Loretta Napoleoni on the Economics of Terrorism

Interesting TED talk:

Loretta Napoleoni details her rare opportunity to talk to the secretive Italian Red Brigades -- an experience that sparked a lifelong interest in terrorism. She gives a behind-the-scenes look at its complex economics, revealing a surprising connection between money laundering and the US Patriot Act.

Posted on January 15, 2010 at 1:39 PM • 18 Comments

Comments

Russell CokerJanuary 15, 2010 4:33 PM

One thing to note is that terrorist organisations are driven by economics, if we could reduce their ability to make money then we could reduce the amount of terrorism without doing anything difficult or dangerous. Legalising all drugs would be one way of dramatically reducing the amount of money available to terrorists.

The claim that the Euro increased in value relative to the US dollar due to the PATRIOT act is interesting. It seems that there is a real economic benefit for a country (or economic union) to not take too hard a line against organised crime and terrorism. But I guess that the Swiss worked that out a long time ago. Maybe it would be best if measures to prevent money laundering were devised through the UN so that no country can use lax laws to prop up their own economy.

Phil RogawayJanuary 15, 2010 5:20 PM

Bruce, I'mma let you finish, but Mihir Bellare is the greatest cryptographer of all time!

StephanieJanuary 15, 2010 10:28 PM

Thanks for posting. Fascinating. I remember reading a similar economic analysis of the IRA and the UVF/UDA hidden economies in the 1980s.

BF SkinnerJanuary 16, 2010 11:17 AM

heard a report yesterday that our convoys in Afghanistan are paying shakedown money that is going to the Taliban. We're funding our own enemy. Is that one of those market efficiencies I hear tell about?

YelloBirdJanuary 17, 2010 12:38 AM

erm .... I am not 100% sure that Loretta is correct on the money laundering laws. As far as I am aware, the ECB checks any transaction above a certain cutoff and that SWIFT feeds back information to the central banks as well as intelligence agencies is also common knowledge, so the "Europe has such lax money laundering laws" argumentation seems a bit strange.
In addition both happened already way before the Patriot act.

averrosJanuary 17, 2010 6:11 AM

> Is that one of those market efficiencies I hear tell about?

Nope, that's merely the illustration to the fact that government never can do anything right. Unlike market, governmental bodies have no negative feedback, and, in many cases, their failure to achieve stated goals leads to increase in their funding, so they are motivated to screw up. Politicos want to do something, and their only tool is to take money from people who have an idea of how to get things done (so they earn their own living) and giving it away to incompetents and other parasites, the failure of these incompetents to deliver is taken as the sign that more money needs to be given to these same incompetents.

hwKeitelJanuary 18, 2010 2:53 AM

@Russel Coker
"Legalising all drugs would be one way of dramatically reducing the amount of money available to terrorists."

prohibition taught us that too rigorous laws are nonsense. (the consequence of a law no one takes seriously.)
but legalising highly dangerous substances should not and can't be the awnser to organised crime.
also, we would be bad role models to our kids if we say: H or cocaine are not so bad, as long as a medic is looking after you.
one effect of legalised drugs would be the legalisation of some illegal structures. the mob would adapt.

it's like dancing with the devil in a dirty drinking hole today, and with the same devil, fancy dressed, in a ballroom tomorrow.

Clive RobinsonJanuary 18, 2010 4:23 AM

@ hwKeitel,

"prohibition taught us that too rigorous laws are nonsense. (the consequence of a law no one takes seriously.)"

One of the things that the various drugs laws around the world has shown us is they actually increase crime significantly not reduce it in any way.

China for instance has an automatic death penalty for those caught using or grownin certain plants that are natural to various regeions within China that are used as drugs. Bring that law in had little or no effect on people taking drugs in China (over and above the numbers executed).

"but legalising highly dangerous substances should not and can't be the awnser to organised crime."

We already have legalised highly dangerous substances think alcohol and nicotin, caffine and quite a few others such as refined sugar.

"also, we would be bad role models to our kids if we say: H or cocaine are not so bad, as long as a medic is looking after you."

Well actually this is a mute point. What you get from drugs dealers is not safe. Just like the tabbaco industry cutting with amonia and 600-700 (depending on where you are in the world) other dangerous chemicals that are designed to get you addicted (legaly) the Drug dealers cut with drain cleaner rat poison if you are lucky...

We here stories of various moveie stars having "32 ounces of popcorn" (cocain) written into their contracts and various rock stars consuming very large quantities of drugs in various forms. Which begs the question how come they don't die an early death? Well one answer is the drugs they get are often medical grade.

"one effect of legalised drugs would be the legalisation of some illegal structures. the mob would adapt."

Very probably they would not, nor would they wish to. The profits that attract organised crime would not exist in a retail "freemarket" and it would be highly unlikley they could meet the stringent product requirments currently in place for processed food let alone medicines.

If you look at what happened after prohibition was repealed the mob and other organisations involved with the illegal supply did not get involved with the legal supply they found new activities that had better profit margins.

"it's like dancing with the devil in a dirty drinking hole today, and with the same devil, fancy dressed, in a ballroom tomorrow."

This is what the politicos want you to think because they have as we found in the UK just recently dug themselves into a rather stupid position that is not backed up by credible evidence.

We recently witnessed a politician sacking a senior scientific advisor because he did not like what he was being told by not just one but several eminent scientists.

The scientists involved have now setup an independent review pannel to remove political influance...

Solid state hard drivesJanuary 18, 2010 5:25 AM

Thanks for sharing these each week. Good for the brain. Glad I got to listen to this one (hey, with subzero temps it's nice to stay in!) I was taken by her point that the leaders of different terror groups avoid ideological discussions and only do practical business. Makes sense, of course, when you have EuroComs dealing with Islamicists. It also points up the hypocrisy in terrorism today - it is fueled by pointing out the corruption in its target nations, while at the same time suspending its own "value system" in order to get logistical support. How is a Communist who works with an Islamicist any different from what went on in Iran-Contra? Oh well, I guess the fact that since one is a terrorist, one has no legal framework to violate. Like when amoral people point out all the hypocrisy of the moral.

Clive RobinsonJanuary 18, 2010 5:57 AM

@ Russel Coker,

"It seems that there is a real economic benefit for a country (or economic union) to not take too hard a line against organised crime and terrorism."

It depends on what you mean by "real economic benefit".

It is an interesting fact that the only reason the US and UK banks are still around is that the respective Govs turned a blind eye to Serious Crime money being laundered.

So the fact that drug money (not Govs) saved the banking industry might or might not be regarded as a "real economic benefit".

The fact that the banks are still around to "rape and pillage" and the Govs still Kow Tow to them means the gravey train is still rolling for the banks.

It is inequitus that any Gov should allow an organisation to become to large to fail and thus blackmail the tax payer endlessly.

hwKeitelJanuary 18, 2010 7:08 AM

@Clive Robinson
i try make it short (in a foreign language)
1. the argument of alcohol, nicotin, etc. is a little faulty. the fact that a dangerous thing is legal doesn't leads me to the conclusion that other danerous things must be legal. I don't say alcohol (or other stuff) is unproblematic. and i'm not anxious about a 15 year old smoking some pot.
2. countries have differnent laws. i'm not willed to judge the proportionality of the punishment.
3. of course drugs from dealers are not safe, but is crack "safer" from an apothecary?
4. 'The profits that attract organised crime would not exist in a retail "freemarket"'. of course not! why? (taxes;-) because the freemarket would not be able / allowed to supply the severely-addicted drug user.
the mob goes where the profit is. even if there is nothing illegal with a high profit margin, they stay in the (new) legal market. They have the know-how: production, transportation, selling, etc. organised crime is experienced in connecting legal with illegal activeties. e.g. gambling is legal. organised crime has control over it in a lot of cities.

"This is what the politicos want you to think..."
No, i make use of my own brain.

I don't say that legalising drugs has no effect on organised crime. but it is not the solution and it would lead to other problems.

Clive RobinsonJanuary 18, 2010 11:30 AM

@ hwKeitel,

"1. the argument of alcohol, nicotin, etc. is a little faulty. the fact that a dangerous thing is legal doesn't leads me to the conclusion that other danerous things must be legal."

No but your original point I was refereing to was,

"but legalising highly dangerous substances should not and can't be the awnser to organised crime."

My point is that society already has dangerous substances in use already some of which are arguably more harmfull than the pure forms of the drugs supplied by organised crime. Thus there has to be some other reason organised crime has an interest in illegal recreational drugs as oposed to legal recreational drugs.

That is it is the fact that some have recreational drugs have been made illegal that has brought organised crime in.

And the reason for this is the vastly increased profit margin simply because they are illegal (see my point about the mob and post prohibition).

"2. countries have differnent laws. i'm not willed to judge the proportionality of the punishment."

Again my point is no mater how ruthless the punishment (as in China) it will not stop recreational drug taking. In fact some studies have sugested the tougher the penalties the more incentive there is not just to use but supply drugs (that is the profit will always exceed the risk loss for certain people).

"3. of course drugs from dealers are not safe, but is crack "safer" from an apothecary?"

The honest answer is would you be comparing like with like. If the crack from the dealer has Rat Poison in it and that from the apothecary does not then it is reasonable to suppose that as an addative the rat poison may make the crack more dangerous.

The point is if you know people are going to take drugs and your most draconian legislation just makes the issue worse. Would you rather they where taking a risky substance or a risky substance pluss a pure poison?

That is although the recreational drugs represent a significant risk above medicinal levels, they appear to be less risky than recreational drugs cut with other chemicals such as rat poison and drain cleaner.

"4. 'The profits that attract organised crime would not exist in a retail "freemarket"'. of course not! why?"

Because it is mitigating the risk of obtaining and supplying illegal substances that makes both the costs and the profit high. Removing the need to mitigate the risk changes the market so much that it is effectivly two different markets.

Take medicinal cocaine the price for this in pharmacutical grade is about 1/3000th of the illegal street value. In an open market where the demand is larger than current production you would expect production to rise bringing in economies of scale. Thus you would expect the price of medicinal grade cocain on the open market to drop to around 3USD/gram in a pure or packaged ready to use form.

"because the freemarket would not be able / allowed to supply the severely-addicted drug user."

Why ever not we allow alchol to be sold to drunks and tobbaco to be sold to lung cancer sufferes. Such is the nature of an open market to adults, you want and you have the money then you get.

"the mob goes where the profit is. even if there is nothing illegal with a high profit margin, they stay in the (new) legal market. They have the know-how: production, transportation, selling, etc."

I think you are wrong on all points there. Firstly they "mob" have little or no experiance in pharmacutical grade production and getting it would take longer than it would for reputable organisations to ramp up production. Secondly the "mob" has experiance in "illegal shipping" this is nothing like putting stuff in a UPS baggy and paying 30USD delivery which is how a lot of medications are actual shiped to a chemist/apothecary or other point of distrubution for medications. As for selling they do not have the retail outlets, where would you go some "crack house" in a run down neigbourhood or the apothecary just down the road where you buy your cold/flu remodies and get the antibiotics or other medications your doctor writes out a script/prescription for?

"organised crime is experienced in connecting legal with illegal activeties. e.g. gambling is legal. organised crime has control over it in a lot of cities."

Yes and the reason actualy has little or nothing to do with their money earning illegal activities, and just about everything with legalising the money from those illegal activities. It is also why the Mob has significant intrests in currency traders, travelers cheques and other "cash money" operations.

"I don't say that legalising drugs has no effect on organised crime."

First seperate the two issues "drugs" and "organised crime" if you don't you will like the politicians never find a solution (and they sepecificaly do not wish to for many reasons).

So recreational drugs have two supply routes legal ones come from ordinary retail organisations such as your local small shop, illegal ones come via illegal operators with exceptionaly high costs, which encorages other illegal activity.

If illegal recreational drugs where made legal the mob would nolonger be able to compeate with the legal suppliers with properly established retail outlets etc.

You say,

"but it is not the solution and it would lead to other problems."

Again you are not making clear what you mean.

Legalising illegal recreational drugs would have a very positive effect on tax income, it would reduce a lot of secondary crime, it would help people with drugs problems come forward and seek help without fear of prosecution etc. It would significantly reduce the social cost to society.

With regards to the mob or other organised crime they would simply dump the drugs business without a second thought and go on to other areas. This would give rise to some social problems whilst those in the lower echalons of the drugs business found other activities. But then being made redundant is not exactly a new social problem, nor is rehabilitating criminals.

There appears to be some myth in polotics that you can legislate for the politicians moral outlook. For instance some countries have a "church tax", other countries have tax legislation to try and force people into being wed, or supporting children to whom they are not parents.

Nearly all such laws and tax code incentives actualy cause considerably more harm than good. Criminalising people because they don't fit in with your social mores is destined to cause significant social tension that will give rise to harmfull if not violent backlashes from those who do not wish to be constrained by such moralising by those who take a "Perternalistic view" on others.

JohnJanuary 19, 2010 1:37 PM

"One of the things that the various drugs laws around the world has shown us is they actually increase crime significantly not reduce it in any way."

No shit?

I thought we were banning text messaging while driving to reduce the amount of illegal text messaging while driving?

No?

That being said, addictive substances are toxic to society. China noticed this, hence the Opium Wars. Our approach happens to be one political blunder after another; however we do know that with legalized cigarettes and alcohol, the poor spend their supposed food money on booze and cigarettes, and in times of financial crisis people cut these out pretty much last.

My proposed solution to terrorists and crime is to make people more responsible for their lives, not less. We teach people violence is bad, we have all these debates over gun control... I haven't been in a bar with a weapons check ever. You're allowed to carry your gun to the door if you have a permit, but you can't leave it at the door? (why would you if they're not asking you to?) I can carry a sectional staff but would prefer to leave it in check during my stay at a civil establishment; it's not that they don't want me to carry it, it's that we've forgotten that such a thing is possible.

When I was in school, they taught us, if someone threatens you you immediately surrender. They said run away, or if they're physically harming you you should non-aggressively defend yourself ("Cover your head") until a person of authority ("teacher") comes to rescue you.

This is in stark contrast to the underwear bomber last month, when everyone jumped him when they realized he was a threat. If we were to do as we're taught these days, our response to someone with armed explosives on a plane would be to ask them to not detonate that incendiary device in our presence.

We let our government handle the terrorists here; and then we protest if our government does anything about it. Increased security theater, but no aggression against anyone because war is bad. Our entire mindset is to cower in fear at aggression and ask everyone to play nicely... soon the US will be Canada.

JohnJanuary 19, 2010 1:50 PM

"Risky substance plus a pure poison"

...

Are you saying cocaine and heroine are not poisonous?

You do realize nightshade berries and milkweed seeds will do some cool shit if ingested, right?

jackoJune 16, 2010 8:54 PM

Is she correct about Euro denominated transactions not being monitored? That seems strange.

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