Loretta Napoleoni: The intricate economics of terrorism

I'm going to show you how terrorism

actually interacts with our daily life.

15 years ago I received a phone call from a friend.

At the time he was looking after the rights of political prisoners

in Italian jails.

He asked me if I wanted to interview the Red Brigades.

Now, as many of you may remember,

the Red Brigades was a terrorist, Marxist organization

which was very active in Italy

from the 1960s until the mid-1980s.

As part of their strategy

the Red Brigades never spoke with anybody, not even with their lawyers.

They sat in silence through their trails,

waving occasionally at family and friends.

In 1993 they declared the end of the armed struggle.

And they drew a list of people with whom they would talk,

and tell their story.

And I was one of those people.

When I asked my friend why the Red Brigades want to talk to me,

he said that the female members of the organization

had actually supported my name.

In particular, one person had put it forward.

She was my childhood friend.

She had joined the Red Brigades

and became a leader of the organization.

Naturally, I didn't know that

until the day she was arrested.

In fact, I read it in the newspaper.

At the time of the phone call

I just had a baby,

I successfully completed a management buyout

to the company I was working with,

and the last thing I wanted to do was to go back home

and touring the high-security prisons.

But this is exactly what I did

because I wanted to know

what had turned my best friend

into a terrorist,

and why she'd never tried to recruit me.

(Laughter)

(Applause)

So, this is exactly what I did.

Now, I found the answer very quickly.

I actually had failed

the psychological profiling of a terrorist.

The center committee of the Red Brigades

had judged me too single-minded

and too opinionated to become a good terrorist.

My friend, on the other hand, she was a good terrorist

because she was very good at following orders.

She also embraced violence.

Because she believed that the only way

to unblock what, at the time,

was known as a blocked democracy,

Italy, a country run by the same party for 35 years

was the arms struggle.

At the same time, while I was interviewing the Red Brigades,

I also discovered that their life was not ruled

by politics or ideology,

but actually was ruled by economics.

They were constantly short of cash.

They were constantly searching for cash.

Now, contrary to what many people believe,

terrorism is actually a very expensive business.

I'll give you an idea.

In the 1970s, the turnover of the Red Brigades

on a yearly basis

was seven million dollars.

This is roughly between 100

and 150 million, today.

Now, you know, if you live underground

it's really hard to produce this amount of money.

But this also explains why, when I was interviewing the Red Brigades,

and then, later on, other arms organizations,

including members of al-Zarqawi group in the Middle East,

everybody was extremely reluctant

to talk about ideology, or politics.

Because they had no idea.

The political vision of a terrorist organization

is decided by the leadership,

which, generally, is never more than five to seven people.

All the others do, day in and day out,

is search for money.

Once, for example, I was interviewing

this part-timer from the Red Brigades.

It was a psychiatrist. He loved sailing.

He was a really keen sailor. And he had this beautiful boat.

And he told me that the best time of his life

was when he was a member of the Red Brigades

and he went sailing, every summer, back and forth

from Lebanon, where he would pick up

Soviet weapons from the PLO,

and then carry them all the way to Sardinia

where the other arms organization from Europe would go

and take their share of the arms.

For that service the Red Brigades were actually paid a fee,

which went to fund their organization.

So, because I am a trained economist

and I think in economic terms,

all of the sudden I thought,

maybe there is something here.

Maybe there is a link, a commercial link,

between one organization and another one.

But it was only when I interviewed

Mario Moretti, the head of the Red Brigades,

the man who kidnapped and killed Aldo Moro,

Italian former prime minister,

that I finally realized

that terrorism is actually business.

I was having lunch with him

in a high-security prison in Italy.

And as we were eating,

I had the distinct feeling

that I was back in the city of London,

having lunch with a fellow banker or an economist.

This guy thought in the same way I did.

So, I decided that I wanted to investigate the economics of terrorism.

Naturally, nobody wanted to fund my research.

In fact, I think many people thought that I was a bit crazy.

You know, that woman that goes around to foundations

asking for money, thinking about the economics of terrorism.

So, in the end, I took a decision

that, in retrospect, did change my life.

I sold my company,

and funded the research myself.

And what I discovered

is this parallel reality,

another international economic system,

which runs parallel to our own,

which has been created by arms organizations

since the end of World War II.

And what is even more shocking

is that this system

has followed, step by step, the evolution

of our own system,

of our Western capitalism.

And there are three main stages.

The first one is the state sponsor of terrorism.

The second one is the privatization of terrorism.

And the third, of course, is the globalization of terrorism.

So, state sponsor of terrorism,

feature of the Cold War.

This is when the two superpowers were fighting

a war by proxy,

along the periphery of the sphere of influence,

fully funding arms organizations.

A mix of legal and illegal activities is used.

So, the link between crime and terror

is established very early on.

And here is the best example,

the Contras in Nicaragua, created by the CIA,

legally funded by the U.S. Congress,

illegally funded by the Reagan administration

via covert operation, for example, the Iran-Contra Affair.

Then comes the late 1970s, early '80s,

and some groups successfully carry out

the privatization of terrorism.

So, they gain independence from the sponsor,

and start funding themselves.

Now, again we see a mix of legal and illegal activities.

So, Arafat used to get a percentage

of the smuggling of hashish

from Bekáa Valley, which is the valley between Lebanon and Syria.

And the IRA, which control the private transportation system

in Northern Ireland, did exactly the same thing.

So, every single time

that somebody got into a taxi in Belfast

without knowing, actually,

was funding the IRA.

But the great change came, of course,

with globalization and deregulation.

This is when arms organization were able to link up,

also financially, with each other.

But above all, they started to do

serious business with the world of crime.

And together they money-laundered

their dirty business through the same channel.

This is when we see the birth of the transnational

arms organization Al Qaeda.

This is an organization that can raise money across border.

But also that is able to carry out attacks

in more than one country.

Now, deregulation also brought back

rogue economics.

So what is rogue economics?

Rogue economics is a force which is constantly

lurking in the background of history.

It comes back at times of great transformation,

globalization being one of those transformations.

It is at this times in which

politics actually loses control of the economy,

and the economy becomes a rogue force

working against us.

It has happened before in history.

It has happened with the fall of the Roman Empire.

It has happened with Industrial Revolution.

And it actually happened again, with the fall of the Berlin wall.

Now, I calculated how big was this international

economic system composed by crime,

terror, and illegal economy,

before 9-11.

And it is a staggering 1.5 trillion dollars.

It is trillions, it's not billions.

This is about twice the GDP of the United Kingdom,

soon will be more,

considering where this country is going.

(Laughter)

Now, until 9-11,

the bulk of all this money

flew into the U.S. economy

because the bulk of the money was denominated in U.S. dollars

and the money laundering was taking place

inside the United States.

The entry point, of course, of most of this money

were the off-shore facilities.

So, this was a vital injection of cash

into the U.S. economy.

Now, when I went to look at the figures of the U.S. money supply,

the U.S. money supply is the amount

of dollars that the Federal Reserve

prints every year

in order to satisfy

the increase in the demand for dollars,

which, of course, reflects the growth

of the economy.

So, when I went to look at those figures, I noted that since the late 1960s

a growing number of these dollars

was actually leaving the United States,

never to come back.

These were money taken out

in suitcases or in containers, in cash of course.

These were money taken out by criminals and money launderers.

These were money taken out to fund

the growth of the terror,

illegal and criminal economy.

So, you see, what is the relationship?

The United States actually is a country

that is the reserve currency of the world.

What does it mean? That means that

it has a privilege that other countries do not have.

It can borrow against the total amount of dollars

in circulation in the world.

This privilege is called seigniorage.

No other country can do that.

All the other countries, for example the United Kingdom,

can borrow only against the amount of money

in circulation inside its own borders.

So, here is the implication of the relationship

between the worlds of crime, terror, and illegal economy, and our economy.

The U.S. in the 1990s

was borrowing against the growth

of the terror, illegal and criminal economy.

This is how close we are with this world.

Now, this situation changed, of course, after 9-11,

because George Bush launched the War on Terror.

Part of the War on Terror

was the introduction of the Patriot Act.

Now, many of you know that the Patriot Act

is a legislation that greatly reduces

the liberties of Americans in order to protect them

against terrorism.

But there is a section of the Patriot Act

which refers specifically to finance.

And it is, in fact, an anti-money-laundering legislation.

What the Patriot Act did was

to prohibit U.S. bank,

and U.S.-registered foreign banks

from doing any businesses with off-shore facilities.

It closed that door between the money laundering

in dollars, and the U.S. economy.

It also gave the U.S. monetary authorities

the right to monitor any dollar transaction

taking place anywhere in the world.

Now, you can imagine what was the reaction of the international

finance and banking.

All the bankers said to their clients,

"Get out of the dollars and go and invest somewhere else."

Now, the Euro was a newly born currency

of great opportunity for business, and, of course, for investment.

And this is what people did.

Nobody wants the U.S. monetary authority

to check their relationship,

to monitor their relationship with their clientele.

The same thing happened, of course,

in the world of crime and terror.

People simply moved their money-laundering activities

away from the United States

into Europe.

Why did this happen? This happened because

the Patriot Act was a unilateral legislation.

It was introduced only in the United States.

And it was introduced only for the U.S. dollars.

In Europe, a similar legislation

was not introduced.

So, within six months

Europe became the epicenter

of the money-laundering activities

of the world.

So, this is how incredible are the relationship

between the world of crime

and the world of terror,

and our own life.

So, why did I tell you this story?

I told you this story because you

must understand that there is a world

that goes well beyond the headlines of the newspapers,

including the personal relationship that you have

with friends and family.

You got to question everything that is told to you,

including what I just told you today.

(Laughter)

This is the only way for you

to step into the dark side, and have a look at it.

And believe me,

it's going to be scary.

It's going to be frightful, but it's going to enlighten you.

And, above all, it's not going to be boring.

(Laughter)

(Applause)