Illicit Economies and Reconstruction in Iraq, Palestine, and Algeria

Violence has devastated the economies of Iraq, the Palestinian Territories, and Algeria since 1992. Although Algeria’s Islamist insurgency has tapered off in recent years, reconstruction is hampered by continuing civil conflict. National elites face the daunting challenge of reestablishing security, strengthening state institutions, enforcing the rule of law, expanding social services, and providing productive employment for large numbers of youth entering the workforce. This chapter examines the impact that illicit international transactions have on economic recovery efforts. Understanding the importance of actors in illicit transnational networks allows us to better assess the roadblocks in front of different policy options. Illicit international transactions are defined as activities that result in a transfer of goods, services, and money across borders by actors who contravene domestic laws or violate international norms of good governance. These transactions typically involve the misuse of public resources, evasion of economic regulations, and undermining of competition. Some of the most important examples of transnational shadow activities are smuggling, money laundering, illegal capital flight, commission taking on international contracts, monopolization of importing through coercion, sanctions busting, and misappropriation of external rents such as aid and oil revenues. The central thesis of this chapter is that cross-border “shadow” networks imperil reconstruction in conflict-ridden countries.