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Organised crime and terrorism in the Asia-Pacific region: the reality and the response.



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The Standing Advisory Committee on Commonwealth/State Cooperation for Protection Against Violence [SAC-PAV]

and

The University of Tasmania

GLOBALISING TERROR:

Political Violence in the New Millennium

Session Eight

PIRACY, PEOPLE SMUGGLING AND DRUGS: GLOBALISING CRIME AND TERROR

Organised Crime and Terrorism in the Asia-Pacific Region: The Reality and the Response

John McFarlane

Executive Director Australian Member Committee Council for Security Cooperation in the Asia-Pacific Strategic and Defence Studies Centre

Australian National University Canberra ACT 0200 Australia

Visiting Fellow and PhD Candidate Australian Defence Studies Centre University College Australian Defence Force Academy

Canberra ACT 2600 Australia

j-mcfarlane@adfa.edu.au

Thursday 9 May 2002 15.30 - 17.00 hours

Organised Crime and Terrorism in the Asia-Pacific Region: The Reality and the Response

Abstract

Organised and entrepreneurial crime groups are well established throughout the Asia-Pacific region, and have been very active in the whole spectrum of criminal activities from drug trafficking, human and arms smuggling, sea piracy and kidnapping to credit card fraud, investment scams, money laundering and intellectual property crime. These groups range from the highly structured Japanese yakuza and Chinese triads to small entrepreneurial groups specialising in providing a particular criminal service and street gangs engaging in opportunistic crime. There are also states, such as the DPRK and Myanmar, where senior officials periodically engage in criminal activities, such as drug trafficking and counterfeit currency operations, with the apparent knowledge of, and blessing from, the state itself.

With little or no state sponsorship, terrorist groups operating in the region have little option but to engage in criminal activities in order to generate the necessary funds to support their political objectives. Such activities range from drug trafficking, extortion, kidnapping, and bank robberies to credit card fraud and manipulation of the stock markets. Many groups also engage in legitimate business activities. Some groups, such as the Philippine Abu Sayyaf, could be more accurately described as criminal rather than terrorist groups, even though they employ terrorist methods.

A range of international and regional initiatives has been devised to limit the effectiveness of transnational criminal and terrorist groups which, if implemented on a region-wide basis, would certainly have a very significant impact in lowering the level of threat they currently present.

Background

Much has been written over the last decade on the emerging problem of transnational

organised crime, which has become identified as one of the key new issues

challenging international stability and security. The United Nations Secretary

General, Kofi Annan, summed up the situation in the following words:

The benefits of globalisation are obvious: faster growth, higher living standards, new opportunities. Yet a backlash has begun, because these benefits are so unequally distributed, and because the global market is not yet underpinned by rules based on shared social objectives.... In this New World, groups and individuals more and more often interact directly across frontiers, without involving the State. This has its dangers. Crime, narcotics, terrorism, pollution, disease, weapons, refugees and migrants: all move back and forth faster and in greater numbers than in the past.1

The events of September 11 have dramatically demonstrated that highly-motivated

and capable non-state actors, employing carefully planned and targeted terrorist

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operations, facilitated by criminal activities involving drug trafficking, financial crime

and covert money movements, identification fraud, and so on, have been able to

seriously challenge the global strategic order and precipitate a major rethink of

national and international defence, security and law enforcement priorities. Those

who predicted that September 11 would be just a nasty blip on the global security

radar screen have been proven wrong: the “War Against Terrorism” has

fundamentally changed United States strategic priorities causing it to adopt a hard-line unilateralist approach (albeit couched in “coalition” terminology) which will

have a major impact on the global security outlook and, inevitably, risks upsetting the

security relationships with other states. This is the era of the post-post-Cold War.

Although not so obvious, transnational crime also possesses the potential to severely

destabilise states through the illicit trafficking in arms, people and drugs; or attacking

critical databases and systems through cyber-crime; impacting on the economies of

states through fraud, white collar crime, money laundering or capital flight; or

upsetting public confidence in governance through endemic graft and corruption.

This paper will consider the nature and capacity of transnational organised crime in

the Asia-Pacific; its links to terrorism in the region; and the regional and international

measures which are being developed to deal with these threats.

Transnational Organised Crime in the Asia-Pacific

Factors facilitating the growth of transnational organised crime in the region

The global developments that have encouraged economic growth and diversification

in recent years have also facilitated the development of transnational organised

crime.2 These developments include:

• The dramatic advances in and decreased costs of international travel and the transportation of goods; the removal of external travel restrictions in many countries that previously controlled overseas travel for their citizens; and the removal of visa requirements for entry into many countries.

1 “We the Peoples”: Millennium Report to the General Assembly of the United Nations, 3 April 2000. 2

André Bossard, former Secretary-General of the International Criminal Police Organization (Interpol), defines transnational crime as “an offence which implies crossing at least one border before, during, or after the fact.” [André Bossard, Transnational Crime and Criminal Law, Chicago: University of Illinois and Office of International Criminal Justice, 1990, p. 3.]

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• The changing nature of state sovereignty due to the emergence of regional associations and trading blocs. Related to this is deregulation, the internationalization of business corporations, and networking across national boundaries.

• The dramatic developments in technology and communications, including the so-called “CNN factor” and the emergence of the Internet.

• The social, economic, and political changes that have occurred with globalization and the adoption of the market economy and western democratic values, which have led to increased levels of unemployment and untenable systems of state welfare and public health services in both developed and developing countries. This, in some cases, leads to crime becoming a means of survival for disadvantaged people.

• The uneven development between “Northern” and “Southern” states (especially African and South Pacific states).

• Increasing levels of education and rising expectations of people in many developing countries, possibly leading to mass population movements internally and illegal immigration externally in search of a better life.

• The increasing sophistication of criminal organizations, which are becoming significant players in international economic activity.

• The potential for transnational organised crime groups (particularly from the former Soviet Union) to acquire and sell chemical, biological, radiological or nuclear agents or technology to criminal or terrorist groups, or to so-called “rogue states”;

• The apparent increase of corruption, which facilitates crime at both the national and international levels.

• The inability of most countries to allocate increasing resources to the criminal justice system and law enforcement.

• The difficulty that the law enforcement agencies of many countries have in developing and maintaining the technical skills required to keep pace with banking and financial methodologies, developments in computers, technology and communications, and the increasing complexity of national and international law.3

Definition of organised crime

With the signing by 154 nations of the United Nations Convention Against

Transnational Organised Crime (2000) in Palermo, Italy,4 in December 2000, for the

3 John McFarlane, “Transnational Crime as a Security Issue” in Carolina G. Hernandez and Gina R. Pattugalan (Eds.): Transnational Crime and Regional Security in the Asia Pacific, Manila: Institute for Strategic and Development Studies and Council for Security Cooperation in the Asia Pacific, 1999, pp. 24-25. For a more detailed discussion of this issue, see John McFarlane: “Transnational Crime and Asia-Pacific Security: Beyond 2000” in Sheldon Simon (Ed.): The Many Faces of Security. Lanham, Maryland: Rowman and Littlefield Publishers, Inc., forthcoming (2001). 4

It was highly symbolic that the meeting was held in Palermo, long the centre of power of the Sicilian mafia, the most feared and successful of the Italian criminal organisations, and the site of the

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first time there is an internationally accepted definition of organized crime.5 6 The

Convention states, at Article 2(a), that -

[An] organised criminal group shall mean a structured group7 of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes8 or offences established in accordance with this Convention, in order to obtain, directly or indirectly, a financial or other material benefit.

Many other authorities and writers have also attempted to describe the attributes of

organised crime. For example, Howard Abadinsky defines the concept in a more

conventional way as:

... a non-ideological enterprise involving a number of persons in close social interaction, organized on a hierarchical basis with at least three levels/ranks, for the purpose of securing profit and power by engaging in illegal and legal activities. Positions in the hierarchy and positions involving functional specialization may be assigned on the basis of kinship or friendship, or rationally assigned according to skill. The positions are not dependent on the individuals occupying them at any particular time. Permanency is assumed by the members who strive to keep the enterprise integral and active in pursuit of its goals. It eschews competition and strives for monopoly on an industry or territorial basis. There is a willingness to use violence and/or bribery to achieve ends and maintain discipline. Membership is restricted, although non-members may be involved on a contingency basis. There are explicit rules, oral or written, which are enforced by sanctions that include murder.9

However it is defined, organized crime is intent on using its power to make money,

and it will do so, legally and illegally, trading in whatever commodity will provide

maximum profit for the lowest possible risk of detection and prosecution. At both the

national and international levels, organized crime is likely to be involved in varied

and nefarious activities. Among these activities are trafficking of arms and narcotics,

crimes of violence, racketeering, money laundering, pornography and prostitution,

computer and ecological crimes, and many others. As organized crime infiltrates these

murders, in 1992, of two courageous anti-mafia judges, Giovanni Falcone and Paolo Borsellino, and the subsequent arrest of the Sicilian mafia “boss of bosses”, Toto Riina. 5 The Convention will have the status of international law when it is ratified by 40 governments. 6

See “Organised Crime in 2000” in Jane’s Foreign Report, No. 2623, 11 January 2001, pp. 1-2. 7 The Convention describes a “structured group” at Article 2(c) as “a group that is not randomly formed for the immediate commission of an offence and that does not need to have formally defined roles for its members, continuity of its membership or a developed structure.” 8

The Convention describes a “serious crime” at Article 2 (b) as “ … conduct constituting an offence punishable by a maximum deprivation of liberty of at least four years or more serious penalty.”

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various sectors of the economy, its activities are often supported by accountants,

lawyers, financial advisers, bankers and chemists, as well as corrupt or compliant

politicians, judges, local government officials, law enforcement officers, members of

the military, media executives, professional people, businessmen,10 and even

community activists and priests. The underlying motive for this criminality, in most

cases, is quite simply power and money.11

The signing of the Convention was the culmination of six years of intensive effort by

the Vienna-based Office of Drug Control and Crime Prevention (ODCCP).12 This

process began with the Naples Political Declaration and Global Action Plan Against

Organised Transnational Crime, which the United Nations General Assembly

adopted in 1994, to deal with the increasingly insidious threat of transnational crime.

Accompanying the Convention are three important Protocols: the Protocol to Prevent,

Suppress and Punish Trafficking in Persons, especially Women and Children, the

Protocol Against the Smuggling of Migrants by Land, Sea and Air, and the Protocol

Against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and

Components and Ammunition. The ODCCP is now working on a draft treaty or

protocol on corruption and some additional work on cyber-crime.13

Transnational Organised Crime in the Asia-Pacific

In the interests of brevity, and to maintain the focus on the Asia-Pacific region, this

paper will consider the impact of transnational and organised crime on the security and

stability of five countries in the region - China (including, for the purpose of this

9 Howard Abadinsky, Organized Crime, 4th ed., Chicago: Nelson-Hall Publishers, 1994, p. 8. 10 It is worth noting that the relationship between entrepreneurial crime and legitimate business is often very close. Many leading criminal entrepreneurs have come from a legitimate business background. 11

John McFarlane: “Transnational Crime and Asia-Pacific Security: Beyond 2000” in Sheldon Simon (Ed.) The Many Faces of Asian Security. Lanham, Maryland: Rowman and Littlefield Publishers, Inc., forthcoming (2001). 12

See Dmitri Vlassis: “Drafting the United Nations Convention Against Transnational Organized Crime” in Transnational Organized Crime, Vol.4, Nos. 3 and 4, Autumn/Winter 1998, pp. 356-362. 13

“Corruption to be Central Theme of Upcoming United Nations Crime Commission Meeting”, SOC/CP/234, 7 May 2001. More than 100 countries met in The Hague in May 2001 for the 2nd Global Forum on Fighting Corruption and Safeguarding Integrity to commence work on a draft UN Treaty to control corruption. The next meeting of the Global Forum will be held in Seoul, South Korea, in 2003. - http://www.unfoundation.org/unwire/archives/UNWIRE010531.asp#19 accessed 01 June 2001.

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discussion Hong Kong, Macau and Taiwan14), Japan, the Republic of Korea (South

Korea), the Democratic Republic of Korea (North Korea) and the Russian Far East.15

It is evident from the details contained in the Annex “A” that, although the nature of

the transnational organised crime threat differs with each of the countries concerned,

the threat posed by these groups presents a significant problem for the countries of the

Asia-Pacific. Not only has organised crime presented a serious internal challenge for

the governments of the region, but it is also inextricably linked to corruption which is

a serious issue in most Asia-Pacific countries (including Australia), and which

undermines the conduct of good governance and frequently leads to community

reactions involving public order issues.

In the case of the DPRK, the evidence available suggests that the regime has, at the

least in the past, turned a blind eye to criminal activities, such as drug production and

trafficking, and the counterfeiting of and trafficking in foreign currency, involving

DPRK officials and diplomats abroad.

Impact of Transnational Organised Crime

National and transnational organised crime can have very significant impacts at the

political, military, economic, societal, environmental, and, of course, human security

levels. These impacts clearly extend to national and international security concerns

and to questions of stability and predictability in international relations.

Simply put, Phil Williams states that “insidious, pervasive and multifaceted”

transnational crime threatens:

• sovereignty;

• societies;

• individuals;

• national stability and state control;

• democratic values and public institutions;

• national economies;

• financial institutions;

14 The inclusion of Taiwan in this context has nothing to do with the question of sovereignty; it is due to the common ethnicity of the Chinese organised criminal groups involved. 15

Consideration could also have been given to organised crime groups in Thailand, Malaysia, Indonesia, the Philippines or Vietnam, but in these cases the groups concerned are apparently more diverse and entrepreneurial and less well structured than those described in Annex “A”.

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• democratization and privatization;

• development;

• global regimes and codes of conduct.16

Many of the crime trends now evident are not new to Asia, but the frequency and

sophistication of these trends are increasing. In addition, almost all the significant

crime problems of the Asia Pacific and other regions are transnational rather than

domestic in scope. What is also new to the region is the way in which the increasing

crime trends are intersecting with other social and economic problems to destabilize

individual nations, and therefore, the entire region. Furthermore, transnational

organized crime groups in the Asia Pacific are proving to be more resilient,

sophisticated, and international in both their activities and outlook. They have been

able to take advantage of weak governments, corruption, and nepotism, cultural and

ethnic links spreading far beyond individual countries, the growth of materialism, the

proximity of cheap supplies of drugs (both natural and synthetic), the desire of many of

the people of the region to settle elsewhere in pursuit of economic or personal security,

and, above all, the increasing gulf between the rich and the poor, the successful and the

unemployable, the educated and the uneducated, and the well-fed and the hungry.

These are all serious dichotomies for the people of the Asia Pacific region, and many

of them are precursors to systemic and serious crime and long-term social instability.

Such has been the impact of transnational crime over the last decade that many

countries now regard transnational crime, in its various manifestations, as a national

security issue,17 so that the law enforcement efforts in this area are strongly supported

by national intelligence community taskings, and the “whole of government” approach

to national security also encompasses prioritizing and resource allocation to combat

transnational crime. President Bill Clinton of the United States took the lead in this

16 Phil Williams, “The New Security Threat: Transnational Criminal Organizations and International Security,” in Criminal Organizations, Vol. 9, No. 3, Summer 1995, pp. 15-18. 17

See R.T. Naylor: “From Cold War to Crime War: The Search for a New ‘National Security Threat’” in Transnational Organized Crime. Vol. 1, No. 4, Winter 1995, pp. 37-56; Peter A. Lupsha: “Transnational Organized Crime versus the Nation State” in Transnational Organized Crime, Vol 2, No. 1, Spring 1996, pp. 21-48; William Rosenau, Kemper Gay and David Mussington: “Transnational Threats and US National Security” in Low Intensity Conflict and Law Enforcement. Vol.6, No. 3, Winter 1997, pp. 144-161; John McFarlane: “Transnational Crime as a Security Issue” in Carolina G. Hernandez and Gina R., Pattugalan (Eds.): Transnational Crime and Regional Security in the Asia Pacific. Manila: Council for Security Cooperation in the Asia Pacific/Institute for Strategic and Development Studies Inc., pp. 23-57.

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area in 1995 when he issued Presidential Decision Directive 42 (PDD-42),18 but other

major industrialised countries such as the United Kingdom, Germany, France, Italy,

Canada and Russia have adopted a similar approach and tasked their Intelligence

Services and agencies accordingly. Unfortunately, with the exception of a greater

emphasis on countering illegal immigration, the Australian Government has not yet

incorporated the wider threats from transnational crime or the higher level of offences

against Commonwealth law, into the national security agenda.

Strategies for Dealing with Transnational Organised Crime

New strategies need to be developed to deal with the threat of transnational organised

crime. Such strategies might include:19

• Encourage the development of compatible laws between nations to facilitate

the exchange of intelligence, the application of mutual assistance

arrangements, simplify extradition arrangements between states, enhance

investigations into and recovery of the proceeds of crime, and generally speed

the process of handling transnational criminal matters.

• Encourage states to accede to the major United Nations and other international Conventions, such as the three United Nations Drug Conventions (1961, 1971 and 1988),20 supporting the Naples Political Declaration and Global Action Plan Against Organised Transnational Crime,21 support the implementation of the eleven point plan to combat transnational crime, agreed at the 1st ASEAN

18 Signed by President Clinton on October 21, 1995, PDD-42 specifically addresses the nation's fight against international crime. PDD-42 recognizes that such criminal activity threatens U.S. national security and directs the federal agencies to combat international crime from the criminal barons sheltered overseas to the violence and destruction they deliver to our streets. PDD-42 also provides continuity to earlier Administration policy, complements other presidential directives on alien smuggling, drug trafficking, terrorism and nuclear materials, and mandates intensified federal efforts against international criminals - http://www.usdoj.gov/criminal/press/Xoptim.htm, accessed 17 June 2001. 19

See also: Raymond E. Kendall: “Responding to Transnational Crime” in Transnational Organized Crime. Special Issue: Combating Transnational Crime: Concepts, Activities and Responses.(Phil Williams and Dimitri Vlassis, Eds.), Vol. 4, Nos. 3 and 4, Autumn/Winter 1998, pp. 269-275; Roy Godson and Phil Williams: “Strengthening Cooperation Against Transnational Crime: A New Security Imperative” in Transnational Organized Crime. Special Issue: Combating Transnational Crime: Concepts, Activities and Responses.(Phil Williams and Dimitri Vlassis, Eds.), Vol. 4, Nos. 3 and 4, Autumn/Winter 1998, pp. 256-262; Phil Williams: “Transnational Organized Crime: Threat Assessment and Strategic Response” in Mely Anthony and Mohamad Jawhar (Ed.) Confidence Building and Conflict Reduction. Kuala Lumpur: ISIS-Malaysia, 1998, pp. 193-220. 20

United Nations Drug Control Program (1997): World Drug Report. Oxford: Oxford University Press, pp. 168 - 173. 21

Naples Political Declaration and Global Action Plan Against Organised Transnational Crime, Naples, 23 November 1994. The full text of this document is published in Transnational Organized Crime, Vol. 1, No. 1. Spring 1995, pp. 118 - 127.

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Conference on Transnational Crime in Manila, the Philippines, in 199822 and the seven strategies agreed at G8 meeting in Birmingham, England, in May 1998,23 the adoption of the 40 Recommendations the G-7 Financial Action Task Force (FATF),24 and enacting the OECD recommendations on combating bribery of foreign public officials25, and, of course, ratifying the new United Nations Convention Against Transnational Crime and its various protocols. • Encourage bilateral and multilateral cooperation and information flow

between law enforcement agencies, including supporting the role of such organisations as INTERPOL (International Criminal Police Organisation), ASEANAPOL, EUROPOL and the Customs Cooperation Council.

• Encourage a greater level of coordinated cross border and transnational cooperation through regional coordination meetings and operational targeting, multilateral police training programs and technical exchanges (including employing compatible computer databases).

Transnational organized crime - and terrorism - can no longer be written off as

“boutique” regional security issues. These problems have become central to security

and international policy concerns in the post-Cold War era, extending far beyond the

scope of conventional law enforcement. The response to these transnational threats

has resulted in a blurring of the traditional demarcation between diplomatic, military,

law enforcement, and intelligence roles of nations.

Countering the threat of transnational organised crime calls for the development of

appropriate resources, professional skills, regulatory regimes, highly developed

criminal intelligence and analytical capabilities, a dynamic and modern criminal justice

system, and close cooperation between the law enforcement community and the

relevant professions. However, no state can defeat a criminal threat that is generated

from outside its jurisdiction without developing sound working relations and

cooperation with neighboring states and adopting international “best practices.” For

this reason the answer to the transnational crime threat requires new, imaginative and

constructive regional and international responses.

22 ASEAN Declaration on Transnational Crime, Manila, 20 December 1998. 23 The Birmingham Summit: Final Communique, 17 May 1998. 24

Financial Action Task Force on Money Laundering: Report, dated 6 February 1990. 25 Organisation for Economic Cooperation and Development (OECD): Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Paris, 17 December 1997. See also the United Nations General Assembly: Declaration Against Corruption and Bribery in International Commercial Transactions, New York, December 1996.

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Transnational Crime and Terrorism

Background

Traditionally, terrorist activities have been financed from a variety of sources:

• State sponsorship, from, say, Libya, Iran, Iraq, Syria and, in the past, the former Soviet bloc;

• Non-state sponsorship, which is an increasing feature of modern terrorism and appears to be a major characteristic of al-Qa’ida, which has provided funding, training and infrastructure support to a network of groups sympathetic to own aims, apparently on a scale much wider than previously estimated;

• Drug production and trafficking (or narco-terrorism), which has been a major source of income for al-Qa’ida, using its international links on a commission basis (10-15%). Many other terrorist groups also use drug production or trafficking as a major source of income;

• Other illicit activities, such as diamond sales. Al-Qa’ida is assessed as having reaped hundreds of millions of dollars over the last three years from the illicit sales of diamonds mined by its allies, the Revolutionary United Front (RUF) in Sierra Leone.

In 2001, the FATF identified the following major sources of terrorist funding:

• Drug production and trafficking;

• Extortion, i.e. extortion of businesses, building companies, social clubs, and wealthy individuals;

• Kidnapping for ransom, i.e. hostage taking to extort money or political concessions (accompanied by the threat of execution);

• Robberies, especially bank robberies;

• Fraud, especially credit card fraud;

• Illicit gambling operations;

• Smuggling and trafficking in counterfeit goods;

• Direct sponsorship by states;

• Contributions and donations;

• Sale of publications (legal and illegal);

• Legitimate business activities.26

To this list could be added:

• Illicit trafficking in firearms and diamonds;

• Human smuggling and sex trafficking;

26 See Bill Tupman: “The Business of Terrorism”. Presentation made to a Conference on Terrorism and Finance at the Institute of Advanced Legal Studies, University of London, 29 November 2001.

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• Manipulation of the stock market.

It should be remembered that the funds generated from these criminal activities might

not flow directly into supporting terrorist operations, but may be invested in legitimate

sources to generate a long-term cash flow for the group concerned. Frequently, these

means of generating money are so successful, that they may continue, as conventional

criminal activity, after the political campaign has been concluded.27

When he established al-Qa’ida in the early 1990s, Osama bin Laden provided it with

substantial “seed money” - assessed at about US$150 million - from his personal

wealth and the profits of his business enterprises. In addition, al-Qa’ida has benefited

(and apparently continues to benefit) from donations from wealthy supporters from

Saudi Arabia, the Gulf States, and other Middle Eastern countries. In addition, al-Qa’ida derives funds from a number of lucrative legitimate business enterprises

established by bin Laden and others in the Sudan, the Middle East, and elsewhere. Al-Qa’ida also appears to have made significant profits on the stock market, particularly

27 According to Schmid, there are a number of similarities and differences in relation to transnational crime and terrorism which need to be noted to better understand these two phenomena:

• Similarities:

o Members are generally (but not always) rational actors;

o Both use intimidation and ruthlessness;

o Both use similar tactics - drug trafficking, kidnappings, extortion, bank robberies, assassinations, etc;

o Both operate in secrecy;

o Both are criminalised by the ruling regime;

o Both usually (but not always) opposed to the state;

o Both place heavy demands on individual members.

• Differences:

o Terrorist groups are usually ideologically rather than profit motivated;

o Terrorists usually admit their guilt in courts;

o Terrorists seek media coverage for their cause;

o Terrorist victimisation is less discriminate than criminal victimisation;

o Terrorists compete with governments for legitimacy; o Criminal groups are more competitive and territorial.

[Alex P.Schmid: “The Links between Transnational Organized Crime and Terrorist Crimes”, Transnational Organized Crime, Vol. 2, Winter 1996, No. 4, pp. 40-82]

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through the exploitation of hedge funds, and the “short selling” of shares in insurance

and airline stocks just before 11 September 2001.

The investigation of the sources of funding for the people involved in the incidents on

11 September have been based on international intelligence exchanges; the

exploitation of documentation recovered from post-11 September investigations in the

United States and elsewhere, and documents and videotapes recovered in post-action

searches in Afghanistan; from the interrogation of well over 1,100 suspects in the

United States and elsewhere; and from substantial support from the international

banking sector, leading to the freezing of the funds of some 74 organisations and

individuals globally, said to be associated with al-Qa’ida and related terrorist

activities. About 150 countries now have blocking orders in place to freeze terrorist

funds and 200 countries have expressed their support in the fight against terrorist

financing. Already, the money frozen is said to exceed US$100 million. Regardless

of the issue of terrorist funding, criminal money laundering on a global scale is a

massive problem. Michel Candessus, the former Head of the International Monetary

Fund, has assessed the annual volume of money laundering world-wide at US$600

billion, or between 2-5% of global GDP.

International Response to Money Laundering and Terrorist Financing

A number of major initiatives have been taken to counter money laundering and trace

the sources of terrorist finances. These initiatives, and the organisational structures

supporting them, include:

• Financial Action Task Force (FATF);

• The Egmont Group of Financial Intelligence Units;

• The Wolfsberg Group of (Private International) Banks;

• The Basel Committee on Banking Supervision

• The G-20 forum of Finance Ministers and Central Bank Governors.

The Financial Action Task Force (FATF) [http://www.fatf-gafi/org] was established

by the G-728 in 1989, and is administered by the Organisation for Economic

Cooperation and Development (OECD). Since its creation the FATF has spearheaded

the effort to adopt and implement measures designed to counter the use of the

28 The G-7 nations comprise Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

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financial system by criminals. It established a set of 40 Recommendations that set out

the basic framework for anti-money laundering efforts and are intended to be of

universal application. Indeed, the 40 Recommendations are now the principal

standard in this field. The FATF reviews its members for compliance with the 40

Recommendations. There are currently 31 members in the FATF29, including an

Asia-Pacific Group on Money Laundering (APG)30 which has an office in Sydney,

and which covers the countries in the Asia-Pacific region.

To reduce the vulnerability of the international financial system to misuse by

criminals, the FATF is also involved in examining and identifying the serious

systemic weaknesses in the anti-money laundering programs of certain jurisdictions,

known as Non-Cooperative Countries and Territories (NCCTs). On 22 June 2001, the

FATF listed 19 NCCTs, including the following Asia-Pacific countries:

Cook Islands Marshall Islands Nauru Philippines

Indonesia Myanmar (Burma) Niue Russia

The FATF called on all its members to request their financial institutions to give

special attention to transactions with persons, companies and financial institutions in

these countries and territories.

On 31 December 2001, the FATF that further counter-measures should be introduced,

on a gradual and proportionate basis, to cover the recording of financial transactions

from NCCTs. These additional counter-measures were:

• Stringent requirements for identifying clients and enhancement of advisories to financial institutions for identifying beneficial owners before business relationships are established;

• Enhanced relevant reporting mechanisms for suspicious transactions;

• Review the requests for the establishment in any FATF country of branches or subsidiaries of banks for NCCTs;

29 Membership of the FATF currently comprises Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, European Commission, Finland, France, Germany, Greece, Gulf Cooperation Council, Hong Kong/China, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. In addition, there are five “FATF-Style” Regional Bodies and 14 International Organisations that have observer status on the FATF. 30

Membership of the APG currently comprises Australia, Bangladesh, Chinese Taipei, Cook Islands, Fiji, Hong Kong/China, India, Indonesia, Japan, Macau/China, Malaysia, New Zealand, Niue, Pakistan, Philippines, Samoa, Singapore, South Korea, Sri Lanka, Thailand, the United States and Vanuatu. In addition, Brunei Darussalam, Canada, Myanmar (Burma), Nepal and Vietnam have observer status, along with 13 International or Regional Organisations.

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• Warning the non-financial sector that business with entities within NCCTs might run the risk of being associated with money laundering.

Terrorists frequently finance their operations through criminal activity, or they may

also use funding from legitimate sources. In either case, terrorist groups utilise

financial networks in the same way that other criminal groups do. That is, they move

funds and hide connections between the source of their funding and the perpetrators,

organisers, and sponsors of their activity. The FATF’s work on underground banking

(hawala) and alternative remittance systems, laundering mechanisms that play a role

in some criminal and terrorist laundering operations, is also given a high priority.

In October 2001, the FATF promulgated 8 Recommendations to deny terrorists and

their supporters access to the international finance system. In brief, these

recommendations were:

1. Immediately take steps to ratify the United Nations Convention on the Suppression of Terrorist Financing, 1999;

2. Criminalise the financing of terrorism, terrorist acts and terrorist organisations;

3. Freeze and confiscate terrorist assets;

4. Require financial institutions to report suspicious transactions that may be linked to terrorism;

5. Assist other country’s investigation of terrorist financing networks;

6. Improve money laundering requirements on alternative remittance systems;

7. Strengthen customer identification requirements for domestic and international wire transfers;

8. Take steps to ensure that non-profit organisations are not misused to finance terrorist groups.

The FATF met in Hong Kong between 30 January and 1 February 2001 to review

progress in this area, and to begin to identify countries that are not taking appropriate

measures to counter terrorist financing. These countries will be expected to be

compliant by June 2002, or they may face sanctions.

The Egmont Group of Financial Intelligence Units [http://www1.oecd.org/fatf/Ctry-orgpages/org-egmont_en.htm], was formally established in 1995 to provide a forum

for national Financial Intelligence Units (FIUs)31 to improve support to their

respective national anti-money laundering programs. This support includes

expanding and systematising the exchange of financial intelligence, improving

15

expertise and capabilities of the personnel of such organisations, and fostering better

communication among FIUs through the application of new technologies. FIUs play

a key role in identifying and tracking terrorist finance.

The Wolfsberg Group [http://www.wolfsberg-principles.com/], established in October

2000, consists of twelve leading international private banks, operating in collaboration

with Transparency International, a Berlin-based NGO dedicated to increasing

government accountability and curbing both international and national corruption.

The Wolfsberg Group is currently examining such issues as:

• Practical measures to investigate lists of terrorists, terrorist organisations, and so on, provided by Governments or law enforcement agencies, to determine the whereabouts of their funds and the measures necessary to freeze them;

• Issues related to correspondent banking, particularly as it concerns “shell banks” in NCCTs;

• Record-keeping on foreign bank ownership;

• Exchanging information on suspicious broker-dealer activities;

• Examining measures to identify and deal with non-traditional funds transfer methods.

The Wolfsberg Group met last in Wolfsberg between 9-11 January 2002 to develop a

set of best practice guidelines for traditional finance institutions investigating the

financing of terrorism.

As an example of the seriousness of this work, it was recently established that 22

United States securities firms surveyed had more than 45,000 off-shore clients with an

estimated US$140 billion in assets in their accounts. Obviously sophisticated

computer analysis is playing a key role in tracking money laundering and terrorist

financing in this area.

The Basel Committee on Banking Supervision [http://www.bis.org/bcbs/], established

by the Central Bank Governors of the Group of Ten Countries32 at the end of 1974.

Its objective is to formulate broad supervisory standards and guidelines, and

recommend best practice in the expectation that individual authorities will take steps

to implement them through detailed arrangements - statutory or otherwise - which are

31 As at 4 February 2002, there were 58 countries with FIUs which participate in the Egmont Group.

16

best suited to their own national systems. Its work in the area of “due diligence” is of

particular relevance to countering money laundering and the funding of terrorist

organisations. The Committee’s Secretariat is provided by the Bank for International

Settlements (BIS) in Basel.

The G-2033, established in Washington on 25 September 1999, comprises the Finance

Ministers and Central Bank Governors of 19 countries, the European Union and the

Bretton Woods Institutions (the International Monetary Fund and the World Bank).

The g-20 promotes discussion, and studies and reviews policy issues among

industrialised countries and emerging markets, with a view to promoting international

financial stability.

On 17 November 2001, the G-20 promulgated a comprehensive plan of multilateral

cooperation to deny terrorists access to their financial systems, through a number of

concrete steps designed to combat terrorist financing and money laundering.

United Nations Initiative

Prior to 11 September 2001, only four countries34 had ratified the United National

International Convention for the Suppression of the Financing of Terrorism, 1999.

This Convention establishes that it is an offence for a person “by any means, directly

or indirectly, unlawfully and willfully, provides or collects funds with the intention

that they should be used or in the knowledge that they are to be used, in full or in part,

in order to carry out” a terrorist act.35

However, with the huge increase in international concern about the terrorist financing,

the Convention came into force on 10 April, by which time 132 countries had signed

the Convention and 26 had ratified it, four more than the 22 required. The

Convention calls for stepped up efforts to identify, detect and freeze or seize funds

earmarked for terrorist acts and urges states to use such funds to compensate victims

and their families. It also calls on financial institutions to report to their governments

32 Current membership of the Basel Committee comprises Belgium, Canada, France, Germany, Italy, Japan, Luxemburg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United States. 33

Membership of the G-20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States and the European Union. 34

Uzbekistan, the United Kingdom, Sri Lanka and Botswana.

17

any unusual or suspicious transactions. States that are party to the Convention must

prosecute offenders or extradite them to nations that suffered from their illegal acts.

They must cooperate in investigations and may not, for example, refuse a request for

assistance on grounds of banking secrecy. They must also update their laws to comply

with the provisions of the Convention.36

In addition to the above, an ad hoc committee of the Legal Committee of the United

Nations General Assembly is developing a draft International Convention Against

Terrorism that will codify the outlaw the financing of terrorism. However, at this

stage, the committee has been unable to agree on a definition of terrorism, to find a

way to distinguish a terrorist from a freedom fighter, and unable to agree on excluding

state forces from anti-terrorism provisions (i.e. the problem of “state terrorism”).

Also, at the initiative of the Russian Federation, the Legal Committee is working on a

new convention or protocol to address the suppression of nuclear terrorism.37

Statement of G-7 Finance Ministers and Central Bank Governors

The G-7 Finance Ministers and Central Bank Governors met on 9-10 February 2002

to discuss the global economy, the importance of fostering development and ongoing

efforts to combat the financing of terrorism. At the end of the meeting, they issued a

progress report on combating the Financing of terrorism. A copy of this report may

be found at Annex “B”.

Conclusion

The international response to the need to track and freeze terrorist finance and counter

conventional money laundering, since 11 September 2001, has been most impressive.

It also complements other international measures against both transnational terrorism

and transnational crime. However, much of this is still “work in progress” at both the

national and international levels.

35 United National International Convention for the Suppression of the Financing of Terrorism, 1999, Art. 2. 36

"Terrorism: Treaty on Suppression of Financing to Enter into Force", UN Wire Report, 9 May 2002, at http://www.unfoundation.org/unwire/current.asp#25381, accessed 10 April 2002. See also "Treaty to stop cash flow to terrorists comes into force", Times of India, 10 April 2002. 37

"Suppression of Nuclear Terrorism Convention" at http://www.fas.org/nuke/control/nt/, accessed 6 May 2002. See also, "Ad Hoc Committee Established by General Assembly Resolution 51/210 of 17 December 1996" at http://www.un.org/law/terrorism/, accessed 6 May 2002.

18

The measures taken as a result of the investigations following the events of 11

September 2001 have flowed on to facilitate the investigations of money laundering

and money movements relating to more conventional criminal issues, such as major

drug cases and the investigation of fraud, white collar crime, capital flight, and more

generally the nexus between the legitimate and illegitimate business practices

undertaken by transnational organised crime groups.38

The Response to Terrorism

Transnational terrorism requires a multi-faceted response:

• Law enforcement response:

o Requires large resources to be diverted from normal law enforcement;

o Requires high priority and enhanced intelligence exchanges;

o Utilises joint operational activities;

o Relies on extradition and mutual support;

o Must attack and neutralise the terrorist financial base.

• Military response:

o Is not generally regarded as a core military war-fighting task;

o Can only be used selectively;

o It is very hard to neutralise the target through military means alone;

o Any foreign direct military intervention is generally unacceptable.

• Intelligence community response:

o It is a very difficult target to attack. Imagery is of limited value if there are few fixed bases; communications intelligence (COMINT) of limited vale if conventional communications channels are not used; money movement of limited value if non-conventional banking methods employed. There needs to be much more emphasis on Human intelligence (HUMINT).

o Needs real-time data, involving processing a large volume of material which may need deciphering, translation, analysis and dissemination.

o Must overcome traditional cultural introversion and elitism of the intelligence community to facilitate exchange with the law enforcement community and overseas intelligence and law enforcement agencies. Transnational crime and terrorism are global threats that can only be neutralised by a global response.

• Political/strategic response:

38 For example, in January 2002, the United States Department of Treasury Financial Crimes Enforcement Network (FinCEN) published an SAR Bulletin (Suspicious Activity Report), which examined five significant cases of terrorist financing, and provided 23 very useful indicators, most of which are applicable to both terrorist and transnational crime investigations.

19

o Needs to attack the root causes of terrorism. Why are people doing this? Why are people so angry? Why are they prepared to kill themselves for the cause? Is this a religious problem or are there other causes (and therefore the solutions) of a much broader nature?

o Needs to recognise that we are living in a very complex and changing global environment. Has our thinking moved on to embrace these changes? Do our national strategies reflect these changes?

o Should take not that the consistent line of criticism from a very broad spectrum of the international Islamic community is that the United States and its allies have mishandled the Israel/Palestine situation; they are concerned at the continuing presence of foreign military forces in Saudi Arabia (where the most sacred sites of Islam are located); they continue to be critical of the impact of United Nations sanctions on the ordinary people of Iraq; and they criticise the overwhelming dominance of United States military power and its deployment where civilian casualties are suffered. We may not agree with these propositions, but if we do not try to understand them and make such adjustments as may be necessary to accommodate at least some of these concerns, we should not be surprised if we face the trauma of further 911 attacks, only possibly next time employing much greater risks, such as the use of weapons of mass destruction.

Hobart 9 May 2002

20

Annex “A”

Brief Description of Organised Crime Groups in China, Hong Kong, Macau and Taiwan

China’s increasing role as a source area of international criminal activity , including greater worldwide influence of Chinese criminal syndicates, has paralleled its emergence as a global economic power and Beijing’s opening to foreign investment. … Since the early 1990s more than half of the heroin produced in Burma now transits Yunnan Province and the other regions of China on its way to drug markets in China itself and in North America and Australia. Fujian Province is a major base of operations for criminal brokers known as “snakeheads” who, using contacts around the world, orchestrate the movement of illegal Chinese immigrants (overseas). Legitimate textile works, factories, and high-tech manufacturers in Guangdong Province are major producers of pirated and counterfeit products. … The entrepreneurial stake of many Chinese officials in various business enterprises -fully legitimate or otherwise - lends itself to criminal activity for profit. … Beijing’s policy of inviting overseas Chinese businessmen to trade and invest in China, have allowed powerful Chinese triad criminal organisations from Hong Kong, Macau and Taiwan to establish strong footholds on the mainland, especially southern China 39

As one of the world’s leading commercial, financial and transportation centres, Hong Kong has long been the hub of criminal activity in East Asia - a status that has not changed since China assumed sovereignty over the territory in 1997. The massive volume of trade in containerised shipping through Hong Kong (16 million containers annually) offers substantial opportunity for criminals to smuggle all kinds of contraband, including drugs and arms, and illegal immigrants. … Hong Kong’s status as one of the world’s most developed financial centres makes it vulnerable to attempts to use its financial institutions for laundering illicit profits. Wide-ranging links to the international business community and the modern banking sector in Hong Kong provide extensive cover for money-laundering operations and for financing illicit activities.40

Since Macau’s reversion to Chinese administration in 1999, organised crime continues to have substantial influence over the enclave’s economy. Organised crime groups still dominate Macau’s gaming industry, the primary engine of its economy. In addition to the substantial revenues they generate of their own accord, gambling and prostitution rackets in Macau are used by local and other crime groups for money laundering. … Local and national Chinese law enforcement authorities have been working to diminish the power of organised crime in Macau. … Although triad involvement in casinos and other businesses remains a serious problem, there has been a marked decline in organised crime-related violence in Macau. … The weakness of Macau’s laws to combat money laundering remains a serious problem.41

Organised crime is deeply entrenched in Taiwan’s business and political sectors. Large ethnic Chinese criminal syndicates … which followed the ruling Kuomingtang party from the mainland to Taiwan in the late 1940s, and Taiwanese criminal gangs have established strong influence in Taiwan’s local communities. … Although the .organised crime problem in Taiwan is largely domestic, Taiwan-based criminal groups use the island’s extensive international trade and financial links to further their illegal activities overseas. … Some Taiwanese-based triads have links to Hong Kong and China, including establishing front companies or investing in specific criminal ventures. … Political corruption and the ties of former ruling party politicians to organised crime continue to be potent political issues in Taiwan.42

39 United States: International Crime Threat Assessment. Chapter III, pp.22 - 23 at .http://www.whitehouse.gov/WH/EOP/NSC/html/documents/pub45270/pub45270index.html accessed 17Dec00 40

Ibid, p.24.

41 United States, op.cit., p. 25. 42 United States, op. cit, p. 26.

21

Major Groups

China Hong Kong43 Macau Taiwan

Entrepreneurial syndicates/gangs.

Big Circle Gang*

Fuk Ching Gang*

14K triad*

Sun Yee On triad*

Wo group triads*

14K triad*

Sun Yee On triad*

United Bamboo gang*

Four Seas gang*

* Indicates that the triad or gang concerned maintains links to overseas Chinese criminal groups.

Major Activities

China Hong Kong Macau Taiwan

Corruption Credit card fraud Drug trafficking44 Flight capital45 Gambling Illegal immigration Intellectual property Investment scams Money laundering Prostitution Sea piracy Small arms trafficking Smuggling46 Tax evasion Theft of computer

chips

Vehicle theft

Computer crime Copyright violations Corruption Credit card fraud Drug trafficking Entertainment industry

crime

Extortion Gambling Money laundering Prostitution Protection rackets Stock market and

futures manipulation White collar crime

Corruption Extortion Gambling Illegal immigration Loan sharking Money laundering Prostitution Protection rackets Small arms trafficking Smuggling

Construction industry fraud Corruption Drug trafficking Electoral fraud Methamphetamine

manufacture Money laundering Protection rackets Smuggling Stock market

manipulation

43 The Hong Kong Police assesses that there are some 50 - 60 loose-knit triad groups currently operating in Hong Kong. Total world “membership” of triads is assessed at 100,000. 44

Mainly methamphetamine and heroin. 45 The value of capital flight out of China is assessed at US$ 20 billion annually. 46

The value of smuggling into China is assessed at US$12 billion annually.

22

Brief Description of Organised Crime Groups in the Republic of Korea (ROK)

It is typical for organised crime groups to gain enormous illicit profits through gambling, drugs, prostitution and smuggling. In Korea, the massive organised violent groups (for example, the yakuza in Japan, mafia in Italy and triads in China) have not yet developed. Fortunately, there are no signs that major organised criminal groups in Korea are involved in drug trafficking and manufacture so far. … Recently, a few illicit trafficking cases were involved with international drug syndicates such as 14K/United Bamboo Gang, Nigerian cells and Russian mafiya were detected. … A new Special Act in 1995, with the provision that any member of an organisation committed of committing drug trafficking as a business can be punished up to the death penalty, is now under legislation.47

Korean organised crime groups exist in cities overseas with a large Korean population. One source claimed in 1994 that ethnic Korean groups headquartered in Japan and affiliated with the boryokudan (or yakuza) control ninety percent of the flow of crystal methamphetamine (“ice”) to Hawaii.48

While the level of organised crime in Korea, or involving Koreans abroad, is limited in comparison with some other countries in the region, the Republic has faced very serious problems as a result of deeply entrenched corruption and white collar crime which are linked to entrepreneurial politicians, businessmen and bureaucrats, rather than organised crime groups. This activity has included widespread bribery,49 fraud (including electoral fraud), embezzlement, capital flight, tax evasion, loans to bankrupt companies, the illicit exploitation of fishing resources of other countries and the misuse of the resources of the intelligence community for party political purposes. Not only have Chairmen or senior officials of several of the Korean chaebols (corporate conglomerates) been convicted of bribery, but in 1996 two former Presidents (Roh Tae Woo and Chun Doo Hwan) were imprisoned for massive corruption, before being pardoned by President Kim Dae Jung in December 1997.50

Major Groups

Republic of Korea United States Other Countries

White Tiger Gang51 Chong no pa gang Cholla do pa gang Bon gae pa gang Other street gangs

Street gangs - Korean Killers (KK), Korean Power, the Magui (Satan), Korean Fuk Ching and the Korean mafia

Toa Yuai Jigyo Kumiai (TYJK) syndicate Honolulu52

[Said to be “close to” Japanese, Chinese and Italian criminal groups]

Australia - organisational details not known, but there have been a number of incidents involving bashings, extortion loan sharking and murder, involving visiting Korean criminals. Appear to operate as “enforcers” within the Korean community. Possibly three local gangs involved.

47 Sung Tae Yoon: “Prevention and Drug Control” in Crime and Justice International, December 1998, pp. 15 - 23. 48

Jean-Paul Creusat: “Year 2000 and L.U.C.I.D.© System: A Millstone to curtail Terrorists and International Organised Crime” in The Narc Officer, July/August 1994, p. 74. 49 Bribery has become so common that the business community calls it a quasi-tax or chunchose. Bribery opens doors and allows for dividing up the profits from public works projects amongst a number of tenderers. 50

In 1995, Kim Dae Jung revealed that in 1995, former President Roh Tae Woo had given him 2 billion won (US$2.5 million) to support his 1991 electoral campaign - “Korean Opposition Chief Accused of Corruption: Presidential Favourite Tied to Slush Funds” in International Herald Tribune, 8 October 1997, p.4 51

Closely associated with the Japanese yakuza, and influenced by them. 52 Closely associated with the Japanese yakuza, and influenced by them.

23

Major Activities

Republic of Korea United States Other Countries

Copyright violations Corruption Entertainment industry crime Financial fraud Gambling Kidnapping Loan sharking Methamphetamine(‘ice”)

production and trafficking Murder Politically-motivated violence Prostitution Sex trafficking Smuggling Tax fraud

Credit card fraud Collecting loans Commercial fraud Construction industry fraud Drug trafficking Extortion Gambling Illegal activities for other

organised crime groups Loan sharking Money laundering Prostitution Protection rackets Sex trafficking Smuggling

Credit card fraud Drug trafficking Extortion “Enforcement” Gambling Loan sharking Prostitution Sex trafficking

24

Brief Description of Organised Crime Groups in the Democratic Peoples’ Republic of Korea (DPRK)

It is increasingly clear that not only are key figures within the North Korean regime involved in transnational organised crime, but that the state itself has criminalised itself as a matter of policy. … In this respect, North Korea is metamorphosing into a true “criminal state”.53

There have been regular reports from many official and unofficial sources for at least the last 20 to 30 years that the DPRK encourages illicit opium cultivation and engages in trafficking of opiates and other narcotic drugs as a criminal state enterprise. … Even the North Koreans admit that opium is grown there, while maintaining it is used for medicines and painkillers. … This past year’s drug seizure reports seem to point to more trafficking in amphetamine-type stimulants (ATS), and less in heroin and opium. Estimates of opium production in the DPRK vary from 30 MT to 44 MT: this would yield from about 3 to 4.5 MT of heroin. … (However) agricultural problems in North Korea, including flooding and shortages of fertilizer and insecticides, suggest that current opium production might be well below these estimates.. There has also been a very clear shift in Asian drug abuse away from opium towards methamphetamine-type drugs. … North Korea is reportedly stepping up its manufacturing capacity for methamphetamine production. … Russia54 and China are the key markets and transit routes for North Korean drug, (with an) expanding illicit market in Japan.55 … Drugs have also been reported to have been transferred from North Korean trawlers at sea.56 It was estimated by the South Korean authorities in 1996 that the profit from narcotics trafficking nets North Korea US$300 million per year.57

There have been a number of incidents publicly revealed where North Korean diplomats have been involved in trafficking in illicit drugs.58

… there have been many other incidents and arrests which suggest North Korean state involvement in other criminal enterprises. Among the crimes more frequently mentioned are counterfeiting, illicit trade in endangered species, fraudulent antiques, counterfeit CDs, tapes and cigarettes. … There is considerable evidence suggesting North Korean complicity in illicit activities, indeed direction of illicit activities, but almost all of that evidence is subject to alternative explanations, which put the blame on the individual or on the entity where the individual works.59 It remains unclear whether alleged North

53 Mark Galeotti: “Criminalisation of the DPRK” in Janes Intelligence Review, March 2001, pp. 10-11. 54

It was reported in 1995 that drug addiction in the Russian Maritime Provinces was 29 times the national average, apparently due to the drug trafficking activities of North Korean timber-industry workers working in Russia - Sophie Quinn-Judge and Shim Jae Hoon: “Opiate of the Party: North Korea fuels opium boom in Russia” in Far East Economic Review, 5 December 1996, pp. 28-30. 55

United States Department of State: International Narcotics Control Strategy Report, 1999. March 2000 at http://www.state.gov/www/global/narcotics_law/1999_narc_report/seasi99_part3.html, accessed 09Apr00. According to the International Crime Threat Assessment, prepared by a US Government interagency working group “a large share of the methamphetamine consumed in Japan comes from North Korea, according to press reports; more than 40 percent of the methamphetamine seized in Japan in 1999 came from North Korea.” - Chapter III, p. 30. http://www.whitehouse.gov/WH/EOP/NSC/html/documents/pub45270/pub45270index.html, accessed 17Dec00. 56

China, 1994; Taiwan, May 1999; Japan, October 1999. In all, between 1976 and 1998 there were 30 verifiable incidents involving drug seizures in 13 countries. In several of these cases DPRK diplomats or officials were arrested. 57

Sophie Quinn-Judge and Shim Jae Hoon: p. 29. 58 Russia, 1998; Egypt, January 1998; Bulgaria, April 1999. The DPRK Government attributes these criminal actions to the individuals or (in the case of business enterprises) to their organisations, and claims they will be punished if they return to North Korea. 59

United States Department of State, op. cit..

25

Korean involvement in illicit activities results from state policy, or is simply the actions of criminal individuals or entities. … However … it seems more likely that the state itself is involved in drug manufacture and trafficking.60 61

A serious case (occurred) in early 1999 when a former Zvezda Shipyard employee was caught trying to sell radioactive materials … to undercover agents posing as brokers for North Korea. (Reuters, 2 September 1999).

Major Groups

DPRK Overseas

Bureau No. 39 of the Korean Worker’s Party (?)

Other affiliations unknown.

Criminal gangs run by ethnic North Koreans62 in Japan are expected to remit to the DPRK about 20% of their earnings from protection, extortion and racketeering activities, including the profits from pachinko gambling (pinball) clubs.63

60 United States Department of State, op. cit.. 61 In his paper, titled “The North Korean Drug Trade: Issues for Decision Makers” in Transnational Organized Crime, Vol. 4, No. 1, Spring 1998, pp. 81 - 88, Raphael F. Perle states:

Pressed for cash and perceiving its vital national security at stake, the regime reportedly created an office to bring in foreign currency - “Bureau No. 39” - under the ruling Korean Worker’s Party, which is headed by North Korean leader Kim Jong Il. This office is reported to be in charge of drug trafficking, and according to some reports, all crime-for-profit activity, including opium production and trafficking, methamphetamine production and trafficking, counterfeiting and smuggling.

According to Galeotti some sources suggested that in 1997 (Bureau No. 39) generated an estimated US$86 million of which $71 million came from drug trafficking. Others have put this figure as high as $500 to $ 1 billion. The “best guess” estimate for 2000 appears to be $150 - 200 million, of which 75 - 85% comes from narcotics: this is equivalent to almost half of the country’s total legal export trade. [Galeotti, op cit., p.10] 62

These gangs are closely associated with the yakuza. 63 Some authorities have, in the past, assessed these remittances at between $500 million to $1billion per year.

26

Major Activities

DPRK Overseas

Amphetamine production and trafficking Arms trafficking Black marketeering Corruption64 Counterfeit CDs and tapes Currency counterfeiting Heroin refining and trafficking Kidnapping Opium production Smuggling

Alleged support for acts of international terrorism65 Amphetamine trafficking66 Arms trafficking Cigarette smuggling Counterfeiting of currency Embargo breaking Gold smuggling Heroin trafficking Illicit trade in endangered species Kidnapping Nuclear smuggling? Trafficking in rare earth minerals

64 Lynne O’Donnell: “Corruption robs North Korea of aid” in Australian, 20 November 2000, p. 10. See also John Larkin: “Where has the aid gone?” in Far Eastern Economic Review, 25 January 2001, pp. 62-64. 65

See Terrorism , the Future and U.S. Foreign Policy, Congressional Research Service Issue Brief 95-112. In the 1980s, terrorists linked to the DPRK used Macau as a base for the bombing, on 9 October 1983, of a group of South Korean ministers and officials visiting Rangoon at the time. 21 people were killed. Furthermore, terrorists linked to the DPRK were alleged to have been involved in the bombing of a Korean Airlines Boeing 707 airliner en route from Baghdad to Seoul on 29 November 1987. 115 people were killed. The DPRK denied involvement in both incidents. [See Britannica Book of the Year, 19894, Chicago: Encyclopaedia Britannica Inc., pp. 257, 470-471 and Britannica Book of the Yea, 1988, Chicago: Encyclopaedia Britannica Inc., pp. 152, 427.] 66

Galeotti claims that 25% of the amphetamines trafficked into Japan comes from the DPRK. The DPRK is also involved in manufacturing “designer drugs” such as the “date rape” drug, rohypnol tablets (“roofies”). [Galeotti, op cit., p. 11].

27

Brief Description of Organised Crime Groups in Japan

Japanese crime syndicates, known as yakuza,67 have exploited their traditional roles in arbitrating disputes and loan collection to gain a wide measure of public acceptance. The yakuza’s practice of sokaiya, corporate extortion, often by threatening to disrupt corporate shareholder meetings, has been generally tolerated by Japanese society, despite the economic influence it has given organised crime. … The yakuza were able to cash in on Japan’s economic and real estate boom in the 1980s to expand their profit-making activities beyond their traditional criminal arenas of drugs, gambling, prostitution and corporate extortion. Housing loan companies, jusen, that were affiliated with major Japanese banks reportedly issued a portion of their loans, many of which were not repaid, to yakuza-tied firms as part of the speculative boom in real estate. … As a result, the yakuza were behind many of the problem loans leading to the 1996 collapse of the jusen mortgage industry. … One expert on Japanese crime believes that yakuza interests may have directly accounted for 10 percent of the banking industry’s bad loans, which he estimated as high as $700 million, and an additional 30 percent of the bad loans may have been indirectly tied to yakuza affiliations.68

The yakuza are among the world’s largest and most powerful criminal confederations. The yakuza are highly structured and criminally diverse organisations that have thoroughly penetrated Japanese society, including the legitimate economic sphere, through their extortion-like practice of sokaiya. There are an estimated 3,000 yakuza groups and subgroups based in Japan. According o Japan’s National Police Agency, 60 percent of the estimated 90,000 members and associates of yakuza families are affiliated with one of three groups: the Yamaguchi-Gumi, Sumiyoshi-Kai and Inagawa-Kai. These groups control most organised criminal activity in Japan, including gun trafficking, drug smuggling, alien smuggling, prostitution, illegal gambling, extortion and white collar crime through infiltration of legitimate businesses. Academic specialists on Japanese organised crime have estimated the annual revenue of the yakuza as about $13 billion.69

“Anti-yakuza” legislation implemented in the early 1990s and updated in 1997 … (including) a nationwide crackdown on sokaiya appears to have curbed some organised crime activities. Despite the yakuza ethnic Chinese criminal gangs linked to illegal immigration, drug smuggling, and arms trafficking are publicly perceived as the most serious criminal threats to Japan.70

Within Japan, a large number of ethnic Koreans have become members of the yakuza, particularly in Osaka and Kobe. These people are generally from disadvantaged groups with the Japanese community, known as burakumin or “untouchables”.71

Although not normally recognised as an organised crime group, the Japanese Aum Shinrikyo sect, formed in 1987, is of particular importance because it is a religious organisation which engaged in very serious crime, including murder, torture, and extortion, as well as manufacturing, testing or using chemical or biological agents, with the objective of precipitating conflict between Japan and the United States. Recruitment of members focused on socially disaffected individuals with technical and scientific backgrounds, many of whom also possessed or had access to substantive economic resources. At the height of its power, the Aum sect was reported to have assets of between $1 - $2 billion. Not only was Aum Shinrikyo successful in penetrating the Japanese bureaucracy, military and police, but they also established chapters in a number of countries overseas, including Russia, where they claimed a membership of 30,000 (three times their membership in Japan), and also obtained access at a very high level in the Russian Government and military.

67 Also frequently known as boryokudan. 68 United States: International Crime Threat Assessment. Chapter III, p. 28 at http://www.whitehouse.gov/WH/EOP/NSC/html/documents/pub45270/pub45270index.html accessed 17Dec00. 69

United States: III, p. 29.

70 United States, III, p. 28.

71 Suchiro Kitiguri: An Introduction to the Buraku Issue: Questions and Answers. Richmond, Surrey: Japan Library (Curzon Press) (1999).

28

Prior to their sarin gas attack on the Tokyo subway in March 1995 the group attempted to use sarin to kill the judges presiding over a murder case involving the Aum sect. It was also reported that the sect planned to carry out an attack against the New York underground. IN an effort to alleviate public pressure and criticism, in September 2000, the Aum sect leaders announced that they would suspend the sect’s public activities for an indeterminate period, commencing 1 October 2000.72

Major Groups

Japan Overseas

Inagawa-Kai Sumiyoshi-Kai Yamaguchi-Gum Bosozoku - violent teenage biker gangs (many of which are linked to the yakuza)

These yakuza groups either operate in, or have connections with organised crime groups throughout Asia, Australia, the United States (particularly Hawaii), Canada, Russia73 and South America

Major Activities

Japan Overseas

Arms trafficking Construction industry crime Corruption Drug trafficking Extortion, blackmail, enforcement Fraud - real estate, insurance Illegal gambling Illegal immigration Infiltration of legitimate business Loan sharking Pornography Prostitution, sex trafficking White collar crime

Corruption Drug trafficking Extortion, blackmail, enforcement Gambling/casino crime Illegal immigration Infiltration of legitimate business International automobile theft Money laundering Paedophile activities Real estate and golf club purchases Sex trafficking Tourist crime

72 Based on the US Department of Defense publication Proliferation: Threat and Response, 1997 Edition at http://www.defenselink.mil/pubs/prolif97/trans.html, accessed 12Jan01, and 2001 Edition at http://www.defenselink.mil/pubs/ptr20010110.pdf, accessed 12Jan01. See also David E. Kaplan and Andrew Marshall: The Cult at the End of the World: The Incredible Story of Aum. London: Arrow Books, 1996. 73

The Russian connection appears to be particularly important to yakuza groups.

29

Brief Description of Organised Crime Groups in the Russian Far East

Powerful Russian criminal organisations with international networks are one of the most troubling and dangerous legacies of the former Soviet Union. … According to the (Russian Ministry of the Interior), there are 89 criminal communities in Russia that comprise about 1,000 smaller criminal groups. … there are about 200 sophisticated organised crime groups in Russia with a broad range of operations, some of which extend beyond Russia’s borders into some 60 different countries. They (cultivate) mutually beneficial relationships with government officials and politicians to become powerful players in Russian politics and society. Most Russian criminal organisations are located in industrial and commercial centres, giving them (the) opportunity to make inroads into lucrative sectors of the Russian economy.

Russian crime groups are characterised by ruthlessness and violence, and many are very well armed - presenting a formidable challenge to Russian law enforcement elements, which are often outgunned, and under-funded particularly at the local level. There is no apparent supreme hierarchy among Russian organised crime groups, nor is any one group masterminding the activities of the others. Instead, Russian criminal organisations have their own spheres of influence that are generally defined by geography, ethnicity, and, in some cases, specific criminality. The international presence of Russian organised crime … is most pronounced in Eastern and Central Europe, where Russian crime groups are involved in narcotics and weapons trafficking, car theft, and financial crimes. Russian organised crime money laundering operations have been observed in off-shore banking centres in the South pacific, Cyprus, and various Caribbean islands as well as in Eastern European economies. These groups tend to mount large-scale financial fraud schemes.

Russian criminals take advantage of places that are most attractive to Russian businessmen and tourists, using them as cover and opportunity to engage in a broad range of criminal activities . - extortion rackets, prostitution rings, trade in black-market consumer goods and drugs, and to launder money. … Russian crime groups are also attracted to countries that have liberal cash circulation laws, few restrictions on direct investment, and allow non-residents to establish businesses. Investments in real estate, tourist and entertainment sectors, interest in banks and financial services companies, and the establishment of front companies … provide a ready haven for laundering and hiding illicit profits earned there and smuggled out of Russia … They have used their ties to Italian criminal groups to establish extensive businesses in Italy - investing as much as $4 - $7 billion between 1993 and 1995 alone. … Russian and Italian criminals cooperate in international drug trafficking, arms smuggling and counterfeiting.74

Russia currently finds itself in an unprecedented position in which its primary security concerns are largely internal. The Russian Far East’s military industrial complexes, which asserted Soviet military power in the Pacific, have found defence conversion in the post-Cold War era difficult to achieve. … over the long term the RFE must convert most of its economy to civilian purposes. … However, the scope and magnitude of (Russia’s) security concerns are so tremendous that their cumulative effect has resulted in a “comprehensive insecurity syndrome” … - endemic corruption, drug trafficking, environmental pollution, technological breakdowns, energy and food supply shortages, and violent outbreaks of terrorism and separatism.

… Lacking sufficient finances for the adequate technical decisions, the FSB and the Ministry of the Interior implemented a series of joint preventive actions to support nuclear complex security and to stop economic crimes and the illegal sales of armaments. 75 … Criminal forces may be exerting additional pressures on the directors, engineers and workers at regional nuclear facilities that may cause them to violate the security regimes at these facilities. … The decline of the Pacific Fleet has had a profound impact on the criminal underworld, increasing the chances that ports and other points of access to nuclear facilities may be compromised. … (One) facility experienced serious difficulties in

74 United States: International Crime Threat Assessment. Chapter III, pp. 13-14 at http://www.whitehouse.gov/WH/EOP/NSC/html/documents/pub45270/pub45270index.html accessed 17Dec00 75

Sergey Sevastyanov: “Russian Reforms: Implications for Security Policy and the Status of the Military in the Russian Far East” in NBR Analysis, Vol. 11, No. 4, Essay 1 (2000).

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the 1990s with labour unrest, a murder-for-hire, and incidents involving attempted smuggling of nuclear materials, blueprints and technologies. … One area of particular concern is the possibility that facilities with nuclear material and technologies might fall under the control of the local mafiya.76 In Russia … the transportation and sale of illegal narcotics are now being described as a security threat. The Russian Far East, geographically proximate to North Korea and the drug routes of Central and Southeast Asia, is particularly susceptible.77

Major Groups

Russia Overseas

Solntsevo group and various others Solntsevo group and various others78

Major Activities

Russia Overseas

Capital flight Corruption Drug and arms trafficking Electoral fraud Embezzlement Extortion Money laundering Murder and violent crime Prostitution Smuggling Tax evasion

Arms trafficking Contract killings Drug trafficking Extortion Forgery Fraud and white collar crime Money laundering Sex trafficking Tourist crime Trafficking in nuclear and fissile material Trafficking in stolen art and icons

76 James Clay Molz: “Russian Nuclear Regionalism: Emerging Local Influences over Far Eastern Facilities” in NBR Analysis, Vol. 11, No. 4, Essay 2 (2000), p. 2, 4, 6. 77

Rajan Mernon and Charles E. Ziegler: “The Balance of Power and U.S. Foreign Policy Interests in the Russian Far East” in NBR Analysis No. 11, No. 5 (2000), p.10. 78 For further details of the activities of Russian and Eastern European organised crime groups overseas, see Transnational Organized Crime, Vol.2, Nos. 2/3, Summer/Autumn 1996, Special Issue -Russian Organized Crime: The New Threat? (Phil Williams, Ed.); Robert I Friedman: Red Mafiya: How the Russian Mob has Invaded America. Boston: Little, Brown and Company, 2000; and Stanley Einstein and Menachem Amir (Eds.): Organized Crime: Uncertainties and Dilemmas. Chicago: The Office of International Criminal Justice, the University of Illinois at Chicago, 1999, especially Chapter 3, Brunon Holyst: “Organized Crime in Eastern Europe and Its Implications for the Security of the Western World”, pp. 67-96.

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Annex “B”

G-7 Progress Report on Combating the Financing of Terrorism

G-7 countries have been joined by over 200 other countries and jurisdictions in expressing support for the fight against terrorist financing. Our October 2001 Action Plan to Combat the Financing of Terrorism contributed to this international effort by setting out clear priorities: vigorous application of international sanctions, including the freezing of terrorist assets; rapid development and implementation of international standards; increased information sharing among countries; and enhanced efforts by financial supervisors to guard against the abuse of the financial sector by terrorists.

Significant results have already been achieved. Since September 11, almost 150 countries and jurisdictions have issued orders to freeze terrorist assets, and over $US 100 million has been frozen worldwide. Each G7 country is implementing UN Security Council Resolution 1373 and has signed and is committed to ratifying the UN Convention for the Suppression of the Financing of Terrorism. The Financial Action Task Force (FATF) has agreed to a set of Special Recommendations on Terrorist Financing and is implementing a comprehensive action plan encouraging all countries to adopt them. All G-7 countries have established or are in the process of establishing Financial Intelligence Units (FIUs) that will facilitate the sharing of information on money laundering and terrorist financing. We have also all established mechanisms to share information relating to the tracking of terrorist assets.

Continued success requires even closer cooperation and an intensified commitment. We now set forth the following steps to further advance the global fight against terrorist financing:

• To enhance international coordination in the freezing of terrorist assets, we will develop a mutual understanding of the information requirements and the procedures that different countries can use to undertake freezing actions. We will also develop key principles regarding the information to be shared, the procedures for sharing it, and the protection of sensitive information. We will also work with other countries to identify jointly terrorists whose assets would be subject to freezing. We will continue to review our institutional structures to ensure that they facilitate the international flow of information necessary to identify, track, and stop the flow of terrorist funds. In this regard, we support the Egmont Group’s work on improved information flow among FIUs.

• The G-7 are committed to fully implementing by June 2002 the FATF standards against terrorist financing. We urge all countries to accept the FATF’s invitation to take part in a self-assessment and to commit to the rapid implementation of the standards. We look to the FATF, IMF and the World Bank to quickly complete their collaborative work on a framework for assessing compliance with international standards, including all FATF recommendations, against money laundering and terrorist financing. We urge all countries that have not done so by February 1, 2002, to implement the measures set out in the November 2001 Communiqué of the International Monetary and Financial Committee of the IMF, and look forward to the IMF’s report to the spring meeting of the Committee on all issues raised by the Communiqué. We urge the Basle Committee on Banking Supervision to review its enhanced customer due diligence

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standards for banks to ensure that they address terrorist financing, and the Financial Stability Forum to review its role in combating terrorist financing, including in relation to offshore financial centres.

• We look forward to the quick implementation of the IMF and World Bank plan to provide increased technical assistance for measures to combat money laundering and terrorist financing in coordination with the FATF, regional FATF-style bodies, the UN and the Egmont Group. For our part, G-7 countries are committed to providing technical assistance on a bilateral basis as well as through these coordination mechanisms.

We recognize that continued success in the fight against terrorist financing requires the

close cooperation and unwavering commitment of the broad international community.

We therefore encourage all countries to join us in implementing these measures