Italian mafia shifts to white-collar crime, exploiting post-COVID recovery funds

Italy’s mafia has shifted focus from violent crimes to white-collar offences, capitalising on post-COVID recovery funds. Extortion is out, replaced by tax evasion and financial fraud. With billions in play, prosecutors suspect organised crime involvement, leading to billions in damages. Weak penalties and limited prosecutions facilitate their activities, highlighting systemic challenges.

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SOURCE: REUTERS

By Emilio Parodi

MILAN, May 6 (Reuters) – Italy’s mafia rarely dirties its hands with blood these days.

Extortion rackets have gone out of fashion and murders are largely frowned upon by the godfathers. Just 17 people were killed by the mob in Italy in 2022, according to the latest official data, versus more than 700 in 1991.

Instead, mobsters have moved aggressively into the low-risk, low-key world of white-collar crime, senior Italian prosecutors told Reuters.

The shift to tax evasion and financial fraud is being fuelled by billions of euros sloshing around Italy in post-COVID recovery funds that were designed to boost the economy but are proving a boon for fraudsters. Prime Minister Giorgia Meloni’s government revealed last month it had uncovered 16 billion euros ($17 billion) of fraud tied to home improvement schemes.

Prosecutors are also looking into potentially massive abuse of a European Union stimulus package worth 200 billion.

Not all the fraud is being orchestrated by Italy’s powerful organized crime groups, prosecutors say, but they suspect that a lot is.

“It would have been foolish to think they wouldn’t take advantage of a huge influx of cash,” said Barbara Sargenti, an official in the National Anti-Mafia and Anti-Terrorism Prosecutor’s Office. Sicily’s Cosa Nostra and the Camorra from the city of Naples are Italy’s best known mafia groups, but the ‘Ndrangheta based in the southern region of Calabria is the nation’s biggest organised crime group.

While maintaining a tight grip on the European cocaine trade, it has led the drive into finance over the past 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 wrongdoing across the 27-nation bloc suggested the involvement of organized crime groups.

Almost a third of the EPPO’s 1,927 active cases in 2023 were centred on Italy, where the estimated damage was put at 7.38 billion euros out of a total 19.3 billion in the whole bloc.

Interviews with seven prosecutors and police chiefs, coupled with an analysis of thousands of pages of court documents, revealed the breadth of mob involvement in Italy’s business world and the cost this is imposing on state coffers.

Prosecutors said the crimes often rely on the complicity of entrepreneurs, happy to find new ways to dodge taxes. Tax evasion is a chronic problem in Italy, costing state coffers some 83 billion euros in 2021, according to the most recent Treasury data.

“In Italy, there is no social stigma for those who issue false invoices or evade taxes,” said Alessandra Dolci, head of Milan’s anti-mafia prosecution team. “Social views on economic crimes are very different to those regarding drug trafficking.”

GOING BANKRUPT

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 it was billions of euros each year – only a fraction of which had been uncovered.

For criminal gangs, given the large sums of money involved, the penalties are relatively light. If you are caught trying to sell as little as 50 grams of cocaine, you risk up to 20 years in jail. But if you issue bogus invoices to gain 500 million euros of fraudulent tax credits, you only face between 18-months and six years in prison.

“There is no comparison when it comes to assessing the risk/reward ratio,” said Dolci, the anti-mafia prosecutor.

They might not make for a Hollywood movie, but multiple recent cases highlight the links between tax scams and organized crime.

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

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

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

“It’s not a sporadic phenomenon. It’s structured,” he said.

Milan magistrate Pasquale Addesso has witnessed the metamorphosis of the mafia up close.

Since the city staged a trial in 2011 of some 120 defendants, accused of an array of traditional mafia crimes, Addesso says he has not come across a single case of extortion, which was once a mainstay of mob activity.

“The ‘Ndrangheta … is no longer involved in extortion rackets, but in insolvencies and bankruptcies,” he said. “(It) has entered the world of sub-contracting, responding to a demand for tax evasion from entrepreneurs.”

A trial that concluded last year centred on an investigation led by Addesso that uncovered some of the many scams used by mobsters — including creating apparently legitimate cooperatives that offer cut-priced outsourcing services to companies, only to bankrupt them after just two years.

The reason was simple. The government offers handsome tax breaks to newly formed companies. A company that has no intention of growing can use this help to offer highly competitive prices and then, by fraudulently declaring bankruptcy, can walk away from its debts and social welfare obligations.

“The ‘Ndrangheta operates throughout the temporary work supply sector, from transport to cleaning,” said Gaetano Paci, chief prosecutor in the northern city Reggio Emilia. “By not paying taxes and contributions, it can offer services at slashed prices.”

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

A spokesperson for DB Schenker said the proceedings against the company were now closed and declined comment. Lidl declined to comment. UPS said it conducts business in accordance with all local laws and its compliance programme specifically addressed prosecutors’ concerns.

Hinting at the cost to the state of such schemes, the internal revenue service revealed to parliament last July that bankrupt companies owed a total of 156 billion euros in unpaid taxes and pension payments. That’s roughly three times Italy’s annual corporate tax revenues, which last year were 51.75 billion euros.

A substantial chunk of the sum outstanding is due to suspected fraud, with possible mob ties, Addesso said. He complained, however, that there was a lack of staff with the skills to conduct complex financial investigations and prove when bankruptcies are fraudulent.

“If you want to combat the mafia, then you should focus more on insolvencies and bankruptcy laws rather than on extortion,” he said.

ASSET STRIPPING

Taking over apparently successful firms and then gutting them can also be profitable.

In a 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 the owner cover overdue taxes and rent on the property.

They didn’t. Instead they ran up more debt and declared bankruptcy – not once, but twice – owing the state some 1.8 million euros in unpaid taxes.

Although those behind this fraud were convicted and imprisoned, investigators say many more offenders escape their clutches, partly because of laws that limit the time available to prosecute white collar crimes.

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

Highlighting the problem, the Council of Europe, a democracy and human rights watchdog, said that in 2022 just 0.9% of Italy’s prisoners were serving time for economic crimes – far lower than 7.1% in France and 9.8% in Germany.

And successive governments have failed to toughen rules around white-collar crime, preferring to focus instead on reforms that would claw back some of the money owed.

Fiscal decrees in February include the decriminalisation of some tax offences, which the opposition has said legitimises illegal behaviour.

“There is no amnesty and no favours for the cunning,” Meloni told parliament, defending the law. “This reform merely puts honest people in a position to pay.”

($1=0.9391 euros) (Writing by Crispian Balmer; Editing by Daniel Flynn)