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Why did states agree that the global fight against drug trafficking should be led by an international organization vested with an independent legal personality, a considerable budget, and powerful direct and indirect enforcement tools, but fail to adopt a similarly far-reaching form of institutionalized cooperation to combat illicit transfers in small arms and light weapons? This question is striking, because the trafficking of narcotic drugs and of small arms and light weapons seem – at first glance – to be very similar public policy problems: both kill and ruin the health of a comparable number of people; both provide a playground for profit-seeking criminals as well as ideologically motivated rebels and terrorists; and both require the coordinated response of a large number of producer, transhipment, and consumer countries. To rephrase the opening question in more general terms: Why do states adopt strikingly different designs for international institutions created to tackle seemingly similar problems? This puzzle is at the heart of this study's theoretical inquiry.
While the academic discussion of the reasons why independent states create institutions to facilitate international cooperation has started to reach its point of saturation, the more fine-grained inquiry into the factors explaining the pronounced variance in the design of these institutions is still in its infancy. So far, not even a common language has been developed to describe the most salient dimensions along which institutional designs vary.
Globalization creates lucrative opportunities for traffickers of drugs, dirty money, blood diamonds, weapons, and other contraband. Effective countermeasures require international collaboration, but what if some countries suffer while others profit from illicit trade? Only international institutions with strong compliance mechanisms can ensure that profiteers will not dodge their law enforcement responsibilities. However, the effectiveness of these institutions may also depend on their ability to flexibly adjust to fast-changing environments. Combining international legal theory and transaction cost economics, this book develops a novel, comprehensive framework which reveals the factors that determine the optimal balance between institutional credibility and flexibility. The author tests this rational design paradigm on four recent anti-trafficking efforts: narcotics, money laundering, conflict diamonds, and small arms. She sheds light on the reasons why policymakers sometimes adopt suboptimal design solutions and unearths a nascent trend toward innovative forms of international cooperation which transcend the limitations of national sovereignty.
“Diamonds are a girl's best friend,” Marilyn Monroe famously sang in the 1953 movie Gentlemen Prefer Blondes. Half a century later, the phrase took on a decidedly less romantic twist, as diamonds became a rebel's best friend, helping to fund bloody conflicts in western and central Africa. In response to these conflicts, officials of interested governments, together with non-governmental organizations and industry representatives met in the old South African diamond city Kimberley in May 2000 to hammer out an internationally coordinated effort to prevent rebels from turning diamonds into arms and payment for fighters. With great speed and creativity – at least in comparison with most other international initiatives – this diverse set of actors devised the so-called Kimberley Process Certification Scheme, which formulates a minimum set of trade control measures aimed at denying so-called “blood diamonds” or “conflict diamonds” access to international markets.
This chapter examines whether the design of this scheme matches the particularities of the illicit trade in these tarnished stones. In contrast to the paradoxical problem constellation found in the previous chapter on money laundering, I will show that in this case all three problem attributes are of the same moderate degree, thus unanimously pointing toward a design solution in the mid-range of the soft–hard law spectrum. As I will argue below, the actual design adopted by the instigators of the Kimberley Process does indeed match this expectation. Like the FATF's Forty Recommendations, the Kimberley Process represents an international institution with a moderate degree of legalization.
“But isn't this way too dangerous?” my mother-in-law asked whenever my research topic came up in our conversations. “I don't want you to get killed by these gangsters.” Each time I tried to reassure her: “No, it is really not going to be that sort of crime-and-murder book you imagine.” No blonde wigs, no sunglasses, no bulletproof vests. The way I set out to explore the shady world stretched between crime and war was not through undercover meetings with Viktor Bout, the legendary “Merchant of Death,” or with his client, Manuel Marulanda, the world's oldest guerrilla leader and drug king. Instead, I spent the past five years interviewing policymakers and diplomats of all ranks and nationalities, industry representatives, and NGO leaders. I plowed through every imaginable written source on the subject. This was admittedly non-glamorous and required perseverance and analytic acuity rather than bravado and guile. The result of this endeavor may not be an adrenaline-packed thriller. But I hope to show that the big picture on how drugs, dirty money, diamonds, and arms circulate in the multi-billion dollar illicit global economy and how policymakers have tried to fight these different types of trafficking can be as fascinating as a series of anecdotes from the underworld.
On a more theoretical level, I want to explore how international cooperation on global trafficking can be facilitated through well-designed institutions.
The concept of legalization introduced in the previous chapter provides a valuable tool for capturing essential differences in institutional designs. It does not in itself, however, provide a framework for explaining the so-categorized variance in the design of international institutions nor does it attempt to do so. In fact, it is one of the major strengths of the concept that it is equally compatible with different rationalist theories including power-based, domestic politics, and functionalist approaches, as illustrated by the diverse contributions to the special volume of International Organization on the concept of legalization. This study remains rooted in the concept's rationalist orientation as it assumes that policymakers consciously choose among different design options when they establish a new international institution. Already the term “design” itself alludes to “intention-based theories of social change” (Goodin 1996: 28) and precludes the possibility of “spontaneous order” (Young 1983).
Within the school of rationalist theories, this study builds on the functionalist tradition – namely on transaction cost economics theory. However, the problem-tailored design model developed here deviates from two central tenets of the functionalist paradigm. First, this study does not share the functionalist assumption that international institutions necessarily generate Pareto efficiency gains. All cases studied here result in both winners and losers, and it remains questionable whether the institution created in each of these cases even results in Kaldor–Hicks efficiency improvements.
Today's war on terror is stealing the headlines of another fuzzy war the world is fighting against a non-conventional enemy: the war on drugs. Illicit drugs are a prototypical case of a problem stretching all across the blurred crime–war continuum. On the one hand, narcotics are associated with problems that fall clearly within the crime category, such as crimes committed under the influence of drugs. Not a day passes without the tabloids reporting new sensational stories about a crack addict battering an innocent victim. On the other hand, drugs have also triggered and sustained a number of prominent inter-state and intra-state wars. The tense stand-off between Colombia and its neighbors Venezuela and Ecuador is just the most recent manifestation of the bellicose dimension of the drugs industry. The extra-territorial killing of a senior leader of Colombia's most notorious narco-guerrilla group has led Latin America close to a cross-border war (The Economist 2008).
In this chapter, I will explore the violent side of this half-trillion-dollar business and assess the extent to which the architecture of the international institution created in response – namely the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 – provides the optimal governance structure for dealing with the problem. The starkly contrasting ways and degrees of intensity with which different states are affected by the problem and the scarcity of reliable information on industry trends and on governments' control efforts suggest hard law to be the best design option.
What some scholars deplore as a loss in coherence and theoretical purity, others applaud as an innovative and necessary response to the regulatory challenges posed by globalization. Both camps agree, however, that we are currently witnessing a creative explosion in the diversity of regulatory frameworks policymakers design to govern issues on the domestic and international level. Within these scholarly discourses on trends in regulatory design, the term “legalization” has taken on two different, but closely related, connotations. To some, legalization refers primarily to the tendency of social conflicts to be transformed into legal or quasi-legal conflicts that are settled through institutionalized procedures. Brütsch and Lehmkuhl (2007: 9), for instance, define legalization as a move to law – a “complex set of transformations creating a multitude of overlapping, at times complementary, at times contradictory legal realms, or ‘legalities’.” This understanding deviates from the connotation this study focuses on, which sees in the concept of legalization a heuristic tool for describing and comparing the design of international institutions based on features considered particularly salient to the functioning of these institutions. This latter notion of legalization builds directly upon the theoretical framework developed by Abbott et al. (2000). This group of scholars identified three design features – that is, obligation, precision, and delegation – as central to the different ways international institutions function.
This study set out to test the power of a transaction cost economics based model in explaining the observed variance in the design of international institutions. In three of the four cases examined in the previous chapters, the analysis of the particular constellation underlying a trafficking-related problem did indeed lead to the right design prediction. This apparent success gives little reason for complacency. In the three cases where the expected design corresponded with the actual design the impact of problem constellation variables on design outcomes may be spurious, and the case where the model's prediction failed gives us even stronger reasons to re-examine the validity of the model's underlying assumptions.
Transaction cost economics theory, like other functionalist design theories, rests on the assumption that rational actors endow an international institution with the substance and form that are most pertinent for dealing with the governance challenges arising from a particular problem constellation, so that the institution can effectively solve the problem for which it was created. This assumption rests on two fundamental premises. First, the crafters of an international institution are rational, purposeful actors. Second, they establish an institution as a means to facilitate effective international cooperation on a policy problem. Both of these assumptions have been criticized for various reasons. The goal of this concluding chapter is therefore to examine the robustness of this study's problem-oriented design model in the light of this criticism and to explore how its reach may be expanded by accommodating elements of alternative design theories.
Unknown as a legal concept until the 1980s, money laundering developed from “one of the buzz phrases . . . in the 1990s” (Gold and Levi 1994: 7) into a veritable “roar” in this decade (Beare 2001). Policymakers' growing interest in this phenomenon reflects their increasing disillusionment with the war against drug trafficking and other forms of organized crime and their hope that confiscation and anti-money laundering policies could provide them more effective – possibly even self-financing – tools for attacking the financial “soft belly” of criminal networks. It was immediately clear to policymakers that they had to join forces across borders to counter the fast advancing integration of financial markets and the many new and truly global opportunities this trend offered for criminals and terrorists to create a legitimate appearance for their “dirty” money. Less than a year after money laundering was first addressed in a legally binding international agreement – namely in the Vienna Convention studied in the previous chapter – the leaders of the then G-7 countries agreed to establish the so-called Financial Action Task Force as a platform for coordinating and strengthening their efforts to “follow the money” (Wechsler 2001) and to “take profit out of crime.”
I will argue in the following that these cooperative anti-money laundering (AML) efforts are fraught with a paradoxical problem constellation, resulting in contradictory design expectations. On the one hand, the level of asset specificity is high, stemming from a rather asymmetric distribution of costs and benefits among states.
Small arms and diamonds have much in common. Both goods enjoy great popularity among criminals, rebels, and terrorists who often barter one for the other. The illicit trade in small arms, as in diamonds, emerged simultaneously on the international agenda against the backdrop of the post-Cold War rise in bloody intra-state conflicts. In contrast to negotiations aimed at curbing the trade in conflict diamonds, international attempts to impose better controls on transfers of small arms and light weapons have not yet resulted in a unified, global institution endowed with the form and substance necessary to reach the same degree of effectiveness as that of the Kimberley Process. Rather, small arms and light weapons became a matter for negotiations in a variety of regional and inter-regional policy forums, leading to the adoption of over a dozen agreements and protocols dedicated to this topic. The United Nations has been the driving agenda-setting and, to a lesser extent, norm-creating force in this process. The cornerstone of the UN's anti-SALW efforts is the legally non-binding Program of Action to Prevent, Combat, and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects (Program of Action or PoA, in brief), which was adopted at a special United Nations conference in July 2001.
This fourth and final case challenges the design hypotheses underlying this study more than any of the preceding empirical chapters so far. Specifically, the predicted institutional design does not match the actual design outcome.