I recently read two books dealing with global organized crime that influenced my decision to look at the next two companies I’ll be reporting on here (coming up soon, I promise(!)).
“The Outlaw Bank: A Wild Ride Into the Secret Heart of BCCI” by Beaty and Gwynne documented the unraveling of a global bank built to serve the 3rd world, but really just served the black market. This bank indiscriminately tapped into the never-ending current of petro-dollars and the meager savings of impoverished 3rd world citizens with no understanding of finance or the global economy they were becoming a part of, to fund an illegal transaction brokerage network. And by illegal transactions I don’t mean just money laundering and tax evasion. BCCI brokered deals in illegal goods from arms and explosives, to drugs, to tanks and fighter jets, to top-secret US military secrets. BCCI infiltrated the highest levels of government, involving a relationship with then president Jimmy Carter, who accepted millions of dollars from the founder of BCCI, to the top ranks of the CIA. On the ground floor, investigators had been unearthing clues as to the illegal nature of BCCI for years, across numerous public and private institutions, only to have investigations halted by the “higher-ups”. The authors don’t just tell the story of the bank, but the story of how they put their lives in danger to slowly put the pieces of the puzzle together by talking with dangerous, mysterious, and sometimes insane members of the BCCI social network. It never ceases to amaze me, what disgusting things people will do to make money, even when they’re already filthy rich.
“McMafia: A Journey Through the Global Criminal Underworld” by Misha Glenny takes the BCCI story into the 21st century, circling the globe to understand how and why organized crime exists. Glenny starts his book in Eastern Europe and moves around the globe penetrating dangerous criminal empires everywhere he goes. By blending history, current events, and personal encounters with a raw but complex understanding of economics, Glenny gives the reader a sense not just of what’s happening, but why. It’s amazing that the harsh environment of communism spawned some of the most monstrous but entrepreneurial criminals in the world, eager to exploit any economic inefficiency. It seems so obvious now that trade embargos lead to smuggling, and prevalent smuggling leads to smuggling drugs, arms, and even sex slaves. The book eventually makes a stop in central and north America, documenting the drug trade and the failure of the “war on drugs”, not only pointing out that it has failed, but the economics of why it always will fail. Unfortunately, the growth of methamphetamines, relatively easy to make in your kitchen, has done more to combat cocaine and heroin trade than billions of dollars spent across two decades by the police.
It’s hard for me to say anything bad about either of these books given how important they are if you want to have a realistic understanding of how the other two-thirds of the world works and lives. It’s especially important for investors who invest (or are considering investing) in emerging markets. Brazil, Russia, India, and China sometimes look great on paper, with explosive growth an untapped markets for goods and labor. But there’s a harsher reality beneath the surface that Americans have no exposure to. Especially now that the economy is weak, incentives rise for scandalous behavior.