The illegal economy: A South African law enforcement perspective

Institute for Futures Research

Stellenbosch

21 October 2011

1 IFR October 2011

Clarifying the brief:

This is a discussion on risk. Risks to human development, economic growth and the rule of law – i.e. the conditions that permit societies and individuals in those societies to flourish. The focus is on the “illegal economy nexus” as composed of corruption, organised crime and illicit trade – touching sides with fragile / weakened states.

The theme is on the interconnectedness of these three risks. How they intersect with each other – and how the cluster or nexus intersects with the other risks such as economic disparity and global governance risks. All in relation to SA.

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The objectives

•To clarify the key concepts used in the discourse of multi-lateral organisations engaged with the subject matter. •To share my understanding of what these concepts practically mean in SA; i.e. how does the illicit economy practically manifest itself in SA in 2011. •To comment on the steps taken to mitigate these risks; •To ask a couple of questions as regards the thrust of the discourse.

The caveats

•This is an exercise done from the perspective of a law enforcement practioner – not an academic, or a risk analyst.

•There is a dearth of accurate data on the subject matter globally - specifically in SA.

•The views expressed are my own and in no way purport to be that of my employer.

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What is understood to be (transnational) organised crime?

The 2010 Palermo Convention defined OC as involving two or more people, motivated by profit, committing serious criminal offences. It is increasingly understood that the most serious of OC is “transnational” in character – hence the T in TOC.

According to the UNODC the concept TOC generally refers to: • Drug trafficking (cocaine and

heroin) • Human trafficking & migrant

smuggling • Firearms smuggling • Environmental resources

trafficking • Counterfeit goods smuggling • Maritime piracy • Cyber crime

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Organised crime largely equals “illegal trade”

However, the concept “TOC” refers in the first instance to the international drugs trade. When we talk of law enforcement efforts to combat organised crime, we ought to in the first instance talk of our efforts to combat drug trafficking.

The UNODC itself states that 85% of the illicit trade flows is composed of the trade in drugs.

Also in SA, talk about “organised crime” is in the first instance about the trade in unlawful drugs.

250 million users world wide; worth $125bn annually (UNODC 2010)

TOC is therefore mostly about the trafficking, smuggling or trade - either of illegal commodities, or of legal commodities in a illegal fashion.

It is about trade; supply and demand.

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Organised crime is an exercise in

interconnectedness

• From the brothel keeper in Sandton; • to Ovidio Muresan, • To the strange behaviour at the

Romanian embassy, • To pressure on the competition;

• To being friends with Jackie Selebi, • And Gavin Verejes, to Gary Porrit; • to all that was associated with JS–

including Glenn Agliotti;

• To Billy Rautenbach – the customs scam and the 20 000 Hyundai vehicles, and the Tidmarch meeting and the $100k to see if a plan cannot be made...

•To Kya Sands, and a R1,5 m mandrax bust and an ironic pay-out to GA •To the link with Radovan Krejcer; •And Lolly Jackson; •and Lolly’s attorney and George Smith and Uwe Gembella & Cyril Beeka;

• And the man from Sicily, and Count Augusta,

• and the Pizza Connection and a nine year prison sentence (still) awaiting in Italy ...

• and a friendship with the then ruling party and etc etc

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Summer in Knysna, 2010

The Toledo is searched.

1716 kg of cocaine seized.

R514 m worth of hard drugs is found.

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Keeping the perspective (1) : The incredible American appetite for cocaine

The good news:

• The US demand for cocaine been in long term decline since the 1980’s and has dramatically dropped since 1996.

• The killing of Pablo Escobar and the dismantling of the Cali and Medellin cartels reduced the influence of the Colombian cartels.

(ex UNODC 2010)

The bad news: 196 tons of cocaine with a value of $ 38 billion will be consumed in the US this year. 90% of the total imports will be through Mexico, as controlled by Mexican gangs. These gangs will however only make $5,5bn of the grand total. $30 bn will be made by the American dealers. $1,1bn will flow back to the three Andean countries where the produce originates from.

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Organised crime in SA is about more than drugs, though.

Then there is organised crime that neither violent nor transnational - but that causes enormous financial prejudice, and that in many instances is less risky and more profitable than violent crime. Eg. cheque theft syndicates, credit card cloning fraud, and in particular VAT fraud. In variably, this form of crime relies on a measure of (petty) corruption – to facilitate the commission of the offences.

In SA, it is also about crime that requires a direct form of violence:

•truck hijackings

•motor vehicle theft

•ATM bombings, and

•Cash in transit heists

This is not necessarily transnational in nature.

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What is understood to be “corruption” – as part of the illegal economy nexus?

Not necessarily an offence under the

Prevention and Combat of Corrupt Activities Act, 12 of 2004.

In SA law enforcement discourse it is

generally referred to as the abuse of power in return for gratification of sorts.

It can be “petty” or it can be “grand” –

though this is probably not a useful distinction.

In SA today there is a great focus on “government tenders”; or irregularities in supply chain management of the goods and services purchased by national, provincial and local government; as well as the state owned entities.

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Just how “bad” is corruption in SA today?

Crime victimisation surveys measure “petty corruption”.

Indicates that between 3-6% of the adult population are being asked to pay a bribe for an official to either perform or not perform a government function. That is between 1 – 1,5 million people a year.

The Transparency International perception index for 2010 ranks SA at 54th position.

Taking into account PetroSA and Majali and (perhaps “Oilgate”) nothing caused more reputational damage than the SA “arms deal” and the manner it was handled.

The Special Investigation Unit estimate R30 billion of a total R180 billion of state expenditure on goods & services either being wasted, overspent, or irregularly (including corruptly) procured through government SCM processes.

The Auditor-General found in October 2011 that of R26 billion of total government expenditure was “fruitless and wasteful” or “irregular” or “unauthorised.”

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keep the perspective (2)

The 43 billion pound BAE Al Yamamah arms deal dwarfs the SA arms deal by a ratio of 10:1. It is alleged that former US ambassador Prince Bandar was to be paid more than 1 billion pound in facilitation fees. When the deal was investigated the UK’s Serious Fraud Office was stopped in 2006, with PM Tony Blair taking “full responsibility” for the termination. Former French president Jacques Chirac was charged in March 2011 with corruption, linked to his period as Paris mayor.

In 1976 Dutch Queen Juliana threatened to resign if her husband, Prince Bernhard was prosecuted for accepting a $ 1,1 million dollar bribe from Lockheed.

Bernhard refused to answer any questions, saying he was “above such things.” Upon his death, it was proven conclusively that he did received the money.

Giulio Andreotti, three times Italian prime minister between 1972 – 1992, was convicted of association with the Mafia; and suspected of much worse.

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Keeping the perspective (4)

The problem

was there were no competitive bids and Logan was a friend of Sivewright’s.

The Cabinet

almost fell. Meredith, 2007, Diamonds, Gold

& War

In 1892, James Sivewright, minister for public works in Rhodes’ cabinet of the Cape Colony, awarded a contract to James Logan, a former railway porter, to sell all food and beverages on all Cape trains and stations.

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The National Planning Commission diagnostic report, 2011 :

“Throughout history many civilizations, empires and countries have experienced dramatic decline rather than progress. “ “The Hapsburg Empire in Europe, Argentina in Latin America and a number of African states in post-colonial Africa all bear witness to this. “ “The indicators most often associated with decline include: • Rising corruption • Weakening of state and civil society

institutions • Poor economic management • Skills and capital flight • Politics dominated by short-termism,

ethnicity or factionalism • Lack of maintenance of infrastructure and standards of service.”

“Elements of these indicators are already visible in South Africa,

though their strength and prevalence is uneven and differs from

sector to sector.

If they become more prevalent, the country’s progress could be stalled,

its gains reversed and even the foundational aspects of democracy

unravelled.

If these threats are not tackled, the probability of decline will increase. “

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Mitigating the risks of organised crime by means of an over-

extended and over-stretched law enforcement capacity

SAPS has a budget of close to R60bn.

It has 37 500 detectives.

18 000 murders are reported a year.

The 2010/11 SAPS annual report states that the “resolution rate” for reported crimes is 58%.

However - the “resolution rate” for murder cases is 27% - i.e. less than 5000 of the 18 000.

For armed robbery the resolution rate is 15%.

Only 30% of the less than 5000 resolved murders will result in a court appearance.

Net result, less than 10% of murders end in conviction.

• If this is the picture for reactive

detective work , how does it look for the ability of the police to investigate organised crime?

• Whereas an individual murder case will be reported to the police and be investigated as a single docket; an organised crime investigation is something entirely different.

• The effective combat of organised crime requires a proactive investigative capacity, that needs to work hand in glove with a threat and risk assessment ability in the for, of quality crime intelligence.

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Much work has been done and much is being done.

The fragmentation of the criminal justice system, exacerbated by the shortage of skills - including management skills, high level detective and prosecutorial skills, probably remains the largest impediment to enhancing impact in the fight against corruption and organised crime.

But much more remains to be done.

The reality is that 17 years after democracy the law enforcement community has been chastened.

There is no false optimism; only sombre realism.

There is a genuine recognition of the real difficulties, and that they need to be faced realistically and honestly for solutions to be found.

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What is being done differently?

The Cabinet cluster approach and the 12 Delivery Agreements is beginning to bear fruit.

The Anti Corruption Task Team; composed of

DPCI, NPA (including AFU) and SIU, coupled with SARS; Treasury and Financial Intelligence

Centre.

Works closely with the MAWG.

Output 5 focus on “investor confidence” and securing 100 convictions by March 2014 where

R5m assets have been restrained; i.e. an integrated target to focus the mind.

It is hard work, but it is slowly bearing fruit –

effectively forcing officials to work across boundary lines.

Immediately brought the risks to light, of

corruption at a political level.

New thinking in the DPCI management about intelligence led policing; a threat and risk based approach.

Closer integration between analysis, detection and prosecutorial work.

Most NB – link between prevention and criminal sanction.

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Some valid criticism

Yet, the new approach is

aimed at being: – More pro-active, aimed at the

structure and the systems, rather than the symptoms.

– It is far more attuned to driving a coordinated response;

– It is aimed at a long run horizon, rather than the short term.

The fight against organised crime, specifically drugs, only focuses on the runners and the small guys.

It is far too much of a law enforcement driven approach - rather than a harm reduction approach – where the market is sought to be understood and sought to be shrunk.

(Institute for Security Studies, Hubschle 2011)

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conclusion (1)

The “illegal economy” might be hard to measure and study, but it is real and alive and dangerous.

The probability of occurrence

is high; though the impact is not as clear / “medium.”

Corruption is probably a higher

risk than that of organised crime; due to it being more immediate in nature.

The possible risks (as per WEF Risk Report (2011)

• Weakened institutions and rule of law;

• Capture of the state; • Loss of revenue; • Threat to political stability; • Erosion of trust in

institutions; • Increased transaction costs.

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conclusion(2)

“Although this nexus of risks is often seen as more pervasive in emerging economies, a significant proportion of demand for illicit goods is generated in advanced economies.”

(WEF Global Risks 2011) A welcome insight. We are one, after all.

• Do economic disparities

create a more fertile ground for corruption and

organised crime and corruption to flourish?

Doubtful.

• Lack of governance and structure, and system and

accountability and transparency – yes.

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Keep the perspective

35 000 people have died in drug related violence the last 4 years.

On a different note:

Until 1990 driving tests were universal, as a pre-requisite for obtaining a drivers licence.

Because a combination of rampant bribery and increased intra-state fiscal competition, many provinces simply abolished the test.

Today half of the Mexican population live in states that do not perform any practical driving test.

In Mexico City, there is no compulsory test of any

sort. All that is required is to pay the equivalent of $ 45.

By the way – it is not a crime to mobile phone

text while driving in Mexico. To drive under the influence of alcohol is an offence, technically, but not all states have yet managed to set a legal limit beyond which it is an actual offence.

Net result - 24 000 people die on Mexican roads

every year. This is more than double the number of

people that die as a result of drug related violence.

Is this the nexus between organised crime ,

illicit trade, corruption - and the “fragile” state?

21 IFR October 2011