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Module Title: Clandestine Side of Globalisation: Organized crime,

terrorism, and Corruption

Module Code: 6YYR003

(e.g. 5AAOB000)

Assignment: Essay 1

(may be abbreviated)

Assignment tutor/group: 6YYR003

Deadline: 28 March 2023

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 The corrupt characters who run shadow economies are often conceived of as
non-institutional thugs or groups. Arguably the most discussed are sophisticated mafioso
networks and the more modern examples of gangs and terrorist groups in collapsed or terrorist
infested regions. But amongst, and often in tandem with the Mafia’s and mobsters' networks
emerge the involvement of large corporations and states, who initiate or at the very least
knowingly enable and grow organized initiatives to secure profits from illegal criminal activity.
Using case studies of Tobacco smuggling as corporate organized crime and US oil pipeline
construction for the state example, this paper aims to articulate the profound influence that
corporations and states have on organized crime. By redefining corruption to shift blame, they
embody the liberal order of democracy and free markets, while their internal evasion of laws and
morality both attract other organizers of crime or in some cases become the orchestrates of illicit
activities themselves.

Acknowledging firstly that organized crime and corruption are both vast topics
independently and in their overlap, much can and has been written about the subject. As such,
this essay does not intend to provide a comprehensive approach to the overlap and conception of
the intersection of organized crime and corruption. Rather, adopting an institutional lens chooses
to focus on states and corporations as corrupt in their efforts to orchestrate or engage in
sophisticated illicit activities, so that the corruption of corporations and states enables their
transformation into organized crime actors.

That being said, An inherent problem in establishing how organized crime and corruption
are conceptualized, are definitions. Organized crime, while varies is relatively uniform in that it
contains the essential elements of a structure or organization, which in a somewhat coordinated
effort commits illegal activity to obtain financial or material gain. Some definitions stipulated
that the organizations must consist of three or more persons1 while interestingly others specified
the organization having connections with political or economic elites2. However, the criteria of
the illicit activity being an organized multi-actor effort pursued financial or material gain are
commonly found.

How corruption is conceived of and defined, however, is more varied. What the world
bank defines as “the abuse of public office for private gain”,3 entirely misses the illegal use of
state power for the interests of the state for example. But what does become established as a
common thread is that corruption is widely conceived as levying some sort of power or influence
often institutional in nature. Focusing then, on corruption in an institutional context, the question
arises of how instrumental are institutions in the development and preparation of organized crime
networks.

1
UN Convention against Transnational Crime, 2000
2
Von Lampe, Organised Crime in Europe: Conceptions and Realities
3
World Bank “Anti Corruption Fact Sheet”
 Scholars like Margaret Beare argue that corruption has been used to promote Western
global economic practices, claiming that a global flow of resources with restricted trade barriers
will increase accountability in commerce, cutting out organized criminal operations that have a
foothold on states4. Meaning by standardizing accountable commerce practices global trade can
monitor or address corruption. But this narrative itself largely excludes the issue of policing and
moderating internal domestic corruption. Meaning it conceives corruption as an international
rather than domestic threat which must thus be countered with the conveniently profitable
solution of globalized trade.

An obvious example of domestic and international corporate corruption used to facilitate

crime is the illegal Tobacco trade. Examining the case of tobacco smuggling in Canada for
example, the massive difference in Canadian taxes on imported tobacco products as compared to
the United States incentivized the transportation of tobacco across the border to be re-sold in the
United States. 5To be clear the illegal activity was not the transportation of tobacco but the
avoidance of taxes and tariffs on such products. Importantly, the smuggling in question was
largely performed by sophisticated organized crime networks, who invested profits into weapons,
casino operations, and even political lobbying initiatives. This was a large focus of the early
criminal investigation conducted by the RCMP (Royal Canadian Mounted Police), framing the
criminal activity as a classic case of mobsters and gangs capitalizing on trafficking to perpetuate
illicit activities6.

What was not investigated until much later was that Tobacco companies knowingly
exported almost 90 percent more cigarettes than they had reason to believe the foreign market
demanded, therefore being active players in supplying an illicit commodity for smugglers.7
Meaning by depending on the trafficking of illegal products for increased revenues, and for
openly accounting for it in budgets, tobacco corporations enabled, benefited from, and were
ultimately key players in the tobacco trafficking industry. When eventually prosecuted8, charges
included contracts to importing companies (later indicted for money laundering and smuggling),
and tax evasion through exporting package manufacturing to other countries for products to be
smuggled back in.

Similar examples include Phillip Morris tobacco companies making shipment

arrangements for product smuggling, selling products to persons known to be smugglers, and
intentionally misleading or falsifying bills, shipment and other documents to enable and expedite
smuggling. Tellingly, in the case brought forward against the company by Columbia, the
Columbian officials explicated that tobacco corporations themselves were not only essential to
4
James W. Williams and Beare E. Margaret, “The Buisness of Gloablization, Economic Liberlization, and the
‘Problem’ of Corruption, 90-93
5
Beare E. Margaret, Oragnized Corporate Criminality: Corporate complicity in Tobacco smuggling, 184
6
Ibid, 190
7
Ibid, 194
8
In the case of Attorney General of Canada v. RJ Reynolds Tobacco Holdings RJR
the enormous success of the smuggling efforts, but allegedly “controlled, directed, and facilitated
the smuggling operations” 9. Thus, in many ways, the corporations themselves were crime
organizations. Put best by Beare:

“There is no justification for separating off the suppliers of the illegal commodity -
categorizing the other 'players' as an organized crime while the tobacco companies are viewed as
merely neglectful or, at most, occasionally guilty of 'white-collar crimes,' but always less guilty
than organized criminals. Hence, as Robert Blakey suggested, the individuals who orchestrate
and carry out the transactions, if they are convicted, are organized criminals” 10

Further investigations into tobacco industry titans RJR-Macdonald demonstrated a willingness

to advertise to demographics only able to afford black market tobacco markets, employment of
Manillan children as vendors, and for complacency in smuggling across European, Chinese,
South African, Latin American, and Vietnamese, in addition to Canadian borders. As expected,
the case brought forward against the tobacco companies was dismissed by US courts despite
supporting briefs filled by European courts, and labelled as a classic case of external states
meddling in domestic affairs. Thus although largely avoiding the classification of corruption, the
involvement of large tobacco corporations in the smuggling of their own products was a key
condition in the success of the illegal tobacco trade, and thus the corporate corruption enabled
the success of an organized crime industry.

Regarding the involvement of states in shaping the narrative around corruption and
crime, similar to the corporate targeting of classical developing countries being the routes of
corruption, states neglect to focus inwards when addressing the problem of corruption. US
State-sponsored studies of corruption from the 1900s largely focused on indigenous activities in
foreign countries sowing the seeds for corruption, neglecting to address how international
financial systems were corrupting countries states were so intent on ‘globalizing’. For instance,
the US government used of IMF as a vehicle to infiltrate Asian Markets,11 despite claiming that
to achieve ‘globalized potential’, international markers required a ‘vigorous anti-corruption
campaign’ (Kotkin. Year). Naturally, the findings of the solution to de-escalating corruption were
democratization and liberalization, Western championed solutions for crime, but consideration
for the institutional mechanisms that could support these enormous political structural changes,
and a lack of a stable private sector compared to other classically successful democracies meant
that developing countries were essentially set up for failure. Importantly, this G-7-centric
application of democracy shapes western investor practices, which will then, in turn, shape the
currency and security prices of states (395). So in effect by monopolizing the discourse around

9
The Departments of the Republic of Colombia v. Philip Morris Defendants [BAT Defendants], U.S. District
Court, Eastern District of New York, Docket No. 00 Civ. 2881 (NGG), 6 November 2000.
10
Margaret E. Beare, Corporate complicity in Tobacco smuggling, 200.
11
J. Khan and T.L O’Brien. 1998
how corruption is conceived of, powerfully and economically significant states are perpetuating
the conditions that enable corruption in developing and underdeveloped states.

Yet despite their continued efforts to deflect the blame for corruption and the crime it
invites, the internal corruption of some developed and democratic states has enabled highly
lucrative coordinated illicit activities. An indicative example of this is the oil industry in the US.
Putting aside the massive corporate bonuses and oligarchical practices the industry breeds, the
state's circumvention around and rewriting of legal and procedural rules to pursue profit-driven
ventures enabled illegal activity.

The construction of the Alaskan pipeline in the town of Valdez began in the 1970s
without state permits and was met with dozens of environmental lawsuits but was cleared
because of a “special bill” put forward by Washington so that state initiatives could superseded
legal frameworks and enable projects they handpicked. The site of the pipeline itself was a
breeding ground for theft, rape, murder, illegal gambling and prostitution12 The staggering $8
billion cost of production inspired colossal jumps in Alasken state and corporate investments
from $368 million in 1978 to a total of $4.5 billion in the early 1980s. All project oversight was
completed by candidates handpicked by government and corporate offices, with no government
oversight, carried out projects far exceeding normal spending patterns with tiny municipalities
spending over $1 million per day, and schoolhouses costing hundreds of thousands per student.
All projects were expedited by government authorities and automatically approved.

Suspicious money practices were conducted both within and outside of state offices. When it
came to dividing the enormous state budget the Alaskan legislature circumvented the Alaskan
constitution and divided the money equally between the Alaskan state governor, senate, and
house. Highly suspicious monetary behaviour took place in the following ten years including the
allocation of $350 million to consulting services for damn that was never built, and around $1
billion allocated for public housing was written off as ‘bad loans’ 13The other important yield of
these construction sites was mounting claims from contractors of extortion and bribes, and
civilian death under suspicious circumstances. Notably, the former deputy minister for Alaska
Richard L. McVeigh was indicted along with eight others on charges of attempts to establish a
large‐scale prostitution and gambling operation for Alaskan pipeline workers. Notably, three of
the eight members charged in the case were known mafia associates14.

To be clear, this paper acknowledges that state and corporate corruption are not one and
the same. Some states might have built-in measures that allow the state to supersede law to
accomplish goals for the interest of the state, a raison d’etat, which corporations do not have the
liberty to uphold. Conversely, it can be argued that corporate executives are not held to the same

12
Political Corruption in Transition: A skeptics handbook” Stephen Kotkin, 406
13
J. Strohmeyer, Extreme conditions: Big-Oil and the Transformation of Alaska, 8
14
New York Times, Ex‐U. S. Attorney and 8 Others Indicted in Alaska Prostitution
standards of ensuring they pursue the interests of society, as they might be inclined to pursue
profits above moral ethics. The common thread, however, and thus the reason they have both
been included in this paper is their continued shared evasion of the label of corrupt despite
continuous evidence for their facilitation and involvement in organized crime. The point is that
there seems to be a double standard applied to shadow terrorist groups and gangs as corrupt
when the profit they garner from coordinated criminal operations is often enabled by or
comparable to the criminal activity of states and legal corporations. Additionally, the scope of
this paper has been purposely narrowed to focus on corruption in democratic states. This is under
the assumption that, unlike a dictatorship, this holds states accountable for pursuing the best
interests of its people.

In Summary, corporate and state interests have played a pivotal role in the success of organized
crime. Not only are they responsible for breeding grounds for crime such as oil pipelines with
thousands of workers in small towns, and turning away from huge illegal streams of revenue but
they are responsible for direct organized crime network. Importantly, an interwoven pattern of
state failure to prosecute corporations or modify state policies, results in a compelling case of
state blindness to coordinated corporate crimes, and the unwillingness of the state to conceive of
the instances as corruption.
Sources:

Beare E. Margaret, The Buisness of Bribery: Globalization, Economic Liberization and the
Problem of Corruption, University of Toronto Press, 1996

Beare E. Margaret, Organized Corporate Criminality: Corporate complicity in Tobacco

smuggling, 183-206, University of Toronto Press, 1996

J Stromeyer, Extreme conditions: Big-Oil and the Transformation of Alaska (New York Simon
and Schuster, 1993), 10-1

The UN Convention against Transnational Crime, 2000

The New York Times Ex‐U. S. Attorney and 8 Others Indicted in Alaska Prostitution, July 9,
1976

Tat Yan Kong, “Corruption and its Institutional foundations: The Experience of South Korea”,
IDS Bulletin, 27/2 (1996), pp. 48-55.

Political Corruption in transition: skeptics guide, “Liberalism, Geopolitics and Social Justice”
Central European Univerity Press. 388-210

World Bank “Anti Corruption Fact Sheet”, 2020

Von Lampe, Organised Crime in Europe: Conceptions and Realities Klaus von Lampe published
in: Policing: A Journal of Policy and Practice, 2(1), 2008, 7-17