Mark Taylor Emerging Conclusions March 2002 Economies of Conflict: Private Sector Activity in Armed Conflict Emerging Conclusions These Emerging Conclusions offer a preliminary analysis of the findings of four reports from the Economies of Conflict policy research series, which examines the links between private sector activity and armed conflict. In addition, the four reports are presented here in electronic form on an enclosed compact disc. The occasion is the symposium “Economic Agendas in Armed Conflict: Defining and Developing the Role of the UN”, co-organized by the International Peace Academy and Programme for International Co-operation and Conflict Resolution, and sponsored by the Government of Norway, on 25 March 2002 in New York. These and additional forthcoming reports from the series are available from the PICCR web-site at www.fafo.no/piccr The Economies of Conflict project is supported by the Government of Norway. Institute for Applied Social Science P.O.Box 2947 Tøyen N-0608 Oslo http://www.fafo.no/engelsk/ Programme for International Co-operation and Conflict Resolution Mark Taylor Emerging Conclusions – March 2002 Fafo Economies of Conflict: Private Sector Activity in Armed Conflict Programme for International Co-operation and Conflict Resolution 2 © Fafo Institute for Applied Social Science 2002 Cover page: Agneta Kolstad Printed in Norway by: Centraltrykkeriet AS 3 Contents Preface 5 1 Introduction 7 2 Preliminary Findings 11 2.1 Anarchic Exploitation 12 2.2 Criminalized Transactions 15 2.3 Militarized Production 17 2.4 Conflict Commodities 20 2.5 Rogue Companies 23 2.6 Emerging Conclusions 25 3 Executive Summaries 27 Dirty Diamonds 28 Fuelling Conflict 33 Illicit Finance and Global Conflict 38 The Logs of War 47 About the Authors 53 Appendix: Contents of the Economies of Conflict CD, Version 1 54 4 5 Preface These Emerging Conclusions offer a preliminary analysis of the findings of four re- ports from the Economies of Conflict policy research series, a project of Fafo’s Pro- gramme for International Co-operation and Conflict Resolution (PICCR). These reports are the first to emerge from the series, which examines the links between certain private sector activity and armed conflict. The four reports presented here in electronic form on compact disc are being released for the first time on the occasion of Economic Agendas in Armed Conflict: Defining and Developing the Role of the UN, a symposium co-organized by the In- ternational Peace Academy and PICCR, and sponsored by the Government of Norway, on 25 March 2002 in New York. These reports will be released in printed format in the coming months. The Executive Summaries of the reports are reproduced below, as is a table of contents for the compact disc itself. We have gathered from the authors a number of related primary and secondary source documents and included these on the com- pact disc in order to provide background and context to the studies and to give this version of the compact disc additional utility. Much of what is included on the compact disc is also available on the Fafo web site at www.fafo.no/piccr, which will be updated regularly with additional material. Later in 2002, the Economies of Con- flict series will release additional reports on regulatory options, the private security sector, small arms, and brokers. It should be emphasised that Economies of Conflict is an analytical policy-oriented project, aimed at a better understanding of processes and behaviour as the basis for suggesting policy options. The reports issued as part of the Economies of Conflict series do not seek to accuse or shame particular firms or governments. Rather, the studies approach the private economic dynamics involved in armed conflict from within each sector, asking the question, How does certain private sector activity help sus- tain armed conflict and what can be done about it? In designing the research programme, PICCR opted for an industry perspec- tive. The industries identified below have been selected based on their identifica- tion in the literature and through practice (as evidenced by on-going work of non- governmental organisations, governments, or multilateral institutions). They are by no means exhaustive of the economic dimensions of war, but they represent some of the industries that are, perhaps, most relevant to the challenges to international 6 peace and security posed by contemporary armed conflicts. Although the studies do address illicit activities within licit industries, the project has yet to commission studies related to the specifically criminal activities linked to armed conflict (e.g. narcotics, trafficking in human beings, etc.). As with past PICCR projects, we have chosen an inductive approach, seeking to contribute to these arenas through an analysis of experience and lessons-learned. PICCR commissioned studies from practitioners and researchers engaged in issues related to the industry and war, or the industry and corporate social responsibility, and with a keen sense of what has worked – and what has not worked - in practice. The Economies of Conflict project was launched in the spring of 2001 and since that time we have benefited from the input and support of a growing number of people. Principal among these has been Ambassador Wegger Strømmen at the Norwegian Permanent Mission to the United Nations, who has watched the project grow since its inception. Karen Ballentine, Research Coordinator and Program Associate on the International Peace Academy’s project Economic Agendas in Civil Wars, has been extremely helpful and, along with the excellent staff at IPA, has made the Fafo-IPA cooperation on these issues both easy and effective. Our team of re- searchers deserve special thanks, both for their openness to our approach to the research task and their willingness to share their knowledge with each other across the seminar table. My thanks also to Leiv Lunde, an advisor on Economies of Con- flict and the author of an upcoming report from the project, for his help and per- spective over the past year, and to Christian Ruge, a PICCR colleague, who has made an invaluable contribution to the project. I am also grateful to the Government of Norway, which provided financial support for the project, and to those Norwegian officials who have contributed their perspectives on policy issues. Of course, none of the above bears responsibility for any inaccuracies or omissions that might occur in these reports. The views and recommendations expressed in these reports, includ- ing this summary of emerging conclusions, are those of the authors alone and do not necessarily reflect the views of Norway, its Government or officials, or Fafo. These emerging conclusions present a work in progress. Your comments would be welcome and should be directed to pisk@fafo.no. Mark Taylor Programme Director, PICCR Series Editor, Economies of Conflict 7 1 Introduction Today’s warlords, governments and non-state actors alike, make use of global finan- cial and commodity markets to transform control over natural resources into war fighting capacity. Under the cover of secrecy and unaccountability provided by war, legally or illegally produced commodities are traded on the legitimate, but highly unregulated, global markets to obtain financial resources, weapons and other ma- teriel needed to sustain the war. The economic dimensions of wars are not new. Yet, the horrors of recent wars seem to have thrown into stark relief the inadequacy of our attempts to end them. Despite the terrible human cost of the wars of the past decade – millions of lives lost or ruined, societies irrevocably scarred, and economies destroyed – it has be- come increasingly clear that recent wars have far outstripped our ability to bring them to definitive conclusion 1 and that the economies of these conflicts may play a cru- cial part in sustaining them. As a priority for international action, the economic dimensions of conflicts have been catapulted to the top of the international agenda by increasing concerns about the dark sides of globalization. Since 11 September 2001, the U.S led internation- al effort to target terrorist financing and logistics has underlined the importance of global financial and criminal networks to national and regional security. Today, a common, global infrastructure of financial services is used to facilitate transactions involving drug money, small arms, diamonds, smuggled timber, the proceeds of corruption, human trafficking and terrorist finance. The apparent ease with which licit and illicit economic goods and services are able to move between ‘black’, ‘grey’ 2 and ‘white’ markets has forced governments to seek greater financial sector account- ability. The failures of financial oversight and corporate accountability apparent in the spectacular bankruptcy of the U.S based Corporation Enron have added to a 1 While the number of armed conflicts has dropped since the early 1990s, of those that continue 66 per cent were more than 5 years old in 1999 and 30 per cent were more than twenty years old. In addition, many conflicts which were suspended in the 1990s – not least in Europe, the Middle East, and Central Asia – have not been resolved; see Dan Smith, Trends and Causes of Armed Conflict, Berghof Handbook for Conflict Transformation (April 2001). 2 The term ‘Grey markets’ is used here in its more generally legal sense, referring to markets which bridge legal or ‘white markets’ and the trade in illegal ‘black’ market goods. 8 growing sense of uncertainty about the transparency and accountability of firms operating internationally. Concerns about the economic dimensions of international peace and security appear to be converging with an evolving agenda for greater corporate accountabil- ity. Intense activity is underway in several arenas to better understand and respond to the economic driving forces of violent conflict and war. Governments and mul- tilateral organisations, non-governmental organisations, multinational corporations and industry associations, have all in recent years launched or participated in initi- atives to study or develop policy options for dealing with economies of armed con- flict. Campaigning NGOs and industry have moved to address private sector links to conflict through the increasingly significant lens of corporate social responsibil- ity (CSR). Multilateral institutions, including the World Bank, the OECD, and the United Nations, have begun to tackle the issue from their own perspectives (mac- ro-economic analysis, global policy co-ordination, sanctions). With this convergence in mind, PICCR’s Economies of Conflict project has been structured to build on the bodies of work that have emerged from these efforts and to provide input to them. 3 Summary: Conflict Commodities and Rogue Companies With the rise to prominence of ‘conflict diamonds’, and to a lesser extent ‘conflict timber’, there is a growing sense that goods produced in an economy torn by armed conflict are, or should be, morally suspect. The tendency to view such goods as ‘con- flict commodities’ is a direct result of an increase in consumer sensitivity resulting from successful campaigns on issues related to corporate social responsibility and human rights, and the increasing concern that such activities run counter to efforts to maintain international peace and security. It is arguable that an international moral and political norm is gradually emerging which views private sector activity that sustains armed conflict as unacceptable. The notion of conflict commodities possesses inherent dangers. Countries de- pendent upon a limited number of exports could face serious economic hardship should the ‘conflict commodity’ label taint their product. Companies with legiti- mate investments in such countries face the potential for significant losses and height- ened risk to their reputations. These dangers were recognised early on by 3 For a summary of UN oriented initiatives see, e.g., “Economic Agendas in Armed Conflict: Defi- ning and Developing the Role of the UN”, Background Paper prepared by The International Peace Academy and The Fafo Institute for Applied Social Science, on the occasion of a symposium spon- sored by the Government of Norway, Monday, 25 March 2002, New York. A comprehensive look at the full spectrum of regulatory options relevant for the private sector is being developed for publica- tion as part of the Economies of Conflict series in the Spring 2002; see www.fafo.no/piccr. [...]... providing some 9 transparency to the negotiation of agreed standards The analysis and definitions suggested below are offered as a departure point in the discussion of these issues 10 2 Preliminary Findings The first studies produced under Economies of Conflict reinforce the view that decision-making about private sector activity in armed conflict is mired in significant uncertainty Practitioners in governments,... what mix of private and public policies will be most effective in addressing the role of private sector activity in sustaining armed conflict Defining complicity and developing policy options now will help member states and companies position themselves in relation to a consensus forming around the issue of conflict commodities Unfortunately, this is unlikely to be enough Certain companies, some of a relatively... understanding of the nature of the role of the private sector in sustaining conflict By identifying activities and transactions that help sustain armed conflict, such definitions help clarify the nature of culpability rather than trying to generalize about the character of parties to a conflict or their private sector allies A focus on activities also makes it easier for concerned citizens, shareholders, industry... separately in printed format during the spring of 2002 27 Dirty Diamonds Ian Smillie This study examines the origins of conflict diamonds, suggesting definitions and surveying ways that the diamond trade is linked to armed conflict The paper looks at how aspects of the trade in rough diamonds help sustain armed conflict and describes attempts to come to grips with the problem by the diamond industry,... roles depends upon a number of factors, not least the nature of the investment and industrial activity Common to all four studies are descriptions of a lack of transparency of transactions, a weakening or loss of government control, and the impunity of firms and governments, in the proliferation of conflict commodities and the sustainability of economies of armed conflict in general Anarchic exploitation... operating internationally, sometimes forcing government action in response It is arguable that this activity represents the gradual emergence of an international moral and political norm under which private sector activity that sustains armed conflict is unacceptable The growing tendency to view certain products as conflict commodities’ is a direct result of an increase in consumer sensitivity resulting... have few definitive or operational understandings of what might constitute harmful private sector activity in armed conflict. 4 Company officers need to know the risks involved in certain investment opportunities and, in the context of increasing demands for corporate social responsibility, need a better idea where lie the moral or political trip-wires Practitioners charged with managing international... notions of conflict commodities begins to solidify, a number of companies engaged in otherwise legitimate activities could find themselves on the wrong side of international opinion 23 The Economies of Conflict studies portray a complex range of licit and illicit activities resulting – directly and indirectly - in a number of intended and unintended consequences The elaboration of a clearly defined concept... participation in the economy of a country in armed conflict could implicate companies involved in certain industries in the production of conflict commodities as they are defined above Clearly, the risk to reputations of companies could present a significant disincentive for investment by some companies In fact, the risks will continue to rise for all concerned so long as the actions of the worst of the rogue... and financial services – private sector activity consists of a series of transactions which often combine the perfectly legal and legitimate with the thoroughly illegal or illicit More often than not, the borders between these categories are ill defined One of the principle reasons for the uncertainty of private economic decisionmaking in armed conflict is the significant lack of relevant regulatory . are en- gaged in trying to identify what mix of private and public policies will be most ef- fective in addressing the role of private sector activity in sustaining armed conflict. Defining complicity. Taylor Emerging Conclusions March 2002 Economies of Conflict: Private Sector Activity in Armed Conflict Emerging Conclusions These Emerging Conclusions offer a preliminary analysis of the findings of. studies approach the private economic dynamics involved in armed conflict from within each sector, asking the question, How does certain private sector activity help sus- tain armed conflict and what