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Criminal Companies and Money Laundering an Empirical Analysis on Red Flag Indicators of Organized Crime

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Criminal Companies and Money Laundering an Empirical Analysis on Red Flag Indicators of Organized Crime Università degli Studi di Padova Department of Economics and Management Master Program in Business Administration Accounting and Finance CRIMINAL COMPANIES AND MONEY LAUNDERING AN EMPIRICAL ANALYSIS ON RED FLAG INDICATORS OF ORGANIZED CRIME Supervisor Michele Fabrizi Candidate Maria Alexandra Gheorghies ID Number 1163255 Academic Year 2019/2020 2 “Studiare la mafia per combatterla” Nando dalla Chiesa A mamma e papà, A Luca e Elena, E a te Catalin, Grazie La candidata dichiara che il presente lavoro è originale e non è già stato sottoposto, in tutto o in parte, per il conseguimento di un titolo accademico in altre Università italiane o straniere. La candidata dichiara altresì che tutti i materiali utilizzati durante la prepa- razione dell’elaborato sono stati indicati nel testo e nella sezione “Riferimenti bibliogra- fici” e che le eventuali citazioni testuali sono individuabili attraverso l’esplicito richia- mo alla pubblicazione originale. The candidate declares that the present work is original and has not already been sub- mitted, totally or in part, for the purposes of attaining an academic degree in other Ital- ian or foreign universities. The candidate also declares that all the materials used during the preparation of the thesis have been explicitly indicated in the text and in the section "Bibliographical references" and that any textual citations can be identified through an explicit reference to the original publication. Firma _________________ INDEX INTRODUCTION & SUMMARY .............................................................................. 1 1. CHAPTER ................................................................................................................................................ 3 ORGANIZED CRIME IN ITALY ............................................................................... 3 1.1 Introduction ............................................................................................................ 3 1.2 Main criminal organizations .................................................................................. 3 Organized crime in Campania - Camorra ..................................................................................................... 4 Organized crime in Calabria – ‘Ndrangheta ................................................................................................. 5 Organized crime in Sicily – Cosa Nostra ...................................................................................................... 6 Organized crime in Apulia – Sacra Corona Unita ........................................................................................ 7 1.3 Illicit profits for organized crime ........................................................................... 8 Counterfeiting ............................................................................................................................................... 9 Drug trafficking ............................................................................................................................................ 9 Human Trafficking ..................................................................................................................................... 10 Environmental crimes ................................................................................................................................. 11 1.4 Motivations behind the infiltration in the legal economy .................................... 12 Money laundering ....................................................................................................................................... 12 Concealing illicit trade................................................................................................................................ 13 Making Profit ............................................................................................................................................. 13 Committing Fraud ...................................................................................................................................... 13 Control of territory and social approval ...................................................................................................... 14 Cultural or personal reasons ....................................................................................................................... 15 2. CHAPTER .............................................................................................................................................. 17 MONEY LAUNDERING ...................................................................................... 17 2.1 Introduction .......................................................................................................... 17 2.2 Most common methods ........................................................................................ 18 2.2.1 Cash smuggling ............................................................................................................................. 18 2.2.2 Trade-based money laundering (TBML) ...................................................................................... 20 2.2.3 Ownership of businesses ............................................................................................................... 22 2.2.4 Methods in the era of technology .................................................................................................. 23 2.2.5 Other methods ............................................................................................................................... 26 Casinos and other gambling venues ............................................................................................................ 26 Insurance policies ....................................................................................................................................... 26 Purchase of goods ....................................................................................................................................... 27 Money laundering syndicates ..................................................................................................................... 27 2.3 Geographic and sector vulnerabilities in Italy ..................................................... 27 Cash intensity and cash limit ...................................................................................................................... 28 Shadow economy and irregular labour ....................................................................................................... 28 Corruption .................................................................................................................................................. 29 Financial secrecy, business ownership opacity and complexity ................................................................. 29 2.4 Anti-money laundering legislation (AML) and international conventions ......... 30 2.4.1 Palermo Convention...................................................................................................................... 30 2.4.2 FATF Recommendations .............................................................................................................. 31 2.4.3 The EU Anti-money laundering Directives ................................................................................... 32 2.4.4 Level of effectiveness of Italy’s AML system .............................................................................. 33 Criminal companies and money laundering 3. CHAPTER .............................................................................................................................................. 35 CRIMINAL COMPANIES ..................................................................................... 35 3.1 Introduction .......................................................................................................... 35 3.2 Sectors of infiltration ........................................................................................... 36 3.3 Ownership red flags ............................................................................................. 38 Type of legal form ...................................................................................................................................... 38 Type of owners ........................................................................................................................................... 38 3.4 Financial red flags ................................................................................................ 39 Level of indebtedness ................................................................................................................................. 39 Assets and liquidity .................................................................................................................................... 40 Profitability ................................................................................................................................................. 41 3.5 Effects of the legal economy ............................................................................... 42 4. CHAPTER .............................................................................................................................................. 43 EMPIRICAL ANALYSIS ...................................................................................... 43 4.1 Objective of the
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