1. Business Financial Crime: Organised Crime

2. 2 What is Organized Crime?  The major difference between corporate and organized crime is that corporate criminals are created from the opportunities available to them in companies organized around doing legitimate business.  Whereas members of organized crime must be accomplished criminals before they enter such groups, which are organized around creating criminal opportunities.

3. 3 What is Organized Crime?  Organised crime is a global problem that takes more than £500 billion a year out of the legitimate world economy  The problem is so great that in 2000 the United Nations General Assembly passed the United Nations Convention against Transnational Organised Crime and its Protocols

4. 4 What is Organized Crime?  The convention was signed by nearly 150 countries  It deals with the major issues relating to organised crime eg money laundering, corruption and obstruction of justice.  Adopting countries commit to passing laws and implementing controls to fight organised crime

5. 5 What is Organized Crime?  The European Law Enforcement Organisation (Europol) fights organised crime across the EU  In the USA the FBI is the primary organisation in this area  The FBI’s organised crime section contains 3 units

6. 6 What is Organized Crime?  La Cosa Nostra/Italian Organised Crime/Labour Racketeering Unit  Eurasian Organised Crime Unit  Asia/African Criminal Enterprise Unit

7. 7 What is Organized Crime?  La Cosa Nostra/Italian Organised Crime/Labour Racketeering Unit  Focuses on 3 designated areas of crime;  The American La Cosa Nostra  Italian organised crime  Labour racketeers  These groups also include the Italian and Sicilian mafias

8. 8 What is Organized Crime?  Eurasian Organised Crime Unit  Focuses on crime groups which originate from or operate from within former Soviet block countries who operate within the US Africa and Europe.  These groups include the so called Russian Mafia

9. 9 What is Organized Crime?  Asian/African Criminal Enterprise Unit  Focuses on crime groups whose members originate from East and South East Asia and African countries

10. 10 What is Organized Crime?  Organized crime: A continuing criminal enterprise that works rationally to profit from illicit activities that are often in great public demand. Its continuing existence is maintained through the use of force, threats, and/or corruption of public officials.

11. 11 La Cosa Nostra Has roots in mid 19C Sicily and started when Italy became a sovereign state The Sicilian mafia began around Palermo where a group of people including aristocrats and politicians lived Originally served a useful function protecting the large lemon and orange estates surrounding Palermo

12. 12 La Cosa Nostra Later during the Fascist period the mafia fell out of favour with the local government Under fear of jail many of its members fled to the USA During its early years in the USA around 1890 the mafia comprised various groups and gangs eg the Black Hand (1900) the Five Point Gang (1910 and 1920s) and Al Capone’s crime syndicate in the 1920s

13. 13 La Cosa Nostra After an internal war around 1930 La Cosa Nostra emerged as a single organisation under the leadership of Salvatore Maranzano Before he was murdered six months later he had defined LCNs organisational structure and its code of conduct

14. 14 La Cosa Nostra This structure was termed the five families The ruling Genovese family The other four in the LCN Commission were the Boanno, Colombo, Gambino and Luchesse It is believed that the Genovese family continues to run the most powerful LCN family today, across the USA

15. 15 La Cosa Nostra LCN Activities Drug trafficking, murder, assault, gambling, extortion, loan-sharking, labour racketeering, money laundering, arson, petrol bootlegging, infiltration of legitimate businesses, stock market manipulation and various other frauds

16. 16 La Cosa Nostra Labour Racketeering Is the domination manipulation and control of trade unions that affects related businesses and industries Research shows that a primary goal of this is to control the labour health, welfare and pension funds. For example the value of these funds for the International Brotherhood of Teamsters is about $100 billion LCN control over the organisation was effectively removed after the 1988 Teamster’s civil case

17. 17 La Cosa Nostra Gambling Always a mainstay of LCN Played a major part in creating and promoting Las Vegas Partly through the financing from such as the Teamster’s funds With the introduction of strict state laws Las Vegas is now considered to be relatively free from LCN influence

18. 18 La Cosa Nostra Gambling The “numbers game” run by LCN is a type of lottery Gamblers try to guess 3 or 4 numbers derived from a financial figure published daily in the newspaper State lotteries reduced its influence But still a $5 billion a year industry in the US

19. 19 La Cosa Nostra Loan Sharking Money lent at sky high rates Interest called the “vig” added each week at the rate of 3 to 5 percent For example a loan of $10,000 would need interest to be paid each week of $400 Equivalent to 300% per annum No partial payment of principal is accepted

20. 20 Structure  LCN are structured in hierarchical fashion reflecting various levels of power and specialization, with a national ruling body known as the Commission.  At the top of each of the five families is a “boss”.  Beneath the boss is a counselor and an under-boss.  Beneath the under-boss are the “capos” or lieutenants.  Below the lieutenants are the soldiers or “made men” of which there are 2 levels picciotto and sgarrista  At the bottom are the associates

21. 21 Structure  Membership at sgarrista level in the family entitles the member to run his own rackets using the family’s connections and status.  Corporate model: A formal hierarchy in which the day-to-day activities of the organization are planned and coordinated at the top and carried out by subordinates.  The feudal model of the LCN views it as a loose connection of criminal groups held together by kinship and patronage.

22. 22 Figure 15.1 Hierarchical Structure of a Typical Organized Crime Family Adapted from US President's Commission on Organized Crime, 1986, p. 469.

23. 23 Funds Flow The Sgarrista pass a cut of 50 to 70% of their takings to the “capo” The money flows from the “capo” to the Boss The “capo” normally gives the boss between 10 and 40% of what he has received from the soldiers The underboss may receive a proportion The boss has absolute authority

24. 24 Continuity  Organized crime is like a mature corporation in that it continues to operate beyond the lifetime of its individual members. Membership  LCN is restricted to males of Italian descent of proven criminal expertise.

25. 25 Criminality  Most of organized crime’s income is derived from supplying the public with goods and services not available in the legitimate market, such as drugs, gambling, and prostitution.

26. 26 Organized Crime in the United States  Most organized crime scholars believe that the phenomenon is a normal product of the competitive and free-wheeling nature of American society.  The Tammany Society began as a fraternal and patriotic society, bust soon evolved into a corrupt political machine consisting mostly of ethnic Irishmen.

27. 27 The Russian “Mafiya”  The Russian “Mafiya” is a catch-all phrase for a group of organized gangs that many experts consider to be the most serious organized crime threat in the world today.

28. 28 The Russian “Mafiya”  ROC has existed since at least the 17th century and that it became firmly entrenched in Russian society in the 1920’s.  ROC is the biggest factor threatening Russia’s democratisation, economic development, and security.  Russian organized crime developed in with the influx of Russian immigrants in the 1980s.

29. 29 The Russian “Mafiya”  When the Soviet Union collapsed in 1991 ROC joined eg-KGB agents displace military officers and corrupt officials in controlling newly privatised companies  The result was an enormous movement of money and power into the hand of organised crime  The ROC moved to western countries

30. 30 The Russian “Mafiya”  The FBI lists the 8 most prevalent crimes committed by ROC as health care fraud, securities and investment fraud, money laundering, drug trafficking, extortion auto theft and interstate movement of stolen property  It is estimated that ROC syndicates exceed 1 million soldiers

31. 31 The Russian “Mafiya”  The power of ROC is evidenced by intelligence estimates that indicate that the majority of all Russian businesses and banks, as well as dozens of stock exchanges and government enterprises are controlled by the ROC syndicates  Major links with Colombian and Mexican drug cartels

32. 32 The Russian “Mafiya”  Much more ruthless than LCN being blamed for killing more than a dozen Russian journalists  Computer crime is a major area of activity  Department of Defense attacks  Superhacker 99  Credit card thefts  Denial of service attacks  Citibank attack

33. 33 The Japanese Yakuza  Japanese organized crime (JOC) groups are probably oldest and largest in the world.  The official Japanese term for organized criminals is Boryokudan, but they are more commonly referred to as yakuza.  Members of the JOC groups are recruited from the two outcast groups in Japanese society.

34. 34 The Japanese Yakuza  The burakumin  Japanese born Koreans  The Yakuza are not shadowy underworld figures, their affiliations are proudly displayed on insignia worn on their clothes and on their offices and buildings, and they publish their own newsletter. ( 部落民 )

35. 35 Money Laundering Involves practices that hide the connection between the sources of funds and their legitimate use For organised crime it means disguising the source of illegally gained money and making appear to have come from legitimate sources. The laundering process “washes” dirty money to make it appear clean

36. 36 Three Step Money Laundering Process Placement phase  The money launderer introduces illegally obtained profits into the financial system  The main objective here is to get the money into the system in a way that cannot be traced to an illegal source

37. 37 Three Step Money Laundering Process Layering phase  The money launderer uses complicated sets of transactions to move the money around the financial system and further distance it from its original illegal source  The main objective is to destroy any audit trail that could trace the original placement

38. 38 Three Step Money Laundering Process Integration phase  The launderer moves the money a final time into accounts under his legal control to make it appear they arrived from a legal source

39. 39 Three Step Money Laundering Process Placement methods  Smurfing – multitude of small deposits in different bank accounts. Below the limit for reporting purposes  Cash smuggling – aim to relocate cash across international borders where it is less regulated  Negotiable instruments – purchased, bundled and sold to a money laundering specialist  Cash exchange for negotiable goods – eg buying diamonds which are more easily stored and moved across borders

40. 40 Three Step Money Laundering Process Placement methods  Cash value insurance policies – single premium policies that have a cash value are then used as security to borrow against or cashed in. Multiple policies across many insurance companies could be used  Corporate bank accounts – Involves placing money in legitimate businesses or charities that normally collect large amounts of cash. In many cases these are shell companies  Buy a bank – ownership permits the money launderer to deposit large sums without reports being made to the authorities

41. 41 Three Step Money Laundering Process Layering methods – the object to destroy the audit trail  Informal Value Transfer System – money transfer systems that operate outside the normal financial system. Some systems date back thousands of years. Used for legitimate and illegitimate purposes. Based on codes and very simple to arrange  Tax havens and offshore banks – Includes countries whose controls are good but whose banking officials are easily corrupted. The more countries the money is moved through the more difficult it becomes to trace. Cayman Islands is the 5 th largest financial centre in the world but is only a tiny group of small islands

42. 42 Three Step Money Laundering Process Layering methods  Bank secrecy laws – Some countries have protected money launderers this way which makes it impossible to investigate their account holders  Off-shore trusts – transferring ownership of a company to an off-shore trust. In some jurisdictions these are administered by unregulated trust companies that can obscure the financial ownership trail. Sometimes use “flee provisions” that instruct trustees to move the trusts in the event of investigation  Shell corporations – using bearer share certificates in off-shore havens which do not require company records

43. 43 Three Step Money Laundering Process Layering methods  Walking accounts – where deposits when made are immediately transferred to an account in another jurisdiction and so on through a long trail which becomes increasingly difficult to follow.  Financial intermediaries – Corrupt influential professionals

44. 44 Three Step Money Laundering Process Integration methods - In this final stage the money launderer puts the money to personal use  Off-shore credit cards – used to withdraw money from a bank account and pay bills  Off-shore consulting fees – money launderers pay themselves generous consulting fees from companies they control  Corporate loans – money launderers borrow money from off-shore companies they control  Property – sold at inflated prices to companies they own for cash

45. 45 Three Step Money Laundering Process Integration methods  Under the table cash deals – money launderers purchase property or other valuable assets including companies at below market value. Cash is paid to make up the difference to market value  Legitimate business – money paid in as sale and then declared as company revenue and taxed as legitimate earnings

46. 46 Theories about the Causes of Organized Crime  Some argue that we create our own organized crime problem by creating laws that prevent members of the public from acquiring goods and services they desire and demand.  Early theories of organized crime relied on the anomie/strain tradition  Anomie – lack of the usual social or ethical standards in a group.

47. 47 Theories about the Causes of Organized Crime  Ethnic succession theory: Upon arrival in a new country, each ethnic group was faced with prejudicial and discriminatory attitudes that denied them legitimate means to success.  Organized crime affords those who commit it the rewards for relatively little risk.  In the USA almost all mob members live in neighbourhoods where they were constantly surrounded by criminals and criminal values.

48. 48 Theories about the Causes of Organized Crime  It would not be too much of a stretch to posit that many men attracted to the outlaw lifestyle are predatory psychopaths and sociopaths.  There is no reason to assume that the rank and file gangster is any different in background and personal characteristics than the ordinary unaffiliated street criminal, or the street criminal affiliated with ad hoc criminal gangs.