Ministry of Economic Development DIRECTORATE-GENERAL for the FIGHT AGAINST COUNTERFEITING – ITALIAN PATENT and TRADEMARK OFFICE

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Ministry of Economic Development DIRECTORATE-GENERAL FOR THE FIGHT AGAINST COUNTERFEITING – ITALIAN PATENT AND TRADEMARK OFFICE

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL ORGANISED CRIME AND THE POSSIBLE RE-USE OF SEIZED ASSETS FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

United Nations Interregional Crime and Justice Research Institute Ministry of Economic Development DIRECTORATE-GENERAL FOR THE FIGHT AGAINST COUNTERFEITING – ITALIAN PATENT AND TRADEMARK OFFICE

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL ORGANISED CRIME AND THE POSSIBLE RE-USE OF SEIZED ASSETS FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

United Nations Interregional Crime and Justice Research Institute Ministry of Economic Development DIRECTORATE-GENERAL FOR THE FIGHT AGAINST COUNTERFEITING – ITALIAN PATENT AND TRADEMARK OFFICE

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL ORGANISED CRIME AND THE POSSIBLE RE-USE OF SEIZED ASSETS FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

United Nations Interregional Crime and Justice Research Institute Copyright Ministry of Economic Development Directorate-General for the Fight Against Counterfeiting – Italian Patent and Trademark Office Via Molise 19 - 00187 Rome [email protected] [email protected] Website: www.uibm.gov.it

ISBN: 9788890749131

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Study commissioned and funded by Directorate-General for the Fight Against Counterfeiting – Italian Patent and Trademark Office (DGLC-UIBM) Ministry of Economic Development Carried out by the United Nations Interregional Crime and Justice Research Institute (UNICRI)

Directorate-General for the Fight Against Counterfeiting – Italian Patent and Trademark Office working group: Gianluca Scarponi, Paola Riccio, Enrico Maccallini

UNICRI working group: Marco Musumeci, Vittoria Luda di Cortemiglia, Elena D’Angelo

Our thanks go to the following experts, law enforcement agencies and National Administrations for their collaboration: the National Agency for the Administration of Confiscated Assets (ANBSC), Lino Busà, Benoit Godart, Pietro Grasso, Gioacchino Polimeni, Fausto Zuccarelli, the Italian Financial Police.

Translated by PSG Translations CONTENTS

FOREWORD...... page 5

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL 1° ORGANISED CRIME PREFACE...... page 13

METHODOLOGY...... page 17 Note on methodology...... page 17 Sources...... page 17 Quantitative analysis: scope of the phenomenon...... page 22 Quantitative analysis: examination of case studies...... page 24

THE ANALYSIS FRAMEWORK...... page 27 Defining the dangers of counterfeiting...... page 27 1. The scale of counterfeiting in Italy...... page 27 2. The social hazards of counterfeiting...... page 32 Organised crime: which definition?...... page 36 1. Transnational organised crime...... page 36 2. Organised crime in Italy: an overview...... page 41 Factors of attraction for criminal organisations...... page 48

MAPPING OF ORGANISED CRIME’S INVOLVEMENT IN COUNTERFEITING OFFENCES IN ITALY...... page 55 Criminal management of counterfeiting...... page 55 1. The production phase and supply of raw materials...... page 57 2. How goods are handled, delivered and distributed...... page 60 3. The main types of counterfeit goods...... page 66 4. The role of transnational organised crime...... page 69 5. Profile of local criminal organizations: relations between criminal organisations and the typology of criminal networks involved...... page 77 6. The crime routes: origin, transit and destination...... page 87 7. Technology used by criminal networks and counter-strategies...... page 89 Links with other serious crimes...... page 95

CONCLUSIONS...... page 101

BIBLIOGRAPHY...... page 105

THE POSSIBLE RE-USE OF ASSETS SEIZED TO CRIMINAL ORGANISATIONS 2° INVOLVED IN COUNTERFEITING ACTIVITIES FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

INTRODUCTION...... page 113

THE MINISTRY OF ECONOMIC DEVELOPMENT/UNICRI RESEARCH PROJECT...... page 115

PROFILE OF THE NATIONAL AGENCY FOR THE ADMINISTRATION OF CONFISCATED ASSETS...... page 119 Responsibilities of the Agency during the judicial phase, from seizure to final confiscation...... page 122 After the definitive confiscation order: how the confiscated assets are reallocated and managed...... page 123 Monitoring the reallocated assets...... page 126 The confiscated assets...... page 126

IDENTIFYING PROPERTIES SEIZED TO MAFIA COUNTERFEITING RINGS FOR THEIR POSSIBLE RE-USE TO PROMOTE INTELLECTUAL PROPERTY...... page 133 The Camorra...... page 137 The ‘Ndrangheta...... page 141

DATA SHEETS...... page 145

CONCLUSIONS...... page 147

BIBLIOGRAPHY...... page 151

INDEX OF ACRONYMS...... page 155 FOREWORD

During the majority of the many seminars held on the subject of counterfeiting, whether the discussion focuses on figures, on the analysis of consumer behaviour, on the damage created to business or even on a debate on industrial law, the listener will certainly hear at least two words and one issue that crops up again and again.

“Innovation” is the word most frequently uttered by the most up-to-date and confident of speakers, perhaps with examples of its usage taken fromthe results of various web search engines.

This will certainly be followed by “Synergy”, usually mentioned several times by the representatives of public institutions in an attempt to obviate the individualistic ethos that is a characteristic of any public body.

The best seminars, however, will explore complex arguments aimed at reconstructing the somewhat ancient origins of counterfeiting. Some experts go back as far as the Renaissance, some to mediaeval times, and others even recount myths and legends from the ancient classical world. Their aim is basically to show how the market of fraud is more or less as old as civilisation itself. It is a plague that has always afflicted human economic activity, both ancient and modern.

Behind this reasoning, there is a sincere desire to recognise the gravity of counterfeiting, almost as if there was a need to justify the commitment shown by all players – public and private – in combating this illegal activity. The results to date may have been important but they have yet to resolve the problem. Ultimately, however, I consider this approach to be rather counter-productive. It instils in the listener the doubt that at the end of the day all efforts are in vain, because since time immemorial where there has been commerce, there has been counterfeiting.

But on closer inspection, counterfeiting as we know it today has no precedent in history. The quantity of counterfeit goods is vast. They have infiltrated almost all the world’s markets. Any product that a consumer or company can buy on the legal market can also be manufactured illegally. These are the real characteristics of modern-day counterfeiting, which can be traced back to a criminal activity that started in the 1970s.

7 The growth in criminal operations and the overdevelopment of counterfeiting has one overriding, undisputed player: transnational organised crime. Large quantities of cash to invest or reinvest, flexible, dynamic organisations with historic roots in certain territories, a consolidated hierarchy with a dense global network of criminal cells that has effectively internationalised the illegal trafficking of goods and the exploitation of personal criminal knowledge and experience to operate through tried and tested trade routes and channels of corruption: all these factors are available to the world of organised crime which in recent decades has substantially modified its configuration. Its sphere of operation and influence has now extended to encroach upon increasingly remunerative, antisocial areas such as drug smuggling, arms trafficking and the trafficking of migrants and counterfeit goods. The aim of the study conducted in collaboration with UNICRI is to explore and make known the dynamics and strategies implemented by international mafia-type organisations in their business relations (this is certainly an appropriate place for the word “synergy”) in order to mainly exploit counterfeiting as a method to generate wealth, or as a secondary activity to launder the proceeds of other crimes.

Looking at the information gleaned from other studies, the role of transnational organised crime in the management of counterfeiting in Italy becomes very clear, dispelling any doubts as to the foundation of such affirmations. From the last available report SOS Impresa – Le mani della criminalità sulle imprese (XIII, published in January 2012) the “sales from counterfeiting” items on the imaginary balance sheet of Mafia S.p.A. would amount to €6.5 billion (with total turnover of €140 billion, profits of €105 billion and liquidity of €65 billion). The study, carried out by the Transcrime Centre of the Catholic University of Milan as part of the National Operational Programme “Safety” 2007-2013, was presented in January this year under the title Mafia Investments.Contributors to the study also included our Directorate-General. It was estimated that in 2008, mafia organisations earned revenues of just over €6 billion from counterfeiting. The report Dimensions, characteristics and studies on counterfeiting, published in 2012 by the Directorate-General for the Fight Against Counterfeiting - Italian Patent and Trademark Office (DGLC-UIBM) in collaboration with the CENSIS Foundation, applied a consolidated method that estimated the global turnover from counterfeiting in Italy to be approximately € 6.9 billion in 2010. The results do not change even if we try to estimate this illegal and hidden activity from different angles and with different methods. One point in particular remains the same: almost all of the Italian market for counterfeit goods is managed by criminal organisations that, according to the definition adopted in the 2000 UN Convention against Transnational Organized Crime (the Palermo Convention) could easily be classified as a criminal organisation, commonly known to the public and the media as “the mafia”.

8 The studies on the involvement (or more accurately the starring role) of transnational organised crime in counterfeiting are clearly not limited to that first report, which was the “national” follow up to the two earlier studies carried out in 2007 and 2011 by the United Nations Interregional Crime and Justice Research Institute (UNICRI), Counterfeiting, a global spread, a global threat. The interesting views expressed in that report, together with the testimonies of major players involved in the fight against counterfeit goods (particularly with regard to the ample prospects and possibilities offered by the various tools for international cooperation) make a continuation of this line of investigation more opportune - and expected - than ever. All this will certainly be channelled into the vehicle for research, analysis and field studies that is now being constructed by the Directorate-General for the Fight Against Counterfeiting. This body of research will form a kind of observatory on the dynamics of counterfeiting in Italy, and this is a priority that has also been strongly recommended by the National Anti-counterfeiting Council. Related to this initiative is the national database IPERICO, which is now online at www.uibm.gov.it/iperico. It contains records of the seizures made by the Finance Police, Customs officers and other Italian law enforcement agencies, as well as interesting studies on the value of seized goods and other significant variables, with the aim of monitoring progress in the efforts to fight counterfeiting and understand its general trends.

We must also mention another important result, which has been achieved thanks to the consolidated collaboration with the United Nations Interregional Crime and Justice Research Institute that augurs well for positive developments in the future. At the 21th session of the UN Commission on Crime Prevention and Criminal Justice (Vienna, 23-27 April 2012), a resolution was presented by Italy, and approved by consensus, to include counterfeiting as a recurring topic for debate by the UN Commission. After intense and demanding negotiations conducted by our Diplomatic Representation with on-site technical assistance from the staff of the Directorate-General, supported by the results of UNICRI’s research, the resolution “Strengthening the international cooperation in combating transnational organized crime in all its forms and manifestations” was approved by consensus, by the Commission’s plenary session with the co- sponsorship of other Member States: Korea, Ecuador, Egypt, the Philippines, Mexico, Nigeria, Russia, Thailand and Uruguay. Other important and influential countries on the international chessboard, led by the United States, Russia, China and Iran, as well as leading European states such as France and Germany also played a very active role in the negotiations. The resolution, which also addressed other topics connected to worrying developments in newly-emerging forms of crime, also included an invitation to the Member States to criminalise the production and distribution of fake or misleading products by applying the Palermo Convention against transnational organised crime and by stepping up

9 the level of international cooperation in order to break the chain of criminal activity. Meanwhile, Member States are expected to take adequate measures to guarantee the safety and control of the distribution chain by working closely with the private sector.

Following these important achievements, the Directorate-General for the Fight Against Counterfeiting - Italian Patent and Trademark Office decided to complement these efforts by conducting a more action and result oriented research, focusing on testing innovative approaches in the fight against counterfeiting. Along the same lines that allowed Italy to be regarded as one of those countries with the most advanced legislative framework in the fight against criminal organizations and their illicit capitals, the Directorate-General renewed its cooperation with UNICRI with the aim of testing the possibility to re-use assets confiscated to organized crime for the purpose of promoting Industrial Property. The rationale at the basis of this research perspective is very clear. Having provided concrete evidence on the management of counterfeiting by transnational organized crime, thanks to the results of the previous study, it was time to analyze if those large parts of the population and entrepreneurs that had been critically hit by counterfeiting and often led to the termination of their entrepreneurial activities, could benefit from the use of assets confiscated to the same criminal organizations who were responsible, directly or indirectly, for their economic debacle.

Notwithstanding some technical difficulties encountered during the research implementation, this study also has a great potential value, as it allowed to clearly identified a series of confiscated assets with important economic value that were seized to criminal organizations active in counterfeiting activity, leading to experiment on paper their possible re-use and the procedures to be adopted for this purpose. The study also highlighted the importance of cooperation among several actors of the public and private sector to enhance the effectiveness of the re-use of confiscated assets, paving the way for a possible increased strategic cooperation between the Ministry of Economic Development (DGLC- UIBM), the Italian National Agency for the Management of Assets confiscated to organized crime, and UNICRI.

To close this brief foreword in the same vein as the opening line, in other words with a quotation, it would be appropriate to recall the words spoken by Paolo Borsellino in memory of his friend and colleague Giovanni Falcone, and to use them to guide us in our fight against all criminal activity, including counterfeiting.

“The fight against the Mafia, which is the first issue to resolve in our beautiful but afflicted country, should not merely be a cold campaign of repression but a cultural and moral movement that involves everyone, particularly the younger

10 generations who are better able to smell the beautiful fresh scent of freedom that repels the stench of moral compromise, indifference, contiguity and complicity”.

Please read this report carefully, download it and save it as a reference for your work against counterfeiting. Pass it on to anyone who may be interested in finding out more about the subject, whether driven simply by curiosity, or by professional or scientific interest. Perhaps you can even quote from it during any occasion or academic venue in which these issues are discussed.

The report has a modular structure intended to make any part of it as easily accessible as possible. Those readers who are in a hurry should at least read the “Conclusions” section (part 1 and 2), which sums up the result of our analysis in just a few lines and also proposes actions that will be useful not only in researching the area of counterfeiting but most importantly in preventing and fighting it.

Directorate-General for the Fight Against Counterfeiting Italian Patent and Trademark Office (DGLC-UIBM)

Ministry of Economic Development (MiSE)

1°

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL ORGANISED CRIME

PREFACE

Counterfeiting is a criminal phenomenon that has several interesting characteristics. It falls into the category of complex crimes, as it involves numerous public and private players and causes a series of consequences for a variety of actors. However, on closer inspection, and considering the global situation without at this time making a specific reference to Italy, it can be said that one of the most interesting characteristics encountered when investigating and fighting counterfeiting is the general tendency to underestimate just how serious it is. This is a very generalised tendency despite the fact that it is becoming more and more common to find news reports or articles about the sale of counterfeit goods. This is not a minor problem, since the way in which the dangers of a crime are perceived often influences the resources that the State and the law enforcement agencies dedicate to fighting it. The same can be said for the public’s attitude towards counterfeiting, which is often a direct expression of the way people perceive its consequences. One of the basic problems in this regards has to do with the fact that public information campaigns about counterfeiting may increase the general awareness of the problem, but they still do not clearly express how much of a danger and threat it poses. This is because the information which is broadcast and published in the press and on television often presents just the tip of the iceberg and the more visible side of counterfeiting, such as luxury bags and sunglasses sold by the roadside or in local street markets. Too often, commercials ignore the most important and more complex aspects of the phenomenon, whose consequences for the society as a whole are often extreming alarming. Often, published information does not even touch on the issue of how this vast traffic is being managed, an activity which is worth hundreds of billions of dollars annually.

The gap between the available information and what is still hidden can only be understood in the light of the fact that a significant portion of the counterfeit market circulates, and is distributed, through hidden networks. This results in a lack of information about a series of factors that are important in gaining a better understanding of what counterfeiting really is. There is little information about the way the commercial side of counterfeiting is managed - the way fakes are made, distributed on a large scale and sold on the streets or in local markets – but also about the risks and hazards of using certain fake products. Because of the anonymity offered by the web, the use of the Internet in the commercial exchange and promotion of products is also becoming particularly

15 commonplace, and this extends the grey area that surrounds the world of counterfeiting. This brief introduction is necessary in order to establish a starting point for our analysis. Contrary to the most common perception of counterfeiting, our study will show that today this illegal activity is widespread and involves highly complex distribution networks managed by transnational organized crime. Counterfeiting is gradually insinuating itself ever more strongly into the markets of countries all over the world. Through counterfeiting, criminal organisations extend their business operations by distributing a vast quantity of products, not only infringing intellectual property rights and undermining other people’s creative and intellectual works, but also posing a direct threat to consumer health and safety.

Organised crime is the fundamental reason underlying the global diffusion of counterfeiting. Criminal organisations are the real leaders of this illicit activity, and they have transformed counterfeiting into an illegal enterprise of mass production and distribution. These criminal networks were the first to realise the strategic potential of infiltrating this sector. The direct consequence of the involvement of organised crime has been an exponential growth in counterfeiting, which has transformed itself from a craftsman activity into a more complex criminal industry on a large scale, with evolved marketing methods.

Driven by the desire to expand their businesses in order to maximise profit, criminal organisations have gradually taken an interest in any exploitable opportunity, legal or illegal, and have become active players in economic and political circles. A direct consequence of this expansion of organized crime’s interests is that criminal activities are now transforming the international system, influencing the economic and political world and changing the rules of the market. The new possibilities linked to the economy, technology, the greater freedom of circulation of goods, people and cash created by globalisation are allowing criminal organisations to develop and improve their control of illegal trafficking networks. This, in turn, enables any type of illegal product tobe transported anywhere in the world. It matters little which type of goods are marketed illegally. What matters is the existence of a structured network to sell and distribute the product. These networks may be based on alliances and well-tested trade facilitation methods. Counterfeit goods can follow the same routes and distribution methods that have already been successfully used for other products that are typically trafficked by criminal organisations: drugs first and foremost, but also weapons or even human beings.

The attractiveness of counterfeiting derives mainly from its cost/benefit ratio, which is heavily weighted in favour of benefits, compared to the costs and risks. This clarifies the reasons why the organised crime world is interested in counterfeiting, and is an issue that will be specifically investigated in this study.

16 Although counterfeiting should always be condemned and countered, as it provides criminal organisations with an incredible scope of operation thanks to the high profits it yields, the illegal replication of certain types of product is certainly cause for greater concern, considering the harmful effects it can have on consumers’ health. Our case studies reveal how unscrupulous criminals infiltrate highly dangerous products in the market every day. Examples include fake medicines supplied to unknowing patients, adulterated food and drinks deliberately introduced into the retail chain and sold on supermarket shelves, and children’s toys made from materials containing toxic residues.

On these grounds, and by analysing real data and real cases, our study will show that counterfeiting is managed by criminal organisations and is a global threat steadily rising.

The decision to focus this study on the Italian experience was initially based on the strong interest that the Italian authorities have shown in counterfeiting. The study was funded entirely by the Ministry for Economic Development, and in particular by the Directorate-General for the Fight Against Counterfeiting of the Italian Patent and Trademark Office, which has been extremely active with determination and significant resources for years to combat this phenomenon. The Directorate-General is also committed to providing the public with qualified information on counterfeiting. This study is therefore part of this action, and UNICRI’s collaboration with the Directorate-General for the Fight Against Counterfeiting has a significant part in the government’s broader strategy to combat counterfeiting and the criminal organisations involved in it.

The importance attributed by the national authorities to this issue was also demonstrated by the setting up of a Parliamentary Commission to investigate counterfeiting and commercial piracy, in July 2010. The Commission’s various interventions have revealed that social partners, politicians and law enforcement agencies all agree that counterfeiting is dangerous to society, that the role of the criminal organisations in this illicit activity is growing and is the primary cause of the growth in this phenomenon, and that Italian legislation is effective but that regulations must be reinforced in certain areas, also at European level. They have also revealed the social and cultural reasons that feed the growth of internal production and distribution of counterfeit products, particularly in areas already weakened by the presence of organised crime. Italy has made considerable efforts to pursue an effective campaign to combat counterfeiting in its various forms, a strategy that has been supported in the field by the excellent work of the police forces.

The second reason why this study was focused on the Italian experience was to verify the role of local criminal organisations in the trafficking of counterfeit

17 goods. This has enabled an extremely accurate examination of the real extent to which transnational organised crime is involved in the manufacture and trading of fakes, and of the various ways in which those organisations manage their counterfeiting operation. According to the investigations and data of the National Anti-Mafia Directorate, the Finance Police (G.d.F.) and the Customs Agency, the Naples-based Camorra seems to be one of the most active organisations. Investigations have shown that the Camorra’s involvement in counterfeiting spreads over several regions, placing this organisation at the centre of a criminal network that reaches as far as Europe, the United States and Australia. This information provided the impulse for a further study of this subject and the examination of a series of cases. The analysis was then extended to include other criminal organisations operating in Italy. Recently, various articles have appeared in the national and foreign press, reporting police operations and indicating the growing interest of the ‘Ndrangheta and, to a lesser extent, of criminals based in the Salento area.

It must be underlined that Italy, perhaps more than any other country, has shown an uncommon sensitivity and reactivity to counterfeiting through its criminal investigations and the sharing of police and Customs data, enabling all the authorities involved to adopt adequate strategies to combat the spread of counterfeiting. With regard to this last aspect we must also mention the national database IPERICO (Intellectual Property - Elaborated Report of the Investigation on Counterfeiting) which gathers information about the anti- counterfeiting campaign conducted by the law enforcement agencies in Italy (Customs Agency, Finance Police, State Police, Carabinieri and local police) in terms of the number and estimated value of the seizures and confiscated goods. The data has been standardised and reclassified according to the type of offence, the type of goods, the geographic location of the seizures and the enforcing agency or body.

The case studies considered in this report provide qualitative and quantitative insight into the work of criminal organisations. The mapping of the Italian situation also takes into account the links with other criminal groups based abroad or operating internationally, in order to trace the routes and flows of counterfeit goods entering and leaving Italy, and to identify the traffic managed by each organisation and their reciprocal relations.

18 METHODOLOGY

NOTE ON METHODOLOGY

The aim of this work is to investigate the phenomenon of counterfeiting as a whole, while taking into account the limitations imposed by its criminal nature. A modular approach has been used, so that each part can be considered independently, as a separate body of analysis. This study can be read progressively, allowing for possible repetition given the chapters’ modular structure, or alternatively each section can be read independently. The result is a complete study on counterfeiting as an emerging criminal phenomenon, with independent sections that investigate its various aspects in more detail.

For the sake of accuracy, note that the word counterfeiting has been used in a broader sense and includes not only the infringement of industrial property rights but also the piracy of audiovisual materials, and the infringement of copyright. This mapping will thus deal with counterfeiting and piracy offences in parallel.

Sources

There are several complex issues involved in researching and investigating counterfeiting and the way in which this activity is managed by criminal organizations.

First, we need to confront with a general a lack of reliable information. The information that is available is often generic and tends to present counterfeiting as such, without specifically analysing its various components. With particular regard to the criminology aspects, there is a lack of consistency in the way that the national authorities and law enforcement bodies in various countries gather and organise their data. Moreover, not all countries consider counterfeiting to be a criminal offence in the way that Italy does, and there can be a lack of significant analysis of the way in which the production and trade of counterfeit goods is managed by organized crime. On the other hand, even in countries in which counterfeiting is seen as a crime, the involvement of organised crime

19 is not always recognised or is hard to prove. Furthermore, very often, the information is strictly confidential and hard to obtain for research purposes.

The only available data relates to Customs seizures or police raids, but that is just the tip of a much larger iceberg.

The main consequence of this difficulty in gathering and comparing information relates first of all with problems are encountered while trying to analyse the actual involvement of criminal organisations and the transnational element of counterfeiting. This is due especially to the above-mentioned differences in the way in which information is catalogued in different countries.

The damage caused by counterfeiting crimes is also hard to estimate, often because no complaints are made by consumers or by the manufacturers themselves.

Leaving aside the Italian case for a moment, there are various possible explanations for this situation, particularly if we consider the different attitudes demonstrated by manufacturers and consumers towards counterfeiting. Manufacturers often see counterfeiting, primarily, as purely unfair competition that takes away their market share by exploiting the reputation they have built up around their brand. For this reason, manufacturers’ reluctance to divulge information about the existence of counterfeit versions of their goods may be motivated by a desire to protect their commercial interests. Producers worry that consumers will lose confidence in their products if they know that replicas can be easily found in legitimate stores. Paradoxically, this attitude and motivation becomes stronger the more “sensitive” the product is to consumers’ health and safety. This is essentially due to the fact that with certain types of products - medicines, children’s toys or car parts for example - consumers are not always willingly buying counterfeits. Counterfeiters can introduce these goods into the legal distribution chain in order to extend their market share. This misleads the consumer who finds himself with a counterfeit toy or spare part, after buying it in complete good faith from an ordinary shop or supermarket. In these cases manufacturers can consider the circulation of information regarding counterfeit versions of their products to be potentially damaging to their interests, as they fear that consumers will flatly refuse to buy their products in the future.

Consumer’s attitude is completely different. With reference to several typologies of goods that have no immediate effect on health and safety, consumers may see counterfeiting as an opportunity to buy a product at a lower cost than the high retail prices dictated by the wealthy multinationals. It matters little if the product is substandard – this is an integral part of the “game” and is one of

20 the risks calculated by the consumer when making his decision to buy (1). For this reason consumers do not always consider themselves as victims of counterfeiting, not even when they are misled and buy products of very poor quality. At most, they feel like “accomplices” of the counterfeiter, but it will be very unlikely for them to report the event to the authorities. Considerations on consumers’ approach to potentially harmful products are different. Sometimes in these cases the decision to buy is impaired by the infiltration of harmful products in the legal distribution chain. In this case, it is the lack of information that prevents consumers from making the connection between the law quality of a product or its defectiveness and its non-authenticity. Consumers are unlikely to know that fakes can be bought unwittingly in ordinary retail stores. They will attribute the defects in the product to the original manufacturer, and will not report the incident to the authorities in this case either. Also, in certain countries the lack of reports to the authorities is due to the absence of a proper administrative body designed to receive complaints and/or to the absence of procedures. Fortunately, there are cases in which national authorities have managed to shield a whole commodity sector, and have protected the lawful distribution chain against counterfeit products. This is the case with the Italian pharmaceutical sector for example.

Within this framework, the importance of identifying a solid network of information sources is more important than ever, in order to identify real evidence and cases to support and circulate information about the criminal management of counterfeiting. One of the main reasons underlying this study is that the presence of reliable information about counterfeiting can be crucially important to the national authorities in justifying and planning measures to combat this phenomenon. Information gathering can also make an important contribution to changing the way in which counterfeiting is perceived within society, as it raises awareness on the risks of counterfeiting in an attempt to make the public recognise the gravity of the situation and reject counterfeit goods while taking the necessary precautions to protect themselves.

Thanks to the excellent contacts owned by UNICRI it has been possible to create a solid network of sources composed of Italian and European institutions and organisations, who have provided vital information for this study. These resources have provided a series of national cases and quantitative data on the criminal aspects of counterfeiting. This resulted in two separate data analysis

1 MiSE, (Ministry for Economic Development), UNIONCAMERE (Italian Union of Chambers of Commerce, Industry, Trade & Agriculture) Convention, Dintec (Consortium for Technological Innovation), (2011), “Enquiry into consumers’ and businesses’ perception of counterfeiting, with a focus on the eyewear and footwear sectors” and MiSE, (Ministero dello Sviluppo), Adiconsum, (Consumers’ Association), “Counterfeiting in Italy”.

21 phases: one quantitative and one qualitative, that are both described in the following mapping exercise.

The main organisations and institutions identified as information sources for the quantitative analysis are listed below: the National Anti-Mafia Directorate (DNA), the Finance Police, the Public Prosecutors’ Offices, the Centromarca Institute for the Fight Against Counterfeiting (INDICAM), the International Criminal Police Organisation (Interpol), the European Police Organisation (Europol), the World Customs Organization (WCO), the World Anti Illicit Trade Organization (WAITO), BASCAP (Business Action to Stop Counterfeiting and Piracy), the Global Anti-Counterfeiting Group and the Altagamma foundation.

In addition to the direct sources, the study also drew on a series of reports and studies published by UNICRI and other national and international organisations. For further details please refer to the bibliography at the end of this study. The following websites and databases were also monitored regularly: the UNICRI anti-counterfeiting website (ctf.unicri.it), the website of the Business Action to Stop Counterfeiting and Piracy (BASCAP) (2) and the database managed by the Commercial Crime Services of the International Chamber of Commerce (3).

Finally, for the qualitative analysis, the primary source was formed by prosecutors and police forces, particularly the National Anti-Mafia Directorate, the Public Prosecutors’ Offices and the Finance Police, as well as Interpol and Europol at the international level.

The qualitative analysis was based on a large number of investigations and real cases provided by the identified institutions and organisations. 26 cases were analysed in total: some of them contained important information about the preliminary and procedural phases of criminal proceedings, resulting in a large volume of extremely valuable information for the study of counterfeiting operations managed by criminal organizations. The case studies were collected in different ways. Some of the information was obtained during or after official missions conducted by UNICRI with the institutions and experts involved. This is probably the largest and most significant part of the body of information, as it enabled the analysis of recent data and investigations and focused our attention on the current aspects of counterfeiting. Other cases were found in the UNICRI database. These cases revealed the trend in counterfeiting since the year 2000. They confirmed that we are dealing with well-established, stable criminal practices, and with a modus operandi that criminal organisations have been pursuing for many years.

2 http://www.iccwbo.org/bascap/id1127/index.html 3 http://www.icc-ccs.org/icc/cib/products/case-study-database

22 In order to obtain additional confirmation and evidence in relation to the assumptions put forward in the research phase, interviews were conducted with some of the leading experts in the fight against organised crime and counterfeiting. Particular attention was dedicated to the necessary “balancing” of interviews, which were intended to gather opinions from different players and different sectors, reflecting also in this case the complexity of the world of counterfeiting. We so decided to involve the former national Anti-Mafia Prosecutor Pietro Grasso, the deputy prosecutor in Naples Fausto Zuccarelli (former deputy prosecutor of the National Anti-Mafia Directorate and an expert in international crime), Europol’s liaison officer at Interpol Benoit Godart, Lino Busà, President of SOS e Impresa and Gioacchino Polimeni, a magistrate former UNICRI director, and expert in legal affairs at the Italian Permanent Mission to the United Nations in Vienna.

23 Quantitative analysis: scope of the phenomenon

Quantifying the scope of counterfeiting is an extremely complex undertaking, for a series of reasons. The first is the very nature of counterfeiting. It mainly takes place on the black market, most of which is hidden. No records are kept regarding the quantity of goods, the manufacturing methods or the commercial transactions. As the production and distribution methods cannot be verified, it is practically impossible to give an accurate assessment of the size of the counterfeit traffic. For the same reason it is very difficult to determine to what extent fake products actually impact on legal trade. Estimates should be considered as a useful indication of counterfeiting trends, but cannot claim to be complete.

Compared to the past, several recent studies have been used to define the actual scale of counterfeiting, and have placed greater emphasis on the framework of analysis, with clear explanations of how the results were reached (4). However, this does not mean that the body of available information is extensive or that all the estimates accurately describe the situation. Unfortunately, it is still difficult to obtain information on certain manufacturing sectors. The reliability of estimates is also hampered by the above mentioned issues and by the fact that counterfeiting takes place on illegal, hidden markets.

Further difficulties are created by the lack of information about consumers, and by the skill with which counterfeiters introduce their products into the legal supply chain. From the researcher’s point of view, the conclusion is often that many cases go unreported because the victims are not aware that the product they bought was a fake. In many other cases, the situation is aggravated by other factors, as a large number of countries do not have mechanisms in place to gather and publish information, nor do they appoint authorities to receive such data.

With regard to counterfeiting as a criminal activity, the situation is even more complex. Some countries do not consider counterfeiting to be a crime and therefore only impose civil penalties on such activities. In countries where counterfeiting is considered a crime, the existence of various legal definitions means that data is gathered and organised in different ways. This makes data comparison difficult, and prevents the elaboration of reliable global statistics on the scope of criminal counterfeiting.

4 See 2008 report by the OECD (Organization for Economic Co-operation and Development), The economic impact of counterfeiting and piracy.

24 The Organisation for Cooperation and Economic Development (OECD) has said, in relation to counterfeiting, that “the unknown by far exceeds the known” (5), and therefore the amount of available data suitable for the study relates to the anti-counterfeiting campaigns and seizures by the police and Customs agencies, or to more generic sector-based studies.

However, the figures relating to seizures and raids on street sellers, street markets, warehouses and workshops only provide partial information. Furthermore, when considering information on Customs operations, in other words the counterfeit products found and seized at the border, it must be remembered that this does not include any information on how counterfeit goods were distributed within national borders, on those that were not intercepted by Customs, nor on those sold illegally online.

However, while taking these issues into account, the research and comparison carried out as part of this mapping exercise nonetheless identified the most recent estimates on the global scale of counterfeiting, which enabled an extrapolation of the statistical trends.

5 See note 4.

25 Quantitative analysis: examination of case studies

One of the strengths of this mapping exercise is the analysis of case studies relating to operations and investigations conducted by Italian and international law enforcement bodies. These cases studies were made available by the sources of information mentioned above.

The primary purpose of this examination was to obtain evidence supporting our assumption that counterfeiting is managed by organised crime, taking the Italian situation as an example.

As mentioned above, one of the main causes underlying the perception that counterfeiting is a victimless crime derives from the lack of information about its consequences, and about the perpetrators of this crime.

In this sense, contributions from bodies such as the Finance Police, Public Prosecutors’ Offices, the Anti-Mafia Directorate, Europol and Interpol have been vitally important in collating the case studies. The cases, legal proceedings, investigative practices and enquiries have provided concrete support in elaborating the theory about the criminal management of counterfeiting. All the information has been treated strictly respecting any confidentiality issue.

The way in which we structured the information collected is described below, as an introduction to the analytical method used in the mapping exercise and presented in Section Three.

The qualitative analysis is essentially based on 26 case studies concerning anti-counterfeiting actions carried out by Italian law enforcement agencies, and orders issued by the courts. The Public Prosecutor’s Office of Naples and the General Command of the Finance Police have provided information on operations and investigations conducted between 2005 and 2011. On the one hand, the operations highlighted aspects related to trends and patterns of the phenomenon, and on the other, the investigative methods and approaches deployed by the police.

The cases were analysed by means of a transverse comparison that outlined the typical characteristics of the criminal management of counterfeiting. This comparison supported the argument made in the introduction to this study, whereby transnational organised crime is increasingly involved in managing the various phases of the counterfeiting production and distribution chain. By analysing the main components of this chain, it was possible to identify important similarities between the cases and operations occurring in different regions and concerning different types of counterfeit goods, as well as the leitmotifs typical of the largest transnational criminal organisations.

26 The main factors considered in the analysis were: the procurement and production phases, the way in which the goods are handled, delivered and re- supplied, the type of counterfeit goods, the role of the criminal organisations, the main trafficking routes, the role of new technologies used by criminal networks, the geography of the criminal networks established in Italy, and the links with other serious crimes. Apart from the cases provided by the Finance Police, the study also analysed legal documents from the courts of several Italian cities, which are seen as major destinations and transit points for counterfeit goods in Italy and Europe. These documents are particularly important as they allow an in-depth analysis of the criminal management of counterfeiting thanks to the detailed investigations.

In this regard it should be mentioned that the investigative tools typically used in the fight against the mafia – such as wiretappings and undercover operations – have also been used effectively in anti-counterfeiting campaigns thanks to the implementation of the new Italian legislation “Development Act” (Law 99/2009). This new law amended the Penal Code in relation to intellectual property offences, introducing in Article 474ter an aggravating factor in the case of “offences committed through the setting up of organised means and activities”.

These new legislative tools enabled investigators to gather important information during various police operations, and to reconstruct the various phases of the criminal management of counterfeiting. With the assistance of the Italian authorities, the examination of the legal documents and sources of evidence (such as the wiretappings) has enabled a reconstruction of the characteristics of the main groups and organisations involved in counterfeiting activities, with particular regards to: their modus operandi, the way in which criminal groups where internally organised, their cooperation with other criminal networks, the methods used to deliver or receive goods from customers, the way in which they pinpointed new products to be copied, based on market trends (which indicates that criminal organisations are ready to leap at any new opportunity to make a profit and can rapidly organise themselves to produce and market the fakes) as well as the main expedients used to evade Customs controls or derail police investigations. Finally, an analysis of international operations based on data from Europol and Interpol enabled a study of transnational investigations and the links established between Italian and foreign criminal organisations, as well as the factors that characterise the activities of transnational organised crime. All the analysis revolves around the Italian experience, considered as the hub from which the various criminal routes and local mafia networks extend.

THE ANALYSIS FRAMEWORK

Defining the dangers of counterfeiting

“Counterfeiting offences, if carried out in an organised way, are hugely profitable criminal activities, which then feed into the financial flows used to run businesses linked to mafia-type alliances”.

“If […] as in the case of the sale of counterfeit goods, the criminal activity is interwoven with one on a commercial scale, then the territorial control that is the main characteristic of mafia-type organisations becomes less important. What becomes more important is the momentum and flexibility of the structures used to organise large-scale commercial operations. [We are dealing with] a type of organised crime that is expanding globally, and taking on a new form. This is also because, particularly abroad, there are no short-term benefits from using violence, which risks an immediate reaction from the authorities”.

Pietro Grasso (6) ex National Anti-Mafia Prosecutor

The scale of counterfeiting in Italy

That counterfeiting is growing steadily is now an established fact, as has been shown in various studies and reports. However, while the factors that explain this explosion of the phenomenon are easily definable, determining its scale is much more complex (7). According to the 2012 CENSIS report (8), it is estimated that sales from the internal counterfeiting market in Italy amounted to €6,900,000,000 (2010 figures). The hardest-hit sectors were clothing and accessories at almost €2.5 billion, the CD, DVD and software sector at more than €1.8 billion, and the food sector at almost €1.1 billion. “However, what is particularly serious is [also] the counterfeiting of pharmaceuticals, foodstuffs,

6 Interview given to UNICRI on 20 December 2011. 7 Globally, there have been various authoritative attempts to “quantify” counterfeiting. For more information, see Commission of the European Communities (1998), OECD (2009), TAXUD (2010), UNODC (2010) and UNICRI (2011), mentioned in the bibliography. 8 Censis, “Dimensions, characteristics and studies on counterfeiting - Final report”, July 2012.

29 toys and car parts, since apart from the economic losses these goods pose also a risk of extremely serious damage to consumer health” (9).

In particular, and with reference to the categories just mentioned, the fact the counterfeiting of goods such as pharmaceuticals or toys is growing should not be surprising, given the global trend in these products. Between 2004 and 2005 alone, it is estimated that the global counterfeiting of pharmaceuticals rose by 40%, with the corresponding economic losses amounting to more than €2 billion. In addition, approximately 12% of all toys marketed in 2007 was found to be counterfeit (10).

These figures were contained in a publication produced by Confesercenti in collaboration with the Centre for Studies and Research into Legality and Economic Crime (TEMI) in 2007, which already revealed that “counterfeiting in Italy [is] now an industrial and commercial system in its own right, with its own production and processing centres, sales channels, distribution networks and consumers” (11). The financial crisis does not seem to have adversely impacted the market for fake products: “ […] despite the reduction in international trade, there was no decline in the number of goods seized between 2008, the year preceding the crisis, and 2010: this means we are looking at a worrying phenomenon” (12).

Although the market for fake goods has not been affected by the crisis, it is equally true that it has extremely negative effects on the Italian economy. According to the 2012 CENSIS report, if the production of counterfeit goods was transferred to the legal market the additional State revenues from direct production would amount to €1,700,000,000; if we add indirect production, the total amount would be €4,620,000,000, which is 1.74% of the total tax revenues collected. The manufacture of the same products through legal channels would have provided approximately 110,000 full-time jobs, equating to approximately 0.41% of all jobs in Italy. The additional value of production would have been €13.7 billion.

Considering the characteristics mentioned above, it is therefore not surprising that counterfeiting has been defined as the other face of globalisation. Confesercenti has also reported that the geographical areas most affected by the production of counterfeit goods in Italy are concentrated around Naples,

9 Interview with Gianluca Scarponi, director of the Directorate-General for the Fight Against Counterfeiting “La contraffazione non teme la crisi”, Il Sole 24 Ore SUD, 9/11/2011. 10 Confesercenti - TEMI (2007 as updated), op. cit. 11 Ibid. 12 Interview with Gianluca Scarponi, director of the Directorate-General for the Fight Against Counterfeiting “La contraffazione non teme la crisi”, Il Sole 24 Ore SUD, 9/11/2011.

30 the Milan hinterland, and the province of Prato, and 69% of production is concentrated in southern Italy. Counterfeiting is also closely linked to illegal trading, which has an estimated turnover of €13 billion.

A vital tool in analysing the anti-counterfeiting operations carried out by the law enforcement agencies and in estimating the scale of the phenomenon in Italy is IPERICO (13), a database developed over the recent years under the guidance of the Directorate-General for the Fight Against Counterfeiting, by a team formed of members from the Directorate, the Finance Police and Customs Agency, subsequently aided by the Central Directorate of the Criminal Police. The main aim of IPERICO is to supply integrated information between the various databases in order to obtain maximum knowledge of the anti- counterfeiting measures deployed by the State and with a sufficient level of detail which is backed up by the data gathered from the sources of information. The data is classified and harmonised into five areas related to the operations conducted: the categories of counterfeit goods seized, the type of offence that led to the seizure, the time period, the geographic location and the police unit that carried out the seizure (14).

Each year the Italian Ministry for Economic Development (MiSE) publishes a report based on IPERICO data, which analyses and contextualises the information on seizures carried out since 2008. It also contains other information, which relates more generally to other anti-counterfeiting activities and actions.

Between 2008 and 2012 the Customs Agency and Finance Police carried out almost 87,000 seizures, confiscating nearly 289 million counterfeit goods in the process. It is interesting to note that although the anti-counterfeiting operations were conducted at a relatively steady rate, their effectiveness has increased, also throughout 2012. The average haul of seized goods, defined in terms of the number of confiscated products, has risen significantly over the years in question from 2,331 items in 2008 to around 3,500 in 2010 and 3,976 in 2012 (15).

13 IPERICO is an acronym for Intellectual Property – Elaborated Report of the Investigation on Counterfeiting. The name was chosen for the interface with database users, and by extension it refers to the entire system of data collection, collation and access. 14 MiSE (edited by the Directorate-General for the Fight Against Counterfeiting) (2011), Counterfeiting in figures. The fight against counterfeiting in Italy 2008-2012, p. 16, available online at: http://www.uibm.gov.it/iperico/home/Rapporto%20IPERICO%202013_rev31102013. pdf 15 MISE (2013), op. cit., p. 46.

31 GRAPH 1

Source: MiSE, Iperico, 2013

The above report also attempts to estimate the economic value of the seizures, which is anything but a simple operation. It is not easy to define the value of a counterfeit object in economic terms, as there is no clear definition of its price, which depends partly on the market in which it is sold, and the relevant retail channel. However, using the categories applied by the MiSE and the method illustrated in the focus on the value of IPERICO 2013, it has been estimated that the total value of goods seized between 2008 and 2012 would be more than €3.3 billion (16).

In addition to the overall estimate, regional calculations were also made. The highest number in terms of seizures was recorded in the Lazio region, with more than 18,000 seizures over five years, corresponding to around 21% of all those recorded in Italy. The next highest numbers were recorded in Lombardy, Campania and Puglia regions. Looking at the economic value of seizures by region, Lazio again dominates with an estimated value of €800 million, equivalent to 25% of the total, followed by Lombardy with €586 million (17.7%), and Campania with almost €518 million (17.8%). Another interesting aspect relates to the regions in which the average size of seizures in 2012 has increased significantly compared to 2008. The Abruzzo region (+ 4.746%) was in the first place, followed by Veneto (+ 1.581%), Umbria (+634 %), and Sicily (+308%).

16 For a detailed explanation of the principles and methods used to estimate the economic value of seized items, refer to MiSE (2013), Focus on Value

32 Looking at the origin of counterfeit goods, the 2008 figures from the Global Customs Organisation reported by UNODC (2010) indicate that out of a sample of 121 countries, 65% of all counterfeit shipments came from China. Looking at Europe alone, this percentage falls to 55% (17).

Below, we will see from the mapping exercise that the general trend in the production and distribution of counterfeit goods applies to Italy as it does internationally. Faced with the changes brought about by market globalisation, production is becoming increasingly decentralised and is mainly concentrated in Asian countries and Eastern Europe. In this regard it would be appropriate to mention a recent operation carried out by the Finance Police, indicated by a Confesercenti press release on 12 April 2011 and referring to a survey of delocalised production sites in Eastern Europe, particularly in Romania (18).

With regard to distribution, the main channels operate through sales conducted by non-EU citizens, who are mainly employed as street sellers. The use of Internet is increasingly common as a distribution method, as are attempts to infiltrate the legal distribution chain. As we will see in more detail in the mapping exercise in Section Three, these channels are run by criminal organisations, which have transferred to the counterfeiting sector various distribution and infiltration methods already successfully used in the contraband of foreign tobacco and/or drug selling. “On certain sites there are online catalogues where I can order the product. The order arrives and is then shipped, almost always in containers” (19).

The boom in online sales is also highlighted by the CENSIS report, which confirmed that e-commerce and online auctions have now become safe and secure methods for the distribution of counterfeit goods, as they are under- regulated and hard to control. On the one hand, the web allows users to conceal their identities and on the other, online sales take place between distributors located anywhere in the world, allowing them to reach a large number of consumers at low cost (20).

In conclusion, and to underline the growing internationalisation of counterfeiting, one operation to mention is Gomorrah, which also covered Italy and was carried out by the Naples Tax Police Unit in collaboration with the Central Service for Investigations into Organised Crime (S.C.I.C.O) of the Financial Police, and in collaboration with Interpol, Europol and various national police forces from other countries. The Gomorrah operation identified and subsequently broke

17 See UNODC (2010), op. cit., p. 2. 18 Confesercenti, (2011), op. cit. 19 Busà L., interview with UNICRI. 20 CENSIS (press summary), 2012, p. 3.

33 up a criminal organisation dedicated to the import and retail (also door-to-door) of electrical tools including chainsaws, generators and pneumatic drills, which bore counterfeit trademarks without the required “CE” safety certifications. The products came from China and were then retailed in Italy and in other EU countries. The investigations reconstructed the entire modus operandi through which the criminal organisation set up its retail operation. It led to the arrest of nine people, the seizure of two companies, 19 properties, various motor vehicles and current accounts to the value of €10 million.

The social hazards of counterfeiting

“I don’t think there are “ignorant” consumers […] let’s say there is no perception that counterfeiting is a crime, and a serious one. It may be considered as a practice that is not entirely legitimate, but on a scale of values of legality, it’s seen at a very low level” (21).

Lino Busà President of S.O.S. Impresa

Contrary to popular opinion, the negative effects of counterfeiting are not limited to the economic losses suffered by legitimate manufacturers. These negative effects have wider adverse consequences that impact on the entire socio-economic context of a country. These are just some of the lesser-known effects of counterfeiting. They include job losses, which compromises a country’s sustainable growth as has been seen in the DgLC-UIBM/CENSIS study, and risks to consumer health and safety caused by certain categories of counterfeit products (22).

Medicines, foodstuffs, cosmetics, drinks and other products can have dangerous effects on human health if they are counterfeit. Sometimes, they can even be fatal. The principal reason lies in the fact that counterfeiters are merely looking to make as much profit as possible. This means that they use the cheapest raw materials they can find on the market for their production. Counterfeiters are criminals and it matters little to them whether the consumer is exposed to serious risks caused by products made from out of date, harmful or toxic materials.

Threats to consumer health and safety are essentially a concrete problem for those goods whose real nature and quality cannot be evaluated before consumption. They are products for which the consumer would be unlikely to deliberately buy a counterfeit version (examples include foodstuffs, toys or

21 Busà L., interview with UNICRI. 22 See also para. 3 on page 70.

34 medicines) or would not buy it if he or she was fully aware of all the consequences that could result from its use based on the raw materials and processes through which they have been produced – as in the case of mobile phone batteries or car parts, whose hazardousness is often underestimated.

Despite the preventive measures taken by the authorities, which are mainly intended to halt the influx of fake goods, criminals are managing to infiltrate these products into the legal commercial flows in Italy and abroad. In developing countries, where the public health safety and control systems are often inadequate or not sufficiently developed, consumers have to deal with greater exposure to counterfeit goods (23).

With reference to the Italian case, there is one very important example in this regard (although it dates back to the late 1980s) when wine containing high levels of methanol was put on the market, leading to the death of 19 people, while another 15 lost their sight (24). More recently, in the year 2000, an operation led by the Tuscany Finance Police led to the seizure of 6 million bottles of counterfeit wine. Furthermore, in 2006 138 tonnes of counterfeit olive oil were also seized. The oil was contained in bottles identical to the original. All these cases had a certain level of media coverage, but it seems they had little influence on the way consumers perceive counterfeiting, at least with regard to certain aspects, as we will see below.

Another case that testifies to the social hazards of this crime – mentioned in the online magazine Narcomafie (25) – and underlines the involvement of organised crime in counterfeiting, relates to the production of toxic toys made from illegally-dumped waste. According to the article, there was an “assembly line” beginning with ships from China arriving at the port of Naples, where containers of fake goods were unloaded. The ships would then return to China with waste from Naples that would then be illegally disposed of. The same ships would then return from China with technology goods and toys, which were often counterfeit. There was a suspicion that they were made from toxic waste mixed with other raw materials, thus creating highly toxic toys that posed a serious danger to the children who came into contact with them. Unfortunately, this is a vivid example that reveals not only the collaboration between different criminal organisations (Italian and Chinese in this case), but also the extent to which the ruthlessness of counterfeiters can extend.

23 UNICRI (United Nations Interregional Crime and Justice Research Institute), (2011 to be published), “Counterfeiting, a global threat a global spread: 2011 edition”, p. 55. 24 UNICRI (2008), “Counterfeiting: a global threat a global spread”, available online: http:// counterfeiting.unicri.it/database.php?sec_=C&c_=3 25 Ruggiero P., in Narcomafie (14 April 2011), “Poisoned toys”, available online: http://www. narcomafie.it/2011/04/14/giocattoli-avvelenati/

35 The data made available by the Customs authorities of various countries, government agencies and international organisations has shown that it is possible to obtain at least an approximation of the economic losses caused by counterfeiting, but it is much harder to obtain direct evidence of the cost – both in financial terms and in terms of the number of incidents – generated by the effects that the phenomenon has on consumers’ health and safety. Although the available studies and reports do not give exact scientific data, they can be used to reconstruct a more complete and detailed picture of the social hazards of counterfeiting, in order to create a database that can be extremely useful in promoting a new awareness on the subject. This element, together with increased public consciousness, is another weapon in the fight against counterfeiting. It is only by knowing the real risks of this illicit activity that informed consumers will be able to decide whether or not a fake product is in reality a good bargain.

It is relevant in this context to consider the results of a study conducted in Italy by the Ministry for Economic Development in collaboration with eight consumer associations. The study revealed that out of a sample of 4,000 interviewees, which was statistically representative of the Italian population in terms of gender, age, area and demographics, 90% of Italians were aware of the risk of being fined for buying a counterfeit product (26). 96% were aware that fake products can be harmful to health. Potential damage to health was also a basic reason used by those who do not buy fake products. These result reflects several earlier studies carried out by UNICRI in 2010, which indicated that the risk of causing harm to one’s self or to his/her beloved ones is the largest deterrent to buying counterfeit goods in most countries (27). The Italian case shows that information campaigns have managed to raise public awareness on this issue. On the other hand, the fact that extremely large quantities of counterfeit goods are still bought shows that the economic aspect – namely the price of the product – is still prevalent. This factor was highlighted in the above-mentioned study conducted by the Ministry for Economic Development and the 8 consumer associations. From interviews conducted with a sample of consumers it was found that the primary reason for buying counterfeit products was the affordable price (77.4%). When the low price is the first or second reason for the purchase, this percentage rises to 91.4%. Looking at the level of satisfaction with the product, no fewer than 71.2% of those interviewed said they would buy a fake product in the future. Added to this is another significant conclusion that emerges from various studies on counterfeiting: that the boom

26 MiSE - Italian Patent and Trademark Office and consumer associations (2011), op. cit., p. 42. 27 UNICRI, (2010), “Strategies for Technical-Juridical Training and Awareness Raising in counterfeiting”, p. 8.

36 in online sales and the easiness with which certain products such as Viagra and Cialis can be bought in anonymity, has made an extremely large contribution to the growth of this phenomenon.

The social cost is not borne only by consumers, but also by the workers involved in the illegal manufacturing operations. They are often subjected to nothing short of exploitation and have no guarantees whatsoever, due to the illegal nature of their work. This is one of the less-considered aspects of counterfeiting, but it is vitally important if we are to understand its nature. In the majority of cases, the public considers the sellers of counterfeit goods as socially disadvantaged individuals who find a job through selling or producing fake products28 ( ). While this may be true in some cases it is also true that criminal organisations often exploit victims of human trafficking, for their production and distribution operations. The victims are often trafficked by the same organisation managing the production and selling of counterfeit goods. Alternatively they are recruited through other criminal organisations, and in other cases they use people in desperate conditions, exploit illegal immigrants, and sometimes even children. The problem is the same, and in many cases this exploitation of workers is equivalent to slavery. What has to be clear is that counterfeiting does not create new job opportunities in less industrialised countries. Instead, it creates more opportunities for exploitation by giving criminals new ways to make large profits to the detriment of the socio-economic systems of an increasingly large number of countries.

To quote another Italian case, a report by journalists from Il Corriere della Sera (29) into counterfeiting businesses based in the Naples area lifted the lid on a world of illegal production of some of Italy’s best known fashion names. The manufacturing process, carried out in basements, cellars and annexes of ordinary houses, mainly employed Italian women who were paid around €15 per day. Very often, Chinese or Pakistani workers, mainly illegal immigrants, are also employed at up to half the cost.

28 If, apart from all the talk, there is no such awareness, and [counterfeiting] is still seen as a marginal offence that creates jobs for a few people who would otherwise be on the street […] then it is clear that the “system” of legal authorities, police forces, consumers’ associations and the business community has not made any progress at all - Busà L., interview with UNICRI. 29 Crispino A., in Corriere della Sera, (23 February 2011), “The other side of Made in Italy: inside the companies making fake fashion”, available online: http://www.corriere.it/cronache/11_febbraio_23/falso-made-italya-moda-camorra- crispino_6e86176e-3f50-11e0-ad3f-823f69a8e285.shtml

37 Organised crime: which definition?

Having attempted to define the economic scale of counterfeiting and its social dangers, it is important to consider the involvement of organised crime in all its different aspects. As the purpose of this study is to analyse the criminal management of counterfeiting in Italy without neglecting the transnational dimension of the phenomenon, we will firstly outline the main changes that have taken place in the world of organised crime in the wake of the global changes on the economic and geopolitical scene, and we will then provide a commonly accepted definition of organised crime. This is followed by an overview of organised crime in Italy in order to outline a framework for analysis within which to study a series of cases during the course of the following chapter. Finally, we will highlight the main factors that draw criminal organisations towards counterfeiting.

Transnational organised crime

The socio-economic changes caused by globalisation have without a doubt helped to expand the number of business opportunities for legitimate companies. However, at the same time these changes have involuntarily facilitated the proliferation of criminal groups operating on transnational markets. The evolution of conventional markets together with the elimination of trade barriers and the advent of low-cost technological innovations are in themselves important elements, which the world of organised crime could not afford to exploit. Organised crime has also hugely benefited from the lack of consistency in national legislations, and the reduced number of international police controls on criminal operations. On the other hand, transnational organised crime is able to cooperate merely on the impulse of reciprocal economic interest and does not have to respect the rules and procedures that characterise international police cooperation, international investigations and enquiries in general. “[...] Transnational criminal groups proliferate because they are the primary beneficiaries of globalisation. They benefit from the ease of movement, trade, rapid movements of cash, telecommunications and Internet links, and this gives them everything they need to grow”, observed Louise Shelley, director of the Transnational Crime and Corruption Center at George Mason University (30). As mentioned above, all goods - whether they are drugs, weapons, cash, counterfeit goods, stolen cars, toxic waste, radioactive materials or human beings – can be transferred from the place of production or origin

30 Zuccarelli F., (2006), “Brand counterfeiting and organised crime. National and international investigations against the manufacture of fakes”, a report given as part of the course organised by the CMS in Rome on 23 October 2006 “Offences against public faith”, p. 1.

38 to the point of sale or consumption thanks to the synergies between criminal groups operating in different countries. The criminal organizations involved in trafficking operations can circulate their goods using the two main weapons available to them: corruption and violence, both of which are supported by the huge financial resources available to the world of organised crime. The forging of relationships between various organisations also allows them to expand their markets of reference and the opportunities for commercial/criminal exchange, leading them to even greater enrichment opportunities. The transnational aspect of organised crime refers to the relations between different organisations with the intent to carry out criminal activity. It alludes to the cooperation between groups of different nationalities in order to render the management of certain illegal markets more efficient. The concept is different from an “international” criminal organisation, which refers to the fact that a criminal group does not operate solely in its country of origin but extends its operations also beyond national borders (31).

The end of the Cold War also multiplied the possibilities available to traffickers: the channels for the distribution and transit of goods proliferated, while the large number of “weak” states enabled criminal organisations to infiltrate their illegal trades by exploiting legal loopholes and the lack of judicial and police collaboration, both nationally and internationally. The difficulties involved in regulating different sectors of the economy also opened up further opportunities for organised crime, which did not hesitate to seize them.

The process of globalisation also blurred the boundaries between economic crime (32) and organised crime, two concepts that are gradually overlapping. The diversification of the activities of organised crime and its gradual encroachment on legal sectors responds to a desire to obtain greater profit at lower risk. However, this requires the transformation of the criminal group, as it requires greater flexibility.

Various reports published by influential international organisations and institutions have attempted to summarise the transformations occurring in organised crime in recent decades. To cite two examples, in 2006 Europol emphasised that “organised criminal groups [are] becoming diverse with dynamic structures, and are becoming more like loose networks than pyramidal

31 For more information, Zuccarelli F. (2006), op. cit. 32 Economic or business crime is illegal conduct by people operating within a legal organisation – typically a company – in line with that company’s objectives (Schrager, Short 1977). Another definition often explicitly or implicitly referred to in criminology textbooks includes under the umbrella of “economic crime” any offence that is carried out with an economic purpose, by moving the centre of gravity of analysis from the criminals to their target functions. Another definition refers to the way that economic crimes are carried out: they are illegal behaviours with significant similarities to normal, entirely legal economic activity (Kitch 1983).

39 monoliths” (33). Two years later, the US Department of Justice also stated that “ organised international criminals are evolving towards loose networks, moving away from the traditional hierarchical structures” (34).

On the one hand, thus, the old hierarchical structures seem to refer to groups emerging in areas with low levels of governance, with their own institutional identities and participating in activities within those areas that they themselves control (a typical example is the Sicilian Mafia). On the other hand, criminal networks can refer to the mutable commercial ties between the sellers and buyers of contraband activities in illegal markets all over the world.

The transition from the old-style mafia to the modern one, and therefore the transnational phenomenon typical of today’s racketeering, mainly took place with the boom of the drugs’ trade in the 1970s (35). The first alliances were formed between the Turkish and Sicilian Mafia, for the supply and refinement of heroin. This divided the European market in two halves – the North was owned by the Turkish mafia, while the centre and south belonged to the Italian Mafia and the Camorra. Other examples refer to the creation of synergies and alliances between Colombian and Caribbean cartels in the management of the Atlantic market for cocaine and heroin in the late 1980s.

The explosion in drug trafficking during the 1970s marked a turning point, which signalled the need for a transformation of the traditional criminal group. Together with the contraband of other products, drug trafficking required the traditional criminal structures to form a series of alliances with other criminal groups in order to traffick substances and goods that were produced far away from their final destination. The traditional centralised structure of criminal organizations was not best suited to performing this role, and synergies had therefore to be created. Various groups operating in different countries drew great benefit from this reciprocal cooperation, and often became specialised in a particular phase of the commercial process. The possibility of exploiting the same trade routes and the same facilitation methods also allowed the criminal groups to create synergies, which increased the added value that came from this type of collaboration. Criminal groups thus became internationalised and this led to the transnationalisation of criminal activities and trafficking. As mentioned, the wave of globalisation proved to be an opportunity and also a challenge for the traditional criminal groups. Despite the fact that many groups had already been involved in transnational trafficking for years, their rigid structures and focus on the maintaining of authority

33 Europol, (European Police Office), (2006), “Organized Crime Threat Assessment”, The Hague, p. 7. 34 US DOJ (Department of Justice), (April 2008), “Overview of the law enforcement strategy to combat international organized crime”. 35 Zuccarelli F., (2006), op. cit., p. 2.

40 at local level meant that they would have lost the many opportunities that were emerging at global level. The hierarchical structures were thus transformed, and were replaced by more flexible, smaller organisations, and even by the loose networks mentioned above. It is now an established fact that these networks were a response to the pressures of law enforcement bodies on the more visible hierarchies – they are thus the new generations of organised crime. While the old criminal associations had been weakened by repeated arrests and seizures, the gaps in the market were rapidly filled by more agile, lower profile groups. These new forms of organised crime, without any specific institutional identity, can also be described as commercial connections of varying duration between individuals. All of them had the same common interest: profit.

Looking at Europe, the estimated volume of business managed by organised crime in the 27 Member States reaches impressive levels. It has been said that the profit from crimes such as drug trafficking, prostitution, counterfeiting, arms smuggling and other activities such as the trafficking in human beings and waste is worth up to €311 billion (36). In reality this estimate is lower than the real weight of the mafia in Europe as it does not take into account the resources that organised crime takes away from the economy through corruption and the control of legal businesses. Money-laundering, in other words the recycling of the proceeds of crime, has risen in Europe, hand in hand with the advent of the single currency. It exploits the opportunities provided by the differences that exist in the various countries’ legal systems. The differences between the various criminal systems are therefore one of the fundamental issues in the fight against transnational organised crime.

In this regard, one of the most important attempts to facilitate international cooperation in the fight against crime is the UN Convention against Transnational Organised Crime (UNTOC), (37) which is the primary international regulation in this field. It directly responds to the need for a global strategic approach to solving world issues related to crime. The Convention contains an extremely important definition of an organised criminal group, which is identified as: “a structured group of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes [...] in order to obtain, directly or indirectly, a financial or other material benefit” (38).

36 For more information: Paci G. in asud’Europa, (4 April 2011), “Mafia, cosa accade in Europa”, p. 3. 37 Signed at the Palermo Conference (12 - 15 December 2000), hence also known as the Palermo Convention. 38 See Article 2, a) of the UN Convention against Transnational Organised Crime (December 2000), Article 2, available online at: http://www.unodc.org/documents/treaties/UNTOC/Publications/TOC%20Convention/ TOCebook-e.pdf

41 The definition is very clear and includes criminal activities with a certain duration, within which the criminal association is formed concurrently with its purpose: to conduct criminal activities for profit. The duration of the association is not defined in advance, and should be seen as a non-occasional commitment by the members of a group, to commit crimes. The numerical element of this definition is used to distinguish between a criminal, who can be assisted by an accomplice to commit occasional crimes, and a more complex organisation that includes a number of people and implies a higher level of operational capacity, representing a greater threat to public order. This definition can be applied to traditional mafia-type criminal organisations with a rigid hierarchy, clear division of roles and strong territorial links, and to the modern phenomena consisting of large criminal networks with various units operating in different sectors and territories. The features common to all criminal organisations are their duration and the committing of offences designed to obtain financial gain. On the basis of the data collected, and applying the definition of transtational criminal organization contained in the UNTOC, there is no doubt whatsoever that organised crime is the real “manager” of counterfeiting. From this angle, and anticipating an issue that will be dealt with in more detail below, the Palermo Convention could also apply in cases in which the crime is a counterfeiting offence, by enabling the use of a series of tools that would certainly reinforce the investigative activity as well as the legal and police cooperation at international level. Applying the Convention to counterfeiting cases would have the benefit of creating a common approach implemented by the countries affected by counterfeiting in various ways. It would act as a catalyst for a coordinated response to transnational organised crime as such, by considering the various ways in which it manifests itself, and the various criminal activities it is involved in. Counterfeiting is certainly one of these activities and as such it should be addressed and countered, by using all the tools mentioned by the UNTOC in relation to the fight against transnational organised crime.

Having established that counterfeiting is in many cases linked to an organised crime offence and that to all intents and purposes it relates to the application of an organised crime strategy, it would be interesting to find out its specific role within the criminal strategy itself, and how organised crime has helped to transform counterfeiting into a mass production and distribution industry. Central to the analysis in the following chapter will be a discussion of the criminal management of counterfeiting, which goes back to the underlying causes, the effects of the above-mentioned aspects of transnationality and the links between counterfeiting and other serious crimes.

42 Organised crime in Italy: an overview

The presence of mafia, corruption and infiltration in the public sector have grown without interruption in both the south and north of Italy in recent decades. The presence of organised crime has detrimental effects on society and “in the zones in which they have the strongest roots, criminal organisations discourage investments in production, impede the free and full use of proprietary rights, and have a negative effect on business activity, which ultimately alters the allocation of resources and the general functioning framework of the local economies” (39).

Increasingly, there is talk of a “grey area” made up of people who are not strictly speaking “Mafiosi”, but who make a somewhat conscious contribution to the mafia’s penetration of the legal economy. These people may be businessmen, but also public administrators, bureaucrats or professionals. The grey area is a sort of meeting ground for cooperation and exchange of favours between apparently irreproachable individuals who act as intermediaries and allow members of organised crime to enter and/or participate in legal activities. The networks developed in this area tend to produce distortive effects, which then have an impact on the size of the whole national economy.

The former national Anti-Mafia Prosecutor, Pietro Grasso, gave the following opinion of the issue: “As with money laundering, counterfeiters can also rely on people who are not part of any clan, but who are also “on the market” and offer their criminal “services” to several groups, some of whom may be in conflict. The greater the specific weight of this category of individuals, obviously the more insidious is the criminal management of counterfeiting, because it is entrusted to people with an influential package of relational skills and know-how.[…] The grey area, by definition, is not easy to identify: it may include skilled financiers working for Cosa Nostra in the heart of the City of London, and it may include Customs officers working in ports on the east coast of the USA who facilitate Camorra clans. If we concentrate on the counterfeiting sector, it is possible that a greater percentage of those working in what is commonly known as the “grey area” are found in Camorra groups, as they are the ones who mainly dedicate themselves to that sector” (40).

There are four main Mafia-type organisations in Italy: Cosa Nostra, ‘Ndrangheta, Camorra and Sacra Corona Unita, which are based respectively in Sicily, Calabria, Campania and Puglia, although their branches have now extended throughout Italy and abroad. Each branch is divided into medium to small clans with a strict hierarchy, which are able to manage large, transverse markets and

39 Sciarrone R. (ed.), Res Foundation (2011), “Alleanze nell’ombra. Mafie ed economie locali in Sicilia e nel Mezzogiorno”. 40 Interview given to UNICRI.

43 can sometimes forge reciprocal or competing alliances. The zones of influence are also divided along geographical lines, and sometimes real monopolies are formed.

The nature of the mafia business has evolved over time. The transformation began towards the end of the 1970s, when the economic and institutional disintegration of Italy acted as a catalyst in the process of converting the mafiosi into subjects dedicated to the accumulation of wealth. An aggressive business presence was gradually established, and moved towards expanding the market. A mafia business has a series of competitive advantages that make it stronger than a normal business: such as the forced reduction of salaries, the discouragement of competition and huge financial resources to invest. This is where the market strength and economic power of today’s mafia businesses comes from. Added to that are the huge cash resources from activities such as drugs production and trafficking, the trafficking of weapons and human beings, and the illegal export of capital. All these activities allow criminal organisations to self-finance.

Bearing in mind these factors and the growing business skills of national and international organised crime, it is easy to see how its involvement in counterfeiting has expanded this activity to an incredible degree, transforming it from something that was predominantly carried out by a small niche of forgers into a vast enterprise with a turnover estimated to be €7 billion in Italy alone. Also, the various factors of attraction that draw criminal organisations towards counterfeiting have made it an extremely attractive area for investments and for the laundering of illicit proceeds of crimes.

Before analysing these factors of attraction, it may be helpful to mention the economic sectors and territories affected by the four main organised criminal groups operating in Italy, in order to formulate an idea of which clans and organisations prevail in the sector of counterfeiting, and what their different roles and alliances may be. These hypotheses will then be compared against real cases analysed in the mapping exercise. We will also take a quick look at the foreign criminal organisations operating in Italy, which have strong links to the transnational criminal clans operating in their respective countries of origin.

By retracing the analysis carried out by the Anti-Mafia Investigative Directorate (DIA) in the second half of 2010, together with the information received from the sources mentioned above, principally the National Anti-Mafia Directorate and the Finance Police, it is possible to outline the following (partial) framework.

With regard to organised crime in Sicily, and although the island’s various organisations still represent a serious threat, Sicilian criminal groups have been showing gradual signs of crisis for some time. The anti-counterfeiting

44 actions led by the police have yielded positive results, on the one hand in terms of breaking up the clans through the arrests of certain key players and their accomplices, and on the other by attacking their illegal assets through seizures and confiscations. However, it seems that the disaggregation of the solid mafia framework is, paradoxically, heightening the risk of its entrepreneurial, political and financial branches taking root and spreading. This may be done, in particular, by the more evolved elements of the Mafia system who combine criminal methods with a more subtle managerial culture (41).

Although various prominent exponents of Cosa Nostra have been captured, it must not be forgotten that the Mafia is still able to survive, mainly because of its structure. By resorting to its old and ever-present rules, which have been handed over from the elders to the new generations, the Sicilian mafia is able to survive a time of crisis such as the current one. Thanks to these rules, Cosa Nostra is always able to re-engineer itself without ever losing its life force or dangerousness.

Investigations have revealed that the primary interest of Cosa Nostra is the drugs market. Drug trafficking is very often financed by the proceeds of extortion. Extortion, as we will see below, is one of the principal offences committed by the various mafia organisations that have been investigated. Very often, extortion is used as a way of setting up a vast chain of offences, which give the criminal clan complete control over the operations of the victim companies. Criminal organisations in Sicily continue to have a very strong interest in the building and construction industry, and therefore in the sector of public contracts, as well as in financial intermediation (in this regards various operations have also been carried out in the north of Italy, particularly in Lombardy). Cosa Nostra has perfected a well consolidated strategy of infiltrating the legal economy. It usually approaches the business world with intimidation tactics such as arson attacks, vandalism, extortion, the use of weapons or attempted kidnappings. Looking at the international networks woven by the Sicilian Mafia, it is well-known that it has a solid bond with Cosa Nostra in the USA, and also strong relations with foreign drug cartels. From this brief and partial mapping, Cosa Nostra does not appear to be specifically involved in the management of a growing phenomenon such as counterfeiting.

Moving our attention to organised crime in Calabria, information obtained from investigations and legal proceedings reveals that the ‘Ndrangheta is expanding its presence on the national and international markets, and is seeking to

41 For further study, see DIA (Anti-Mafia Investigations Directorate), (July-December 2010), “Report by the Ministry of the Interior to Parliament on the activities and results of the Anti-Mafia Investigations Directorate”, p. 34.

45 establish its supremacy particularly in terms of its financial resources, which are practically unlimited. It is also perfecting its criminal techniques. Generally speaking, there seems to be a clear transformation of the organisation’s criminal structure, which has gradually implemented business techniques linked to the process of globalisation and the need to move people, goods and capital around Europe. Many police investigations have confirmed that the ‘Ndrangheta is a secret mafia-type organisation with a strong territorial structure, articulated on several levels and with its own “top management”. From Calabria, where it is based, the organisation has for some time directed its efforts towards markets in the north of Italy (mainly in Lombardy (42), Piedmont and Liguria), Europe, North America, Canada and Australia. The National Anti-Mafia Directorate (DNA) monitored the activity of an ‘Ndrangheta member based in Toronto, and found that there were seven families operating in Canada, most of them Calabrian in origin. Each family was active in drug trafficking, extortion against members of the Italian community, gambling and usury, as well as the marketing of fake goods (43).

The first element that emerged from the anti-mafia actions was the frequency of crimes intended to enable the unlawful accumulation of cash and the laundering of the proceeds of crime. Common techniques that demonstrate the Mafia’s grip on the territory included the collection of protection money or “pizzo”, and the extortion pressure upon local businesses which are also exploited to create illegal channels for employment as another way of gaining control over the territory.

There are also many cases of infiltration of the political and administrative circles of local authorities. This allows the clans to penetrate regional contexts with greater scope for collusion. Alternative energy production is another sector infiltrated by the ‘Ndrangheta. Its illegal activities include not only usury and money laundering but also a very strong involvement in the drugs market, particularly in the port of Gioia Tauro, which is used as a channel for trade and transit. The other offences uncovered by the investigations include extortion, attacks to property, arson, and murder.

Looking at the statistical framework of the principal offences by province, what stands out is the figure for “cover” crimes (44) relating to the counterfeiting of industrial marks and products. In 2010, 26 counterfeiting offences were reported

42 Lombardy is one of the Italian regions particularly favoured by the clans as a place to establish criminal markets and infiltrate sectors of the legal economy by injecting illicit capital. 43 DNA ,(National Anti-Mafia Directorate), (2010), “Annual Report”, p. 91. 44 A cover crime refers to a group of less serious offences that conceal more serious crimes. It indicates the presence of other crimes: for example offences such as extortion and money laundering are often considered “covers” for more serious crimes.

46 in Calabria, divided up as follows: 5 in the province of Reggio Calabria, 7 in Catanzaro, 10 in Cosenza, 1 in Crotone and 3 in Vibo Valentia. Although the number may seem small if compared to offences such as vandalism (with more than 1000 offences reported in the province of Vibo Valentia alone), in some provinces counterfeiting is as common as usury, the exploitation of prostitutes, child pornography and money laundering.

To support the theory that branches of the ‘Ndrangheta are involved in the market for fake goods, it is important to consider the channels used to import illegal goods from south-east Asia and China in particular. One of these channels is the port of Gioia Tauro which is commonly known to be subject to the “laws” of the local criminal organizations (45). A recent operation named “Crime 3”, which completed a lengthy investigation carried out by the Special Operations Group and the Provincial Headquarters of Reggio Calabria, revealed that the activities at the port of Gioia Tauro have been heavily infiltrated by the biggest criminal groups in the region, in particular the Piromalli, Molè, Pesce and Bellocco clans (46). The first phase of the operation began in 2008 and identified the principal channels and methods used to import drugs. However, it would be easy to imagine that the control of the port activities also extends to other goods, and therefore branches of the ‘Ndrangheta are also assumed to be involved in counterfeiting, specifically in the importing phase and Customs clearance of counterfeit goods. The mapping exercise will either give weight to this theory or disprove it.

With regard to organised crime in Campania, “the Camorra is still a large, powerful, fluid and streamlined criminal organisation, which revolves around the ceaseless activity of multiple alliances, some of which are dialectic, others are allies or linked to some extent by strategic relations that support and fuel the “System” ” (47). The Camorra has a high level of territorial control and exploits the social fragmentation typical of its native region, by channelling criminal groups into the System as an alternative to lawful conduct, in view of responding to the multiple problems of an underdeveloped area. The boundary between the Camorra and the widespread criminality in Campania is a rather weak one. The Camorra has capitalised on its long experience in the region “by learning to combine the power of its hierarchy with the flexibility of relations among

45 Ibid., p. 169. 46 Galullo R. in Il Sole 24 Ore, (21 July 2011), “Il porto di Gioia Tauro nelle mani delle cosche di ‘Ndrangheta Piromalli, Molè, Pesce e Bellocco”, available online: http://robertogalullo. blog.ilsole24ore.com/2011/07/il-porto-di-gioia-tauro-nelle-mani-delle-cosche-di-ndrangheta- piromalli-mol%C3%A8-pesce-e-bellocco.html. 47 DIA (2010), op. cit., p. 218.

47 criminal networks” (48). The Camorra forges relations with external groups who receive a share of the proceeds from a broad spectrum of crimes, including the contraband of foreign manufactured tobacco, handling stolen goods, drug pushing and robberies. The Camorra’s areas of interest include robberies, which are often carried out by ordinary gangs of criminals on the authorisation of the Camorra clans, sometimes with a view to becoming fully fledged members of the System. It is also active in extortion, which can be interpreted as the “occupation of a region’s economic territory” and is mainly targeting the business world. Then there is usury, vandalism sometimes followed by arson attacks, murder by shooting intended to symbolise the criminal network’s power to settle scores, money laundering and re-using the proceeds of crime, bribery of public officials, drug trafficking (a favoured technique through which all the groups feed into the System), the recycling of waste which is still one of the most extensive areas of criminal interest, and counterfeiting.

As argued by the DIA in its six-monthly report to the Italian Parliament, for the Camorra counterfeiting is “an offence that paves the way for the implementation of a broad criminal programme” (49). Over the years it has been reported that the proceeds derived from the market for fake goods fed into the economies of the Camorra clans, some of which have created parallel markets for a whole series of products. In addition, the chain of counterfeit goods distribution is well- organised in Campania. We will attempt to analyse these factors in more detail by looking at case studies, in other words at the investigations and operations conducted by the law enforcement agencies.

In order to quantify the importance of counterfeiting for criminal organizations operating in Campania, we can look at “cover offences” which indicate a higher incidence of counterfeiting offences if compared to Calabria for example. In 2010, 164 counterfeiting offences were reported in Campania, divided up as follows: 100 in Naples, 24 in Salerno, 1 in Benevento, 5 in Avellino and 34 in Caserta. The offences reported in Salerno alone equal the number for the whole of Calabria. The factors that may have led to counterfeiting becoming rooted in this region and in the metropolitan area of Naples in particular may include: the number of small businesses that have existed in this region for centuries, the widespread presence of travelling salesmen, and the general difficulties involved in finding permanent employment. The factors of attraction generated by counterfeiting itself have also become rooted in the region. In certain cases, the Camorra clans are fully-fledged criminal organisations and have developed transnational networks for the trading of counterfeit goods, as

48 Ibid., p. 219. 49 Ibid., p. 228.

48 well as a capacity to operate in legal markets by reusing illicit cash in a number of economic or financial activities. From testimonies given by the director of the DIA to the Parliamentary Commission called to investigate counterfeiting, and from further studies and statements given by experts in the field, the clan with the greatest involvement in Naples and in other European countries such as Spain, Germany, Denmark, the UK, Portugal and even the United States, is the Mazzarella clan (50), and more broadly speaking the Mazzarella-Sarno- Misso Alliance, including the Zazo clan which is very active in the Fuorigrotta district. The Casalesi clan, having slowed down its involvement in the recycling of waste, appears to have pinpointed counterfeiting as an interesting area for investment, and has helped to develop the criminal side of this activity. There is also the Mallardo clan, which is linked to the Contini-Licciardi criminal rings of the Secondigliano Alliance.

During the mapping exercise we will deepen the analysis of the various criminal organisations operating in Campania as well as of their roles in the various phases of the management of counterfeiting, taking also into consideration the alliances forged with organisations originating from other countries.

This overview of Italian organised crime groups ends with a look at the Puglia region, where the Sacra Corona Unita operates. This organization still has a rather chaotic structure in which the search for unity and management is neglected in favour of a series of internal dealings aimed at gaining territorial supremacy for the clans. The strengths of the main criminal organisations in Puglia include their military and strategic capabilities, the ability to attract new recruits, especially from the region’s prisons, the use of women in the logistics of crime, particularly in managing the accounts for the illegal proceeds and as a link to the prison members, the use of children to control a territory and widespread use of extortion to provide financial support for the bosses and other members of the organisation in prison (51). In general, the Puglia organisation still has a fairly low level of collusion among the civil society, while in other contexts this is usually a strong point in favour of mafia power. The result is a need for organised crime to contaminate a territory with typical mafia tactics, resorting to brutal and completely gratuitous violence. On the counterfeiting front, although the number of reports in the second half of 2010 was half that those of 2009 - 35 in a year, of which 26 in the province of Bari alone - it is easy to envisage the existence of infiltration by organised crime in Puglia that will emerge during the analysis of the case studies.

50 Chamber of Deputies (Session of 19 January 2011), Parliamentary Inquiry into counterfeiting and piracy, p. 10, available online: http://www.camera.it 51 For a more detailed analysis, see DIA (2010), op. cit., p. 321.

49 Factors of attraction for criminal organisations

The profile of the regional organised crime groups in Italy given in the previous chapter will now be used as a basis for the analysis of the many factors that have made counterfeiting an extremely attractive illicit activity for criminals. As mentioned in relation to the international situation, in recent years Italy has also seen an expansion of the economic interest of criminal organizations towards new areas, and thus a tendency to widen the sphere of action by infiltrating local economic and financial contexts with increasing effectiveness. This tendency has led, among other things, to a generalised consolidation of the relationship between counterfeiting and organised crime. It is a veritable economic criminality that incorporates activities ranging from the management of public contracts to the involvement in legal businesses to the creation or management of companies whose purpose is to launder the proceeds of other crimes committed by the same clan, or cash transferred to the group for money- laundering and reinvestment purposes (52). The result is an economic circuit managed by organised crime. Counterfeiting is also part of this specific area of operations, and has become another extremely important area for investment and money-laundering.

The entry of organised crime into the counterfeiting production/distribution chain has quickly transformed this illegal activity from an artisanal one into a form of mass industrial production. The growing investments by criminal consortia in the fake goods industry have resulted in greater “elasticity and the ability to respond to changes in demand (by using advanced technologies for example), and counterfeiters have begun exploiting new channels of importing and marketing that are already used for other illegal traffic” (53). While local markets, or simply busy streets and the Internet are the most common channels for the sale of counterfeit goods, there is no shortage of other means of distribution, which are often directed at placing counterfeit goods within legal distribution chains, including retail, where they also reach the unsuspecting consumer.

This is the case for example with the direct management of commercial businesses by criminal organisations who can thus sell their products directly to wholesalers or retailers. Mafia organisations with strong local roots are also managing to force legitimate businesses to sell fake products, and this practice often replaces the payment of protection money. With regard to this last aspect, the National Anti-Mafia Directorate has reported that several years ago certain

52 General Command of the Finance Police, “Project UNICRI: Links between Counterfeiting and Organised Crime”, confidential document, p. 25. 53 Ibid., p. 26.

50 individuals linked to key exponents of the Liguria base of the Camorra were forcing local businessmen to sell only fake fashion labels.

Mr. Fausto Zuccarelli, deputy prosecutor of Naples, has said that: “The demanding of protection money […] is an old technique used by Neapolitan criminals since the 1970s, I would say, and it is now mutating into this confusion between real and fake products, as this gives also the shopkeeper the opportunity to earn more money, which is usually tax-free because the counterfeit product he buys and then sells in his shop is almost never supported by any receipt, tax or fiscal documentation” (54).

With regard to the issue of how counterfeit goods are introduced into legitimate distribution channels, the President of SOS Impresa referred to a testimony from a trader in Reggio Calabria. His comment was as follows: “They come here, they offer to sell you X number of ‘Superga’ shoes that you know to be fake. The first time you say no, the second time you say no, the third time they break your shop window, and that costs you Y [...] so even if you don’t want to sell them the next time you take them, hoping that no one checks”. Obviously then there’s somebody else who knows that the counterfeit goods are made well, buys them, and can sometimes get a bargain. In that situation it’s much more dangerous because it’s one thing for a consumer to buy something from a salesman in the metro station – so he knows – but it’s different if you go into a shop where you don’t expect to find that kind of product. Thus counterfeiting goes hand-in-hand with fraud and other types of offence” (55).

These tactics have allowed the trafficking of counterfeit products to grow. Fakes have infiltrated ordinary retail circuits, reaching the unwitting consumer.

These changes have brought with them significant problems. One such problem is the increase in the type of goods which are counterfeit. At one time the fake goods industry was mainly focused on luxury goods such as designer bags and clothes, but the target has now widened to include almost all products, and all market segments in which counterfeit goods can be sold for profit, including highly sensitive sectors such as pharmaceuticals, toys, food and drink, and even car parts.

Looking at these trends, it is also important to examine the principal factors of attraction that draw criminal organisations towards counterfeiting. Some of these factors have already been mentioned, but they should be highlighted as factors that facilitate the commerce of counterfeit products.

54 Interview given to UNICRI. 55 Interview given to UNICRI.

51 To obtain a better understanding of these factors it must be borne in mind that for criminal organisations, counterfeiting is a highly lucrative low risk business, and a way of diversifying their illegal activities. Counterfeiting is part of a series of criminal activities in which organised crime supplies a series of legal or illegal goods and services for which there is a given level of demand. The high demand for counterfeit goods can partly be explained by the price difference between original products and imitations. In most cases this is due to taxation, the need for the legal manufacturers to recover the capital invested in developing and producing their goods, and differences in the quality of the raw materials and end products. As mentioned above the high demand for counterfeit products is also partly due to the lack of public information about the real risks of counterfeiting. It is therefore a very complex topic, which takes on different connotations for certain product categories or markets with a different level of economic development. For the purposes of this study, it can nevertheless be said that the possibility of easily obtaining counterfeit “designer” goods at low cost is another strong attraction for many segments of the population, also considering the recent financial crisis that has affected the global economy, opening the doors to a surge in demand and the expansion of the market covered by organised crime.

Together with the high demand, organised crime also considers the profit that can be earned from any illegal activity, and also the level of risk. The marketing of counterfeit or pirate goods provides a rich source of income for criminal organisations, on a par with drugs trafficking or the smuggling of weapons. As highlighted above, counterfeiting is at least as remunerative as drugs trafficking. According to an estimate carried out in 2005 by the UK National Criminal Intelligence Service, it would cost about 0.70 USD to make a pirate DVD in Asia, while a street seller in London would pay around 9 USD for the same item. An increase of 1.150% would make pirate DVDs more profitable than Iranian heroin or Colombian cocaine (56).

The following table, provided by Europol, concerns the specific case of counterfeit medicines. Once again it demonstrates how profitable counterfeiting is, in relation to drugs trafficking.

56 RAND, (Global Risk and Security Center), (2009), “Film Piracy, Organized Crime and Terrorism”, pp. 43-46 in UNICRI (2011), op. cit., p. 84.

52 TABLE 1 (57)

Purchase Retail prices Active prices €/Kg in (street prices) % ingredient 2007 €/Kg in 2007

Opium* 190 52,000 27,400

Cocaine* 1,470 67,000 4,600

Heroin* 7,190 47,700 660

Sildenafil API 60 100,000 166,700 Viagra®

In the second line, the table shows, respectively, the cost of a kilo of opium, cocaine, heroin and Sildenafil (the active ingredient used in Viagra). The third line shows the cost of a kilo of the same product, while the last line shows the percentage of earnings for each product, obtained by comparing the second and third lines – purchase price and sale price. It can be seen that the percentage of earnings obtainable from Sildenafil is by far the highest.

Fake goods are also trafficked through safe channels, and it is becoming increasingly clear that the routes and distribution techniques used to smuggle drugs are the same. The result has been defined as the “geopolitics of fraud” (58), which functions according to the model outlined above: criminal organisations, in transferring the goods from the production site to the place of distribution, attempt to conceal the origin of the goods in order to pass Customs inspections. The counterfeit goods pass through countries known as free zones or free trade zones, and are then redirected towards the countries of distribution and sale.

On the other hand, the potential high profit does not correspond to a high risk. The risks are extremely low, and negligible when compared to the trafficking of drugs for example. Once again, the basic reason for this is a lack of information, and the current approach to the consequences of counterfeiting which has for a long time (and unfortunately often still is) considered by the national authorities and police merely as a financial crime and sometimes even as a victimless one. Far from being seen as linked to the world of organised crime, counterfeiting is unlikely to be a priority of the law enforcers, who often do not recognise that organised crime is involved and do not deepen their investigations into counterfeiting offences.

57 The figures for opium, cocaine and heroin – marked with an asterisk – were sourced from UNODC (2009), World Drug Report; the figure for Sidenafil API Viagra® was taken from direct investigations by Europol. 58 Zuccarelli F. (2006), op. cit., p. 12.

53 Governments have for some time enabled this situation, and the penalties in place for counterfeiters have for many years been much less severe than those applied to other serious crimes. While this trend is fortunately changing in several countries – led by Italy, France and the USA – it is also true that in many other nations the laws are still very ineffective, with the result that the risk/profit ratio for counterfeiting is decidedly weighted in favour of profit. This has enabled (and continues to allow) organised crime to carry on this activity almost undisturbed, taking advantage of the opportunities for profit.

What is not understood is the importance of the role played by counterfeiting in the strategies of a criminal group – this is fundamentally important when analysing the factors of attraction for organised crime. In this regard, counterfeiting plays two very important roles for a criminal group: thanks to the favourable profit/risk ratio, it is firstly an infinite source of readily-available cash, which can then be reinvested in criminal activities with a higher level of risk for the group. The same profit/risk ratio, combined with the steady advances in the techniques used by organised crime, particularly the possibility of infiltrating counterfeit goods into legal distribution chains, means that counterfeiting is also an excellent way to recycle dirty money. Two vitally important elements in the operational capacity of a criminal group coexist in an activity with very low risks and very low criminal implications.

There are also other factors that may not be attractions in themselves but nevertheless facilitate this type of offence. As mentioned, this certainly includes the low level of alarm in society, due to the fact that consumers tend to consider counterfeiting to be less insidious than other offences such as drug trafficking or the trafficking of weapons or human beings. This view has certainly been fostered by the fact that initially, counterfeiting was mainly associated with the replication of luxury goods or clothing, and this did not generate enough concern to result in effective police action. The link to the wider trafficking operations run by transnational organised crime was not yet clear. In many cases this link is not even recognised today, and in the past there was not enough knowledge on the existence of counterfeit goods that were dangerous to public health and safety. These factors have contributed to the tolerance of counterfeiting, and have favoured its growth.

As counterfeiting is a form of illegal trade, another facilitating factor is the level of legal international trade. International trade is now at such a high level that the authorities of the various countries responsible for conducting border controls cannot physically check all the goods passing through. While on the one hand this has encouraged national authorities to fine-tune their techniques used to test products, and has intensified the exchange of information between countries, at the same time counterfeiters have benefited from this situation by

54 diversifying their trade routes so that fake goods pass through several areas other than their real source, to conceal their origin.

Another factor to consider in this regard is that while Customs authorities in the European Union have been formally unified, the efficiency of national Customs agencies varies widely. This is beneficial to criminals, as organised crime constantly monitors the efficiency and corruptibility of Customs officers, then adapting its strategies accordingly in order to minimise the risk of inspection of goods entering the European market.

Considering these factors and in view of the benefits of counterfeiting compared to other types of offence, it can be said that counterfeiting is increasingly becoming the “business of tomorrow’s mafia” (59).

59 General Command of the Finance Police, op. cit., p. 27.

MAPPING OF ORGANISED CRIME’S INVOLVEMENT IN COUNTERFEITING OFFENCES IN ITALY

Criminal management of counterfeiting

“There is a need to diffuse around the world the perception and awareness that counterfeiting is only seemingly harmless to the community, if they allow illegal activities to be carried on. While for drugs trafficking or trafficking in persons there are not only tough national laws punishing these behaviours but also public disapproval, the gravity of counterfeiting has not yet been realised at global level”.

Fausto Zuccarelli (60)

“The ways in which organised criminal groups are involved in the trafficking of counterfeit goods are mainly based on opportunities elaborated by “key players” who are busy creating illegal profits. They establish connections as soon as the opportunities arise, and there are many opportunities in this sector. […] As soon as an interesting form of illegal trade comes up, the organised criminal groups invest in that area, and try to seize on the trends of the moment. Their objective is to take advantage of any opportunity and to develop a flexible network to that end, in order to organise their connections and interests, and achieve their goals”.

Benoit Godart (61)

The basic concept of this study is to show that counterfeiting is managed by organised crime, which thanks to its financial power, intimidation and corruption, is at the root of the huge expansion in this phenomenon. The production and distribution of counterfeit goods is now an authentic transnational business, which can rely on a series of contraband practices and methods deployed successfully by organised criminal groups. As it will be discussed later on in this analysis, these considerations apply to all the various phases concerning the management of counterfeiting.

60 Interview given to UNICRI. 61 Ibid.

57 The many case studies analysed leave no room for doubt that counterfeiting is managed by transnational organised crime, which covers every last detail in the production and international trafficking of counterfeit goods, from production to retail and distribution. The case studies have revealed a series of elements in the counterfeiting management which corroborate the arguments made in the previous chapters and with the specific aim of offering new perspectives for analysis and consideration of this issue.

Before entering into the heart of the mapping exercise, the nature of these factors must be specified. Below is a list of the 26 cases and operations that were analysed. They have been divided into two groups: the first group contains cases that must remain anonymous as no final court order has yet been issued. The second group contains completed operations which have therefore been made public by the authorities. The case studies’ analysis is also supported by excerpts from interviews with some of the leading experts in the field of counterfeiting and organised crime, some of which were mentioned in the first part of this study. A full description of the cases and operations can be found in the book published (in Italian) at the link http://www.uibm.gov.it/images/allegati/ contraf_unicr2.pdf (see Annex 1; Annex 2 contains the full text of the interviews).

TABLE 2

CASES WITH NO FINAL RULING

Case AB Naples, Italian mainland and abroad

Case AR Rome, Milan, Naples

Case AV Naples, Italian mainland and abroad

CASES WITH FINAL RULING

Operation Shanghai Express Prato and Italian mainland Caserta, Republic of San Marino and Operation Catarsi Italian mainland Operation Ningbo/Fernand Naples, Italian mainland and abroad

Operation Feedback Genoa and Italian mainland

Operation Kussen Bolzano and Italian mainland

Operation Strike Naples and Italian mainland

Operation Tarocco Naples and Italian mainland

Operation Indianapolis Milan, Italian mainland and abroad

58 Operation Everywhere Trieste and Italian mainland

Operation X-plosion Milan and Italian mainland

Operation Carta Canta/Katana Naples, Italian mainland and abroad

Operation Same Same Varese and Italian mainland

Operation Higan Milan, Italian mainland and abroad

Operation Sopra le mura Rome and Italian mainland

Operation Felix Naples and Italian mainland

Operation Gomorrah Naples, Italian mainland and abroad

Operation Cian Liu Florence and Italian mainland

Operation Bucaniere Naples and Italian mainland

Operation Puerto Milan and Italian mainland

Operation Maestro Calabria and Italian mainland

Hagen Naples and Italian mainland

Finance Police operation Lecce, Italian mainland and abroad

Operation Cuscinetti Meccanici Province of Caserta and Europe

INTERVIEWS

Pietro Grasso ex National Anti-Mafia Prosecutor

Deputy Prosecutor of Naples (ex-DNA Fausto Zuccarelli deputy prosecutor and expert on international crime) Judge, ex-director of UNICRI and legal Gioacchino Polimeni expert at the Italian Representation in Vienna

Benoit Godart Europol Liaison Officer at Interpol

Lino Busà President of SOS IMPRESA

The production phase and supply of raw materials

The first component in the management of counterfeiting relates to the supply of raw materials and the production of counterfeit goods.

From the various cases examined it appears that the materials are usually sourced through two main channels: the international channel in which Chinese imports are particularly important, and the national channel, in other words fakes made in Italy, with a particular concentration of workshops and factories in the area around Naples but also in Lombardy and Tuscany.

59 A clear example comes from the “AB” case, in which a criminal organisation (62) produced and sold shoes bearing counterfeit labels, obtaining its supplies from both the above mentioned channels. Some of the goods and materials were imported directly from China, through a vast organisation and direct and indirect contacts with the Asian manufacturers who were mainly working in the Zhejiang region. At the same time, and in order to meet the considerable demand level, the group also used a network of collaborators working for various factories scattered around Campania. The factory owners received orders for the goods, and often the materials to be assembled (canvas, soles and uppers) in an ongoing cycle of production. To ensure that the counterfeit product looked similar to the original, the members of the gang would buy the genuine model from an authorised retailer, in order to copy the characteristics in detail before producing it in China or Italy.

The wire taps recorded during the investigations also revealed that production took place at various quality levels, and that the different quality directly influenced the prices of the products. The replicas were either approximate, or completely identical to the original, and this would influence the sale price.

Very often the products from the Far East were assembled in the same Chinese factories that worked for the legitimate brands during the day. At night, they would assemble the fake products. It is easy to see that in many cases the similarity between the genuine article and the fake can be impressive, as the counterfeiters have access to the same methods and materials that are used to make the original articles.

The “Tarocco” operation confirms the existence of a considerable volume of internally-produced counterfeit goods. According to the information gathered by the Finance Police during the investigations, it was found that an organised crime group (mainly of Italian origin) had set up a “boutique of fakes” in the city of Naples. It was concealed behind a partition inside an ordinary residential apartment. The workshop was closely guarded by a number of look-outs, a technique often used by criminals in “marketplaces” for the pushing of drugs or the selling of contraband cigarettes.

The investigations also revealed that the goods were supplied directly from the managers of illegal factories in Naples and the surrounding province, or alternatively from other producers of counterfeit clothing and accessories, through trusted intermediaries. The orders would usually be paid for in cash or with post-dated cheques, so that no trace was left. This modus operandi is nothing new in terms of the practices used in the organised crime world to settle transactions connected to other crimes.

62 Investigations in the AB case revealed a complex transnational criminal organisation with links between Italian and Chinese criminals.

60 The considerable scale of counterfeit goods production in Italy was also highlighted in a video reportage by the newspaper “Il Corriere della Sera” and published in February 2011(63). The video revealed the existence of “two or three story buildings concealing a completely illegal production cell in the basement” in the province of Naples. Most of the workers in this case were Italian women, who were paid approximately 15 Euro per day. Criminal organisations exploit the desperate need for work that exists in many parts of Italy, in which a sewing machine may be the only way out of poverty. In such cases, Chinese and Pakistani workers are often the toughest competitors. They can produce at half the cost and have now created an impenetrable circuit of production.

Operation “Feedback” also lifted the lid on a network of footwear and accessories workshops in Naples, where a Senegalese intermediary would obtain new supplies three times a week, acting as a courier for the online seller.

Obviously, the national production is not limited to clothing and footwear. Italy has a well-structured network, for example, also for the illegal reproduction of CDs and DVDs: the “AR” case (64) revealed networks supplying materials such as inserts, blank CDs, DVDs and boxes as well as laboratories used for illegal duplication.

With regard to the production and supply through foreign channels, very often the gang would directly order the counterfeit goods from Chinese firms without using intermediaries. This occurred in the “Shanghai Express” operation (65). The investigations showed that members of the gang would frequently visit China in person, to order the huge quantities of goods demanded by the Italian market. They would pay on the spot in cash or with a post-dated cheque.

Of course China is not the only country that produces counterfeit goods, much less the only channel used by Italian counterfeiters to obtain supplies. In the “Ningbo” operation for example, the supply channels originated from Romania, Turkey, and also the Far East.

Similarly, Naples and Campania are not the only production sites in Italy: the “Kussen” operation (66) uncovered 16 manufacturing firms in the area around Modena and Mantua, which were producing counterfeit goods exploiting illegally-employed Chinese workers. In this case the counterfeiting offence was

63 Corriere della Sera (23 February 2011), op. cit. 64 The criminal organisation included Italians and foreign nationals. 65 Shanghai Express, as described below, is a clear example of the synergies that are sometimes created between criminal organisations from different countries – China and Senegal in this case. 66 Investigations in the Kussen case uncovered a complex criminal network led by Italians, Chinese and Turkish nationals.

61 aggravated by the exploitation of illegal immigrants. Tuscany, and particularly the province of Prato, which has a very high population of Chinese immigrants, also has areas that are particularly affected by the production of fake goods (67). The number of manufacturing firms being acquired by Chinese nationals is rising steadily. These firms are sometimes used to make products with counterfeit marks, which are then illegally distributed in Italy and abroad.

The involvement of local criminals, particularly the Camorra, has been demonstrated in various cases. During Operation “X-plosion” for example, the law enforcement agencies discovered that three brothers from Naples with links to the Camorra, and a person from Puglia, were the key players in the supply of counterfeit products.

How goods are handled, delivered and distributed

Before giving a few practical examples of the distribution and delivery methods used by organised crime, it is useful to recap on some of the factors mentioned above, which can be considered as involuntarily facilitating this type of trade. The logistics of handling counterfeit goods is usually facilitated by the considerable volume of international trade and the high number of containers arriving in ports and centres of commercial activity every day. As Customs agencies cannot control all the goods entering and leaving the ports and departure points, as this would cause a blockage of commercial traffic, counterfeiters can manage large quantities of counterfeit goods arriving from abroad with relative ease. They use various tricks to conceal the true origin of the goods in order to avoid suspicion about the contents of the shipment.

It is worth noting that criminal counterfeiting rings tend to use the same modus operandi applied to other crimes. For example, it is becoming more and more apparent that the routes used for drug trafficking are the same as the ones used to smuggle counterfeit goods. When transferring the goods from the place of production to the point of distribution, the organisations will attempt to conceal their true origin. As often happens with drugs, weapons or contraband goods, before arriving in the place of sale the fake products will pass through “free trade zones” (which include many parts of Africa for example) before being redirected to the United States and Europe. In the case of contraband tobacco, most shipments originate from free ports, in this case in Switzerland

67 Prato has the second largest Chinese community in Italy, after Milan. According to figures from the Chamber of Commerce, Prato is home to more than 3,500 Chinese-run manufacturing firms - almost 42% of the total in the sector. Of all the foreign communities, Chinese immigrants are the ones who repatriate the largest quantity of cash, and this sometimes leads to money laundering.

62 (Buchs, Basel and St. Margarethen) (68). The transport techniques are often similar to the ones used to move illegal or contraband goods. The counterfeit products are hidden in a double-bottomed container or lorry, or transported together with genuine items. Similarly, shipments of contraband cigarettes are often concealed by “cover goods” shipped in the same lorry, with false documents and a declaration that the load contains other goods with low fiscal value. The point of entry into the European Community is obviously a sensitive one, because once inside European borders the goods can easily reach any destination without undergoing further checks.

With regard to counterfeiting in particular, the way in which goods are distributed and delivered often depends by the type of customer. As it can be seen from the analysis of wire taps in the “AB” case, many different types of customers received the products imported from China or produced locally. They included non-EC nationals from the Maddalena market in Naples, and shops of a certain prestige.

The infiltration of counterfeit products into official retail channels is a growing, and increasingly worrying, phenomenon. To give a few examples, according to reports by a press agency last February (69), the Finance Police of Ariano Irpino seized a number of counterfeit garments bearing the logos of famous brands. Jeans, trousers and shirts from Naples were then sold in clothing stores in Foggia. The recipients were identified after checks were carried out on the Naples to Foggia bus route. On discovering the goods in the luggage compartment during a routine patrol, officers from Ariano Irpino alerted the Finance Police of Manfredonia so that the recipients of the goods could be caught at the destination. News came in June of an international ring uncovered by the European Anti Fraud Office (OLAF) and the General Command of the Finance Police, leading to the Court of Naples issuing 29 arrest warrants against several Italians from Naples and elsewhere, and against 19 Chinese nationals. The gang were trafficking low quality counterfeit cigarettes from China, which were sent to Spain before arriving in Italian ports. The final destinations were the Piazza Mercato, Piazza Mancini, Lavinaio and Forcella districts of Naples, where the cigarettes were sold by individuals with links to the Sarno and Mazzarella clans but also by colluding tobacconists, who would sell them at the same price as the originals. False State Monopoly labels were affixed to the counterfeit packs. The cigarettes were produced in the province of Fuijan, and contained an extremely high concentration of tar, nicotine and carbon monoxide, which posed a risk to consumers’ health.

68 Confesercenti, edited by TEMI, “Il contrabbando”, available online: http://www.temiricerche.it/ricerche/contrabbando.htm. 69 Squarcio F. in Il Grecale, (2 February 2011), “Sequestrata merce contraffatta destinata ai negozi di Foggia”, available online: http://www.ilgrecale.it/news/dettaglio.asp?id=2332.

63 While in this last case the “retail” buyers were ignorant of the true origin of the cigarettes, wholesale customers are usually fully aware of what they are buying, and they maintain frequent direct contacts with the heads of the criminal gang and their agents who are responsible for handling deliveries and collecting payments. Through their enquiries the police established that the customers and suppliers were closely interlinked. The “AB” case clearly illustrates the existence of a vast criminal organisation, which not only has the stability of an alliance and a shared interest in high profit, but also shares exactly the same aims. Clearly, the manufacturers and wholesale customers were acting in synergy, which confirms that they were all part of the same criminal plan, which was intended to continue for an indeterminate period and was supported by a number of cash transactions.

The presence of permanent customers, especially wholesalers, often constitutes the lifeblood of a criminal alliance, as they justify the commitment to crime and the attribution of the financial and human resources needed to carry out the criminal plan.

Similar conclusions may be drawn from Operation “Shanghai Express”, where it was found that the goods were often sold to a series of small-scale but faithful buyers who were well trusted by the organisation’s leaders, thus ensuring a steady flow of income and guaranteed product sales. Relations between the gang leaders and buyers are usually solid and frequent, as each side is indispensable to the other, in the context of this illegal activity.

In this sense, another important factor highlighted in the“AB” case, and one that is directly linked to the differences in quality and price of the products, has to do with the fact that the fakes made locally by the criminal group were usually destined for a different outlet than the premium market to which at least part of the Asian imports were directed. The supply was thus diversified according to demand.

Again with reference to the “AB” case, the solid structure of the criminal organisation and the distribution structure was confirmed by additional factors uncovered during the investigations. Despite the frequent checks and seizures that took place in the preliminary enquiries, negotiations for the sale and import of counterfeit goods had continued more or less uninterrupted. This demonstrates both the financial capacity of the organisation, which stays afloat despite the losses from seizures (sometimes huge) and also the desire of the criminal alliance to continue its illegal activity at any cost. It could be said that the huge volume of capital keeps the complex mechanism of illegal trade in operation, without any serious or significant interruption. The importance of this element is easy to understand if we think to the ruthless competition in this market from other criminal gangs making and selling the same type of counterfeit products.

64 The wire taps also documented the complex import techniques implemented by the criminals, which involved several European countries. The recordings also highlighted the incidents and delays experienced in procuring the illegal goods. The favoured interim destinations were Spain, Greece and Hungary but also other countries including Austria. In parallel, there was a solid network of accomplices, also at institutional level, on which the importers could rely. This is fundamentally important in facilitating the delivery and distribution of counterfeit goods but also gives an idea of the real size of the criminal gang. There is no lack of corruption in this model, which sometimes involved shipping agents and goods inspection officers. This is an extremely worrying element and is certainly significant in terms of the criminal management of counterfeiting.

A real example comes from a reading of the wire taps collected during the preliminary investigations of the“AB” case, in which various members of the organisation were somewhat concerned about a load that had left China and was temporarily halted in Austria. The load should have first been unloaded and then reloaded to make it look as if the goods had come from a European Union country. During one conversation, one of the criminals asked whether it would be dangerous to unload the goods, due to the risk of the counterfeits being discovered. In replying, the collaborator said that the shipping agent responsible for the Customs papers had assured that things would go smoothly: this clearly indicates that the officer in question had been corrupted, otherwise it would have been impossible to conceal the origin of the goods (70).

Another interesting element to analyse is the way in which the goods are paid for on delivery. As mentioned, payments in cash or with post-dated cheques are among the preferred methods, however they are not the only ones.

Investigations into the illegal activity of a criminal gang that produced and sold counterfeit CDs and DVDs (the “AR” case) revealed that the proceeds from the sale of illegally reproduced discs were mainly transferred through online cash orders or electronic money transfers. Part of the proceeds were transferred in person by a courier who was asked to make several daily deliveries travelling by train between Naples and Rome, in order to restock the Rome cell of the main organisation, based in Naples. This model is similar to the payment system used by the cashier of the Camorra in Roberto Saviano’s book “Gomorrah”.

The use of intermediaries is certainly a common method in the delivery and distribution of counterfeit goods. However, most often it is the “managers” of the criminal association who handle relations with customers themselves.

70 In this regard, see also para. 4.1.6, The crime routes: origin, transit and destination.

65 In Operation “Strike”, one of the “managers” would arrange to meet customers at a motorway tollbooth. He would get behind the wheel of his customers’ vehicles (while the customers were waiting at the meeting point), go to the warehouse where the goods were stored, load up the van and then return it to the customer with the products inside.

In Operation “Tarocco” it was found that the head of the organisation – who was also a well-known criminal linked to one of the most notorious Camorra clans – would receive and entertain customers at what was a factory of counterfeit goods, and would show them catalogues of fakes, which the customers would then use to place their orders. Once the goods had been handed to the criminal gang, they would be stored in illegal deposits in the province of Naples, and would then be packaged up according to the customer’s order. Goods intended for customers outside of Campania were sent by courier (71).

The results of the investigations in Operation “Shanghai Express” revealed another example of how criminal organisations handle and deliver counterfeit goods. When the fakes imported from China arrive at their destination they are stored and hidden in temporary deposits. These destinations are changed repeatedly, which highlights the need to keep them hidden at all costs so that the police checks will either be ineffective or impossible. When the goods are ready for sale, they are handled directly by the managers of the criminal gang, who in this case used Senegalese nationals who bought the goods wholesale and then retailed them at a price that guaranteed a high level of income. The goods on deposit were either sold immediately, with the whole consignment being bought directly by trusted buyers, or in small batches to several buyers across the country, transported by couriers and shipping agents. Small-scale buyers, often of African origin, are one of the main sources of income for the criminal organisations, who use street sellers to sell counterfeit goods a in the centre of cities and on the beaches of many Italian resorts.

However, Italian streets and markets are not the only destination for these goods. Operation “X-plosion” revealed that goods from China and Turkey were often also destined for markets in the UK, Spain, Russia and Germany, after they had been received by Italian criminal organisations.

In order to limit the risk of the shipment being identified by the authorities and therefore lost, counterfeiters would also import almost finished counterfeit

71 Note that the case study analysis reveals that the type of customer varies in each case, as do the types of meetings. No generalisations can be made. The customer may be a wholesaler, retailer or an intermediary between the criminal organisation and the final recipients of the goods. What does emerge, however, is that the customer is almost never casual – the gangs tend to create networks of long term, stable customers.

66 goods, or divide the components of one product into a number of consignments. In some cases the manufacturing process would be completed after delivery, in order to divide up the risks involved in the transport phase. As mentioned in the above paragraphs, if the police intercept just one container of unbranded goods, these goods cannot be confiscated during inspections because no law has been broken. The manufacturing or assembly process may be split over several countries, in order to increase the complexity of distribution and reduce the likelihood of the trade routes being identified. To mention an important case, the counterfeit electric tools (chainsaws, pneumatic drills and generators) sold in the “Gomorrah” operation were shipped from China without the labels bearing the counterfeit logo. The labels were transported in separate packages, and then affixed to the products upon arrival at the destination. The goods were sold through telephone contacts or door to door sales, paid for in postal orders or money transfers, and were shipped by courier with false details on the waybills. The products arrived at the port of Naples before being shipped to multiple destinations in Europe. The criminal networks were identified after an investigation that took more than two years and involved the police forces from a number of countries including the Czech Republic, Germany, France, Sweden, Spain and the UK, as well as international bodies such as Europol and Eurojust.

This system is also often used in the clothing sector: “Here in the city of Naples and to a lesser extent in Salerno, the Chinese are particularly active. […] They tend to form […] companies, which they use to sell these goods – transported from China or other countries in south-east Asia – and the products are often sent as “blanks”. In other words if you are talking about clothing, it would arrive from the place of production […] in an anonymous form. Here in Naples, the distinctive marks of the copied brands would be applied to the garments. This is why sometimes the Customs officers cannot seize a load. When I say load, I am talking about one container at least, if not several, because strictly speaking the goods – in other words the garments – are anonymous and apart from a possible violation of Customs rules, no other offence has been committed” (72).

“Now, less and less is being produced in Italy. Counterfeit goods are bought directly from China, from a catalogue, at extremely low risk. The goods might be shipped in such a way that the product, the label or the brand itself does not travel on the same ship, or does not travel at the same time. The only process carried out here is assembly. There is an increasing number of sophisticated and evolved ways to evade the controls, which are always random” (73).

72 Zuccarelli F., interview with UNICRI. 73 Busà L. interview with UNICRI.

67 Operation “Feedback” (74) revealed the existence of an alternative form of retail, using virtual sellers on a specific channel such as the famous online auction site, eBay. By analysing feedbacks (the comments left by buyers after a purchase) the police managed to identify a virtual seller offering prices that were clearly lower than the market price for a series of products such as famous- brands footwear and clothing accessories. The virtual seller identified by the Finance Police officers appeared to have sold more than 1000 counterfeit items between 2005 and 2007 in Italy and abroad, particularly in the United States, Canada and Australia.

Criminal gangs therefore manage the counterfeiting activity in different ways. The methods range from managing the production and supply personally, by means of local production with the delivery phase being entrusted to reliable intermediaries, to the handling of just the delivery and distribution phase through direct contact with customers after the finished goods have been imported from the Far East.

Other cases have revealed that certain criminal gangs maintain direct control of the whole production-distribution chain, as in Operation “Sopra le mura”. In this case the gang in question, which operated from Rome and was mainly formed by members of a Camorra clan, had an agreement with other local clans to which it would pay a share of the illegal proceeds on a monthly basis, and it was managing the whole production-distribution chain exclusively. It was formed of whole families who would produce counterfeit CDs and DVDs, and would then print the leaflets, assemble the packaging and sell them.

The main types of counterfeit goods

According to various studies, Italy is one of the European countries that is most affected by counterfeiting, both as a producer and as a consumer country. The presence of black-market companies and producers of famous name brands have created the conditions in which know-how can be exploited by “parallel” producers. The strong local roots of criminal organisations also act as a spark that ignites the complex engine of counterfeiting, and provides a link between production and sale. Italy is an important consumer of counterfeit goods, essentially because, as it happens with most of the demand for counterfeit goods in industrialised nations, many fake products are a very attractive option for people wanting to buy goods that they could not otherwise afford. On the other hand, the perception of counterfeiting as a low-profile crime has not put people off buying replicated products.

74 The case in question revealed an alliance between an Italian and a Senegalese national.

68 Considering the various commodity sectors and looking at the figures on seizures in the IPERICO report for the 2008-2012 period, almost 57% of all seizures are concentrated in the clothing and accessories sectors, with 31,269 and 17,867 seizures respectively. Another important sector is footwear, with 10,851 interventions over the five-year period (75).

TABLE 4 (76)

Number of seizures Grand 2008 2009 2010 2011 2012 by commodity sector total

CLOTHING 3.724 4.094 3.883 3.113 3.053 17.867

CLOTHING 6.914 7.285 6.386 4.967 5.717 31.269 ACCESSORIES

OTHER GOODS 1.444 1.356 2.076 1.701 1.229 7.806

ELECTRICAL 489 726 1.142 1.139 694 4.190 APPLIANCES

IT EQUIPMENT 61 76 135 125 124 521

FOOTWEAR 2.828 3.402 1.883 1.447 1.291 10.851

CDs, DVDs, 84 100 100 61 73 418 CASSETTES

TOYS AND GAMES 238 311 377 227 205 1.358

EYE WEAR 1.338 1.127 1.002 870 1.077 5.414

WATCHES AND 867 1.142 1.294 1.619 1.736 6.658 JEWELLERY

FRAGRANCES AND 54 64 53 35 80 286 COSMETICS

Grand total 18.041 19.683 18.331 15.304 15.279 86.638

75 This analysis does not include the seizures of medicines, foodstuffs, cigarettes and tobacco, which are the most commonly-seized items in Europe. 76 MiSE – UIBM, (2012), op. cit., p. 17.

69 The cases analysed in this study appear to confirm the official figures, as can be seen from the table below:

TABLE 5

Name of case/operation Type of counterfeit goods

“Mainly Hogan and Nike shoes, but also items of clothing such as jackets, shirts, trousers of various brands and even Gillette razors. The models of Case AB Hogan shoes were indicated with names of cities. The work, carried out in Asia, was influenced by European fashion trends, and influenced the quality and type of goods produced in the Far East".

Case AR Inserts and discs for counterfeit CDs/DVDs

Cigarettes, foreign manufactured tobacco, clothing Case AV and footwear

Operation STRIKE -

Operation TAROCCO Clothing

Operation FEEDBACK Footwear and clothing accessories

Operation KUSSEN Calvin Klein and Baci&Abbracci clothing

Operation HIGAN Clothing and accessories

Operation SOPRA LE MURA Counterfeit CDs and DVDs

Operation FELIX Clothing, shoes, razors and accessories

Electric tools (chainsaws, pneumatic drills and Operation GOMORRAH generators) bearing counterfeit labels and without the required CE safety certification

Operation CIAN LIU Clothing, accessories and leather goods

Operation SHANGHAI - EXPRESS

Clothing (110,000 items seized), labels and Operation CATARSI accessories bearing counterfeit brands (more than 2,700,000 items seized).

Operation NINGBO/ Clothing, footwear and accessories FERNAND

Operation EVERYWHERE Footwear

Operation X-PLOSION Clothing

Operation CARTA CANTA/ - KATANA

70 Shirts and knitwear bearing the Fred Perry, Ralph Operation SAME SAME Lauren and Lacoste brands

Operation BUCANIERE Copyrighted audiovisual works

180,000 mechanical bearings with the counterfeit Operation CUSCINETTI mark of a large Swedish company [...] the value of MECCANICI the goods was estimated at €5 million

Investigation MAESTRO -

Finance Police operation Clothing, footwear and accessories Lecce (2009)

clothing and accessories: 600,000 garments were Operation PUERTO seized, with 8000 illegally duplicated A/V disks and 85 kg of counterfeit tobacco

Operation HAGEN Eye glasses, belts and clothing accessories

Looking at the most frequently counterfeited goods, it is possible to identify another important factor for the purposes of this study, which relates to the criminal organisations’ areas of interest. The initial analysis of the case studies, although not exhaustive, indicates that the gangs tend to concentrate their efforts in certain commodity areas, and in some cases obtain a kind of monopoly on the production of certain counterfeit goods, which influences the other gangs involved in similar activities. It is not unusual for the various gangs to reach agreements, sometimes tacitly, in relation to the production and retail of a specific category of goods.

The role of transnational organised crime

As already explained, counterfeiting is an attractive area of business and investment for organised crime – equal if not superior to the production and trafficking of drugs, the management of prostitution, gambling, illegal immigration and infiltration in public tenders. Clearly, the fact that counterfeiting is viewed rather leniently by the public and the police has resulted in this business becoming a less risky and therefore more productive investment for organised crime.

The analysis of law enforcement investigations confirmed the involvement of criminal networks formed by Chinese or North African nationals representing the preferred channels through which trading and distributing counterfeit products. It has also been seen that some retailers sell counterfeit goods through legitimate businesses either because they are attracted by the low cost/high earnings

71 ratio, or because they themselves are members or accomplices of a criminal gang, or because they have been forced to do so by a criminal organisation.

The dense network of sellers operating throughout Italy is usually formed by non-EC nationals, almost all clandestine. This makes it hard to identify the centres of production and distribution of the counterfeit goods produced.

Most often, these individuals only receive a small share of the profits, and are the last link in a very complex chain. The majority of the profits goes to the organisations that manage these activities, which are increasingly acting in close collaboration with Italian or transnational criminal organisations, or as is more frequently the case, they are themselves part of the national and transnational organised crime syndicates.

Following the ratification and enacting into Italian law of the UN Convention on Transnational Organised Crime (77), Art. 4 of Law 146/06 introduced an aggravating circumstance for offences in which “an organised criminal group operating in criminal activities in more than one State” has played a part. In this specific case, for offences subject to up to 4 years’ imprisonment, the punishment is increased between one third and one half.

The implementation of the Convention also brought with it the specification in the Italian legal framework of the definition of “transnational offence” (Art. 3): “the offence punished with imprisonment of up to four years if an organised criminal group is involved, and: a) is committed in more than one country; b) is committed in one country but a substantial part of the preparation, planning, direction or control takes place in another country; c) is committed in one country but involves an organised criminal group connected to criminal activities in more than one country; d) is committed in one country but has material effects in another country”.

With regard to the involvement of transnational organised crime in counterfeiting in Italy, there is no doubt that the Chinese community is one of the most active groups. It is structured into organised criminal groups who expand their interests to include other serious crimes linked to counterfeiting.

According to the DNA’s annual report for 2010, Chinese criminal gangs in Italy are becoming increasingly better organised. The main crimes they commit include contraband, counterfeiting, illegal immigration and extortion. There is also a growing trend in money-laundering offences.

77 For the full text of the Convention, also known as the Palermo Convention, see http://www. unodc.org/documents/treaties/UNTOC/Publications/TOC%20Convention/TOCebook-e.pdf

72 Investigations carried out in recent years have shown that the production and sale of goods with labels illegally reproduced or counterfeited by Chinese criminal organisations affects the whole country, and goes hand-in-hand with Customs offences in a very wide range of sectors including clothing, leather goods, toys and everyday use items (78).

To understand the reasons for the significant involvement of Chinese organisations in these activities, it should be remembered that the lifting of ceilings on import quotas on 1 January 2005 under the Multifibre Agreement, and China’s entry into the World Trade Organisation in 2001, uncovered new elements relating to the low cost of production in China and the low cost of products manufactured in this country. This element translated into an influx of very affordably-priced Chinese-made goods into Europe. Western producers also embarked on a “commercial conquest” of China by delocalising their manufacturing operations in order to exploit the low cost of production.

In Italy, intervention by the police forces in recent years has led to the seizure of large quantities of illegal goods from China, particularly at the ports of Taranto, Naples and Gioia Tauro, but there has also been an increase in seizures registered in the cities of Genoa and La Spezia. This should certainly be considered within the context of the broader alliances between criminal organisations, which typify the modern modus operandi of transnational organised crime. Like a legitimate business, a criminal enterprise has benefited from the delocalisation of production to China, while the production of counterfeit goods is fuelled by the huge demand in more industrialised markets, which certainly includes Italy.

From an operational point of view, the Chinese gangs in Italy have an efficient organisation, which in some cases indicates links with other communities. A clear example was seen in the “Shanghai Express” operation, which revealed collaboration between Chinese and Senegalese nationals, who were mainly used to distribute counterfeit goods across Italy. Another example was Operation “Higan”, in which the suspects included Chinese, Italian, African and Peruvian nationals.

With regard to the organisational side, the investigations in the “AV” case (79) revealed an interesting element. Although the wire taps, as in many other cases, revealed the existence of a stable long-term relationship between the associates, who were all aware of their individual roles and contributions within the gang, the Chinese groups operated according to different criteria than the classic structure typical of an Italian clan. The flow of information and regular

78 DNA (2010), op. cit., p. 165. 79 The dismantled gang included Italians and Chinese nationals.

73 contact between the members of the organisation, that would constitute a well- defined hierarchy, was not a prevailing factor. This could be linked to a specific characteristic of a Chinese criminal organisation, which tends to favour the personal financial interests of each member rather than protecting the criminal gang against external attacks. While there is certainly a permanent organised structure, the latter is nonetheless characterised by largely individual activities and occasional agreements which in this specific case were intended to achieve financial gain from the sale of counterfeit shoes or cigarettes in Italy.

Continuing the analysis of the internal dynamics of the gang, the investigations revealed two alliances: one formed by Italian and Chinese nationals who trafficked tobacco, including counterfeit tobacco, and another alliance formed by Italians, Chinese and a Tunisian national, who imported counterfeit clothing and shoes into Italy. Both alliances had valuable “assistance” in the ports where the goods were transferred and unloaded, underlining the link that often exists between counterfeiting and corruption.

While these individuals were often Chinese nationals, they were well integrated into the part of Italy in which they were based. The transnational element is also in this case: the illegal traffic began in China where production took place, and then moved to Italy where the goods were trans-shipped or cleared through Customs by concealing part of the materials and using false documentation in breach of fiscal regulations, and in some cases by bribing the officials. The illegal loads were often sent to other countries before arriving in Italy. To reconstruct the network of this complex system, investigations also involved an exchange of information between various countries, mainly Italy, China and Spain. The investigations required observation and tracking tactics, controls, seizures and arrests while the pepetration of the crime was in progress. Various roles were identified within the two criminal associations: the key figures of both organisations, who acted as contacts for the members of both associations and the traffickers, were also identified.

Another important factor to take into consideration refers to the fact that, in this type of criminal system, it is very common to find individuals working for legitimate businesses who provide the criminal gangs with their contacts and technical knowledge. In this case, an individual working for a well known international Italian import/export company was knowingly involved in the importing of contraband and, sometimes, counterfeit tobacco. The wire taps also clearly revealed that this individual was acting as a Customs officer at an inter-port in Rome. This was deduced from the fact that information about seizures, arrests and goods’ inspections was released immediately after the event took place, and from the high number of containers containing illegal goods that were dealt with by the suspect. The operation also involved Italian

74 nationals, some of whom had moved to China for business, who concealed their involvement in illegal activities behind apparently legal businesses.

The case highlighted some of the typical characteristics of transnational organised crime gangs, bringing also to light the involvement of individuals who provided their experience and extensive knowledge on import channels, as well as corruptible individuals working for the law enforcement agencies.

Continuing in this line of analysis, the “AB” case revealed the existence of an extremely articulate and complex criminal organisation which was extraordinary in terms of its complexity and ability to generate profits. Its members created a parallel market for counterfeit goods that was strangling, repressing and sometimes even replacing the legitimate ones. The linchpin in the importing of goods from the Chinese factories (mostly in the Zhejiang region) was a Chinese national resident in Italy, who frequently travelled to his country of origin. The organisation used warehouses in Milan and Rome, where the illegal imports would remain until they could be redistributed. Under the control of the Chinese national, the organisation relied on international connections, which allowed it to store the goods temporarily in Greece, Spain and Hungary, where the lower number of Customs inspections, or the more relaxed approach of inspectors facilitated the import process. The goods were then sent to Italy, apparently as intra-Community imports, thus evading harsh controls.

In this case as in many others, the investigations highlighted not only the close links between Chinese and Italian criminal organisations, but also the frequent use of a triangular system, in which goods from the Far East are stored and later redistributed to various destinations which are usually considered safer as they allow for masking the origin of the goods, thus misleading the Customs officers. The organisation of the criminal systems involved in these procedures is usually found to be efficient, invasive and very articulate.

The transnational element makes the methods used by criminal gangs more aggressive and able to infiltrate the legal trade networks. The study of wire taps recorded by the police in the “AB” case pieced together the strands of the vast spider’s web of collaborators and factotum surrounding the gang leaders and revealed the considerable dangers and diffusion of this criminal phenomenon, which was able to extend and regenerate in various forms. Investigations revealed the existence of a sort of principal organisation, operating as a hub from which criminal cells rapidly generated, uncontrollably invading all the available spaces that could favour the implementation of other forms of illegal trade. In this case, all product procurement sources were likely to be competing with the others. Each source had full autonomy in obtaining its raw materials, in its production methods and in the way it delivered the goods to the criminal

75 gangs that were “placing orders”. Also, each source was not only working for a specific criminal organisation – it also supplied products to other gangs. Of the many individuals involved in this criminal activity, some were even managing their own independent illegal distribution channels, thus creating a series of offshoots from the main branches.

Similar dynamics were also found in other cases: the “Strike” operation led by the Finance Police revealed not only an organisation managed by the main suspects but also other alliances with their own systems for producing and distributing counterfeit goods. They had their own independent management system but were linked to the main organisation through their illegal sale and purchase relations. The reconstruction of the criminal gangs’ modus operandi, the organisational charts, roles and criminal responsibilities of the gang members show once again the transnational nature of this illegal trade.

In the “Higan” operation, the Milan Tax Police dismantled a transnational criminal gang led by Chinese nationals permanently domiciled in Milan, Bologna and Florence, assisted by Italian, African and Peruvian citizens.

The “Shanghai Express” operation was a clear example of the interaction between criminal gangs of different communities, particularly Chinese and Senegalese. The managers of the criminal organisation appeared to have conceived this type of collaboration as a weapon to beat the ever-increasing number of competitors in counterfeiting. The aim was to acquire a large slice of the market by using Senegalese sellers scattered all over Italy. The Senegalese network was made up of high-level intermediaries who would then re-stock the travelling salesmen.

76 The following diagram illustrates the structure set up by the organisation:

Goods channelled through European ports Counterfeit goods (e.g. Hamburg, Germany) imported from China

Chinese parent organization New goods bought Operative base: Prato in China (Tuscany)

Money transfers to Money laundered Distribution: China

Senegalese organisation: Purchase of distributed extensively storage depots across the country

"Retail" across the country

The investigations also revealed that one of the peculiar features that usually characterises a “good” criminal gang of foreign nationals is that its members often come from the same family unit – this usually means that the members will all trust each other. This is a characteristic that helps the foreign criminal gangs to form a structured pyramidal organisation abroad that is rather similar to the national one.

The “Ningbo/Fernand” operation lifted the lid on a crime committed by transnational criminal “businesses” (formed of members of the local organised crime world and the Chinese mafia). In order to conceal the real names of the perpetrators, they would use vehicles and telephone accounts in false names, in the names of other accomplice companies, or created specifically to hide the counterfeit nature of the products as well as their illegal origin. Given the transnational nature of the illegal network responsible for distributing counterfeit

77 goods, unsurprisingly it used a triangular system in which shipments, originating mainly from China and partly from Turkey, were transferred to Spain and Greece in order to conceal their origin. The collaboration established by Italian law enforcement agencies with other European police forces - particularly from Spain, Greece and Romania – was essential in dismantling the group.

The “Maestro” investigation revealed Mafia infiltration in the port of Gioia Tauro (Calabria) with particular reference to related transnational crimes involving the ‘Ndrangheta in the Gioia Tauro area, and the Chinese mafia. Both these organisations were regularly involved in importing large quantities of under declared or counterfeit goods from China into the EC. This case will be considered further below for the purposes of studying and highlighting the way in which the various criminal gangs in Italy divide their territory and production operations. However, it must be noted already that this Calabrian port, the driving force for development in the region, also became an appetising morsel for the local crime rings in an area where even the Chinese gangs had been forced to succumb to the “laws” of the local mafia clans.

The “Puerto” operation revealed the existence an organisation mainly formed by Chinese nationals permanently based in Italy, dedicated to the importing of contraband tobacco from China and the storage and marketing of counterfeit clothing, footwear and accessories. The investigations mapped out the structure of the criminal gang which was formed by manufacturers resident in China, the wealthy Chinese gangs based in Italy operating in the above activities, and finally the intermediaries (mainly North African citizens) who were responsible for sourcing customers. For the 51 individuals accused of conspiracy to commit counterfeiting, the specific aggravating circumstance of transnationality was also applied, under Article 4 of Law 146/06.

The name of the operation “Grande Muraglia” (“Great Wall”) (80) indicates the presence of Oriental organised crime in this case. In November 2010 the investigations led to the arrest of an individual suspected of being the boss of a large Camorra clan. He was arrested while he was travelling in a lorry driven by another individual. The charge against him was of association with the Camorra and handling illegal goods. Two Chinese businessmen were also suspected of acting as covers for Chinese criminals in Italy. The Camorra controlled the market for counterfeit goods: the illegal goods were made in China and then imported into Italy. They were then stored before being introduced by the Naples-based clans into markets in Rome, particularly to traders in the Esquilino

80 Narcomafie (2 November 2010), “Napoli. Arrestato latitante in affari con imprenditori cinesi”, available online: http://www.narcomafie.it/2010/11/02/napoli-arrestato-latitante-in-affari-con- imprenditori-cinesi/.

78 district, as well as Chinese and Italian retailers. The proceeds of these activities were then laundered by purchasing rental properties, the income from which went to the Camorra.

Continuing with the mapping exercise, we will now investigate the areas of interest of the criminal gangs, highlighting, when possible, if the groups are specializing in managing the trafficking of specific counterfeit commodities, while also taking into account the size of the territory controlled by organised crime.

Profile of local criminal organizations: relations between criminal organisations and the typology of criminal networks involved

Some of the above cases – in which the criminal operations led by Italian gangs are interlinked with the longer chains of transnational criminal networks – provide an introduction to this paragraph, which is intended to highlight the main Italian criminal organisations involved in counterfeiting, the characteristics of their actions, and the relations between the various criminal groups involved at national and international level.

As mentioned, a crime such as counterfeiting, which can jeopardise large economic interests with heavy implications for society, can only be fuelled by well organised operational structures.

As previously noticed, the investigations of the past few years have revealed that many mafia-type organised crime groups are involved in the marketing of counterfeit products. However “there is no doubt that the Camorra has developed a specific involvement in this sector”(81).

In particular, these groups are Camorra clans operating in the metropolitan area of Naples, where the network of centuries-old small businesses and workshops, the extremely common practice of street selling, and the problems experienced by Italians and foreigners in finding permanent employment, are all factors that certainly contribute to an attitude of “finding alternatives” to ordinary, legal forms of production and commerce (82). This results in a specific interest in the production and distribution of counterfeit goods.

In Italy, the Camorra clans of Campania are the most active in the control and management of illegal activities, as can be seen from their interaction with companies operating in the sector. Various studies have extensively analysed the ways in which criminal organisations intervene in a local business and the dynamics between mafiosi and businessmen that have a real effect on economic

81 Zuccarelli F. (2006), op. cit., p. 24. 82 For more information, see DNA (2010), op. cit., from p. 291.

79 growth, as in the case of counterfeiting. The merit of these “alliances” is that, before others, they were the first to realise the strategic potential of infiltrating this sector. This has expanded the phenomenon of counterfeiting from an craftsman activity into a more complex criminal industrial operation which is elaborated on a large scale and implemented with evolved marketing methods.

The Camorra clans conduct their counterfeiting operations by controlling commercial enterprises, camouflaging them as legal businesses and creating a complex financial network across Italy and other countries, especially in Western Europe, the United States, Brazil, Canada and Australia. The proceeds of these activities are then reinvested by means of complex laundering operations into legitimate businesses run by individuals with links to the clans, or in other illegal activities.

However, clans belonging to the ‘Ndrangheta in Calabria as well as organisations based in the Salento area, are also involved in counterfeiting. The following paragraphs contain a mapping of the principal roles and modus operandi used by the leading clans identified during the investigations carried out by the Finance Police and the Anti-Mafia Prosecutors.

Camorra To understand how organised criminal groups have emerged from the social fabric of Campania, one element to consider is the history of the region, which sees trade relations in Naples as a non-competitive area teeming with traders walking on the fine line between legal and illegal. It is a parasitic, static system that does not generate wealth, and in which supply is sometimes generated illegally: “Camorra members are born and thrive in this fragmented culture of intermediation. They construct orderly spaces for interaction within which they establish the rules of commerce” (83)

Camorra gangs have always organized themselves in a network of clans and family ties, in the fashion of criminal family run businesses who carve out their own space in specific segments of the market – legal or illegal – in which they build their own monopolies. But “the Camorra bosses almost always originate from the market” (84). They establish themselves as mediators in the focal centres of commerce, on the smuggling routes, between the local market and the export market, and they forge dominant relations.

83 Brancaccio L., Magliari, imprenditori e camorristi: il mercato del falso a Napoli, in Sciarrone R. (2011), op. cit., p. 437. 84 Ibid., p. 437.

80 As is typically the case in the world of organised crime, where territorial control is a vital part of the conquest of power and money, the main Camorra clans tend to divide up strategic areas of Campania, and the Naples area in particular, among themselves. Over recent decades this has led to real battles for the conquest of an area. Taking into account the territorial distribution of the clans and the internal battles within the Structure may help to contextualise the way that the clans distribute areas of interest in the world of counterfeiting.

Source: DIA 2010, “Trenta quartieri compresi nelle dieci municipalità di Napoli”

Mazzarella Clan The Mazzarella clan originated as a criminal gang that sold contraband cigarettes. In the 1950s and 60s, its members included the Zaza brothers, uncles of the Mazzarella, who were followed by their nephews Francesco and Vincenzo Mazzarella. In the 1980s Francesco and Vincenzo Mazzarella were the key players in the Camorra battle between the New Family (of which they were the leaders) and the “New Organised Camorra” of Raffaele Cutolo. In the 1990s, the clan declared war to the Secondigliano Alliance, and to the Contini family in particular. In Naples, the Mazzarella family joined the Mazzarella- Sarno-Misso cartel, which was only recently broken up. The historic clash between the two cartels – the Secondigliano Alliance on the one hand and the Mazzarella-Sarno-Misso clan on the other, now seems to have cooled down.

81 As we will see below, this was a decisive factor in the entry of the clan, once considered the second-largest cartel after the Alliance, into the market for fake goods.

The Mazzarella clan controls the central area of Naples (among others), a zone that was once the domain of the Giuliano clan, and in particular the Forcella, Duchesca and Maddalena districts and the area of San Giovanni a Teduccio. It is also showing signs of regaining control of the Mercato zone. Through the Zazo clan, which proved to be particularly active in counterfeiting and has solid links to the Mazzarella clan, its activity extended as far as the Fuorigrotta area.

An analysis of the anti-Mafia initiatives led by the Finance Police has revealed that the Mazzarella clan is effectively involved in counterfeiting: it appears to be the most active group both directly and through the international organisations with which it has links (85).

For example, in the “AV” case, businessmen linked to the Mazzarella and Sarno clans of the eastern zone set up a criminal organisation in order to manage a complex system for the importing and retail of contraband and counterfeit cigarettes, as well as fake clothing and footwear. The Italians and Chinese involved in the operation also had frequent relations with individuals operating in zones controlled by the Mazzarella and Sarno clans on the one hand, and by the Liccardi on the other. Some of the suspects descend from the Giuliano clan, from which the Mazzarella acquired control in the south-east of Naples.

The investigations identified two criminal organisations with close links. The first was involved in the contraband of 103,758 kg of foreign manufactured tobacco, some of which was counterfeit. The organisation acted through a solid, complex structure within which the members had specific tasks. The organisation had large financial resources obtained from selling cigarettes. The second group imported fake clothing and footwear, which was then sold. The members of the second organisation had a clear allocation of roles. The goods were imported into national and foreign ports, with the least risky destination being chosen each time. The goods seized during the investigations in this case were more than 9,000 pairs of shoes, more than 40,000 items of clothing, and a further 11,500 garments and accessories.

The investigations began in 2004, when an anonymous tip-off revealed that foreign manufactured tobacco was again being smuggled in lorries from Eastern Europe. The link between the two organisations was uncovered thanks to wire tappings: the telephone calls immediately revealed that there was a

85 See also the statements made by the director of the Anti-Mafia Investigations Directorate to the Parliamentary Commission inquirying into counterfeiting and piracy (19 January 2011), p. 10.

82 stable, ongoing relationship between the members who were well aware not only of their individual contributions but also of their respective roles within the group. The police investigations also identified the factories where the counterfeit goods were made – mainly the Fujian province of China - and gave a more accurate idea of the hierarchies in the organisations. At the top were the bosses and organizers, who were in charge of managing and coordinating the transhipments and receipt of goods, then the intermediaries, who acted as links with the factories commissioned to make the products, the carriers, who planned the shipments in detail thanks to collusions between the Chinese and Italian members, and finally the individuals responsible for the distribution phase, who were casual customers, wholesalers, collaborators and buyers.

The presence of people with links to the Mazzarella clan also emerged from the investigations in the “Sopra le mura” operation led by the Finance Police unit of Fiumicino, following the seizure of a large volume of counterfeit CDs and DVDs at Fiumicino Airport in 2006. This was one of the largest and most important seizures of illegal audiovisual materials in recent years, partly because it highlighted the Camorra’s direct involvement in the world of piracy and counterfeiting. The investigations revealed that the criminal gangs obtained huge profits from the sales of pirate DVDs, and then reinvested the profits in the illegal trafficking of drugs, usury, extortion and the purchase of weapons.

The criminal gang in this case was involving various individuals in a pyramid structure, with tasks portioned out according to responsibility levels, and coordinated and supervised by the leaders. An important aspect to highlight in this context, which was briefly mentioned in the section of this study dedicated to the production and supply of raw materials, is the relation between the criminal gangs responsible for the counterfeiting with the sole supplier of inserts: a Camorra clan operating in the central part of Naples and very probably composed of individuals affiliated to the Mazzarella clan (86). Thanks to an agreement to share the proceeds with other clans in the area, the Naples- based clan had been able to control the entire chain, and thus a large slice of the national market for counterfeit audiovisual materials. In essence, the groups responsible for the production phase were restocked by the clan, which affixed a “Cammora label” on the CD inserts in order to distinguish them from other products coming from print shops it did not control. It was a kind of monopoly created in the specific area of counterfeiting, which demonstrates that the participation of organised crime influences the scope and functioning of this illegal activity and leads to its expansion.

86 DNA (2010), op. cit., p. 296.

83 Another transnational criminal organisation, again affiliated to the Mazzarella clan, was uncovered in the “Gomorrah” operation. The investigation was carried out as part of a collaboration coordinated by Europol and Eurojust in Italy and other European countries. It led to the arrest of 9 people and the seizure of assets and current accounts with a value of €10 million. As already mentioned, the organisation imported electric tools including chainsaws, pneumatic drills and generators from China. The goods were marked with false labels of famous brands (Bosch, Honda, Hitachi) and were then resold. The key characteristics of the criminal activity were the entire modus operandi of the group – from payment through postal orders or money transfers (as was the case in many other operations), to the separate shipping of the goods and labels, in order to evade inspections more easily.

The Secondigliano Alliance While counterfeiting today is one of the largest sources of revenue for the Mazzarella clan and its affiliates, they were able to expand into this area only in the early 2000s, after the end of the Camorra battle between the Secondigliano gangs and the central clans, Misso-Mazzarella-Sarno. To give a more complete picture of the fake goods market controlled by the Camorra, it should be noted that this market had been controlled by the Secondigliano Alliance since the post-war period. The reasons for this lie with the history and tradition of the founding families.

In this regard, understanding the tradition of the magliari is the first step. Even today, these individuals are “typical figures of city life, who use the door-to- door technique to sell knitwear and other materials, often [...] counterfeit”(87). In the 1950s and 60s, their sales network was based around the clothing and leather goods workshops located in the historic centre of Naples. During the 1970s the higher cost of raw materials and labour led to a crisis in the artisanal sector: the workshops were delocalised to the northern outskirts of the city and surrounding areas. During the 1980s and 90s, production in the “fashion segment” was concentrated in the northern part of Naples, particularly in the district of Secondigliano. Those years saw the arrival of extremely aggressive clans in Naples, who mainly concentrated on drug trafficking, something that would lead to profound changes in the activities of the magliari. These clans (Contini, Licciardi, Di Lauro and Sarno) acted as a link between the province and the city, extending their sphere of influence even beyond their own closely-

87 Brancaccio (2011), op. cit., p. 442.

84 controlled territory. These peripheral areas became channels for the growth of the city’s production and commercial operations: “Drugs from abroad were stored in Scampia and Secondigliano, before reaching the market in the city centre (and in the south of Italy). Counterfeit products from China are always kept in Secondigliano and the surrounding districts. That is where the clothing manufacturing operations find room to establish themselves [...] before expanding into international routes” (88).

The core of the Secondigliano Alliance was formed by the Contini-Licciardi clans, who have always operated in clothing retail. Naples was an obvious choice as the centre for the production of fake goods, partly because of its long commercial tradition and the artisanal expertise described above and also in the wake of the global geopolitical changes that took place after 1989, when Neapolitan businessmen acquired a strategic role in the chain of global commerce, and, with the opening up towards the east, of the Asian channels. The expansion of the Licciardi clan into the counterfeiting sector opened up new avenues for organised crime in Naples. Investments and businesses flourished beyond the borders marked out by the Camorra alliances. At the end of the feud between the Secondigliano clans and the Misso-Mazzarella-Sarno clans, “the men, techniques, production and retail cycles switched over from the first to the second” (89).

One of the most important operations against the Secondigliano cartel, relating to Mafia association, money-laundering and counterfeiting, dates back to July 2004. According to the Ministry of the Interior: “The investigation unveiled a complex economic and commercial structure controlled through a “head office” by the leaders of the Camorra organisation, which guaranteed large profits through the production, distribution and sale in Italy and abroad of various products, including imitation leather clothing, kitchenware, pictures and electric drills which were often similar to those of famous brands and able to mislead the consumer” (90). The mapping of the network identified branches made up of the international network of magliari, located in Great Britain, Germany, France, Switzerland, Austria, Spain, Australia, Canada and the United States. The proceeds of the crimes were then repatriated to Italy through the money transfer system (91).

88 Brancaccio (2011), op. cit., p. 447. 89 Brancaccio (2011), op. cit., p.453. 90 More information on the Ministry of the Interior’s website: http://www.interno.it/mininterno/export/sites/default/it/sezioni/sala_stampa/notizie/polizia/app_ notizia_21445.html. 91 See also Box 5, para. 4.2.

85 For the purposes of this study, it would be interesting to understand the functioning and hierarchy of the counterfeit chain controlled by the Secondigliano Alliance, as shown in the following diagram (92):

Secondigliano Alliance Level of “bosses”

Licciardi - Contini Di Lauro Lo Russo Bosti

Independent chain Independent chain (Australia, Austria, Canada, (Brazil and other markets) Commercial Germany, the UK, Czech Republic, Management Spain and the USA) Australia Ireland Austria Yugoslavia Belgium Netherlands Import Production Export Foreign Brazil Portugal firms branches Canada Russia China China Spain Hong Kong Denmark United States France Sweden Germany Switzerland Repatriation of Magliari UK Taiwan proceeds

On the top level there are the Licciardi brothers and the bosses of the Secondigliano gang (Contini, Di Lauro and Lo Russo). It was this level that decided the organisation’s investments and commercial strategies, and negotiated with other clans interested in the counterfeit market (which were presumably structured in a similar way). Below that was the Naples-based commercial management, which handled the operations, coordinated the markets and maintained control of production. The counterfeiting sector was separated into two different branches: on the one hand the goods were assembled in Naples and on the other hand the products were imported, mainly from China and in general from other countries with a low cost of labour. The last link in the chain was the magliari, who organised the distribution of the fake products, transporting the goods and selling them in the streets or in busy pedestrian areas. The various investigations revealed commercial and financial links to a number of countries: Austria, Germany, Sweden, Belgium, Russia, Brazil, France, Switzerland, the former Yugoslavia, China, Ireland, Portugal, the UK, Canada, Denmark, the Netherlands, Taiwan, Australia and the United States (93).

92 Brancaccio (2011), op. cit., p. 455. 93 Brancaccio (2011),op. cit., p. 457.

86 Terenzio Clan - Giuliano Clan - Casalesi Recently, (July 2011) there was news of a seizure of €150 million worth of goods operated against Vincenzo and Luigi Terenzio, who were members of the Camorra clan of the same name and operated in the Cassino district of Lazio (94). The couple, father and son, had been arrested already in 2008 for mafia association in the anti-Camorra “Grande Muraglia” operation. The operation was triggered by statements made by the informer Salvatore Giuliano, the former undisputed head of the Forcella clan of the same name. The suspect organisation, which was a branch of the Giuliano clan operating in Lazio and also included the Terenzio brothers, managed a series of businesses that sold clothing, electronic appliances and other counterfeit goods imported from China. The investigations revealed, on the one hand, the existence of agreements between the Camorra and the Chinese criminals that were mainly linked to counterfeiting and contraband. It was also found that the native criminal gang had an extremely wide reach and was also a forced intermediary in the property transactions in the Esquilino district of Rome (95). The Chinese and Italian traders in Esquilino were practically forced to sell counterfeit goods so that the fakes could be inserted into official retail channels. Sometimes, the goods were sold in shops registered to the Terenzio family.

According to statements made by the boss Giuliano, he himself was part of a plan to support a “coup d’etat” to be launched from Rome and Cassino, that would have given him full control of the Forcella district which had fallen into the hands of the Mazzarella clan. It was revealed that the lucrative business of selling fake clothing, and more generally the criminal monopoly of managing and controlling the affairs of an entire district, were part of a broader plan triggered by the desire of the Giuliano clan to regain its territory. The range of criminal relations was in fact much larger. From investigations carried out by the DIA in the “Grande Muraglia” operation, into members of the Terenzio family, they were found to have solid links to the powerful Casalesi clan and the “Banda della Magliana”. The Casalesi growing interest in the international counterfeiting business was emphasized several times by those in the trade: “[...] as the Casalesi clan had to find other areas to invest in after the penetration of the waste recycling business had slowed down, in 2008 they started to get into [counterfeiting] in their territory, particularly in Caserta. That led to the general vision of the growth of crime in this area (96).

94 Corriere della Sera (21 July 2011), Affari con la Camorra. Confiscati 150 milioni”. 95 DIA (2008), “Relazione del Ministro dell’Interno al Parlamento”, II semestre, p. 202, available online: http://www.interno.it/dip_ps/dia/semestrali/sem/2008/2sem2008.pdf. 96 Parliamentary Commission investigating counterfeiting and piracy, 19 January 2011, p. 10.

87 ‘NDRANGHETA

Molé Clan - Piromalli Clan - Pesce Clan The analysis of organised crime in Calabria presented in the previous chapter, highlighted that the production sector around the port of Gioia Tauro has to all intents and purposes been infiltrated by the largest criminal syndicates in the area, particularly the Piromalli, Molè, Pesce and Bellocco clans. Even if on the one hand it was said that the many investigations conducted over the years identified the main channels and methods used by criminal organizations to manage the import and trafficking of drugs, on the other hand it was also said that the control of the port was likely to extend to other types of illicit goods, in particular counterfeit products.

Confirmation of this came from the “Maestro” operation, conducted bythe Carabinieri of the Special Operations Group in Reggio Calabria, Tuscany and Lazio. The operation ended with the arrests of 27 individuals (December 2009), charged with mafia association and conspiracy to import counterfeit goods into Europe with the aggravating factor of transnationality, as well as other Customs offences. The investigations unearthed the mafia infiltration in port activities, mainly by the Molé clan. There was also evidence of relations with the ‘ndrine of the Pesce and Piromalli clans. The investigations led to the arrest of two corrupt Customs officials, among others. The officials gave Customs clearance and import services to the Chinese firms that needed to import large quantities of fake industrial products.

The system had successfully evaded the automated Customs Agency controls, and used a system of under declaring in order to increase its profits.

With regard to money laundering, the operation led to the seizure of goods worth approximately €50 million. The proceeds from the sales of counterfeit goods were reinvested, among other things, into buying a hotel and two restaurants near Rome, through intimidation tactics.

BOX 1

The ‘Ndrangheta in Canada

The 2010 DNA report contains interesting information about the presence of the ‘Ndrangheta in Canada and its involvement in counterfeiting. The report identified seven families affiliated to the Calabrian Mafia, active indrug trafficking in Canada, extortion (against the Italian community), gambling, usury

88 and the marketing of fake goods. Many of them reinvested some of the illicit proceeds in other businesses, mostly in the restaurant industry in Toronto and the Woodbridge area, known as the new Italian quarter.

Source: DNA (2010), p. 91

SACRA CORONA UNITA

Tornese Clan As previously mentioned, the Sacra Corona Unita is not particularly active in counterfeiting. The number of reported offences of this type in Puglia for the second half of 2010 was half that for 2009, 35 in one year.

However, in an operation carried out in November 2009 by the Finance Police of Lecce (“Operazione G.d.F.”), two well-known members of the Sacra Corona Unita were arrested, one of whom was believed to be close to the Tornese clan. The clan was based in Monteroni, but was looking to expand towards the south of Salento. It was undecided whether to “continue providing support to the Padua clan, or whether to try to take advantage of the clan’s difficulties to get its hands on the south-western part of the province” (97). The investigations revealed that the group obtained supplies directly from the production workshops, some based in Italy and some in Turkey, Romania, Greece and Bulgaria. The counterfeit goods, most of which were clothing, footwear and famous brands’ accessories, were sold in shops and private homes, which had been converted into illegal showrooms (98).

The crime routes: origin, transit and destination

One of the main characteristics of transnational criminal organisations is their ability to create alliances and establish a proper allocation of roles for the various activities they manage in order to create high-functioning illegal production and distribution chains. Very often these organisations manage the trafficking of various types of goods, while using the same trade routes.

“The latest investigations have shown that the routes used to traffic counterfeit goods are essentially the same as those used to transport illegal products, which

97 Pezzuto A.N., in Liberainformazione – Anti-Mafia and Legality Observatory (20 December 2010), “Dia. Riflettori sul Salento”, available online: http://www.liberainformazione.org/news.php?newsid=13389. 98 DNA (2010),op. cit., p. 297.

89 are certainly much more evident and harmful such as drugs, weapons or even human beings. There is probably now a reversal of the trend in the sense that the routes found to be most reliable for the transport of counterfeit goods are being used to transport trickier goods such as drugs and human beings” (99).

Criminal associations have been particularly skilled in riding the wave of globalisation and the elimination of national borders, by exploiting a combination of strong local roots and a rigid mafia-style hierarchy with flexible structures that can easily adapt to ever-changing circumstances. By acting as transnational companies they have set up commercial chains based on a complex system of import and export, by identifying the key transit points and exploiting free zones through which to channel their products. As mentioned in the previous paragraphs, the criminal management of counterfeit goods very often involves the dynamics already seen in drug trafficking or other forms of illegal trade.

The case studies revealed certain favourite routes in the trafficking of counterfeit products, in which Italy is either the place of production, transit or the final destination. The “Indianopolis” case highlighted a specific modeof operation used by the suspects to import goods into Italy. The fake products came mainly from countries in the Far East or South East Asia (China, Vietnam and Bangladesh). The shipments then passed through the ports of Antwerp and Hamburg, where, thanks to the collaboration of Customs officers, the goods were unloaded and temporarily stored in warehouses. The goods were then redirected to Italy or other European countries by various means, for example on Air China cargo flights usually headed for Milan, Brescia and Rome. A similar route was also used in the “Shanghai Express” operation (100): once the production and delivery schedule had been determined, the organisation would manage the loading onto containers itself. The goods were hidden in containers with anonymous “cover” goods. The containers were then loaded onto ships travelling to Europe, specifically to Hamburg, where they were unloaded and sent to Hungary for temporary storage. The storage sites were mostly temporary deposits: the technique was to repeatedly change the destinations in order to keep the goods hidden at any cost and to make any inspections by the authorities ineffective or impossible.

The “Higan” operation also identified the Far East as the port of departure for the concerned products. The goods were cleared through ports in the north of Europe, such as Amsterdam or Hamburg, Valencia (Spain) or Rijecka in Croatia, with false papers. The goods then transited through different European countries before arriving in Italy. Apart from Spain and Eastern Europe, Greece

99 Zuccarelli F., interview with UNICRI. 100 See also para. 4 section 1, subparagraph 4.

90 was also used as transit destination, as revealed in the “Felix” case. The goods were stored in warehouses located in Italy, particularly in the provinces of Milan and Rome, and held in the names of mostly Chinese “straw men” who had agreed to bear the risk. Other transit destinations were found to be the Republic of San Marino (the Catarsi case), Split in Croatia (Ningbo/Fernand), and Eastern Europe in general, as well as various Italian ports including Naples, Gioia Tauro and the Ligurian ports.

Counterfeit goods do not come exclusively from the Far East. Other routes include Turkey, as in the “Kussen” case, where counterfeit accessories and clothing were illegally diverted from consignments officially shipped to other non-EC countries. An investigation by the Finance Police of Lecce also revealed that a Salento clan had set up production workshops not only in Turkey but also in Romania, Greece and Bulgaria. As previously seen, workshops producing various types of goods are located in Italy itself, mainly in Campania and Tuscany. Italy is thus involved in the transnational trafficking of counterfeit goods on all three levels on the main illegal trade routes – as a point of departure, origin and destination.

In conclusion, there are similarities between the commercial routes used in counterfeiting and in other types of illegal trafficking, such as the ones of drugs, weapons, illegal immigrants, toxic waste and pornographic material, as well as human beings put in slavery condition. All these “commodities” are usually produced/sourced in/from zones other than the place of destination. They are transferred between countries by evading controls and corrupting officials, and by using banks and financial institutions for payments. Therefore the links between criminal organisations in various regions are strengthened to better perform these traffickings, and this element is making it easier and easier for criminals to manage also counterfeiting operations and other types of crimes.

Technology used by criminal networks and counter-strategies

“The Internet poses a great challenge to everyone as it is a rapidly developing phenomenon that is also linked to the process of globalisation. Everything happens very quickly online, and the Internet allows users to reach anywhere in the world immediately. Even small criminal organisations can generate an enormous illegal market with just one click, and the growth of the trafficking of fake medicines is an excellent example. […] One impact of the Internet has to do with the changes in the way goods are handled. Initially, goods usually came from containers from various countries, but when goods are ordered online they are immediately shipped by courier. It is very hard for the authorities to check all goods at the border or to discover a product that has been inserted in a

91 package among millions of other packages from all over Europe. This makes it even harder to apply a system of risks analysis of imported goods, and it makes inspections more complicated” (101).

Benoit Godart Europol Liaison Officer at Interpol

The ceaseless evolution in the world of communications and Internet has opened up new horizons both in terms of investigation techniques and of opportunities for criminal organisations. On the one hand, technological innovations have enhanced the methods used for wire tappings, which is an extremely useful tool for investigations, also in counterfeiting, while the advances in devices such as VoiP technology have resulted in difficulties with “standard” tapping. On the other hand, the use of the Internet as a vehicle for the offering and distribution of products – considering its intrinsic characteristics and lack of regulation in certain areas – is an important tool in potentially expanding the sphere of action of criminal organisations and also affects the investigation techniques deployed by international police forces.

The “Indianopolis” operation, conducted by the Finance Police of Prato, highlighted certain techniques used by organised crime to evade police checks during the various phases of counterfeiting, with particular regard to telephone tapping. The organisation in question continued to seek out highly confidential modes of communication, and always favoured personal meetings at ports, airports and other public places in an attempt to evade any official control. The interception of online communications was also significant. By this means it was possible to decode conversations conducted through VoIP technology, as well as data from the GPS systems installed in the vehicles of the organisation’s bosses. By cross-checking all the data, a number of interventions were carried out in Italy and abroad, under Law 146/2006, thanks to the transnational aspect of the offence.

101 Godart B., interview given to UNICRI.

92 BOX 2

VoIP technology (Voice over Internet Protocol)

The advances in VoIP technology have led to the creation of small-scale operators all over the world. Apart from the typical VoIP services (such as free calls between PC users) they also allow calls to be made to landline telephones. The diagram below shows how a VoIP call from a mobile phone reaches another mobile or landline number:

Alice’s VoIP Bob’s VoIP Service Provider (1) Service Provider (2)

Access Access VoIP Call Set-Up

Transport Transport ISP A ISP B

VoIP Conversation

Transport Transport ISP C ISP D

Access Access R1 R2 Access Router

VoIP VoIP Customer Border Router Customer Alice Bob

Initially, the call is a VoIP call, and uses the Internet line. It then reaches an output device where the Internet is connected to the recipient’s fix or mobile line. With a VoIP call, the caller’s ID is an IP address, no longer a telephone number. If a mobile phone makes a hybrid VoIP/GSM call to a number intercepted by an operator working on behalf of the law enforcers, the operator would no longer have any information about the caller’s IP address. If the VoIP provider is based in a foreign country, as it is not subject to Italian law, it may not be obliged to provide the caller’s IP address. The system is naturally very complicated, but it is easy to see that it has important implications in terms of the ability to intercept standard GSM calls. On the other hand, the transition of voice telecommunications towards VoIP technology is also leading to innovations in the way interceptions are carried out. If we imagine that the Internet is

93 open to any form of remote attack, a hacker is already able to listen to VoIP conversations of users all over the planet.

Source: ITAA (Information Technology American Association), (June 2006), “Security Implications of Applying the Communications Assistance to Law Enforcement Act to Voice over IP”, p. 4, available at: http://privacyink.org/pdf/ CALEAVOIPreport.pdf.

BOX 3

Online sales

The use of Internet has created an autonomous distribution channel for products, which is directed to the end customer, and thus overlaps the ordinary system of distribution. Internet is another mean through which counterfeiters can manage their supply operations, as it allows them to sell their products through the retail and wholesale channels. The main advantage of the Internet is that it gives sellers and buyers an aura of anonymity, as the exchanges are impersonal. This anonymity not only impairs the guarantee for the consumer - usually represented by the brand name - but also amplifies the conditions under which a product cannot be checked. As this anonymity makes the police investigations much harder, there is less risk of incurring in penalties, having the counterfeit goods seized, or of facing criminal proceedings: “it is often impossible to identify the seller, or to monitor and confiscate counterfeit goods even after the crime has been uncovered. The seller literally disappears into cyberspace, taking all his stock with him” (102).

The ease with which counterfeit goods can be marketed online has led to the growth of Internet sales also of products such as counterfeit medicines, that are potentially dangerous to public health and safety. In this regard it is worth underlining the double risks of sales of online pharmaceuticals. As far as retail sales are concerned, consumers can be misled, either attracted by low prices or by the possibility of buying a certain product (such as Viagra or Cialis) anonymously, since they can make their purchase without a doctor’s prescription. Once the transaction is complete, the product is sent directly to the patient. On the other hand, counterfeiters can penetrate the distribution chain by exploiting the fact that the distributors themselves are often looking for inexpensive products without worrying too much about the integrity of the

102 ACG, (The Anti-Counterfeiting Group), (2007),” Internet Shopping”, p. 4 cited in UNICRI (2007), op. cit., p. 98

94 supplier. Once acquired, these products are retailed in the same way as a drug from a licensed source. This makes it impossible to determine their true origin.

Source: Unicri (2007), pp. 97-99 and UNICRI (2012, to be published), Counterfeit medicines and organized crime

BOX 4

eBay: the fight against counterfeiting and organised crime

In March 2010, the popular online auction site eBay announced a partnership with the National Retail Federation (Nrf), one of the largest retailers’ associations based in Washington DC, as part of the fight against organised crime. The collaboration, backed by the Federal Bureau of Investigation (FBI), is intended to combat organised crime by preventing fraud and crime through which stolen goods are then sold through online channels. The most serious losses are caused by organised crime, which steals goods, and then sells them. According to a study published by the Nrf, 92% of retailers complained of losses caused by organised crime in 2009. 73% said that this type of crime was on the rise. Under the agreement, representatives of eBay and Nrf will meet regularly to decide on the best ways to beat organised crime in the retail sector, also using new technologies to identify and track the criminal networks. This is how one of the leading online auction sites is taking steps to prevent the online sale of stolen or counterfeit goods. To this end, the eBay platform has implemented a Verified Rights Owner programme (VeRO) through which the owners of intellectual property rights can report any infringing adverts. The IPRs owner can report an infringement by using the following form, thus helping to make the eBay platform less subject to this type of offence.

95 Notice of violation eBay International AG Attn: Verified Rights Owner Programme (VeRO) by eBay

Fax number: +39 02 9544 16 59

Date:

Dear eBay,

The undersigned, as the owner of the intellectual property rights or the duly authorised representative, hereby confirms that the following advertisements (listed by item number below) infringe intellectual property rights under Italian law.

Owner of rights:

Address of rights owner:

My contact details: Name and surname: Position: Company: Address: Email address (for correspondence with eBay): Email address (for correspondence with sellers)*: Telephone number: Fax number: * If you decide to allocate a separate email address for correspondence with eBay users. Please enter it here.

I hereby authorise the following persons to sign notifications of violation on my behalf:

Name: Email: Name: Email: Name: Email: Name: Email:

In witness whereof,

Signature

Source: Internet: eBay crime fighting plan organised with the assistance of the FBI, First Communication 22/03/2010, http://www.primaonline. it/2010/03/22/79307/internet-e-baypiano-anti-crimine-organizzatoanche-con- fbi/; eBay, “VeRO Programme. Protection of intellectual property rights”, http:// vero.ebay.it/

96 Links with other serious crimes

“Criminals are “multi-cards”, they play every opportunity they have and don’t devote themselves exclusively to any one sector. We have enough proof to show that infringements of intellectual property are, in many cases, connected to crimes in other sectors. One example is the connection to money laundering […] Counterfeiting is not an isolated crime, it combines different factors and different criminal activities” (103).

Benoit Godart Europol Liaison Officer at Interpol

Several times during this mapping exercise, reference has been made to counterfeiting as part of the broader strategies implemented by transnational organised crime, and thus to its links with other serious crimes. This term is mentioned in the Palermo Convention terminology (Art. 2, b), according to which “serious crime shall mean conduct constituting an offence punishable by a maximum deprivation of liberty of at least four years or a more serious penalty” (104). The Convention also defines an organised crime group as “a structured group of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes [...] in order to obtain, directly or indirectly, a financial or other material benefit” (105).

Among the key points highlighted by the Finance Police in its report presented during a session of the Parliamentary Commission inquiring into the phenomenon of counterfeiting, counterfeiting was identified as “a transverse phenomenon that is intimately connected to tax evasion, the exploitation of illegal labour and assisting illegal immigrants, against a backdrop of money laundering and the reuse of the proceeds of crime, closely linked to organised crime”(106).

One of the most complex judicial police investigations into international crime, carried out in the district of Naples, provides greater insight into the way these serious crimes are linked together. Operation “Hagen” was conducted in 2007 (although the investigations originated back in 2004) by the Operations Unit of the Carabinieri in Castello di Cisterna, in collaboration with the German police and the Italian Finance Police. The investigations uncovered an international

103 Godart B., interview given to UNICRI. 104 UN Convention against Transnational organised crime (December 2000), Art. 2. 105 Ibid. (see also para. 3 section 2, subparagraph 1). 106 Synopsis of the Parliamentary Sessions on the inquiry into counterfeiting and piracy, session of 16/02/2011, p. 14.

97 group that was serving organised crime in Campania. Thanks to the close connections established with the German police during investigations, the operation revealed how complex organisations were operating nationally and transnationally, with the ability to generate enormous profits by working for organised criminals, and the Camorra in particular. The Finance Police investigations highlighted a strong connection with the Licciardi clan of the Secondigliano Alliance, and the Crimaldi clan of Acerra (107). The overall picture that was unveiled regarding the criminal organisation’s operations highlighted five main areas of activity: 1) trafficking in firearms, 2) drugs, 3) stolen or illegal cars, 4) the production, import/export and sale of counterfeit goods, and 5) usury. In order to better understand the relationships between these various crimes, it is sufficient to note that during investigations it was found that the main suspect was representing the “hub” between the individuals involved in the international trafficking of drugs. The same person was also involved in a parallel market of arms trafficking, and also had links to other individuals involved in the international trading of illegal vehicles and of counterfeit goods. They were all parallel markets, but were often involving the same individuals who utilised the same strategies, channels of distribution and routes for the different forms of illegal traffic.

With specific regard to counterfeiting in Operation Hagen, the evidence gathered by the investigators led to the identification of each member of the gang involved in that activity. What emerged relates not only to the organisation of the distribution chain (through retail) by the criminal gang in Italy but also to the procurement of counterfeit goods from manufacturers, mostly based in Greece, and the subsequent export of the products to Germany, highlighting the transnational element of this offence. The individual most closely involved in the counterfeiting operation revealed that he was closely related to other individuals from the same criminal association, but who dealt with drug trafficking on the one hand, and the trading of illegal vehicles on the other. It is interesting to note that the vehicles were often bought and sold as part of the trading of counterfeit goods. Another interesting aspect in this case has to do with money laundering, and in particular with the reference made to Western Union by the suspects during some of the recorded telephone conversations. This reference was not a casual one – money transfer is one of the most common methods used by transnational criminal organisations involved in counterfeiting to repatriate illicit cash, as the transfers are extremely quick and relatively confidential.

Other cases that may help to expose the links between counterfeiting and other serious crime are mentioned below:

107 For more information, see para. 4 section 1 subparagraph 5.

98 (a) Operation “Sopra le mura”, one of the most significant investigations into the illegal reproduction of audiovisual materials. This operation highlighted the direct involvement in counterfeiting of criminal Camorra-type gangs, with the peculiarity that the huge profits were then reinvested in multiple illegal activities such as drug trafficking, usury, extortion and the purchase of weapons;

(b) Operation “Cian Liu”, one of the largest investigations carried out in Italy into the Chinese community. The investigations originated from a strategic analysis of the interests and activities of the Chinese community based in Prato. It identified a Mafia-type organisation, which was involved in the transfer, reinvestment and laundering of huge sums of cash obtained from various crimes. The main offences committed by the Chinese gang included the contraband of goods, the counterfeiting of trademarks, exploitation of prostitution, handling stolen goods, embezzlement, aiding and abetting illegal immigration and tax evasion. An interesting aspect of this operation relates to the instruments used to transfer illegal cash: the individuals would use a network of sub-agents affiliated to the national chain Money-2-Money. The amounts would be split into several transfers and were falsely attributed to non-existent Chinese nationals, or individuals who knew nothing at all about the criminal operation. Another channel used to recycle cash was a finance company based in San Marino;

(c) as already mentioned, the “Shanghai” operation revealed the strong links existing between the Chinese and Senegalese communities. The investigations revealed not only the perpetration of the offence of counterfeiting but also the exploitation of illegal labour to produce counterfeit goods, and the fact that most of the foreign nationals involved in the mafia organisation were illegal immigrants. Furthermore, tax evasion resulted from the sales and the reinvestment of illegal proceeds. The criminal gang did not use ordinary banking circuits, thus evading important regulations on taxation and money laundering. Methods used to export the cash included the concealment of money in suitcases, and the money transfers, as mentioned;

(d) the “AB” case, which brought to light important information about the alliances forged by the Camorra with Chinese criminal organisations operating in Italy. The first serious offence linked to counterfeiting to emerge in this case was corruption, as mentioned. One of the intercepted phone calls made between members of the Chinese gang revealed an exchange of information about whether or not a consignment was going to arrive to its destination. One of the callers explained that the container (loaded with counterfeit goods) from China had to be unloaded and then

99 reloaded to make it look as though it had come from a European country. The caller reassured the other person that the Customs procedure would go smoothly, as the carrier had assured him there would be no problems. This led to the assumption of collusion by the Customs officer. Another serious crime emerging from this operation was money-laundering. Once again, thanks to wire taps, it was possible to understand the volume of business generated by the gang, which reinvested the proceeds in further commercial activities and traffickings in order to guarantee the continuity of its operations.

Box 5

Money Transfer

The numerous investigations and analyses carried out by the police forces into the Chinese criminal community have long shown that it has large financial resources. These resources mainly originate from the management of a number of illegal markets such as counterfeiting, contraband, illegal immigration and the related offences of exploiting immigrants and extortion. While most of the proceeds are usually reinvested in the purchase of property or businesses, or are used to set up fake companies held in the names of straw men or fictitious individuals, it has been shown that Chinese criminals use unofficial channels to transfer their illegal profits.

According to data from the Bank of Italy, the Chinese community seems to prefer using cash or money transfers to send funds back home. While there were 170 reports of suspicious money transfer transactions in 2008, by the following year, the number had risen to 1274. The providers of money transfer services rely on a dense network of sub-agents who in turn form part of networks of other intermediaries, in order to guarantee maximum coverage. An analysis of direct transfers to China revealed recurring elements such as the production of the same ID document by different people when the cash was transferred, the use of identical bank details for different beneficiaries, and the splitting of transfer amounts into “below-threshold” amounts. The “Cian Liu” operation, mentioned above and carried out by the DDA of Florence, confirmed this. The criminal association was dedicated to laundering huge sums of money from various types of crimes. Members of a Chinese family had bought shares in a financial intermediary operating in the money transfer sector, leading to an exponential growth in the volume of cash transferred to China. The remittances were made by business people and ordinary individuals. In order to conceal the traces of the money’s illegal origin and prevent the true owners from being identified, the total amounts were split into thousands of instalments of €1,999.99, and they

100 were attributed to accomplices, unknowing individuals, and sometimes people who did not even exist. The legal limit for a money transfer is €2,000 (Art. 49 of legislative decree no. 231/2007). Above that threshold, and up to €5,000, the customer is required to produce ID to confirm that the transaction fits his financial profile. The management of this mafia-style organisation108 ( ), run by a Chinese family, controlled the illegal activities of the Chinese community in the entire territory, using psychological intimidation and sometimes violence. Investigations by the Florence DDA confirmed that the following factors are usually indications of money-laundering:

(a) transfers of just under the €2,000 limit;

(b) a vast number of individual senders, who sent cash to different account holders in consecutive months;

(c) the sending of money to accounts held at different Chinese banks, using the same or different intermediaries just a few days apart or even on the same day, providing different addresses in Italy;

(d) the production of the same ID card by different people at the time of transfer and sometimes at the same sub-agent;

(e) the use of the same bank details for different beneficiaries by different senders.

Source: DNA (2010), op. cit., pp. 162-164.

108 In relation to the wording used in the text, it should be noted that in Operation CIAN LIU the Public Prosecutor in charge of the case had classified the organisation as a mafia-type organisation – this was not accepted by the judge who did however apply the aggravating circumstances under Article 7 of decree law 152/1991 (aiding and abetting the mafia) aimed at the laundering of large sums of cash from various crimes.

101

CONCLUSIONS

The analysis of counterfeiting operations in Italy, and the mapping of the involvement of local and transnational organised crime has shown that:

(a) counterfeiting is a steadily growing phenomenon, although the illegal and hidden aspects of this crime make it very difficult to obtain reliable estimations;

(b) the globalisation of counterfeiting and its expansion are the results of the role played by organised crime in the management of this illegal activity;

(c) despite the gravity of the consequences and the role of organised crime in the management of counterfeiting, the perception of its risks and dangers is still fairly low among the public and in certain cases among international police forces;

(d) organised crime uses clear strategies for the management, delivery and distribution of counterfeit goods;

(e) the activities of local mafia organisations are closely interlinked with the activities of transnational criminal organisations: there are criminal alliances characterised by an interaction between groups from different communities;

(f) the typical characteristics of local mafia organisations are slowly being transformed in the wake of the current process of globalisation. The strong hierarchies are being replaced by “loose networks”. The formation of relationships and networks that are essentially based on the possibility of earning vast illegal profits, without a firm plan, is becoming increasingly frequent. This model is particularly evident in the management of counterfeiting activities;

(g) increasing reliance is placed, also in counterfeiting, on the activities of individuals who are not part of Mafia clans but who offer their criminal services to several gangs, some of which are in conflict, leading to the creation of a “grey area”; The growth of this phenomenon is making the criminal involvement in counterfeiting insidious, as these individuals have influential know-how and relational skills;

(h) in Italy, the Camorra is certainly the most active organisation in counterfeiting, however groups linked to the ‘Ndrangheta and to a lesser

103 extent the gangs based in Salento, are also expanding their interests in this sector;

(i) thanks to “traditional” mafia activities such as the demanding of protection money, in various parts of Italy extortion is being replaced by forcing the retailer to sell counterfeit goods, which leads to the worrying infiltration of counterfeit goods into legitimate retail and distribution channels.

(j) the criminal gangs sometimes use “accomplice” retailers, or own businesses themselves, which further supports the distribution in the legal market.

(k) the crime trafficking routes used in counterfeiting often overlap with those used by transnational organised crime for other forms of illegal trafficking, such as the ones concerning drugs or human beings. This is part of the broader range concerning the links that counterfeiting has with other serious crimes, confirming that counterfeiting is part of the broader strategies implemented by transnational organised crime;

(l) in this regard, the fundamental importance that counterfeiting has for organised crime is formed on the one hand by the creation of profit and on the other, by its being a tool for the laundering of money deriving from other illegal activities;

(m) the use of the Internet and of new technologies by criminal organisations is assuming more weight in the phase of distribution and for the opening up of new markets: this requires the law enforcement agencies to adapt their investigation techniques;

On the basis of the analysis, are several considerations and ideas are presented below, aiming at supporting further study of a complex and multifaceted phenomenon such as counterfeiting: i. the analysis of the legal tools and police operational in the fight against counterfeiting has shown that there is already an element of coordination among police forces, at a certain level. However, this coordination should be strengthened in terms of collaboration between Italian, European and international police forces, particularly with regard to inter-police forces communications; ii. the results of the study point to certain areas for further analysis, which are necessary for a better understanding of counterfeiting and would provide additional information that could be potentially useful to investigations. In particular: iii. the aspect related to the cash generated by counterfeiting, both directly during the retail and distribution phase, and indirectly through money-

104 laundering. A study of the distribution of cash flows would help to shed light on certain aspects of the phenomenon, which are still largely unexplored. Particular attention should be paid to the phenomenon of money transfers and wholesale purchases from online catalogues based in the places of production (mainly South East Asia), and which are paid for online.

Considering the increasing importance of the new technologies and the Internet in the growth of counterfeiting operations, new areas of study could relate to this sector and the connections to “cyber crimes”.

An overview of the various anti-counterfeiting technologies available internationally, and their effectiveness in different economic and political contexts, could provide important information about how they can be implemented on different products in different countries. This would help manufacturers to select and assess the most appropriate technologies for their purposes, and would also assist national governments when deciding to apply these technologies to a certain commodity sector.

Considering the seriousness of the Mafia’s presence in the Italian food industry, which was underlined by the conclusions of the latest Parliamentary Commission inquiring into the phenomenon of counterfeiting and piracy, a study focused on this sector would certainly be useful to future investigations.

One necessary consideration relates to the role of international cooperation in the fight against counterfeiting. In particular, the recent developments within the UN Commission on Crime Prevention and Criminal Justice have led to the hope that the Palermo Convention will also be extended to counterfeiting. It is to be hoped that an anti-counterfeiting instrument, or a supplementary protocol to the Convention, will be approved in the future.

Given the importance of awareness raising on counterfeiting, as a fundamental part of supporting a change in the public opinion and the adoption of more effective counter-measures against this activity, it would be a good idea to set up a research and documentation centre dedicated to the study of various aspects linked to the involvement of organised crime in counterfeiting. This centre could also be responsible for planning and carrying out multidisciplinary training activities for the police forces, Customs agencies and judges, in view of the application of an inter-police force and coordinated anti-counterfeiting strategy.

Specialised technical training for law enforcement officers would be essential in order to equip officials with the tools they need to combat this illicit phenomenon in all its various forms.

Another development to be hoped for is the “specialisation of prosecutors”,

105 in the sense of creating various prosecutor offices across the country with specific expertise in different areas of counterfeiting and its related offences, with a view to optimising the work of the courts and improving the efficiency of investigations and legal proceedings.

The results of this study suggest a need for greater awareness on the gravity of counterfeiting among traders and consumers, partly by means of information campaigns to highlight the fact that counterfeiting is not a victimless crime. This should be done by bearing in mind that legality in the broad sense must be respected by the legitimate producers across the entire production/ distribution chain, in the same way as the principle of transparency and ethical controls, in order to create a sharp contrast with the practices used by criminal counterfeiting rings.

More involvement is to be hoped by various actors in the civil society, including associations and observatories already active in the fight against the mafia, in order to create a social climate that discourages crime, and counterfeiting in particular.

106 BIBLIOGRAPHY

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111

2°

THE POSSIBLE RE-USE OF ASSETS SEIZED TO CRIMINAL ORGANISATIONS INVOLVED IN COUNTERFEITING ACTIVITIES FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

INTRODUCTION

Organised crime has demonstrated a surprising capacity to adapt to the gradual changes that occurred in recent years in the economic and political scenario, by fully exploiting all the opportunities created by the internationalisation of markets and the elimination of political boundaries. It has “exported” its activities and multiplied its areas of action, by combining the management of crime with the reinvestment of capital into the legal economy, in an unending circle. The search for maximum profit regardless of its origin, and territorial control are the fundamental elements used by organised crime to undertake and expand its activities. Attacking the wealth of criminal organisations, which also include a huge range of assets in which illegal capital is reinvested, is thus an essential part of any effective strategy to combat organised crime, producing two main results: limiting the operational capacity of the criminal organisation, and undermining its prestige and territorial control.

The adoption in Italy of Law 109/96 on the re-use of assets confiscated to organised crime marks a turning point in anti-mafia action. It is the most advanced cultural, social and economic tool to date, and allows the illegally- accumulated assets to be returned to the community, eroding the social support often enjoyed by criminal gangs in their territories. While repressive action by the courts is intended to weaken organised crime by removing its wealth, constructive action by the public institutions is intended to undermine the consensus and territorial power by re-using the illicit assets for social benefit. The new law therefore has a powerful symbolic value of “restitution to the community”. The fulfilment of these objectives is closely linked to the number of confiscated assets that are introduced into the virtuous circle of social utility, and also to the significance of this re-use in the context in which the assets were seized.

Taking into account the considerable flow of financial resources that criminal organisations earn from counterfeiting and piracy, it would be legitimate to assume that a fairly considerable part of those resources would be invested in legal goods, activities and property. Once confiscated, these assets can easily be re-used in the sense of promoting intellectual property, industrial property and economic growth: an objective of considerable importance, particularly in times such as these, of serious economic crisis.

115 On the basis of these assumptions, and with a view to continuing its previous work, the Italian Ministry of Economic Development (MiSE) / UNICRI study first analysed the operations of the National Agency for the Administration of Assets Confiscated to Organised Crime, and then conducted an in-depth study of the Agency’s data on seized assets in order to identify the businesses and properties confiscated to organised crime groups, some of which were involved in counterfeiting, with a view to their possible re-use to promote intellectual property and economic growth.

116 THE MINISTRY OF ECONOMIC DEVELOPMENT/UNICRI RESEARCH PROJECT

The Italian Ministry of Economic Development (Directorate General for the fight against counterfeiting –IPTO) and UNICRI project stems from a series of considerations on the involvement and management of counterfeiting by organised crime. The first of these is the importance of the illegal capital reinvested in property and businesses. The second consideration is the expansion of activities managed by organised crime into illegal activities such as the production and sale of counterfeit goods, which were once considered as merely economic offence with limited social risk. The third consideration is the end of the “specialisation” of criminal organizations, which for many years have no longer been specialized to committing certain kinds of offences or managing certain kinds of trafficking, and that now deal with a wide range of criminal activities at the same time, driven by the search for proit. Last but by no means least are the significant results obtained in Italy in fighting organised crime by confiscating the proceeds of crime and the assets into which they are converted.

These considerations highlight the need to verify an interesting working theory that was partly elaborated from the mapping of organised crime’s involvement in counterfeiting offences, carried out by UNICRI at the request of Italian Ministry of Economic Development during 2011-2012 (109) . This theory essentially relates to the possibility of making the fight against counterfeiting more effective by involving the ANBSC (the Italian National Agency for the Administration of Assets Confiscated to Organised Crime), by testing the re-use of confiscated assets for a purpose other than the mere transfer of management, essentially by re-using the assets seized to organised crime involved in counterfeiting to promote intellectual property and the “Made in Italy”. During the course of the study, UNICRI collaborated with the Agency in order to agree on the objectives of the project and structure the research process. The Agency kindly shared its database containing information on the confiscated and managed properties and businesses, from which the key study data was taken.

109 UNICRI, MiSE (2012), Counterfeiting as an activity managed by transnational organised crime: the Italian case, Ministry for Economic Development, Department for Enterprise and Internationalisation, Directorate-General for the Fight Against Counterfeiting of the Italian Patent and Trademark Office.

117 The study considers the assets and businesses that have been definitively confiscated and are linked directly or indirectly 110( ) to counterfeiting activities, as they belonged to criminal organisations that also operate in this sector. On this aspect, the previous mapping exercise was a vital source of information as it described the main criminal groups working in this sector in Italy – the Camorra and the ‘Ndrangheta – and this made it easier to identify assets that could be re-used in this sense.

The initial objective of the project was to define a “standard procedure” through which the ANBSC could assess whether or not the assets confiscated to organised crime groups with a dominant or secondary role in counterfeiting, could be used for the promotion of intellectual property. Once tested in theory, this standard procedure was then intended to be presented at a dedicated event, to illustrate how it would be applied in practice to an asset identified in collaboration with the Agency. However, the considerable workload currently faced by the ANBSC does not yet permit this type of practical application.

In agreement with the Ministry of Economic Development, UNICRI decided to continue its research, considering the importance of the issue and its pioneering approach. The Institute has made great progress in reviewing the full list of confiscated assets currently managed by the Agency – more than 3,990 assets – and has managed to identify 68 properties and businesses suitable for inclusion in a reallocation procedure for the promotion of intellectual property and ”Made in Italy”.

Considering the large quantity and quality of the assets, UNICRI has decided to go one step further, by using data sheets to create profiles of the assets including details of their origin from the activities of criminal gangs also involved in counterfeiting, which from the very beginning of the project was identified as the essential element for the application of the specific reallocation procedure examined in this study.

As UNICRI wanted a procedure that the Ministry for Economic Development and ANBSC could use straight away, UNICRI went one step further and drew

110 Given the difficulties involved in sourcing the few definitive confiscation orders that have been issued as a result of counterfeiting crimes, the decision was made to analyse assets or businesses with direct or indirect links to counterfeiting, or assets linked to members of the criminal organisations who are dedicated to such activities. Important in this context is Law 99/2009, which introduced Article 474 bis of the Penal Code. This provision makes confiscation obligatory – in cases subject to proceedings under Articles 473 (Counterfeiting, alteration or use of trademarks or distinctive marks, patents, models and designs) and 474 (importing and retail of products with fake marks) – for “items used or intended for the committing of the offence, and the items forming the object, product, price or profit of that offence, whomever they may belong to”. Where compulsory confiscation is not possible, the same article provides that the court should confiscate assets available to the offender, up to a value corresponding to the profits gained from the illegal activity.

118 up a checklist to verify whether the identified assets were suitable for the purposes of promoting intellectual property and ”Made in Italy”. To this end, and with the aim of avoiding unnecessary duplication, the foundations already laid in a previous research project were used as a basis (111). This work was then expanded with elements taken from UNICRI’s own experience, before being applied, theoretically, to 4 different properties by way of example.

The outcome was a test run for a specific procedure. In the future, thanks to input from the Italian Ministry of Economic Development and the hoped-for expansion of the Agency’s workforce, this procedure will lead to the alternative reallocation of seized assets, with a view to promoting the business activities either destroyed or seriously impaired by the illegal activities of organised crime in the field of counterfeiting.

The study is formed by two parts. The first introductory section explores the reference legislation and examines the ways in which seized assets are effectively re-used. The second part, which is more pragmatic in its approach, analyses information on the properties and (112) businesses currently managed by the ANBSC in order to identify various assets confiscated to members of the Camorra and the ‘Ndrangheta, with a view to their possible re-use to promote intellectual property.

As mentioned in the foreword, this document is a summary and does not contain the second section. The full study, in Italian, is available on the Directorate General for the fight against counterfeiting - Italian Patent And Trademark Office website, at the following link: http://www.uibm.gov.it/index.php/lotta-alla-contraffazione/osservatorio- contraffazione

111 Transcrime (2013), “National Operational Programme - Safety 2007-2013. Re-using confiscated assets”, January. 112 This study does not consider the seizures and confiscations of movable assets, as they were not included in the specific purpose of the research project.

119 Methodology

The study involved various qualitative and quantitative investigation tools, and the following steps:

§ A desk analysis of the legal and practical aspects of confiscating the proceeds of crime, and cases of re-use;

§ Face-to-face interviews with experts and key players (members of the ANSBC, law enforcement agencies, judges, universities and non-governmental organisations operating in the sector);

§ Analysis of the ANBSC database containing details of properties and businesses yet to be allocated;

§ Identification of the 68 properties/businesses seized from members of clans involved in counterfeiting according to the 2012 UNICRI/ MiSE mapping;

§ A brief reconstruction of the criminal “careers” of the individuals from whom assets were seized, to highlight the connection to counterfeiting clans;

§ Identification of positive cases of confiscated assets re-used in industrial activities, economic growth and the promotion of ”Made in Italy”;

§ Preparation of data sheets for 4 properties/businesses;

§ Simulated use of assessor’s checklist for the 4 identified assets.

120 PROFILE OF THE NATIONAL AGENCY FOR THE ADMINISTRATION OF CONFISCATED ASSETS

The National Agency for the Administration of Confiscated Assets (ANBSC) was set up by Law no. 50 of 31 March 2010, which relates to the provisions established by Law no. 575 of 31 May 1965. The Agency’s tasks are defined in the “Code of Anti-Mafia laws and preventive measures, and new provisions on anti-Mafia documentation” (Legislative decree no. 159 of 6 September 2011, in force since 13 October 2011).

The Agency is responsible for administering assets that have been seized, even if not definitively, and adopts the orders for the reallocation of confiscated assets for institutional and social purposes. If an asset is non-productive and cannot be used, sold or applied to another purpose, the Agency may authorise its destruction or demolition, or liquidation in the case of a company.

The setting up of the national agency marked a turning point in the way in which seized and confiscated assets are handled, considered as fundamental in overcoming the difficulties with the previous provisions. The latter were based on two separate phases of administration: the assets were initially referred to the courts until definitive confiscation and then to the Agenzia del Demanio (State Property Office) and the Prefecture, for reallocation for institutional and social causes. This system made it hard for the assets to be reallocated quickly and efficiently, and therefore to be reinserted into the legal economic circuit and returned to the community (113).

The national agency plays an active role in the seizure of assets to organised crime, until they are returned to the community.

The ANBSC has three separate organs: the Director, who not only acts as legal representative but also implements the guidelines and is responsible for drafting the preliminary and final accounts; the Executive Council, which is the body responsible for issuing guidelines on the administration, allocation and re-use of seized or confiscated assets, and the Audit Committee, which is the Agency’s accounts auditing body. The Executive Council is formed of the director, who is a judge appointed by the Ministry of Justice, a judge appointed by the National Anti-Mafia Prosecutor, and two experts qualified in

113 National Anti-Mafia Directorate (2012), Annual report on the work of the National anti-Mafia prosecutor and the National anti-Mafia directorate, on the dynamic and strategies of mafia-type organised crime from 1 July 2011 – 30 June 2012, December, http://www.genovaweb.org/DNA_ Dicembre-2012.pdf.

121

y Communit assets ANBSC TION PHASE Use of confiscated

ADMINISTRA Definitive confiscation Definitive (REGIO) TA ACQUISITION OF DA (direct assets ANBSC AND Subphase 2 management) Administration of ORING

MONIT

after preliminary hearing preliminary after

/ PHASE confiscation 1st LEGAL ANBSC authority Subphase 1 Assistant to administrator Officer of legal court-appointed first hearing Organised crime confiscation until Provisional seizure / Source: ANBSC (2013), “2012 Annual Report”, page 25. ANBSC (2013), “2012 Source:

122 business and asset management who are jointly nominated by the Ministry of the Interior and the Ministry for the Economy and Finance (114).

In addition to these three bodies, the Agency relies locally on the support units at the local Prefectures, which were set up by the Ministry of the Interior. These units were set up with the aim of creating “an institutional office supported by contributions from various public bodies and representatives of the civil society in order to accelerate the procedure for the allocation of assets under Law no. 575/1965 by removing any local restrictions that could make the assets less attractive to the public authorities interested in reusing them”.115 These support units are usually made up of representatives of the law enforcement agencies, the courts, the State Property Agency, local authorities, Chambers of Commerce and other associations involved in the sector. Their task is two- sided: on the one hand they support the Prefect in monitoring the assets, in order to highlight any cases of improper use or abandonment, and on the other they facilitate the work of the Agency in reinstating the conditions in which the assets can effectively be re-used for social benefit (116). The support units are also responsible for procedures involving the recognition of legal charges on properties in their area (117).

In addition to the central office in Reggio Calabria, the agency currently has 4 branches in Rome, Palermo, Milan and Naples. Although the network is fairly extensive, the workforce of the ANBSC (known as the “fixed structure) is fairly limited, and has just 30 members of staff in all (118). In order to address this aspect, the Stability Act (Law no. 228 of 24 December 2012) made provision for the ANBSC to source up to 100 additional civilian and military personnel from the public administration and public economic agencies (controlled or field offices, also in derogation of current laws on mobility), as a non-permanent workforce (the “mobile structure”). Until 31 December 2013 the temporary postings of personnel from other administrations could last longer than 3 years,

114 The composition of the Executive Council was amended by the Stability Act, Law no. 228 of 24 December 2012. 115 Ministry of the Interior (2011), Circular to Prefects. Withdrawal of assets accumulated by organised crime and the setting up of support units at the Prefectures/Local Government Offices, 13 July, http://www.interno.gov.it/mininterno/export/sites/default/it/assets/files/21/0473_ Istituzione_nuclei_di_supporto.PDF. 116 Giannone T. (2012), Dal bene confiscato al bene comune, Libera, Fondazione Terzo Millennio Onlus, pages 32-33. 117 Ministry of the Interior (2012), Circular to Prefects. Support Units established at the Prefectures/ Local Government Offices. Legal Charges on definitively confiscated assets: pre-allocation activities, 12 March 2012, http://www.benisequestraticonfiscati.it/Joomla/images/pdf/normativa_ circolari/circolare%20su%20beni%20con%20gravami%20ipotecari.pdf 118 The workforce of the 30-strong team, which includes managerial positions, was confirmed in the implementing regulations under Articles 113 of the Anti-Mafia Code which came into force on 15 March 2012. On this point, see ANBSC (2013), “2012 Annual Report”, cit., page 15.

123 in derogation of the general provisions of the Consolidation Act on Public Sector Employment. The Director of the Agency can also enter into fixed-term agreements, until 31 December 2016.

Given the broad spectrum of the Agency’s technical functions, the 2012 ANBSC Annual Report also highlighted the need for the workforce to include specific professional expertise such as lawyers, accountants, engineers, architects, surveyors and agronomists, who could not be found within the public administration. In order to meet this objective, the annual report envisaged that the Agency could be transformed into a public economic agency, which is able to employ people according to the principles of private law and therefore would be able to acquire the necessary skills from the open market without the need for a public competition (119). In parallel, the Agency’s annual budget would need to be adapted to reflect the number of staff. This objective could be reached by allowing some of the confiscated properties to be rented out, as a form of self-financing.

Responsibilities of the Agency during the judicial phase, from seizure to final confiscation

During the judicial phase, which runs from the issue of the seizure order through to definitive confiscation, the Agency collaborates with the legal authorities in order to resolve any issues highlighted by the courts and the administrators during the proceedings. The purpose of an immediate, direct collaboration between the Agency and the legal authorities is to reduce the time between the initial phase of the seizure and the final reallocation. This is because, as has been highlighted by influential sources, “the over-protraction of this period risks causing an irreversible crisis in the anti-mafia system, as important assets would be abandoned or left to deteriorate” (120). The relationship between the ANBSC and the legal authorities has been structured in a non-hierarchical way, but with a view to collaboration and exchange.

The Agency supports the court-appointed administrators in managing the properties and other assets during the legal proceedings. It proposes the adoption of the measures needed for the optimal re-use or re-allocation of the assets (Art. 38 of the Anti-Mafia Code). In order to facilitate the requests from those entitled to use the assets – to be made within six months from the date of the first confiscation order - the Agency is required to publish a list of

119 ANBSC (2013), cit., page 18. On the same topic, see also ANBSC (2012), Summary Document. The National Agency for the Administration of Assets Confiscated from Organised Crime can generate high revenues for the State, Appendix 2, page 1, http://www.senato.it/documenti/ repository/commissioni/comm01/pdf/AG%20483%20ANBSC.pdf. 120 National Anti-Mafia Directorate (2012), cit., page 253.

124 confiscated assets on its website. It receives online communications ofany orders that modify or revoke the seizure, and other orders authorising acts of ordinary administration.

In the case of seized businesses, the receiver is chosen from the list of business management experts kept by the National Register of Court Administrators. Within six months from his appointment the administrator must present an accurate report containing full details of the condition of the business and the prospects for its future. The administrator deals with the acts of ordinary administration required for the company’s financial management. The judge issues an order, with reasoning, stating the value limit up to which an act is considered “ordinary administration” and taking into account the company’s business sector, its workforce, production capacity and market.

With regard to the tax regulations applicable to seized assets, important changes were introduced to the Anti-Mafia Code following the above mentioned Stability Act of 2012. Under the Act, properties are free from all taxes during the seizure period, until the date of final reallocation (Art. 51(3-bis) of the Anti- Mafia Code) (121). If the confiscation order is revoked, the receiver will inform the Revenue Agency and other competent bodies, who will then decide on the amount of taxes payable by the individual to whom the asset was transferred, for the period of judicial receivership.

Therefore, where there is a general interest, the Agency can request the regularisation of works carried out on definitively-seized properties.

After the definitive confiscation order: how the confiscated assets are reallocated and managed

After the definitive confiscation order, the Agency is responsible for reallocating the assets, also by taking into account the plans put forward during the previous phase of the proceedings. The Agency is also responsible for monitoring the use of the assets after reallocation, by working closely with the support units mentioned above.

In the case of businesses, after the first-instance confiscation the administrator will present the court with a management report containing full details of the sums paid and collected, a detailed description of the assets, and the final balance. Annexed to this report are the supporting documents, periodic reports on administration, and records of all transactions.

121 ANBSC (2013), “2012 Annual Report”, cit., page 9. See also Menditto F. “Le prime modifiche al c.d. codice antimafia: d.lgs. n. 218/12 e l. n. 228/12”, in Diritto Penale Contemporaneo, page 7, http://www.penalecontemporaneo.it/upload/1356945409Articolo%20Menditto%20DPC.pdf

125 As mentioned above, following the definitive confiscation the assets are retained by the State, unencumbered by charges and restrictions.

The seized assets and properties are allocated on the basis of a decision made by the ANBSC’s Executive Council, according to the estimated value indicated in the court proceedings and the administrator’s report, unless the Agency requests a new estimate. The Agency will adopt the allocation order within 90 days after it receives confirmation of definitive confiscation. This period may be extended by a further 90 days in particularly complex operations.

The assets may be allocated to the State, municipal authorities (also in the form of consortia), provincial or regional governments. The authorities may manage the assets directly or authorise a third party to do so. In such a case the local authority is responsible for indicating its intentions and proposals for reuse to the Agency. According to ANBSC data, approximately 87% of properties were transferred to the assets of the local authority, which in almost all cases is the municipality in which the assets are located (122). The police forces, fire authorities and Port authorities received 11% of confiscated assets, with the remaining 1.94%Tabella going 1 to Ministries and other bodies. Local Law Ministries/ The localauthori,es authoritiesenforcement keep updatedother bodies lists of the confiscated assets transferred to them, with details ofagencies the type and use. In the case of allocation to a third party, the lists also87,03% include details11,03% of the1,94% transferee, the object and duration of the concession agreement.

Purpose of re-use 1,94% 11,03%

Local authorities Law enforcement agencies Ministries/other bodies

87,03%

Source: UNICRI elaboration of ANBSC data (2013), “2012 Annual Report”, page 36.

122 ANBSC (2013), 2012 Annual Report, 9 May, http://www.benisequestraticonfiscati.it/Joomla/ images/pdf/relazioni/2012_relazione_annuale_anbsc.pdf

126 In exceptional cases, where no final allocation has taken place by the deadline, the assets are sold. The notice of sale is published on the ANBSC website and is governed by the provisions of the civil code. The parties authorised to participate in the sale include public bodies also operating in the real estate sector, banking foundations and trade associations which are able to guarantee the pursuit of the public interest. The goods cannot be resold for five years from the date of registration of the sale agreement, and are subject to anti-terrorism regulations. As a further guarantee that the buyers are not linked to mafia-type organised crime groups, an opinion must be issued by the local police headquarters and provincial committee for public safety. The legislative changes introduced in the 2012 Stability Act allow the Agency to resort to state-owned or mostly state-owned companies for the sale and liquidation of confiscated businesses. This requires a specific agreement which may be stipulated by the ANBSC with or without financial consideration.

It has been suggested by the Agency, although not yet introduced into law, that the current regulations applicable to properties be extended to businesses. This would allow the State and local authorities to acquire confiscated companies without payment (123). This would make the re-use of businesses for economic growth considerably easier.

With regard to the management of seized assets, local authorities can either manage them directly in the form of a consortium (124) or other association, or concede them free of charge to communities, organisations and voluntary associations according to the public administration’s guidelines on transparency, publicity and equality of treatment. The concession agreement governs the duration and use of the asset, its control, and the grounds for termination and renewal.

The “Simplification Act” (decree law no. 5 of 9 February 2012) contains important provisions on the re-use of confiscated assets. One of the measures to promote local tourism under Article 56 of the Act is the transfer of seized assets to cooperatives formed of young people aged up to 35, so that they can set up tourism-related businesses. This approach has already been used in the past (without restrictions on age or intended use) in a limited number of cases where assets were reallocated for social benefit, not necessarily for

123 ANBSC (2013), cit., page 8. 124 There are two successful examples of consortia formed by municipal authorities for the management of seized assets: Consorzio Agrorinasce srl in the province of Caserta, which brings together six municipalities and controls 54 assets, of which 34 are in business, and Consorzio S.O.L.E. - Naples, which unites 18 municipalities and is responsible for 20 assets including those seized from the Rea clan in Giugliano, see. Giannone T. (2012), cit., pages 36- 37.

127 non-profit businesses. In the future, this approach could be extended in order to incentivise the transfer of properties and businesses seized from criminal counterfeiting gangs in order to launch new businesses to support Italian manufacturing.

Monitoring the reallocated assets

By law, the Agency is also responsible for monitoring the seizure and confiscation procedure. The information required by the Agency to fulfil its institutional mandate will be managed by a specific information system linked to the systems of the Ministry of Justice, and to the databases and systems of the police headquarters, local authorities, Equitalia, revenue agencies and the administrators of the seized or confiscated assets. This system, with the acronym R.E.G.I.O. (a system for the computerised management of the reallocation of assets seized from organised crime) will streamline the process of sourcing information and details about the seized assets (125). It will be completed by the end of 2013, and will allow a steady input of data from the authorities involved, as well as the monitoring of events linked to individual assets. Thanks to the cross-referencing of data, R.E.G.I.O. will also enable the automatic creation of re-use orders, which will make the management phase easier.

The confiscated assets

According to Agency data, updated to 7 January 2013, a total of 12,946 assets have been seized from organised crime. 11,238 of these are properties, while 1,708 are businesses. The majority of the properties have been reallocated and transferred (5,859), followed by the managed assets (3,995), while 907 have not yet been delivered, and 477 are no longer managed. There are 1,211 businesses currently under management, of which just 393 are still to be allocated, while 497 businesses are no longer under management (126).

125 ANBSC (2013), cit., pages 31-32. 126 The main reason why the confiscated businesses are no longer under management is their deletion from the Companies Register (57.34%), followed by liquidation (31%), sale (9%) and revocation of the confiscation order (3%).

128 Tabella 1 Proper&es Businesses

11238 1708

Confiscated assets (as of 7 January 2013)

1708

11238

Properties Businesses

Source: UNICRI elaboration of data from the ANBSC website “Data and statistics”

Almost 28% of the confiscated businesses operate in theconstruction sector (477), another 27.5% in commerce (471), 10% are hotel and catering establishments (173), while 5% operate in the agricultural sector (92 companies) (127).

75% of the definitively confiscated properties are located in three regions: Campania (1,571), Calabria (1,650) and Sicily (4,892). Sicily contains almost half the total confiscated properties (44.54%), but the remainder is spread across every region of Italy except for the Valle d’Aosta.

127 Ibidem, page 44.

129 1 126 181 1 14 1918 2 5515 54 24 19 645 4 88 16 2 69 11 186 1 58 104 181 0 ANIA PUGLIA SICI LY CAMP CALABRIA OTHER REGION S Geographical distribution of confiscated properties and businesses 13,99% 14,82% 19,90% Agency 1238 1708 12946 1 8,70% tal assets 42,60% Businesses Situation of assets on 07 January 2013 Properties To Geographical distribution of confiscated assets Source: State Property This section contains all the statistical data relating to seized and confiscated assets, together with their locations. The graph shows the distribution of assets seized in four Convergenza regions. Source: ANBSC website, “Data and statistics” Source:

130 The high number of managed assets awaiting allocation, together with the high concentration of skills required (128) for the Agency to fulfil its mandate, obviously highlights just how important and delicate its work actually is. There are many issues involved in the re-use of confiscated assets, both before they are transferred and afterwards, once the asset has been assigned to its new functions.

In some cases, there are considerable problems linked to environmental degradation and pollution, which makes it very hard to reallocate the seized property quickly. There have been frequent cases of resistance and opposition, sometimes including threats, violence and vandalism, by the members of the criminal organisations whose members have been affected by the confiscations. As emerges from the Agency’s Report for 2010: “[…] the mayors in certain towns often experience problems that go beyond what we would call “issues” because they are operating in a contaminated environment and one that is hostile, at least in part. They also have to deal with a public administration that is not always completely transparent and struggles to interpret courageous gestures. […] In such conditions, to give just a small example, how can you ask the Mayor of Locride to transfer an asset such as a flat or small plot of land for social benefit, when the person it was seized from is still there, or he has moved his friends and relatives into it?” (129). It can sometimes take an extremely long time before effective ownership of the seized property can be obtained. An emblematic case is the property confiscated in San Sebastiano da Po (Turin) in 1997, which was occupied by the original family who only let it go 10 years later, in 2007.

It should also be noted that around 80% of confiscated properties (2,819 out of 3,995) are tied up with “critical issues”, such as legal charges or indivisible joint ownership of the property, which may also be in a very poor state of repair or as seen, may be occupied by relatives or family members of the convicted individual, or by a third party.

A particularly thorny issue is the problem of legal charges, partly because of their number. According to ANBSC data, out of the 3,995 managed properties, 1,556 are encumbered by legal charges (1,065 have voluntary mortgages, 343 have court orders, 59 have legal charges, 76 are subject to seizure orders and 13 have other adverse entries) (130). The administrative and legal procedure

128 Zummo M. (2013), “Beni confiscati, vi racconto progressi e problemi. Intervista al prefetto Caruso”, 28 February, Live Sicilia, http://livesicilia.it/2013/02/28/beni-confiscati-vi-racconto- progressi-e-problemi_272029/ 129 ANBSC (2011), 2010-2011 Un anno di attività. Relazione dell’attività svolta, pages 30-31, http:// www.benisequestraticonfiscati.it/Joomla/images/pdf/relazioni/rapporto_anbsc_2010.pdf 130 ANBSC (2013), cit., page 39.

131 needed to release the asset from a legal charge lengthens the time to re-use, which leads to further deterioration and loss of value of the asset. Through the Prefectures and support units, the task of the Agency is to verify whether or not the legal charge is enforceable. If the creditor is found to be in bad faith during the court proceedings, the reallocation procedure can be completed, and the asset can be returned to the community (131). Only part of these issues can be resolved through settlements and financing by the regional and local governments in order to acquire the assets after payment of the legal charge – in most cases these problems hinder the reallocation of the asset.

A recent development in case law seems to be a step forward in this regard. The recent judgment no. 10532 made by the United Sections of the Court of Cassation on 7 May 2013 established that criminal confiscation prevails over the legal charge and therefore the public interest in an asset that has been seized and awarded to the State forfeits the interest of the third-party creditor. The court ruled that the safeguarding of the overriding public interest justified the sacrifice inflicted on a third party in good faith, who would be able to seek compensation in proceedings to have his claim recognised. Following the provisions of the 2012 Stability Act, the Court of Cassation underlined that for assets seized before 1 January 2013, a selection process would have to take place, according to whether the property was subject to enforcement proceedings but had not yet been awarded or transferred, or whether a provisional or final transfer or award had been made. “Enforcement actions may not be commenced or continued” on assets subject to precautionary proceedings, and any legal charges or encumbrances registered prior to the confiscation are legally discharged.

It is easy to imagine that the administration, management and reallocation of businesses is even more complex, due to the length of the proceedings leading to definitive confiscation but also in many cases because of a lack of liquidity and the necessary professional expertise that would enable the company to be inserted into a legal economic context while avoiding significant losses of value and an impact on employment. The Anti-Mafia Code makes no provision for self-financing of the Agency or for the protection of company assets and jobs by means of tax incentives or the creation of guarantee or rotation funds to facilitate the granting of credit to support the company’s growth, development and capacity to give employment, or for the management of a property. All these measures, if implemented in this extremely delicate area, would be extremely useful.

131 Gruppo Abele, “Quaderno di formazione in materia di beni confiscati alla criminalità organizzata”, page 10.

132 Tabella 1 Removal from Revoca3on of Liquida3on Sale Economic conﬁsca3on Administra3v order e Index

57,00% 3,00% 31,00% 9,00%

Confiscated assets no longer under management

Removal from Economic Administrative Index 31% Revocation of conﬁscation order Liquidation 57% Sale

Source: UNICRI elaboration of ANBSC data (2013), pages 42-43.

According to data provided by the Agency’s representatives, just 2% of confiscated companies would be competitive on the market. Many companies are seized with legal charges (77% of the assets are “acquired with critical issues”), or in an already-compromised financial situation.

The problematic relationship between the confiscated businesses and the banks is an important question. From the time the seizure order is enforced, the company immediately loses the credentials of reliability and solvency. The loans and mortgages granted to the previous owners are either revoked or not renewed, while customer orders fall off significantly, sometimes completely (132). Also, the cost of managing seized businesses is higher due to the regular invoicing of orders and the legalisation of employment contracts – the “cost of legality”. The ANBSC’s 2012 Annual Report highlights that the detaxation of seized businesses, and the reduced taxation of contracts of employment, could be a potential solution to these issues. The CGIL has also put forward a Parliamentary bill to protect the employees of confiscated businesses whose jobs are at risk (133).

The issues encountered during the re-use of confiscated assets also derive from a lack of the financial resources needed to benefit from them. In almost all cases, a reallocated asset requires work and adaptation before it can be re-used. Only part of the necessary resources can be sourced through the

132 Gruppo Abele, cit., page 4. 133 Di Fiore G. (2013), “La difficile lotta alla camorra: aziende confiscate, chiusa una su tre”, 30 March 2013, in Il Mattino, http://www.ilmattino.it/inchieste/lotta_camorra_aziende_confiscate/ notizie/261894.shtml

133 National Operational Programme - Safety and through the Regional Operational Programmes.

Under the Anti-Mafia Code, company assets with a particularly significant value can be sold to private individuals. The Agency has also requested that these regulations be extended to include non-company property, for which the Anti-Mafia Code only permits private sale as a last resort, and only to certain categories (public bodies, trade associations and banking foundations). If the Agency was allowed to sell any property to private individuals, this would resolve any situation in which the asset could not be otherwise re-used, for example in the case of indivisible joint ownership.

It must also be remembered that, as with the “traditional” mafia-controlled areas, specific support measures should also be put in place for northern regions such as Lombardy, Piedmont and Veneto, where the cases of re-use for social benefit are becoming increasingly frequent (134).

134 Agenzia per le Onlus, Beni confiscati alle mafie: il potere dei segni. Viaggio nel paese reale tra riutilizzo sociale, impegno e responsabilità, http://www.lavoro.gov.it/Documents/Resources/ AnnoEuropeoVolontariato/Documenti/Ricerca_beni_confiscati.pdf

134 IDENTIFYING PROPERTIES SEIZED TO MAFIA COUNTERFEITING RINGS FOR THEIR POSSIBLE RE-USE TO PROMOTE INTELLECTUAL PROPERTY

Having examined the reference legislation and the main problems involved in the reallocation of confiscated properties and businesses, UNICRI then analysed the information stored in the ANBSC database on properties confiscated in Italy between 1999 and 2012, in order to identify assets seized from members of organised counterfeiting rings with a view to promoting the use of intellectual property or Italian products in the broad sense. As mentioned in the foreword, the ultimate aim is to create a virtuous circle in which assets seized from counterfeiters can be re-used for social and economic growth, and to promote intellectual property.

To this end, UNICRI connected the information on the involvement of criminal counterfeiting gangs based in Italy with the data on seized properties, stored in the ANBSC database. As is known from the number of investigations by the courts and police, and as mentioned in UNICRI’s previous report for the Ministry for Economic Development (135), the Camorra and the ‘Ndrangheta are respectively the first and second organised crime groups to have a strong involvement in counterfeiting and related activities. In this study, UNICRI thus concentrated on analysing the properties and businesses linked to the members of the above organisations. A brief summary of the links between these two clans and the world of counterfeiting has been given as an introduction to this analysis.

The ANBSC database contains detailed information on the properties and businesses confiscated in Italy between 1999 and 2012 (136). The database also holds information previously owned by the State Property Agency, and details of the properties currently managed, properties already transferred, properties not transferred independently (i.e. those included in the assets of seized companies), and finally on the confiscated businesses.

With regard to real estate, the database contained full details of the location (region, municipality, address etc.), the confiscation procedure, (details of the defendant, date of confiscation and final confiscation), and also the land registry details, estimated value, and other information on the state of repair and other conditions (mortgages, occupation by third parties etc.). For the

135 UNICRI, MiSE (2012), Counterfeiting as an activity managed by transnational organised crime - the Italian case, cit. 136 The data was updated to 7 January 2013.

135 businesses, the database provides details of the location, company name, legal form, sector, number of employees, whether or not the business is still trading, and the name of the defendant and details of the confiscation order. The following page shows a screenshot of some of the information contained in the Agency’s database.

136 The ANBSC database Source: UNICRI screenshot of part of the ANBSC property database Source: UNICRI screenshot of part the

137 Some of the assets identified by UNICRI were confiscated from individuals involved directly in counterfeiting, while others, even if not linked directly, belonged to members of the Camorra or the ‘Ndrangheta (the two criminal organisations which as mentioned have a clear involvement in the management of counterfeiting). The illegal proceeds were reinvested not only in crime but also in business and property for personal or investment use, particularly in the areas in which these criminal groups had stronger local connections.

Various types of businesses and properties have been identified as being best suited to the Ministry’s objective of promoting intellectual property and Italian products, also by taking into account the “good practices” on re-use (137).

The following criteria were used to select the businesses and properties:

- goods managed by the ANBSC yet to be allocated;

- businesses operating in commerce (wholesale or retail), manufacturing or agriculture, or

- properties used for business purposes, or

- agricultural land.

In total, UNICRI identified 68 businesses and properties meeting these requirements. They comprised 7 businesses (6 belonging to the Camorra and 1 to the ‘Ndrangheta), 27 plots of land, 13 homes, 17 buildings and general- purpose properties, and 4 warehouses.

For ease of reference, the 68 assets have been categorised according to the person from whom they were confiscated. The analysis includes a brief profile of the criminal in question, followed by a history of his “criminal career” and information proving membership of the Camorra (7 cases) or the ‘Ndrangheta (3 cases). A brief description of each asset has then been given, based on the principal information from the database. Three best practices were selected for use in the analysis.

For 4 of the asset groups (2 businesses, one group of lands and 1 castle) - by way of an example that is by no means exhaustive – a data sheet was prepared as a detailed summary of the information available on the individual asset but also to focus on the socio-economic context (with no claim to be a scientific analysis) in order to better evaluate the potential reuse of the asset. The four

137 See also the section Beni in evidenza on the ANBSC website, http://www.benisequestraticonfiscati. it/Joomla/index.php?Olditemid=79&Crump=2&view=category&catid=19&option=com_ joomgallery&Itemid=100.

138 assets chosen for further study are also intended to highlight the extreme diversity of the confiscated properties and therefore the variety of possibilities for reuse.

For each of the 4 assets, a series of data sheets was used to simulate the Assessor’s checklist prepared by Transcrime in order to evaluate the proposed social re-uses of the properties (138). The checklist is “a tool to select proposals for re-use, and provides valuable support and recommendations intended to improve the efficiency and socio-economic impact of projects” 139( ) in the light of the strengths or weaknesses of the proposal. However, this simulation is merely demonstrative as the checklist is used to evaluate a specific re-use project. It has been designed for use with real estate, and is not entirely compatible for use with businesses. However, it was decided to verify whether this checklist could also be applied to the real estate assets and businesses identified during the study.

For an illustration of the cited cases and an analysis of the assets including the data sheets and checklists, see the full version of the analysis (available in Italian) on the Directorate General for the fight against counterfeiting - Italian Patent And Trademark Office (Ministry of Economic Development) website at http://www.uibm.gov.it/index.php/lotta-alla-contraffazione/osservatorio- contraffazione

The Camorra

UNICRI identified 7 cases of properties and businesses that were confiscated to individuals linked to the Camorra between 2001 and 2011. Most of them were located in Campania and Lazio, but also in certain regions of northern Italy. Before looking at these 7 cases, below is a summary of the activities of the Camorra, its various clans and their links to counterfeiting. For details and more information, see the text on the website of Directorate General for the fight against counterfeiting –-Italian Patent And Trademark Office (Ministry of Economic Development) at http://www.uibm.gov.it/index.php/lotta-alla- contraffazione/osservatorio-contraffazione.

The Camorra in Campania and the rest of Italy, and its management of counterfeiting

138 Transcrime (2013), “National Operational Programme - Safety 2007-2013. Re-use of confiscated assets”, cit., pages 145 et seq. 139 Ibidem, page 140.

139 Historically, organised crime became rooted in Campania through a network of clans and families who carved out spaces for themselves in specific sectors of legal and illegal markets, creating family-run criminal enterprises (140) that were well able to profit from the economic and social changes in the region. The last Annual Report of the National Anti-Mafia Directorate reads as follows: “Camorra crime – so fluid in its manifestations and evolution, has an iron grip on its territory. In its growth areas this sometimes includes a lengthy period of camouflage. It seems to be better suited to reticular formations that can mould to fit the shape of the flexible modern society” (141).

A Casapulla (2012), “I Territori ed i leader mafiosi”.

As also confirmed by the DIA, “the Camorra is still showing to be a potent, fluid and streamlined criminal phenomenon that revolves around the ceaseless activities of a multitude of alliances, some dialectical, some allied or linked to some extent by strategic relations that support and fuel the “System”” (142). The Camorra is a multicentric conflictual organisation capable of infiltrating the business world, penetrating the production network of Campania and contaminating even highly profitable segments of the market such as waste recycling. The organisation expresses itself through territorial control and in the strategic division of the region. Over the years this has led to territorial battles

140 UNICRI, MiSE (2012), op. cit., page 78. 141 National Anti-Mafia Directorate (2012), Annual report on the work of the National anti-Mafia prosecutor and the National anti-Mafia directorate, on the dynamic and strategies of mafia-type organised crime, cit. page 70. 142 DIA (2011), Report by the Ministry of the Interior to Parliament on the Activities and Results Achieved by the Anti-Mafia Investigation Directorate, July-December 2010, page 218.

140 between clans, both in the metropolitan area of Naples and in the area around Caserta (143).

In Naples, the Camorra has 40 clans, 35 of which are dominant and 5 with a minor role (144). Towards the end of the 1980s many of these families merged into the Secondigliano Alliance, thus gaining control of a large part of the illegal trafficking in the province. The Alliance was founded by Edoardo Contini (of Naples), Francesco Mallardo (of Giuliano) and Gennaro Licciardi (of Secondigliano). The Mallardo, Contini, Lo Russo, Prestieri, Stabile, Ferone, Bosti and Bocchetti clans are also affiliated to it. The Secondigliano clans are today seen as one of the Italian criminal organisations with the greatest involvement in counterfeiting and the trading of fake goods: they have taken over from the ‘magliari’, who would traditionally sell clothing door-to-door all over Naples. Over time, they have taken control of many fashion production operations, which are now concentrated in the northern part of the city (145).

The Mazzarella clan controls, among other areas, the central zone of Naples and particularly the Forcella, Duchesca and Maddalena districts and San Giovanni a Teduccio. It is also showing signs of regaining control of the Mercato zone. The Mazzarella clan originated as a criminal gang that sold contraband cigarettes. The Mazzarella family joined the Mazzarella-Sarno-Misso cartel, and during the 1990s started a war with the Secondigliano Alliance, and with the Contini family in particular. The historic rivalry between the two cartels now seems to have cooled, and this has been a decisive factor in the clan’s acquisition of a dominant position in the market for counterfeit goods. An analysis of the anti-mafia initiatives led by the Finance Police has revealed that the Mazzarella clan is effectively involved in counterfeiting: it appears to be the most active group, both directly and through its alliances with other national and international criminal organisations (146).

Caserta and its province has a single clan that controls most illegal activities: the Casalesi. This historic Camorra clan was formed in the early 20th century, in the regions of Castel di Principe, Casapesenna and San Cipriano d’Aversa. The clan, organised as a federation of families, is governed by a “commission”, and has a flexible, modern, and aggressive structure that is very different from the Neapolitan Camorra. From the early 1980s onwards, the Casalesi, led by Francesco Schiavone and Francesco Bidognetti, forged relations with leading

143 UNICRI, MiSE (2012), op. cit., page 79. 144 DIA (2009), Report by the Ministry of the Interior to Parliament on the Activities and Results of the Anti-Mafia Investigation Directorate (2nd half of 2008), Dossier of the Observatory on the Camorra and crime. 145 UNICRI, MiSE (2012), op. cit., page 78. 146 UNICRI, MiSE (2012), op. cit., page 80.

141 international criminal organisations, chased out Cutolo’s lieutenants from their territory and exported drugs to Palermo with the approval of Cosa Nostra, establishing themselves as a leading economic entity (147).

Source: Brancaccio (2011), “Magliari, imprenditori e camorristi: il clan Ricciardi ed il mercato del falso”.

Generally speaking, the most profitable sectors infiltrated by the Camorra include drugs trafficking, extortion, usury, counterfeiting and money-laundering. The clans operate very efficiently on the international scene and are allied with foreign criminal groups without losing any control on their local interests. The old commercial networks used for cigarette smuggling are also used for the trafficking of all kinds of drugs and counterfeit goods. The previously fragmented illegal markets controlled by various Camorra clans have now been fully unified (148). Counterfeiting is one of the sectors preferred by the Camorra clans to launder cash earned from other crimes.

As mentioned in the previous UNICRI report (149), repeated investigations by law enforcement agencies have shown that the Camorra is the criminal group most

147 Scanni M., Oliva R.H. (2006), ‘O Sistema: un’indagine senza censure sulla Camorra, Rizzoli. 148 Gennaro G., Pizzuti D. (2009), Dire Camorra oggi, Alfredo Guida Editore. 149 UNICRI, MiSE (2012), op. cit.

142 heavily involved in counterfeiting offences. From the investigations examined in the report, the leading clans in this activity appear to be the Mazzarella, the families linked to the Secondigliano Alliance (Licciardi-Contini, Bosti, Di Lauro and Lo Russo), the Casalesi and the Giuliano and Terenzio clans.

According to figures from the Anti-Mafia Investigations Directorate, Campania has now become the “land of counterfeits”, with 164 counterfeiting offences in 2010 alone: 100 in Naples, 24 in Salerno, 1 in Benevento, 5 in Avellino and 34 in Caserta (150). The fake goods include eye wear, fragrances, face creams, jeans, shirts, jackets, leather goods, cameras, CDs, shoes and so on. In this field, the counterfeiters have forged contacts abroad, especially with Chinese gangs: they buy cheap goods from the Oriental market, have the labels and logos made in Italy, assemble the products and then ship the goods to France, Germany, Spain, Switzerland, Great Britain, the USA, Canada and elsewhere (151).

The Camorra is known to have extended its area of influence far beyond its native territory, throughout Italy and beyond national borders. As the figures from the ANBSC database on seized properties reveal, the Casalesi clans have established themselves in the lower part of Lazio, in vast areas of the province of Latina, and in the wealthiest areas of the province of Frosinone (152). As demonstrated by the cases of Pasquale Galasso and Arturo Di Caprio, the activities of the Camorra also extend to regions of northern Italy.

The ‘Ndrangheta

UNICRI has identified 3 cases of properties and businesses seized in Calabria, from members of the ‘Ndrangheta. The properties are based in the province of Reggio Calabria at Gioia Tauro, and in the Locride area of Siderno, and were seized between 2007 and 2009. Before examining in detail the three cases linked to the ‘Ndrangheta, below is a brief examination of the work of the criminal organisation, also in connection with counterfeiting, taken from open source information.

For details and more information, see the full text on the website of Directorate General for the fight against counterfeiting - Italian Patent And Trademark Office (Ministry of Economic Development) at http://www.uibm.gov.it/index.php/lotta-alla-contraffazione/osservatorio- contraffazione.

150 DIA (2011), op. cit., p. 218. 151 UNICRI, MiSE (2012), op. cit., page 71. 152 Bonini C. (2012), “Ora la guerra di camorra arriva alle porte di Roma”, in Le Inchieste di Repubblica, 11 September, and DNA (2012), op. cit., page 715.

143 Presence of the ’Ndrangheta in Calabria and the rest of Italy; the links with counterfeiting

Numerous investigations into the ‘Ndrangheta show that it is a mafia-type organisation bound by secrecy and with a strong local hierarchy on several levels, and clearly defined management roles. From its roots in Calabria, the ‘Ndrangheta has gradually established itself in the north of Italy (mainly in Lombardy, Piedmont and Liguria), but also in Europe, North America, Canada and Australia. Common techniques that demonstrate the mafia-style management of an area include the collection of protection money or “pizzo”, which is extorted from local businesses that are then exploited to create illegal channels for employment, as another way of gaining control over the territory. There are also frequent cases of infiltration in the political and administrative circles of local authorities. In terms of the crimes committed by the ‘Ndrangheta, apart from usury, extortion and money-laundering there is a very high involvement in the drugs market, particularly in the port of Gioia Tauro which is used for smuggling and as an area of transit (153).

The port of Gioia Tauro located to the north of Reggio Calabria, is the main commercial hub on the Mediterranean Sea. In the early 20th century it became one of the principal zones controlled by the ‘Ndrangheta, and by certain families in particular, including the Piromalli-Molè clans (154). In the 1970s, the family led by Girolamo ‘Mommo’ Piromalli acquired a leading role in Calabria for having set up a large international drug trafficking ring. Over time, the port of Gioia Tauro became a vital link in the drug trafficking chain, and was an important gateway for the trading of various types of counterfeit goods. Members of the Piromalli-Molè clan have also infiltrated the business community in the surrounding area - from agriculture to counterfeiting, the recycling of waste and transport - and they are also involved in illegal activity in the metals industry. The clan has a number of offshoots in the region, including the Delfino family( 155). On the eastern coast of Calabria, in the Locride area and particularly in Siderno, local control has been acquired by various ‘Ndrine, predominantly the Commisso. Since the 1950s, there has been a criminal alliance in this area. It became known as the ‘Siderno group’ and specialised in the trafficking of drugs and in other crimes committed in Italy, Canada, South America and Australia (156).

The mapping exercise previously carried out by UNICRI/Ministry of Economic Development reveals that the presence of the ‘Ndrangheta in Canada is also

153 UNICRI, MiSE (2012), op. cit., pages 45-46. 154 UNICRI, MiSE (2012), op. cit., page 85. 155 Gratteri N., Nicaso A. (2007), Fratelli di Sangue, Luigi Pellegrini Editore. 156 Ibidem, page 133.

144 linked to counterfeiting crimes. The National Anti-Mafia Directorate has revealed that families with links to the Calabrian mafia in Canada are particularly engaged in drug trafficking, gambling, usury and the trading ofcounterfeit goods. Many of them have reinvested part of their illicit proceeds in other businesses, mostly in the restaurant industry in Toronto and the Italian quarter of Woodbridge.

The ‘Ndrine who control Calabria

Source: http://www.uonna.it/mafie-calabresi.htm

145

DATA SHEETS

Although there are some praiseworthy exceptions, experience has shown that despite the good intentions about how to re-use confiscated assets, efforts in this sense have been hampered by the lack of a well-defined plan. In this regard, one of the most important element to be performed is providing a picture of the socio-economic context in the areas impacted by the re-use projects, in order to verify the compatibility between projects and the needs and issues of each area.

The recent Transcrime report “National Operational Programme - Safety 2007- 2013. Re-using confiscated assets” identified a series of criteria to assist assessors in examining plans to re-use seized properties, including a Checklist. The Checklist was designed to evaluate a specific real estate re-use project, and is not entirely compatible with the case of seized properties.

UNICRI – by way of an example that is by no means exhaustive – has tried to apply some of these criteria to 4 assets among those selected from the ANBSC database, as they refer to members of clans also active in counterfeiting. The data sheets contained in the study refer to 2 businesses in Campania and one in Calabria, to a number of agricultural plots in Campania and to a castle in Piedmont. The selection was also intended to highlight the wide variety of properties that have been confiscated. The aim of the data sheet is to provide more information about each of the four assets, by correlating them with a brief, non-exhaustive picture of the local context in order to imagine possibilities for re-use with a view to promoting intellectual property, economic growth and Made in Italy at large.

By analysing information about the structure of the population and the local economy, the aim was also to evaluate how important it would be for the asset to be kept in production and given back to the community. The data sheets are not intended to provide a scientific economic analysis, but should be used as a basis for considering the possible reallocation of the assets.

For more information see the text published on the Directorate General for the fight against counterfeiting - Italian Patent And Trademark Office (Ministry of Economic Development) website, at http://www.uibm.gov.it/index.php/lotta-alla-contraffazione/osservatorio- contraffazione.

147

CONCLUSIONS

Italian legislation on the management and reallocation of assets confiscated to organised crime is undeniably among the most advanced in the world. Thanks to a recent comparative study on the laws of different countries concerning the confiscation of the proceeds of counterfeiting 157( ), UNICRI has demonstrated that the possibilities offered by Italian laws on the re-use of confiscated assets for social benefit, and the formation of a specialised agency to manage such assets, can be considered as an international best practice. The strong symbolic value linked to the social re-use of confiscated assets must be emphasised, as it considerably reinforces anti-mafia actions.

The ANBSC is a recently-founded body, whose duties and functions are as important as they are delicate and complex. After the initial start-up phase, the Agency is now moving towards a phase of consolidation, and as shown in its latest Annual Report, its activities have now been fully structured (158). However, and despite the recent improvements in the legislative framework, not all of its functions have yet been implemented. Below is a list of some of the considerations emerging from the study financed by the Directorate-General for the Fight Against Counterfeiting of the Ministry for Economic Development, carried out by UNICRI.

The national agency is an extremely important tool in the fight against organised crime, and as such requires full support for its work from the other Governmental institutions and authorities with which it collaborates. It must also be further reinforced on an operational level. First of all, it must be said that the volume of assets administered and managed by the ANBSC requires an adequate expansion of its workforce, and of its financial resources to match the incredible amount of work needed for this purpose. The Agency must also be able to acquire personnel with skills from various sectors, some of which are highly technical. The Agency’s recommendation - that it be transformed into a public economic entity with the right to use private law instruments in its employment relations - could be a step forward in this direction (159). In terms of reallocating confiscated assets more effectively, particularly with regards to

157 UNICRI, BASCAP (2013), Confiscation of the Proceeds of IP Crime. A modern tool for deterring counterfeiting and piracy, BASCAP, April. 158 ANBSC (2013), cit. 159 ANBSC (2013), cit., page 18.

149 businesses, it is extremely important that specific measures are implemented, such as tax incentives or guarantee funds to facilitate access to credit. These measures would offset, at least in part, the financial difficulties encountered by these businesses after confiscation.

Thanks to the collaboration with the Agency, which kindly gave access to its database for the purposes of this study, it was possible to carry out an in-depth analysis of the seized assets, and evaluate the possibilities for their reallocation. The analysis showed that although it was not possible to identify at first glance which assets had been confiscated as a result of counterfeiting activity, certain connections were nevertheless established between counterfeiting and the individual to whom the assets were seized, together with a reconstruction of the criminal’s “career” and verification of his membership of clans affiliated to criminal organisations such as the Camorra or ‘Ndrangheta, which are both extremely active in this sector.

The Directorate-General commissioned and coordinated this study with the aim of analysing whether or not the fight against counterfeiting could be supported by re-using the assets seized to criminal organizations involved in counterfeiting in order to protect intellectual property and promote economic growth in areas that are heavily affected by the presence of these criminal gangs. The aim is to allocate confiscated assets to business projects based on the exploitation and promotion of industrial property rights such as patents, trademarks, designs and models.

The study has revealed that using seized assets to promote Made in Italy and economic growth is a real possibility. The consistent re-use of confiscated assets for social purposes would clearly have an important symbolic value, as well as social and economic merits which are particularly significant in times of serious economic crisis. The law should also provide for the possibility of conceding confiscated assets to cooperatives of young people in order to promote Italian manufacturing. This would encourage economic growth in areas that have been seriously damaged by criminal activity and counterfeiting. A collaboration between the Directorate-General for the Fight Against Counterfeiting and the national agency would be greatly welcomed in this regard.

Initially, the collaboration could take the form of a memorandum of understanding similar to the ones already used with other public agencies. This would pave the way for the sharing of ideas and strategies on how to re-use confiscated assets for the promotion of industrial property. The Ministry for Economic Development could thus use its expertise to support the study and its practical application on re-uses of assets, which would result in an initiative with important regional impacts and an ability to generate new businesses. As many different entities

150 are involved in the fight against counterfeiting, the same blueprint could be used for a broader strategy that would involve all the various players in a round table, to discuss key issues and provide further insight, with a view to sharing strategies designed to strengthen the Agency’s operational capability (160). This type of approach was recently used in Milan, and resulted in a property being transferred to the Ministry for Education for the purpose of promoting research.

UNICRI is willing to provide further support for these developments, both with regard to the possible drafting of an operative protocol and also in relation to the creation of a process for the discussion and practical application of new ways to reallocate assets seized to organised crime, with a particular focus on the promotion of industrial property. Such initiatives would have an important impact at local level, and would result in opportunities for economic growth in the areas and sectors that have been hit hardest by the presence of criminal organisations. It would also favour the creation of a virtuous circle intended to break up the territorial control that the clans seek to establish. .

The results of the project have been discussed at a conference focusing on issues linked to the reinvestment of illicit capital in the legal economy, and on the re-use of assets seized to organised crime. The conference, held in June 2014, was organised by the Ministry for Economic Development (Directorate General for the fight against counterfeiting-IPTO), UNICRI and the State Department of the United States of America.

160 Another example is the agreement with the State Forestry Corps, the State Property Agency and the Territorial Agency - see ANBSC (2013), cit., pages 22-23.

151

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156 INDEX OF ACRONYMS

(BASCAP) Business Action to Stop Counterfeiting and Piracy

(CD) Compact Disc

(CENSIS) Centro Studi Investimenti Sociali/Study Centre for Social Investments

(CSM) Consiglio Superiore della Magistratura/High Council for the Judiciary

(DG) Direzione Generale – Directorate-General

(DgLC) Direzione generale Lotta alla Contraffazione/Directorate-General for the Fight Against Counterfeiting

(DDA) Direzione Distrettuale Anti-Mafia/District Antimafia Directorate

(DIA) Anti-Mafia Investigations Directorate

(DNA) National Anti-Mafia Directorate

(DVD) Digital Video Disc

(EC) European Commission

(Europol) Ufficio europeo di polizia - European Police Office

(Eurojust) Unità europea di cooperazione giudiziaria - European Union’s Judicial Cooperation Unit

(FALSTAFF) Fully Automated Logical SysTem Against Forgery Fraud

(FBI) Federal Bureau of Investigation

(FTZs) Free Trade Zones

(GACG) Global Anti-counterfeiting Group

(G.d.F.) Guardia di Finanza - Finance Police

(GSM) Global System for Mobile Communication

(ICC) International Chamber of Commerce

(INDICAM) Centromarca Institute for the Fight Against Counterfeiting

(Interpol) International Criminal Police Organisation

157 (IPERICO) Intellectual Property – Elaborated Report of the Investigation on Counterfeiting

(ITAA) Information Technology American Association

(MiSE) Ministry for Economic Development

(NFP) National Focal Points

(NRF) National Retail Federation

(OECD) Organization for Economic Co-operation and Development

(OLAF) European Anti-Fraud Office

(IP) Intellectual Property

(ROS) Raggruppamento Operativo Speciale/Special Operations Group

(S.C.I.C.O) Servizio Centrale di Investigazione sulla Criminalità Organizzata/ Central Service for Investigations into Organised Crime

(SELEC) Convention of the Southeast European Law Enforcement Center

(SI.RE.NE) Supplementary Information Request at the National Entries

(SIS) Schengen Information System

(TAXUD) EU Taxation and Customs Union

(TEMI) Centro Studi e Ricerche sulla Legalità e Criminalità Economica/ Centre for Studies and Research into Legality and Economic Crime

(TRIPs) Trade-Related Aspects of Intellectual Property Rights Agreement

(UAE) United Arab Emirates

(EU) European Union

(UIBM) Ufficio Italiano Brevetti e Marchi - Italian Patent and Trademark Office

(UNICRI) United Nations Interregional Crime and Justice Research Institute

(UNODC) United Nations Office on Drugs and Crime

(US DOJ) United States Department of Justice

(USD) United States Dollars

(VeRO) Verified Rights Owner

(VoIP) Voice over Internet Protocol

(WAITO) World Anti-Illicit Traffic Organization

(WCO) World Customs Organization

158

The volume includes the English version of two studies realized by the Directorate-General for the Fight Against Counterfeiting - Italian Patent and Trademark Office (DGLC-UIBM), within the Ministry of Economic Development, in collaboration with the United Nations Interregional Crime and Justice Research Institute ( UNICRI ).

The first part (Part 1), Counterfeiting as an activity managed by transnational organized crime - The Italian case, Rome 2013, is aimed at obtaining a better understanding of the involvement of transnational criminal networks in counterfeiting activities. The existing situation on the Italian territory has been analysed as a case study, through the mapping of the involvement of criminal organizations in Italy, their connections to other criminal groups and to other illicit traffics managed by transnational criminal networks. A preliminary assessment of the existing situation at national level was carried out in the first phase of the research. The collection of data and court cases has been carried out thanks to the cooperation with the main authorities involved. In addition, you can find a number of interviews with national and international experts on this topic – as opinion leaders – in order to validate and expand the main hypothesis of the research.

The second part of the volume (Part 2), The Possible re-use of assets seized to criminal organisations involved in Counterfeiting activities for the promotion of Intellectual Property and economic growth, summarizes a more action Ministry of Economic Development and result oriented research, focusing on testing innovative approaches in the fight against counterfeiting. The Direc- DIRECTORATE-GENERAL FOR THE FIGHT AGAINST COUNTERFEITING – torate-General has aimed at testing the possibility to re-use assets confiscated to organized crime for the purpose of ITALIAN PATENT AND TRADEMARK OFFICE promoting Industrial Property.

The research allowed to clearly identify a series of confiscated assets with important economic value that were seized to criminal organizations active in counterfeiting activity, leading to experiment on paper their possible re-use and the procedures to be adopted for this purpose. The study also highlighted the importance of cooperation among several actors of the public and private sector to enhance the effectiveness of the re-use of confiscated assets, paving the way for a possible increased strategic cooperation between the Ministry of Economic Development (DGLC-UIBM), the Italian National Agency for the Management of Assets confiscated to organized crime, and UNICRI.

COUNTERFEITING AS AN ACTIVITY MANAGED BY TRANSNATIONAL ORGANISED CRIME AND THE POSSIBLE RE-USE OF SEIZED ASSETS FOR THE PROMOTION OF INTELLECTUAL PROPERTY AND ECONOMIC GROWTH

MINISTRY OF ECONOMIC DEVELOPMENT Directorate-general for the fight against counterfeiting – Italian patent and trademark office

Via Molise, 19 - 00187 Rome - call centre: +39 06 47055800 United Nations [email protected] Interregional Crime and Justice [email protected] Research Institute