Tuesday, November 18, 2008

Italian Mafia Banks on Financial Crisis

Sources: Financial Times- Mafia Cashes In on Italian Downturn; The Telegraph- Net Profit of Italian Mafia Makes Them Italy's Biggest Business

Italy is home to 4 distinct organized crime units that collectively make up the “mafia”, or Italian mob. Together the organizations account for £57 billion annually in net profits or 6% of Italy’s GDP. A new study entitled “Crime's Hold on Business” by the Italian shopkeepers' association, Confesercenti, says that the Mafia’s stranglehold on the Italian economy has only gotten stronger with the global credit crisis. Because local Italian businesses are becoming more and more desperate to find liquid sources of credit, the Mafia’s loan sharking business has never been better. The study estimates that 180,000 Italian businesses have been victimized to date.

Unfortunately, the fragile economic positions of Italian businesses also make them prime targets for other Mafia business such as extortion, protection rackets, usury (providing cash flow and job security for a price), and money laundering. The report stresses that the Mafia is increasingly using vast cash reserves to buy real estate and a stake in industries such as trade, tourism, the betting industry, restaurants, construction, garbage disposal and health at bargain prices. The report also estimates that Italian small businesses have collectively paid £250m daily to the Mafia for pizzo (slang for protection money). That means roughly £10 million an hour and £160,000 a minute are paid out to one of the 4 organized crime units.

Italian Prime Minister Silvio Berlusconi made it a platform of his conservative campaign to crack down on organized crime. He made good on that promise last April when he sent 400 armed paratroopers to Naples to take on the Camorra Mafia but has since done little to combat the problem. Last week interior minister Roberto Maroni traveled to Sicily to seize confiscated Mafia assets, including villas and farms, and hand them over to local authorities. Critics say the moves are aimed more at winning over public opinion than effecting any real change.

What other businesses with large cash reserves, both legal and illegal, do you think are benefitting from the credit crisis? Do you foresee organized crime gaining strength in all countries or do you think this problem is distinct to Italy?

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