Crime, Corruption and Instability: an exploratory report

October 23, 2013 - nr.85
Summary

Conclusions and recommendations

The government asked the AIV to produce an advisory report on the nexus between crime, corruption and instability. As noted in chapter I, each of these terms is a portmanteau concept covering a very wide range of phenomena. Drug trafficking, human trafficking, piracy, money laundering, tax evasion and cybercrime have little in common beyond the fact they can largely be classified as transnational crime. Likewise, corruption covers a variety of activities. Instability too assumes various forms and has different gradations. The AIV has therefore been obliged to interpret the request for advice more narrowly. As pecuniary gain is the motive for most criminals, the AIV has chosen to approach the subject from the perspective of restricting profitability. However, measures that affect the profitability of crime are not equally effective for all forms of transnational crime. For example, the (non-commercial) exchange of child pornography cannot be combated by such measures.

The AIV concludes that despite the limitations of the financial approach, targeting the proceeds of crime is an important way of tackling many forms of crime. It recommends that the government gives greater consideration to this approach in its international policy in the context of organisations such as the EU, the UN and other relevant forums. Law enforcement authorities and the Public Prosecution Service are still not always able to make the best use of the financial approach as it requires knowledge of matters beyond the criminal law. Much progress has already been made in the context of the Financial and Economic Crime Programme in increasing the knowledge and strengthening the capacity of the police and criminal justice authorities, but there is still insufficient awareness both in government and among the general public, members of the relevant professions (such as notaries and lawyers) and the business community of the considerable social harm caused by what are termed victimless crimes. These crimes can be given a higher priority by the police if targets are set for which a regional police unit can be held accountable. It is also a matter of focus: almost every crime has a financial and economic component.

The AIV identified four approaches in chapter III of this report. The preventive, criminal justice, financial and administrative approaches all have their limitations and are mutually complementary. Chapter III thus answers the government’s question as to what preventive and flanking measures would most effectively complement the criminal justice approach. Synergy can be generated if these approaches are aligned and used together to enhance the effectiveness of any measures and ensure that any undesirable side-effects of one approach are mitigated by the others. The description of the cases in chapter II has shown that many factors are interconnected and influence one another. As the different approaches and tools and their various aspects come within the remit of different government organisations, effective measures to tackle transnational crime require close cooperation between them. Cooperation between civilian and military authorities is one aspect of this, particularly in the case of fragile states but also in the Netherlands. In this integrated approach, cooperation with civil society organisations and international cooperation are also essential for effective measures to combat transnational crime. Often the cooperation of the private sector is necessary for effective investigation and enforcement, for example in the case of due diligence measures, no matter whether this concerns money laundering or natural resources. The AIV would stress the importance of the whole-of-government approach.

Cooperation at international level
Transnational crime is benefiting from the globalisation of the economy, from new technologies such as the internet and from the consequent blurring of national borders. Combating such crime requires very different forms of international cooperation. Where international cooperation falls short, one of the underlying causes is often the reluctance of states to reassess their national sovereignty in order to respond more appropriately to today’s global society in which networks play a larger role. Transnational crime cannot be combated effectively unless the exercise of sovereignty is shared with other countries, thereby increasing the capacity to act. In many countries the population is wary of forms of cooperation that might undermine national sovereignty. However, there is little awareness of the scale and consequences of transnational crime and the costs to society. If there were more awareness there might also possibly be a greater willingness among voters and politicians to allow sovereignty to be exercised jointly in combating transnational crime through international cooperation. This could strengthen governance and ultimately benefit national sovereignty.

The AIV considers that three basic points should be made about strengthening international cooperation. First, there is a lack of enforceable and practicable legal obligations in respect of some forms of transnational crime. In the AIV’s opinion, the Netherlands should press more forcefully, preferably within the EU framework, for supplementation of the rules of international law. There is also an urgent need to strengthen the international rules governing financial transactions.

One of the fields in which international rules are still being developed and in which international cooperation is still in its infancy is cybercrime. This phenomenon has been briefly described in annexe 1 and covers a rapidly expanding range of criminal activities, including organised crime, which can seriously undermine the national and international legal order and confidence in the financial sector. To an increasing extent criminal transactions and payments for goods and services are routed through virtual links. Owing to the increasing use of the internet for fund transfers and for formal communication with government bodies (e.g. applications for student grants, permits and subsidies) identity theft too deserves a higher priority. There is an urgent need for international measures to counter botnets (networks of tens of thousands of captive computers which can be used to mount cyber attacks and intercept highly sensitive (corporate, government and personal) information) but this is an extremely complex subject owing to the global dimension. Measures to tackle these forms of crime must respect human rights, for example freedom of expression and the right to privacy. In the limited time available, the AIV was unable to examine the subject of international cybercrime and therefore recommends that the government commission a separate advisory report on this subject by a competent body.

Another field in which international rules are evolving is the international arms trade. At the time of writing, a treaty to regulate the international trade in conventional arms, ammunition and parts and components had just been concluded. Once that treaty enters into force, a step will have been taken to regulate the arms trade since legal obligations will arise. What the consequences are in practice will depend mainly on ratification by large arms exporters and on compliance. Second, enforcement and compliance in respect of existing international rules leaves something to be desired. Where a normative framework does exist, application is quite often a problem. This is particularly true of measures to combat money laundering and fraud. Although the FATF has created a comprehensive normative framework for dealing with money laundering and fraud, these offences are still common, even in countries in which the rule of law functions properly. The AIV recommends that the government urge other countries within the EU and the FATF to do everything in their power to completely abolish secrecy jurisdictions. Countries should oblige financial institutions to keep careful records of the personal data of the holders of financial assets so that there is sufficient certainty about the identity of the ultimate beneficial owner and should require these institutions to transfer the data to the authorities in the event of a criminal, fiscal or confiscation investigation.

Even if there is a treaty that contains enforceable and practicable legal obligations, it is not binding on states that are not a party to it. Such states are therefore not required to apply the rules of the treaty. The Dutch government can call on other governments to ratify treaties and conventions designed to tackle corruption and transnational crime. This would strengthen the international normative framework.

The deficient application of anti-crime treaties and international agreements may be a consequence of political unwillingness of some regimes or of insufficient capacity (too few qualified personnel or inadequate budgets or institutions) in the case of weaker states. Third, strengthening the rule of law must be an objective of foreign policy and development cooperation, especially in countries where the nexus between crime, corruption and instability is the most pronounced. This applies both to the EU, the Schengen area and the Atlantic region and to the world as a whole. In the AIV’s opinion, Dutch efforts to strengthen the rule of law (including good governance and anti-corruption measures) hould be intensified and given priority in the cooperation with developing countries. More specifically, it is of great importance for our development efforts to pay greater attention to building up the police and criminal justice authorities, particularly in the developing countries that are the source of crime that reaches the Netherlands. The AIV therefore recommends that the Ministry of Security and Justice be more closely involved in development cooperation, particularly in relation to projects and programmes aimed at building up the police and criminal justice authorities. Other ministries too, such as the Ministry of Defence, could make a contribution, for example through the Royal Military and Border Police or through involvement in security sector reform.

In this advisory report the AIV has not been able to examine in detail how development of the police and criminal justice authorities and development of the rule of law in the broader sense could be integrated in practice into national and international development efforts. If desired, the AIV could deal with these important issues in a subsequent report. This is an extremely complex subject, as is apparent from the descriptions of the trade in natural resources in relation to the Democratic Republic of the Congo, cocaine trafficking in relation to Colombia and heroin trafficking in relation to Afghanistan. Relations between the authorities and criminal networks differ from country to country and change over time, as do the relationships between criminal networks and the population at large. Moreover, geopolitical and regional factors also play an important role.

Promoting the rule of law in fragile states is easier said than done. This is due to various factors, notably the difficulty of democratic state-building in patrimonial contexts, the cross-border nature of instability and the close connection between conflict, corruption and crime on the one hand and dependence on natural resources and a lack of socioeconomic alternatives on the other. Although promoting the rule of law is an important aim in itself, it is unlikely to be successful unless attention is also paid to socioeconomic development. An economic policy that diminishes inequality, encourages local production and employment and reduces dependence on exports of natural resources (which are often accompanied by corruption and conflict) would create alternatives to violence, crime and corruption. Moreover, a broader regional perspective that takes account of the cross-border nature of the nexus is necessary.

Tackling corruption is both an important means of helping to achieve social progress elsewhere and an objective implicit in the constitutional task of promoting the international legal order. After all, corruption is a phenomenon that facilitates crime. Sometimes corruption in the form of patronage may even temporarily help to stabilise a situation, for example by generating political support. As a survival strategy patronage can be hard to tackle. Efforts to fight corruption cannot disregard these aspects. Any consideration of possible measures should take into account how corruption is embedded in society and the social functions that corruption and patronage fulfil. Where patronage networks serve as an informal social safety net, the authorities should be helped to develop a formal safety net that provides security for everyone. Another factor that can be of great importance in reducing people’s economic dependence on their patron is employment creation.

The private sector can also assist in tackling corruption. There is already an OECD convention that obliges parties to it to criminalise bribery of foreign public officials. The government can also encourage the international business community not to connive in corruption and to strengthen corporate social responsibility. The private sector can help to tackle corruption by claiming compensation where a natural or legal person has suffered demonstrable damage as a consequence of corrupt practices in countries that have ratified and implemented the Council of Europe’s Civil Law Convention on Corruption.

In countries where criminal networks fulfil functions in society or sections of society, for example by providing work or security, legal alternatives must be provided in order to improve conditions for the population. In this way, promotion of ‘pro-poor growth’, designed to increase employment, will assist in developing a state with a functioning rule of law, as employment offers alternatives to crime.

This outline of the complex connections between crime, corruption and instability answers the government’s first question, namely how the AIV assesses the problems of organized crime, corruption and instability as outlined in the request for advice.

Certification of natural resources to prevent them from being used to finance violence, oppression or corruption is one way in which the Netherlands too can make a specific contribution, as occurred in the Conflict Free Tin Initiative (CFTI). On closer inspection, however, even this project proves to be vulnerable and complex. The integrity of the certification mechanism is probably the most vulnerable link in a country in which corruption is endemic. Government authorities can support the development of such certification schemes by arranging meetings of interested parties (including civil society organisations) and providing funding to start initiatives. The initiative to establish a European equivalent of section 1504 of the American Dodd-Frank Act, which obliges oil, natural gas and mining companies listed on US stock exchanges to disclose all payments which they make to foreign state actors, merits support. The government has asked what would be the best way to help developing countries resist the destabilising effects of the interlinked problems of crime, corruption and illegal appropriation of natural resources. The discussion of the illicit profits from the extraction of natural resources in the Democratic Republic of the Congo illustrates how this could be done, although certification is a vulnerable and complex tool.

EU/Schengen
The need for international cooperation within the Schengen area (which also includes a number of non-EU member states) is very great. As there are no longer any checks on persons at the internal borders of the Schengen area and the movement of goods and services in the EU is free, this has in fact created a single space. Cooperation within the Schengen area and within the EU deserves a high priority, but encounters obstacles such as the differences between the legal systems of the member states and the fact that individual member states may have insufficient confidence in the rule of law in other member states. Steps to improve this situation are being taken within the EU, for example as part of accession procedures. However, there is still no mechanism for monitoring the functioning of the rule of law of member states after they have joined the EU. Member states can therefore not hold each other sufficiently accountable for failures in the administration of justice, the police and anti-corruption measures. The rule of law within the EU has been included as a subject in the AIV’s programme of work for 2013. The AIV will deal with this issue in that advisory report.

To cater for situations in which traditional forms of criminal justice cooperation are ineffective or inadequate, a European Public Prosecutor’s Office could be established alongside Eurojust. Such an institution could, above all, make up for the lack of priority given in the member states to tackling financial crime and could arrange for more effective and efficient enforcement. The AIV advises the government to urge the European Council to make use of the possibility provided by the Treaty on the Functioning of the European Union to establish a European Public Prosecutor’s Office. This new institution should be charged solely with the coordination of cases which are brought before the court through the national public prosecutors and involve forms of crime that harm the Union’s financial interests.

There is a statutory duty to report unusual transactions, but the transactions actually reported probably form just the top of the iceberg. A lot of money is probably transferred other than through the official banking system, for example through informal systems, over the internet or physically in cash. Within the EU there is a wide variation in the duty to report the movement of cash. The Netherlands should also advocate that measures to control transnational crime should continue to focus on illicit financial flows and that efforts be made to achieve a more standardised approach and better implementation of existing legislation in the member states of the EU. As the EUR 500 note is used almost solely in criminal circles it should be abolished.

The AIV recommends harmonisation of the penalties for non-compliance with the reporting obligation. It also advocates the introduction of stricter selective checks on the movement of cash at the internal borders of the EU member states. For this purpose the police, the Royal Military and Border Police and the customs authorities and fiscal enforcement agencies could work in partnership with their counterparts in other EU member states.

The AIV also recommends that the random checks for human trafficking, people smuggling, arms, jewels and precious metals and identity papers (including checks on outstanding tax debts and the collection of fines) be expanded in close cooperation with neighbouring countries.

The AIV requests that express consideration be given to the further development of the Area of Justice, Freedom and Security within the European Union. The Stockholm Programme, under which the member states of the EU have made a series of agreements about new instruments to be developed, is due to expire in 2014. The Netherlands should make use of the existing momentum to exercise influence over the agenda of the new programme. It should advocate that greater emphasis be put on tackling illicit financial flows in controlling transnational crime. Moreover, the Netherlands should use its best endeavours in support of initiatives to strengthen international cooperation within the EU.

This could be done, for example, by exchanging information about good practices and by strengthening professional capacity in the EU through systematically imparting knowledge and offering courses to all security officials in the EU, in close cooperation with Europol, Frontex and the European Police College. International agreements can be successfully implemented only if those responsible are fully aware of the necessity of international cooperation.

VAT fraud is an intractable problem and is politically sensitive within the EU. The AIV proposes that the government commission a special study of this subject. Those involved should in any event include the Ministry of Finance, the Fiscal Information and Investigation Service (FIOD) and other interested parties. The subject goes beyond the expertise of ordinary law enforcement authorities. Huge criminal profits are being made because the present measures to tackle this fraud are not sufficiently effective. VAT fraud is described in annexe I.

Cooperation at national level
For the investigation and prosecution of transnational crime more frequent use could be made of special project groups designed to tackle one particular form of such crime and one source country or destination country. This could be arranged, for example, through joint investigation teams in which investigating officers of two or more EU member states and relevant EU agencies can participate with the support of Europol or Eurojust. A project group approach brings together people and resources and would facilitate the development of a specific strategy for one form of transnational crime which also takes account of differences between source countries and destination countries. The AIV strongly advocates strengthening the multidisciplinary composition of investigation teams, in particular for the prevention and investigation of financial offences. Resources should be made available for these forms of cooperation. In addition, the internationally oriented criminal investigation capacity of the Dutch police force should also be increased as the force has fewer detectives than its foreign counterparts.

The AIV recommends that the police and criminal justice authorities make more capacity available to handle international requests for legal assistance. Within the EU a growing number of EU instruments require quick and adequate implementation. The Netherlands can in this way build up a reputation as a reliable partner in international police and criminal justice cooperation. Trust and reciprocity are essential elements of high-quality professional international cooperation.

Parts of the armed forces make an important contribution in fighting transnational crime. This is a core task of the Royal Military and Border Police. The Royal Netherlands Navy also plays an important role in intercepting drug shipments, particularly in the Caribbean. The equipment and skills of the armed forces can be used to combat (transnational) crime. These are resources which are not possessed by other government services. Examples are back-up communication equipment, drone aircraft for surveillance duties above the Netherlands and the deployment of special units. The AIV recommends that the resources of the armed forces be put to even better use in support of law enforcement. The Ministry of Defence has various capabilities for assisting the Ministry of Security and Justice which could be put to good use both nationally and internationally. This would not only enhance the effectiveness and efficiency of the use of government resources, but would also help to increase public appreciation of the professional armed forces in buttressing the rule of law.

Finally, the AIV notes that good intelligence about developments that may threaten the security of the Dutch and international legal order from abroad is of crucial importance in the preventive approach to which the government refers in its request for advice and which has been dealt with in chapter III of the report. The General Intelligence and Security Service (AIVD) is responsible for supplying information about networks and persons that can be used to combat certain forms of international crime in situations where the continued existence of the rule of law or the security or other important interests of the state are in jeopardy. The AIV therefore recommends that the government reconsider its plan announced in 2012 to make drastic cuts in the AIVD’s budget and foreign capacity as this would severely restrict its operational capacity.
 

Advice request

Mr F. Korthals Altes
Chairman of the Advisory Council
on International Affairs
P.O. Box 20061
2500 EB The Hague

 

Date:  31 January 2012
Re:      Request for advice on the nexus between crime, corruption and instability


Dear Mr Korthals Altes,

Transnational crime has a disruptive and destabilising impact on many countries and regions. Together with the Ministers of Security & Justice and Defence, we would therefore like to ask the AIV for an advisory report on ways of strengthening international cooperation on preventing and combating this phenomenon.

As a result of globalisation, organised crime has taken on a pronounced transnational character. The issue is closely linked in many countries to political corruption and to the illegal appropriation of countries’ natural wealth and mineral resources for the benefit of special interests. Global and local factors reinforce each other in this process. Transnational organised crime is spreading in the shadow of globalisation, sometimes visibly but more often invisibly, ‘like an assassin taking aim at global stability’.1 In combination with political corruption it is undermining or hampering the growth of state structures and public agencies, resulting in far-reaching destabilisation in some regions. This makes transnational crime a complex problem whose solution demands close international cooperation and an integrated approach.

Reports

In his book Illicit: How Smugglers, Traffickers and Copycats Are Hijacking the Global Economy, Moisés Naím discusses an ‘explosion’ of illicit trade. Factors such as globalisation, new technologies and national governments’ limited oversight of transnational networks, Naím writes, have given illegal activities a whole new dimension.

The EU Organised Crime Threat Assessment (OCTA) issued annually by Europol gives a clear picture of the reality of organised crime in Europe.

A global overview can be found in the UN Office on Drugs and Crime (UNODC) report The Globalization of Crime: A Transnational Organized Crime Threat Assessment, which examines 16 forms of crime. In terms of value flows and degree of organisation, drug trafficking is the most extensive form of transnational crime. The report makes clear that the problem encompasses multiple other forms of illegal activity, however, ranging from environmental crime and trafficking in endangered species to the production of a great variety of counterfeit products.

The report shows that illegal goods and services find their way to rich destination countries by being intermingled with legal trade. It concludes that law enforcement, while important, is not sufficient: for every criminal gang that is eliminated another one is there to take its place. The solution must be sought in a broader international strategy focused on combating trafficking flows as a whole, disrupting illegal markets and strengthening the rule of law.

The last chapter of the UNODC report is devoted to ‘regions under stress’: regions where conflicts, transitions and crime form a dangerous combination with far-reaching disruptive consequences that can create failed states. A recent study by the Netherlands Institute of International Relations ‘Clingendael’, entitled ‘Building Resilience to Transnational Organised Crime in Fragile States’, points to a vicious circle in which fragile states risk being caught. Even in developing and transition countries that would not usually be characterised as fragile or failing, corruption and crime undermine the proper functioning of state institutions. Politics can in such conditions be entangled with organised crime to varying degrees.

In his book The World of Crime: Breaking the Silence on Problems of Security, Justice and Development across the World, Professor Jan van Dijk highlights the far-reaching consequences of political corruption and crime for governance structures and development potential in weak and fragile states. Van Dijk states that without a properly functioning justice system, government and society are helpless in the face of mushrooming crime. He therefore advocates devoting considerable attention in development strategies to building and strengthening the rule of law. Specifically, he favours the establishment of specialised, well equipped anti-mafia and anti-corruption units.

Many of the countries in question also face the problem of ‘resource capture’, in which private if not criminal interests gain control of mineral and other natural wealth that should benefit the country’s entire population. Professor Paul Collier of Oxford University discusses this at length in a book with the revealing title The Plundered Planet.

These are all serious obstacles to reducing poverty or achieving other major development objectives such as good governance, human rights and environmental preservation.

Consequences for the Netherlands

In a world where distances are shrinking and borders are losing their significance, these developments affect Dutch society in palpable ways, both in the European part of the Netherlands and in the wider Kingdom. The effects could be felt even more strongly in the future if the downward spiral of instability and crime continues. With its open economy, the Netherlands is highly dependent on a stable, orderly international environment. This applies equally to the Kingdom’s Caribbean countries, located in a vulnerable region crisscrossed by drug trafficking routes from South to North America and to Europe in particular.

As set out in the coalition agreement, the government is working to tackle crime more directly and effectively. Many criminal organisations operate transnationally, in part to stay outside the radar of national authorities. This makes international cooperation essential in combating crime.

This includes cooperation within the European Union. The EU is increasingly becoming a common judicial area with free movement of persons, goods and services and with common legislation. This increasingly necessitates a common approach to crime within Europe. The Justice and Home Affairs Council, in which the Netherlands is represented by the Ministers for Immigration, Integration & Asylum Policy (on behalf of the Minister of the Interior) and of Security & Justice, is responsible for this common approach. The EU is also working to strengthen controls at its common external borders; the agency Frontex was established for this purpose. Moreover, special attention is being paid to the Union’s neighbouring countries.

In his speech to the Ambassadors’ Conference on 17 January 2011, the Minister of Security and Justice stressed the importance of capacity building in the countries where transnational crime affecting the Netherlands originates. He called on the Ministry of Foreign Affairs to step up diplomatic and financial efforts to this end.2

In criminal investigations and international cooperation, the Public Prosecution Service plays the lead role, while the Minister of Security and Justice sets the main policy priorities. Other ministries and agencies can also be involved in such activities, and their interests and functioning can be affected. The complex and far-flung nature of transnational crime means that the issue relates, directly or indirectly, to many different ministries’ policy areas. It therefore calls for a comprehensive approach, with the different ministries and other government bodies reinforcing and complementing each other’s efforts and policy. Law enforcement agencies, too, regularly deal with the international dimension of crime: mainly the Public Prosecution Service and police, but also specialised investigative agencies like the Fiscal Information and Investigation Service (FIOD), the Social Security Intelligence and Investigation Service (SIOD) and the VROM Intelligence and Investigation Service (VROM-IOD). By the very nature of its work, the Royal Military and Border Police deals with foreign countries as it monitors the Netherlands’ borders and, via Frontex, the EU’s external borders, combating such crimes as passport and visa fraud, people smuggling and drug trafficking.

The armed forces also play a major role in combating various forms of transnational organised crime. The coalition agreement calls the military ‘a full partner in the fight against drugs, terrorism, illegal immigration and piracy’. For example, the armed forces have been deployed at sea to combat drug trafficking in the Caribbean and have supported the Kingdom of the Netherlands’ Caribbean Coastguard, in both cases under the authority of the criminal justice system. The armed forces also contribute to global security, for example in counter-piracy operations off the Somali coast and through Frontex.

During stabilisation missions, the most rapid possible restoration of law and order is a crucial objective, so as to prevent the emergence of a power vacuum that criminal gangs could exploit. The lesson of past stabilisation operations is that creating a safe environment for ordinary people is vital to an operation’s success. Establishing a properly functioning police force is thus a key aspect of reconstruction.

Questions

Against this background, the government would request that the AIV address the following questions.

  1. How does the AIV assess these problems of organised crime, corruption and instability? What Dutch and European interests are at stake? What should we focus on? How could international efforts to prevent and combat transnational crime be strengthened, especially in unstable regions, using an integrated approach? What preventive and flanking measures would most effectively complement a criminal justice approach? How can illegal markets be disrupted, as the UNODC suggests, and how can the Netherlands help develop international strategies and initiatives?
     
  2. What is the best way to help developing countries resist the destabilising effects of the interlinked problems of crime, corruption and illegal appropriation of natural wealth? How could building the police and justice system, as well as promoting the rule of law more broadly, be better integrated into national and international development programmes?
     
  3. How can the Netherlands use a comprehensive approach to make the best possible contribution in this field? In what ways could the different ministries strengthen each other’s efforts, and how could their different programmes be most effectively integrated into a policy to combat transnational organised crime in transition and developing countries, particularly in countries from which crime spreads to the Netherlands? How can the Ministry of Foreign Affairs’ financial instruments be optimally employed for this purpose? In the light of the quote from the coalition agreement cited above, how does the AIV view the role of the armed forces in the fight against transnational organised crime?

We look forward to receiving your report.

Yours sincerely,


 

Uri Rosenthal
Minister of Foreign Affairs
Ben Knapen
Minister for European Affairs and
International Cooperation
______________
1 Speech on security policy by the Minister of Foreign Affairs in Breda on 24 May 2011.
2 Speech by the Minister of Security and Justice on capacity building in the field of police and criminal justice, Ambassadors' Conference, 17 January 2011, and report of the discussion.
Government reactions

Professor Jaap de Hoop Scheffer
Chairman of the Advisory Council
on International Affairs
P.O. Box 20061
2500 EB The Hague


Date   20 January 2014
Re   Government’s response to the AIV advisory report ‘Crime, Corruption and Instability’


Dear Professor De Hoop Scheffer,

The government greatly appreciated the report on ‘Crime, Corruption and Instability’ that the Advisory Council on International Affairs (AIV) submitted in June 2013 in response to a request for advice by the previous government.

We would like to thank you for your broad-based analysis of the nexus between crime, corruption and instability and for the advice you provided both on request and at your own initiative on various aspects of the problem.

This letter presents the response to your report not only from the two of us, but also from the Minister of Defence and the Minister of Security and Justice. The Ministry of Finance was also consulted in the process of drafting it.

We concur with the AIV that organised crime takes many forms and that ongoing globalisation is making it an increasingly transnational phenomenon. Furthermore, technological advances are regularly creating new forms of crime, as illustrated by the rise of cyber crime. Chapter I of the report is an enlightening analysis of the complex links and the mutually reinforcing relations between crime, corruption and instability. It explains how transition and developing countries are exposed to the convergence of several factors. In many cases, the problem, as the AIV observes, is aggravated by the illegal arms trade.

The report confirms that international cooperation is essential to combating transnational organised crime, principally within Europe but also worldwide.

Development aspects

The government agrees with the AIV’s conclusion that organised crime and corruption are serious obstacles to the socioeconomic and political development of developing countries. As the AIV notes, promoting the proper functioning of the rule of law should be an important feature of the relationship between the Netherlands and the EU on the one hand and developing countries, especially weak and fragile states, on the other. As a corollary, the AIV believes national and international development efforts should give greater priority to building the police and justice system in these countries, thereby enabling them to tackle organised crime and corruption more effectively. This is consistent with the priority given in Dutch development policy to security and the rule of law. The current efforts financed from the Stability Fund, the Reconstruction Fund and similar facilities will be continued. The recent creation of the International Security Budget (BIV) provides additional opportunities for these efforts. To combat transnational crime, the government seeks to use the BIV wherever possible to help weak and fragile states return to the rule of law. The integrated use of instruments can help these states overcome the destabilising forces they are facing, such as mushrooming crime. Such efforts will attempt to eliminate security risks that could threaten a country or region and ultimately affect the whole of Europe including the Netherlands. Further use of the BIV to combat international organised crime will draw on the analysis and approaches to finding solutions proposed by the AIV.

An integrated approach will also be used in combating crime. The Netherlands’ crisis management operations have been based for some time on the 3D approach, in which the trinity of defence, diplomacy and development is complemented with police work and measures to strengthen the police and criminal justice authorities, as illustrated by the Netherlands’ multiyear presence in Afghanistan. The European Commission’s development policy is increasingly recognising the importance to the development process as a whole of strengthening the judicial system and the rule of law.

More specifically, the AIV recommends that technical assistance and training be offered to transition and developing countries that are sources of crimes affecting the Netherlands. This would equip these countries better to tackle crime and work with the Dutch police and criminal justice authorities. This recommendation is consistent with current policy, and we should certainly continue our efforts, using the available financial instruments (both ODA and non-ODA) including the BIV.

Decision-making on missions and training projects that rely on the human resources and expertise of the Dutch police and criminal justice sector or the Royal Military and Border Police must, given the many demands on their capacity, carefully consider the priorities. There must be a clear Dutch interest to justify the use of Dutch capacity abroad. The Minister of Security and Justice decides on the use of his ministry’s expertise and of the agencies that report to it, and on the conditions, form and scale of that use. Dutch capacity can be spared by outsourcing training and technical assistance projects in the fields of policing, criminal justice and border control to international organisations like the United Nations Office for Drugs and Crime (UNODC).

Financial and economic aspects

In a departure from the request for advice, the AIV’s report concentrated on how the profitability of transnational crime could be reduced. The government recognises the importance of the financial approach to tackling organised crime, both nationally and internationally, including the need for forceful action against money laundering. The rules on international financial transactions must make it more difficult for international criminal gangs to repatriate their profits without being detected. At the same time, the government would stress the importance of a comprehensive strategy, in which the four approaches described by the AIV – preventive, criminal justice, financial and administrative – complement each other. As the AIV writes, ‘Synergy can be generated if these approaches are aligned and used together’. A great deal can therefore be said for the whole-of-government approach, both in the Netherlands and in relation to other countries. Outside the Netherlands, we achieve this by means of the 3D approach, which, as noted above, includes police work.

Financial expertise in the criminal justice system

As stated in response to parliamentary questions concerning the AIV report (Parliamentary Papers 2012-13, 2813), the government does not accept the AIV’s conclusion, ‘Law enforcement authorities and the Public Prosecution Service are still not always able to make the best use of the financial approach as it requires knowledge of matters beyond the criminal law.’ As noted in the responses to these parliamentary questions, the Public Prosecution Service, the police and the more specialised law enforcement authorities such as the Fiscal Information and Investigation Service (FIOD) and the Social Affairs and Employment Inspectorate have gone to considerable lengths to increase their capacity and expertise in the field of financial investigations. Police investigations that amount to anything today often involve financial investigation work, and measures are taken to deprive offenders of the money or assets they obtain through crime.

FATF and other frameworks

In the transboundary approach to financial crime and corruption in general, countries work together in a variety of configurations, including the Council of Europe, the Financial Action Task Force (FATF), the OECD and the UN. In each configuration the participating countries hold each other accountable for shortcomings. The Netherlands is actively working to extend these partnerships in a variety of areas.

The FATF standards already cover the careful registration of account owners’ personal data, the provision of assurance on ultimate beneficial owners and the availability of that information to the authorities. A large number of countries have committed themselves to the standards through their membership of the FATF (35 jurisdictions) or its sister organisations. Throughout the world, sectors susceptible to money laundering are expected to observe uniform rules on the identification and verification of clients and ultimate beneficial owners, to report suspicious transactions and establish financial intelligence services to analyse the reports.

The FATF and its sister organisations periodically evaluate the laws and policies of the countries concerned and publish their findings. In virtually all the countries concerned, including the Netherlands and other European countries, the evaluations have led to stricter legislation and policy. Further information is available in the Explanatory Memorandum to the Bill to amend the Money Laundering and Terrorist Financing (Prevention) Act, which will implement the FATF recommendations (Parliamentary Papers 2011-12, 33 238, no. 3). The next round of evaluations, commencing in 2014, will focus more on the efficacy of measures. Full and effective implementation of the FATF standards worldwide is a key objective to combat transnational financial crime.

The Netherlands is an active member of the FATF and was involved in the process that led to the revision of the FATF standards in February 2012. One of its ambitions was to have the revised standards specifically state that tax offences should be treated everywhere as predicate offences for money laundering.

Slowly but surely, progress is being made on the AIV’s recommendation to abolish secrecy jurisdictions, with the OECD’s system of grey lists exerting pressure on the countries concerned to be more transparent.

Banks must also adhere to the Basel Committee on Banking Supervision’s guidance on customer due diligence, account opening and customer identification and cross-border wire transfers.

Corruption and natural resources

The AIV rightly highlights the importance of combating corruption in its many forms (from petty to grand). Conventions concluded at global level (UN Convention against Corruption, UNCAC) and at European level (Council of Europe Convention and Group of States against Corruption (GRECO) implementation mechanism) are important instruments to combat corruption. The Netherlands helped lead the way towards agreement on the UNCAC review mechanism, which recently entered into force and is working well. As the AIV suggests, supporting anti-corruption agencies is a sensible approach in developing countries suffering from large-scale corruption. The AIV also refers to the fact that small elites and in some cases rebel movements all too often appropriate natural resources that should benefit a country’s entire population. The report’s case study of how a variety of groups have plundered the natural resources of the Democratic Republic of the Congo (DRC) illustrates this problem well.

Various initiatives have been taken over the years to certify natural resources and diamonds from conflict areas or to allow them to be traced. As the AIV notes, tracing and certifying instruments are complex and can be susceptible to corruption. The systems that are developed must therefore be robust.

As the AIV observes, the Netherlands has taken the initiative to set up an operational system to track tin from its production in the Congolese province of South Kivu to customers participating in the initiative. The first shipment of tin reached the Netherlands in September 2013 and the pilot can be considered a success.

European aspects

The AIV notes that the abolition of internal borders has heightened the need for European cooperation to combat crime. Within the EU, special efforts have been made in recent years and good progress has been achieved, including the EU Convention on Mutual Assistance in Criminal Matters, the introduction of the European arrest warrant and the Joint Investigation Teams. The Netherlands is a strong advocate of the use of Joint Investigation Teams in cases involving two or more EU member states, and regularly uses them. European agencies like Europol, Eurojust and Frontex are also playing a more prominent role. The multi-year policy framework for Justice and Home Affairs for 2010-2014 (the Stockholm Programme) has also boosted the fight against crime. A new five-year programme is currently being worked out for 2015-2019.

Monitoring the quality of the rule of law in the EU

The AIV notes that the quality of the rule of law is thoroughly evaluated during EU accession procedures but there is no general mechanism to monitor it after accession. Only the accession negotiations for Romania and Bulgaria concluded that a special past-accession mechanism would be necessary in certain areas. This led to the establishment of the Cooperation and Verification Mechanism, which is still in force today. The government agrees with the AIV that there is much to be said for an EU-wide mechanism for member states to hold each other accountable for the functioning of the rule of law and their adherence to fundamental values. To this end, the German, Danish, Finnish and Dutch foreign ministers sent a joint letter to the President of the European Commission on 6 March 2013 asking the Commission to develop an additional instrument in harmony with the various reporting procedures already in place in specific EU areas. The European Commission has acknowledged the need for such an instrument and will issue a Communication in 2014 with proposals to strengthen EU instruments in this area. We very much look forward to the advisory report the AIV is preparing on this subject.

A working party of the JHA Council regularly evaluates member states’ instruments in certain areas. A special theme is selected for each round. The theme of the fifth round of evaluations (which began in 2009 and is now nearing completion) is financial crime and financial investigations. A thorough review of this field has now been conducted for nearly all EU member states.

It should also be noted that the European Commission will soon publish the first EU Anti-Corruption report.

European Public Prosecutor’s Office

The AIV recommends that a European Public Prosecutor’s Office be established to coordinate cases involving crimes that harm the Union’s financial interests. This recommendation received a great deal of media attention when the report was published, and questions were asked in the House (Parliamentary Papers 2012-13, no. 2784 and 2012-13, no. 2813). In reply to those and earlier questions, the government said there could be no question of having an EU institution assume the tasks of the Dutch Public Prosecution Service. In mid-2013, the European Commission presented proposals to establish a European Public Prosecutor’s Office that would concentrate on fraud with EU funds in general and grants awarded by the European Commission in particular.

As noted in the relevant BNC fiche (Parliamentary Papers 22112, no. 1681) the government attaches great importance to the effective use of EU funds, robust accounting and appropriate anti-fraud measures, with the member states taking comparable action under criminal law. The government noted in the fiche that a European Public Prosecutor’s Office may help combat fraud with EU funds, but it queried the proposed organisation of this office. The House of Representatives asked the government in the Recourt/Van Oosten motion (Parliamentary Papers 32317, 189) not to approve the organisation or establishment of a European Public Prosecutor’s Office as currently proposed. The government will honour this request. Eleven national parliaments, including the Dutch parliament, have also expressed opposition to the establishment of a European Public Prosecutor’s Office on the grounds of subsidiarity (yellow card). In response, the European Commission issued a Communication at the end of 2013 that concluded that the current proposal did not contravene the principle of subsidiarity. Following discussion in the Council, the Commission announced that it would prepare a revised proposal. The government is awaiting the revised proposal.

Mobile border checks

The AIV calls for the introduction of stricter selective checks on the transport of cash, precious metals and arms and on human trafficking/people smuggling at the internal borders of the EU member states. Given the abolition of internal borders, the Royal Military and Border Police’s mobile border checks on the movement of people already represent the maximum that is possible without contravening the Schengen Borders Code, as selective checks may not be so intensive that they appear to be a veiled reintroduction of border controls. All measures are being taken in close cooperation with neighbouring countries, which carry out their own checks in border areas in their own way.

Role of the armed forces

The government agrees in full with the report’s conclusion that the armed forces, alongside their other duties, play a fundamental role in combating transnational crime, and that optimal use should be made of their capacity. This is true of all the branches of the armed forces in general and of the Royal Military and Border Police in particular, for whom combating transnational crime is a core duty in connection with the border controls it performs. Particularly noteworthy at present are the navy’s successful interception of drug shipments in the Caribbean and the support it is offering Frontex in preventing illegal migration in the Mediterranean region, in part by providing coastguard aircraft at set times. However, the sections in the report on the role of the armed forces are rather brief, whereas the request for advice had specifically asked for a consideration of the role of the armed forces as full security partners in the fight against drugs, terrorism, illegal migration and piracy.

New forms of crime: cyber crime

The AIV recommends that the government commission a separate advisory report on cyber crime from a competent body. The government does not believe this is necessary. It is already giving its full attention to combating cyber crime. A National Cyber Security Centre was established at the beginning of 2012. The tough stance on cyber criminals – from hackers to digital bank robbers – will be vigorously pursued, as will the demolition of criminal infrastructure including the dismantling of botnets. The government is working together with many public and private parties at home and abroad and paying special attention to cooperation with the banking sector. It also recently prepared a new National Cyber Security Strategy to update the 2011 strategy. The original strategy concentrated on national measures whereas the new one gives greater priority to strengthening international cooperation.

Yours sincerely,
 

Frans Timmermans
Minister of Foreign Affairs
Lilianne Ploumen
Minister for Foreign Trade and
Development Cooperation

 

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