Venezuelan president Hugo Chávez is militarizing his border and urging his people to prepare for war, while at the same time lavishing billions of dollars to an essentially parallel government in Nicaragua and announcing yet another summit with Iran's Ahmadinejad.

None of these are good signs, given his creation of militia units that are responsible to solely to him while at the same time moving aggressively, as the International Crisis Group notes, to further shrink the democratic spaces in Venezuela in the face of growing unpopularity and discontent.

At the same time the support for the FARC and ELN (both designated terrorist organizations) is unabated and drug trafficking is booming.

According to the ICG, the Chávez government has progressively abandoned core liberal democracy principles guaranteed under the Inter-American Democratic Charter and the American Convention on Human Rights. The executive has increased its power and provoked unrest internally by further politicising the armed forces and the oil sector, as well as exercising mounting influence over the electoral authorities, the legislative organs, the judiciary and other state entities. At the same time, Chávez’s attempts to play a political role in other states in the region are producing discomfort abroad.

The proximate cause of Chávez's attempts to set the region on fire is his deep-held belief that the United States and Colombia (or through Colombia) are preparing to attack him. He seems to sincerely believe, as only true meglomaniacs can, that he is the center of U.S. policy and world policy.

While he may not like the U.S. use of existing bases in Colombia (and many Latin American nations are sympathetic to his view on this), there are few demands for transparency in Venezuela's dealings with Iran, Russia, Libya, the FARC or anything else. It is desirable that external actors in the region be forced into some transparency in their military activities in the region, but that should be across the board.

There are other inconsistencies.

Venezuela's agricultural production is so low that it imports more than two-thirds of its foodstuffs, yet Chávez talks of his relationship with Ahmadinejad in terms of Venezuela providing much needed food products to Iran. When Chávez ordered 10 battalions of troops to the border of Colombia in 2008 it quickly became apparent that his military did not have more than two or three equipped and ready to roll. As the International Crisis Group recently reported, his oil production is in steep decline and the money being used to buy friends abroad, exacerbating his severe social problems at home.

This may help explain El Comandante's insatiable desire to regionalize the conflict, his support for the FARC and tolerance for drug trafficking through Venezuelan national territory. As his own situation deteriorates, he wants to tie his fate to the fate of the continent. To help them all stand together, he has pumped some $7 billion into Nicaragua, where virtually none of it is accounted for, does not pass through congress, is not audited and at under the personal care of Daniel Ortega.

There is little doubt the Colombians can handle whatever Chávez were to dish out militarily. But he is more likely to take a less direct route, given the state of his army. The FARC, ELN and Emerging Criminal organizations are all good proxies to bleed the Colombian efforts to reestablish state control, and have the endless source of revenue in the cocaine trade and other criminal activities.

But that doesn't mean one should not take the clearly-articulated efforts to destabilize the region military lightly. Chávez will do whatever is best for Chávez, and the rest of the region (and hemisphere) need to clearly understand that.

Today's Washington Post has an interesting article on how the North Korean military is now the primary extractive body of the North Korean establishment, and is, in fact, relatively efficient at extracting natural resources to sell to China and elsewhere.

It is an important piece because it highlights a much broader reality that we have been slow to come to grips with. In almost any index of failed states, North Korea ranks fairly high. But in reality it is not a failed state at all. It retains the capacity to efficiently extract what it (the state) needs for survival. It may not provide basic necessities such as fuel, food, clothing, education, medical service or sewage, but it is efficient at what it sets out to do. And this economic extractive capacity is the key to perpetrating the regimes in power.

The primary danger of these criminal-extractive states (such as Liberia under Charles Taylor, Zimbabwe under Mugabe, Equatorial Guinea under the Obiang clan) is that they offer criminal and terrorist organizations ideal circumstances in which to operate. In fact, these overlapping networks are essential to the survival of the state as criminal syndicate.

Because these states rely on criminal networks for their economic survival (North Korea on counterfeit currency, illicit nuclear technology sales etc.; Charles Taylor on blood diamonds), and terrorist organizations increasingly rely on criminal organizations and activities for funding and facilitation, these states become host organisms to criminal and terrorist parasites.

In fact, these criminal states rely on criminal/terrorist networks to provide the illicit funds that make them viable.

This is what makes them so dangerous. Diplomatic passports from North Korea are recognized around the world, granting the bearer diplomatic immunity, despite the fact that the regime has demonstrably abused the system to engage in criminal activities.

I argue in some of my writings that these criminal states are in many ways more dangerous than the "ungoverned spaces" that have become the topic of much discussion in recent years. While almost every space is, in fact, governed by someone even if it is not the state, the value for training, indoctrination and relatively free movement is indeed valuable. But not nearly as valuable as ongoing access to a state apparatus, no matter how creaky that apparatus is.

The North Koreans control entry and exit points to their country, meaning they can guarantee the safe passage of Iranians or anyone else visiting nuclear facilities. It means they can guarantee the safe passage of nuclear goods and services out of the country with impunity. It is much better to have the state on your side than trying to just bribe or corrupt small parts of it. The risk is much less and the profits more secure.

Taylor granted diplomatic passports to international criminals, and allowed Viktor Bout and other war profiteers to use the Liberian aircraft registry to hide their aircraft. He allowed Hezbollah, al Qaeda, Russian organized crime, Ukranian organized crime, Israeli organized crime and South African organized crime to all operate in Liberia, for the exact same reason North Korea can prosper. He could guarantee that the state, rather than seeking them out to punish them, would in fact protect them.

This characterization of a growing number of states (criminal states) is largely missing from our discussions of terrorism. It needs to be factored in, especially when nuclear armed countries become criminal syndicates.

On Tuesday I testified before three Subcommittees of the House Committee on Foreign Affairs on the issue of Iran's involvement in Latin America. My oral testimony is a bit more detailed on Iranian banks in Ecuador, which I am including here.

The general consensus of those testifying (links to the the testimonies of all the witnesses can be found here under the hearing notice) was that Iran's penetration presents a strategic and under appreciated threat to both the democratic institutions of the region and the United States.

Iran's sponsorship of Hezbollah and Chávez's sponsorship of the FARC, and the history of both terrorist groups in reaching out to other non-state organizations for learning and cross-training is of particularly troublesome.

One of the factors that I think is important to point out in all this discussion is that the leaders of Bolivarian Revolution, and Chávez in particular, are not efficient in what they do or particularly coherent and consistent in how they behave. That is to say, Chávez does not necessarily have the broad control over all aspects of Venezuelan political life, nor does his government execute very well.

Venezuela has one of the highest murder rates in the world, and an oil-rich nation is suffering from both crippling electrical blackouts and water shortages in its main cities.

One of the factors that the Iranians and Cubans bring to the Boliviarian nations is a different sense of discipline and structure, making certain elements of the government far more accomplished at what they do. This is particularly true in the area of internal security and the suppression of dissent and control of the media.

The Cuban restructuring of the Bolivian internal security apparatus has created a whole new level of efficiency, last seen only when escaped Nazi Klaus Barbie ran the security apparatus for the "Cocaine Colonels" under Gen. Garcia Meza in 1980.

The Iranians have also been training small cadres of Nicaraguans, Mexicans, Bolivians and Salvadorans in crowd control, intelligence, counter-intelligence and surveillance. The Iranian regime has shown in the past elections just how efficient they can be at crowd control and dispersal, electronic surveillance and suppression of basic freedoms.

None of this will improve the level of street violence, provide more electricity or cause water to flow. But it does mean that, as the Boliviarian regimes attempt to consolidate their grip on power (and they have all moved in lock step on changing the constitution to allow themselves to stay indefinitely), they are receiving the best possible advise and training from repressive governments who have long histories keeping themselves in power for decades, despite unsustainable economic models.

This part of the alliance means that it will be harder than ever, through democratic means, to dislodge the Bolivarians now that they have arrived.

I have touched on the topic before, but from spending time on the ground in the region in recent months it is clear that Iran is making significant inroads into the Latin America financial services sector and other areas.

In Ecuador, as I have noted before, Iran has set up a way for its central bank to deposit money directly into the Ecuadoran central bank. The stated purpose is to allow $120 million in credit to flow to importers and exporters in both countries to facilitate trade.

The only catch is that there is virtually no trade between the countries. In recent years (2006 and 2007, the latest available) Ecuador reported zero exports to Iran and imports of less than $500,000 each year. Like the Iranian financial institutions in Venezuela, the economics of the case simply make no sense.

According to the "Protocol of Cooperation" between the Central Bank of Ecuador and the Export Development Bank of Iran (EDBI), which is under Treasury Department sanctions for supporting Hezbollah and the Quds Force, Iran was also willing to take an unusual step.

Point 6 of the agreement, which I have, states that:

EDBI manifests its readiness to establish a branch of Banco Internacional de Desarrollo (BID) in the Republic of Ecuador.

This is interesting because the BID is reportedly a Venezuelan bank, which the EDBI would have no over, including where it opened branches. But as I wrote earlier, the BID is wholly owned (all 40,000 shares) by Bank Saderat, an Iranian bank under U.S. and UN sanction.

It is registered a a wholly-owned Venezuelan bank in order to allow sanctioned Iranian organizations to bank through there as pass through to the global financial market. The Ecuadoran document shows clearly that BID is in fact an Iranian bank, and that Hugo Chávez's denials of that were (shock and dismay) a lie.

According to the OFAC sanction of Bank Saderat:

Bank Saderat has been a significant facilitator of Hizballah’s financial activities and has served as a conduit between the Government of Iran and Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command, and the Palestinian Islamic Jihad.

The BID is not know to be operational yet in Ecuador. But Iran is attempting to gain access to the Bolivian banking system as well. In all likelihood, given the decades-long relationship between the Iranian revolution and Daniel Ortega in Nicaragua, including banking activities in the past, it has financial operations in Nicaragua.

All this points to a concerted effort to maintain a financial structure in Latin America that will allow Iran to withstand, and withstand with some ease, any future financial sanctions by the United Nations, the EU or the US.

Manhattan District Attorney Robert Morgenthau has been sounding the alarm on Iran's efforts, and said his office has several open investigations into Iranian banks and front companies operating in Latin America. Ecuador is just the latest link in a long chain of events that make braking Iran's nuclear ambitions even harder.

As David Cohen, assistant secretary of Treasury for Terror Finance recently noted, the United States and its allies have enjoyed some under appreciated success in cutting off the finances of al Qaeda and other radical Islamist groups, a goal that once seemed far out of reach.

As Cohen noted in a recent speech, "In the first six months of this year, al Qaida's leaders made four public appeals for money, including one in June of this year, when an al Qaida leader announced that a lack of funding was hurting the group's recruitment and training. We assess that al Qaida is in its weakest financial condition in several years, and that, as a result, its influence is waning."

This is interesting not only for what it says, but for what it implies. Core al Qaeda does not need vast amounts of money to operate. The amounts are significant, but not what they were al Qaeda core could help finance and direct franchise operations. This means that not even the relatively small sums needed are getting to al Qaeda's leadership.

This has been one of the most interesting success stories about what has gone right in the inter-agency process, and forward thinking that is often absent. Given that I have frequently commented on the short-coming in these two areas -- inter-agency cooperation and lack of adaptability and innovation in the intelligence, military and law enforcement communities, it is only fair to note this success.

Much of the current success began in Iraq, and the Special Operations programs there of collecting tactical financial intelligence on the ground during operations. This not only led to the unraveling of numerous financial networks that fed Al Qaeda in Iraq, it also shed new light on the funding sources and the major donors to the al Qaeda network.

The change in SOF strategy and conduct was deliberate and driven by forces on the ground, who integrated their findings into the inter-agency working group that includes Treasury and other entities with financial specialization. As intelligence accumulates and is exploited, it yields more intelligence and more success. This has been the case in going after core al Qaeda's revenue stream.

Fortunately Cohen was honest enough acknowledge the rest of the picture: The Taliban, with its access to drug money, is not weakened, and is in fact in a far greater position of strength than al Qaeda. It must be an odd reversal from when Osama bin Laden helped the Taliban, to the Taliban holding the money and not seeming to be too eager to help al Qaeda.

This, of course, is part of what makes the policy for Afghanistan so difficult. Not only is the enemy less dependent than ever on external sources of finance that can be pressured (Saudi nationals, United Arab Emirates, Pakistan), it has a source of revenue that is hard to combat.

The difficulty in part is because the government is corrupt and weak enough to allow many of its senior officials to engage in the very same trade, sapping the Karzi government's ability to even begin to make inroads into the opium trafficking. All sides benefit, so who is going to be serious about combating it? No one.

It is clear, as Richard Holbrooke has said, that crop eradication has been an abysmal failure. It can be done successfully under very specific conditions in very small areas. The new strategy is to go after the upper-echelon traffickers.

If the intent is clear, the full range of expertise engaged and inter agency struggles overcome, serious progress can be made under that strategy. The future of a great many people depend on getting it right.