Transnational Organized Crime: Proactively Targeting its Financial Lifelines
Friday, February 1st, 2013
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In July 2011, President Obama signed Executive Order (EO) 13581, declaring a national emergency with respect to transnational organized crime, and blocking the property of certain significant transnational criminal organizations (TCOs). In doing so, the administration re-conceptualized TCOs as a national security threat and introduced tools that have brought about tremendous success in the fight against terrorism and proliferation—problems previously seen to be predominantly law enforcement-oriented. By upgrading the tools available to disrupt the financial operations of significant TCOs, the U.S. government has changed its approach to tackling TCOs in three important ways: first, consistent with its general approach to counterterrorism since the attacks of September 11, 2001, the government adopted a proactive and preventive approach to the problem; second, it adopted a tool that enables the government to greatly enhance international cooperation to address transnational crime; and finally, by blocking the property of TCOs, it is able to leverage the force-multiplier effect of the private sector to more comprehensively address the threat posed by transnational organized crime. More than a year on, officials are successfully utilizing this order in much the same way that similar measures have been applied to degrade the financial health of al-Qaeda and other terrorist organizations since 9/11.
The profound rise of TCOs reflects a changing threat environment, in which simple distinctions between times of war and times of peace are gone, and where persistent, low-intensity hybrid conflicts are the norm. In these settings—high-risk jurisdictions, such as Somalia, Afghanistan, Libya, Yemen, Pakistan, Iraq, Iran, and the former Soviet Union—combatants and other illicit actors are increasingly relying on criminal enterprises to help finance part or all of their operations.
To be sure, significant TCOs are not new and nor is the threat they pose. For years, TCOs have benefited from a deficit of attention by Western governments during a period where the resources of the United States and allied governments were spread thin and were focused on counterterrorism. While some governments have long pursued groups that generate income by human trafficking, drug manufacturing and distribution, intellectual property theft, or weapons smuggling, the top priority in the first decade after 9/11 was guarding against a direct attack and dismantling those groups who sought to deliver it.
Significant TCOs that the U.S. government has recently designated, like the Brothers’ Circle, Los Zetas, Camorra, the Yakuza, and, most recently, the notorious Latin American gang MS-13, may not be new, but a strategic approach to disrupting them, which employs additional authorities and significant resources, is a recent development. And while governments will continue to counter terrorism and other traditional threats using targeted financial sanctions, the lessons learned pursuing leadership and their networks through the mountains of Afghanistan and the financial hubs of the Arabian Gulf and the West are now being applied regularly to degrade significant TCOs. In a speech last month at the ABA Money Laundering Enforcement Conference, Treasury Under Secretary David Cohen said that in the past year his department sanctioned more than two dozen leaders of the top TCOs.
This approach reflects an important shift in the way that the U.S. government understands and approaches TCOs. First, by adopting a financial sanctions program for TCOs similar to that employed for years against terrorist groups, the government is embracing a paradigm of prevention with respect to the threat posed by transnational criminal organizations. Before the adoption of EO 13581, the government primarily dealt with these groups by prosecuting them criminally or by working with other governments so that partner nations could prosecute TCOs. Criminal prosecutions, however, are primarily intended to punish completed conduct and to deter actors with similar inclinations from engaging in proscribed behavior. The sanctions regime embodied in EO 13581, while based on completed conduct, is intended to more broadly disrupt the operations of transnational criminal organizations by making it more difficult for them to organize, move, and use money.
Second, the adoption of a sanctions regime for use against TCOs expands the opportunities for international cooperation to disrupt the threat posed by these groups. The success of any list-based sanctions program depends in part on sustained outreach to key financial and economic hubs around the world to share actionable information, build support, and request foreign nations to take action against leaders operating in and through their jurisdictions. For example, the Brothers’ Circle, a Eurasian crime group and key U.S. government target, operates throughout the states of the former Soviet Union, the Middle East, Africa, and Latin America, adapting operations to exploit jurisdictions that are slow (or slower) to take action. Degrading the Brothers’ Circle will require an approach that identifies the strategic markets in which it operates and targets those operations comprehensively. The adoption of a sanctions regime like that in EO 13581 permits the U.S. government to publicly identify illicit actors, and then share information about those actors with the governments of foreign countries in which they operate. This enables governments to take action against TCOs within their jurisdictions, but it also enables policymakers to identify and pressure those jurisdictions who are unwilling to act, or who harbor the leadership of significant TCOs like Brothers’ Circle. Publicly identifying the leadership of TCOs puts them on notice that the U.S. government knows about their activity and has developed a strategy to target their financial underpinnings. It also freezes any assets these individuals or their organizations have in the United States and blocks them from accessing the U.S. financial system or from doing business with Americans.
Finally, imposing sanctions on individuals or entities involved in transnational organized crime allows the government to leverage the power of the private sector around the world, thus diminishing TCO access to the financial sector and ultimately making it more difficult for them to operate. Specifically, adding the names of individuals to the list of sanctioned persons maintained by the Office of Foreign Assets Control (OFAC) alerts banks globally to the risk of doing business with these individuals or their organizations. Indeed, many international financial institutions decline to do business with individuals or entities on the OFAC list even though they are not legally bound to do so. This is because they recognize the risks posed by engaging in transactions with designated entities and seek to avoid them. This dynamic can have important implications because it means that, when the U.S. government designates an individual or entity under EO 13581, that person will lose access to financial services provided important, global banks in most of the significant financial hubs around the world. In this way, employing a sanctions regime like EO 13581 leverages the private sector as a strategic force multiplier against TCOs, helping deliver an outcome beyond the direct legal force of the Executive Order itself.
As a cause for concern, significant TCOs continue to weave themselves deeper and deeper into the fabric of the international economy. These organizations pose real threats to the integrity of international markets and have positioned themselves to take advantage of a relatively tepid response by emerging market governments. Equally alarming is the belief that in some cases these governments may be forming informal alliances with transnational organized criminal groups, making it hard to determine where legitimate activity ends and illicit criminal behavior begins. As policymakers learned in their experience with counterterrorism sanctions, financially isolating groups and leaders can take time. But time and the ability to leverage the financial system are some of the key strategic advantages the U.S. and partner governments must use to successfully degrade the capabilities of significant TCOs and ultimately purge them from the licit economy.
Stuart Jones, Jr. is the U.S. Treasury Department’s Financial Attaché to the Gulf Cooperation Countries, representing the Department’s equities across six countries. Mr. Jones is based in Abu Dhabi and was previously Treasury’s senior most representative to Afghanistan. He is a member of the Council on Foreign Relations and publishes on topics relevant to international financial integrity. The views in this article are his own.
Zachary K. Goldman is the executive director of the Center on Law and Security at the New York University School of Law. He served as a policy advisor in the U.S. Department of the Treasury’s Office of Terrorist Financing and Financial Crimes, where he was the subject matter expert on the Arabian Peninsula and Iran. He has also served as a special assistant to the Chairman of the Joint Chiefs of Staff, and as an associate in the litigation department of Sullivan & Cromwell LLP. He has published articles on the origins of the American alliance with Israel and on the security architecture of the Persian Gulf.