[Congressional Record Volume 143, Number 82 (Thursday, June 12, 1997)]
[Senate]
[Pages S5574-S5577]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      INTERNATIONAL BUSINESS CRIME

  Mr. COCHRAN. Mr. President, several days ago a former staff member of 
mine in Hattiesburg, MS, brought to my attention a speech that was made 
at the University of Southern Mississippi to the honors college by Dick 
Thornburgh, former Attorney General of the United States. It was on the 
subject of ``business crime goes international.'' In the remarks, 
former Attorney General Dick Thornburgh talks about the international 
problems that are created for U.S. businesses by criminal conduct in 
other countries--extortion, bribery in connection with Government 
contracts, and the like--and options for dealing with this in a more 
effective way to help enhance U.S. competitiveness throughout the 
world. It was such an excellent speech that I ask unanimous consent to 
have the speech of Dick Thornburgh printed in the Record.

[[Page S5575]]

  There being no objection, the document was ordered to be printed in 
the Record, as follows:

                   Business Crime Goes International

                          (By Dick Thornburgh)

       Contemporary observations on the world economy are 
     invariably premised on the vast expansion of international 
     trade. This increased internationalization of business 
     provides major opportunities for American interests as we 
     begin to accommodate to the global landscape fashioned by 
     NAFTA, the completion of the Uruguay Round of GATT and the 
     coming into being of the new World Trade Organization.
       But, as I will discuss this evening, this prospect for 
     expansion is threatened by an accompanying growth in 
     international business crime. Sophisticated illegal 
     operations and enterprises have burgeoned during the 1990s as 
     the world's economic and financial configuration has adjusted 
     to unprecedented change.
       Part of this change derives from the rapid advances in 
     technology, communication and transportation which have made 
     the world a smaller place and produced a network of 24-hour 
     trading marts around the globe. Jet travel, faxes, on-line 
     communications and real-time conferencing capabilities have 
     gone a long way toward the realization of what was once only 
     a hypothetical ``global community.''
       The end of the Cold War and the rise of market economies in 
     many areas where they were previously unknown have 
     contributed to this process of internationaization as well. 
     New opportunities for investors and new markets for 
     manufacturers and service providers now exist in countries 
     that were previously in the thrall of totalitarian 
     governments and centrally-directed economies. In Eastern and 
     Central Europe and in the former Soviet Union, for example, 
     while varying degrees of success have been achieved in the 
     actual transition from state-run economies of private 
     enterprise, in most of these countries the commitment from 
     the top of privatization remains a reality.
       Meanwhile, in the third world, developing countries are no 
     longer merely pawns in the struggle between democratic and 
     communist ideologies. The socialist economic models adopted 
     by many of these nations during this lengthy competition have 
     been largely discredited and abandoned. It is widely 
     recognized that private investment in market economies will 
     be the key to figure true growth in these underdeveloped 
     areas.
       Let me share with you an experience I had at the United 
     Nations which vividly brought this change of attitude home to 
     me. It involved the Center for Transnational Corporations 
     (CTC), a UN affiliate formed during the 1970s at the behest 
     of the Group of 77, the voice of the third world countries. 
     The CTC was created out of a desire to prevent giant Western 
     corporations from visiting suspected predatory practices on 
     these developing countries. Codes of conduct were proposed to 
     regulate the actions of multi-national investors so as to 
     protect fragile developing economies. Now, as we fast forward 
     to the 1990s, we find these same third world countries doing 
     a 180 degree turn. They now urge the United Nations shift its 
     emphasis to induce these same multi-national firms to invest 
     in their nations so as to help create the economic growth, 
     jobs and better quality of life that only an expanding 
     economy can produce.
       This shift in attitudes about private investment is 
     emphasized in a recent report of the Bretton Woods 
     Commission. This group was established under the chairmanship 
     of Paul Volcker to observe the 50th anniversary of the 
     conference which established the World Bank and the 
     International Monetary Fund. Their report noted: ``Of the 
     challenges facing the World Bank Group, none is greater than 
     adapting to a world that has turned from public sector 
     dominance towards private enterprise and free markets. A 
     private sector orientation is a new one for development 
     assistance and the World Bank Group should lead the way.''
       Clearly, American companies are responding to these 
     messages. Private American investments abroad now exceed $700 
     billion dollars and American businesses now employ some 5.4 
     million persons in foreign countries. While manufacturing 
     operations have traditionally dominated our overseas 
     activities, more and more growth is now taking place in the 
     service sector. A spokesman for the prime U.S. retailer, Wal-
     Mart, put it this way: ``It is our belief that, with trade 
     barriers coming down, the world is going to be one big market 
     place, and he who gets there first, does the best.''
       Unfortunately, there is a dark underside to this increase 
     in international activity. With greater private sector 
     activity has come an increase in business crime. And with a 
     greater global reach of legitimate business has come a 
     corresponding increase in the internationalization of illegal 
     business activities. It is this phenomenon that I wish to 
     address this evening.
       Business crime, of course, is not an alien concept in the 
     United States. During the nearly three decades since I first 
     joined our Department of Justice, federal investigators and 
     prosecutors have concentrated increasingly upon the more 
     sophisticated types of business crimes--what Ralph Nader 
     calls ``crime in the suites.''
       We have seen an unprecedented emphasis in the 1990s, for 
     example, on cases involving failed savings and loans, illegal 
     trading in securities and commodities, defense procurement 
     fraud, money laundering and corrupt public officials, with 
     high rates of conviction and substantial sentences in each 
     area.
       Since the 1920s, the American phenomenon of organized 
     crime--the business of crime itself--and its illicit 
     monopolies in narcotics, illegal gambling and loan sharking 
     has beleaguered legitimate enterprise and been a particular 
     focus for intense law enforcement activities as well.
       Efforts against these types of crime have been largely 
     carried out at the federal level since these cases often 
     cross state or international boundaries and, more often than 
     not, require sophisticated law enforcement techniques to 
     unravel purposely complicated transactions designed to escape 
     detection.
       Now it appears that, just as business growth has been 
     extended into new regions and nations of the world, so has 
     the reach of these same types of criminal activities become 
     more evident. As new market economies have grown abroad, 
     criminal elements have grasped the opportunity to prosper 
     through illegal activities as well. Particularly in countries 
     without a well-developed rule of law and an embedded legal 
     culture (not to mention professional police establishments 
     and an independent judiciary) criminal enterprises can easily 
     gain a foothold and retard the full potential of increased 
     legitimate business activity.
       Consider Russia, where the world's biggest economic 
     transition is taking place, and where more than 100 American 
     joint ventures and partnerships are already underway. As the 
     lumbering state-run economy evolves into a new market-
     oriented system, reform efforts are beset by racketeering and 
     corruption. There we find that:
       Last year, Russian organized crime controlled as much as 40 
     percent of the nation's turnover in goods and services.
       An estimated 80 percent of Russian businesses are said to 
     pay ``protection'' money to gangsters.
       Practices such as the infiltration of legitimate 
     businesses, illegal smuggling, black market activities and 
     public corruption are rife.
       The largest Russian investment firm, MMM, almost completely 
     unregulated by our standards, virtually collapsed, leaving an 
     estimated 10 million investors disillusioned, not only with 
     the scam artists responsible, but with the whole notion of 
     capitalism.
       When I visited Russia as an observer of their historic 
     parliamentary and presidential elections, rumors abounded 
     that particular candidates were funded by the so-called 
     ``Mafiya.'' In Russia today, this term is used all too 
     loosely and, in some quarters, may merely designate anyone 
     who has turned a profit in the new economy. As one observer 
     has noted, ``[p]olice and politicians still fall into the 
     Soviet habit of ascribing mafia connections to anyone who 
     possess what seems to be an unreasonable amount of money.'' 
     This is not surprising in a culture where generations have 
     been taught the Marxist-Leninist catechism that ``all 
     property is theft!''
       There is, to be sure, real organized crime in the Russian 
     Federation. Its face is an ugly one indeed, as described by 
     one observer:
       ``When it comes to control of individual companies, the 
     crime bosses' methods are simple but effective. They approach 
     the director of a large business and suggest a more 
     manageable and productive system that will provide everyone 
     with certain guaranteed economic returns. For the director, 
     noncooperation may mean unbearable operating conditions, 
     refusals of credit, delays in supply, work-place accidents, 
     missing payrolls--even death.''
       Serious business crime problems are not, of course, 
     confined to the former Soviet sphere. Italy, where the 
     ``real'' Mafia originated, is in the throes of a major 
     continuing political crisis resulting from the impact of 
     organized crime and official corruption upon its business and 
     governmental structure. An Italian Small Business Association 
     study estimates that the mob controls up to a fifth of all 
     business activity in that country and as many as half of its 
     financial holding companies. Public corruption has already 
     toppled long-standing political institutions and 
     personalities in Italy and the final returns are yet to be 
     tallied.
       Activities of other high profile criminal groups as the 
     Japanese Yakuza, the Chinese Triads and, of course, the 
     Colombian drug cartels have impacted the ability of free 
     markets to operate in those countries and visited the heavy 
     toll of corruption upon their economies.
       Some even posit the coming into existence of a world-wide 
     criminal cartel which would draw these various groups 
     together to execute their illegal enterprises.
       Political change is deeply implicated in the threats posed 
     by business crime. One of the most frequently voiced fears I 
     heard expressed on a recent trip to Hong Kong, for example, 
     is what effect the July 1 take-over by the Peoples Republic 
     of China and the uncertain future of effective law 
     enforcement against business crime and corruption there will 
     have on that community's thriving economy.
       And while Hong Kong has highly sophisticated securities 
     regulators and corruption fighters, what of those countries 
     where such mechanisms do not exist? How can market economies 
     be created or sustained without the ``checks and balances'' 
     inherent in the authority to regulate securities markets, to 
     insure competition through vigorous anti-trust enforcement 
     and to stifle attempts to launder dirty money through 
     legitimate financial institutions?

[[Page S5576]]

       Money laundering, in particular, has become a $100 billion 
     worldwide problem. As recently pointed out in a Foreign 
     Affairs treatment of the subject: ``[I]nnovative techniques 
     of moving and concealing vast sums of cash * * * often seem 
     to be outstripping the capacity of the international criminal 
     justice system and its diplomatic and legal underpinnings.'' 
     In one recent case, the concealing of the illegal movement of 
     funds utilized bank and non-bank institutions in 40 different 
     countries. The speed with which electronic transfers can be 
     effected often leaves law enforcement ``a day late and 
     [several million] dollars short'' in the pursuit of ill-
     gotten gains.
       Finally, American firms also find themselves at a 
     competitive disadvantage in foreign markets due to the 
     failure of other major trading nations to emulate the 
     strictures of our Foreign Corrupt Practices Act which makes 
     bribery abroad a federal criminal offense. The former chief 
     spokesman of the World Bank has pointed out that:
       ``International corruption hobbles American corporations, 
     which lose deals when foreign rivals bribe foreign officials. 
     It cheats American taxpayers whose aid dollars end up in the 
     private bank accounts of foreign leaders. And it hurts the 
     world's poor, when aid is siphoned off for political 
     kickbacks by contractors intent upon selling unneeded weapons 
     or presidential palaces.''
       A recent Commerce Department study estimated that U.S. 
     companies had been edged out by foreign competitors on some 
     $36 billion of international business deals on account of 
     bribes and other government-assisted activities. And--the 
     unkindest cut of all--in many cases, these payments are tax-
     deductible business expenses for foreign competitors back 
     home.


                                  ii.

       How has law enforcement reacted to this increasing 
     internationalization of business crime? In fact, as we passed 
     the mid-point of this decade, a great deal of effort was 
     being expended to cope with these challenges. While the late 
     author Claire Sterling described ours as an era where 
     ``borders have gone down for crooks, but not for cops,'' 
     significant steps are being taken to increase cooperative 
     international law enforcement efforts and help meet the 
     problem of the internationalization of business crime. As you 
     might expect, however, much more remains to be done.
       Successful action will be required on three separate 
     fronts: (1) stepped-up domestic law enforcement capabilities 
     in each country; (2) bilateral initiatives to increase 
     cooperation between nations; (3) multi-lateral efforts to 
     insure a maximum international reach of effective law 
     enforcement. Let me set forth a brief progress report in each 
     of these areas.


                                   a.

       Needless to say, an effective response to international 
     criminal activity begins at home. Here the United States has 
     much to share with its global partners in this effort. 
     Statutes defining racketeering activities and various types 
     of conspiracies, together with investigative techniques such 
     as witness immunity, court-authorized wiretaps and expert 
     accounting skills, are lacking in many of the countries now 
     called upon to deal with business crimes.
       Many of those with the worst problems are lacking in even 
     the rudiments of legal and law enforcement systems to deal 
     with sophisticated criminal activity.
       The central problem for the Russian Federation, for 
     example, is identified by one observer as ``the legal vacuum 
     at the heart of the Russian economy.'' That is to say, he 
     continues, ``Russian policymakers . . . tried to develop a 
     free market before constructing a civil society in which such 
     a market could safely operate.''
       During my service as attorney general we visited the then 
     Soviet Union in 1989 to discuss the need for the rule of law 
     and its vigorous implementation, not only in the interest of 
     preserving human rights and civil liberties, but to create a 
     climate within which free markets could exist and economic 
     growth could take place. Many of these principles were, 
     happily, to be reflected in the new Russian constitution 
     approved in the December, 1993 referendum.
       Our Moscow meetings were following up by further exchanges 
     here and abroad with representatives of the Russian 
     Federation and those from other Eastern and Central European 
     countries such as Ukraine, Hungary, Bulgaria, Poland and the 
     former Czechoslovakia, all focused on creating systems within 
     which arbitrary rule would give way to concepts of due 
     process enforced by an independent judiciary.
       Once these benchmark principles began to be implanted, our 
     focus switched to the nuts-and-bolts of how to make the 
     system work in areas such as securities regulation, creditors 
     rights, promoting competition and fighting racketeering. That 
     work has been ably reinforced by the American Bar 
     Association's Central and Eastern European Law Initiative 
     (CEELI) project, seeking to establish law enforcement and 
     regulatory mechanisms under which the free enterprise system 
     can take root and those seeking to corrupt the system can be 
     brought to justice.
       Recently, I met in Moscow with judges of the newly-expanded 
     commercial court system about the handling of business 
     disputes and with Russia's new chief prosecutor concerning 
     the need to crack down on illegal business practices.
       Others have also capitalized on American know-how in 
     dealing with law enforcement challenges. The Italian-American 
     Working Group, established by Attorney General William French 
     Smith, provides a forum for U.S. officials to share the 
     latest in techniques for the investigation of organized 
     criminal activities in both countries. And the Justice 
     Department's International Criminal Assistance Training 
     Program (ICITAP) has made available valuable expertise to 
     Central and South American countries interested in racheting 
     up their capabilities to deal with sophisticated criminal 
     activity.
       But the basic need continues to be the strengthening of the 
     rule of law and legal cultures within these nations. One 
     Chinese expert, for example, has recently emphasized that 
     ``China lacks a legal framework and effective enforcement of 
     a legal system for a market economy.'' She argued further 
     that the solution to the problem of corruption in China 
     ``rests on the development of a . . . modern legal system 
     with binding contracts, property rights and courts to 
     adjudicate disputes.''


                                   b.

       It is clear, however, that, no matter how proficient the 
     domestic capabilities of any one country, including the 
     United States, become, the challenge of international 
     criminal activity cannot be met on a go-it-alone basis. Thus, 
     increasing attention is being paid to cooperative efforts to 
     ensure that neither evidence nor suspects can find ``safe 
     havens'' from prosecution simply by crossing international 
     borders.
       Probably the most effective bi-lateral tool established for 
     this type of nation-to-nation cooperation is the Mutual Legal 
     Assistance Treaty, or MLAT, as it is popularly designated. 
     During the 1970s, when I headed the Justice Department's 
     Criminal Division, a number of executive agreements regarding 
     the exchange of evidence were established with foreign 
     governments in the aftermath of allegations of illegal 
     payments by Lockheed to foreign officials. The first MLAT 
     treaty, however, was not ratified until 1976 when, not 
     surprisingly, it was the Swiss government which agreed to 
     exchange evidence with U.S. prosecutors on a somewhat 
     limited, but since expanded, basis.
       MLATS are now in effect with a total of 15 countries and 
     they provide a useful means by which law enforcement agencies 
     can communicate directly, avoiding sometimes cumbersome 
     diplomatic channels and outmoded formal procedures for the 
     acquisition of evidence. A typical MLAT covers the taking of 
     testimony and providing of documents and other articles of 
     evidence, the service of judicial documents, the execution of 
     searches and seizures, the transfer of persons in custody and 
     assistance in proceedings relating to forfeiture, restitution 
     and the collecting of fines. Counterpart Memoranda of 
     Understanding (MOUs) have been entered into between the 
     Securities and Exchange Commission and regulators in other 
     countries to facilitate investigations in this field, 
     deriving from the 1982 MOU with the Swiss government.
       Incidentally, in what has been described as ``the first 
     break in the concept of universal bank secrecy,'' Switzerland 
     in 1989 also adopted a tough anti-money laundering statute. 
     This action followed our meeting with leading Swiss bankers 
     to point out to them the threat to their reputation for 
     probity and integrity in the world's financial circles, 
     should they continue to be indifferent to the sources of 
     funds deposited in their famous ``Swiss bank accounts.'' This 
     ``know your customer'' law was recently buttressed by 
     additional criminal sanctions and the Swiss example has been 
     followed by others as well, including the United Kingdom, 
     Spain, Hong Kong and Canada. Money laundering also received 
     increased emphasis at the G-7 Summit in 1989 out of which 
     came recommendations from the Financial Action Task Force 
     which have been activated by all leading members of the world 
     financial community.


                                   c.

       These multi-lateral efforts have been duplicated by other 
     groups of countries intent upon making the whole of their 
     collective law-enforcement efforts greater than simply the 
     sum of their individual parts.
       Within the European Community, for example, the Trevi Group 
     meets twice a year to exchange views on law-enforcement 
     policy and the United States (with Canada) enjoys observer 
     status at such gatherings, giving American law officials a 
     chance to interact with their continental counterparts on a 
     most productive informal basis. Similar mechanisms exist 
     within the Organization of American States and, in 1990, a 
     meeting in Seoul, South Korea brought together attorneys 
     general from 24 Asian and Pacific nations to exchange views 
     on international challenges to law enforcement in that 
     area of the world.
       The most significant break-through with regard to multi-
     lateral law enforcement activity came, however, with the 
     adoption in Vienna in December, 1988 of the United Nations 
     Drug Enforcement Convention, now ratified by 115 nations. 
     This Convention charted an entirely new course for global law 
     enforcement requiring, as it did, the enactment of laws to 
     criminalize specific acts involved in producing and 
     trafficking in illegal drugs (including money-laundering), to 
     provide for the seizure and forfeiture of assets and profits 
     of the drug trade, to simplify the exchange of witnesses and 
     evidence and to expedite extradition procedures.
       Although confined for now to drug offenses--a politically 
     popular and highly visible target--the UN Treaty establishes 
     a

[[Page S5577]]

     model for international cooperation against all types of 
     crime that extend beyond the boundaries and the capabilities 
     of individual countries. It will not be long, I would venture 
     to predict, before its counterpart in the area of 
     international business crime begins to attract substantial 
     support in the world community.
       Such a suggestion was indeed made at the World Ministerial 
     Conference on Organized Transnational Crime held in Naples, 
     Italy in November, 1994 and repeated at a conference on 
     International Corruption which I attended last month in 
     Buenos Aires, Argentina under the sponsorship of the United 
     Nations Commission on Crime Prevention and Criminal Justice.
       Why are these extraordinary mechanisms necessary? One 
     observer has identified the ``Basic challenge [to be] how to 
     control growing domains of transnational activities that 
     either ignore or take advantage of national borders when the 
     powers of the state remain powerfully circumscribed by the 
     political, geographical and legal limitations that attend 
     notions of national sovereignty.''
       The international community has already responded to the 
     threat of drug trafficking by relinquishing portions of state 
     sovereignty through the adoption of the UN Drug Enforcement 
     Convention. If the world is to take full advantage of the 
     prospects for economic growth we have examined today, a 
     similar effort against international business crime and 
     official corruption must be mounted with the same vigor.

                           *   *   *   *   *

       As the nation in the forefront of the commitment to the 
     rule of law and the containment of crime, it is to be hoped 
     that the United States will continue to play a lead role in 
     the endeavor to send a consistent message to international 
     criminals, however sophisticated, that ``You can run, but you 
     cannot hide'' from effective law enforcement.
       To do otherwise might well forfeit the unprecedented 
     opportunity we have to help bring the full benefits of free 
     markets and an improved quality of life to portions of the 
     world desperately in need of both.

  Mr. COCHRAN. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerkl will call the roll.
  Mr. BYRD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from West Virginia is recognized.

                          ____________________