controlling resource flows - international peace institute

Controlling Resource Flowsto Civil Wars: A Review andAnalysis of Current Policies

and Legal Instruments

International Peace Academy

By Philippe Le Billon, Jake Sherman, and Marcia Hartwell.

Background Paper for the International Peace Academy“Economic Agendas in Civil Wars” Project ConferencePolicies and Practices for Regulating Resource Flows

to Armed ConflictsRockfeller Foundation Study and Conference Center

Bellagio, ItalyMay 20-24, 2002

This paper was undertaken in an effort to provide a preliminary review of contemporary law and policies asthey concern war economies. It is not an exhaustive survey of all relevant policy initiatives.

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Policy Responses to Illicit Arms Brokering and Trafficking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Policy Responses to Transnational Organized Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Policy Responses to Illicit Financial Flows and Financial Crimes . . . . . . . . . . . . . . . . . . . . . . . . 17

Policy Responses to Humanitarian Aid Diversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Policy Responses to Narcotics Trafficking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Policy Responses to Trade in Natural Resources and Other Commodities. . . . . . . . . . . . . . . . . 33

The Private Sector and Armed Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Customs Controls and Air and Maritime Transport Regulations . . . . . . . . . . . . . . . . . . . . . . . . 44

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

“CONTROLLING RESOURCE FLOWS TO CIVIL WARS: A REVIEW AND ANALYSIS OF CURRENT POLICIES AND LEGAL INSTRUMENTS”

Table of Contents

Contents

Introduction

Wars need resources.1 Resources are essential forcombatants to finance conflict, procure weapons andmatériel, and pay soldiers. With the reduction offoreign state sponsorship following the end of the ColdWar, many combatants and would-be rebels havesought alternative sources of revenue, financing thebulk of their military operations through partnershipswith networks of armed groups, arms merchants,international organized crime, and corrupt govern-ments reaching well beyond war zones to the world’scapitals and major financial centers.

The types of economic activities and resource flowsthat fuel civil wars are diverse. Some are licit, othersclearly criminal, some are necessary to civilian welfare(which may predate conflict, or be exacerbated by it),while others are manifestly predatory. Although anumber of these activities directly feed armed hostili-ties, most economic behavior contributes to conflict inmore diffuse and indirect ways, with some also playinga vital role in the livelihoods of civilian populations.This complicated reality presents policymakers with thetwofold challenge of accurately assessing the impact ofdiscrete economic behaviors on conflict dynamics andof designing effective policy responses.

Resources indirectly sustain conflict by providing themeans to fight, but as recent scholarship on civil warshas emphasized, resources may also directly contributeto conflict, whether aimed at redressing legitimategrievances, or waged purely for profit. In some cases,the control of economic activities may be the principalmotivation for the initiation or perpetuation ofconflict. This is not to say that wars are solely about“greed.” War frequently becomes an alternative systemof profit and power favoring certain groups at theexpense of others, occasionally reflecting previousgrievances. Nonetheless, civil wars create economicand political opportunities for combatants, warprofiteers, and other entrepreneurs. The result of whichhas been to adversely influence the balance ofincentives in favor of peace.

Large-scale criminal activity may be a principalobstacle to peace, especially where the profitsgenerated are used to fund and bolster support for warefforts. Beyond fueling a war effort and creatingpersonal wealth for elites, such monies are alsosometimes used to fund political patronage, therebybuilding a political base for the profiteer and at leastthe appearance of political legitimacy. Additionally, thecriminalization of economic relations in wartimefrequently leaves lasting developmental distortionsthat, if left unattended, can fatally underminesubsequent efforts at postconflict reconstruction.

The curtailment of resource flows to belligerents mayhold particular promise as a means of alteringeconomic incentive structures and thus promotingconflict resolution. Many of the resources sustainingwars depend upon access to the global economy,including international markets and foreign supporters.Implied in this relationship is the critical yetunacknowledged complicity of the global North inconflicts predominantly affecting the South—from itsdemand for commodities ranging from oil to narcotics,to its supply of arms, aid, and remittances. Importantly,while globalization has presented combatants and theirsupport networks with new economic opportunities, italso renders them more vulnerable to internationalpressure, if such can be mobilized. From this perspec-tive, the objective of the “international community”should be to suppress profit-seeking actions committedunder cover of civil wars.

This paper identifies and briefly analyzes existingnational and multilateral policies, practices, and legalinstruments available to combat and reduce the globalflow of these resources. In particular, it seeks to drawattention to legal and regulatory frameworks that maynot specifically address the role of these resource flowsin armed conflict, but that may be adapted to do so.Beyond the itemization of discrete policy and regula-tory initiatives, the paper provides a concise descrip-tion of their background, purpose, scope, andmechanism, as well as a preliminary evaluation of theireffectiveness and consequences, both intended andunintended.


Introduction 1

1 Unless otherwise stated, “resources” is used in the general sense to refer to finances or material goods that may be used to pay forsupplies and services.


Resource Flows in Civil Wars: A General Overview

Resource flows are multidirectional—arms, commodi-ties, and financial assets are both imported into andexported out of war zones. At the most basic level, theessential tools of warfare (arms, ammunitions, fuel,food, clothes, transport, medicine, and communica-tions) and services (mercenaries/advisers, soldiers) arereceived in exchange for money, barter, or politicalfavors. These flows are frequently multidimensional,involving a range of actors at various levels, withdifferent capacities and operating at different scales.Some resource flows are highly localized, such as thesupport of villagers for a self-defense unit. Others, suchas drug trafficking, are global in reach and organizedthrough extended networks.

Combatants access resources through a variety of “wareconomies,” according to locally available resources(e.g., oil, timber, or gems), geographical circumstances(i.e., transport opportunities, including preexistingtrade networks), the behavior and capacity of theorganization itself, and regional or foreign demand(facilitated by corresponding political and commercialconnections to these levels of analysis).

These economic activities are not mutually exclusive:most armed groups rely on a combination of commer-cial partnership, covert foreign assistance, predationupon civilian populations, and diversion of reliefsupplies. Many activities rely on the same, or overlap-ping, illicit brokering and transport networks.Preexisting infrastructural networks facilitate wareconomies, such as international flights that provideopen and clandestine diamond-trading channelsbetween producer and transit countries in Africa tointernational marketplaces in Antwerp, Bangko k ,Bombay, Tel Aviv, or New York.

Resource flows in war include, but are not limited to,arms trafficking; trade in natural resources, narcotics,and other licit and illicit commodities; kidnapping andtrafficking in humans; misuse of official developmentassistance and diversion of humanitarian aid; privateforeign direct investment; corruption and other formsof “white-collar crime”; and siphoning of diasporaremittances. This paper examines the following types

of economic actors and/or activities that promotearmed conflict:

• Brokering and trafficking of illicit arms. Smallarms represent the most common—and mostlethal—tool of violence in today’s civil wars, andone increasingly used against civilians rather thanmilitary targets. In most civil wars, these weaponsare purchased on the international illegal marketthrough private brokers and dealers whoknowingly violate national and international laws(including violation of UN sanctions regimes) andprocedures regulating the arms trade for commer-cial gain. In the context of this review, armstransfers are significant because combatants,including armed groups, pariah states, and statessupplying covert assistance, utilize the sameb r o kering networks to supply matériel andsmuggle natural resources as they do to procureand deliver these weapons.

• Organized crime. Organized criminal groups arebecoming directly involved in financing andbacking armed factions through their criminalactivities, at times blurring the distinction betweenthe two. The pursuit of criminal economic activi-ties in wartime is not a new phenomenon. Criminalgroups have sought out environments where ruleof law is weak; the disruption of society by warcreates an ideal environment for criminal activi-ties, including trafficking of arms, smuggling licitand illicit commodities (e.g., narcotics, tobacco,and stolen consumer goods), money laundering,and a range of other activities such as kidnappingand human trafficking. Increasingly, many of thesegroups are no longer content with indirectlybenefiting from conflict environments, but aredirectly creating and maintaining conditionsfavorable to their own economic self-interest andprotection from judicial prosecution.

• Official corruption, money laundering, and othermisuse of international financial flows (includingdiaspora remittances). The international financialflows of most direct relevance to this review arethose resulting from the profits of illicit activitiessuch as trafficking in arms, narcotics, and natural

2 Introduction


resources; smuggling of licit commodities, grandcorruption, and bribery; and/or collections fromlegal sources, such as remittances from diasporapopulations, that are channeled to combatants.Financial flows are the common denominator fornearly all forms of illicit economic activity:commodities are converted to cash, revenue islaundered, transactions are exchanged, and ill-gotten gains are hidden. These flows are facilitatedby and embedded in international banking andfinancial infrastructure, whether formal orinformal.

• Diversion of humanitarian aid. Humanitarian aid,or relief, constitutes a significant resource flowingto conflict areas that can be withheld or divertedby belligerents, for a variety of economic, military,and political purposes. Belligerents benefit fromthe protection and the resources provided tocivilian populations by aid agencies (food aid isembezzled or enables states to divert money to thewar effort, refugee camps become sanctuaries forbelligerents, etc.).

• Resource extraction and trade. Many belligerentsfinance the bulk of their military operationsthrough the support of businesses operating in theexploitation and trade of licit commodities, partic-ularly natural resources. In some cases, the controlof commercial activities may be a principalmotivation for the initiation or perpetuation ofconflict. Less developed countries dependent uponexport of natural resources may be more prone toconflict, as these resources are the most amenableto taxation or extortion by belligerents. States andarmed groups gain military control of economi-cally profitable areas (e.g., mines, plantations,towns, airports) and commercial networks (bothlicit and illicit), which provide access to legal aswell as illegal commodities (e.g., timber, drugs);belligerents extort resources by force from localpopulations (e.g., food, labor).

• Production and trafficking of narcotics. Narcoticsproduction and trafficking have historically beenamong the favored sources of income for armedgroups, and one of the strongest motivating forces

behind their association with, and the globalexpansion of, transnational criminal networks.This is one of the older, more sophisticated crimenetworks, which is highly responsive to marketconditions (and the high profitability resultingfrom their regulated character), and which hasaccess to wealth and resources on a par with majortransnational corporations and governments.Many of the more recent supply and distributionsystems, money-laundering mechanisms, andcorruption strategies were developed from theseearlier systems. Proceeds from internationalnarcotics trafficking are a major source offinancing for illegal arms trafficking by belligerentgroups.

• Private-sector activities in areas of conflict.Businesses engaged in licit commercial operationsmay exacerbate conflict, regardless of theirintention. They may not realize that otherwiseroutine business activities can have unintendedconsequences detrimental to the stability andsecurity of the country in which they operate, normay they appreciate how the revenue streamsgenerated by the commodities they produce benefitcombatants and perpetuate conflict, as notedabove in the discussion of resource extraction andtrade. In many instances, their negative impactmay be the result of operating in a hostile environ-ment. Nonetheless, firms are not exempt fromresponsibility for the implications of theirpractices, which may also include aggravatingsocioeconomic inequalities or increasing economicrents amenable to factional control, both of whichmay exacerbate conflict; degrading local liveli-hoods and access to resources, promoting discrim-ination, denying political participation, using slaveor child labor, and using disproportionate force toprotect their interests (e.g., by hiring mercenary orundisciplined public or paramilitary securityforces); bankrolling belligerents by providingvoluntary or coercive financial or logisticalsupport; sustaining misgovernance by partici-pating in the corruption and legitimization ofunrepresentative and repressive authorities, andimpeding peace by reducing the leverage ofinternational institutions and populations on

Introduction 3


4 Introduction

authorities through the provision of politicallyaccountable resources; and lobbying for “private”diplomacy.

Policies, Practices, and Institutional Responses toResource Flows

Prior to a more in-depth analysis of how the aboveresource flows may fuel conflict and form part of thewar economy, as well as the relevant policies and legalinstruments to control these resource flows, issuescommon to some or all of these regulatory instrumentsare summarized below.

There are a variety of existing legal and policy instru-ments available at the national, regional, and interna-tional levels that may be used to regulate the resourcesthat sustain and fuel civil wars. While economicsanctions and arms embargoes—increasingly renderedin their “smart” or targeted version—remain the mostwidely used regulatory instrument wielded in conflictzones, they are but one mechanism in a growingframework of possible responses. This framework hasevolved rapidly over the last five years, though notnecessarily in response to civil wars. Recent legal andregulatory initiatives—many in response to advocacycampaigns by international nongovernmental organi-zations (NGOs)—focus on money laundering, corrup-tion, trafficking in small arms and light weapons,smuggling in diamonds and other natural resources,and on minimizing the negative impact of private-sector activities that may exacerbate conflict. Much ofthis progress has been in response to the threat posedby transnational organized crime and internationalterrorism.

U n f o r t u n a t e l y, international intervention throughexisting regulatory instruments often takes place toolate, when the impact of war has become internation-ally visible (massive population displacement, hunger,atrocities), when all political avenues have proveninconclusive, and when negotiated settlements of theconflict have repeatedly failed (e.g., sanctions againstthe Union for the Total Independence of Angola[UNITA] and against the diamonds of Sierra Leone’sRevolutionary United Front [RUF]). This delay meansthat regulations are facing well-organized and/or

highly criminalized resource networks—some of whichare politically protected by local or internationalauthorities. Some networks also have close connectionswith intelligence agencies (for which they may renderservices), while others involve major domestic orinternational business interests, which are thenprotected by home authorities. So far, the accounta-bility record of regulatory instruments is extremelypoor, even for widely reported arms traffickers andsanctions busters such as Victor Bout, whose interna-tional judicial prosecution came only recently for“money-laundering” charges in Belgium.

The changing nature of resource flows in wareconomies, with the growing importance of privateactors, notably organized criminal groups, in thecontext of globalization (which facilitates access tointernational markets, including arms and financialinstruments), has led to a need for a new generation ofregulatory instruments and partnerships betweendonors, private companies, enforcement agencies,NGOs, and governments. Along with an expansion ofactors have arisen new regulatory instruments, markedby the importance of nonlegal instruments, many ofwhich were the result of work by pressure groups (theUN and NGOs), and there is currently an attempt beingmade to transform these instruments into a legallybinding framework. Several categories of regulationsand institutions are involved.

Broadly speaking, the main policy approachesavailable to national and international actorsattempting to influence resource flows in civil wars fallwithin the categories listed below. Within each, thereare considerable variations as to the policy authorityand the jurisdiction concerned, the actors and activitiesbeing targeted, and whether the respective policyinitiatives were designed to combat the economicenablers of armed violence or for the general purposesof global and domestic governance. These majorcategories of regulatory instruments assessed in thisreview include:

• Multilateral instruments. The transnationalnature—whether regional or global—of resourceflows and the multiplicity of actors involvednecessitate international cooperation and


Introduction 5

assistance. Multilateral instruments may be legallybinding or voluntary and may take the form ofpositive inducements or punitive measures. Onegovernment, a group of governments, or amultilateral organization such as the UnitedNations may sponsor these. In the post–Cold Warcontext, extraterritorial regulations are, for themost part, designed multilaterally in the interest ofpeace, or the interests of major powers.Increasingly, multilateral instruments are designedand applied at a regional level rather than on acountry-by-country basis. This category includesconditions on multilateral aid, UN instruments,including Security Council resolutions on armsembargoes and financial sanctions, expert panels,UN conventions against transnational organizedcrime and international terrorism, and the UNGlobal Compact’s efforts to engage private-sectoractors in issues of peace and security. The threat ofprosecution by the International Criminal Court,recently ratified by the requisite number of states,may hold promise as a deterrent against violentpredation and as an incentive for warlords andother actors to uphold peace accords. Key initia-tives and practices have also been developed byother multilateral organizations, most notably theOrganization for Economic Cooperation andDevelopment (OECD), the European Union (EU), theCouncil of Europe, the Organization of AmericanStates (OAS), and African regional and subregionalorganizations.

• National instruments. These are sponsored andenacted by one government. Such state-basedinitiatives range from domestic legislation oncustoms, import/export regimes, tax codes, andbusiness practices to the extraterritorial applica-tion of tort law (the U.S. Alien Tort Claims Act) andthe imposition of unilateral sanctions. To date, theU.S. government has been the most active withrespect to the use of unilateral sanctions, evenseeking extraterritoriality with respect to theobservation of sanctions (e.g., the Helms-BurtonAct).

• Import/export regimes, customs, and transport.Much of the resource flows take place acrossinternational borders and in some cases reach

remote areas without land transport infrastructure.Customs and the regulation of air transport thusplay a key role in a regulatory framework.H o w e v e r, states’ customs agencies and airtransport systems are generally both subject tobudgetary constraints and vulnerable to corruptpractices. Many conflict areas are poorly suited tothe regulation of resource flows and internationalassistance, in terms of both “assisting” regulatoryenvironment (e.g., preshipment customs controls inthe most reliable countries) and direct assistance(e.g., air traffic monitoring capacities in poorcountries).

• Normative pressure: non–legally binding princi-ples and advocacy. These may be enacted by avariety of actors, from businesses to intergovern-mental organizations (IGOs). These principles mayhave a strong moral persuasiveness and may beuniversal in scope (e.g., the UN Declaration onHuman Rights, some elements of which have beenintegrated into national constitutions and havethus acquired legally binding status), or may behighly specific and limited in scope (e.g., voluntarycorporate codes of conduct).

In distinction from non–legally binding principles,advocacy arises as an often ad hoc response to specificsituations. Campaigns are generally led by NGOs, butincreasingly involve intergovernmental agencies,which previously shunned such “politicized” activities.Examples include recent campaigns on “blooddiamonds” and oil exported from conflict zones.

Global Witness, Amnesty International, Human RightsWatch, as well as a number of other internationaladvocacy NGOs have been at the forefront ofinvestigative work, advocacy, and demands forregulatory improvements in the domain of resourceflows to belligerents. Mainstream “service provider”NGOs, such as Oxfam, Save the Children Fund, andWorld Vision are also moving in this direction, joiningorganizations with a tradition of assistance andcritique such as Médecins sans Frontières (MSF); theydo so not without facing serious dilemmas (e.g., accessto victims, security of staff). Some legitimate resourceproviders, such as arms producers, extractivebusinesses, and banks, have taken steps to recognize

their role and responsibility in the political economyof conflicts and to designate self-regulatingframeworks, including codes of conduct. Many,h o w e v e r, remain impervious to any direct interventionin their activities, for example, through fulltransparency backed by independent auditing.Continued pressure by international and local NGOson this topic will certainly move the debate further, asit is doing for the diamond industry at the moment.Campaigns are now starting on the petroleum andmineral sector as well as financial services, with theaim of instituting full transparency on all payments tog o v e r n m e n t s

Existing international and regional conventions,national legislation and bilateral agreements, codes ofconduct and market pressures already provide a well-developed legal and policy framework for addressingmany of the resource flows that sustain armed

conflict—including suppressing money laundering,regulating the export of weapons, and targetinginternational organized crime. Generally, these initia-tives are well developed and have the compliance ofstates and nonstate actors. Yet many countries, partic-ularly those in the global South, lack adequatefinancial means or enforcement capacity necessary foreffective implementation. Moreover, the existingregulatory framework is neither uniform in its applica-tion nor comprehensive in its reach, facilitating theability of criminals to stay ahead of the law andconfusing the efforts of legitimate actors to complywith it.

In the sections that follow, a brief overview of each ofthe resource flows identified above is provided, alongwith an examination of significant regulatorymechanisms, both legally binding and voluntary, in theinternational, regional, and national arenas.


6 Introduction

Policy Responses to Illicit ArmsBrokering and Trafficking2

Illicit small arms are the most common and essentialinstrument of initiating or carrying out armed conflictand associated predation. Their acquisition is aprincipal end of illicit economic behavior associatedwith armed conflict—a quid pro quo of commodityexploitation, narcotics trafficking, kidnapping, andother illicit economic enterprises. Small arms and lightweapons are also a means of further acquisition,enabling the use of violence to maintain or extendcontrol over other sources of revenue generation.Increasingly, these weapons are used against civiliansrather than military targets. Thus arms, in theircapacity as tools of violence, are more responsible forcreating a cycle of violence than any other resource.

In most civil wars, secondhand weapons are boughtand sold on the regional or international illegal marketthrough government-sponsored agents or privatebrokers and dealers. Arms brokers and shipping agentsare companies or individuals who engage in any of thefollowing activities: buying and selling of arms;mediation in, or facilitation of, arms transfers;promotion or marketing of arms; and/or transportationof arms. Much of this activity takes place within a grayzone, not quite legal, but not yet illegal. These sourcesknowingly violate national and international laws(including UN sanctions regimes) and proceduresregulating the arms trade for commercial gain. Theglobalization of trade, communications, and financehas greatly enhanced the ability of middlemen to takeadvantage of gaps between and within national legalsystems, pushing the bounds of legality. This iscompounded by weak systems of governance and lawenforcement in many countries, with regard to botharms producers and recipients.

New weapons are also provided through thesechannels, as legal firms are either duped by, orcomplicit in, fraud. These channels are global in scope;for example, Eastern European countries are currentlyone of the major sources of arms flows into African

conflict regions. While many of these arms have aveneer of legality, abuses down the supply chain suchas the forging or misusing of end-user certificatesmean that arms end up in the hands of armed groups,including those subject to sanctions.

In the context of this review, arms transfers are alsosignificant because combatants and states that provideforeign assistance utilize the same brokering networksto smuggle natural resources and other “c o n f l i c tcommodities” and to covertly supply matériel as theydo to procure and transfer these weapons. Thesenetworks rely on the use of underregulated andundermonitored air and sea freight industries, usingchartered vessels and “flags of convenience,” as well ason overwhelmed customs officials and nonstandard-ized regimes. These issues are dealt with in a separatesection in this review. Brokering and traffickingnetworks link the illicit flow of revenue-generatingresources out of and of arms and matériel into conflictzones. As such, they are a critical nexus (along withfinancial flows and money laundering) not only ofconflict-sustaining illicit trade, but also of widercriminal activity carried out under cover of war.

Recent Progress in Regulations

Much attention has been recently devoted to smallarms and light weapons (including land mines). In thisregard, new policies are currently been developed onmanufacturing, export regulation, weapon transfer andregistration, and import bans. The majority of initia-tives focus on the establishment of criteria governingarms export controls, and therefore on the transfer ofnew weapons from producer countries to recipientcountries.

In the existing conditions in many developingcountries, effective action to control arms flows andavailability requires determined, comprehensive, andcoordinated action at not only the local and nationallevels but also at the regional level. Moreover, theeffectiveness of action on light arms proliferation andillicit arms trafficking at the regional level would bereinforced through cooperation with regional organi-


Policy Responses to Illicit Arms Brokering and Trafficking 7

2 The legal sale by governments of arms to combatants—principally other states—is an area of concern for the proliferation of smallarms and light weapons, but one not addressed in the scope of this review.

zations, the EU, and its member states, and with thewider international community.

There are many well-intentioned initiatives on theinternational, regional, national, and NGO advocacylevels; however, a number of key problems regardingimplementation, compliance, and enforcement remain.Effective and cohesive ways to curb the motives oftransit networks, to control diversion of legal transfersby corrupt states, as well as purchases by both armedgroups and civilians, have yet to be developed.

Several key recent initiatives are examined below.

International

Within the UN system, there have been gradual movesto establish stricter standards for the national regula-tion of small arms and light weapons, though thisprocess has been slowed by governments opposed tothe establishment of common standards to enhancecompliance with international human rights andhumanitarian law. With regard to brokering andshipping agents, progress is more likely to be seenamong groups of like-minded states and intergovern-mental bodies.

• The UN Register of Conventional Arms (effective1992). The register includes data on internationalarms transfers as well as information provided bymember states on military holdings, procurementthrough national production, and relevant policies.It has been estimated that the register, in whichalmost all major producers, exporters, andimporters participate regularly, captures well over95 percent of the global trade in the sevencategories of armaments on which information isexchanged: battle tanks, armored vehicles, large-caliber artillery systems, combat aircraft, attackhelicopters, warships, and missiles and missilelaunchers. Small arms and light weapons are notincluded. Nonetheless, the register is a dynamicinstrument, the scope of which may be expanded.It is regarded as an important step in the

promotion of international openness andtransparency in military matters. Participation isnot universal, but compliance does appear to beimproving among the 149 member governments.There is not, however, a proven link between theregistry and decreased arms trafficking in thespecified categories.

• The UN Conference on the Illicit Trade in SmallArms and Light Weapons in All Its Aspects[A/RES/54/54 V] (July 2001). This conference ismost likely to be directly applicable to issues ofcivil conflict. The document contains some usefulnorms, principles, and commitments, and encour-ages international and regional cooperation andassistance programs. However, the program ofaction that emerged from this conference is not asfar-reaching as many had hoped. A joint project ofSaferworld, International Alert, and BA S I Crecommended, at a minimum, inclusion of thefollowing issues (among others) in order to ensurethe future development of a far-reaching programof action: preventing diversion of arms to illicitdestinations (information exchange); ensuringtraceability (initiation of negotiations on a interna-tional instrument to identify and trace small arms);controlling arms brokers (information exchangeand launch of international process on controllingarms brokering and transport agents); andstrengthening controls on legal manufacture andtransfer (i.e., development of strict regional ornational criteria against which to judge exportlicenses).3

• UN Security Council arms embargoes andsanctions regimes (ongoing). The UN hasmaintained mandatory arms embargoes againstfive states (Iraq, Liberia, Libya, Somalia, and theFederal Republic of Yugoslavia [FRY]) and threenonstate entities (UNITA in Angola, the formerForces Armées Rwandaises [FAR], and the RUF inSierra Leone). Arms brokers and shipping agentshave been able to circumvent most UN mandatoryand voluntary arms embargoes with relative ease.


8 Policy Responses to Illicit Arms Brokering and Trafficking

3 BASIC, International Alert, and Saferworld, “Biting the Bullet: Ensuring a Framework for an Effective International ActionProgramme on Small Arms and Light Weapons,” via http://www.saferworld.co.uk/btb2ndproof.pdf, (October 5, 2002).

Monitoring and verification by law enforcementhas been very weak. In order to increase memberstate compliance with the sanctions regimes, theUN created several ad hoc “monitoring missions”and “expert panels” to investigate arms flows inviolation of such embargoes. While these commis-sions, in their capacity to “name and shame”violators, have been an important step forward,with the exception of sanctions against Liberia,there has been little secondary enforcement ateither a state or nonstate (i.e., individual) level.The future of the panels is currently beingdebated, with several alternative “permanentmechanisms” having been tabled. At question iswhether any permanent mechanism will besubservient to the Security Council and theinterests of its members, above all the Pe r m a n e n tFive (P-5).

• The UN Protocol Against the Illicit Manufacturingof and Trafficking in Firearms, Their Parts andComponents, and Ammunition [A/AC . 2 5 4 / 4 /Add.2/Rev.5] is intended to supplement the UNConvention Against Transnational OrganizedCrime. The protocol should establish definitions ofillegal versus legal trade in firearms, as well asinternationally recognized standards andprovisions regarding the marking, registration, andtraceablility of firearms. As it does not focus onstate-to-state transactions and stresses strength-ening laws and enforcement, it may not adequatelyaddress the transfer of small arms by governmentsto conflict zones.

Regional

Regional efforts do not address the global nature ofsources of small arms and light weapons, nor thedimensions of transnational networks beyond theirboundaries. The European Union has been active inaddressing supply-side issues of illicit export of smallarms within the EU, and is working in cooperation withmajor recipient regions. Among African subregionalorganizations, the South African Development

Community (SADC) has taken the most significantsteps to control the proliferation of small arms byusing a bottom-up approach that may soon be appliedin an African action program. Additional principles,declarations, and draft programs of action of varyingsuccess have been adopted or are under considerationby the Organization for Security and Cooperation inEurope (OSCE), the Organization of African Unity(OAU)/African Union, Mercosur, and the Great Lakesand Horn regions of Africa.

• The OAS Convention Against the IllicitManufacturing of and Trafficking in Firearms,Ammunition, Explosives, and Other RelatedMaterial (1998) is to date the only internationaltreaty established to control small arms.Implementation is based on the model regulationsof the Inter-American Drug Abuse ControlCommission, which target nonstate criminals (drugcartels and terrorists) rather than repressivegovernments, and exclude government-to-govern-ment transfers. Nonetheless, the convention madeimportant progress on harmonizing licenseprocedures, has introduced a requirement forfirearms to be marked at the time of manufacture,and requires all participants to exchange informa-tion on a broad definition of activities, includingdealers, importers, and exporters. It is widelyregarded as a model for negotiations on interna-tional small arms control.

• The SADC has endorsed the Southern Africa ActionProgramme on Light Arms and Illicit ArmsTrafficking (1998), laying out a program to tackleillicit trafficking, increase regional cooperation,remove and destroy surplus weapons, andstrengthen controls on civilian possession andtracing of arms transfers. Working in partnershipwith the EU, this initiative is unique in providing aframework for region-to-region assistance totackle the spread of small arms.4

• The renewable three-year Economic Community ofWest African States (ECOWAS) Moratorium on the



4 Andrew McLean and Elizabeth Clegg, “Towards Implementation of the Southern Africa Regional Action Programme on Light Armsand Illicit Trafficking,” seminar report, September 8–9, 1999, Pretoria, South Africa, Institute for Security Studies and Saferworld,1999.

Exportation, Importation, and Manufacture ofLight Weapons (1998) was the first of its kind byany regional organization. It was followed in 1999by a code of conduct spelling out the concreteactions to be taken by member states in order toimplement the moratorium. The moratorium is avoluntary commitment, in essence a confidence-building measure aimed at tackling the widespreadinstability in the West African region. While inprinciple the moratorium should contribute toconflict prevention and peacebuilding in theregion, there are doubts about the capacity ofeither ECOWAS or the implementing UNDPProgramme for the Coordination and Assistancefor Security and Development (PCASED) to fulfillits mandate. This is due in part to continuedregional conflict in West Africa (notably SierraLeone/Liberia/Guinea), the lack of nationalpolitical will and commitment in implementing themoratorium (evidenced by the implication of manyregional governments in sanctions busting), andinherent institutional weaknesses within ECOWASand PCASED.5

• The Wassenaar Agreement (1996) was the firstglobal multilateral arrangement on export controlsfor the UN register’s seven categories of conven-tion weapons. Unlike the UN register, it doesinclude voluntary export controls on small armsand light weapons. It fails to encourage jointaction to prevent the proliferation of small arms inthe context of human rights and humanitarian lawabuses, nor does it specifically mention third-country arms brokering and trafficking.

• The EU Code of Conduct on Arms (1998), basedon eight common criteria for export controls, isthe only international framework on small armsattempting to incorporate all relevant aspects ofinternational law. Exports that might be used forinternal repression and external aggression, thatjeopardize regional stability, or that undermineeconomic and social development should be

refused. Member states must inform each otherwhen they deny an export, and if another EUcountry then wants to take up the same deal, itmust first consult with the refusing country. Thesuccess of the code is reviewed annually. Severalweaknesses have been identified, including thefollowing: it is not legally binding, it usesambiguous language (“take into account”), itlacks of mandatory parliamentary scrutiny, itlacks of public reporting on arms export, it failsto include third-country arms brokering in EUexport laws, and it has inadequate multilateralconsultation on denial of export licensing toprevent “undercutting.”

• The EU Joint Action on Small Arms and LightWeapons (1998) enables financial and technicalassistance to be provided to third countries forprojects aimed at combating the spread andaccumulation of small arms. The joint actioncontains specific provisions on control of interna-tional brokering and shipping. Under the jointaction, the EU-SADC action program wasestablished.

National Legislation

According to a 1999 study by DFAIT (Canada), onlyfive states—Germany, Sweden, the Netherlands,Luxembourg, and the United States—have measuresthat deal explicitly with arms brokering.

• The United States introduced a law on interna-tional arms brokering in 1998 under the ArmsExport Control Act and the International Traffic inArms Regulations. This legislation is the most farreaching of any national law, encompassing theactivities of both U.S. citizens abroad and foreigncitizens within the United States, requiring priorlicensing authority for any transaction interme-diary, and authorizing postdelivery verification.Nonetheless, the process lacks sufficienttransparency regarding the identity of authorized


10 Policy Responses to Illicit Arms Brokering and Trafficking

5 Angela Ndinga Mvumba and Comfort Ero, “Small Arms and Light Weapons in West Africa: Constraints and Options,” paperpresented at International Peace Academy conference Towards a Pax West Africana: Building Peace in a Troubled Sub-Region, Abuja,September 27–29, 2001.

b r o kers. The UK and Canada are consideringchanges to bring brokering activities more clearlywithin the scope of their laws.6

• In July 2002, the UK government passed theExport Control Act. The act is a significant stepforward in trying to prevent the transfer of armsby UK companies and citizens into conflict or

human rights crisis zones. For the first time, allpersons in the UK who broker the transfer of armsfrom one overseas destination to another willrequire a license for their activities. However, asSaferworld has noted, “full extra-territorialcontrols on conventional weapons will only beimposed for deals involving transfers of equipmentto embargoed destinations.”7



6 Brian Wood and Johan Peleman, The Arms Fixers , A Joint Report by BASIC, NISAT and PRIO, Basic Research Report 99.3; PRIOreport 3/00, (Oslo: International Peace Research Institute, 1999), chap. 9.7 Saferworld, http://www.saferworld.co.uk/bill.htm (August 29, 2002).

Policy Responses to TransnationalOrganized Crime

As local armed groups become more entrenched, theytend to exhaust available local resources and beginseeking external markets and participation inadditional high-income-producing activities. This inturn may motivate joint ventures with other interna-tional criminal organizations. The Kosovo LiberationArmy (KLA), for example, has extensive links toorganized crime; its funders got rich smugglingweapons, narcotics, and illegal immigrants followingthe collapse of communism in Yugoslavia and Albania.Other armed groups, like the Liberation Tigers of TamilEelam (LTTE), have developed their own sophisticatedtransnational criminal networks in order to sustaintheir conflicts. Consequently, the political andeconomic activities in which combatants engage bridgethe divide been the military and criminal spheres. Illicitflows in arms, narcotics, and human trafficking fromconflict or postconflict zones are increasinglyindicating these trends.

Organized criminal groups have considerably increasedthe complexity and extent of their activities andpresent a significant threat to the economies andgovernance of states. These activities include drugtrafficking, smuggling of illegal aliens, illicittrafficking in narcotics, natural resources, and othercommodities, massive financial and bank fraud, armssmuggling, kidnapping, potential involvement in thetheft and sale of nuclear matériel, political intimida-tion, and corruption, and have been accompanied by acorresponding expansion of illicit markets andinformal economies. Globalization—the opening up ofinternational trade and communication—has facilitatedthis increased activity, and has fostered changes inoperative practice among organized criminal groupsthat make their activities both more successful andmore difficult to stop.

One of the major advantages of transnational crimenetworks is their fluid ability to restructure theirorganization at any time as well as their access tosophisticated technology and weaponry. Criminalorganizations are not monolithic, but act as networks,pursuing the same types of joint ventures and strategic

alliances as do legitimate global businesses. Many ofthe local and international crime groups operate withlegitimate covers, as well as with the cell-like organi-zation of successful terrorist groups. The diffuse anddynamic nature of transnational criminal activitiesmakes them difficult to identify and counter. Therapidly expanding cooperative link between armedgroups and organized crime networks exacerbates thisinsecurity.

Organized criminal groups not only profit from theopportunities created by war, including the breakdownof law and order, but through this profiteering are ableto grow in breadth, depth, size, and influence. Theyextend their reach, entrench themselves in govern-ment, and essentially usurp government authority inan endemic cycle of criminality and destabilization. Asa result of their success, countries emerging fromconflict may have an added challenge in reestablishingthe rule of law and effective governance.

Summary of the Current Regulatory Environment

Initiatives seeking to combat organized criminalorganizations tend to address specific and importantaspects of their behavior, such as financial crimes,including corruption and money laundering, narcoticsand arms trafficking. These aspects are addressedseparately in this document. At the same time, there isan emerging set of national, regional, and interna-tional regulatory efforts that, while inclusive of theaforementioned activities, are more comprehensive intheir approach, or are intended to facilitate coordina-tion of law enforcement across jurisdictions. Atpresent, international cooperation between policeorganizations and, indeed, national law enforcementsystems, remains inadequate.

As the U.S. International Crime Control Strategy pointsout, “Police and judicial systems in many developingcountries are ill-prepared to combat sophisticatedcriminal organizations because they lack adequateresources, have limited investigative authorities, or areplagued by corruption. Many countries have outdatedor nonexistent laws to address corruption, moneylaundering, financial and high-tech crimes, intellectualproperty violations, corrupt business practices, or[trafficking in humans]. Moreover, many governments


12 Policy Responses to Transnational Organized Crime

have been slow to recognize the threat posed bycriminal activities and increasingly powerful organizedcrime groups.”8 Countries and multilateral organiza-tions with available resources need to assist developingcountries in improving their legal infrastructure andlaw enforcement capabilities, and encourage informa-tion sharing and cross-border coordination.

Several of the most recent and comprehensive interna-tional and national regulatory regimes are examinedbelow.

Recent Progress in Regulations

International

Over the last twenty years there has been a growingpreoccupation with transnational crime. The UN hasstudied the subject at a number of important meetings,and at the Ministerial Conference on TransnationalOrganized Crime (1994).

• The cooperative relationship between interna-tional organized crime networks and local armedgroups in all areas of illicit crime and the relatedincrease in official corruption have beenrecognized in UN sessions leading to the 1994Naples Political Declaration and Global Ac t i o nPlan Against Organized Transnational Crime [UN49/159], and the 2000 UN Convention AgainstTransnational Organized Crime [A/55/383]. Theconvention, which is the first legally binding UNtreaty on organized crime, is a comprehensive andcoordinated attempt made to address the issue ofand the links between corruption and crime. Itrequires member states to add four criminaloffenses to their domestic laws—participation inan organized criminal group, money laundering,corruption, and obstruction of justice. However,the principal problem remains enforcement on aglobal level.9

• Interpol has the potential to play a critical role incombating transnational organized crime.Investigations of transnational criminal organiza-tions are much more complicated than investiga-tions of traditional crime groups operating in onearea or country. Interpol’s role is to facilitate theexchange of not only investigative data but alsolaw enforcement–related technology and forensicmethods. It has an efficient, secure, and reliabletelecommunications system that links each of theInterpol national central bureaus by e-mail andgives automated access to a central database ofinformation on international crime and criminals.Another important initiative has been the creationof an analytical criminal intelligence unit toextract and analyze data from the organization’scentralized database.10 The International CriminalPolice Organization (ICPO)-Interpol GeneralAssembly has called on member countries toconcentrate their investigative resources in identi-fying, tracing, and seizing the assets of criminalenterprises. These resolutions have also called onmember countries to increase the exchange ofinformation in this field and encourage govern-ments to adopt laws and regulations that wouldallow access, by police, to financial records ofcriminal organizations and the confiscation ofproceeds gained by criminal activity.11 Interpol issupported by bureaus at the subregional andnational level and works closely with regionalorganizations of police chiefs.

Regional

This section highlights several policies and practicesaiming to coordinate law enforcement across multiplenational jurisdictions.

• Interpol’s subregional bureaus (SRBs) are increas-ingly the mechanism through which Interpolservices are offered. Africa currently has three


Policy Responses to Transnational Organized Crime 13

8 The 1998 U.S. International Crime Control Strategy, http://www.fas.org/irp/offdocs/iccs/iccstoc.html (January 9, 2002).9 UN Convention Against Transnational Organized Crime (2000), http://undcp.org/palermo/convmain.html (January 9, 2002).10 Raymond E. Kendall, “Responding to Transnational Crime,” in Phil Williams and Dimitri Vlassis, eds., Combating TransnationalCrime: Concepts, Activities and Responses , (Portland: Frank Cass, 2001)11 Interpol, http://www.interpol.int/public/financialcrime/fopac/default.asp (January 14, 2002).

Interpol SRBs: east (Nairobi), west (Abidjan), andsouth (Harare). South America, Central American,and Central Asia are pursuing this approach. Thesuccess of a SRB is contingent upon the degree towhich it is situated within a regional structurecomprising a committee of chiefs of police, subcom-mittees (e.g., legislation, training, and operationalactivities), and the SRB as secretariat to thatregional structure. This model has proved particu-larly successful in South Africa. The success of theSRBs is additionally a function of financing, whichis shared between member countries in the region.

• The Agreement on Cooperation and MutualAssistance in the Field of Crime Combating wassigned by the twelve SADC countries (excludingthe Democratic Republic of Congo [DRC] andSeychelles) in the Southern African Regional PoliceChiefs Cooperation Organization in 1997. Theagreement “allows police officers of the region toenter countries of other parties with the authorityto do so, for the purpose of police investigations,seizure of exhibits, tracing and questioning ofwitnesses.”12 The agreement has reduced mistrustregarding information sharing between nationalpolice forces, facilitating the exchange of criminalintelligence and enabling the conducting of jointpolice operations for the first time.

• The European Union has adopted a broad range ofconventions and action plans to combat organizedcrime, the centerpiece of which is the EU ActionPlan Against Organised Crime (1997). The planseeks to ensure effective implementation of thevarious international instruments to combatmoney laundering, and to ensure the maximumlevel of cooperation and two-way informatione xchange between member states’ nationalfinancial and fiscal institutions and their lawenforcement and judicial authorities. The actionplan was augmented in 1998 by the “Falcone”

program (Council Joint Action 98/245/JHA ofMarch 19, 1998), which established a system ofexchanges, training, and cooperation for thosetasked with combat organized crime, “includingjudges, prosecutors, members of police, customsand other law enforcement departments of MemberStates, civil servants, public tax authorities,authorities responsible for the supervision offinancial establishments and public procurements,representatives from professional circles who maybe involved in the implementation of some of therecommendations of the Action Plan, academicsand researchers.”13

• The Council of Europe has likewise adopted arange of strategies to combat organized crime andcorruption—some in conjunction with the EU. TheEuropean Committee on Crime Problems created aGroup of Specialists on criminal law and crimino-logical aspects of organized crime (PC-S-CO) in2000. In addition to “best practices,” this groupprepares analyses of the characteristics, activities,resources, methods, geographical coverage,influence, and trends of organized criminal groupsoperating in Europe. These reports complement theEuropol reports at the pan-European level. Thestudies also contain guidelines to help memberstates implement the specific measures theydescribe.14 The council’s Octopus Programme helpscentral and eastern Europe countries to adoptEuropean standards relevant to the fight againstcorruption, organized, crime and moneylaundering. The Octopus Programme “complementsother activities of the Council of Europe in the fieldof standard setting (conventions and recommenda-tions on corruption, money laundering, organisedcrime and cooperation in criminal matters),monitoring and evaluation (GRECO for corruptionand PC-R-EV for money laundering) and technicalcooperation (Programme Against Corruption andOrganised Crime in Southeastern Europe—PACO).”15



12 Frank Msutu, “Responses to Organised Crime in SADC: Interpol and SARPCCO,” in Charles Goredema, ed., Organized Crime inSouthern Africa: Assessing Legislation , ISS Monograph Series no. 56, June 2001.13 European Union Council Joint Action 98/245/JHA, http://europa.eu.int/comm/justice_home/project/falcone_en.htm (January 14,2002).14 Council of Europe, http://www.legal.coe.int/economiccrime/default.asp?fd=organisedcrime&fn=introe.htm.15 Council of Europe, http://www.legal.coe.int/economiccrime/default.asp?fd=octopus&fn=octopus2001e.htm.

• Europol, the European Union law enforcementorganization that handles criminal intelligence,was created under the 1992 Maastricht Treaty. Itbegan limited counternarcotics operations in1994, but only commenced full operations in1999. It is intended to contribute to the EU’s lawenforcement action against organized crime andcriminal organizations operating in two or moremember states by improving the effectiveness andcooperation between the relevant competentauthorities (e.g., via information sharing,technical support, and crime analysis). It includesa European Police Chiefs Operational Task Force,and a centralized computer database to facilitateinformation sharing and coordination. Itsmandate is limited, but in 2000 its competence inmoney laundering was widened to include allrelevant activities, regardless of the type ofoffense from which the laundered proceedsoriginate, rather than merely those activitiesassociated with its jurisdiction.1 6

National

National strategies face an inherent inadequacy forresponding to challenges that cross multiple bordersand involve multiple jurisdictions. The lack of capacityof many states is such that their individual actions areinconsequential, making multilateral and bilateralagreements a necessity. The range of criminal activitiesrequires coordination across immigration, customs,financial services, and legal enforcement of a widearray of criminal legislation. Nonetheless, there are anumber of steps that national governments can andhave taken in order to meet the challenges posed bytransnational organized crime: intensifying the activi-ties of law enforcement agencies abroad, safeguardingborders through enhanced inspection, detection, andmonitoring, and denying international criminals safehavens by cooperating with foreign law enforcementagencies and negotiating strong extraditionagreements.

• Canada’s Bill C-24 (2002) contains aggressive newmeasures to fight organized crime. Its provisionsinclude the significant step of criminalizing partic-ipation in organized crime as the offense, notsimply belonging to the organized group;improving the protection of people who play a rolein the justice system, such as jurors or witnesses,from intimidation; protecting law enforcementofficers from criminal liability when they commitcertain acts that would otherwise be consideredillegal (regarded as an essential tool when investi-gating and infiltrating criminal organizations); andgranting law enforcement broader powers forelectronic surveillance, financial reporting, paroledelay, and seizure of profit from or property usedin a crime. There is domestic concern regardingerosion of civil liberties. 17

• The Uniting and Strengthening America byProviding Appropriate Tools Required to Interceptand Obstruct Terrorism Act (USA Patriot Act)(2001), enacted in response to the terrorist eventsof September 11, 2001, includes numerousprovisions aimed at preventing the ability ofterrorist organizations to function, includingauthorization for U.S. customs officers to searchinternational mail for monetary instruments,drugs, and weapons; strengthening of immigrationlaws to exclude international criminals from theUnited States; expanding authority on assetseizure; and criminalizing additional activities,providing longer statutes of limitations, and facili-tating temporary transfer of persons in U.S.government custody for purposes of testifyingabroad. While this comprehensive legislationprovides new tools for law enforcement, intelli-gence, and regulators, many civil liberties groupshave expressed concern that the law upsets thetraditional system of checks and balances betweenthe executive, legislative, and judiciary branches ofthe federal government by consolidating vast newpowers in the former. Likewise, there is concern


Policy Responses to Transnational Organized Crime 15

16 Europol, “The European Police Office—Fact Sheet,” http://www.europol.eu.int/content.htm?facts/en.htm (January 14, 2002).17 Government of Canada, “Organized Crime Legislation Comes Into Force,” press release, January 2, 2002, via http://www.sgc.gc.ca/releases/e20020102.htm (January 9, 2002).

that these powers jeopardize political freedoms inthe name of national security.18

• U.S. Presidential Decision Directive 42 (1995)ordered the Departments of Justice, State, andTreasury, the Coast Guard, the National SecurityCouncil, the intelligence community, and otherfederal agencies to increase and integrate theirefforts against international crime syndicates andmoney laundering. In response, the InternationalCrime Control Strategy (1998) was created toprovide “a framework for integrating all facets ofthe federal government’s response to internationalcrime. One of the eight goals of the Strategy is tocounter financial crime. . . . Other objectivesinclude seizing assets of international criminalsthrough aggressive use of forfeiture laws and

enhancing bilateral and multilateral cooperationagainst all financial crime by working with foreigngovernments to establish or update enforcementtools and standards.”19

• The UK National Crime Squad (NCS) was launchedin April 1998 to combat national and transnationalserious and organized crime. The work of the NCSis focused on six objectives set by the HomeSecretary and the NCS Service Authority:organized crime, illegal drugs, intelligence,integrity, partnerships, and support to forces. Thecrime squad differs from police forces in that itproactively targets those responsible for seriouscriminal offenses regionally, nationally, andinternationally, rather than reactively investigatingcrimes.20



18 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub.L. no. 107-56. For criticism, see for example, Nancy Chang, “The USA PATRIOT Act: What’s So Patriotic About Trampling on the Billof Rights?” Center for Constitutional Rights, http://www.ccr-ny.org/whatsnew/usa_patriot_act.asp (June 3, 2002).19 International Crime Control Strategy – June 1998, via http://www.fas.org/irp/offdocs/iccs/iccstoc.html (June 3, 2002)20 National Crime Squad, http://www.nationalcrimesquad.police.uk/04_about/main_opening_frame.html (January 14, 2002).

Policy Responses to Illicit FinancialFlows and Financial Crimes

The proceeds from illicit trafficking in arms, narcotics,humans, natural resources, and other commodities;kidnapping; corruption and other forms of “white-collar crime”; and diversion of humanitarian aid andsiphoning of diaspora remittances play a critical, ifsometimes indirect, role in sustaining armed conflictand undermining postconflict economic recovery. Byproviding a means to launder and transfer the billionsof dollars these enterprises generate for combatantsand criminal organizations, the mostly unregulatedinternational financial system facilitates these transac-tions, which often bridge the divide between not quitelegal and manifestly illegal, further complicatingattempts at regulation.

Severing or restricting the financial transactionsbetween combatants and their support network may bea significant means of denying them the ability toreplenish arms and matériel and pay soldiers, therebydisabling their ability to prolong civil wars and providea disincentive for disrupting peace initiatives.

Armed groups may not necessarily seek financial gainas an end in itself; at the most fundamental level, thesefinancial flows represent the profits of activitiesundertaken to finance combatant activities, includingthe procurement of needed arms, matériel, andservices.

This section is primarily concerned with moneylaundering, or the process of legitimizing profits fromlocal and global illegal activities by disguising thefunds’ illegal origin. It also examines financial flowsfrom corruption and diaspora remittances, both ofwhich may themselves be laundered.

I. Money Laundering

It is estimated that U.S.$1–$1.5 trillion in illicit profitsare laundered through global banking and nonbankinginstitutions every year.21 Once laundered, these funds

can be used within the legal or open economy. Beyondcurtailing the means of openly profiting from illegalactivities, tracking these cash flows is an importantmeans of successfully prosecuting criminals and/orarmed groups and an opportunity to correct the distor-tion that these transactions have on legitimate tradeflows, government economic data, and internationalfinancial stability.

Many illicit financial transactions occur throughlegitimate international financial institutions, mostoften without, but at times with the knowledge if notcomplicity of these banking institutions. Severalcountries, notably in the Caribbean and the SouthPacific, have used lax financial regulations and thepromise of offshore havens as a means of boostingtheir economies. Although nontransparent regula-tions are sometimes legal, they facilitate moneylaundering and therefore attract those with illegiti-mate purposes—particularly when combined with anunwillingness or refusal to cooperate with regulatoryor law enforcement officials from other jurisdictions.While the international financial system offers thepotential for regulation and control, many transac-tions occur outside regulated financial institutionsthrough currency exchange houses and moneyremittance businesses, including casinos and Internetgaming. Parallel financial systems and informalnetworks offer another means of laundering funds.Hawala, an example of this type of system, is believedto transfer billions of dollars outside regulatedsystems despite being illegal in most countries, andhas no permanent transactions records, furthercomplicating regulation.

Parallel economies, where money is exchanged outsidelegitimate institutions, are flexible and very responsiveto change. They are also extremely heterogeneous,reflecting different local circumstances and thelinkages between a variety of actors and intermedi-aries.

Combatants and those with whom they do businessoften use the same laundering agents as do organizedcriminal networks and narcotics traffickers. Thus,


Policy Responses to Illicit Financial Flows and Financial Crimes 17

21 Trifin J. Roule, “Stepping Up the Pressure on the Money Launderers,” Janes Intelligence Review, August 2001, p. 10.


targeting these laundering agents reduces the availablechannels for combatants and their business partners tolaunder funds, making such transactions moredifficult.


The regulation of illicit financial flows and financialcrimes is already a high priority among internationaland national legislators in the fight against transna-tional criminal organizations and narcotics cartels. Asthe Global Corruption Report 2001 observes:

“Since 1999, pressure to control moneylaundering has come from all quarters,including international agencies; regulators(the main thrust of regulatory efforts has beento stop dirty money entering the bankingsystem, and to make sure it is traceable if itdoes); prosecutors, acting as the world’sfinancial policemen; and private sectormultinationals acting voluntarily, influencedby concerns about reputation risk and thedesire to avoid tough regulatory and criminalpowers.”22

International legal frameworks to combat moneylaundering are supplemented by peer review, includingmutual legal assistance and proceeds of crime confis-cation, which is intended to ensure greater complianceand consistent standards. 23 Although international andnational legislation and policies targeting financialcrimes are highly evolved, their evolution is not equalacross all states or regions. At the enforcement level,banks have been required—on a voluntary basis, butpromoted by heavy fines in the United States—to set upsoftware able to screen transfers and detect targets.This move has yet to reach a global level, especiallyamong offshore banks, but also among European andAsian banks.

Measures to combat international terrorism offer yetanother regulatory framework for the control offinances sustaining civil war. The utility of theseinstruments as a means of conflict resolution andprevention has been less tested, though targetedfinancial sanctions and asset seizures applied againstseveral rebel groups and governments have met withmixed results.

International

The international regime against money laundering,comprising global and regional conventions, has beeninstrumental in shaping criminalization at a nationallevel.

• The UN Convention Against TransnationalOrganized Crime (2000) (discussed above), underArticle 6, requests member states to enact legisla-tion covering the laundering or concealment ofmoney or other proceeds of crime, including “anyform of property which is the proceed ofcrime…and any form of transfer or conversion ofthe property for the purpose of concealing its trueorigin.” Simple acquisition or possession is alsoincluded, if the person in possession knows thatthe property is the proceeds of crime. Under Article8, corruption must be criminalized where there is alink to transnational organized crime. These linksinclude offering, giving, soliciting, and acceptingany form of bribe, undue advantage, or otherinducement, where the proposed recipient is apublic official and the purpose of the bribe relatesto his or her official functions.”25

• Following September 11, 2001, efforts to combatinternational terrorism—particularly the suppres-sion of financing—have received renewed intereston the part of the international community. TheUN International Convention for the Suppression

18 Policy Responses to Illicit Financial Flows and Financial Crimes

22 Michael Levi, “Money Laundering: Private Banking Becomes Less Private,” in Robin Hodess, ed., Global Corruption Report 2001,(Berlin: Transparency International, 2001), p. 206.23 Ibid., pp. 208–209.24 UN Convention Against Transnational Organized Crime (2000), art. 6, via http://undcp.org/palermo/convmain.html (April 12,2002).25 Ibid, art. 8.


of the Financing of Terrorism (December 9, 1999)26

provides a key multilateral legal instrument, as itrequires states to criminalize the provision orcollection of funds for acts defined as offenses byprevious antiterrorism conventions. In addition,states are required to provide legal assistance withinvestigations and extradition regardless of theirbank secrecy laws. Subscribing states mustcooperate with one another in investigations andextraditions when these offenses are committed.The convention may have applications for thecontrol of financing for civil wars, especially fromdiasporas located in OECD countries.

• The Egmont Group of Financial Intelligence Units(FIUs) is an forum for the specialized governmentagencies of currently fifty-eight countries fordealing with the problem of money laundering.FIUs, which serve an intermediary between theprivate and governmental sectors, have centralizedtransaction disclosure systems and enable the rapidexchange of information between financial institu-tions and law enforcement within or betweenjurisdictions. Egmont was established for FIUs toimprove support to their respective national anti-money-laundering programs through informationsharing, improving the expertise of staff, andimproving communication among FIUs, through asecure website. The group is organized into a seriesof working groups, the chairs of which are respon-sible for its overall management. Overwhelmed bythe growth in the membership, there is currently aproposal to formalize a “coordination committee.”27

• The 1988 UN Convention Against Illicit Traffic inNarcotic and Psychotropic Substances (the 1988Vienna Convention), examined in greater detailbelow in the section on narcotics, together with therecent UN Convention on Organized Crime, is themost global instrument. It called on states toestablish or strengthen regional and subregionalenforcement mechanisms and made the launderingof drug proceeds an international criminal offense.

Like the Convention on Organized Crime, it isbinding under international law for ratifyingcountries (unlike the Financial Action Task Forceon Money Laundering [FATF]), but deals only inpart with money laundering, though specificallywith legal and criminal enforcement.

• UN-imposed sanction regimes, as noted above inthe section on illicit small arms, have become animportant tool for promoting international peaceand security. Yet their application has sufferedfrom poor design, inadequate compliance,monitoring, and enforcement, unintended humani-tarian consequences, and economic damage tothird states, while their results have even provedcounterproductive. These experiences haveresulted in a solid empirical base from which todraw lessons of what has and has not worked. Inresponse, the concept of “targeted sanctions” wasdeveloped. Targeted financial sanctions use offinancial institutions and instruments, includingasset freezes, blocking of financial transactions, orfinancial services, to apply coercive pressure ongovernment officials, elites who support them, ormembers of non-government entities in an effortto change or restrict their behavior. Building on theInterlaken Process, the Swiss Government, the UN,and the Watson Institute recently completed “amanual for drafting Security Council resolutionsimposing targeted financial sanctions, and a guidefor States in establishing the legal and administra-tive machinery and procedures to implementtargeted financial sanctions at the national level.28

Regional

Major regional initiatives to combat money launderinghave been initiated in East and South Africa, SouthAmerica and the Caribbean, and the Asia-Pacificregion. Regional cooperation is significantly advancedin the Europe Union, in part due to strides made underthe auspices of European integration, and in theAmericas, where early progress against narcotics


26 UN International Convention for the Suppression of the Financing of Terrorism (1999), via http://www.un.org/law/cod/finterr.htm.27 OECD, via http://www1.oecd.org/fatf/pdf/eginfo-web_en.pdf.28 Swiss Confederation, UN Secretariat, and Watson Institute for International Studies, “Targeted Financial Sanctions: A Manual forDesign and Implementation,” Brown University, 2001.


20 Policy Responses to Illicit Financial Flows and Financial Crimes

measures has developed into a strong regional systemcomplemented by participation in internationalregimes.

• The Model Regulations Concerning LaunderingOffenses Connected to Illicit Drug Trafficking andOther Serious Offenses, of the Organization ofAmerican States/Inter-American Drug AbuseControl Commission (OAS/CICAD) (as amended inWashington, D.C., October 1998),29 deal with bothlegal/criminal and financial/preventive matters.30

The 1998 amendments bring the regulations in linewith, and in some case surpass, the fortyrecommendations of the FATF (see below). There isno capacity to monitor compliance with theregulations by member states.

• The Council of Europe’s Convention on Laundering,Search, Seizure, and Confiscation of the Proceeds ofCrime (the “Strasbourg Convention” of 1990, entryinto force 1993) aims to “facilitate international co-operation and mutual assistance in investigatingcrime and tracking down, seizing and confiscatingthe proceeds thereof. The Convention is intended toassist States in attaining a similar degree ofefficiency even in the absence of full legislativeh a r m o n y. Parties undertake in particular: tocriminalise the laundering of the proceeds of crimeand to confiscate instrumentalities and proceeds (orequivalent property value). The Conventionprovides for: forms of investigative assistance (forexample, assistance in procuring evidence, transferof information to another State without a request,adoption of common investigative techniques,lifting of bank secrecy, etc.); provisional measures:freezing of bank accounts, seizure of property toprevent its removal; measures to confiscate theproceeds of crime: enforcement by the requestedState of a confiscation order made abroad, institu-tion by the requested State, of domestic proceed-ings leading to confiscation at the request ofanother State.”31

• In 1989, in response to the growing threat ofnarcotics, the Group of Seven (G-7) nations createdthe FATF, an intergovernmental body that combatsmoney laundering through the development andpromotion of national legislative and regulatoryreforms. In 1996 the G-7 expanded the FATF’smandate to include all serious crimes and toinclude countries outside the OECD. Today theFATF comprises twenty-nine countries and hasissued forty recommendations on accountingstandards, mandatory reporting of suspicious orlarge financial transactions, elimination ofanonymous accounts, and the like. The FATF waslong faulted for failing to censure countries thatroutinely permitted—if not encouraged—thelaundering of illicit profits through their domesticfinancial institutions. The influence of the FATF,initially a body limited to the most developedcountries, is increasingly global in nature. In 2000the FATF issued a “blacklist” of fifteen “noncoop-erative” countries that were inadequatelycombating money laundering. In 2001 the FATFtook the unprecedented step of demanding thatRussia, the Philippines, and Nauru pass money-laundering legislation or face sanctions, includingdelaying the processing of international financialtransactions, and withholding InternationalMonetary Fund (IMF) and World Bank loans.

• The Caribbean Financial Action Task Force (CFATF)was established in order to develop a commonapproach among Caribbean and Central Americanstates to the laundering of drug-traffickingproceeds. The CFATF formulated nineteenrecommendations, which have specific relevanceto the region and complement the fortyrecommendations of the FATF.32 The main objectiveof the CFATF is to achieve effective implementa-tion of and compliance with its recommendationsto prevent and control money laundering. Thesecretariat monitors and encourages implementa-tion of the Kingston Ministerial Declaration (1992),

29 Organization of American States/Inter-American Drug Abuse Control Commission (OAS/CICAD), http://www.cicad.oas.org/en/legal_development/legal-regulations-money.pdf (January 14, 2002).30 International Monetary Fund, http://www.imf.org/external/np/ml/2001/eng/042601.pdf (January 14, 2002).31 Council of Europe, http://conventions.coe.int/treaty/en/cadreprincipal.htm (January 14, 2002).32 Caribean Financial Action Task Force, http://www.cfatf.org/eng (January 15, 2002).



which affirmed commitment to implement theforty FATF and nineteen CFATF recommendations,the OAS model regulations, and the 1988 UNconvention.

• As part of the implementation of the 1997 EUAction Plan Against Organised Crime, onDecember 3, 1998, “the Council adopted a jointAction on money laundering and the identifica-tion, tracing, freezing, seizing and confiscation ofinstrumentalities and the proceeds from crime. Thisjoint Action sets out a framework for an enhancedaction against money laundering through differentmeans. These included a common EU approachtowards reservations under the StrasbourgConvention, possibilities for identification andtracing of proceeds in national law when requestedby another member state, preparation of user-friendly guides for practitioners, the possibility ofsatisfying foreign requests in an alternative waywhen its not possible to execute these in themanner as requested, minimisation of the risk ofassets being dissipated and training in relation tobest practice for all practitioners, including thejudiciary.”33

National

Combating money laundering, as with organized crimein general, requires simultaneous action at differentlevels. National legislation and practices againstmoney laundering are a critical—if not fundamental—link if such action is to be effective.

• The United States, as the first country tocriminalize money laundering, has been instru-mental. The National Money Laundering Strategyfor 1999 (based on the Money Laundering andFinancial Crimes Strategy Act of 1998) calls for“(1) designating high-risk money laundering zonesat which to direct coordinated law enforcementefforts; (2) rules requiring the scrutiny of

suspicious activities in a range of financial institu-tions, from money transmitters to broker-dealersand casinos; (3) submission of the Administration’sMoney Laundering Act of 1999, to bolster thedomestic and international crimes—from armstrafficking to public corruption and fraud—subjectto U.S. money laundering prosecutions; (4) a 90-day review of measures that would restrict the useof correspondent accounts in the United States bycertain offshore or other institutions that posemoney laundering risks; and (5) intensifiedpressure on nations that lack adequate counter-money laundering controls to adopt them.”3 4

Additionally, it calls for establishment of supervi-sory and regulatory actions (e.g., increasedreporting, and external and internal auditing) inresponse to specified jurisdictions that fail to makeprogress in implementing effective internationalmoney-laundering standards.

• In 1999 the United States and the United Kingdomissued financial advisories concerning the failureof Antigua and Barbuda to seriously address theproblem of money laundering and to adequatelysupervise financial institutions within theirjurisdictions. Inadequate legislation threatened to“create a ‘haven’ whose existence [would]undermine international efforts of the UnitedStates and other nations to counter moneylaundering and other criminal activity.” The U.S.advised financial institutions to give “enhancedscrutiny to all financial transactions routed into orout of Antigua and Barbuda.” The issuance of theseadvisories demonstrated that the United States, theUK, and other nations will take tough, concreteaction against noncompliant governments. 35

• The new Swiss anti-money-laundering law (1998)is considered one of the most stringent in theworld. The law, which applies to banks andfinancial intermediaries alike, mandates theexchange of information with the government

33 Johan Vlogaert, “Fighting Economic Crime—Action Taken in the European Union,” Journal of Financial Crime, vol. 9, no. 1(September 2001), pp. 22–25.34 U.S. Department of State, International Narcotics Control Strategy Report 1999, Washington, D.C., March 2000, p. 39, viahttp://www.icresource.com/WGNS/WGNSDOC/PDFWGNS/MoneyLaunderi%C9gStudyUSState.pdf (September 3, 2002).35 Ibid., p. 1.

when potentially criminal or otherwise suspicioustransactions are detected. Violation of the obliga-tion carries a fine and/or penal and administrativesanctions. Financial institutions must registereither with a recognized self-regulatory organiza-tion or with a special federal government controloffice. The law has been difficult to implement dueto the volume of assets held by Swiss financialinstitutions and a possible lack of cooperationfrom financial intermediaries. Additional problemsinclude the lack of a well-defined notion of“founded suspicions”; the omission of certaincategories of financial agent, including traders inprimary goods; problems with mutual legalassistance between states; understaffing; andissues of cantonal vs. federal jurisdiction formoney laundering (soon to be addressed throughjudicial reform).36

Codes of Conduct

• In 2000, eleven international private banks,representing one-third the world’s private bankingfunds, agreed, with the participation ofTransparency International, to the Wo l f s b e r gPrinciples. These voluntary principles, initiated inresponse to reputational damage over accusationsof money laundering, commit the banks to acommon global standard for their private bankingoperations, including customer “due diligence,”identifying the source of funds, monitoring, andvoluntary reporting of potentially illegitimatetransactions to responsible authorities. Banks arealso required to establish an “adequately staffedand independent department responsible for theprevention of money laundering.”37 Assets may beblocked subject to local laws and regulations.Critics of the principles argue that they do notadequately address existing questionable accounts.Other banks have expressed an interest in commit-ting to the principles. Reputational concernsprovide a strong incentive for compliance.38

• The Bank for International Settlements (BIS),which is owned by the world’s major central banks,established in 1988 the Basle Committee onBanking Regulations and Supervisory Practices toprevent the criminal use of the banking system forthe purpose of money laundering. The BIS encour-ages industry self-regulation, but recognizes that itis not itself sufficient. It has recommended “specialattention” to nonresident customers channelingfunds through offshore accounts. Nonetheless,clear guidelines on identifying money launderingremain underdeveloped.

II. Corruption

The most common form of corruption is bribery andillicit benefits to government officials—though privateindividuals may also be involved—from legitimateand/or criminal sources. Depending upon its character,corruption is not necessarily destabilizing nor clearlyillegal, and in fact is an integral part of many relativelystable political systems.

In other cases, corruption may destabilize nationallegal systems, promote economic mismanagement,deter foreign investment, and undermine politicallegitimacy. Over time, it may lead to “the radicalprivatization of the state, the criminalization of thebehavior of power-holders, and even the transforma-tion of factional struggle . . . into armed conflict.”39

Group exclusion from benefits of corruption networks,sudden changes in the distribution system, or failure toobserve the rules of reciprocity can be strongincentives for rival elites to capture benefits throughforce. Lack of transparency and accountability in theuse of taxes, multilateral assistance, or other forms ofstate revenue can contribute to the general popula-tion’s lack of confidence in government, and hence itslegitimacy. The expression of marginalized groups’grievances can take a violent turn as corruption erodesand undermines public faith in the state and theefficacy of its institutions of conflict management,

Policy Responses to Illicit Financial Flows and Financial Crimes22


36 Global Corruption Report 2001, p. 207.37 Wolfsberg Anti-Money Laundering Principles, via http://www.transparency.org/…/2000/wolfsberg_principles.html (April 7, 2002).38 Global Corruption Report 2001, p. 211.39 Jean-François Bayart, Stephen Ellis and Beatrice Hibou, Criminalization of the State in Africa, (Oxford: James Currey andBloomington: Indiana University Press, 1999), p. xiv.

reduces the rate of economic growth and investment,and aggravates inequalities.

Corruption facilitates the commission of other forms ofillicit activity, including money laundering, narcoticsand arms trade, and the establishment of illegal andlegal “front” ventures engaged in these activities. Assuch, it is often essential to the ability of armed groupsto receive uninterrupted income and resource flowsfrom illicit sources. The existence of state corruptioncan also make a country more vulnerable to infiltrationby armed groups with an illicit socioeconomic agendaby facilitating a link between the local traffickingpracticed by these groups and the transnational legiti-mate corporations and organized crime networks thatprovide access to international markets and additionalillicit resources.

Corruption also facilitates the continued growth oftransnational crime and international criminalorganizations. By offering bribes to political actors,organized crime groups operate major transportnetworks dependent on the aid of corrupted statesecurity forces—police and military—as well ascustoms and immigration officials. As many of theseindividuals are poorly paid in their official jobs, theincentive to participate is huge. Through cooperationbetween corrupt government officials and police,large criminal syndicates and local armed groupshave the capacity to strongly influence or even“capture” entire governments in developing countriesor conflict zones. Beneficiaries of corruption mayseek to prolong war if peace threatens their vestedi n t e r e s t s .

Countries emerging from war are more vulnerable tothe corruption practiced by armed groups and interna-tional counterparts. Peace accords may inadvertentlyinstitutionalize corrupt economic and politicalprocesses that emerged during conflict. Public percep-tion of conflict-sourced corruption in such countriestends to delegitimize formation of new governments inthe eyes of the public, and can substantially impair theability—or will—of a democratic government tomaintain the rule of law.


Corruption has gained an increasing place on theinternational agenda in the past five years.Intergovernmental agencies, national governments,multilateral corporations, and civil society organiza-tions have begun working together to combat itsinfluence in business and political spheres. Companiesare slowly beginning to take a more active stanceagainst corruption in the countries where they dobusiness, establishing “corporate integrity pacts”through which they agree to abide by commonvoluntary rules and guidelines. These efforts aresupported by Transparency International, which seeksto increase government and corporate accountabilityand has raised the profile of government complicitythrough both its annual Corruption Perceptions Index(initiated in 1995), which ranks nations according tothe perceived levels of corruption in each country’spublic service and government, and its more recentBribe Payers Perceptions Index (initiated in 1999),which ranks countries by the degree to which theircorporations are perceived to pay bribes abroad.

International

• The UN Declaration Against Corruption andBribery in International Commercial Transactions(1996) calls on member states to agree tocriminalize bribery, prohibit tax deductions forbribers, and encourage the development ofbusiness codes of conduct.

Regional

• The Council of Europe’s 1999 Criminal LawConvention on Corruption is the most ambitiousanticorruption treaty to date addressing supply anddemand sides of corruption as well as criminal-izing trafficking in influence (that is, usingpositions of power to facilitate or expedite transac-tions, contracts, licensing, etc.) and setting explicitstandards for corporate criminal liability. TheCouncil of Europe protocol known as the Group ofStates Against Corruption (GRECO) promotes the





implementation of legal and policy measures tocombat corruption through mutual evaluation bymember states and has been adopted by the U.S.government.40

• The OECD Convention on Combating Bribery ofForeign Public Officials in International BusinessTransactions (signed 1997) entered into force onFebruary 15, 1999.41 The convention obliges “statesthat are parities to make it a crime under theirnational laws for their citizens or commercialenterprises to bribe foreign public officials in theconduct of international business. It requires thatstates have laws that prohibit the activities of thosewho offer, promise, or pay a bribe to secure acommercial advantage.”42 The convention is a“supply side” agreement that seeks to eliminate thepayment, not the receipt, of bribes. TransparencyInternational regards the convention as a turningpoint in the international fight against corruption,but one that depends on effective ratification andimplementation. Transparency International haspublished reports on the status of the conventionin several signatories.43 By May 2000 it had beenratified by only twenty of the thirty-four signato-ries and no prosecutions had been made.44

• In 1996 the OAS adopted the first internationalconvention targeting corruption, the Inter-American Convention Against Corruption, whichentered into force March 20, 1997. This conventionis more encompassing than the U.S. ForeignCorrupt Practices Act (see below). and the OECDconvention. Demanding signatories to criminalizebribery, it targets public officials (the demand sideof bribery) as well as multinationals (the supplyside) and provides for international cooperation in

the gathering of evidence, extradition, and assetseizure. The convention has been endorsed byTransparency International and the Inter-AmericanBar Association.

National

• The U.S. Foreign Corrupt Practices Act (FCPA),passed in 1977, prohibits U.S. individuals orcompanies from making corrupt payments toforeign officials in order to obtain or keep business(“facilitation payments”). Since 1998 the FCPA hasalso applied to “foreign firms and persons whotake any act in furtherance of such a corruptpayment while in the United States.” Afteradoption of the FCPA, U.S. companies voicedconcern that “they were operating at a disadvan-tage compared to foreign companies who routinelypaid bribes and, in some countries, were permittedto deduct the cost of such bribes as businessexpenses on their taxes.” In response, the U.S.government began negotiations within the OECDfor major trading partners to enact legislationsimilar to the FCPA. This led in 1997 to the OECDConvention on Combating Bribery of ForeignPublic Officials in International BusinessTransactions. The United States ratified thisconvention and enacted implementing legislationin 1998.45

III. Diaspora and Migrant Remittances

Diaspora populations are often an important part ofthe parallel economy in areas where there are influen-tial external political networks. Remittances can be apositive and indeed vital source of revenue fordeveloping countries when used for subsistence, state

40 Council of Europe, http://www.legal.coe.int/economiccrime/default.asp?fd=general&fn=Inse.htm.41 OECD Online, http://www1.oecd.org/daf/nocorruption/20nov1e.htm.42 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions Fact Sheet, released bythe Bureau of Economic and Business Affairs, U.S. Department of State, March 1, 2000.43 Australia, Germany, Hungary, Mexico, Slovakia, Spain, Switzerland, and the United Kingdom. Available at http://www.transparency.org/activities/oecd.html (January 11, 2002).44 Jane Nelson, The Business of Peace: The Private Sector as a Partner in Conflict Prevention and Resolution, (London: Prince ofWales Business Leaders Forum, International Alert, and Council on Economic Priorities, 2000), p. 102.45 Foreign Corrupt Practices Act Antibribery Provisions, http://www.usdoj.gov/criminal/fraud/fcpa/dojdocb.htm.


building, and potential modernization, but they canalso lead to a decline in stability and fuel armedconflict when used to finance the acquisition of armsand matériel for belligerents. The scale of diaspora andmigrant support to armed groups has greatly increasedsince the end of the Cold War, due in large part toglobalization: patterns of population flows, access tocommunication technology, the reach of mass media,and more affordable transportation. 46

Many armed groups have established sophisticatedtransnational operations in diaspora populationcenters, engaging in fundraising and propaganda.Although contributions may be coerced in some cases,armed groups also receive voluntary contributions, andoperate an array of fronts and sympathetic organiza-tions, including nonprofit cultural, religious, and othercommunity and social service organizations. As thesesupport networks become more sophisticated, certaingroups, such as the Liberation Tigers of Tamil Eelam,have expanded to include legitimate businesses,financial flows from which are more difficult to trackand criminalize. As a result of such activities, manyarmed groups are financially independent, no longerhaving to rely on foreign state sponsorship in order toprosecute their violent causes.


Unfortunately, the regulation of fundraising activitiesand related illicit financial flows from diaspora andmigrant communities to combatants is difficult. Theopen societies of the global North, where most diasporaand migrant populations are located, make them moresusceptible to penetration by rebel organizations andimpede their ability to effectively respond. As govern-ments criminalize financial transfers from the formals e c t o r, these transactions are going undergroundthrough use of Hawala systems and by concealingfunds in otherwise legitimate businesses. As armedgroups become outlawed, their operations are easilyshifted to new front organizations, requiring constantvigilance on the part of governments. Many govern-ments lack adequate resources to track armed groupswhose operations do not directly pose a threat to their

national interest, providing greater leeway for theseoperations to continue uninterrupted.

While national and multilateral regulatory efforts donot specifically address the relationship betweendiaspora and migrant remittances, multilateral conven-tions on illicit financial transactions and moneylaundering either do not address informal transactionsor are quickly outdated as armed groups shift to newand increasingly complex methods of circumventingregulators. Nonetheless, when a host state cracks downon an armed group and its support network, it maypersuade sympathizers that aligning themselves withthe group and engaging in criminal acts on its behalfwill not go unpunished, and are not worth the potentialcosts. If safe to do so, these sympathizers may eventurn against the group.

Prior to September 11, 2001, many host countries hadhitherto adopted a lax attitude toward overseas supportnetworks, permitting their operations provided thegroups did not violate the laws of the host state.Following September 11, there is greater awareness bythe United States, Canada, and the European Union, ashosts of these populations, of the need for criminal-izing not the armed and terrorist groups, but theirindividual members. Nonetheless, many outlawedgroups have been able to continue their overseassupport operations through as-yet-unrecognized frontand sympathetic organizations.

The terrorist attacks of September 11 have alsoencouraged greater attention toward suspect financialtransactions and informal transfer services. Alleged useof Somalia as a training ground by Al-Qaeda promptedthe United States to freeze funds from Al-Barakaat,Somalia’s largest financial transfer company. Suchremittances comprise the largest source of income toSomalis; the recent U.S. action has cut this flow byhalf, disproportionately affecting civilians. But whilethis underscores the problems of using a blanketapproach to target a small percentage of transfers, it isalso likely that alternative Hawala channels will fill thevoid, demonstrating the challenge faced by regulatorsattempting to design effective responses.

46 Rohan Gunaratna, “Nature, Amount, and Quality of Diaspora and Migrant Support for the Liberation Tigers of Tamil Eelam andTheir Impact on the Sri Lankan Conflict,” International Peace Academy, unpublished draft.


• The UN International Convention for theSuppression of the Financing of Terrorism (1999)applies to the provision or collection of funds usedor intended to carry out acts that “cause death orserious bodily injury to any person not involved inarmed conflict.” Involvement or complicity in thecollection of such funds is an offense whether ornot the funds are actually used to carry out theproscribed acts. The convention requires stateparties “to take appropriate measures, inaccordance with its domestic legal principles, forthe detection and freezing, seizure or forfeiture ofany funds used or allocated for the purposes ofcommitting” such acts.47 Because of its wide defini-

tion of “terrorism,” this convention applies tomurders or physical violence perpetrated againstnoncombatants during war, though arguably onlyby nonstate actors, not acts committed by thestate.

• In December 2001 the U.S. Treasury Departmentand Interpol announced their intention to establishan international terrorist financing database. “TheInterpol database would consolidate internationaland national lists of terrorist financiers and makeit available to police around the world to preventthe flow of funds to terrorist groups and to assistin criminal investigations.”48

47 UN International Convention for the Suppression of the Financing of Terrorism (1999), http://untreaty.un.org/english/tersumen.htm#4 (February 27, 2002).48 Interpol, http://www.interpol.int/public/icpo/pressreleases/pr2001/pr200137.asp (February 27, 2002).



Policy Responses to HumanitarianAid Diversion49

Humanitarian aid, including food and nonfood items,constitutes a significant resource flow to areas affectedby civil wars. While many international economicactivities may stop as a result of conflict, the interna-tional community generally attempts to provideassistance to populations in distress through the workof governmental, intergovernmental, and nongovern-mental agencies.

Yet humanitarian aid may also sustain conflict, bothdirectly as an instrument of war (denial or manipula-tion of aid), and indirectly by increasing theavailability of resources to prosecute conflicts,especially when few alternative sources of revenueexist. This latter category includes “taxation (forexample, import licenses, visas, transport charges),extortion, protection rackets, dual-currency exchange,economic activities (for example, rents, salaries, localpurchases, etc.), black-market profiteering, funding ofNGOs as fronts for warlords, and through fungibility(i.e., ‘the substitution of international aid for localpublic welfare responsibilities, thus freeing resourcesfor combat and often leading local populations to shiftfrom productive activity to pursuing aid and in theprocess become more dependent and politicallycompliant’).”50 Aid convoys may be looted; vehicles,radio equipment, and local trained staff hijacked; andaccess agreements, airstrips, and cease-fires misused.

Summary of Current Policies and PracticesConcerning Humanitarian Aid Diversion

The “regulation” of aid diversion by belligerents aimsto minimize their gains from relief operations. (Thisaspect is part of a general debate over whether aid tocivilians in conflict areas is doing more harm than

good.) Rather than being subject to discrete govern-mental or intergovernmental regulations, aid diversionis addressed through the individual policies andpractices of donor and humanitarian agencies. Inrecent years, relief agencies have strived to regulatetheir conduct in order to minimize the negativeimpacts of their actions, most notably that of providingresources to belligerents “at their doorstep.”

International humanitarian law provides an evolvedlegal framework governing access to victims and thedenial of relief. The denial of relief can constitute a warcrime, a crime against humanity, or genocide. Underinternational humanitarian law, the denial of humani-tarian assistance during armed conflicts can constitutea war crime if it is exercised against protected persons(i.e., civilians, prisoners, and prisoners of war) through:(a) willful killing or murder; (b) torture, inhumanetreatment, willfully causing great suffering or seriousinjury to body or health; or (c) starvation. Even beyondthe context of an armed conflict, international lawprovides a regulatory framework to address the denialof humanitarian aid in relation to crimes againsthumanity (acts committed against any civilian popula-tion in a widespread or systematic manner, as well asbased on a policy of a state, an organization, or agroup) and genocide.51 The International CriminalCourt will be an appropriate institution to prosecuteand provide judgment on some of these matters. In thecontext of the political economy of civil wars, regula-tion regarding denial of aid may be one means ofaddressing attempts to maintain a situation of foodscarcity in order to set artificially high prices in turn toextort local populations, as well as other predatoryactivities (e.g., looting of relief convoys, whetherconducted for political, military, or commercialpurposes).

Combating the diversion of aid, however, is not specif-ically addressed by national or international regulatory

49 See M. Anderson, Do No Harm: How Aid Can Support Peace—or War (Boulder and London: Lynne Rienner, 1999); A. De Waal,Famine Crimes: Politics and the Disaster Relief Industry in Africa (Oxford: James Currey, 1997); and A. Roberts, Humanitarian Actionin War, IISS Adelphi Paper, No. 305 (IISS/Oxford: Oxford University Press, 1996).50 Overseas Development Institute, abstract for J. Prendergast, Frontline Diplomacy: Humanitarian Aid and Conflict in Africa(Boulder: Lynne Rienner, 1996), http://www.odi.org.uk/hpg/warecons/abstracts/prendergast96.html (January 11, 2002).51 C. Rottensteiner, “The Denial of Humanitarian Assistance as a Crime Under International Law,” International Review of the RedCross no. 835 (1999): 555–582.


Policy Responses to Humanitarian Aid Diversion 27

regimes. It remains in the arena of ad hoc policies andpractices of humanitarian relief providers based on thespecific operating environment, for example, policiesestablished for Operation Lifeline Sudan, the DRC, andLiberia. Efforts to curtail the diversion of relief havemostly been pursued through codes of conduct agreedupon between relief agencies and warring parties, aswell as through public denunciations of violatorsand/or the temporary withdrawal of aid by reliefagencies. The use of humanitarian codes of conduct topromote greater respect for international humanitarianlaw by belligerents may be of practical relevance toother resource flows, most notably to those that derivefrom licit business activities, as these codes include amix of self-regulation and conditionality. Research bythe Overseas Development Institute (ODI) shows,however, that despite some progress, conditionalityremains the least effective area for codes of conduct.These voluntary initiatives cannot fill the vacuum ofregulation or impose rules on warring parties.52

The 1994 Code of Conduct for the International RedCross and Red Crescent Movement and NGOs inDisaster Relief, which was drafted by Save theChildren, Oxfam, the World Council of Churches, theCatholic Relief Service, and others, is intended to serveas a framework whereby belligerents agree to respecthumanitarian principles and aid agencies to notinterfere in the conflict, but the code does not specifi-cally address aid diversion. Annex 1.3 does providethat relief supplies should “not be subject to importa-tion tax, landing fees or port charges,” nor should thereexportation of relief equipment be restricted, butthese recommendations apply to governments. Thecode does not specifically address armed groups.

The UN humanitarian agencies, under the lead of theOffice for the Coordination of Humanitarian Affairs(OCHA), are currently undertaking to establish acommon Terms of Engagement with Armed Groups.This policy document would attempt to address thetypes of problems and dilemmas that relief organiza-tions might encounter in dealing with armed groups

and operating in areas under their control, includingdiversion of food aid, taxation, and misuse orappropriation of “humanitarian infrastructure.” Thedocument will not set a general policy but will offerguidelines for responding that can then be tailored tothe individual agencies’ needs and the specific contextin which they are operating.53

In many cases, the coercive intervention of foreigngovernments or normative pressure of civil societymovements are more appropriate. Regulation in thisdomain takes two main forms. First, the negotiated orforceful deployment of a humanitarian protection force(e.g., operation “Restore Hope” in Somalia, or the UNProtection Force [UNPROFOR] in the formerYugoslavia). In this case, it is generally the UN SecurityCouncil that attempts to regulate the flow of humani-tarian resources and prevent diversion to warringparties by providing a mandate to an internationalmilitary force to protect humanitarian operations, inparticular humanitarian convoys. Second, non–legallybinding codes of conduct designed and upheld by reliefagencies themselves (e.g., the International Committeeof the Red Cross [ICRC] and NGOs) or in agreementwith belligerents (the Operation Lifeline Sudan [OLS]ground rules). These codes of conduct have beendesigned as a response to the proliferation of NGOssince the 1980s, a growing awareness that someoperations were fueling conflict, and the “vacuum ofregulation” confronting large numbers of NGOsoperating in stateless environments offering no protec-tion for both agencies and beneficiaries from abuses ofinternational humanitarian law. Occasionally, reliefagencies have withdrawn from specific areas andshifted their work to advocacy and the denunciation ofabuses (e.g., MSF in Ethiopia). Similarly, donors haveattempted to reduce the flow of resources, but also toexercise a form of extreme boycott/isolation of thearmed movement or authority, by curtailing funds torelief agencies and asking them to leave the area (e.g.,the Department for International Development [DfID]in Sierra Leone in 1997 vis-à-vis the authorities of theArmed Forces Revolutionary Council [AFRC]).

52 ODI, “Aid Policy, Politics, and Principles,” http://www.odi.org.uk/hpg/appp/index.html (September 3, 2002).53 Sylvia Danailov, UNICEF, Communication with Author [jhs], January 15, 2002.


Policy Responses to Humanitarian Aid Diversion28

If a regulation of aid can promote a greater respect forvictims and minimize aid diversions by belligerents byproviding one more channel to publicize andimplement international humanitarian law, its ultimatesuccess very much depends upon the overall politicaland military climate in which it is deployed—between,but more importantly within armed movements. Often,this is why an international force of protection isdeployed. Growing awareness of the limitations ofmandates restricted to relief provision rather thanpeace enforcement and the protection of civilians—

clearly demonstrated in Bosnia in the early 1990s—hasled to more comprehensive “humanitarian interven-tions” in recent years (e.g., Kosovo).

A related issue is the use of NGO or relief organizationstatus as a front for warring parties to channelresources and benefit from tax exemptions (an issuecurrently being addressed by the governments of theUnited States and the UK with regard to antiterrorismlegislation).


Policy Responses to Humanitarian Aid Diversion 29

Policy Responses to NarcoticsTrafficking

Proceeds from international narcotics production and,more importantly, trafficking are a major source offinancing for illegal arms trafficking by belligerentgroups and one of the strongest motivating forcesbehind their association with, and the global expansionof, transnational criminal networks. Almost alltransnational criminal operations are engaged innarcotics trafficking and in the laundering of itsproceeds. Countries in conflict or in political andeconomic transition are a preferred base for interna-tional operations, given their weak institutionalinfrastructure and the virtual absence of enforcement.Narcotics are one of the world’s largest illicit tradingcommodities and provide the proceeds for bribery,arms trafficking, illicit capital flows, and more recentlyhuman trafficking, all of which are covered in thisreport. In addition to being a key source of financingconflict, the profitability of narcotics activities encour-ages corruption of both state and nonstate, actorswhich may contribute to destabilization of producerand transit states alike.

Yet in most instances, narcotics growers are poorfarmers faced with declining international prices foralternative, licit cash crops, or they may seek “a lowrisk means of ensuring survival in a high risk environ-ment.”54 They are often provided life-sustaining loanson narcotics futures. Elsewhere, farmers may becoerced into cultivating coca and opium by and for thebenefit of local military forces, armed groups, and drugcartels. Eradication efforts that do not adequatelyaddress this reality may undermine, if not worsen,already precarious livelihoods and may perverselyincrease reliance upon narcotics income.

The transnational nature of combating narcotics cartelshas also generated a high level of international cooper-ation between drug cartels, other crime syndicates, andinsurgent organizations. International narcotics

trafficking is one of the older, more sophisticated crimenetworks, highly responsive to market conditions,which has access to wealth and resources on par withmajor transnational corporations and governments.Like multinational corporations, they make use of“subcontractors, joint ventures and strategic alliances,use . . . offshore bank accounts, and sectoral diversifi-cation.”55 Many of the more recent supply and distri-bution systems, money-laundering mechanisms, andcorruption strategies were developed from earliersystems to combat narcotics.

While cocaine is still the hard drug of choice in NorthAmerica, it is rapidly being challenged by heroin, whilethe reverse has been true in European marke t s .Narcotics traffickers are also creating demands fordifferent drugs in new markets—for example,Colombian heroin in Eastern Europe and increasedcocaine sales with inflated prices in Russia. The shifttoward synthetic drugs, especially methamphetamines,is an alarming trend, as these drugs are easier to makeand distribute than plant-based drugs, but moredifficult to control, as their precursors continuallychange and they lack the stigma associated with drugslike heroin or cocaine.


Countries of Production

Most of the international regulatory focus has been oncountries that produce narcotics. The “GoldenCrescent,” the border intersection of Afghanistan,Pakistan, and Iran, and the “Golden Triangle,” theborder intersection of Myanmar, Thailand, and Laos,are the two main regions of heroin production. Bothhave been affected by prolonged conflicts. InAfghanistan, despite the continuation by the presentgovernment of the Taliban’s ban on poppy cultiva-tion—and a further ban on buying and selling—cultiva-tion is on the rise by struggling farmers facing starva-tion. In Burma, the national economy benefits from thetrade and though the government makes public

54 UNDCP, World Drug Report 2000, via http://www.undcp.org/adhoc/world_drug_report_2000/report_2001-01-22_1.pdf, p. 11.55 H. Richard Friman and Peter Andreas, introduction to Friman and Andreas, eds., The Illicit Global Economy and State Power(Boulder and New York: Roman and Littlefield, 1999), p. 7.


Policy Responses to Narcotics Trafficking30

attempts to control and eradicate poppy cultivation,there is little incentive to stop the activity. Colombia,the major producer of cocaine and more recentlyheroin in the Western Hemisphere, has been the targetof massive drug control efforts by the United States fordecades (the Andean Ridge Initiative being the mostrecent strategy). Columbia’s corrupt and inefficientjudicial system has remained a problem. Othercountries benefiting from the production of narcoticsare Peru and Bolivia, huge producers of cocaine; India,producing huge quantities of both licit and illicitopiates; Pakistan, producing opium; and Jamaica, thelargest Caribbean producer of marijuana.

Countries of Transit

Conflict zones create a supportive climate fortrafficking drugs because they are out of the reach ofnational and international control systems, but they areonly one stop along the routes to lucrative We s t e r nm a r kets. Indeed, enforcement efforts during conflictmay be an impossible task, placing an increased burdenon bordering countries and other countries of transit.Iran’s efforts to police its border with Afghanistan havebeen described as resembling a full-scale war, asmilitary operations against traffickers who are betterequipped and strongly determined are highly costly interms of resources and human life. Turke y, situated as ageographic transit point from East to West, stronglyemphasized the role of “terrorist organizations andorganized criminal groups” in promoting narcoticstrafficking. Nigeria, attempting to make the transitionto democracy in a conflict-ridden continent, is the basefor narcotics-trafficking gangs who control the sub-Saharan African drug market and who operate one ofthe world’s most sophisticated global traffickingnetworks, moving heroin from Asia to Africa, Europe,and the United States, and cocaine from South Americato Europe, Africa, and Asia. Brazil is another majortransit country, moving cocaine from Bolivia,Columbia, and Peru to the United States and Europe.

Countries of Consumption

To date, most of the international regulatory focus hasbeen on enforcement—on limiting and eradicating

narcotics in countries of production, with the morerecent corruption regulations targeting countries oftransit, as well as policing and criminalizing consump-tion. Critics have pointed out that in most countries,drug control policies have proven unsuccessful orlimited in impact. The principal sources of demand—primarily North America (especially the United States)and Western Europe—have remained problematic, withuncoordinated regulatory policies and varyingopinions on whether or not certain narcotics should belegalized.

Some feel that an outright ban on narcotics is notworking and that many laws penalize the user morethan the narcotics syndicates. If drugs were legalizedthey would be under the jurisdiction of governmentand the medical authorities and no longer solely in thehands of traffickers. Deregulation advocates alsopropose that money currently spent on enforcementcould be more wisely allocated to treatment, and topreventing future drug abuse, moving from a lawenforcement–dominated strategy to a publichealth–based strategy.

With regard to the link between narcotics and theprosecution of civil wars, while a policing strategy isclearly needed at the international level, delinkingmilitary involvement from counternarcotics efforts,including the demilitarization of areas of illicit cultiva-tion (e.g., Colombia), has been proposed.

International

Many of the current international enforcement effortsare based on the three UN drug control conventions,which are mutually supportive and complementary. Inmost countries, drug control policies currently intendedto comply with international conventions on drugs( 1 9 61, 1971, and 1988) have proven unsuccessful incountering the illicit drug trade, and to the contraryhave contributed to its increase and have had damagingand counterproductive effects. The weakest links of theillicit drug chain (drug consumers, couriers, and ruralpopulations involved in the cultivation of illicit drug-l i n ked crops) have suffered a disproportionate amountof the negative consequences of drug control policies.5 6

5 6 Manifesto of the International Coalition of NGOs for a Just and Effective Policy on Drugs (Vienna 1998), viahttp://www.encod.org/mane.htm (April 19, 2002).


Policy Responses to Narcotics Trafficking 31

• The Single Convention on Narcotic Drugs (1961,amended in 1972 by protocol) combats drug abuseby coordinated international action seeking tolimit possession, use, trade, distribution, import,export, manufacture, and production exclusivelyfor medical and scientific purposes; and to combatdrug trafficking through international cooperationto deter and discourage drug traffickers.57

• The Convention on Psychotropic Substances (1971 )established an international control system forpsychotropic substances, responding to the diversifi-cation and expansion of drug abuse; and introducedcontrols over a number of synthetic drugs accordingto their abuse potential and therapeutic value.5 8

• The UN Convention Against the Illicit Traffic inNarcotic Drugs and Psychotropic Substances—alsoknown as the 1988 Vienna Convention, intendedto reinforce and supplement the 1961 and 1971conventions—provides comprehensive measuresagainst drug trafficking, including provisionsagainst money laundering and diversion ofprecursor chemicals; and provides for internationalcooperation in the extradition of drug traffickers,controlled deliveries, and transfer of proceedings.59

Regional

• The Economic Community Of West African States(ECOWAS) Drug Control Unit (established in 1996)is tasked with formulating regional drug controlprograms in collaboration with specializedagencies and organizations (IGOs and NGOs)involved in drug control and preparing projects todeal effectively with drug control problemsencountered by member states.

National

• The United States has an extensive statutoryframework for illicit narcotics, a key component

of which is the imposition of sanctions “a g a i n s tnarcotics traffickers, the entities they own orcontrol, and those persons acting for them orsupporting their narcotics trafficking activities.”6 0

The Foreign Narcotics Kingpin Designation Ac t(1999) and the International EmergencyEconomic Powers Act [IEEPA] (1991, supple-mented in 1996) prohibit U.S. persons fromengaging in transactions, trade, and servicesinvolving foreign narcotics kingpins and deriva-tive designees. The objective of both laws is todeny drug kingpins, their businesses, and agentsaccess to the U.S. financial system and to thebenefits of trade and transactions involving U.S.businesses and individuals.

• “Harm reduction strategies” compose a significantelement of drug control in Europe (theNetherlands, the UK) and Australia, but arebecoming more commonplace in Canada, and to alesser extent in the United States. These strategiesseek to minimize the negative public health,criminal, and social consequences of drug use onboth the individual and the community level, whilerecognizing that drug abuse is likely to continue.Such strategies do not necessarily seek to end druguse, nor are they a means of primary prevention.Although several early studies conducted in theNetherlands found that distribution of free, cleanneedles, access to methadone, and the like, had notdecreased addiction, drug-related crime, or thespread of HIV, further studies indicate that harmreduction strategies have been successful over thelast fifteen years in reducing the spread of HIV, andin alleviating other drug-related problems.Community resistance to harm reductionapproaches remains a significant challenge, as theyare commonly misperceived as encouraging druguse and, in the case of programs related toinjection drug use, as encouraging violation of thelaw.61

57 Single Convention on Narcotic Drugs (1961), via http://www.incb.org/e/conv/1961/index.htm (April 12, 2002).58 Convention on Psychotropic Substances (1971), via http://www.incb.org/e/conv/1971/index.htm (April 12, 2002).59 The UN Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances, via http://www.incb.org/e/conv/1988/index.htm (April 30, 2002).60 US State Department, “Money Laundering and Financial Crimes,” http://www.state.gov/g/inl/rls/nrcrpt/2000/959.htm (April 30, 2002).61 Center for Addiction and Mental Health, Virtual Resource for the Addiction Treatment System, “Harm Reduction,”http://sano.camh.net/resource/harm.htm (April 30, 2002).


Policy Responses to Narcotics Trafficking32

Policy Responses to Trade inNatural Resources and OtherCommodities62

Trade in natural resources and other commodities oftencomprise a significant portion of the war economy.63

Consisting of the licit and illicit trade in legal goods, aswell as the trade in illicit goods, these transactionsmake up just a fraction of global totals, but provide asignificant source of currency when bartering forweapons and matériel, a convertible medium ofexchange for criminal networks laundering money, ameans of supporting patronage networks, and in somecases, a lucrative means for elites to accumulatepersonal wealth, especially under cover of conflict.Combatants may seek to partner with—or predateupon—businesses engaged in the extraction and tradeof natural resources. Some of these businesses arereputable multinationals, many are informalenterprises, while still others operate at the boundariesof legality, deliberately flouting national regulatorycontrols and international sanctions regimes.

Few civil wars are motivated solely by competitionover the control of natural resources. Once started,however, conflict may be perpetuated by the presenceof natural resources, not only by providing a steadyrevenue stream, but also by transforming the agendasand strategies of belligerents. Where peace initiativesthreaten belligerents’ control over natural resources,and thus their often violent income-earning activities,the incentive to impede peace initiatives and therebyprolong wars may increase.

The trade in natural resources may contribute toconflict in more diffuse ways as well. Beyondmotivating or financing conflicts, the level ofdependence on and “lootability” of a natural

r e s o u r c e6 4 can also increase the vulnerability ofsocieties to, and the risk of, armed conflict. Theperverse developmental effects of resource-generatedrevenue may indirectly make a country more conflict-prone by generating socioeconomic grievances. Asprimary resources are a principal source of taxationand rents, the dominance of primary commodities inan economy often testifies to the mismanagement ofits political economy and its relation of dependencevis-à-vis international markets and powers. Themismanagement or direct embezzlement of mineralrents by a corrupt ruling group and its businessassociates is an important component of grievancesthat should not be discounted as a factor inmotivating and sustaining rebellions. Nonetheless,not all states dependent primarily on commodities areaffected by armed conflicts, and much depends uponthe domestic political culture and quality of institu-tions, as well as the behavior of foreign interests.

While much of this trade occurs through informalchannels, it is not expressly “illicit” until defined assuch. The current state-centric international system apriori defines trade with rebel groups as illicit—whatever the legitimacy of these groups. Trade with anational government engaged in civil war, however, isconsidered legitimate (provided it is not subject tointernational sanctions). Therefore, corrupt govern-ments that buy arms with concessions, royalties, andother rents paid by multinational corporations is amatter of national sovereignty and self-defense.Natural resources gain access to the internationalmarket through multinational corporations, which,while engaging in morally questionable transactions,are legally doing nothing wrong. Largely through theattention of international advocacy groups, as well asUN Expert Panels reports, oil, timber, coltan, and othermineral and natural resources have been added to thegrowing list of licit trade commodities that sustain orfinance local war economies.

62 A related issue is that of private-sector behavior in areas of conflict. This issue is addressed under a separate section below.63 See for example, Robert Neil Cooper, “Conflict Goods: The Challenges for Peacekeeping and Conflict Prevention,” InternationalPeacekeeping 8, no. 3 (Autumn 2001): 21-38; and Philippe Le Billon, “The Political Ecology of War: Natural Resources and ArmedConflicts,” Political Geography 20, no. 5 (2001): 561-584.64 Certain primary commodities—alluvial diamonds, coltan (columbo-tantalite), timber—provide relatively lootable resources forrebels and governments alike to exploit. Others—particularly oil—require high start-up, production, and transportation costs, whichlimit their utility to the state working in partnership with national or multinational firms.


Policy Responses to Trade in Natural Resourcesand Other Commodities

33

Finally, it is not the trade in natural resources alonethat fuels conflict. The smuggling of other commodi-ties—from cigarettes, stolen cars, and fuel, to arms,humanitarian aid, and narcotics (addressed separatelyin this paper) and even humans—provides sources ofrevenue for combatants and the criminal networkswith which they may be linked.


Initiatives to prevent and resolve armed conflicts needto better understand and address the role of naturalresources in the political economy of conflicts and toaddress the self-interests of concerned actors, whetherthey are foot soldiers, warlords, politicians, orbusinesses. While this report addresses specific policiesfor stemming “conflict trade” in resource flows andother commodities, it should be noted that multidi-mensional policies are needed to address the complexlinkages existing between natural resource dependenceand armed conflict. In this regard, while economicdiversification and greater access to internationalmarkets, fair and transparent resource revenue alloca-tion schemes, sustained assistance during periods ofcrisis, and targeted sanctions against profitable wareconomies have long been on development andpeacebuilding agendas, more efforts are needed inthese directions.

There is a growing sentiment that a comprehensiveinternational framework for regulating illicit resourceflows to armed conflicts is required, rather than thecurrent ad hoc approach of tackling the issue on aconflict-by-conflict basis (DRC, Angola, Liberia) orcommodity-by-commodity basis (rough diamonds,timber). Securing broad agreement on, let aloneenforcing, such a global regime would likely facecritical obstacles, not the least of which are definingillicit resource flows and overcoming state-centrism.Nonetheless, there are existing and emerging UNconventions and policy initiatives that may offer a legalbasis for such an agreement, many of which areaddressed in this document. These include theConvention on the Suppression of Terrorist Financing,the Convention Against Transnational Organized Crime,the 1988 Vienna Convention, and the UN Conferenceon the Illicit Trade in Small Arms and Light We a p o n s .

Several existing approaches are explored below.

• Targeted sanctions. Such sanctions on naturalresource flows include those on oil, gems, andother commodities. UN Security CouncilResolutions 1173 (1998), 1306 (2000), and 1343(2001) imposed bans on the trading of roughdiamonds from UNITA-controlled territory inAngola, from Sierra Leone, and from Liberia,respectively. In 2001 the UN Panel of Experts onLiberia recommended the imposition of sanctionsagainst the Liberian timber industry over itsalleged links to supplying arms and funding armedmilitias. In these cases, targeted sanctions havebeen successful in the overall reduction, but notelimination of, the transactions by whichinsurgents profit.

• Economic protectorate and trust/escrow funds.Sanctions, whether broad economic sanctions orthose that target a specific commodity, can wreakhavoc on a state’s economy, devastating the liveli-hoods of the local population, if not causinghumanitarian crises. Escrow accounts, like that ofthe Oil for Food humanitarian program in Iraq,offer one potential solution by maintainingresource production and export, but regulatingboth the commodity market and the disbursementof proceeds. As states are unwilling to cedesovereign control over their resources, theestablishment of an escrow mechanism is difficult.Enforcement is likewise complicated by thedemands of monitoring and enforcementcombined with noncompliance of the state.

• Certification regimes: the international diamondtrade. The Kimberley Process, a regulatory initia-tive of diamond-producing and diamond-sellingstates, NGOs, and industry, introduced by SouthAfrica following UN Security Council and GeneralAssembly resolutions, seeks to establish minimumcommon rules for rough diamond certification. TheKimberley Process relies on a “chain of warranties”intended to provide an audit trail linking eachdiamond to its mine of origin. Angola and SierraLeone implemented the first legally bindingnational controls, followed by Botswana, Namibia,



34

and Guinea. Additional regulatory controls havebeen adopted bilaterally between Belgium and theDRC. Import controls are being considered by theUnited States, the largest global consumer ofdiamonds, under the “Clean Diamonds” bill, whichhas passed in the House, but has yet to be voted onin the Senate.

Implementation of an effective global certificationregime will require the compliance of relevantgovernments and industry actors alike, and willsimultaneously to contend with corruption, whichwould enable new laws to be circumvented. Thelack of industry transparency (e.g., the lack ofconsistent trade statistics, and the absence ofguidelines for self-assessment and monitoring)remain significant challenges to the KimberleyProcess. Moreover, it is far from certain that sucha regime can eliminate the illicit trade indiamonds, much of which occurs outside officialchannels, let alone the patronage and criminalnetworks it feeds, and thus prevent state failure.

The “chain of warranties” idea is being applied ona more limited basis for the timber industry, identi-fying wood harvested from sustainable sources.

Similar certification and warranty systems are usedor are being considered to address other socialissues as well, notably labor conditions.

• IMF monitoring: the Angolan oil industry. Facedwith minimal foreign reserves and growingpressure by international donors and advocacygroups to bring about more transparency in the oilsector, the government of Angola agreed to an “oildiagnostic” to be conducted by an internationalaudit firm. This agreement was part of broader IMFStaff Monitored Program (SMP), includingeconomic and institutional reforms. While most ofthe attention on the Angolan war economy hasbeen placed on the diamond sector, and its role infinancing the UNITA rebel movement, the lack oftransparency in the oil sector’s financing of thegovernment and allegations of high-level corrup-tion have prompted this IMF initiative. The “oildiagnostic” is, however, limited to the properchanneling of oil revenues to the state treasury,and not the transparent and accountable allocationof these revenues once incorporated into thebudget. Furthermore, its findings are not to bemade public, thereby jeopardizing the credibility ofthe initiative.65

65 Human Rights Watch, “The Oil Diagnostic in Angola: An Update,” March 2001, http://www.hrw.org/backgrounder/africa/angola.



35

The Private Sector and ArmedConflict

I. Commercial Business66

Civil strife may be overwhelmingly bad for themajority of licit business because of the highuncertainty and insecurity putting at risk investment,production, and trading. Many transnational corpora-tions are able to protect economic enclaves evenduring conflicts, and networks of individual entrepre-neurs are able to link war zones to internationalmarkets. The influences of these businesses can includethe provision of significant economic and employmentopportunities, and the rise of standards in laborpractices and social relations, and they can participatein political stability and even economic justice.

Yet businesses can also have negative influences thatmay exacerbate conflict. These may include aggravatinginequalities or increasing economic rents amenable tofactional control, both of which may exacerbateconflict; degrading local livelihoods and entitlements(access to resources), promoting discrimination, denyingpolitical participation, using slave or child labor, andusing disproportionate force to protect their interests(see the section on private security groups below);bankrolling belligerents by providing voluntary orcoercive financial or logistical support; sustainingmisgovernance by participating in the corruption andlegitimization of unrepresentative and repressiveauthorities; and impeding peace by reducing theleverage of international institutions and populations onauthorities through the provision of politically account-able resources, and lobbying for “private” diplomacy.

Private-sector actors may not realize that otherwiseroutine business activities can have unintendedconsequences detrimental to the stability and securityof the country in which they operate. They may not

appreciate how the revenue streams generated by thecommodities they produce benefit combatants andperpetuate conflict. In Angola, for example, thegovernment has borrowed money against future oilproduction; many of these loans went toward armspurchases and support of the regime’s clientelistnetwork. Today, nearly half of the country’s oil revenueis committed to servicing this debt. Or, having alreadymade a major investment in what were initially stablecountries or regions, companies may find themselveshaving to operate in contexts where growinginstability and armed conflict have changed theoriginal ground rules. Legitimate concerns about thesafety of staff and infrastructure may demand firms toseek assistance from undisciplined or unaccountablepublic or private security firms. Finally, lack offinancial transparency in royalty payments, inadequaterevenue sharing between national, regional, and localgovernments, and hiring practices that unwittinglyexacerbate local socioeconomic inequalities—frequently along ethnic or factional lines—may allcontribute to an environment where violent conflict ismore likely.

To date, most attention has been focused on the roleof multinational corporations, notably the extractivei n d u s t r y. There are other private-sector actors that ared e e p l y, if less visibly involved, including domestic orregionally operating firms without an internationalprofile and based in countries lacking strong civilsocieties. Consequently, these firms have fewincentives to operate responsibly and face fewersanctions for their activities. Whereas these firms mayengage in questionable practices, their overallbusiness strategy is still oriented toward legitimateends; still other companies specialize in, profit from,and may seek to prolong conflict. The existence ofwhat a recent Fafo report on private-sector activity inarmed conflict labels “rogue companies” demonstratesthat, for those firms that deliberately flout interna-tional law, voluntary regulation is not enough.6 7 I n

66 See International Council on Human Rights, Beyond Voluntarism: Human Rights and the Developing International LegalObligations of Companies (Geneva: ICHRP, 2002); Overseas Development Institute, Regulating Businesses During Armed Conflicts(London: Overseas Development Institute, forthcoming); and Jane Nelson, “The Business of Peace: The Private Sector as Partner inConflict Prevention and Resolution” (London: International Alert, Council on Economic Priorities, and Prince of Wales BusinessLeaders Forum, 2000).67 Mark Taylor, “Emerging Conclusions – March 2002”, Fafo Programme for International Co-operation and Conflict Resolution,2002, pp. 23-25.


The Private Sector and Armed Conflict36

such situations, a regulatory framework is requirednot to create a level playing field for competingbusinesses, but to criminalize the operations of thesefirms outright.

Summary of Approaches to Business and Conflict

Emerging policy initiatives, regulatory proposals, andindustry standards concerning various aspects ofprivate-sector activities in conflict zones tend to focuson affecting the behavior of multinational corpora-tions, principally because, as publicly tradedcompanies based in countries with organized civilsocieties, their reputation, market share, and stockvaluation are not immune to consumer pressure andthus provide a point of leverage. The extractive sectorhas been subjected to the most scrutiny, though others,including the financial, insurance, and infrastructuresectors, warrant greater attention. Instruments maytake the form of, at one extreme, the purely voluntary,relying on company or industry self-policing. At theother extreme are explicit legal and regulatory instru-ments, including national and international law. Inbetween exist a range of public and private-sectormeasures that are neither wholly voluntary nor explic-itly regulatory. Positive inducements for goodcorporate citizenship, such as tax deductions andexemptions, preferential status for receiving contracts,or specific market deregulation, may influence andreward acceptable corporate behavior.

At present, there is little consensus on what actuallyconstitutes corporate complicity in armed conflict. Thedegree of responsibility of businesses is highlyvariable; one can distinguish a wide spectrum betweenpassive and active responsibility, with some businessesmore victim than perpetrator. Many of these negativeinfluences result from the unintended consequences ofconducting business in a predatory environment whereviolence is deployed to serve key political andeconomic functions for ruling groups. While there israrely a deliberate malicious intent, the passivecomplicity of businesses needs nevertheless to beacknowledged and addressed. In order to promotepositive engagement of private-sector actors in peaceand security issues, there is a need to establish a clearnormative consensus, grounded in international law, as

to what constitutes “complicity” for private-sectoractors.

Voluntary Measures

Voluntary approaches include the UN Global Compact,the U.S.-UK principles for extractive industries on theuse of security, company- and sectorwide codes ofconduct, such as the Global Mining Initiative, and aproliferation of NGO-sponsored initiatives. Voluntaryapproaches are advantageous in that they addressproblems of asymmetrical information and are highlyadaptive to specific firms.

Yet voluntary approaches have several drawbacks: theyare self-selecting (firms need to recognize the value ofimplementation and compliance) and they lackmonitoring and enforcement in the event of noncom-pliance. Apart from their desire to be good corporatecitizens, it must be in their economic interest forprivate sectors to adopt socially responsible behavior.They are unlikely to modify their business practices ifit will place them at a disadvantage vis-à-vis theircompetitors, particularly less reputable firms motivatedsolely by profits rather than broad social benefits.

Voluntary initiatives include the following examples:

• The UN Global Compact is a voluntary initiativerequiring participating companies to committhemselves to nine principles related to humanrights, environmental protection, and labor rights.Participating companies agree to regularly shareinformation with the UN on best practices theyhave undertaken to respect the principles and toparticipate in roundtable discussions with NGOs,trade unions, and other relevant stakeholders.Recognizing the role of private-sector actors inarmed conflict, as well as their potential contribu-tion to conflict prevention, the UN Secretary-General made business and armed conflict thetheme of the compact’s first roundtable discus-sions. Focus groups are preparing studies ontransparency, revenue sharing, development of aconflict prevention toolbox, and conflict impactassessments. The compact neither sets a code ofconduct, nor is intended as a regulatory instru-


The Private Sector and Armed Conflict 37

ment. Nonetheless, many question its effectiveness,not only because, like other voluntary measures, itlacks monitoring, but also because the validbusiness concerns of corporations are notadequately addressed.

• The industry-driven Global Mining Initiative (GMI)is an initiative by the world’s largest mining andminerals companies to work together withstakeholders to develop “a clearer definition and abetter understanding of the positive role that themining and minerals industry can play ingenerating a transition to a sustainable pattern ofeconomic development.”6 8 The initiative isproceeding along three lines of action: First,working with other interested stakeholders tosponsor an independent process of analysis topromote the development of a response to the goalstated above. Second, holding a global conferenceon mining and sustainable development in 2002.Third, bringing mining associations and theminerals industry into line with the goals of theinitiative. As part of the GMI, the Mining,Minerals, and Sustainable Development finalreport includes recommendations for industry onrevenue-sharing agreements and recognizes theirpotential role in the prevention of armed conflict.69

• The U.S.-UK Voluntary Principles on Security andHuman Rights (December 2000) is both a tripartitedialogue on security and human rights withcompanies in the extractive and energy sectors(eight companies initially) as well as NGOs, and aset of principles concerning corporations’ riskassessment and use of private and public securityforces. The participants developed “a set ofvoluntary principles to guide companies inmaintaining the safety and security of theiroperations within an operating framework thatensures respect for human rights and fundamental

freedoms.”70 The ongoing dialogue provides partic-ipants with the opportunity to review the princi-ples and ensure their continuing relevance andefficacy. Through the participation of additionalcompanies with similar concerns in otheroperating environments and their governments, itis hoped that the principles will set an emergingglobal standard. Requirements for participation inthe dialogue may exclude some non-U.S. or non-UK firms seeking to participate due to theiroperation in areas of armed conflict—ironically, theenvironment in which firms are most in need ofaccountable security with clearly delineatedresponsibilities.

• The nonbinding OECD Principles of CorporateGovernance create multilateral and nationalprocesses for states to encourage and monitor goodcorporate citizenship among their multinationals.They were developed with input from non-OECDcountries, the World Bank and the IMF, thebusiness sector, investors, trade unions, and otherinterested parties. The principles focus on publiclytraded companies, though they may also berelevant to improving corporate governance innontraded companies, for example, privately heldand state-owned enterprises. As the OECDguidelines include annual review meetings andprogress reports and assistance to states onimplementation, they may be a more effective toolthan the Global Compact for ensuring corporatecompliance. Some business associations worry thatthe guidelines may be misused by competitors, orthat they will be unable to police their ownsubcontractors.71

• Revenue management is complex and manyproposals are controversial and still not veryrobust. The Chad/Cameroon oil pipeline, one ofAfrica’s largest public/private development

68 Global Mining Initiative, http://www.globalmining.com/home/gm_frame.asp (March 8, 2002).69 Mining, Minerals, and Sustainable Development, Breaking New Ground: Mining, Minerals, and Sustainable Development, viahttp://www.iied.org/mmsd/finalreport/index.html (August 25, 2002).70 U.S. Department of State, Voluntary Principles on Security and Human Rights Fact Sheet, December 20, 2002, viahttp://www.state.gov/www/global/human_rights/001220_fsdrl_principles.html (April 23, 2002).71 OECD Online, http://www1.oecd.org/daf/governance/principles.htm.



projects, provides a useful starting point. TheWorld Bank has provided the three-member oilconsortium (Exxon, Petronas, and Chevron) withpolitical risk mitigation, and the governments ofCameroon and Chad with financing for their shareof the cost. Under the agreement, 10 percent of theoil revenues are directly deposited into an offshoreescrow account and saved as part of a “fund forthe future.” The government of Chad hascommitted to allocate 80 percent of its share of therevenue to finance poverty reduction and develop-ment (health, education, etc.), and 15 percent tofinance investment and “recurrent state expendi-tures” (to be reallocated to poverty reduction afterfive years). The remaining 5 percent is earmarkedfor development in the oil region. As part of theproject, Chad adopted a revenue management law,which includes creation of a stakeholder committeeto supervise distribution of oil revenue withconsiderable leeway to freeze funds to the govern-ment.

External Measures

Many argue that the limits of corporate self-regulationon issues related to conflict require external means forencouraging corporate compliance. These mightinclude either explicit, statutory regulation, or implicit,m a r ket-driven, or contractual measures, such asindices that track and report on the ethical perform-ance of companies, the incorporation of political riskassessment in valuations of companies, andshareholder activism, all of which may influence acorporation’s behavior by affecting the value of itsshares. In other cases, such as securities and exchangerequirements or contractual obligations, which carrylegal obligations, firms may face punitive measures fornoncompliance. In effect, these subject firms submitthemselves to regulation as a sine qua non of meetingbusiness strategies.

Legal measures create rules equally applicable to allfirms within a given jurisdiction, promoting a levelplaying field and encouraging an environment inwhich legitimate businesses following “propeace” best

practices are not at a disadvantage. Some have arguedthat an international legal framework is required totruly level the playing field, as it would affect areaswhere national law is weak or unenforced andotherwise unaccountable firms. It is unlikely that sucha framework on corporate conduct in conflict zoneswill be agreed upon in the near future, nor is it clearwhat such a regime would entail, let alone whether itwould prove enforceable. However, the lack of aninternational framework does not preclude theemergence of binding norms on corporations. Indeed,corporations are not necessarily opposed to legalobligations, provided they have a role in the develop-ment, as indicated by the recent call by the miningsector for governments to set standards of behaviorwith respect to the environment.72

Few businesses have faced severe consequences for theinfringement of such policies, and there have been sofar a very limited number of largely inconclusive trials.The same can be said of sanctions-busting businesses.

Below are several categories or specific examples ofexternal regulation. Most of these measures do notexplicitly concern corporate activities in armedconflict; rather they are possible mechanisms forencouraging implementation of or ensuring compli-ance with measures on corporate transparency, conflictrisk assessment, responsible use of private security, andthe like.

• Securities and exchange regulations. In the UK,the “Turnbull Report” on corporate internal controlhas in essence mandated that corporations identifyand disclose what they are doing to mitigate theirrisk in order to be listed on the London StockExchange. Likewise, in the United States, Congresspassed the “Sudan Peace Act,” which wouldprohibit foreign oil companies doing business inSudan from listing or trading their securities onany U.S. financial exchange (U.S. oil companiesare already prohibited by sanctions from investingin the country). All other companies were requiredto disclose the use of proceeds from capital raisedin the United States, the nature of their commercial

72 Matthew Jones, “Mining Groups Ask for Environmental Guidelines,” Financial Times, January 29, 2002.



activities in Sudan, and the relationship of theseactivities to human rights violations, to investorsand the public via the Securities Exc h a n g eCommission (SEC) or face a similar prohibition.

An alternative approach is that of the recentcampaign by a broad coalition of NGOs, laborunions, and other civil society groups in the UnitedStates to discourage investors from purchasingshares of an initial public offering by PetroChina,a subsidiary of a Chinese state oil company withoperations in Sudan and Tibet. As a result, thecompany raised several billion dollars less than ithad hoped to raise. This may be an alternativemeans of pressuring foreign, if not state-owned,companies otherwise insulated from advocacypressure to adopt more socially responsiblebehavior.

• Socially responsible investment (SRI)/share-holder activism. Ethical investment funds (e.g., theUK-based Friends Ivory & Sime, the U.S.-basedCalvert Group) and pension funds (e.g., of tradeunions), which may control significant shares of acompany, are increasingly using their financialinfluence to encourage companies to improve thequality of their governance and management ofsignificant environmental and social issues. SRI isfacilitated by socially responsible indices that trackand report on the ethical performance ofcompanies (e.g., FTSE4Good).

• Conditionality on the provision of financingand/or guarantees. Given their financial clout,public and private finance and guaranteeinginstitutions could potentially influence corporateadherence to conflict risk management by makingaccess to capital or insurance conditional uponcorporate performance. Additional contractconditions may discourage some potentialborrowers, which may seek alternative sources offinancing or insurance. But many businesses,unwilling or unable to self-finance, may respondby positively altering their behavior on the ground.Government and multilateral agencies that provide

financing and guaranteeing to the private sector,including the U.S. Overseas Private InvestmentCorporation (OPIC), and the MultilateralInvestment and Guarantee Agency (MIGA) and theInternational Finance Corporation (IFC) of theWorld Bank, are not mandated, nor designed for,conflict prevention. At present, they do not includeassessments of corporate political risk or conflictimpact in determining whether to extend credit orinsurance to their clients. Nonetheless, some ofthese agencies are beginning to recognize thatconflict has a direct bearing on the security of theirinvestments, and are considering expanding theircriteria for financial assistance to include conflictrisk management.

• Targeted UN sanctions. To date, the UN hasemployed sanctions primarily against illegitimategovernment elite and rebel leaders. Ta r g e t e dsanctions could be extended to other nonstateactors, including corporations implicated insanctions busting or that knowingly traffic inillicitly exploited natural resources. The SecurityCouncil could require member states to freezeaccounts, block commercial and financial transac-tions, including investment and credit services,and impose travel restrictions on employees,contractors, or board members as a means ofapplying coercive pressure to corporate decision-makers in an effort to change or restrict theirbehavior.

• Transparency. Like revenue sharing, transparencyis a complex issue not amenable to a single regula-tory response; many companies would voluntarilypublish their payments to government, but facereprisals if they act alone. One method of tacklingnontransparency proposed by Global Witness is forthe major financial regulators of internationalstock exchanges (e.g., the U.S. SEC or the UKListing Authority) to legally require listedcompanies to publish a “summary of payments toall national governments in consolidated andsubsidiary accounts.” Among other benefits,Global Witness argues that such an obligation

73 Global Witness, “The Failure of Voluntary Initiatives and the Need for Disclosure Regulation,” http://www.fatbeehive.com/global-witness/text/campaigns/oil/regulation.html (March 19, 2002).



would level the playing field among competitors,depoliticize the issue of disclosure, and involveminimal added cost to firms. Global Witness hasalso called on natural resource companies to makepublic their total net payments to national govern-ments, including signing bonuses and royalties, inall countries of operation and in a nationallanguage.

II. Private Security Firms, Private Military Firms

The 1990s witnessed the growth of private securityfirms and private military firms in Africa andelsewhere. Businesses operating in unstable areas oftenemploy “traditional” private security forces to protectcommercial operations and investments, especiallywhere public security is unreliable, implicated inhuman rights abuses, or used for other purposes.Intentionally or not, these forces can aggravate armedconflict and its consequences, such as by displacing orotherwise abusing local populations or engaging incombat. Examples include exactions committed bysecurity forces in Burma and Sudan to facilitate andsecure gas and oil exploitation and pipelines. In othercases, however, these forces may create an enclave ofrelative peace and prosperity.

Although a distinction needs to be made betweenlegitimate private security companies, hired bycompanies and concerned with crime prevention andpublic order (e.g., providing guard services or traininglocal police), and private military companies (PMCs),hired by states to provide operations of a militarynature, this distinction is often ambiguous. ExecutiveOutcomes operated as both a “security” and “military”company, for example. Other PMCs, such as MPRI,provide training to national militaries—albeit, often toprotect oil infrastructure.

Central to the concern about PMCs is their lack ofaccountability and their potentially negative impact onpeace, stability, and human rights. Exe c u t i v eOutcomes, Defence Systems Limited, SandlineInternational, and Saladin Security, by disregarding

ethical issues in favor of trade and business interests,have been implicated in acting as brokers, supplyingweapons to armed groups who have perpetrated someof the worst abuses in Africa, as well as themselvescarryout out human rights violations. Offering militaryassistance and weapons to international clients directlyrelates to the proliferation of illegal arms trafficking toconflict areas.

Through shareholding or sitting on the corporateboards of so-called junior mining companies(American Mineral Fields, Branch Mining,Diamondworks), some PMCs have transformed theirmilitary services into highly profitable commercialventures, receiving payment from client governmentsin the form of below-market concessions for theirassociated firms. Unlike mercenary groups of the 1960sand 1970s, these companies are, according to KareenPech and David Beresford, “not just guns for hire, but‘the advance guard for major business interestsengaged in a latter-day scramble for the mineralwealth of Africa.’”74

Yet some observers have argued that disciplined PMCs,subject to national or international oversight, mayprovide and alternative to public security that neitherthe domestic government nor the internationalcommunity are willing to provide in the form ofpeacekeeping missions.

A more recent development in the “commercializationof conflict” is the role taken by regional armies tosecure mineral wealth, many of which are paid—andsome would say motivated—by organized loot andnatural resource extraction. The commercial activitiesof regional armies involved in the conflict in the DRC(e.g., Angola, Zimbabwe, Uganda, Rwanda) or SierraLeone (Liberia) are marginalizing the role of PMCs.75


There has been marked development of internationallegal prohibitions on mercenary activities and obliga-tions upon states to legislate against such activities.

7 4 K. Pech and D. Beresford, “Corporate Dogs of War Who Grow Fat Amid the Anarchy of Africa,” The Observer, January 19, 1997, p. 19.75 See for example, the UN Panel of Experts on the Illegal Exploitation of Resources from the DRC; and Global Witness, “BranchingOut: Zimbabwe’s Resource Colonialism in Democratic Republic of Congo,” February 2002.



But according to International Alert, “there arecurrently still no instruments that go far enough toprohibit mercenary activity as part of customaryinternational law,”76 nor are private military companiesadequately covered by existing legal instruments.

International

• The UN International Convention Against theRecruitment, Use, Financing, and Training ofMercenaries (1989) was drafted to protect statesfrom the unlawful use or threat of force againsttheir political independence and territoriali n t e g r i t y. It is the only international instrumentapplicable to both mercenaries and privatemilitary companies, though it does not banmercenarism outright, only those activities thatundermine a state’s political stability or territoriali n t e g r i t y. Likewise, it is limited in its scope,applying only to the country where mercenaryactivities take place, not to those countriesviolating its principles. The convention has notentered into force, but it does provide a minimumstandard for national legislation.7 7

Regional

• The OAU Convention for the Elimination ofMercenarism in Africa (1977, entered into force in1985) is the only international instrument in forcespecifically applicable to mercenary activity. TheOAU convention is intended to complement theUN international convention, but is in factsuperior to it in many respects, including: definingthe elements of the crime of mercenarism ratherthan only prohibiting the recruitment, use,financing, and training of mercenaries; convertingpreambulatory principles of the internationalconvention into substantive provisions; anddefining the criminal responsibility of states andtheir representatives. The OAU convention is

rarely enforced, however; many signatoriescontinue to violate its principles. It does not applyto private military companies, nor includecorporate criminal responsibility.7 8

National

While several countries have domestic laws governingmercenary activity, few of these states have legislationrelevant to private military companies. According toInternational Alert, there are four general categories ofnational legislation: “those passed to 1) controlmercenary activities in response to the requirements ofneutrality laws; 2) deal directly with mercenaries andmercenary activity; 3) regulate the provision of foreignmilitary assistance as opposed to merely regulatingmercenary activities and direct participation inconflicts; and 4) regulate military services within armsexport control systems.”79

• South Africa’s Regulation of Foreign MilitaryAssistance Act (1998), the third category ofnational legislation above, was enacted in responseto the continued involvement of South Africanmercenaries in African wars, most notoriouslyE xecutive Outcomes. The act carries punitivemeasures and applies to both individuals andPMCs engaged in mercenarism, defined simply as“direct participation as a combatant in armedconflict for private gain,” within South Africa andabroad. Foreign military assistance is notproscribed, but falls under the licensing andauthorization of a separate government body alsoresponsible for approving arms exports. Despite itsextraterritorial nature and inclusion of PMCs, theact has been criticized as more symbol thanactualdeterrent. Few companies have registered and fewcontracts have been licensed.

• U.S. private military companies are regulatedwithin its arms export control systems and are thus

76 Chaloka Beyani and Damian Lilly, “Regulating Private Military Companies: Options for the UK Government,” International Alert,2001, p. 27.77 Ibid., p. 24.78 Ibid., p. 25.79 Ibid., p. 28.



licensed through the same process as companiesseeking contracts to supply arms or other militaryequipment to foreign governments. These transac-tions are governed by the International Traffic inArms Regulations (ITAR), part of the U.S. ArmsExport Control Act of 1968. According toInternational Alert, “the ITAR is . . . probably themost developed and comprehensive regulation

system [capturing] the activities of most privatefirms in the US supplying defence servicesabroad.”80 Under ITAR, there is a “presumption ofdenial” for the provision of military services if theywould lead to a “lethal outcome.” Effectively, thismeans that PMCs should not be allowed to engagein or train others for direct combat. However,determinations of this nature are often ambiguous.

80 Ibid., p. 32.



Customs Controls and Air andMaritime Transport Regulations

Unlike other sections of this document, where the unitof analysis is the type of resource flow, this sectionfocuses on a primary means by which nonmonetarycommodities enter into or exist within conflict zones.

Much of the resource flows to conflict zones take placeacross increasingly porous international borders andamid greatly increased levels of licit trade. Some haveto reach remote areas without land transportinfrastructures via air. Others may rely on questionableinternational shipping practices to conceal their origin,destination, or contents. Customs and the regulation ofair transport thus play a key role in any regulatoryframework. However, national customs agencies andtransport systems are generally under budgetaryconstraints as well as vulnerable to corrupt practiceseven in the absence of conflict.

There are few government agencies in which inherentpreconditions for institutional corruption exist soreadily as customs. The combination of administrativeautonomy, discretionary decision, and availability ofhuge bribes strains even the most developed countries’customs agencies, but is overwhelming to a countrywhere civil servant pay is low and few systems ofcontrol or accountability are in place. Almost everycountry with an advantageous geographical locationfor international trade and relatively weak enforce-ment capabilities has experienced significant corrup-tion in its customs agency.

Conflict areas are poorly suited to the regulation ofresource flows and international assistance, in terms ofboth “assisting” the regulatory environment (such aspreshipment customs controls in the most reliablecountries) and direct assistance (such as air trafficmonitoring capacities in poor countries). This problemis significant, as illegal export of goods destabilizescountries of destination whether or not they are subjectto sanctions. States that are incapable of regulatingtheir exports are equally unable to stop illegal imports,

which undermine local human security and business,and threaten the stability of states that have recentlyemerged from conflict. States with porous borders arealso ideal transit points for illicit goods. All of thesefactors have direct and indirect economic costs for thehost state and undermine international efforts toenforce sanctions and national laws to prevent illegaltrade.

Illicit Use of Air and Maritime Transport81

The use of aircraft is essential in transporting illicitcargoes into and out of conflict zones. Areas in conflictare an ideal base for highly visible illicit operations,especially transport of large aircraft and weapons.Arms produced in Eastern European countries likeBulgaria are being flown to conflict destinations inAfrica. One of the largest transgressors is Liberia,where regional air surveillance is virtually nonexistent,and where corrupt aircraft registration practicesprovide an ideal air base for illicit activities. Liberiaserved as an air supply base and diamond transit centerto the RUF in Sierra Leone for most of the 1990s. Tocite one example, a private businessman known asVictor Bout, a well-known embargo breaker in Angolaand the DRC, directs a network of fifty planes, fromcargo charter and freight companies, involved intransporting illicit goods. Bout uses the Liberianaviation register, while operating out of the UnitedArab Emirates’ Sharjah Airport, which is used as a basefor planes registered in other countries. Although somecountries have begun to refuse airspace to Liberian-registered planes, they remain highly visible in manyAfrican countries with conflicts, where the criminaltransport network operates with little interference.

Meanwhile, according to the UN Panel of Experts onLiberia, revenue accrued from the widespread (mis)useof Liberian “flags of convenience” by shippingcompanies has been diverted toward purchasingweapons, despite the UN-imposed arms embargo.Elsewhere, Sri Lanka’s LTTE owns and operates(through various front companies) a fleet of at least tenfreight ships, traveling mostly under the flags ofPanama, Honduras, and Liberia, countries all known

81 See UN Panel of Experts Report on Sierra Leone (December 2000), special section on air transport.


Customs Controls and Air and Maritime Transport Regulations44

for lax registration requirements. While this maritimenetwork carries legitimate commercial goods 95percent of the time, its 5 percent share in the illicitshipping market enables it to procure and transportarms, ammunition, and other matériel from around theworld to Sri Lanka. 82


The potential of corruption to infiltrate customs and airtransport systems has been recognized and addressedby leading intergovernmental organizations such asthe World Customs Organization (WCO), which assistsmember countries to promote effective action againsttransnational crime; and the International CivilAviation Organization (ICAO), which seeks to preventillicit interference with international civil aviation.These organizations understand their frontline positionin stopping illicit trafficking and are trying to promoteethical reform and implementation assistance.Likewise, they have contributed knowledgeable andinfluential staff to the UN Experts Panels. Nonetheless,many of their efforts are currently undermined becauseof the weak infrastructure of states (an infrastructurethat may be nonexistent in the case of air trafficmonitoring), and because of the nonaccessibility ofrogue countries such as Liberia that serve as bases forillicit transport activities.

International

• The Convention for the Unification of CertainRules for International Carriage by Air (1999),which modernized and consolidated the 1929Warsaw Convention (Unification of Certain Rulesfor International Carriage by Air), applies to allinternational carriage of persons, baggage, andcargo performed by aircraft for reward.

• The multilateral World Customs Organizationestablishes recommended standards to harmonize

national customs systems and procedures, providestechnical, legal, and methodological assistance oncustoms enforcement, and encourages cooperationand information sharing, including best practices.Its functions are predominantly aimed at facili-tating and promoting international trade, though itis apprised of the role of customs in combatingcross-border crime and has taken a number ofsteps to address this issue. The Arusha Declarationon Integrity in Customs (1993) contains provisionsto prevent corruption and to increase the level ofintegrity among member administrations. TheModel Code of Ethics and Conduct (2000) is aprimer to be used by members to upgrade anddevelop improved ethical codes of conduct.83

• Specific measures of UN Security Council resolu-tions deal with air and maritime transport, such asResolution 1343 (2001) on the grounding of allLiberian-registered aircraft, which appears to havebeen effective means of limiting traffickingopportunities. The UN Panel of Experts on Liberiarecommended against the imposition of sanctionson the Liberian corporate and maritime registry,instead suggesting the establishment of an interna-tionally supervised escrow account for theearnings of the Liberian shipping and corporateregistry.84

• One prospective means of enforcement worthfurther attention concerns that of insurancecoverage for the shipping and air transportindustry. It has been suggested, notably by UK-based international lawyer Jeremy Carver, thattransport companies implicated in the smugglingof arms, narcotics, or other commodities lackingproper export certification have their insurancerevoked, greatly increasing the cost of transship-ment. (This could be extended to holding account-able financial institutions that provide services forthese transactions.)

82 Peter Chalk, “Liberation Tigers of Tamil Eelam’s (LTTE) International Organization and Operations—A Preliminary Analysis,”commentary no. 77, Canadian Security Intelligence Service, 2000.83 World Customs Organization, http://www.wcoomd.org/ie/index.html (September 3, 2002).84 Report of the Panel of Experts pursuant to Security Council resolution 1343 (2001), paragraph 19, concerning Liberia (October 26,2001), via http://www.globalpolicy.org/security/natres/docsindex.htm, (March 20, 2002), paras. 56–59.


Customs Controls and Air and Maritime Transport Regulations 45

Conclusion

The legal and regulatory tools identified in thepreceding sections are by no means comprehensive,nor do the brief overviews of the resource flows identi-fied capture the full range and depth of the economicbehavior that accompanies, shapes, sustains, and oftenoutlasts conflict. Nonetheless, from these examples,valuable conclusions can be drawn concerning theinternal and external challenges to existing andemerging legal and policy responses to controlresource flows to and from armed conflict. Theseconclusions fall into two categories: those highlightingcharacteristics of war economies that pose challengesto control efforts, and aspects of control regimes thatthemselves complicate effective enforcement.

• Efforts to curtail the profitability of illicit economictransactions in which combatants and their supportnetworks engage (and thus shift the incentivestructure from the pursuit of conflict to that ofpeace) are unlikely to fully halt resource flows.M o r e o v e r, even if they can substantially reducethese flows, they are unlikely by themselves toensure peace. Although they can increase thetransaction costs to belligerents, even the mosteffective policy responses are ultimately likely tohave diminishing returns, as existing activities aredriven underground, new illicit activities andnetworks fill the void, and new means develop toevade detection. Likewise, cutting off resource flowscannot substitute for more concerted efforts by theinternational community and other actors to addressthe grievances or motivations underlying conflict,as through poverty reduction, more accountable andtransparent governance, and equitable distributionof resources in unstable countries.

• The lack of a clear distinction between “illicit” and“licit” activities or resources complicates controlefforts. Certain activities are clearly illegal undernational or international law, but other transac-

tions are more ambiguous, particularly at themargin between legitimate financial or commercialenterprises and black market smuggling orbrokerage networks. While many of these transac-tions occur through informal channels, they arenot expressly “illicit” until defined as such. Naturalresources gain access to the international marketthrough multinational corporations, which, whileperhaps engaging in questionable transactions, arelegally doing nothing wrong. Certification regimes,like the Kimberley Process on rough diamonds,offer one means of stemming illicit economictransactions while preserving legitimate economicactivity by states and private-sector actors, andmore narrowly defining the difference. Likewise,the current state-centric international system hasdefined a priori trade with rebel groups as illicit,whatever the legitimacy of these groupsthemselves; trade with a national governmentengaged in a civil war is legitimate (provided it isnot subject to international sanctions). Therefore,the case of corrupt governments that buy armswith concessions, royalties, and other rents paid bymultinational corporations is a matter of nationalsovereignty and self-defense. To date, there hasbeen no consensus on which types of economictransactions actors should be held accountablefor—though such normative expectations areclearly emerging.

• Initiatives that target the supply side of resourceflows, as through prohibition, may increase ratherthan decrease the incentive—and profitability—ofengaging in illicit activity, negatively affecting notonly the prospects for peace, but also humanitarianconditions.85 In some cases, this problem may beremedied through legalization of certain activities,albeit with some measure of regulation. Bothexisting and emerging efforts to curtail resourceflows to conflict zones therefore require a morecareful analysis of their efficacy in shifting theeconomic incentives of combatants from war topeace relative to their potential consequences.

85 In Afghanistan, for example, attempts to eradicate opium are driving up the price, thereby increasing incentives for expandedcultivation, while simultaneously strengthening the hand of regional warlord factions who control trafficking routes andundermining the central government and international efforts at peacebuilding. (S. Lautze et al., Qaht-e-Pool “A Cash Famine”: FoodSecurity in Afghanistan 1999-2002 , Overseas Development Institute (ODI), May 2002, p..21).


Conclusion46

• National strategies continue to provide the mostrobust means of combating illicit activities relatedto armed conflict. This strength is primarily due tothe jurisdiction of states—they not only remain thekey actors in international relations, but also havethe authority to create, modify, and implementlegislation and policy, to allocate (where available)necessary fiscal resources, and to mobilizeadministrative, policing, and judicial capacities—within their national territory.

• The transnational nature of conflict resource flowsmeans that national strategies alone are inherentlyinadequate. Resource flows to and from conflictzones take place across increasingly porousinternational borders, amid greatly increasedlevels of licit trade, and involve multiple jurisdic-tions. Illicit transactions are difficult to identify,let alone prevent, amid the total volume of globaltrade and financial transactions. Globalizationl i kewise has facilitated the ability of combatantsand war profiteers to establish connections withregional and international criminal and broke r a g enetworks, as well as licit commodity markets andfinancial institutions. Thus war is easier to sustainand more profitable for a growing number ofactors. These international support networks existthrough the complicity of warlords and nationalarmies, local smugglers and multinationalcorporations, and heads of state and overseascommunities in the industrialized North and theglobal South. Moreover, globalization has enabledthe diversification of economic activities (as wellas political and military activities) and, perversely,the proliferation of means by which to evadeenforcement efforts. Regardless of the resourceflow concerned, the most effective policyresponses appear to be those that have horizontalcooperation (i.e., intra- or interregional coopera-tion, as in the case of the SADC-EU initiative onsmall arms) and vertical cooperation (i.e., betweenglobal, [sub]regional, and/or national levels, as inthe case of the complementary regimes againstnarcotics-related money laundering in theAmericas). This is particularly true when institu-tions are specifically mandated to share informa-tion and provide technical assistance among

members (e.g., regional police associations,financial intelligence units, mutually monitoredarms export regimes) or when such arrangementsfacilitate exchange between supplier countries,countries of transit, and markets. The effectivenessof these efforts remains subject to the capacity notonly of the institution, but also of its constituentm e m b e r s .

• Efforts to combat the illicit transactions and actorsmost directly implicated in the perpetuation ofarmed conflict will require reform of localeconomic and political governance. But developingthese capacities must also be accompanied by morelong-term and far-reaching structural reform ofthe international aid, trade, and financial systemsthat facilitate such behavior. This will requirecomplementary efforts by member states, interna-tional financial institutions, regional organiza-tions, as well as private-sector actors. It will alsorequire the formation of an integrated strategy thatcombines both economic development andinternational peace and security.

• Paradoxically, those multilateral initiatives that aresufficiently specific in their definitions of illicitbehavior tend to be voluntary in nature, whereasthose that are legally binding tend to beambiguous, lack adequate transparency of process,monitoring, and mutual evaluation, or fall short oneffective compliance and enforcement.International treaties in particular suffer from alack of national enforcement. This suggests thatwhile stricter, unambiguous, and commonstandards of what constitutes illicit or criminalactivity need to be developed, ensuring compliancewith legal regimes codifying such standards islikely to become more difficult. However, as theFATF demonstrates, when backed by mutualenforcement and credible threat, multilateralinitiatives may be able to pressure member andnonmember states to comply with specific princi-ples if the incentive structure is right. The growinginfluence of the FATF—and the formation of thesimilar CFATF—demonstrates that the mosteffective global solutions may often in fact beregional.


Conclusion 47

• In comparison with global approaches, regionalefforts, particularly by regional or subregionalorganizations, have the potential to betterinfluence the political economy of armed conflicts.Regional actors are more likely to be aware of theeconomic as well as the political dynamics ofneighboring conflicts; states bordering armedconflict are directly affected by refugee flows, byarmed groups operating across national borders,by the loss of legitimate regional and internationaltrade and investment, by the corresponding growthof illicit trade, as well as by the unintendedconsequences of international invention. Regionalinterventions that have ownership of those statesmost directly affected by conflict should improveboth their design and their likelihood of enforce-ment by member states, while at the same timebeing mindful of the impact of such efforts on theirown security. Nonetheless, regional efforts may becomplicated by local interests, either public orprivate, which may be complicit in and profitingfrom illicit activity, rendering control effortsineffective.

• Implementation and enforcement of internationaland regional initiatives depends on the ability andwill of states to implement these agreements—totackle issues of supply, transit, and demand withintheir national borders (or by their nationalsoperating extraterritorially). The lack of capacity(whether institutional, financial, or technical) ofmany states to police their borders, maintaineffective export/import regimes, monitor theirfinancial systems, combat corruption, effectivelydesign, implement, and enforce legislation, letalone coordinate these myriad activities, is mostclearly a challenge for developing countries, butalso for developed countries. Above all, conflictand postconflict states are poorly suited to control-ling illicit resource flows (due to weake n e dadministrative, judicial, and policing capabilities,criminalization of the economy, the complicity andself-interest of authorities, the development ofalternative survival strategies, etc.). Indeed, theinstitutional limitations facing these states may beso overwhelming that their individual actions areinconsequential, making multilateral and bilateral

agreements a necessity. The lack of adequateresources at the state and consequently theregional level can become a problem of interna-tional dimensions, as these areas risk attracting orbecoming havens for illicit activity. Countries andmultilateral organizations with the availablefinancial and technical resources need to assistdeveloping countries in improving their legalinfrastructure and law enforcement capabilities,including their coordination across nationaljurisdictions, through information sharing,training of customs officers, law enforcementagencies, judiciary, and financial regulators, andthe provision of mutual legal assistance. Manycountries have outdated laws, often stemmingfrom a failure to adequately recognize the extentof the problem, or from insufficient expertise in theformation of new laws, or from corrupt officialswith a vested interest in ineffective laws who arethus resistant to change. Even where good legisla-tion exists, compliance by targeted institutions isoften minimal and overlooked by regulatoryagencies.

• National, regional and international policyresponses have developed rapidly over the last fiveyears in response to the increased security threatposed by transnational criminal activities, and postSeptember 11, in response to the threat of interna-tional terrorism. Many of these initiatives are stillnascent—those targeting sanctions busting, illicitexploitation of natural resources in conflict zones,and arms brokering, for example. Others buildupon already well-developed policy arenas,notably combating narcotics, money laundering,and international terrorism. Yet even where highlydeveloped and effective, they remain limited andare not equally robust across all states or regions,leaving open many havens for illicit activity.Ad d i t i o n a l l y, where existing regulatory effortshave proven successful in particular areas—combating money laundering from narcotics, forexample—this success has often not beentranslated into strategies for combating relatedactivities—such as tracing proceeds from ill-gottengains from looting or grand corruption. At thenational level, this is due in part due to the


Conclusion48

separate jurisdictions of government agenciesresponsible for implementing national laws and,by extension, multilateral treaties (inter aliaimmigration, customs, financial supervision,judiciary, and police). Often, the prioritization oflimited resources—including political capital—means that national governments will avoid“nonessential” issues. For example, governmentsmay freeze assets or block financial transactions ofterrorist or rebel groups that jeopardize their ownnational interests, but tolerate those that do not,including turning a blind eye to money launderingby corrupt but “friendly” governments. Problemsof coordination are equally present for multilateralenforcement agencies and technical assistanceproviders; coordination between the UN, Interpol,the World Customs Organization, and theInternational Civil Aviation Organization onpreventing sanctions busting has only recentlybegun. Information sharing within and betweennational and multilateral bodies would be facili-tated through the establishment of “best practicesunits” in key agencies. Likewise, joint task forcesand/or strategic coordination units among theseactors to proactively target criminal activities havebeen effective in many cases, though such reformoften remains highly political or restricted byinstitutional capacity. In general, more emphasisneeds to be dedicated to coordinating the variousoverlapping control systems, both within statesand through multilateral agreements and conven-tions, to make them mutually reinforcing.

• Last, alongside the growing importance of nonstateactors in armed conflict, a new generation ofpolicy responses has arisen, marked by contractualinstruments and partnerships between donors,private companies, enforcement agencies, NGOs,and governments. Many of these emergingapproaches are being developed as a result of workby pressure groups and advocacy NGOs. Theycomplement not only the vast array of legal andregulatory measures, but also voluntary initiatives,particularly where private sector actors areconcerned. Purely voluntary measures, whetheraimed at states or nonstate actors, if operatingwithout the threat of legal or other enforcement,

have generally proven ineffective. In between exista range of public and private-sector measures thatare neither wholly voluntary nor explicitly regula-tory. These include so-called market approaches,including inter alia statutory and contractualrequirements, for example, by public and privatefinancial and insurance industries, securities ande xchange requirements, and the rewarding of“whistleblowers.” By reshaping incentivestructures to reward compliance, rather thanmerely penalizing criminal or illicit behavior, theseinitiatives may effectively address some of therespective shortfalls of both legal and voluntaryapproaches.

Toward an Overarching International Regime onConflict Resources?

The existing and emerging instruments examined inthis paper provide a legal and policy base for develop-ment of a more comprehensive global normative andregulatory framework for controlling the diverseresource flows to armed conflict.

Based on the demonstrated shortcomings of current adhoc approaches applied by the UN, other multilateralorganizations, and member states to interdict financialand resource flows that sustain armed conflicts, thereis a growing sentiment in some quarters that acoherent multilateral legal regime, likely UN-sponsored, is warranted. An international frameworkwould enhance both the authority and the capacity ofthe international community to sanction those whoseeconomic activities serve to support and/or exploitarmed conflict. In principle, such a regime would startwith an explicit focus on the legal obligations of stateparties to relevant existing conventions to situations ofarmed conflict; second, it should serve to tightenambiguous or insufficient definitions, legal require-ments, and enforcement mechanisms; and third, itshould seek to create new obligations to coverpreviously neglected aspects of economic behavior inarmed conflict.

The formation and implementation of an overarchinginternational convention on economic behavior inconflict will face several critical obstacles. First, the


Conclusion 49

political requirements of developing an internationalagreement are significant. Consensus must be securedamong diverse states—and possibly nonstate actors aswell—on three critical questions: What type of behaviorshould be included—economic predation by combat-ants (looting of civilians, exploitation of naturalresources, expropriation of humanitarian aid), “white-collar crime,” private-sector operations? Over whichactors should the agreement have jurisdiction—stateand nonstate combatants alike, brokers and shippingagents, corporations? Under what circumstancesshould these principles apply? Second, even ifconsensus is reached on these issues, enforcement of aglobal regime faces numerous challenges, not least ofwhich are the vested—and often highly lucrative—interests of states themselves.

While an enforceable regime may be a long way off,this does not preclude the development and promotionof international norms on resource flows in armedconflict. Existing legal precedents, applicable interna-tional norms, and a variety of institutions, includinginternational human rights conventions, internationalhumanitarian law, the Convention for the Suppressionof the Financing of Terrorism, the Convention AgainstTransnational Organized Crime, the UN Conference onthe Illicit Trade in Small Arms and Light Weapons, the1988 Vienna Convention, the Expert Panels andMonitoring Mechanisms of the Security Council, andthe UN Global Compact provide the basis forproscribing certain economic activities and for thebetter regulation of such activities in situations ofarmed conflict. These norms are already instrumentalin shaping criminalization at the national level.L i kewise, the significant progress of regional andsectoral initiatives covering various illicit resourceflows represent building blocks toward a broader,more comprehensive international approach. The

achievements of the FATF in combating financialcrime and of SADC, working in cooperation with theEU, on small arms, demonstrate the merit ofapproaches that can more directly develop consensusat the national and regional levels, but that may beglobally relevant. Even voluntary measures may carrya strong normative weight, as demonstrated by theU.S.-UK Voluntary Principles on Security and HumanRights, which are being implemented by a growingnumber of companies with the support of their homeg o v e r n m e n t s .

The UN can and should play a leadership role in callingupon states to apply these obligations more proactivelyto cutting off resource flows to conflict. Through itsconvening power, it should build upon subregional andregional efforts to forge broader internationalnormative consensus on what constitutes illiciteconomic activity in conflict zones. In this way, it canfoster gradual emergence of an internationalframework that will both reinforce existing efforts, andbe extended to those regions lacking effective regionalorganizations. A systematic, analytical effort toidentify the shortcomings of the various relevantexisting instruments should be undertaken with an eyetoward strengthening them, or, in the case of gaps,filling them, through the use of optional protocols. Thiscombination of legally binding conventions andsanctions, nonbinding guidelines, and platforms foraction would provide the legal basis for more effectivemultilateral treaties addressing specific resource flowsin armed conflict, including perhaps the illicitexploitation of natural resources in armed conflict. Inthe long term, initiatives against illicit economicbehavior in armed conflict might be brought under asingle overarching convention, as is currently beingconsidered for the numerous UN conventions oninternational terrorism.


Conclusion50

ABOUT THE PROGRAMEconomic Agendas in Civil Wars (EACW)

Senior Associate: Karen Ballentine [email protected] Program Officer: Jake Sherman [email protected] Officer: Heiko Nitzschke [email protected]: September 2000-December 2003

Initiated in September 2000, the EACW program follows from a conference held in London in 1999, whichproduced the seminal volume, Greed and Grievance: Economic Agendas in Civil Wars, Mats Berdal and David M.Malone (eds.) (Lynne Rienner Press: Boulder, 2000). The program addresses the critical issue of how theeconomic agendas of armed factions sustain violent conflict and inhibit durable peace, while also assessing therole of globalization in creating new opportunities for combatants to finance their military operations. Thishitherto under-developed field of research holds particular promise of policy relevance for those internationaland national actors seeking more effective strategies for both conflict prevention and conflict termination.

Beginning with an overall commitment to durable conflict resolution, the broad aims of the program are:

• to improve understanding of the political economy of civil wars through a focused analysis of the economicbehaviors of competing factions, their followers, and external economic actors in conflict zones;

• to examine how globalization shapes the economic interests of belligerents as well as creates new opportu-nities for competing factions to pursue their economic agendas through trade, investment and migrationties, both legal and illegal, to neighboring states and to more distant, industrialized economies; and

• to evaluate the effectiveness of existing and emerging policy responses used by external actors, includinggovernments, international organizations, private sector actors, and NGOs, to shift the economic agendas ofbelligerents from war towards peace and to promote greater economic accountability in conflict zones.

Policy research and development proceed along two tracks: four expert working groups (Advisory Group, Wo r k i n gGroup on Economic Behavior of Actors in Conflict Zones, Private Sector Working Group, and Policies and PracticesWorking Group) and commissioned research. Case studies have been commissioned on the political economy ofconflict in Burma, Bougainville (PNG), Colombia, Kosovo, Sri Lanka, and West Africa and will be published in anedited volume (Lynne Rienner Press, forthcoming). A second volume of analytic studies assessing policy responsesto the economic dimensions of armed conflict is being commissioned. Other products include periodic meetingreports, policy briefs and background papers, which are available electronically on our website (details below).

Policy development also involves on-going consultations with international experts and practitioners, academicconferences, and workshops and briefings that bring together relevant UN actors, governments, private sectoractors, and NGOs. As part of a continuous outreach effort, the program has engaged in several partnerships,including the Fafo Institute of Applied Social Science (Oslo); the Institute for Security Studies (Pretoria); theWoodrow Wilson International Center for Scholars (Washington, DC); the International Institute for StrategicStudies (London) and the World Bank’s Development Research Group (Washington, DC). We have also built avirtual network of experts and policy practitioners through sponsorship of an electronic list-serve,[email protected].

Acknowledgements:The program on Economic Agendas in Civil Wars enjoys the generous support of a number of donor states and privatefoundations, including: the Canadian Department of Foreign Affairs and International Trade (DFAIT), the CanadianInternational Development Agency (CIDA), the Department for International Development (DFID) of the UnitedKingdom, the International Development Research Center (IDRC), The Government of Norway, the Government ofSwitzerland, the Government of Sweden, the Rockefeller Foundation, and the United Nations Foundation.

More information on program events and all of the program reports are available on the program website athttp://www.ipacademy.org/Programs/Research/ProgReseEcon_body.htm>

International Peace Academy777 United Nations PlazaNew York, NY 10017-3521Tel: (212) 687-4300Fax: (212) 983-8246www.ipacademy.org

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