Blood Profits

by Vanessa Neumann

  Extradition treaties are not good enough either: they often have a double (or dual) criminality stipulation.22 This requires that if someone is to be extradited from country B (Burma, in our fictional example) back to country A (Albania), Burma must agree to the extradition. National laws in Burma are required to criminalize the act in question in a similar manner; that is how such mutual extradition obligations are established between states. It is premised on the legal maxim nulla poena sine lege, or “no punishment without law.” In short, for a person to be extradited, the deed for which he or she is wanted must be a crime in both the country that is harboring him or her and the country that is petitioning for extradition—in our example, it must be a crime in the legal code of both Albania and Burma.

  Many countries do not even recognize pharmaceutical counterfeiting as a crime; different jurisdictions probably have different motivations (including lack of investigative or prosecutorial capacity), but one factor is that pharmaceutical counterfeiting is viewed—like all counterfeiting—as a crime of intellectual property, where the people most being hurt (except in some exceptional cases) are major pharmaceutical companies that want to profit at the expense of the poor. As the demand for cheap medications prevails over the enforcement of intellectual property rights, there is not much of a will to draft the requisite legal framework. Criminals can therefore effectively hide in different jurisdictions.

  Just as the fight against the illicit trade in tobacco products gets hijacked by arguments about tobacco control, the fight against the illicit trade in pharmaceuticals gets hijacked by arguments about access to cheap medications. The only universally adopted rules applicable to illicit trade are those of the World Trade Organization, but when pharmaceutical companies invoke international trade rules to dismantle the cross-border operations of drug counterfeiters, their efforts are met with suspicion, especially by Brazil and India, which accuse the companies of using intellectual property statutes to limit sales of Indian generic drugs.23

  As is often the case, the truth lies somewhere in the middle: yes, the intellectual property rights holders (“Big Pharma”) use international trade rules to eliminate competition from cheaper brands; yes, criminals also exploit the gaps in these rules to make money, too. After all, illicit trade is trade; the business might be criminal, but it is still business, and the money doesn’t care who owns it.

  “Falsified medicine producers” are astute enough at business to take advantage of the gaps and arbitrage opportunities that the regulatory, trade, and enforcement structures present. There are many gaps through which criminals, counterfeiters, or falsified medicine producers and their cohorts can profit. Many countries have lax regulation of their drug manufacturing and distribution networks. Where there are laws, they are poorly enforced by investigators and/or the punishments are weak. Exporting countries have weak regulation, and it is downright minimal in free trade zones. Pharmaceutical companies (like every other industry) have long complained that free trade zones repackage and transship illicit goods with impunity.24 Complex transactions involving many intermediaries complicate investigations, as does inefficient cooperation among stakeholders. This entire illicit trade in medicines is driven by the high demand and prices for (genuine) curative and preventive drugs and vaccines: if there weren’t money in the legitimate market, there would be no money in the criminal market either.

  Pharmaceutical expert Roger Bate uses the terms “widespread” and “systematic” in describing the trade in falsified medicines in his push to get it criminalized in international law as a “crime against humanity.” Because falsified medications can kill either directly by virtue of their toxic contents or indirectly by not treating sick patients properly, their trade can approximate the “extermination” crime against humanity, which is defined as: “the intentional infliction of conditions of life, inter alia the deprivation of access to food and medicine, calculated to bring about the destruction of part of a population.”25

  While the mens rea may not rise to the intentional extermination of a portion of the population, there is an interpretation where commercializing a product with willful disregard to the fact that it will cause significant harm or kill on a large scale can fall into the legal definition of hostis humani generis—“enemy of humankind.” The term was first used with regard to pirates at sea. In the modern era, it has been applied to terrorists, slave traders, and torturers.26 However, the underpinning reason it was applied to pirates at sea (and now to terrorists) is because at sea the victim was not on terra firma and so was at a significant disadvantage, with limited resources and no escape route. This would certainly seem to apply to the sick—whether or not they are poor—taking a medication they need to cure or manage their illness: they have little choice, and therefore no reasonable escape from the counterfeited products.

  One good option for such an international legislative framework, because of its global reach, is the World Health Organization’s IMPACT (International Medical Products Anti-Counterfeiting Task Force), which encompasses NGOs, pharmaceutical manufacturers, enforcement agencies, and regulatory authorities. IMPACT has designed model legislation for countries that have not yet enacted effective laws. Barring such international legislation, the World Health Organization could formulate a treaty like its Framework Convention on Tobacco Control. Another option would be a process led by the UN Office on Drugs and Crime. For any option to work, though, effective rule of law needs to be implemented, and corruption eradicated. As we have seen, that is not so easy.

  There is one international framework convention that criminalizes the counterfeiting of medical products as a human rights violation: the Medicrime Convention. According to the Council of Europe, medical counterfeiting and its related crimes violate the right to life enshrined in the European Convention on Human Rights and Fundamental Freedoms, partly by significantly undermining public trust in health systems and their supervisors. The Medicrime Convention provides a framework for international cooperation and introduces criminal sanctions and measures of prevention and protection of victims. Unfortunately, as of July 2016, only twelve states (less than half the EU) had signed the convention. Critically, the UK, with its huge National Health Service, is not a signatory, while Israel, Russia, and Ukraine are.

  ILLICIT EXCHANGES

  The problem of smuggled consumer goods funding Islamist causes in Africa is not limited to pharmaceuticals. In late July 2016, Chris Howard was in Mogadishu, Somalia, best known to the public for its pirates. Locals informed him that cigarettes of all brands were coming in and being sold in a market five hundred meters from the port. In another area of the market: AK-47s—Kalashnikov Russian assault rifles that because of their near-indestructibility and ubiquity remain a favorite of insurgents, terrorists, and guerrilla fighters the world over. The Somali Islamist group Al Shabaab sells smuggled cigarettes and uses the money to buy AK-47s. A carton of cigarettes sells for $4.

  There are warehouses full of them, and they appear to be legitimate product, made by Philip Morris International and British American Tobacco. They seem to be major-brand “illicit whites,” smuggled into the country using criminal networks. The manufacturers claim their cigarettes are diverted from wholesalers, to whom the manufacturers legally sell after applying proper know-your-customer due diligence, as they are required to do by various laws and regulations. Their argument (which some people believe and others do not) is that they know their customers (the wholesalers), but they do not know the wholesalers’ customers.

  In the open-air markets of Mogadishu, rocket-propelled grenade (RPG) launchers and assault rifles like AK-47s or the American military–preferred M-16 or M-4 can be bought as easily as fruit.27 These are the Mogadishu exchange rates between illicit cigarettes and weapons: how many illicit white cigarettes it takes to buy each weapon.

  In one of his tours in Iraq, Chris had seen how cartons of cigarettes are transported alongside—and swapped for—suicide vests. He was in Mogadishu, Somalia, on July 26
and 27, 2016, when a suicide bomber detonated his vest and a car bomb in near-synchronicity around the Mogadishu airport. We wondered how many smuggled Marlboros those bombs had cost. More important, we wondered how many people were killed per smuggled carton of cigarettes. Smoking kills in more ways than it says on the package.

  After the bombings, a few people traced the shipments of the cigarettes to their source: Dubai, United Arab Emirates. The United Arab Emirates is home to dozens of very large and important free trade zones; of these, the Jebel Ali Free Zone Area (JAFZA) stands out as a key transshipment and manufacturing point for many illicit products, including tobacco. Over ninety companies (including nine manufacturers) are licensed to trade in tobacco products in JAFZA, and many of these produce illicit whites,28 unknown cigarette brands (not counterfeits) that are produced in order to be smuggled without paying taxes or duties, using criminal networks. Fifty-seven percent of the shipments of illicit tobacco that transited through Egypt’s Port Said Free Zone to Libya during the height of Libya’s unrest originated in Dubai’s JAFZA.29

  The lack of transparency in free trade zones is both a consequence and a cause of corruption. In most countries, counterfeit goods cannot be stopped if they are “in transit,” so that designation is often applied to bills of lading, even when it is not true. A January 2012 case from Jebel Ali highlights this: when brand owners advised the Intellectual Property Department of Dubai Customs that sixteen containers of illicit goods were on their way to Jebel Ali Free Zone from China and asked the authorities to intervene, the Dubai director general’s legal adviser said that he had released the eight containers they had detained, because the goods were designated for reexport to Iraq and had thus been released as “ship to ship,” outbound to Iraq. (Ship-to-ship transfers occur between ships positioned alongside each other, so the cargo never touches land at a port.)

  Public container tracking Web sites, however, “indicated that the containers did not go ‘ship to ship’ at all but were emptied at JAFZA.”30 After that the paperwork disappeared, and so no one knows what really went into those containers or whether they really went to Iraq or who their final recipients were.

  The illicit trade in Chris Howard’s Mogadishu case is entering through the port of Berbera in Somaliland (the northernmost of Somalia’s three regions), which Dubai bought into for a $442 million investment in June 2016, turning it into the main entry point for shipments from the United Arab Emirates into the Horn of Africa. (The semiautonomous region of Somaliland signed a deal with the Dubai Customs World operator to boost trade through its Berbera port amid congestion at a facility in neighboring Djibouti,31 which the Chinese had won the bid to run.)

  The press release of Berbera’s deal with the Dubai Customs World operator was nothing short of exuberant: “‘The mayor of Berbera welcomes this agreement with Dubai World with joy and hope that this investment will have an effect and bring about many changes in terms of infrastructure and economic (growth) for the port of Berbera … Dubai Ports World is expected to pay $5 million a year plus 10 percent on port revenue to Somaliland.”32 Presumably, a good portion of that money is going into the pockets of corrupt Somali officials. Somalia was seen as the most corrupt country on earth in 2016.33

  Illicit trade isn’t deadly just for the patients who take falsified medicines and for the victims of the suicide bombers who buy their vests with smuggled goods; it can also be deadly for us, working in the field. In the summer of 2016, Chris had to go into hiding for nearly a month at a safe house when one of our sources told him there was a price on his head: his name had been given to a serious organized crime group he was looking into and it had given orders to have him killed.

  Not only was I worried, I was furious. Fortunately, our sources had not been blown; no one had been caught. The fact that this group had only Chris’s name meant that the traitor only had Chris’s name to give. It meant the traitor was someone we dealt with in the corporate structure of one of our clients. (Some clients insist on knowing everything about our sources, but we withhold detailed information specifically because of this type of scenario.)

  We had a prime suspect, whose behavior we found telling during our briefings about our work. He was uncooperative and aggressive at the wrong time and for the wrong reason, as if he were not on the same side as us. Everyone at Asymmetrica, even the bookkeeper, had the same name on their lips. It was also on the lips of two of his coworkers when I mentioned my concerns to them in London.

  “You take that personally?” said his boss at a meeting a few weeks later, in Washington, D.C., playing it a little too cool for my taste. The employee had been transferred to a rather less savory point on the map, away from headquarters, rather abruptly. So the company must have had its own suspicions that he was in cahoots with the enemy.

  “Yes, I do. Such risk is part of our job, but would it be okay with you if we ordered a hit on your wife? Would you renew our contract?”

  Silence. That’s what I thought. As a businesswoman, I waited to see if the company would offer to pay us a bonus, to compensate for the trouble it had cost us. When it did not, I severed all ties and moved on; with every industry afflicted by illicit trade, nearly every major company is a potential client.

  Meanwhile, Jean-Luc Moreau left Novartis and took his superspy skills to Chanel, where he is helping the company fix its counterfeiting problems. Whether you buy medicines from the Internet, handbags off the street, or cheap cigarettes at your local bodega, there is always a gang of bad guys at the end to catch—and that is now a business all its own.

  11

  It’s All About the Benjamins

  Money doesn’t care who owns it, and everybody wants money. Making money illegally is usually easier than making it legally: no regulations, no taxes, no labor unions. But criminal enterprises do face a lot of risk and (like any business) respond to market pressures. In order to disrupt and lessen illicit trade, we have to understand it as it is: criminal enterprises are profit-driven businesses. Understanding the business model will help us design strategies to stem the funding of criminal and terrorist networks.

  What keeps illicit trade large, transnational, and profitable is corruption. Quite simply, fighting illicit trade will not be effective unless we fight corruption, too. Corruption not only enables illicit trade, it traps citizens by subverting the rule of law and corroding state institutions: government officials become more beholden to criminals than to their citizens. The state becomes criminalized, and the criminals take over the state infrastructure to serve themselves, particularly to move goods and money without hindrance.

  State criminalization, then, benefits terrorists in two ways. First, terrorists make more money and operate more easily. Second, corruption gives terrorists an excellent recruitment pool: when citizens feel oppressed by a corrupt system that is aligned against them, they are more likely to become extremists and take up arms to overthrow the government and its perceived allies. Furthermore, the illicit money from corruption and criminal profit is usually moved to jurisdictions with banking secrecy, where it can easily be transferred to terrorist operatives or weapons traffickers, threatening our security. The Panama Papers revealed the enormity of the shadow world of corruption, secret finance, and other illicit financial flows. Hidden in the 11.5 million documents pertaining to the Panamanian law firm Mossack Fonseca were 140 politicians (heads of state, ministers, and other elected officials and their associates) with offshore companies in twenty-one tax havens.1

  Some policy experts consider capital flight (money leaving a country to find a safer haven) a more dangerous aspect of corruption than the corrupt act itself. When money leaves the country, transportation, communications, and even food distribution systems collapse and national poverty accelerates into high gear, disproportionately impacting those at the bottom of the economic scale, the most desperate. However, the jurisdictions where the money gets laundered see multiple effects, not all of them bad. Businesses whose primary purpose is to launder mone
y regularly outcompete clean businesses, driving them from the market and thereby distorting the economy.

  On the other hand, money laundering is excellent for banks and real estate values, but that puts pressure on housing for working families. Miami is an example of a city built on the laundering of drug money. In the 1970s and 1980s, Miami was the main entry point for South American cocaine into the US. Cocaine was so plentiful that local residents joked that the white lines on the Miami Dolphins football field were painted with cocaine.

  With the narcotics also flowed a brutal crime wave that lasted into the early 1990s and a whole lot of money that was laundered through front organizations and put into upscale nightclubs, commercial and residential real estate development, luxury car dealerships, and hotels. The Southeast Financial Center is the tallest skyscraper built during the 1980s construction boom, during which time most of the heart of the city’s financial center was constructed. The classic drug money laundering paradigm is to bring a suitcase full of cash in small denominations, like $20 bills. The US Treasury at the time calculated that a suitcase stuffed with $20 bills could hold half a million dollars, yet many millions were being deposited every day. There were obviously a lot of suitcases. The money quickly muddied the US economy: in 1978 and 1979, the entire currency surplus of the United States could be ascribed to Miami-area banks.2 The show Miami Vice, with its Ferrari Testarossa–driving undercover counternarcotics agents, glamorized the Miami drug wars for the world.