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Bayat versus independent franchise: Zarqawi pledges allegiance to bin Laden


We announce that Al-Tawhid wal Jihad [Unity and Holy War], its emir [Zarqawi] and soldiers have pledged allegiance to the mujahedeen [holy fighters] Osama bin Laden.

With this oath of bayat, Zarqawi has publicly recast a jihadist franchise that had come to rival bin Laden himself. Competition has transcended cooperation to subservience. Non-Muslims need background to understand the power of bayat in Sufi based movements such as Egypt's Islamic Brotherhood and al Qaeda, and Wahhabis for that matter. (Sufism interestingly started as a Shia movement but has retreated there even as it rose among the Sunnis):

Bayat ("taking hand") is sanctioned by "Verily, those who give thee their allegiance, they give it but to Allah Himself" Quran 48:10. It is the initiation ceremony specific to many Sufi Orders. The Prophet Muhammad established this ceremony when he allowed his trusted companions to take his hand and commit themselves to vastly increase their love and loyalty to Allah and the Messenger: this is directly referred to in the Qur'an. Most Sufi Orders still practices some form of this sacred ceremony as a sacramental reenactment of the initiation offered by Prophet Muhammad to his companions. During the "taking hand" ceremony, the new dervish receives the blessings of the lineage, and a promise of spiritual protection along their life's journey.

Members of al-Qaeda take bayat [an oath of allegiance] to their sheik, Bin Laden, as an act of initiation. Al-Qaeda is a secret society without acclamation or public bayat to him. Bayat, the Arabic word for an oath of loyalty, means religious fealty or the submission more than personal allegiance. It means the link between the one making bayat, the shaykh and Prophet Muhammad (saws) is unbroken. This makes a Sufi connection possible during the solemn moment of taking bayat (pact) with the shaykh, who is the link in the chain - it connects to the chain and you become a recipient of the light of Muhammad (saws). Bayat is the ritual of accepting the shaykh as guide and coming under the protection of the lineage of the order.

Now the issue is why and why now? How can Zarqawi suddenly call bin Laden "the best leader for Islam's armies against all infidels and apostates"?

  • Bin Laden is dead or near-death and bayat now is all upside with an opportunity to formally inherit the "cloak of Muhammad"
  • Zarqawi has suffered attrition and needs to boost morale attract more jihadis
  • US pressure on Fallujah to expel Zarqawi may be having an effect (this time)
  • New strictures from being formerly declared a terrorist organization (it took so long?)

And for al Qaeda:

  • Bin Laden is dead or near-death and al Qaeda needs an heir
  • Provide a flanking maneuver to al Qaeda forces under assault in northern Pakistan
  • Claim Zarqawi's victories as its own (which often go to Ansar al-Islam)

The importance of Zarqawi's unilateral about face begs explanation:

Zarqawi has taken pains to distinguish himself from al Qaeda. Zarqawi never pledged the bayat, the oath of allegiance, to bin Laden. He has links to at least three terrorist groups and runs his own, Attawhid Wal Jihad (Unity and Jihad), or simply al Tawhid. Shadi Abdallah, a Jordanian terrorist imprisoned in Germany, told his German interrogators in 2002 that Zarqawi was "against al Qaeda." The main disagreement between bin Laden and Zarqawi seems to be over strategy. While al Qaeda targets the "far enemy," the United States, Zarqawi focuses his rage on "near enemies" such as Syria, Jordan, and Israel... In January 2004 Iraqi Kurds captured a letter from Zarqawi to bin Laden proposing closer ties between their organizations. Zarqawi offered bin Laden a chance to join him in the gathering jihad, attaining victory through a sectarian war, by "drag[ging] the Shia into the battle." Bin Laden appears to have rejected Zarqawi's petition, possibly because of a disagreement over the efficacy of targeting a "near enemy," or perhaps over the wisdom of targeting the Shia and provoking an Islamic civil war. Bin Laden favors tactical cooperation with Shia militant groups while Zarqawi's wrath towards the Shia, whose "damage is worse and more destructive to the [Islamic] nation than the Americans," is extreme.

Zarqawi spun it differently:

Sheikh Abu Mussab al-Zarqawi was in contact with the brothers within Al-Qaeda for eight months. They exchanged points of view and then there was a cut due to fate," the statement read. Suddenly contacts were restored. Our brothers in Al-Qaeda understood the strategy of Al-Tawhid wal Jihad group in the Land of the Two Rivers (Euphrates and Tigris) and were satisfied with our line. With the start of Ramadan, the month of victories and a time when Muslims need more than ever to close ranks, to gouge out the eyes of the enemies of Islam ..., we announce this good news to our nation, to the joy of Muslims.

Bears watching as it was not chance.

Zarqawi Movement Pledges Allegiance to Bin Laden
Muslim American Society
October 18, 2004

Gordon Housworth

InfoT Public  Strategic Risk Public  Terrorism Public  


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A global Islamic network linked by France and close to China


Prediction: A global Islamic network uniting Muslim nations, linked by the communications and nascent commerce channels of al-Jazeera, powered by the infrastructure tools of France, the Jackal Nation, and allied with China in diplomacy and economic power against the US.

Caught your breath yet? Rarely am I handed the elements of forecast as I was the three citations below, all published the same day by Hong Kong's Asia Times, one of those excellent but largely unread, or under-read, papers by US readers, especially when it comes to "Southwest Asian politics [that] are so thinly, slowly, and sporadically reported in the high street news of the US and Europe (bit better in Europe but not substantially better)."

In fact, Muslim nations strain noted that when "Malaysian Prime Minister Abdullah Badawi called for the creation of a global Islamic network last week, the story went uncovered in the Western media in general and the United States in particular, the nation that ultimately could be affected most by such a move." I wonder how we can persist while being so ignorant. The answer that I do not like, but which I often accord to underperforming firms, is that they live at the courtesy of their competitors.

Muslims have in recent centuries blamed exogenous forces for their plight rather than themselves, a condition which al Qaeda has exploited, but now Abdullah says that "greater cooperation between Muslim countries is the key to lifting them out of poverty and changing the image of Islamic nations,... that Western nations have no real interest in improving the lot of the world's Muslims" and of course Abdullah would like to vie for the position of "leader of an Islamic development movement."

Consider the usual claims that global trading and financial systems are "corrupt and unfair" and that Organization of Islamic Conference (OIC) is powerless in multilateral negotiations in the light of the Iraqi war and the GWOT which:

have already been perceived as anti-Muslim in many parts of the world. US foreign policy has been conducted with a callousness and ignorance of long-term ramifications that is damaging its credibility throughout the Muslim world; the failure of the current administration to understand the motivations and exigencies of Muslim nations is seen as symptomatic of the unbridgeable gap between the West and Islam.

Much of the influence of the US in the past has come from "soft power" rather than military might. Soft power is the principle that a nation's ideals, customs and government exert a certain gravitas abroad. Nations have looked to the US as a shining example of democracy, freedom and the good life. One need look no further than the Malaysian flag to see this influence; its 13 red and white stripes on a blue field are modeled on the United States' banner.

How far we have fallen and how great the success of al Qaeda despite how many of their number we kill. Abdullah's business network, incorporating Islamic business principles, is a gradual but "direct threat to the long-term interests of the United States and its status as the world's only superpower."

Whereas the League of Arab States are "all standing on tables fighting with one another," Qatari-based al-Jazeera, a marketing franchise built by conflict in Palestine and Iraq, "is one entity that everyone across the Arab world watches. They may be the only remaining base of Arab nationalism that exists. Arabs are proud of that."

While "Arab ruling elites [have] imported a development model based on economic growth, but have taken care to empty it of its progressive substance," al-Jazeera, launched in 1996, has played "a leading role" in "liberalizing Arab political culture [and] now rivals giants such as Cable News Network (CNN) and the British Broadcasting Corp, particularly in the Arab world." Think of marrying Amazon's product distribution capability with that franchise. Despite US distaste for al-Jazeera, I would do just that. If we don't the French will.

Christopher Hitchens has previously referred to Chirac as a jackal and in a Tim Russert CNBC interview on 16 Oct 2004 with Graydon Carter, referred to France as a Jackal Nation. France has continued to cultivate Arab relations in opposition to US interests, has the appropriate telecom and communication infrastructure, employs standards that are already in use across the region, and will strike more lucrative deals, personal and governmental, than will the US.

Susilo Bambang Yudhoyono, or SBY, Indonesia's first president chosen through direct elections and a devout Muslim, will be pressed by the US for an "immediate and unpopular dogmatism of the "crusade" on terror, whereas he can bask in the "long-term pragmatism and shared understanding" of a China that can offer "near-equal economic incentives" and also sees international terrorism as a lesser threat in the face of "long embedded, regionally popular secessionist groups."

We must make an about face or prepare to face the music.

Muslim nations strain at US business leash
By Keith Andrew Bettinger
Asia Times
Oct 14, 2004

Arab nationalism tunes into al-Jazeera
By Thalif Deen
Asia Times
Oct 14, 2004

SBY through Chinese eyes
By Jeffrey Robertson
Asia Times
Oct 14, 2004

Gordon Housworth

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Redirecting our intel processes in Iraq: think gangs and narcotrafficers


It is not often to see a DoD sanctioned publication matter-of-factly state that Chechens (here and here) are in Iraq, but in Something Old, Something New: Guerrillas, Terrorists, and Intelligence Analysis:

The current Iraqi guerrilla war grew from a defeated hierarchical party- state structure. The army officer corps, Baathist party, and Fedayeen militia were secular state institutions drawn primarily from the ruling minority Sunni Arab peoples. Much of the hierarchy and interrelations of the state structure remain intact in the remnant guerrilla organization. Foreign combatants, including al-Qaeda members and Chechens, have entered Iraq to fight the coalition. They do not blend in well, however, and many have since left or assumed specialized support roles such as bomb manufacturer, suicide bomber, or instructor.

And that they were in Afghanistan early:

Foreigners from Pakistan, Saudi Arabia, Yemen, and other Sunni Arab and non- Arab cultures joined the Taliban. Even Chechens, Islamic Movement of Uzbekistan adherents, and Uighurs from China joined the foreign contingent, often as part of al- Qaeda.

It does not surprise me that the author is Lester Grau, a former US Army infantry officer and an analyst with the Foreign Military Studies Office in Fort Leavenworth, whose work commands my attention. One could do worse than to look through past issues of Military Review at the Combined Arms Center at Fort Leavenworth, or RED THRUST STAR published for the US Forces Command OPFOR Training Program, or books by Grau and Ali Ahmad Jalali such as The Other Side of the Mountain: Mujahideen Tactics in the Soviet-Afghan War, or anything where Grau is on a dissertation committee.

Grau nicely summarizes the situation on the ground:

Iraqi combatants have little experience in fighting as actual guerrillas, but some do have counterinsurgency experience against Kurds and Shia Iraqis. The insurgency has a strong urban component, particularly in Baghdad, Mosul, Fallujah, Al Sulaymaniyah, Samarra, and Tikrit. The rural guerrilla war is primarily restricted to the Sunni triangle west- northwest of Baghdad. The urban guerrillas rely primarily on improvised explosive devices ( IEDs) because their marksmanship is not good. Iraqi guerrillas lack a ready sanctuary, but they are well funded with billions of U. S. dollars held by Iraq’s former leaders. They have ready access to large stocks of weapons and explosives.

Then he makes the interesting point that while the military intelligence effort needed to combat either insurgency has little in common with conventional intel operations in support of conventional maneuver war. The S2 or G2 functions face a different type of war and need to deal with it differently:

The S2 and G2 are involved in a form of police investigative work, specifically police investigations dealing with gangs and narcotrafficers. Association matrixes, network analysis, cultural analysis, genealogy, event-pattern analysis, language-pattern analysis, traffic-flow analysis, and financial-transaction analysis are police tools that should be staples of the intelligence effort in a counterinsurgency. Adopting these tools does not imply adopting accompanying restrictions on combat lethality or local rules of engagement that apply to police forces.

But it's not easy:

Charting the guerrillas’ orders of battle, tables of organization and equipment, and line and block charts is fantasy in Afghanistan and nearly so in Iraq. In these insurgencies, intelligence personnel are tracking gangs, not constituted forces. The problem is equivalent to police determining who are in which gangs, what territories they control, and what armaments, tactics, logistics, and patterns they use.

Yet Grau skewers our vaunted information sharing:

various agencies run their intelligence data and analysis in bureaucratic stovepipes, which run straight from the tactical level to the highest strategic levels with little sharing along the way… Raw data are seldom passed back just agreed-on intelligence. Agreed-on intelligence is a homogenized product from which dissenting views and contradicting evidence has been removed or discounted so the community can have a common view. If intelligence does come back down the stovepipe, it often arrives too late. Indeed, the tactical user often lacks clearances and tickets to get the approved product.

This must be resolved as we reshape our S2/G2 approach.

Something Old, Something New: Guerrillas, Terrorists, and Intelligence Analysis
Lieutenant Colonel Lester W. Grau, U.S. Army, Retired
July - August 2004

Gordon Housworth

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Other than Mexican: from the Triborder area to the Naco strip


Those unaware of the substantial, well-documented nexus of terrorist groups and organized crime in South and Central America are referred to the four citations as I take them as a given for departure to the subject of this note -- the link of actually crossing into the US undetected and en masse.

Go here to see what passes for the unguarded "empty quarter," virtually a no-mans land, of the Naco strip in Arizona and where DHS has deployed unmanned aerial vehicles (UAVs) "to help border surveillance in southern Arizona," a severe step not historically justified by mere Mexican labor migration. Terrorist passage across the border via the many drogista tunnels from California to Arizona was covered in While we're looking the other way -- tunnels? but while possible it does not strike me as wholly satisfactory.

Enter the weekly Tombstone Tumbleweed where it is understatement to call the Tumbleweed quaint to the point of wild west caricature. Its print format mimics a 19th century broadsheet, and its search function is Paleolithic, but the content is startlingly contemporary. After watching arresting quotations attributed to Tumbleweed continue to be cited in conservative and patriot sites, I wanted to look to original source and see who owns or prints the Tumbleweed.

The Tumbleweed's owner is a former elementary-school teacher from Los Angeles, Chris Simcox, who deflects hints of racism by noting that his wife is black and his son a biracial, African-American. Simcox says that he "became aware of the problem of illegal entry" while vacationing in our national parks after 11 September:

"in the span of two weeks I ran across five paramilitary groups trucking drugs across the border... These were highly organized groups; three vehicles, with the camouflage-wearing troops escorting the vehicles on both sides in columns and carrying automatic weapons -- AKs, mini-14s, the whole works… These troops are so sophisticated that they're covering themselves with camouflage military netting and they're driving right across Organ Pipe National Monument, one of the most pristine cactus reserves in the country, which is right on the border. In fact, just a few weeks ago, the Park Service listed Organ Pipe as the most dangerous national park in the country because of the drug smugglers coming through it… I saw this criminal activity in broad daylight, and these guys aren't the average migrants; these are real troops. When I told the Border Patrol what I saw they said, 'Yeah, we know, but there's nothing we can do about it.'"

And this from a fellow who does not appear to be a fascist but who has received many death threats, apparently from smugglers and drogistas.

Enter the illegal alien category "Other Than Mexican" (OTM) whose full definition is "other than Mexico or other central and South American countries," i.e., not Latin. Digging into the archives revealed an article, Two Groups Of Middle-Eastern Invaders Caught In Cochise County In Past Six Weeks, that contained the snippets widely carried in secondary sources.

While there are denials from some sources, there are many border patrol officers speaking under anonymity. The local Border Patrol station says on the record, "Our policy is to turn any OTM's over to the FBI and the Department of Homeland Security" -- some 5,510 from Oct 2003 to July 2004.

"[On] June 13, 2004 Border patrol agents from the Willcox station encountered a large group of suspected illegal border crossers… 71 suspected illegal aliens were apprehended; among them were 53 males of middle-eastern descent. According to a Border Patrol field agent, the men were suspected to be Iranian or possibly Syrian nationals. "One thing's for sure: these guys didn't speak Spanish and after we questioned them harder we discovered they spoke poor English with a middle-eastern accent; then we caught them speaking to each other in Arabic…" The agent added the following description "A curious thing I noticed was that they all had brand new clothing and they looked as if they had just been to the barber shop--you know--new haircuts. They were clean cut and they all had almost the exact same cut of mustaches."

Bears watching.

Terrorist Threat in the Tri-Border Area: Myth or Reality?
Lieutenant Colonel Philip K. Abbott, U.S. Army
Combined Arms Center
Military Review, September-October 2004

The Protean Enemy
By Jessica Stern
From Foreign Affairs, July/August 2003

Terrorist And Organized Crime Groups In The Tri-Border Area (TBA) Of South America
Rex Hudson
Federal Research Division, Library of Congress
July 2003

Organized Crime And Terrorist Activity In Mexico, 1999-2002
Ramón J. Miró
Federal Research Division, Library of Congress
February 2003

Gordon Housworth

InfoT Public  Strategic Risk Public  Terrorism Public  


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France, with Germany in tow, seeks to use China to outflank both the EU and the US


In France 1, EU 25: It's not your grandfather's Common Market, I mused that France would retarget its nuclear Force de Frappe at certain EU capitals as the EU's European Commission president-elect, Jose Manuel Durao Barroso, upended the cart on the six largest EU members by appointing "a record number of women and politicians from smaller European countries to high-profile posts" while relegating the "EU heavyweights," France and Germany, to "comparatively lightweight portfolios."

In noting that France will make a Realpolitik reassessment of the sea change as it revises its approach to the EU, a group whose predecessors it had helped create and who it expected to lead even as the EU expanded eastward into former Warsaw Pact nations, I now see that reassessment as being a two pronged affair of a flanking outreach to China, and a retrograde Franco-German effort to turn the EU back to their preferred direction, if not control.

French and German motivations are strongly tied to their countries' economic weaknesses while they join with China is seeking to create a multi-polar world that checks US power. China, already the EU's number two trading partner after the US, will reciprocate as it attempt to gain entry to military and commercial purchases within the EU.

Expect to see a flurry of new Sino-French initiatives such as the plan to develop joint "Linux-based platform that can be used in multiple environments, including PCs, servers and PDAs [supporting] online services and communication applications." The Chinese Ministry of Science and Technology will work with the French Atomic Energy Commission (CEA), Bull, and STMicroelectronics.

While EU ministers formerly lifted sanctions against Libya, they were "unable to reach an agreement to end the bloc's 15-year embargo on selling arms to China" even as France "had pressured heavily for lifting the embargo." While the EU says that there is "no linkage between the lifting of the arms embargo and human rights," it would like Chinese ratification of the Convention on Civil and Political Rights. "Officials in Brussels say the EU is only likely to lift the embargo once other, equivalent export control measures are in place. This is likely to occur sometime early next year."

China and France appear keen to expand their relations. To celebrate the 40th anniversary of the establishment of diplomatic ties between the two countries, France is now holding "China Year" and China is reciprocating with one for France. Proclaiming their affinity to the rest of the world, the French government invited Chinese President Hu Jintao as a state guest to Paris this past January. Moreover, just before the Taiwan presidential election in March, France and China conducted their first-ever joint naval military exercises.

For China, behind this recent diplomatic warmth is the Taiwan problem. China aims to encourage France further to lift the EU embargo on arms exports to China, which would concern the US because it might destabilize the regional strategic arrangement in North Asia and enhance China's ability to attack Taiwan.

Paris expects that close relations with Beijing would bring new business opportunities to its military-industrial complex, including Airbus Industrie, the major rival of the US aircraft maker Boeing in the world's skyliner markets. Other commercial, non-military benefits would also flow to France. Furthermore, France needs to secure strong support from China over the location of the International Thermonuclear Experimental Reactor (ITER) project, the world's first sustained nuclear fusion reactor venture.

Notice to US manufacturers and standards holders:

  1. Expect China, with or without French assistance, to create standards that are unencumbered by US patent or technology licensing fees.
  2. Expect France to support that effort wholeheartedly as it also attempts to create systems over which it has sway and that escape license or royalty payments to US firms.
  3. Expect France to push export of those systems into areas where it has diplomatic reach, such as Francophone Africa
  4. Expect France to use alliances to limit US power and strategic reach in cases where it can no longer exercise unilateral dominance.

France and China form Linux alliance
By Ingrid Marson
ZDNet (UK) October 12, 2004, 9:11 AM PT

EU: Arms Embargo On Libya Lifted, But Decision On China Delayed
By Ahto Lobjakas
Radio Free Europe/Radio Liberty
12 October 2004

Sweating bullets over new Chinese train
By Kosuke Takahashi
May 13, 2004
Asia Times

Gordon Housworth

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Starter questions to begin -- just begin -- to understand country risk


Continuing from part 3, Brief introduction to China risks:

Here is a starter list of questions for the novice to begin -- just begin -- to understand the risk in your country of interest. Or you can charge in with your risk unmeasured and unpriced. Many do.

1. Judiciary

  • Is there an independent judiciary?
  • Is there a mechanism for independent arbitration?
  • Is the country subject to bilateral treaty with the US?

The PRC does not have an independent judiciary.

2. Intrastate conflict between state, province and enterprise zones

  • Which country to the casual observer seems more risky?

You can never, ever judge this from afar. Yes, there is enormous interference from Beijing and enterprise zones, but substitute the relevant government agency, and this pertains to almost any almost-developed nation; even democracies like India, Argentina, Brazil, and Australia that to the uninformed may appear benign or less risky.

One must be specific about the risk spectrum that one expects to find in a particular country, e.g., the UK has generally been by far the riskiest for US infrastructure investors but in terms of getting your people killed, Colombia is a leader if you don't pay your tuition up front to friendly support elements in order to learn how to play by local rules.

3. Corruption

  • How endemic is corruption?

There are corruption indices available, one of the best known is Transparency International's Corruption Perceptions Index, but they are very general and relative, not absolute. TI's 2003 Corruption Perceptions Index measures perceptions of the degree of corruption ranging from 10 (highly clean) and 0 (highly corrupt). Of 133 countries rated in 2003, the cleanest was Finland (1) and the worst was Bangladesh (133). It should be noted that "seven out of ten countries score less than 5 out of a clean score of 10, while five out of ten developing countries score less than 3 out of 10."

4. Valid independent country data

  • Is there valid independent in-country data?

There is no valid data of any kind in China, be it GDP, imports, or exports. China is by no means alone in this area. You must assume that any country, with the possible exception of the EU, manipulates its data. What is available is more useful for macro data trading.

5. Foreign exchange repatriation

  • What is the level of foreign currency translation and/or liquidity?

6. Export logistics

  • What is the level of export logistic risk?

Logistics risk is very dependent upon on-the-spot conditions, specifically graft.

For those unfamiliar with the problem, your product arrives dockside where a local inspector defers clearance until either the proper payoff is made or the product is declared rotted by same inspector and denied entry (or exit). I can remember jet engine spares and other high value components moved out of sheds and into the weather in SE Asia to force the hand of those unwilling to pay the going baksheesh.

7. Diplomatic leverage

  • Do we have a strong embassy presence? If not, any strong embassy?
  • Is the country militarily, internal security dependent on the US?
  • Is the country economically dependent upon the US?

8. Political risk insurance

  • Is political risk insurance available? If yes, on what terms?

It is said that political risk insurance firms quite literally live or die by their risk assessments which, in combination with their independence, is said to make them a good barometer of the target country.

9. Physical security

  • What is the level of overt or covert, internal or external threats to personnel, plants, raw materials, finished goods, and transport?

Gordon Housworth

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Brief introduction to China risks


Continuing from part 2, The merger of Inability to distill, Not invented here, and Competitive bad advice:

Before turning to a brief introduction to China risk, space limitations in the previous post required that I defer the operational component.

Operational, in-country side of the commercial client:

1. These people are close to the problem and bear the pain

They are often the wariest depending upon their corporate structure and whether true P&L responsibility resides at this operational level. A reasonable indicator of local control would be a local partnership or other tax effort that limits US asset consolidation.

2. They feel risk keenly in all aspects of the business

While this is true, situations vary as to whether it is more effective to approach the financial/risk group or the operations group -- even if on-the-ground people have contracting authority. Working with operational units can be daunting if the financial/risk group is in denial (see part 1) as any counter-corporate views quoted by local operators, and sourced back to us, complicate our ability to support the client.

It is possible that a country manager would proceed on the basis of protecting his or her operational P&L unit. A historical problem has been the deafness showered on country managers by headquarters and so deprives them of engagement authority. If the parent is genuinely international in its mindset of keeping the global supply chain flowing -- candidates such as Delphi, Intel, HP, and possibly Motorola come to mind -- then the country manager might have significant local authority to protect assets.

While we are often asked for checklists for China, I will go a bit father and generalize a starting list that can begin to identify risk, but is not enough to quantify it:

Overall take on China risks:

The People's Liberation Army (PLA) runs an extraordinarily large portion of the economy through a network of overt and covert subsidiaries -- and the overt sides openly maintain defense and commercial units open to dual-use exploitation. The PLA's ten State Owned Enterprises (SOE's) constitute the "world's biggest business empire."

The CCP (Chinese Communist Party) tries to keep it organized, but we think that it is losing the struggle, even as sustained economic growth remains the litmus test of Communist Party legitimacy and control. (It is striking to see how many suggestions that we see of China reverting to a regional warlord model.)

It is a rough and tumble world not for the faint-hearted:

  • Growth overshadows social justice (Profits with no accountability in government)
  • Labor buyer's market (Sweatshop labor for domestic and export production)
  • Right to strike removed in 1982 (Without collective bargaining, workers will rely on petitioning government, lawsuits, and violence)
  • Property rights recognized in 2004 ('Capitalists' and 'entrepreneurs' legitimized within the CCP)

The investment risks are too great to do justice in this short space but here are some of the leaders:

  • Gross fixed investment is driving economic growth
  • Current economic growth is "not sustainable"
  • Uncertainty over severity of cooling measures
  • Conventional monetary-policy tools not predictable
  • Banking system has huge overhang of bad loans and corruption

To be continued, part 4

Gordon Housworth

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The merger of Inability to distill, Not invented here, and Competitive bad advice


Continuing from part 1, When clients for risk assessment/risk pricing take on a risk of their own:

The merger of Inability to distill, Not invented here, and Competitive bad advice give rise to a persistent condition we see among many that are party to risk assessment or risk pricing: Deming's "They don't know that they don't know." Furthermore, there is little time to teach them, especially without causing embarrassment to one party or another.

Under Inability to distill, I had noted that they "can't analyze what they have," and so lapse into the condition of being "better informed without the ability to act." This is the crux of the operable decision problem, i.e., they do not "see" the data in first instance, do not see context, do not see relevance, do not see pattern at any time, and do not see patterns maturing over time. They are deprived of a meaningful means of prediction.

In such cases, we offer counterintuitive data and interpretation with the means to reinforce them. This process goes so far that some of our analysis reports have a 'front half' designed to educate and teach, to bring contextual relevance, in order to make the conclusions digestible to one or more managerial or operational levels within the client's organization.

An excellent example is the presumed unpredictability of the form of violence the popular press calls ethnic strife. Too many analysts overlook it, presuming it random. I also see an element of condescension at play as this form or violence is often seen in third world areas so that there is an unspoken dismissal of "unskilled natives." While those "natives" may lack technology, they are keen observers of their environment and exercise effective political control over their patch within the technical or military means at their disposal. (Genocide does not require organized rail transportation and gas chambers. It can be easily accomplished with pangas, machetes, and gasoline.)

Properly known as "intrastate communitarian strife," ethnic strife is sufficiently regular that an Indications & Warning (I&W) function containing a formal logic of escalation can be built around it that will indicate likely next steps.

News items that once had no grounding can be viewed through a structural lens:

  • Countries dependent on the export of primary, or unprocessed, commodities such as minerals or coffee are more prone to civil wars.
  • A country where such exports account for 28 percent of GDP has four times the risk of civil war as a country with no such exports.
  • Countries that are divided between just a few ethnic groups are much more likely to have civil wars than ethically diverse countries.
  • Once a civil war has ended the chance that war will resume "goes up by a factor of six if there is a large and relatively wealthy population of natives living outside the country."
  • Intrastate communitarian strife has three stages:
    • A pattern of exclusion or dominance in the three areas of political, social and economic control.
    • Group mobilization, where mobilization is for the purpose of capturing power and not necessarily for redressing past injustices.
    • Addition of the element of strategic bargaining in which each side uses the tools available to it to bargain for the political space.
  • There are only two main pathways for its regulation:
    • Eliminating the differences (genocide, forced transfer, partition, and assimilation);
    • Managing the differences (hegemonic control, arbitration by third party, federalization, and power-sharing)."

I refer readers to the Berlin Wisdom Model as an intelligence analysis mindset and tool for its introduction to an approach to wisdom containing five broad areas without which I do not believe good analysis and prediction can occur:

  • A fund of general knowledge
  • Procedural knowledge
  • An understanding of the relativity of values
  • An understanding that meaning is contextual
  • Acceptance of change

To be continued in part 3

Gordon Housworth

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When clients for risk assessment/risk pricing take on a risk of their own


While virtually every risk client will subscribe to the idea that there is added value in managing risk, i.e., shifting from the default condition of accepting risk to the pricing of risk though such mechanisms as mitigants, offsets, and transfers, the client rarely sees themselves as among the criteria of risk.

Risk clients commonly divide themselves into one of three categories:

  • Finance/risk managers without operations skill
  • Finance/risk managers with operations skill
  • Operations/in-country managers

Finance/risk without operations skill can include screen and securities traders, both of whom can be sophisticated in risk calculation so long as there is a valid pricing mechanism. Problems can emerge when they move beyond known risk market boundaries or the nature of risk calculation changes.

Finance/risk with operations skill are often investors in hard assets whose strength in risk management can vary significantly. Their focus will usually be on a P&L or balance sheet at the parent. Those that are good strategic risk managers see the value added of an early accurate risk pricing when procurement costs remain low.

Operations/in-country managers often place a priority upon being P&L accountable operators.

We have had the opportunity over time to question players in all three categories from both the US and Europe along with members from their operational ranks, as well as their banks, risk committees, and information brokers. The patterns that emerge makes one wonder how risk is effectively priced in many organizations.

The collective pattern that emerges from the Financial/Risk side of the commercial client is breathtaking in five characteristics:

1. Believe that they are well informed even when they are ill informed

This particular culture of decision making can be a difficult barrier to cross as this senior management group can be surrounded by sympathetic staff that can fend off information that competes with received wisdom.

2. Not invented here (NIH)

This is seen frequently when dealing with risks in already established areas, and may or may not extend to the consideration of a new country. My experience is that the entity "with the risk franchise" does not give it up and permit the entry of a more valid estimation or method between it and the ultimate customer.

3. Arrogance

4. Inability to distill

The actual condition is that they can’t analyze what they have, so they become, as we like to say, better informed without the ability to act. In such cases, one of the greatest services that we can render is to offer counterintuitive facts and data with the means to back them up.

5. Competitive bad advice

Headquarters staff can have a high degree of relationship with banks and pseudo-forecasters. This link can continue even when both are considering a new country outside their prior expertise. It is striking how may clients are unhappy with the recommendations from banks, noting that banks did not have a high capability in risk assessment, but rather gravitated to such areas as economic forecasts and foreign exchange (FX) rates. Their reports were said to be studded with caveats such as, "assuming the shah remains in power..."

To be continued in part 2

Gordon Housworth

InfoT Public  Risk Containment and Pricing Public  


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Developing an intel intervention model to deal with hyphenated-American communities


Reading the poll results in Distrust of Muslims Common in U.S. reminded me of the devilishly difficult work involved in treating with any hyphenated American minority, especially those newly arrived, those still quick to take offense, or those whose nationals or ethnic brethren make war on the US. In US law enforcement cooperation with US Muslim communities, I comment on the infrequent success with which US authorities have gained the cooperation of a Muslim constituency, how fragile is the bond, how low the trust, and how easily it may be broken. The Southeastern Michigan experience in A Promising Practices Guide is worth the read for its five step process crafted and honored by leaders of both sides:

  • Adoption of a community focused trust building model
  • Community prioritization of partnerships
  • Formalizing lines of communication
  • Media utilization by all parties
  • Rapid response by all parties

I submit that we are going to need more of that model for more groups than Muslims as we continue to navigate our way though absorbing new immigrants while we identify those in residence who work against US interests. I thought it appropriate that a colleague sent me Mary Jacoby's How secure is the Department of Homeland Security? under the title Insiders, Sleepers, Marriages of Convenience and the Department of Homeland Security.

Remembering ant-German sentiment in WW I and anti-Japanese sentiment in WW II, the problem I have in mind is how to address the very legitimate security concerns over, say, the cluster of interlocking Muslim charities and businesses in Herndon, Virginia, connected to senior Muslim Brotherhood figures and Saudi bankers that were part of bin Laden's early supporters called the Golden Chain, while avoiding a pogrom against the minority or a federal "work-stoppage" in the face of claims of racism or religious persecution. It is the same problem that many, myself included in the latter instance, have faced when attempting to investigate actions by Israel or certain Jewish groups that work to US disservice -- and it is quite personal for me as I have gotten this charge from the dearest of colleagues whom I have known over twenty years.

Neither anti-Muslim or anti-Jewish and rather tolerate of any religion that does not hold my death as one of its tenets, I know that, the actions of a few residents and States aside, we must find a process that permits the US to deal thoughtfully with those that wish to peacefully make their livelihood here, enlisting their cooperation when needed, while moving expeditiously against those who would exploit the freedoms of US residency and law to do us harm.

The process will require equal parts of investigative process and community engagement, where the means to achieve the latter are often not sufficiently understood for the minority at hand, not uniformly available, simply receives short shrift, or even when laboriously constructed can be undone by a single agent's misstep (such as the defacing of a prayer calendar in the Dearborn, MI, event). Negative impacts are nearly effortless to achieve without additional training that is outside normal procedure; witness the animas created in Iraq by the establishment of rooftop observation posts that inadvertently peered into normally sequestered female areas of nearby houses.

We will need these hyphenated communities to support surveillance, to recommend best practices of dealing with their community, and to give information and testimony against the guilty. We cannot easily proceed if we ostracize them at the onset.

Distrust of Muslims Common in U.S., Poll Finds
By Caryle Murphy
Washington Post
October 5, 2004

Islamist penetration of Homeland Security?
Center for Security Policy
22 June, 2004

How Secure is the Department of Homeland Security?
By Mary Jacoby, 22 June 2004

A Sprawling Probe Of Terror Funding Centers in Virginia
U.S. Tries to Tie Maze of Firms, Charities Based in Herndon Into a Global Network
Bin Laden's 'Golden Chain'
June 21, 2004

Gordon Housworth

InfoT Public  Strategic Risk Public  Terrorism Public  


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