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TEDGlobal 2009

Loretta Napoleoni: The intricate economics of terrorism

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Loretta Napoleoni details her rare opportunity to talk to the secretive Italian Red Brigades -- an experience that sparked a lifelong interest in terrorism. She gives a behind-the-scenes look at its complex economics, revealing a surprising connection between money laundering and the US Patriot Act.

- Macroeconomist
She made her name following the dollars in terrorist networks, but now Loretta Napoleoni is on the trail of something far more sinister -- the gray zone where crime and unregulated credit meet. Full bio

I'm going to show you how terrorism
00:16
actually interacts with our daily life.
00:18
15 years ago I received a phone call from a friend.
00:21
At the time he was looking after the rights of political prisoners
00:25
in Italian jails.
00:28
He asked me if I wanted to interview the Red Brigades.
00:31
Now, as many of you may remember,
00:35
the Red Brigades was a terrorist, Marxist organization
00:37
which was very active in Italy
00:41
from the 1960s until the mid-1980s.
00:43
As part of their strategy
00:47
the Red Brigades never spoke with anybody, not even with their lawyers.
00:49
They sat in silence through their trails,
00:53
waving occasionally at family and friends.
00:57
In 1993 they declared the end of the armed struggle.
01:01
And they drew a list of people with whom they would talk,
01:07
and tell their story.
01:09
And I was one of those people.
01:11
When I asked my friend why the Red Brigades want to talk to me,
01:14
he said that the female members of the organization
01:17
had actually supported my name.
01:21
In particular, one person had put it forward.
01:24
She was my childhood friend.
01:27
She had joined the Red Brigades
01:30
and became a leader of the organization.
01:32
Naturally, I didn't know that
01:35
until the day she was arrested.
01:37
In fact, I read it in the newspaper.
01:39
At the time of the phone call
01:43
I just had a baby,
01:45
I successfully completed a management buyout
01:47
to the company I was working with,
01:49
and the last thing I wanted to do was to go back home
01:52
and touring the high-security prisons.
01:55
But this is exactly what I did
01:58
because I wanted to know
02:01
what had turned my best friend
02:03
into a terrorist,
02:05
and why she'd never tried to recruit me.
02:07
(Laughter)
02:11
(Applause)
02:13
So, this is exactly what I did.
02:16
Now, I found the answer very quickly.
02:21
I actually had failed
02:25
the psychological profiling of a terrorist.
02:27
The center committee of the Red Brigades
02:30
had judged me too single-minded
02:32
and too opinionated to become a good terrorist.
02:34
My friend, on the other hand, she was a good terrorist
02:38
because she was very good at following orders.
02:41
She also embraced violence.
02:44
Because she believed that the only way
02:47
to unblock what, at the time,
02:49
was known as a blocked democracy,
02:52
Italy, a country run by the same party for 35 years
02:54
was the arms struggle.
02:58
At the same time, while I was interviewing the Red Brigades,
03:02
I also discovered that their life was not ruled
03:05
by politics or ideology,
03:08
but actually was ruled by economics.
03:11
They were constantly short of cash.
03:14
They were constantly searching for cash.
03:17
Now, contrary to what many people believe,
03:20
terrorism is actually a very expensive business.
03:22
I'll give you an idea.
03:26
In the 1970s, the turnover of the Red Brigades
03:28
on a yearly basis
03:33
was seven million dollars.
03:35
This is roughly between 100
03:37
and 150 million, today.
03:39
Now, you know, if you live underground
03:41
it's really hard to produce this amount of money.
03:44
But this also explains why, when I was interviewing the Red Brigades,
03:49
and then, later on, other arms organizations,
03:53
including members of al-Zarqawi group in the Middle East,
03:56
everybody was extremely reluctant
04:01
to talk about ideology, or politics.
04:04
Because they had no idea.
04:07
The political vision of a terrorist organization
04:09
is decided by the leadership,
04:13
which, generally, is never more than five to seven people.
04:16
All the others do, day in and day out,
04:19
is search for money.
04:22
Once, for example, I was interviewing
04:24
this part-timer from the Red Brigades.
04:26
It was a psychiatrist. He loved sailing.
04:29
He was a really keen sailor. And he had this beautiful boat.
04:31
And he told me that the best time of his life
04:35
was when he was a member of the Red Brigades
04:37
and he went sailing, every summer, back and forth
04:40
from Lebanon, where he would pick up
04:42
Soviet weapons from the PLO,
04:44
and then carry them all the way to Sardinia
04:46
where the other arms organization from Europe would go
04:49
and take their share of the arms.
04:52
For that service the Red Brigades were actually paid a fee,
04:55
which went to fund their organization.
04:59
So, because I am a trained economist
05:02
and I think in economic terms,
05:05
all of the sudden I thought,
05:07
maybe there is something here.
05:09
Maybe there is a link, a commercial link,
05:11
between one organization and another one.
05:13
But it was only when I interviewed
05:17
Mario Moretti, the head of the Red Brigades,
05:20
the man who kidnapped and killed Aldo Moro,
05:24
Italian former prime minister,
05:27
that I finally realized
05:30
that terrorism is actually business.
05:32
I was having lunch with him
05:35
in a high-security prison in Italy.
05:37
And as we were eating,
05:39
I had the distinct feeling
05:42
that I was back in the city of London,
05:44
having lunch with a fellow banker or an economist.
05:47
This guy thought in the same way I did.
05:51
So, I decided that I wanted to investigate the economics of terrorism.
05:55
Naturally, nobody wanted to fund my research.
06:01
In fact, I think many people thought that I was a bit crazy.
06:05
You know, that woman that goes around to foundations
06:07
asking for money, thinking about the economics of terrorism.
06:10
So, in the end, I took a decision
06:14
that, in retrospect, did change my life.
06:17
I sold my company,
06:20
and funded the research myself.
06:22
And what I discovered
06:25
is this parallel reality,
06:27
another international economic system,
06:29
which runs parallel to our own,
06:33
which has been created by arms organizations
06:36
since the end of World War II.
06:38
And what is even more shocking
06:40
is that this system
06:42
has followed, step by step, the evolution
06:46
of our own system,
06:49
of our Western capitalism.
06:51
And there are three main stages.
06:53
The first one is the state sponsor of terrorism.
06:56
The second one is the privatization of terrorism.
06:59
And the third, of course, is the globalization of terrorism.
07:02
So, state sponsor of terrorism,
07:06
feature of the Cold War.
07:09
This is when the two superpowers were fighting
07:11
a war by proxy,
07:13
along the periphery of the sphere of influence,
07:15
fully funding arms organizations.
07:18
A mix of legal and illegal activities is used.
07:21
So, the link between crime and terror
07:24
is established very early on.
07:27
And here is the best example,
07:30
the Contras in Nicaragua, created by the CIA,
07:32
legally funded by the U.S. Congress,
07:35
illegally funded by the Reagan administration
07:38
via covert operation, for example, the Iran-Contra Affair.
07:41
Then comes the late 1970s, early '80s,
07:47
and some groups successfully carry out
07:50
the privatization of terrorism.
07:53
So, they gain independence from the sponsor,
07:55
and start funding themselves.
07:58
Now, again we see a mix of legal and illegal activities.
08:02
So, Arafat used to get a percentage
08:07
of the smuggling of hashish
08:10
from Bekáa Valley, which is the valley between Lebanon and Syria.
08:13
And the IRA, which control the private transportation system
08:17
in Northern Ireland, did exactly the same thing.
08:21
So, every single time
08:24
that somebody got into a taxi in Belfast
08:26
without knowing, actually,
08:29
was funding the IRA.
08:31
But the great change came, of course,
08:34
with globalization and deregulation.
08:36
This is when arms organization were able to link up,
08:39
also financially, with each other.
08:42
But above all, they started to do
08:44
serious business with the world of crime.
08:46
And together they money-laundered
08:49
their dirty business through the same channel.
08:51
This is when we see the birth of the transnational
08:55
arms organization Al Qaeda.
08:58
This is an organization that can raise money across border.
09:01
But also that is able to carry out attacks
09:04
in more than one country.
09:07
Now, deregulation also brought back
09:10
rogue economics.
09:13
So what is rogue economics?
09:15
Rogue economics is a force which is constantly
09:17
lurking in the background of history.
09:19
It comes back at times of great transformation,
09:23
globalization being one of those transformations.
09:26
It is at this times in which
09:29
politics actually loses control of the economy,
09:32
and the economy becomes a rogue force
09:35
working against us.
09:38
It has happened before in history.
09:40
It has happened with the fall of the Roman Empire.
09:41
It has happened with Industrial Revolution.
09:45
And it actually happened again, with the fall of the Berlin wall.
09:47
Now, I calculated how big was this international
09:52
economic system composed by crime,
09:57
terror, and illegal economy,
09:59
before 9-11.
10:02
And it is a staggering 1.5 trillion dollars.
10:04
It is trillions, it's not billions.
10:09
This is about twice the GDP of the United Kingdom,
10:11
soon will be more,
10:14
considering where this country is going.
10:16
(Laughter)
10:18
Now, until 9-11,
10:21
the bulk of all this money
10:23
flew into the U.S. economy
10:25
because the bulk of the money was denominated in U.S. dollars
10:27
and the money laundering was taking place
10:31
inside the United States.
10:34
The entry point, of course, of most of this money
10:36
were the off-shore facilities.
10:39
So, this was a vital injection of cash
10:41
into the U.S. economy.
10:45
Now, when I went to look at the figures of the U.S. money supply,
10:48
the U.S. money supply is the amount
10:53
of dollars that the Federal Reserve
10:55
prints every year
10:58
in order to satisfy
11:00
the increase in the demand for dollars,
11:02
which, of course, reflects the growth
11:05
of the economy.
11:07
So, when I went to look at those figures, I noted that since the late 1960s
11:09
a growing number of these dollars
11:13
was actually leaving the United States,
11:17
never to come back.
11:19
These were money taken out
11:22
in suitcases or in containers, in cash of course.
11:24
These were money taken out by criminals and money launderers.
11:28
These were money taken out to fund
11:31
the growth of the terror,
11:34
illegal and criminal economy.
11:36
So, you see, what is the relationship?
11:40
The United States actually is a country
11:44
that is the reserve currency of the world.
11:48
What does it mean? That means that
11:52
it has a privilege that other countries do not have.
11:54
It can borrow against the total amount of dollars
11:57
in circulation in the world.
12:01
This privilege is called seigniorage.
12:03
No other country can do that.
12:06
All the other countries, for example the United Kingdom,
12:09
can borrow only against the amount of money
12:11
in circulation inside its own borders.
12:15
So, here is the implication of the relationship
12:19
between the worlds of crime, terror, and illegal economy, and our economy.
12:21
The U.S. in the 1990s
12:26
was borrowing against the growth
12:29
of the terror, illegal and criminal economy.
12:31
This is how close we are with this world.
12:35
Now, this situation changed, of course, after 9-11,
12:40
because George Bush launched the War on Terror.
12:42
Part of the War on Terror
12:45
was the introduction of the Patriot Act.
12:47
Now, many of you know that the Patriot Act
12:50
is a legislation that greatly reduces
12:52
the liberties of Americans in order to protect them
12:55
against terrorism.
12:58
But there is a section of the Patriot Act
13:00
which refers specifically to finance.
13:02
And it is, in fact, an anti-money-laundering legislation.
13:04
What the Patriot Act did was
13:08
to prohibit U.S. bank,
13:10
and U.S.-registered foreign banks
13:12
from doing any businesses with off-shore facilities.
13:14
It closed that door between the money laundering
13:18
in dollars, and the U.S. economy.
13:21
It also gave the U.S. monetary authorities
13:24
the right to monitor any dollar transaction
13:29
taking place anywhere in the world.
13:32
Now, you can imagine what was the reaction of the international
13:36
finance and banking.
13:38
All the bankers said to their clients,
13:40
"Get out of the dollars and go and invest somewhere else."
13:43
Now, the Euro was a newly born currency
13:46
of great opportunity for business, and, of course, for investment.
13:49
And this is what people did.
13:53
Nobody wants the U.S. monetary authority
13:55
to check their relationship,
13:57
to monitor their relationship with their clientele.
13:59
The same thing happened, of course,
14:03
in the world of crime and terror.
14:05
People simply moved their money-laundering activities
14:09
away from the United States
14:14
into Europe.
14:17
Why did this happen? This happened because
14:20
the Patriot Act was a unilateral legislation.
14:22
It was introduced only in the United States.
14:25
And it was introduced only for the U.S. dollars.
14:27
In Europe, a similar legislation
14:30
was not introduced.
14:32
So, within six months
14:34
Europe became the epicenter
14:36
of the money-laundering activities
14:38
of the world.
14:41
So, this is how incredible are the relationship
14:44
between the world of crime
14:48
and the world of terror,
14:50
and our own life.
14:52
So, why did I tell you this story?
14:55
I told you this story because you
14:57
must understand that there is a world
14:59
that goes well beyond the headlines of the newspapers,
15:02
including the personal relationship that you have
15:06
with friends and family.
15:08
You got to question everything that is told to you,
15:11
including what I just told you today.
15:14
(Laughter)
15:16
This is the only way for you
15:18
to step into the dark side, and have a look at it.
15:20
And believe me,
15:23
it's going to be scary.
15:25
It's going to be frightful, but it's going to enlighten you.
15:27
And, above all, it's not going to be boring.
15:30
(Laughter)
15:33
(Applause)
15:35

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About the speaker:

Loretta Napoleoni - Macroeconomist
She made her name following the dollars in terrorist networks, but now Loretta Napoleoni is on the trail of something far more sinister -- the gray zone where crime and unregulated credit meet.

Why you should listen

Once it was easy to know where our money was going. Now we live under a system Loretta Napoleoni has dubbed "rogue economics," where the blurry histories of the products we consume and the cash we invest make us complicit in financing barely legal credit schemes -- and even crime, if it's the slavery producing the beans for our lattes or the guts of our mobile phones.

The reach of the newly global market, as Napoleoni argues in her new book, Rogue Economics: Capitalism's New Reality, connects us all to the dark side, regardless of our intentions to be responsible  -- and, she says, our deep connection to fishy credit and unregulated finance has laid the groundwork for the current economic crisis. Her previous book, Terror Incorporated, dives into the true economic impact of terrorism.

More profile about the speaker
Loretta Napoleoni | Speaker | TED.com