Archive for July, 2012


Obama solves his quandary?

As late as a week ago, US President Barack Obama continued to shy away from a closer American involvement in the ongoing Syrian civil war.   He relied on a United Nations peace plan that was repeatedly stymied by Russia and China, permanent members of the UN Security Council.  He is aware that the American public does not want to get entangled in yet another war in the Middle East.  And in an election year, he has to be particularly careful.  This may be the reason the US played second-fiddle to NATO, France and Britain in the overthrow of the Khaddafi regime in Libya.

The most recent poll figures released by CBSNEWS (http://www.cbsnews.com/8301-503544_162-57475178-503544/obama-romney-in-dead-heat-in-presidential-race/) should give Obama cause to pause and ponder.

Obama on the stump

The story reads:  “President Obama and Mitt Romney are effectively tied in the race for the presidency, according to a new CBS News/New York Times survey.

Forty-seven percent of registered voters nationwide who lean towards a candidate back Romney, while 46 percent support the president. Four percent are undecided. The 1 percentage point difference iss within the survey’s three-point margin of error.

Romney leads by eight points among men; the president leads by five points among women. 

Republican Party standard-bearer Mitt Romney

The president’s supporters are more likely to strongly back their candidate. Fifty-two percent strongly favor Mr. Obama, while just 29 percent of Romney voters strongly back the presumptive Republican nominee”.

While the polled voters considered Obama to be better than Romney in foreign policy (47 percent to 40 percent),  a less complicated international environment would be best for a president seeking the voters’ approval anew.  One other thing, this is the first time Romney caught up in the surveys despite weeks of blistering ads against his personal wealth, his role in Bain Capital, a private equity firm that supposedly outsourced jobs overseas at a time when Americans were suffering from severe unemployment, and his reluctance to reveal tax returns on any year while he supposedly was making hay at Bain.  For more details on the Bain issue, read this story from Time magazine

http://www.time.com/time/magazine/article/0,9171,2119903,00.html?xid=newsletter-weekly

Obama and Netanyahu

We remember Obama’s efforts earlier this year to cool Israel’s Prime Minister Benjamin Netanyahu’s readiness to attack Iran’s nuclear reactors.   Any ratcheting up of the Iran situation will, among other things, cause a global spike in oil prices–endangering the tentative US economic recovery and torpedoing his chances at re-election. 

Syrian President Bashar al-Assad

Recent developments in Syria, including the strengthening of the Syrian rebel forces and the death of four of Syrian leader Bashar al-Assad’s closest associates (including his brother-in-law), may have persuaded Obama to change tack.   Heckling from the Republicans and the American right may also have had some effect.  For one, Romney declared he will arm the Syrian rebels.

It looks like the Syrian rebels now have a better chance to prevail in the ongoing Syrian civil war.  Up to this writing, they have been contemptuous of American caution and were praising Turkey and Qatar as their reliable allies.  They may yet change their opinions about the US.

Rebels in Idlib province, Syria

A new US policy on the Syrian crisis was publicly announced in a news article published by the New York Times last 21 July 2012 (http://www.nytimes.com/2012/07/22/world/middleeast/us-to-focus-on-forcibly-toppling-syrian-government.html?pagewanted=1&_r=1&ref=middleeast).   A truncated version of the article is in today’s issue of the Philippine Daily Inquirer.  

A summary: abandonment of the diplomatic tack and the formation of a coalition of  like-minded countries  to forcibly bring down Assad’s government.

The named coalition members:  US, Israel, Qatar, Saudi Arabia, and Turkey.

Key concerns:

  • Syria’s chemical weapons
  • Negative reaction to Israel’s participation in Assad’s ouster
  • Broad representation in post-Assad government (Alawites, Sunnis, and Christians) 

Will Obama’s gamble pay off?  Will Assad’s ouster insure his return to the White House?

The same NYT story quotes Andrew J. Tabler, a Syria expert at the Washington Institute for Near East Policy, who said: “We’re looking at the controlled demolition of the Assad regime.  But like any controlled demolition, anything can go wrong.”

Even a victory in Syria might not convince American voters grappling with an unemployment rate that remained flat at 8% for several months to date to vote for Obama.  


As I have noted earlier, death is an ordinary occurrence.  For instance, two days of fighting in Syria since Friday left more than 470 people.
Death through self-immolation, however, is extra-ordinary.  
On 11 June 1963, Buddhist monk Thich Quang Duc, burned himself to death on a busy Saigon street to protest

Thich Quang Duc’s self-immolation

the persecution of Buddhists by the South Vietnamese government of President Ngo Dinh Diem.    Duc’s courageous act triggered international pressure on Diem to reform.  However, Diem simply temporized and continued to terrorize the monks.  Several monks followed Duc’s example, also immolating themselves. Eventually, a military coup toppled Diệm, who was assassinated on 2 November 1963.

The most famous self-immolation in 2010 was that of Mohamed Bouazizi, the despondent vegetable vendor, whose death led to the ouster of Tunisian president Zine El Abidine Ben Ali.  Tunisian protests inspired similar actions throughout the Arab world–a phenomenon known as the Arab Spring. 

Mohamed Buoazizi

The Arab Spring overshadowed protests which begun in July 2011 in Tel-Aviv, Israel collectively known as the ‘social justice’ protest movements.  Soon, the protests spread to Jerusalem and other major Israeli cities.  The political actions involved hundreds of thousands of protesters from diverse religious and socioeconomic backgrounds opposing the continuous rise in the cost of living (especially housing) and worsening public services (health and education). 
The Israel protest movements were soon weakened by a split.   As a result, two separate social justice demonstrations were held in Tel-Aviv on July 14, 2012, to commemorate the first anniversary of the movement.

Moshe Silman in Haifa

Yesterday, Israel was rocked by news that J14 activist, Moshe Silman from Haifa, finally succumbed to his second- and third degree burns after setting himself on fire last week.  Silman was once  a small business owner who got suffocated by a grinding debt, to the point of homelessness.  Apparently, Silman burned himself to mark the anniversary of the protest movements. 
According a Sunday afternoon report of PressTV, Iran’s television network, another Israeli man has set himself on fire in the city of Yehud, two days after Silman died of burns.  The 45-year-old disabled man self-immolated at a bus stop in Yehud, about 15 kilometers (9 miles) east of Tel Aviv.  The identity and circumstances of the man are unknown as of this writing.
It may be too early to predict how these two self-sacrifices will affect the Israeli protest movements.  However, it may be safe to say that the movements cannot be unaffected by the developments.  Already, many Israelis are carrying posters which read “We are all Moshe Silman”,  a copy of a familiar meme from the Tahrir Revolution last year.  
In Moscow, meanwhile, three young women belonging to the all-women punk-rock group naughtily named Pussy Riot, had been ordered to stay jailed for six more months.

Pussy Riot in an outdoor performance

 

 

 

The three–Yekaterina Samutsevich, Nnadezhda Tolokonnikova, and Maria Alekhina–together with an unidentified Pussy Riot member performed in Pussy Riot’s signature miniskirts and balaclavas a raucous song against Russian President Vladimir Putin on the altar of the Cathedral of Christ the Saviour, Moscow’s most important church, last February 2012.  The three were arrested after the performance and had been held in custody since then.  If sentenced, they could sent to prison for seven years.

 

 

 

Samutsevich, Tolokonnikova, Alekhina

The criminal prosecution of the three women rests on the notion that their performance incited religious hatred.  Witnesses were presented in court and said they have suffered moral damage as a result.  A cathedral security guard claimed he had trouble sleeping after the Pussy Riot performance.  Lawyers for the witnesses also claimed that the Pussy Riot performance unleashed a wave of extremism.

Pussy Riot three behind bars

 

 

 

 

 

Today’s The Guardian report that supporters of the three believe that the Russian Orthodox Church, which is close to Putin, is behind the campaign to keep them in jail.  Another prominent dissident warned of some kind of ‘Orthodox Taliban’.

 

 

 

 

So, is it a case of religious desecration or an assertion of the freedom of political expression?

 

 

The answer is crystal clear.

 

 

The monk Duc, the vendor Bouazizi, the impoverished businessman Silman, and the Pussy Riot three–all wanted to communicate what was in their hearts and minds.  

 

They may have done so in dissimilar ways.   We may not approve of self-immolation and raucous performances on church altars.

Still, we must salute their courage and pray for the departed.


The corrupt innkeeper Thenardier

In the song ‘Master of the House’  from the musical Les Miserables, the corrupt innkeeper Thenardier first denies he was like other innkeepers who ‘rook their guests’ and ‘crook their books’.   In due course, however, he confesses to similar sins:

‘Ready to relieve ’em of a sou or two
Watering the wine, making up the weight
Pickin’ up their knick-knacks when they can’t see straight’

Looks like Thenardier’s modern counterpart is Robert Diamond, former chief executive officer of the British Bank–Barclays PLC, who resigned in early July 2012 as Barclays got heavily embroiled in scandals alleging LIBOR manipulation.  Apparently, he had help from colleagues within the bank.

Robert Diamond, former Barclays CEO

LIBOR, or the London Inter-Bank Offered Rate, is an interest rate at which banks can borrow funds from other banks in the London inter-bank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. The LIBOR is derived from a filtered average of the world’s most credit-worthy banks’ inter-bank deposit rates for larger loans with maturities between overnight and one full year.    The highest and lowest rates are thrown and the middle rates are averaged.  

The LIBOR is the world’s most widely used benchmark for short-term interest rates. It’s important because it is the rate at which the world’s most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus four or five points. 

Bank of England

Among the countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the United Kingdom.


Investigated by American and British authorities, Barclays was fined $450 million in June 2012 for the rate fixing.  Barclays had supposedly submitted false rates to improve its earnings and deflect concerns about its financial health.  The rate manipulations happened between 2005 and 2009, as often as daily.  Diamond joined Barclays in 1996 and was a member of the bank’s executive committee in 1997 until his resignation.  

Questioned in the British Parliament, Diamond claimed he was unaware of the LIBOR manipulation up  until recently.   He however revealed discussions with Paul Tucker, deputy governor of the Bank of England.  Not a few parliamentarians expressed dissatisfaction with his testimony.

A story (http://dealbook.nytimes.com/2012/07/16/former-senior-barclays-executive-faces-scrutiny-in-parliament/) in the July 16 issue of the New York Times reveals damning details.

Former Barclays COO Jerry del Missier

In testimony before Parliament, Jerry del Missier, former Barclays chief operating officer,  indicated that he had received instructions from Diamond to lower the rates, after the chief’s discussions with bank regulators on the matter.

In 2008, Diamond sent Missier and another senior executive an e-mail regarding the government’s concerns about the bank’s Libor rate submissions.  Diamond also discussed the issue with Missier by phone. 

The e-mail detailed a conversation between Diamond and Paul Tucker, deputy governor of the Bank of England, the country’s central

Paul Tucker, Bank of England deputy governor

bank. The two men discussed the bank’s financial position at the height of the financial crisis. After receiving the e-mail,  Missier instructed Barclays officials on October 29, 2008, to lower the bank’s Libor submissions in line with those of rivals.

In his testimony, Missier said he had acted in response to the conversation with Diamond. He said he believed that senior government officials had instructed the bank to alter the rates. Missier, however, did not speak to anyone at the Bank of England or other senior regulators about the issue.

“I expected that the Bank of England’s views would be incorporated into our Libor submissions,” Missier said during his testimony. “The views would have resulted in lower submissions.”

On the other side of the Atlantic, evidence was also unearthed that all is not well with LIBOR setting.  A report submitted by the Federal Reserve Bank of New York to the US Congress reads as follows:

“Among the information gathered through markets monitoring in the fall of 2007 and early 2008, were indications of problems with the accuracy of LIBOR reporting. LIBOR is a benchmark interest rate set in London by the British Bankers Association (“BBA”) under the broad jurisdiction of the UK authorities, based on submissions by a panel of mostly non-US banks. The LIBOR panel banks self-report the rate at which they would be able to borrow funds in the interbank money market for various periods of time. As the interbank lending markets dried up these estimates became increasingly hypothetical.

Suggestions that some banks could be underreporting their LIBOR in order to avoid appearing weak were present in anecdotal reports and mass-distribution emails, including from Barclays, as well as in a December 2007 phone call with Barclays noting that reported “Libors” appeared unrealistically low”.

A story from CNN last July 4, 2012 (http://edition.cnn.com/2012/07/03/business/barclays-diamond-resigns/index.html) explains the public uproar over the scandal.

Ralph Silva

LIBOR affects how much interest ordinary people pay on everything from credit card debt to home mortgages and student loans.

Former investment banker Ralph Silva says that is why the scandal has caused such fury.

“If they’re manipulating Libor, what they’re basically doing is taking money out of the public’s pocket, because their mortgage rates change, because their interest rates change, their loans/credit cards change — or their pension income changes,” he said.

The same CNN story reports that at least seven other banks are under investigation on suspicion of rate-fixing, leading to speculation that Diamond could be the first of many executives to resign.

Financial regulators in London have not named the banks, but Deutsche Bank, Royal Bank of Scotland, Credit Suisse and UBS have acknowledged that they are under investigation.

Citigroup and JPMorgan Chase have also confirmed that they are under investigation.

Will the government regulators be spared from these investigations?  If not, which body should investigate to ensure impartiality?

Peter Gumbel of the Time magazine raises a lot of questions in his July 16 article:

“Thanks to the New York Federal Reserve, we now know that both the Fed and the Bank of England could see and were being told that something was awry with the London interbank offered rate (LIBOR) already in late 2007. Yet it was several months before any regulator began an official inquiry into alleged manipulation of this key money-market rate, which is used as the basis for trillions of dollars of financial transactions around the world — and there appears to have been no serious attempt made to stamp out the practice at the time.

That in turn begs the question: Why weren’t the first signs taken more seriously? Has there been a serious failure of regulation, or are there strong mitigating circumstances that could explain and justify the lack of resolute action?”

Read more: http://business.time.com/2012/07/16/libor-rigging-what-the-regulators-saw-but-didnt-shut-down/?xid=newsletter-daily#ixzz21FuqOx5Z


The loss of human lives is apparently a permanent feature of human life.  

It is in fact a 24/7 occurrence.

Yesterday, two separate incidents motivated by entirely different reasons captured my attention.

Bashar al-Assad

The first involves the retaliation by the ruling Syrian regime headed by Bashir al-Assad against rebel forces blamed for an earlier bombing attack reportedly near his residence that claimed the lives of four of his closest associates, including his brother-in-law, deputy defense chief Assef Shawkat. 

Assad brother-in-law and deputy defense chief Assef Shawkat

The other fatalities included national security chief Gen. Hisham Ikhtiyar, Defense Minister Daoud Rajha, and Gen. Hassan Turkmani, head of the regime’s management team on the Syrian uprising.

Russian envoy to France Alexandre Orlov

When Assad disappeared from public view for a few days after the death of his inner circle, speculations were rife regarding his future plans.  Russia’s envoy to Paris,  Alexander Orlov,  even suggested that he was ready to give up power.  Orlov’s statement was immediately denied by Syrian state television.

There nothing clearer about Assad’s intentions than his soldiers’ subsequent offensive against rebel strongholds in al-Midan and other parts of the capital city of Damascus and in the city of Saraqib, Idlib province, in northwestern Syria.  All told, yesterday’s hostilities produced a death toll of 310, deemed the bloodiest day of the on-going Syrian civil war.

Assad soldiers recapture al-Midan, Damascus

Syrian rebels in Saraqib, Syria preparing for battle

UN-Arab League envoy to Syria Kofi Annan

It thus appears that there doesn’t seem to be a viable Plan B to the current war of attrition.  Former United Nations head Kofi Annan, appointed as UN-Arab League special envoy to Syria, developed earlier a six-point plan for peace.  He asked the UN Security Council to impose sanctions for the failure to carry out his peace plan for Syria; he subsequently expressed disappointment over the failure of Security Council members to reach agreement.  Russia and China, permanent members of the Council, had blocked resolutions on Syria for the third time in nine months.

What’s the other incident?

You may actually know more about it than yesterday’s bloodbath in Syria since it got more media coverage.  In fact, today’s Philippine Daily Inquirer decided to headline it.

The Dark Knight Rises poster

I am referring to the shooting rampage by a lone gunman, 24-year-old James Holmes, at a movie theater during a midnight screening of the potential blockbuster, The Dark Knight Rises, in Aurora, Colorado ( a suburb of Denver, Colorado) that resulted in 12 dead and 59 injured. 

The math alone should have guided Inquirer’s editors what story to headline.

Scene of the crime: Aurora, Colorado cineplex

Holmes reportedly has no criminal history  and had only been cited for speeding in October 2011.   In fact, he is now known to have graduated at the top of his class at the University of California (Riverside) and a doctoral student in neuroscience at the University of Colorado (Denver).  This spring, he struggled with poor academic test results and was in the process of dropping from the graduate program at the time of the shooting.

Holmes in court with public defender Tamara Brady

Various reports have surfaced claiming that Holmes supposedly told police that he was the Joker and sported red hair, but Aurora Police Chief Dan Oates refused to comment on the claims. However, at a press conference in New York City, Police Commissioner Raymond Kelly told reporters, “It clearly looks like a deranged individual. He has his hair painted red. He said he was the Joker, obviously the enemy of Batman.”

Holmes during happier times

It’s certainly too early to come up with the definitive story regarding Holmes (if ever we’re going to get one).   What he has clearly done is to remind us of the horrors of other shooting rampages in the United States, including the 1999 incident in Columbine High School (also in Colorado) and the 2007 incident in Virginia Polytechnic Institute.

What we can do is mourn the dead, help the wounded, and hopefully learn from these tragedies.

Overseas Filipino workers repatriated from Syria with Akbayan Rep. Walden Bello in mid-2012

And perhaps, the Philippine government should start evacuating our 8,000 compatriots from Syria.


What had been discussed so far is transnational organized crime usually associated with threats and violence. It is time to peek under the radar to examine transnational organized white-collar and/or corporate crime. 

Nicholas Leeson

An example of the former is the unscrupulous activities of Barings Bank’s Nicholas Leeson that led to $1.35 billion trading losses and the eventual collapse of Barings P.L.C., one of the world’s oldest merchant banks.  According to experts, a number of reasons including lack of supervision, enabled Leeson to do what he did.  Some of you may complain that Leeson should not be held as an example of transnational organized white-collar crime since he supposedly acted alone.  Leeson himself is quite mum regarding his methods (and accomplices, if any), at least,  as long as no money is put up front to pay for the information.   Leeson became a cult icon of sort and popular actor Ewan McGregor portrayed him in the aptly-titled movie Rogue Trader.  After his prison term, Leeson’s life turned normal.  He chaired an Irish football club and became a financial risk consultant.

“Rouge Trader” posters

  

The Leeson incident was repeated years later at the French bank Societe Generale supposedly involving a solitary trader with larger amounts involved.

As more and more people had access to the Internet, one of the most scams most common is the Nigerian advance fee fraud, where unwitting victims are advised that they may receive a bequest, or are offered an incentive to assist in the international transfer of funds, if they pay a fee in advance and/or facilitate access to their own bank account. Those unwise enough to do so have found their assets disappear.  These crimes were previously committed through snail mail and fax,  new technologies broadened and deepened the net of victims.

Logo of Lockheed Aerospace Corporation

 

Japanese PM Kakuei Tanaka

A clear instance of transnational corporate crime are the series of bribes and contributions made by officials of US aerospace company Lockheed from the late 1950s to the 1970s in the process of negotiating the sale of aircraft.  The scandal caused considerable political controversy in West Germany, Italy, the Netherlands and Japan.  Lockheed executives admitted paying millions in bribes over more than a decade to the Dutch (Prince Bernhard, husband of Queen Juliana, in particular), to key Japanese and West German politicians, to Italian officials and generals, and to other highly placed figures from Hong Kong to Saudi Arabia.  Japanese prime minister Kakuei Tanaka was arrested and was released a ¥200 million ($690,000) bond. He was eventually found guilty by a Tokyo court for violations of foreign exchange control laws but not on bribery. He was sentenced to four years in prison, but remained free on appeal until his death.

Prins Berhard of The Netherlands

 

One may say that bribing procurement officials is considered par for the course.  It can be written off as selling cost to ensure that potential purchases actually buy one’s products.  The practice may violate generally-accepted standards for fairness.   However, it may also be seen as the sordid version of suppliers’ credits—usually granted by a country’s export-import bank to other countries.  The Lockheed scandal, meanwhile, played a part in the formulation of the Foreign Corrupt Practices Act, which made it illegal for American persons and entities to bribe foreign government officials.  In the early 1990s, similar allegations of bribery involved the Canadian prime minister and Airbus, a European aircraft manufacturing consortium. 

Logo of Airbus

As noted earlier, the sale of home mortgage-based financial goods did not lead to charges filed against any financial executive or trader in the industrial and financial supply chains of such products.  A strictly laissez faire or ‘marketist’ perspective frees the seller of all responsibility and assigns the ‘blame’ on the investor.  Caveat emptor! Let the buyer beware!  The buyer should  know and the market supplies needed information so investors can make informed decisions.  Critics of laissez faire emphasize the information asymmetry between buyer and seller and insist on (strict) disclosure rules for sellers. 

 

The strict regulationist argument suffers however from several defects.  One: what if both parties are party to the fraud?  Consider NINJA (no-job-no-income) mortgages.  Within the context of rising housing prices, a mortgage broker cajoles non-prime (meaning jobless or low-incomed) borrowers to take out mortgages without even putting in equity.  The loan documents can be ‘cooked’ so the borrower is recorded to be employed and had made a down payment.  Both sides end up happy: the borrowers transfer to their new homes with zero down payment while the broker earns his fees and passes on the mortages to the mortgage banks.   Eventually, however, somebody has to shoulder the financial responsibility.  In most cases, it will be the taxpayers.

 

Two: the trade in financial goods does not only involve the original borrower and lender. Real goods like cars and computers have finite lives while financial products enjoy (theoretically, that is) infinite lives.  Due to wear and tear, real goods can no longer be continuously used or re-sold.  On other hand, financial goods can be resold ad infinitum.  A given financial good can also be transformed (derivatives).  Improvements in information and communications also enable transnational financial markets to operate on a 24/7 basis. 

 

Three:  financial goods are fungible while real goods are not.  If you borrowed my Mercedes Benz coupe,  I will not accept your Lexus in return.  However, I will not insist that you return the same bills worth, say, $100 to repay a loan. 

Four:  financial goods are more portable than real goods. 

Five:  financial goods are less visible than real goods. 

All these points lead to the conclusion that crimes involving real goods are difficult to conceal while it is comparatively easier to mask financial crimes.  The greater complexity of financial markets compared to real goods markets and the actual (and virtual) existence and operation of tax havens, shell companies, numbered accounts, and electronic fund transfers provide a congenial environment for transnational organized crime.


Crime becomes transnational when its operations and organizational structures are not confined to the sovereign territory of a given state and are coordinated across borders.

Objects of transnational crime

A state, in an exercise of its sovereignty, determines what crimes are.  It may therefore happen that what is criminal in one state is legal in another.  Or a particular act may be a crime in both states but the penalties are not the same.  As transnational crime flourishes, a number of states may see the need for a transnational penal

UN Convention against transnational organized crime 2000

code to collectively combat the former.  This code can take the form of treaties or conventions.

It may be argued that transnational crime is not a recent phenomenon. If crime is as old as humanity, then the transnational character of ancient or pre-modern crime may have preceded the modern Westphalian state system.  Crime aimed for material gain is organized around a basic business model with two components—‘industrial supply chains’ and ‘financial supply chains’[1].  If needed, the organization becomes more complex.  More supply chains are built for redundancy to cope with disruption, say from law enforcers and competing criminal syndicates.  The criminal supply chain involves the procurement of inputs, production of illicit goods and services, and delivery of such products to final consumers.  If demand exists behind a particular political jurisdiction, then there are strong incentives to go beyond borders if returns are greater than operational costs and risks.  Logically, the oldest transnational organized crime is the smuggling of illicit products.  The examples that come to mind are cross-border transactions of slaves, women, and hallucinogens. 

Global cocaine flows, 2008

Slaves in ancient Egypt

Other analysts object that the analysis above suffers from a modernist bias.  The practices named above were not considered as crimes at the time.  Slaves and (prostituted) women were part of war booty and became commodities.  Hallucinogens and other exotic substances produced elsewhere were believed to have medicinal properties.  What however emerges here is the insight that practices which were licit in the past begun to be considered illegal across historical time. Identifying what is crime is not static; it is a dynamic process. 

Sex trade in the ancient world

A major reason was a change in social norms and beliefs and this change was not confined to a single state.  For instance,  slavery (and ‘white slavery) was legal and considered normal until it was condemned as barbaric and was banned altogether in the modern era.  Of course, banning did not mean that the practice stopped altogether.  Criminalization did not douse demand for slaves, imported prostitutes, and drugs.  Criminalization disrupts industrial (and financial—but more on this point later) supply chains of illicit goods.  It increases the prices of these products—a result which in turn heightens the incentives to supply them.  Criminalization does and could not dismantle cross-border industrial supply chains.  In fact, it encourages their retention and increase in number.

Production and distribution of illegal goods require financing given production and other operational costs.  If the supplier of illegal goods relies on his own funds (or those of his immediate circle of relatives and friends), the scale of production is limited.  As a result, he may be confined to a local market and cannot engage in trans-border operations.  For economies of scale to kick in and returns to rise, financing must likewise increase.  Such funds need not come from a single source.  Thus, the need for financial supply chains.

Consider slavery during its licit phase in human history.  Even then, there was intra-state slavery and cross-border slavery.  For both types of slavery, a single financier may not be able to fund all the operational aspects.  This is especially true for cross-border slave trading.  While slaves may be war booty, the slave trader has still to buy them in the slave markets.  He also needs to feed and house them to protect his investment.  Higher morbidity and mortality reduces his return on investment (ROI).  If he wants to serve a cross-border market, he must also fund transport of the slaves.  If he lacks enough funds, he will seek financial ‘partners’ to subsidize these other operations like transport, housing in destination markets, advertising and other costs of sales.  Even in this historical period, (pre-criminal) cross-border trade was organized and conducted through the establishment and maintenance of industrial and financial supply chains.

Trans-Atlantic slave trading

Did the business model change when the formerly licit practices were criminalized?  The short answer: No and yes.  Criminalization introduced additional risks to the now-criminal operation that were absent in the earlier period.  Consider white slavery.  In its licit phase, total costs consisted of costs of production and distribution and the risk of decreasing product quality due to morbidity and decrease in product supply because of diseases, accidents, and natural disasters.  However, the inventory of slaves may also fall due to escapes and the predation of other slave traders, raiders, etc.   To protect their property rights and ensure maximum returns, slave traders must spend accordingly.  Such expenditures may be in the form of bribes for  state agents and the employment of ‘specialists in violence’. 

Criminalization increases costs and risks.  Criminalization forces ‘black’ operations to go underground and requires more complex organizations to include ‘white’ (or front office) components.  Redundancy of industrial and supply chains is necessary to deal with possible disruption of operations.  Organized crime now faces a more powerful organized force—the state—that is (at face) devoted to the task of enforcing its penal code.  A state qua state is imbued with the authority to use the full extent of state power to combat crime.  Since authority is the legitimate use of power (including the use of force to discipline and punish ala Foucault 1975/1977), the state possesses (or is presumed to have) greater power vis-à-vis criminal groups. 

Foucault’s “Discipline and Punish”

However, law enforcers and politicians themselves can simply add to the roster of predators who cut returns on crime through various ways.  For instance, state agencies seize illegal drug caches only to sell them in similarly clandestine markets instead of presenting them in court as evidence.  With more predators, protection of property rights became more expensive.  Criminalization introduced new costs like fees for lawyers, accountants, money launderers, publicists and bribes for law enforcers, law makers, and arrested or imprisoned conferees (to ensure their tolerance or silence). 

The capacity of a state to enforce its laws is an important variable that affects the profitability of the criminal enterprise.  State capacity is understood to include material resources and the  resolve to combat crime.  Even if a state has adequate material assets, the willingness of state agents to fight crime can be eroded through threats and bribes.  This same is also true for private actors such as journalists. When organized crime becomes transnational, the variability of state capacity induces changes in the supply chains.  For industrial supply chains, it is better to locate procurement/production/processing operations in states with weak law enforcement capacity.  Logically, the richer economies presided over by stronger states are the targeted markets even as smaller markets elsewhere may likewise be served.


[1] The generic concepts ‘industrial supply chains’ and ‘financial supply chains’ are from Lester Young, a professor in finance at the City University of Hong Kong.  Mapping industrial supply chains is relatively easier than delineating financial supply chains specially for criminal goods.


Crime was initially the province of biologists, sociologists and psychologists.  Biocriminologists believe that criminals are genetically predetermined. They maintain that the human body needs a stable amount of minerals and chemicals for normal brain functioning and growth.  Chemical and mineral imbalances lead to cognitive and learning deficits and these factors in turn are associated with antisocial behavior.

The application of psychology in the criminal and civil justice system is known as forensic psychology. Hugo Munsterberg (1863 – 1916), a German-American psychologist was the first to pioneer the application of criminal psychology in research and theories. His research extended to witness memory, false confessions, and the role of hypnosis in court.

Hans Eysenck

Hans Eysenck

The late Hans J. Eysenck, a British psychologist, is known for his theory on personality and crime.  He proposed that crime is the result of interaction between environmental conditions and features of the nervous system.  Eysenck’s emphasis is on the genetic predisposition toward antisocial and criminal behavior. His followers believe that each criminal has a unique neurophysiological makeup that when mixed with a certain environment cannot  but result to crime.

If biology could explain criminality, then why is the majority of crime and violence in poor, underdeveloped neighborhoods? To ignore environmental and social aspects contributing to crime would be a mistake, according to sociologists.

William Glasser

The medical doctor and psychiatrist William Glasser contributed choice theory, which suggested among others, that the criminal is rational  when he decides to commit a crime. The variety of reasons in which one offends can be based on a variety of personal needs, including: greed, revenge, need, anger, lust, jealousy, thrills, and vanity.

Gary Backer

A political economy perspective was pioneered by Nobel laureate Gary Becker (1968), the maverick economist who first argued that an economic approach can be brought to bear on (at the time) non-traditional (usually thought to be sociological or psychological topics) such as racial discrimination, family life, and crime and punishment. Crime and punishment are by definition and practice opposing aspects of a dyad.  They define each other—a crime is that which must be punished and punishment is the appropriate sanction or remedy to crime.

The fundamental premise of a political economy perspective on crime and punishment is that crime is a rational human activity.  Sociologists, psychologists and criminologists have usually considered criminals as sociopaths and maladjusted individuals.  This may be true but not entirely true.  Using a political economy approach, criminals are regarded as rational actors.  As rational actors, they are guided by a rewards vs. costs calculus.  Criminals do crime because they obtain material and non-material (such as enhanced prestige or status within certain social circles) gains.   When somebody commits a crime, he believes that rewards are greater than costs.

The costs of committing a crime (from the viewpoint of the criminal as well as society) include the following:

  • Cost of being detected
  • Cost of being arrested
  • Cost of being indicted
  • Cost of being found guilty
  • Cost of being punished

The costs of crime are qualified by legal due process, particularly by constitutional provisions that a person is presumed innocent until proven guilty beyond reasonable doubt, as well as the infirmities of the state’s authorities.  The detection of a crime (or a criminal) does not automatically lead to the arrest of the suspect.  In the same manner, the arrest of a suspect does not lead an indictment.  In the peculiar legalese of Filipino lawyers, for instance, there must be a finding of probable cause against a suspect so an information could be filed against her/him in court.  Even if indicted, a suspect is not automatically found guilty unless proven beyond reasonable during the court’s processes.  And a suspect pronounced guilty may not necessarily be punished.  Sentences could be suspended for a number of reasons including pleas for insanity or for health reasons.

Philippine police in training

The economic analysis of crime is also mindful of the costs of crime prevention and punishment as well as the costly impact of crime on society.  Becker believes that making a distinction between two tasks—crime prevention and apprehension of criminals (or police work) and punishment of criminals (through courts and penal systems)—is useful for analytical purposes.  The incidence of crime, crime prevention, apprehension and punishment of criminals imposes costs (or entails expenses) on society.  While it is desirable to cut the incidence of crime or increase the rate of punishment, society must spend more on law enforcement (for police, courts, and prisons).  If society does not have such other resources, it may have to accept a crime rate which may rise as population grows.

Filipino prisoners

Building on these earlier ideas, Becker notes that if (costly) apprehension does not automatically lead to (costly) punishment such as jailing, then cheaper punishment alternatives should be considered.  The payment of fines is the least costly mode of punishment and incarceration can be seen as a ‘fine’ since the criminal incurs foregone income.  Furthermore, fines as punishment for heinous crimes such as murder and rape are not morally and ethically acceptable.  Generally, that is.  In certain societies, however, a convicted killer may be set free provided a fine (called ‘blood money’) is paid to the victim’s relatives.  Nonetheless with these type of crimes, society must still decide on the resources to use for law enforcement and for punishment of criminals.

In a playfully inquisitive mode, Becker poses this question: Suppose you reduce the resources expended for crime prevention and apprehension of criminals and increase the severity of penalties, will the incidence of crime be reduced?  The reasoning behind the question is as follows.  Society may not have enough resources for both crime prevention and punishment of criminals.  It is must therefore make a decision where resources are to be concentrated.  However, it does not make sense to reduce resources for punishment of criminals and concentrate resources to prevent crime and capture criminals.  It leads to an absurd situation where society is saddled with a great number of criminals in police precincts but with inadequate courts and prisons.  However, increasing the severity of punishment may not ultimately redound to society’s good.  It will simply increase the incentive of the police (specially in weak states) to set suspects free in exchange for bribes or to actively arrest fall guys again for monetary gain.