WORKING PAPER NO. 232 Accomplice-Witnesses and Organized Crime: Theory and Evidence from Italy Antonio Acconcia, Giovanni Immordino, Salvatore Piccolo, Patrick Rey June 2009 This version October 2009 University of Naples Federico II University of Salerno Bocconi University, Milan CSEF - Centre for Studies in Economics and Finance DEPARTMENT OF ECONOMICS – UNIVERSITY OF NAPLES 80126 NAPLES - ITALY Tel. and fax +39 081 675372 – e-mail: [email protected] WORKING PAPER NO. 232 Accomplice-Witnesses and Organized Crime: Theory and Evidence from Italy Antonio Acconcia, Giovanni Immordino, Salvatore Piccolo, Patrick Rey Abstract Since 1991 the Italian Legislator grants amnesties, protection and even economic bene.ts to former mobsters cooperating with the justice. These incentives were intro- duced to break down omertà. What is the economic logic behind this policy? Did the program succeed? To address these issues we develop a model accounting for the main trade-o¤s involved in the introduction of accomplice-witnesses regulations. We argue that rewarding informants is sometimes necessary to .ght organized crime and show how the optimal amnesty varies with the e¤ectiveness of the protection program, the reliability of the informants.testimonies, the strength of external complicities, and the internal cohesion between criminal partners. The optimal policy sti.es crime, spurs prosecution and induce a negative relationship between the number of talkers and the conviction rate. The available evidence supports the model.s predictions. Keywords: Accomplice-witnesses, Criminal Organizations, Leniency, Whistle-Blower. Acknowledgement: We are indebted to Ran Abramitzki, Orazio Attanasio, Ciro Avitabile, Sandeep Baliga, Richard Blundell, Dimitrios Christelis, Roberta Dessi, Luigi Guiso, Tullio Jappelli, Jakub Kastl, Alessandro Lizzeri, Riccardo Martina, Marco Pagano, Erasmo Papagni, Nicola Pavoni, Adam Rosen and Giancarlo Spagnolo for many useful insights. We also thank participants to seminars in London (UCL), Naples, Milan, Stanford and to the 2009 CSEF-IGIER summer symposium in economics and .nance (Capri), the 2009 European Association of Law and Economics conference (Rome) and the 2009 Bonn and Paris Workshop on The Empirics of Crime and Deterrence (Paris) for their comments. Many discussions with Marco Antonucci serving as capitan in the Guardia di Finanza (Italian Customs Police) helped the project development at its early stages. Finally, we are grateful to Iolanda Barone whose help at the data collection stage was invaluable. An early version of this paper has circulated under the title “Accomplice-Witnesses, Organized Crime and Corruption: Theory and Evidence from Italy”. University of Naples “Federico II” and CSEF. University of Salerno and CSEF. University of Naples “Federico II”, CSEF and Toulouse School of Economics (CREMAQ). Toulouse School of Economics (CREMAQ and IDEI). Table of contents 1. Introduction 2. The Italian experience: historical and motivating evidence 2.1. Criminal organizations and leniency in Italy 2.2. Buscetta meets Falcone: the roots of accomplice-witnesses 2.3. Accomplice-witnesses and ma.a trials 2.4. Motivating evidence 3. The model 4. Evidence 4.1. Did leniency spur prosecution? 4.2. On the determinants to talk 5. Related Literature 6. Concluding remarks Appendix References 1 Introduction Since the pioneering work by Becker (1968), organized crime has attracted considerable at- tention by economists, and for good reasons. The di¤usion of organized crime has forced governments to reform their legal and judicial systems in an attempt to enhance the e¤ec- tiveness of investigation agencies and strengthen deterrence. These reforms have promoted the approval of special laws changing the rules according to which sanctions and imprison- ment policies are settled. Among them those introducing ‘accomplice-witnesses regulations’ (also known as leniency programs), which are designed to encourage former mobsters to cooperate with prosecutors in exchange of reduced sanctions and sometimes even economic incentives, are perhaps the most relevant. Our paper has two main goals. First, in order to shed new light on the determinants of accomplice-witnesses regulations, we develop a model with hierarchical criminal organi- zations and dishonest o¢ cials where, to break down omertà, the Legislator grants lenient punishments to those criminals who decide to cooperate with the justice. Second, by using data collected for Italy, we wish to provide evidence supporting our theoretical predictions. We argue that the Italian accomplice-witnesses program introduced in 1991 has been a rel- evant tool for …ghting ma…a associations in those Italian provinces where they have been historically more pervasive: we identify the positive e¤ect of the policy on prosecution and show that it also strengthened deterrence. Moreover, we also provide evidence that the e¢ ciency of the judicial system a¤ects in a non-negligible way the incentive to become an informant. The game involves a Legislator, a criminal organization and a continuum of public o¢ cials. The Legislator must decide whether to introduce a leniency program and, in case it does so, chooses the amnesty granted to talkers. The criminal organization is formed by two mobsters: a principal (boss) and an agent (picciotto), each with speci…c skills. The boss – the ‘mind’–plans the crime and delegates its execution to the agent – the ‘arm’of the organization. After the crime is committed and an investigation starts, the agent decides whether to face the trial or to cooperate with the justice by providing information which will be used by prosecutors to convict the boss.1 The prize for such a cooperation is the amnesty announced by the Legislator at the outset of the game. Finally, in order to model the extent of external complicities between criminal organizations and public o¢ cials, we also assume that there exists a fraction of dishonest o¢ cials in the economy who always 1 For instance, in 1992, former Camorra accomplice Pasquale Galasso revealed information crucial for the arrest of his boss Carmine Al…eri. –2 – acquit criminals ended up under investigation. We point out that granting amnesty to former criminals willing to cooperate with the justice has two countervailing e¤ects on the crime rate. On the one hand, it encourages entry into the illegal business by lowering the agent’sexpected sanction and thus the compensation that the boss has to pay to hire the agent –this brings out the dark side of leniency programs. On the other hand, rewarding ‡ipping criminals with lower sanctions exacerbates con‡icts within criminal organizations: a more generous amnesty program may induce criminals under investigation to cooperate more often, whereby increasing the prosecution risk faced by their boss –this is the bright side of leniency programs. The analysis shows that the optimal policy sti‡es the crime rate, spurs prosecution rela- tive to the ‘statusquo’where cooperation is not rewarded, and induce a negative relationship between the number of talkers and the conviction rate. We also identify the determinants of the optimal amnesty rate granted to informants and show that more generous amnesties or even rewards are necessary to …ght organized crime when the judicial system is not very e¤ective, criminal organizations feature low cohesion between their members, the informa- tion provided by accomplice-witnesses has a valuable investigative content and there exist strong external complicities between public o¢ cials and criminal organizations. The available historical evidence o¤ers ample support to this comparative statics. For instance, our model predicts that rewards are needed when the criminal organization ex- hibits excessively strong internal cohesion. This insight might explain why very few accom- plices belong to the Calabrian ’Ndrangheta, whose members are mainly linked by blood relationships. Di¤erently, the case of the …rst important pentito Tommaso Buscetta, who was allowed to live in the USA under a new identity after his testimony in the ‘New York Pizza Connection Trial’in the mid-1980s, underlines the relevant role played by the infor- mative content of testimonies in determining the amnesties granted to former accomplices. The importance of this link was recognized by the Italian Parliament who reformed the accomplice-witnesses program in February 2001. The new law strengthened the criteria for eligibility in the program and tailored the amnesty to the relevance of the testimony provided by the informant.2 Finally, the need for more generous amnesties in environments where criminal organizations have strong external complicities, is well exempli…ed by the long abscondence of the dangerous corleonesi heads Totò Riina and Bernardo Provenzano, whose early capture was prevented by the complicity of Bruno Contrada, a former head of the SISDE (the Italian Intelligence Agency), who was accused of informing the Sicilian ma…a on upcoming police operations. 2 This reform introduced a preliminary period of six months during which the accomplice must reveal all the information he is aware of. It is only after this period, and upon an evaluation of the reliability of the testimony, that he can be admitted into program. –3 – To support our theoretical predictions, we exploit a unique panel data set, relative to 95 Italian provinces and 26 judicial districts, providing information not only about many important aspects of organized crime in Italy, but also on some relevant features of