In the current economic climate it might be useful to look at the reverse-side of the public image of the international financial community and view its interlocking and symbiosis with the world of organised crime. One of the most significant aspects of the interaction between business and society has been the growth and spread of crime and corruption as a major industry. Corruption is often conducted on such a massive scale that it involves sums greater than the Gross National Product of major industrial nations. Theoretically, when one country has a balance of payments debt another country or countries have an equivalent credit. The system is constructed as a zero-sum game where each debit is balanced by an equivalent credit. By 1970, this system had developed what the International Monetary Fund calls an "asymmetry"; the sums did not cancel each other out. By 1980 the world was missing over $100 billion. By 1990 this "asymmetry" was over $320 billion; by 2008 it is over $3.2 trillion. These are only the official figures relating to national debts and the official exchange of goods and services among nations. The true sums, reflecting both official and unofficial transactions, may well be many multiples of these.

Some of these missing funds disappeared as "flight capital", fleeing fiscal authorities in the Third World. Some left home as "black money" to be laundered and returned clean. Some of these funds "leaked" from foreign aid schemes in a web of corruption involving suppliers, shippers and government officials. Some left as overpayments of invoices for goods and services with the excess reimbursed to the payer overseas; some disappeared as insurance payments on phantom goods loaded aboard sunken ships or supposedly destroyed in "friendly fires" in empty factories and warehouses; some vanished as unjustified depreciation of assets claimed by giant corporations or in their accountants' creative use of transfer pricing; some vanished as export subsidies on goods that never left the domestic economy. Some left as unvouchered cash donations to ethnic, religious and cultural organisations. Some were transferred by invoice; some by documentary credits; some by matching bank deposits; some by cash; and a great deal by the exchange of illicit goods (arms, drugs, high technology intellectual property) whose import and export  are barely accounted for in official trade statistics.

These international transfers financed the growth of banks, legal practices, accounting firms, inspection agencies and financial institutions dedicated to institutionalising, enhancing and preserving corruption. A substantial portion of these funds were handled directly by the internationally-integrated world of organised crime operating in symbiotic alliance with politicians and military figures in governments across the world. The bulk of the money, from all these sources, however it entered circulation, ended up in the respectable banks and trading houses which control the stock, bond and commodity markets of the world. These funds have financed 'institutional trading', fiscal anomalies like the complicated derivatives business, the junk bond industry, over-leveraged corporate lending and, most importantly, further criminal activities.

Crime and corruption are two of the world's largest multinational industries. Most people are generally aware that crime and corruption are part of their national or local scenes to one degree or another. They know that 'criminals' or 'corrupt politicians' run or tolerate illegal gambling clubs; brew illegal whisky; 'arrange' planning permission for commercial property; sell or auction votes in local and national assemblies; maintain illegal cartels or 'rings' which distort prices in the construction, transport and art businesses; divert state revenues from the sale of primary products like oil or gas, and generally conduct those extralegal activities which fill the tabloid newspapers with juicy stories every morning. They sometimes catch a glimpse of more sophisticated crimes when men like heads of state, ‘siloviki’ or ministers are brought before the courts or when their activities are reported in the press. They are forced to be aware of the existence of a web of organized crime which is behind the trade in illicit substances and in the 'protection rackets' of the urban slums because these are all shown and discussed in television's endless police series or brought to the big screen in blockbusters like the 'Godfather' or the 'French Connection'.

A proper definition of corruption is essentially 'unprosecuted crime', comprising activities engaged in by one or more persons in contravention of the laws governing their legal environment which go unpunished or unprosecuted. These unpunished acts may be petty in nature or may be major delicts with international implications. In either case they represent unpunished and unpursued violations of the law. What is vital to the understanding of what constitutes corruption is not the criminal act itself, but why this act is unpunished. In most cases these criminal acts go unpunished because there is a strong element of abuse of power, privilege or status. Someone or some organization or group wielding political, economic, social or religious power has used this power to deflect the ordinary course of justice. This aspect is crucial to understanding what makes 'crime' turn into 'corruption'. There is a lot of unpunished crime which is not corruption (often depending on lack of prosecutable evidence or triviality) but there is no corruption without criminality. It is the abuse of power which is exercised in the avoidance of prosecution which distinguishes corruption from mere criminality.

What is difficult for many to understand is that crime and corruption are both massive, pervasive and multinational; conducted on a scale which defies one's ability to manipulate numbers; and which plays such an important role in one's own political and economic life even though one may be oblivious to its influence. However, the fundamental reason why crime and corruption thrive and prosper is the most difficult for anyone to accept; it goes against everything one has been taught or led to believe. The reason is both simple and obvious.  Crime and corruption are not anomalies or signs of a breakdown in our economic or political systems; they are vital and integral parts of those systems. Quite simply, our national and international political and economic systems have developed so that they do not work without them. Crime and corruption is so massive and sophisticated an industry that most analysts cannot comprehend its sheer scale and the level of its integration into the international system or its symbiotic relationship with power and influence.

The Sociology Of Corruption:

 One missing ingredient in the learned studies of crime, criminality and corruption is the controlling variable of time or 'time horizons'. The poorer the person the shorter his time horizon. A government can plan and function on a relatively long time horizon. It has a five-year plan; a series of three-year pilot projects, regional development schemes, etc. Its time horizon stretches out into the distant future. Most major international corporations operate on a similar time scale. They can make 'long-term' investments; position themselves to take advantage of a market which is emerging over the medium term; build in 'loss leaders' for the short-term to buy long-term market share. Middle class professionals, civil servants and white-collar workers can plan their lives and career prospects in years. Blue collar employees can plan in units of years, quarters or months. Poorer people on the dole or receiving supplementary assistance can plan in weeks. The truly poor can only plan on days or even shorter intervals. The shorter the time horizon, the more immediate the need for satisfaction of basic needs - food, shelter and protection. It is this time horizon disparity which has been the seed bed of corruption in societies across the globe. Governments, political parties, aid and social welfare agencies cannot minister effectively to the needs of the poor because they do not and cannot operate in the same time horizon as the poor. Those who can deliver in the short term - deliver money, extend credit, provide food or craved illicit substances, protect households or shops from attack, arrange employment opportunities, and punish enemies - are almost exclusively criminal organizations and often receive in return the political, religious and economic powers of those whom they assist. Those who take these powers in exchange for material goods trade them for more valuable considerations with governments, corporations or international agencies. This exchange is the beginning of the trail from criminality to corruption.

A second dimension often missed out in the academic analysis of corruption is that for the large majority of the world's population all governments, including their own, are foreign governments or run by strangers. When Karl Marx stated that 'workers have no country' he was not stating only an ideological message, he was recognising, however unwittingly, that the majority of the world's population has been and remains under what it considers foreign or at least exogenous domination. Throughout history, the nations of Europe, Latin America, the Middle East, Africa and Asia have been ruled by foreign powers - potent military occupiers stretching in a long line from the Persians, the Moguls, the Han Chinese, Alexander's Macedonians, the Romans, Byzantium, the Holy Roman Empire, the Fulani, the Zulus, the Ottomans, Napoleonic France, the Austro-Hungarian Empire, the British Empire, the Third Reich, the Great East Asian Co-Prosperity Scheme, the USSR to name but a few. Even today, many of the peoples of the world, in developed as well as less-developed nations, although freed from the shackles of colonialism or occupation, still feel alienated from their governments which are led by a single tribe, ethnic group or powerful social or caste or religious elite. There is a social, ethnic, political and economic distance between the leaders and the led.  What this has meant in terms of crime and corruption is that there is a certain legitimacy which attaches to acts against a foreign occupying or dominant power and against those in power who represent a different ethnic group, religion, caste or class. Under these circumstances, criminal acts are not considered criminal; they are a tolerated subversion of an inequitable system. Many of the most durable of the world's criminal societies, the Mafia, the Camorra, 14-K, the house of Hung, the Sun Yee On, the Wo Hop To, the Yamaguchi-Gumi, the Union Corse, the IRA, the Sendero Luminosa,  the Sons of Liberty and Black September arose directly out of this maelstrom of criminality cum nationalism and the struggle against foreign domination. What is important is that these criminal organisations institutionalised criminality on the basis of a political and ethnic message and spawned political parties, created political alliances, generated giant legitimate and semi-legitimate corporations as part of their service to the disenfranchised and, by so doing, created a symbiotic relationship with governments.

 In recent years these criminal/political complexes have become potent weapons in the arena of international affairs and the conduct of foreign policy. This is not a new pattern - the Thugees of India, the Japanese Ninja and the Assassins of Syria were masters of this trade. As early as the First World War, the Imperial German Army made common cause with the dacoits of India and the Mexican bandits to harass the British and the U.S. war efforts. During the Second World War the Allies made a series of alliances with the Italian Mafia to assist in the retaking of Italy just as the Axis formed alliances with the IRA and the Arab bandits of the Grand Mufti of Jerusalem to harass the Allied War effort. Post-war activities in pursuit of the Marshall Plan in Europe enfranchised the Mafia, the Camorra, the 'Ngherata and the Union Corse in the Mediterranean and in French Indo-China. When Chiang Kai-Shek entered Shanghai in 1927 his first act was to join forces with the Green Gang to destroy the communists. Other triads in China also allied to the Kuomintang in exile in Taiwan under Allied leadership to fight on against Mao Tse Tung. The bandits and min tuan warlords of the Shan states joined with the Union Corse to build the giant drugs industry of the Golden Triangle. The Japanese yakuza, powerful after their successful quasi-governmental assignment of the rape of Manchuria,  acted as the acceptable surrogates for the anti-communist political parties in occupied Japan when many of the national political leaders were barred from holding office because of their Imperialist pasts. The urban vice and gambling barons of the Gold Coast allied themselves to Kwame Nkrumah to win the struggle for independence, only to fall out with the new Ghanaian leadership and provide valuable anti-Nkrumah services on behalf of the U.S. and the British thereafter. The black gangsters of Guyana were actively recruited and trained by the British in their efforts to counteract Cheddi Jagan's more militant policies. The relations between terrorists like  Abu Nidal or George Habbash with Arab political leaderships have shaped Middle East politics for years. In all these cases, and in many other examples, organised criminal societies became legitimatized and joint activities with them became part of the range of policy options open to foreign policy planners. The price for this was the acceptance of crime and corruption as part of the 'legitimate' political structure and the turning of a blind eye to the financial lubrication needed to make this system function smoothly. The salient feature of modern organised crime has always been that it is militantly anti-communist. Communists have their own, quite unique, type of mafia which is antithetical to the organised crime of the Italian type. As powerful, unfettered criminal societies, these organizations were integrated into the arsenal of democracy. When Jack Kennedy hired Momo Giancana to assassinate Fidel Castro he was not breaking new ground; this type of transaction has been a part of the political system for at least a thousand years.

A third theme which is often missing from the analysis of crime and corruption is the universality of criminal structures. Whilst it is fashionable to speak of developed and underdeveloped nations this is an economic distinction, not a political one. There are very few nations in the world which are politically underdeveloped. They may not be modern or representative democracies, but they are  not politically underdeveloped. Nations developed, over time, the political institutions which matched the power structures in their areas. These may have been based on the military might of a single clan, access to a river or a well, ownership of a particular piece of land, control of the priesthood of the local religion, etc. These were congruent with the realities of the political system in which they operated. Along with the growth of relevant political structures was the parallel growth of criminal structures. Each society has its own criminal element and organizations. Their level of sophistication matched the level or organization of the society within which they functioned. These criminal organizations often thrived by providing unavailable services or filling the needs that traditional political structures could not fill. Primary among these was the provision of credit - rural credit to farmers to buy seed and equipment; and urban credit to the peasants who left their farms to find work in the towns and cities and where they were unknown or had no extended families. For most of the world's population life is experienced as a high wire act worked without a net. The price of failure under these rules is a very high price indeed. For most, the existence of a criminal parallel society served as their net, their ultimate security when their own legitimate society failed them. Many who made this bargain were not giving up anything of value which their own society offered them; to a large extent  this was the only deal open to them. Some took it with reluctance, but took it nonetheless.

What has been most important for the survival and expansion of these criminal institutions was that they were better constituted to adapt to changes in their environment than the political organizations and structures within which they operated and for which they substituted. Criminal institutions, by definition, usually are composed of the outcasts of the society (even though they may be closely allied to the mightiest in the land). They are self-elected and self-sustaining. This has meant that they are much more able to adapt to the challenge of change than the 'regular' political organisations. When they have difficulty in adapting to contemporary challenges, as during the Castellamarese Wars in the U.S. between the 'Moustache Petes' and the modernisers, the adaptation process is often more swift and final than the changes achieved through the ballot box. A key feature of this ability to adapt is that criminal organisations are flexible in establishing alliances with other similar organizations for mutual gain. The first multinationals were criminal multinationals. Long before General Motors or ITT or the Seven Sisters spread their corporate nets across the globe, giant criminal multinationals and cartels were already in existence and in business with legitimate governments. The overseas Chinese throughout Southeast Asia spread with them their triad organizations. The Italians spread their criminal enterprises across North America. The black African slave suppliers spread across the lower reaches of the Sahara in a highly organized fashion to supply captives to the European traders and Catholic religious orders plying the coast of West Africa in search of cheap plantation labour. Many of the freebooters of the Spanish Main operated quite sophisticated alliances with each other depending on the changing favours of the Spanish, Portuguese, British and French monarchies. Several (Francis Drake, Henry Morgan, etc.) were government-licensed pirates. Many legitimate governments hired and contracted organised criminal societies, like the Barbary pirates, to break sieges and subvert embargos. The Arab slave dealers of East Africa formed alliances with local criminals to enlist and transfer slaves to the Middle East and India. The international drugs industry is a testament to the powers of multinational criminal co-operation, starting with the Mafia's French Connection, taking Asian opium, refining it into heroin in France, and distributing on the streets of New York through black and Hispanic street dealers, to the international association of Sendero Luminosa drug growers delivering to the Medellin and Cali cartels, shipping through Caribbean and West African entry points to the U.S. and Europe where Italian, Albanian, Hispanic, Greek, Chinese and Iranian criminal organizations take on the marketing and distribution of these products. The organisational sophistication rivals that of any of the largest Fortune 500 companies and its turnover figures make even the largest multinationals look puny in comparison.

 The Mechanics of The System:

 Crime and corruption are integral parts of our daily lives and are so common that they do not arouse our attention. In New York one needs only to look around carefully and several questions immediately arise A key question is, how do poor people survive? Any observer can see that the poor people in the ghettos of Harlem, Bedford Stuyvesant, and in Fort Apache in the South Bronx cannot survive on the meagre subsistence payments of welfare and food stamps. Yet, these citizens walk around quite well-dressed; shop at well-stocked food shops; buy at flashy furniture shops; and spend a great deal of the evening socializing at neighbourhood restaurants, bars and clubs. Where does the money for all this come from? It comes from an institutionalized system of corruption which starts at the National Highways Trust Fund and passes through layers of the state and city bureaucracy to end up as urban credit to the poor. No one in any U.S. urban ghetto lives more than four and one-half blocks from a liquor store. Why? Why is it that whenever there is a riot, as in Watts, Los Angeles, Detroit, Cleveland or Washington the first shops destroyed by the rioters are these same liquor shops? The answer is that the liquor shops in the ghettos are the dispensers of credit to the poor. Liquor shops cash cheques; they advance funds against welfare cheques. They are open all hours. They are run by the political bosses and trade electoral loyalty for credit. They are the interface between the System and the poor. In exchange they deliver the votes to the uptown white parties. The political system co-exists with an economic, power base - black organised crime. This orientation is equally true for ghetto Hispanics, the last remaining ghetto Italians, ghetto Chinese, ghetto Greeks and ghetto Koreans and Vietnamese. The slums and ghettos of the world are run in parallel to the normal political system, where corruption, crime, credit and control are the basics. This urban pattern in replicated across the world. In the urban slums of Mexico City local caciques hold weekly surgeries where supplicants come to make requests of the PRI local boss; in the Gulf petitioners attend an informal weekly majlis . In the favelas of Brazil the power arrangements are no different. In the urban sprawl of the Agege Motor Road in Lagos or in the backstreets of Tsimshatsui in Hong Kong the faces and accents are different, but the System is the same.  This subculture of corruption is universal. The differences are of degree, not of kind. Crime and corruption are not only for the poor. Whole industries are constructed to handle corrupt practices.

(a)  The Construction Industry

 In virtually every corner of the globe the construction and property business is the playground of the corrupt. It is one major area where government officials interact with private or state enterprise. The key to this relationship is that development is not allowed to take place without the approval of a whole raft of officials, from the local architect, to the planners, to the materials suppliers, to the testing labs, to the zoning committees, to the environmental impact committees. It is a legalized braking system on the process of construction. The pressures on a construction company are largely the pressures of time. A builder does not earn income on properties until they are completed or seen to be ready for completion. A builder has to borrow money to acquire land, hire contractors and provide architects, etc. long before he sees an income stream. It is this time pressure which makes builders vulnerable to the public officials. As long as public officials can delay the building process, or similarly the trades unions which represent those who do the building, the builder is paying out money for nothing during the delay. Knowing of these pressures, public officials often withhold their approval until they receive some form of incentive to grant that approval. The builder is, in essence, discounting his losses by paying off officials to allow development to proceed apace.

In some cities, for example New York, the building industry is organised on strictly controlled lines of power. The City officials collect from the developers for building permits. The Westies (an Irish-led organised crime organisation) control the building workers. One Mafia family controls the cement, stone and concrete business. Another borghata controls the trucking business and its related unions. A third family controls the high steel and electrical workers. The costs of construction in New York are among the highest in the world and are significantly higher than similar costs in cities only twenty-five or thirty miles away. This tax on building and construction often provides the source of funds for the unofficial social welfare schemes among the urban poor. This pattern is repeated, with varying levels of sophistication around the world. In addition, the developers run their own system of corruption by 'ringing' their tender bids to perform construction. That is, the possible bidders on a tender meet together and collude on which company is to get the right to be the low bidder. They decide among themselves how low that bid can be and then bid higher than the annointed company. In this way they keep construction prices high, discourage competition and share the work. It also generates the revenue to pay off the corrupt officials and workers in the business. This, too, is a universal practice.

(b)  The Maritime Industry

Construction is not the only such industry. One of the major areas of crime and corruption has been the maritime industry. Ships are still the way most goods are sent from exporter to importer. It is a system which ultimately relies on good faith - good faith the vessel actually has taken on board the exact cargo specified on the bill of lading; that the ship's master actually intends to take this cargo to the destination specified by the buyer;  that the vessel is in sufficiently good condition to protect the cargo during the voyage, that the vessel is properly insured to compensate the cargo owners if a claim is made; and that the amount of time required to make the journey and to effect the discharge will be fairly billed to the party responsible. In some cases, this good faith has not been apparent.

One of the most famous maritime frauds was the "Salem Case" in which an oil tanker loaded a cargo of oil in Oman, theoretically bound for Rotterdam. It stopped in South Africa, delivered most of the oil on board in defiance of international sanctions and continued its voyage to Rotterdam. Unfortunately, the "Salem" ran into difficulties in the deepest part of the sea off the coast of West Africa, foundered and sank without a trace. The captain and the crew were rescued. By some miracle, no one was hurt; in fact no one even lost any clothing or possessions on the sunken ship. By some good fortune, the skeleton crew on board were able to pack their bags quickly in a crisis. A claim was made at Lloyd's for the cost of the vessel and for the unfortunate cargo of oil which sank to the bottom of the sea. Upon investigation it was found that the oil was not actually on board but had been previously delivered to South Africa; that the captain had a history of ships sinking beneath his feet; and that most of the crew had an equally unfortunate history of marine disasters. At the trial, the insurance claim was not paid.

The "Salem" is only one of a number of similar cases. Many smaller vessels loaded cargo in Mediterranean ports and set sail for their several discharge ports. Unfortunately they were drawn into the "Lebanese Triangle" where the vessel and its cargo disappeared without a trace. These vessels and their cargos were presumed lost. In reality, the vessel arrived in either a Muslim or a Christian Lebanese port, sold its goods for cash, changed its name and registry, and went back, with a different master to load another cargo destined for the Lebanese Triangle. The cargo owners would be paid in cash for the goods at their sale in Lebanon and also paid for the goods under an insurance claim. The shipowner would be paid his freight, plus a bonus for diverting to the Lebanon. He would also claim for the loss of his vessel. The shipper and the vessel owner each got paid twice.

In other cases, like the "Great Nigerian Cement Caper", the cargos were not lost, they were non-existent. At one time there were 440 ships loaded with cement sitting in the water awaiting a turn to discharge their cargos of cement to Lagos/Apapa. These vessels had come to Nigeria and found massive congestion. Some vessels waited for fourteen months to discharge. The delays in providing a berth for the vessel's discharge were charged at a daily demurrage rate to the Nigerian purchaser. Nigeria's demurrage bills were astronomic. One day the Nigerian Ports Authority called in a vessel waiting in the queue and found that it was empty. The Nigerian purchaser was paying demurrages on a non-existent cargo. On investigation the port authority discovered that, indeed, most of the ships were empty. The government decreed that it would not allow the payment of any more demurrages. The vessels' owners weighed anchor and those who were still seaworthy sailed home. There was suddenly a great famine of cement in Nigeria. On investigation the Nigerian authorities learned that this fraud was not the work of the shipowners. The shipowners were only receiving a normal demurrage payment of about $3,000 per day. The Nigerian businessmen were paying the shipowner almost $12,000 per day in demurrages. The balance of $9,000 per day was given back to the Nigerian businessmen at their banks in Europe. The reason for this was the loophole in Nigerian law which stated that the non-convertible Nigerian currency, Naira, could be exchanged by the National Bank at the official rate to pay demurrages. It was cheaper to pay demurrages than to try and exchange Naira on the Black Market. On the Black Market, currency dealers were charging almost 6 to 1 (Naira to the dollar). Using the demurrage scam the Nigerian businessman was paying the Nigerian equivalent of $15,000 to net $12,000 off-shore. Had he tried to convert the same $15,000 worth of Naira on the black market he would only have received $2,500. It was more advantageous to pay demurrages , have hundreds of idle vessels than to change currency at the black market rate.

Maritime frauds increasingly use fake documentation - fake bills of lading, fake certificates of origin and fake inspection certificates. International banks are extremely cautious but get caught out every day. The Angolan Government got stung twice by fake documents purporting to show and import of peanuts. They ended up with only the shells. International banks are extremely cautious but get caught out every day. The provision of false documents is an industry in itself, based in Geneva, Hong Kong, Piraeus and Marseilles. One can buy false papers, including fake documentary credits,  for almost any transaction. In Singapore. Bahrein, Manila  and Al-Khobar  one can purchase, quite openly, seamen's papers attesting to skills in engineering, navigation, radio operation or even captaincy. With sufficient literacy to sign one's name and cash anyone can become a licensed sea captain.

A third type of maritime fraud is the type of  fraud perpetrated by corrupt governments or quasi-governmental agencies, against vessel owners. In Sierra Leone, for example, it used to be a common practice for a vessel arriving in Freetown to be found guilty of some minor violation of a code or ordinance. The vessel was then arrested by the authorities and prevented from leaving port or discharging or loading cargo until the arrest was lifted with the ultimate threat of seizing and auctioning the vessel to pay its fines. Local lawyers and local officials who set the 'fines' and arranged the release of the vessel shared their gains with local politicians. In Algeria, the most common fraud is the "Semolina Racket". Algeria imports semolina from Italy (mainly from Barletta or Manfredonia). When the vessel arrives in Algeria discharging commences as normal. However, when there are still some tons of semolina left on board the vessel, the local authorities announce that the cargo is damaged (e.g. 'wet') and discharging cannot be completed. The vessel owner contacts the Italian seller who says that it is not his fault and he is holding the vessel owner/master responsible. The ship cannot proceed to leave the harbour nor can it off-load the balance of the cargo. The Algerians offer a solution. The vessel can pay the value of the cargo not delivered (known as 'deadfreight') and be free to sail. When the owner pays to free his ship and sails, he is then contacted by the semolina owners who demand to be paid for the semolina not delivered. The owner must pay again. There are many such 'customary trades' which shipowners try to avoid. The Protection & Indemnity Insurance companies often have to pick up the tab for this. This type of fraud is a growing menace to shipping.

Yet another type of maritime fraud is the 'overloading' scam, primarily in the liquid bulk trades (petroleum and similar oil products); pioneered in the Nigerian oil industry. In these, the vendor offers to sell the product to the buyer at a non-discounted price with the promise that the vessel will be loaded with 10% or 15% more cargo than will appear on the cargo manifest, thus making it a 'discounted cargo'. During the heady days of OPEC many countries were constrained to sell crude and refined products at a minimum price. Unscrupulous traders negotiated secret deals on behalf of prominent politicians, princes. cousins of the ruler, etc.  who claimed to have an 'allocation' of this crude. The Buyers would agree to purchase this crude at full OPEC price, plus the standard commissions of one to three cents per barrel, in the knowledge that they would get more crude loaded aboard the vessel than stated on the bill of lading. When the vessel was actually loaded, the vendor and the ship's master prepared two sets of bills of lading; one 'official' and one for the buyer. The vendor would deliver the official bills of lading to his bank, stating the official tonnages loaded on the vessel, to collect his money on the documentary credit. The second bill of lading was sent to the buyer showing that 10% or 15% more cargo was loaded on the vessel. The Buyer would pay the shipowner the freight calculated on the tonnages described in the second bill of lading (e.g. 10% -15% more) and would pay the brokers/traders their commissions per ton on the basis of the second bill of lading. This defrauded the national exchequer of royalties and duties. In addition, unfortunately, in some cases when the cargo arrived at its destination this purported 10% to 15% was not on board. There was nothing the Buyer could do as no party had broken the law. The official bills of lading had been used in the transaction and the legitimate transaction had been completed. As a matter of practice, however, these Buyers did not sue. When they found they had been swindled, they recouped their losses by selling the second bill of lading, showing the higher tonnages, on the 'spot market' and passed on the problem to a new Buyer who had no recourse at all to anyone. An enormous amount of 'phantom oil' was traded amounting to billions of dollars.

(c)  Money-Laundering  

The linchpin to the international crime and corruption industry is the parallel industry of money-laundering. Crime not only pays, it also avoids disclosure and taxes. Money laundering is a giant international business. In its most quaint incarnation it is very obvious. Throughout Dade County in Southern Florida you will see little old ladies and men standing in queues outside banks. Clutched in their hands are small brown paper bags. One bag has sandwiches, the other cash - usually about $7,600 worth in $20 bills. These senior citizens (known to law -enforcement officials as 'smurfs') are paid a flat rate per transaction, usually around $25 to supplement their Social Security, to stand in queues to hand in deposit slips and cash to tellers or buy money orders. They take their receipts or money orders and go outside the bank where they exchange these for cash from a man cruising around in a car from bank to bank. This is the front line of the money-laundering business. The drugs business in the U.S. is a $96 billion a year industry, generating massive sums in cash which have to be washed. The size of the European drugs business is smaller, but amounts to almost $42 billion a year. That means, for the drugs business alone, in Europe and North America over $620 million on each banking day has to be recycled through the system. There are not enough smurfs to handle this.

Under U.S. Treasury law any domestic transaction over $10,000 has to be reported to the government. These smurfs standing in queues outside the banks are making deposits or, sometimes buying money orders, just under the reporting threshold. This money then disappears through the banking system as a deposit to a Panamanian or Bahamian company, often in the import-export or travel business. Alternatively, in units of less than $10,000 (the threshold for reporting international transfers) these deposits are wired overseas to Panamanian, Cayman Island, Vanuatu  or Bahamian banks in the name of these same companies. From here the funds are untraceable and are used to finance investments in property, stocks and bonds, or new transactions in cocaine, heroin or other prohibited substances.

These cash deposits are not only made to banks. In the early 1980s money launderers deposited $5 million at Merrill, Lynch and $16 million at E.F. Hutton. The breaking of the Pizza Connection exposed the First Bank of Boston to unwanted publicity and a fine of $500,000 for dealing with over $1.15 billion in unvouchered cash with Credit Suisse and the Swiss Bank Corporation. Deak & Co., the money brokers, had to file for bankruptcy, when the U.S. crime authorities announced that they were going to examine Deak's books. The flood of withdrawals from Deak after the announcement bankrupt the company. These smurf-runners rarely work on their own, they are employees of small or middle-sized money washing firms. At a Congressional hearing in the mid-1980s one Florida launderer testified that he had washed $30 million a month using his own smurfs. He also paid the bank an eighth of a point for 'counting the money' and, later, a monthly blanket bank charge of $300,000 for the inconvenience to the tellers having to count the smurf's deposits.

Another type of money laundry is the gambling casino. Most casinos around the world have no controls on how much cash can be brought in. Big time money launderers bring in cash to buy chips. They gamble a bit and then turn in these chips for checks from the casino made out to Panamanian or Liechtenstein companies. They later deposit these casino cheques into their bank accounts. Sometimes the high rollers use their own smurfs to carry the cash but much of the time they do this themselves. This method is particularly attractive to lawyers, doctors, dentists and others who derive high revenues from the 'black economy' in places like Italy, Germany and France. Using casinos for washing cash receipts has traditionally been the means by which illegal currency transactions can take place. If a man walks into the casino at Divonne (on the French-Swiss border) and buys a handful of gambling chips for French francs, he is not obliged to  change his chips back into French francs when he returns his chips. He can take their value in Swiss francs or dollars or sterling. These funds can be deposited in banks just the other side of the border. This is why most international casinos are located on or near their national borders. It cuts down on the travelling time needed to make deposits.

Money laundering is also conducted by major international banks as part of their services to their regular clients. One of the main attractions of a bank like BCCI in Africa was that it was able to clear currency transactions within its own offices. For example, a major construction company like Company B of West Germany has contracts to build roads in countries like Nigeria. In its contracts a certain portion of the payment is in local currency, the balance in Deutschmarks. Company B pays its workers, hires its transport, pays its gas, electrical and telephone bills in local currency. It actually consumes local currency, often at a far higher rate than it earns the local currency. A bank like BCCI has numerous customers who would like to change their local currency into hard currency. Normally a local currency holder has to have a valid reason for getting exchange control permission to change his currency. Failing that he must change it on the black market, often at penal rates. Company B can buy all the local currency it wants at the official rate. Using a friendly intermediary, e.g. BCCI, both benefit. The bank offers to buy the local currency from their domestic client at a discount off the black market rate and delivers this local currency to Company B at many times the official rate. Both the local customer and Company B benefit and the bank take a hefty commission from both sides. The bank never asks where this local cash comes from, it merely changes its ownership.  Throughout the world, major banks regularly perform these services for their clients. For much of the world, the only business is changing local currency into 'hard currency.'

Bank money laundering has been the traditional vehicle whereby "flight capital" leaves areas where there is political turmoil, where there are stringent exchange controls or where the dubious provenance of the money makes accounting for it somewhat problematical. The bank secrecy laws of Switzerland, Luxembourg, Austria, the Cayman Islands, the Channel Islands and others have proved attractive to those who wish to move their money to safer havens or who wish to follows the Golden Rule, "Never live in the same country as your money". Several ingenious schemes to actually move this money to the safe havens have emerged. One of the most famous, if not traditional, methods is the double-auction method pioneered by a Geneva auction house. This auction house would hold furniture and art auctions of important pieces throughout France, Germany and Italy. There, bidders would buy a Louis IV cabinet for say 300,000 French francs, plus the buyers' premium. The auctioneers would hold the piece for the client in their warehouse for a small fee. After a year or so, the piece would be offered for sale again at auction in Geneva where it would fetch a fair price of about the Swiss franc equivalent of 300,000 French francs, or about the same value as it was bought for earlier. The buyer would actually be the Geneva auction house reclaiming its own stock already in its warehouse and charging a small seller's fee to the French buyer. In effect the French buyer changed French francs to Swiss francs quite legally and paid only a small buyer's and seller's commission to the auction house. There are many auctions across the world whose intention is to change money rather than to acquire or dispose of goods (art, jewellery, antiques, etc.) A variant of this is for the French buyer to pay 300,000 French  francs for a picture and be delivered a fake or a copy with his full knowledge. The balance between the price of the fake and that of the real painting is returned to the buyer as a Swiss franc deposit to his account in Geneva or Zurich. This also has the advantage to the dealer of driving up the price of legitimate pictures. For the truly larcenous, buying fakes opens the door to insurance fraud as well when the fake is destroyed or stolen; or, alternatively, written off as a fake when the original appears in auction somewhere else..

 By far the most interesting of the means by which vast sums of drug money and payments made for illegal arms shipments are laundered is the quasi-governmental banking system. The prime example of this is the Nugan-Hand Bank whose investigation in Australia opened to public view for the first time a glimpse behind the type of money-laundering machines set up by governments to perform government-to-government business. On 27 January 1980 police looking into an abandoned vehicle at the kerb in Lithgow, Australia found the body of Frank Nugan, apparently the victim of a suicide. Frank Nugan had with him a Bible and the telephone numbers of two men - U.S. Congressman Bob Wilson and Bill Colby  Bob Wilson, then the ranking Republican member of the House Armed Services Committee, and Bill Colby, long-time officer in the Central Intelligence Agency and its Director for several years previously, were both friends of Frank Nugan and influential supporters of Nugan's major international bank, the Nugan Hand Bank. The other half of the Nugan Hand Bank was Michael Hand, a former Special Forces (Green Beret) officer in Vietnam and responsible for liaison with Colby when the latter headed the 'Phoenix Program'. This multimillion dollar bank had at its president Rear Admiral E.P. "Buddy" Yates, one-time chief of staff  for the U.S. Pacific Command. Throughout the Nugan Hand bank could be found high-ranking U.S. military personnel or former high-ranking intelligence or counter-insurgency personnel. Its representative in the Philippines, for example, and its liaison with the Marcos family, was three-star Air Force General Leroy Manor, former chief of staff of Pacific Command, special assistant to the Joint Chiefs of Staff and the leader of the famous raid to release U.S. POW's from their North Vietnam prison. This band of former U.S. military and intelligence officers were part of this private bank which went bust owing millions of dollars to small investors as a result of the stock fraud and embezzlement of Frank Nugan and, perhaps, Michael Hand. What the investigation revealed, however, was more than just stock fraud, it revealed a giant private bank which moved massive quantities of drug money, proceeds of illegal arms sales and the private wealth of national leaders like Ferdinand Marcos to safe havens with the knowledge and complicity of U.S. military and civilian authorities. The murder of Frank Nugan (his suicide was disproved), has never been solved and most of the evidence against the bank has been hidden away. Nugan-Hand was the bank used to move the Iran-Contra funds.

Perhaps the most egregious case of money laundering was the Banco Ambrosiano case which involved corruption running into multi-billions of dollars, the assassination of an Italian President, the suspected poisoning of a Pope. The 'suicide' of Roberto Calvi in London and the fall of Michaele Sindona in the U.S. and Italy exposed to view the gigantic 'Propaganda Due - P2' College of Corruption which spanned the globe. The unholy trinity of Calvi, Sindona and Bishop Marcinkus controlled, under the watchful eye of Licio Gelli's P2, the banking structure of several Latin American nations, numerous Italian, Swiss and U.S. banks, and were implicated in the murder of  Pope John Paul I and Aldo Moro.

Money-laundering is now a growth industry in Eastern Europe. Recently the Bank of Estonia found millions of dollars washing into its bank from dubious sources. It reported these, but scores of other banks, in desperate need of a capital base, ask no questions as to the origin of these funds. The international convention established to deal with money-laundering has only been ratified by a handful of states. Some major national and private banks advertise openly for deposits promising full secrecy. The Russian Mafia own and control their own banks and stock broking companies.

 (d)  Parlour-Room Crime  

 Perhaps the most familiar form of crime and corruption is the one in which corrupt officials certify as genuine that which is not; fake art, antiques and jewellery. The newspapers are full of stories of fake antiques and artwork being discovered. What they may not be aware of is that art fraud is a major industry and organised on an international basis. There are also certain tricks of the trade which are known to art dealers and which, if known, can alert the buyer to the possibility of fraud  There are firms, like Wright and Mansfield (disbanded in the 1880s) which produced a fine line of Chippendale furniture; so good, in fact that their wares are collected as well as Chippendale. Jackson and Crane  and their London rivals Graham and Collinson, produced antique furniture sometimes even better than the eighteenth century items they copied  are themselves being collected. Like many famous art forgers, their work is worthy of collecting for its own sake.

The tricks of the trade in art and antique fraud have been traditionally passed down through the cottage workshops. Boiling new ivory produces the cracks of aging; heating earthenware and dousing it in ice water produces the fine crackle finish of old pottery. New paintings are slowly cooked to accelerate drying and cracking and covered by a sepia varnish or liquorice juice and left out for flies to deposit "instant age"  New watercolour and prints are smoked and dotted with tobacco juice to produce 'foxing'. Bronze and brass objects are dipped in potassium nitrate to age them. At one point Britain was awash with fake Egyptian burial ornaments produced in Bermondsey, dipped in acid, and buried near the Thames for six months to 'age'.

Recent fashionable jewellery fakes include intaglios, gold rings with designs cut in them. Older, unfashionable rings are recut to imitate valuable designs. The recut rings are then forced down the gullet of a turkey where it languishes for two months or more when the juices of the turkey’s gullet impart an aging to the ring indistinguishable from the real thing. The turkey is killed and eaten and the ring removed from the gullet - both in time for the Christmas sales. Many modern fakes use artificial gemstones set in genuine old settings or older reproductions. An alternative to the artificial stone is the "doublet" or "triplet" where several smaller gems are glued together to appear as a much larger and more valuable stone. For some diamonds, the lower half of the "doublet" might be glass. In emeralds, the lower half might be made of beryl or green glass. This means that when the top is tested for hardness and sheen it tests out as genuine.  The imitation pearl business has been around since the 15th century when Venetian glass blowers filled small glass beads with fish scale paste and sold them as pearls. For years jewel fakers have dyed stones to look like something better. Lapis lazuli is often blue-dyed quartz (known as Swiss lapis); yellow amber is dyed with potassium permanganate to make it a rich reddish brown "antique " amber; pale turquoise is dyed with cobalt chloride to produce an "antique" blue; while white jade is dipped in a copper solution to produce the deep green of expensive Chinese jade. Thousands of carats of yellow industrial diamonds are dyed with a blue wash to make them appear as freshly-cut white brilliants

It is not only jewellery which is faked. With the rise of photoengraving and xerography it is now possible to copy, exactly, prints in fantastic detail. The paper is aged and browned by chemical means or, most easily, by being moistened and put into a microwave. These are often not too difficult to discover if the colouring is not done well, but black and white prints are almost impossible to detect if they are printed on old paper. Even in his own lifetime Durer complained of the artist Raimondi's copies of his work being sold. Now, a Raimondi, although worth far less than a Durer, has a substantial value of its own. One of the hardest items to detect is restrikes on old paper of retooled and reworked original plates. When lithographic runs are completed, the plates are destroyed. However it has long been the practice to save the broken plates and repair them. Then, using old paper, new prints are pulled. These are hard to detect as, except for the invisible repair lines, they are the originals.

The famous fine art forgers are well known. However other aspects of art fraud are less well documented. One such case is that of the Madrid Murillos. When a Latin American visitor passed through the Prado to view the splendid collection of Murillos, he might be addressed by the curator who would ask the visitor if he wanted to buy a Murillo. The man usually expressed surprise but was willing to talk. The curator said that he had a copy which the museum would hang when the original was being cleaned, etc. and could make the substitution virtually unnoticed. The curator was quite reasonable. He stated that the buyer, once the price was agreed, should sign his name or make a secret mark on the back of the Murillo so that he would be sure it was the original he was getting. No money would change hands until the painting was delivered in Uruguay (for example). The curator would deliver the picture to Uruguay and the buyer would certify his signature and/or secret mark. Once satisfied, he would pay. Unbeknownst to the buyer, the curator had had all the Murillos fitted with an extra backing canvas. When the buyer signed his name or made his secret sign, the curator removed the false back and replaced it with another false back. The signed or marked back was glued onto a good reproduction Murillo and delivered to the buyer. In this way the curator sold each Murillo several times. When, or if, the buyers ever discovered the fraud they were in no position to complain.

Another type of fraud has expanded into a major world-wide industry in which large industrial corporations pirate technology, products and brand names and produce these for the world markets. One needs not walk farther than the downtown shopping precincts to find fake Rolex watches, impressive Cartier fake jewellery, 'knock-off' fashion clothing. Hong Kong and the Far East, in particular, are famous for its copies of brand name goods. Corporations spend millions of dollars promoting their brand names and logos only to find them copied on goods produced in Thailand, Malaysia and Hong Kong. The detection of these frauds has been taken over by specialist investigation and large sums are being spent to search out and interdict the factories producing these goods. Increasingly this type of fraud is moving into high-tech areas like computer design, software, pirate videos, medical instruments, dental equipment and communications equipment like satellite dishes, telephones and switching equipment. There is even an industry dedicated to manufacturing imitation pharmaceuticals and ethical drugs and high-tech aircraft parts.. Despite increased attention being spent on these types of frauds, very little progress is being made at all in curbing these industries. This continues primarily because corrupt officials tolerate piracy as an income stream to which they would otherwise have no access.

Conclusi on:

Crime and corruption are inseparable. The type of investigation of crime and corruption which focuses on the over-invoicing of goods and services to the Third World and the commissions or 'kick-backs'  taken by high officials, while often running into many millions of dollars, is still petty-ante crime in the wider scale of international corruption; as is the famous Nigerian '419'scams. Many international agencies and lending institutions are concerned with the impact of corruption on good governance and economic growth as a result of corrupt practices; as well they might be. The problem is one of scale. Any student of the Banco Ambrosiano Affair, for example,  will attest to the fact that many billions of dollars disappeared through deep-rooted corruption in Italy and current political events in Castellamare, Naples, Palermo and Milan should disabuse anyone that major changes have taken place. The biggest growth industry in the European Community is the fraudulent documentation of agricultural products trying to qualify for EEC subsidies. The lack of any effective regulation in Eastern Europe has spawned a "Wild West" attitude amongst business, government and law enforcement officers. There is probably more corrupt and criminal money being washed through urban American and European banks in one week than the total amount of African corruption in a year. The European Community has been unable to produce audited accounts for over ten years.

The difference is that corruption in modern industrial states is largely invisible to the middle classes. The structure of crime and corruption in modern industrial economies is such as to leave the middle classes out of its perpetration and its rewards. The poorest of the Western societies know all too well what the effects of corruption are when they have to interact with public officials. At the top of societies, captains of industry and their advisors often have to deal with legislators, administrators, elected officials and 'lobbyists' whose hand on the "Pork Barrel" often determines their financial opportunities. There can surely be no one who has ever spent any time lobbying in Rome, Washington or Brussels who has any illusions about the uniqueness  of the Third World experience with corruption.

When the American colonial overlord of the Philippines, Taft, reported to the Congress that the literacy rate among Filipinos was low and social services rather limited, William Jennings Bryan replied that it was probably a good idea to keep the Filipinos illiterate, "Lest they read our Constitution and mock us for our  inconsistencies."  The problem with corruption in the Third World is that it is disorganised corruption; the same small elite make up both the political and the business communities. Crime is endemic, but it is disorganised. With the exception of Medellin, Cali, Hong Kong and Bangkok, crime is unsophisticated.

We in the West are far more advanced. We have organised crime which has established organic links with organised business, organised labour and organised government. The populace needs never  concern itself with these ties as they are largely invisible. However, when we engage ourselves in the confrontation with corruption in the Third World we ought to at least reflect that we run the risk pointed out by Bryan, that the recipients of our moral and financial strictures might reasonably ask to delay their transition to godliness until we have dealt with the problems of Chicago, Tokyo, Palermo, Madrid, Brussels, Milan, Moscow, Vaduz and New York.

This international criminal industry and its partnership with corruption accounts for the missing world billions. These 'wages of sin' have placed a heavy burden on legitimate businesses and tax-payers who are, effectively, making the interest payments on these missing funds through higher interest rates, tighter credit limits and higher prices on goods and services. The world's banking system has been transmogrified by this influx of hot money as has its stock, bonds, commodity and property markets. In some countries lending agencies like the World Bank estimate that the losses due to corruption are almost twenty percent of all transactions. Crime accounts for at least an additional twenty percent. At least an eighth and perhaps as much as a quarter of the total world's GNP pass through the hands of the parallel society.

The world is now faced with a challenge in dealing with this deeply institutionalised criminality. The current credit crunch and the failure of the banking system to regulate itself calls out for a determined effort against continued corruption. The death of the communist system has removed much of the raison d'etre for the alliance of democracies with crooks because of their anti-communism. Perhaps by bringing this interdependence of criminality, corruption and the nations of the world to the public's attention can there be an open debate on how or if this strange symbiosis should continue and, equally as important, if the criminal societies are to be interdicted and corruption decreased how can governments adapt their policies to address the problem of the parallel society.

Robot  # 1 | 02.12.2008 11:33

An international ovcerview of a parallel system (I apologise for the length) ...Read the full article.