Blood Profits

by Vanessa Neumann

  It did not help the company that its owner and CEO, Lorenzo Mendoza—a billionaire who was beloved by all because his products were consumed by everyone, but particularly the poor—was loudly critical of the Chavista regime. The government sent in troops to take over some of his plants, and that, on top of the economic pressures, led to the unthinkable: the collapse of Empresas Polar and the supply of the basic food basket for the Venezuelan poor. Venezuela without arepas is like Asia without rice—and with this change, Venezuela could not feed itself and the poor were starving.

  When we arrived at the upscale arepera, my “shooter” got out first, scanned our surroundings, and covered me as I exited the car and he escorted us to the front door. There was a sign prohibiting weapons and an airport-style metal detector.

  “I can’t go in with my weapon, but I will wait right here. Try and stay in my line of sight,” he said.

  I nodded.

  As we munched our arepas and yucca fries, the boy asked me a bit about my upbringing in the US, my feelings toward Venezuela, whether I had enjoyed living in London. I was happy to discuss all that: he seemed genuinely curious (almost like a fan), and due to my public press, it was all stuff that was already in the public domain. He was about to share information that could get him killed by the regime, so he wanted to bond with me first. We chatted as we ate until he felt comfortable enough for me to ask him some pressing questions.

  “Is it true,” I asked in between bites of my reina pepiada, an arepa stuffed with chicken and avocado, “that there is heavy Iranian infiltration here? Rumor is they’re mining for uranium for their nuclear program.”

  “Yes. They are.”

  “How do you know?” I sipped my Coca-Cola Light.

  “I’ve seen the bills of lading. One of us has access, works for the head of the mining company.”

  Loud rumors had circulated that Iran was extracting uranium and shipping it out of Venezuela to Iran, with the assistance of the highest levels of the Venezuelan government through the state-owned Venezuelan conglomerate, CVG Ferrominera; CVG is located in the Guayana region in the southeast of the country, which is rich in aluminum, gold, and uranium. The “head of the mining company” about whom the boy was talking was Radwan Sabbagh, who was to be arrested on June 12, 2013, on charges of pilfering over Bs. 295 million (about US$45 million at the time).5

  “How interesting,” I answered as flatly as possible. “You guys be careful.”

  A few days later, I met with a retired military officer to whom a friend had referred me. He came to my friend’s home at the base of the Ávila, the green mountain range that separates the city from the Caribbean Sea and gives the city its perfect weather: hot but not humid. He was personally acquainted with some of my family, and although he was retired from the military, some who were still in it and who were unhappy with what they were seeing had talked to him; and now he was talking to me.

  “I know this neighborhood well.” His voice had more than a tinge of nostalgia. “We used to have secret meetings in that building there, and that one there,” he said, pointing at two buildings across the street. “It reminds me of old times.”

  “It’s amazing how things have changed, though,” I responded. “What’s going on? What’s going to happen?”

  Scenario-building was not his expertise, but he did go on at length about the extent of Hezbollah and Iranian infiltration in Venezuela. I kept taking notes, kept observing, kept trying to find patterns that might be replicated in other parts of world, to see what lessons we could learn, what we as humans could do better. It felt like an application of my political philosophy roots. I kept writing, too: my paper “The Global Convergence of the Crime-Terror Threat” was published in the academic journal Orbis in the spring of 2013. I was closing in on my specialty, establishing my turf.

  On July 11, 2013, I changed my company’s name to Asymmetrica, at the suggestion of a friend: “Like Oxford Analytica, you should name it Asymmetrica, because you’re the asymmetric warfare chick.” My being an entrepreneur working at the intersection of big corporations and security, it resonated.

  By the time the OECD task force met again in March 2014, Asymmetrica had hired about half a dozen staff with special operations and intelligence experience, and I’d divided a 30 percent share of the company between the two most senior people, to secure their long-term commitment and to encourage them to develop business. I took my new chief operating officer and my business partner with me to the meeting in Paris. They would betray me later. It turns out military guys do not take kindly to a female boss and undervalue not just women, but also civilians with a business perspective.

  It was at that March 2014 OECD meeting in Paris that I first came across an NGO called the International Center for Sport Security (ICSS). It was backed, incongruously, by the Qatari royal family, which afforded the NGO quite a lot of independence by locating its key staff in France. Its mission: to investigate money laundering and other illicit financial flows through sport. When Fred Lord, a gregarious Aussie, started his presentation on the ICSS’s work, some of us had had a long day and were answering emails on our computers. Then came the whammy: he said once you added in online sport betting, the amount of criminal money flowing through sport was in the trillions. Now he had our attention. The ICSS had made quite the splash. It would make a bigger splash when the FIFA scandal broke.

  CIGARETTE SMUGGLERS, SYRIA, ISIS, AND OTHER BAD GUYS

  Later that year, in August 2014, the US Department of Defense identified6 a cigarette-smuggling network extending from Bulgaria into Turkey and offering material support to the Assad regime, in contravention of international sanctions, as well as to the Islamic State of Iraq and the Levant (ISIL, or Daesh) terrorist organization. Prestige and Victory cigarettes (brands owned by the Bulgarian company Bulgartabac) are shipped across the Black Sea, through the Strait of Bosphorus, and then either directly to Syria or down to the Red Sea and around to the Persian Gulf. Western Syria “is controlled by and benefits the Assad family,”7 the Department of Defense’s maritime security publication states. As cigarettes move through various transshipment points near the Turkish border (in areas controlled by Daesh), Daesh taxes their transportation—despite the group’s public burning of cigarettes as a violation of Sharia law. The cigarettes are then sold at a premium price in Syria or smuggled onward into Turkey.

  According to Chris Rawley, the author of an article on the smuggling network: “The product and profit not only support ISIL and their organized crime network, but other Al-Qaeda affiliates and foreign fighters drawn to the region. The illicit tobacco trade is an instrumental part of their funding portfolio, which also includes weapons trafficking and sale of stolen oil.”8

  The shipments are processed through the port of Latakia by Fadi Adam Allosh, an Alawite (like the Assad family) from Jablih, Syria. The customs processing company is a front for his real business, connected with the Assad family and the Syrian regime, which during the ongoing Syrian civil war has been focused on smuggling narcotics and human organs between Syria and Iran. Latakia is an Assad family stronghold, controlled by the wealthy Makhlouf family, headed by Bashar al-Assad’s cousin, Rami Makhlouf, and his twin sons, Hafez and Ihab. Rami Makhlouf was designated by the US Treasury Department in 2008 under Executive Order 13460, which “targets individuals and entities determined to be responsible for or who have benefitted from the public corruption of senior officials of the Syrian regime.”9 He was also sanctioned by the European Union for financial support to the Assad regime.

  In the dirty business of illicit trade, in which money doesn’t care who owns it, the shipments are transferred to revolutionary-controlled areas near Qalaat Al Madiq, where they are guarded by people who work for the well-known revolutionary leader Jamal Ma’arouf and his deputy, Miskal Al Abdulla of the Syrian Revolutionaries Front (SRF), a moderate faction of the Free Syrian Army rebel group. Miskal Al Abdulla was a cigarette smuggler before the war began in Syria. Ma’arouf and Abdulla a
re getting a share from the profits of the smuggled cigarettes. The Assad regime’s affiliated gangs can deliver any requested amount of cigarettes over the minimum order of $50,000, which amounts to ten to fifteen large cargo trucks. In other words, cigarette smuggling is partially funding both sides of the Syrian conflict, helping to escalate the conflict, while civilians in the middle continue to be slaughtered in the crossfire or to flee to a Europe that does not want them.

  As in all illicit trade, a lot of the funding that ends up in terrorist coffers comes from developed economies, including the US. The links between the illicit traffic in tobacco and terrorism are well known in New York, covered even by the local Daily News in May 2013.10 Over the previous seventeen months, a cigarette-smuggling ring had bought $55 million worth of cigarettes in Virginia, trucked it to New York, and sold packs tax-free to small stores across Brooklyn, the Bronx, Queens, and Staten Island. Investigators in the case, dubbed Operation Tobacco Road, had found evidence the group pocketed $22 million in profits, of which authorities have found only $7.8 million in cash and bank accounts.

  Former New York police commissioner Ray Kelly said the group included several “individuals on our radar with links to known terrorists,” starting with Mohannad Seif, a cigarette reseller from Brooklyn, who had lived in the same three-story walk-up in New York as the personal secretary of Hamas’s main fund-raiser in the US, Mousa Abu Marzouk, who was deported from the US in 1997 but continues to raise money for Hamas in Egypt. Furthermore, Youssef Odeh, of Staten Island, a suspect in the case, had financial ties to the imprisoned blind sheik, Omar Abdel-Rahman, who was convicted in a 1993 plot to blow up New York landmarks. Before he got into the cigarette business, Odeh sold baby formula. In the early 1990s, the sheikh invested $10,000 in Odeh’s business, Kelly said.

  In Operation Smokescreen, a federal jury in Charlotte convicted Mohamad Hammoud of violating a ban on providing material support to terrorist groups by funneling profits from a multimillion-dollar cigarette-smuggling operation to Hezbollah. The jury also found Hammoud, whom prosecutors described as the leader of a terrorist cell, and his brother guilty of cigarette smuggling, racketeering, and money laundering. The two men, natives of Lebanon, were accused of smuggling at least $7.9 million worth of cigarettes out of North Carolina and selling them in Michigan. Hammoud was sentenced to 155 years in prison,11 though the sentence was later reduced to 30 years.

  AN ALL-TOO-OBVIOUS SOLUTION

  Working illicit trade in tobacco is the kind of challenge I love: a legal consumer good that is highly controversial (all the more fun) is being counterfeited or smuggled into countries where it does not pay duties and is literally used as currency by criminals at an exchange rate of so many AK-47s or RPGs (rocket-propelled grenade launchers) for so many crates of cigarettes. The high taxes create a profit margin for criminals, who are not known for their tax compliance. This makes the profit margin as high as that for cocaine, with much lower penalties. As a security consultant, I would have to get the security issues taken seriously without wading into the quagmire of tobacco politics—no easy task.

  Worldwide, over 1.1 billion people smoke some 5.7 trillion cigarettes each year. Illicit trade in tobacco products (ITTP) is estimated to approach 11 percent of that market. Every single producer making filtered cigarettes uses cellulose acetate tow (from which cigarette filters are made) provided by one of the six manufacturers in the world. While there are substitute materials for cigarette filters, they are not adequate, in their function or their flavor.

  The industry of cellulose acetate tow is very capital-intensive, with an estimated investment of approximately $500 million for a medium-sized unit of forty kilotons of acetate flake and acetate tow production. Such capital intensity and concentration implies that all acetate flake and tow must be processed at one of the major known plants around the world. Although cellulose acetate flake can be used to make LCD screens, among other products, 90 percent of flake is used to produce cellulose acetate tow, 80 percent of which, in turn, goes to produce cigarette filters—at least 11 percent of which are for illegal cigarettes made and/or smuggled by serious criminal organizations.

  There is likely no way a commodity company could operate year to year with no idea where 10 percent of its total sales were going or why the companies making those purchases were not known and reputable. So a producer of cellulose acetate tow, with equal access to public data, is (or should be) aware that its products are used to produce illegal cigarettes and to finance transnational organized crime. Since the relationships between illicit producers and the criminal networks engaged in the illicit trade in tobacco products are now widely known and understood, any key input supplier that sells its products to illicit producers should know that by supplying these key inputs (including cigarette paper and cellulose acetate tow) to illicit tobacco producers (even by oversupplying the legitimate market), they are ultimately aiding and abetting organized crime, corruption, terrorism, and other forms of conflict and political unrest.

  A known Interpol case study verifying oversupply of acetate tow to illicit manufacturers was based on a visit to a factory in the Hong Xi Industrial Area in Ma Xiang Town, Xiamen City, China. Interpol found a storage site of raw materials for manufacturing fake cigarettes and seized 719 filter pieces, 1,470 rolls of wrapping paper, and another 33.3 tons of acetate tow. This amount of raw materials was capable of producing millions of illicit tobacco products, which would generate millions of US dollars in profit for the criminals involved, as well as deprive governments of potential revenue12 from cigarette taxes or import duties.

  Interpol’s secretary-general at the time, Ronald K. Noble, stated in a press release of March 5, 2014—while I was at the OECD task force meeting—that a vast oversupply of cellulose acetate tow is a major enabler of illicit trade and an enormous source of funding for criminal networks.13 Key input oversupply provides billions of dollars to illicit manufacturers and the criminal networks that move the cigarettes.

  “It is in the interest of all governments to establish due diligence frameworks and ‘know your customer’ programmes such as those required for banks, and to demand track and trace systems for key component manufacturers to help combat the illicit trade in tobacco products and avoid millions being siphoned out of the public purse,” said the Interpol chief. “Regulating identifiable, consolidated components industries, such as of acetate tow, is one step towards achieving our goals.”14

  That should not be too hard: there are only six manufacturers in the world. The two biggest (Eastman and Celanese) are in the US—the same country that spends the most on the Global War on Terror, ironically. Five of the six are in OECD countries—and therefore subject to OECD policies. The three biggest (Eastman, Celanese, and Solvay) are all members of GAMA, the Global Acetate Manufacturers Association. These companies are both natural chokepoints in the illicit supply chain and legitimate targets for OECD policy.

  The Protocol to Eliminate Illicit Trade of the World Health Organization (WHO), adopted in 2012 by the parties to the Framework Convention on Tobacco Control (FCTC), “sets out international guidance for national action on supply chain security, offenses and enforcement and international cooperation.”15 However, while the Framework Convention has issued specific track-and-trace technology requirements to ensure that legitimate production is not diverted into illicit channels, it has taken no measure to combat counterfeiters or producers of illicit whites (cigarettes that are not counterfeit, but are smuggled into a country where they are not licensed and not taxed or subject to duties). Neither has it targeted the suppliers of key inputs (such as acetate tow cigarette filters) to illicit manufacturers.

  The UK’s National Crime Agency (previously known as the Serious Organized Crime Agency) has led the way in upstream criminal investigations to more effectively disrupt illicit trade. As part of its Programme 9, whose aim “is to reduce the harm caused to the UK by the cocaine trade focusing on the ‘upstream’ elements,”16 it investigated and hel
ped prosecute employees of pharmaceutical companies who knowingly sold precursor chemicals to criminals engaged in illicit manufacturing. The sale of cellulose acetate tow or cigarette paper to counterfeiters or manufacturers of illicit whites would seem a direct parallel, one that should be explored under the US government’s numerous counter–threat finance initiatives of the Departments of Defense, Treasury, and Justice.

  In the years I have been working on the topic of illicit trade in tobacco, the Global Acetate Manufacturers Association (GAMA) has changed its message (and its Web site) from defiance to some acknowledgment of the problem industry and law enforcement have been trying to get it to address for years. The GAMA Web site17 now acknowledges that 11 percent of the tobacco market is illegal and funds organized crime and terrorism. The association says it is addressing the problem with a know-your-customer (KYC) due diligence program it instituted in 2006—voluntary for its three members—and that it “supports cigarette companies and public authorities in their fight against illicit trade.”18 Though it says that an “independent auditor audits every GAMA member participating in the KYC” every two years, it does not identify who participates in the program, it does not give the standards for the program, and it does not cite any penalties for noncompliance or any enforcement mechanisms. It is, after all, voluntary.

  Though the association claims to be “committed to complying with all applicable legal obligations and cooperates with public and private actors who share GAMA’s goal,”19 its “goal” is to promote cellulose acetate as a product, not to regulate it. Since the chemical companies that make cellulose acetate tow for filters are not themselves in the tobacco industry, they suffer no regulatory downside from the illicit 11 percent of sales. As long as the government refuses to regulate them (especially the largest two, which are American), these companies will keep funding criminals and terrorists, causing our soldiers to lose their limbs and lives fighting them, while the chemical companies continue banking the money. The addition of industry complicity in illicit trade furthered my understanding of the complex global puzzle of how our habits as consumers fund terrorists.