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Back to Archives | Back to May 2007 Contents 

The Mutation of the Illicit Trade Market

By William F. Bratton, Chief of Police, Los Angeles, California

n the “old days,” organized crime was exclusively synonymous with La Cosa Nostra, and organized-crime figures focused their energies on prostitution and gambling. Back then, violence was present but predictable, and narcotics trafficking was frowned upon as “bad business” because of the great risks and potential penalties involved.1 At some point between the old days and today, organized criminal groups entered the illicit drug–trafficking trade. Today, however, through advances in technology the illicit trade market has grown exponentially—not only geographically due to decreasing transportation costs, but also in terms of diversification, by making illicit trade possible in a wide range of goods, beyond drugs, that never existed before. With the dismantling of Communism and the globalization of the world’s economies as a result of technology and trade agreements between nations, a new and challenging concern for the world’s law enforcement community has evolved. The daily evolution of the globalization of organized crime and its nexus with the illicit trade market needs to be critically examined and analyzed in order for law enforcement to better forecast, monitor, and control its effects.

Ironically, what has created a boon for organized-crime networks and illicit trade (the separation of marketplaces into sovereign states with borders) has resulted in obstacles and burdens for government officials tasked with tracking and chasing these networks across borders. Serious gaps in intelligence have certainly compounded the problem.

The Mutation of Organized Crime

The connection between organized crime and the illicit trade market has undergone a mutation of sorts, to the extent that organized-crime entities have morphed from the traditional fixed hierarchies with controlling leaders or families to more decentralized, loosely linked, multiple networks that come together and cooperate only on an opportunistic basis and then separate. In his book Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy, Moisés Naim takes the view that this mutation is similar to that of international terrorist organizations such as al Qaeda and Islamic Jihad.2 As Naim puts it, the world’s first unmistakable glimpse of this transformation came on September 11, 2001. Although many—politicians included—took the position that the “world changed,” it may be more accurate to say that something about the world was revealed to us.

Instead of the Sicilian Mafia dominating organized crime, we are seeing this arena increasingly dominated worldwide by Middle Easterners, ethnic groups from Eastern Europe (such as Russians or Armenians, for example), and Asians. Instead of limiting their activities to prostitution, gambling, and money laundering, these networks have involved themselves heavily in the illicit trade market, in areas such as narcotics trade, the very profitable sale of untaxed cigarettes, human trafficking, and counterfeiting of virtually any product. A wide variety of products, including clothing, designer purses, lip balm, motor oil, baby formula, software, and pharmaceuticals (including prescription medication such as Viagra) are subject to today’s organized-crime counterfeiting tactics. There is evidence to support that even marijuana has been genetically modified and trafficked. Of grave concern is the fact that illicit trade offers these organized-crime networks, including terrorists, a means of survival in the form of financial resources to fight the efforts of the law enforcement community in combating terrorism.

The industrial scope and scale of counterfeiting is itself indicative of the involvement of organized crime. It should come as no surprise that the global trade from counterfeiting easily runs well into the billions of dollars annually. To get a glimpse of the magnitude of this problem, in a recent panel discussion at the 113th Annual Conference of the International Association of Chiefs of Police, Paul Evans, director of intervention of the Serious Organized Crime Agency in the United Kingdom, estimated the U.K.’s annual organized-crime market at £5 billion. It’s been said that in some countries, the resources and capabilities of these organized-crime networks surpass those of their governments. This no doubt translates to enormous political clout—a concern not foreign to law enforcement in the United States.

Why the Illicit Trade Market?

The question then becomes, why the mutation to the illicit trade market? Although the answers are many, and in some cases debatable, what is indisputable is that the market involves high profit and low risk. When offenders are caught, the penalties are minimal. As an example, in California, the typical penalties for intellectual property crimes (which is what many counterfeiting offenses are considered) are as follows:

  • First offense: probation

  • Second offense: one year in the county jail

  • Third offense: 16 months in state prison

Although many in the legitimate trade industry and law enforcement community may have a different view, counterfeiting is typically not viewed by the general populace as the crime of the century. Across the United States alone, parents, children, and spouses clamor for designer bags and jeans at phenomenally low prices. The ill, the elderly, and the poor seek counterfeit prescription drugs (knowingly or unknowingly) due to their affordability. There are entire governments whose existence relies heavily on illicit trade.

The Terrorist Link

Given the confirmed link between the illicit trade market and terrorism funding, this naive public mindset presents an additional challenge to law enforcement in its efforts to “put a noose around this beast”—that is, to put a stop to terrorism. A July 2003 U.S. House Committee on International Relations report and a June 2005 House Energy and Commerce Subcommittee report both indicate that the sale of counterfeit goods finances terrorist organizations and facilitates violent criminal activity. Monies derived from illicit trade are used to finance the war efforts of many poor countries in the Middle East.

In the City of Los Angeles, investigations by law enforcement have substantiated the report that individuals involved in counterfeiting activities and the illegal sale of cigarettes are significant fund-raisers for known terrorist groups such as Hezbollah and Hamas. Think about unsuspecting spouses or children who like designer purses and jeans and get to own them for a fraction of the real cost; they are funding terrorism and some of the war efforts in the Middle East—war efforts and terrorism that governments in the Western world are spending billions to counter. This is one of the many ironies of the U.S. war on terrorism.

The International Scope of Organized Crime

Today’s organized-crime entities have tentacles that extend internationally. For example, in 2003, the U.S. Drug Enforcement Administration (DEA) in New York began an investigation of a corporation for pseudoephedrine diversion and money laundering. This corporation owns multiple businesses, including ones in New York, Los Angeles, and Kabul, Afghanistan. One of the businesses in Los Angeles purchased more pseudoephedrine in one year than would be necessary to legitimately supply the entire U.S. population for a year. The DEA investigation has thus far documented well over $2 million in suspicious cash transactions involving money laundering. A portion of the money has been deposited in bank accounts in the Middle East. The corporation in question has also purchased several Western Union locations in the Middle East, which may be used to facilitate illegal cash transactions. Additionally, this particular corporation is involved in contraband cigarette trafficking, controlled-substance trafficking, trademark violations, extortion, mail fraud, wire fraud, tax fraud, insurance fraud, money laundering, RICO violations,3 and material support of terrorism.

A visible trend in the organized-crime/illicit trade market is the increasing use of computers to offer counterfeit products over the Internet. A typical operation involves consumers exploring particular Web sites and ordering and purchasing items through PayPal or a similar money transaction service. Many of the sites in question are in Asia and the Middle East. A customer orders a product from an unknown person via the Internet; contraband items are then shipped to the United States from overseas in cargo containers. Half of the container contains counterfeit items hidden by the other half, which consists of innocuous items such as children’s bicycles. If counterfeit items are seized in large quantities at a particular port, then future shipments are sent to a different port and trucked to their final destination.

A typical operation has bosses in New York and warehouses in California, or vice versa. That way law enforcement has a difficult time connecting the main targets to the counterfeit items or money. Since they would not be caught together, prosecution would be difficult and time-consuming, and most district attorneys would not seek extradition for crimes of this nature.

Interestingly, in states like California that have “third-strike” laws, more and more potential third-strike offenders, many of whom are members of organized-crime networks, are involved in intellectual property crimes. But since counterfeiting is not looked upon as a violent crime, it is not considered a third strike unless there is some other violent act associated with it.

In 1998, the then-director of the International Monetary Fund, Michel Camdessus, estimated the global flow of dirty money at 2 to 5 percent of the global economy. According to Naim, more recent estimates place the flow of laundered money at up to 10 percent of global gross domestic product. In this regard, the cities of New York, Los Angeles, and London, as well as the Province of Ontario, are as much the front lines in the fight against money laundering and terrorism as are the nation of Vanuatu or the island of Curaçao.

Due to the reporting of terrorist funding and financial losses to U.S. businesses, wide-ranging approaches are needed to permanently disrupt criminal/terrorist organizations.

As part of our efforts to confront this growing threat, law enforcement needs to look aggressively for the links among target businesses, their owners, and terrorists and organized-crime networks. We must break our habit of independence and instead work with law enforcement partners at the federal and international levels to identify the supplier of contraband both domestically and internationally. Additionally, we must do a better job of identifying and searching international cargo shipments to and from foreign countries.

Law enforcement must take the necessary steps to identify all persons involved in various illicit activities related to this problem to facilitate the filing of state conspiracy and federal RICO violations charges (trademark violation constitutes a predicate act under the RICO statutes). Finally, law enforcement must identify and aggressively prosecute all illicit activities and, with equal aggression, lobby for legislation aimed at increasing criminal and civil penalties.

It should be noted that the U.S. government is taking steps to address the problem of globalized organized crime. The federal government recently formulated the International Organized Crime Policy Coordinating Committee (IOCPCC), which is chaired by the National Security Council and has members from numerous federal agencies. The IOCPCC recently drafted an international organized-crime threat assessment to use as a basis for a strategy to guide the White House on organized-crime issues.

Understanding the mutation of the dynamics of organized crime will help law enforcement and policy makers to establish a clear picture of the relative threats posed by the various criminal elements and their activities. A closer scrutiny of the convergence of crime and terrorism will improve the ability to fight both. Stronger international law enforcement cooperation and partnerships are central to effectively combat today’s organized crime.■

1As early as the 1890s, allegations were made that members of a secret criminal organization known as the Mafia had entered the United States. In the late 1930s and early 1940s, New York district attorneys Thomas E. Dewey and William O’Dwyer exposed Murder, Incorporated. Then, in 1950, the U.S. Congress, through Sen. Estes Kefauver’s Special Committee to Investigate Organized Crime in Interstate Commerce, studied the infiltration of organized crime into legitimate businesses. In 1967, the President’s Commission of Law Enforcement and Administration of Justice, Task Force on Organized Crime, issued its report on organized crime. See Sanford H. Kadish, Encyclopedia of Crime and Justice (New York: The Free Press, 1983), 1094–1112.
2Moisés Naim, Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy (New York: Doubleday Books, 2005).
3The Racketeer Influenced and Corrupt Organizations Act (commonly referred to as the RICO Act, or RICO) is a U.S. federal law that provides for extended penalties for criminal acts performed as part of an ongoing criminal organization. RICO was enacted by section 901(a) of the Organized Crime Control Act of 1970, Public Law 91-452, U.S. Statutes at Large 84 (1970): 922. RICO is codified as Chapter 96 of Title 18 of the U.S. Code, 18 U.S.C. 1961 through 18 U.S.C. 1968.



From The Police Chief, vol. 74, no. 5, May 2007. Copyright held by the International Association of Chiefs of Police, 515 North Washington Street, Alexandria, VA 22314 USA.

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