The London School of Economics and Political Science Backdoor traders: illicit entrepreneurs and legitimate markets Philip Martinov Gounev A thesis submitted to the Department of Sociology of the London School of Economics for the degree of Doctor of Philosophy, London, April 2011 1 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. 2 Abstract This dissertation examines the factors that determine the behaviour of criminal entrepreneurs in legitimate markets. The particular aspect studied is how such entrepreneurs enter a new market when they immigrate into a new country (Chapter 1). The empirical focus of the thesis is the Bulgarian illegal entrepreneurs involved in the sale of stolen cars. More specifically, the dissertation compares their market behaviour in Bulgaria and in Spain between the late 1990s and 2010. The empirical basis for the dissertation is a comprehensive analysis of summaries of 86 Spanish police investigations against organised crime networks, as well as fieldwork consisting of interviews with 79 offenders, law-enforcement officers, entrepreneurs, and car-dealers in Spain and Bulgaria (Chapter 2). To best understand the intertwining of criminal entrepreneurs and legitimate markets the thesis starts by examining the operations of the car markets in Spain and Bulgaria (Chapter 3). It goes on to explain the ‘car-theft industry’ – focusing on how criminal enterprises and networks are structured and operate (Chapter 4). The analysis then continues by comparing how stolen cars are sold by illegal entrepreneurs in Bulgaria and Spain, and the different ways in which ‘legal’ and ‘illegal’ markets intertwine (Chapter 5). The conclusion of this analysis is that Bulgarian criminal entrepreneurs failed to enter the market for used cars in Spain, and instead preferred to traffic and sell the stolen cars in Bulgaria. There are two sets of factors that explain the reasons behind this failure. The first one is the local socio-economic and historical legacies in Bulgaria, which explain how illegal entrepreneurs and buyers (typically part of local economic elites) are linked (Chapter 6), and the factors that fuel demand for stolen cars. The role of the Bulgarian immigrant community in Spain is also considered. The second set of factors, examined through the lenses of economic theories, includes the economic / business rationale that influences the illegal entrepreneurs’ behaviour when entering a market (Chapter 7). The thesis goes on to conclude (Chapter 8) that it is the first set, the complex socio-economic and historical factors that best explain the behaviour of criminal entrepreneurs and their failure to sell stolen cars in Spain. 3 Acknowledgements The first year of the work on this thesis was funded by then Chevening Scholarships of the Foreign and Commonwealth Office. My special thanks also go to the Center for the Study of Democracy and Tihomir Bezlov, as well as Dr. Ognian Shentov and Dr. Emil Tsenkov, who supported my work on this thesis in various ways. I thank my family and my wife, Olga, for being patient and inspiring. Many thanks also go to my PhD supervisor Dick Hobbs, as well as reviewers and examiners who provided useful remarks throughout the process of writing and revising the thesis: Paddy Rawlinson, Claire Alexander, Nigel Dodds, Nigel South, and Don Slater. 4 Contents LIST OF TABLES ................................................................................................................ 8 LIST OF FIGURES ............................................................................................................... 8 ACRONYMS.................................................................................................................... 10 1 INTRODUCTION ....................................................................................................... 11 1.1 MARKETS AND MARKET ILLEGALITY ..................................................................................... 12 1.2 MARKETS AND ILLEGALITY ................................................................................................. 17 1.3 ILLICIT ENTREPRENEURS AND MARKET ENTRY ........................................................................ 22 1.4 MARKET ENTRY : NON -CRIMINOLOGICAL APPROACHES ........................................................... 29 1.5 RESEARCH QUESTIONS AND THESIS STRUCTURE .................................................................... 34 2 METHODS AND RESEARCH INSTRUMENTS ................................................................ 37 2.1 RESEARCHING ORGANISED CRIME ....................................................................................... 37 2.2 RESEARCHING CAR THEFT .................................................................................................. 38 2.3 DATA COLLECTION ........................................................................................................... 39 2.4 DATA ANALYSIS .............................................................................................................. 55 3 THE USED-CAR MARKET ........................................................................................... 62 3.1 DEMAND , SUPPLY , AND DISTRIBUTION IN THE USED -CAR MARKET ............................................ 62 3.2 BULGARIA ’S CAR MARKET ................................................................................................. 75 3.3 BULGARIA ’S USED -CAR INDUSTRY ....................................................................................... 78 3.4 THE USED -CAR MARKET IN SPAIN ....................................................................................... 90 3.5 SPAIN ’S USED -CAR INDUSTRY ............................................................................................ 92 3.6 COMPARING MARKET ENTRY CONDITIONS ........................................................................... 95 4 THE CAR-THEFT INDUSTRY........................................................................................ 98 4.1 DEFINING THE CAR -THEFT INDUSTRY ................................................................................. 100 4.2 BULGARIAN VEHICLE THIEVES IN SPAIN .............................................................................. 101 4.3 THE SUPPLY OF STOLEN VEHICLES ..................................................................................... 103 5 4.1 STRUCTURE AND BUSINESS MODELS IN THE CAR -THEFT INDUSTRY .......................................... 118 4.2 INDUSTRY PLAYERS AND STRUCTURES ............................................................................... 130 4.3 COMPETITION IN THE CAR-THEFT INDUSTRY ....................................................................... 149 4.4 INDUSTRY RULES AND REGULATIONS ................................................................................. 151 5 SELLING STOLEN VEHICLES ..................................................................................... 153 5.1 SELLING STOLEN CARS IN SPAIN ....................................................................................... 155 5.2 SELLING STOLEN CARS IN BULGARIA .................................................................................. 160 5.3 COMPARING SALES OF LEGAL AND STOLEN CARS ................................................................. 180 6 THE SOCIAL ORGANISATION OF SELLING STOLEN CARS ........................................... 183 6.1 IMMIGRANTS AND CRIME ............................................................................................... 186 6.2 BULGARIAN IMMIGRANTS IN SPAIN .................................................................................. 187 6.3 CRIMINAL NETWORKS IN SPAIN ....................................................................................... 207 6.4 THE POLITICAL ECONOMY OF SELLING STOLEN CARS IN BULGARIA .......................................... 210 6.5 SOCIAL BARRIERS TO MARKET ENTRY ................................................................................. 226 7 MARKET ENTRY: BARRIERS AND SOCIAL STRUCTURES ............................................. 230 7.1 CRIMINAL ENTERPRISE FINANCE ....................................................................................... 230 7.2 INTERNATIONALISATION OF CRIMINAL ENTERPRISES ............................................................ 235 7.3 INCUMBENTS AND BARRIERS TO ENTRY ............................................................................. 237 7.4 BEYOND THE ECONOMIC RATIONALE ................................................................................. 254 8 CONCLUSIONS ....................................................................................................... 256 8.1 OVERVIEW ................................................................................................................... 256 8.2 MARKETS , ILLEGALITY AND GLOBAL CRIME ........................................................................