How to pronounce "counterfeit"

These are grim economic times,

fellow TEDsters, grim economic times indeed.

And so, I would like to cheer you up

with one of the great, albeit largely unknown,

commercial success stories

of the past 20 years.

Comparable, in its own very peculiar way,

to the achievements of Microsoft or Google.

And it's an industry which has bucked the current recession

with equanimity.

I refer to organized crime.

Now organized crime has been around

for a very long time, I hear you say,

and these would be wise words, indeed.

But in the last two decades,

it has experienced an unprecedented expansion,

now accounting for roughly 15 percent

of the world's GDP.

I like to call it the Global Shadow Economy,

or McMafia, for short.

So what triggered this extraordinary growth

in cross-border crime?

Well, of course, there is globalization,

technology, communications, all that stuff,

which we'll talk about a little bit later.

But first, I would like to take you back

to this event:

the collapse of communism.

All across Eastern Europe, a most momentous episode

in our post-war history.

Now it's time for full disclosure.

This event meant a great deal to me personally.

I had started smuggling books across the Iron Curtain

to Democratic opposition groups in Eastern Europe,

like Solidarity in Poland,

when I was in my teens.

I then started writing about Eastern Europe,

and eventually I became the BBC's chief correspondent for the region,

which is what I was doing in 1989.

And so when 425 million people

finally won the right

to choose their own governments,

I was ecstatic,

but I was also a touch worried

about some of the nastier things

lurking behind the wall.

It wasn't long, for example,

before ethnic nationalism

reared its bloody head

in Yugoslavia.

And amongst the chaos,

amidst the euphoria,

it took me a little while to understand

that some of the people who had wielded power

before 1989, in Eastern Europe,

continued to do so after the revolutions there.

Obviously there were characters like this.

But there were also some more unexpected people

who played a critical role in what was going on in Eastern Europe.

Like this character. Remember these guys?

They used to win the gold medals in weightlifting

and wrestling, every four years in the Olympics,

and they were the great celebrities of communism,

with a fabulous lifestyle to go with it.

They used to get great apartments in the center of town,

casual sex on tap,

and they could travel to the West very freely,

which was a great luxury at the time.

It may come as a surprise, but they played a critical role

in the emergence of the market economy

in Eastern Europe.

Or as I like to call them, they are

the midwives of capitalism.

Here are some of those same weightlifters

after their 1989 makeover.

Now in Bulgaria --

this photograph was taken in Bulgaria --

when communism collapsed all over Eastern Europe,

it wasn't just communism;

it was the state that collapsed as well.

That means your police force wasn't working.

The court system wasn't functioning properly.

So what was a business man in the brave new world

of East European capitalism going to do

to make sure that his contracts would be honored?

Well, he would turn to people who were called, rather prosaically

by sociologists, privatized law enforcement agencies.

We prefer to know them as the mafia.

And in Bulgaria, the mafia was soon joined

with 14,000 people

who were sacked from their jobs in the security services

between 1989 and 1991.

Now, when your state is collapsing,

your economy is heading south at a rate of knots,

the last people you want coming on to the labor market

are 14,000 men and women whose chief skills

are surveillance,

are smuggling, building underground networks

and killing people.

But that's what happened all over Eastern Europe.

Now, when I was working in the 1990s,

I spent most of the time covering

the appalling conflict in Yugoslavia.

And I couldn't help notice

that the people who were perpetrating the appalling atrocities,

the paramilitary organizations,

were actually the same people running

the organized criminal syndicates.

And I came to think that behind the violence

lay a sinister criminal enterprise.

And so I resolved to travel around the world

examining this global criminal underworld

by talking to policemen,

by talking to victims, by talking to consumers

of illicit goods and services.

But above all else, by talking to the gangsters themselves.

And the Balkans was a fabulous place to start.

Why? Well of course

there was the issue of law and order collapsing,

but also, as they say in the retail trade,

it's location, location, location.

And what I noticed at the beginning of my research

that the Balkans had turned into a vast transit zone

for illicit goods and services coming from all over the world.

Heroin, cocaine,

women being trafficked into prostitution

and precious minerals.

And where were they heading?

The European Union, which by now

was beginning to reap the benefits of globalization,

transforming it into

the most affluent consumer market in history,

eventually comprising some 500 million people.

And a significant minority

of those 500 million people

like to spend some of their leisure time and spare cash

sleeping with prostitutes,

sticking 50 Euro notes up their nose

and employing illegal migrant laborers.

Now, organized crime in a globalizing world

operates in the same way as any other business.

It has zones of production,

like Afghanistan and Columbia.

It has zones of distribution,

like Mexico and the Balkans.

And then, of course, it has zones of consumption,

like the European Union, Japan

and of course, the United States.

The zones of production and distribution

tend to lie in the developing world,

and they are often threatened by appalling violence

and bloodshed.

Take Mexico, for example.

Six thousand people killed there in the last 18 months

as a direct consequence of the cocaine trade.

But what about the Democratic Republic of Congo?

Since 1998, five million people have died there.

It's not a conflict you read about much in the newspapers,

but it's the biggest conflict on this planet

since the Second World War.

And why is it? Because mafias from all around the world

cooperate with local paramilitaries

in order to seize the supplies

of the rich mineral resources

of the region.

In the year 2000, 80 percent of the world's coltan

was sourced to the killing fields

of the eastern Democratic Republic of Congo.

Now, coltan you will find in almost every mobile phone,

in almost every laptop

and games console.

The Congolese war lords were selling this stuff to the mafia

in exchange for weapons,

and the mafia would then sell it on to Western markets.

And it is this Western desire

to consume

that is the primary driver

of international organized crime.

Now, let me show you some of my friends in action,

caught conveniently on film by the Italian police,

and smuggling duty-not-paid cigarettes.

Now, cigarettes out the factory gate are very cheap.

The European Union then imposes the highest taxes on them in the world.

So if you can smuggle them into the E.U.,

there are very handsome profits to be made,

and I want to show you this to demonstrate

the type of resources available to these groups.

This boat is worth one million Euros when it's new.

And it's the fastest thing on European waters.

From 1994, for seven years,

20 of these boats

made the trip across the Adriatic,

from Montenegro to Italy, every single night.

And as a consequence of this trade,

Britain alone lost eight billion dollars in revenue.

And instead that money went to underwrite the wars in Yugoslavia

and line the pockets of unscrupulous individuals.

Now Italian police, when this trade started,

had just two boats which could go at the same speed.

And this is very important, because the only way you can catch these guys

is if they run out of gas.

Sometimes the gangsters would bring with them

women being trafficked into prostitution,

and if the police intervened, they would hurl

the women into the sea

so that the police had to go and save them from drowning,

rather than chasing the bad guys.

So I have shown you this to demonstrate

how many boats, how many vessels it takes

to catch one of these guys.

And the answer is six vessels.

And remember, 20 of these speed boats

were coming across the Adriatic

every single night.

So what were these guys doing with all the money they were making?

Well, this is where we come to globalization,

because that was not just the deregulation of global trade.

It was the liberalization of international financial markets.

And boy, did that make it easy

for the money launderers.

The last two decades have been the champagne era

for dirty lucre.

In the 1990s, we saw financial centers around the world

competing for their business,

and there was simply no effective mechanism

to prevent money laundering.

And a lot of licit banks were also happy

to accept deposits

from very dubious sources

without questions being asked.

But at the heart of this, is the offshore banking network.

Now these things

are an essential part of the money laundering parade,

and if you want to do something about illegal tax evasion

and transnational organized crime, money laundering,

you have to get rid of them.

On a positive note, we at last have someone in the White House

who has consistently spoken out

against these corrosive entities.

And if anyone is concerned about what I believe

is the necessity for

new legislation, regulation, effective regulation,

I say, let's take a look at Bernie Madoff,

who is now going to be spending the rest of his life in jail.

Bernie Madoff stole 65 billion dollars.

That puts him up there on the Olympus of gangsters

with the Colombian cartels

and the major Russian crime syndicates,

but he did this for decades

in the very heart of Wall Street,

and no regulator picked up on it.

So how many other Madoffs are there on Wall Street

or in the city of London,

fleecing ordinary folk

and money laundering?

Well I can tell you, it's quite a few of them.

Let me go on to the 101 of international organized crime now.

And that is narcotics. Our second marijuana farm photograph for the morning.

This one, however, is in central British Columbia

where I photographed it.

It's one of the tens of thousands

of mom-and-pop grow-ops in B.C.

which ensure that over five percent

of the province's GDP is accounted for by this trade.

Now, I was taken by inspector Brian Cantera,

of the Royal Canadian Mounted Police,

to a cavernous warehouse east of Vancouver

to see some of the goods which are regularly confiscated

by the RCMP

from the smugglers who are sending it,

of course, down south to the United States

where there is an insatiable market

for B.C. Bud, as it's called,

in part because it's marketed as organic,

which of course goes down very well in California.

(Laughter)

(Applause)

Now, even by the police's admission,

this makes not a dent in the profits, really,

of the major exporters.

Since the beginning of globalization,

the global narcotics market has expanded enormously.

There has, however, been no concomitant increase

in the resources available

to police forces.

This, however, may all be about to change,

because something very strange is going on.

The United Nations recognized

earlier this -- it was last month actually --

that Canada has become a key area of distribution and production

of ecstasy and other synthetic drugs.

Interestingly, the market share

of heroin and cocaine is going down,

because the pills are getting ever better at reproducing their highs.

Now that is a game changer,

because it shifts production away from the developing world

and into the Western world.

When that happens, it is a trend

which is set to overwhelm our policing capacity in the West.

The drugs policy which we've had in place for 40 years

is long overdue for a very serious rethink,

in my opinion.

Now, the recession.

Well, organized crime has already adapted

very well to the recession.

Not surprising, the most opportunistic industry

in the whole world.

And it has no rules to its regulatory system.

Except, of course, it has two business risks:

arrest by law enforcement,

which is, frankly, the least of their worries,

and competition from other groups,

i.e. a bullet in the back of the head.

What they've done is they've shifted their operations.

People don't smoke as much dope, or visit prostitutes quite so frequently

during a recession.

And so instead, they have invaded financial

and corporate crime in a big way,

but above all, two sectors,

and that is counterfeit goods

and cybercrime.

And it's been terribly successful.

I would like to introduce you to Mr. Pringle.

Or perhaps I should say, more accurately, Señor Pringle.

I was introduced to this bit of kit by a Brazilian cybercriminal.

We sat in a car on the Avenue Paulista

in São Paulo, together.

Hooked it up to my laptop,

and within about five minutes he had penetrated

the computer security system

of a major Brazilian bank.

It's really not that difficult.

And it's actually much easier because

the fascinating thing about cybercrime

is that it's not so much the technology.

The key to cybercrime is what we call social engineering.

Or to use the technical term for it,

there's one born every minute.

You would not believe how easy it is

to persuade people to do things with their computers

which are objectively not in their interest.

And it was very soon

when the cybercriminals learned that the quickest way to do this,

of course, the quickest way to a person's wallet

is through the promise of sex and love.

I expect some of you remember the ILOVEYOU virus,

one of the very great worldwide viruses that came.

I was very fortunate when the ILOVEYOU virus came out,

because the first person I received it from

was an ex-girlfriend of mine.

Now, she harbored all sorts of sentiments and emotions towards me at the time,

but love was not amongst them.

(Laughter)

And so as soon as I saw this drop into my inbox,

I dispatched it hastily to the recycle bin

and spared myself a very nasty infection.

So, cybercrime, do watch out for it.

One thing that we do know that the Internet is doing

is the Internet is assisting these guys.

These are mosquitos who carry the malarial parasite

which infests our blood when the mosy has had a free meal

at our expense.

Now, Artesunate is a very effective drug

at destroying the parasite in the early days

of infection.

But over the past year or so,

researchers in Cambodia have discovered

that what's happening is

the malarial parasite is developing a resistance.

And they fear that the reason why it's developing a resistance

is because Cambodians can't afford the drugs on the commercial market,

and so they buy it from the Internet.

And these pills contain only low doses

of the active ingredient.

Which is why

the parasite is beginning to develop a resistance.

The reason I say this

is because we have to know

that organized crime

impacts all sorts of areas of our lives.

You don't have to sleep with prostitutes

or take drugs

in order to have a relationship with organized crime.

They affect our bank accounts.

They affect our communications, our pension funds.

They even affect the food that we eat

and our governments.

This is no longer an issue

of Sicilians from Palermo and New York.

There is no romance involved with gangsters

in the 21st Century.

This is a mighty industry,

and it creates instability and violence

wherever it goes.

It is a major economic force

and we need to take it very, very seriously.

It's been a privilege talking to you.

Thank you very much.

(Applause)