Assessing the Effectiveness of Organized Crime Control Strategies: A Review of the Literature
- 4.1 Prosecuting Persons Involved in Organized Crime
- 4.2 Prosecuting Organized Crime Kingpins
- 4.3 Prosecutions Through the Use of Taxation Laws
- 4.4 Monitoring Financial Transactions Tackling Money Laundering
This chapter examines the effectiveness of the various strategies and tools available to combat OC. These measures are highly varied, ranging from the incapacitation of major OC figures and the forfeiture of their proceeds of crime to witnesses protection programs and electronic surveillance. As these initiatives cannot be readily categorized into discrete groups (e.g., legal versus investigative strategies), they are all presented in this one section. The order of their presentation is not a reflection of their relative importance, prominence, or effectiveness.
A number of countries have passed legislation prohibiting participation in the activities of a criminal entity or organization. Perhaps the best known of these laws is the Racketeer Influenced and Corrupt Organizations (RICO) statute in the US. Enacted in 1970, RICO defines racketeering very broadly, including murder, kidnapping, gambling, arson, robbery, bribery, extortion, drug dealing, and a list of federal offences, such as loansharking, counterfeiting, mail and wire fraud (Abadinsky, 2003:318).
RICO has facilitated the prosecution of those involved in OC, as the use of traditional conspiracy statutes has proven difficult. Rather than having to prove a series of distinct conspiracies, under RICO it is a crime to belong to an enterprise that is involved in a "pattern of racketeering", even if that pattern was displayed by other members. A "pattern" refers to just two or more of the specified offences within a ten-year period. The violation of RICO’s criminal provisions may result in imprisonment for 20 years and/or a fine of up to $25,000 (Abadinsky, 2003:319).
RICO also contains provisions according to which citizens can sue for damages to their business or property. They stand to recover threefold the damages sustained, as well as the cost of the suit. RICO also has asset forfeiture provisions, as well as those pertaining to the divestiture of the interests of OC figures in businesses and unions. These issues are discussed in the sections on the Seizure and Forfeiture of Assets and Injunctions, Divestitures, and Trusteeships.
By 1990, more than 1,000 major and minor OC figures had been convicted under RICO and given lengthy prison sentences (Abadinsky, 2003:319). The threat of long sentences has also served as a stick to gain the cooperation of defendants. Also, Giuliani (1986:106) argues that RICO
"enables the Government to present a jury with the whole picture of how an enterprise, such as an organized crime family, operates. Rather than pursuing the leader or a small number of subordinates for a single crime or scheme, the Government is able to indict the entire hierarchy of an organized crime family for the diverse criminal activities in which that "enterprise" engages."
All five New York crime families have been disabled by RICO convictions. Giuliani (1986:106) points out that RICO allowed for the prosecution of the
"entire upper echelon of the Colombo organized crime family." In addition, its requirement of proving a "pattern of racketeering activity" and its broad definition of "racketeering activity" allowed the prosecution in the Columbo case to include in a single indictment the various state and federal offences committed by that Family over a period of 15 years.
The same broad definition of racketeering that has served as a virtue of RICO has also been subject to considerable criticism (Greek, 1991). RICO has been used to prosecute many individuals without OC connections and brings with it the stigma of being labeled a
"racketeer" (Abadinsky, 2003:320). In Chicago, for example, a deputy sheriff and traffic court clerk were convicted under RICO for fixing parking tickets. RICO has also been used frequently to deal with crimes by legitimate corporations. In fact, any enterprise committing two or more felonies within a 10-year period is subject to prosecution under RICO (Albanese, 1996:197). RICO has been judged a
"dramatic failure" in attacking OC’s infiltration of legitimate businesses, as fewer than eight percent of the cases fall within this category (Lynch, 1987). Ironically, many RICO cases have involved government agencies that have been corrupted (Greek, 1991).
Aside from RICO, federal prosecutors in the US can avail themselves of another statute to target OC figures. The Continuing Criminal Enterprise (CCE) law, enacted in 1987, is limited to drug traffickers and makes it a crime to engage in a conspiracy to commit at least three related violations of felony drug laws with five or more individuals (Albanese, 1996:199). It provides for mandatory minimum sentences of 20 years for first violations, fines up to $2 million, and forfeiture of profits and any interest in the enterprise.
Data for 1990 indicates that, for both RICO and CCE cases, just about a third of suspects investigated are eventually charged (Albanese, 1996:200). This is due to the complexity and length of these cases, although some of those not charged under RICO or CCE are eventually charged with other crimes. Once charged, more than 80% of the defendants prosecuted under these laws are convicted.
Approximately one-half of US states have passed their own RICO laws, although they have not been used very frequently thus far (Albanese, 1996:199). A survey of local prosecutors found that less than a third reported a prosecution against OC between 1989 and 1991 (Rebovich, Coyle, and Schaaf, 1993:8).
In Canada, Sections 467.11 to 467.13 of the Criminal Code prohibits participation in and contribution to criminal organizations or the commission of indictable offences for the benefit of such an organization. This review did not uncover any studies assessing the implementation or impact of these provisions on criminal organizations or their activities.
For decades, law enforcement strategies have focused on identifying and prosecuting the leaders of criminal enterprises (Lyman and Potter, 1997:433). Members may be charged or arrested for relatively minor infractions. Charges for even small infractions provides prosecutors with the leverage to conduct further investigations of the group. The goal is to get "smaller fish" to "flip" and testify against the heads of the organization. The ultimate aim is to disrupt the group. This "headhunting" strategy is predicated on the assumption that OC operations are too complex to be proven in court.
According to the President’s Commission on Organized Crime (1986:205), there have been no rigorous assessments of the headhunting strategy. However, there is evidence that the US government incapacitated many OC leaders during the 1980s. By 1985, about two-thirds of the alleged Mafia bosses in the US were under indictment or convicted (President’s Crime Commission, 1986:47). In 1984 alone, a total of 2,194 OC indictments occurred, almost all of which involved alleged Mafia members (Lyman and Potter, 1997:435). By 1988, 19 bosses, 13 underbosses, and 43 captains had been convicted (Albanese, 1996:120). Furthermore, the prison sentences imposed on high-ranking OC figures during the 1980s tended to be very lengthy (Albanese, 1996:120).
Lyman and Potter (1997:435) question whether these efforts at decapitating and otherwise disrupting leading OC groups can be declared a success:
The problem with all this activity is that the government has failed to produce even a scintilla of evidence that any of these prosecutions have resulted in a diminution of organized crime’s illicit ventures. The federal government simply has no measures of the amount of harm caused by organized crime with which to measure such an impact… But other indicators seem to suggest that organized crime is alive and quite healthy despite these law enforcement efforts.
Lyman and Potter then provide several examples of major prosecutions of syndicates and their leaders that have either failed to reduce the volume of illicit activities, spawned other networks that have replaced the targeted group, led to restructuring within the affected group, triggered the revival of a group that had ceased operating for a decade, and that have even facilitated OC by eliminating less efficient operators.
Former US Attorney and New York mayor Rudolph Giuliani (1986: 104) has added:
the traditional prosecutorial model of attacking organized crime—the conviction and temporary incapacitation of the heads of a crime family for discrete crimes—has not greatly diminished the family’s power and ability to survive, if not flourish. No doubt, the unenviable record of short term success in prosecuting the leaders while leaving intact the infrastructure of organized crime weighed heavily on the Congress in 1970 as it considered remedial legislation.
Hoffman (1987:95 in Bynum) reinforces this point by stating that,
"As the history of enforcement efforts against organized crime indicates, demands still remain for illicit goods and services after leaders are incapacitated; opportunists in criminal groups merely take the place of those locked up."
Mastrofski and Potter (1987:283) provide a number of examples of the manner in which OC networks adapt to the incapacitation of the leadership of a particular group. One illustration involves a major gambling operation in Philadelphia. Prosecutions directed at this operation in the early 1980s
"spawned at least two dozen other criminal networks in the same neighbourhood as replacements for the crime group that had been targeted."
Lyman and Potter (1997) attribute the poor outcomes of headhunting strategies to misunderstandings about the workings of OC. They note that crime syndicates have learned to adapt their structures and practices in the form of decentralization and relationships that are more short-term. As headhunting disables just a small proportion of OC entrepreneurs at any given time, it may actually strengthen some groups by weeding out their inefficient competitors.
Another shortcoming of the headhunting strategy is that they often target easier cases involving highly visible, but not necessarily influential, crime figures. Targeting high-profile gangsters who are relatively easy to convict makes for good press, but will yield little in terms of impact. Lyman and Potter (1997:436) contend that,
"It is the relative immunity of major figures in organized crime, such as corrupt officials, money launderers, and others who serve as bridges between the underworld and the upper world that so clearly demonstrates the deficiencies in the headhunting strategy."
Citizens have obligations as taxpayers to file tax returns, make truthful declarations, and maintain complete business records. When income cannot be accounted for, whether connected to illicit acts or otherwise, recourse exists in the form of prosecutions for failing to report it. The Internal Revenue Service in the United States, for example, employs special agents who are charged with gathering evidence of criminal violations for prosecution by the Department of Justice.
Tax-related fraud can be established via direct and indirect methods (Abadinsky, 2003:313). The direct method involves the identification of unreported taxable receipts, overstated costs and expenses, and improper claims for credit or exemption. The advantage of this method is that the evidence is easier for jurors to understand.
OC figures, however, tend to avoid a paper trail—dealing in cash and maintaining few records—or set up legitimate businesses as fronts to conceal the illicit sources of their income. One indirect method of ascertaining their income is the net-worth method. Using this approach, a taxpayer’s net worth is established as precisely as possible at the beginning of the taxation period. This amount is then subtracted from his or her net worth at the end of that taxation period. The net gain is considered the taxpayer’s income, which is then compared with the income declared for that period. The government does not need to show a probable source of the gain in net worth that is unreported. Other indirect methods compare expenditures and bank deposits with reported income (Albanese, 1996:170).
The most celebrated target of this type of financial investigation was Al Capone. He could not account for over $100,000 of expenditures a year through legitimate income and was ultimately convicted for failing to pay taxes on $1 million of illegal income (Albanese, 1996:171). From 1960 to 1965, over half of all convictions of OC leaders in the United States stemmed from tax investigations (Rhodes, 1984).
One high-profile investigation, conducted by the United States’ Internal Revenue Service during the 1960s, was Operation Tradewinds (Block, 1991). This investigation developed information on OC figures and others who took money made illegally to the Bahamas and invested it there. Weak regulations and lax enforcement turned the Bahamas into a tax haven for various forms of tax scams. After ten years, the operation produced $25 million in taxes and penalties and initiated 13 investigations resulting in criminal proceedings. Although seriously under funded, Tradewinds generated critical information (Block, 1991). On the downside, the project produced some undesirable consequences with regard to foreign policy (i.e., conflicts with Bahamian authorites) and was controversial in its intrusion into the private financial dealings of Americans (Rhodes, 1984: 73-74).
In the United States alone, drug trafficking and other profit-motivated crime generate in excess of $300 billion annually (Karchmer and Ruch, 1992:1). The risks associated with the accumulation of and transactions in large sums of cash earned illicitly are substantial, as these assets may be seized and the owner may face criminal prosecution. Hence, to obtain the full benefit of illicit activities, offenders must convert their cash proceeds of crime to another form in order to engage in everyday commerce. Money laundering has been described as,
"the process of converting illegally earned assets, originating as cash, to one or more alternative forms to conceal such incriminating factors as illegal origin and true ownership" (Karchmer and Ruch, 1992:1).
Money laundering schemes vary in complexity (Beare, 1996:102-106), depending on the distance that criminals wish to put between their illegally earned cash and the laundered asset into which that cash is converted. Banks and other financial institutions, for example, issue negotiable instruments such as cashier’s checks and money orders in exchange for cash. These funds can then be used to acquire assets (e.g., legitimate businesses) that provide offenders with a source of income that appears legitimate and confers on them an image of respectability. Businesses with high volumes of cash sales (e.g., restaurants, bars) are especially attractive, as business volume is difficult to ascertain accurately during audits.
Also, laundering specialists may be retained; e.g., couriers to transport currency to laundering sites and lawyers to create trust accounts and transfer funds to a foreign account. Full-service organizations have been set up to facilitate money laundering. Perhaps the most notorious was the Bank of Commerce and Credit International (BCCI). Shut down by regulators in several countries, it was referred to as
"the most pervasive money laundering operation and financial supermarket ever created" and as a
"steering service" for Colombian drug traffickers to deposit hundreds of millions of dollars (Webster and McCampbell, 1992: 1).
One method available to detect money laundering schemes involves the analysis of currency transactions. Canada, the US, Australia, the UK, and other countries require that financial institutions record or report large transactions (usually sums of $10,000 or more) and/or report suspicious transactions. Lawyers and financial advisors, too, are required to report suspicious transactions in various countries, although Canadian legislation exempts lawyers from doing so (Porteous, 2003: A15). US legislation also requires the reporting of the transportation of currency and bearer instruments in excess of $10,000 into or out of the US (Abadinsky, 2003:326). More than 12 million currency transaction reports are produced there annually.
Various US states also routinely analyze data obtained from currency transaction reports to identify both institutions and individuals involved in high volumes of cash transactions (Karchmer and Ruch, 1992:5). Such analyses are limited by the tendency of more sophisticated laundering schemes to conceal the ownership of funds, to break up large sums of money into lots of less than $10,000 ("smurfing"), or to circumvent the reporting of large transactions through the complicity of employees of financial institutions.
The United States Treasury Department’s Financial Crimes Enforcement Network (FinCen) plays a key role in combating OC internationally, using anti-money laundering laws, providing intelligence, and case support to American and international investigators and regulators (Abadinsky, 2003). FinCen’s 200 employees include intelligence analysts and criminal investigators, as well as financial and computer specialists. It maintains a database that documents every suspicious-activity report since they were initiated in 1996.
Furthermore, under the Currency and Foreign Transactions Reporting Act, the United States can compel other countries to maintain financial records similar to those maintained in the US (Abadinsky, 2003:327). The financial institutions of countries that fail to establish an acceptable records system may be denied access to the US banking system. The implementation of this legislation is problematic as few countries require that financial institutions collect and report information on large or suspicious transactions (Abadinsky, 2003:328).
It is hard to quantify the number of money launderers who are prevented from plying their trade in the US as a result of the reporting requirements. However, the information obtained as a result of US reporting requirements has been used extensively in regulatory, civil, and criminal investigations (Osofsky, 1993:364).
The United States General Accounting Office has examined the enforcement of the Bank Secrecy Act of 1970, the legislation that required the reporting of transactions or transportation in or out of the US of large sums of currency. The GAO found that the US’ Treasury Department did not actively enforce the Act until 1985. The number of civil reviews for compliance increased to 76 in that year, most of which involved admissions of possible noncompliance by financial institutions (Albanese, 1996: 201). Civil penalties for just 11 of the 76 reviews totaled over $5 million. By 1990, the Internal Revenue Service’s Criminal Investigation Division had undertaken investigations resulting in over 1,000 convictions for offences related to money laundering in just a three-year period (General Accounting Office, 1991).
Overall, the GAO evaluation found that the potential of the Bank Secrecy Act was not being realized. One problem is the sheer volume of currency transaction reports filed annually: currently, this volume is 12 million. The large volume of reports has made meaningful analysis difficult. Also, while an amendment to the Act made it illegal to undertake multiple transactions just under $10,000, the US Supreme Court ruled in 1994 that people could not be convicted for "smurfing" without proof that they knew such action to be illegal (Albanese, 1996:202).
Another audit by the US General Accounting Office (1994) documents the limitations of the reporting requirement for the movement of over $10,000 in currency into or out of the US. Just a fraction of currency being smuggled across the American border is seized. The audit concluded that the volume of smuggled currency cannot be ascertained due to the clandestine nature of the activity. The smuggling of cash is impeding efforts to control money laundering.
The evidence from the United Kingdom does not invite greater optimism. As of 1995, 16,000 suspicious transaction reports had been filed—60-fold the number initially predicted (Levi, 1997:7). Fewer than one-half of one percent of these reports have been found to lead to new investigations or have had a significant impact on the outcome of a case (Levi, 1997:8). Levi (1997:7) notes that these reports,
"seldom provide information that would enable the police or customs to mount a surveillance operation on a target offender. The information does help to build up a profile, and multiple reports on the same person or on connected persons may trigger more detailed investigation, but mainly if the person is "already" known or under investigation anyway." Levi adds that because just a small proportion of reports receive more than routine checks on criminal intelligence databases, the proportion of reports that would yield evidence of crime, if followed up thoroughly, is unknown.
Gold and Levi (1994:87) express doubts about the potential of suspicion-based disclosure systems to detect major crime because the evidence indicates that large-scale offenders tend to be aware that large deposits in legitimate financial institutions will create problems for them. Gold and Levi point out that such offenders adapt to these reporting requirements and this accounts for an increase in the use of exchange bureaus and for the use of financial systems in European countries with less stringent reporting rules. They add that there is little evidence that financial institutions have been successful in spotting the misuse of front companies that intermingle crime-related with legitimate proceeds. In general, the surveillance of business accounts by bank staff tends to be minimal. Most transactions classified as suspicious are unsophisticated and involve personal accounts of known individuals.
In 1988, Australia established one of the most advanced reporting systems via its Cash Transaction Reporting Agency (now referred to as AUSTRAC). By 1993, approximately 90 percent of cash transactions over A$10,000 were electronically conveyed to AUSTRAC (Levi, 1997:8). In addition to the reporting of significant transactions, this system has a suspicious transaction reporting component. Between 1990 and 1993, 1.6 million significant transactions were reported. In 1994-95, AUSTRAC received 36,000 reports of international currency transfers, close to one million reports of cash transactions, and 3.6 million reports of international capital transfers. The estimated cost of supplying these reports in 1992 was A$3.5 million. According to Levi (1997), the Australian Tax Office made modest claims regarding the value of the significant transaction reports, because their efforts were focused on transactions deemed to be suspicious. Law enforcement authorities, too, have made few claims about the impact of significant transaction reports. The Australian Senate Standing Committee on Legal and Constitutional Affairs called for the retention of significant transaction reports partly on the basis of the view that it was too early to comment on their forensic value (Levi, 1997:9).
Between 1990 and 1995, just over 20,000 suspicion-based reports were forwarded to AUSTRAC. The additional revenue generated by AUSTRAC averages $13 million per year, nearly all of which is attributable to the suspicion-based rather than significant transaction reports. Suspicion-based reports are usually triggered by the structuring of transactions below the $10,000 threshold (or smurfing), international transfers of substantial amounts of cash, and cash transactions involving those who are not regular clients of the branch (Levi, 1997:10). A review in 1992 indicated that less than 10 percent of reports result in any direct action by law enforcement or taxation authorities (Levi, 1997:9).
By contrast, in Canada, just over 100 cases have been referred to the RCMP by FINTRAC, the new Canadian center that tracks financial transactions (Cordon, 2003:A12B). As the new Proceeds of Crime Act and Terrorism Financing Act that led to the creation of this center have only been introduced two years ago, it is too early to draw conclusions about its impact. The reporting of suspicious financial transactions did not begin until November, 2001 (Auditor General of Canada, 2003). In 2004, the Auditor General will report on the implementation of these new laws.
Overall, Levi (1997:11) concludes that while the impact of money-laundering regulations cannot be determined, they serve certain investigative and symbolic ends:
[laundering regulations] appear to be most useful as an ex post facto audit trail for following through known leads. As for Australia, existing reviews suggest that insufficient use is being made of what I regard as the most technologically advanced set of controls…One of the core common issues internationally seems to be that many enforcement insiders assumed that once they got the banks on their side…cases would just fall into their lap since banks already knew about their customers’ crimes. [In reality] all one has is an "out of character" financial transaction, the explanation of which usually cannot be simply sought from the parties involved, if they are thought to be criminals…insufficient police or customs staffing has been devoted to them: a common problem of inadequate resourcing for police functions. In this sense, money-laundering legislation could be viewed as being at the symbolic end of the symbolic-instrumental legislation axis…
The impact of money-laundering laws may be even more modest when one examines the results of those investigations that deal strictly with criminal enterprises. While the jury is still out in terms of the impact of money-laundering laws and the evidence to date is not reassuring, a number of investigations are noteworthy in their disruption of criminal activities. Two examples are those of Operation Greenback and the "Pizza Connection" case.
Operation Greenback, for example, was the first US government task force concentrating on money laundering. Referred to as the first successful attempt to take the profit out of drug trafficking, it was initiated in 1980 and, during its first three years, the project produced 40 indictments against 152 individuals from 40 organizations. One hundred and eleven people were arrested and $33 million in US currency seized. The project yielded millions of dollars of additional seizures in property, as well as substantial amounts forfeited (Dombrink and Meeker, 1987: 729). In the "Pizza Connection" case, an elaborate scheme was set up to launder the proceeds of heroin smuggled from Southeast Asia and distributed in the eastern US by the Sicilian Mafia. At least $25 million was laundered in this case and 38 individuals were indicted as a result of the investigation (Webster and McCampbell, 1992:4).
One multilateral initiative has been the Financial Action Task Force (FATF) formed by G-7 countries in 1989 to study measures to prevent the use of financial institutions by money launderers and to foster cooperation in laundering cases. The task force has developed a series of recommendations to assist countries in combating money laundering and has been evaluating the progress of members in implementing these recommendations.
Nearly all G-7 members have made money laundering an offence or are about to do so (US General Accounting Office, 1993:23). FATF efforts have also led to bilateral agreements among member and non-member countries to provide mutual assistance in freezing and forfeiting drug profits. FATF also fosters the exchange of information on money laundering. Its activities are compatible with the idea that the global implementation of money-laundering controls is necessary as traffickers will continue to seek the weakest link in financial systems.
International efforts, however, are hampered by differences in the scope of legislation pertaining to money laundering, in bank secrecy, and in legal systems in general (US General Accounting Office, 1993:23). Also, differences among members in the reporting of financial transactions, as well as in seizure laws, impede the rapid exchange of information and the extradition and prosecution of offenders. In its evaluations, FATF also identified a need to define what constitutes a suspicious transaction more clearly to gain improved cooperation from banks.
While FATF assesses the compliance of members with its recommendations, it has no enforcement authority. In most countries, money-laundering controls are the responsibility of financial institutions. While countries impose penalties on these institutions for non-compliance with established controls, banks may lack the capacity or expertise to institute them. Moreover, many central banks may lack the resources to assist banks in complying with reporting requirements or to assess their banks’ money-laundering controls (US General Accounting Office, 1993:32).
- Date modified: