Regulatory Sea Change
Print Issue: September 2014
On October 27, 2010, al Qaeda in the Arabian Peninsula successfully conveyed printer cartridges laced with explosives onto two separate cargo planes originating in Yemen and headed to America. The planes were scheduled to make several stops before arriving in Chicago on November 1. The bombs were likely designed to explode in midair, somewhere over the United States.
But, on October 28, John Brennan, deputy national security advisor for homeland security and counterterrorism (now director of the CIA), received an eleventh-hour tip about the bombs from a Saudi intelligence official. The planes—one at a stop in Dubai, United Arab Emirates, the other in Leicester, England—were searched, and the bombs found. The Obama administration announced the foiled plot a day later, and the nation breathed a sigh of relief.
The significance of the event did not end there. What happened shortly thereafter was also important, says Mike Mullen, a former assistant commissioner for international affairs and trade relations for U.S. Customs and Border Protection (CBP) who is now executive director of the Express Association of America. Sensing a policy hole that could lead to future security breaches, government officials came together with industry leaders in an unusually nimble and rapid fashion and started outlining the concept of what would become the Air Cargo Advance Screening Program.
“The bombs were discovered on Thursday. We had the first conference call on Saturday. We were around the conference table within the week,” Mullen says. Formulation of the pilot program concept was not drawn out by bureaucratic longueurs and endless memos. “We did that, literally, with nothing written down. It was just a series of meetings,” he adds.
That process, according to Mullen, marked a watershed moment in regulatory design and represents a sea change in the way government could work. Instead of the usual modus operandi—the government throws requirements at you, and then you get to comment, Mullen says—the design of the air cargo program was collaborative from the start. Mullen and others call this process “cocreation.”
The air cargo program cocreation model is heralded in a recent report, Partners in Prevention: Making Public-Private Security Cooperation More Efficient, Effective, and Sustainable, issued by the Stimson Center, a nonpartisan global security think tank. “The [air cargo] program advances the public interest through more timely and effective security targeting of cargo, and the private interest through a reduced regulatory burden,” the authors say.
Those authors are a task force of industry leaders and national security experts, and they advocate several steps aimed at closing security gaps in global trade by leveraging market incentives and forging more public-private partnerships. These recommendations include modernizing information-sharing methods for trade transparency and risk management, promoting a more layered system of port security, expanding the Terrorism Risk Insurance Act, rewarding trusted U.S. exporters of sensitive goods and services, and developing a public-private partnership playbook to ensure resilient trade flow.
More public-private partnerships are needed, the report’s authors say, because modern security challenges elude even the best-resourced governments. “Globalization has improved the lot of billions of people. But it also has empowered criminals and terrorists on a global scale,” says Jay Cohen, a retired rear admiral in the U.S. Navy who chaired the task force. “Illicit trafficking will continue to exploit gaps in global trade unless government and industry adapt through mutually supportive steps.”
According to task force members, their work was based on three principles: public-private collaborations must be responsive to both security gaps and market factors; security and profitability can be mutually reinforcing goals; and information sharing must be an ongoing priority.
The last principle is especially critical today, given that companies are often insufficiently versed in government regulations and government agencies are not up-to-speed regarding market developments, according to Nate Olson, research associate with the Stimson Center. “The speed with which government and industry share information often lags far behind what the competitive and threat environment calls for,” Olson adds.
And while the report argues that the cocreation model should be used more extensively, greater use of it will take considerable effort by both government and industry, experts say. Federal agencies need to be more flexible and open to changing their regulation-design processes. Industry, for its part, would need to devote more time and resources toward helping create new regulations with government, Mullen says. For example, advisory committees will become more important, and private sector representatives who sit on those committees will have to make sure they are fully engaged. “Some have been a bit sleepy,” he adds.
Despite these challenges, cocreation advocates point to a few recent positive signs. Since the air cargo program, Congress has not passed any new air cargo regulations, and Mullen says this is a clear indication that lawmakers are content with leaving that work to federal agency-private sector partnership efforts. “Congress is comfortable that this is the right way to go,” Mullen says. He adds that new CBP Commissioner Gil Kerlikowske, who took over the reins at the agency in March, has made it clear that he supports strong private-public partnerships.
Nonetheless, each sector faces its own challenges in the effort to expand or modify regulatory programs that would benefit both industry and government. For example, in the sea shipping sector, one major trade partnership program is the Customs-Trade Partnership Against Terrorism (C-TPAT). Companies that join the program by demonstrating their security bona fides and getting certified are then considered low risk, and their shipments are, therefore, less likely to be examined.
However, the current C-TPAT program is focused primarily on imports, and while rail and highway carriers are members, it is most used by the largest importers, such as ocean carriers. “It’s still not quite where it needs to be where it encompasses all actors,” says Ashley Craig, cochair of the international trade practice at Venable Law Firm and a member of the task force.
In accordance with the “reward trusted exporters” recommendation of the Stimson Center report, some experts are advocating for either expanding the C-TPAT program to cover U.S. exporters, or for creating a new program to do the same. One of the more challenging aspects of accomplishing this expansion is getting stakeholders from every different industry niche, big and small, to the negotiating table, Craig says. In the past, that hasn’t been easy. “Other sectors [outside large ocean shippers] in the supply chain have been at the table at times, not at the table at times, and not invited to the table at times,” Craig says.
And then there is the common Washington challenge: will the government be willing to allocate adequate funding to either expand C-TPAT or create a new program in accordance with the report? “That’s something that I don’t think anyone in town can forecast,” Craig says.
Despite the challenges, the Stimson Center is continuing to advocate for the task force’s recommendations, Olson says.
The center’s staff is briefing some government and industry representatives about the ideas contained in the report. The center is also looking to support government and industry pilot and demonstration projects that embody the public-private partnership formula, and advance other recommendations in the report.
In this, the center welcomes ideas from security professionals in all industries. “We invite [them],” Olson tells Security Management, “to join us in this work.”
Last year, well before sports fans around the globe tuned into a thrilling month-long FIFA World Cup, the tiny country of Belize faced the United States in a tournament that would crown a football/soccer champion of the Americas. Given little chance to win, Belize players were approached by a man who offered them thousands of dollars to throw the match. The players spurned the advance and reported the incident (and got thrashed in the game, 6-1). But the case illustrates the corruption that has plagued sports ever since mankind put foot or stick to ball. Transnational crime associated with sports—namely, illegal gambling and related corruption—is a growing problem, and experts say that governments must do more to combat it.
An estimated $140 billion annually is laundered through sports betting, an amount equal to roughly 10 percent of revenue generated by all organized crime worldwide, according to a recent report on crime in sports.
“We’re talking massive amounts of money,” says Stuart Page, one of the sports integrity experts who worked on the report. Protecting the Integrity of Sport Competition: The Last Bet for Modern Sport was jointly issued by The University of Paris 1 Panthéon-Sorbonne and the International Centre for Sport Security (ICSS).
The report is the result of a two-year research project, and the issuing institutions say it is the first-ever comprehensive report into the scale and scope of illegal activity related to sports. In sum, it reveals a worldwide epidemic of sporting event manipulation and illegal betting.
“Cases of corruption involve athletes as well as their professional entourage, clubs, referees/judges, and sometimes even officials of sports organizations,” the authors write. “Regardless of the perspective used to analyze these cases, the manipulation of sports competitions emerges as a global phenomenon.”
There are several reasons why the problem is a growing one, experts say. From the criminals’ perspective, sports betting is sometimes looked on as lower in violence and overall risk than other forms of crime, like drug trafficking. “It’s like a white collar crime in some ways,” Page says.
In addition, with the rise of the Internet and new technologies, online gambling sites have flourished, and this has made illegal gambling a transnational issue. While not all sports gambling sites are illegal, many are; the report finds that 80 percent of sports betting is illegally transacted.
“No one’s really regulating the IP addresses of all those Web sites around the world,” Page says. An American who places online bets on World Cup games may be using a Web site that is controlled by a Chinese organized crime syndicate. “You have no idea where those sites are housed,” Page adds.
The crime’s borderless nature can also make prosecution tricky, according to Fred Lord, the head of operations at ICSS.
Lord is also a member of the Organisation for Economic Co-operation and Development Task Force on Charting Illicit Trade, a group that is attempting to map out and quantify the illegal economy. As a task force member, Lord has met with U.S. State Department officials and other government representatives about issues regarding illegal gambling and associated money laundering. He says that for federal agencies, sports betting is usually not a top priority as some believe it should be handled by the professional organizations themselves, such as the National Basketball Association or the National Football League. “This is the blind spot of law enforcement agencies,” Lord says.
When it comes to sports-related corruption, the report found that Europe, with 37 reported scandals in the last three years, led the world. Second was Asia, with 17 reported scandals, and then the Americas, with 5 reported scandals. The report authors cautioned, however, that reported scandals realistically represent only the tip of the iceberg when it comes to sports corruption. “The actual number of cases of manipulation in 2013 alone is widely suspected to run into the hundreds, or even thousands,” the authors write.
And the fact that the United States has not had as many sporting scandals as Europe and Asia in recent years does not mean that the U.S. problem is minor, experts say.
In terms of specific sports, the report identifies soccer as the one most targeted for manipulation, with cricket coming in second. Corruption also reaches into other sports, such as handball, wrestling, snooker, and badminton.
Europe and Asia, combined, represent 85 percent of the world’s total betting market—both legal and illegal—and online gambling now represents about 30 percent of the global betting market. Regulatory models have not kept up with the growth of global online betting, and regulators often lack the resources to undertake the surveillance and analysis required to detect illegal activity such as money laundering via gambling, the report found.
In addition, the authors say there is insufficient cooperation between law enforcement agencies, professional sports associations, and legal bookmakers. As a result, efforts to combat illegal sport-related activity turn out to be occasional and piecemeal.
“America is still trying to grapple with it in bits,” Page says. On the international level, the report found an urgent need for a multinational agreement in which nations pledge to cooperate in fighting illegal betting and associated activities.
Given the report’s findings, Page and Lord say ICSS is looking to spread awareness of all this illegal activity, as well as to advocate for stronger prevention efforts. “We’re trying to raise it up, to get people to understand, to get the prosecutions to be tougher, to try and band together and share the data,” Lord says.
Among other things, ICSS is pushing for greater use of international bodies, like the UN Convention Against Corruption; more antibribery legislation; and increased efforts to harmonize laws so that country-to-county cooperation will be easier. They are cautiously optimistic that more government officials are beginning to take the problem seriously.