Missing Links

It's the Illicit Economy, Stupid

How Big Business taught criminals to go global.

I recently asked a Swiss banker, "How much harder is it for you to move $50 million and keep it hidden from authorities today than 10 years ago?" He smiled and replied: "The main difference is that now I charge more."

That's discouraging. Apparently, the­ anti-money laundering laws that many governments enacted after Sept. 11, 2001, have changed little. Indeed, according to Edwin Truman and Peter Reuter's study for the Institute for International Economics, in the United States, where these new protections are most stringent, money launderers face only a 5 percent chance of being convicted in any given year. Anywhere else, the chances are even less.

Laundered money is, of course, not the only illicit international trade that governments are unable to stop. Despite a long-standing war on drugs, the total size of the global drug trade probably doubled between 1992 and 2002. For most of the 1990s, an average of 500,000 people crossed illegally into the United States each year. The hope was that the border controls enacted after 9/11 would make that number drop. It hasn't. Half a million people are still entering the country illegally every year. The same is true in Europe, where tighter immigration controls have failed to yield any significant reduction in illegal immigrants.

Governments have failed to stop a wide range of illegal commerce. Fifteen years ago, the trade in pirated goods was almost insignificant. Today, it is valued at $400 to $600 billion a year. No insurgency anywhere in the world seems to have much difficulty procuring the weapons it needs, which is one of the reasons that the illegal arms trade is worth $10 billion. International human trafficking comes to another $10 billion. Stolen art, according to Interpol, is worth $3 billion a year. In the last decade, all of these illegal international trades have grown in size and scope.

The explosion of money laundering offers a glimpse of the total size of the world's illicit economy. Money laundering has grown at least tenfold since 1990, reaching $1 to $1.5 trillion today. Considering that legitimate global trade roughly doubled in the same period, from $5 to $10 trillion, it's easy to see that the illicit economy is significant, vast, and surging.

Of course, smuggling, trafficking, and international crime have always existed. But this familiarity creates a dangerous complacency because it treats today's illicit trades largely as irritants, rather than systemic threats. In the 1990s, revolutionary changes in politics and technology reduced the obstacles that distance, borders, and governments imposed on the international movement of goods, money, and people -- legal and illegal. These changes allowed regional traffickers to become global traffickers. And, as the reach of criminal enterprises expanded, governments failed to keep up.

Now the criminals are only becoming more sophisticated. Because, as illicit industries become big business, they naturally adopt the strategic thinking of big businesses everywhere: diversify, politicize, and legitimize. First, like any normal corporation, traffickers diversify to reduce the risk of having all their revenues come from just one -- in this case, illegal -- enterprise. Second, traffickers spend vast sums to gain the support and protection of politicians and government officials. And third, they invest heavily in reputation-enhancing activities -- churches, sports teams, art exhibits, social work, and media.

The intense diversification of groups engaged in illicit activities into legitimate businesses -- the Moroccan human trafficker who doubles as a real-estate mogul in Spain, or the Russian arms smuggler who owns a bank in Cyprus -- blurs the line that traditionally differentiates legal and illegal business activities. This blurring is further complicated by the close association that international criminal networks develop with politicians and bureaucrats at home and abroad. Indeed, in many instances, the relationships are so close that government officials replace the national interest with that of the criminal enterprise. For example, during most of the 1990s, Vladimiro Montesinos was in charge of Peru's security, working closely with the U.S. Drug Enforcement Administration and the CIA. He is now on trial accused of heading major international trafficking rings in weapons, drugs, and money laundering. A.Q. Khan, the father of Pakistan's atomic bomb, was selling nuclear technology to North Korea and Libya not to further his country's national interest, but to line his own pockets.

All big businesses -- especially those whose industries are heavily regulated -- invest in lobbying or government relations. Why shouldn't criminals do the same? Their "industry" is the most regulated of all -- indeed it is banned! Therefore, the return on their investment in government influence and protection offers the highest returns.

The same applies to philanthropy. Successful businesses invest in club memberships, patronize the arts, and are coveted donors for charities. Wealthy criminals do, too. Walter C. Anderson, an American who was accused of hiding $450 million in offshore accounts to evade taxes, argued that the money went to his Panamanian foundation, which was devoted to advancing human rights, arms control, and family planning. Pablo Escobar Gaviria, the legendary Colombian drug kingpin, was the main funder of sports clubs and other charitable activities in Medellín.

Criminals have always tried to grow their businesses, influence politicians, gain social respectability, and buy into legitimate enterprises. The difference is that they are now able to do it on a scale and with consequences that are without precedent.

Missing Links

Dangerously Unique

Why our definition of "normalcy" can be costly for everyone else.

You are not normal. If you are reading these pages, you probably belong to the minority of the world's population that has a steady job, adequate access to social security, and enjoys substantial political freedoms. Moreover, you live on more than $2 a day, and, unlike 860 million others, you can read. The percentage of humanity that combines all of these attributes is minuscule.

According to the World Bank, about half of humanity lives on less than $2 a day, while the International Labour Organization reckons that a third of the available labor force is unemployed or underemployed, and half of the world's population has no access to any kind of social security. Freedom House, an organization that studies countries' political systems, categorizes 103 of the world's 192 nations as either "not free" or "partially free," meaning that the civil liberties and basic political rights of their citizens are limited or severely curtailed. More than 3.6 billion people, or 56 percent of the world, live in such countries.

Statistically, a "normal" human being in today's world is poor, lives in oppressive physical, social, and political conditions, and is ruled by unresponsive and corrupt government. But normalcy is not only defined by statistics. Normal implies something that is "usual, typical, or expected." Therefore, normal is not only what is statistically most frequent but also what others assume it to be. In this sense, the expectations of a tiny minority trump the realities of the vast majority. There is an enormous gap between what average citizens in advanced Western democracies -- and the richer elites everywhere -- assume is or should be normal, and the daily realities faced by the overwhelming majority of people. Information about the dire conditions common in poor countries is plentiful and widely discussed. Curiously, however, expectations about what it means to be normal in today's world continue to reflect the abnormal reality of a few rich countries rather than the global norm.

We assume that it is normal to eat at least three meals a day, to walk the streets without fear, and to have access to water, electricity, phones, and public transportation. Sadly, it is not. Today, 852 million people, including many children and the elderly, do not get three meals a day, and when they do, their meals do not provide them with the daily caloric intake required by a normal person. Roughly 1.6 billion people lack access to electricity, and 2.4 billion rely on traditional fuels such as wood and dung for cooking and heating. Thirty percent of the world's population has never made a phone call. Street crime and urban violence are normal in most of the world. The average homicide rate in Latin America and the Caribbean is about 25 per 100,000 inhabitants and, in sub-Saharan Africa, it is roughly 18 murders per 100,000. (In the European Union, there are just 3 homicides for every 100,000 inhabitants.) An estimated 246 million children, about 1 in 6, work, and 73 million of them are less than 10 years old. Whereas childbirth is typically an occasion for celebration in high-income countries, it is a source of death, disease, and disability elsewhere. According to the World Health Organization, more than half a million women die every year due to pregnancy-related complications in the developing world, where the risk of maternal mortality is 1 in 61. In rich countries, the risk of maternal mortality is 1 in 2,800.

This distorted perception of what is normal can take on subtler forms. Consider, for example, our common assumptions about the quality of the news we get. We tend to assume that the news is free from government interference. Yet, in most of the world, that is not the case. A World Bank survey of media ownership found that in 97 countries, 72 percent of the top five radio stations and 60 percent of the top five TV companies were state-owned. The study also found strong statistical evidence that countries with greater state ownership of the media have fewer political rights, less developed markets, and strikingly inferior education and health.

Rich-world assumptions about what constitutes the global norm are costly illusions. Billions of dollars have been wasted by assuming that governments in poorer countries are more or less like those in rich ones, only a little less efficient. Despite constant reminders that most governments in the world are unable to perform relatively simple tasks, such as delivering the mail or collecting the garbage, most recipes for how these countries should solve their problems reflect the sophisticated capabilities taken for granted in rich countries, not the realities that exist everywhere else.

We want people to have a better life, and it is natural that our definition of normal serves as a compass for helping others. The gap between what we assume is normal and the reality that billions of people face is driven less by a parochial propensity to impose our experience on others than a sincere expression of our values. Nor should values be abandoned -- they are our true north and point us in the direction where progress lies. But our strongly felt ideals must not become the basis for policy. At a time when values have become so common in political discourse, it is important to remain alert to when our advice is built on faulty assumptions about what is normal. When that happens, values lead to bad decisions, not moral clarity.