Doc. 9018
6 April 2001

Europe’s fight against economic and transnational organised crime: progress or retreat?

Report

Committee on Economic Affairs and Development

Rapporteur: Mrs Vera Squarcialupi, Italy, Socialist Group

Summary

Economic crime has worsened significantly since 1998 and has now reached such levels that democracy, the rule of law and the economic and political stability of Europe “hang in the balance”, argues the report.

Economic crime in its multiple forms is now capable of “infiltrating democratic institutions”, with the list including trafficking in human beings, illicit drug and other contraband smuggling, counterfeiting, environmental crime, cyber crime, tax fraud, money laundering, corruption and influence trading as its main expressions. “The day when all this translates into political influence, Europe’s will to fight it may well wane and the battle be lost.”

Countries in transition in central and eastern Europe face “special difficulties” in tackling economic crime, the report continues. It calls on the 43 Council of Europe member states to agree on common principles for fighting economic crime, and to expand existing Council of Europe action.

“The connections between crime and politics have become closer,” the report concludes. “The rule of law, which is the lifeblood of civilised society, will be the first to suffer. Growing lawlessness strains the state’s ability to provide security for citizens, and a vicious circle is set in motion. When the state lacks the capacity to enforce the law, organised crime can undermine and replace it.”

I.        Draft recommendation

1.        The Assembly, recalling its Resolution 1147 (1998) on the threat to Europe from economic crime and its Order No. 540 authorising it to “review regularly the Council of Europe’s work towards combating economic crime”, considers that the situation described in that resolution which was already critical at the time, has since worsened even further. European democracy, rule of law and economic and political stability of Europe now hang in the balance.

2.        Economic crime in its multiple forms has become even more international, complex in structure and operations, technologically refined, wealthy, economically powerful and capable of infiltrating democratic institutions. The day when all this translates into political influence, Europe’s political capability and will to fight it may well wane and the battle be lost.

3. The Council of Europe, built on and uniting Europe around the lofty principles mentioned above, has a central role to play in this struggle, in close cooperation with other international institutions such as the OECD, the World Bank, the European Union, the European Bank for Reconstruction and Development, the United Nations, Europol, ‘Eurojust’ and others. The Committee of Ministers of the Council of Europe has to lead Europe even more forcefully than in the past, assisted ever more resolutely by the Assembly.

4. The Assembly welcomes the signing, in Palermo in December 2000, by 124 countries – of them 41 Council of Europe member states – of the United Nations Convention against Transnational Organised Crime, and accompanying Protocols. It calls on all Council of Europe member states to ratify these texts as soon as possible. The Assembly also welcomes the inclusion in the Convention of a provision prohibiting the refusal of a request for mutual legal assistance on the sole ground that the offence is also considered to involve fiscal matters. This provision fully takes into account the interpretation of Recommendation 15 adopted by the Financial Action Task Force on Money Laundering (FATF).

5. Concerted action at Council of Europe level is needed to fight more efficiently the many expressions of economic crime. These include:

i.        the abhorrent trafficking in human beings for the purposes of illegal immigration, exploitative labour, begging, sexual exploitation or for assistance in criminal activities such as the illegal transport of arms, drugs and migrants;

ii.        corruption, bribery and influence trading. The Assembly recalls its Resolution 1214 (2000) on the role of parliaments in fighting corruption and its hosting, in May 2000, of a Conference of Speakers and Presidents of European Parliamentary Assemblies devoted to this subject. The Assembly in this context refers to work under way in the Council of Europe, and the Assembly itself, on the financing of political parties. It welcomes the Council of Europe’s conclusion, in 1999, of its Criminal law Convention on Corruption and its Civil law Convention on Corruption and notes with satisfaction that the former has already been signed by 39 states and ratified by 9, whereas 27 states have signed and 3 ratified the latter. The Assembly hopes that both conventions can enter into force by 2002. Moreover, it supports regional anti-corruption and anti-organised crime initiatives, such as those undertaken under the South-East European Stability Pact (SPAI and SPOC);

iii.        money laundering, the scale of which may undermine the integrity of national economies and democratic systems. Action against money laundering is of particular importance as it can rob the perpetrators of economic crime of their ill-gotten gains and hence strike at its very foundation. The Assembly welcomes the strengthening of the activities of the Financial Action Task Force on Money Laundering (FATF) and reiterates its call on Council of Europe member states that are not formally members of the FATF, made in Resolution 1147 (1998), to actively participate in the most effective FATF-style regional group, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV);

iv.        the production and spread of illicit drugs, which are having devastating consequences for many of Europe’s young, the continent's future. The Parliamentary Assembly should organise, with ministerial and expert contribution, a stock-taking conference to evaluate measures taken to combat drug trafficking in the Council of Europe area;

v.        the smuggling of contraband items, especially arms, art objects, alcoholic beverages and cigarettes, with the latter believed to account to up towards 15% of total consumption in some Council of Europe member states;

vi.        counterfeit products, the manufacture of which is greatly aided by modern technology and which infringes on intellectual property rights, causes economic damage, distorts markets and which may cause serious harm to consumers;

viii.        environmental crime, which may inflict irreparable damage to the eco-system and ultimately human health, as pollution knows no national borders;

ix.        cyber–crime which through illicit intrusion into and manipulation of computer networks or data banks not only causes damage in its own right but also significantly amplifies the effects of theft and fraud. Council of Europe member states and other countries need to agree on common legal principles and sanctions, as well as engage in cooperation on the information sharing and other forms of mutual assistance, while ensuring the respect of individual rights, especially privacy. The Assembly in this context supports the Council of Europe’s forthcoming Convention on Cyber–Crime, which it hopes will become a landmark instrument in Europe and beyond;

x.        tax evasion pursued on a large scale and linked to economic crime continues to hamper the economic resources of many countries in Europe. Tax havens are not only attractive to launderers and fraudsters because of their favourable fiscal system but also because international legal assistance is systematically denied on the ground of fiscal exception. The Assembly therefore welcomes the EU agreement in 2000 to combat tax evasion on interest income.

6. The Assembly recognises that countries in transition in central and eastern Europe encounter special difficulties in tackling economic crime. The Assembly reiterates its support for the Council of Europe OCTOPUS project designed to help these countries in their struggle against it.

7. The Assembly believes that it is urgent for Council of Europe member states to agree on common principles by which state institutions can repulse pressure from economic crime, especially in view of ever-closer economic integration through the European Union’s Economic and Monetary Union, expanding EU legislation and the EU’s forthcoming enlargement. It supports the important work of the European Union in the fight against economic crime and corruption. This includes the 1991 Directive on Money Laundering, its 1995 Convention and Protocols on the Protection of Financial Interests of the Community, and its 1997 Convention on the Fight Against Corruption.

8. The Assembly notes with alarm that despite efforts undertaken by various international organisations - including the Council of Europe, the OECD and the European Union - cross-border police and judicial co-operation on cases of economic crime still meet with great difficulties, particularly when they involve the use of modern investigative techniques or the disclosure of sensitive information. It therefore welcomes the recent adoption by the Council of Europe’s Committee of Ministers of a framework global action plan for judges in Europe.

9. The Assembly welcomes the entry into force in 1999 of the OECD Convention on Combating Bribery of Foreign Public Officials, which is open also to countries not members of the OECD, but notes that only 22 of the Council of Europe 43 member states have so far ratified it.

10. The Assembly in conclusion calls upon the Committee of Ministers:

i.        to mandate the European Committee on Crime Problems (CDPC) to draw up a Council of Europe instrument to combat tax evasion similar to that of the European Union, thus ensuring the application of EU principles to all member states of the Council of Europe and providing an additional means of combating economic crime;

ii.        to adopt in 2001 draft guiding principles in the fight against organised crime based on the work of the Directorate General for Legal Affairs, and thereby to provide a common framework for action by member states in this area;

iii.       to finalise the draft recommendation, under elaboration by the Multidisciplinary Group on Corruption (GMC), on guidelines against corruption in the funding of political parties and electoral campaigns, and in this way assist political parties against undue influence, in their capacity as one of the fundaments of democracy;

iv.       to update the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds in order to render it capable of responding to the changing features of money laundering. This implies the revision of the Convention by supplementing it with additional protocols;

v.       to grant the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV) adequate resources, both in staff and funding, through appropriate budgetary formulas in order to enable it successfully to conduct a second round of anti-laundering reviews;

vi.       to ensure speedy ratification of the Council of Europe Criminal law Convention on Corruption and its Civil law Convention on Corruption by all Council of Europe member states.

vii.       to intensify cooperation within the Council’s Group of States Against Corruption (GRECO), notably by ensuring the latter’s expansion in membership from the present 28 to all Council of Europe member states;

viii.       to encourage the signature by the Council of Europe member states of the Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment and of the Convention on the Protection of the Environment through Criminal Law;

ix.       to support the OCTOPUS project aiming to fight economic crime in central and eastern Europe, through a strengthening of its resources;

x.       to speed up the work on updating and supplementing the 1959 European Convention on Mutual Assistance in Criminal Matters through a second Additional Protocol, and to envisage the drawing up of a special convention on the cross-border application of modern investigative techniques, also covering witness protection;

xi.        to work in favour of ratification by all Council of Europe member states of the OECD’s Convention on Combating Bribery of Foreign Public Officials;

xii.       to report to it on progress made in Council of Europe member states or by the Organisation as regards various provisions of its Resolution 1147 (1998) on the threat to Europe from economic crime.

II. Explanatory Memorandum by the Rapporteur

Contents

I.        INTRODUCTION AND BACKGROUND

II.       THE MANY FACES OF ECONOMIC CRIME

The lucrative business of trafficking in drugs and arms

The abhorring trafficking in human beings

‘Cyber-crime’

Fraud and tax evasion

Counterfeiting

Theft , modern style

Environmental crime

Influence trading and the illegal financing of political parties

The link between corruption and economic crime

Money laundering: undermining the economy

III.        CRIME AND DEVELOPMENT

IV.        ACTION AGAINST ECONOMIC CRIME

V.        CONCLUDING REMARKS

APPENDICES

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I.       INTRODUCTION AND BACKGROUND

1.        Nobody any longer doubts that economic crime poses a serious threat to democracy, the rule of law and Europe’s economic and social stability. Over the last decade, transnational criminal activities of all kinds have therefore come under increased scrutiny on the part of politicians, national law enforcement bodies and international organisations. The member states of the Council of Europe for their part have resolved to join forces to fight economic crime, in pursuance not least of the commitments made at the 2^nd Summit of Heads of State and Government held in Strasbourg in October 1997.

2.        The Parliamentary Assembly for its part reacted promptly in drawing up, within its Committee on Economic Affairs and Development, a first report on “The Threat to Europe from Economic Crime” - leading, in January 1998, to the Assembly’s adoption of Resolution 1147 (1998; Doc. 7971; Rapporteur: Mrs Degn) and Order 540 (1998). In an expression of its determination to pursue the subject, the Assembly in Order 540 decided to “review regularly the Council of Europe’s work towards combating economic crime, on the basis of reports by its Committee on Economic Affairs and Development and its Committee on Legal Affairs and Human Rights”. The Economic Committee has since placed the fight against corruption and economic crime at the top of its priorities.

3.        In illustration of the above, the Economic Affairs Committee in March 1999 organised, jointly with the World Bank, a major conference on “The Role of Parliaments in Fighting Corruption” in Riga, Latvia. The proceedings of the Conference have been published (see document AS/Ec (1999 12), and a report presenting its key conclusions was debated by the Assembly in April 2000, leading to the adoption of Resolution 1214 (2000). (Rapporteurs: Mr Leers and Mr Tallo; see Doc. 8652).

4.        It is worth recalling also that the Conference of Speakers and Presidents of the European Parliamentary Assemblies, held in Strasbourg on 5-6 May 2000, included as one of its two themes “What could be the role of parliaments in fighting organised crime and corruption”, with a special written contribution prepared by the Assembly’s Secretary General building on the above-mentioned reports.

5.        The Assembly in January 2000 took up a report also emanating from the Economic Committee on “Democracy and Economic Development” (Resolution 1209 (2000); Rapporteur: Mr Elo; Doc. 8458). The Resolution recognised that “any departure from democratic standards in individual countries... may affect the soundness of an economy and its financial system, or those of neighbouring countries or the world economy”. It pointed “to the importance of democracy for lasting economic development, including respect for human rights, the rule of law, social justice and solidarity, transparency and accountability in public affairs, an independent judiciary, a free press and a firm stance against ‘cronyism’, corruption and economic crime”.

6.        The present report aims to measure the progress made more recently by Council of Europe member states, the Council itself and other international bodies in the fight against economic crime. The report will argue, based on the evidence gathered, that economic crime has become even more international, fast-operating and sophisticated since the last report. The Rapporteur wishes to thank her predecessor as Rapporteur, Mrs Helle Degn of Denmark, who drew up the first version of this report before leaving the Assembly for other duties. The Rapporteur is also grateful to the representatives of the Council of Europe’s Directorate General for Legal Affairs and its Director General, Mr Guy De Vel, for valuable help in the preparation of this report. Finally, she thanks her colleagues on the Committee on Economic Affairs and Development for their many valuable contributions, not least in the course of the long and lively discussion that eventually permitted the unanimous adoption of the preceding draft Recommendation on the occasion of the Committee’s meeting in Paris in March 2001.

II.       THE MANY FACES OF ECONOMIC CRIME

7.        Economic crime today is a global and omnipresent phenomenon, even though countries may define the concept differently in their respective legislations. It is highly organised and has become more international than ever before. Not so long ago, criminal justice was an exclusively national issue. Nowadays, when an increasing number of countries openly admit to a growing volume of estimated losses due to economic crime, “lone rider” policies no longer work. Nation states have become too vulnerable.

8.        Many factors shape the development of economic crime and the countermeasures taken at national or international level. The revolutionary technological developments of recent years have inadvertently facilitated the emergence of organised criminal networks that move across borders in order to maximise opportunities and minimise the risk of being caught or disrupted. The European Commission has pointed to this in its report “A Union Policy against Corruption” of May 1997. At the same time the EU Internal Market and the Schengen Agreement leading to the virtual abolition of border controls have led to even greater vulnerability in this regard.

9.        Apart from that section of economic crime that can be defined as corporate crime (‘crime in business’), organised crime (‘crime as business’) constitutes a worrisome trend of late. It can be said to be present whenever two or more persons are involved in a common criminal project in order to obtain power and profits through illegal business or related activities, the use of violence or intimidation and influencing politics, media, economy, government or the judiciary. Essentially network-based, organised crime is highly flexible, swift and largely unbound by national borders. It exploits modern technologies to the full. It often infiltrates legitimate businesses and sometimes succeeds in gaining control over them. It is greatly aided by the growth of the ‘cyber-world’, over which territorial jurisdictions have little control. Those involved are likely to be prepared to do whatever is necessary for their ventures to proceed, such as trying to corrupt, intimidate or use violence against people in public office or businesses.

10.        Modern criminal organisations have accrued considerable financial power, enabling them to juggle human and capital resources, gain privileged access to information, infiltrate political and economical decision-making circles, launder the proceeds of their activities and foster laxness of the law towards them. Since crimes are to a criminal organisation what legal activities are to a legal enterprise, the spread and proliferation by the former could lead to a situation in which the illicit is not at the margin of society but at its very core. It could become a ‘state within a state’. As a result, the rule of law could suffer, and the authority and integrity of the state degenerate.

11.        The criminal economy is a rationally organised activity, capable of producing wealth and power in the same way as any other business - and often more quickly than normal businesses. Reportedly, economic crime is diversifying its operations and engaging in an ever broader range of activities that include drug-and-arms trafficking, smuggling goods and trading human beings, influence buying, fraudulent commercial practices, computer crime, counterfeiting, theft, corruption and, of course, recycling ‘dirty money’. The deregulation caused by economic and financial globalisation has to certain extent facilitated the concealment of such activities.

12.        Transnational economic crimes are complex in nature, especially as they are often combined with legal activities. This makes them difficult to trace and quantify. To date, no systematic method of accounting for these crimes exists at international level. Few countries have a separate record of such crimes in their official statistics. Besides, official data only covers revealed crimes that, depending on the country, represent only the tip of the iceberg and thus yield only a partial estimate of the importance of economic crime. There is therefore an urgent need for the elaboration of a reliable and uniform data collection method. Some country groupings, such as the European Union, have made considerable progress in collecting data on organised crime.

The lucrative business of trafficking in drugs and arms

13.        The arms trade business is among the largest in the world, with an annual turnover of about $800 billion annually. The Group of Eight (G-8)¹ industrialised nations that account for some 90% of arms sales are also, however, the starting points for much illegal trafficking, which according to some estimates amounts to half the amount of all legal weapon transfers worldwide. Most illegal weapons have first been traded legally. A large part of the problem arises from the inability of certain governments properly to control their arms stock and the absence – until very recently - of any code of conduct with global reach. Happily, the United Nations Convention Against Transnational Organised Crime was signed in Palermo, Italy, in December 2000 along with a Protocol targeting the illicit production and trafficking in firearms. These new instruments should eventually help to combat these evils.

14.        The drugs trade, estimated at about $450-750 billion annually, well illustrates the tenacity of organised multinational crime. The economic incentives make organised trafficking extremely hard to fight. Almost all the proceeds go into the pockets of criminals who channel the money back into the market, the money laundering circuit or, to a certain extent, corruption.

15.        The fact that traditional drugs are usually (though not exclusively) consumed in countries other than those in which the raw material or the end product has been produced - or through which these have travelled on their way to the final market - makes the problem a truly international one. Throughout the 1990s many European countries have accepted that demand reduction is essential and have therefore sought to enhance their drug prevention and educational strategies and improve the quality and accessibility of care for drug users. UN surveys show that drug prices have fallen dramatically in recent years, notwithstanding increased law enforcement and interception efforts. This is primarily due to the significant growth in the supply of drugs to customers following increased illicit production. At the same time, the purity of illegal drugs on the market has considerably increased. Low prices often enough reflect a desire to attract new addicts and thereby to build up a market. There is an absolute need to step up the level and co-ordination of international efforts against drugs.

16.        The most rapid increase in drugs use and trafficking continues to be in synthetic drugs, for which Europe remains a major manufacturing region, especially as far as amphetamines and the ‘ecstasy’ group of substances are concerned. Synthetic drugs are regarded as the ‘nightmare of the millennium’, given their devastating effects on the brains of users; the high profits they generate for producers and dealers; the relative ease of production; and the difficulty detecting laboratories.

17.        New products are continually being developed in the most primitive and unhygienic illegal ‘laboratories’, many of them in the Netherlands. Gangs are fighting increasingly fierce battles for control of the market. Sadly enough, Europe is becoming a leading exporter of synthetic drugs to the rest of the world. The production of synthetic drugs at the point of sale through the use of nano-technology and mini-laboratories has become increasingly feasible. European states therefore need to find better ways than at present of controlling trade in ‘precursor’ chemicals used for the manufacture of such drugs and to improve their monitoring of changing patterns in drug use and availability.

18.        Trafficking in non-synthetic drugs is essentially from the south (South America and Southeast Asia) to the north (western Europe and North America). However, that in arm trafficking goes in the opposite direction - the greatest demand being in conflict areas in the developing world in the South, especially in Africa, and the major arms suppliers located in the North. It is therefore not surprising that the two types of trade are financially interrelated, in that money to buy weapons often comes from the sale of drugs. Moreover, as the relatively easy availability of illegal weapons tends to exacerbate conflicts - and as the dependency on drugs pushes addicts into the search for ‘easy money’ - the level of crime and violence in the societies concerned tends to increase. Consequently, trafficking in arms and trafficking in drugs must be considered as posing serious security threats to the world community, the countering of which necessitates intense co-operation between countries.

19.        The smuggling of other goods is mostly linked to normal trade routes and the methods used are not as refined as those used for drugs. Tobacco and cigarettes, art objects, wildlife and certain agricultural products are among the most frequently smuggled goods. Prohibitive licensing, high import duties and restrictive import quotas imposed on this type of goods are thought to motivate smugglers. As a result of the coming into being of the Single Market within the European Community, economic operators, whether legal or illegal, have taken advantage of the new freedoms. European Parliament studies of the Community Transit System - a system designed to permit goods which enter the Community to pass through the Community without paying tax, or to defer tax payment until they reach the country of destination - reveal that “organized crime is deeply involved in transit fraud, the organisations concerned originating not only in the European Union but in Switzerland, the newly-open countries of Central and Eastern Europe and the former Soviet Union; their activities are contributing to the growth of the black economy and undermining the stability of legitimate operations”. ²

20.        Contraband cigarettes and alcoholic beverages are another problem. Transit fraud is at the heart of cigarette smuggling in Europe. The share of contraband products, such as cigarettes, account for up to 10-15% of the market in some European Union countries. Completed in July 2000, a two-year investigation by the European Union’s anti-fraud unit found that customs revenue losses through cigarette smuggling amounted to between €1 billion and €2 billion a year. Some experts maintain that a third of annual global exports of cigarettes end up in the contraband market - representing an enormous impact on consumption and public health, as well as billions of euros in lost tax revenue. Such scary statistics have caused the European Union to engage in a legal battle against some tobacco multinationals, in order to disrupt the latter’s’ unwitting - or perhaps not so unwitting – connection with smuggling.

The abhorring trafficking in human beings

21.        If our societies condemn and sanction the smuggling of goods, then the smuggling of human beings is even more repugnant. Here we are talking about smuggling for the purposes of illegal immigration, cheap labour, begging, sexual exploitation (such as prostitution and sex tourism) or even for the assistance in criminal activities such as the illegal transport of arms, drugs and migrants. Whether by perfidy, persuasion, threat or force, millions of persons are trapped every year by criminal traders who literally transform human beings into ‘goods’ and items of trade. This is nothing less than the slave trade of the third millennium. Some 500 000 persons have been “exported” from eastern to western Europe in this way since the end of the Cold War. Moreover, once in the destination countries, the clandestine immigrants often continue to be exploited by those who receive them. A phenomenon known to Europeans only from reports coming from poorer regions of the world is now a reality also in our continent.

22.        The smuggling of human beings - estimated at four million a year world-wide (IOM figures), with up to 1 million trafficked for exploitation in the sex industries – constitutes a new slave trade. The profits to criminals can safely be said to be enormous, when, according to the estimates of Interpol, a pimp reaps some € 100 000 per year from one person forced into prostitution. Children are also abused in illegal markets for adoption, pornography and trade in body organs. Certain groups are turning to the smuggling of human beings rather than drugs because of the reputed higher profits and lower risks. Globally, the International Organisation of Migration (IOM) estimates that the earnings from trafficking in human beings bring at least $8 billion in income annually.

23.        To be sure, more people are likely to be smuggled into countries in Europe also in the future, due to international conflicts, civil wars and various kinds of persecution in many parts of the world. This makes any ‘zero option’ for migration rather less realistic. A report recently released by the United Nations Refugee Agency directs part of the blame for the rise in the trafficking of refugees at European Union countries. It maintains that, as European countries try to curb illegal migration, they also nearly shut off all legal means of entry, even for those with genuine claims. Last year, for instance, some 367 000 people applied for asylum in countries of the European Union, with only a tiny fraction standing a chance of being granted permanent refugee status.

24.        There is a real need - in the European Union and more generally in Europe – for a more flexible and coherent migration policy to counter both illegal entries and human trafficking. It is also, however, right and imperative to clamp down on criminals who exploit migrants through human trafficking. The problem is all the more complex in the context of ever closer integration in Europe, as some of the countries neighbouring the European Union are both the source of refugees and a transit point for them. Globalisation is yet another reality to which Europe has to find an adequate and early response.

25.        It is urgent, in order to curb clandestine immigration and reduce human trafficking, that developed countries and especially the countries of the European Union create efficient laws that will permit the stabilisation of immigration quotas adapted to labour market conditions; facilitate the reception and political asylum of refugees (who are often confused with clandestine immigrants); and assist the development in the countries of origin of clandestine migrants. European governments should also consider lengthening prison sentences for criminals found guilty of trafficking people. This has already been done in Britain – Europe’s main destination for asylum-seekers – where traffickers currently face a ten-year sentence, much longer that in the rest of Europe.

‘Cyber-crime’

26.        Virtually non-existent in the 1980s and early 1990s, the abuse of new information technologies for criminal purposes is today widespread. ‘Computer crime’ may involve the illegal intrusion into computer networks; extortion using threats to destroy information systems; or penetration of computer data banks for theft or fraud. Recent attacks against e-mail recipients and commercial web-sites have drawn international attention to the dangers facing the internet and computer networks. Ever expanding use of the Internet (over 300 million estimated users) for e-commerce and direct banking also means greater opportunities for criminals. Security of data flows and data banks is therefore a critical element in building trust in the Internet as a reliable medium of exchange.

27.        To tackle this problem, a standard for Secure Electronic Transactions (SET) was presented in 1997. SET is meant to improve the security of internet purchases and money transfers through message encryption, digital signatures and cryptographic certificates. SET is, however, a response to just one part of a broader security challenge. The word-wide market for internet security products, such as authentication and encryption, firewalls (that separate parts of networks for security purposes), anti-virus tools and services, is expected to rocket from virtually zero a few years ago to a predicted $7 billion by 2001.

28.        “Cyber-crime” can involve three types of electronic communication services. Firstly, a computer may be the target of the offence. Here, the criminal’s goal is to steal or destroy information, such as through the pilfering of credit card numbers, passwords, the use of viruses to infect information networks and so on. Secondly, computers can be tools in the commitment of an offence, such as investment (e.g. pyramid schemes) and other types of fraud, theft of funds via transfers to numbered accounts in different countries, trafficking in passwords, or the setting up of paedophilia internet sites. Finally, computers can be incidental to the offence but significant for law enforcement purposes, because they contain evidence or trace of the crime.29

29.        The United States estimates annual losses due to unlawful computer manipulations at more than $10 billion, while in the United Kingdom they are evaluated at over £5 billion. Further information technology developments will no doubt increase the speed, scale and complexity of computer crime, all the more so since a new generation of perpetrators can be expected to be even better versed in the art, or be better financially equipped to sub-contract computer specialists. It is also believed that in the future more cyber-criminals will choose to operate on their own, making them even more difficult to identify.

30.        The international aspect of computer crime makes it less practical to try to deal with it only nationally. Cyberspace regulation is underdeveloped and the Internet is virtually beyond the control of regulators. The anonymity, speed, volume and audit difficulty of cyber-settlements pose significant challenges for law enforcement services. In addition, many countries are still reluctant to devote meaningful resources to enhancing computer network safety and to investigating offences. We need an urgent and significant increase in the production and sale of instruments that can ensure safety in network transactions through established authenticity, encryption and ‘anti-virus’ services.

31.        International co-operation is, however, crucial to responding effectively to the problem. Since the Internet is borderless, cyber-crime can only be contained through a multilateral effort. It is becoming urgent for countries to agree on the jurisdiction that should apply to e-offences, to adapt relevant laws, use an electronic surveillance of networks that is nevertheless respectful of individual privacy, establish better institutional controls, enhance information sharing and encourage the reporting of cases of computer abuse.

Fraud and tax evasion

32.        Since much fraud remains unrecognised, undetected or unproven, it is difficult to account for its incidence with any great precision. Experts estimate that as little as 15 percent of victims report cases of fraud to the police or other law enforcement agencies. According to the latest survey by the American Bankers Association, check fraud alone accounts for losses of at least $815 million each year, or more than twelve times the $65 million taken in bank robberies. Even this is, however, modest compared to the cost of insurance fraud in the United States, estimated at $100 billion a year.

33.        In the information age fraud is taking on new forms. It could be seen as a key stepping-stone between computer and non-computer crimes. Expanding computer literacy will no doubt increase the number of prospective offenders, while new technologies allow easier and cheaper access to a larger pool of prospective victims. Thus, individual investors may be offered the same fraudulent schemes that existed before the arrival of the Internet. The difference is that when presented in cyber-format, the product may look more tempting to the customer. Because of the global reach of the internet, the damage may be difficult to quantify and control.

34.        With the growth in credit card usage and the emergence of electronic purse applications, payment card fraud has risen faster than have countermeasures. The signature, in the beginning of 1999, of an agreement between Interpol and major credit card issuers (American Express, MasterCard International, Visa International, Europay International and Discover Card) for close co-operation in the fight against payment fraud over the next five years gives some ground for hope. However, there is still a far way to go before electronic transactions can be said to be fully safe. The most effective response appears to be a multi-agency approach, involving law enforcement agencies, card issuers and retailers in a strategy of prevention, awareness raising, disruption and sanctioning.

35.        Estimates suggest that in developed countries tax evasion amounts to between 5% and 25% of potential tax revenue - with higher figures (up to a 30-40%) for less developed countries. It is also one of the forms of illegal activity that has the greatest impact on the general economy. Efforts to improve tax collection capabilities are as important in improving state finances as they are paramount in fighting ‘off-record’ business activities and associated money laundering. Various facilities – ranging from advantageous tax rates and partial or total exemptions to clear-cut tax evasion services – are a traditional preserve of many offshore centres. And because there is tax competition on a global scale and a still widely prevalent acceptance of asymmetries in tax law, tax havens can be expected to continue to prosper. Knowing that precisely those asymmetries in regulation attract criminals, the objective of law enforcers should be to bring the offshore centres up to the internationally agreed standards of transparency and co-operation.

36.        The fact that many countries do not make it obligatory to report fiscal crime may lead to a situation where related forms of economic crime, ‘upstream from it’ as it were, are not detected. The Financial Action Task Force on Money Laundering (FATF)³ - the world’s leading anti-money laundering authority - has therefore added the following interpretation to its Recommendation 15 regarding the obligation to report to authorities any suspicion of money laundering: “In implementing Recommendation 15, suspicious transactions should be reported by financial institutions regardless of whether they are also thought to involve tax matters. Countries should take into account that, in order to deter financial institutions from reporting a suspicious transaction, money launderers may seek to state, inter alia, that their transactions relate to tax matters.”

37.        The lack of international cooperation to fight fiscal crime also facilitates so-called ‘double invoicing’. The latter is particularly frequent in connection with international trade. One invoice is the real one, whereas the other is a fake. One objective may be tax evasion, in that the lowest invoice version is used to deprive the authorities of the importing country of customs duties and the like. Alternatively, the aim may be capital flight, in that an artificially high invoice is used to make the paying company appear poorer than it is. Finally, the method can be used to launder money. Major sums may be involved, to the detriment of, especially, the so-called ‘emerging economies’. Insufficient international fiscal cooperation may lead to an inability to prove that such ‘upstream’ crimes have been committed.

38.        In a wide range of abusive and fraudulent behaviour in business, the problem of occupational fraud is given particular attention. According to evidence gathered by the US Certified Fraud Examiners, occupational fraud and abuse - defined as the use of one’s occupation for personal enrichment through deliberate misuse of an organisation’s resources or assets - cost US organisations more than $400 billion annually. Smaller organisations appear to be most vulnerable to such fraud, mainly because sophisticated internal controls are less common. Surprisingly few occupational fraud cases are uncovered through routine audits but rather as a result of reports by colleagues. Many experts therefore think that an employee hotline is the single most cost-effective measure to deter such fraud, even though that raises serious issues of privacy and protection against slander.

39.        Consumer fraud covers such offences as misleading statements on goods, commercialisation of fake goods, abuse of consumers’ weakness or inexperience, or the non-delivery of goods ordered. Strong consumer organisations and better consumer protection laws are needed in many countries and at international level.

Counterfeiting

40.        The speed at which counterfeiters are using advances in technology is causing alarm among manufacturers and law enforcement officials. Modern computer equipment and the Internet not only render production of counterfeits easier but also facilitate their mass production and open up new distribution channels. Currency counterfeiting, for instance, used to be the preserve of highly-skilled forgers. Nowadays, almost anyone who is computer-literate can make relatively good copies of banknotes. The new breed of forgers is much more difficult to catch than the old, since they often have no criminal record and the equipment they use is inexpensive and legitimate.

41.        The great volumes of goods that can be produced by modern counterfeiting techniques is making this phenomenon an ever greater threat to ordinary manufacturers and, ultimately, employees. Moreover, the quality of counterfeit goods is such as to mislead distributors, retailers and consumers. Compact disks, computer software and hardware, spare parts, medicines, cigarettes, and luxury goods are the most frequently counterfeited products. The World Health Organisation estimates that about 6 percent of pharmaceuticals sold worldwide are forgeries. The International Federation of the Phonographic Industry (IFPI) believes that more than half a million pirated music files are posted on the web. Even though the rights of composers and artists are thereby infringed upon, the legal battle about whether this practice should be seen as unlawful has only just begun.

42. Billions of dollars in sales and royalties are lost each year due to copyright infringements. Intellectual property crime costs British industry £8.2 billion in 1999, marking an increase of nearly 28% on 1998. The speed and accuracy with which excellent replicas can now be made has been dramatically enhanced by modern technology, such as online telecommunications networks and digital copying and ‘down-loading’ devices. Copyright infringement can be carried out by anyone capable of using the Internet, sometimes referred to as ‘the world’s biggest copying machine’. In the United States one third of illegal copying is now done electronically, mostly via the ‘web’. Rapid development and widespread accessibility of emerging multimedia technologies are opening new vistas for intellectual property pirates, as well as new challenges for law enforcers.

43.        Although part of the solution to the problem of copyright infringement may eventually emerge from the industry itself, through anti-counterfeiting technologies such as irremovable digital watermarking and anti-copying devices, legal redress is paramount. Manufacturers may be required by law to exercise due diligence in protecting their products against copying. Educating consumers has an important role to play as well. Consumers should be made more aware of the risks posed by counterfeiting and be encouraged to try to recognise fake products.

44.        The counterfeiting of currency and payment cards goes hand in hand with changes in technology. Each year marks a new record in losses. In 1998, the Canadian Bankers’ Association reported losses due to credit card frauds totalling over $142 million, with about half due to counterfeiting. During the same period, the value of counterfeit bank notes seized in Canada was $5.2 million – double that of the previous year. In United Kingdom, over £6.1 million was seized in counterfeit currency throughout 1998, while the losses incurred by card issuers were some £26 million. As payment cards are increasingly used as a substitute for cash, many frauds privilege “plastic money”.

45.        While the general public will view illegal trading such as in drugs or in human beings with great concern, fewer are those who are aware of the damage caused by counterfeiting. Despite warning notices, many normally law-abiding citizens see nothing wrong in acquiring fake products at ‘better value’. Such behaviour incites counterfeiters to expand their activities, especially since law enforcement bodies often tend to look the other way. Risks to health and safety could, however, be advertised more clearly. Even those who are prepared to buy fake designer clothing and pirated software would be alarmed at the prospect of flying in an aircraft with counterfeit spare parts, or of using fake pharmaceuticals. Growing public awareness could challenge the image of counterfeiting as a harmless activity.

46.        There are no worldwide estimates of the extent of counterfeit, but the European Union believes that about 100,000 jobs are lost due to it within its borders. Counterfeit affects a considerable range of economic sectors. More specifically, it is estimated that 35% of computer software, 25% of audiovisual material and 12% of toys sold in the EU are counterfeit. The International Chambers of Commerce believe that counterfeit products amount to between 5 and 7% of total world commerce, resulting in a loss of 100 billion dollars annually (around € 93 billion). What is also serious is the loss of confidence on the part of market participants as they may have to confront the police or legal authorities on the grounds of abusive sale of counterfeit products they did not know were such.

47.        The EU, alarmed by the situation, has prepared a Green Paper on producer liability, covering also counterfeit and product piracy. It proposes a harmonisation of national legislations on the matter and the creation of a single market at EU level to confront the problem.

48.        At present, the so-called “Madrid Agreements” permit the registration of trademarks either in individual states or at European level, through the World Intellectual Property Organisation. The bureaucratic slowness of this procedure leads many, however, to register a trademark in individual countries - a less rapid but more efficient procedure. The cost of registering a trademark in all the individual European countries amounts to around € 400,000.

49.        Several multinational companies have created their own internal defence structures to protect inventions and copyrights and prefer to take penal rather than civil legal action in order to speed up the process.

50.        The EU study proposes the following areas of intervention:

-       support in favour of private investigation; and cooperation between such private structures and public institutions, in particular for the exchange of information

-        comparative studies of the legislation in place in individual countries and the extension to the European level of those considered efficient and strict.

51.        At European level there is an office for the harmonisation of the internal market (OHIM), headquartered in Alicante, Spain. It is authorised to register EU trademarks and guarantees the compatibility between procedures in different countries. Around sixty countries have adhered to the “Madrid Protocol” of 1989. They include all the member states of the European Union, which thus constituting a fair share of the total number.

Theft, modern style

52.        Theft is the most common crime reported. Theft rates, although hardly ever precise due to underreporting, tend to be higher in industrialised than in non-industrialised countries. Basically anything that has value or that can generate profits may be stolen: retail goods, raw materials, private property (especially jewellery and vehicles), software, works of art, services (telecommunications, information), intellectual property and human beings for ransom, as has been so tragically evidenced in recent times in Chechnya, the Philippines and elsewhere.

53. Theft of telecommunications is a booming business. There are those who simply seek to avoid, or to obtain a discount on, the cost of a telephone call. Others, such as illegal immigrants, are unable to acquire legitimate telecommunications services without disclosing their identity and status. Others again appropriate telecommunications services to conduct illicit business with a lesser risk of detection. Across the world, immense sums of money are being lost through such action. Any business or citizen may become a victim of long distance service thieves. Networks using private key encryption and high-speed data transfer are difficult for law enforcement agencies to penetrate and can greatly increase the capacity of criminal organisations. There is evidence of telecommunications equipment being used to facilitate organised drug trafficking, gambling, prostitution, money laundering, child pornography and the illegal weapons trade. There is also a certain contradiction between, on the one hand, the deregulatory wave sweeping across world’s telecommunications business and, on the other, the desire to control criminal uses of it.

54.        Identity theft for fraud purposes is a more recent phenomenon. The Federal Trade Commission of the Untied States calls it the fastest growing crime of our time. In the not so distant past identity was more easily verifiable, since people conducted most of their transactions in person. Since the development of electronic communications technologies, however, we can no longer be certain that the person at the end of a fibre optic cable is the one he or she claims to be. Using a variety of methods, criminals steal bits and pieces of information about an individual – usually a social security or credit card number or other personal data – and use this information to impersonate their victims and grab as much money as they can. Victims are often left with a bad credit report and may spend a long time trying to regain their financial health. Even worse is when the perpetrator commits crimes in the victim’s name and gives that person a criminal record. The difficulty in establishing a person’s identity with certainty is a boon to criminals, as they are able to fabricate documents which may be used to misrepresent their identity, then commit a crime and ensure that they cannot be located.

55.        Between five and six billion dollars worth of stolen art and antiques are traded yearly. Paintings, sculptures and furniture are snatched from museums, churches or collectors. Artefacts are stolen from excavations and temples. The trade in stolen art is international in scope and rapidly expanding. Interpol reports that Italy, France, the Czech Republic, Poland, the Russian Federation, Germany and Belgium announce the greatest number of thefts of cultural objects. So far, insufficient resources have been allocated to clearing up art thefts, with only about 15 per cent of objects being recovered.

Environmental crime

56.        The protection of the environment and the ensuing environmental laws have a relatively short history of about three decades. Their origin can be found in pollution from industry, growing public concern over ‘quality of life’ and increasing scientific evidence of widespread ecological damage. It is only more recently, however, that the concept of ‘environmental crime’ as something to be sanctioned by society has become more generally accepted in the public mind. Environmental vigilance by the ‘green police’ and by the public has uncovered an increasing number of cases of environmental abuse threatening human health and the stability of eco-systems. If the consequences of air pollution started to be felt many decades ago in some countries, then today’s chemical poisoning of our air, soil and water (notably through ship-sourced marine pollution, including oil spills) has become a truly international phenomenon affecting all countries. One of the unusual aspects of ‘eco-crime’ is the extent to which it inflicts damage on ‘the public good’.

57.        Environmental crime is closely related to economic developments in industrialised countries in particular. Modern production and consumption patterns involve the increasing use of potentially hazardous materials and produce large quantities of waste. The shortage and cost of legitimate waste disposal options encourage illegal ‘shortcuts’. In some countries, such as the United States, strong regulations on waste transport and disposal have created a major waste management industry. In many others, the possibility of ‘shortcuts’ has attracted criminal elements offering illegal solutions. As environmental control is often not readily dealt with within a single jurisdiction, the still meagre international legislation that exists needs to be translated into enforcement measures at national level, including monitoring and sanctions.

58.       Over the past decade environmental laws covering hazardous waste, toxic substances, and air and water pollution have become more stringent in most countries. Paradoxically, however, the laws and regulations designed to protect the environment may have contributed to an increase in environmental infringements. Firstly, businesses have found it increasingly expensive to comply with the new rules and therefore try to minimise or avoid the extra costs, even if it means violating the law. Environmental watchdogs report instances of ‘midnight dumping’, that is, the leaving of hazardous materials or waste by the roadside or in vacant lots. Secondly, environmental offenders and their defence counsels are becoming more sophisticated in their methods. For example, some firms have learned to shield their involvement in illegal activities through the use of intermediaries and dummy corporations, while some environmental defence lawyers are former prosecutors who know the laws and are adept at using procedural techniques to frustrate their application. The subject of ‘eco-crime’ is in fact so complex as to deserve separate study by the Assembly, perhaps through its Committee on Environment and Agriculture.

Influence trading and the illegal financing of political parties

59. In the past ten years or so, politico-financial scandals have rocked many European and other countries. Political and economic elites have come close to losing the credibility upon which democratic societies depend. Political parties are indispensable channels for the expression of the popular will and participation by the public in political life. Political parties need funds for their operations. Faced with rising costs and often scarce public funding, parties and their candidates are under the increasing temptation to seek donations in exchange for political influence.

60. It is essential for citizens, on the other hand, to know who finances a political party or election candidate, and for what purpose. If the purchase of influence involves considerable sums not disclosed publicly, or if it gives disproportionate influence to the wealthy, then it may harm the functioning of both democracy and the economy. The purpose may be to obtain contracts, employment, preferential treatment or favourable legislation. Influence trading should not be confused with supervised forms of lobbying, which is an accepted feature in many countries.

61. The illegal financing of political parties appears to account for about a quarter of all cases involving unlawful enrichment of elected representatives and holders of public office. As the media highlights the behaviour of politicians expected to be models of integrity and guardians of the law, any trivialising of wrong-doing will obviously have an impact on the way the public will view justice. The political class must therefore be vigilant in scrutinising its own conduct.

62.       Power may corrupt and corruption may give power. To overcome corruption we above all need transparency and the strict separation of powers. By restricting the discretionary power of individual office holders in favour of power separation, many states have made considerable progress. However, as the challenge goes well beyond national frontiers, in this Assembly we have to do our utmost to ensure that appropriate international tools are devised and put into general use.

The link between corruption and economic crime

63.        Corruption, often a symptom of a weak state, undermines democracy and impairs the performance of public institutions and the optimal use of resources. It also tends to engender wrong, indeed wrongful, decisions that distort competition and socio-economic development. If corruption is not contained, it will grow unrestrained breeding as a result a culture of illegality and market inefficiency.

64.        The link between corruption and economic crime is not always direct, since corruption can also be engaged in by companies and individuals outside the criminal orbit. However, corruption remains the criminals’ favoured means to infiltrate governments, including the latter’s ability to fight crime. Corruption is therefore a means for crime to make governance dysfunctional. A corrupted police force will drag out investigations. Corrupted police will drag out investigations, corrupted judges will play down or disregard punishable offences. Lawbreaking thereby achieves a degree of immunity that allows it to spread further. Fighting corruption must therefore be a part of the action plan against economic crime.

65.        The ability to corrupt government is a priority for organised crime. Indeed, without such an ability, organised crime groups would not be able to develop beyond a limited level. The efforts to corrupt are not limited to government officials but extend to the business world. In the popular imagination, fostered by films such as ‘The Godfather’, organised crime is a secret society that relies on violence to achieve its ends of accumulating wealth and power. However, while violence or the threat of it is a powerful tool of criminal persuasion, corruption is an essential factor for organised crime to prosper. Unfortunately, too often this nexus is being overlooked. Many law enforcement agencies have separate units dealing with organised crime and corruption. They frequently fail to co-operate and share information.

66.        There is increasing evidence of organised crime venturing into international commercial activities, such as banking and stock market trading, presumably with the help of less scrupulous officials or businessmen. The need to launder the proceeds has drawn organised crime closer to international financial systems and markets. The resulting financial sophistication has opened up new vistas for them.

67.        Corruption and money laundering are becoming increasingly international. The role of offshore financial centres in international financial mediation has already been mentioned. The Council of Europe - at its 4^th Conference of Specialised Services in the Fight against Corruption (Limassol (Cyprus), 20-22 October 2000) - focused on the obstacles posed by certain offshore shore centres when it comes to the investigation and prosecution of corruption, and on the reinvestment of illegal capital in offshore centres and companies. By some estimates, more than half of the world’s stock of money passes through offshore centres. About 20 percent of total private wealth is invested in these centres and about 22 percent of the external assets of banks are invested offshore.

68.        The number and variety of offshore centres – and the use made of them - have increased along with the globalisation of trade and investment and the development of modern information technologies. Blame is laid at the door of only those off-shore centres that offer anonymity or tax avoidance facilities, or that fail to co-operate in criminal investigations. Corruptors, and corruptees, but also drug traffickers and other criminals often resort to the use of token companies or bank accounts domiciled off-shore. International organisations should therefore work on devising instruments, procedures and mechanisms of international co-operation that would facilitate the collection of information and assistance from offshore financial centres.

Money laundering: undermining the economy

69.        Breaking one law often incites to the breaking of another. Corruption is closely related to money laundering, since at a certain stage proceeds of the former need to be cleared through the financial system to re-enter the real economy and appear legitimate. The process of knowingly concealing the source of illegally obtained funds for subsequent legitimate use is called money laundering. As we have already seen, economic crime generates huge sums of money that form the ‘raw material’ for money laundering. If the IMF’s ‘guesstimate’ – that the annual financial gains from criminal activities world-wide amount to $500 billion, or about 2% of the global GDP – is correct then much of it is bound to enter the international capital market.

70.        Action against money laundering is difficult. Perpetrators often mix dirty money with the proceeds from legitimate businesses - especially fast-moving and cash-intensive ones or gambling places. Larger sums will likely be transferred internationally. International electronic banking has given an additional dimension to money laundering. Commercial secrecy, banking confidentiality and offshore legislations continue to place obstacles to investigations. If the money has gone overseas, international co-operation to trace it is required. One laundering action was reported to have taken 45 seconds to complete and 18 months to investigate.

71.        Failure to prevent money laundering allows criminal organisation to accumulate considerable economic and financial power, which may ultimately undermine the integrity of national economies and democratic systems. Only effective and systematic financial market supervision can help reveal the presence of dirty money. The ability to follow the money trail can lead to the criminals. As importantly, the targeting and confiscation of money laundered deprive the criminals of the fruits of their labours. Without usable profit, the criminal activity loses its purpose.

72.        If investigations of money laundering cases and corruption are highly complex and time-consuming, dubious transactions are facilitated by insufficient regulation and lack of co-operation on the part of some of the jurisdictions involved. As we have already seen, this holds particularly for certain offshore financial centres. However, these centres are only the tip of the iceberg. Legal loopholes or lax law enforcement provide multiple subterfuges also in Europe. The Financial Action Task Force on Money Laundering (FATF) in its annual report of June 2000 singles out fifteen countries, among them two Council of Europe member states, as particularly non-cooperative (see Appendix I). In respect of both countries the Council of Europe’s PC-R-EV Committee⁴, an FATF-style regional body, has carried out mutual evaluations, in partnership with FATF, and identified the shortcomings in various anti-money-laundering regimes. The Rapporteur hopes that these will urgently be addressed by the countries concerned.

73.        The list of the 15 countries was drawn up on the basis of laws and regulations already in force. The experts from the 29 FATF countries depart from 25 criteria. Decisions on whether to include a given country must be taken by consensus. Countries that show themselves ‘cooperative’ by improving their legislation may disappear from the list or be in the risk zone of being included.

74.        The current tendency in the fight against money laundering is to enlarge the application of both criminal law and prevention. Traditionally, a private person has only exceptionally been obliged to report to authorities if his or her attention has been drawn to evidence of a crime. However, the trend within the EU, the FATF and the Council of Europe is now to widen this reporting duty also to activities that appear generally suspicious. This development is in response to the increasing complexity of transnational criminality, which requires more contributions from more sources.

75.        As financial systems throughout the world become increasingly linked and interdependent, money laundering has become an issue of global concern. Because it is difficult to detect and therefore measure, it distorts economic data and complicate governments’ efforts to manage economic policy and stability. Although suitcases stacked with bills may still be on the road, the movers of dirty money nowadays increasingly prefer ‘digital highways’. The deregulation accompanying globalisation has combined with modern computer technologies to give money launderers added opportunities - all the more so since transparency of operations has not followed suit. For globalisation to bring the benefits it is capable of bringing, we politicians need to develop globally shared and enforceable standards for a more transparent marketplace.

III.       CRIME AND DEVELOPMENT

76.        The World Bank reiterates that sustainable economic development cannot occur without the rule of law. Accountable systems of governance are necessary to provide the building blocks for economic and human development. Without them, development will stall or be distorted.

77.        One factor assisting in the spread of economic crime is that its ‘risk-reward ratio’ is tilting in favour of the criminals. In many countries, potential rewards for engaging in economic crime at present outweigh the risks of being brought to justice. This may even lead to a situation where economic crime becomes a ‘rational’ course of action for many people that otherwise would not have been tempted. If economic crime goes unpunished, cynicism among the public will grow. This will damage the authority of state institutions and promote a general disrespect for the law.

78.        The connections between crime and politics have become closer in many countries of the world. The rule of law, which is the lifeblood of civilised society, will be the first to suffer and degenerate. Growing lawlessness strains the state’s ability to provide security for citizens. An increase in crime may further erode the state and its institutions. A vicious circle can be set in motion. The far-reaching impact of this on society may be anything from a gradual decline to a total paralysis of political, economic and social institutions. Where and when the state lacks the capacity to enforce the law, organised crime can undermine and replace the authority of the state. Organised crime then becomes a national security problem.

79.        The root causes of economic crime are complex and diverse. However, disruptions in the political or economic environment have been shown to increase the possibilities for criminals to undermine society. For example, a surge in crime was not foreseen as a consequence flowing from the collapse of communism. But it happened, and it made the task of transition more difficult. Of course, crime closely related to a black market economy had also flourished under communism. In the Soviet Union it reached a peak during the Brezhnev era in the 1960s and 1970s, when it became a way to make up for the shortages caused by the system. The sudden shift from a command to a more market-oriented economy was, however, accompanied by a legal vacuum and insufficient law-enforcement resources in many transition countries.

80.        Organised crime has grown considerably in certain countries in South-Eastern Europe over the past few years. Drug trafficking and the smuggling of human beings have expanded their networks up to the frontiers of the European Union and beyond. The route through the western Balkans has become one of the busiest transit points for illegal immigrants from Iraq, China and eastern Europe. The United Nations estimates that this route is responsible for 10 percent of Europe’s illegal immigrants. Within the framework of the Stability Pact for South-Eastern Europe⁵, parties to the agreement have a unique chance to work more closely to devise a comprehensive regional strategy against this evil. Successful integration of South-Eastern Europe into European and global structures will depend critically on the strengthening of institutions, good governance and a reduction in criminal activity.

81.        Certain countries in the region were hit harder than others by the transition changes. The Russian, Albanian and Bulgarian experiences with fraudulent investment schemes, known as pyramid schemes, made a lasting, tragic impact on many among their people and had at its root poor legislation and insufficient governance.

82.        It appears that organised crime operating primarily from within the former Soviet Union states is different in nature from that in Latin America, Western Europe or North America. Transparency International, a non-governmental organisation fighting corruption and economic crime, has rated this region among the most corrupt in the world. Numerous criminal formations comprising an estimated 100 000 individuals are thought to operate in and out of Russia. Many of them engage in extortion or racketeering, drug dealing, bank fraud, counterfeiting, arms trafficking, export of contraband oil and metals, and the smuggling of radioactive materials.

83.        The fears of symbiotic collusion between organised crime and the country’s political and economic elites have prompted the new Russian President to entrust the elite security services with fighting corruption and other criminal occurrences in the higher echelons of power. In February 2001, President Putin sent the Council of Europe’s Convention on Laundering, Search, Seizure and Confiscation of Proceeds from Crime to the State Duma. The Rapporteur hopes that ratification of this important Convention will soon follow. The Russian Ministry of the Interior estimates that organised crime directly or indirectly controls a considerable part of the Russian economy. Economic crime combined with multiple other problems – such as capital flight, a deficient tax system and the lack of transparency – pose a threat to the continued democratisation of Russian society and the recovery of its economy.

84. Public disgust over crime, aspirations for EU membership and pressure from neighbouring countries combine to produce a greater willingness to tackle economic crime, corruption and money laundering in a number of post-communist countries. Taking stock of the ten years of transition, the European Bank for Reconstruction and Development (EBRD) surveyed the quality of governance in twenty transition countries. It found that the relationship between governance and economic reform was not clear-cut. The quality of governance scored more favourably in the most advanced and least advanced economies than in those that had adopted partial reforms (see Appendix II).

IV. ACTION AGAINST ECONOMIC CRIME

85.        The problem of crimes that transcend the borders of individual countries poses a major challenge to the international community. Countries will have to match the growing sophistication of economic crime with more flexible and comprehensive crime control strategies. Their ability to do is still severely hampered by differing and incompatible national laws and practices.

86.        International strategies will include finding ways of reducing demand for the illicit goods and services that are the bread and butter of organised crime; combating powerful criminal networks by seizing their profits and disrupting their operations. Strong and binding agreements among countries are needed. New types of economic crime require new forms of international co-operation.

87.        The international community has a growing number of good instruments at its disposal - the critical issue being rather to what extent they are put to actual use. Most European countries are preparing to ratify one or the other legal instrument against corruption. European anti-corruption dynamics has been fostered by the activities of many international bodies, prominent among them the Council of Europe, the OECD, the United Nations, the OSCE and the European Union.

88.        The Council of Europe’s Criminal Law Convention on Corruption was opened for signature in January 1999 and its Civil Law Convention on Corruption was opened for signature in November the same year. Signature and ratification of these conventions must be speeded up.⁶ The organisation’s so-called Twenty Guiding Principles in the struggle against corruption were set out in Resolution CM [97]24 of the Council’s Committee of Ministers.

89.        In another move, the ‘GRECO’ – or ‘Group of States against Corruption’ – was set up under the auspices of the Council of Europe in 1999. It is responsible for monitoring the measures taken by countries to combat corruption in line with the Council of Europe Programme of Action against corruption. 28 countries participating to date.⁷

90.       A landmark legal text in the fight against money laundering - the Council of Europe’s 1990 Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime - is today widely ratified⁸. It has become a leading instrument for cross-border co-operation on investigations into money laundering. It will soon be reviewed in order to identify possible shortcomings. In the area of legal and non-legal measures against money laundering, the Council of Europe in 1997 created an FATF-style regional body called the PC-R-EV Committee, which conducts mutual evaluations in those Council of Europe states that are not covered by the FATF itself. Following the first round of evaluations (1997-2000), a second round focusing on the implementation of the PC-R-EV’s recommendations will start in July 2001.

91.        The OCTOPUS project, a joint venture of the Council of Europe and the Commission of the European Union until the end of 2000, has evaluated the situation in 17 central and eastern Europe countries⁹ with regard to legislation and practices in the fight against organised crime and corruption, whilst strengthening the capacity of these countries to combat such phenomena more effectively. As from 2001 the OCTOPUS project will continue with the sole support of the Council of Europe. Furthermore, a model Code of Conduct for Public Officials was adopted by the Committee of Ministers at its 106^th session in May, 2000.

92.        Council of Europe member states have responded to the need to ensure fair financing of political parties in different ways. However, a number of issues, for instance the disclosure of contributions and transparent book-keeping have not found optimal solutions in some countries. The Rapporteur is therefore glad that the Council of Europe is tackling this problem. A Multidisciplinary Group on Corruption is working within the framework of the Programme of Action against Corruption, also basing its work on the conclusions from two Conferences of Specialised Services in the Fight against Corruption (Tallinn in October 1997 and Madrid in October 1998). A comparative study on the existing systems for the financing of political parties (GMC (99) 23 revised) has been drawn up and the guidelines on the financing of political parties are being prepared.

93.        The Council of Europe has also set up a Committee of Experts on Crime in Cyberspace. In April 2000, after four years of work, it released the first draft of a Convention on Cyber-crime for public discussion with interested parties, whether public of private. Businesses and associations were particularly encouraged to share their comments with the experts involved in the negotiations, before the final adoption of the text and the opening for signature, foreseen for 2001¹⁰. As these lines are written, the Parliamentary Assembly prepares to debate the draft Convention at its April 2001 part-session on the basis of a report of its Committee on Legal Affairs and Human Rights and a parliamentary hearing on the subject.

94.        Over the last decade the Council of Europe has elaborated two instruments aimed at ensuring adequate compensation for damage resulting from activities dangerous to the environment. These are the Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment and the Convention on the Protection of the Environment through Criminal Law. Unfortunately, few member states have so far signed, calling for greater pressure from the Assembly to change the situation.

95.       In the area of organised crime, the Council of Europe has played a significant role by preparing, since 1996, annual reports on the situation as regards organised crime in the member states, and by producing ‘Best Practice Surveys’ for policy makers. It has also drawn up draft guiding principles covering the aspects of both prevention of and deterrence against organised crime. These principles are expected to be adopted by the Committee of Ministers in the course of 2001.

96.        The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which came into force in February 1999, tries to ensure fair trading conditions, especially at international level.¹¹ As the name indicates, however, it limits itself to economically relevant corruption of foreign public officials. It aims at reducing the occurrence of corrupt payments for contracts by sanctioning those who bribe and their accomplices. The OECD is now trying to expand the convention’s scope to the private sector, or draw up a new text for that purpose. This is something the Rapporteur welcomes, since bribery is bribery in any form or shape. Imagine, for instance, an airline official receiving a bribe for facilitating the ordering of a particular aircraft. If the airline is state-owned it counts as bribery, whereas if it is private it may not be punishable.

97.        The United Nations has over the past few years forged a new treaty intended to close major loopholes that have so far allowed organised crime to flourish and block international efforts to combat it. The United Nations Convention against Transnational Organised Crime - along with protocols covering trafficking in women and children, smuggling of migrants and illegal arms trade – was opened for signature in the Rapporteur’s home country Italy in December 2000 and will come into force when forty countries have ratified it. The new instrument spells out how countries can improve co-operation on such matters as extradition, mutual legal assistance, transfer of proceedings and joint investigations. It contains provisions for victim and witness protection and for shielding markets from infiltration by organised criminal groups. Furthermore, there is a provision in the treaty for regular monitoring of countries’ compliance with it.

98.        The European Union for its part has produced several texts: a 1995 Convention on the Protection of Financial Interests of the Community, followed by three Protocols in 1996 and 1997; a 1997 Convention on the Fight Against Corruption involving officials of the European Communities or officials of the member states of the European Union; and a 1991 Directive on Money Laundering. There are also initiatives afoot to harmonise criminal law, covering bribery in the context of the EU, in the form of a Corpus Iuris with a supra-national dimension.

99.        The Europol - set up in 1994 under the provisions of the Maastricht Treaty - is another European Union response to organised crime. By 1998 the Europol Convention had been ratified by all EU member states. In dealing with the full range of the economic crime, Europol focuses on support to police and other investigators in the European Union through co-ordination, exchange and analysis of intelligence. Europol will also participate in the fight against the forgery of money and means of payment, not least to protect the new euro bills when they are launched in 2002. Europol has been particularly efficient in large-scale operations involving several member states and where different types of economic crime converge. Of the total number of enquiries, about 60% are related to drugs, some 19% to illegal immigration networks and trafficking in human beings, about 13% to trafficking in stolen vehicles and about 8% to money laundering.

100.        As is obvious from these figures, illicit drug trafficking takes up the major share of Europol’s resources. Its Early Warning System, carried out in close co-operation with the European Monitoring Centre for Drugs and Drug Addiction, analyses and informs about the risks to both individual health and to society arising from new substances.

101.        A controversial debate has arisen as to whether Europe can realistically hope to solve the drugs problem by cutting both demand and supply, or whether it should resign itself to something less ambitious. Meantime, law enforcers desperately need closer co-operation. One framework is the Council of Europe’s highly successful “Pompidou Group” Partial Agreement. Europol is another, in particular within the EU but also, one must hope with countries aspiring to joining it.

102.        Studies of the European Union reveal a desire of member states for simpler, more effective rules in fighting economic crime. Conventions must be regularly reviewed so as to cover the present rather than the past, for instance through protocols. Our parliaments have the responsibility to enact them more quickly through speedy ratification and by making sure they do not remain dead letter.

103.        The tangle of different laws and regulations – complicated enough even at national level – works to the advantage of the authors of economic crime. Countries in this situation must work to simplify laws, make the legal nexus surrounding a given type of economic crime more transparent, eliminate loopholes and work closer together to achieve similar improvements at European and world level. Research should also deal with changes in crime patterns and the policy modifications needed to tackle them.

104.        European judicial co-operation is hampered by the difficulties involved in trying to blend different legal systems and by legitimate concerns for sovereignty. It for this reason lags considerably behind European law enforcement co-operation, although the latter also has some way to go. Building a Euro-wide judicial network, as recommended by the 1997 European Council Action Plan, will no doubt take much time, but could be particularly advantageous when it comes to economic crime. Reaching to the profits from drugs through anti-money-laundering measures is one example.

105.        There is also a need for coherent policies. For instance, crop substitution to fight drug production at the source may only create new problems in a neighbouring country. Furthermore, for crop substitution to succeed there needs to be open markets for alternative crops grown. This is particularly important for many drug-producing countries dependent on agricultural exports.

106.        Raising awareness of the rising tide in economic crime is paramount. The more countries become conscious of the difficulties and costs of dealing with the problem in isolation from each other, the more likely they are to look favourably to international cooperation.

107.        There needs to be a minimum overall picture and objectives agreed by all. Co-operation can be hurt by an excessive production of international texts and mechanisms, as it becomes increasingly difficult to navigate between the interpretation of each. Streamlining mechanisms already in place, providing them with the necessary resources and strong political support are essential to avoid duplication of effort or gaps in the co-operation.

108.        The key to the disruption of criminal networks lies in being reactive to the point of being proactive. The goal is to get ahead of criminals, not to stay behind them. As criminal circles take advantage of new opportunities, so must the law and its enforcement.

V. CONCLUDING REMARKS

109.        The present report has been able only to skim the surface of an extremely wide and complex subject. The Rapporteur has chosen essentially to give an account of the most troubling manifestations of economic crime. She considers the fight against economic crime and the many evils accompanying it as absolutely central in the fight for human rights and democracy.

110.        The rupture of the political equilibrium in the world after the fall of the Berlin Wall have – together with the development of new communication technologies and globalisation affecting our economies – produced a series of negative phenomena. Most countries, especially those in transition, have found themselves ill-prepared to tackle and defend themselves against the tide of economic crimes such as cyber-crime, fraud, counterfeit, money laundering and corruption. This has shown itself even more in the exponent ional growth in organised crime, in areas such as drugs and arms trafficking, prostitution and, more recently, the smuggling of human beings.

111.        Many of these phenomena find fertile ground not only in poverty but also in the incitement to consumerism, in the lack of culture and above all in the delay by many countries to prevent and suppress economic crime. As economic criminals increasingly ‘go international’, so must our laws and law enforcement. National judicial powers and police forces should have the possibility to act beyond their own frontiers in order to be able to go to the jugular of economic crime. There must, in addition to national norms, be wide-reaching international agreements and conventions to prevent all types of economic crime.

112.        Very often a successful shadowy venture opens the way to other forms of economic crime, as the breaking of one rule makes it so much easier to break others. One of the best ways to fight economic crime is to strike against illicit profits, thereby preventing such funds from being invested in other criminal activities.

113.        The countries of the Council of Europe must therefore sign the UN Convention against Transnational Organised Crime and the relevant protocols dealing with trafficking in women and children, clandestine immigration and illegal arms trafficking. We must follow attentively the work of our Assembly’s Political Affairs Committee and that of international institutions on the financing of political parties and electoral campaigns, and make sure that there be maximum transparency in all countries as regards the budgets of parties and candidates. We, as politicians, must strike against lax legislation and the enrichment of individuals, knowing that these phenomena cause damage to true political democracy. Finally, we need a convention on counterfeit production, which undermines competition and hampers human inventiveness.

114.        Finally, a few thoughts for the future raised by various members of the Committee on economic Affairs and Development in the course of the adoption of this report. One was to take up the extremely serious issue of child pornography and its links with organised crime. Another was to examine how our modern economy has in fact set the stage for certain new forms of crime. One example is subsidies, where large sums travel from a government - or from the centre in the case of the European Union - via often several middlemen to the subsidised company or individual. Here it can easily happen that, as the saying goes, “opportunity makes the thief”. Another example is big tenders offered by, for instance, cities, where temptations to corrupt and to be corrupted arise. Another concern raised by Committee colleagues is that our system of justice tends to be much more efficient in catching, and more severe in judging, the petty criminal than the ‘big fish’. Corporations that may commit occasional economic crime alongside its normal law-abiding activities, for example, can get away with a lot, especially if they are powerful actors in society.

115.        One final thought appearing in many comments has been that, as we fight economic and organised crime, we must beware of doing anything to harm that which we cherish most, namely democracy, the rule of law and human rights, especially the right to privacy of law-abiding citizens and the presumption of innocence for all. In other words, let us not through out the baby with the bath water; for in winning a battle we may well find that we have lost our cause for war. Our societies must be strong and confident enough to win the war against economic crime while preserving our essential freedoms. Indeed, were we ever to sacrifice them on the altar of presumed crime-fighting efficiency, then we would have lost the war even before our enemies are in sight.

APPENDIX I:

15 “non-cooperative” countries in respect of anti-money laundering investigations, as suggested by the Financial Action Task Force on Money Laundering in its 1999-2000 Report of 22 June, 2000

Bahamas

Cayman Islands

Cook Islands

Dominica

Israel

Lebanon

Liechtenstein

Marshall Islands

Nauru

Nike

Panama

Philippines

Russia

St. Kitts and Nevis

St. Vincent and the Grenadines

APPENDIX II:

The “quality of governance” in countries in transition, as suggested by the EBRD (Scale from 3 (good governance) to 0 (poor governance)

Governance index       Percentage of firms reported to be “bribing frequently”

Hungary       1.98       31.3

Slovenia       1.95       7.7

Estonia       1.95       12.9

Uzbekistan       1.83       46.6

Armenia       1.72       40.3

Poland       1.69       32.7

Slovak Republic       1.65       34.6

Czech Republic       1.59       26.3

Belarus       1.57       14.2

Lithuania       1.54       23.2

Azerbaijan       1.53       59.3

Croatia       1.43       17.7

Bulgaria       1.38       23.9

Kazakhstan       1.27       23.7

Georgia       1.24       36.8

Ukraine       1.24       35.3

Russia       1.16       29.2

Romania       1.07       50.9

Kyrgyzstan       0.85       23.7

Moldova       0.82       33.3

*Source : EBRD 1999 Business Environment and Enterprise Performance Survey

Reporting committee: Committee on Economic Affairs and Development.

Reference to committee: Doc. 7704 and Reference No 2147 of 27.1.1997

Draft recommendation unanimously adopted by the committee on 29 March 2001.

Members of the committee: Ms Zapfl-Helbing (Chairperson), Stepova, Kirilov, Blaauw (Alternate: Duivesteijn) (Vice-Chairpersons), Adam, Agius, Agramunt (Alternate: Yanez-Barnuevo), Akgönenç, Aleffi (Alternate: Lauricella), Aliyev, Andersen, Anusz, Arnau, Aylward (Alternate: Higgins), Berceanu, Billing, Blattmann, Bojars, Bonet Casas, Braun, Brunhart, Budisa (Alternate: Bulic), Burbiené, Calner, Cerrahoglu, Clinton-Davis, Cunliffe (Alternate: Etherington), Cusimano (Alternate: Turini), Dokle, Elo, Eyskens (Alternate: Annemans), Freyberg, Gryzlov (Alternate: Slutsky), Gülek, Gusenbauer, Haupert, Hoffmann, Hrebenciuc, Jung, Kacin, Kestelijn-Sierens, Kittis, Kosakivsky, Leers, Liapis, Lopes Cardona, Lotz, Makhachev, Mateju, Mitterrand, Naumov (Alternate: Kolesnikov), Patarkalishvili, Pereira Coelho (Alternate: Cesário), Ponsonby, Popa, Popescu (Alternate: Poroshenko), Popovski, Prokes, Puche, Ragnarsdottir, Reimann (Alternate: Marty), Riccardi, Rigo, Schmitz, Schoettel-Delacher, Schreiner, Schütz, Seyidov, Squarcialupi, Stoyanova, Suslov, Tallo, Townend, Tsekouras, Ustiugov, Valleix; Wielowieyski.

N.B. The names of those members present at the meeting are printed in italics.

Secretaries of the committee: MM. Torbiörn, Bertozzi, Ms Ramanauskaite.

¹ The G-8member states are: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States.

² Report on the Community Transit System, by the Committee of Inquiry into the Community Transit System of the European Parliament (Rapporteur: Mr Edward Kellett-Bowman), February 1997.

³ The FATF is an independent international body based at OECD headquarters. It has 29 member countries : Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong – China, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. The European Commission and the Gulf Co-operation Council also participate.

⁴ The Council of Europe’s Committee of Experts on the Evaluation of Anti-Money-Laundering Measures (PC-R-EV)

⁵ The Stability Pact Anti-Corruption Initiative (SPAI) and the Stability Pact Initiative on Organised Crime (SPOC) were adopted in Sarajevo in February 2000

⁶ The Criminal Law Convention on Corruption (ETS n° 173) by 4 April 2001, had been ratified by Croatia, the Czech Republic, Cyprus, Denmark, Hungary, Latvia, Slovakia, Slovenia and “the former Yugoslav Republic of Macedonia”, and signed by Albania, Austria, Belgium, Bulgaria, Estonia, Finland, France, Georgia, Germany, Greece, Iceland, Ireland, Italy, Lithuania, Luxembourg, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Sweden, Switzerland, Ukraine and the United Kingdom, as well as Bosnia and Herzegovina and the United States of America.

The Civil Law Convention on Corruption (ETS n° 174) by 4 April 2001, had been ratified by Albania, Bulgaria and Estonia, and signed by Austria, Belgium, Cyprus, the Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Moldova, Norway, Poland, Romania, Slovakia, Sweden, “the former Yugoslav Republic of Macedonia”, Ukraine and the United Kingdom, as well as Bosnia and Herzegovina.

⁷ Belgium, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Latvia, Lithuania, Luxembourg, Norway, Poland, Romania, Slovakia, Slovenia, Spain, Sweden, “the former Yugoslav Republic of Macedonia”, the United Kingdom, as well as Bosnia and Herzegovina and the United States of America.

⁸ The Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (ETS n° 141) by 4 April 2001, had been ratified by Andorra, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Malta, the Netherlands, Norway, Poland, Portugal, San Marino, Slovenia, Spain, Sweden, Switzerland, “the former Yugoslav Republic of Macedonia”, Ukraine, United Kingdom and Australia, and signed by Albania, Luxembourg, Moldova, Romania, Russia and Slovakia.

⁹ The 17 countries are Albania, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Slovakia, Slovenia and “the former Yugoslav Republic of Macedonia”.

¹⁰ The text of the draft Convention can be consulted on the Council of Europe website:

http://conventions.coe.int/treaty/en/projets/cybercrime.htm

¹¹ The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions by February 2001 had been ratified by 28 countries (Australia, Austria, Belgium, Brazil, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Japan, Korea, Mexico, Norway, Poland, Slovakia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States) and signed by 34 countries (29 OECD Member countries and 5 non-member countries, such as Argentina, Brazil, Bulgaria, Chile and Slovakia)