(Excerpted with permission from Penguin Random House. ‘Thin Dividing Line’ by Paranjoy Guha Thakurta and Shinzani Jain is available on Amazon.)
Manhattan, New York, US, 29 May 2015: A 29-year-old physics graduate, Ross William Ulbricht, was sentenced to life in prison without the possibility of parole by district court judge Katherine Forrest. What was his crime?
Less than two years ago, on 2 October 2013, the Federal Bureau of Investigation (FBI) of the United States had arrested Ulbricht, who went by the moniker Dread Pirate Roberts. He was the elusive creator and proprietor of a huge illegal online market— Silk Road. Ulbricht was accused of creating the ‘largest and most sophisticated criminal enterprise on the worldwide web’.
This enterprise had generated business worth $214 million by selling a wide variety of contraband material and offering a range of illegal services: From supplying drugs to forging documents, opening secret bank accounts, providing services for money laundering or converting illegal money into legal funds, offering techniques for hacking into secure computer systems and networks, providing tools for phishing or illegal siphoning of money by pretending to be genuine customers of banks and financial institutions, spamming or sending unwanted electronic mail, anonymous mail drops, and so on.
That’s not all. Ulbricht’s darknet offered illegal arms. He was in the most profitable of all businesses. Users of the darknet accessed the site through a no-cost, anti-surveillance service known as the Tor network.
In March 2013, Ulbricht’s site had listed around 10,000 items for sale, 7,000 of which were drugs like cannabis, MDMA (methylenedioxymethamphetamine, better known as ecstasy) and heroin.
Illicit Online Economy
Just a month after Ulbricht’s arrest, a revised and ‘improved’ version of Silk Road was already active. The administrator of a similar new website used the same alias that Ulbricht had, Dread Pirate Roberts, and cockily mocked the attempt by law-enforcement authorities to shut it down: ‘It took the FBI two-and-a-half years to do what they did . . . but four weeks of temporary silence is all they got,’ the new administrator mocked.
The online illicit economy changed dramatically following Ulbricht’s arrest and the dissolution of the original Silk Road. There are, at present, several new darknet markets with names such as Agora, Evolution, Pandora, Blue Sky, Hydra, Cloud 9, Andromeda, Outlaw, Pirate, BlackBank, Tor Bazaar, Cannabis Garden and Alpaca. Together, these sites had concluded some 34,000 drug deals.
The popularity of these sites led to threats to their continuance and even survival. Researchers at Digital Citizens Alliance (an organisation working to provide safety to internet users) suggest that several darknet sites have cheated users of millions of dollars’ worth of bitcoin. Bitcoin is a digital currency that operates independently of banks by using encryption techniques to verify fund transfers. This has caused a loss of confidence in the trustworthiness of these markets for contraband material, the foundation of these criminal enterprises.
From Silk Route to Silk Roads
Silk Road derived its name from a lucrative trade in Chinese silk that began 2,000 years ago under the Han dynasty (206 BC– 220 AD). With civilisational advancements like domestication of animals and use of ships, the ability of people to transport heavy goods across long distances improved significantly, leading to a rapid expansion of international trade and commerce, a precursor of sorts to what is now called globalisation.
Trade along the Silk Road, or the Silk Route, was a significant factor in establishing political and economic relations between the ancient civilizations of China, India and Persia with Europe, the Horn of Africa and Arabia. The traders were Chinese, Arabs, Persians, Somalis, Greeks, Syrians, Romans, Armenians and Indians.
The route opened up different parts of the world to people from diverse religions, philosophies and socio-economic conditions. Besides trade in goods, the Silk Road served as a means of cultural interaction among people across the planet.
The modern Silk Roads helped proliferate illegality and secrecy in the name of privacy. Ulbricht was a small part of a much larger network of a shadow economy. Illicit financial flows out of developed and developing economies are one of the major challenges faced by governments today. Ulbricht was only a tiny piece of the colossal puzzle. The new Silk Roads are one part of the story. Tax havens have been and continue to be used by some of the most modern icons from the world of business.
Jack Ma’s Rise to Fame
Take the case of Jack Ma, said to be one of the richest men in the world and his brainchild, the Alibaba corporate empire. Ma named his business group after the protagonist of the folk tale Ali Baba and the Forty Thieves, the most popular in the collection of stories called One Thousand and One Nights or The Arabian Nights, translated by the 17th century French Orientalist Antoine Galland.
The French writer is said to have heard the tale in an oral form told to him by a storyteller from Aleppo in modern-day Syria. In the story, Ali Baba is a poor woodcutter who discovers that he can enter a den of thieves by uttering the phrase ‘Open Sesame’. The thieves try to kill him but a slave girl foils their plot; she then marries the son of Ali Baba, who maintains the secret of the treasure
Ma was born in China to parents who were traditional musician-storytellers. That is the only connection he has with those who recited Ali Baba’s tale to Galland. Ma learnt English as a young man to guide tourists, but failed his university exams more than once, and was rejected for many jobs he sought before he set up one of the world’s biggest business groups conducting e-commerce on the internet.
In May 2016, the net worth of the Alibaba group was $23.3 billion. His corporate conglomerate was able to become gigantic, thanks to the ‘ease of doing business’ out of the Cayman Islands, a 264-sq-km British overseas territory, comprising three islands located in the western Caribbean Sea south of Cuba.
After receiving a clearance for trading in the New York Stock Exchange in September 2014, Alibaba raised $21.8 billion in an initial public offering (IPO) of its shares. The IPO was the biggest ever in the US, larger than credit card major Visa’s $19.7 billion initial stock sale in 2008, and General Motors’ $18.1 billion IPO in 2010. The Agricultural Bank of China and the Industrial and Commercial Bank of China had raised higher amounts, namely $22.1 billion in 2010 and $21.9 billion in 2006 respectively. However, these shares were not listed in the US, but in the stock exchanges in Hong Kong and Shanghai.
Alipay Under Scrutiny
But how beneficial was the offering for his investors? The investors in the IPO did not have titles to most of the Alibaba group’s assets in China because foreign investors are restricted from investing directly in Chinese companies that operate in ‘sensitive’ industries using the internet and telecommunications. Alibaba structured a variable interest entity for its Chinese assets, and what international investors invested in were shares in a Cayman Islands entity named Alibaba Group Holding Limited. Most of Alibaba’s Chinese assets are owned by Ma and his close business associate Simon Xie.
The Cayman Islands company has contractual rights to the profits of Alibaba China, but it has no economic interest. On Alipay, the cross-border e-payment service launched by the Alibaba group, the International Business Times wrote:
Chinese citizens wanting to send money abroad without going through legal channels have doped out a scheme that allows them to purchase goods abroad via Alipay, typically in the US or Canada. They then sell those goods for dollars and deposit the proceeds in a bank. And voila, they have an overseas cash account.
In May 2015, Alibaba Group Holding Ltd was sued by a group of luxury goods makers who contended that the Chinese shopping giant had made it possible for counterfeiters to sell their products throughout the world. The suit was filed by Gucci, Yves Saint Laurent and the owners of other brands alleging trademark violation and contravention of racketeering laws in the US.
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