Technology has been a boon to global organized crime, an unfortunate circumstance that's breeding technologically sophisticated criminals whose intricate money laundering schemes are posing greater danger to the U.S. financial industry. Senator John Kerry, who recently authored "The New War: The Web of crime That Threatens America's Security," talks about fighting next-generation organized crime.
MANAGEMENT STRATEGIES: What is the nexus between money laundering, global organized crime, and our national security?
SENATOR KERRY: It's very direct. The people who launder money are doing so to avoid transparency that everybody else submits to. As a result, they wind up corrupting the financial or business system in which they're operating directly. That corruption inevitably spills over into the specific locality where they are money laundering, and beyond. For instance, when they launder money in Russia, they are laundering money from illegal activities in Columbia, China or Nigeria-there are different spillovers-which branch out into the business sector, the media, into the body politic. In the end, you have a facilitated criminal enterprise, some of which is directly engaged in activities that are of a national security concern. For instance, the movement of nuclear materials out of Russia needs money laundering to be able to facilitate the movement of nuclear power to an outlaw nation-Iraq or other countries.
MS: That's happening now, isn't it?
KERRY: That is happening now. We've had over 800 instances of attempted movement of nuclear materials out of Russia. We know them because we've thwarted them. The question remains, how many have we not thwarted, and what are the materials that have moved? We uncovered 27 crates hidden in a hanger in Amman, Jordan which were slated for transport to Iraq, of gyros from Russian missiles. That was after the war. You've got this enormous undermining of the legitimacy that most of our businesses are submitting to. Also, if you do business in the United States, which is still the preferred place in the world for business, you submit to a certain level of transparency. We need to export that level of transparency to the rest of the world while we have the economic clout to help make that happen.
MS: Is there a central strategic aim to this nexus vis a vis the United States?
KERRY: That's difficult. Are there connections? Yes. Is there a central strategic aim? In terms of criminality, the answer is yes, to guarantee there is a worldwide network that allows them to subvert the law and avoid being caught, avoid being held accountable. That's the simple nexus; it gets more complicated with people who have ideological or ulterior motives. It's been reputed that some Latin drug lords are anarchists at war with any government entity, including us-that's a security threat.
MS: Do some people who see us as the leader of modernization want to take us down because it threatens their interests?
KERRY: Yes. To the degree that technology creates accountability, there are people who would just as soon slow it down or destroy it. But that's a more difficult task; it's the dreamer who's pursuing that. It's more a question of trying to harness it to their capacity, trying to stay one step ahead. Because they spend enormous sums of cash to make an immediate purchase, as opposed to government entities that go through the government procurement process and budget cycle. There's no procurement process in the Cali Cartel. They can get the latest encryption equipment because they can move fast. And the law sometimes gets in the way of (justice). Roving wiretaps run into Constitutional problems, for instance. We're beginning to overcome some of those things, but they'll buy telephone systems, throw them away and get new ones. By the time the legal system has a warrant for the original number, they're 50 numbers away.
MS: What threat does money laundering pose to the U.S. banking system?
KERRY: It's an enormous threat. For years and years, Switzerland was a powerful competitor in the banking world, and part of that was due to the secrecy and the lack of transparency-the ability to attract large sums of money. Now, Switzerland has lost some magnetism for money because of their cooperation (with global law enforcement officials), and places like Vanuatu, Singapore, Hong Kong, become more attractive because people are going for the least transparency and least accountability. That's the threat. The $400 billion plus of assets that move through Georgetown in the Cayman Islands, for instance-$15 million for each man and woman living there-is out of proportion to anything legitimate that happens there. Those assets can then be managed and maneuvered to wherever those people find it convenient and helpful.
Ultimately, in terms of business, a lot of that money will find its way back to some legitimate earning center because it's not earning any money in the beaches of the Cayman Islands. It's got to make its way back to some productive enterprise where it earns a profit in a legitimate entity. But banks lose the spread, the time delay cashing checks, and all the benefits of managing the money. The bottom line is, they're losing business.
MS: You've advocated economic warfare against nations involved in money laundering. How can the United States act on it unilaterally with any impact?
KERRY: I didn't say economic warfare; I said you might be justified if we declare that, but I hope we would do it in a more ordered and legitimate way. But I absolutely advocate that the G-8 and G-15 really leverage their power; it's in all their interests to do so, to begin to use the access to the legitimacy that they represent; they're the ultimate destination. They must use that legitimacy to leverage standards in these other places.
MS: How can they do that?
KERRY: By working on the question of access to that system. They have to press standards of reporting on even the electronic transfers, so there is accountability in the bundled amounts of money. The "Know your customer" standard has to apply as much to the people bringing the money in as to the money going out. There's no better means than having a legitimate banking enterprise and people that are living up to it. You're not going to have 100 percent; there's always going to be some leakage. After years of crime fighting in this country, we've never eliminated prostitution, gambling, loan-sharking, but they aren't threats that threaten the fabric of your society. They're nuisances. Money laundering, drug trafficking and these larger criminal enterprises are threats at a higher level.
MS: You've called Russia the global headquarters of money laundering. How can the United States act against Russia in this matter without compromising its diplomatic and military interests?
KERRY: What I advocate most strongly is exporting our institutions. Exporting our standards. Taking the time to help in a joint cooperative investigative capacity, exporting the institutional experience we've gained in fighting organized crime in America, and helping these people rapidly put these systems in place. Absent a strong legal system in Russia, a strong investigative capacity, and the will at highest government levels to do that, at this point we won't succeed.
MS: Does nationalism exert a retrograde force on the international efforts to combat transnational crime?
KERRY: Absolutely. Even in this country, we have strong forces of nationalism that press isolation. But there's a balance. I'm not advocating a global cop, a global structure. Nationalism is a legitimate interest; but I don't want to see it exerted in a narrow, xenophobic, and self-defeating way. It's essential that we protect ourselves, that's there's a minimum level of international cooperation which doesn't surrender any sovereignty.
MS: How do we balance the forces of nationalism to fight this?
KERRY: With common sense and strong leadership. You've got to look at the nature of the threat, analyze the alternatives. If you sit there at your borders, lament what is happening internationally, but don't cooperate, don't experiment with trying people under their laws here, or experiment in other joint investigative efforts, you are empowering the criminal. We cooperate in arms control, in trade, in consulates, in visa, in a thousand different ways on a daily basis without losing our sovereignty; we, in fact, protect our sovereignty in those ways. We've got to get the Neanderthals, who see every proposal to have rules that rise to our standard as a threat to them.
We've got to recognize that it's in our interests to have other people have accountability of the flow of capital and transparency in their businesses. Why do we have an FCC? Why do we have a regulatory body on our banks that makes sure they're solvent? It's because we went through 1929. We have to export that idea to the world, which is what we're trying to do with Russia, China and other places, and they will change as we do that.
This (is) an enormous opportunity (for) the United States to maximize the markets of the world, and for our businesses to compete at the level where we compete the best, because we know how to do it.
MS: What happens if only token actions are taken internationally to fight money laundering and related crime?
KERRY: Other countries will grow significantly stronger in the marketplace at our expense, and you will have a much rockier set of relationships globally. You won't know who you're dealing with in international affairs and relationships. You could be negotiating a treaty with people who are controlled by organized crime, whose interests it is to move in a different direction than yours. Our businesses would be significantly disadvantaged. It's possible, because of the subsidy involved in money laundering, for people to undercut prices in legitimate businesses, and dump goods and/or engage in predatory practices in the marketplace. We have to be particularly aware of that.
MS: When banks are hit by cyber attacks, they usually do not report it to the authorities.
KERRY: That's generally true. If people knew that (banks were hit), they'd take their money out.
MS: Is that the right approach?
KERRY: As long as banks are approaching it legitimately, talking to the government about it, it's all right. If it's one instance, I suppose it's a business practice; if there's two or three, it may be a national story. You have to put this thing out there; people have to know and understand it- it's why I wrote the book. People have to understand the nature of this threat. The longer that you're quiet and these guys can operate without a sense of public outrage and concern, the harder it's going to be to marshal the forces to change the economic pattern, because so much money is involved, and unless people perceive the threat, it's hard to break the pattern.
MS: Is it enough for banks to covertly defend themselves against incursions from the Internet?
KERRY: Acting on your own can't be adequate. If you keep this thing covert, you'll never summon the clout you need to have a legitimate cure. That legitimate cure will involve understanding about encryption, about secrecy, about how privacy rights and access rights are going to exist, and law enforcement's rights with respect to all this. It'll have to be a cooperative effort, and will involve some public law.
MS: There are no borders in cyberspace, so you could as easily be hit from Monaco as the United States.
KERRY: Absolutely. You could have a team in Syria cracking this. It's minimal money. And you can pull information off, too. People pulled military information off it regarding supplies and destinations to the Middle East during the Iraq War, and tried to peddle it to Saddam Hussein. For whatever reason-maybe they thought it was disinformation-he refused to purchase it. But it was offered to him.
-reinbach tfn.com
