The financial mafia. The illegal accumulation of wealth and the financial-industrial complex
The financial mafia.
The illegal accumulation of wealth and the financial-industrial complex
It is the duty of the bank to accept proffered funds. If you came into my of fice with one million dollars in your suitcase, I would take it.
A high official of the Central Bank of the Bahamas.
There are two kinds of sin which one can commit: one is venial and the other is deadly. The former is running away with the cash; the latter is giving somebody confidential information.
Enrico Cuccia, President of Mediobanca, giving practical instructions to newly hired bank clerks.
These notes are the first draft of a research project on the financial aspects of the mafia as it is today and of other kinds of organized crime, as well as on the process of financialization of the contemporary economy. Mafia and organized crime have come to be considered systems which accumulate vast amounts of capital within which illegal and legal methods are interwoven. Such systems operate on a world scale in a global context ruled by the so-called ‘financial-industrial complex’, i.e., a hegemonic aggregation of multinational corporations and large financial groups, whose hidden methods make it possible to introduce illegal capital into international financial networks.
Such research requires a remarkable investment of energy and considerable means at one’s disposal: an international staff, adequate documentation, and a sophisticated multidisciplinary methodology. At present, it is merely a project based on insufficient documentation and practiced with the help of the inadequate resources of the CSD (Centro Siciliano di Documentazione), a private documentation center operating in Sicily. This region represents, on the one hand, a ‘privileged’ observation-post; on the other hand, it certainly does not provide a favorable ground for scientific research on such a delicate question, especially when one considers that, with the exception of a few individual efforts, universities and cultural institutions with public funding never contribute to research on the mafia.
Data reported in this paper have been drawn from material (books, magazines, legal documents, etc.) collected by the CSD in collaboration with lawyers, university professors, scholars, journalists, and on research trips in many countries, including the United States. Preparatory legal documents of the Palermo maxi-processo have also been consulted.
Current stereotypes tend to portray the mafia as essentially deviance and criminality, as the product of specific situations, as the remains of an archaic irrationality, as a subculture amd a subversion. All of these points of view are based upon common ground: the dichotomy between a basically healthy society and a series of phenorrllena which are considered pathological (mafia, ‘ndrangheta, camorra, organized crime from different countries, such as the United States, Turkey, Japan, China, Latin America, Australia, etc.).
This analysis of the mafia is aimed at overturning current opinion by starting from the assumption that the mafia is the organic prod uct of a social ecosystem. We are assuming the mafia to be a social group belonging to the ruling classes, or about to belong to it (‘borghesia mafiosa’: middle class mafioso), a group which uses, in a more or less open and direct way, violent and illegal methods in order to accumulate capital and to reach and manage prominent positions within the ruling system as a whole. From time to time it works in alliance, competition, or conflict with the other ruling groups.
Historically, the evolution of this phenomenon should be seen as a process involving both continuity and transformation, two remarkable elements among the most important which are specifically relevant when examining the Sicilian and the Sicilian-American mafia. However, during the last twenty years, we have been observing a process of assimilation of the different forms of organized crime, in which we can recognize the same general elements, together with specific features.
From the pre-mafia phenomenon to the financial mafia
The chronological developmellt of the mafia phenomenon (which forms the background of this paper) carn be traced through different stages. First is a period of transition corresponding to the change from feudalism to capitalism in Sicily and the growth of a ‘world economic system’ between the 16th and the 19th centuries. According to Wallerstein’s schema (1974), Sicily can be classified during this period as an ‘arnomalous semiperiphery’ in which violence and oligopolistic power are shared between the state and the landowners (barons). In eastern Sicily, agricultural transformation was accomplished by means of emphitheusis (long-term lease`), while in western Sicily, the development of large areas of land (lati-fondi) was accompanied by share-cropping (shortterm lease). It is within this context that the ‘fenomeni premafiosi’ (Santino 1983a: 140 143) first appeared in western Sicily.
The most telling of elements, of course, was the regularly unpunished crimes committed by individuals in the service of the barons, crimes which led to the growth of ‘sponsored criminality’. Furthermore, the establishment of Italy as a unified state with a ruling elite composed of industrialists from the North and landowners from the South was another contextual factor. Agriculture in fact remained prevalent in the national economy until the 1950s. Society in western Sicily was stratified as follows: great landowners at the top, land lease-holders (excise-men, or ‘gabelloti’ in the middle, and peasants (small landowners, share-croppers, farm laborers) at the bottom. In this context the ‘agrarian mafia’ (this term does not mean that the mafia was restricted to the countryside, since the political-professional center of the agrarian mafia was Palermo) was established by lease-holders using private violence, which went unpunished, in an effort to exploit farm-workers. The agrarian mafia’s functions included: the accumulation of capital for its own sake; mediation between the local community and the society as a whole; the control and repression of peasants; and support of patronage (clientelismo) aiming at the subordinate integration of southern Italy into the national context. It was naturally the peasants who offered the major opposition to the mafia’s hegemony from the Fasci Siciliani (1892-1894) up to the struggle for agrarian reform in the 1940s and 1950s.
In the second half of the 1950s, when Italian society including the South changed into an industrial-service economy, the mafia also evolved. As a consequence of the defeat of their agrarian struggles, the peasants emigrated from the southern countryside. A process of urbanization transformed towns into service agglomerates (città terziarie). In this context, the mafia also became urbanized, controlling building contracts, food markets, public service jobs, and a growing credit industry. The mafia obtained new sources for the illegal accumulation of wealth – such as cigarette smuggling – and modernized old sources, engaging in extortion from trading and industrial firms, and interweaving these illicit activities with legal ones (contracts for public works and other industrial activities, for example).
Thus began the mafia’s expansion over the entire national territory. It had also developed closer connections somewhat earlier with the American mafiosi on the basis of the ‘common work’ begun with the landing of the Allies in 1943. During the Prohibition years (1920-1933), American gangsters of different nationalities had already formed a ‘mafia-enterprise’ (Santino 1982b: 16, 1983b: 44).
During the last fifteen years, the mafia has become much more financially oriented, with a multinational, polivalent economic structure, taking control of an important segment of the trafficking of both drugs and weapons. Mafiosi have accumulated considerable capital from these ventures. Events formerly considered as ‘criminal ways to capitalism’, occurring in peripheral zones and in secondary social spheres, have turned into ‘the criminal ways of capitalism and the contemporary society (1).
The contemporary scene
Organized crime has entered a new era. The presence of large criminal organizations in many parts of the world is a historical reality which has been developing over more than a century. But it is only during recent years that we have been observing the growth of a ‘world mafia market’ whose two basic characteristics are: the extension on a world scale of the trafficking of various goods (not only confined to drugs and weapons), and the gradual transformation of this traffic into a mass commodities market. This is where the new mafia exercises a hegemony over vast segments of the ‘Black Economy’ . These mass-market characteristics imply that although criminal organizations persist in having their own specific cultural aspects connected with various traditions, they are becoming more and more alike in structure and international connections, taking on characteristics of multinational corporations, with cooperation-competition-rivalry within an international division of criminal-legal work.
During recent years, at the same time as the Sicilian-American mafia has expanded in scope and financial significance, other kinds of organized crime have also grown, such as the Columbian and Bolivian mafias, the Chinese ‘Triads’, and the Japanese Yakuza. The same type of development can also be seen among Puerto Rican mobsters as well as among Australian racketeers (2). All this is part of the development of an international financial network consisting of systems for the recycling of illegal capital and providing investment outlets. This therefore allows for the merging of ‘legitimate’ and ‘illegitimate’ capital within international financial markets, and thus also for the development of an identification process between criminal syndicates and the military-political power in many parts of the world. Such basic common features point to the conclusion that various criminal organizations are becoming increasingly ‘mafia-like’, that is, vertically integrated in national and political systems.
The world-wide economico-political context has been particularly encouraging for the development of this process. Call it what you will – ‘latecapitalistic’, ‘post-industrial’, ‘mass-society’, etc. – there are some essential features of the social order, developed throughout recent decades, which have called for the modernization of the mafia. Such a modernization includes: technological development which restructures the industrial sector by means of mechanization, the exclusion of certain expensive forms of manual labor, and the growing importance of service sector jobs in finance, insurance, nursing, education, and scientific research. Though these latter do produce new work-places, they can not counterbalance the vacancies caused by industrial restructuring, and the result is an increasing surplus population. Clearly, the world economic scene is ruled by multinational corporations supported by large financial institutions which encourage the decentralization of production and the employment of labor forces from peripheral areas of the world, and at the lowest possible cost as well.
One prominent feature of the above is the territorial disequilibria between the central areas and peripheral areas which are condemned to underdevelopment. A closer look also reveals the impoverishment of natural resources at a world-wide level, while military expenditures rise. The deadly power of the military arsenals emphasizes the subordination of the satellite-states, limiting or annulling their sovereign rights and generating a wide-spread feeling of uncertainty.
Another feature is the intensification of the processes of urbanization, which concentrates ever larger masses in metropolises (Mexico City, for instance), whose growth defies rational planning, transforming urban spaces into anonymous agglomerates, as well as encouraging violence and widespread criminality. The growing influences of the mass-media, with the consequent diffusion of status-symbols related to money, violence, sex, and the transformation of the mass-media into real instruments of mass-socialization, replacing the family and school, are both part of the contemporary mafiainducing conditions. So too is the crisis of the ‘Welfare State’ representative of a society in decomposition increasingly ruled by hidden powers whose real decision-making capacity cannot be seen let alone controlled.
Among the consequences of these processes are bewilderment, political indifference (‘qualunquismo’), the extension of mysticism as an escape from reality, intolerance, and terrorism. The ‘new era’ of organized criminality is imbedded in this context, whose specific features explain the development of world criminality itself. (3)
Of course the symbiosis between banking capital and industrial capital (the so-called ‘finance capital’) is not so new. (4)
What is new, however, is the development of a world economy and of a society in which the exportation of capital has been transformed into the exportation of the capitalist mode of production (Dockès 1977, Michalet 1978). This process has been led by entities which operate through multinational corporations.
We should not be misled into believing that a world-wide homogenization has occurred, or is about to occur, aiming to create an indefinite series of economlc subjects all over the world. Giant corporations and large financial istitutions are not stateless; they have exact and identifiable nationalities.
Most of them ‘belong’ to the United States and to the other major capitalist CuntrleS. The term ‘financial-industrial complex’, which expresses the interpenetration between finance capital and industrial activity in the age of ‘world capitalism’, must be interpreted neither as super partes entity, nor as indistinct unicum, whose homogeneity is free from conflicts and contradictions. The ‘complex’ is the present form of the hegemony of some parts upon the whole, which is characterized by more and more remarkable differences, and is internally supported by competitive processes resulting in conflicts as well as alliances.
Research in the last thirty years has emphasized in particular the process of the multinationalization of financial groups and industrial corporations, and concentrated on the interpenetration between finance and industry, the diversification of production, the alliance among various groups, and the relationship with political power (for a concise treatment of these subjects, see Comito 1976).
The following examples will outline the situation in Japan, the United States, France, Italy, and West Germany. The Japanese trusts (‘zaibatsu’), led by a small number of families such as Mitsubishi, Mitsui, and Sumitomo (Noguchi 1973, Young 1974), ruled the Japanese economy even before the Second World War. In spite of the 1947 anti-trust law, these industrial groups have constructed and developed the Japanese economy through the banks, a few financial companies (sector-companies, insurance-societies, investmentfunds), and via ‘the remarkable increase of the financial functions of trading companies’ (Comito 1976: 330). Japanese trading companies are the main point of the trusts, and have been defined as the world’s most effective international distributing-channel (ibidem). The ‘sogo soshas’ (as trading companies are called in Japanese) played the role of mediator in the international trade system until 1970. Since then they have performed a more complex function, extending their former distributing tasks (stores, storing equipment, the processing and manufacturing of goods) along with their financial activities (client-credits, export-financing, trust-financing). Moreover, trading companies have assumed a leading function in the reconversion process within the national economy, according to the strategic plan devised by the MITI (Board of Foreign Trade). In this manner, trading companies have expanded their activities in the trading and investment sectors.
The financial structure of the American economy has been examined in particular by J.M. Chevalier (1970), who has pointed out three basic elements:
– 200 major American industrial companies are ruled by four financial companies: Morgan, Rockefeller, Mellon, and Hanna Cleveland;
– large commercial banks represent the pillars of the American economic structure; and
– personal connections among the ruling groups reveal the existence of a minority of corporate rich.
Since American law forbids the commercial banks from holding stocks of their own, the banks’ power comes basically from stock-capitals which are managed on behalf of a third party by the banks themselves in three different ways:
– management of pension-funds entrusted to them by firms; ‘such management allows the possibility of investing these funds without particular restrictions’ (Comito 1976: 338);
– management of private patrimonies;
– management of patrimonial funds and firms. ‘In 1965 the total value of the stocks controlled by banks was estimated at 110 billion dollars, i.e.,18% of the total value of the issued stocks’ (ibidem).
Some information about the main U.S. financial groups will suffice to give an idea of the symbiosis existing between finance capital and the industrial structure in the world’s leading capitalist country. The major American financial groups are the following:
Rockefeller group. The pillars of this group are the First National City Bank and the Chase Manhattan Bank, respectively the second and third main U.S. banks. These two banks are connected to the First National Bank of Chicago and the Wachovia Bank & Trust. Moreover, eighteen large industrial corporations are connected with the four Rockefeller banks. (Figure 1 provides a picture of this complicated system of relationships and influences.) However, it should be noted that only those companies which are controlled directly by the banks appear in the chart; companies controlled directly by the Rockefellers are omitted. Furthermore, this chart does not emphasize the importance of the oil-sector, upon which the Rockefeller fortune has been based since 1870: in fact, the First National City Bank was founded thanks to the huge profits of the oil industry. The Rockefellers’ strong political influence is well-known, and, for instance, they have monopolized leading positions in the United States administration, such as the Secretary of State: both Foster Dulles and Henry Kissinger were under the influence of the Rockefellers.
Morgan group. This group manages the Morgan Bank (the fourth most important U.S. bank), the Bankers Trust and Irving Trust. It holds shares in the electric sector (General Electric), in steel (U.S. Steel), in containers (Continental Can, American Van), in telecommunications (General Telephone) and in the oil industry (Socony Mobil, Cities Service).
Mellon group. Connected to the Mellon National Corporation and the First Boston Corporation, it holds shares in the oil industry (Gulf Oil), in the electric sector (Westinghouse), in the steel industry (Amco Steel), and in air transportation (TRW).
Hanna Cleveland group. Connected with the Cleveland Trust and the National Bank of Cleveland it holds shares in Chrysler, Goodyear, Firestone, and Hanna Mining.
Manufacturers Hanover Trust. The Hanover Trust Bank holds shares in Union Carbide, Chrysler, and American Home Products.
Chemical Bank group. The sixth most important U.S. bank holds shares in Sinclair Oil, Corn Products, Avco, and Bethlehem Steel.
At the time of Chevalier’s research, ‘twenty-six major American commercial banks out of fifty influenced one or more of the two-hundred main American corporations; three of these twenty-six banks are controlled by families and are influenced or controlled by other financial institutions; the remaining banks are controlled from the inside’ (Comito 1976: 339 ff.)
American banks are generally connected with each other by means of a very complex network of financial shareholdings. The Chase National Bank is an example of such connections. It is not known how much of it is actually owned by the Rockefellers. In 1963, according to reliable and detailed information, most of its capital was scattered among innumerable shareholders. The bank controlled directly only 2% of its capital, and 10% of it was controlled by a group of fifteen other banks. The Rockefellers owned capital shares varying from 3% to 10 17% according to different sources (Comito 1976: 340).
The financialization of the French economy has been examined by F. Morin (1974). The French economy revolves around two large financial groups: Paribas (Compagnie financière de Paris et des Pays-Bas) and Suez (Compagnie financière de Suez et de l’union des mines). Paribas (established in 1872) has been acting as a ‘merchant bank’ since its inception in 1916, and it already controlled more than 120 firms. It now owns remarkable shareholdings in about 300 firms and controls directly fifteen and indirectly five of the first 200 major French corporations. Compagnie de Suez controls directly eleven large industrial firms, including Saint Gobain Pont à Mousson, and indirectly five other firms. Various agreements and arrangements considerably extend its sphere of influence. These two groups rule over the French private banking sector and Paribas’ basic strategy is based on the alliance with public capital.
As regards the Italian economy, IFI-FIAT plays a leading role in the process of multinationalization, diversification of production, and financialization. FIAT has increasingly become a holding company which manages various sectorial firms often consisting of activities taken over from foreign firms. The main firms of the group are the following:
– IVECO (Industrial Vehicles Corporation) established in 1975 with 80% of FIAT stocks and 20% of Cologne-Klockner-Humboldt-Deutz stocks. Its factories are in Italy, France, and West Germany. IVECO holds second place in Europe immediately after Mercedes-Benz in the production of industrial vehicles.
– FIAT-ALLIS, established in 1974, manufactures Caterpillars. It is connected with two companies: one in the Netherlands and one in the state of Delaware, a well-known tax haven. Its factories are in England, Brazil, and the United States.
– FIAT Trattori, operating in the sector of farm tractors.
– Costruzioni ed Impianti Spa FIAT Engineering, operating in various sectors, such as the metal and mechanical industry, in the iron and steel industry, and in the electronuclear sector.
At present, the Agnellis ‘empire’ is based on three financial companies which control the various sectors: the old IFI (established in 1927 by Giovanni Agnelli), the IFIL, and the GEMINA.
This policy of ramification of financial control proceeds together with the diversification of production; however, the automobile industry still remains the pivot of the group. According to the IFI-chairman himself, the difference between IFI and IFIL can be stated as follows: ‘IFI has an industrial tendency and its major purpose is to keep and develop its shareholding within FIAT, whereas IFIL operates specifically in the sector of financial services’ (Morelli 1986).
IFIL was established in 1916 as a holding company in the wool industry and in 1958 the Agnellis took it over. Recently it has experienced a remarkable development as a result of its assimilation of the following service companies: financial (MITO), insurances (TORO and its associated companies), large supply networks and tourist-building societies (SAES and Rinascente) (Tropea 1986). IFIL is now planning to establish a merchant bank which will include four large banking institutions: Monte dei Paschi di Siena, Cariplo, Mediocredito regionale Lombardo, and Cassa di Risparmio di Torino.
GEMINA has been, and still is, ‘the drawing-room of the Italian financial Gotha’. Its control group consists of FIAT and Pirelli representatives, Mr. Lucchini (chairman of Italian industrialists), Mr. Orlando (SMI), Mr. Camillo de Benedetti (GAIC), and recently even the industrialist Mr. Arvedi, the holding company Finanziaria Mittel, and the Italcementi have entered it. GEMINA holds shares in Rizzoli Editrice (a publishing company) and has at its disposal large capital coming from the sale of its shares in Montedison. Recently, the Agnellis have strengthened their presence within GEMINA. Such a step has created some concern in the publishing world, as the Agnellis already own the daily paper ‘La Stampa’, and would also become owners of the ‘Corriere della Sera’, thus violating the anti-trust law. IFI-FIAT is connected with public capital in the following sectors: iron and steel industry, aircraft and railway building industry (Comito 1976: 375). (For further details regarding the finance capital in the Italian economy, see appended bibliography (5).)
The German economy is ruled by konzerne, trusts consisting of firms aiming at decreasing the cost of production and increasing the scale price. Even after the Second World War, in spite of the anti-trust attempts, West Germany remained the country of konzerne, which are now more or less camouflaged. The characteristics of konzerne are a horizontal and a vertical concentration (the former consists in joining several firms producing the same goods, the latter joins firms producing goods connected in a successive line). During the last few years, konzerne have changed increasingly into multinational corporations, and large banks have obtained increasing control over firms. The Deutsche Bank is the most important financial institution of the West German industry. (6)
An increasing number of studies on multinational corporations during the last few years shows the existence of a closer and wider connection between banks and firms. (7) The main features of what we are calling the ‘financial-industrial complex’ can be summarized as follows.
– Lack of control over, or difficulty in controlling, international banking activities, as revealed by the recent slumps of banks such as the Banco Ambrosiano (Onado 1984, Patroni Griffi 1984, Gilibert 1985). Even the recent ‘Agreement of Basel’ (May 1983), which establishes a number of rules (such as ‘last instance lender’s’ responsibility) is only a first step towards international control.
– In spite of some exceptions, bank-secrecy is still a basic rule. Moreover, the present tendency to liberalize the service-supplies on the one hand, and the increasing privatization of financial activity on the other hand, contribute to a lack of clarity in these matters. Even the recent E.E.C. Iines follow this tendency, with regard to banking matters. (8)
– Establishment of banking instruments particularly suitable for international activityand for interpenetration between finance capital and firms. American commercial banks and British merchant banks are examples of the same phenomenon. The banks most suitable for world extension and financialization show similar features drawn from Anglo-American patterns (Gelsomino 1985: 449-463).
– Financial innovation and growing expansion of financial institutions. A complex of credit instruments and intermediaries (holding and trust companies, atypical stocks, etc.) complicates the situation, thus making it particularly impervious to control. (9)
– The presence of various tax havens allows the possibility of tax-evasion and makes possible operations of downright financial juggling, sheltering interpenetrations between licit and illicit activities. Tax havens are not mere byproducts of ‘financial conjuring’, but rather they play a basic role within the international financial world.
– The combination of economic interests with politico-military ones. In many situatlons we can observe a very close relationship between these interests, which aim at planning and accomplishing reactionary strategies characterized by fascist and imperialist features (LAB-Iepala 1982:112-144).
These general or particular elements help explain some events, such as the ones connected with Sindona’s, Calvi’s, and Gelli’s activities. Moreover, they promote the development of a communication circuit between licit and illicit capital. Illegal accumulation of capital, whose international extension has grown, would find no outlet without such interpenetration and identification between crime and legality.
The ‘Sindona-Calvi-Gelli’ system
By explaining the activities of Michele Sindona, Roberto Calvi, and Lucio Gelli as exceptional and pathological events, as examples of a Catholic and reactionary ‘black finance’, as opposed to a sound, secular, and progressive finance, one would be ignoring a concrete reality. The activities of Sindona’s and Calvi’s banks and of the masonic lodge ‘Propaganda 2′ made possible their development and expansion for a long time within the financial and political milieu only because these activities were the result of a system which promoted the criminalization processes of economy and power. The crash of these individuals, due to the reaction of the sound sectors or to the action of the competition struggle, scarcely has a meaning if it is not integrated into a larger plan of reforms.
Sindona’s financial system was framed as follows:
– a group of industrial firms operating in various sectors and used as ‘trade- goods’;
– a number of financial companies mostly placed in various tax havens; and
– banks around which the whole operational structure revolved (Commissione Sindona, relazione maggioranza, Azzaro 1982: 12).
These banks were the following: Banca Privata Finanziaria, Banca Unione (both of Milan), Banca di Messina, Banca Generale di Credito, and the Franklin National Bank (USA). By means of a complex network of connections, this group was able to operate on a world-scale. The two Milanese banks were connected with Finabank, Finterbank, IOR (Istituto Opere Religiose, i.e., the Vatican Bank), Amincor, Privat Kredit Bank, Bankhaus Wolff, New Bank, etc.
Sindona’s financial companies were innumerable: Finambro, Fasco, AG, Fasco International, Fasco Europe, Capisec International Holding, Edilcentro International, Edilcentro Sviluppo International, Arana, Comarsec, Talcott, Moneyrex, Generale Immobiliare, Società Generale Immobiliare, Banking Corporation, etc., based in Switzerland, Luxembourg, Lichtenstein, Liberia, Panama, Bahamas, Cayman Islands, and in other tax havens and offshore financial centers, where Sindona had points of support (Lombard 1980: 52).
The relationship between Sindona and the Vatican Bank (IOR) has been exhaustively analyzed (DiFonzo 1983), but such a relationship does not prove the innocence of ‘secular finance’. The Vatican financial system has been the protagonist, not the victim, of the criminalization process of the economy, as many events confirm (Hammer 1982). However, the two aforementioned banks of Milan were able to operate because the Banca d’Italia did not intervene. (10)
Actually, many of Sindona’s operations have been carried out openly and with the support of public banking institutions. Hence the amalgamation of the Società Generale Immobiliare to the Edilcentro was decided by Sindona and supported by all six Italian ‘Istituti di diritto pubblico’ (Banco di Napoli, Banco di Sicilia, Banca Nazionale del Lavoro, Istituto Bancario San Paolo di Torino, Monte dei Paschi di Siena, Banco di Sardegna). Moreover, this operation was favorably judged by the Banco d’Italia. Three banks of national importance (Banco di Roma, Credito Italiano, and Banca Commerciale Italiana) operated with Moneyrex, a brokerage firm concerned with the exportation of capital abroad – that is, with illicit operations. Several professional institutions (INA, INPDA, ICCRI, FASDAI), as well as two ‘istituti di credito speciale’ (CREDIOP and GESCAL) of national importance deposited large amounts in Sindona’s banks. ‘All these facts clearly confirm that Sindona’s banks are not two aberrant units within a sound and incorruptible banking system. These two banks are actually strongly supported by several financial institutions’ (Commissione Sindona, relazione minoranza, d’Alema 1982: 244).
The attitude of the Banca d’Italia concretely favored Sindona’s activities. However, this fact is not to be construed as an ‘Italian aberration’. During the bank crises of 1974, central banks followed a basically unitary line, except for the West German Central Bank, which abandoned the Herstatt Bank, which was involved in Sindona’s activities. (11) A typical example of such behavior can be seen in the case of the Franklin National Bank: ‘When the London branch office was no longer able to renew its matured deposits on the international banking market, it obtained some funds from the main office, which carried out a quantitatively exceptional and formally unusual operation authorized by the FED (Federal Reserve)’ (Onado 1984: 5, Spero 1980).
Sindona’s relationship with the mafia is a blatant reality, which includes Sindona’s own self-kidnapping, the recycling of ‘dirty’ money, and the murder of Banca Privata liquidator Ambrosoli. However, Sindona’s connections with the political world were also well-known (Commissione Sindona, relazione maggioranza, Azzaro 1982: 161-178, relazione minoranza, D’Alema 1982: 479-501, relazione minoranza, Teodori 1982: 588-592, relazione minoranza, Rastrelli 1982: 758-775, De Zulueta 1980). The parliamentary inquiry into Sindona’s activities revealed that he regularly financed the Democrazia Cristiana (Italian Christian Democratic Party) (Relazione maggioranza, Azzaro 1982: 60-74). The inquiry also pointed out his relationship with the then Prime Minister, Mr. Andreotti (present day Minister for Foreign Affairs), who defined Sindona as the ‘rescuer of the lira’. The political consequences of such serious allegations were nonetheless scarce, as the Italian Communist Party (PCI) abstained from voting against Andreotti, in agreement with the policy of compromise with the Christian Democrats adhered to at that time by the Communist Party.
The bankruptcy of Roberto Calvi’s Banco Ambrosiano has been described as ‘the most severe crash experienced by a private bank in the post-war period’ (Buxton 1982, quoting a statement by Treasury Minister Andreatta), and it is to be connected not only with the financial system of a single country, but also with the entire international system. According to many authors, Italian finance capital demonstrates an historical tendency ‘to grow at a higher rate in respect to the national income than that of other countries’ (Ciocca 1982: 138). Such a tendency has already been surveyed by Piero Sraffa in his essay on the banking crisis in Italy in the early 1920s (Sraffa 1922: 178-197). However, this gap between ‘financial superstructure’ and ‘real wealth’ is not sufficient to explain Calvi’s financial story. His activity was the result of an international phenomenon consisting in a ‘rapid and increasing internationalization of the banking-system’ (Spaventa, in Cornwell 1983: XI).
Calvi took advantage of the facilities offered by the Italian Borsa (stock exchange), whose regulations, established by Law no. 216 of 1974, were insufficiently applied, in particular as regards the power of CONSOB (Commissione nazionale sulle società e la borsa). Calvi also took advantage of the scanty vigilance of the Banca d’Italia (Patroni Griffi 1984). However, Calvi’s activities developed particularly at the international level, with the help of many tax havens. Figure 2 clearly illustrates the international extension of Calvi’s manoeuvres, the network of tax havens, and the connection with the Vatican Bank and Masonic Lodge P2.
The P2-Gelli case must not be considered restricted only to Italy. Gelli actually involved political, military, financial, legal, and administrative sectors, and even secret services. Moreover, he controlled the most important Italian newspaper, the ‘Corriere della sera’, and made use of neo-fascist terrorism: the massacre of the ‘Italicus’ train on the third and fourth of August, 1974, and at the railway station of Bologna on August second, 1980 (Commissione P2, relazioni di maggioranza, Anselmi, minoranza, Teodori 1984; the latter event, however, is not mentioned in either of these two reports). Even if the parliamentary committee investigation of Lodge P2 could not carefully examine this subject, ‘the role of Gelli’s international activity is not secondary with respect to his domestic activities’ (Relazione di maggioranza, Anselmi 1984: 129). Gelli maintained a constant relationship wih Latin American countries through a supranational institution (ONPAM); he also had strong connections with the U.S. political and financial world which constituted the basis of Sindona’s activities (ibidem: 131). Thus, for instance, there is proof of his relationship with Philip Guarino, a member on the committee of President Reagan’s election campaign, who invited Gelli to Reagan’s inaugural ball (Lernoux 1984: 201, 217).
The business sphere of Gelli and of other individuals such as Umberto Qrtolani and Francesco Pazienza is linked to their activities within the international conservative milieu, and includes the use of terroristic-military methods.
The holding structure
The development of holding companies is part and parcel of the growing process of ‘new financial institutions’. We are dealing here with a complex phenomenon which includes both old and new functions. Holding companies are firms which are members of other firms, i.e., they invest their capitals in the stocks of other firms (Vender 1976: 47). Recently, one has been able to distinguish three different categories of holding companies:
– Pure holdings: their main function is the mere ownership of one or more packets of shares.
– Operational holdings: they carry out economic and financial functions concerning the owned firms.
– Industrial holdings: an industrial group, which has followed a policy of diversification of production and must establish an autonomous management for sectors which have grown to huge dimensions (ibidem: 48-49).
This last kind of holding company is not a new category of finance brokers, but rather it represents a general tendency – the institutionalization of diversification policy – followed by the major industrial groups. The holding structure allows for a unification of centralized control with a decentralized form of administration. Operational holdings have several advantages, including stock exchange facilities, better access to banking credit, and improved management of the cash-surplus and cash-deficit of firms of the same group. They are, in fact, the most suitable of all financial institutions for the new needs of the world economy: specialized diversification of production, world-process of production, and a comprehensive financial management interweaving a formal respect for sectorial autonomy with an effective tyranny upon basic choices.
The term ‘holding mafiosa’ does not signify an automatic transfer of such institutions into organized crime; nor does it identify criminal economy with the economy as a whole. These two forms of economy coexist and interact with each other for the reasons already mentioned, and by circuits and methods that we shall examine later.
The ‘holding mafiosa’ is a form of organization of criminal economy and also of interpenetration with the legal economy, an organization which includes:
– Financial managing centers which concentrate capitals at lower cost, generated by various activities, in particular illegal ones, in terms of profits, rents, etc. These incomes are successively invested in various ways after being laundered through banks and other financial institutions. (This is the financial basis of mafia economy.)
– A series of diversified activities, such as trading and industrial activities, illicit activities, investments in stocks, bonds and real estate, etc. Such diversification of capital investments corresponds to the variety of the sources of accumulation.
Methods and channels of interpenetration between illegal and legal activities
The staff study responsible for the report entitled ‘Crime and Secrecy’ has examined three different cases:
1. Iaundering or secreting of illegal profits;
2. secreting of legal profits for illegal purposes; and
3. use of offshore and foreign agencies as representing an integral part of an overall criminal scheme.
The first and third of these cases directly involve mafia or organized crime; however, the second one also concerns criminal organizations (tax evasion).
The main channel for the mixing of illegal and legal capitals is the so-called ‘tax haven’ . A country can be considered a tax haven if ‘it imposes a low or zero rate of tax on all or certain categories of income, and it offers a certain level of banking or commercial secrecy, or both’ (United States Senate 1983: 8). Moreover, ‘the third generally common characteristic of a tax haven is that banks and similar financial institutions assume a dominant role in the havens’ trade and commerce, and their residents include those skilled in financial transactions, such as bankers, lawyers and accountants. Banks and trust companies in the haven countries undoubtedly can provide a necessary business service in facilitating complex multinational transactions’ (ibidem: 9).
We can therefore define a tax haven as a cross-roads of the international financial system: a vivid example of the rapid growth of tax haven banks and trust companies is offered by the Caymans, a British Crown Colony approximately 170 miles south of Miami. In 1964 the Caymans had only one or two banks and virtually no offshore (non-resident) business. When Subcommittee staff members visited the Caymans in late 1981, the island had about 30 multinational full-service ‘Type A’ commercial banks and more than 300 ‘Type B’ brass plate banks, which are allowed to conduct only offshore business. Moreover, about 13,600 companies were registered there. Yet, the population of the Cayman Islands is only about 15,000. (ibidem)
In 1981, the IRS (Internal Revenue Service) identified the following countries as tax havens: In the Caribbean and Atlantic area: Antigua, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Costa Rica, Grenada, Dutch Antilles, Panama, St. Kitts, St. Vincent, and Turks and Caicos Islands. In the European, Middle Eastern and African area: Austria, Bahrain, Channel Islands, Gibraltar, Isle of Man, Liberia, Lichtenstein, Luxembourg, Monaco, the Netherlands, and Switzerland. In the Far Eastern and Pacific area: Hong Kong, Nauru, New Hebrides (Vanatu), and Singapore (ibidem: 10).
The IRS’s list is not exhaustive: other agencies suggest that it should be augmented. For instance, ‘the WFI Corporation, a Southern California organization which publicly offers banking licenses in several locations in a list distributed at its Spring 1982 seminar, lists many of the usual places, but with the addition of the following locations: Canada, Guam, Ireland, Mexico, Cook Islands, and the Maldives. An April 28, 1982 WFI announcement describes the Mariana Islands as a new tax haven’ (ibidem: 11).
The U.S. Senate Report on ‘Crime and Secrecy’ states that the creation of ‘International Banking Facilities (IBFs) clearly establishes the U.S. as an offshore center’ (ibidem: 12). Such facilities, authorized in December 1981 by the Federal Reserve Board, were defined as follows:
International Banking Facility’ or “IBF” means a set of asset and liability accounts segregated on the books and records of a depository institution, United States branch or agency of a foreign bank, or an Edge Act of Agreement Corporation that includes only international banking facility time deposits and international banking facility extensions of credit. (ibidem: 33)
In effect, the FRB authorized domestic offices of banks that engage in wholesale international banking activities to become tax havens. These are offices at which the banking entity’s Eurodollar transactions are booked. Operating primarily as a record-keeping entity, an IBF is similar to an offshore shell branch. Thus, the new IBFs do not displace any existing international banking institutions but, to the contrary, they supplement such entities by allowing them to participate in the Eurodollar market with a minimum of regulation. At the time the IBF regulation took effect, almost 200 U.S. banks and U.S. subsidiaries of foreign banks had applied to establish IBFs. A little more than half, or about 115, are located in New York. Others are in major cities across the United States, including Miami, Chicago, New Orleans and San Francisco. A number of others were expected to apply.
The Eurocurrency market is estimated to be about $ 1.6 trillion a year. Some FRB economists predicted that as much as $ 125 billion of this business would be transferred to the new IBFs in the first few months of 1982. Morgan Guaranty Trust estimated that the IBFs share of the total Eurocurrency market could reach 10 to 15 per cent of the $ 1.6 trillion in a few years. Most of this business has been transacted in such far-flung financial centers as London, Singapore, Bahrain and the Cayman Islands. (ibidem: 33-34)
The IBFs have allowed the financial escalation of Miami, destined to become the second major international banking center after New York. In 1981 deposits there of capital coming from Latin America amounted to $4 billion. It is well-known that ‘pushers’ or drug-traffickers from various Latin American countries use Miami banks to recycle cocadolares. In 31 banks out of 250,1,300 suspicious accounts have been discovered. Moreover, five banks belong to the traffickers themselves (LAB-Iepala 1982: 42, Lernoux 1984: 100-142).
Financial network of illegal capital: two examples
A) The ‘dirty’ money of the Australian Clark Syndicate
The Australian Royal Commission of Inquiry into drug trafficking investigated the activities of the ‘Clark Syndicate’, a criminal organization of about seventy members controlled by Terrence John Clark. Clark Syndicate activities include drug trafficking, murder, intimidation, bribing of court judges, and the illegal traffic of money overseas. The most interesting parts of the report are those concerning the use of banking and other financial institutions to recycle ‘dirty’ capital and then to invest it.
The financial network of the Clark Syndicate extends from Australia to Hong Kong, from Singapore to London, the Netherlands, and West Germany. The Inquiry Commission has ascertained the existence of capital deposits of one million Australian dollars found in the exchange office of Bain & Company in Sydney and London between February and December 1979. Considerable capital belonging to the ‘Syndicate’ have been deposited in the Crédit Suisse of Singapore and London.
As regards the Nugan Hand Bank, the Commission has decided to undertake supplementary investigations. This bank had been involved in laundering ‘dirty’ money on behalf of the CIA, and of heroin and weapons dealers. In 1980, Frank Nugan, co-owner of the bank, died. Officially, his death was considered a case of suicide, but it was immediately clear that Nugan had been murdered. Frank Nugan and Michael Hand had established their bank in 1973, and within six years the Nugan Hand Bank had twenty-two branch offices all over the world. The bank followed a tax haven policy: supply of sophisticated banking services, high interest rates, tax-free deposits, and complete secrecy (Lernoux 1984: 66). Actually, the bank was used to deposit illegal incomes of South East-Asian heroin traffic promoted by the CIA to support criminals and reactionary power-men in the name of the ‘anti-communist crusade’ (McCoy 1972). CIA top executives – such as William Colby, who directed the CIA between 1973 and 1976 and acted as lawyer of the bank – acted as officers and consultants of the Nugan Hand Bank.
The activities of the bank were protected by its good relationship with the Australian Federal Bureau of Narcotics and with the ASIO (Australian Security Intelligence Organization), a secret counterespionage group cooperating with the CIA. This plot of dirty finance, spying, and national and international reactionary politics was used to destabilize the Australian labor government and ‘to support pro-U.S. political parties in Europe, allegedly including Italy’s Christian Democrats’ (Lernoux 1984: 72). The bank went bankrupt in 1980, and most of its capital seems to have been transferred to a Miami bank ‘owned by a mysterious Colombian entrepreneur’ (Lernoux 1984: 74).
An interesting aspect pointed out by the Inquiry Commission is the role played by lawyers within Clark Syndicate activities: ‘There are three main areas in which lawyers assisted the organization: as agents representing it, as financial operators, and as purveyors of information’ (Royal Commission 1983: 170). According to a great deal of evidence collected by the Commission, lawyers played a fundamental role in the laundering of ‘dirty’ money (ibidem: 170-184, 229-258).
B) World Finance Corporation holdings
The World Finance Corporation (WFC) was established in 1971 in Miami by Hernández Cartaya, a Cuban banker in exile. A few years later, the corporation owned branch offices in eight Latin-American countries, in Dutch Antilles, Cayman Islands, London, the United Arab Emirates, and Texas, as well as nine firms and a bank in Miami. Its loan business amounted to $500 billion a year.
As revealed by Government investigations on three continents, the WFC was a giant recycling machine for ‘dirty money’ coming from the trafficking of drugs and weapons. Moreover, it was basically an international cross-roads where various individuals and various interests met: mafiosi such as Santo Trafficante – who was entrusted by the CIA with the task of killing Fidel Castro – Latin-American drug dealers, CIA members, and even supporters of the Castro Government who were interested in drug-trafficking as a source of capital for the purchase of weapons intended for guerilla forces in various Latin-American countries. Investigations also revealed that in 1975 the WFC received a $2million loan from the Narodny Bank, a Soviet institution concerned mainly with funding Soviet undercover agents (Lernoux 1984: 147149).
The activity of the WFC was discovered during the investigation of the King Spray Service, a pest control company involved in drug-trafficking. Among the individuals involved in these illegal operations was Richard Fincher, an ex-Florida senator, also a business partner both of some members of President Nixon’s establishment and of well-known drug dealers within the so-called Cuban connection, such as Mario Escandar. It was a tight circle indeed: ‘Escandar was a friend of Hernández Cartaya, the WFC owner, who was a friend of Dick Fincher, who was a friend of Bebe Rebozo, who was a friend of Richard Nixon’ (Messick, in Lernoux 1984: 153).
Hernández Cartaya’s specialty was double-crossing: he worked with the Cuban counter-revolutionaries and helped the Castro guerrillas as well; he also cooperated with the CIA but was nonetheless on good terms with the Soviet espionage organization. The recycling of drug-trafficking incomes allowed Cartaya to tighten his sphere of influence. And yet in 1981, he was charged not with banking frauds or espionage or laundering of dirty money, but only with tax-evasion. The CIA did its best to shield Cartaya’s activities, and despite all the evidence, it went so far as to disclaim any knowledge of the case (Lernoux 1984: 165).
In spite of the crash of the WFC’s financial empire, the activities which had contributed to its prosperity have not been eliminated: drug-trafficking has in fact grown in that area, and the illegal accumulation of money continues. Lester Wolff, the ex-chairman of the House Select Committee on Narcotics Abuse and Control, pointed out that every attempt to fight drug-trafficking is doomed to failure, since it remains a political matter. As the case of the WFC proves, the ‘politicization’ of crime is the keystone of the whole problem.
Illegal capital and financial innovation
Which connection does exist then between illegal capital and financial innovation? The two primary models studied by the North-American economic doctrine in order to interpret financial innovations consider them to be reactions against public control or, generally, to restrictions on financial brokerage (Fabrizi 1985: 234-235, Silber 1975).
This ‘escape from control or from the rules’ favors the tendency of illegal capital to slip away from surveys. ‘Atypical stocks’ are suspected of being one of the channels which enhances the symbiosis between illicit and licit capital. We can define ‘atypical stocks’ as a means of collecting savings with technical and economic features which are different from traditional means. Therefore, from a legal point of view, they are absolutely uncontrolled by regulations, or only partially controlled (Fabrizi 1985: 239). Atypical stocks can be classified into four different groups: 1) sharing partnership certificates; 2) trust companies stocks; 3) shares of real property investment funds; and 4) mixed stocks.
As far as Italy is concerned, according to the ANASF survey (financial consultants association), at the end of 1984 atypical stocks for Lit. 2,100 billion were circulated. This growth of the Italian market can be explained basically in the terms of the inadequacies of the Italian legislation. “Between 1978 and 1983 finance lived in a ‘Far West’ situation. Patrimonies were based on the fear of inflation which, understandably, affected thousands of investors. Real property was considered the only possession which could resist the erosion of capital. And in fact, the ‘knights of atypical stocks’ offered investments in buildings” (Sunseri 1985b).
An example of the way in which these ‘knights’ operated is provided by the case of Vincenzo Cultrera, IFL (Istituto Finanziario Lombardo) chairman, who acquired the Rimini Grand Hotel for Lit. 11 billion in 1983 and put it up for sale for 23 billion in the form of sharing partnerships certificates, that is, ‘atypical stocks’.
After the boom caused by inflation, at the beginning of 1985 ‘atypical stocks’ were already in a state of crisis. The liquidation of Europrogramme and the crash of the IFL (their total capital amounted to Lit. 1,350 billion) involved 90,000 investors, and revealed the absolute necessity of adopting adequate legislation (Ruffolo 1985).
Personal property investment Common Funds appeared in Italy only in June 1984. Law no. 77 of March 23, 1983, established three kinds of funds: stocks, bonds, and balanced funds, that is, funds consisting of both stocks and bonds. In a very short time these funds have been very successful due to the crash of the ‘atypical stocks’. During the first six months the number of subscribers increased ten-fold: 22,800 in Septernber of 1984,66,500 in December, and 220,303 in April of 1985. By the end of the year, the subscribers totalled over 300,000. In 1985, the total savings collected through the Funds amounted to about Lit. 15,000 billion. For 1986 a total savings of 26,000 billion was expected (Morelli 1986). During 1985, these funds controlled the stock market (Borsa), and in the first six months they had actually doubled their leverage in the Milan stock market, going from 10.9% to 21.7%.
After a first ‘prudent growth’, the Italian funds have assumed the features of the American ‘aggressive growth funds’, even if officially they are not considered to be such. A significant example can be seen in the attempt to take control of the Bonomi financial group, one of the major Italian financial groups. Such ‘aggressivity’ can be easily explained if one considers that these rapidly collected amounts represent an enormous capital when compared to the modest size of the Italian stock market, which usually does not exceed Lit. 20-25,000 billion (Turani 1985). The preference of investors for funds is also due to fiscal facilities established by law.
The effective protagonist of this turning-point in Italian finance is a group of various institutions made up of over twohundred banks, fifteen insurance companies, and ten holdings which have established twenty-two managing companies. The ‘banche popolari’ have been the quickest ones thanks to their wide-spread presence all over the national territory, but large banks have also played an essential role (the Monte dei Paschi di Siena established three funds in 1984: Primecapital, Primerend, and Primegest), and the IRI banks in particular (IRI, the Istituto per la Ricostruzione in Italia is the most important public institution in the Italian economy). The Banca Commerciale Italiana was the first IRI bank to operate along these lines. In August of 1985, it sold ten million stocks, half of them to American and British investors, and half to Italian Common Funds. Other IRI banks (Credito Italiano, Banco di Roma, and Banco di Santo Spirito) are also preparing similar operations (Ruffolo 1985b).
Italian Common Funds are considered one of the most aggressive instruments of ‘financial government of economy’. They operate through ownership of remarkable shares within all the major industrial groups: for instance, 11.4% of FIAT stocks belong to them, and such a large percentage considerably exceeds even the shares of the top financial institutions, such as Mediobanca, which owns only 3% of FIAT stocks.
After a six-month period of activity, Italian Funds can also invest abroad sums not exceeding 10% of the net patrimony. At the end of October 1985, they had invested Lit. 200 billion abroad, and some of them had even exceeded the 10% limit. On the Italian market, foreign funds operate as well, and British and Luxembourg ones in particular are thriving. At the end of October 1985, the Luxembourg ones had invested in stocks worth Lit. 3,600 billion. Unlike the Italian Funds, the Luxembourg funds are not subject to any legal regulations (Ruffolo 1985).
In fact, 1985 was a boom-year for the American Funds. Around thirteen million families invested in them. There are thousands of different funds and all of them show a very complex typology: monetary funds, investing in short-term financial activities; personal property investment funds, divided into funds aimed at industrial or at real estate stocks, mining companies, or holding companies, etc. In September of 1985, monetary funds collected $ 208.3 billion as against $ 182.7 billion the preceding year. During the first nine months of 1985, personal property investment funds collected $ 77 billion as against $ 45.9 billion in 1984, $ 40.3 billion in 1983, and $ 15.7 billion in 1982 (Morelli-Polidori 1985). So far, nobody can tell if illicit capital has infiltrated the funds. But certainly the Anti-mafia Law mentions neither them nor ‘atypical stocks’. This is a very serious gap, a gap which should be filled as soon as possible.
A fertile soil for ‘daring finance operations’ is provided by trust companies (società fiduciarie). The activities of trust companies are not a new phenomenon. They have always played an essential role within the financial market by registering in their own name shares of companies which belong to individuals who wish to remain covert. During the last few years in Italy, the activity of trust companies have been déclining. However, they have been replaced by the ‘screen’ provided by foreign companies. If it has not been possible to find out who was behind the Panama companies which controlled the Banco Ambrosiano, many operations of several Italian companies have also yet to be cleared up (Panara 1985).
Recently, a shift has been noticed in the activities of the trust companies, a shift from a trust administration (registration, keeping, representation) to a trust management, that is, ‘the company registers stocks in its own name and even buys and sells them with a wide margin of autonomy on the basis of the client’s order’ (ibidem).
Management expansion of patrimonies has offered new opportunities to financiers who take advantages of the possibility of issuing and managing other peoples’ stocks ‘without being subject either to public control or to the control of their clients’ (ibidem). This situation has triggered a ‘perverse mechanism’ based on three elements: the company issuing stocks and the one managing them belong to the same group; stock holdings have no public market and no official quotation; the same group issuing and managing stocks controls a direct market network aimed at trading these financial products. With such characteristics, ‘trust companies have probably- maybe also unwittingly played a main role in recycling dirty money during the recent years’ (ibidem). The Italian Anti-mafia Law establishes that patrimonial investigations can be carried out into trust companies as well, provided they are suspected of mafia activities.
However, it is no surprise that criminal organizations have succeeded in controlling the management of very remunerative financial activities. An example can be found in the case of the management of American pension funds. The lack of grass-roots control has encouraged the activity of various speculators. The role played by unionist Jimmy Hoffa in plundering the pension funds of a large union like the Teamsters is well known (Mollenhoff 1965: 396ff.; contra Hoffa 1975). At present, American pension funds manage $1.200 billion, and 55% of such an amount (i.e., $600 billion) is invested in stocks. By adding the investment of common funds, the total amounts to $ 800 billion (Morelli 1985).
Insurance companies funds are another financial sector to a large degree under the control of organized crime. The best-known case in the United States is the case of Roberto Vesco, champion of ‘white-collar crime’, owner of corporations and banks, and charged with security fraud and misappropriation of hundreds of millions of dollars (United States Senate 1983: 170, Hutchison 1976).
Illegal accumulation: an estimate
Recently some attempts have been made to quantify illegal activities in monetary terms. We will consider in particular the attempts made by the CENSIS in Italy and by the IRS in the United States.
The CENSIS (Centro Studi Investimenti Sociali) chairman has held an investigation aiming at evaluating the economic size of illegal activities in Italy, and he has applied a method which is ‘purely presumptive, partially based on arbitrary, subjective evaluations, sometimes relying upon indirect ascertainments and applying questionable criteria whose validity is doubtful and varies according to the various cases involved’ (Martinoli 1985: 9).
The illegal activities under consideration in this investigation have been categorized into crimes which result in a transfer of wealth from one individual or groups of individuals to others (theft, extortion, blackmail, fraud, attempts on both private and public property), and criminal activities which are a kind of service – however perverse, it is nevertheless a service – which satisfies more or less latent needs of large groups. Such activities include drug-trafficking, illicit gambling, and the exploitation of prostitution. They ‘require investment of capital and work, and therefore one can hardly question their right to renumeration and profit; it is also undeniable that in one sense they produce wealth’ (ibidem: 12).
The distinction between criminal activities aiming at a transfer of wealth on the one hand, and criminal activities supplying services on the other hand, ‘can not be clear, exact, unambiguous’ (ibidem). Therefore one has to avoid, as the author himself informs us, a mere summing up of evaluated figures, as these activities are heterogenous and not assimilable. Estimates of incomes and of the number of individuals involved in various illegal activities are reported in Table 1.
The total value is estimated between 100,000 and 150,000 billion Lit. a year, according to the average value of the Lit. between 1982 and 1984. The figure expressing the number of people employed in criminal activities varies between half a million and one million, that is, between 2.5% and 5.5% of the Italian working population. All of these figures are to be read with caution, as the author himself often warns; however, they do provide a meaningful idea of the size of the financial mafia in Italy, although its activities constitute only a part of the above-evaluated crimes. Organized criminality, in the form of the mafia, ‘ndrangheta, and camorra, is inseparable from most of the illegal activities carried out in Italy, particularly as regards the traffic of drugs and weapons, extortions, and blackmailing.
Martinoli proposes the following distinction among the personnel involved in the various activities of organized crime:
– A top level constituted of ‘very powerful bosses, perhaps favored by political connections as well; such individuals are above suspicion, well protected both by bodyguards and top lawyers’. These bosses secretly hold the reins of illegality, and number approximately one thousand.
– Executors, including full-time ones and desultory criminal collaborators; these amount to some tens of thousands of individuals.
– People conniving at criminal activities in various ways (i.e., by carrying out minute tasks or assuming conniving attitudes); this sector may sometimes include almost the whole population of a small town.
– People who are not involved in illegal activities but who take advantage of illegal profits: professionals, businessmen, and others like them who carry on licit activities supported by dirty, recycled money (ibidem: 18 19).
Following an earlier research project dating back to 1979, the IRS (Internal Revenue Service) published the results of an investigation instigated by Abt Associated Inc. (IRS 1984). This investigation examined four different ‘forms of illegality’: theft, prostitution, gambling, and drug-trafficking. Profits deriving from robberies had been calculated as equivalent to $1,384 million in 1973, and to $3,888 million in 1982. As regards prostitution, an illegal income $2,241 million had been calculated in 1973. By 1982, this figure had grown to $11,583 million (Table 2). Gambling probably yielded a total profit of $855 billion in 1973, and of $23,392 in 1982 (Table 3). Income deriving from drug-trafficking had grown from $7,070 million in 1973 to $26,064 million in 1982 (Table 4). Thus organized criminality can be seen as basically controlling drug-trafficking, prostitution, and gambling.
According to other evaluations, drug-trafficking alone would bring to American society ‘damages’ of $90 billion; total profits deriving from the American mafia’s activities amount to $168 billion a year (Martinoli 1985: 18). In 1984 income amounted to over $170 billion (Baglivo 1985). These approximations show how far we still are from scientifically based evaluations. The research is actually still at the initial phase, and it demonstrates the remarkable difficulties in isolating suitable surveying methods and improved evaluating criteria. (12)
The mafia and the banking system in Sicily
The increase of bank-counters in Sicily (from 1951 to 1982, counters have grown from 504 to 1,131, with a local increase rate of 124.41%, whereas the national rate of increase has been of 64.24%: see Table 5) has been considered in relation to the growth of mafia activities connected mostly to international drug trafficking. (13)
No doubt that from the 1970s the Sicilian mafiosi have been concentrating more and more on drug-trafficking. They have derived from it much larger profits than those gained from other activities, such as cigarette-smuggling, extortion, market-control, kidnapping, etc., which are nonetheless still ca ried out together with the production and trade in narcotics. Heroin laboratories have been operating at least for a decade in Sicily (14), and mafia organizations became quite rich in a very short time. The accumulating process triggered fierce internal competition, which culminated between 1981 an 1983 in the bloodiest ‘mafia war’ ever seen. (15) This same process formed th background for the development of the mafia middle class from a subordina, alliance within the national ruling block, to hegemonic competition, sytema ically eliminating every hindrance to its expansion process (Santino 19821 1983b).
So far there exist no scientific surveys of the Sicilian mafia’s incomes: the supposed values vary from between 7,000 billion to 25-30,000 billion Lit. year, as regards heroin traffic. (16) How much of this money has flowed into tl Sicilian banking system?
The Majority Report of the Parliamentary Committee which investigated the mafia phenomenon in Sicily between the years 1962 and 1976 has already stated that during this period in Sicily the ‘banking system has become th instrument used by mafia and by organized criminality as a whole for recyclin money deriving from illegal activities’ (Commissione d’inchiesta sulla mafia relazione maggioranza, Carraro 1976: 309). But this most serious statemen has become a dead issue: no inquiry into the Sicilian banking system was in fac engineered to substantiate this claim.
By order both of article 17, item ‘e’, of the Regional Constitution, and of th subsequent actuation rules (Decreto Presidente Regione no. 1133 of June 2 1952), the Regional Administration of Sicily has considerable powers a regards banking matters: within the regional district it can actually authoriz the opening, transferring, substitution, and closing of bank-counters whic operate only in Sicily, or which have their main office in Sicily and operat outside the regional territory as well. The Regional Administration also possesses some power over bank companies which have their main office outsid the Regional territory, but it cannot close counters.
Some of these powers are wielded autonomously by the Regional Admini tration (articles 3 and 6 of the D.P.R. 1133/1952). However, when so-calle ‘Istituti di diritto pubblico’, banks of national interest or of extra-region importance are involved, or when the establishment of banks operating i more districts, or when capital exceeds an amount fixed by the CICR (Con itato Interministeriale per il Credito e il Risparmio), the Banca d’Italia and/ the Ministry of the Treasury can submit the plans of their measures to
evaluated by the CICR. The decision of the CICR is binding for the Region Administration only if it is communicated within four months. A furth instrument of coordination between Regional and National Administration the veto which can be issued by the Councillor of Budget in order to reject applications for licenses for opening, transferring and substituting of bankcounters which belong to ‘Istituti di credito di diritto pubblico’, banks of national importance and banks whose main office is outside Sicily. If the Regional Councillor accepts such requests, he then transmits them to the Banca d’Italia which is responsible for issuing authorizations.
One of the main features of the Sicilian banking system is the duopoly held by both large banks (Banco di Sicilia and Cassa di Risparmio) and secondary banks. Until 1975, these two major banks controlled 70% of the Sicilian market, and in 1980 this figure had dropped to 60.3%. The increase of the secondary banks – the so-called ‘banche popolari’ are particularly on the rise, with a rate of 672.97% between 1951 and 1982: Table 6 – is to be seen as the most remarkable feature of the last decade. However, the major banks do operate on the most important markets (Cucinella 1983: 141-161).
Members of the academic world have considered the increase of bankcounters as a partly favorable phenomenon – since it would bring about ‘a decrease of the gap between the credit cost in the islands and the one in other geographic areas’ (Busetta 1982: 86) – and political authorities have considered some statements which accuse the Sicilian banking system of being interpenetrated by the mafia as an attack on regional autonomy. (17) However, even before the Anti-mafia law, magistrates for the most part involved in anti-mafia work have particularly concentrated their investigations on the recycling of dirty money through large and small banks. Banking investigations have led to the identification and castigation of some mafiosi and even of their accomplices inside the banks: see Fig. 4. One of the most significant inquiries (i.e., the one by examining magistrate Giovanni Falcone against Rosario Spatola and other mafiosi) has been basically carried out via an investigation of transfers of ‘narcodollars’ through banking-circuits, and not only Sicilian and secondary ones. (18) Traces left by money movements connected with the most lucrative criminal activities have been considered as the mafia’s veritable ‘Achilles’ heel’ (Falcone-Turone 1982: 42).
Tax collectors have played a remarkable role within the Sicilian economy and finance. The old Anti-mafia Committee investigated them (Commissione d’inchiesta sulla mafia, relazione maggioranza, Carraro 1976: 310; relazione minoranza, La Torre 1976: 601-602), but it is only recently that the activities of tax collectors have been divulged as a consequence of the cousins Ignazio and Nino Salvos’ imprisonment following Buscetta’s statements.
For decades the Salvos dominated the Sicilian financial-industrial world, through their control of important regional and national politics . (19) The premiums of Sicilian tax offices were much higher than the national ones (almost 10% and 2.5%, respectively), and the ‘Salemi tax collectors’ (as the two cousins were commonly referred to on the basis of the name of their home town) could dispose of huge capital amounts to be invested in various activities. (20) The Salvos and the former mayor of Palermo, Vito Ciancimino, are the only members of the mafia’s so-called ‘third level’ who have been identified and handed over to the authorities. (2l)
Anti-mafia legislation and banking investigations
Article no. 14 of the Anti-mafia Law (Law no. 646 of September 13,1982, also called the ‘Rognoni-La Torre Law’) establishes that ‘through the Procuratore della Repubblica (Attorney General) the Police Superintendent can request from all government agencies, banking institutions and trust companies information and copies of documents considered useful for investigations about individuals against whom precautionary measures can be proposed, on the grounds of suspected mafia-membership’. This latter provision is to be related to that of article no. 1 of the decree with force of Law no. 629 of 1982 (converted into Law no. 726 as of October 12, 1982) stating that ‘inspection and investigation powers at public administration offices, public economic boards, banks, public or private istituti di credito are granted’ to the Antimafia High Commissioner ‘for the fulfilment of his functions, and also by way of exception to the provisions in force, with the possibility of availing himself of the tax-police’. Article no. 24 of Law no. 646 extends the provisions of article no. 14 of the same law to individuals suspected of mafia-membership.
According to the High Commissioner’s report of September 3, 1984 on the establishment of the Anti-mafia Law, 12,032 bank investigations had been carried out on a national scale between October 1, 1982 and June 30, 1984 by order of the Police Superintendent, of the Attorney General, or of the court. The banks that had been investigated were minor ones, and patrimonial investigations had involved essentially small mafiosi. (22)
During its activity the Parliamentary Anti-mafia Committee has heard the Governor of the Banca d’Italia twice – in October 1983 and in December 1985. During these hearings, Mr. Ciampi emphasized that the main link in the relationship between mafia and banks consists in the recycling of ‘dirty money’. He also pointed out that mafia infiltrations into the loaning sector have no reason to exist, ‘as mafia organizations do not need to search for financial means on the market’ (‘Giornale di Sicilia’, December 19, 1985). This is a reductive statement, since it does not take into account that ordinary and facilitated loans have very often been granted to the best-known mafiosi by large banks and by ‘istituti di credito speciale’. The most well-publicized case is that of the brothers Greco, which concerned a facilitated loan of Lit. 1.3 billion granted for ‘improvements’ on land owned by the Christian Democratic deputy Luigi Gioia, in the district of Caltanissetta (‘I Siciliani’ 1984, n. 15).
Whereas in the first hearing the Governor of the Banca d’Italia exposed – in an expressly arranged dossier – the ‘overflow’ of bank-counters in Sicily (‘a hypertrophic or scarcely competitive network of bank-counters contradicts the principle of efficient productivity which must be the basis of the banking service’, on page 4 of the aforesaid dossier), in the second hearing he stated that the number of licenses issued by the Regional Administration to new bank-counters has been reduced, and the veto to the presence of banks of national importance has practically been abolished. Mr. Ciampi provided the following information regarding investigations carried out in Sicily, Calabria and Campania between 1984 and 1985: 80 investigations compared to 392 which were carried out in the whole nation, resulting in a percentage-rate of 20% (‘Giornale di Sicilia’, December 19, 1985).
Both Majority and Minority Reports of the Anti-mafia Committee, published in 1985, devote some pages to this problem. The Majority Report touches on ‘the insufficient cooperation’ given by banks to the investigations of the mafiosi’s patrimonies, and severely criticizes the Italian stock market for that ‘lack of transparency’ which has allowed the flourishing of Calvi’s and Sindona’s speculations (Commissione parlamentare, relazione maggioranza, Alinovi 1985: 110). Moreover, this report admits the ‘almost ridiculous’ uselessness of the provisions against abuses by banks (ibidem: 116), and acknowledges the necessity of strengthening the administrative organizations and the customs officers; of effecting new international agreements, particularly concerning tax havens; of regulating the financial and banking activities not controlled by law (‘para-banking’ activities, market of atypical stocks, holding and trust companies); and, finally, the necessity of designing a new law with regards to tax-offices (ibidem: 107-123).
The Minority Report, based on the idea of a ‘financial mafia’, states the necessity of abolishing bank secrecy, but takes into account the problems resulting from such an action: ‘current legislative tendencies go in the opposite direction, that is, toward a further liberalization of banking activities. This tendency corresponds to the demands of finance capital, which cannot take into account the quality of the money but only the quantity’ (Commissione parlamentare, relazione minoranza, Pollice 1985: 39).
The struggle against the ‘financial mafia’ involves the elaboration of a complex strategy operating at a legal, economic, social, political and cultural level, and directly involving large masses not only individuals or small and rather isolated sectors of society.
The criminalization of the economy will increase, and will become a typical feature of contemporary society, if we do not take action against the two following basic points: 1) the function of services carried out by criminal organizations, particularly concerning the traffic of drugs and weapons; and 2) the ‘opacity’ of the financial-industrial complex, which allows for the amalgamation of different capital amounts with no consideration for their nature and origln.
Illegal accumulation can be reduced and eventually eliminated only by doing away with the role played by criminal organizations as providers of services. Therefore, it is necessary to carry out complex measures, measures which would include the decriminalization of drugs and of other illegal goods whose use would be reduced with the help of appropriate education policies. Things such as the need for weapons, which for the moment is caused by the militarization process, can be eliminated by means of resolute peace policies. And as far as the financial aspect is concerned, every partial and limited measure is doomed to failure if it does not aim at making transparent the present obscurity of the financial-industrial system.
1. In 1953, Daniel Bell worked out a theory of crime as the ‘American way of life’, and as a channel of social mobility of the fringe ethnic communities involved in a struggle for a successful position in American society: Irish, Jews, and Italians in chronological order (Bell 1953: 131-154). Francis A.J. Ianni developed this theory and located the source of this new organized criminality in the Puerto Rican and colored population (lanni 1974). According to my own hypothesis, criminality has moved from the geographical and social ‘periphery’ into the ‘center’, retaining some features of the latecomers’ activities while at the same time assuming more and more characteristics of international business which involves white collar workers and power-criminals.
The historical development of the mafia is outlined by Catanzaro (1984) as a transition ‘from periphery to center’, as far as the Italian situation and the connection between the mafia and political power are concerned. On the rise of big criminality as a world problem, see Arlacchi (1985).
2. Some bibliographical information in major organizations includes the following: Colombian mafia: Mansfeld (1982); Bolivian mafia: LAB-Iepala (1982); Chinese Triads and Southeast Asiatic drug-trafficking: McCoy (1973) and Bresler (1981); Japanese Yakuza: Schrader (1975); activities of Puertoricans within organized crime: Ianni (1974); and Australian orgamzed crime: Royal Commission (1983).
The Corsican-Marseillaise organizations played a major role in international drug-trafficking between the 1930s and the 1960s (Lamour-Lamberti 1973). During the last few decades, organized crime has spread even to countries once considered immune, such as Scandinavia (Block-Chambliss 1981: 1935-159).
3. In addition to the works mentioned within the present paper (Comito 1976, Dockés 1977, Michalet 1978) and in note no. 7, here is a short list of other relevant titles. Contemporary society: Touraine (1970), Bell (1973), O’Connor (1977), Offe (1977); connections between crime and society: Pearce (1976), Block-Chambliss (1981), Grilli (1985); ‘hidden’ and ‘criminal’ powers: Bobbio (1980), Curi (1981), Rodotà (1983), Roth-Ender (1984); process of militarization: Melman (1972), Santino (1983c, 1983d).
4. The analysis of ‘finance capital’ is one of the classic topics of Marxist literature. Some of the points elaborated in Marx’s historical and theoretical works (1965,1968,1973) have also been treated by Hilferding (1972), and, in a different and opposite manner, by Lenin (1969). More recent essays include Sweeze (1962) and Pesenti (1972).
5. Cf. Grifone (1971), Lippi (1972), Vicarelli (1979).
6. On the role of the Deutsche Bank, ‘Der Spiegel’ 1985, no. 7; and on the multinationalization of konzerne: Mettler (1985a-b).
7. Cf. ONU (1973), Hymer (1974), Dunning (1975), Palloix (1975), Comito (1976). Every year since 1954, ‘Fortune’ magazine has published a list of U.S. Corporations; the ‘Yearbook’ of the ‘Financial Times’ is one of the major sources of information. The monthly ‘Survey of Current Business’ of the U.S. Department of Commerce is a useful source of data concerning multinational corporations and investments abroad of American firms.
8. The E.E.C. Council issued four statements on banking matlers: the first (no. 73 of June 28, 1973) establishes the liberalization of services; the second (no. 780 of December 12, 1977) pertains to the coordination of the provisions of the member-countries on the access to the bank’s activities; the third (no. 349 of June 13, 1983) concerns the vigilance of banking entities; and the fourth (of June 13, 1984) examines the ratification of regulations and administrative provisions of the member-countries with regards to consumption credit. On E.E.C. policies, cf. Mimola, Principe, and Rispoli (1983).
9. On financial innovation, cf. Silber (1975).
10. On this subject, both majority and minority reports of the Parliamentary Inquiry Commission into Sindona’s case are basically in agreement, despite some small differences.
11. In 1973, the U.S. National Bank of San Diego, and in 1974 the Franklin National Bank, the Herstatt Bank, and the Banca Privata Italiana, went bankrupt. Central banks intervened to neutralize the ‘destabilizing potential’ of the crisis at the time (Onado 1984: 5). That means that the speculations and thefts of financiers such as Sindona have been payed back by public institutions, i.e., by private citizens.
12. On the criteria of the criminal economic survey within the ‘hidden economy’, cf. Deaglio 1985: 170 173).
13. Some data on the increase of bank counters have been published in a paper by S. Ruvolo in a bulletin of the C.S.D. in 1979. Other pertinent information can be found in Fava-Gambino (1984).
14. Between 22 September 1971, and July 6,1978, 94.930 kgs of heroin from Palermo were seized at Kennedy Airport in New York City. In August 1980, the first heroin laboratory was discovered a few kilometers away from Palermo. Its production amounted to 50 kgs a week. During 1980, two others were uncovered near Palermo, and in February 1982, yet another one was found. The weekly production of these laboratories also amounted to 50 kgs of heroin.
15. Between 1978 and 1984 in Palermo and its outlying areas, there were 606 murders, excluding cases of missing persons (‘lupare bianche’). The years with the highest murder quotas were 1981 (98 murders),1982 (150), and 1983 (113) . These figures are based on the findings of the CSD and of the Institute for Judicial Statistics of Palermo University.
16. ‘The DEA (Drug Enforcement Administration) survey stated in 1980 that a third of the total quantity of heroin, commercialized in that year all over the world, went through Sicily. The total income was estimated at Lit.20,000 billion’ (Santino 1982a: 40). Gambino has concluded that a total of Lit. 25-30,0()0 billion comes from drug-trafficking engineered by Sicilian mafia families (1983).
17. Ex-president of the Sicilian Regional Administratlon, Mr. Mario D’Acquisto, stated: ‘Sicilian autonomy is to be defended. We were behind everyone in almost all sectors, so we had to gain ground faster than the others. That is the reason for such an increase in bank counters… Anyway, it is ridiculous to affirm that the Regional Administration or the Sicilian banks support the mafia: this kind of subject has no right to exist in a serious discussion’ (‘I Siciliani’ April 1984: 32).
18. Here is a list of the Sicilian banks investigated: Sicilcasa (Palermo), Cassa rurale artigiana di Monreale (Monreale, Palermo), Banca popolare di Carini, Banca del popolo di Cinisi, Banco di Sicilia (Palermo, Riesi), Banca popolare siciliana (Bagheria), Banca nazionale del lavoro (Palermo), Banca del Sud (Bagheria), Banca popolare di Belmonte Mezzagno, Cassa rurale et artigiana di Altofonte. In other regions of Italy, the following banks were investigated: Banco di Napoli, Banca nazionale del lavoro, Banco di Roma, Cassa di risparmio di Calabria e Lucania, Banca popolare di Luino e Varese, Monte dei Paschi di Siena, Credito romagnolo (Falcone 1981).
19. A telling report of a 1962 meeting of a company belonging to the Salvos has recently been published by ‘I Siciliani’, July-August 1984: 26 31. It provides the authorization given by the board of directors to the discretionary management of funds intended to impede every political trade-union initiative aimed at establishing in Sicily a public entity of tax collecting which would abolish the tax offices.
20. On Salvos’ activities, cf. Corsentino, 1982; Gambino, 1984.
21. Magistrates Falcone and Turone have divided mafia crimes into three categories: 1) criminal activities directly producing capital (including traditional crimes such as extortion, cigarettesmuggling, wine adulteration, trafficking of drugs and weapons); 2) crimes connected with internal mafia struggles; and 3) activities aimed at protecting the perpetuation of the mafia system, for instance political murders (Falcone-Turone 1982: 43-45). The press took this classification and formed a schema of mafia organization, which distinguishes three levels: 1) killers; 2) instigators (i.e., mafia bosses); and 3) political-financial people. It is obvious that the first two levels are not so clear-cut: there are killers who are also bosses – or who aim at becoming bosses – and there are killers who are just part of the criminal working force. The third level can be properly considered as the arena wherein mafia and politics interconnect. Anyone who denies this connection denies the existence of the third level as well, and would at the most admit to the existence of sporadic relationships between some bosses and some politicians. Others vouch for the existence of an organic relationship between mafia and politics. Even among the court magistrates who elaborated the materials intended for the so-called ‘maxi-processo’ of Palermo, there is no agreement of opinions. The attorneys assert the ‘contiguity’ between the mafia andthe political milieu; magistrates of the investigating office write that political murders are a result of an unusual convergence between mafia interests and hidden interests involving the public administration. These facts imply a background of connections which transcend a mere ‘contiguity’.
At the judicial level, it has not yet been possible to go beyond Ciancimino and the Salvos, a cultural and political attempt, by means of a dossier on the European Parlamentarian of Christian Democrats Salvo Lima (Santino 1984), introduced in Rome and Strasbourg by the Democrazia Proletaria, remains isolated. Political compromises impede the developoment of a coherent struggle against the mafia.
22. For patrimonial investigations carried out after the establishment of the Anti-mafia Law, cf. Cazzola-Lanza-Roccuzzo (1985).
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