Scott Crino, Managing Director, Teneo Intelligence
Transnational Crime—
The Silent Competition
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Transnational Criminal Organizations networks can undermine brand
integrity, pilfer intellectual property, and corrupt employees Capital
and suppliers
alike. Effective, adaptive and proactive strategies require constant
surveillance of the criminal landscape.
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Attention all CEOs: right now your competition
is stealing from you, openly and with impunity.
They give no regard to standards, regulations
or the safety of their customers. They even use
your company name and logo on their goods
and services. If left unchecked, they will enlarge
their market share and ruin your reputation in the
process. What can be done about it?
The first step is to recognize that increased
criminal activity is an outgrowth of expanded
cross-border movements of goods and services,
technologies and capital. The emergence
of transnational organized crime cannot be
avoided. It can make otherwise profitable
markets unattractive, suppress demand for
legitimate products and services, undermine
brand value and inflict direct harm to businesses
and organizations and their people. Prudent
executives must devote the time to assess the
consequences of this growing threat and what
methods are available to reduce their exposure to
its risks.
To date, the United Nations avoids a precise
definition of international organized crime to
make it more applicable to various groups and
situations. Rather than a strict definition, the
UN considers transnational crime to be any
crime that encompasses profit-motivated, serious
criminal activities with international implications.
Flexible terminology is helpful because it focuses
on the actual cost burdens of transnational crime
rather than on policy semantics. The enormity
of these cost burdens is illustrated by the illegal
economy (counterfeit goods, prostitution, drugs
and so forth). The tracking site Havoscope
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estimates the annual value of illicit goods at $1.79
trillion (3.6% of global GDP). The largest sector
consists of counterfeit prescription drugs at $200
billion per annum.
The UN’s flexible characterization reflects its
expectation that transnational crime will change
over time, as has the structure of business
organizations. Family-owned enterprises have
evolved into multi-department, multi-division
and now multinational firms. Likewise, the
role and size of government has changed. It
should be no surprise that organized crime
has also evolved from the loose groupings of
criminals in industrializing cities to ethnically
based syndicates to the present heterogeneous,
multinational criminal hierarchies operating at a
scale large enough to influence macroeconomic
activities.
Formerly considered a North American and
Italian phenomena, large-scale organized crime
groups now include Mexican drug cartels,
Russian mafia, Japanese yakuza, Chinese triads
and organizations in the Middle East, Balkan
countries, Nigeria, Eastern Europe, Southeast and
Central Asia, among others. The UN estimates
the illegal business activities of transnational
organized crime to be approximately seven
percent of the world’s exports of merchandise.
Where Does Transnational Crime Occur?
A good place to get a sense of the scale of
transnational organized crime is the Tri-border
Region of South America where the borders of
Paraguay, Brazil and Argentina meet. Ciudad
del Este, a city on Paraguay’s side of the border,
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contains a small, nine by nine block free trade
zone (FTZ) that is a bustling center of commerce
compared to the rest of the country. While
Paraguay is a landlocked, agriculturally-based
and economically weak country, business booms
in Ciudad del Este, the world’s third largest taxfree market zone after Hong Kong and Miami.
Each day sees thousands of cargo trucks and
tens of thousands of individuals carrying bags
cross the narrow Friendship Bridge that connects
Ciudad del Este with Brazil, overwhelming
Brazilian customs authorities. Through this
narrow chokepoint all manner of illicit goods
pass heading from North America and Asia to
Brazil. These goods account for twelve billion
dollars in revenue to Ciudad del Este business
enterprises each year. Narcotics, counterfeit
goods and technologies, laundered monies and
smuggled stolen automobiles all cross the bridge
for purchase by Brazilian consumers in lieu of
legitimate goods and services.
From a national security perspective, the Triborder region raises concerns because of the
connections some criminal enterprises there
have with terrorist organizations, especially
Middle Eastern terror groups. And whereas the
U.S. State Department has not published any
credible information showing that groups like
Hezbollah and HAMAS use the Tri-border Area
for terrorist training or other operational activity,
it is speculated that these groups use the region
to raise funds from local supporters. Underscoring
this risk was the 2013 arrest in Ciudad del Este
of Wassim Abd Fassel, a Paraguayan citizen
and suspected member of Hezbollah, on human
trafficking, money laundering and narcotics
trafficking charges. Fadel was accused by
Paraguayan police of depositing the proceeds
from his illegal activities into Hezbollah linked
bank accounts in Syria and Turkey.
Unfortunately, Ciudad del Este is not unique as
there are other evident examples of the nexus
between transnational crime and terror across
the globe. Take the Sahel Region of West Africa,
which is home to a one billion dollar illicit
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cigarette industry largely controlled by Mokhtar
Belmokhtar, who was often referred to as Mr.
Marlboro for his involvement in the cigarette
trade. Now Belmokhtar is better known as a
leading figure of Al Qaeda in the Islamic Maghreb.
His Signed in Blood Brigade was responsible for
the January 2013 terror attack on the Amenas
gas facility in Southern Algeria where thirty-nine
hostages died. Following later terror attacks by
Belmokhtar, the U.S. announced a five million
dollar reward for information leading to finding
his death or capture.
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The illicit business lines run by transnational
criminal organizations are imaginatively diverse.
They include a booming pasta trade run by
crime syndicates that crosses the border to Mali
from Algeria where wheat is subsidized and the
government prevents its export. There is Russia,
where 40 percent of the aluminum industry is
reported to be controlled by organized crime, or
Mexico where fifty percent of the oil and gas trade
is infiltrated. And in China weak regulation of
pharmaceutical manufacturing and distribution is
thought to result in one third of Africa’s malarial
medicine being fake or substandard.
Among the contributing factors leading to
the success and expansion of transnational
organized crime are poor governance, economic
disadvantage, persistent conflict and unmet needs.
These conditions are exploited by Transnational
Criminal Organizations (TCO) whose motives
vary from profit to excitement to ideological and
spiritual outlooks.
Risks to Consumers
Unlike crimes such as rape, murder and robbery,
organized crime is often “victimless” and is
underreported. There are many reasons for this.
First, many TCO products and services are
demand driven by the consumers. Cigarettes,
gambling, drugs and everyday items like Algerian
pasta are all in high demand by a customer base
that is willing to take risks to acquire goods or
services that are not legally available or at a
significantly lower price point. Second, crime
organizations offer jobs where employment
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and education opportunities are low. This is
particularly true in developing countries where
transnational crime is rampant, legislation is weak
and the ability to prosecute large international
crime rings is poor. Third, TCOs often give
back to the community through infrastructure
development and community services in an
effort to gain and maintain loyalty from the
local populace. Finally, many TCO activities go
unreported for fear of retribution. Violence, or the
credible threat of violence, is an intimidating and
influential tool of the trade.
Unfortunately, unreported crimes may never be
investigated. Complicit and corrupt local and
national law enforcement services have little
incentive and lack the tools to pursue international
trafficking organizations. Local entities are often
hesitant to share sensitive information with
their cross border counterparts. Additionally,
globalization continues to outpace mechanisms to
enforce global governance. Vast use of the Internet
makes illicit commerce difficult to track; people
and goods move more cheaply and quickly than
ever before; and the intensity of commercial flows
make it difficult to easily distinguish the licit from
the illicit.
The impact that transnational crime has on
commercial, legitimate business cannot be
understated, but the impact that is has on society
is even greater. TCOs have no incentive to abide
by national and international manufacturing
standards. They have no reputation to protect,
and fear of retribution by law enforcement is low.
Counterfeit prescription drugs pose the greatest
risk to consumers. As described by the United
Nations Office on Drugs and Crime, “in addition
to hastening the death to the many who go
untreated, [counterfeit drugs] also can contribute
to the generation of drug-resistant strains of
the most deadly pathogens.” Safety concerns go
well beyond counterfeit medications. From toys
to auto parts, the risks posed to consumers are
innumerable, indistinguishable and present in
common, everyday items. The environment is
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at risk as well. The exploitation and smuggling
of natural resources by use of dangerous and
environmentally unsustainable harvesting
techniques drive entire ecosystems to the brink of
extinction.
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What Can be Done?
Corporate executives face many challenges
with transnational crime but they are not
insurmountable. Lessening the potential impact of
transnational crime starts with practicing robust
oversight, conducting rigorous vulnerability
assessments and following through with effective
management controls against identified risks.
Risk mitigation actions must be innovative,
flexible and sustainable with strategies aimed
toward dismantling the entire network, not just
crime bosses and their affiliates, but also corrupt
facilitators whether they are in the business
community, government officials or political
leaders.
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Corporations should consider using the Whole
of Government (WoG) approach used by
the U.S. government as a paradigm for their
anti-transnational crime policy. By using a
WoG approach or other wide field of view
methodologies, leaders can more readily
understand the nature of threats they face but
also gain a better appreciation for supplemental
assets from outside the organization. A good place
to start is by establishing an internal business
intelligence capability to monitor and analyze
relevant criminal activities in the market space.
Effective, adaptive and proactive strategies require
constant surveillance of the criminal landscape to
include information sharing with industry peers
and partnering with consultants, legal counsel and
business intelligence professionals who possess
the appropriate depth of experience in the region
and business areas of concern.
Partnership with a diverse array of NonGovernment Organizations, such as World
Bank, World Health Organization, United
Nations Office on Drugs and Crime (UNODC)
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and Interpol should also be considered when
assessing corporate strategy. A proficient WoG
approach considers all the resources available
to address complex problems integrating
diplomatic, communications, security, economics,
finance, intelligence and law enforcement assets
toward the common objective of protecting an
organization’s assets and activities.
With transnational crime, not all threats carry the
same potential impact. Each should be considered
in terms of their significance, likelihood and
immediacy. Businesses also need to make selfdeterminations on their ability to adequately
assess threats or whether they need an outside
hand. A useful approach for drawing inferences
from data and intelligence is through a collection
of techniques known as Red Team analytics.
Best led by unbiased facilitators, Red Teaming
includes tabletop exercises, expert crowd-sourcing,
gap analysis and other analytical processes that
enable senior executives and management to
draw inferences from information and intelligence
which can guide decisions related to strategy,
resource allocation, priorities and timing. Through
Red Team events, executives can connect the
people in their organization who best know their
core competencies with outside experts who
contextually understand new environments,
understand the elements of power in play, and can
exercise proposed strategies before commitments
are necessary.
The two examples that follow help give a sense
of how transnational crime can negatively impact
business operations and compel costly responses
by companies.
Example A. From 2007 to 2011 the number of
pirate attacks off the coast of Somalia went from
30 to 275, an 850 percent increase. Suddenly, in
2012 pirate attacks dropped by 80 percent and
as of June 2013, no ships had been successfully
boarded in 12 months. The International Maritime
Organization (IMO), the United Nations
specialized agency with responsibility for the
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safety and security of shipping, coordinated
anti-piracy patrols employing assets from several
international navies, but their efforts were costly
and the response to attempted attacks was slow.
Ultimately, it was a commercially employed tactic
that had the greatest effect in warding off pirates.
In 2012, maritime shipping companies began
using professionally trained, armed security on
board ships while transiting dangerous waters,
an action that was previously considered taboo
in commercial shipping. Once security personnel
were employed, pirate attacks fell off almost
immediately.
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Example B. Two unrelated but serious incidents
were linked to counterfeit Apple iPhone chargers
in China in July 2013: one resulted in a death
and the other caused a life-threatening coma. In
the first incident, a flight attendant was killed by
electric shock after she reportedly answered a call
on her iPhone 5, which may have been charging
via a third party device. In the same week, another
incident left a 30-year old man in a coma after he
received an electric shock while connecting his
iPhone 4 to a third-party adapter. In response to
the alleged accidents, Apple Stores and retailers
are selling for a limited time new, authentic
chargers for just ten dollars with the turn in of
an old or third-party device, less than half the
retail price. This action is widely referred to as a
public relations success that will improve Apple’s
reputation with consumers and may even improve
revenue.
These examples represent the use of direct and
indirect action. The direct action being armed
security against sea pirates; the indirect being
a marketing plan tied to public relations to
address a consumer safety concern. The security
operations against the sea pirates achieved the
desired effect and Apple’s charger promotion
seems a solid approach. There were, however,
undoubtedly other options available but not taken.
When considering transnational crime, executives
can use methods like the Red Team activities as a
way to assess and analyze the potential challenges
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which lie ahead and determine their organization’s
capacity to develop a winning strategy to
overcome disruptors.
As long as transnational organized crime can
continue to operate with impunity, TCOs will
gain a larger share of the global economy.
The increasing trend in transnational crime,
coupled with largely ineffective international law
enforcement, requires more commercial industries
to step up and take action. Corporations must
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remain vigilant, adaptive to criminal tactics and be
willing to employ mitigation techniques through
improved technologies and systematic processes
that include a Whole of Government approach and
strategic partnerships.
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M O R E I N F O R M AT I O N
info@teneoholdings.com
+1 (212) 886-1600
www.teneoholdings.com
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SCOTT CRINO
Prior to joining Teneo, Dr. Crino spent 21 years as a US Army officer serving as an attack helicopter pilot (1991-1998) and
operations research analyst (1998-2012). Upon his retirement from the armed services, he launched Crino Consulting
Group where he currently serves as President. For the past several years, Dr. Crino has focused on the identification and
analysis of emerging global threats and sources of instability relating to transnational crime and terror organizations.
To date he has led numerous studies and co-authored and edited eight strategic-level analyses and several professional
publications for the Department of Defense used to inform campaign planning and the strategic operations of US
Departments of Defense, State and Homeland Security regarding threats to US national security across North, Central and
South America, Europe, Africa and Asia.
Dr. Crino’s previous military assignments include Operations Research Analyst and Troop Commander for the
Asymmetric Warfare Group, Fort Meade, MD; Assistant Professor in the Department of Systems Engineering at the United
States Military Academy, West Point, NY; Operations Research Analyst at the Training and Doctrine Command Analysis
Center, Monterey, CA; and several command and staff positions in the Army Aviation branch. Additionally, he has served
in many military theaters, including, Iraq, Afghanistan, Somalia and Haiti.
Dr. Crino holds a PhD in Systems Engineering from the University of Virginia, an MS in Industrial Engineering from
Texas A&M University, and a BS in Industrial Engineering from the State University of New York at Buffalo. His specialties
include risk analysis, decision making processes, data mining, optimization and statistical analysis
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