Business Financial
Crime: Organised
Crime
What is Organized Crime?
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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.
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What is Organized Crime?
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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
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What is Organized Crime?
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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
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What is Organized Crime?
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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
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What is Organized Crime?
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La Cosa Nostra/Italian Organised
Crime/Labour Racketeering Unit
Eurasian Organised Crime Unit
Asia/African Criminal Enterprise Unit
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What is Organized Crime?
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La Cosa Nostra/Italian Organised
Crime/Labour Racketeering Unit
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Focuses on 3 designated areas of crime ;
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The American La Cosa Nostra
Italian organised crime
Labour racketeers
These groups also include the Italian and
Sicilian mafias
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What is Organized Crime?
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Eurasian Organised Crime Unit
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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
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What is Organized Crime?
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Asian/African Criminal Enterprise Unit
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Focuses on crime groups whose members
originate from East and South East Asia
and African countries
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What is Organized Crime?
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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.
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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
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La Cosa Nostra
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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
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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
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La Cosa Nostra
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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
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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
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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
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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
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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
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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
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Structure
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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
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Structure
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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 .
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Figure 16.1 Hierarchical Structure of a Typical Organized Crime Family
Figure 15.1
Hierarchical Structure of a Typical Organized Crime Family
BOSS
Counselor
Underboss
Lieutenant
Soldiers
lieutenant
lieutenant
Soldiers
Lieutenant
Soldiers
Soldiers
Associates
Adapted from US President's Commission on Organized Crime, 1986, p. 469.
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Funds Flow
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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
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Continuity
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Organized crime is like a mature
corporation in that it continues to operate
beyond the lifetime of its individual
members.
Membership
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LCN is restricted to males of Italian descent
of proven criminal expertise.
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Criminality
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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.
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Organized Crime in the United
States
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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.
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The Russian
“Mafiya”
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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.
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The Russian
“Mafiya”
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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.
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The Russian
“Mafiya”
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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
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The Russian
“Mafiya”
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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
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The Russian
“Mafiya”
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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
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The Russian
“Mafiya”
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Much more ruthless than LCN being blamed
for killing more than a dozen Russian
journalists
Computer crime is a major area of activity
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Department of Defense attacks
Superhacker 99
Credit card thefts
Denial of service attacks
Citibank attack
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The Japanese
Yakuza
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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.
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The Japanese
Yakuza
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(部落民)
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.
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Money Laundering
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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
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Three Step Money Laundering
Process
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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
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Three Step Money Laundering
Process
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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
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Three Step Money Laundering
Process
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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
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Three Step Money Laundering
Process
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Placement methods
– 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
 Smurfing
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Three Step Money Laundering Process
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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
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Three Step Money Laundering Process
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Layering methods – the object to destroy the
audit trail
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 5th largest financial
centre in the world but is only a tiny group of small
islands
 Informal
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Three Step Money Laundering Process
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Layering methods
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
 Bank
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Three Step Money Laundering Process
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Layering methods
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
 Walking
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Three Step Money Laundering Process
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Integration methods - In this final stage the
money launderer puts the money to personal
use
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
 Off-shore
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Three Step Money Laundering Process
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Integration methods
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
 Under
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Theories about the Causes of
Organized Crime
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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 .
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Theories about the Causes of
Organized Crime
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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.
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Theories about the Causes of
Organized Crime
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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.
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