Blood Profits

by Vanessa Neumann

  I know that even at those prices the profit margin is as large as for a gram of heroin, but neither Amadou nor his suppliers nor the corrupt customs agents will ever likely see the inside of a prison cell.

  My phone beeps with a text message from my boyfriend: he’s on his way to Iraq to join the Mosul Offensive, the Iraqi-led, Western-coalition-supported military operation launched in October 2016 to liberate Mosul from Daesh. The city had been in the terrorist group’s brutal grip since June 2014, when Daesh stormed across the region at lightning speed. It was then the world realized that Daesh was unlike any terrorist group that had come before. The Iraqi army had fled, dropping their US-supplied weapons, which the terrorists promptly picked up and added to their growing arsenal. At Mosul, Daesh leader Abu Bakr Al Baghdadi announced the establishment of the Islamic Caliphate, imposing a brutal rule that placed women under niqabs (the black veil that covers the entire face, leaving only a slit for the eyes) or making them sex slaves, chopping off the hands and heads of the noncompliant and pushing homosexuals off rooftops. My boyfriend, Chris (not his real name), would join the Special Forces in retaking the city. If he were to be captured by Daesh, I might someday be watching a video of his beheading.

  I look at the counterfeit Chanel and ponder its true cost.

  A WORLD OF FAKES

  Everything from baby formula to medicine is counterfeited, with tragic results to consumers, who can be injured or killed. But consumers have little appetite to push for an aggressive crackdown: they like the bargains. The illegal trade is huge. The Organisation for Economic Co-operation and Development (OECD), which writes economic policy recommendations for its thirty-five member states and whose Task Force on Countering Illicit Trade I advise, estimates that in 2013 international trade in counterfeit and pirated goods amounted to 2.5 percent of world trade, worth US$461 billion.6 In the European Union, it was higher: up to 5 percent of imports.7

  But some people are suspicious of claims from brand holders about the huge harms to industry. Preeminent among them is Professor David Wall, from the University of Durham. Wall coauthored a report that argued that the real cost to the industry from counterfeiting could be one-fifth of previously calculated figures, and that consumers are rarely duped by black market manufacturers, and in fact welcome the choice offered by fakes. Besides, he argued: “it actually helps the brands, by quickening the fashion cycle and raising brand awareness.”8 Counterfeit luxury goods are therefore a low priority in his view. He thinks an overstretched law enforcement should focus on “stuff that really causes public harm,” like “dodgy aircraft parts.”

  He misunderstands the paradigm: how “pulling the thread” by investigating the consumer goods we buy every day leads to intelligence that impacts major bad guys and gives law enforcement powerful tools to defend our citizens. In the world of the crime-terror pipeline (CTP), money from counterfeit handbags, medicines, and cigarettes ends up buying weapons that kill our soldiers and bombs that terrorize our cities. The 1993 World Trade Center bombing was likely partly financed by the sales of counterfeit T-shirts, according to the International Anti-Counterfeiting Coalition.9 The former Spanish minister of the interior, Angel Acebes, said that “one of the [Al Qaeda] suspects [in the Madrid bombings of March 11, 2004] arrested was already a well-known counterfeiter.”10 Counterfeit cigarettes fund paramilitary groups in Northern Ireland; counterfeit CDs and other goods fund Hezbollah in the Middle East. Al Qaeda supporters have been found with huge amounts of counterfeit items.

  “If you find one Al Qaeda operative with it, it’s like finding one roach in your house or one rat in your house,” former Interpol secretary-general Ron Noble said. “It should be enough to draw your attention to it.”

  Counterfeits are tremendously popular. According to Wall’s report, every year over two-fifths of all consumers (43 percent) buy counterfeit goods carrying one of the top designer labels, such as Louis Vuitton, Yves Saint Laurent, Burberry, or Gucci. Nearly a third of the sales are over the Internet, 90 percent of which are counterfeit,11 according to LVMH, the world’s premier luxury goods conglomerate.12 It’s not just clothes and accessories—everything we consume can be counterfeited: electronics, medicines and personal care products, eyewear (including contact lenses), toys, and even labels and tags, which as we saw above are often shipped separately. Even food is counterfeited: since the 1990s, fake eggs have been found in China and nearby countries.13 The yolk, white, and shell are made of gypsum powder, calcium carbonate, and wax. The cost of producing them can be half of what it costs to produce real eggs, especially when prices spike due to a supply crisis like during the avian flu in 2012. Fake eggs were more profitable and common then.

  THE CONVERGENCE

  All the illegal goods we so easily obtain—cheap cigarettes, crude oil, prostitution, fake Viagra, fake designer bags, and even bootleg DVDs—fund serious bad guys. Either the goods themselves or the money from their sale passes through the hands of Russian mobsters, Muslim jihadists, Mexican cartels, Chinese triads, and Eastern European heads of state. And it is we who hand them that money.

  From the jungles of Colombia to the halls of power in Washington and Paris, I have traced the growing collusion among criminals, terrorists, and those engaged in global trade. Terrorists are increasingly going into business: illegal transactions and illicit trade. Where once the money went to buy the weapons, the weapons now secure the money. This is the dark side of globalization: both criminals and terrorists feed off the free trade infrastructure, in which goods can cross borders more easily than ever before. The profits are huge. Thanks to drastic hikes in taxation, contraband cigarettes now have the same profit margin as cocaine, and counterfeit handbags are as profitable as heroin; and the penalties if one is caught are ludicrously light. So why wouldn’t terrorists become increasingly involved in trafficking illicit consumer goods? Illicit trade is booming.

  Officials are aware of the problem. On my November 2014 trip to the United Arab Emirates, a consultant to the emir of Abu Dhabi said during a private meeting: “We have a branding problem here—especially Dubai and the Jebel Ali Free Trade Zone. When people hear ‘Dubai’ or ‘Jebel Ali,’ they think: illicit trade. So the UAE is bending over backward to sign every anti-money-laundering and anti-illicit-trade protocol it can. But the reality is, we’ve got criminals and we’ve got terrorists, and they’re parasitic on the infrastructure we’ve built.”

  The official clearly felt squeezed: “They’ve ruined what we built here, and we don’t know what to do. Now terrorists are in the trade business and want to make a lot of money, and the criminals—who used to be easy to deal with, because they just wanted to make a lot of money—now have political objectives. It’s a nightmare!” The UAE consultant’s comments encapsulate the problem: the terrorists are increasingly behaving like criminal businessmen, moving from grievance to greed, while the criminals are increasingly challenging the government, and the more that criminals and terrorists interact, the more they learn from each other.

  The reason is simple: terrorists need the money. The countries that significantly funded terrorist groups in the past (Iran, Libya, Saudi Arabia, Russia) are now giving them substantially less. Meanwhile wealthy and powerful individual donors have had their funding streams monitored and disrupted. Without traditional donations, terrorists have turned to doing business with criminals. It means they share information and learn faster and are more successful than ever before. This is the terrifying reality of the crime-terror pipeline: a convergence of the criminal threat with the terrorist threat—double trouble.

  Convergence in the crime-terror pipeline contradicts traditional security thinking that terrorists and criminals don’t want to be linked. The argument was: criminals don’t want the additional scrutiny and heat that working with terrorists will bring, and terrorists are too ideological to work with profit-driven criminals; criminals move lots of money for a long period of time, while terrorists don’t need that much money. But this is not what I have
found in my work, investigating smuggled consumer goods and finding the connections with drug smugglers, terrorists, and corrupt government officials. In Colombia, Venezuela, and Lebanon, I learned how cocaine funds Hezbollah, which is also funded by smuggled cigarettes in North and South America. In Panama, I saw how counterfeit sporting goods fund Islamist radicalization programs. In Eastern Europe, Iraq, Syria, and Turkey, we found how “illicit white” (smuggled but not counterfeit) cigarettes fund Russian organized crime linked to the Russian intelligence service and its covert operations in Syria and Ukraine.

  While any individual terrorist attack may be cheap (easily costing less than $10,000), maintaining a terrorist network is not. Operatives living throughout the network (which in some cases span the world) have to be housed, fed, trained, and transported. Terrorist networks also maintain Web sites, newspapers, and television stations, and they often provide social services to the local communities that are their constituencies and sources of support. Such networks cost hundreds of millions of dollars annually.

  It is expensive to recruit and indoctrinate terrorist foot soldiers and train them to operate clandestinely. The training has to take place in remote locations that have to be maintained, like the safe houses the operatives will use. Document forgers and human smugglers all have to be paid so the terrorists can cross borders; so do corrupt border guards and intelligence and government officials. They need to have a constant supply of disposable phones and encrypted apps.14 That’s the traditional model of terrorism. The shift to using social media to recruit “lone wolves” (usually disaffected individuals with psychological problems), who acquire their own weapons, act on their own, and label it “jihad,” changes the model in ways we will see in depth later.

  Seeking the opportunity to earn money, terrorists have to go into illicit trade. They have either to work with transnational organized crime groups or to employ their methods and become criminals themselves. After all, revolutionaries need money: for weapons, for fighters, and to set up paternalistic systems in the territories they conquer so that the conquered will be beholden to them. Hezbollah has done this brilliantly: in Lebanon, Hezbollah is a more reliable provider of food, health care, housing, and even water, trash removal, and electricity for its Shia constituents than the national government.

  Daesh has done the same in Raqqa, Syria, where it has the longest history of governance of all its territory. There Daesh indoctrinates for militant Islamism in schools and controls the distribution of water and bread and sends armed patrols to ensure people’s attire and behavior is suitably chaste and Muslim.

  None of this would be possible without the money. The money comes from wealthy Persian Gulf donors, as is the traditional model, yes, but more important, it is derived from illicit trade: oil smuggling, cigarette smuggling, and human trafficking—sex slaves for their fighters and hostages taken by other groups and sold to Daesh for Daesh to ransom, or behead when the ransom is not paid.

  Hezbollah owns the illicit trade in tobacco products in Latin America and is a key trafficker of both heroin and cocaine into the Levant—never mind that drugs are against Muslim Sharia law. The Marxist FARC guerrillas are the original narcoterrorists: the world’s biggest cocaine producer and the world’s longest-running terrorist insurgency. So, in short: effective terrorists have to become effective criminals, smugglers, and experts at organized crime.

  This collusion should not be surprising. Criminals and terrorists have much in common.15 First, they are both, for the most part, rational actors. Second, they both operate secretly. Third, they use similar tactics, including kidnapping, extortion, and assassination. Although they may have different motives, they pursue the same kinds of interests, in that both criminals and terrorists need to acquire resources and power in order to achieve their objectives.

  While the collusion of criminal and terrorist groups has been a fact for decades, their convergence (as my Abu Dhabi friend noted) is accelerating. This acceleration is facilitated by the networks’ flattening: their organizations are less hierarchical. They are more horizontal, and interact more peer to peer, with fewer bosses. Also, the different cells in different geographical areas have more autonomy over what they do in their areas: they take fewer orders from overseas commanders. So they can do business without other cells from their own group knowing. From a business perspective, they are moving away from a corporate leadership model to a franchise model. Just as Ray Kroc did not necessarily know what was going on in every single McDonald’s restaurant, Treviño Morales would not know what is going on in every cell of the Zetas. They are “flatter” now, less accountable—and more dangerous.

  As both terrorists and traffickers become more horizontally structured, they have begun to rely on each other, and work together to create the crime-terror pipeline that now poses such a major threat to global security. For example, illicit human smuggling networks (which move illegal immigrants, but also offer modern slaves and covert tactical personnel movements) are of increasing importance to terrorists seeking to circumvent US Homeland Security programs.

  Ironically, the flattening of terrorist networks is partly caused by the effectiveness of US counterterrorism programs targeting their leaders. Drone strikes and other counterterrorism tactics have significantly degraded and disrupted the command structures of foreign terrorist organizations, engendering a new hybrid threat. The combination of a degradation of command and control and a heightened desire for fast money has helped create the burgeoning relationship between terrorists and criminals in Central America and elsewhere.

  In many ways, Al Qaeda’s cells have been left to their own devices to function, resulting in greater self-sufficiency when it comes to funding their operations. This makes them much harder to spot, neutralize, and eradicate. The flatter networks are also far more adaptive in their survival tactics and more structurally complex, making it harder for law enforcement to destroy them. Operating as a loosely organized network of cells gives these cells greater organizational flexibility, reduces the risk of law enforcement penetration, provides greater efficiency, and shields the leadership.

  This flattening and fracturing is particularly evident in Colombia. When the hierarchical structures of the Medellín and Cali cartels were significantly degraded, the drug traffickers turned to decommissioned FARC terrorists and demobilized paramilitaries, and some of those regrouped as bacrim, a Spanish abbreviation of “criminal gangs.” These new bacrim flourished and became two more modern and powerful cartels: the Norte del Valle cartel and the North Coast cartel.

  However, to evade surveillance, capture, and disruption by the Colombian National Police, security services, or the US’s Drug Enforcement Administration (DEA), the cartels have moved to splinter into cartelitos, or “minicartels.”16 This process of fracturing, movement, reconnection, expansion, and refracturing makes these organizations behave like a vibrant organism, one whose stimuli are money and power.

  Their greater collusion means criminals and terrorists are sharing information and tactical experiences. A US congressional committee report concluded that they “are frequenting the same shady bars, the same seedy hotels and the same sweaty brothels in a growing number of areas around the world … They are most assuredly talking business and sharing lessons learned.”17 They learn from each other and imitate each other’s best practices. Security wonks call it “activity appropriation.”

  Another reason for the accelerating convergence of criminals and terrorists is that they are flocking to the same fixers and facilitators: the experts in illicit trade. The concept is simple: you want the best at each task, those who can do what you need done, and because of the risk and fierce competition involved in illicit business, there will only be a few excellent service providers at any point in time. Both foreign terrorist organizations and drug traffickers rely heavily on these “shadow facilitators”18 to operate effectively: arms traffickers, money launderers, human traffickers, document forgers, et cetera. Outsourcing to experts
in a particular field is efficient and saves money, and also reduces the risk of getting caught through hiring amateurs. These facilitators and fixers take the regional thugs’ business and make it global, infiltrating the distribution chains of legal global trade. It is the document forgers and customs agents who enable the illicit cargo to get on a legally registered tanker owned by a major company; it is the bankers and lawyers who place their clients’ criminal profits in well-known banks, and buy apartments in buildings on Park or Fifth Avenue alongside old-money high society or villas on Caribbean islands with banking secrecy.

  These shadow facilitators are also the nexus between the networks: wittingly or unwittingly, they often serve to bridge the divide between foreign terrorist organizations and drug trafficking organizations operating in the same permissive environments around the globe. A government official, a banker, or another type of facilitator can be recruited either by corruption or intimidation. The choice is crystallized as plata o plomo: “silver [i.e., money] or lead [i.e., a bullet].” The dead bodies of those who chose the latter option are prominently displayed in Mexican cartel territory.

  In the places where state governance is weak (either through a lack of resources, a lack of will, or corruption), the shadow facilitators have the ability to move freely within and between both the terrorist and criminal circles, where they often promote meetings, the formation of alliances, and the sharing of lessons learned. Like any effective service providers, they are masters at creating demand for their goods and services, concurrently cashing in on the needs and requirements of the terrorists, the drug traffickers, and other organized criminals. These illicit experts thus accelerate the adaptive behavior process of criminals and terrorists, helping them to react faster, learn more effectively, and quickly develop new strategies to both survive and increase their productivity.