COMMENTARY: Addressing challenges posed by the Abu Sayyaf Group (6): The Shadow Economy

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Sixth of 10 parts
25 May 2017

Reference was made in an earlier article in this series to the smuggling of rice, sugar and petroleum products currently going on between Sabah on the one hand, and Sulu, Basilan and Tawi-Tawi on the other hand.  While illegal, these activities meet a market demand in the region and are part of what is referred to as the informal or underground or shadow economy.

One study undertaken showed that between 1988 and 2009, the number of persons employed in the informal sector declined as a percentage of total persons employed from 56% to 48% in the Philippines as a whole.  However, in the Autonomous Region in Muslim Mindanao (ARMM), in the predominantly Muslim provinces, 83% of all persons employed were to be found in the informal sector, and incomes derived from informal activities contributed more than 50% of total family incomes.[1]  In the ARMM the shadow economy is the REAL economy.  (We need to thank Francisco Lara Jr. of International Alert for undertaking the ground-breaking studies on this sector in Mindanao).

All sorts of activities take place in the underground economy.  Aside from the smuggling of rice, sugar, petroleum and other products, there are unregistered land transfer transactions, informal extension of credit, unauthorized reproduction and sale of CDs and DVDs, forgery and sale of official documents such as birth certificates, driver’s licenses, school diplomas, police clearances and many others.

Many of these activities can be considered to be “low-risk” in the sense that they require relatively little capital to undertake, their impact could be seen to be limited and the penalties are relatively minimal and can be “negotiated”.[2]

However, there is another set of shadow economic activities that are prevalent particularly in the Basilan, Sulu and Tawi-Tawi area which are alarming and which are primary contributors to the violence in the region.  These include kidnapping, gun running and the trade in illegal drugs.

These activities are considered “high risk” because the resources required to undertake them are significantly larger than other ventures, the logistical requirements complex and need to be done in a covert and surreptitious manner, and the consequences, if the activities are discovered, could be disastrous to the perpetrators.

On the other hand, the rewards for successful ventures could be enormous and as a consequence entice many to take the risk.  It is said, for example, that the ransom paid for the German couple kidnapped in Palawan in 2014, Victor Okonek and Henrike Dielen, was in excess of US$5 million, which the Abu Sayyaf Group (ASG) captors proudly displayed in a video after the pay-off was done. The Sipadan kidnapping incident of 2000 is said to have generated between $20-$25 million for the group of Commander Robot and others.  These fantastic amounts prompted the abductors of the two Canadians, one Norwegian and one Filipino in 2015 to demand, as an opening gambit, US$20 million (P1 billion) for each of the foreigners.

It is said that the high reward nature of these ventures result in these activities being undertaken either with the active participation, or at the very least protection, of persons in authority in the areas where these are rampant.  Given the fact that these are major crimes under any penal code, it is difficult to see how these sorts of activities could go on for an extended period of time – the ASG has been in the kidnap for ransom (KFR) business for over 20 years – without protection.  As Lara put it, “local strongmen have used the underground economy to increase their economic power and cement their legitimacy”.[3]

Kidnapping for ransom by the ASG has been reported on extensively in the press and in various studies over the last two decades .  There are two other areas that need to be looked into in greater depth because they contribute to the ability of the ASG to continue to defy campaigns of the government to put an end to their depredations aside from undermining efforts to establish the rule of law in conflict-affected areas:  the illicit trade in guns and drugs.   These two industries are mutually reinforcing.  Revenues generated enable perpetrators to arm themselves in an impressive manner which in turn enables them to resist efforts by the authorities to check their activities.  Furthermore, revenues generated enable perpetrators to corrupt those persons in authority who are supposed to control and stamp out these activities, enabling them to ply their trades unimpeded.

Efforts should be intensified to study these areas of activity – determine who are the parties involved and who among persons in authority, if any, are providing protection for the perpetrators; map out the sourcing and supply channels; determine the modus operandi followed in undertaking these activities; etc. – and perpetrators and protectors should be pursued relentlessly, in the same way that the campaign against KFR is being waged today.

  1. Illicit Trade in Guns

The Armed Forces of the Philippines (AFP) estimated that in 2010 there were 114,189 illegal firearms (unregistered/unlicensed) in the ARMM.[4]  Next to the National Capital Region, which had three times the population of the ARMM, this was the largest number of illegal firearms among the Philippines’ eighteen administrative regions. For the entire country it was estimated that there were close to 2 million illegal firearms.  Another estimate, though, put the figure of illegal firearms at 4.2 million in 2002.[5]

The proliferation of illegal firearms has been attributed to a number of factors:

  1. Laxity of the regulatory system which emboldens violators of laws and regulations covering gun ownership to defy the law without fear of serious consequences;
  2. Unmonitored overproduction by local manufacturers of firearms resulting in leakages of the excess units into the illicit market;
  3. Under-declaration of gun imports resulting in further leakages of the undeclared firearms into the illicit market;
  4. Corruption on the part of members of the security agencies who sell their firearms and ammunition to dissident groups;
  5. Capture of firearms and ammunition by dissident groups in the battlefield;
  6. Smuggling of firearms and ammunition through surreptitious channels.

With regard to the sale of firearms and ammunition to dissident groups by members of the security agencies, Khadaffy Janjalani himself stated in an interview undertaken a few months before his death in 2006 that the ASG had “no problem buying guns due to the plentiful supply from either gun smugglers, Recom [ PNP Regional Command], or Southcom [AFP Southern Command] soldiers who badly need cash”.[6]

Smuggling routes have been described in some studies.  These are all through the “southern backdoor” of the Philippines, connecting Indonesia, Malaysia and the Philippines.  One such study speaks of the “T3” – the Terrorist Transit Triangle – centering on the Sulawesi Sea also known as the Celebes Sea.  At least four routes have been identified which are used to smuggle firearms and ammunition to and from the Philippines – another study refers to Mindanao as being a source of firearms for the Jemaah Islamiyah in Indonesia – as well as the movement of terrorists themselves.  These routes run along the following points:

  1. Sandakan or other ports in Sabah through Palawan to northern Mindanao or the Central Philippines;
  2. Zamboanga City through Basilan, Jolo, Tapul island in Sulu, the main island of Tawi-Tawi, Sibutu (southernmost point of Tawi-Tawi) then either to (a) Timbunmata island then Tawau in Sabah, or (b) Ligitan island then Lahad Datu in Sabah, or (c) Nunukan island in Indonesia then back to Sandakan;
  3. General Santos City on the southern end of Mindanao, crossing several islands leading to Tahuna off the northeast tip of Sulawesi island, then to either Manado or Bitung in Indonesia;
  4. General Santos City going through Karkarekelong island in Indonesia on to Ternate ending in central Sulawesi island.[7]

As noted, these routes run both ways, to and from various points in the Philippines.

Lino Miani notes that these routes are traditional routes:

“The Sulu Arms Market…is not a market in the physical sense, rather it is an economy of guns where firearms and ammunition are the currency of a thriving international trade in violence.  Its 500-year history of competition and conflict is older than most, yet the Sulu Arms Market is quite common in that it is both a source and a destination for smuggled guns….[It] is intertwined with piracy, terrorism, and the traffic of other illicit commodities.  At various points since the Spanish conquest of the Philippines in 1521, European colonialists, Moro (Philippine Muslim) independence groups, Communists, Islamic militants, and criminal gangs all played a major part in the market’s development making it a truly globalized enterprise.”[8]

  1. Illicit Trade in Drugs

Since the start of the Duterte Administration – actually even before Mr. Duterte assumed the Presidency but immediately after his electoral victory– his declared “war on drugs” has taken center stage among all programs of the government.  It is a war that has been marked principally in the public’s mind by killings – 8,000 plus in the ten-month period since Mr. Duterte became President – in fulfillment of Duterte’s promise in his State of the Nation Address in July 2016 that “there will be no let-up in this campaign….We will not stop until the last drug lord, the last financier, and the last pusher have surrendered or put behind bars or below the ground, if they so wish”.[9]

What has not been discussed so much has been the matter of why the issue of illegal drugs is a matter of concern.  To begin with, the Philippines has the reputation of having the highest rate of methamphetamine abuse in East Asia.[10]  The Dangerous Drugs Board, the government body that sets regulatory policies for this sector, has placed the number of drug users nationwide at 1.8 million based on a 2015 survey undertaken.[11]

In addition, the Philippines has developed the dubious reputation of being one of the main manufacturers within the region of amphetamine-type substances (ATS), mainly methamphetamine hydrochloride (shabu), along with Myanmar and China.[12]

Of greater concern, though, is the matter of the insidious control that the illegal drug industry has taken over government units, what is often referred to as “narco-politics”.  This, it seems, has taken root in the ARMM.

A perceptive study undertaken in 2013 has described how this has taken place in two provinces of the ARMM, the provinces of Maguindanao and Lanao del Sur.[13]  The study points out that the destitute social conditions in these provinces, the perennial state of conflict and weak governance provide the enabling conditions for an illegal drugs industry to thrive.

The high level of poverty and the turmoil caused by incidents of violence make the supplemental income provided by various tasks related to the industry – whether these be transportation, storage, repacking, distribution or retail selling – welcome.  Thus ready hands to support the industry as well as a market seeking even just temporary respite from the travails of life are available.

The bountiful returns from controlling the trade in illegal drugs in an area push traffickers to look for ways to ensure the longevity of their enterprise.  One, of course, is to build up the means to protect one’s turf from competitors as well as government entities mandated to shut down the industry.  These include acquiring firearms and ammunition and setting up a private security force to resist attempts to terminate operations.

Another more subtle approach – which one may take as a complement to the first – is to capture the agencies of the State which have the mandate and authority to put an end to the industry.  This is done by (a) taking over a position of authority in the area, and (b) infiltrating the agencies with police powers over the industry.

The lucrative returns generated by the industry provide the financial resources to win an election – running a campaign, buying votes and bribing electoral officials.  Once in office, one is in a position to influence policies, divert attention away from the industry, buy the support of key individuals and impede punitive operations against the industry, thus ensuring the continued uninterrupted operation of the industry.  Moreover, and particularly if one is in the position of being the Chief Executive of a government unit – Governor or Mayor or even Barangay Chairman –there is the much-coveted Internal Revenue Allotment (IRA), referred to in an earlier article in this series – which is in many cases handled as a personal fund

Once power is consolidated, one has the means to build alliances that will further strengthen one’s position and dissuade competitors from attempting to wrest power.  Moreover, the ability to control the situation allows one to expand to other lucrative areas of operation such as the illegal trade in guns as well as commodities essential to the area – petroleum products, food supplies and whatever is required – without going through normal trading channels which would impose State-mandated charges on importations.

As fortunes grow, so does one’s power, creating a position of near-invincibility, forcing others to consider very carefully any plans to wrest power away from you.

As the afore-cited study of Cagoco-Guiam and Schoofs put it,

“…gaining control over public office is only the first step in the process.  Gaining access to the trappings of public office is critical precisely because it determines entry into other illegal businesses which are part of the shadow economy of Mindanao….Drug money can be converted into political power, but control over public office represents the real prize, because it ensures the diversification and protection of illicit sources of wealth.”[14] 

It is not only the executive units and the police forces that are controlled but even the Courts: 

“…the justice system is bound up in drug-related protection rackets.  Public prosecutors delay the prosecution of cases filed by drug enforcers, whereas circuit court judges are bribed to dismiss the drug cases filed in their court.”[15]

In 2006, a cable was supposed to have been issued by the U.S. Embassy in Manila to various departments of the U.S. government – Department of State, Department of Justice, CIA, FBI, National Security Council, U.S. Pacific Command and others – providing information on trade in illegal drugs and their impact on peace and development efforts in Muslim Mindanao.   Among other things, the cable states “…nearly all of the mayors, including the Vice-Governor of Sulu Province, are suspected to be involved in the narcotics trade”.[16]

It is said that the Abu Sayyaf has either engaged in the trade in illegal drugs as a source of revenue for their activities or have provided protection for traders.  It is also said that the ASG has used drugs to entice young men to join their ranks and that ASG fighters use drugs before battle to make themselves more fierce, but these are anecdotal and need to be validated.[17]

Whether or not the ASG themselves engage in the drug trade or use drugs themselves, the insidious nature of the illegal drug trade undermines the fabric of governance and society and should be addressed in any effort to bring about sustainable peace in the ARMM.  As Cagoco-Guiam and Schoofs clearly summarized it,

“The combination of fragile state institutions, colluding public officials and protection rackets explains the legal vacuum and sense of impunity that sustain the drug economy in the ARMM.  Narco-politicians reinforce the vicious circle between state fragility and criminal agendas, to the point that it amounts to the ‘criminalization of the state’….The illicit drug market provides these politicians with the resources to usurp power.  Once elected into public office, they have every incentive to ensure that the drug economy, which sustains their political aspirations, remains unchallenged by the state.  Through the control they exert over local government, security forces, and their constituents, narco-politicians are able to subvert the rule of law in order to advance their political and economic interests.”[18]

  1. KFR 

    As with the illicit trade in guns and drugs, it is said that political warlords are also involved in KFR activities.  In exchange for protection, the warlords receive a share in ransom payments and can also use the kidnap gangs as their “muscles” to intimidate/eliminate opponents and others who may cross their paths.  Evidence of this is difficult to come by, though.

Since much has been written about KFR activities in the region, we will just make two comments.

First is the observation, made by former AFP Chief-of-Staff Ricardo Visaya, that in the past few years, KFR activities have centered around Sulu and particularly around the island of Jolo.  The reasons for this are varied:  the denser jungles and rougher terrain, the ability of the KFR bands to move along different routes from Patikul to Talipao to Indanan to Parang to Panamao to Kalinggalang Caluang to Luuk, perhaps more tightly knit clan ties, etc.

The writer has made his own tally of kidnapping incidents since 2011 to the present focused on Sulu, i.e., kidnappings undertaken in Sulu itself or, if elsewhere, where the victims were brought to Sulu (invariably Jolo island) from where negotiations were then undertaken.  Just looking at the last three years – 2014 to 2016, there were a total of 49 kidnapping incidents involving 107 victims, half of whom (53) were non-Filipinos.  Among the Filipino victims (54), roughly 40% (19) were in fact Sulu residents.  Of the Filipino kidnap victims, a quarter or 13 were Muslims.  Of the 49 kidnapping incidents, only a third (16) took place in Sulu.  The greater majority – 33 incidents – took place outside Sulu, with 13 of these taking place outside the country, several being sailors abducted from their vessels while on the high seas between the Philippines and Malaysia.

It was during this three-year period that seven kidnap victims were beheaded by the ASG, one child was strangled and thrown to the sea while the abductors were escaping, one victim was killed in the course of an encounter between the kidnap band and the military while another victim was found dead, most likely from illness.

A second comment involves another way by which KFR has been utilized, which is to deliver a message, described by Eric Gutierrez in his narration of the late Ali Dimaporo’s reaction to his removal from power following the EDSA Revolution, the departure of President Marcos and the assumption to the Presidency of Cory Aquino.  In a section entitled “Political Warlords Invent a New Weapon”, Gutierrez describes the kidnapping of Fr. Michel de Gigord, Catholic chaplain at the Mindanao State University campus in Marawi City, as well as that of 10 Carmelite nuns staying in a convent overlooking Lake Lanao.  Gutierrez analyzes the incidents as follows:

“The June-July kidnappings of 1986 stood out for its symbolic significance.  It occurred simultaneously with the political standoff sparked by the Aquino government’s replacement of Marcos ally Mohammad Ali Dimaporo as governor of Lanao del Sur and president of the Mindanao State University (MSU)….

“The chaplain of the MSU was snatched at the height of the standoff….The kidnapping captured maximum publicity, and the timing, place, and choice of victim were calculated for maximum political effect.  De Gigord was a vocal critic of Dimaporo and an advocate of reform in the university.  He was also a citizen of France, among the first countries that recognized the Aquino government….Worse, De Gigord was kidnapped on the day President Aquino appointed Dimaporo’s replacement as president of the MSU….

“The kidnapping of the 10 nuns was even more symbolic.  Corazon Aquino was deeply religious and widely known to be a Carmelite devotee….Those who kidnapped the nuns were not only after a financial ransom, but clearly aimed to settle a score by targeting Aquino’s most visible ally in Marawi City….

“The kidnapping incidents were clearly intended to embarrass the President….Kidnapping the symbols of the new regime was a way to strike back….Dimaporo denied any involvement in the kidnapping incidents.  He even went out of his way to play a principal role in the negotiations that led to the release of the victims.  Through his actions Dimaporo made it clear that his personal involvement was critical in guaranteeing the safety of the victims….The release of the victims were made in Dimaporo’s residence in Binidayan to deny his rivals Saidamen Pangarungan and Princess Tarhata Lucman any political mileage out of the crisis.”[19]

Summing Up

Kidnapping for ransom and the illicit trade in guns and drugs are three activities that are rampant in the southern Philippines.  By its very nature, KFR easily catches the attention of the public primarily because of the violence involved in its perpetration and the subsequent efforts to secure the release of the victims, whether through negotiations or military/police operations.

The illicit trade in guns and drugs is undertaken much more surreptitiously and is more difficult to trace.  The trade in guns can be seen in the proliferation of firearms in the region.  One kidnap victim in Basilan that the writer spoke with talked of how her captors fired their guns with abandon and practically unceasingly for several hours during the celebration of the Eid ul-Fitr as if the availability of ammunition was not a problem.

The illicit trade in drugs is much more insidious because of the added dimension of efforts exerted by drug traffickers to capture agencies of the State, whether through elected executive positions, positions with security agencies mandated to put an end to the trade or even members of the judiciary.

The perpetrators of KFR are well known   Those involved in gun-running and drugs are not as well known and should be identified, along with protectors (if there in fact are any) as well as others complicit in the trades and should be pursued as relentlessly as the current operations against KFR bands being undertaken.

TOMORROW: Collusion with the Abu Sayyaf  

[Vic M. Taylor, originally from Cebu, has been involved in various peace and development activities in Mindanao, particularly in Basilan-Sulu-Tawi-Tawi (BaSulTa) in the different positions he has held in government and the private sector over the last 50 years.
He started as an instructor at the Notre Dame of Jolo College after his graduation from the Ateneo de Manila University in the late 1960s.  Subsequently, he oversaw the Rehabilitation and Development Program for Muslim Mindanao during the early years of martial law under the Office of the President.
Within the last 16 years and upon the request of the families of some kidnap victims, Mr. Taylor assisted these families to help secure the safe release of five victims from the ASG.
Recently, he has been working with a private group that is assisting a community of the Moro National Liberation Front in the Zamboanga peninsula in bringing development projects to their area.
This series is a revised version of a paper written by the author for the Mackenzie Institute, a Canadian security think tank, in light of the execution of two Canadian hostages by the Abu Sayyaf last year]

[1] Francisco Lara Jr. and Nikki Philline de la Rosa, “Robustness in Data and Methods: Scoping the Real Economy of Mindanao”, in Francisco Lara Jr. and Steven Schoofs, Out of the Shadows: Violent Conflict and the Real Economy of Mindanao,(London: International Alert, 2013), pages 41-42.

[2] Francisco Lara Jr. has drawn up the categories of “high risk” and “low risk” illegal activities in Insurgents, Clans and States: Political Legitimacy and Resurgent Conflict in Muslim Mindanao, Philippines, (Quezon City: Ateneo de Manila University Press, 2014), pages 166-167.

[3] Francisco Lara Jr., Insurgents, Clans, and States: Political Legitimacy and Resurgent Conflict in Muslim Mindanao, Philippines”, page 142.

[4] Eddie L. Quitoriano, “Shadow Economy or Shadow State? The Illicit Gun Trade in Conflict-Affected Mindanao”, in Francisco Lara Jr. and Steven Schoofs (ed.) Out of the Shadows: Violent Conflict and the Real Economy of Mindanao, (London: International Alert, 2013) page 72.

[5] “Small Arms Survey 2002: Counting the Human Cost”, (Oxford: Oxford University Press), cited in Raymund Jose G. Quilop, “Small Arms and Light Weapons in the Philippines: Possession, Demand, Supply, and Regulation (Overview)”, Soliman M. Santos Jr. and Paz Verdades M. Santos, “Primed and Purposeful: Armed Groups and Human Security Efforts in the Philippines”, (Geneva: Small Arms Survey, 2010), page 235.

[6] Interview conducted by Prof. Octavio Dinampo of the Mindanao State University in Jolo, cited in Raymund Jose G. Quilop, op cit., page 242.

[7] Charles “Ken” Comer, “The Parting of the Sulawesi Sea: How U.S. strategy in the region is slowly transforming the multinational environment in Southeast Asia’s Terrorist Transit Triangle”, Military Review, May-June 2010, fmso.leavenworth.army.mil/documents/SulawesiSea.pdf.

[8] Lino Miani, “The Sulu Arms Market: Globalized Gunrunning Since 1521”, July 27, 2015, http://affiliatenetwork.navisioglobal.coom2015/07/sulu-arms-market/.  See also, Lino Miani, “The Sulu Arms Market: National Responses to a Regional Problem”, (Singapore: Institute of Southeast Asian Studies, 2015).

[9] “Full Text: Duterte’s 2016 State of the Nation Address”, Philstar Global, July 26, 2016, www.philstar.com/headlines/2016/07/25/1606702/full-text-detertes-2016-state-nation-address.

[10] U.S. Department of State, “International Narcotics Control Strategy Report, Vol. I” March 2012, page 368, https://www.state.gov./documents/organization/187109.pdf.

[11] Jodesz Gavilan, “DDB: Philippines has 1.8 million current drug users”, Rappler,October 11, 2016, www.rappler.com/nation/146654-drug-use-survey-results-dangerous-drugs-board-philippines-2015.

[12][12] United Nations Office on Drugs and Crime, “World Drug Report: 2012”, page 80, https://www.unodc.org/documents/data-and-analysis/WDR2012/WDR_2012_web_small.pdf.

[13] Rufa Cagoco-Guiam and Steven Schoofs, “A Deadly Cocktail?  Illicit Drugs, Politics, and Violent Conflict in Lanao del Sur and Maguindanao”, Francisco Lara Jr. and Steven Schoofs (ed.), Out of the Shadows: Violent Conflict and the Real Economy of Mindanao, (International Alert, 2013).

[14] Rufa Cagoco-Guiam and Steven Schoofs, , op. cit. page 107.

[15] Ibid., page 108.

[16] “Drugs, Crime and Corruption Challenge Peace and Development Efforts in Muslim Mindanao”, May 26, 2006, Public Library of US Diplomacy, https://wikileaks.org/plusd/cables/06MANILA2195_a.html.

[17] See, for example, Roel Pareno, “Military: Abus engaged in illegal drug trade”, PhilStar Global, September 30, 2016, www.philstar.com.8080/headlines/2016/09/30/1628889/military-abus-engaged-illegal-drug-trade.

[18] Rufa Cagoco-Guiam and Steven Schoofs, op. cit., page 110.

[19] Eric Gutierrez, “Bandits, Villains and Bosses: Kidnappers of the Southern Philippines”, Violent Conflict and the Real Economy of Mindanao”, Francisco Lara Jr. and Steven Schoofs (ed.), (London: International Alert, 2013), pages 129-130.

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