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 Issue Overview

Organized crime exacts a multi-billion cost on legitimate business, distorts markets and causes widespread ill-effects across society. Fuelled by the same forces of globalization that have expanded trade, communications and information, criminal syndicates now have unprecedented reach into the lives of ordinary people and the affairs of multinational companies and governments. Although law enforcement has long focused on criminal gangs and illicit markets, only recently has it paid greater attention to the factors that enable such activities.

In 2011-2012, the Global Agenda Council on Organized Crime focused on the enablers of organized crime. This broad concept includes individuals, mechanisms and situations which play an important role in supporting organized crime activities – whether intentionally or inadvertently – increasing its benefits and scale, while reducing its risks.

The Council examined the impact of enablers in three critical areas: cybercrime, money laundering and Free Trade Zones (FTZs).

In developing this report, the Council took two main criteria into account:

  • Continuity with its work in 2010-2011 on cybercrime and on money laundering in real estate
  • Input received by Council members during virtual meetings and at the World Economic Forum’s Summit on the Global Agenda 2011, in Abu Dhabi

Members would like to acknowledge the strong support from other Global Agenda Councils in compiling this report, especially the Councils on Internet Security, Anti-Corruption, Illicit Trade and Information & Communication Technologies. Discussions in Abu Dhabi and at the 2012 Annual Meeting, in Davos, helped clarify the multiple consequences of organized crime and the obstacles to implementing effective policies. These issues were also raised with specialists in international organizations, national governments, private industries and academia and cooperation strengthened as a result.

Enablers of Cybercrime

Cybercrime cost US$388 billion over the past year, according to the Norton Cybercrime Report for 2011.1 This includes US$114 billion in direct costs (amounts taken or expended resolving cyber attacks) and US$274 billion worth of time lost by victims to cybercrime. In addition to substantial corporate losses and the unquantified emotional and economic damage, new hybrid threats have emerged to target critical infrastructure. The scale of these activities poses a considerable challenge to authorities and service providers.

Cybercrimes are those committed using the Internet. Examples include the use of stolen credit cards to make purchases online, using the Internet to sell counterfeit goods, and the online distribution of child pornography.

There are two general classes of cybercrime: high-value, low-volume transactions in which cybercriminals stage an effective single attack; and high-volume, low-value transactions in which cybercriminals pass almost unnoticed by attacking thousands of accounts for small sums of money.

One assumption is that by stepping-up cyber security there should be a commensurate reduction in cybercrime.2  However, it is difficult to measure the impact of cyber-security mechanisms and more analysis could explain if, and how, some types of cybercrime change in relation to security measures.

When identifying the enablers, it is important to distinguish Internet features or uses that may themselves constitute crimes (illegal enablers) from the general, inherent features of global information and communications technology use that may lead to vulnerabilities that facilitate crime (legal enablers). Illegal enablers include the development and deployment of malicious software or tools capable of creating a botnet or breaking password protection and using false identities to open accounts and obtain credit or funds. Legal enablers include e-mail, Internet banking, online medical records and mobile Internet technology. Accordingly, these two types of enablers may require different methods of prevention: the former, technological and legal approaches; and the second, raised awareness and enhanced security balanced against rights to privacy and freedom of expression of the individual.

The continuous evolution of the Internet and related digital technologies demands a coordinated and collaborative response from of a wide range of security stakeholders. The Council therefore recommends:

• Establishing coordinating structures:

A structure equivalent to the United Nations Office on Drugs and Crime (UNODC) is needed to evaluate and quantify the global cybercrime problem. A coordinated regional and international response should include a consistent approach to law enforcement cooperation with the private sector (effectively reducing the number of law enforcement counterparts that global corporations must deal with by offering regional points of contact such as EUROPOL and the proposed INTERPOL centre in Singapore)

• Raising awareness and developing education and prevention programs:

It is necessary to increase and spread widely the knowledge on how cybercrime schemes work. Intensified publicity and crime prevention programmes would help the public to recognize and avoid these scams

• Enhancing cooperation and information sharing:

Establish an efficient means for private industry and government to share information about cybercrime

• Strengthening public-private partnership:

Law enforcement agencies should collaborate with academia, IT industry stakeholders and local Computer Emergency Response Teams (CERTs) to exchange intelligence on the locations of botnet servers and remove or disable them

For more information, please read Council Vice-Chair Rob Wainwright’s Forum:Blog on the commoditization of personal data by cyber criminals: http://forumblog.org/2012/01/cybercriminals-main-commodity-personal-data/

Enablers of Money Laundering

Experts on combating money laundering have prioritized two issues:

  • Identifying the beneficial owners (BOs) of corporate entities
  • Clarifying the role of professionals and intermediaries in money laundering and terrorist financing schemes

Both “beneficial owners” and professionals may play the role of enablers of organized crime and corruption. Today, they are the principal conduits for facilitating criminal financial transactions and maintaining a veil of opacity on criminal assets, making detection and confiscation more difficult.

Beneficial Owners

Criminals and criminal organizations may use complex cross-border schemes and corporate vehicles with “Chinese boxes” structures to conceal their identities and hide illegal proceeds. Law enforcement agencies have been handling an increasing number of cases where legitimate businesses co-mingle with illegal businesses, and legitimate funds with illicit ones. Reconstructing these schemes and identifying who lies behind them – that is, their beneficial owners – is essential to reveal the full infrastructure of a criminal enterprise and prevent future criminal activities.

Professionals

Professional service providers are increasingly identified as being involved (either knowingly or unwittingly) in money laundering schemes. Given their trusted gatekeeper status, professionals can misuse the absence of direct supervision to launder funds or act as intermediaries in helping others to launder. This can occur in a variety of contexts, for example, the securities or real estate sector. Active criminal infiltration of professional roles and subornation of professionals are key routes to criminal success. Firms of accountants and lawyers can be beneficially owned by criminals, leveraging their professional status. The extent to which this happens is unknown, but it represents a risk that requires management.

A level playing field may be impossible to achieve globally, but greater attention must be paid at the national and transnational level to enhance the harmonization and availability of data on BOs – and ensure that professionals and other service providers behave responsibly. The Council puts forward the following recommendations:

Beneficial Owners

Regarding the registration of corporate entities:3

  • Information registered with official agencies should include both legal owners (directors and shareholders) and beneficial owners
  • The registered information is verified by the registry authority
  • The registered information is updated in a timely way by the corporate entity when there are changes
  • The register is publicly accessible by payment online, and the payment is set at a minimum level to encourage access

Regarding beneficial owner Identification:

  • Financial institutions and professional service providers be required by law or regulation to identify and verify the identity of the beneficial owners of a corporate customer when establishing a business relationship with it
  • Financial institutions and professional service providers be required by law or regulation to take reasonable measures to determine who are the people that ultimately own or control the corporate customer

Regarding the international sharing of BO Information:

  • Law enforcement agencies should have direct access to official registries of corporate entities
  • States should allow (by law or regulation) law enforcement to share BO information with their overseas counterparts instantly without need for bilateral or mutual legal agreement

Professionals

Regarding professionals, the Council recommends that:

  • The wide disparity in the ways in which professionals of all kinds – accountants, lawyers and brokers – are licensed, scrutinized and disciplined should be reduced
  • Data are systematically collected on the mechanisms by which professionals assist criminals, both in the perpetration of offences and in the laundering of the proceeds

Free Trade Zones as Enablers of Organized Crime: Exploiting International Commercial Transactions

With respect to banking and financial regulations, FTZs are comparable to off-shore countries. Their structure and regulations make them very efficient for legitimate purposes4, but at same time weaker, less transparent, and more vulnerable to organized crime. Created to boost economic opportunities, FTZ incentives can result in a reduction in financial and trade controls.5

However, there is broad agreement that FTZs stimulate economic growth and play a significant role in globalization of the world economy. Not surprisingly, they have proliferated in recent years with an estimated 3,000 FTZs in 135 countries. In what is sometimes termed a “race to the bottom”, FTZs generate reduced trade in competitor jurisdictions which encourages them, in turn, to create FTZs, reducing the overall level of transparency and “bureaucracy”, while facilitating crime and tax avoidance in those jurisdictions. One result: organized crime groups and counterfeiters use FTZs to move illegal products around the world without detection.

The crucial challenge posed by FTZs is how to balance security issues with facilitating trade. A number of weaknesses have been identified:

  • Relaxed oversight: Weak procedures to inspect goods and register legal entities, including inadequate record-keeping and information technology systems
  • Lack of transparency: Inadequate money laundering and terrorism finance safeguards
  • Inadequate coordination and cooperation between FTZ and customs authorities
  • Regulation differences in various regions of the world

All these weaknesses make Free Trade Zones ideal for laundering, counterfeiting and other criminal acts. To address these issues, the Council recommends the following:

  • Building and developing international, regional and national cooperation platforms
  • Building IT and intelligence capabilities in FTZs
  • Raising public awareness and educating officials about the harm that FTZ crime causes for trade and business
  • Developing and enacting “balanced legislation” for FTZs
  • Better mechanisms to trace the origin and destination of goods

 Disclaimer

The opinions expressed here are those of the individual members of the Council, and not of the World Economic Forum or any institutions to which they are affiliated.