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Asia and the Challenge of Organized Crime

Organized crime presents a challenge to sustained economic growth for many Asian countries.  Cargo theft, piracy, counterfeit currency, and corruption have become more prevalent as the region has developed and become more connected to the global economy.  The failure of host governments to curb organized crime has eroded the profitability…

Organized crime presents a challenge to sustained economic growth for many Asian countries.  Cargo theft, piracy, counterfeit currency, and corruption have become more prevalent as the region has developed and become more connected to the global economy.  The failure of host governments to curb organized crime has eroded the profitability of investment in the region and seems to have discouraged prospective trade partners.  In addition to the economic loss, these elements pose a broader threat as gang revenue has been used to fund terrorist groups and other non-state actors.  Given these threats, the business community and host governments must collaborate to address the rise in organized crime. 

The type of criminal activity can vary widely.  Cargo theft has been among the most common.  Cargo holds are often poorly secured, and cargo containers poorly sealed.  For gangs, cargo theft has proven to be less costly than the drug trade and so offers higher returns.  Many former drug smugglers and established gangs have shifted their focus to ports where they siphon off cargo.  Sea piracy has been another concern. In fact, Asia has the highest piracy rate worldwide.  According to the International Maritime Organization, there were 266 reported cases of piracy in 2005.  Southeast Asia accounted for 117 cases.i Counterfeit currency has recently become another problem.  In March 2006, the Chinese government announced an influx of counterfeit American $100 bills. The fake currency was presumably made in North Korea to be sold to Chinese and Taiwanese gangs.  North Korea earns approximately $15 to $25 million each year from counterfeit currency.ii 

There are several factors behind the growth of crime syndicates in Asia. Generally speaking, global commerce and the reduction of the state sector have presented an opportunity for criminal elements.  Gangs have benefited from the deregulation of the economy. They have often stepped up activity to fill the gap left by a government scale-back.iii  Furthermore, e-commerce can not yet be effectively regulated, and the reliance on the Internet as a means of growth poses problems.  Gangs have used electronic communications to establish transnational ties, and the current lack of Internet oversight allows these groups to compromise the security of online transactions of legitimate businesses. Many groups have successfully hacked bank systems and online government records.iv

Another component which is more specific to Asia concerns the role of labor shortages.  The acute need for labor has affected the quality of the Asian workforce.  To take the case of Malaysia, the need for manufacturing labor has led companies to employ foreign workers.  Up to 75 percent of a factory workforce can be foreign-born.v  The prevalence of non-native workers has helped erode the quality of the regional workforce.  Background checks are extremely lax, and many workers have ties to criminal gangs or come from regions hostile to American and Western business interests.

A last factor looks at the linkages among organized crimes, host governments, and legitimate businesses.  Corruption has become common throughout the region and threatens long-term development.  Organized crime has thrived in part because it can operate alongside a legitimate business.  Crime exploits, rather than disrupts, a legitimate business.vi Gangs have established extensive contacts with government officials and private business and have integrated themselves with the broader economy. Gang-controlled front businesses have become more common, and many legal groups have acquiesced to gang demands.  The longer gangs can operate in such a manner, the harder it will be for governments to disentangle organized crimes from legitimate businesses. 

There has been a debate as to which country constitutes the greatest threat to the business community.  Malaysia and Indonesia were traditionally seen as among the most severe threats.  The Malaysian Mamuk gang has been the bane of the Malaysian transport system and has siphoned cargo away from legitimate businesses for over twenty years.vii  China has usually been seen as comparatively crime-free and uncorrupt.  However, some now argue that the extensive links between the government and Chinese triads make China the number one threat to foreign businesses.viii  What’s more, there seems to be no consensus over which type of criminal activity is most prevalent or most threatening. Asian officials are more likely to see gambling and extortion as more threatening than corruption or human smuggling. 

The effects of crime on legitimate business have been well-studied.  For the United States, piracy of intellectual property has been a major concern.  Many organized crime groups have worked exclusively on pirated materials.  Piracy has undercut profit and makes investment in the region less likely.  Cargo theft and extortion have a similar deterrent effect.  A more general concern has to do with the infiltration of organized crime to legitimate sectors.  Most criminal groups want to be seen as legitimate.  They foster relationships with government officials and local businesses.  The result has been a corrupt operating environment that is biased against foreign businesses and consumers. 

There are several measures companies can take to counteract the effects of organized crime.  Risk management firm FirstAdvantage recently conducted a multiyear study to assess the risks of operating in less developed countries.ix  The study found the majority of businesses do not take adequate safeguards. Employees are not sufficiently screened hence many workers have maintained contacts to gangs.  Many businesses rely on third parties for the storage of inventory, and the use of external groups can expose cargo to gang elements.  The study also found many companies often misallocate security spending.  There has been a cookie-cutter approach to security that does not account for differences in criminal activity.

The FirstAdvantage study offers suggestions for those companies that operate in less developed regions.  Suggested measures include constant vigilance, extensive employee training to recognize security threats, and a holistic view toward security.  FirstAdvantage recommends companies to evaluate port security throughout the supply chain.  They should become familiar with common gang tactics used during cargo heists.  There are several private sector efforts to address the threats of organized crime.  The Technology Asset Protection Association includes over 200 multinational corporations and mandates transportation security requirements.  TAPA requirements have helped reduce losses through theft by up to 40 percent.x 

These ventures can help minimize the effects of organized crimes on businesses.  But in the long-term, the actions of regional governments will be more important than measures taken by the private sector.  Asian organized crimes remain mostly a regional problem.  Regional cooperation at the government level therefore appears to be the most effective defense against organized crimes. Right now, local law enforcement groups have been more focused on traditional criminal activities like prostitution and violence than they are on transnational crimes.  But there have been encouraging first steps towards regional cooperation.  Last November, Japan, Singapore, the Philippines, and eight other countries signed a treaty to cooperate on anti-piracy measures.  The Japanese Coast Guard has agreed to step up patrols, especially in the Malacca Straits, and the Japanese government has pledged to help lead regional efforts against organized crime.xi 

The private sector should encourage these regulatory measures and pressure governments to take more aggressive stands against organized crimes and corruption.   At the government level, the United States and other countries should be more forthcoming toward Asian law enforcement groups, and help these groups develop an effective counter to organized crimes.  Local law enforcement spokesmen have complained that the United States and Western governments do not offer sufficient investment or treat Asian counterparts as equals.  Another concern looks at how law enforcement and business prioritize threats. 

Source: www.asiaecon.org |



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