Afraid of the Dark
July 1, 2019                    


Dark Commerce: How a New Illicit Economy Is Threatening Our Future by Louise Shelley. Princeton University Press, 357 pages, $29.95.


Darkness by Design: The Hidden Power in Global Capital Markets by Walter Mattli. Princeton University Press, 288 pages, $29.95.


New Dark Age: Technology and the End of the Future by James Bridle. Verso, 256 pages, $26.95.




These are dark times for the Republic, all right-thinking persons agree. Unfortunately, most right-thinking persons don't know the half of it. We're understandably fixated on the fact that a vindictive, mean-spirited yahoo with poor impulse control, a limited attention span, and zero intellectual curiosity has a finger on the nuclear trigger and veto power over serious efforts to prevent global climate catastrophe. Disturbing, I grant you. But the First Bull in a China Shop and his Republican enablers are at least the devils we know. Their depredations are mainly wrought in the daylight, we can measure their damage, and we know (in theory) how to stop them.

More insidious are the systemic effects produced by a gamut of new practices - some legal, some illegal - out of public view. The political wrecking crew that governs us is ripping at the fabric of our economy and society from without. The new predators discussed in these volumes are consuming them from within.

The most eye-opening - indeed eye-popping - of these books is Dark Commerce by Louise Shelley, a professor at George Mason University and surely the doyenne of Illicit Studies, if there is such a field. (And if not, there should be.) For readers not yet exposed to one of the classic volumes on this subject, Misha Glenny's McMafia or Moses Naim's Illicit, or to one of Shelley's previous books, it may come as a shock to learn how deep and wide is the extent of contemporary economic illegality.

The sums involved are enormous:

·      The estimated (by the UN Office on Drugs and Crime) annual revenue from all types of transnational crime is between $1.6 and 2.2 trillion, roughly 7 percent of global trade.


·      Estimated annual revenues from illegal drugs: $320 billion.


·      Annual sales of counterfeit and pirated goods (e.g., online sales of "discount" pharmaceuticals): $461 billion.


·      Illegal timber logging and export: $30-100 billion.


·      Illegal trade in fish, wildlife, minerals, and waste: $91-258 billion.


·      Diverted and substandard pharmaceuticals: $75 billion.


·      Illegal mining: $12-48 billion.


·      Cigarette smuggling: $7.5-10.5 billion.



Those are the most lucrative revenue sources, but other illegal activities are no less dangerous and despicable. Small arms and light weapons sales ($1.75-3.5 billion) generate profits for groups like FARC, Los Zetas, ISIS, Al-Nusra, and Al Shabaab, who both buy and sell. WMD components are offered for sale on the Dark Web, a vast, secret computer network accessible only with special anonymizing software. Less-developed or conflict-ridden countries are robbed of antiquities, to the tune of around $1.5 billion each year.

And then there's human trafficking, which comes in several varieties. There's organ trafficking, worth around $1 billion annually. Trafficking of refugees and of indentured or forced labor yielded between 4.7 and 5.7 billion Euros in Europe alone in 2015. Women are trafficked into both prostitution and forced marriage. Shelley does not offer a numerical estimate of the size of the traffic in women but she does note that the International Labor Organization believes that 25 million people are held in one or another form of forced labor.

The revenue numbers are not the only astonishing statistics in Dark Commerce. The Dark Web, Shelley writes, is "five hundred times the size of the surface World Wide Web. (My italics.) Can that be true? It gets worse. Four out of five visits to the Dark Web "were to online destinations with pedophilia materials." Egad. If the Dark Web is 500 times larger than the lit Web, and if 80 percent of visitors were seeking child pornography, what does that say about humankind? It seems to say that we're a very twisted species. Maybe we should just give in to global warming and hope that whatever crawls out of the ocean in a few million years has better morals than we do.

Shelley is an expert on the international trade in rhino horns, to which she devotes a chapter here. A century ago, there were a million black rhinos in Africa. Today there are 5000 - a decrease of 99.5 percent. Extinction is likely - one calamity that cannot be blamed on global warming. The source of demand is wealthy Chinese and Vietnamese, who value rhino horns as a status symbol, for supposed medicinal effects, and increasingly, as extinction looms, as an investment. Decreasing supply has driven up the price to $60,000 a kilo. Generally the customers place an order with Asian organized crime groups, who contact their counterparts in southern Africa. Unemployed local men are hired, outfitted, and sent out to kill the animals and cut off their horns. The horns are transported to Asia with the cooperation of corrupt customs, transportation, police, and security officials, and in some cases, art dealers and auction houses. It takes a lot of hands to kill a species.

We'll miss the rhino, for a while at least - we're a pretty thoughtless species, and we'll soon have more existential worries. In any case, however valuable it may be, no one species can compete in value - biological or economic - with the world's rain forests, which stabilize the planet's climate and account for a high proportion of biodiversity. One of earth's richest rain forests - "possibly the richest ecosystem in the world," according to Shelley - used to be in Sarawak in Malaysia. From 1980 on the country's chief minister cut down and sold four-fifths of it, realizing $50 billion in profits for himself, family, and cronies. He was assisted by an $800 million loan from Goldman Sachs and by numerous other financial institutions, who were happy to help him stash the proceeds. (Like many rich criminals, he also went into real estate. He bought a building in downtown Seattle, into which the FBI later moved its Northwest US headquarters and refused to leave when the building's ownership was brought to their attention. Another splendid example of the Bureau's investigative prowess and rock-solid integrity.)

Not content with destroying the environment, criminals are sabotaging efforts to save it. The EC has a "cap and trade" policy, involving carbon credits, which carbon-efficient firms can sell to polluting firms. Hackers broke into the EC's carbon registry and stole credits, which they sold while also claiming rebates for VATs which they hadn't paid, all to the tune of $6.5 billion. Moreover, "Interpol believes that the $176 billion carbon market is vulnerable to other forms of criminal penetration, such as securities fraud, transfer mispricing, and the sale of nonexistent carbon credits."

Everything about the Dark Web is chilling. Whatever legitimate activities may go on there (if any), it appears to be primarily a supermarket for narcotics, child porn, human trafficking, weapons, and malware. The fabled dark site Silk Road processed 600,000 orders per month, and in its two years of operation facilitated the sale of $1.2 billion in drugs, arms, and malware, largely paid for in Bitcoin. Malware in particular is a growing market. Half a billion records are stolen each year, and five years ago, an astonishing one in six Americans over sixteen had his/her identity stolen. As of 2016, half a million computers daily were infected with malware sold by the huge Dark Web site Avalanche. They're coming for you and me, no doubt.

Financial institutions play a large role in Dark Commerce. All that dirty money has to be laundered. Many banks wittingly send illicit funds to offshore destinations - four large banks (which Shelley names) were convicted of this. Western Union is a major transmission belt of drug money from Mexico to the US and of sex trafficking profits from Western Europe to Eastern Europe. An investigation of fifty developing countries found that illicit financial flows equaled nearly 4 percent of their combined GDP. Real estate is a well-known medium: a study of six U.S. locations found that 30 percent of real estate purchases were made by or for people who had come under police scrutiny. "Trade-based" money laundering is common: merchandise (cars, washing machines, etc.) are bought with dirty money and shipped to another country, where they are sold, the proceeds being clean. Currency exchange also takes place on the Dark Web, and cryptocurrencies are sometimes said to be the future of money laundering. The libertarians who dreamed up cryptocurrencies wanted to free themselves from governments. It looks as though their main accomplishment may turn out to be freeing criminals from governments.

Surely a vast and coordinated law enforcement campaign is under way on our behalf? How is it doing? Dismally. "No category of crime has shown marked decline," Shelley acknowledges. Partly this is because so many law enforcement personnel are on the take, or simply intimidated. But also, crime fighting takes a lot of resources, and government's main source of revenue is taxes. Currently the rich are evading taxes on an epic scale: an estimated $7 trillion is held offshore by Americans alone. The wealthy of other nations are no doubt equally tax-averse. Conservatives, always soft on big crime, however noisily they condemn petty crime, are clearly not going to see that law enforcement has the money it needs to take on the big guys. Nor will they sign on to Shelley's other proposals: "a modern-day Marshall Plan ... to insure that everyone has legitimate employment opportunities in their home country," which would diminish the pool of the desperate, from whom criminal entrepreneurs typically recruit foot soldiers; and national health insurance to curb the demand for illegal pharmaceuticals from those who cannot afford Big Pharma's offerings. God preserve us from such interference with the free market.


For all their lethality, most forms of economic crime at least involve an exchange of some sort and are therefore comprehensible. What currently happens on Wall Street is something else. Over the last two decades, according to Oxford economist Walter Mattli, global capital markets have gone dark. That's bad, even for those of us with little or no capital.

Mattli achieves the difficult feat of making even non-rich readers nostalgic for the old New York Stock Exchange. For two centuries the NYSE was the biggest game in town, and then in the country. The structure was fairly democratic: brokerages were relatively small, and member firms were limited to one representative each on the Exchange's governing body. A reputation for integrity is indispensable to a public trading house; and beyond that, the old burghers seemed to have plenty of old-fashioned civic spirit. (Try to imagine Robert Rubin, Jamie Dimon, Lloyd Blankfein, and the rest of today's sharks and weasels in possession of that quality.) So they invested the profits of the Exchange in good governance, collecting records and monitoring transactions. Fraud was rare, usually detected, and severely punished. As a result, the Exchange served its purpose well: to raise capital for new businesses and to discipline or reward the management of existing businesses.

In the late 20th century, the computer revolution came to Wall Street. First routine clerical tasks and then trading itself were automated. The necessary computers, servers, software, and IT staff were expensive, which meant an advantage for the bigger players: investment banks and brokerage houses. The latter went on a frenzied merger-and-acquisition spree, leaving the securities industry and the Stock Exchange dominated by a small number of giant firms.

These firms - Goldman Sachs, Citigroup, Morgan Stanley, UBS, and others - no longer depended on the Exchange to match buyers and sellers or to supply liquidity (a backlog of funds that allows for smooth processing of orders). Their most profitable areas - internal or "dark" markets, block trading, and high-speed trading - were only hampered by NYSE oversight. So they did what Wall Streeters have always done: lobbied successfully for government action that suits their commercial purposes and portrayed it as unavoidable obedience to the imperatives of efficiency, progress, and modernization. In 2005 the Securities and Exchange Commission issued sweeping regulations restructuring the NYSE along the lines demanded by the big firms. The next year the NYSE gave up the ghost. Mattli sums up: "With growing inequality among members, the powerful lost interest in the democratic form of market governance. Restrictions on their businesses, insisted on by the majority of small members, were no longer acceptable. ... [The big firms] used new electronic trading technology and their political clout in Washington to translate their latent internal market into profitable dark trading operations, thereby fundamentally transforming the structure of equity markets."

Why should we care? Isn't this just a case of one set of capitalist gangsters ambushing another? Predators succumbing to super-predators? Yes and no. The New York Stock Exchange was not made up of Daniel Berrigans and Dorothy Days, it's true. But most of the activity there had some relation to the real world of production. Thanks to the extraordinary speeds made possible by microwave relays - in some cases approaching the speed of light - the volume of trading has increased a thousand-fold and the bulk of trading is arbitrage.

Arbitrage - rapid-fire transactions that profit from tiny or temporary fluctuations in stock prices - is socially useless. The standard defense is that arbitrage promotes efficient price determination. It doesn't; and the same big firms who say it does are simultaneously undermining a genuinely useful tool of price determination: the informed investor. Individuals or managers of pension funds and mutual funds often do fundamental research on companies and arrive at investment decisions. High-speed traders have preferential access to an exchange's data, and when they learn of a large institutional order, can step in front (it's called "order anticipation," formerly known - and outlawed - as "front running") and buy or sell ahead of the order, changing the price and earning (if that's the word) a small profit. Done millions of times, it not only steals a lot of money from the pension/mutual funds (that is, you and me), it also discourages fundamental research on companies, which is what really keeps stock prices accurate.

The fragmentation of the NYSE into many smaller exchanges has meant a drastic change in the balance of power between the largest firms and the exchanges that are, in theory, responsible for setting the rules by which they operate. In reality, the exchanges are wholly dependent on the firms, which have extracted so many concessions and special privileges that there is no longer any pretense of equal treatment for large and small investors. Darkness By Design abounds with examples of such special treatment: preferential data feeds, "colocation" of large clients' servers on the trading floor, quote stuffing, spoofing, and hundreds of Special Order Types (SOTs), some of which are designed by the big firms and all of which are, in essence, scams. I didn't fully understand Mattli's descriptions, so I was comforted to read that "a retired regulator with a distinguished 15-year record at the helm of two major financial regulatory organizations recently confessed to me that he no longer understands how these complex capital markets really work."

The ultimate consequence of fragmentation is "dark pools," private markets where share price and order size information are not made public. Originally meant to prevent front-running of large institutional orders, they have been engineered, by collusion between dark pool administrators and high-frequency traders, to facilitate it instead.

Mattli's recommendations are delivered in the robustly commonsense tones of the Oxford professor. Let there be light unto the investors! Or, more prosaically, let Congress and the SEC do their jobs. Unfortunately, as he sometimes acknowledges, Congress and the SEC don't want to do their jobs. The banking lobby is well-organized and - need we say? - well-financed; Mattli quotes a Wall Street observer from the 1970s: "the banks ... are already more powerful than Congress." By now it's no contest whatever. And the SEC is on one side of a revolving door, on whose other side is the big banks and brokerage houses (where, it's said, one can, with the right attitude, make a lot of money). You may as well pray for rain in the Sahara as for light on Wall Street.


After so many unfamiliar terrors it's almost a relief to get back to some more familiar ones: the quandaries and dilemmas of our digital future. Actually, the digital present is already pretty scary, as James Bridle's New Dark Age makes clear. The book is a shrewd and informative ramble through ten (tenuously) related topics - all of them, in a charming conceit, beginning with "C." There's no central thesis in New Dark Age, but there's a good deal of reporting and reflection, about computational methods in pharmaceutical and nuclear-fusion research; about the Keeling Curve, which measures the (inverse) relationship between parts per million of atmospheric carbon dioxide and human cognitive capacity; about Deep Dream, a program that feeds images into neuronal networks and generates some uncanny results; and other matters. Bridle is by turns amused, amazed, and indignant - just about the right approach to the future-devouring phenomena he describes.

Bridle's prose can by lyrical and menacing at the same time. Like this:


A man in rubber boots and field camouflage, a hunting rifle slung over one shoulder, walks across the vast expanse of the Siberian tundra in springtime. The ground is green and brown, dense, lush with grasses, and extends perfectly flat in all directions, to the pale blue of a horizon that seems a hundred miles away. He takes long, loping steps, an expedition pace, enough to carry him far across the territory each day. But as he steps, the ground shimmers and ripples; the thick earth turns to liquid and moves in waves. What appears as solid ground is merely a thin carpet of plant matter, an organic crust atop a newly shifting, soupy sea. The permafrost beneath the tundra is melting. ... It looks as if, at any moment, the ground might crack, the stalker's boot might plunge through the surface, and he might be swept down by the undertow, lost beneath the sheets of green. In fact, the opposite direction is more likely: the ground will thrust upward, spewing wet soil and warm gases into the air.



And this:



The term "gray zone" has been deployed to describe the most contemporary form of warfare, which exists just below the threshold of armed conflict. Gray zone warfare is characterized by unconventional tactics, including cyberattacks, propaganda and political warfare, economic coercion and sabotage, and sponsorship of armed proxy fighters, all shrouded in a cloud of misinformation and deception. ... Somewhere between the jihadis and the military strategists, between war and peace, between black and white, the gray zone is where most of us live today. The gray zone is the best descriptor for a landscape inundated with unprovable facts and provable falsehoods that nevertheless stalk, zombie-like, through conversations, cajoling and persuading. The gray zone is the slippery, almost ungraspable terrain we now find ourselves in as a result of our vastly extended technological tools for knowledge-making. It is a world of limited knowability and existential doubt, horrifying to the extremist and the conspiracy theorist alike. In this world we are forced to acknowledge the narrow extent of empirical reckoning and the poor returns on overwhelming flows of information.



The book's tour de force is a chapter, as strange as anything I've ever read, on YouTube's children's programming. A vast archipelago of videos, some produced by humans and some by software bots, compete for children's views, which means, in the first place, attracting the attention of YouTube's recommending algorithms. Unless they're lucky enough to be noticed and recommended by a critical mass of children, the surest way to grab YouTube's attention is to include the name of a currently popular video in your title.

Thus, for example, "Cars 2 Silver Lightning McQueen Racer Surprise Eggs Disney Pixar Zaini Silver Racers by Toy Collector." It is "one of millions and millions of surprise egg videos on YouTube." A surprise egg is a chocolate egg with a toy inside, or by extension, anything with anything else inside. Children apparently like this and other videos in which boxes are opened or packages unwrapped to reveal a surprise. One of the chocolate-egg-with-toy-inside-makers partnered with Cars, a blockbuster Disney children's movie - hence the "Cars" in the video's title. Thanks to this happy synergy, "Cars 2 Silver Lighting, etc" has gotten 26 million views and spawned countless variations - "millions and millions" of them. And "surprise egg" is only one genre of video. There is also the Fingers Family (dancing fingers singing doggerel: 17 million versions, billions of views), Learn Colors, Peppa Pig, Wrong Heads, and their countless imitators - tens of millions of them, attracting tens of billions of views - all formulaic and some unknown fraction entirely automated.

Why? What is the point of this ceaseless production of utterly, irredeemably worthless dreck? Ad revenue, of course. Each video that has attained a certain popularity is preceded or followed or sometimes interrupted by an ad aimed at the 1-6 demographic. The fee for the ad is shared between the video's producer and YouTube's owner, which is Google. This is big business. The most popular producers have earned tens of millions of dollars. God alone (well, possibly also the IRS) knows Google's profits.

Is all this baby-babble and toddler-twaddle at least harmless? Far from it, Bridle reports. Never mind the shrinkage of millions of children's imaginations - YouTube children's videos are to traditional fairy tales and children's stories as two dimensions are to three. Worse, some of them are positively toxic. Strange, even unintelligible, combinations of characters' features and limbs; and not infrequently, coprophagy, sadism, rape, and violence: it is impossible that such things wouldn't crop up in a population of tens of millions of videos, many of them produced in sweatshop conditions or by computer programs. "It's not about intention," Bridle concludes, "but about a kind of violence inherent in the combination of digital systems and capitalist incentives." Of course it's partly about intention: it's what happens when you make children a profit center.


The initiative, it seems safe to say, lies with the wicked. The amount and quality of energy and invention going into the nefarious activities described in these three books could easily vanquish poverty, inequality, international conflict, and climate change. Surely the perpetrators would find it more fun to run the world than to smuggle rhino horns or plant malware? If you can't fight them, get them to join you. It just might appeal to their imagination.




George Scialabba is a contributing editor of The Baffler. His latest book is Slouching Toward Utopia.