15 February 1991), Organisation in keeping with the current laws  control adapted to risk  sufficient staff levels Coherent controls at group level (CRBF regulation of 26 June 2001), In case of defect of watchfulness, Or of a deficiency in the organisation of the internal proceedings.

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II.

Global obligations (throughout the network)

II-1

Guidelines

Respect of local legislation but also group guidelines with respect to the prevention of money laundering and corruption and the financing of terrorism. • Enhanced due diligence (sensitive countries – PEPs), Internal records of unusual and complex transactions, • Possibility of passing information to Head Office or of providing details to Head Office Inspection missions when visiting the site. Statistics on suspicious activity reporting. II-2

Compliance best practices • Priority to group standards and FATF recommendations. • Which prevail when local rules are less strong. • Basic rules integrated into the internal regulations. • Apply to the entire group. • Prevention implies anticipation. • Prevention and risk management: • legal risk • reputation risk

The law of 13 March 1996 created the general offence of laundering the proceeds of a crime or another offence. When committed in the context of a professional activity the sentence may be up to 10 years imprisonment and 750.000 Euros prime.

Conclusion • • •

Intensify the research and analysis of money laundering. Encourage the active participation of financial organisations and other professions in the fight against money laundering. Resolve the problem of the responsibility of professionals involved in money laundering.

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Fig. 2. The Context, Dense Legal Framework

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

Financing Terrorism and Criminal Organisations: Differences and Similarities Silvia CIOTTI GALLETTI Criminologist; Researcher, ISPRI/CSSI Adjunct Professor, University for Foreigners, Perugia, Italy Abstract. When examining terrorism and organised crime, the financial aspect is perhaps one of the most important considerations, particularly when adopting an international perspective. Discovering financial channels is fundamental in identifying and locating terrorist groups and transnational criminal organisations; and delineating their economic boundaries and convergences is one of the most effective ways to both contrast and prevent their activities. It should be noted at the outset that it is not easy to understand the financial aspects of organised criminals’ and terrorists’ activities. The difficulties in comprehending different money laundering systems are well known, and money laundering is only one aspect of the criminal financial field. And of course, this is not a new but a welldeveloped phenomenon, since terrorism and organised crime have had contacts, exchanges and co-operations for many years. Usually, organised crime activities are not typical terrorist activities, even if we are unsure about which kind of actions are considered typical of the terrorist field. We have to consider some basic differences, which are fundamental to an understanding of the needs and uses of money in criminal and terrorist activity. This work will examine the methods used by terrorism and organised crime to gain profit, draw out the differences and similarities, and suggest strategies to intervene practically in this field. It will also identify the various points of contact between these different organisations, and how they can co-operate (particularly economically and financially), sometimes becoming a single criminal group. Keywords. Organised crime, terrorism, Crime Terror Continuum, Informal Value Transfer Systems, Hawala

1. Main concepts in financing of terrorism and criminal organisations There has been extensive interest in the links between terrorism and organised crime since the 9/11 terrorist attacks. Theories and doctrines about these two criminal phenomena have come and gone frequently in many countries, but most of them were just theoretical examinations, with no links to practical police and intelligence activities. While theories may be fundamental to understanding the phenomena, we also have to connect them to concrete activities and every day situations and possibilities, in order to obtain positive results in our policies against crime and terror. In this work, we are attempting to apply one of the main connective elements between terrorism and organised crime (the financial aspect), to some practical aspects of prevention. Money is the central element we are talking about: without money, terrorists cannot continue their activities or propaganda, and without financial gains there is no incentive for criminal organisations to carry out their business. As a simplification, we can state that for organised criminal groups the final aim is profit, and power; in many cases power is just the first step towards money. Usually,

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whoever has power has the means to obtain money too, and vice versa. Profit is not only a source of personal gain, but also an instrument to enlarge the activities and influence of the group, creating more profit and personal gain. It is a type of chain, in which money is always the final goal (and the beginning of new business). Violence is the means used by organised crime to make money: intimidation is also used when the group is ‘working’ in a legal market. For instance, the organisation can use the threat of violence to coerce people to buy products from their commercial web, as occurs when greengrocers are forced to buy fruit and vegetables from the organisation at a higher price. The commercial activity owned by the criminal group can be perfectly legal, the buyers are working in a legal system, but the illegal use of violence and intimidation create a distortion of the accepted market rules. So, profit is the aim, violence the means; but when we analyse terrorist groups, we can see the opposite situation. In these cases we can say that violence is the aim, violence used to create fear, terror, confusion, to weaken governments and other formal organisations, to blackmail, to affirm the power and ideas of the terrorist group. To achieve this violence terrorists need money; money to buy weapons and explosives, to organise kidnappings, to recruit new activists, to pay complicity, to maintain the families of ‘martyrs’ (and in this way recruit new ‘martyrs’), and so on. Without money, they cannot carry out their plans, and this is why it is so important to stop the financing of terrorism. Why are these concepts so important? Why is it so useful to understand the aims and the means? The difference between aims and means has a great practical relevance. For some years we have been aware that transnational organised crime and terrorism are connected. Members pass very often from one type of organisation to the other, illegal activities (such as trafficking cocaine or counterfeit documents) are carried out together, weapons and explosives ‘travel’ from organised crime to terrorist groups and back again. As we will see in the following paragraphs, marking out a definitive border between organised crime and terrorism at an international level is impossible nowadays. We need new strategies in order to point out new practical criteria. In order to clarify these topics we can ask: why do these people behave in this way? What is their aim? And what means are they using? And providing a clear answer, even a simplified one, can help us to face these people and groups properly, by enabling us to identify them appropriately as either terrorists or ‘simple’ criminals.

2. What is organized crime: main characteristics and new developments It is not easy to define organised crime; we have countless operative, practical, theoretical and legal definitions. Every nation has its own definitions, there are also the international definitions, such as those of the UN and E.U., and new definitions are now being developed for separating traditional criminal organisations from the emerging transnational criminal groups. Even though the variety of available definitions is diverse, owing to different points of view and different purposes (eg. juridical or simply theoretical), most definitions have some common characteristics. These characteristics are clearly pointed out in the E.U. definition of organised crime, which we can consider a good synthesis of different laws and theories. The Expert Group on Organised Crime of the Council of Europe stated in 1997 that a group, to be considered an organised criminal group, has to fulfil four mandatory criteria and, at least, two of seven optional criteria. The mandatory criteria are the following:

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1. 2. 3. 4.

the group must consist of a collaboration of at least three people; they have to be gathered for a prolonged or indefinite period of time; they must be suspected or convicted of committing serious criminal offences; they must have the objective of pursuing profit/and power.

The second mandatory criteria can have some problematic consequences. In fact, one of the most frequently-used systems to promote and finance the trafficking of large quantities of drugs (especially cocaine) is the so-called ‘apuntada’. Answering the offer of big cocaine producers, people not necessarily belonging to the traditional criminal world invest their money in expeditions and sell cocaine abroad, gaining money from their investment as in a perfectly legal business. It is a type of investment, with obvious risks, and many businessmen use this illegal system to make large amounts of money and maintain some of their profit away from the tax agencies. In many cases, this system is also used to launder large illegal profits from businesses and corporations. The apuntada, and similar systems, are used by people only gathered for a short period of time, for a ‘business transaction’. The nature of this affair is temporary, and it doesn’t required prolonged or indefinite periods of time, but it is surely a criminal activity connected to organised crime. However according to the E.U. mandatory criteria we could not consider these transactions as an organised crime activity. Therefore, the interpretation of these criteria is very important, and they should be considered in a developing and flexible manner. The fourth criteria is crucial, since it considers in the same way the criminal objectives of pursuing profit and of pursuing power. Turning now to the optional criteria, the group must: 1. 2. 3. 4. 5. 6. 7.

have a specific division of labour; use some form of internal discipline and control; use violence and other means suitable for intimidation; exert influence on the public and private sector; use commercial or business-like structures; engage in money laundering; operate on an international level.

As mentioned previously, the use of violence is a constant theme of organised crime. Since the birth of the first organised groups on a local and national level, violence and intimidation have been a major characteristic of every aspect of their existence. So, while the Expert Group on Organised Crime of the Council of Europe places violence and other means suitable for intimidation among the optional criteria, we argue that it would be more correct to consider this topic as the fifth mandatory criteria. The remaining optional criteria are non-problematic- they point out characteristics and activities commonly recognised as being connected with organised crime.

3. What is terrorism: E.U. legal definition and characteristics The new terrorist emergency has caused nations and the international community to try and define the phenomenon in a new, holistic way, attempting to unify all the characteristics that the phenomenon has demonstrated over the years. However, coming up with a single definition of terrorism is fraught with difficulties. Even though the word is constantly and widely used, and despite a kind of ‘common sense’ notion that people have about its meaning, in fact there is no agreement on the real content

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of the term ‘terrorism’. Put simply, the main problem in establishing a definition considered typical of terrorism is the following: should we have an exhaustive list of terrorist actions and goals, or should we provide a ‘framework’, allowing the interpreter to add behaviours not included on the list? This question is absolutely fundamental, because as in all types of law, if there is a complete and binding list of actions, behaviours, weapons, goals, aims etc, then anything that is not included on the list cannot be considered as having a terrorist nature. This can be a great inconvenience, particularly when faced with a constantly changing phenomenon such as modern terrorism. For example, simply using a new type of weapon, nonconventional or unexpected, can place the attack outside the scope of the definition of terrorism if we have a binding list of weapons20. On the other hand, a definition that is open-ended but at the same time efficient is difficult to obtain, since if it is too general and indeterminate it is useless. As an example, the E.U. Council Framework Decision adopted on the 13 June 2002 is rather unhelpful in trying to define terrorism. The most significant part for our topic is article number one: Art. 1 – Terrorist offences and fundamental rights and principles “(…) offences under national law, which, given their nature or context, may seriously damage a country or an international organisation where committed with the aim of: • •

seriously intimidating a population, or unduly compelling a Government or international organisation to perform or abstain from performing any act, or • seriously destabilising or destroying the fundamental political, constitutional, economic or social structures of a country or an international organisation,” (follow a specification of which shall be deemed to be terrorist offences). As we can see, the main element in this definition of what can be considered a terrorist offence is the aim behind the action, but it is very difficult to understand the real aims behind most modern terrorist and criminal actions. Traditional terrorist movements, such as the IRA in Ireland, ETA in Spain and France, and the Red Brigades in Italy, had clear, definite aims, with goals such as territorial independence or political revolution; and these aims were evident from their affirmations and communications. However new forms of terrorism, connected with pseudo-religious topics and with criminal activities, are difficult to place within a concrete and stable framework, and furthermore the new terrorists’ aims are changing and fluxing with time, often over very short periods. We can consider as an example some terrorist groups in Iraq, which began as real terrorist movements and over the space of a few weeks became criminal groups devoted only to kidnappings and robberies. Therefore, the aim is too indefinite and flexible a factor to have a satisfactory definition for terrorism, and can only be understood and defined after offences have taken place and after some investigations. Also, the E.U. list (below) specifying terrorist actions does not give us a full, helpful definition. Should this list be considered as a simple set of examples, or is it a complete and binding specification for what can be considered as terrorist offences? This is not an easy question to answer, particularly as the Council Framework Decision makes a connection with national laws, stating that for everything not included and specified in the Framework Decision it is necessary to consult individual national legislation. 20

Until 9/11, the concept of using an aeroplane as a weapon seemed bizarre; now it is terribly plausible .

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But the individual national definitions (assuming that states have a national legal definition) tend to be incomplete, general, or out of date, and they are always very different from one another. However, comparing national legal definitions we can find some frequently repeated characteristics: 1. use/threatened use of violence for political or social purposes; 2. aim to intimidate, to coerce or to blackmail; 3. attacks are against civilian or however non-combatant targets. Less frequently, we can find other secondary characteristics: a. sub - national actors; b. use of unconventional methods; c. acts are aimed at purposefully affecting an audience; d. violence is sometimes defined as “illegal force”; e. acts are committed also against property; f. actions are committed violating the laws. All these characteristics are surely compatible with the definition of terrorism, and can be used to describe most terrorist offences and behaviours; but it is not clear how to combine them in order to develop a global, accepted definition which is able to consider terrorism from a holistic point of view; a definition not too general, but at the same time not too rigid or binding. 4. The Crime Terror Continuum (CTC) 21 As we have seen, it is in fact very difficult to understand the aims underlying most criminal and terrorist actions and offences. We can see criminal groups acting as terrorist movements22, and terrorist groups committing common crimes in order to obtain money and privileges23. According to the most current and reliable theories, organised crime and terrorism are in some way connected along a line that Tamara Makarenko (2003) of the University of St. Andrews (UK) called The Crime Terror Continuum (CTC). Along this line, we have organised crime at one end, and terrorism at the other; but these phenomena move along the line, up and down, combining their activities and goals in different ways, from the less ‘mixed’ (when a single group maintains its usual characteristics and acts in a way typical of the traditional conception of terrorism or organised crime) to the most ‘common’, when there is a kind of convergence of the two phenomena and it is difficult to distinguish between terrorist and criminal groups.

21 For more details on the CTC, please consult MAKARENKO T. (2003), “The ties that bind”: uncovering the relationship between organised crime and terrorism, in SIEGEL D., VAN DE BUNT H., ZAITCH D. (edited by) (2003), Global Organized Crime – Trends and Developments, Dordrecht (The Netherlands), Kluwer Academic Publishers. 22 As occurred in Italy in 1993, when three typical terrorist attacks were carried out by traditional criminal organisations in order to obtain more favourable conditions for their members in jail 23 For example terrorist groups involved in the drug (and especially cocaine) market, as in Colombia.

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CONVERGENCE

1 alliance with terrorist group

2 use of terror tactics for operational purposes

4 'Black Hole' syndrome

3 political crime

2 criminal activities for operational purposes

1 alliance with criminal organisation

3 commercial terrorism

Fig. 3. The Crime-Terror Continuum

The first level of relationship that exists between organised crime and terrorism is alliance. Criminal groups can form alliances with terrorist organisations, and vice versa; these alliances can include one-off, short-term and long-term relationships. Moreover, these alliances can have a wide range of purposes, such as operational support, and sharing of expertise. The second step of the CTC is represented by criminal groups using terrorism as an operational tool, and by terrorist groups taking part in criminal activities as an operational tool. As Makarenko observed, the post-Cold War era exacerbated conditions for the use of terror tactics by organised crime in order to secure profits for future operations; as a result of this exacerbation, many criminal and terrorist groups shifted their operational focus. So, criminal groups have increasingly engaged in political activities in an effort to manipulate operational conditions present in the growing number of weak states; and terrorist groups have increasingly focused on criminal activities to replace lost financial support from state sponsors. But while the 1990s saw both criminal and terrorist groups incorporating economic and political capabilities into their activities, it became apparent that many groups lost sight of their original motivations and aims, and a growing number of groups simultaneously displayed characteristics of organised crime and terrorism. These circumstances made it very difficult to distinguish between the two phenomena. CTC tries to explain this new situation with the convergence thesis, which refers explicitly to the idea that criminal and terrorist organisations could converge into a single entity which initially (but only initially) displays characteristics of both group simultaneously: but has the potential to transform itself into an entity situated at the opposite end of the CTC from which it began. In our opinion, this transformation is really fundamental: we begin with one type of organisation, criminal or terrorist, and then we have, after some ‘movement’ along the CTC, a totally different kind of group. It is rare that an organisation maintains a ‘double’ nature for a long period: incorporating all the different characteristics of terrorism and organised crime is problematic for a single organisation, and sooner or later it returns to its own end of the CTC – or alternatively proceeds to the other end. The convergence thesis includes two independent, yet related, components: first of all, criminal groups that display political motivations; and, on the other hand, terrorist groups who are equally interested in criminal profits but begin to use their political rhetoric as a facade for solely perpetrating criminal activities. But the real fulcrum of the CTC is the central convergence point, the so called “Black Hole”, where the convergence between criminal and political motivations within a single group allows that group to subsequently gain economic and political control over a state. If this happens, two different situations can

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emerge: firstly, the “Black Hole” can produce a failed state (such as Somalia, Sierra Leone and so on), that has no central authority and has the characteristics of anarchy. Secondly, it can produce a real criminal state, where the government elites (using terror tactics to retain their power and control) use their official positions to engage in lucrative illicit activities for personal enrichment, or in order to create a safe haven for other criminal organisations. The main consequences of the CTC are on one hand that security threats are not static phenomena but are continually fluxing and evolving, and on the other hand that security is no longer a matter concerning solely military objectives but is joined by economicallydriven interests in continued fighting and institutionalization of violence. Another important element emerging from the analysis of the CTC is that the prevalent component in these phenomena is criminal activity, in its different forms.

5. Organised crime and profit Analysing the relationship between organised crime and profit, we can identify different historical phases. The first phase lasted until 1960, and was characterised by local criminal organisations with power as their primary goal: power as an instrument to improve personal status. In 1960 (the second phase) the major drug business began, and power become relevant only if it could bring money. The large amounts of money that the drug market could bring changed the aims and dimensions of criminal groups considerably; money become the main interest of these groups, and the improvement of personal status become a consequence of the personal enrichment more than of the personal power. Currently (the third phase) we can see a prevalence of criminal cartels, organised mainly for drug trafficking and kidnappings but with full autonomy in the licit economic sphere (in which criminal groups are involved as well as in the illicit one) for the higher ranking members, and with regular use of the ‘action sets’ system for the bigger illegal business. Gains for criminal organisations are enormous: for example, if we invest 1.00 € in the cocaine market, we can gain at least 1,000 € for our previous 1.00 €. And the drug market is only one of the numerous illicit trades and businesses available for organised crime: we should not forget the smuggling and trafficking of human beings, the weapons market, and so on. Profit is the key to opening the organised crime world: only by depriving criminals of their enormous illicit earnings is it possible to break down the inner criminal alliances. In order to reduce criminal profits, the study, analysis and investigation of money laundering schemes and modus operandi has great relevance, to help stop the diffusion and increase of illegal patrimonies. The next step, in fact, is to find, freeze and seize all the criminal assets, depriving criminals of their gains. However, in carrying out these counter-activities we have to face some major difficulties. Firstly, it is very difficult to estimate the full extent of organised crime earnings and to trace the money all around the world. Furthermore, the single criminal’s patrimony is not the whole criminal organisation’s patrimony, even if the single patrimony is easier to find and seize. The seizure of a single criminal’s patrimony is certainly useful, but is not a guarantee that our actions have been efficient in dismantling the whole organisation. It should be added that so-called white collar criminals seem to be very little worried by money seizures, due to their capabilities to renew their patrimonies in a short time, and their deep economic knowledge which allows them to hide their money in different places and trades, having often a licit facade, so that they always have some kind of “money supply” somewhere else. The other difficulty that we sometimes face is connected with the nature of certain types of seized goods and with the attitude of the local population. For example, when in Italy the Penal Courts began to seize the Cosa Nostra bosses’ fields and

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buildings, trying to sell them to obtain money for the Mafia victims, it was almost impossible to find people willing to buy these goods, simply because they were bosses’ properties and no one wanted to face the Mafia revenge. Only after several years some volunteer co-operatives started to use the fields to produce pasta, wine, jams and other products, to sell as a type of “anti – Mafia” goods, and some buildings were transformed into schools or other public centres. So, how can we face these difficulties in practice? Should we find some solutions, or should we allow the criminal organisations to win? Well, obviously we have to do something about it; and the good news is that we have some instruments to face these situations. First of all, even if they are not too concerned about financial seizures, white collar criminals are often worried by the ‘bad publicity’ that lies behind these seizures, because more than other criminals they are very sensitive to social control and disappointment, in connection with their social position and role. It has been proved that a serious detention in jail, without contacts with their companions outside and with other members of criminal groups, can have a bigger impact on organised crime affiliates than the simple detention in itself or the seizures, even though loss of money in the criminal world is always connected to loss of criminal status and power. So, at the top level the effect of the earnings seizures is fundamental- and then publicly displaying the seized items, trying to inform the whole population and making the criminal patrimonies real, rather than leaving them as a kind of indeterminate concept, something ‘told’ and immaterial. This can help to involve the local population in the concrete use of the seized goods, re-introducing them in the licit sphere, and taking them away definitively from the criminal world. 6. Financing of terrorism: Informal Value Transfer Systems and the Hawala system in detail Terrorist groups can obtain money from different sources: a. common criminal activities (kidnappings, robberies, thefts, human smuggling and trafficking, trafficking in drugs and weapons and so on); b. various organizations, institutions, governments (“state sponsorship”) and political parties; c. IVTS (Informal Value Transfer Systems, and most of all the HAWALA System). The first two types of source are very well known: for instance, in the 1970s the Italian Red Brigades would rob banks and post offices to finance their successive political violent activities, buying weapons and so on. Regarding the second source, there are currently certain states that (more or less openly) finance and support terrorist movements. But we need to say something more about the third source, the Informal Value Transfer Systems. They include any network or mechanism that can be used to transfer funds or value from place to place, either without leaving a formal paper – trail of the entire transaction or without going through regulated financial institutions (as in banks) at all. In their origin, and in most cases, these mechanisms are absolutely legal, and are used by large percentages of the population in Asia and Africa to transfer money inside a state or from one state to another (this is mostly the case of Hawala). However nowadays IVTS are also used for all kinds of transnational criminal activities (tax evasion, human smuggling, drug and stolen works of art trafficking and so on). It is important to remember that funds may be perfectly clean at the beginning (funds from state agencies, charities, businesses …), but the use of the IVTS permits users to divert the money from its natural, and legal, goals, to (illegally) funding terrorist groups.

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So, the sources of the money exchanged with the IVTS can be legal or illegal, and among the legal sources we can consider: • • • • • •

funds diverted from charities; use of commercial entities; dues from local institutions; cultural events and fundraisers; contributions from the wealthy; contributions from state agencies.

Among the illegal sources we find: • • • • • • • •

drug trafficking; kidnappings; robberies; extortions; cigarette smuggling; credit card fraud; welfare fraud; sale of counterfeit or stolen goods (for example works of art).

As we have seen, the fundamental characteristic of the IVTS is that they don’t leave any kind of documental or written trace, because these traditional instruments were created (and are often used) by populations that do not have an institutionalised system of banking, have no credit system and live as nomads, or in territories in which is quite impossible to have regular communications and technologies. Some of the IVTS are: • • • • • • •

black market money and other currency exchange networks; courier services and physical transfer methods, including smuggling; correspondent bank accounts; gifts and money transfer services overseas via special vouchers and internet web sites; internet based payments and transfers; stored value, such as pre – paid telephone cards; debit and credit cards used by multiple individuals.

However the most important of the IVTS is probably Hawala24. It simply involves the transfer of money and value from place to place, and there is often a kind of ‘security code’ (‘reference’) to ensure that the rightful recipients get the transferred funds. As a very old method used for trade and remittances to the extended family in the global South (especially South Asia), it is based on trust and serves populations with no banking or other alternatives in many parts of the world; money or other values reach beneficiaries within minutes or hours, at a very good exchange rate, without hassle and troubles. Hawala is not by definition criminal, but owing to its nature, it is (very) vulnerable to abuse. In Hawala we can find two main aspects: 1. the sending or payment of funds (regarding the relationship between the hawaladar and his/her client); 2. the settlement process (regarding the relationship among intermediaries). It is important to notice that each hawaladar makes payment for the other’s clients, and in this way funds do not have to move across borders; each hawaladar sends payment instructions by fax, email or telephone, contributing to the following mechanism: 24

The word “Hawala” in Arabic means simply “transfer”, and in Hindi it means “reference”.

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Fig. 4. The Hawala system

There are some measures that we can adopt to try and prevent the illicit use of the IVTS. Firstly, it is vital to detect and separate legal practices from suspicious and criminal abuses, and then it is very useful to separate funding sources from transfer sources, to give a clearer idea about the nature of the money we are dealing with. It must be remembered that not all IVTS users are criminals, or terrorists; therefore, general criminalisation should be avoided, in order to stimulate cooperation and collaboration with legitimate IVTS operators and users. Finally, it is important to be careful about targeting particular groups or individuals, considering the possible consequences for national and international interests (‘collateral damage’ to poor countries and people legally using Hawala and other IVTS as part of their culture; or the rise of anti – Western sentiments, as well as the instrumental use of ‘prevention’ to cover possible discriminatory activities).

7. Conclusions We have seen that the borders between terrorism and organised crime are often indeterminate and in a state of flux, and law enforcement agencies have to investigate very carefully every group or organisation, in order to fully understand the nature of that particular phenomenon. This situation forces us to find new strategies in order to fight all the mutant aspects of these two different, but often mixing, phenomena, and it is very difficult to point out common strategies and measures. However, considering the analysis in this paper, there are some general points to be remembered: 1. it is not just Hawala and other IVTS that can be used for funding terrorism or other illegal activities; we have to pay great attention to certain types of legal market (for example gold, precious stones, tobacco and alcohol), which are very vulnerable to abuse as well; 2. we also have to consider carefully financial and trade connections (money/goods), because they can hide ‘questionable’ business; 3. it is always important to remember that the western models of regulation are neither a guarantee of success nor appropriate for all types of relationships and contexts; 4. in the end, terrorism, organized crime and geopolitics need to be connected in analysis, as they are in reality. Only by remembering these fundamental concepts can we develop new strategies, adaptable to specific situations, but at the same time connected by a general sentiment and idea of legality.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Combating Financial and Information Technology Crime in the Balkans Colonel L. ROBEV Ministry of Interior, Bulgaria Abstract. The nature of financial and IT crime is complicated, and therefore the steps aimed at countering such crimes encompass the following three main areas: drafting and adoption of new legislation; strengthening the administrative capacity; and enforcement/implementation. Keywords. Balkans, Bulgaria, information technology crimes, financial crime, cybercrime, terrorism.

The Bulgarian Penal Code and other pieces of newly adopted modern Bulgarian legislation, such as the Act on Measures against Money Laundering, and the Law on Confiscation of Criminal Assets, contain extremely detailed up-to-date definitions of the various types of financial crimes. Furthermore, the Bulgarian Penal Code contains detailed regulations against the various types and forms of cyber crime and IT crimes. The coordinated efforts of state institutions in the field of combating financial and IT crimes should be built up on the basis of a flexible and up-to-date strategy of interinstitutional coordination among the state bodies involved in countering these negative phenomena. The necessity to improve inter-institutional interaction is an important prerequisite to achieving positive results in this field. The establishment of an efficient system for implementing joint counter-measures among the institutions and their participation in joint teams as a means of fighting complex financial crimes is a necessary step, as sporadic cooperation among the various institutions involved would hinder the efficiency of the process. The role of international cooperation is extremely important because a large percentage of the financial crimes are trans-national. If we wish to achieve successful identification of the modus operandi of such criminal activities and to create a flexible legislative system, active trans-border cooperation is necessary. Such cooperation would contribute to the timely identification of new types of financial crimes perpetrated by individuals or groups, in order to undertake up-to-date measures aiming at countering such crimes, accordingly. It is also necessary to identify the scope of the legislation, which must be aligned with E.U. requirements. The priorities in this respect should be related to amending the penal and procedural codes in the domestic legislation, as well as introducing laws against money laundering. It is also important to make sure that there are legal instruments for the enforcement of such legislation. Therefore, the legislative and executive authorities are expected to initiate the necessary legislative amendments in this area. Those legal aspects that cannot be incorporated into the legislation against money laundering should be provided for in legislation on the confiscation of criminal assets. Such legislation should represent a mechanism, which would prevent individuals or groups from benefiting from criminal activities that may even be linked to terrorism. The confiscation of

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L. Robev / Combating Financial and Information Technology Crime in the Balkans

criminal assets is an effective means of annihilation of crimes aiming at obtaining illegal profits. Cyber crime is a relatively new priority for law enforcement authorities. The legislative and institutional basis of fighting against cyber crime is not yet fully established. The expansion of new technologies, the widespread use of the Internet, the wide scope of Internet services, including e-sales and e-banking, also creates new sources of threats, as electronic environment is extremely vulnerable to possible offences. Therefore, Balkan countries will need to look at E.U. Member States for support in order to develop their legislation in response to such new challenges. Monitoring cyber space plays an important role in the process of combating these crimes. The active cooperation with Internet providers is important in order to obtain up-to-date information on such offences. With a view toward strengthening the administrative capacity, law enforcement authorities should also hire highly qualified IT experts and provide them with appropriate training, ensure their active participation in international training courses, seminars and conferences, provide good working conditions and modern equipment in order to achieve efficiency in countering cyber crime.

Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

49

Corruption: Fertiliser for Fleurs du Mal Ivo PAPARELA University of Dubrovnik, Croatia Abstract. During the last several years, many things have been said and done to curb terrorism, organised crime, corruption and other related activities. Like cancer, those activities are well alive, but more or less hidden, part of everyday life in many countries. One could say that corruption and organised crime are classical examples of public/private partnership; in a negative sense. It is clear that corruption is the fundamental basis on which are built organised crime and some elements of international terrorism. Countries in transition and new states, such as those which appeared after the collapse of the Soviet Union, Yugoslavia and Czechoslovakia provide good examples confirming this thesis. The reason for this is simple: democratic governments wishing to fight either organised crime or terrorism or both, as it is case today, must be: a) strong, and b) credible and respected in the eyes of the population. Corrupt governments, particularly those with a corrupt judiciary branch, are not able to effectively fight either organised crime or terrorism. Though their agencies can sometimes assist Western activities on their soil, this does not imply that corrupt governments are weak. In fact, they are capable of using force, often misusing it for the private interests of politicians and public officers. Simultaneously, there is a weakness within state apparatuses, because honest civil servants, and there are some, give up the fight. It is therefore evident that the territory of any country where corruption is widespread can adequately serve as both a rear and front base for activities related to organised crime and terrorism. Keywords. Corruption; terrorism; organized crime.

1. Corruption as a technique Corruption is illegal activity within official institutions. By its nature it is a species of terrorism. It can be organised and can be also informally present: individuals do it with a tacit knowledge and/or approval of colleagues and heads of departments. It is important to bear in mind that corruption in countries in transition is used not only to obtain something which the corrupt individual is not entitled to, but also to get something to which the individual is entitled. This dynamic is the real tragedy. Citizens must buy their rights. Grosso modo, there are a few basic techniques which are put in practice in the former socialist countries: 1) corruptor and corrupted meet directly; 2) corruption via intermediary; and 3) corruption which utilises legal means. Corruption where two individuals meet directly is found mostly in the health institutions, such as hospitals. Advantages in natural are common: e.g. the wife of the president of a court drives a car loaned by a corporation. Corruption via intermediary is put in practice generally within judicial and university bodies. This is already organised activity. A third person is contacted by and money is given to that person. Then the intermediary gives it to the judicial figure, such as a judge. Barristers (les avocats) are well organised for this. They are among the most active players in the corruption market. So there is no evidence for corruption. The same technique is used in the universities (sex excluded).

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I. Paparela / Corruption: Fertiliser for Fleurs du Mal

University professors have found a new technique. They require students to buy a certain amount of books they have written. The student must show the invoice during their examination. In real life, the amount is about 3000 Convertible Marks, or 1500 Euros, which equals two basic monthly salaries of a full professor in Bosnia and Herzegovina. This kind of corruption directly impacts ordinary citizens, creating an atmosphere of nihilism within the society, similar to the cultural psyche of a banana republic’s political atmosphere. Another level is the so-called corruption and criminality of the upper classes. First it begins in the banking sector. The next step will be the selling of the military real estate and other physical assets controlled of the military. This business is reserved for the political elite and their sponsors and clients. As the Serbian media put it, “Politics is the continuation of business by other means.” But politicians protect themselves effectively, resulting in practically no cases against them. One of the reasons is that criminal laws are not as stringent against these crimes as Western penal codes dictate. The rule is Nullum crimen sine lege. This is not the case with policemen: Every head of the metropolitan police of Belgrade since 1999 is in jail or is criminally investigated for connections with organised crime. In other countries of the region they are simply invited to retire with all benefits.

2. Consequences of corruption Citizens regard politics as a dirty business and as a sinecure, because politicians are seen as corrupt. In Russia, even the deputies of the Duma, who are members of important committees, earn 15 to 20 times their legal income by way of corruption, as indicated by the monthly Delovie Ljudi, April, 2004 p. 51. (Please note that MPs are less corrupt because they are not politically powerful). For those reasons politics is regarded as dirty activity. In the countries where pensions are uncertain, only those who are in politics are sure to have a decent pension: after all, the MPs can create such pension regimes for themselves. For this politics is regarded as a sinecure. Therefore, there is a large supply of people who want to go into politics. Politicians are regarded as dishonest; however, in the present atmosphere anyone would like to be dishonest, as in politics the probability of punishment is small and the probability of losing illegally acquired wealth is equal to zero. The international community is seen as a partner in the dirty business. But, both simultaneously and paradoxically, the population expects the E.U. to introduce law and order and standards of behaviour. Therefore, it is not understood why representatives of the E.U. and other institutions speak about democracy only and not about law and order. Democracy is often seen as a system in which criminals are not punished if they are linked with political figures. This way of thinking makes certain that there is an additional element contributing to the cycle of general social degeneration. This is illustrated by the following fact observed in the countries in transition and in newly sovereign countries. More people are asking organised crime groups for protection against corrupt judges. In this way, organised crime has developed a social function. Just like everyone else, criminals also need social reconnaissance. Concurrently, however, they are careful not to push things too far and thus jeopardise everything. Corrupt civil servants, policemen, university professors, or judges do not have such scruples. Their greed for money is such that they do not put limits on their criminal activity. So they are blocked by organized crime figures, which are always able to blackmail them. But the criminals want them to stay in office as long as possible in case the need them in the future. Financial criminality within the corporate sector, particularly within the banking and finance sectors, with the tacit approval of the central bank and top politicians, is well known. This is a combination of both the communist legacy and the policy of “Messieurs

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enrichisez vous” (e.g. the case in point is the corporate law of former Yugoslavia passed in 1989: the chapter dealing with Sociétés par actions had just 25 articles. In France, it has more than 200, in Germany it is AG law; in Italy, capo V di Codice Civile, with more than 150 articles. This history is familiar to those with knowledge of corporate law. Organised criminals and criminals within organisations thus form a kind of permanent partnership with real affectio societatis in the sense given to this phrase by company law. State institutions also shelter criminality. Government as such becomes interconnected with criminality and, in practical terms, many things done more or less honestly are but a function of improper dealings, so that in case of scandal honest activities can be put forward. But the citizenry blames democracy for this state of affairs and regrets the loss of communism, in which there was an order imposed by Party Committees (local or upper echelons.) As von Hayek said, many would trade freedom for security. In such a social atmosphere, is it possible for security forces to act professionally? Their members have full knowledge of what is going on. That is their duty! Many among them are also involved in criminal activities. With such a situation, why should they bother to run after Mladic or Karadzic or any other terrorists, when many gangsters are powerful judges, ministers, or civil servants. On the contrary, the assassination of Zoran Djindjic, Serbian prime minister, was carried out by members of an elite police unit. Security services are divided along many lines, including communists, the old guard, non-communists, political leftists and political centrists, the more or less honest, prowestern/anti western, the corrupt and so on. The probability is much higher that one will find someone corrupt than competent. The consequences are that weak states become dangers to the international community, thus imposing addition costs on the formation of the new architecture of international relations, as Robert Cook puts it in his interview with the Serbian weekly Nedjelni Telegraf. The international community will have to act. The anti-terrorist struggle at this time is a blessing for the corrupt in various states because no one cares about ordinary citizens in their everyday life. The life of ordinary citizens is the fabric that creates solidarity in the social and political sphere, which is essential for the right of citizens to pursue the good life. In this, democracy is not a goal but an essential tool. Solidarity is something that deters terrorism more than military and police. If this is broken, both military and police will be without their raison d’être and terrorists can simply wait for the dissolution of Western societies.

3. Conclusion The thesis put forward in this paper is simple. Corruption is, in the long term, more devastating for the countries of the world than terrorism. It is an internal cancer. Terrorism is a wound caused by external aggression. Regardless of the fact that it is native born, corruption makes the weakness of any state apparatus obvious, in the sense that its force is inadequately used. Can a geographically small continent like Europe afford to harbour territorial regions beyond the rule of law, with criminal groups such as cartels, Sendero Luminoso, and other malignant cancers? If the answer is no, then it is the duty of the E.U. to launch a merciless fight against corruption, or to be realistic against the excesses of corruption. Corruption should not be the norm, but rather the exception.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

Investigating Money Laundering: The Case of Italy Dr. Tommaso SOLAZZO Lt. Colonel, Economic and Financial Police (Guardia di Finanza), Italy Abstract. In recent years, the worldwide effort to combat money laundering and the financing of terrorism has assumed heightened importance. Money laundering and the financing of terrorism are global problems that not only threaten security, but also compromise the stability, transparency, and efficiency of financial systems, thus undermining economic prosperity. In the last decades a global trend has been observed in which a certain syndrome of anti-social conduct is viewed as particularly undermining the social fabric of the countries concerned and contextually menacing the global order. Because of the threat to domestic public order, such crimes are defined as “serious crimes”. Moreover, because of the menace posed in the international scenario such crimes are also considered “transnational crimes”. The issue of which crimes should fall within such category of crimes is a matter that goes beyond the scope of our work. However, after the enactment of the UN Transnational Organized Crime Convention 2000, there is a general consensus in the international community that money laundering is both serious and transnational in nature. More recently, after the 9/11 terrorist attacks on the US, a relatively new phenomenon is usually associated (rightly or wrongly) with money laundering: terrorist financing. Although money laundering as criminal conduct is different from terrorist financing (for instance, all money laundering schemes involve ill gotten funds, whereas in terrorist financing scheme a terrorist organization may be financed through both ill-gotten funds as well as perfectly licit money), many countries throughout the world have found it worthwhile to extend their anti-money laundering regimes to terrorism financing. Keywords. Money laundering; terrorism financing; organized crime.

1. The Financial Action Task Force: an international watchdog against money laundering and terrorism financing The Financial Action Task Force lent an extraordinary impetus to the process to extend anti-money laundering provisions to terrorism financing. In the aftermath of the 9/11 attacks, other than extending the 40 Recommendations’ applicability to terrorism financing, the FATF set up an additional set of rules - the 8 (now the 9) Special Recommendations – specifically dedicated to the fight against terrorism financing. The` FATF is a well-known watchdog in the international arena. It is an intergovernmental body which sets standards, and develops and promotes policies to combat money laundering and terrorist financing. It currently has 33 members: 31 countries and governments and two international organizations (EC Commission, GCC); and more than 20 observers: five FATF-style regional bodies and more than 15 other international organisations or bodies. The FATF was established by the G-7 Summit in Paris in 1989 to develop a coordinated international response. One of the first tasks of the FATF was to develop a set of

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recommendations, 40 in all, which set out the measures that national governments should take to implement effective anti-money laundering programmes.

2. The Italian experience The Italian strategy against money laundering has been designed to be the outcome of two main features. The first feature is the need to react adequately to the scourge of criminal phenomena present in the country. The second feature concerns Italy’s membership in international bodies, which required that country to implement standards, conventions and legislation on money laundering set up by, respectively, the FAFT, the United Nations and the European Union. Regarding the first facet, it worth to remembering that during the 1970’s Italy was affected by a bloody wave of murders, bombings and terrorist attacks carried out by several terrorist groups. The financing of the activities of these groups included inter alia bank robberies and kidnappings. With the objective of tracing the path of the ill-gotten money derived from robberies or payment of ransom, Italy introduced a law requiring banks to file all cash transactions above a certain threshold and to take note of the banknotes’ serial numbers. Apparently, the police took evidence of those serial numbers of banknotes used for the ransom’s payment. The 70’s also saw many financial scandals in the banking community. A strategy to avoid opacity in banking and financial markets was urged to be adopted both domestically and internationally. During the following decade, the easing of global trade facilitated the rise of the drug traffickers, allowing several Italian mafia-like organizations to dramatically increase their illicit power. Some groups put aside their local and mobster origins and management of their affairs and begun to operate as a more organized syndicate. There was now a need to stay active in international affairs, for instance, to negotiate drugs deals with foreign organizations, to deliver money abroad to pay for the drugs and to place profits in secured offshore centres, to understand the mechanism of customs in order to avoid their controls, and to establish companies abroad, etc. In almost all of these new activities, these groups availed themselves of the support of legal professionals, like lawyers and accountants, as well as brokers and bankers. The risk that the financial markets were threatened by infiltration by organized crime prompted the Italian Parliament to adopt new laws, aiming to: • safeguard the banking system from unwitting involvement in money laundering schemes: • prompt banks to cooperate with the investigative authorities without needing a request; • increase the transparency of the banking sector; • introduce “know your customer” rules. The Italian mechanism to prevent and fight money laundering stemmed not only from the need to counter criminal activities observed in the country during the last decades, but was also the result of Italy’s membership in international bodies, which required that country to implement the FATF standards, the UN convention and the European Union’s Anti-Money Laundering Directives. Notwithstanding the international financial scandals and the increased drug trafficking urged by the international community since the 70’s, the first international initiatives were only adopted in December 1988. In the same month two completely different international bodies adopted two cornerstones in the fight against money laundering. In the first case, the Basle Committee

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on Banking Supervision within the Bank for International Settlement adopted the “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering”. In the second, the United Nations enacted the Convention against Illicit Traffic in Narcotics, Drugs and Psychotropic Substances (UN Vienna Convention 1988), in which a specific provision requires the countries to criminalize the laundering of funds derived from drug trafficking. Since then the international community has continuously added to the AML regime with new mechanisms for the prevention and suppression of money laundering. The United Nations has also been involved, having organised the Convention against Transnational Organised Crime (UN Palermo Convention 2000) – which extended the criminalization of money laundering beyond the profits derived from drug trafficking only – and the Convention against Corruption, October 31, 2003, where the laundering of funds stemming from briberies was criminalized and prosecuted. At the E.U. level, on 1991 and 2001 two Directives were enacted in order to prevent the use of the financial system for the purpose of money laundering (Directives 91/308/EEC and 2001/97/EC). A third Directive is still under discussion within the Union as to extend the AML regime to terrorism financing and to involve non-banking and financial institutions and persons – such as lawyers, notaries and accountants - in the fight against these crimes. As for the FATF’s activity, the Forty Recommendations were revised on 1996 and a new set of Recommendation were implemented on June 2003. Moreover, as mentioned above, on October 31, 2001 the FATF enacted the 8 (+1) Special Recommendations on Terrorist Financing.

3. Investigating suspicious transactions reports All these conventions, legislations and standards represent, for Italy as well as other E.U. member states, the terms of reference of the current arsenal of tools for the fight against the laundering of ill-gotten funds. One of the innovative tools introduced by the law is the possibility for the banks, financial brokers and other designated categories of persons, to report suspicious transactions when they suspect that they suppose a link to money laundering or to an offence that is a predicate of money laundering. To understand the philosophy and the scope of this mechanism, one should know that for the launderers the most sensitive phase of laundering is when they try to convert the cash money into bank money. It should be taken into account that from the criminal’s perspective the best situation is to operate using cash because cash cannot be traced. Thus, the very best system in which criminals may operate is a totally cash-based society. The cash-based system exists when a country has no barriers and controls over cash money transactions and cash is of everyday use, as in some developing countries particularly under banked or totally unbaked countries - where the formal financial sector is virtually non-operational. In that way criminals are able to avoid any suspicious by law enforcement bodies and prosecutors. Thus, criminals can safely spend huge amount of cash not only by investing in new illicit enterprises (for instance, the purchase of a new shipment of drugs) but also by investing money in real estate business, opening shops, buying cars, precious stones and other high-value goods and so on. In such cases substantive suspicions may not arise in their counterparts that the cash has illicit origin because, as stated above, in a cash-based system it is normal to use cash instead of other means of payment, even for the purchase of high-value assets. Generally this is situation can really hamper investigations. As said above, cash does not leave a trace when it passes from a person to another. It is impossible to reconstruct the

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path as to go back the origin of the cash. That is why, in 1991, Italy introduced a law which requires that all transactions above a certain threshold (now 12,500 Euro) cannot be performed in cash or other bearer means of payment. The main goal of this provision is to render the country a more cashless society and, therefore, to lead customers to carry out their legal transactions by making use of other more traceable means of payment only (mainly through banks and other licensed financial intermediaries). As a consequence, in theory in the mare magnum of the cash transactions one could find illicit transactions only (other then irrelevant legal transactions because they are performed under the threshold). But we know also that criminals cannot ever operate in the mare magnum of cash, especially when criminal associations need to interact internationally and seek to infiltrate the legal fabric of the society. So, criminals need, one way or another, to approach the banking system, and the approach is usually made by depositing cash in a bank. As mentioned above, this stage - where the ill-gotten money comes out into the sunlight - represents a crucial point for criminal organizations. The risk of being intercepted by law enforcement agencies is much higher than when the money was cash. Who are the first ones who may be alerted to illegal monies? Who are those that may alert the police promptly? Simply put, the banker’s employees and, in the wider scenario outlined by the new 40 FATF Recommendations, the gatekeepers (lawyers, accountants, notaries, trust and company service providers), or, in other words, those categories of persons which are called by the international standards of prevention of money laundering to report suspicious transactions to the competent authorities. This explanation may help to better understand how important it is for each country to have an effective system of processing, disseminating and investigating suspicious transaction reports (STRs). With a cogent system of reporting that is effective, many more indications and leads are available to investigators and prosecutors to help ascertain the responsibility of alleged launderers. As for the Italian system of reporting, the UIC (Ufficio Italiano dei Cambi, the Italian body which performs the role of the national Financial Intelligence Unit) received the STRs from banks and other reporting entities. The UIC carries out financial analyses to formulate preliminary hypotheses concerning the unlawful activities underlying the conduct being reported in each case. The table below shows the cases that may be related to different illicit activities, money laundering being one of these. It is worth stressing that each case is associated with an activity only because of the results of the financial analysis each STR undergoes prior to any acknowledgement that the suggestion may receive from further investigative developments. The suggested illicit activities refer only to a sample including 20.672 STRs. Tab. 1. Hypotheses on unlawful activities underlying STRs Hypotheses on unlawful activities 1997 1998 1999 2000 2001 2002 2003 2004 underlying STRs* Loan-sharking and unauthorised 7,4% 7,1% 8,1% 4,1% 6,2% 7,2% 6,1% 4,9% provision of financial services Money laundering 6,9% 9,7% 9,2% 6,5% 4,6% 4,4% 2,6% 3,6% Fraud 7,4% 6,8% 9,2% 8,0% 6,1% 5,9% 2,9% 4,4% Tax evasion 16,0% 17,7% 16,9% 15,8% 13,4% 13,9% 13,8% 10,5% Others 62,4% 58,8% 56,6% 65,6% 69,7% 68,7% 74,6% 76,6% *Share over a sample including 20.672 STRs The year refers to the date STRs were sent on to law enforcement

TOT

6,1% 5,4% 5,9% 14,4% 68,2%

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An interesting reading of this table is that the STRs may catch not only alleged money laundering crimes (it ranges from 2,6% to 9,7% of the sample) but also other financial crimes, such as loan-sharking and fraud, and tax evasions as well. This also remarkably discredits a common mistake of those people who continue to believe that the AML framework is useful only to counter money laundering. From the above table it is clear that only a slight fraction of STRs is allegedly directly connected to a money laundering crime specifically. In the other cases STRs relate to financial crimes and tax evasion that may be indicators of money laundering. As a result of the analysis of the STRs that the UIC has received throughout over seven years of activity, a considerably wide set of typologies and techniques that have been used to launder money have been identified. It may be appreciated that the typologies apply to manifold economic sectors (IT, metal processing, waste disposal, security brokers, money remitters, insurance). The illicit activities underlying each financially anomalous behaviour range from financial and tax fraud, embezzlement, unauthorised provision of financial services (including loan-sharking) and possible connections with terrorist activities. However, the process of investigating STRs does not end here. Once the UIC has carried out its financial analysis of the STRs, the UIC forwards the STRs to the competent law enforcement agencies: the Direzione Investigativa Antimafia (Bureau of Antimafia Investigation – DIA), which conducts investigations of mafia-like criminal investigations; and the Nucleo Speciale di Polizia Valutaria of the Guardia di Finanza Corps (Special Currency Police Unit – NSPV), which has suitable skills and powers of investigation to perform financial investigations. Regarding the activities performed by the DIA, the reports received from the UIC are first processed in order to evaluate the need for a thorough follow-up investigation. In this context, all pieces of information enclosed in the bank’s report, as well as the FIU’s statement on its financial analysis, are checked and matched against the police information filed in the National Police Data-Base (named SDI) and other confidential information filed in the DIA operational archive. If any possible connections emerge between individuals or reported companies and criminal organizations, the National Antimafia Attorney’s Office must be informed as well as competent DIA operational units in order to carry out specific investigations and inform the Guardia di Finanza’s NSPV, to avoid overlapping of investigations. The National Antimafia Attorney’s Office must be informed in order to put it in position to co-ordinate the activities of all competent prosecutors, who will conduct possibly investigations on the same subjects. Although the STR mechanism is a system designed to prevent the banking and financial sector from being exploited for laundering purposes, instead of combating that phenomena, the measurement of the efficiency of such a system should not be based in terms of prevention only (how many money laundering acts are avoided as effect of the implementation of a system in a country is always very hard to calculate actually). However, the following figures may help to assess the overall system of reporting suspicious transaction reports in Italy: • during 2004 the National Antimafia Attorney’s Office has informed that proceedings concerning 103 STRs have been initiated by Antimafia District Prosecutors; • the DIA has initiated investigations on 1.943 STRs, of which 243 have caused judicial authorities to initiate formal proceedings against the individuals involved; • about 60% - 70% of the judicial proceedings on money laundering and associated crimes that have been initiated a result of the investigations led by the Guardia di Finanza originate from STRs;

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•

57

1.635 STRs concern cases for which there were ongoing investigations by judicial authorities and law enforcement prior to the filing of STRs.

Tab. 2. Statistical data on STRs on money laundering STRs

Terrorism financing

Others

Furthered to law enforcement

840

101

3.798

2.667

3.720

4.504

3.813

2.383

545

5.391

5.784

912

6.571

6.952

321

4.947

5.558

288

6.528

7.133

1997

-

1998

-

1999

-

2000

-

2001 2002 2003 2004 Total

2.066 35.608 35.082 The figures above include the STRs concerning the Unigold case, which, strictly speaking, are to be considered the result of an investigation of the Italian gold-manufacturing industry, rather than STRs proper. Accordingly, this group of STRs is disregarded in the following tables. Source UIC

4. Prosecution of money launderers It goes without saying that all investigations of money laundering do not necessarily stem from a STR. On the contrary, in most of the cases traditional sources of information (such as informants, open sources, secret services’ confidential reports) are catalysts for AML investigations. Furthermore, this is proper regarding investigations on terrorism financing. In these cases the STR system is usually less successful because terrorists are able to finance their activities through micro-transactions well below the threshold of the fixed amount, thereby avoiding the suspicious of the bankers. Moreover, it is worthwhile to note that a number of terrorist organizations, including alQaeda, influenced by their cultural heritage, prefer to move their funds through underground banking systems (like hawala) or alternative remittance systems (like Moneygram, Western Union, etc.) instead of funnelling money through a more formal banking system. It has also been noted that in so-called traditional investigations (investigations which do not stem from a STR) the AML regime of prevention plays a key role. Nowadays, pending an investigation it is normal to enter a bank with a prosecutor’s order of exhibition of banking evidence regarding the activity carried out by a suspect several years previous and, after an acceptable lapse of time, to receive bank statements on all bank accounts whose owner is or was the suspect. This is now possible because of the implementation of one the pillars of the AML regime of prevention, namely, the requirement that banks keep records of identification of

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customers and of transactions for at least 10 years. These pillars of the AML regime of prevention are also particularly useful in tracing financial flows relating to international terrorist organizations. As a result of the traditional investigations carried out by Italian police forces during last three years (2002-2004), a total amount of approximately 30 billions Euro were seized and 894 persons arrested on counts of money laundering crimes (848 for the count of money laundering crime under article 648-bis penal code; 46 for the count of investing money of illicit origin under article 648-ter penal code). Tab. 3. Properties seized in Italy from Jan. 2002 to Dec. 2004 Year

Amount of seized goods

Value of seized goods

2002 2003 2004

2955 1472 666

M€ 13,556 M€ 6,253 M€ 10,057

TOTAL

5093

M€ 29,866

Source: Home Affairs

Tab. 4. Art. 648 bis C.P. – Money Laundering – Years 2002/2004 2002

TO TAL

2003

Percentage 2002/2003

Ar res ted

Re por ted

TO TAL

Ar res ted

Re por ted

TO TAL

273

2487

2760

250

1933

2183

Ar res ted

Re por ted

TO TAL

8,4%

22,3%

20,9%

2004 (until 30.11.2004) Ar Re TO res por TAL ted ted 325

1750 2075

Source: Home Affairs

Tab. 5. Art. 648 ter C.P. – Financial and goods transaction derived from criminal activities – Years 2002/2004 2002

TO TAL

2003

Percentage 2002/2003

Ar res ted

Re por ted

TO TAL

Ar res ted

Re por ted

TO TAL

Ar res ted

Re por ted

10

359

369

23

359

382

130,0% -

TO TAL

3,5%

2004 (until 30.11.2004) Ar Re TO res por TAL ted ted 13

215

228

Source: Home Affairs

5. Lessons learned In recent decades, Italy has experienced various forms of serious organized crime, from mafia syndicates to foreign organized crime, from domestic terrorist groups to the menace of international terrorist organizations. These phenomena have catalyzed the country to

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update the national strategy of crime fighting and prevention, improving legislation, searching for new and more effective tools and techniques of investigation and involving all the stakeholders – including the private sector – in all processes of consultation and cooperation. Now is the time to seriously think about changing the current strategy of approaching the fight against the major invisible threats, such as organized crime and international terrorism, and their illicit financial assets, money laundering and financing terrorism. In the past, in each individual country phenomena such organized crime and terrorism were viewed as matters that, as other crimes, lie within their internal affairs and, as such, were punished under the ordinary rules of the domestic criminal code. However, recent international and domestic dynamics suggest that we should be ready to change our approached before we are forced to do so. The tremendous experience of the September 11 terrorist attack on US soil has pushed the international community to take steps beyond the barrier posed by ordinary criminal rules in terms of freezing assets sine die ad quem related to terrorists included in lists not elaborated nor scrutinized by law courts. The question is: when the ordinary rules of criminal proceedings are not effective in providing a prompt response to an imminent transnational threat – such as the menace launched by networks like al-Qaeda – do we continue to address the threat as a criminal phenomenon or, instead, as something completely different and broader? One option is to consider the “invisible threat” as if it were a jurisdiction sui generis which is composed of people (the associates, the terrorists), an organization (the diversification of tasks among the members, the pyramidal structure, the network structure with the head playing the role of director of terrorist acts) but lacking in territory (but aspiring to acquire a land or a territory). This approach will completely change the new strategy with which to face the “invisible threat”. It will become a matter between jurisdictions – of foreign relationships - where criminal law plays a secondary role, if any. Another option is to revise ordinary criminal law to make it more adequate, speedy and effective when it tackles extraordinarily serious malfeasance like organized crime and terrorism. This process of revising the law should be accomplished following the strict observance of human rights and fundamental freedoms as protected by international conventions and constitutional traditions common to many like-minded countries (such as the European Convention on Human Rights - ECHR). It goes without saying that the humans right challenge means striking the appropriate balance between robust data protection and due respect for other fundamental rights on the one hand, and the frequent use of enhanced power of investigations under the control of a court aimed at safeguarding essential public interests such as national security, and the prevention, detection, and prosecution of such serious crimes on the other. Moreover, such enhanced means should not contribute to legal uncertainty. For instance, one enhanced procedure that can be introduced by countries to counter phenomena such as organized crime and international terrorism is the civil recovery of criminal proceeds. In fact, civil forfeiture legislation does already exist in several jurisdictions adopting the AngloAmerican legal system (i.e. United States, Ireland, South Africa, Australia, the Australian states of Western Australia, Victoria and New South Wales, and the Canadian Provinces of Alberta and Ontario). For the exception of Italy, (so-called “procedimento per l’applicazione di misure di prevenzione personali e patrimoniali”) asset recovery legislation is not yet rooted in civil law jurisdiction.

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6. The role of NATO What role can NATO play in the fight against money laundering and terrorism financing? NATO can play the typical role that an international body, representing likeminded countries and founded upon strong shared rules of cooperation, is expected to play. In this context, NATO should debate the feasibility of the following actions: • support member states to invest in technology research intended to improve the intelligence and to facilitate investigations of organized crime, international terrorism, money laundering and terrorism financing; • promote such projects as “risk assessment” and “financial profiling” (who are the launderers? Who are the terrorist financiers? Does a serial launderer exist? What is the background of a launderer or terrorist financier? Which categories of business are at risk of employing criminal staff that may use the business to launder money? How should a suspected launderer/terrorist financier be interviewed? Etc.); • promote initiatives aiming to identify which barriers hamper a wider framework of cooperation and exchange of information between member states (intelligence/military/law enforcement/FIU/regulatory); remove the elements that are critical to achieving free circulation of information among the states affected by similar transnational crimes, such as compartmentalization of information and lack of clear policy over information channels; • improve the awareness of the private sector of the risks of money laundering and terrorism financing, or to be infiltrated, managed or controlled by criminals or their confederates; • support initiatives to compel the private sector to create its own anti-money laundering/counter-financing terrorism code and to implement a system identifying companies adopting AML/CTF ethics.

New Threats and Information Technology

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Transnational Crime: Challenges for Law Enforcement Colonel Umberto RAPETTO Jr., LLD Economic and Financial Police (Guardia di Finanza), Italy Commander of the High Tech Crime Special Unit (Nucleo Speciale Anticrimine Tecnologico) Abstract. Electronic banking (e-Banking) is an important channel for the rationalisation of financial operations. All the operators have expanded their range of products and services available through electronic distribution channels to include online remittance services, credit card application, guaranteed fund trading service and electronic consolidated statements. In this way, we have seen an upgrade of telephone banking and internet banking systems that now are ready to provide 24hour service capability and customer friendly features. Organized crime has also understood that the advent of the Internet has created a special opportunity to move huge quantities of money across borders, thereby reaching destinations all over the world. This situation requires the entire law enforcement structure to begin to consider and act against financial crimes such as money laundering, now called cyber laundering. Keywords. Cybercrime; money laundering; transnational crime

1. Introduction First, it is important to consider that there are no borders in electronic communications, and that there are many differences between current legislation and possible future legislation to combat the new breed of crimes. If we have dissimilar laws concerning the same crime, it’s not so difficult to appreciate that it is impossible to synchronize the ambitious efforts of the various police and courts of justice. We need common laws and, in the meantime, we ought to create bilateral agreements in order to cooperate without barriers and other obstacles. To obtain such a goal all countries have to cooperate at the political level, finding mutual points of view and sharing what they have done by themselves during the last period. We have also to establish common procedural rules, to guarantee an identical path for each kind of investigation. This objective can be reached only acting together; we can cooperate in investigations by watching for new ways to do the same job, implementing joint training solutions, attacking difficult problems and thereby finding a path that will be useful for everybody.

2. The technical gap Try to imagine that there aren’t problems related to laws and rules Even before specific international legislation is instituted, there are many problems linked to the technical complexity of investigations. Of these, at least two or three of these problems are known in advance. The first of them is methodological obsolescence employed to initiate research and analysis through the Internet, as well as performing searches of computers’ hard drives.

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Law enforcement agents must realize that they are always late and that what appears to be the end of an investigation is really just the beginning. Because criminal organizations continually try to stay one step ahead of law enforcement, it is therefore necessary to try many tactics and be sure that only one is the right one. But is our way the right one? And have we considered that the correct hypothesis was included in the wide range of suppositions we’ve made? We can put forward many questions and certainly we are not able to answer all queries. The enemy is ready to implement new technical solutions that we don’t understand how and where they can be used. We have to anticipate our enemy, creating think tanks to utilize the most capable human resources. We need people skilled and continuously informed about new technical products and software applications.

3. The Internet scenario: many covert channels Criminal organizations and terrorist groups are using the Internet to communicate, share information, improve their command and control capability, send orders and to obtain the necessary feedback following any operation. The Internet seems be our enemies’ natural nervous system. The top management (and often the middle too) of law enforcement agencies instead look at computers and networks as strange and unknown entities that can be manipulated only by experts and specialists. Everyday we discover new and unseen solutions able to permit invisible financial transactions through the Internet. The “weapons” necessary to move capital funds are a simple computer, a normal connection to the Internet, and particular software. With these ingredients, anyone can hide his communications and operate without risks of being caught. There are many opportunities to implement clandestine channels of communication. Historically we have two principal methods, the “storage channel” and the “timing channel”. “Covert storage channels”, as defined by the U.S. Department of Defence’s Orange Book and considered to be the computer security sector’s bible, and includes all methods that would allow the direct or indirect writing of a storage location by one process and the direct or indirect reading of it by another. “Covert timing channels”, instead include all methods that would allow one process to signal information to another process by modulating its own use of system resources in such a way that the change in response time observed by the second process would provide information. When we try to visualize a communications channel that is covert, it is important to imagine what it is hidden. This situation implies that a “third party” (such as a law enforcement agency) does not know of the existence of such a channel. Organized crime or terrorists find a means to communicate in such a manner that suspicion on the part of the policeman or judge is never raised. But the law enforcement agency (faced with the possibility that criminals might eventually wish to discuss something prohibited or to exchange orders or disposals) must accept that there is a risk that some covert communication may be attempted. To counter this threat, and immediately after accepting that some form of covert communications channel possibly exists, police and judicial agencies must present a hypotheses regarding how it might function. This alone is not cause for denying all communications; no laws have necessarily been broken, as at this stage, the covert channel is theoretical. The much more difficult step would be to determine that this covert channel was indeed being purposefully used. What do we have to do? The difficulty – in identifying what these covert channels are – comes from the fact that by nature, most of these communication solutions are not mechanisms that are intended to convey information at all.

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4. Steganography: a new threat It is thought by many researchers that these encrypted digital messages were (and perhaps are still) passed by way of hidden channels, embedded within other innocentlooking files. We know that many techniques to hide information and to send messages are unreadable for the uninitiated, which has prompted a wide number of solutions, from traditional cryptography to the newer digital field of steganography. This methodology is capable of hiding information inside digital photographs. Using a computer enables one to find many containers in which to put secret contents. To hide something that’s in an electronic format, it is possible to utilize normal working files such as a movie viewable on a computer or mp3 music files used around the world to store music and sound with high quality and small size. After transforming the content into an invisible part of a normal file, it is also possible to lock it by putting a password protection added to the encryption. If a criminal sends a file like this in an e-mail, nobody will be able to recognize the real message that has been sent. If an encrypted mail (such as PGP or other well known encryption software) can be filtered on the internet by some automatic tools (the FBI product Carnivore is the most famous) and grabbed by the investigators, it’s easy to understand that it is impossible to intercept something that is embedded in a photo of a cat or in a Christmas movie. Another point is that it is possible to place secret data within the header of a TCP/IP packet. TCP/IP packets are the parts of messages that are split in order to be transferred through the Internet and – in this case – through the electronic mail system. Basic TCP/IP packet architecture allows for a number of covert channel options by way of numerous locations within packets which are normally unused or optional. By prior arrangement between interested parties, a computer could receive packets from a companion’s computer that looked quite normal unless it were very carefully scrutinized. After extracting predefined bits or blocks of bits from specific locations within a series of packets, the receiver could easily reassemble a hidden ASCII message from the sender. These examples are enough to show that it is absolutely necessary to acquire the most detailed information about the numerous ways that the Internet can be used by criminal organizations, terrorists, and narcotraffickers among others, to communicate in a manner that totally defeats any large scale interception efforts. It is therefore necessary to consider such questions as, “Is steganography really undetectable?” In order to answer, it is necessary to study steganalysis and to improve our capability to fight against rapidly changing technologies through the Internet and everywhere these technologies can create unbeatable obstacles.

5. To be anonymous is not impossible People who are interested in moving and laundering money know that it is important to create a degree of anonymity. This makes it more difficult for the law enforcement to trace financial operations and to identify who is responsible for capital transfers. With the advent of the Internet, it has become easier to obtain false identities, due to the emergence of anonymous websites. Using a special hacker technique called “spoofing”, it is possible to implement identity theft in such as way that certain individual’s crimes can be recognized as committed by another criminal. Organized criminals and terrorist know very well that it is sufficient to reach a cyber café or an Internet access point and to use whichever workstation they can find there. No one will ask them for identity documents, making it impossible to find the individual who has committed the crime we’re investigating.

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6. Another nightmare: war chalking Another worry comes from the rapid proliferation of wireless local area networks with their “Wi-Fi hotspots”. It is easy to acquire an unauthorized access to a LAN connected to the Internet; in fact, many people leave particular signs on the walls of office building. This mania is known as “war chalking”, because with a piece of chalk it is possible to show – to all the others interested– that in the zone nearby there is a wireless signal. Many young boys practice this “play” and use this forbidden connection to attack websites and to implement scams and frauds. In the U.S.A., there is a game (viewed also on TV) that’s called “Noderunner”, in which the objective is for a team to find as many LAN nodes as possible within a city area. Criminal organizations have quickly learned that by using a WiFi hotspot all the responsibilities for activities done through the Net can be falsely attributed to the business owner or the public administrators of the wireless network.

7. Looking at the future Some investigators are bothered by the concrete possibility that criminals and terrorists can transform global networks (such as ATM terminals or airline/railways reservation systems) by creating covert channels through the Internet. This is a major fear for the future, as even the best specialists are aware that is very difficult to detect illegal operations executed online and that current forensic tools aren’t enough to guarantee successful investigations. Everyday there is a new methodology, a new technique, a new trick that can be used by the dark side of the cyber-universe. Everyday, luckily, there is somebody in law enforcement that tries to explore new paths and to probe potential ways that can be used by criminal organizations for their illegal financial purpose. The duel continues.

Social Consensus and Law Enforcement

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Perceptions of Security: Local Safety Councils in Slovenia Gorazd MEŠKO Associate Professor of Criminology Faculty of Criminal Justice, Ljubljana, Slovenia Abstract. Recent trends in crime prevention and community safety in Slovenia have been characterised by the influence of ideas of crime prevention in Western societies, especially with the idea of community responsibilisation and involvement of local administration in setting priorities in safety/security efforts and prevention of everyday criminal offences. Since 1998 eighty local safety/security councils have been established. The police initiated the establishment of all councils. The councils have been situated within the local town/city/municipality administration as a consultative body in crime and safety/security matters. A legal basis for such councils is the Police Act and the Local Self-administration act. It is necessary to stress that both paragraphs are more or less “recommendations”. Therefore, a consultative body (a safety/security council) can be established by a municipality council. None piece of national legislation determines the obligations of such councils. The results of research based on 178 members of local safety/security councils imply problems related to definition of local crime prevention, community policing, disparities between proclaimed ideas and practice of crime prevention. The role of such councils is still debatable. It is also necessary to stress the necessity of criminological analysis of local crime and safety/security problems. So far, the majority of such councils have drawn conclusions mainly upon the police presentation of crime problems in their communities and »public opinion« about the root causes of criminality in their environments. Expectations of the police are related to more responsible local citizens but there exist a paradoxical weak bond of the police with local communities. In addition, a research on feasibility of the Council of Europe's urban crime prevention recommendation was conducted as well. Keywords. Community safety; Slovenia; local safety councils; local safety problems.

1. Introductory reflection upon safety and security issues in Slovenia 25 Slovenia’s period of change from the old millennium to the new one has been termed the transition period, characterized by different processes related to economic and political transformations, and to becoming a member of both NATO and the E.U.. While discussions of these processes attempt to present a comprehensive explanation and convincing arguments within the framework of European and world history, they fail to recognize that Europe, as well as the entire world, is facing more long-term and far-reaching social changes from the modern era to the so-called post-modern era. The absence of a thorough understanding of this transitional period evident in today’s world is also characteristic of the discussion surrounding Slovenia and its security both present and future.

25 This part of the paper is based on a summary of the paper by Dobovšek, B., Flander, B., Meško, G., and Sotlar Andrej on the parliament security in Slovenia (2004).

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Post-modern society is characterized by unpredictable and explicitly contradictory economic, political and social developments. Capitalist society today is characterized by: (1) economic and political globalization,26 which is becoming increasingly similar to economic and cultural imperialism. Among other things, it aggravates the polarization between the so-called developed and undeveloped world,27 widens the gap between different cultures and civilizations, encourages religious fundamentalism and (consequently) terrorism, increases poverty in both the developed and undeveloped world,28 neglects and excludes vulnerable social groups such as minorities, youth, the elderly etc., diminishes the possibility of individual countries working out a strategy of their own economic and general development and thus face their problems; (2) neo-liberal capitalist economy, which is forcing its functional, market and profit logic upon different areas of social relations (including those where it has nothing to offer);29 (3) political and economic integration efforts, in particular in European regions, which appeal to common goals and values, multi-ethnic cooperation, coexistence, tolerance etc. yet at the same time bring about a worrying increase in isolationism, xenophobia, populism, ideological and political neo-conservatism; (4) digitalisation and informatisation of social processes which are changing the foundations of the modern world, as we are entering an era alternately referred to as the “information”, “digital”, “post-industrial”, “post-modern” “hypermodern” “hypertechnological” and “cyber” age etc.; (5) a critical and sceptical approach in the field of social studies, which has undermined the authority of social studies and puts the emphasis on the relativity and limits of its cognitive potentials in search of human truths;30 (6) the appearance of critical post-modern approaches in philosophy which stress the position that ratio should not be defined only as the central progressive force of historical development, but also as means and a tool that has been used throughout history in different, more or less subtle ways, by protagonists of different ideological and political backgrounds to dominate and to preserve the achieved social position. Such trends have undermined the foundations of modern enlightenment’s “big story” about the exclusive role of science and rationalism in the emancipation of mankind;31 (7) transformation of social values and lifestyles, which has led to experimenting with life practices and their increasingly flexible, plural and atomistic nature. It has also strengthened ideological, religious and moral traditionalism; (8) a number of dramatic discoveries in astronomy, physics, genetics, and medicine, which have sharpened the contrast between largely liberal ideas about the world and man on the one hand, and more or less dogmatic, conservative ideas on the other; (9) last but not least, the appearance of new, complex forms of extremely intensive and far-reaching threats to 26 For a detailed explanation of the notion, nature and characteristics of the globalization processes see U. Beck (2003). 27 The worth of the 225 richest people in 1998 amounted to the annual income of 47% of the world’s population (i.e. 2.5 billion people). Since 1994 their fortunes have increased an average of 500 USD per day. The wealth of the three richest people in the world is said to be larger than the total annual GDP of the 48 poorest countries, whereas the wealth of the 64 richest people in the world is said to be greater than the GDP of China, with a population of 1.2 billion. See M. Hanžek, K. Gregorčič (2001). 28 In the context of increasing social, political and economic inequalities, the reference literature in the field of social studies discusses the tragic nature of the Western social system (which tends to be considered superior in comparison to other systems and civilizations). It is argued that large social inequalities are rooted in its most praised quality, the imperative for a constant increase of product value. Because product (added) value has always been historically bigger in western economies than in other parts of the world, the difference in wealth and social power among various social groups and strata was also larger than in other social systems. See I. Wallerstein (1999), 58. 29 “In (the) post-modern era, markets and anonymous market rules took over the key control function in almost all segments of the society…Market control is not exerted only over individuals, but also over groups, institutions, and even states…Neo-liberal ‘hyperbolic’ capitalism is abolishing certain typically modern forms of human subjectivity…” See Z. Kanduč (2004), 7-8. 30 See R. Wicks (2003), 1-6 and 293-299. 31 Compare R. Wicks (2003), 217-242, and D. E. Litowitz (1997), 65-86.

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individual and collective security. It is this last item, these new threats to individual and collective security that comprises the subject of this article. In such circumstances the general and political discourse, as well as the discourse in the security profession (which has to be underlined in this article), is becoming increasingly contradictory, ideological and inefficient.32 Inefficient, contradictory, legally and morally controversial also describes the approach to certain factors, which represent the central, most far-reaching and intensive threat to security in the present world, such as international terrorism and organized crime, both of which are becoming phenomena of global proportions. The official security discourse has focused largely on the abstract security of the international community and international organizations/institutions or individual states/state institutions. This ultimately implies security of the elite or members of those groups, which play a central role in society, security against “internal” and “external” threats, against criminal victimization etc., which are all widely held to be rooted in culturally, economically and socially deprived environments (Kanduč, 2003). The official “understanding” of security problems and the ways of solving them has been obviously biased towards the interests of the so-called civilized world, its well-to-do individuals and central (integrated) social groups. It is this “security culture” that forms the basis of the current security policy that is building walls. While Europe is putting up its own walls, the United States is doing the same; walls are being erected within national groups and states as well. The authors of this article are in agreement with social science research that is critical of the dilemma of “freedom and security” (against crime, terrorism etc.), as an artificial and ideological construction. They also claim that security and freedom have become the most endangered values because this dilemma has been forced upon society. In the context of security policy, crime – particularly in its most dangerous forms – including terrorism, is not being analyzed as a phenomenon rooted in central social processes and structures. Economic and political elites, which manage the mechanisms of public decision making at the global and local level, have unconsciously overlooked the fact that “society” is not only the victim of crime, terrorism etc., but also plays a part in the causes of these phenomena and shares some responsibility for them. Phenomena such as organized crime and terrorism are rooted in an unjust social order, an extremely unbalanced distribution of material sources and goods, exploitation, isolation (for example by means of an “efficient” immigration policy), poverty, unjustified deprivation (for example, to deny such a basic right as the right of a nation to self-determination), discrimination and marginalization (Kanduč, 2003). The post-modern state, and with it society as a whole, is facing a serious crisis, not just in the field of security but in general.33 Despite putting emphasis on the “welfare state”, it is abdicating its historical responsibility to provide social solidarity in the name of neo-liberal capitalist ideology. Utopist (not utopian) ideas of the possibility of a radical social and economic transformation have been heaped onto the rubbish pile of desperate and naïve political projects. Economic exploitation (usually with the consent of the exploited), poverty, indirect discrimination, unprivileged status, lack of access to society’s decisionmaking mechanisms, actual deprivation of rights of the majority of the world’s population are all circumstances which explicitly demonstrate – despite the ignorance of economic and political elites – that the actual political system is quasi-democratic, the economic system (i.e. neo-liberal capitalism) is amoral, unjust and exploitative, causing antagonistic human relations (“social Darwinism”, “homicidal war of everybody against everybody”) and in its 32

“Security is nowadays one of the most frequent words and is often ideologically misused!” See Z. Kanduč (2003), 159. 33 Numerous critics claim that at the end of the 20th century the “welfare state” or the “social state” has proven to be an inefficient model of social organisation. Compare B. Flander (2003), 49.

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essence, is criminogenous, i.e. a security risk. (Kanduč, 2003, and Flander, 2003).34 The post-modern capitalist “risk society” thus facilitates the “culture of fear”. This is due not only to the artificial fear of “terrorism” and “crime”, which has its own ideological background, but primarily due to ever-greater economic and social insecurities. Its main feature is economic violence based on the fear of unemployment, fear of losing existential and social security and material comfort, as well as fear of foreigners, immigrants, and other un-socialised, undisciplined and non-conformist individuals and groups.35 It is not clear what way out of the crisis in which post-modern capitalist society finds itself will be, particularly as all of the bodies determining global and regional political and economic issues (G8, the World Bank, the International Monetary Fund or the so-called “capital state”, the UN, the E.U., and, in the security field, NATO and the OSCE, etc.) claim that the current “world order” should be preserved. They back up the claim by appealing to “peace and stability”, national sovereignty and integrity (the only presumed exceptions being systematic violations of international law), economic and political modernisation, democratisation, the rule of law and above all human rights. It has to be stressed that in addition to “security”, “human rights” represents another issue that is being ideologically, politically, legally and morally misused in the present-day society. Certainly it is true that human rights represent an outstanding social achievement in the fight for the emancipation of the individual and exploited, oppressed, discriminated, marginalised and in other ways victimised groups in society. Still, it seems naïve to think that human rights can be provided in an efficient way without sweeping changes in the current social, political, legal, and above all economic status quo. This goes for the present distribution of social resources and goods in particular, and the issue of economic and social inequalities. It is no exaggeration to claim that human rights, which 50 years ago became the central stimulus for progressive development, currently play the role of the most dangerous legal and political doctrine; as a (primary) legal mechanism, they also represent a very convenient means by which to neutralise transformative potentials that are otherwise inarguably inherent in the ideal of human rights (Kanduč, 2003). Since the traditional contemporary understanding of present society and the planning of its development has proven inefficient, it is necessary to provide for alternative forms of legal, political and economic social mechanisms at the global level. These would serve as the basis for the potential needed for social cohesion and a balanced economic, political and social development. It is becoming increasingly evident that the development source of socalled developed society in the post-modern era is located outside this society itself, that the source of its development is heteronymous and based on an ideological premise that constant economic growth leads to an ever superior society. It also seems that decision makers disagree with the thinking that the main reason for economically- and structurallybased violations of human rights (economic, social, political and consequently, fundamental human rights) as seen in the routine functioning of the capitalist system lies not in economic limitations but in the absence of the indispensable will of individuals and groups interested in the present unbalanced and unjust order and distribution of social resources and goods remaining intact.36 34 Some researchers taking critical positions on society point at the inadequacy and questionable legitimacy of the existing social and economic system, which is clearly failing to facilitate a balanced economic and social development. They see such “dysfunctions” of the current system as a sign of an inevitable downfall of the liberal capitalist economy. Others, however, take exactly the opposite position, by claiming that the world is about to reach “the end of history”. According to them, capitalist market economy (and parliamentary democracy) represents the last stage of history. 35 Compare Z. Kanduč (2003), 356-371. 36 See. Z. Kanduč (2003), 165: “Those who are arguing for the current situation to continue (i.e. to perpetuate the unjust differences deepened and widened by the globalisation process), cannot at the same time claim that they respect human rights…”

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2. Security culture and threat sources in present society 37 If general culture in the broadest sense refers to a certain lifestyle and habits that are carried over from one generation to another through learning and imitation, and political culture implies human psychological orientation in relation to political subjects, such as the constitution, governmental authority, political parties and long-term political positions, beliefs, symbols and values (Heywood, 1997), then security culture refers to the possibility of perceiving real dangers and threats, an understanding of the need for state and civil society security mechanisms and instruments, as well as a willingness for cooperation and sacrifice (Sotlar, 2000). Security culture can be “imposed” by the state in the sense of promotion of certain values (e.g. glorification of military service in the defence of the state), or it can be effected, in part, through threat sources. The central issue related to security culture is what and to what extent, if at all, are citizens willing to risk and to make sacrifices in order to safeguard certain social individual values. In October and November 2003, the Defence Research Centre (FDV - IDV) carried out the “National and International Security 2003” opinion poll, in which 1,065 people were surveyed. The results show that on average, Slovenians are willing to take risks and sacrifice themselves for the following values (Table 6). Tab. 6. What is worth risk and sacrifice? Value Human rights Fight against poverty Environmental protection World peace Individuals rights Defence of Slovenia Gender equality Fight against racism Unification of Europe Religious belief Nothing from the above, undecided

% 73.6 73.4 67 65.2 52.5 43.8 42.1 36.9 29.7 19.1 1.7

Source: ORC, FDV-IDV (http://nato.gov.si/slo/javno-mnenje/nacionalna-varnost.pdf)

As seen from the table, the values for which more than half of those polled are willing to take risks and make sacrifices are those values which place particular emphasis on wellbeing – political and social rights, freedom, peace, and environmental protection. These are followed by state defence, gender equality, fight against racism etc. In light of this it can be hypothesised that these results are to a great extent influenced by perceived threat sources in Slovenia. Every day, states, societies and individuals face different influences that potentially pose a threat. That is to say that they represent a latent risk for their physical, psychical, spiritual, material or other type of security. Threat sources can be classified into military and nonmilitary, into internal and external, natural and antrophogenous, etc. Protection against threat sources at the state level can be effected either by decreasing vulnerability, or by eliminating and preventing threat sources (Buzan, 1991; in Sotlar, 2000). Military, political, societal, economic, ecological and other threat sources (ibid) are among the most important. Here it has to be said that since the end of the cold war, military sources of threats have no 37 This part of the paper is based on a summary of the paper by Dobovšek, B., Flander, B., Meško, G., and Sotlar Andrej on parliament security in Slovenia (2004).

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longer been regarded as any more important than other threat sources in the political and social sense, as well as media-wise, though this does not mean that there have been fewer of them. The danger of global military conflict has largely ceased to exist, but there have been outbreaks of many other local military conflicts, even in Europe, as well as in Asia, the Middle East and elsewhere (Prezelj, 2001). It has been pointed out in the introduction that post-modern society is characterised by the fact that threats and dangers are individualised and personalised. Kanduč (2002: 7-13), for example, says that nowadays an individual is in fact not threatened by crime as much as by different forms of “structural violence”, in particular in the field of heteronymous work, consumer practices and family relations. This is partly due to the fact that security policy is still, to a large extent, related to collective entities (for example, national and public security), rather than to the provision of international legal and constitutional human rights. In addition, crime policy is too often limited only to penal policies and criminal justice systems. It is precisely because of such different ways of perceiving threats and dangers that security appears in different forms as a need, value, goods, commodity etc, with the notion of “security” surpassing its past “physical and repressive” context. Sources of threats often appear to be abstract and distant, since they do not reveal to what extent their threat is real and to what extent it is only the result of perception by the experts in the field and by the general public. In short, the intensity and time frame of a certain security threat play a very important role in creating a certain perception. In other words, if such conditions are not fulfilled, the potential sources of threats by the state, society and individual are not correctly assessed, which in turn decreases the possibility of a timely deployment of the necessary security mechanisms and instruments to counter the threat. Following the end of the cold war and the reduction of imminent military threats, developed industrial societies formulated the concept of security challenges and security threats, the main positive characteristic of which was to abandon the traditional thinking regarding the threat as immediate and imminent (Kotnik-Dvojmoč, 2000: 144). There is actually a scale of the intensity of threat sources with “security challenges” graded the lowest, followed by “security risks” that can also act as an intervening factor for security challenges. “Security threats” represent the highest level, reached after security risks are transformed or aggravated (ibid). The results of the aforementioned research, as summed up in Table 7, show that in autumn 2003 the great majority of polled participants (82%) felt secure and only 14% threatened, while 4% of those polled were undecided. Tab. 7. Do you feel safe or threatened? Feeling Safe Threatened I do not know, cannot assess, without an answer

Ratio in % 82 14 4

Source: ORC, FDV-IDV (http://nato.gov.si/slo/javno-mnenje/nacionalna-varnost.pdf)

Of even more interest is the data on the perception of threats to Slovenia, shown in Table 8. At first glance it is clear that two traditional threats – terrorism and military threats by other countries – rank as the least important factors of security threats to Slovenia.38 38 Regarding the threat of terrorism (or the lack of it), Slovenia has managed to remain an oasis of peace and security, as a “terrorism free country”. By entering NATO and the European Union, however, and by the taking over of the approaching presidency at the Organisation for Security and Cooperation in Europe (OSCE), its physical smallness and political irrelevance will become much more relative. This could increase the level of terrorism threat, particularly when large international political events and meetings will take place

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Those with the highest rank are drugs, narcotics, crime, unemployment, traffic accidents, low birth rate and sale of public assets (between 3.28 and 3.06), whereas the lowest values are accorded extreme nationalism and the two aforementioned threat factors (between 2.14 and 1.76). Tab. 8. Security threat factors in Slovenia Source of threats Drugs, narcotics Crime Unemployment Traffic accidents Low birth rate Sale of public assets Economic problems Environment destruction Suicides Natural and technological accidents Refugees and illegal immigrants Domestic political instability Lagging behind in the field of science and technology Conflicts in the area of former Yugoslavia Contagious diseases Extreme nationalism Terrorism Military threats by other countries

Average value 3.28 3.28 3.26 3.16 3.09 3.06 2.92 2.91 2.82 2.62 2.59 2.59 2.47 2.31 2.21 2.14 1.87 1.76

Source: ORC, FDV-IDV (http://nato.gov.si/slo/javno-mnenje/nacionalna-varnost.pdf)

Threat sources always have a two-fold relation to the design of a national security policy. First, they are a part of such a policy, which has to answer the question of how the state will deal with individual sources threatening it. Second, in the process of designing and implementing security policy, security threats do not only play the role of an output, but also play a decisive factor as a “pressure tool”. Therefore, it can be argued that the process of deciding upon a security policy is determined also by the reality and intensity of the threat sources (Sotlar, 2000). It would be ideal if the national security system were established on the basis of realistically perceived and assessed threat sources. The problem with the ideal always lies in the fact that it is difficult to find an ideal state in nature, let alone in society. The perception and adequate assessment of different sources and types of threats is therefore a complex, demanding and unrewarding task, in particular if one is aware that it takes place at different levels – individual level, group level, expert level, institutional level, as well as the level of political elites, which have to provide a basic normative and legal framework for facing tackling security risks and threats (Sotlar, 2002). If the general public can allow itself misperceptions and inaccurate assessments of threat sources, it is much more dangerous if the authors and practitioners of the national security system (police, the military, intelligence security services etc.), experts in the field (research institutes, universities), and those in charge of making decisions – the government and the parliament - do the same. It is therefore necessary for the political elites that exert in Slovenia and/or due to future foreign policy actions by Slovenia (Sotlar in a paper delivered at a seminar on security in tourism, 2004). A change in Slovenia’s political and security circumstances, however, has not yet influenced the perception of the threat by the general public.

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power over the executive and legislative branch of power to shoulder additional responsibilities in this field. For only correctly perceived and understood sources of threats can lead to the designing of adequate and consistent policies and decisions which are then implemented by the actors of the security system. Above all, the elites should not use security threats to further their own interests, as theoretician Mills (Heywood, 1997) argues is the case with the elite in power in the U.S.A..39 Security solutions should be found at the system level, in the form of some sort of standby mechanisms to ensure that the security system would operate regardless of the security situation. Therefore, it is necessary to anticipate a range of possible events and situations, which could take place in the parliament or its surroundings and would have a direct or indirect influence on the parliament. These can be grouped under the following three threats: • Military threats (in particular in wartime, when the country as a whole represents a military target, which comes before all else for its institutions of power) • Domestic security threats (crime – burglary, theft, robbery, physical attack on a person under protection, members of parliament or visitors; terrorism – attack on a person or persons under protection, MP’s, the staff of the parliament and visitors; hostage taking, planting of explosives; other disturbing events – violent demonstrations, massive violations of public order, disturbing the work of the parliament, serious violations of the house rules) • Threats caused by natural and other disasters (ecological accidents, floods, earthquake, fire). Let me present the latest survey on values, fears and perception of “real” threats in Slovenia conducted on a sample of 1,100 respondents by the author of this paper at the end of 2003 (Meško, 2003). All studied items are presented from the highest to the lowest rank as follows: • Values: family, health, personal happiness, love, friendship, money, education, employment/work. • Fear of: illness, death, war, natural disasters, violence, unemployment, failure, bad social conditions. • Perception of threats: pollution, congestion, violent crimes, psychological pressures/stress, illnesses, drugs, questionable politics, inefficient economy. The example of local securitisation on one hand and democratisation of local community on the other are recently established local safety and security councils, which take place in about a half of Slovenian municipalities. The role and other characteristics of such councils will be described in the following text. 3. Local crime prevention and safety efforts Recent trends in crime prevention and community safety in Slovenia have been characterised by the influence of ideas of crime prevention in Western societies, especially with the idea of community responsibilities and involvement of local administrations in 39 Mills argues that the U.S.A. is in fact run by only a small number of groups – the power elite. Among such groups he counts large enterprises (e.g. the military industry), the military, and the political “clique” surrounding the president. Such a combination of economic power, bureaucratic control and access to the highest levels of the executive power (government) allows the power elite to adopt key “historically important” decisions, in particular, in the field of defence and foreign policy, as well as strategic economic policy (Heywood, 1997: 77–78).

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setting priorities in safety/security efforts and prevention of everyday criminality and communal disorder. The safety councils have been situated within the local town/city/municipality administrations as a consultative body in crime and safety matters. The legal basis for such councils is the Police Act (paragraph 21) and the Local Self-Administration Act (paragraph 29). It is necessary to stress that both paragraphs are more or less recommendations. Therefore, a consultative body, also known as a safety council, may be established by a municipality council. No piece of national legislation determines the obligations of such councils (Strategy of Community Policing in Slovenia, 2002). This paper presents research findings on some aspects of the definition of local crime prevention, community policing, disparities between proclaimed goals and reality, everyday practice of crime prevention, the role of safety councils in everyday life, conducting a criminological analysis of local crime and safety problems, the influence of the police presentation of crime problems and »public opinion« about the root causes of criminality in their environments etc. Research findings show whether the respondents are more inclined to the ideas of authoritarian communitarianism and avoidance in common efforts in solving crime and safety problems« or of moral minimalism (Hope, 1995: 67-68). More specifically, groups of people involved were studied in the sense of crime prevention activities and safety councils in Slovenian towns.

3.1 The study of local safety councils in Slovenia Before 1991, when Slovenia was a republic of the Socialist Federal Republic of Yugoslavia, safety councils were situated in every local community. With the independence of Slovenia in 1991 all such councils were cancelled. Between 1991 and 1997 no such councils existed in Slovenia. Since 1997 more than 100 local safety councils have been established, initiated by the police. In this sense we can discuss "new old" strategies of crime prevention and public safety which “once upon time” were directed by the Communist Party (Social Self-protection, orig. družbena samozaščita) and now by "responsible" individuals and groups of local communities and sometimes populists. These efforts can be described also as a story about help and support versus power. I assume, from my personal experience as a member of such a council in the capital of Slovenia, that these activities are sometimes characterized by the ideas of informal for the purpose of formal, thinking globally and acting locally without substantial financial support. This study is an attempt to gain information on the extent to which the European Urban Charter (1992) and ‘Prevention of violence – a guide for local authorities’ (2002) might be applicable to local communities in Slovenian cities. In addition, the study aimed to explore the ways in which the local safety councils were started and established, and how they performed. Our study concentrated on 11 Slovenian cities: Žalec, Velenje, Trebnje, Nova Gorica (participants of this meeting were not only from this town but also from several all Slovenian towns), Bovec, Tolmin, Ajdovščina, Ljubljana, Šentjernej, Škocjan and Novo mesto. For this purpose we organised presentations for representatives of local authorities, the police force, local community representatives and non-governmental organisations in each of these cities. These sessions were held in the winter, spring and autumn of 2003, and in spring 2004. Documents were presented to the participants, including the European Urban Charter and Urban Crime Prevention Guide mentioned above. The participants discussed safety problems of local communities, especially with regard to the role of local safety councils in these towns. We also tried to identify the main local safety and crime prevention problems, and ideas for and ways of solving such problems. Furthermore, we closely

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studied the practice of local safety councils, the legal framework for such activities and strategies used by the Slovenian police force regarding community policing, and the role of police officers in local safety councils. After the presentation, the participants discussed the usefulness of the Guide in managing crime and safety problems in their municipalities. Each session lasted about three hours. At the end of each meeting we offered a questionnaire to the participants. In total, 178 persons participated in the presentations and all of them agreed to participate in the study. Among them were senior police officers40 (53), city administration representatives (35), city councillors (21), business sector representatives (11), school representatives (8), mayors (7), directors of social services (8), media representatives (4) and others (26). Participating in the study were 131 males and 47 females. Geographically, the study covers the Central, West and a part of South Slovenia. Both small and large cities are included, with great diversity spanning the rural area and the capital of Slovenia. The questionnaire used in the study contained questions based on the European Urban Charter (1992) and “Urban Crime Prevention – A Guide for Local Authorities” (2002). It covered the following issues, among others: perceptions of local crime and safety problems; responsibility for solving local crime and safety problems; partnership; fear of crime and insecurity; local social policy; youth problems; violence at school; drug problems; priorities in solving local problems; the role of the police in the prevention and control of local safety problems; co-operation (police, local administrations, nongovernmental organisations and citizens); measures of crime prevention; financial resources for crime prevention and safety efforts; city safety council and its role in setting crime prevention and safety priorities; willingness to participate, co-operate and invest time in crime prevention; and knowledge about community policing.

3.2. Results This chapter is divided into six parts. Part one presents a general perception of solving local safety/security and crime problems in the studied towns. Part two deals with the assessment of the most appropriate preventative approach to problems of crime and disorder. Part three presents an additional analysis of the most appropriate preventative measures. Part four presents the analysis of open-ended answers on prevailing safety problems and responsibility for solving crime and safety problems. Part five deals with the analysis of implementation of local safety efforts. Part six consists of the assessment of the usefulness of the publication COE Urban Crime Prevention – A Guide for Local Authorities (2002) in Slovenian local crime prevention and safety efforts. General perception of solving local safety problems Part one of this study shows that the respondents perceive safety/security problems in their communities as by far the biggest problem, which is typical for an average Slovenian community. Local safety/security problems in their communities are solved on the basis of a temporary partnership and use ad hoc approaches without a profound analysis of the problems. A common sense approach prevails. More than a half of the respondents are of the opinion that the police are the most active in this field, while other institutions are more or less seen as apathetic. A feeling of security and reassurance is good where police officers appear to be in the streets and among local citizens. Social policy is not balanced with the needs of crime prevention. 40 Community police officers (30), deputy police station commanders (15), police station commanders (6) and police directorate directors (2).

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More than 80% of all respondents report that the police perform well (53 police officers and 89 other respondents). The majority of respondents state that the police and the local administration should cooperate more closely in solving of local safety problems and crime prevention. More efforts should be paid to informing citizens about possibilities for crime prevention and organisation of citizens in local communities. The general idea is that financial aspects of safety/security efforts and crime prevention are neglected – it is expected that people of good will would solve complex social problems. Respondents also report that there is not a substantial number of NGOs dealing with crime prevention in their local communities. More than a half of “non-police” respondents are not familiar with the idea of community policing. In the respondents’ opinion, the police force is seen as having the greatest responsibility for the control of local crime and safety problems. However, this responsibility is no longer seen as the sole monopoly of the police. Other agencies are also seen as responsible in this field. The first to be mentioned is the local city administration, followed by individuals, schools, social services and family. Most respondents think that the police and local administration should co-operate more closely in solving local safety and crime problems. Priorities in the prevention and control of local problems should be set in co-operation and this is seen as a shared responsibility. About 15% of the respondents report that local crime problems are solved on the basis of partnership. About three-quarters of them say that, in cases where local safety problems should be handled by more than one agency, including citizens, the partnerships are only temporary. This may be seen as an indication of the flexible and pragmatic nature of these partnership structures. Analysis of local safety problems and crime is not an everyday practice in the towns studied. Only about 40% of the respondents say that they do an analysis of problems before taking action. It is significant that police officers in particular say that they conduct analyses of the local problems of crime, disorder and safety. These are then presented to local citizen safety councils. The dominant position of the police is also reflected in the fact that these analyses are mainly based on police statistics. As a rule, the police undertake these analyses of crime and local safety problems either monthly or quarterly. In towns where local safety councils have been established, the police deliver an annual safety and crime report. If necessary, reports such as these are produced to cover a shorter period. Most appropriate preventative activities In this part of the study the respondents were asked to mention what, in their view, are the most appropriate preventive activities for solving crime and disorder problems in their community. The results of the ranking of these preventive activities are shown in Table 9. We used Lab’s (2000) list of preventative measures studied in his work. Tab. 9. What are the most appropriate preventive activities for solving crime and disorder problems in a community? Prevention (scale 1–10)* Organised work with the youth More leisure activities available Professional (accountable) policing More work available – anti-unemployment measures Training of/work with for parents School teachers competent for work with problem children Solving social problems Student/pupil-friendly school climate

1 2 3 4 5 6

Rank (mean) (9.17) (8.76) (8.57) (8.55) (8.47) (8.41)

7 (8.38) 8 (8.26)

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Vocational training Police control of problem areas Development of the sense of community belonging Self-protective measures Information on crime prevention Community policing Economic growth – wealthy community Responsibility of pub/bar owners in case problems re-occur on their premises Punishment of criminals Traffic regime Social skills training (conflict resolution) Shelters for abused women Employment opportunities for ex-offenders Property and life insurance Situational crime prevention Private security "Designing out" crime Reactive (repressive) policing Private security officers at schools Citizens' patrols

9 (8.24) 10 (8.01) 11 (7.98) 12 (7.94) 13 (7.78) 14 (7.77) 15 (7.71) 16 (7.70) 17 18 19 20 21 22 23 24 25 26 27 28

(7.56) (7.43) (7.21) (7.20) (6.95) (6.48) (6.22) (5.95) (5.33) (5.15) (5.10) (3.40)

* 1-totally disagree, 10-totally agree.

The factor analysis of the most appropriate preventive activities for solving problems in the studied communities extracts four factors which explain 45.45% of variance. Factor 1 (Social crime prevention) consists of training/work with parents, organised work with the youth, solving social problems, student/pupil friendly school climate, development of the sense of belonging to the community, more leisure activities available, and competent school teachers (24.25% of variance explained). Factor 2 (Self-protective measures) consists of the following variables: information about crime prevention and self-protective measures (8.83 of variance explained). Factor 3 (Formal social control measures) consists of the following variables: responsibility of pub owners, reactive (repressive) policing, punishment of criminals, more opportunities for employment of ex-convicts (6.46% of variance explained). Factor 4 (Informal and private social control measures) consists of the following variables: citizens patrols, security guards at schools, private security (5.93% of variance explained). Detailed results are available in the Table 10. Tab. 10. Factor analysis – crime prevention measures Scale *(1-10) Social crime prevention (Mean = 8.49) Training of/work with for parents Organised work with the youth Solving social problems Student/pupil-friendly school climate Development of the sense of community belonging School teachers competent for work with "problem children"

Factor Loading

Means

.785

8.47

.733

9.17

.685 .614

8.38 8.26

.613

7.98

.569

8.41

G. Meško / Perceptions of Security: Local Safety Councils in Slovenia More leisure activities available Cronbach's Alpha = .808*** Self-protective measures (Mean = 7.86) Information on crime prevention Self-protective measures Cronbach's Alpha = .592** Formal social control measures (Mean = 7.24) Responsibility of pub/bar owners in case problems re-occur on their premises Reactive (repressive) policing Punishment of criminals More work available – anti-unemployment measures Cronbach's Alpha = .636** Informal and private social control measures (Mean = 6.24) Citizens' patrols Private security officers at schools Private security Cronbach's Alpha=.615**

.519

8.76

.695

7.79

.615

7.93

.662

7.69

.659

5.17

.656 .542

7.55 8.55

.684 .683

7.77 5.01

.644

5.94

81

* 1-totally disagree, 10-totally agree. ** moderate reliability *** strong reliability

It is obvious that social crime prevention measures are recognised as necessary priorities in local crime prevention. In addition to the professional (accountable) policing we can see that respondents understand crime and disorder problems as activities of the young and neglected citizens, of those alienated from their communities and “problem” pupils/students at schools. The least appropriate preventative measures seem to be citizen’s patrols, which smack of vigilantism, private security at schools (despite the fact that security at schools is increasingly controlled by private security), police repression – strict law enforcement, designing out crime (almost impossible due to suburban neighbourhoods characterised by blocks of flats with a high density of population), private security (affordable only to the well-off), situational crime prevention (seems to be too impersonal and costly) and personal and property insurance. Additional statistical analyses In this part of the study, one-way analysis of variance was conducted between the police and “non-police respondents (Table 11) and gender differences (Table 12) were tested according to the most appropriate preventative measures.

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Tab. 11. Mean differences for police officers and other respondents. Scales/Items

Police officers (n=53) 8.32/1.22

8.58/1.36

1.29

8.06/1.98

8.62/1.93

2.63

8.83/1.41

9.31/1.42

3.83

8.35/1.81

8.36/2.05

0.01

7.72/2.09

8.48/1.96

9.95**

7.89/1.92

7.97/2.36

0.40

8.53/1.38

8.33/1.94

8.79/1.63

8.74/2.01

0.16

Self-protective measures Information on crime prevention Self-protective measures

8.64/1.33

7.54/2.12

10.91**

8.06/2.13

7.63/2.47

1.10

9.16/1.31

7.39/2.46

22.71***

Formal social control measures Responsibility of pub/bar owners in case problems re-occur in their premises Reactive (repressive) policing Punishment of criminals More work available – anti-unemployment measures

7.70/1.40

7.05/1.62

5.68*

8.71/1.64

7.18/2.30

16.21***

5.56/2.28

4.95/2.61

1.93

7.85/2.33

7.80/4.52

0.05

8.57/1.67

8.50/1.81

0.44

Informal and private social control measures Citizens' patrols Private security officers at schools Private security

5.37/1.91

4.57/1.96

5.28*

3.42/2.49 5.80/2.69

3.37/2.41 4.69/2.79

0.11 5.20*

6.95/2.41

5.47/2.78

9.95**

Social crime prevention Training of/work with for parents Organised work with the youth Solving social problems Student/pupilfriendly school climate Development of the sense of community belonging School teachers competent for work with "problem children" More leisure activities available

Others (n=125)

F

Notes: Entries represent mean scores (1-totally disagree, 10-totally agree). For each item; the numbers after the slash are standard deviations. (* p < 0.05, ** p < 0.01, ***p<0.001)

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Table 11 shows that police officers emphasize a greater importance of self-protective measures, formal social control and informal/private social control. Circumstances such as situational crime prevention - private security services, private security guards at schools, self-protective measures and responsibility of pub/bar owners in case problems re-occur on their premises are assessed as important by the police. Other respondents allocate more importance to a student/pupil-friendly school climate. Tab. 12. Mean differences for female and male respondents Scales/Items Social crime prevention Training of/work with for parents Organised work with the youth Solving social problems Student/pupilfriendly school climate Development of the sense of community belonging School teachers competent for work with "problem children" More leisure activities available

Females (n=47) 8.76/1.42

Males (n=131) 8.42/1.26

2.00

F

8.71/2.27

8.36/1.78

1.07

9.30/1.57

9.11/1.35

0.58

8.34/2.28

8.38/1.82

0.02

8.95/1.56

8.00/2.12

7.49**

7.76/2.68

8.07/2.00

0.63

8.55/2.02

8.35/1.67

0.40

9.34/1.37

8.53/2.01

6.21*

Self-protective 7.80/2.01 measures Information on crime 7.95/2.42 prevention Self-protective 7.55/2.50 measures

7.93/1.93

0.31

7.73/2.35

0.27

8.08/2.27

1.66

Formal social control measures Responsibility of pub/bar owners in case problems re-occur in their premises Reactive(repressive) policing Punishment of criminals More work available – anti-unemployment measures

6.97/1.67

7.39/1.53

2.26

7.20/2.53

7.89/2.15

3.02

4.76/3.11

5.30/2.27

1.38

7.22/2.78

8.06/4.28

1.50

8.46/1.97

8.58/1.66

0.15

Informal and private 5.12/2.17 social control measures 3.79/2.67 Citizens' patrols

4.67/1.92

1.55

3.28/2.32

1.34

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Private security officers at schools Private security

5.60/2.93

4.78/2.74

2.66

5.79/3.02

5.99/2.67

0.16

Notes: Entries represent mean scores (1: Strongly Disagree, 10: Strongly Agree). For each item; the numbers after the slash are standard deviations. (* p < 0.05, ** p < 0.01, ***p<0.001)

Table 12 shows that female respondents attribute more importance to student friendly school climates and more leisure activities available to people than male respondents. With regard to the scales, no significant differences have been found.

4. Open-ended questions on local safety We also studied respondents’ perception of prevailing safety problems (open ended questions). It seems that in the studied towns the following problems deserve greatest attention. Violence (including domestic violence, violence in public, at school or committed by youth, in combination with bullying and vandalism) is the most urgent and serious safety problem, followed by drugs (alcohol included), traffic safety, property crimes, public disorder, economic crime, corruption and criminal gangs. Responsibility for solving these safety and security problems is attributed to the police, who should cooperate with other institutions, civil society and local administration. Analysis of local safety problems is still performed mainly by the police. It is also the police who are supposed to reassure citizens and reduce fear of crime with their presence in local communities. In this sense we have a paradoxical situation – the majority of the most appropriate crime prevention activities are of the so-called “social crime prevention”. Responsibility to control these activities is generally placed on the police, which seems to be a universal solver of societal and social problems. The ranking of responsibility for solving local safety/security and crime problems is as follows: the police, social care institutions, prosecutors’ offices, courts, other law enforcement agencies, NGOs, and educational institutions. In solving problems of the young, at least one representative of the young should take part in reaching a decision about any actions. The results of the study show that a low level of responsibility, seriousness, coordination, slow response, training, knowledge etc. are the main obstacles in common efforts in local community safety and crime prevention efforts. Suggestions for better policing of their communities are related to more police officers on the beat in local communities, greater visibility and approachability of police officers, better co-operation and communication between the police and local citizens, adequate police training in communication skills, social diversity and multicultural society. In the view of the respondents, to promote ‘community policing’ it is necessary to pay more attention to professional policing, learning skills for solving problems, the development of a sense of belonging to the community, and solving social problems. The respondents familiar with the idea of community policing emphasize citizens-police co-operation, support of local citizens in organising of “crime control networks” with educating them in what individuals can do for their safety and other kinds of problem solving. The research results imply that the most significant obstacles in local safety endeavours are as follows: unclear roles of institutions and representatives of civil society in such activities, diverse understanding/conceptualisation of safety problems, diverse understanding of partnership, vertical relations among partners, “just a discussion on diverse problems and the lack of executive powers, lack of political will and departmentalism”, one’s questionable willingness to listen to those who do not share the same view of the problem, feeling that such councils are an extended police arm (in all

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cases the police initiated the establishment of such councils), ignorance and apathy of local citizens (crime prevention is not an attractive and “profitable” activity), centralised arrangements and local problem solving (no firm legal background), “informal for the purpose of formal” – cooperation based only on good will of representatives on state/local institutions, local administration and civil society without any responsibility or legal framework. Advantages of such councils could be: democratisation of formal social control and control over the police; cooperation of (responsible) citizens and getting to know each other; development of more active cooperation between all local key persons; facilitating of “safety consciousness” and discussions on local problems and “communities that care” mentality.

5. Implementation of local safety efforts This part of the study is concerned with the ongoing activities and obstacles related to the implementation of local crime prevention. The ongoing local preventive programmes and actions are directed toward solving the following problems: drug addiction, traffic safety, prevention of violence, prevention of victimisation of the elderly, and prevention of vandalism. There is a remarkable discrepancy here: “Activities of social crime prevention, although highly ranked by the respondents as an appropriate preventive activity, are not seen as a priority. Situational crime prevention and fire brigade interventions are still preferred in solving everyday local crime and safety problems.” The majority of respondents are convinced that a shortage of financial resources causes several problems in the field of crime prevention, such as discontinuity, volunteers who participate only for a short time, and poor implementation of well prepared programmes and actions. In addition, human resources are also a vital part of team building for the implementation of such programmes – project work in the field of crime prevention is not attractive to professionals who seek steady and secure long-term work. Safety activities are more or less attributed to the police. Some fields of crime prevention and safety efforts lack co-operation due to the nature of the problems and the confidentiality of police operations. This means that local communities and the local administration can be included only in the efforts to reduce everyday crime (e.g. petty crimes), public order problems and the minor safety problems that do not endanger individuals willing to be involved in crime prevention activities. About two-thirds of the respondents think that the local safety councils are a good step towards democratisation of endeavours in reducing local problems. In the view of the remaining third, however, these councils have no influence on everyday policing, crime prevention and the implementation of set priorities in crime prevention and community safety. The comparison between police officers and other respondents shows that about half of the police officers do not believe such councils are effective, whereas the majority of the other respondents think that these councils serve the community and contribute to greater social cohesion and safety in the area. This is a remarkable finding because the local safety councils were initiated and facilitated by the police. The police seem to have too high an expectation of the safety councils. Their view of the councils as an expanded “police arm” is probably too ambitious. Instead, the meetings of the councils have become a place for democratic debate and the exchange of different views on local problems. Sometimes the views on solving local safety problems of other partners involved differ significantly from those of the police.

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6. Feasibility of the COE guide for local authorities In the last part of the study we dealt with a feasibility study of the COE guide for urban crime prevention. Every chapter of the guide was assessed on a 5-point scale (1-totally disagree, 5-absolutely agree) on how ideas presented in each chapter are applicable, useful and realisable. Ranking of chapters is presented in Table 13. Tab. 13. Feasibility of ideas presented in chapters of Urban Crime Prevention – A Guide for Local Authorities (2002) Council of Europe, Strasbourg. Chapters assessed (1-5)* Schools and violence Police and local authorities Young people and crime Violence against women and elderly Local social policy Partnership Fear of crime Public involvement Key role of local authorities in crime prevention New professions Right to a safe city Public transport and traffic safety Surveys of crime and fear of crime Administrative and political integrity The built environment Manufacture, commerce and the private sector Transfrontier crime European co-operation, international partnerships Adapting judicial and penal systems and victim support Minorities

Mean/s.d. 4.01/.58 4.00/.75 3.98/.63 3.75/.71 3.69/.71 3.68/.66 3.66/.70 3.65/.70 3.62/.70 3.60/.97 3.59/.59 3.53/.88 3.49/.75 3.48/.91 3.42/.79 3.41/.85 3.41/.89 3.41/.81 3.39/.94 3.04/1.04

*1: not feasible at all, 5: absolutely feasible

The results of this preliminary feasibility test should be understood as a complement to Table 6. The results can be understood as showing the need to pay more attention to school and violence, a facilitated co-operation between the police and local authorities, paying attention on violence among young people, violence against the most vulnerable people in our societies, the need for an appropriate local social policy and the development of partnerships.

7. Concluding remarks Planned, systematic and co-ordinated communal/common crime prevention and efforts for local safety/security are still at an early stage mainly due to the problems of centralised local institutions and consequently of the financing of activities on the local level. The results imply that the role of local municipalities in the field of crime prevention and local safety has not been yet clearly defined. Despite all these obstacles, numerous activities take place on the local level, especially those of the local governmental (state) institutions, NGOs and civil society initiatives. A national crime prevention programme stressing the organisation of crime prevention and local safety/security efforts has not yet been adopted.

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Due to its complexity, a consensus on its contents has not been totally agreed upon. It is also necessary to learn from others’ experiences that demonstrate that crime prevention and local safety/security activities can become a subtle “people friendly control”. It is only about net widening and is completely removed from “real crime prevention” and reassurance. Authoritarian and non-democratic organisation of such activities can only lead to “police-isation” of the local communities where the primary goal is serving the police with information for criminal investigation and order maintenance. Other functions of common safety endeavours are neglected in this scenario. Such situations can be prevented if institutions, agencies, and representatives from all parts of society are included into local decision-making bodies – safety councils. Since 1997, more than 100 such councils have been established. Some of the councils have overcome “child diseases” and are setting goals and using modern knowledge and information based approaches in solving local safety problems (i.e. Ljubljana). Recently established councils are still in the early stage of defining their mission. It is hoped that local safety councils will not just be “chatting rooms”, where people of good will would come and talk about local safety problems without any influence on setting priorities in this field. It is necessary to emphasize that decisions should not be reached only on the basis of public opinion (e.g. angry and outraged victims of crime) but must be based on profound studies of problems to be solved. An effective safety policy depends upon close co-operation between the police and the local community. This is also the main principle underlying the concept of community policing. With regard to the role of local safety councils and community policing, the police have contributed substantially, perhaps even too eagerly. A crucial question is the extent to which the police can achieve the consent of local citizens in solving crime and safety problems. There are still substantial obstacles, resulting from the current formal rules (which do not allow police discretion in the field of achieving ‘police-community consensus’) and from the restrictive policing mentality, which relies upon the idea of law enforcement and control. Co-operation of the police with local communities and local administrations is still limited to informal communication without any obligation and real consequences for everyday practices of the involved institutions. It seems that these activities have more influence on the reduction of fear of crime or feelings of insecurity than on the reduction and elimination of crime in the community. In all likelihood, it will take quite some time for the police and communities to learn how to co-operate and solve problems together more effectively.

References [1] Beck, U. (2003). Kaj je globalizacija? Ljubljana: Krtina. [2] Bele, I. (1997). Odgovornost za kazniva dejanja, storjena pri zasebnem varovanju. In: Anžič, A. (ed.). Zasebno varovanje in detektivska dejavnost v Sloveniji - dileme in perspektive. Ljubljana: Visoka policijsko-varnostna šola. [3] European Urban Charter (1992). Council of Europe, Strasbourg. [4] Flander, B. (2003). Pozitivna diskriminacija, Konceptualna, ustavnopravna in primerjalna analiza. Master degree thesis, Ljubljana: Pravna fakulteta. [5] Grizold, A. (1992). Oblikovanje slovenske nacionalne varnosti. In: Grizold, A. (ed.). Razpotja nacionalne varnosti: obramboslovne raziskave v Sloveniji. Ljubljana: Fakulteta za družbene vede. [6] Grizold, A. (1999). Obrambni sistem Republike Slovenije. Ljubljana: Visoka policijsko-varnostna šola. [7] Hanžek, M., Gregorčič, K. (2001). Poročilo o človekovem razvoju: Slovenija 2000-2001. Ljubljana: Urad za makroekonomske analize in razvoj. [8] Heywood, A. (1997). Politics. Houndmills, Basingstoke, Hampshire and London: Macmillan Foundations. [9] Hope, T. (1995). Community Crime Prevention, In Tonry, M., Farrinfton, D.P. (eds.) Building A Safer Society, Strategic Approaches to Crime Prevention. Chicago: The University of Chicago Press.

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[10] Jelušič, L. (1997). Legitimnost sodobnega vojaštva. Ljubljana: FDV. [11] Kanduč, Z. (2000). (Ne)varnost in (ne)varnostna politika v poznomodernih družbah. Dnevi varstvoslovja. Bled, junij 2000, Ljubljana: [12] Visoka policijsko-varnostna šola. [13] Kanduč, Z. (2003). Kriminaliteta, človekove pravice in varnost v po(zno)modernem svetu. Revija za kriminalistiko in kriminologijo, 2/2003, Ljubljana. [14] Kanduč, Z. (2003). O sodobnih tveganjih, grožnjah in nevarnostih – postmoderna družba v slogu staromodne »hiše strahov«. Revija za kriminalistiko in kriminologijo, 4/2003, Ljubljana. [15] Kanduč, Z. (2004). Poznomoderno stanje in družbeno nadzorstvo. Revija za kriminalistiko in kriminologijo, 1/2004, Ljubljana. [16] Kazenski zakonik Republike Slovenije (Official Gazette No. 63/94). [17] Kotnik-Dvojmoč, I. (2000). Preoblikovanje oboroženih sil sodobnih evropskih držav (študija primera Slovenije). Ph.D. thesis. Ljubljana: Fakulteta za družbene vede. [18] Lab, S. (2000). Crime prevention – Approaches, Practices and Evalustions. Cincinnati, Anderson Publishing. [19] Lesjak, D. (2000). Organiziranost in vodenje varnostne službe Državnega zbora Republike Slovenije. College degree thesis. Ljubljana: Visoka policijsko-varnostna šola. [20] Litowitz, D. E. (1997). Postmodern Philosophy and Law. University of Kansas Press. [21] Meško, G. (2002). Osnove preprečevanja kriminalitete. Ljubljana, Visoka policijsko-varnostna šola. [22] Meško, G. (2003). Rezultati pilotske javnomnenjske študije o vrednotah, strahu in oblikah ogrožanja. Ljubljana: Fakulteta za policijsko-varnostne vede, 3 pp. [23] Prezelj, I. (2001). Vojaško ogrožanje nacionalne in mednarodne varnosti po koncu hladne vojne. Teorija in praksa, 5, Ljubljana: Fakulteta za družbene vede. [24] Ribičič, C. (2000). Podoba parlamentarnega desetletja. Ljubljana: Samozaložba. [25] Sotlar, A. (1997). Nacionalnovarnostni elementi zasebnega varovanja in detektivske dejavnosti v Republiki Sloveniji. In: Anžič, A. (ed.). Zasebno varovanje in detektivska dejavnost v Sloveniji - dileme in perspektive. Ljubljana: Visoka policijsko-varnostna šola. [26] Sotlar, A. (2000). Analiza sprejemanja odločitev v procesu oblikovanja obrambnih politik v sodobnih državah. Masters degree thesis. Ljubljana: Fakulteta za družbene vede. [27] Sotlar, A. (2002). Vloga političnih elit pri zagotavljanju varnosti. Dnevi varstvoslovja. Bled junij 2002, Ljubljana: Visoka policijsko-varnostna šola. [28] Sotlar, A. (2004). Razmišljanja o varnosti v turizmu. Referat na posvetu o varnosti v turizmu, Ljubljana 30. 3. 2004, Turistična zveza Slovenije. [29] Strategija v skupnost usmerjenega policijskega dela (2002). Ministrstvo za notranje zadeve R Slovenije, (Strategy of community policing in Slovenia, 2002). [30] The Local Self-government Act, Official Gazette of the Republic of Slovenia. (www.mnz.si, March 10, 2003). [31] The Police Act, Official Gazette of the Republic of Slovenia, 1998 (www.policija.si, March 10, 2003). [32] Urban Crime Prevention – A Guide for Local Authorities (2002) Council of Europe, Strasbourg. [33] Uredba o varovanju določenih oseb, objektov in okolišev objektov, v katerih so sedeži državnih organov (Official Gazette RS, No. 103/00). [34] Wallerstein, I. M. (1999). Utopistike ali izbira zgodovinskih možnosti 21. stoletja. Dediščina sociologije: obljuba družbenih ved. Ljubljana: Založba *cf. [35] Wicks, R. (2003). Modern French Philosophy, From Existentialism to Postmodernism. Oxford: One World Publications. [36] Zakon o policiji (Official Gazette RS, No. 49/98). [37] Zakon o zasebnem varovanju (Official Gazette RS, No. 126/03).

Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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The European Perspectives of the Western Balkans: “Invisible Threats” vs. Visible Opportunities Milica UVALIC Department of Economics, Faculty of Political Science University of Perugia, Italy Abstract. Despite all the achievements of the past few years, the Western Balkans (Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia, Serbia and Montenegro) are still perceived as a region characterised by high political and economic instability. The events of the last fifteen years have left many problems unresolved which are still today impeding lasting peace and stability. Among the multiple problems of the Western Balkan countries today, diffused criminal activities are probably among the most complex, as they have proved very difficult to eradicate. Although there have been a number of positive initiatives in recent years against organised crime in Southeast Europe, also within the numerous activities of the Stability Pact for Southeast Europe and the Southeast European Cooperation Process, criminal activities continue to represent a serious impediment to achieving more permanent regional stability, and as such are also a major threat to security for the whole of Europe. Organised crime in the Western Balkans is also considered a major obstacle for integrating these countries into the European Union (E.U.). A better understanding of these problems is therefore fundamental, as it can help in the search for remedies for combating crime in the Western Balkans in the future, as well as contribute to their swift integration into the E.U. In trying to shed light on these complex issues, this paper will first give an overview of the multiple factors that have contributed to widespread criminality in the Western Balkans (part 2). Next, it will examine E.U. policies towards the Western Balkans, both during the 1990s and in the post-1999 period, when the Stabilisation and Association Process finally offered these countries prospects of E.U. membership (part 3). Within such European perspectives, some critical elements of E.U. policies towards the Western Balkan region are discussed (part 4). The paper ends with a few concluding remarks (part 5). Keywords. Organised crime; Balkans; E.U. integration.

1. Origins of crime in the Western Balkans There are no simple answers to explaining the nature and origins of diffused criminality in the Western Balkans. Criminal activities have emerged as a consequence of the extremely unfavourable overall situation which has characterised the Western Balkans since the early 1990s. The origins of criminality in this region are clearly multiple, mutually interlinked, and can be traced back to the early 1990s. We will recall some of the most important political, international and economic factors that have directly contributed (or indirectly facilitated) the spread of illegal activities in the Western Balkans over the past fifteen years. There is no doubt that political factors are among the most important for understanding the emergence and expansion of criminality in the Western Balkans. After the fall of the

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Berlin Wall in late 1989, the transition to multiparty democracy and market economy also began in the Western Balkans, which at that time consisted of only two countries: Albania and the SFR (Socialist Federal Republic) of Yugoslavia. During the course of 1990-1, the first multiparty elections were held in both countries and radical economic reforms were initiated by the new governments. In mid-1991, however, SFR Yugoslavia disintegrated into five countries – Bosnia and Herzegovina, Croatia, the FR (Federal Republic) of Yugoslavia, Macedonia and Slovenia. The break-up of the country was followed by the process of state building by the newly created countries, which frequently led to inwardoriented political and economic strategies, nationalistic and ethnic cleansing policies based on the primacy of political over economic and international objectives, and authoritarian regimes despite the official proclamation of democracy. Moreover, the disintegration of SFR Yugoslavia was accompanied by several military conflicts. By the end of the decade practically all five of Yugoslavia’s successor states were torn by conflict: in Slovenia (June 1991), Croatia (April 1991 onwards), Bosnia and Herzegovina (1992-95), FR Yugoslavia (1999) and Macedonia (2001). The armed conflicts of the 1990s have caused extreme political instability in the entire region and caused unprecedented amounts of physical destruction and loss of human lives. In addition, the wars and policies of ethnic cleansing have led to huge displacements of the population, as hundreds of thousands of individuals from Bosnia and Herzegovina, Croatia, and Kosovo - have fled from their homes, becoming refugees and internally displaced persons. It is also essential to consider international factors which have accompanied these tragic events in the Western Balkans, some of which have also indirectly facilitated the diffusion of various types of illegal activities. Among the most important were the UN and E.U. sanctions against FR Yugoslavia, applied in their strictest form during 1992-95. These international sanctions have meant the total isolation of the country and interruption of normal flows in the areas of trade, finance, foreign direct investment, information, banking, access to international financial markets, and free travel abroad. The international sanctions were eased after the signing of the Dayton Peace Agreement in late 1995, but were reintroduced in 1997 in the form of ‘selective’ sanctions, which were supposed to be directed primarily towards Milosevic’s collaborators. Effectively, however, the embargo was used by the political and economic elites for their own benefit, and has also offered the government an excellent excuse to blame the West for the dramatic worsening of the economic and social situation. The Greek embargo against Macedonia should also be mentioned, related to the dispute regarding the name under which the country would be internationally recognized. The problem was resolved only after several years, through the awkward compromise of calling it the “former Yugoslav Republic of Macedonia” (or FYROM). Also in the case of Macedonia, the isolation of the country caused by the embargo has had a number of negative consequences for trade, foreign investment, and financial flows, as well as creating incentives for smuggling and other illegal activities. The 15-year isolation of the Western Balkan region from most of the rest of Europe has further been enforced through the very strict visa regime, from which only Croatia has been exempted from the very beginning. Citizens from the Western Balkan countries are still required to apply for visas in order to travel to the E.U., and the present candidates – Bulgaria and Romania – have had to re-introduce visas for all countries in the region, as part of their preparations for E.U. membership. The disintegration of SFR Yugoslavia has also led to international isolation of its successor states, due to an initial period of their nonmembership in the United Nations and its specialized institutions. It was only after the October 2000 political changes, that FR Yugoslavia was able to renew its relations with institutions such as the World Bank and the International Monetary Fund.

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One of the most recent wars in the Balkans, the 1999 Kosovo conflict and the NATO intervention, has also had destabilizing effects for the whole region, despite quite contrary intentions. The ambiguous policy of “standards before status” in Kosovo has not been very successful in providing lasting peace. As late as 2004, the region has witnessed ongoing disorder and killings (see International Commission on the Balkans, 2005). The April 2005 terrorist attacks on Veton Suroi’s office, for years a major fighter against criminality in Kosovo, confirms that little has been achieved in eliminating the most powerful criminal groups. In addition to these political and international factors, we also must recall the devastating economic conditions prevailing in the Western Balkan countries during the 1990s. The break-up of SFR Yugoslavia and the conflicts that accompanied it have had very negative and long-lasting economic consequences. The armed conflicts have been extremely costly in terms of high public deficits necessary to finance the wars and the resulting hyperinflation (see Uvalic, 2002, 2003a). All countries in the region have experienced extreme macroeconomic instability, especially FR Yugoslavia, which registered hyperinflation of 116.5 million percent in 1993, one of the highest levels ever recorded. The end of the Yugoslav economic and monetary union has also contributed to inflationary trends, and has also led to the imposition of trade and non-trade barriers, significantly reducing trade and other economic links among neighbouring countries, thus further contributing to the very deep recession. During the early 1990s, the Western Balkan countries registered a fall in Gross Domestic Product (GDP) of 40-80% in just a few years, and an even greater decline in industrial production. Economic recovery has been extremely slow, and most countries have also had serious economic crises in the second half of the 1990s. There has been a steep increase in unemployment rates, which today are at alarming levels of 30-40%, although many of the unemployed are active in the large informal sector of the economy. The Western Balkan countries have gone through a period of de-industrialisation, as many laid-off workers have returned to subsistence agriculture. These countries remain very poor in comparison to the rest of Europe, as their GDP per capita is presently at the level of 10-15% of the E.U. average (the only exception being Croatia approaching 30%). Despite relatively high growth rates in recent years, by 2004 the only country that surpassed their 1989 GDP level was Albania, while countries like Bosnia and Herzegovina or Serbia and Montenegro are still at the level of 50% of their 1989 GDP. As a result of these negative economic developments, extreme social stratification, rising income inequality, and diffused poverty have become characteristic features of all Western Balkan countries. Moreover, under conditions of continuous political and economic instability, more radical economic and structural reforms have been implemented with notable delays. The uncertain economic environment and the high political risk have prevented the inflow of more substantial Foreign Direct Investment (FDI), which until just a few years ago has remained extremely low. Over the whole 1989–2002 period, FDI to the Western Balkan countries has amounted to a bit less than $11 billion, which is only 6.1% of total inflows into 27 transition countries (see EBRD, 2003). FDI has also concentrated in just a few countries, with Croatia accounting for 65% of total FDI in the Western Balkan countries. At the same time, there is also a serious problem of aid-dependence, primarily in the semi-protectorates Bosnia and Herzegovina and Kosovo, namely the risk of these economies virtually collapsing in case of withdrawal of international aid (see Uvalic, 2003a). Therefore, for many years, the Western Balkans have faced ongoing conditions of war, massive killings and destruction, broken relations with neighbours, international isolation due to imposition of political and economic sanctions, enormous economic costs deriving from the military conflicts, maintenance of refugees, recurrent economic crises, substantial

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declines in living standards, increasing unemployment and poverty. It is under these rather unique and particularly unfavourable conditions that the transition to market economy and multiparty democracy has also been taking place (though with substantial delays in those countries directly involved in the military conflicts). As a result of these rather specific conditions, many new problems appeared in the Western Balkan societies, also offering very fruitful ground for the emergence of “invisible threats” to security such as criminality, corruption, smuggling, robbery, murder, other illegal activities, as will be illustrated further below. One of the most obvious consequences of the dramatic events of the 1990s has been the process of extreme social stratification within the Western Balkan countries. The mass impoverishment of the larger part of the population took place under the impact of the severe economic crisis of the early 1990s. It was further aggravated by the fraudulent financial pyramid schemes – in Albania, FYR Macedonia, FR Yugoslavia – which have caused the loss of enormous amounts of private savings (see Dinkic, 1995). In FR Yugoslavia, with the galloping of hyper-inflation in 1992-93, several new banks were created which claimed to be private but were effectively sustained by the government, offering 14-18% monthly interest rates on foreign exchange deposits. For many citizens, these interest payments were an important source of income, but once these banks collapsed, only a few clients with good political connections succeeded in recovering their savings.1 The total amount of foreign currency which was taken from citizens through various fraudulent schemes is estimated at around 4,7 billion German Marks (see Babic, 1999). The consequences of similar schemes in Albania and FYR Macedonia, in 1996-97, were similar. Along with increasing poverty in the Western Balkan countries, there was a parallel emergence of a miniature new social stratum, composed of a small group of individuals who have succeeded in enriching themselves. In some countries, this was frequently done using various semi-legal and illegal channels. First, a decade of wars in the region has created a new class of war profiteers, many of whom have been involved in all possible criminal activities throughout the region for many years. The armed conflicts and the international sanctions have created incentives for smuggling, illegal activities, organised crime and "war profiteering” (see Babic, 1999). During the most difficult days, when it was impossible to get normal bank credit in FR Yugoslavia, it was precisely the "new rich" war profiteers and criminals that were lending money at exorbitant weekly interest rates. Not surprisingly, there were many cases of losses of entire family savings or of murders, following the inability of paying back in time the sum owed. Second, new economic elite also emerged as a consequence of the process of privatization, implemented by all governments as part of the transition to market economy. With the privatisation of previous state or socially-owed enterprises, a new private sector and a new entrepreneurial class began developing. However, the use of non-transparent methods, a common phenomenon in all Western Balkan countries, has frequently led to unfair deals which permitted the enrichment of a few individuals (labelled “tycoons” in Croatia; see Bartlett, 2003). These processes led to the emergence of a new economic elite, sometimes recruited among directors of big factories who were also the closest collaborators of the political class in power. In FR Yugoslavia, it was this economic elite that was also in charge of foreign trade during the years of sanctions, which enabled them to accumulate enormous amounts of money using illegal and semi-legal methods, which has since been transferred to private firms or personal bank accounts abroad. Substantial delays in implementing more radical economic and legal reforms have also greatly facilitated criminality and other illegal activities. The postponement of judiciary reforms, in particular, has demonstrated the lack of implementation of the rule of law. With the passing of time throughout the 1990s, the rule of law has progressively weakened in

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most Western Balkan countries. Weak governments, incapable or unwilling to impose the rule of law, have enabled the general non-respect of legislation, so lawless activities have become common practice at all levels. The absence of substantial judiciary reforms has also led to increased corruption within the judiciary, and the enforcement of informal rules, where personal contacts become of primary importance. Under such conditions, special privileges were frequently given to the political and economic elites close to government officials. Most Western Balkan countries, according to various international organisations, are still considered the most corrupt among all transition countries. Under such conditions, various forms of criminality have become common practices in everyday life, with frequent cases of robbery, kidnapping, even murders and false suicides. Many of those responsible for having committed these crimes have never been found, due to their "good relations" with the police. The absence of rule of law has also enabled the flourishing of the informal (grey) economy, which in the most difficult years in some countries had surpassed 50% of GDP. Given that under economic sanctions, smuggling had become a very profitable activity and the main way to earn a living for many citizens, products which were scarce on the market were smuggled and offered on the open market, avoiding fiscal and other controls, thus contributing to reduced government revenues. Most of the discussed problems are not specific to the Western Balkans and are also common in countries in Central and Eastern Europe, appearing as a by-product of the process of radical economic reforms implemented as part of the transition to a market economy. However, in the Western Balkan countries, their magnitude has been much more profound and their duration much longer, precisely because of the extremely unfavourable political and economic environment created by the military conflicts throughout the 1990s and the accompanying war-related activities.

2. E.U. policies toward the Western Balkans Following the break-up of SFR Yugoslavia in 1991, E.U. intervention and assistance policies towards the Western Balkans have mainly been shaped in response to emerging crises. In the early 1990s, the E.U. failed to develop a long-term, comprehensive approach towards the whole region. Due to the unanticipated events of the early 1990s and the first armed conflicts in the region, the E.U. was initially rather cautious towards most successor states of SFR Yugoslavia, while being more generous towards the other countries in the region (see Uvalic, 1997). Although former Yugoslavia was also included in the PHARE programme in 1991, this lasted very briefly. Because of the ongoing conflicts, the break-up of the country was not followed by the automatic extension of the PHARE programme to its successor states. So whereas Albania was among the countries to which the E.U. has almost immediately (in 1992) offered financial assistance through PHARE and preferential trade access through a Trade and Economic Cooperation Agreement, the successor states of former Yugoslavia were excluded for a long time from E.U. programmes designed to support the transition. In most if not all cases, this was done for very obvious and understandable political reasons. It was only in 1996, after the end of the war in Bosnia and Herzegovina and the conclusion of the Dayton Peace Agreement, that the E.U. launched its Regional Approach, directed towards the five countries of the Western Balkans. The Regional Approach, however, was lacking in substance and concrete measures of support. Even more importantly, the internal conditions were not there for its fruitful implementation, since there was little willingness on the part of the two key countries - Croatia and FR Yugoslavia - to apply regional co-operation (Uvalic, 2001). Soon after, the E.U. created the

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Obnova programme of financial assistance to war-affected states, but the amount of resources secured was fairly limited. For example, Croatia and FR Yugoslavia, the two countries for which Obnova was the principal form of E.U. financial aid, they received through Obnova a bit more than €218 million over the 1996-99 period, of which the largest part in 1998-99 - €140 million or 64% of the total - went to Kosovo. In 1996, the E.U. did bring Bosnia and Herzegovina and Macedonia into the PHARE programme, but not Croatia and FR Yugoslavia. Similarly, E.U. trade concessions were offered to countries from former Yugoslavia only after 1996. Albania signed a Trade and Economic Co-operation Agreement with the E.U. in 1992, which significantly facilitated its access to E.U. markets. FYR Macedonia was the only country among the successor states of former Yugoslavia that was able to conclude a similar Trade and Economic Co-operation Agreement with the E.U.; the agreement was signed only in 1996, and became effective in 1998. The other three Western Balkan countries (Bosnia and Herzegovina, Croatia, and FR Yugoslavia) were only offered autonomous trade preferences, also in 1996, understood to be far less limited in scope than the Trade and Economic Co-operation Agreements, and which for FR Yugoslavia were again suspended in 1998. A turnaround in E.U. policies came in the immediate aftermath of the March-June 1999 military conflict in Kosovo/FR Yugoslavia. Following the NATO intervention, the international community and the E.U. decided to construct a new, more comprehensive and long-term strategy for the Western Balkans and more generally, Southeast Europe (SEE). This led to the adoption of the Stability Pact for South Eastern Europe in Cologne on 10 June 1999, which was designed to assist reconstruction efforts of the seven SEE countries affected by the 1999 military conflict (in addition to the Western Balkans, Bulgaria and Romania). The main partners of the Stability Pact, in addition to the beneficiaries and the neighbouring states, are the European Commission, the OSCE, the NATO, all major international financial organisations, the E.U. member states, the U.S.A., Japan, Russia, Canada and a few other countries. Its main mechanism is the Regional Table, which coordinates the work of three Working Tables - for Democratisation and Human Rights, for Economic Reconstruction, Development and Co-operation, and for Security (see www.stabilitypact.org). As part of the new strategy, in mid-1999 the E.U. launched a new approach for the Western Balkans, as a follow-up of its 1996 Regional Approach - the Stabilisation and Association Process (SAP), devised specifically for these five countries. The SAP proposed a new type of contractual relationship between the E.U. and the Western Balkan countries Stabilisation and Association Agreements (SAA) - through which, for the first time in the past decade, these countries would also been offered prospects for future E.U. membership. The Western Balkan countries have also been given substantial trade preferences even before the conclusion of a SAA, which allow 95% of Western Balkan countries’ products duty-free access to E.U. markets. The new approach towards the Western Balkans is supported by a new E.U. programme of financial assistance - the CARDS (Community Assistance to Reconstruction, Development and Stabilisation) programme. Through the CARDS programme, around €5 billion will be provided for assisting reconstruction and development in the Western Balkan countries over the 2000-06 period (see European Communities, 2000). In order to increase the efficiency in aid delivery, the E.U. has also established the European Reconstruction Agency, in charge of managing the implementation of economic reconstruction in Serbia, Montenegro, Kosovo, and FYR Macedonia, which was officially inaugurated in Thessaloniki in March 2000. Further steps in strengthening the SAP have been taken at the E.U.-Balkans Summit in Thessaloniki in June 2003. An important new instrument - the European Partnership - was

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introduced for the Western Balkans, similar to the Accession Partnerships designed for the countries from Central and Eastern Europe, which ought to identify the main priorities and checklists (see Samardzija, 2003; Commission, 2004). In addition, it has been proposed to open various E.U. programmes which previously were reserved only for candidates, to all Western Balkan countries, including TAIEX, ISPA, and SAPARD. The outlined new E.U. policy towards the Western Balkans implemented during the last five years has brought many positive results. Stabilisation and Association Agreements have been signed with two countries so far, FYR Macedonia (in April 2001), and Croatia (in October 2001). Croatia also applied for candidate status in 2003, received a positive 'avis' of the E.U. Commission in Spring 2004, became an official candidate in June 2004, and should begin membership negotiations sometime in 2005. FYR Macedonia has also applied for candidate status in 2004 and is now waiting for the opinion of the Commission. Albania did get a positive Feasibility Report of the Commission fairly early, but negotiations on an SAA have started only in November 2003 and have not yet resulted in the conclusions of a SAA. For Bosnia and Herzegovina, a positive Feasibility Report was prepared in November 2003, but negotiations on a SAA have not yet started because of the non-fulfilment of some of the conditions. The greatest delays have occurred in the case of FR Yugoslavia. From the official establishment of relations between FR Yugoslavia and the E.U. in late 2000, two key issues have blocked progress in their relations, namely, the complex relationship between Serbia and Montenegro, and related delays in adopting the Constitutional Charter and in harmonising separate foreign trade and other laws; and insufficient cooperation with the Hague Tribunal. It was only in 2004-5 that these issues were dealt with successfully. In autumn 2004, the E.U. adopted the two-track approach, which means that Serbia and Montenegro will no longer have to harmonise their different foreign trade and other laws, permitting economic reforms in the two republics to move along separately (though the SAA will be signed with one country, Serbia and Montenegro). A positive feasibility report has also been prepared in April 2005, following the delivery of a number of key politicians and generals, which should allow the beginning of negotiations on an SAA later this year. In addition, prospects for E.U. membership have, in general, been very positive for ongoing reforms in various areas, as they have accelerated the transition process, frequently leading to adoption of laws in line with E.U. standards. Trade liberalisation measures have also had positive overall effects, particularly for those countries like Serbia and Montenegro, which before 2000 had no E.U. trade preferences whatsoever. Over the period 1999-2002, FR Yugoslavia's exports to the E.U. have increased by 129% (see Commission of the European Communities, 2004, p. 30). E.U. assistance to the Western Balkan countries has substantially increased in comparison to the 1990s, from €1.4 billion in 199194, to €3.1 billion in 1995-99, and to €4.6 billion in 2000-06 (see European Commission, 2002). Within the framework of the Stability Pact for Southeast Europe, various initiatives have been taken and projects launched in numerous areas within the activities of the three Working Tables. Several major international conferences have been organised with the purpose of determining priority projects in the seven Southeast European countries, verifying the ability to receive financing, and collecting offers from potential international donors. As an example, at the first two Regional Conferences held in March 2000 in Brussels and in Bucharest in October 2001, over €5 billion was raised. It should also be noted that the Stability Pact has attracted a torrent of criticism for a number of reasons including initial delays in starting projects, limited donor support for non-economic projects of Working Tables I and III, unclear division of competencies between the main international actors and organisations, various inefficiencies in aid delivery, limited impact

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of some initiatives, e.g. anti-corruption, or return of refugees, and the prevalence of “donordriven” projects not really respecting the priorities of the countries beneficiaries.

3. The Western Balkans: from stabilisation towards E.U. integration The E.U. Stabilisation and Association Process has finally enabled the objective of E.U. membership to become a visible, and very important, opportunity for all Western Balkan countries. Today, E.U. membership has indeed become one of the most important foreign policy objectives of all countries in the region. Still, there are a number of uncertainties regarding future integration processes, not only linked to the accession of Western Balkan countries, but also more generally. Future accession of these countries to the E.U. will obviously depend not only on their eventual readiness for membership, but also on the readiness of the E.U. to absorb new members. Therefore it is almost impossible to foresee, from today’s perspective, the dynamics, path, and possible year of entry of single Western Balkan countries into the E.U. Given the long-term framework of the Western Balkan countries joining the E.U., how can their integration with the E.U. be facilitated? What could the E.U. do over the next years to help the Western Balkan countries integrate faster with the rest of Europe? How can the E.U. effectively deal with some of the remaining complex problems, such as organised crime, which are considered to be among the major impediments for quicker integration of the Western Balkans with the E.U.? (1) Increasing development aid: E.U. conditionality used in bilateral relations with individual countries is presently the most important instrument for implementing certain E.U. objectives. The criteria that the Western Balkan countries are expected to fulfil are well known. The general conditions include the Copenhagen criteria regarding political, economic, and legal requirements formulated for all transition countries aspiring to join the E.U.. In addition, the SEE countries should implement regional cooperation with neighbouring countries, while Bosnia and Herzegovina, Croatia and Serbia and Montenegro should also respect their international obligations (in particular the Dayton Peace Agreement, collaboration with the Hague Tribunal, the UN Security Council Resolution 1244; see Uvalic, 2003b). However, these accession requirements are considered to be quite unsuited to the development needs of the Western Balkan countries (Grabbe, 2001, 7-8). It continues to be assumed that accession and transition require the same policies, which obviously is not the case. Given the long term prospects for E.U. membership of most Western Balkan countries, it would be more useful to adopt criteria designed specifically to assist their development and transition efforts, rather than insisting on criteria which are only likely to become important at a latter stage, at the moment of E.U. accession. Another element that is unaddressed in the E.U. general strategy towards the Western Balkan countries and its policies of conditionality is their very low level of development. Donor assistance raised for the Western Balkan countries over the last four years has not been sufficient to cover their enormous needs, especially considering that private capital inflows and FDI have been fairly limited so far. After the 2004 E.U. enlargement, there is a danger that there will be an even stronger bias in favour of the more advanced transition countries which acceded to the E.U. in 2004, due in part to favourable legislative changes accompanying accession (see Uvalic, 2004). Most countries in the Western Balkans are likely to face serious difficulties in catching up with the more developed E.U. countries, even the less developed ones which joined in 2004. In order to prevent the further broadening of the development gap between present E.U. members and future newcomers from the Western Balkans, more funds will need to be

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secured to help their economic development. After 2004, not only the incoming new members, but also the four E.U. candidates - Bulgaria, Romania, Turkey and Croatia - will be receiving much more E.U. financial assistance than the four Balkan countries through various measures within the pre-accession strategy, which clearly will increase the development gap even further. Through faster economic development some of the main causes of diffused criminality in the Western Balkans can also be eradicated. At the Thessaloniki Summit in June 2003, the Greek President proposed the introduction of cohesion policies for the Western Balkans, but the proposal was not endorsed. Lack of more concrete cohesion policies for the Western Balkans is today considered one of the weakest points of current E.U. policies towards this region. There seems to be a contradiction between the E.U.’s proclaimed political objectives, namely full integration of the Western Balkans into the E.U., and the economic means to achieve them, as evidenced by the fairly limited financial assistance provided. (2) Better use of E.U. resources: It is also important to secure a more efficient utilisation of E.U. assistance. It is of paramount importance to achieve better coordination among aiddelivery agencies and institutions. This would ensure a stronger link between existing E.U. conditionality and concrete assistance programmes. If diffused criminality is considered a major impediment for faster integration of the region into the E.U., combating it ought to become an explicit priority of international assistance programmes. In order to transform the Western Balkans into an economically prosperous region, which could also help reduce criminal activities in the future, international assistance programmes must be designed in such a way as to contribute more to self-sustainable growth and development. For this purpose, it is essential to identify ways in which the potential defects of aid can be reduced and its potential benefits maximised.1 A better balance between humanitarian, reconstruction, and development assistance is needed, the last form having attracted far too little E.U. funding so far. (3) Additional incentives: The E.U. may also need to offer additional incentives to Western Balkan countries, in order to avoid the risk of backsliding in the reform process. The present very distant perspectives of membership may prove insufficient as an anchor to keep the momentum of accelerated economic (and other) reforms. One way would be to offer the Western Balkan countries a clearer, better defined, time-path of future accession. In this way, potential E.U. candidates from the Western Balkans could plan their own integration strategies in line with such time horizons of future E.U. accessions. What has not yet been worked out is what will happen between the moment when all five countries have signed a SAA, have applied for E.U. membership and been accepted as candidates, and actual entry into the E.U.. If the E.U. is not ready at that time for its south-eastern enlargement, how long may be postponed? What is badly needed is a draft timetable on what is likely to happen beyond the SAP. Otherwise, there is a risk that the gap between the sometimes unrealistic expectations of the Western Balkan countries and the realistic possibilities of carrying forward the E.U. south-eastern enlargement, may increase further.

4. Conclusions Today, the overall situation in the Western Balkan countries has greatly improved in comparison to only five years ago. On the political front, radical political changes have taken place in 2000 in two key countries - in Croatia after President Tudjman’s death, and in FR Yugoslavia after the fall of Milosevic – together with a gradual consolidation of democratic regimes. On the international front, a major turnaround in E.U. policies towards the Western Balkan region has been in progress since mid-1999, as the SAP has finally opened the prospects of E.U. membership and offered major financial assistance to help

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these countries carry forward economic, political and legal reforms. On the economic front, the Western Balkan countries have improved macroeconomic performance, implemented many important economic reforms, and have benefited from increasing donors assistance and inflows of FDI. Regarding more specifically E.U.-Western Balkans relations, at present there are three additional reasons for optimism. First, Croatia will probably begin negotiating E.U. membership soon (despite the March 2005 postponement of negotiations), which could in many ways help the other Western Balkan countries move faster toward integration into the E.U.. Second, the Commission’s Directorate General for Enlargement is now going to concentrate fully on the Western Balkan countries (which until now were under the responsibility of the DG for External Relations) and new instruments are going to be utilised, similar to those that were available for the associated countries from Central and Eastern Europe. Third, the country that was farthest behind, Serbia and Montenegro, has also made progress: thanks to the two-track approach which has finally de-blocked a “nosolution” situation, and to the recent satisfactory results regarding cooperation with the Hague Tribunal, it will soon be negotiating a SAA with the E.U. and may in a few years also be in the queue for E.U. membership. Despite all these achievements, the Western Balkan region continues to be burdened with a number of complex problems. Some of them cannot be resolved solely by the governments of these countries, as they have become internationalised. The final status of Kosovo, as well as the future of the union of Serbia and Montenegro, is clearly among the issues that will necessarily require the mediation of the international community, primarily the European Union. Similarly, some of the “invisible threats” to security, such as various forms of organised crime in the Western Balkans, have also become internationalised, and would benefit from more active E.U. policies in this domain. Criminality in the Western Balkans also needs to be fought through additional measures, which could indirectly eliminate some of its causes. During the 1990s, the flourishing of various types of illegal activities in the Western Balkans was greatly stimulated by wars, sanctions, and continuously deteriorating economic conditions. Although today the wars have ended and the international sanctions have been lifted, most of these countries continue to be characterised by conditions of poverty and underdevelopment. The problem of criminality cannot be handled in a more permanent way unless these countries move out of the current state of underdevelopment. In pursuing this objective, the Western Balkan countries would clearly benefit enormously from increased E.U. financial assistance.

References [1] Babic, Stojan (1999), Babic, Stojan (1999), “Politica economica dell’adattamento alle sanzioni in Serbia”, in Mario Zucconi (ed), Gli effetti delle sanzioni economiche: Il caso della Serbia, Rome, Centro Militare di Studi Strategici. [2] Bartlett, William (2003), Croatia between Europe and the Balkans, London and New York, Routledge. [3] Bianchini, S., and Uvalic, M. (eds.) (1997), The Balkans and the Challenge of Economic Integration – Regional and European Perspectives, Ravenna: Longo Editore. [4] Bojicic-Dzelilovic, V. (2001), "International aid policies – A review of the main issues", in Papic, Z. et al. (2001). [5] Commission of the European Communities (2002), CARDS Assistance Programme to the Western Balkans - Regional Strategy Paper 2002-2006, Brussels. [6] Commission of the European Communities (2004), Report from the Commission - The Stabilisation and Association Process for South East Europe - Third Annual Report, Brussels, March 30, COM (2004), 202/2 final. [7] Daianu, D., and Veremis, T. (eds.) (2001), Balkan Reconstruction, Frank Cass: London. [8] Dinkic, Mladjan (1995), The Economics of Destruction: Can it happen to You? Belgrade, VIN. [9] European Bank for Reconstruction and Development (EBRD) (2003), Transition Report, London.

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[10] European Communities (2000), "Council regulation (EC) No. 2666/2000 of 5 December 2000 on assistance for Albania, Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the Former Yugoslav Republic of Macedonia, repealing Regulation (EC) NO. 1628/96 and amending Regulation (EEC) No. 3906/89 and (EEC) No. 1360/90 and Decisions 97/256/EC and 1999/311/EC", Official Journal of the European Communities, L 306/1, 7 December 2000. [11] Grabbe, H. (2001), "The effects of E.U. enlargement on the countries left outside", in Economist Intelligence Unit (2001), Country Forecast - Economies in Transition – Eastern Europe and the former Soviet Union – Regional Overview, London, pp. 5-13. [12] International Commission on the Balkans (2005), The Balkans in Europe’s Future, Robert Bosch Stiftung, King Baudouin Foundation, German Marshall Fund of the US, Charles Stewart Mott Foundation, Centre for Liberal Strategies, Sofia. [13] Papic, Zarko et. al. (2001), International Support Policies to South-East European Countries – Lessons (Not) Learned in B-H, Sarajevo: Muller. [14] Samardzija, Visnja (2003), "Croatia's preparation for the E.U. accession", paper presented at the WIIW conference, Vienna, November. [15] Stability Pact for Southeastern Europe, Cologne, June 1999. [16] Uvalic, M. (1997), "European economic integration – What role for the Balkans?", in Bianchini, S., and Uvalic, M. (eds.) (1997), pp. 19-34. [17] Uvalic, M. (2001) "Regional cooperation in South-Eastern Europe", Journal of Southeast Europe & Black Sea Studies, 1 (1), also in Daianu and Veremis (eds.) (2001). [18] Uvalic, Milica (2002), "Economic Transition in Southeast Europe", Southeast European and Black Sea Studies, vol. 3, no. 1, Jan. 2003, pp. 63-80. [19] Uvalic, M. (2003a), "Southeast European economies: From international assistance towards selfsustainable growth", in Wim van Meurs (ed.) Prospects and Risks Beyond E.U. Enlargement. Southeastern Europe: Weak States and Strong International Support, Bertelsmann Foundation Risk Reporting, Leske + Budrich, Opladen, pp. 99-115. [20] Uvalic, M. (2003b), "Integrating Southeast European countries into the European Union - Problems and prospects", in Vojmir Franicevic and Hiroshi Kimura (eds), Globalisation, Democratization and Development - European and Japanese Views of Change in South East Europe, Zagreb, Masmedia, 2003, pp. 93-105. [21] Uvalic, M. (2004), "The impact of the 2004 E.U. enlargement for Southeast Europe" (in German, "Die Auswirkungen der E.U. Erweiterung auf SudostEuropa"), Ost-West Gegeninformationen, Vienna, no. 1/2004, pp. 16-21.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

The Unholy Trinity: Transnational Crime, Corruption, and Terrorism Louise SHELLEY American University, Washington D.C., U.S.A. Abstract. The milieu for terrorism is most lethal where there is a mix of transnational and corruption. This occurs particularly in post-conflict regions where secondary level organized crime groups operate, often relying and cooperating with corrupt law enforcement and members of the security apparatus. The paper explores the elements of these relationships in different regional contexts. Keywords. Corruption; transnational crime groups; State; economy.

Longstanding transnational crime groups and the more recently formed transnational crime groups have a very different relationship to the state and to terrorism41. The older crime groups have developed along with their states and are dependent on existing institutional and financial structures to move their products and invest their large profits. With the exception of Colombia, rarely do the large established crime organizations link with terrorist groups, because their long term financial interests require the preservation of state structures42. Through corruption and by movement into the lawful economy, these groups minimize the risk of prosecution and therefore do not fear the power of state institutions. In contrast, the newer transnational crime groups, often originating in postconflict situations, thrive in a state of chaos and ongoing conflict. The newer transnational crime groups are now forging alliances with terrorist groups; because the crime groups and terrorist organizations do not possess long-term financial strategies or long-term political horizons, neither the criminals nor the terrorists need fear ineffective and corrupt law enforcement regimes in conflict regions. Historically, established crime groups have developed in Asia, Latin America, Africa, Europe and the United States; no region of the world, nor any political system, has prevented the emergence of these powerful crime groups. In a similar way, no region has proved successful in suppressing the crime groups43. Therefore, international crime groups based in China, Japan, Columbia, Mexico, Nigeria, Russia, Italy and the United States have endured despite the repressive governments of fascist Italy, the Soviet and Chinese communist systems, and the FBI in the United States. They have survived because they often are of service to the state, having corrupted or developed collusive relations with state institutions, often evolving to serve specific functions within the community44. 41 The need to discuss the state and the evasion of state law is discussed in Josiah McC. Heyman and Alan Smart, “States and Illegal Practices: An Overview,” in Josiah McC. Heyman. Oxford and New York, Berg, 1999. pp. 1-24. 42 Francisco Thoumi, Political Economy and Illegal Drugs in Colombia, Boulder, Lynne Rienner, 1995. 43 For an expanded discussion of this see Louise I. Shelley, “Transnational Organized Crime: An Imminent Threat to the Nation-State?”, Journal Of International Affairs, vol. 48, no.2, Winter 1995, pp. 463-89. 44 Paolo Pezzino, Una certa reciprocità di favori - Mafia e modernizzazione violenta nella Sicilia postunitaria, Milano, Franco Angeli, 1990.

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These newer transnational crime groups have proliferated in number and membership since the end of the Cold War. Organized crime groups from the former Yugoslavia, Sri Lanka, many of the successor states of the former USSR or Afghanistan were not known internationally before the 1990s. Now they operate transnationally, selling drugs, arms, people and contraband. In their illicit activities, they differ little from the more established crime groups. Unlike their counterpart American, Japanese or Italian crime groups, however, they do not profit from state contracts45. Nor do they launder large amounts of money through financial institutions and real estate46. Instead, they thrive on the shadow economy, the absence of an effective state, and endemic corruption. The newer crime groups most often linked to terrorism have no interest in a secure state. In fact, they promote grievances because it is through the prolongation of conflict that they enhance their profits47. There is no disincentive for them to cooperate with terrorists because they want neither stability nor a state that can control them. The milieu in which transnational crime, terrorism and corruption merge is extremely threatening to the international order. The embedded nature of network crime structures in local communities, and the inability of both domestic and international militaries, as well as law enforcement agencies, to control their activities make them a growing danger. The failure of the international community to recognize the centrality of this unholy trinity has allowed this nexus to flourish in the 1990s and the beginning of this century. 1. The rise and diversification of transnational crime groups The end of the Cold War and the rise of globalization have concurrently contributed to the growth of new transnational crime groups. These groups have become ever-more important actors in the global illicit economy centred in weak states, whereas state intervention in countries with strong governments has slowed the growth of the mafia in Italy and the United States, the boryadukan in Japan, and contributed to the collapse of the Medellin cartel in Colombia48. Two very different phenomena have contributed to the rise of newer transnational crime groups internationally in the past fifteen years. The first are the enormous political changes in both the developed, developing and post-socialist worlds brought by the end of the Cold War. The rise of globalization in the same time period has also contributed to the rise of newer transnational crime actors. Increased international transport, communications and mobility have given smaller groups increased access to international markets. Moreover, globalization has marginalized and impoverished many communities in the developing world, forcing them to engage in illicit activities to survive. With the collapse of prices for raw commodities in the globalized economy, many farmers, mentored by drug traffickers, have turned to drug cultivation to survive economically. Others leave their communities, moving vast distances to more affluent countries in search of employment to support their families49. Unable to legally enter the developed countries of Western Europe and the 45 Donatella della Porta, Lo Scambio Occulto - Casi di corruzione politica in Italia, Bologna, Il Mulino, 1992, pp. 312-28. 46 R. T. Naylor, Wages of Crime: Black Markets, Illegal Finance and the Underworld Economy, Ithaca, Cornell University Press, 2002. 47 Mats Berdal and David M. Malone, Greed & Grievance: Economic Agendas in Civil Wars. Boulder, Lynne Rienner Publishers, 2000. 48 Peter Reuter, “The Decline of the American Mafia,” The Public Interest (Summer 1995), pp. 89-99. White Paper on Police 1994, Chapter IV: Promotion of Measures against Organized Crime Groups: National Police Agency, Government of Japan, 1995: pp. 54-61 reprinted in Trends in Organized Crime Vol.1, No.3, Spring 1996, pp. 49-57. 49 Kevin Bales, Disposable People: New Slavery in the Global Economy, Berkeley, University of California Press, 2000.

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United States, human smuggling rings run by international organized crime groups have arisen to meet the increased demand. Therefore, the rise and diversification of the drug trade and of human smuggling and trafficking in this period are a consequence of the political and economic development of the recent decades. The end of the Cold War meant the superpower conflict came to a close and an era of regional smaller conflicts has emerged in Africa, the Balkans, and throughout the former Soviet Union50. Powerful crime groups have materialized in these new conflict zones, whose crime activities have provided the funds to purchase arms and pay fighters. Operating internationally, they have exploited illicit markets in drugs, people and arms, as well as in diamonds51. Their greed makes them uneager and unwilling to resolve these conflicts. It is in this respect that their interests converge with those of the terrorists. The terrorists, who for political reasons seek to destroy the existing system, thus share a common objective with the criminals. Both thrive on the violence and the disorder of the state. The links between transnational crime and terrorism are most evident when looking at Islamic-based terrorism. However, the links between transnational crime and terrorism are not confined exclusively to jihadist groups; they also exist in other regional conflicts such as in Peru with the Sendero Luminoso and in Nepal with the Maoist insurgents. The drug trade in Afghanistan funds the Taliban, and organized crime activity has sustained the Chechen conflict and the violence in Kosovo52. The international crime in these regions is linked to other parts of the world, as the drugs from Afghanistan are distributed by local crime groups in Europe and Kosovar Albanians traffic women from the former USSR to Western Europe. The fighters from these conflicts are similarly linked. Terrorists trained in Chechnya have been arrested for terrorism in France and individuals who fought in Afghanistan have subsequently been combatants in the Balkans and in Chechnya. The international crime and terrorist networks particularly intersect in these conflict areas where law enforcement and border control agencies are both corrupt and, in some cases, entirely collusive with the crime groups.

2. Transnational crime and the State The Italian mafia is the prototype of international concepts of organized crime. The mafia developed in Sicily in the mid-19th century but its origins go deep within Sicilian society53. There are similar longstanding international crime groups in many other parts of the world. An example is the Japanese Yakuza, or boryodukan, which has achieved international prominence in the post-war period, with origins dating to the 1600s54. The same can be said for the Chinese triads, operating particularly in Southern China, whose origins lie at least in 19th century Chinese history55. 50 William Reno, in Greed & Grievance: Economic Agendas in Civil Wars. Boulder, Lynne Rienner Publishers, 2000, p. 43. 51 Greg Campbell, Blood Diamonds Tracing the Deadly Path of the World’s Most Precious Stone, Boulder, Co., Westview, 2002. 52 Michele Alliot-Marie, “Afghanistan’s Drug Boom,” Washington Post, October 6, 2004, p. A 27; Nabi Abdullaev, “Kremlin Unarmed as Chechen Rebels Strengthen,” Eurasia Daily Monitor, July 2004; Peter Andreas, “Transnational Crime and Corruption in the Balkans,” in Problems of Post-Communism. V. 51, no. 3 (May-June 2004). 53 Raimondo Catanzaro, Men of Respect: a Social History of the Sicilian Mafia,. New York, Free Press, 1992. 54 David E. Kaplan and Alec Dubro. Yakuza: Japan’s Criminal Underworld, Berkeley, University of California Press, 2003. 55 Martin Booth, The Dragon Syndicates: The Global Phenomenon of the Triads, New York, Carroll and Graf, 1999. pp. 17-27.

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By corrupting and sometimes penetrating the state, these crime groups create a collusive relationship with the state, expending significant amounts of human and financial capital to influence the state. Therefore, they may contribute to political campaigns, run candidates for office, or vote as a bloc to influence the electoral process as has happened in Italy. In Colombia, before the emergence of large scale guerrilla movements, noted drug trafficker Pablo Escobar ran for parliament and developed a political party56. Often these crime groups are highly nationalistic. The Yakuza in Japan served the emperor prior to World War II by putting down political opponents. Their high degree of nationalism has made them allies of the conservative Japanese police, neutralizing control of their activities until recently. Also during WWII, elements of the mafia in the United States guarded the waterfront in order to prevent German sabotage. In another case, the mafia in contemporary Italy broke off ties with a particular Albanian organized crime group when informed that they were terrorists. It is clear that the crime groups have interests that coincide with the long term ability of the state to maintain its viability. This symbiotic relationship has proved valuable to the rise of traditional crime groups. Italian and Japanese organized crime groups have benefited enormously from the post-war recoveries of their countries. They have profited from valuable public construction contracts possibly as much as from their illegal activities. The economic development of the state is therefore of paramount importance to them because they are parasites on the state’s economy and financial institutions. New transnational crime groups thrive in the chaos of war, frozen and enduring conflicts. They have no interest in the endurance of the state; rather, their profits are made by destabilizing the state and its structures. The declining importance of the nation-state in recent decades has fostered these new forms of transnational crime groups. There are important reasons that the new types of transnational crime share common interests with terrorists. The terrorist-transnational crime relationship extends beyond a marriage of convenience that generates profits or provide logistics: it goes to the very heart of the relationship between crime groups and the state. The new transnational crime groups, often operating regionally, exploit porous borders and dysfunctional state institutions where territory is outside the control of the central state. They capitalize on the fact that legal controls are state-based by exploiting differences in legal norms and procedures among jurisdictions. Often embedded in the host society, this crime is not family-based, nor is it hierarchically and rigidly structured like the mafia. Instead, it draws on different levels of society that contribute in different ways to the perpetuation of the crime activity. This pattern has been observed in the Balkans and the Caucasus, as well in Afghanistan. In the Balkans, small scale cigarette smuggling has supported many lower income individuals, whereas drug and human trafficking, as well as a criminalized privatization process benefited governmental elites, particularly the criminalized military and security forces57. In the Caucasus, impoverished women move small amounts of cigarettes across the border to support them. Crime groups, in collusion with corrupt law enforcement and border guards, move flour, arms and other valuable commodities58. In Afghanistan, farmers grow poppies because it secures them more profits than conventional crops, while local warlords staff and provision their forces from the profits made from the drug trade59. 56

Howard Abadinsky, Organized Crime, 6th ed. Belmont, Ca, Wadsworth, pp.246-247. “Lawless Rule versus Rule of Law in the Balkans,” www.usip.org, based on a conference, “Organized Crime and Political Extremism in the Balkans, conducted by the United States Institute of Peace and the Transnational Crime and Corruption Center, American University, November 13, 2001 (accessed October 11, 2004). 58 Alexandre Kukhianidze, Alexandre Kupatadze and Roman Gotsiridze, “Smuggling through Abkhazia and Tskhinvali Region of Georgia,” http://www.traccc.cdn.ge/publications/index.html, accessed October 11, 2004. 59 Scott Baldauf, “Afghan Military Tied to Drug Trade,” Christian Science Monitor, September 4, 2003. 57

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With so many segments of the society having a vested interest in the perpetuation of crime, it becomes very difficult to disrupt the networks and thereby return the economy to one based on a legitimate economy. For example, at the present time, forty percent of the Afghan economy is based on the drug trade60. With relatively high profits and an inability to compete in legitimate international trade, the dependence on a criminalized commodity is assured. The drug trade funds not only the warlords’ armies, armies of warlords, but are also funds the activities of the Taliban and terrorist networks61. Tab. 14. Transnational Crime and the State

Attitude to the State

Relationship to the Nation-State

Relation to Corruption

Relation to Terrorism

Traditional Organized Crime Often nationalistic

New Transnational Crime Interests do not coincide with the state

Grows with the state. Parasitic on ation-state. Depends on state for contracts and services Tool used to influence state officialsoperative tool

Thrives on the absence of effective governance. Grows with the weakened state.

Usually rejects association with terrorists

Depends on high levels of systemic and institutionalized corruption May seek links with terrorists

3. Transnational crime and the economy Transnational crime, particularly the drug trade, was estimated in the late 1990s to represent two percent of the world’s economy. This percentage was not evenly distributed throughout the international economy but represented a much larger share of a country’s economy in the developing than in the developed world. Increasingly in the last two decades, however, the drug markets in the developed world have become much more organized and linked with the developing world62. Although the markets of the developed and developing world are increasingly interconnected through globalization, very important differences exist in the financial perspectives of the long standing groups versus the newer crime groups. These different economic perspectives also have a very profound impact on the links between organized crime and terrorism. The older transnational crime groups have survived because they take a long-term perspective on profits and sustainability. Even when trading in drugs, which has provided enormous profits, these groups have diversified their investments. For example, the Italian mafia became enormously wealthy as a result of the global drug trade in the 1980s but has

60 Dennis Kuz and Harpinder Athwal, “Afghan Progress Undermined by Drugs,” Jan. 13, 2004. www.csmonitor.com accessed October 8, 2004. 61 See the French Minister of Defense, Michele Alliot-Marie, “Afghanistan’s Drug Boom,” Washington Post, October 6, 2004, p. A 27. 62 Vincenzo Ruggiero, Crime and Markets: Essays in Anti-Criminology, Oxford, Oxford University Press, 2000.

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invested those profits in tourism, commercial and agricultural real estate63. Similarly, the Colombian mafia, having made its profits in drugs, has expanded into cattle ranches and commercial real estate in Colombia, among other sectors of the legitimate economy. They have combined investments in the illegitimate with the legitimate economy to ensure diversified and long-term stability64. They often repatriate part of their profits, as well as keeping money in offshore havens, frequently using the services of professional money launderers who, as high status professionals, are able to disguise their profits and investments. A very different financial pattern exists among the newer transnational crime actors. They have much shorter term financial objectives. Often, in conflict regions or ones with frozen conflicts, they do not look to the future, but instead need the profits from their illicit trade for their immediate military objectives. In some cases, they use the profits generated from their illegal activities to fund insurgencies or terrorism such as we are seeing in contemporary Afghanistan and in the Caucasus today. These new crime groups may trade in both legitimate and illegitimate commodities. For example, in the Caucasus as in the Balkans, there has been a thriving trade in cigarettes, as well as in arms and people. The profits of this trade are less likely to wind up in offshore locales as is the case with the longstanding crime groups. Because their profits are smaller, their needs are more immediate and they are less interested in the costly maintenance of paramilitaries or other strategic forces. Their funds are not invested with the intention of capital preservation or long term growth. They are less likely to interact with the professionals who launder funds for the Colombian drug cartels or the Italian mafia, instead using wire transfers to move money from abroad as in the case of some Balkan groups or as hawala, the system of parallel banking in the Middle East that assists in moving funds for the drug networks operating out of Afghanistan65. Invariably, they have more limited contact with the financial institutions of the international banking community; therefore, they have much less need for the preservation of existing state institutions. Tab. 15. Transnational Crime: Financial Perspective

Traditional Organized Crime New Groups

Financial Perspective Long term survival Shorter term objectives

Income Sources Illegitimate and legitimate economy Primarily illegitimate

Money Laundering Offshore locales & domestic economy Profits used for military and some returned for investment

4. Transnational Crime and community norms Traditional crime groups, due to their longevity within their communities, generally have established familial and network ties. They tend to support stability because they continue to live within the communities in which they operate; for example, Chinese 63

Pino Arlacchi, Mafia Business: the Mafia Ethic and the Spirit of Capitalism, London: Verso, 1986. Rensselaer W. Lee III, The White Labyrinth Cocaine and Political Power, New Brunswick, Transaction, 1990, p.40. 65 James R. Richards, Transnational Criminal Organizations, Cybercrime and Money Laundering, Boca Raton, CRC Press, 1999, p.47. 64

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organized crime who traffic in human beings need to secure the safe delivery of the individuals they contract to move if they are to ensure that others in the community will continue to pay for their services. The Italian mafia also works within the norms of the Sicilian community66. The mafia became vulnerable to prosecution by the Italian state when its murders and violence turned some of its members into pentiti, or state informers. For example, Tommaso Buscetta turned against the mafia boss, Toto Riina, after he had ordered the murder of over thirty of Buscetta’s family members. The Japanese Yakuza have also worked closely with the Japanese police to maintain order in their communities, a value that is praised within Japanese society. The traditional crime groups most often live within the existing norms of the community because their long term survival requires that they not antagonize the community in which they are lodged. In addition, they may curry favour with the community by building schools, hospitals and subsidizing sports activities, in effect providing services that the state has failed to provide. This was the case in Colombia with the narcotraffickers becoming major philanthropists within the community. Similarly, the Yakuza provided major assistance to their fellow citizens after the Kobe earthquake. The new transnational crime groups thrive in environments where there have been longterm conflicts. These conflicts have often destroyed families, disrupted community norms and established communities. Consequently, crime groups function differently within these societies. They are not concerned about the preservation of their own communities to the same extent as the established crime groups. The violence in which they have lived has brutalized the participants, breaking down norms and values of the community. In the Balkans, Kosovar Albanian organized crime groups traffic women from their own community into the brothels of Western Europe. Similarly, crime groups in the Caucasus region traffic in arms and drugs, leading to a proliferation of drug abuse and violence in their region. For example, the recent tragic terrorist act at the school in Beslan, Ingushetia, was lead by a former Ingush police officer who had joined forces with the Chechen rebels. Normative values do not restrain the new crime groups to the same extent as the more traditional crime groups. This statement may sound anomalous when considering the social harm that is done by traditional crime groups. However, their desire to perpetuate themselves means that they are less likely to violate the human rights of their community members or to establish highly destructive links with terrorists67.

Conclusions: new transnational criminal actors and terrorism The planning for 9/11 was carried out in Hamburg, Germany. The terrorists who bombed the trains in Madrid in March 2004 supported themselves through crime. The Chinese smugglers known as snakeheads have developed a trade and protection relationship with the IRA in Ireland. The dangerous nexus of transnational crime does not occur exclusively in the developing and transitional world, but in regions without strong state institutions the nexus of transnational crime and terrorism assumes it’s most potent form. The new transnational crime actors need the state and the established global economy much less than the traditional crime groups. With their short-term survival objectives, their 66 Franco Di Mari and Gioacchino Lavanco, A Un Passo Dall’Inferno- Sentire Mafioso e obbedienza criminale, Firenze,Giunti, 1995. 67 For example, on the difference between human smuggling and trafficking out of China, Russia and the Balkans and the reasons why these abuses are more severe in the latter two settings, see my earlier article “Trafficking in Women: the Business Model Approach,” in The Brown Journal of International Affairs, Vol. X, Issue 1(Summer/Fall 2003), pp.119-131.

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interests do not converge with those interested in state-building, nor in supporting the existing international financial system. The decline of stock markets in response to terrorist acts, the decline in tourism in Bali or the Sinai is not of concern to these newer crime groups because, unlike traditional crime groups, they have not laundered their money into resorts or stocks. Their political calculus is very different from that of the established crime groups who, because of their large-scale investments, mirror their legitimate counterparts, seeking international financial stability to secure their investments. The regions where transnational crime groups and terrorists converge, particularly the tri-border area in Latin America, the Balkans, the Caucasus, the conflict zones of West Africa and the Afghanistan, have provided a safe haven for the nurturing of terrorists and their operations. Although these regions do not have a monopoly on these activities, they have assumed a central role in international insecurity. The destabilizing nexus of transnational crime and terrorism has proved so intractable because policy-makers continue to think about crime in terms of traditional paradigms. The policy divergence between the United States and Europe, seen most visibly in reference to the war in Iraq, is readily apparent in this policy arena. American policy-makers in the post 9/11 world have focused almost exclusively on terrorism, whereas their European counterparts have focused much more on transnational crime. Neither community’s policymakers are doing the integrative thinking that is required by this new challenge.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

The Control of Post-War Balkan Territory LTG Fabio MINI former KFOR Commander, Italy Abstract. This study analyses modes of control territory in conflict areas such as the Balkans, as well as other regions, where international security forces (military and police) have a specific mandate to support a government and ensure a safe and secure environment. This kind of control is necessary where political sovereignty is exercised on behalf or under the auspices or supervision of the international community by a transitional authority or by a local government troubled with stability problems. This contribution cannot take place during open hostilities or in a situation in which the military forces act as occupying power. In those situations we assume that the military forces have the authority and the obligation to exercise full control of the security factors for a determined period of time according to the needs and laws of war. During the occupation, according to International Humanitarian Law, the “de facto” control of the whole territory or part of it exercised by military forces is sufficient to oblige them to take over the responsibility to protect the civilian population, ensure the survival and the basic rights of the citizens, protect and carefully manage the resources of the country. Keywords. Balkans; post-conflict control; organized crime; peacekeeping.

1. “Krisis” It is important to assume that wartime and military occupation should not present the same types of weaknesses normally experienced during post-conflict or peace support interventions. In particular war and occupation should not lack strength, determination, unity of command, univocal political guidance, clear end state and strategy; all things that are normally missing in multinational peace support operations where compromise, political indecisiveness, foggy directives, multinational caveats and undetermined end states are the norm. If this is not the case it can only mean that war and occupation are not being dealt with properly and that the military responsibility has been overruled. Paradoxically, this situation is becoming the most frequent. The general trend is in fact to end the military operations as soon as possible and pass the responsibility of providing security to immature civilian administrations even before the situation has been stabilized and before the civil authorities have developed the ability to govern the territory. The primacy of the political and administrative functions seems to have overruled the authority of the military and their objective responsibility. Political primacy is out of the question, but such primacy does not automatically exclude the military responsibility, which must be implemented in order to guarantee that the very same political and administrative authorities enjoy the kind of safe and secure environment (SASE) necessary to rebuild and stabilise a crisis area. The smooth transition that the international community must ensure is one of the most serious challenges of modern times. The Greek word for “passage” or transition is “Krisis” and a transitional government comprised of both national and international actors is a crisis manager by definition. It faces many challenges: the main threats are not only those created by war, humanitarian disaster or devastation but also those created by the vacuum of

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legitimate authority. In the areas of conflicts of the last decade the delay in establishing legitimate, fair and effective government or the reluctance of the political powers in allowing the military to fully exercise their post-war authority and responsibility have given space to ethnic retaliation, revenge, crime, extremism and even terrorism. Furthermore, the post-war areas suddenly see in in-pouring of resources, money and solidarity. They also function as “attractors” of all kinds of crime, both local and international, and normally fuel the expectation of benefits in the local population and the hope of good business in the local criminal clans and mafias. The threats that these areas face are of military nature only in regard regarding to the possibility that neighbouring countries or organized groups of rebels may decide to attack or destabilize the international forces and the local government. This event has been proven to have very low probability in the Balkans and medium-low probability in other areas. Iraq is not an exception; the war there began in 1991 is still ongoing. The most severe shortfalls that hamper Kosovo’s (like other theatres) development are not in the military security realm (even though they could adversely affect it at any time). Instead, they are the dramatic economic situation, the inconclusive political debate over issues of little practical importance, in the inefficient administrative system both local and international, in the UN’s loss of credibility, in the subversive struggle for power, in the political corruption, in the institutional inability to face the real problems, and in the constant manipulation of the war for ambiguous and often criminal purposes. The main challenges to security in the Balkans remain a high degree of intolerance toward minority groups and the combination of organized crime, extremism/terrorism, and political corruption. Intolerance has become a strategy for ethnic and nationalistic purposes. Martyrdom or “war values” have also poisoned both the prospects of a balanced historical assessment and the prospects for future social integration. Without a series of coordinated political and security actions these challenges have the potential to divert the entire region from its path to freedom, democracy and stability. All these huge challenges are largely unrelated to the size and structure of the international military forces and are not solvable through military or solely security means. Extremism, terrorism, and organized crime have already found their way into the region facilitated by an old fashioned approach to security. Unfortunately, the multiplicity of threats has not resulted in kind of unity of command, control and general efforts the situation requires. A number of international organizations and forces still operate in the crisis area, each of them loosely connected to one or more focal centres. In addition, each of these agencies has an unique view of the problems and a personal approach. Within NATO itself, which is responsible for the military aspect of security in Kosovo, Kabul as well as Bosnia, there is not a common understanding of what the soldiers are allowed to do. Many nations, for example, question the legitimacy of the military to conduct search and cordon operations, to go after organized crime, to detain suspects or even to use force when necessary. There is still the tendency to couple the military with a pure military threat, the police with a criminal threat, the civilian governmental agencies with corruption and financial crime and political entities with extremism. There is no doubt that each area of interest requires specialized personnel, but in the crisis areas it is also true that everything is tied to the maintenance of security. In the crisis areas the risk of convergence of criminal activities with extremism and even terrorism is very high. Furthermore, the risk that those activities pollute politics, economy and reconstruction and that they fuel disturbances, ethnic rivalry, turmoil and rebellion is even greater. Therefore the classic partition between military and police competencies and jurisdiction in these cases is a mistake. However, it would be no lesser mistake to ask for the militarization of security. The international military forces have the duty to deal with those threats because they interfere with the general mandate, slow down nation building

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and hamper the capability of the government. Pretending that the military lacks capability is also a mistake. It is true that the military forces do not possess the training and the expertise to deal with crime or extremism in the investigative sense. But the primacy of the police and other specialised agencies cannot exclude the military duty to know, assess and cooperate. The military forces engaged in multinational peace support operations have undeniable limitations. They are foreign forces, not familiar to the local society, visible and easily recognizable. They are normally predictable, systematic, and rational. Once you know their rules you know how to bypass them. And the rules of the military are simple, open and often clearly stated. The military forces need intermediaries to stay in touch with the population. They need interpreters, employees, local analysts of cultural intelligence. To see does not mean to know and to know does not mean to understand. The military forces have all three problems. However, the police are not in better shape. The international troops come from many different nations, different law systems and different interpretations of their mission. Other than dedication and goodwill there is very little in common between a police officer from Fiji and another from Saudi Arabia. The local police, on the other hand, have problems of legitimacy, training, understanding of international standards and acceptance by: 1) the local populace especially if the majority of the police belong to a particular ethnic group, religion or political affiliation, 2) by the local permanent or provisional institutions especially if made of new leadership without previous experience or made of elements of the old regime. The time necessary to the education of these forces is very long and sometimes painful. The screening of the candidates must comply with political interests, ethnic balance and social structure; however, it must avoid discrimination and be based on the real potential of the candidates. Furthermore, their training is complicated by the different law systems that normally replace the old ones. For example, in the Balkans the basic legal system was the Roman Law. After the arrival of the internationals and the provisional administration many rules, laws and regulation have been issued on the basis of the Common Law. The same judicial system, which constitutes the pillar of internal security, becomes uncertain and it has a very hard time in ensuring the rule of law when the law itself is not easily understood. It is self evident that the cooperation between security organizations is difficult by default even in the presence of good will, which is not the normal case. The normal situation is that the different mentalities, the differences in competencies, and the different responsibilities tend to overcome the common mandate and create competition and open friction. Further complication is brought in by the hundreds of other organizations that have a somewhat legitimate stake in security. The human rights watchers, the legal organizations, the ombudspersons, the controlling elements of the security, the political controllers and the internal control systems of UN, NATO, E.U., OSCE, the coalition and the single sending states, all have something to say. Here again the international mandate should work to a common end, a fact that is sometimes forgotten.

2. Modelling the threat From the operational point of view the control of the territory seems to be an easy task, especially for those forces that have many specialised assets and resources. It seems to be only a matter of surveillance, patrols, border control and physical security. Nowadays the physical control has shifted from patrolling, searching and “carpet” check points to intelligence-led operations. Random search and cordon operations, loose territory denial, or the simple presence of troops do not represent the best choices for security operations. Intelligence must not only provide the targets, but also lead the operations both in planning

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and execution. The intelligence is active and has to go hand in hand with the operations. Unfortunately, this concept is still underdeveloped and in fact each organisation keeps its own intelligence and database, not sharing it with anybody and often denying sharing it or providing wrong information. The access to the intelligence database is one of the most serious challenges to the effectiveness of security. A related problem is the update of database and their reliability. It is useless to start an operation in search of stolen cars if the Europol database is updated every six months. In the Balkans stolen cars stay in a particular area from three to six hours. Then they either are shipped elsewhere or dismantled and transformed into spare parts. The fact is that during the last five years the quality and the organization of the threat have drastically changed. The threat to security is a composite one and is network-based. The criminal and extremist projects have always a connection to politics, administration and economy: directly or indirectly, tight or loose. The model of any specific endeavour undertaken by terrorism, extremism and crime instead of a corporate hierarchical model follows the “instant multinational” model. This model is frequently found on the Internet, where people that do not know each other get together around a common project aimed at a specific result related to one’s own profit or benefit, or somebody else’s loss or defeat. The network’s base is not an individual, but an elementary cell that becomes a network. The traditional Balkan or Mediterranean “networking” based on family ties, clans or tribes has an immense advantage in this new modelling of the international illegal and destabilising activities. Our people had no need to change or learn new rules, new procedures or means of transaction. There was no need to find new systems for exercising pressure or violence. Each elementary network can now live and operate according to its own rules and procedures. What it has to guarantee is the “compatible” connection of at least one of its components with an element of another network to expand its business or to carry out a project. This model is not only perfectly suited to the need of business but also to preserve the pureness of the elementary network, the family, the clan. Last but not least, it allows for cooperative activities between rival clans and families without them losing face or conceding anything, without making any truce, peace or alliance, sometimes without even knowing that their enemy is participating. This model best explains the current form adopted by trans-national terrorism. It is not a deterministic process but a combination of structured chaos and theory of complexity where a self learning process is induced not by a deliberate, rational, logic will but by the “environment”. Trans-national terrorism evolved because its traditional environment was dramatically changed by the response to 9/11. The entire structure had to adapt to a new situation and a new environment. The hierarchical structure had to move away from traditional bases, many components were killed, training camps were destroyed, and the links to money and political support disrupted. In this environment, the only part of the organization that could survive was the cell, the basic elementary network, and so it did because the core element of the entire organization was left intact. The will to fight through terror represents the genetic code of any Islamic terror cell. The model of terrorism networking can be easily applied to the security situation in the Balkans, in Afghanistan and in Iraq as well. Warlords, religious leaders, sheikhs and clan chieftains had to transition from an archaic organization to modern networking because of the changes brought to their home environment by the war, but most of all by the “post-war” with its sudden inflow of money, new political regimes and new opportunities. The basic networks that survived the war found themselves stronger than ever, with their core businesses of power and money intact. The focal elements of this model are of course “not the nets, but the knots” and the links between “compatibles”. These “compatibles” are selected knots that, instead of performing a function inside the basic net, ensure the connectivity with other networks. They are often

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individuals not necessarily engaged in the practice of crime/terror/extremism and often are as powerful, prominent and disguised as to be called “untouchable”. More than often they are not chiefs, but rather are the major enablers of the crime cells. The linkage, the other focal element of this model, is still the traditional personal acquaintance, but more and more this is also fading away. The major link is now the interest in a particular project. Often the “compatibles” do not even know each other and they can prove to the police that they have no connection to any individual engaged in crime. When they are political figures or administrators they can endorse laws and regulations that indirectly favour their own network, but more often somebody else’s network. It is obvious that fighting against this model requires a mental approach, a type of knowledge and tools that traditional military and police do not have at this time.

3. Territory and environment The control of the territory therefore becomes more virtual than physical and is more related to behaviour than to geography. The misconceptions leading to the many limitations of the military and security forces when fighting against extremism, terrorism and crime are that these phenomena are related to and somehow restricted in a particular geographical area coinciding with the assigned Area of Responsibility (AOR) and with the legal jurisdiction. Nothing is more inaccurate. The territory was once defined as “the space between boundaries”. For some threats to security this is still true. The rural and city gangs have a territorial organization. Smuggling is bound to routes and means of transportation. Families and clans still have their home territory where they exercise power without any need to perform criminal activities inside it. However, this ancestral definition of territory has recently acquired the additional meaning of functional domain and specialization. The Colombian drug cartels do not only perform power control inside their own boundaries but they control the entire coca market around the world through the “cartel,” which is an economic tool and not a geographical area. Today, the definition of territory has acquired another powerful and scary meaning: environment; again, not a physical environment, rather the complex sphere of situations, events, natural and social conditions that can influence human behaviour. The fight against crime, extremism and terrorism must therefore rely on a concerted control of the environment well in advance of physical actions taken against individuals. We cannot be really successful in establishing security if the banking system allows the profitable transfer of money and money laundering. And this control over money does not have its centre of gravity in Kosovo or the Balkans or Iraq. As a matter of fact, this control must not be exercised inside the crisis areas, but in well established, calm, safe and sunny places. We cannot go after corruption if public and international functionaries are protected by privilege, immunity and impunity. We cannot claim victory over crime in Kosovo and then ignore that the major “knots” of international crime have freedom of movement and enjoy high levels of respect inside Kosovo and the region. By the same token we cannot claim victory on terror in Afghanistan and declare defeat in Iraq. Our defeat is global if crime, terror and extremism temporarily move out of a certain area and establish themselves another region. Therefore, it is evident that actors and agencies in the fight against current threats to security must adopt the same global approach and the same networking organization of the threats. Of course, we cannot ask KFOR or SFOR and their police partners to combat global crime or terrorism while engaged in a fixed AOR. Neither can we hope that the governments of the Balkan countries solve the problems of the world. But those governments cannot ask the world to solve their problems without contributing to the same

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fight. It is also evident that the local forces, both national and international, should not focus exclusively on criminal and destabilising events taking place inside their own AOR. Rather, they should devote a major effort and part of their resources to identifying the negative effects on their mandate stemming from out-of-area events. Today, unfortunately, only in the Balkans is there a modicum of coordination between two international forces, KFOR and SFOR, and this because both are under unified command of NATO JFC Naples. This notwithstanding, we are not completely satisfied. We still remember the great resistance faced in having a unified approach to the region and the difficulties encountered by NATO operations in Fyrom and the tremendous effort that required the coordination between NATO and E.U. for a small operation like “Concordia”. Now another test is coming with the new E.U. –led operation in Bosnia. In other areas each force is almost completely isolated. A thin layer of generic intelligence is shared around the world about global threats, but surely it is not enough. Achieving true territorial control is therefore very limited and mostly of little contribution to the global war on terrorism and, to a certain extent, also to the local security needs. Without a broader networking approach our security forces are bound to the local terrain and old style territorial control. They will often be caught by surprise. If a butterfly in China can cause a typhoon in Florida, we can imagine how the growth of opium production in Afghanistan can affect the drug flow to Europe, the wealth of warlords, the support to the Asian and Caucasian terrorism, to the wealth of drug dealers throughout the Balkans and so on. The security forces deployed in a certain area cannot monitor the events happening around the world or prevent them, but inside their AOR they can witness their effects. They can also warn of possible consequences deriving from events taking pace inside their AOR. We have to concentrate on these effects and indicators and start looking at the threat networking and at the means to disrupt it. We have also many lessons already learned in many years of experience to exploit. In the Balkans, as well as in many other troubled areas like Afghanistan and the Middle East, because of cultural heritage, tradition, previous political experience, previous foreign domination, social structure and strong ethnic and religious sentiments we can assume that the local population knows much more than what they are willing to say. In particular, the local chiefs, administrators, politicians, religious and ethnic leaders know exactly what is happening, how and why. Often they know also who and when even if, for their own protection in many instances, they do not want to say. In the case of political extremism we can also assume that each political entity has its own intelligence and “fire groups”. The international forces can easily become targets of espionage, sabotage and direct attacks. In other cases they are subject to political and psychological pressure and intimidation. We can also assume that the “locals” are not necessarily those living inside the AOR. Immigration in some areas is emigration from others. The Diaspora is always linked with the homeland and what happens in the host nations immediately affects the life and the behaviour of the homeland, and vice versa. Therefore the penetration and the knowledge of the “local” entities must expand to the communities abroad. Many activities affecting local dynamics have long distance connections. The origin of the threat is far away and the perpetrators of the criminal acts are in most cases very far and not even connected with the AOR. As a matter of fact, the Balkan region is an example of transit crime and resident ethnic tensions. Crime transit often occurs so quickly that bureaucratic structures and other unaware forces do not even perceive the threat. The environmental control must target, through the key indicators, the identification of the terminals of the threat: the starting point (or organization) and the final destination. The drugs passing through Kosovo and Macedonia, for example, come from Afghanistan and Central Asia and are then directed to Europe and the U.S.A. Prostitution is a big business

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for Balkan mafias, but the prostitutes are coming from Eastern Europe and after a sort of “training”, grooming and “in-processing” they are re-directed to Italy, Europe and beyond. Many of them are also re-directed to the Middle and Far East. Stolen cars cross the region back and forth and in many cases are the payment for other illegal traffic. We invented the “oil for food”, or “weapons for food” programs while the mafias have much long experience with “drugs for cars” and “girls for contracts”. A broader vision of the security challenge must also induce changes in the organization of security. In spite of the complexity of the challenges, we continue to deploy our forces in sectors that do not reflect the real threat. Military forces are divided in operational sectors that were meant to satisfy the war requirements. Rivers, mountains, roads, the best suitable terrain for armoured vehicles, enemy positions, friendly forces availability, and so on were the criteria used to sub-divide an area of operations. These divisions remained in place when the war ended and the environment and the threats are completely different. KFOR entered Kosovo in 1999 with five brigades and assigned each of them to a part of the area according to wartime criteria matching almost exactly the organization of the UCK on the ground which was operationally sound only for them because it was based on clans. At the maximum point of expansion of political tension, crime, extremism and inter-ethnic violence KFOR still had the same organization. The lead nations of the force had almost absolute autonomy within their AOR and exercised the control according to the directives coming from their sending states. At that time, there were separate British, American, French, Italian and German KFOR brigades. Each brigade divided the territory into regiment, battalion, company and platoon level sectors, most of them assigned to units of a different nationality. From 1999 to 2002 the NATO Commander was required to ask permission to visit the units and there were no cross-boundary operations whatsoever. A car from Skopjie to Mitrovica could be searched and stopped 25 times by different national patrols, each of them acting at its own discretion and according to different procedures. Very few of them had interpreters or knew the local languages. So the control was limited to the visual search for weapons or to traffic violations. Similar patrols of international police were doing the same job in the same conditions and in the very same areas or together with the troops. None of the troops on patrol had a list of wanted criminals to look for. The criminals soon learned the weaknesses and the strong points of this kind of disorganization and soon found ways to exploit the weaknesses. The vocal call for a new approach had partial success in the Balkans on the military side, but in many instances was already too late. Many criminals and extremists had taken over the control of the territory and some administrators had already authorised the opening of thousands of dubious carwashes, travel agencies, petrol stations, motels (read brothels), bars (read criminal observation posts), gambling houses and so on. The same administrators had in the meantime certified the identity of people that nobody knew, who then emigrated with new identities to Germany, Italy, and the UK with documents carrying the UN seal. This inertia in changing from wartime to peacetime operation is one of the main concerns for all international organizations. Nevertheless, this situation is still in place in many areas, while almost everywhere military and police units still have very limited cooperation and many prejudices.

4. Challenges and opportunities The Balkan region offers a great opportunity. The region is steadily improving the will to fight against the main threats to security. The new political leadership understands very well the benefits of this fight. The international community is heavily present and engaged. Now is the time to change approaches and tailor our tools to the real needs and focus on the

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effects. A strong and unitary political direction and common strategy directing all resources to the same ends should have as main objectives stability, democracy, freedom of movement, reconstruction, economic improvement and social reconciliation. We have plenty of resources and assets to achieve physical control of the territory. Every operational commander has at his disposal specialised assets for visual control, satellite imaging, UAV, Airscan, patrolling, means of interception, location and means to conduct information operations. We have the capability to gather a huge amount of data and set up integrated databases. Intelligence is the key factor to the mission. It must be operationally exploitable, timely, reliable and coordinated. There are no operations without intelligence and nowadays only intelligence-led operations are possible and necessary. Information operations are also essential to the mission, but must be managed very carefully. They include psyops and public information, but the two elements are not the same. CIMIC (civil military cooperation) is an important tool to get closer to the civil society and to the population. It has a humanitarian component, but its aim in an unstable environment is also to win the hearts and minds of the populace, to feel the pulse of the situation and to gain useful intelligence. For a multinational commander it is an operational tool more than a show of goodwill and solidarity. From the operational point of view, the mission needs to be periodically revised based on the experience of the commanders in the field. However, a tour of duty of three/four months is not enough to give a full view of the reality. The structure needs to be adjusted to the real situation. The fight against extremism and terrorism and the preservation of the SASE requires a vigorous fight against organized crime. To fulfil this task we need fewer, more efficient international policemen (fewer nations with compatible professionalism and law enforcement standards) and more support to/from financial special police (money, fund raising, extortion, loan sharking, corruption are the basic activities of armed groups). The local police support/contribution to this mission is paramount, but it is necessary to ensure that they really possess the capability to assume new responsibilities in serious criminal areas. It is necessary to adapt the operational methods to the changed situation or even before the changes take place in order to promote stability. In addition to the requisite criteria related to using intelligence in cross-boundary operations, the security forces should learn how to be more effective and less visible; how to co-operate with Over The Horizon Reserves, enhance their antiterrorism capability, cooperate with the judiciary in order to guarantee the full legality of precautionary detention and crime prevention, exercise a tight control over local military and paramilitary forces and ensure the protection of the patrimonial sites and the minorities. These criteria and new technologies must be integrated and inserted into a system that allows for “environmental” control. This kind of control monitors the effects of what happens inside the AOR and that could affect other areas, as well as the control of the phenomena occurring inside the AOR that do not appear to be caused by local events. This kind of control should focus on trends, unexpected patterns and behaviour that could produce illegal profits, unfair political advantages, obscure economic development and acts of violence and even terrorism. This type of “environmental” control must rely upon key indicators that superficially do not have a close connection with military and security responsibility. This kind of control, much more than physical territorial control, requires a deep penetration of the society and a full understanding of crime, terror and extremism in addition to mastering economy, society and financial dynamics. It is not a task that can be performed in isolation from the regional environment or by a single force. It needs a unified direction and an integrated monitoring organization involving all possible specialists and analysts. Of course, the organization itself must refrain from the tendency to have everything available inside each and every AOR. It must set up a network that ensures the

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availability of non-resident assets. A similar international network now links the intelligence community of NATO, but it is top secret and its access is limited to individuals of the intelligence community. It also follows a top-down approach and very little is verifiable from the bottom-up point of view. The environmental control must instead give space to the input coming from every area. The key indicators must be available to the whole network and treated according to a “network” (and not “concentric ring”) concept of priority. What affects Kosovo today is much more related to what happens in Germany and the United States than to what happens in Fyrom. The growth of financial crime in the Balkans is more visible in Cyprus and the Cayman Island than in Belgrade. This shows that the “concentric rings” approach is tailored to an old and merely geographical approach to the threat. The penetration of the local society is a key element in correctly perceiving the effects. And we have seen that the international forces have intrinsic difficulties in developing this capability. The local security forces have the same difficulties if they are not trusted or do not enjoy popular support. If they are seen as repressive instruments they will never get in real touch with the local reality. They will end up being an entity separate from the population and will become the targets rather than the targeters. In the contemporary era, this kind of control is really needed by every nation. The composite nature of the threat, its chaotic and complex behaviour, its adaptability to the multiple changes of the environment, its flexibility require more than ever a concerted and integrated approach. If this is necessary in “normal countries” that are civilised, stable, democratic and even rich, where crime, extremism and terror do not threaten the stability of the fundamental institutions, we can imagine how bad “environmental control” is needed in the post-conflict areas. In those areas, the threat is more dynamic and the institutions are in transition and therefore in crisis. Huge resources are committed with little or no control and the priority given to humanitarian efforts leaves room to profiteers and destabilizing forces. In those areas the risk of failure is great and failure means the formation of geo-political “black holes”, areas of permanent instability, delay in human and economic improvement and the birth of rogue states, non-states, quasi-states, failed states and mafia states. Our great opportunity is to use the goodwill the international community has shown so far in the Balkans to change our approach to security, to understand the new dynamics of the global threat and to test our assets. No other regional conflict in the world today offers better opportunities.

Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Smuggling Through Conflict Zones in Georgia and Security in the Caucasus Alexander KUKHIANIDZE Director Transnational Crime and Corruption Centre – Caucasus Office, Georgia Abstract. An examination of the geopolitical situation of Georgia demonstrates that it plays a key role in the whole Caucasus region and far beyond it. Criminalization processes and formation of corrupt ruling clans in Georgia in post-Soviet era, and local armed conflicts seriously undermined security both national and regional. During last decade internal armed conflicts in Georgia have been transformed into uncontrolled criminal zones, and smuggling was intensive through these territories. An analytical review of the current situation in Georgia after the “Rose Revolution” in November 2003 allows better understand the reasons and atmosphere in which contraband trade was flourished in the country, how it threatens stability and security in the Caucasus region and in Europe, and what measures have been taken by the Government of Georgia to minimize it. Contraband trade through conflict zones in Georgia is not just a national problem. The more Georgia becomes integrated into the European community the more it is responsible for European security. The presentation looks at the current state of fighting against contraband trade by examining the following factors: Georgian legislation and its implementation; the activities of organizations, which are responsible for struggle against contraband and implementation of projects aimed at its minimization in Georgia; and political, economic, and administrative measures aimed at minimization of contraband trade in Georgia. Our assessment of contraband trade is based on data from the Georgian Border Guards, Department of Intelligence, Ministry of State Security, Ministry of Internal Affairs, General Prosecutor’s Office, courts, local and international NGOs, opinions of experts, analyses of publications in Georgian media, and interviews with people who are directly involved in smuggling. This helps us to understand the main forms, mechanisms, and groups which participate in contraband trade through different regions of Georgia which is a country of international transit ways from east to the west, and from north to the south.

Keywords. Georgia; corruption; criminalization process; contraband.

Introduction Georgia is one of newly independent post-soviet countries which is located in the Caucasus region on the eastern coast of the Black Sea. Its total land border is 1,461 km. and its total coastline, 310 km. It borders Russia to the north (723 km), Azerbaijan to the east (322 km), Armenia to the south-east (164 km), and Turkey to the south-west (252 km).68 Contraband trade remained a serious problem in Georgia in 2004. 68

Georgia. The CIA World Factbook. (2003, August 1), from http://www.odci.gov/cia/publications/factbook/ geos/gg.html

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From 1990s to 2003 it stimulated rampant corruption, powerful criminal clans, and promoted collaboration between the criminal world and political groups, central, regional and local authorities, and law enforcement structures of the country. It has also led some parts of the poorer population to become involved in this criminal activity. Due to armed civil conflicts from 1990-1993, two of its secessionist regions – Abkhazia and South Ossetia - are outside the jurisdiction of the Government of Georgia leaving the country’s borders uncontrolled for smuggling. Both of these secessionist territories border Russia. The Abkhaz part of the Georgian border with Russia is 197 km with 200 km of coastline border. The South Ossetian part of the Georgian land border with Russia is 66 km.69 The problem of contraband trade through Abkhazia and South Ossetia is especially important because it is closely connected to the problem of separatism, unresolved armed conflicts, violence in these regions, and the transparency of borders. With Russia’s support, separatists of both regions have won wars and declared de facto independence, while remaining de jure parts of Georgia. Self-proclaimed republics created zones with high concentrations of weapons among the population, and first of all among criminals. Smuggling through Abkhazia and the South Ossetia takes place in an atmosphere of rooted violence, innumerable assassinations, kidnappings, hostage takings, and numerous other serious crimes. These problems are difficult to resolve due to the inability of the Georgian and secessionist governments to agree on the political status of these territories. Russia’s intention to use the Abkhaz and Ossetian separatist issues to put political pressure on Georgia, which for the last decade has tried to escape from Russia’s sphere of influence and play an independent role in the South Caucasus region, only impedes resolution of conflicts. Russia has practically forced Georgia to seek allies elsewhere for security and protection of its national interests; establishing closer relations with the United States and the European Union which were attracted to the South Caucasus by their interest in promoting democracy and in Caspian oil and gas, which transverses Georgia on their way West. For its turn, Georgia’s western orientation and its close cooperation with both the U.S.A. and NATO became irritating factors for Russia which continued to support separatism in Abkhazia and South Ossetia by economically integrating these territories, a move that Georgia called “creeping” annexation. Despite attempts at mediation, external factors ultimately do not determine the behaviour of the local political clans who would need to be engaged in a serious effort to resolve these conflicts. Unresolved conflicts provide fertile ground for these clans to retain power by means of limiting democracy and using ideologies of militarism and/or revenge to keep the local population in permanent fear of war. In the case of Abkhazia, on both sides of the conflict, there are similar trends of criminal-political clans forming. These clans use power for personal enrichment and capitalize on corrupt law enforcement structures. These corrupt law enforcement officials do not have open and legal direct contacts with colleagues on the other side of the cease-fire line (CFL), but they actively use representatives of the criminal world as “mediators” and use local residents or internally displaced persons (IDPs) as “double agents”. In South Ossetia’s case, there is strong collaboration in criminal activity between law enforcement officials on both sides of the conflict. During a decade of unresolved conflicts Georgian, Abkhaz, and Ossetian politicalcriminal groupings benefited from the situation both financially and politically. In recent years these events have created efficient smuggling networks enfolding corrupt officials, law enforcement structures, Georgian guerrillas, criminal groups, Russian peacekeepers, and a broad social base of the poor population (IDPs, refugees, and persons that live in the conflict zones). All these together with unfair and fake 2003 parliamentary elections and rampant corruption in most sectors of Georgian social life caused the “Rose Revolution” in 69

Interview with representatives from the State Border Guards of Georgia (2003, August).

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November 2003 and consequently – 2004 presidential and parliamentary elections which led to a new political situation in the country. In their turn, post-revolutionary changes caused both positive and in some aspects negative results for conflict resolution, fighting against smuggling, and security in the Caucasus region.

1. Main Trends of Smuggling The current situation demonstrates that the conflicts in Abkhazia and South Ossetia are not simply in a deadlock. In Abkhazia, the cease-fire line (CFL) has been transformed gradually into a criminal zone with no one exercising full control over it – neither the Government of Georgia, nor the Abkhaz government in exile, nor the Abkhaz secessionist government, nor the international community. Crime happens especially often in the territory of the Gali district and the Kodori Gorge. Frequent assassinations and kidnappings have become standard practice in this region. In South Ossetia, the criminal world, together with officials of law enforcement bodies from both sides of the conflict have created favourable conditions for a prosperous smuggling trade, unpunished crime, and violence. As in many other conflicts, the criminal world always fills the vacuum in official and legal relations. Criminal groups are flexible and quickly build networks that are often internationalized and include members from both conflicting sides. An examination of the situation in Abkhazia and the South Ossetia confirms this general trend, and any observer can easily see how successfully Georgian, Abkhaz, and Ossetian criminal groups and law enforcement bodies were cooperating in smuggling operations through the territories of Abkhazia and the South Ossetia. Illegal economic activity is evident in Abkhazia and South Ossetia. The illegal turnover of various goods occurs all along the Enguri River. Non-ferrous metals and illegal cigarettes flow to Zugdidi from Abkhazia, originally shipped to Sukhumi by Russian and Turkish ships. On the other hand, contraband goods flow to Abkhazia from other regions within Georgia. There is also growth of import of goods on the Psou River, on the Russian border, which the government of Georgia defines as smuggling according to a 1996 decision by the presidents of the CIS. According to a statement by Georgia’s Ministry of Foreign Affairs, any legal acts and bargains on the sale, purchase, and transfer of goods and services on a paid basis accepted by the separatist regime of Abkhazia, are void and dispossessed of legal force.70 Other goods smuggled to Russia through Abkhazia and South Ossetia include: cigarettes, fuel, drugs, stolen cars, wine, citruses, hazelnuts, wheat and wheat flour, and other goods. In 2003 Georgian authorities have declared they cannot establish border guards and customs service checkpoints on the Enguri River or establish an administrative border with South Ossetia since secessionists will immediately interpret this as an attempt to establish a new Georgian state border. The border with Russia remains porous for smuggling with Georgia and the movement of criminal groups from one side of the conflict (or CFL) to another. But in 2004 the Ministry of Internal Affairs carried our anti-criminal and anti-smuggling operations in Zugdidi district, destroyed organized crime groups and arrested their leaders. Parallel the Financial Police at the Ministry of Finance of Georgia was created with antismuggling competences which tightened control on smuggling on the whole territory of Georgia including the CFL on the Enguri river and Ergneti market – trans-shipment point of smuggled goods in South Ossetia. 70 The Statement of the Ministry of Foreign Affairs of Georgia. (2002, December 6), from http://www.mfa. gov.ge/cgi-bin/news/viewnews.cgi?category=2&id=1023877169

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The general trend observed in Gali and Zugdidi regions is that after the “Rose Revolution”, smuggling decreased in scale though not in value. Big quantities of smuggled goods, cigarettes and fuel, were seized on CFL. Furthermore, the decrease of smuggling has several side effects that desire attention. For instance, on Ergneti market, there was a danger of conflict renewal after the anti-contraband operation of Georgian law enforcement structures and regional government. In Zugdidi, after anti-criminal operation and dismissal of Georgian guerrilla groups which were greatly involved in smuggling, though at the same time played a role of barrier for Abkhazian criminals and paramilitary groups, the litters now implement raids against Georgian population in Gali district more actively. It is important to mention that after anti-criminal operation, several leaders of guerrilla groups found refuge on Abkhazian side. According to Gali resident, the dislocation place of Georgian criminals is a village Okonore in Gali district. 30 members of guerrilla groups were detained and big quantity of arms were seized during the operation. Though guerrillas previously knew about the operation and transported the biggest part of weaponry on Abkhazian side.71 The seized portion of arms is only a very small part of guerrillas’ arsenal, according to Temur Gabunia, Head of State Security of Samegrelo-Zemo Svaneti in 2004. The most important change that is a consequence of recent transformations is the elimination of Georgian guerrillas activities in Zugdidi and Gali districts. After the change of central Georgian government, guerrillas lost the influential protectors in the highest echelons of power on central as well as on regional level and the change of the heads of law enforcement structures disrupted their criminal ties with police and state security structures. Though according to several sources, police is still involved and/or protects the criminal business. Law enforcers started to detect and seize all contraband freights that cross CFL, no matter who accompanies the goods and to whom it belongs. On the other hand, law enforcers started to detain the leaders of guerrilla and paramilitary groups. As a result, the leaders were removed from contraband business, though the ordinary members of those groups continue to be involved in smuggling. As a consequence, Abkhazian paramilitary and criminal groups (as well as Ossetians) lost their “partners” in the business on the other side of CFL that eventually led to the decrease of organized smuggling thus overall scale of contraband trade decreased by up to fifty percents. Though petty trade increased and overall value of contraband goods remains almost the same. Now “women with bags” transport the majority of contraband goods and smuggling of big quantities happen very rarely. The smuggling of cigarettes now happen through regular buses – Achigvara (Gali) – Zugdidi and Sida (Gali) – Zugdidi routes that transport IDPs. While the significant changes happened on Georgian side, the situation on Abkhazian side remains the same. Moreover, Abkhazian criminals and armed groups activated. As mentioned before, the confining factor was Georgian guerrillas. Thus if the raids by Abkhazian groups was happening once per week, now this figure doubled. Abkhazians also raised their military readiness as they are afraid of anti-criminal operation in Gali district. After the Rose revolution Abkhazians made stricter the crossing of CFL. According to local residents, Abkhazians introduced additional checkpoints on Enguri River and raised the fee for crossing CFL from 25 to 100 Russian rubles (approximately 1 - 3 USD). This fact is explained by Abkhazians as their non-willingness of intense movement of people on the “border”.

2. Smuggling across Cease Fire Line on Enguri River In 2004 main products of smuggling through Abkhazia were cigarettes and fuel, though according to the Head of regional Financial Police now cigarettes are most smuggled good. 71

Interview with Ema Gogokhia, journalist of “Rustavi 2” Georgian TV Company in Zugdidi.

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Cigarettes Smuggling in cigarettes still is the biggest illicit business from Russia through Abkhazia to Georgia. In the beginning of March, 2004 big quantity of contraband cigarettes was detected by law enforcement structures. 1100 boxes of cigarettes were discovered, with value of around GEL 150.000 (81,500 USD). The investigation found that people in military uniforms transported the contraband goods across CFL and stored in the houses close to Enguri river, a village called Tkaia, there is an assumption that Georgian police is involved.72 The cigarette brands include Russian made “Novosti”, “Donskoy Tabak”, “Troika”, “Astra”, and “MM”. Usually Georgian smugglers borrowed cigarettes from Abkhazians with a promise to pay after their distribution, though subsequent to detainment, criminal negotiations started on the issue.73 Naturally those Abkhazians, that lost big amounts of money, press their collaborators or try to smuggle bigger quantities in order to compensate the damage.74 By August 2004 the situation did not seem to change much. Petty traders still have had the cigarettes without excise stamps - consequently Abkhaz produced, and cigarettes with Russian excise stamps - therefore smuggled from Russia through Abkhazia, on their desks. Though, according to the data of Financial Police, the cigarettes with Russian excise stamps come from South Ossetia rather than from Abkhazia. Abkhaz produced tobacco products are available in lesser extent. According to a security official, due to limited contraband trade, illegal cigarettes can not reach the regions other than Samegrelo any more. According to the Head of regional Financial Police, the tactics of cigarette smuggling has changed – now it is smuggled in smaller parts by the former sellers who really are aware about the profits such kind of business may produce. Abkhazians store the cigarettes in large quantities (approximately 100 boxes) on their side and wait for the moment when somebody from Georgian side will take responsibility to smuggle goods in Samegrelo region. Afterwards illegal cigarettes are transported in smaller parts across Enguri river. If law enforcers detain any part of it, Abkhazians stop the transportation and change the place. Thus the quantity of transported contraband cigarettes decreased, but the frequency of transportation of illegal goods increased.75 A state security official mentioned the case of detainment of 160 boxes of cigarettes on Enguri river in May, 2004 that was transported in the vehicle owned by Valmer Butba, Head of the Abkhaz secessionist armed group in the Gali district. There is a new division of influence areas among criminal-paramilitary groups on the Abkhaz side – Butba controls the smuggling of cigarettes, while – Otar Turnanba, another Head of the armed Abkhaz group controls contraband fuel. Fuel On March 9, 2004 Georgian law enforcers detained approx. 60 tones of fuel when the trucks were crossing CFL. So-called Zviadist guerrilla groups were trying to smuggle fuel.76 According to a journalist based in Zugdidi, in past there was a confrontation between Zviadist groups and guerrillas (Saria-Bigvava group) because of division of influence areas, though the latter managed to gain advantage as police supported them. After the detainment of Gocha Saria and Slava Bigvava and their elimination from contraband trade, it seems that Zviadist groups activated. 72

Ibid. Interview with Roland Akhalaia, Prosecutor of Samegrelo – Zemo Svaneti region of Georgia (March, 2004). 74 Interview with Kakha Rapava, Head of Zugdidi police (March, 2004). 75 Interview with Kakha Kakabadze, Head of Financial Police of Samegrelo-Zemo Svaneti region. Zugdidi, August, 2004 76 Interview with Temur Gabunia, Head of the regional branch of the Ministry of State Security of Georgia (March, 2004). 73

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At the same time, in 2004 big gas stations in Zugdidi started to officially purchase fuel due to the complicated and risky business of contraband fuel. 77 Cars According to the regional prosecutor, police officers from the Ministry of Internal Affairs of Georgia still protect smugglers and criminals. In the middle of March, 2004, Sergo Chachibaia, former Head of regional Criminal Police of Samegrelo-Zemo Svaneti region was arrested in Zugdidi. Sergo Chachibaia, and Elguja Jamburia, former Head of Regional Police, were allied to a group that was involved in cars trafficking. According to Gali resident, the stolen cars are still trafficked across CFL. As Badri Dgebuadze, Head of State Security of Gali district of the Abkhaz government in exile mentions, in the beginning of March, two cars were detained that were stolen in Tbilisi and attempted to smuggle across CFL. According to Kakha Rapava, head of Zugdidi police, there was a fact when a policeman accompanied a stolen car. From the Abkhaz side Otar Turnanba controls trade of illicit cars that still exists though not in the scale it was before.78 Head of Samegrelo - Zemo Svaneti regional police reports four facts of illicit trafficking in cars in the last two months, he also urges that now it is impossible.79 Drugs Marihuana is the main drug which comes from Abkhazia, it is illegally circulated in big quantities. Only 27 cases are raised according to article 265 of criminal code of Georgia (Illicit Sowing, Growing or Cultivating of Plant Containing Narcotics).80 The same source speaks about recent case of smuggling of 20 kg poppy seed from Ergneti to Zugdidi. Usually smugglers say that drugs do not come from Abkhazia or elsewhere as far as the transportation of drugs across the CFL makes their crime heavier. Nevertheless law enforcers have operative information that drugs come from the conflict zone. Officially out of 136 criminal cases, 3 represent the drug smuggling cases from Abkhazia. In most cases drugs, like marihuana, mainly come with the purpose of personal consumption and not for sale.81 Head of regional police speaks about the possibility of heroine smuggling through Abkhazia. There even was a fact of large quantity smuggling, though it is a rare case, according to him.82 A journalist of the Georgian broadcasting company testifies that during four years Georgian guerrillas, such as brothers Ghia and Gocha Sarias, were transporting drugs – “heroine-syrets” (raw heroine) and drug called “Cherniashka”. The “narcobarons” of Gali district are Valmer Butba and Otar Turnanba. The drugs from Gali district mainly reached Poti, Kutaisi, Tbilisi, Zugdidi. Brothers Sarias had narco-traffic links with Vepkhvia Sepiskveraia, professional criminal (“thief in law”) in Poti district. Guerrilla group led by Saria and Bigvava were involved in drugs trade together with a journalist of a

77 Interview with Badri Sergia, Deputy Head of Regional Department of State Security of Samegrelo-Zemo Svaneti region. Zugdidi, August, 2004 78 Interview with Badri Sergia, Deputy Head of Regional Department of State Security of Samegrelo-Zemo Svaneti region. Zugdidi, August, 2004 79 Interview with Merab Bagaturia, Head of Regional Police of Samegrelo-Zemo Svaneti region. Zugdidi, August, 2004 80 Interview with Kakha Anchabadze, Deputy Head of the Unit Combating Drugs trafficking, Regional Police of Samegrelo-Zemo Svaneti region. Zugdidi, August, 2004 81 Interview with Kakha Anchabadze, Deputy Head of the Unit Combating Drugs trafficking, Regional Police of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004). 82 Interview with Merab Bagaturia, Head of Regional Police of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004)

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Georgian broadcasting company. The drugs used to be transported by a car belonging to a TV Company.83 Hazelnuts, Scrap Metal, and other Products According to a security officer, Abkhaz criminals have activated in connection with hazelnuts’ season. In lower Gali region they request certain quantity of hazelnuts from every family. Besides Turnanba and Butba groups, there is so-called “Sobri” group in Ochamchire that is used for regular raids against Georgian population. The group comprises 100 people, among them fighters from North Caucasus, Abkhaz and Russian soldiers that are no longer employed in peacekeeping forces.84 Concerning scrap metal – it also flows though in a legalized manner. The company is registered in Samegrelo region that has a producer of scrap metal in Gali district and there is a legal relationship, i.e. a contract signed by them. Thus scrap metal comes from Gali to Zugdidi with documents (invoice), minimum 1 truck per day. 85 From Samegrelo region, the agricultural products continue to flow to the market in Gali.86 Besides flour and sugar also go to Abkhazia.87

3. Smuggling through Ergneti Market in South Ossetia In 2003 smuggling through Ergneti market achieved its peak and both Georgian and Ossetian sides were deeply involved into smuggling networks including professional criminals, law enforcement bodies, petty traders, political groupings, and corrupt government officials. Until renewal of military actions in Summer 2004 between Georgian, and separatist Ossetian forces, Ergneti was the biggest market of contraband goods. These goods were coming to Georgia from Russia through the Roki tunnel in the Caucasus Mountains – to the Ergneti market in South Ossetia. Situation slightly changed after the Rose Revolution in Georgia concerning cigarettes, though smuggling of such goods as wheat flour and wheat still remained essential. Cigarettes The most impressive change was practically absence of any serious trade in contraband cigarettes. If in summer, 2003 there were many whole traders of cigarettes which had their own kiosks and shops, with cigarettes as the only kind of products, than in April 2004 there were only three places with very limited trade in cigarettes together with different kinds of other products, mostly food. According to petty traders, one week ago there was an operation of the Georgian law enforcement bodies against smugglers of cigarettes, which nearly have caused armed conflict between Georgian and Ossetian “spetsnazs” (special appointment detachments of police). Luckily nobody opened fire otherwise a new war could start, they said. Traders of Ossetian ethnicity dominated in cigarettes business, and according to interviewees, now Ossetian smugglers decided to move on the Ossetian part of

83 Interviews with Badri Dgebuadze, Head of State Security of Gali district of the Abkhaz government in exile, (August 2004). 84 Interview with Badri Sergia, Deputy Head of Regional Department of State Security of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004) 85 Interview with Kakha Kakabadze, Head of Financial Police of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004) 86 Interview with Badri Sergia, Deputy Head of Regional Department of State Security of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004) 87 Interview with Kakha Kakabadze, Head of Financial Police of Samegrelo-Zemo Svaneti region. Zugdidi, (August, 2004)

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the market which was controlled and guarded by armed Ossetial security, and was inaccessible for the Georgian law-enforcers. Wheat flower and wheat At the same time there were no changes in contraband trade of wheat flower and wheat still Ergneti remained the biggest illegal market in Georgia. Like in Summer, 2003, in April 2004 up to 60 Russian heavy trucks were standing on the market loaded with sacks of wheat flour. The price per one sack (50 kg.) have changed from 26 GEL (14 USD) in Summer 2003 to 33 GEL (18 USD) in March 2004. But in Tbilisi the price have grown from 34 GEL (18.5 USD) to 50 GEL (27 USD). Still the Ossetian traders did not provide buyers with any documents, and transportation of wheat flour to Georgia was entirely the buyer’s responsibility. In comparison to the situation in Summer 2003, as a result of administrative measures taken by the Georgian government, quantity of petty traders on the Ergneti market essentially reduced in April 2004, though closed kiosks, and abandoned tanks for fuel and cisterns were still there. Still petty traders of the Ossetian and Georgian ethnicity worked side by side on the market, though the quantity of ethnic Georgians reduced. The trade was not as live as it was in Summer, 2003 and buyers used mostly light vehicles – passenger cars, land-rovers, motor-scooters, motorcycles with side cars, and in lesser degree minivans. Very rarely Georgian trucks were loaded with wheat for transportation. Evidence was that there were more armed Ossetians which guarded the trade on the Ossetian part of the market. It was clear that continuation of similar law enforcement measures, with less attention to economic incentives, could cause a real danger of renewal of armed conflict in the region. Is the Ergneti market actually closed? Ergneti market was the “offshore zone” for smuggled goods and both the secessionist South Ossetian government officials and Russian companies benefited from it. It also helped Russia to keep Georgian economy underdeveloped and weak – a good background for a political pressure on other questions of geopolitics and security in the Caucasus region. Russia would like to prevent Georgia from joining the NATO block in future, frustrate Georgia’s ally with the United States and its strategy to integration with the European Union, maintain Russian military bases in Georgia, put under control a net of Georgian gas and oil pipelines, and finally – to control in future a flow of oil and gas from the Caspian to the Western markets. Support of separatist regimes is a good lever of pressure against Georgia. Smuggling essentially undermined development of Georgia’s economy, and contributed to a status quo of unresolved Georgian-Ossetian conflict. Attempts of the new Georgian government to forcefully resolve the issue of smuggling through Ergneti market caused Russia’s and secessionist Ossetian government’s resistance and ultimately made GeorgiaRussia relations even more tense. In conditions when South Ossetian industry and agriculture practically do not exist, the only and main source of illegal income for poor South Ossetian budget was from Ergneti contraband trade. Therefore the newly elected Georgian government set a problem – to stop smuggling through Ergneti quickly and promptly, using similar scenario for revolutionary changes which it used in November 2003 against Eduard Shevardnadze, the former president of Georgia and in May, 2004 against Aslan Abashidze, regional dictator of the Adjara Autonomous Republic. For implementation of these tasks Georgian government mostly accentuated on administrative and law enforcement measures, paying less attention to the role of economic incentives to effectively block smuggling activities. As further developments showed – results were catastrophic for both Georgians and Ossetians: in Summer 2004 military actions renewed

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with dozens of killed from both sides, and more and more “volunteers” arrived from different parts of the Caucasus to participate in military actions on the secessionist side. It took a lot of efforts for both sides to stop firing and return their armed forces to starting positions - but in a situation of total mistrust and hostility to each other. The Georgian government achieved its goal – forcefully closed the Ergneti market and strengthened law enforcement measures against smugglers. But by these measures it aggravated others problems – made complicated and painful perspectives for conflict resolution and made Georgian-Russian relations more tense. Finally even the problem of smuggling was not effectively resolved due to still existing negative economic incentives to smuggle goods to Georgia using back roads and alternative markets located in Ossetian controlled zone.

Conclusions What sets these territories apart from other smuggling regions of the country is the dangerous atmosphere of violence, criminal negotiations, and human rights violations in which it occurs, unlike any other region of Georgia. The use of administrative measures to combat smuggling in the conflict zones and adjacent territories is quite a delicate subject. In conditions of ongoing internal political and social tension, targeting socially vulnerable members of smuggling networks could result in a renewal of conflict and destabilization of the whole Caucasus region. On the other hand, the use of criminal penalties and administrative methods against large, wholesale smugglers, organized crime groups, and corrupt government and law enforcement officials would be effective. Such methods should be combined with an improvement of tax and customs policy and its synchronization with tax and customs policies of neighbouring countries - to create a more favorable economic climate for legalization of shadow businesses and stimulation of local production. Without improved legislation, institutional reforms, training of personnel, implementation of computerized systems of control and information, and a new management paradigm, all criminal penalties and administrative measures will only be near-sighted, temporary anti-smuggling campaigns with no coherent, long-term strategic policy.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

Chechen Criminal and Terrorist Groups: Points of Convergence Nabi ABDULLAEV Researcher – Transnational Crime and Corruption Centre, Russia Abstract. Despite the ongoing efforts of the Russian government to suppress terrorists in Chechnya, their major groups demonstrate solid resilience and, as the recent deadly attacks against Russian military and civilian targets shows, maintain the capacity to carry out massive and sophisticated violent operations inside Chechnya and well beyond its borders. In this situation, when the Russian government troops and the pro-Moscow Chechen administration maintain significant control over the Chechen territory and population, one possible explanation for the terrorists’ sustainability remains their past and, probably, current involvement in organized crime activities. This research argues that the process of convergence of the terrorist groups in Chechnya with organized crime groups in Chechnya and outside the republic, respectively, can be tracked through the analysis of a set of watch points of linkages. Also, in a reverse manner, analysis of the actual developments may help to identify other critical watch points. Keywords. Chechens; terrorism; organized crime.

1. Organizational structure The organizational structure of the Chechen OC and that of the Chechen rebels is a network of smaller groups, and not independent individuals. In addition to the ties within the network inherent to that of the Slavic gangs (earlier living in one neighbourhood, serving in one military unit, attending the same sport club), the Chechen OC networks were kept together by the kinship bonds between the members, entailing obligations of mutual defence and support between the groups. Such an organizational design is apparently determined by the traditional structure of the Chechen society and the external pressure the groups have suffered during their development. Historically, the predominantly rural Chechen society had no unified political organization. Villages were independent, as were clans. However, the villages retained obligations of mutual defence in the times of war, and clans had mutual support relations that linked them into larger clan confederations. The Chechen OC in Moscow were initially formed along these lines, providing for greater resilience and the capacity to quickly gather larger joint commando groups in cases of emergency, in comparison to rival disunited Slavic crime groups.88 In the Chechen networks, cohesion exists virtually among all nodes - ranging from individuals to larger cells - and they don’t require a leader of a group, or of a subgroup, to serve as a major link between the nodes and to mobilize them for action. The relationship that binds members of the network to leaders and between themselves is that of kinship rather than business-like or that of mutual favours (conceivably more inherent to Russian and Sicilian OC respectively), thereby allowing them to swiftly extend the combined 88

Khlebnikov, Pavel, Razgovor s Varvarom.

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network’s power to the service of virtually every node. The strong ethnic identity of the Chechens, hardened by the centuries of repression which prevented them – both as to a group and individuals - a proper social integration during the Soviet times, now serves as a barrier to penetrating their networks by outsiders. The kinship relations and the Chechens’ stronger feeling of belonging to a single supergroup were probably the reason that there were no turf conflicts among the Chechen criminal groups perpetually facing the external enemy, the Slavic OC and law enforcers. This dynamic similarly applies to the rebel organization in Chechnya: despite different, sometimes contradictory motivations of the different sub-groups in the Chechen resistance (secular separatists, Islamists, bandits, avengers etc.), the rebels maintain operational unity in war. In peacetime, however, differences in ideology and the desire to maximize profits caused sporadic armed clashes between rival groups as was the case between secular supporters of rebel leader Aslan Maskhadov and groups of Islamists in the interregnum between the first and second Chechen wars. However, with Moscow’s formidable effort of re-establishing loyal ethnic Chechen leadership in Chechnya and the promotion of local strongmen to senior positions in the proMoscow Chechen administration, the notion of the Chechen’s belonging to a super-group has begun to erode, while close kinship ties retain. Thus, some members and even leaders of groups proved vulnerable to pressure from their foes and some even surrendered when the opposite side, mainly the security forces loyal to late Chechen president Akhmad Kadyrov and his younger son Ramzan, pressured their relatives and even detained them in the past two years. Penetration of the Chechen rebel cause by the Arab insurgents who actively proselytized in Chechnya, preaching Muslim brotherhood beyond national and ethnic self-actualization, also had a destructive impact on the notion of a Chechen super-group. These two processes have seriously diminished the hierarchy of allegiance in the Chechen rebel networks. If in the first war of 1994-1996, in the face of the common foe – the Russian military, the Chechens kept trust within the super-group of the Chechen nation, after the war when the Chechen society has been torn by warlords with different ideological and political agendas, the allegiance group shrank to clan confederations, largely coinciding with village confederations, as units of the power base for the warlords who had been claiming control over certain parts of Chechnya. Now, with the Chechen territory taken by the Russian military and with the active recruitment of the local citizens into the proMoscow structures, the allegiance groups seem to have been downsized to the parameters of clan, if not immediate family. During the first and second wars, the rebel group led by warlords often acted without the knowledge of the political leaders, Dudayev and Maskhadov, as the latter repeatedly claimed after major terrorist attacks. In the meantime, the rebels gathered into formidable bigger taskforces to carry out massive attacks, such as the takeover of Grozny from the Russian military in summer of 1996 or in the latest raid in Ingushetia in June. This can be explained, first, by the scarcity, if they exist at all, of the hierarchical layers between those who plan and sponsor operations and the executioners, which allows for rapid communication and decision-making, and second, by the fact that nodes in the rebel networks are represented by groups of operatives, rather than individuals. In one illustrative example, in preparing a raid on the Beslan school in September, 2004, Shamil Basayev decided to include his bodyguard Nur-Pashi Kulayev in the hostage-taking commando group. Kulayev brought with him his younger brother and two other natives of his village of Stary Engenoi. The Chechen cause is split ideologically between the ethno-separatists united behind Maskhadov and the Islamists centred on Shamil Basayev. Differences in motivations and in personnel’s ethic background (Islamists are believed to be heavily infiltrated by Arabs)

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ostensibly has had little effect on the organizational structure of the two wings of the antiRussian resistance. Both leaders seem to play the role of franchising symbol for the smaller groups they represent, which act independently most of the time and unite for large military or terrorist operations.

2. Use of violence Attitude to the use of violence is probably the key common element of the organizational culture of the Chechen OC and the terrorist groups, just as patterns of its use are the common element of the groups’ activity. Strategically managed use of violence and preparedness to resort to violence were apparently the major explanation for the success of the Chechen OC in the turf wars with the Slavic gangs in early 1990’s. The most important thing for organized crime during the early years of Russian capitalism was marketing protection for businesses in a competition with other groups. This explains the centrality of violence and coercive capacity in the behaviour of the OC groups. This also required a monopoly of force in order to extort and govern.89 The Chechen gangs often operated outside the limits of violence set by other violent groups, demonstrating formidable cruelty in violent coercion and prosecution. Reports about the Chechen gangsters going after not only the immediate target but also his family members were numerous in Russian press in early 1990’s, as were reports about extremely cruel executions by the gangsters. This ability quickly turned the Chechen protection racket into a market franchise that was zealously guarded by the Chechen OC. Similarly, the Chechen anti-Russian resistance has displayed itself as extremely violent, with occasions when victims (usually captured Russian troops) were cruelly tortured and frequently executed. Another pattern in the rebels’ violence is the resort to indiscriminate violence or to that aimed at traditionally vulnerable and therefore “untouchable” groups: for example, the terrorist attacks by the Chechen rebels on the maternity hospitals – in Budyonnovsk in 1995 and in Kizlyar in 1996 - with hundreds of women and children in them, or the latest hostage-taking raid an a Beslan school with about 1,200 pupils, parents and teachers in it. There are several reasons explaining the relatively high level of violence in the Chechen groups. The social isolation of the Chechens during the Soviet era has led to development of two ethical systems in the Chechen society, one for the internal interaction, which carried deference to women and elders, mutual courtesy and obligation of support, and the second – for the (predominantly hostile and mistrustful) counteraction with the outer world.90 In this polarized ethical universe, there are fewer constraints for executing violence against representatives of the “alien” world. The austere brand of Islam, Wahhabism, which stipulates that non-Muslims are inferior human beings, thus could quickly become rooted among many young Chechens, with videotaped executions by them of the Russian servicemen (usually throat-cuttings) circulating abundantly in the video shops in Chechnya and Dagestan. After decades of oppression, Chechen society has developed a glorified subculture of violence, which is defined by Gambetta as the development of skills and expectations.91 Skills, developed from early childhood, include the ability to fight and withstand pain, while expectations may include such as how far others can be trusted, both Chechens and 89

Volkov, Vadim, Violent EntreprenE.U.rs, Ithaca: Cornell University Press, 2002: 42. Interview with Zalpa Bersanova, a Chechen ethnographer, on July 30, 2004. 91 Gambetta, Diego, The Sicilian Mafia: The Business of Private Protection, Cambridge: Harvard University Press, 1993: 10-11. 90

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non-Chechens. Like ethnic solidarity that may often turn irrational and counterproductive on the personal level, skills and expectations form at least a tentatively rational pattern of behaviour among the Chechen members of the violent groups. For the past three centuries, the Chechens have been a warring society and continue to strongly conceive of themselves as such. Habituation to a culture of death has thus become a strong supportive element to excellence in violence that is central for warring cultures.92 This high-value-of-force/low-value-of-life approach was formidably displayed both by the Chechen OC and the terrorists. The Chechen gangsters have gained notoriety for being “bespredelshiki,” or “off-limits,” in executing violence and denying the rules of engagement and interaction with others. The series of the suicide bombings by the Chechen terrorists in the past three years is another manifestation of their low valuation of life, allowing for a higher degree of violence (even of that directed against perpetrators).

3. Culture A major expectation element of the groups’ culture is trust, apparently based on a strongly perceived tribal association. Trust, in the form of loyalty to a group of tribesmen, makes the close-knit Chechen groups extremely difficult to infiltrate by informers and agents.93 However, there are two examples of the ethnic solidarity being compromised by two groups, both being tacitly, and not so tacitly, condemned by most of the Chechens, specifically for this betrayal of trust. The first group is Wahhabi converts who deny fervently the traditional Chechen ethic and behavioural codes and promote the norms of radical Islam.94 However, the separatist rebels must tolerate Wahhabis in their cause, since the latter are the primary recipients of the financial, political and manpower support of the radical religious circles in the Islamic countries. This initially reluctant partnership is strengthening now, as the ethno-separatist wing of the resistance led by Maskhadov gives up the hope of obtaining the political support of the West, thereby drifting towards more operationally active Islamists.95 The second group is so-called ‘kadyrovtsy,’ the Chechen presidential guard led by a son of the late pro-Moscow Chechen leader Akhmad Kadyrov, Ramzan. His group gained notoriety for cracking down cruelly on the Chechen civilians and cooperating with the Russian security officials in Chechnya. The contempt toward “kadyrovtsy,” who remain the pillar of the Russian power presence in Chechnya, is so strong even among the pro-Russian Chechen politicians that none of them had publicly supported or even approved the Kremlin’s choice of the new successive Chechnya warden, Alu Alkhanov, the Kadyrovs’ protégé.

4. Organizational goals Analysis of the actions of the Chechen individuals and groups suggests that an average Chechen, independent of the membership in a particular social or political group, strongly conceives himself as member of a super-group – the Chechen people. The goals of the super-group (naturally, its own survival at the moment) and interests of a subgroup (be it 92

Volkov, Violent EntreprenE.U.rs, 79. Abdullaev, Nabi, "Picture Emerges of How They Did It," The Moscow Times, November 6, 2002, p.1. “Having a son become a Wahhabi is a nightmare for any Chechen woman. These people turn dead for all Chechens,” Zalpa Bersanova, a Chechen ethnographer, interviewed on July 30, 2004. 95 Abdullaev, Nabi, “Kremlin Unarmed as Chechen Rebels Strengthen,” Eurasia Daily Monitor, (July 2004): 1-60. 93 94

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OC or separatists) remain in a state of a dynamic balance. The evolution and the on-going corruption of this balance should be described then along a time span. Obviously, the goal of the Chechen OC/Chechen business outside Chechnya is personal enrichment, preservation of the earlier acquired wealth and its expansion. This, with the strengthening of the police force of the state under President Putin, at least in the capital cities, demands cooperation with the authorities. As for the rebels, in the short term they seek an end to the Russian military and political presence on the territory of Chechnya. From a longer perspective, different factions of the resistance consider different scenarios of their group’s existence: from more or less secular state-building (Maskhadov) to continuation of the jihad on the neighbouring Russian Muslim-populated territories (Basayev). The Chechen resistance can conveniently be presented as consisting of three subgroups, with gunmen fluctuating between them or belonging to more than one at once.96 The first group is a core of the resistance; it unites ideological extremist fighters against the Russian presence in the Caucasus, both separatists and Islamists. The second group is formed by professional criminals whose motivation is defined by what promises the maximal profit – from participating in paid jihad to oil smuggling to drug trafficking to criminal kidnappings. The third group, the least regular, includes the avengers who had their dear ones killed, abducted or tortured by the Russian servicemen or pro-Russian Chechen police and security guards. Cooperation between the OC and terrorists, despite the divergent organizational goals, is based primarily on tribal association, promises of immediate profit and trust. The stronger police regimes and stronger integration of the Chechens in legitimate business, as in Moscow, presumably serve as a barrier for cooperation that carries larger risks for businesses. Hence, there are no reports about the Moscow Chechen Diaspora supporting the rebels, although many Muscovite Chechens feel compassion to the plight of the Chechen population and accuse the Russian government of waging brutal war. The most prominent leaders of the Chechen business Diaspora in Moscow [Malik Saidullayev (Russkoye Loto), Umar Djabrailov (Plaza Group)] are members of the Russian and pro-Russian Chechen official establishment, and have never publicly expressed sympathy with the rebels. It could be that some of them have refrained from doing so because such sympathies would inevitably be followed by a massive crack-down by local law-enforcement. Most, however, seem genuine in their belief that the rebels' proclaimed goal of independence is not achievable and should be abandoned.

5 and 6. Illicit operations/open logistical transactions These two watch points are decidedly merged since ‘illicit’ would have meaning if there was a law system at place in Chechnya. Because the legal regime in Chechnya is anarchically fluid, the difference between illicit and open operations is blurred in Chechnya. However, two general trends can be analysed in the evolution of the OCterrorists interactions in illicit operations. The first relates to the Chechen OC outside Chechnya. In the early stage of its development, with Chechnya just turned independent and virtually un-policed, the Chechen crime rings in Russia actively cooperated with Dudayev’s separatist regime that has been providing safe haven to gangsters. Examples of such cooperation include operations with false banking orders, counterfeit money, illegal trade in arms, diversion of oil and its sale, 96

Classification offered by Boris Podoprigora, the deputy commander of the Russian troops in Chechnya in 2002, in "Kogda Zakonchitsya Chechenskaya Voina (When the Chechen War Is Over)," Fontanka.Ru, December 11, 2003.

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and the spread of the narcotics trade. This cooperation shrank after the beginning of the first military conflict in Chechnya in late 1994. After Chechnya’s emergence de-facto independent from the conflict in 1996, the cooperation of the Chechen and other ethnic gangs with the separatist establishment and the Chechen warlords was restored in the regions surrounding Chechnya. For example, Dagestani gangsters were active in criminal kidnappings, selling the victims abducted from Dagestan into Chechnya. Arbi Barayev, one of the leaders of Wahhabis in Chechnya, reportedly was a major partner to the Chechen and other regional kidnapping rings. With the inception of the second war in Chechnya in 1999, and as the Russian military gained control over Chechnya’s economic infrastructure, mainly of oil wells and refinery facilities and established a loose police regime over the Chechen territory and borders, the opportunities for cooperation between the OC and the Chechen terrorists decreased. One of the indirect indicators of this is the dramatic fall in the number of criminal kidnappings for ransom, a trademark crime in Chechnya.97 The second trend is a quick takeover of the OC activities by the Chechen separatists, many of whom later became terrorists. After Russian official institutions and troops pulled out from Chechnya in 1991, the Chechen proto-state inherited the flying stock and facilities and established channels for transit smuggling due to the total lack of control on the part of the Russian authorities. With several transport airplanes, the smuggling potential of Chechnya was practically unlimited. Such a preferential position has made Chechnya an extremely attractive field for the drugs trade.

7. Support or sustaining activities There have been many press reports about both the Chechen criminals and terrorists using false documents to move around Chechnya, to travel to Russian cities and to cross the Russian borders. The pattern in obtaining false passports, registration certificates in Moscow or migrant cards, is similar: they are obtained by bribing police officials, or the use the specialized firms connected to police and offering services in obtaining registrations. This method is probably the best since the data on issued documents (passports) will go into the Interior’s central database and their holder will have a new protected identity. The cost of such a deal ranges from $500 to $1,500. The Chechen terrorists led by Wahhabi activist Movsar Barayev, who seized the Dubrovka theatre in Moscow in 2002, had obtained false Moscow police registration certificates in this manner, having bought them from one such firm that belonged to an ethnic Chechen, according to the Moscow police.98 This fact may indicate possible cooperation in providing support activities, between the members of the Chechen OC and terrorists. Corruption among the law enforcement officials, described later in the paper, is extremely important for the rebels’ sustaining activities. In another, clearer example of the Chechen criminals and terrorists using the same resource, a Moscow tourist firm called Alliance-Tour has been issuing false passport for foreign travel to Chechen criminals and terrorists.99 These passports can be also obtained and issued only with the help of corrupt police officers, since they should be registered in the Interior databases used by border-guard officials at points of entrance and departure. 97

Though there are numerous reports, collected by human rights activists, about criminal abductions of the Chechen civilians by Russian security officials. Karacheva, Yelena, "Falshivye Grazhdane (False Citizens)," Argumenty I Facty, March 19, 2003. 99 Interfax, "Moskovskaya Turfirma Alliance-Tour Perepravlyala Za Rubezh Prestupnikov (A Moscow Tourist Firm Alliance-Tour Transferred Criminals Abroad)," Aug. 13, 2003, retrieved August 13, 2004, on the World Wide Web: http://www.newsru.com/crime/13aug2003/tur.html. 98

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In addition, the reports of detained rebels in Chechnya with counterfeit documents or finding them in bulk in the rebels’ hideout remain numerous, indicating that illegal printing presses are still operating in Chechnya. According to news reports citing Russian law enforcement and security officials, the printing-works are adjusted to the needs of Chechen rebels, producing not only passports but also IDs of the officers of the pro-Russian Chechen Interior Ministry and Chechen presidential guards, and also different passes.100

8 and 9. Communications/Use of information technology The Chechen terrorists do not operate internationally, although they conduct fundraising activities abroad and lead the propaganda warfare from Web servers located outside Russian borders. The major means of communication between the rebels in Chechnya and their associates abroad are: • e-mail (from Basayev and his people to the rebel Website Kavkazcenter.com); • sat phone service; • audiotapes (from Maskhadov to envoy in London, Zakayev, or Radio Free Europe). Kavkazcenter’s server, shut down by the Estonian authorities for inciting ethnic hatred on the next day after Basayev claimed responsibility for the Beslan attack, is located on the private premises of an Estonian citizen. It is not clear whether he is paid for the service or he agreed to host the rebels’ server due to sympathy for their cause. In a later example of use of the sat phone service, a female rebel Natalya Khalkayeva was arrested in September with a sat phone that was purchased and registered in one of the Arab countries, the FSB claimed. Khalkayeva, whose brother was a member of the Wahhabi commando group of Arbi Barayev, used the phone to call UAE, Turkey, Germany, Austria, Poland, Czech Republic and several Middle East locations to discuss financial support to the rebels and procurement of weapon, the FSB said.101 In Chechnya, the rebels use short-wave radio and couriers to communicate between themselves. Khalkayeva was also said to be a courier between several warlords. To reach a broad audience, in the electronically-surveyed Chechnya, the only available way of dissemination information for the terrorists remains through leaflets. In the early stages of the second conflict before the territory was taken by Russian troops, the rebels were able to broadcast on radio and local television. After the Russian conquest, there were a few occasions when the rebels seized a local television station and broadcast videotaped speeches of Maskhadov.102 The most important propaganda and information tool of the Chechen terrorists is the Web site www.Kavkazcenter.com. The site was set up by the minister of information in Dudayev’s and Maskhadov’s governments, Movladi Udugov. The site belongs to a privately-owned information agency, registered in Chechnya in 1997. The declared goal of the agency that posts materials in Russian, English and Turkish, has several mirrors in different countries, including UK, and calls itself “Islamic”, is “to cover the real events in Ichkeria under the conditions of total informational blockade, and bring to the world 100

RIA-Novosti, "Unichtozhen Glavar Bandgruppy (A Gang Boss Destroyed)," January 20, 2004, retrieved July 17, 2004, on the World Wide Web: http://www.rian.ru/rian/index.cfm?prd_id=63&msg_id=3819945& startrow=1&find=%F7%E5%F7%ED%FF. 101 RIA-Novosti, "Zaderzhannaya v Chechne Terroristka Podderzhivala Svyaz s Zarubezhnymi Abonentami (Detained Female Terrorist Kept Communication to Foreign Subscribers),” September 22, 2004, retrieved September 22, 2004, on the World Wide Web: http://www.rian.ru/rian/intro.cfm?nws_id=687632. 102 One such episode was videotaped and is available on the rebel Web site at http://video.kavkazcenter.com/ fight_in_chechnya/capture_studio.wmv, last accessed on May 20, 2004.

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community the truthful information about the war, war crimes, the facts of genocide of the whole nation by the invading state and the position of the defending side - the Chechen Mujahideen.”103 The choice of the Turkish language can be explained by the fact that the largest of group of Chechen exiles lives in Turkey. The Diaspora has supported the cause generously, raising about $10 million for the rebels in 1995, said Mitat Celikpala, an international relations expert at Ankara's Hacettepe University. Russia pressured Turkey to stop the flow of aid, and Celikpala said that figure is believed to have fallen to some US$2 million in 2002.104 The site is regularly updated with reports and analytical pieces reflecting the rebels’ vision not only of the Chechen conflict but also of the international situation. The Website is also the mouthpiece of Basayev and his lieutenants whose declarations and interviews with them are regularly published by the agency. The Web site was many times put flat by the Russian hackers but always was put back to work quickly. Radical Islamist rhetoric and anti-Semitic postings distinguish the Web site’s content. The Web site has also an archive of the photo and video materials featuring ambushes, bombings, preparations to the attacks carried out by the rebels. The special sections of the site are dedicated to graphic depiction of the sufferings of the Chechen civilians and glorification of Khattab. Separate sets of photo and video materials tell about Basayev. Materials of the Web site can be conveniently used both for recruitment of volunteers and attracting donors in the Muslim world. In one such example, copycatting al-Qaeda in what may indicate the link of the Chechen rebel to the organization, the video of the statements of the Chechen female suicide bombers appeared both on the Website and on the al-Jazeera television on the next day after the Wahhabi warlord Movsar Barayev led 41 attackers, including 19 filmed female suicides, seizing a Moscow theatre with 800 hostages in October 2002. Another information outlet of the rebels, www.chechenpress.com, is an official Web site of the Chechen rebel political leader Aslan Maskhadov. Unlike Kavkazcenter with its flowered description of the rebels’ attacks, this Web site posts more official-styled content in a form of press releases or of the official Maskhadov’s statements. Islamic rhetoric is almost non-existent on the Chechepress. Apart from official information, the Web site is managed as if facilitating virtual dialogue of the secular separatist government with the European officialdom, often referring to human rights issues. The apparent goal of the Web site is to keep up the political image of the Chechen resistance, securing sympathies of liberal intellectuals in the West. Up until 2000, the Chechen terrorists were mass producing and distributing materials freely in Northern Caucasus the videotapes featuring training in the Khattab’s camps, torture and executions of Russian soldiers, ambushes, and downing Russian helicopters and tanks. Most of the tapes were either dubbed in Arabic or carried Arabic subtitles. Supposedly, the tapes were intended to lure volunteers and, in the meantime, were to show that the rebels were fulfilling their end of the bargain made with their so-called investors. Another outlet used by the Chechen terrorists is the Qatar-based al-Jazeera television. It regularly broadcasts reports about the Chechen conflict, focusing mostly on sufferings of the civilians. On the second day of the Moscow theatre siege, al-Jazeera showed the video with the pre-raid statements of the female participants of the attack. The first publicly available mobile operator Megafon went into Chechnya only in August 2004. This was apparently a pre-election ploy to woo voters in support of the Kremlin-backed candidate for the presidency in Chechnya, Alu Alkhanov. 103

http://www.kavkazcenter.com/russ/help/, last accessed on May 18, 2004. Meixler, Louis, "Pro-Chechen Groups Going Underground to Collect Money as Funding Stream Slows," Associated Press, September 17, 2004. 104

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The primary means of communication of Chechen gangs in Russian cities are wireless phones, which can be acquired easily, without disclosing one’s identity. There are no Websites specifically dedicated to the Chechen Diaspora, although there are Websites of some Chechen-run businesses (Russkoye Loto, Alliance Group). Also, a Chechen businessman and a leader of the Chechen Diaspora in Moscow, Malik Saidullayev, has his own Website - saidullayev.ru – that carries his pro-Russian political platform from his two unsuccessful bids for the Chechen presidency. No evident links or characteristic common patterns in communications of the rebels and Chechen OC/legitimate business are traceable at this stage.

10. Legitimacy and common cause The ideology of the Chechen resistance has changed in an apparent effort to develop a broader base of sympathizers and, therefore, political and financial support for the cause. In the first war, in 1994-1996, the nationalist sentiments overwhelmingly dominated over the religious ones that surfaced upon Khattab’s arrival to Chechnya. In the second war, the jihad motives have all but wiped the initial idea of Dudayev and Maskhadov of a secular independent Chechen republic. There now is an obvious split in the resistance, allowing the terrorists to speak from two sides of their mouth: Basayev frames his activities as jihad with the final aim of creating an Islamic state in the Caucasus, from the Black Sea to the Caspian, while Maskhadov limits his mission to obtaining an independent status for Chechnya.105 Such division of the missions and ideologies allows the Chechen cause to enjoy sympathies of many European governments who semi-officially acknowledge diplomatic and political status of Maskhadov’s envoys, as well as much of the Islamic world, which remains the main source of financial and manpower support for what is deemed there as “jihad” in Chechnya. The Russia-based Chechen OC of the early 1990’s has not attempted to assert itself as an entity with legitimate claims in Russia. However, as the legitimate Chechen business community has emerged, its leaders have begun to initially position themselves as leaders of the Chechen Diaspora in Russian cities (Saidullayev, Djabrailov in Moscow, Sayid Tsentroyev in Samara) and then as Chechen politicians reflecting aspirations of the proMoscow Chechens. The artificiality of such pretension is obvious: although Saidullayev heads a self-proclaimed State Council of Chechnya, and Jabrailov represents Chechnya in the Federation Council (upper chamber of the Russian parliament) none of them have an armed power base and, therefore, a real influence in Chechnya. However, high official status and wide political exposure make their businesses less vulnerable to crackdowns by law enforcement.

11. Human resources Both Chechen OC and the rebels have been recruiting mainly from one pool of human resources – the predominantly rural Chechen youth. By the end of 1980’s, Chechnya was ranked among the last Russian regions utilising common social indicators. Unemployment was growing rapidly as the rate of increase in the population was about five times higher than the rate of increase in jobs. Two thirds of the Chechen population had official incomes

105

One can easily trace these trends in the program statements Basayev posts at www.kavkazcenter.com and Maskhadov – at www.chechenpress.com.

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below living wage. Only every 14th Chechen in Chechnya had a higher education, while the rate among the ethnic Russians living in the republic was 1/5.106 This situation of poor prospects for the Chechen youth, coupled with the social stereotype of personal success tightly connected to personal wealth, and the subculture of violence and mistrust toward non-Chechens provides for eager and smooth enter of the recruits into the underworld. At the early stages of the establishment of the Chechen crime rings in Russia, which were engaged mainly in providing criminal protection, apparently no specific requirements were expected from the recruits. They were already inculcated with habitual violence and loyalty to a tribal group. The same approach has probably been retained for the current Chechen OC involved in the low-key protection business, like controlling prostitution in Moscow. As for the legitimate Chechen business community, it hires non-Chechen specialists for its needs, most probably due to the fact that the long-lasting social and political crisis in Chechnya limited the education and professional training opportunities for Chechen youth. Also, the Chechen ethnographer and pollster Zalpa Bersanova has noted that getting higher education and excellence in science have never been among the priorities of common Chechens.107 Similarly spontaneous approaches dominated over the formation of the separatist militia before and during the first war in Chechnya. The introduction of Arab fighters has brought systemic elements into the recruitment and training of terrorists. During the period of Chechnya’s de-facto independence (1996-1999), the separatist envoys actively recruited young males in mosques and madrassas in the Muslim-populated Russian regions.108 Also, the fact that the training in Chechnya was unobstructed by Maskhadov’s rapidly radicalizing government, attracted jihad volunteers from abroad.109 Most of the trainees opted to stay in Chechnya; however, some of them returned to Russia or joined terrorist rings abroad. Official Russian estimates put the number of volunteers trained in the camps in Chechnya between the two wars around 20,000.110 The camps clustered mainly around the Chechen towns of Urus-Martan and Serzhen-Yurt and were attended mostly by young religious males from Chechnya, Dagestan, Ingushetia, the Muslim republics of the Volga region, and foreign citizens. Video cassettes featuring life and studies at these training camps, dubbed in Russian and with subtitles in Arabic, were widely available at the video shops across the Northern Caucasus, apparently as an advertisement and an account of expenditures to donors. One of them, viewed by the author, began with a scene of some 200 uniformed bearded young men running cross-country race and then exercising in martial arts with each other. The next scene showed Khattab demonstrating in inarticulate Russian how to assemble explosive devices disguised as tin cans and how to set up booby traps. Further, the tape featured religious studies of the recruits, who were praying and then having a Q&A session with an Arabic-speaking instructor who lectured with the help of translator. With the Russian troops controlling most of the Chechen territory now and with much less funds available to the Chechen terrorists, the recruitment and training of the foot 106 Yusupov, MU.S.A., "Samoopredeliniye Chechni: Sostoyaniye I Perspektivy (Chechnya’s SelfDetermination: Current Condition and Prospects)," material for the seminar Ethnic Factor in Federalization of Russia, Kazan, January 18, 2000, Retrieved July 27, 2004, on the Web: http://federalmcart.ksu.ru/conference/ seminar3/jusupov.htm. 107 Q. and A. session with Chechen ethnographer Zalpa Bersanova on July 30, 2004 in Washington, DC. 108 In the most recent development, a Moscow prosecutor’s office on May 21, 2004 charged a 21-year-old Chechen woman with an attempt to recruit terrorists among the young Chechen female parishioners in Moscow mosques. 109 Less than a year after his election president, Maskhadov introduced Sharia courts and Sharia criminal code. 110 Estimate of the Regional Public Fund of Rendering Security Assistance. Retrieved August 12, 2004, on the World Wide Web: http://fssb.chat.ru/main/mag/8/home.htm.

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executioners took another form. (The fall in financing can be attributed to lesser capacities of the rebels to run illegal businesses on the territory of Chechnya. Another reason is the post-9/11 effort of the US-led anti-terror coalition in cutting financial flows to terrorists. Thus, three Chechen rebel groups, including Basayev’s Riyadus Salikhin, were placed by the Department of State on the list of designated foreign terrorist organizations and their accounts in the US were frozen in 2003. In another example, in September 2004 the US Treasury Department accused an American arm of the Saudi charity al Kharamein Islamic Foundation of diverting funds to Chechen rebels). Another example is in the past two years, the major warfare technique of the Chechen terrorists, showing the demand for fresh manpower, was suicide attacks that were carried out predominantly by Chechen women. According to the Russian security agencies, almost all of the female terrorists had close relatives killed in a fight against Russian troops.111 Use of suicide bombers requires minimal training related to hardware, but requires sufficient psychological indoctrination and costly organizational effort. For example, about a half of the Chechen suicide attacks took place in Moscow, which required transportation of the operatives, accommodation for them, intelligence gathering and procurement for large-scale operations like the theatre raid. This apparently proves the existence behind these attacks of a professional organization with division of labour and a strong chain of command. In fact, shortly after the theatre siege Basayev claimed that the raid – in which 41 terrorists, 19 of them females, were killed by Russian Special Forces - was organized by his Islamic Brigade of shahids that counts 40 more female suicide bombers.112

12. Generation, storage and movement of finances There is a combination of positive and negative incentives that cement the Chechen terror networks. The positive ones include (1) purposive, in cases of suicide bombers to whom the terrorists help realize their revenge (no information about their glorification or material compensations from terrorists to the families of the suicides has surfaced so far); (2) solidarity in the form of a collective identity of the fighters (us vs. them, mujaheddins vs. infidels); (3) material – which includes cash payments for participation in terrorist attacks and start-up money.113 At the outbreak of the second war in Chechnya in 1999, the senior Russian officials stressed the importance of the Chechen organized crime and business in financing terrorists in Chechnya. Chechen involvement in organized crime activities was, in fact, the major justification behind the first military crackdown on Chechnya in 1994. The Federal Service of Tax Police estimated that most of the financing for Chechen rebels comes from Chechen organized criminal groups, which controlled more than 2,000 private companies and banks across Russia in 1999. Rossiiskaya Gazeta quoted a deputy director of this service, Aslanbek Khaupshev, on November 20, 1999 as saying that dozens of companies that Chechens control in Moscow alone were involved in laundering money, some of which went to finance Chechen separatism. One scheme, which was exposed by the Russian tax police, provided for oil to be shipped from primitive oil refineries in 111 ITAR-TASS “Upravlenie FSB po Chechne Raspolagayet Informatsiei o Lageryakh Podgotovki Terroristov Smertnikov na Territorii Respubliki (Chechnya's FSB Branch Has Information About Terrorist and Suicides' Training Camps on the Territory of the Republic,” 2 September 2003, Retrieved August 11, 2004, on the World Wide Web: http://www.fsb.ru/smi/ufsb/2003/030902-1.html. 112 Kavkazcenter, “Abdullah Shamil Vzyal Otvetstvennost na Sebya (Abdullah Shamil Claimed Responsibility,” retrieved July 19, 2004, on the World Wide Web: http://www.kavkazcenter.com/russ/article. php?id=2341. 113 A detailed breakdown on money rewards and allowances to fighters in Chechnya can be found in Allenova, Olga, “Kontrakt na Terakt (Contract for Terrorist Attack),” Kommersant-Dengi, July 14, 2003.

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Chechnya to be illegally sold through a firm in neighbouring Dagestan. The refineries were owned by Chechnya-based Islamist warlords Shamil Basayev and Khattab. By the end of 1999 the tax police had ruptured “illegal channels of financing” that were set up by Chechen organized crime groups in Primorskii Krai, Astrakhan, Novgorod and Lipetsk regions. The police also exposed twelve companies owned by so-called Wahabbis in Karachayevo-Cherkessia.114 No additional information on these particular cases could be found in open sources. However, the notion of the Chechen Diaspora’s supporting terrorists has quickly gone off the air after 9/11, giving way to officials’ statements of foreign sources of finance for the struggle in Chechnya. With the US’ global effort against international terrorism, it became more beneficial for Russian policy-makers to portray Chechnya as part of the global war on terror, rather than an internal Russian conflict, especially given quite a few evidences of links between the Chechen rebels and foreign extremist and terrorist organizations. Currently, no information explaining sources of financial support for the Chechen terrorists could be found on the rebels’ information outlets. Russian security services and officials claimed that the largest sponsor of the Chechen rebels was al-Qaeda that donated, by different untested accounts in Russian and foreign press, from $10 million to $30 million. A Basayev aide denied the allegations.115 Basayev himself said after Beslan that he has received no funds from Al-Qaeda, but would accept it if offered. Secret services have not provided details on how such large amounts could enter the country. Another big donor, according to the FSB, is Saudi-based charity al Haramain Islamic Foundation.116 This allegation was independently confirmed by the US government, which froze the assets of al-Haramain’s branches in Oregon and Missouri in February, 2004, after the FBI had averted an attempt to illegally transfer $131,000 to “Muslim fighters or refugees,” according to a court affidavit.117 The head of another US-based Islamic charity, Benevolence International, was convicted in the US in 2003 for links to Osama bin Laden and reportedly wiring hundreds of thousands of dollars to the Chechen rebels and supplying them with anti-mine boots.118 The money and goods were said to have been transferred through the Benevolence office in Baku, Azerbaijan. Other sources that are regularly cited by Russian officials are unnamed public and private organizations in Turkey and Saudi Arabia. The Russian foreign minister has recently pointed out that the late Zelimhan Yandarbiyev, Dudayev’s vice-president who had been living in Qatar for several years, was the key man in the fund-raising network of the Chechen terrorists.119 This information concerning money coming both from the Chechen diasporas in Muslim countries and also from the jihad supporters among charities and Muslim public organizations, was confirmed by several Chechen insiders in Turkey and international crime experts recently.120 In the years before Moscow established control over Chechnya, criminal kidnappings, the narcotics trade and illegal oil trade were significant source of finance for the rebels. Also, the Chechen criminal rings in the Russian cities were reported as supporting their separatist kin. However, these reports became increasingly rare over the past four years. As 114

Borisov, Timofei, “Ekh Dollary, Da Na Tarelochke” (Dollar on the Plate)," Rossiiskaya Gazeta, November 20, 1999. http://www.kavkazcenter.com/russ/article.php?id=9276, last accessed on July 18, 2004. 116 http://www.fsb.ru/press/2000/msg05191.html, last accessed on July 20, 2004. 117 Mintz, John, “U.S. Freezes Accounts of Large Saudi Charity,” Washington Post, February 20, 2004. 118 Mintz, John, “Head of Muslim Charity Sentenced,” Washington Post, April 19, 2003. 119 Editorial, “V Katare Arestovany Agenty Rossiiskih Spetssluzhb za Likvidatsiyu Yandarbiyeva (Agents of Russian Special Services Arrested in Qatar for Killing Yandabiyev),” Komsomolskaya Pravda, Retrieved on July 17, 2004, on the World Wide Web: http://nnov.kp.ru/news/print/249952/. 120 Meixler, "Pro-Chechen Groups Going Underground to Collect Money as Funding Stream Slows." 115

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of today, Russian and Chechen officials insist that the money for the rebels comes only from abroad.121 These monies are delivered to Chechnya usually though Chechen public organizations acting in Georgia and Azerbaijan by couriers carrying cash. Russian military officials regularly report intercepting of the couriers.122 Probably, more cases of such interception go unreported. Initially, the generation of finances by the Chechen OC was similar to that of the other crime groups, namely revenue from business protection. However, as Chechnya has been emerging as de-facto independent territory, but formally belonging to Russia, the Chechen OC exploits this circumstance, mostly in financial scams involving Chechen branches of the Russian private banks. Following the so-called Aviso scandal in 1992-1993, the Russian banks were forced to close its affiliates in Chechnya. Thus, generation of the primary capital by the Chechen OC and the separatist leaders of Chechnya was the result of joint cooperative activities. As for the Chechen legitimate business community at this time, one of its distinguishing characteristics is that it focuses on industries involving large amounts of cash (gambling, oil filling stations, trade in automobiles and parts) and providing ample opportunities for money laundering.

13. Use of corruption Given that corruption is a social norm in Russia and the former Soviet republics surrounding Chechnya, it is extremely difficult to distinguish the features of the phenomenon that would clearly indicate convergence or divergence of the Chechen organized crime and terror groups. Corruption is so widespread and the number of its channels and actors is virtually unlimited, so it is hard to point at some specific ones and claim them to be critical. Both groups use corruption for: • obtaining false documents, which requires corrupt Interior officers. • securing passage of people and cargo within Chechnya, across its border, within Russia and across Russia, which requires corruption among military and police personnel; • facilitating the release or reduction of punishment of associates seized by law enforcement; • intelligence gathering from bent police officers. There are also examples of the Chechen OC and the terrorists cooperating in maintaining and funding corrupt officials in a failing state in order to create a territorial safe haven, or to exploit the political situation for generation of money. Chronologically, these examples include support of the Dudayev regime in 1991-1994, which allowed the Chechen OC to 121

RosBusinessConsulting “Ugroza Stabilnosti V Chechne Ishodit Izvne – Akhmar Zavgayev (Akhmar Zavgayev [Russian senator from Chechnya]: The Threat to Stability in Chechnya Comes from Outside),” May 19, 2004, retrieved July 13, 2004, on the World Wide Web: http://www.rbcdaily.ru/news/person/index. shtml?2004/05/19/54961. 122 See, for example, Petrovsky, Oleg, "Kto Vydayet Zarplatu Khattabu (Who Pays Salary to Khattab)," Utro.ru March 26, 2001. Retrieved September 21, 2004, on the World Wide Web: http://www.utro. ru/articles/200103260202455940.shtml. Another example occurred when Azeri borderguards detained two Iraqi citizens carrying $300,000 and attempting to enter Chechnya through Georgia’s Balokansky region: see Tyssovsky, Yuri, "Islamskie Dengi Tekut v Chechnyu (Islamic Money Flow to Chechnya)," Vek, No. 40, 1999.

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earn money in Aviso schemes and also enjoy security from the Russian law enforcers who did not dare to operate in Chechnya at that time. In de-facto independent Chechnya of 1996-1999, the terrorists who appropriated the OC activities, intertwined them with local OC groups, cooperated in intimidating Maskhadov’s government, cooperating in criminal kidnappings and the diversion and illegal trade in oil, and the narcotics trade. In 2000-2002, the Chechen rebels and criminals who settled in Georgia’s Pankisi Gorge were successful in neutralizing local and Tbilisi officials and were able to engage in drug-dealing and kidnapping activities in Georgia virtually unobstructed. The resilience of the illegal oil business in Chechnya, now reportedly controlled by the top Russian military officials in Chechnya, which could easily be upset by the rebels’ attacks against the extremely vulnerable oil infrastructure, suggests cooperation, or at least an agreement, between the corrupt Russian military officials and the rebels. The facts of such cooperation have been repeatedly brought up by the late pro-Russian Chechen president Akhmad Kadyrov, even before the Russian president Vladimir Putin; however, no reports of criminal investigations into diversion of oil ever surface. Reports about corrupt police and military officials selling individual arms to rebels are frequent, a circumstance suggesting that the illegal oil trade is protected by officials on a high level, inaccessible to routine criminal investigations. Since the criminals in Chechnya are allied with politically motivated terrorists, exploiting the business opportunities provided by war, their use of the same techniques, channels, methods and personalities in corrupt activities is natural and is the result of the crime-terror nexus rather than a pre-requisite to it. The issue of possible cooperation between the Chechen terror and crime networks in obtaining the WMD requires special attention. Although supposedly the Chechen criminals are not likely to be involved in seeking WMD for the Chechen terrorists, fearing the imminent devastating crackdown on their business and themselves by the Russian security, an extremely high premium that terrorists – whose capacities of violent actors remain unrivalled in Russia and whose determination to commit an act of catastrophic terrorism grows as conventional terror obviously renders fruitless – such a possibility of joint effort in corrupting Russian officials requires extreme attention. There are recorded occasions that could indicate such a threat. In March 2002, law enforcers in the Sverdlovsk region arrested three Chechens who had been allegedly trying to sell weapons and explosives. One of the arrested Chechens carried a valid pass from a high security settlement inhabited by workers of a local nuclear facility. However, the pass holder could have used it only to enter the settlement of Lesnoi, but would not have been able to access the facility where nuclear warheads are manufactured. A search in the apartment of the arrested Chechens revealed more weapons, a remote-control bomb, and book by Aslan Maskhadov, entitled Honor is More Valuable than Life, a circumstance suggesting the allegiance of the arrested Chechens to the rebel cause.123 In another instance, in October 2002, the FSB arrested an officer of a special commando group guarding the Kalininskaya nuclear power plant in the Tver region. FSB agents found a map which identified all of the plant’s “secret facilities,” as well as a list of coded phone numbers on the officer. When FSB agents decoded the phone numbers, they reported then that the numbers belonged to “natives of Chechnya.”124

123

Avdeyev, Sergei, “Chechentsy Poluchili Dostup k Yadernym Boyegolovkam (Chechens Gain Access to Nuclear Warheads,)” Izvestia, March 22, 2002. 124 “Tver Region. Captain of A Regiment Which Guards Kalininskaya NPP Is Suspected of Having Supplied Secret Information To Chechens,” Regnum, November 19, 2002.

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Invisible Threats: Financial and Information Technology Crimes and National Security U. Gori and I. Paparela (Eds.) IOS Press, 2006 © 2006 IOS Press. All rights reserved.

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Author Index Abdullaev, N. Caligaris, L. Ciotti Galletti, S. Coen, M. Dufetel, A. Franchi, F. Gori, U. Kukhianidze, A. Levi, M.

126 ix, 3 36 6 29 11 v 117 23

Meško, G. Mini, F. Paparela, I. Quintard, H. Rapetto Jr., U. Robev, L. Shelley, L. Solazzo, T. Uvalic, M.

69 108 49 29 63 47 100 52 89

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