The other side to globalization

In the early days, when economists advocated for the benefits of globalization, especially for the maximization of returns and the benefits of the common good, they did not consider the adverse effects of the free flow of capital, assets, labor, and investments across borders, as these transactions had helped to create transnational crime. These adverse effects are the features of a deviant globalization.اضافة اعلان

To explain this phenomenon, we need first to understand the meaning of globalization in terms of economic activity.

I am going to use here the International Monetary Fund (IMF) definition for globalization — the process through which an increasingly free flow of ideas, people, goods, services, and capital leads to the integration of economies and societies.

The term globalization was first created in the 1980s and has remained as a term to this present day.

Cross-border economic activity and integration have been happening throughout history.

However, in the last decades, it has become more evident, as people, goods, and services have been subjected to an increased rate of mobility, due to the cheap means of shipment, mostly for goods, carried by sea, rail, and highway freight, and the relatively cheap modes for individuals’ travel.

Moreover, advancements and innovation in information technology have removed the barriers of time and space that separated markets in the past.

Additionally, political alignment, initially in the post-World War II era, the new liberal global hegemony, assisted countries to adopt Western style free markets and liberal democracies, which removed political barriers, promoted competition, reduced costs, and provided regions and countries with comparative advantages that helped them to specialize in their area products and services.

Therefore, globalization has raised interdependence between countries as cross-border trade of commodities and services increased, the free flow of international capital between countries became easier, and the new rapid spread of technologies became more accessible.

Deviant globalization operates without clear boundaries. The infrastructure of the global economy sometimes has cracks that facilitate criminal activities, especially, if legal frameworks and procedures in countries don’t match the advancements and the new innovations of globalization.

The following are examples of transnational organized crime: Trafficking of persons, trade of human body parts, sex tourism, drugs and narcotics trafficking, endangered species trade, counterfeiting of goods, money laundering, terrorist activities, theft of rare antiquities, which includes grave robbing and artifact plundering, theft of arts and cultural objects, intellectual property theft, illicit arms trafficking, aircraft hijacking, sea piracy, land hijacking, insurance fraud, cybercrime, environmental crimes, fraudulent bankruptcy, infiltration of legal business, customs fraud and tax evasion, corruption, and bribery of public officials and elected representatives.
Financial deregulation had assisted criminal actors to launder money.

Prior to the 1990s, most of the world’s countries either banned or tightly limited foreign currency transaction.

These countries also tightly screened and regulated foreign investments and considered the export of capital a crime.

However, after the Washington Consensus, the 1990s witnessed a major shift away from foreign exchange controls.

Consequently, when governments allowed foreign exchange transactions, electronic global banking networks emerged, which made banking transactions easy and at the speed of light.

Accordingly, the relaxation of foreign currency exchange regulations and the computerized banking experience had allowed money launderers to use banking systems to cover up their criminal activities.

Competing banks vying for wealthy individuals to deposit assets at their establishments gave rise to the “no question asked” financial dominions, in which they offered an offshore heaven.

Thus, banks had a historical culture of secrecy and privacy in dealings with customers, which assisted transnational criminal organizations to deposit criminal activity money at an offshore bank branch, then wire the money to the criminal organizations’ “home country,” where the money could be accessed.

As for the non-banking financial hawala system, it is an ancient system for transferring money, money remitters (such as money transmitters, issuers of traveler's checks or money orders, sellers or redeemers of traveler's checks or money orders, check cashers and currency dealers, or exchangers).

Terrorist organizations use hawalas to move money across borders, i.e., to generate funds and transfer funds to plan and carry out their attacks.

Hawala money transfers are very similar to the Western Union money transfers. Hence, to control and to have oversight mechanism over these financial activities, states need to require nonbank financial institutions to legally register under their formal financial systems.

Moreover, the removal of barriers on international trade and the free flow of capital had assisted the facilitation of cross-border illicit trade.

Thus, illegal activities flourish like legal international businesses prosper with globalization, because of advancements in the technology of transportation and telecommunication.

There are direct links between technological development, economic liberalization, and cross-border illicit trade.

Transnational criminal networks gained so much power in recent years that they now have access to high-tech technologies, such as airplanes, submarines, drones, etc. to transport their illegal goods.

They use complex cyber operations for money laundering and financial transactions.

For example, drug cartels, a form of oligopoly, have grown into global organizations because they share similarities with legal multinational companies, as dealers agree to create explicit agreements to fix prices and production quantities.

These cartels take advantage of globalization, especially in international technological, commercial, and financial structures to expand regionally or even continently.

This new criminal empowerment, due to deviant globalization, has encouraged countries to collaborate in joint effort to combat unlawful transnational criminal activities.

However, some believe that such an effort will not be enough to prevent the growing threat of crimes, as many countries depend on their traditional policing activities, in addition to bilateral cooperation and local law enforcement, which are rigid to the fast global change.

Therefore, countries need to continuously reform their institutions, and update their bilateral effort to be ready for any transnational criminal activity challenge, as these transnational organizations always try to stay ahead of governments.

Moreover, governments and central banks need to put stricter binding policies on banks and non-bank financial institutions to prevent unlawful activities from happening in their dealings, especially for money laundering and fraud transactions.