E4J University Module Series: Organized Crime
Module 4: Infiltration of Organized Crime in Business and Government
Introduction and learning outcomes
Key issues
- Extortion
- Extortion racketeering
- Loansharking
- Links between organized crime and corruption
- Bribery versus extortion
- Money-laundering
- Liability of legal persons
- Summary
- References
Exercises
- Exercises and case studies
- Thinking critically through fiction
- Excerpts of legislation
Possible class structure
Core reading
Advanced reading
Student assessment
- Review and assessment questions
- Quiz 4
- Research and independent study questions
Additional teaching tools
Published in April 2018
Regional Perspectives: Pacific Islands Region - added in November 2019
Regional Perspectives: Eastern and Southern Africa - added in April 2020
This module is a resource for lecturers
Some organized crime activities attempt to devise a demand for protection, bribery or other illicit services, rather than merely exploiting an existing demand for illicit goods or services. In these situations, organized criminal groups seek to impose themselves on others through coercive methods.
The infiltration of legitimate business or government is more inherently predatory than the provision of illicit goods and services. When infiltrating businesses and governments, organized criminal groups often attempt to create a demand for their services, rather than simply exploit an existing market as they do when providing illicit goods and services. For example, organized criminal groups might run protection rackets, i.e. systems of illegal "taxation" imposed on persons or business in exchange for freedom from molestation, protection from damage or harm to its employees and customers. In this way, they use violence and threats to gain some form of monopolistic control (e.g., of territory, land, subsidies, garbage collection, or delivery services).
In legal terms, organized criminal groups can use coercion or extortion in the infiltration of legitimate business and governments, which involves implied or explicit threats to obtain a criminal objective. Coercion and extortion are not necessary to provide illicit goods or services although, as discussed in Module 1, there are exceptions such as human trafficking. This is because the demand for illicit goods and services already exists among the public, so no threats are required to attract customers to buy counterfeit products, illegal firearms or other products and services described in Module 3.
Such practices should not be confused with most forms of corruption, where both the briber and recipientof the bribegainsome form of benefit. In the case of infiltration of business and government, victims (often small to medium-sized companies, sole proprietors, or family businesses) do not receive a benefit, but are coerced to payin order toavoid worse treatment.That is to say, thefailure to pay will result in property damage, violence to employees or their loved ones, harassment of customers, interruption in deliveries, or related problems that businesses cannot afford to experience(Transcrime, 2012).
To “legitimize” the ill-gotten gains of these criminal activities, organized criminal groupsdisguise their illegal origin andoftenreinvestthemin the legal economy through money-laundering, aprocess of critical importance as it enables the criminalsto enjoytheprofitsof criminal activitieswithout jeopardizing their source.If left unchecked, money-laundering can have very highsocial and political costs, since it allows organised criminal groups to infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials(FATF, 2020).
Transnational Organized Crime and the Impact on the Private Sector: The Hidden Battalions
(Cartwright and Bones, 2017)
In the report Transnational Organized Crime and the Impact on the Private Sector: The Hidden Battalions, the authors analysed the ways in which six private sector industries (financial services, technology, consumer goods and retail, construction and real estate, transport and logistics, and natural resources) are affected by organized crime. There have been few attempts to study this phenomenon within the private sector. Their findings revealed six types of organized crime activities as either materially affecting these private sector industries or using the industries to facilitate their crimes. The six prominent forms of organized crime identified are:
- Money-laundering
- Asset misappropriation
- Counterfeiting and contraband
- Fraud and extortion
- Human trafficking
- Cybercrime
The analysis resulted in five key findings:
- Organized crime's scale and impact on the private sector is "truly staggering". The authors note that a conservative estimate of the value of organized crime in the six private sectors considered in this report stood between USD 3.5 to USD 4.6 trillion in 2015/16, equal to 7% of the global GDP.
- Private sector industries are either the facilitators of organized crime or are the targets. As illustrated in the report, "crimes are either done 'to' private sector organisations, or 'through' them" (p. 12). The most "victimized" industries are those operating in construction and natural resources, which are especially susceptible to theft, fraud and racketeering.
- The impact of organized crime on the private sector is increasing. While crime is understood to have professionalized and become much more low profile and less visible over the years, its impact on the private sector is growing. Although there has been an increase in anti-organized crime regulation, the effectiveness of these regulations is limited. The authors note that one study found that "money laundering seizures equated to 0.2% of all laundered funds" (p. 13).
- The Global South is disproportionately impacted by these crimes. Whether it be through the establishment of sweatshops, labour and sex trafficking, or corruption relating to natural resources, the Global South is disproportionately affected by organized crime's influence in the private sector. The report highlights the fact that many of the major private sector firms that organized criminal groups take advantage of in the Global South are managed and owned by people and entities in the Global North. As such, "the corporate responsibility, legal liability, reputational impact of crimes that damage people and societies in the Global South are borne by companies in the Global North" (p. 14).
- The responses to tackle these issues have been confrontational; what is needed is rather a collaborative approach between the private and public sectors. In order to combat the impact of transnational organized crime, meaningful cooperation between the public and private sectors is necessary; however, few successful examples of this exist.
According to the authors, these issues require international attention and action because the impact of these criminal activities extend far beyond private sector financial losses and in fact "present fundamental barriers to sustainable development as defined by the UN Sustainable Development Goals".
The sub-pages of this section provide a descriptive overview of the key issues that lecturers might want to cover with their students when teaching on this topic.
- Extortion
- Extortion racketeering
- Loansharking
- Links between organized crime and corruption
- Bribery versus extortion
- Money-laundering
- Liability of legal persons
- Summary
- References
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