The dreaded Italian mafia has largely given up crime in favor of white-collar crime

The Italian mafia rarely gets its hands dirty these days. Extortion gangs are no longer fashionable, and crimes are largely avoided by “godfathers”. Instead, the mobsters moved aggressively into the low-risk and discreet world of economic criminality, Italian prosecutors explained to the Reuters agency, quoted by News.ro.

Only 17 people were killed by the mafia in Italy in 2022, according to the latest official data, compared to more than 700 in 1991.

The shift to tax evasion and financial fraud is fueled by billions of euros flowing into Italy in the form of post-Covid economic recovery funds, which are also proving attractive to mafia families. Prime Minister Giorgia Meloni’s government revealed last month that it had uncovered 16 billion euros ($17 billion) in fraud linked to housing improvement schemes.

Prosecutors are also looking into possible misuse of a 200 billion euro European Union stimulus package. Prosecutors say not all fraud is orchestrated by Italy’s powerful organized crime groups, but they suspect their involvement is significant.

“It would have been foolish to think they wouldn’t take advantage of a huge influx of cash,” Barbara Sargenti, an official at the National Anti-Mafia and Anti-Terrorism Prosecutor’s Office, told Reuters.

Cosa Nostra in Sicily and the Camorra in the city of Naples are Italy’s best-known mafia groups, but the ‘Ndrangheta, based in the southern region of Calabria, is the largest organized crime group in the peninsula.

Although it maintains close control over the European cocaine trade, the ‘Ndrangheta has led the “transition” towards financing fraud in the last decade.

The European Public Prosecutor’s Office (EPPO) – which investigates crimes against the financial interests of the European Union – sounded the alarm in February, warning that the huge scale of financial crimes in the 27-nation bloc suggested the involvement of organized criminal groups.

Italy, at the center of suspicions of fraud with EU funds

Almost a third of the EPPO’s 1,927 active cases in 2023 were centered on Italy, where the estimated damage was 7.38 billion euros, out of a total of 19.3 billion across the bloc. Interviews with seven prosecutors and police chiefs, coupled with an analysis of thousands of pages of court documents, revealed the extent of the mafia’s involvement in Italy’s business world and the cost it imposes on the state budget.

Italian prosecutors say that crimes are often based on the complicity of entrepreneurs, happy to find new ways to avoid paying taxes. Tax evasion is a chronic problem in Italy, which in 2021 cost the state finances approximately 83 billion euros, according to the latest Treasury data.

“In Italy, there is no social stigma for those who issue false invoices or avoid taxes. The social vision of economic crimes is very different from those of drug trafficking,” said Alessandra Dolci, head of the anti-mafia team in Milan.

While there is no official estimate of the scale of organized crime’s involvement in financial crimes in Italy, two of the prosecutors who spoke to Reuters estimated that it is in the billions of euros each year – only a fraction of which is uncovered.

For criminal gangs, given the large sums of money involved, the penalties are relatively modest. If you are caught trying to sell just 50 grams of cocaine, you risk up to 20 years in prison. But if you issue false invoices to gain fraudulent tax credits of €500 million, you only risk between 18 months and six years in prison.

“There is no comparison when it comes to evaluating the risk/reward ratio,” said Dolci, anti-mafia prosecutor. It may not be a Hollywood movie, but several recent cases highlight the links between tax fraud and organized crime.

How the Italian mafia came to operate

In February, police in the northern Emilia Romagna region arrested 108 people believed to be close to the ‘Ndrangheta. They are suspected of having issued false invoices worth 4 million euros for non-existent services in shipbuilding, industrial machinery maintenance, cleaning and car rental.

The investigation is ongoing and a trial date has not yet been set.

Colonel Filippo Ivan Bixio, the provincial commander of the Fiscal Police, said that such schemes allowed businessmen to reduce their taxable income and obtain tax credits.

“It is not a sporadic phenomenon. It’s structured,” he said. Milan magistrate Pasquale Addesso witnessed the metamorphosis of the mafia up close. Since the city organized a trial in 2011 for about 120 defendants accused of a series of traditional mob crimes, Addesso says he has not encountered a single case of extortion, which was once a mainstay of mob activity.

“The ‘Ndrangheta… is no longer involved in extortion gangs, but in insolvencies and bankruptcies. (He entered) the world of subcontracting, responding to a demand for tax evasion from entrepreneurs,” he added.

A trial that ended last year centered on an investigation led by Addesso that revealed some of the many scams used by mobsters – including setting up seemingly legitimate cooperatives that offer companies low-cost outsourcing services, only to bankrupt them after just two years.

The reason was simple. The government offers nice tax breaks to newly established companies. A company that has no intention of growing can use this aid to offer extremely competitive prices and then, by fraudulently declaring bankruptcy, can waive its debts and social assistance obligations.

“The ‘Ndrangheta operates across the entire temporary labor supply sector, from transport to cleaning. Without paying taxes and contributions, it can offer services at reduced prices,” said Gaetano Paci, chief prosecutor in the city of Reggio Emilia.

In some situations, large international companies end up working with mafia-controlled companies

Court documents showed that international companies – including UPS Italia, German transport giant DB Schenker and supermarket chain Lidl – outsourced some logistics to cooperatives created by the ‘Ndrangheta. The companies were sentenced to pay fines.

A spokesman for DB Schenker said proceedings against the company had now been closed and declined to comment. Lidl declined to comment. UPS said it operates in compliance with all local laws and that its compliance program specifically addressed prosecutors’ concerns.

Alluding to the cost of funding such schemes, the Inland Revenue revealed to parliament last July that bankrupt companies owed a total of €156 billion in unpaid taxes and pension payments.

This is about three times higher than Italy’s annual income from corporate tax collection, which last year amounted to 51.75 billion euros. A substantial part of the outstanding amount is due to suspected fraud with possible ties to the mafia, Addesso said.

Italian prosecutors complain that the situation is beyond them

Addesso complained that there is a lack of staff with the skills to conduct complex financial investigations and prove when bankruptcies are fraudulent.

“If you want to fight the mafia, then you should focus more on insolvency and bankruptcy laws than on extortion,” he said. Taking over apparently successful firms and then gutting them can also be profitable.

In one case highlighted in Addesso’s Milan trial, he showed how two members of the ‘Ndrangheta invested in a Michelin-starred restaurant in a city skyscraper in 2014, promising to help owner to cover outstanding taxes and rent on the property. They didn’t.

Instead, they incurred more debts and declared bankruptcy – not once, but twice – owing the state about 1.8 million euros in unpaid taxes. Although those behind this fraud have been convicted and jailed, investigators say many other criminals get away, in part because of laws that limit the time available to prosecute economic crimes.

The statute of limitations is 6 years for tax evasion, 8 years for non-payment of VAT and 10 years for fraudulent bankruptcy. But complex investigations can take years, and even if a conviction is obtained, there is often a lengthy appeals process, prosecutors say.

Highlighting the problem, the Council of Europe showed that in 2022 only 0.9% of Italy’s prisoners were serving sentences for economic crimes – far less than 7.1% in France and 9.8% in Germany.

And successive governments in Rome have failed to strengthen economic crime legislation, preferring instead to focus on reforms that would recover some of the money owed.