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Wash, Rinse and Spin: The Cycles of Money Laundering and the Sicilian Mafia
Florence Newspaper publishes this excellent essay written by Andrea Leong on the cycles of money laundering from the period of the so called “Pizza Connection” up until the present day. Andrea studies History of the Italian Mafia with Prof. Lorenzo Picchi at Richmond American University in Florence. In her research she also explores the many ways mafia and other criminal organizations use to laundry their profits in the Global era.
Globalization, by definition, is a process by which the world becomes more and more interconnected and interdependent. The process of globalization is achieved through the spreading and merging of different cultures and ideas. Through courses and studies on globalization it becomes apparent that there are various ways in which different cultures and ideas can spread and merge throughout the world. Cultures and ideas can be spread through large scale institutions such as governments, multinational corporations, and non-governmental organizations. On a less political level cultures and ideas can be spread through everyday people. For example, through families who live in different countries, or tourists who travel to a country foreign from their own. Now to apply the process of globalization on a different scale, the globalization of an industry—it would be interesting to extend it, and explore, the globalization of organized crime.
To understand the globalization of organized crime it will be much easier to focus on an organized crime group and analyze the current group’s criminal activities. This paper will focus on the two major activities of the Sicilian mafia beginning with its involvement in international drug trafficking and continuing with money laundering.
In today’s world the fact that crime and criminal organizations are getting bigger, more efficient and more technologically advanced is clear. The more that is studied about the Sicilian mafia the more that is learned that it is also a large scale institution that extends itself much further than Sicily. For example, even though the Sicilian mafia and the American mafia are two separate entities it is the Sicilian mafia that eventually gave birth to the American mafia. The Sicilian mafia was once agrarian based, but beginning in the early 1970s the Sicilian mafia became actively involved in the trafficking of heroin. The business of drug trafficking was brought to the table in the late 1950s by an American mafioso by the name of Giuseppe Bonanno.
Giuseppe Bonanno, also known as “Joe Bananas”, was the boss of the Bonanno family of the American mafia beginning in 1931. Bonanno was from the Sicilian town of Castellammare del Golfo and because of this fact his Family remained close with the mafiosi of his hometown (Dickie, 289). In 1957 Bonanno traveled back to Castellammare del Golfo in Sicily. While in Sicily Bonanno met with members of the Sicilian mafia to ask for their help in trafficking heroin. Bonanno’s plan was to have Sicilian mafiosi working for, and under, the American mafia. However, “once the [Sicilians] were allowed into the traffic in heroin in North America, they did not prove as obedient as had been hoped. By the 1970s, the [Sicilians] would be running the once-mighty Bonanno Family’s drug operation” (Dickie, 300).
In 1969, as a response to the drug problem in the U.S., President Richard Nixon declared a “war on drugs”. As a result heroin refineries in the French city of Marseilles were closed. This opened a door for the Sicilian mafia because the illegal heroin market was now in need of a new headquarter, or so to speak. Because of the closure of the Marseilles refineries, heroin refineries were coming up in Sicily and more specifically in Palermo—by 1984 “Palermo ha[d] replaced Marseilles as the center of Europe’s heroin business” (Stoler). The movement of heroin refineries from Marseilles to Palermo ultimately strengthened the ties between the American and Sicilian mafias.
Before the movement of the refineries the American mafia had no choice but to buy heroin from the refineries in Marseilles to import to the United States. After the closure of refineries in Marseilles and the establishment of Sicilian mafia controlled refineries in Palermo, the American mafia could now buy their heroin from the Sicilians. Buying heroin from the Sicilians was better and easier for the Americans because both mafias knew each other and therefore a higher level of trust existed. With the Marseilles refineries the Americans would always have to pay up front because no trust existed on either side, but with the Sicilians they could take their time (Stoler). When the American mafia paid the Sicilian mafia, “money would be wired from brokerage accounts at major firms to secret accounts in Switzerland, where it might remain for three or four months before a member of the Badalamenti family collected it. Meanwhile, as a sign of trust between the two groups, the heroin would be delivered” (Stoler).
The years between 1974 and 1982 were “the years when the Sicilian mafia established its dominance of the [heroin] market” (Dickie, 357). By 1982 the Sicilian mafia controlled almost “[eighty] percent of the heroin consumed in the north-eastern United States” (Dickie, 358).
Pizzerias in the United States were used to smuggle heroin into the country. For example, a case of mozzarella cheese imported from Sicily would also contain a significant amount of heroin. By 1986 it seemed as though the law was finally catching up to the mafia on both sides of the Atlantic—U.S. and Italian authorities worked together to bring those mafiosi involved in heroin trafficking to justice. With the help and testimony of pentito Tommaso Buscetta, the U.S. judicial system was able to secure convictions against seventeen mafiosi (Time Magazine) in the “Pizza Connection” case of 1986-7, termed as such because of the pizzerias that were used to smuggle heroin into the U.S. To paint a picture of the vastness of heroin trafficking the pizza connection case involved the smuggling of “1,650 [pounds] of heroin, with an estimated street value of $1.65 billion, into the U.S.” over the five year span between around 1980 and 1985 (Stoler). By this point, however, the Sicilian mafia had already made a lot of money off of the trafficking of heroin and the pizza connection convictions did not stop them from making more money.
Clearly the heroin trade proved to be very profitable for the Sicilian mafia. As a result the Sicilian mafia had billions of dollars in cash flowing in from its drug trafficking activity. The problem that arose was that the profits made from heroin trafficking were illegal. What the Sicilian mafia had in its hands was dirty money, what the Sicilian mafia needed was “clean” money. The question is, then, how would the Sicilian mafia be able to make their dirty money clean? The answer itself is simple: clean it. This leads us to the next question—how do you “clean” dirty money?
Money laundering is not a new criminal activity. In fact, the term “money laundering” originated in the 1920’s (Lilley, 5). The term “money laundering” was coined because criminals in the 1920’s used actual launderettes as the medium to clean their money. With the advancement of technology and the globalization of the world, today’s dirty money can be laundered in various ways. One will quickly learn that money laundering is an enormous, and expansive, criminal activity that can be committed fairly easily because of the advancement of technology and globalization.
To understand the concept of money laundering one must first understand the money laundering process. In his book, Dirty Dealing, Peter Lilley explains that there are three stages in the money laundering process, the first of which is “placement.” In the placement stage the dirty money is placed into the banking system. This is usually the only time that the criminal will need to make face to face contact with other, honest, or perhaps dishonest, individuals. The dirty money can be placed into the banking system in different ways. For example, the criminal can choose to put his or her dirty money into a bank, invest it in the stock market, or buy a piece of art (which will be sold later to both make a profit and receive “clean” money). The placement stage is the most dangerous stage for the criminal (Lilley, 49) because he or she has to pass the dirty money into the system without creating any suspicion.
The second stage is “layering.” In this stage the criminal will begin to move the dirty money around. Because criminals launder such large amounts of cash it is presumed that during the placement stage, the dirty money will be placed in large sums. In this second stage of layering the criminal will break up the large sums of cash into smaller amounts. As there are many different options in placing dirty money, so there are many different options in layering dirty money as well. Criminals can choose to move their dirty money around within a financial institution, between countries, or even invest it in real estate, among other things (Lilley, 50). The purpose of this stage is to move the dirty money around so much that it would be impossible, or at least very hard, to trace back to its original source.
The third and final stage of the money laundering process is the “integration” stage. By this stage the dirty money has been washed and “spun dry” so that it is now clean. It is at this stage that the once dirty money can be used as a “legitimate” source of funds. At this stage the criminals are almost out of the woods so to speak. Although the criminals will have a vast amount of clean money at their disposal at this point, they still need to be careful—the criminals must continue business as they would normally do and not deal with amounts of cash that are larger than usual so as not to arouse suspicion.
As mentioned above, money can be laundered in many different ways. Dirty money is usually laundered in banks and since money laundering occurs on such a large scale in banks, the authorities are catching on. There are now laws and regulations placed against money laundering in banks. Because of these laws and regulations, criminals have looked to other institutions in other sectors in which to launder their money. Lilley lists three of the major ways in which money can be laundered—through securities, credit cards and stock exchanges (Lilley, 67-69).
Within the securities market the criminal will follow the money laundering process. The money first needs to be placed into the securities market. After this initial placement the money will be moved around within the securities market or even outside of it as many times as possible to create an untraceable trail. When the money is finally clean the criminals will withdraw it and use it as they please. In 2002 U.S. senator Carl Levin wrote a report about the securities market. In his report Levin “warned that US securities firms have tens of thousands of clients based offshore who channel billions of dollars into their US accounts” (Lilley, 67). Although Levin’s report was lacking in evidence it did show that, “in the 22 securities firms that were examined, there were 45,000 offshore clients with an estimated $140 billion in assets—$137 billion of which came from offshore corporations or trusts” (Lilley, 67-68).
The second sector that Lilley mentions is the credit card sector. In this sector a criminal places the money by simply overpaying his credit card bill with dirty money that has already been placed into the banking system. By overpaying the amount due the criminal creates a credit on the account. Eventually the criminal will get the excess money back in the form of a check, and magically the dirty money is clean. By the time the criminal gets his money back it will have already gone into a bank, out of that same bank, into a credit card company and finally, out of that same credit card company. This way the dirty money will already be four times removed from its original source and therefore four times as hard to trace. In this method of money laundering only the second and third stages of the money laundering process are completed because the first has already been done (the money has already been placed into the banking system).
The last sector that Lilley explains in his book is the stock exchange. As in the credit card sector, it is usually only the two latter stages of the money laundering process that occur in the stock exchange sector. In this sector the dirty money is used to buy shares of stocks and bonds in legitimate companies. Assuming that the purchased stocks and bonds appreciate in value the criminal could make a profit and receive clean money in two ways: one, through the issue of dividends, or two, through the sale of the same stocks and bonds.
Although the last three paragraphs have covered three of the major sectors in which criminals operate their money laundering scheme there are still many other ways in which money can be laundered. For example, through buying new or used automobiles with dirty money and then selling the autos for a profit and receiving clean money which can then be used without drawing suspicion. Another popular way to launder money is through the purchase of real estate. When a criminal buys property he pays it off through a mortgage. That means, then, that the criminal must lend money from an institution. That institution is usually an offshore company that the criminal owns himself (Lilley, 80). So in effect the criminal transfers his dirty money into an offshore account, thereby completing the first stage of the process.
Even though the most efficient laws against money laundering revolve around banks criminals still utilize the banking system to launder their money. Criminals who need to launder money most likely have large amounts of it. Because they have such large quantities of money, criminals will not put all of their money in one place but rather, they will spread their wealth and put significant amounts of cash into different institutions, banks included. Larger banks will most often have private banks set up for private clients. Money launderers fall into the category of “private clients” because they deposit a lot of money into their bank accounts. As a private client the launderer also has a private banker. In the world of private banking what the customer wants, the customer gets, regardless of the fact that the customer in this case is a criminal, and regardless of whether the private banker is corrupt or not. After the criminal deposits a large sum of money into his account the private banker will transfer the money into another account—an offshore account. “Banks in these [offshore] jurisdictions are prohibited by law from disclosing information about accounts or clients to regulators in onshore jurisdictions” (Kochan, 158).
The existence of the world wide web is also making it easier than ever for criminals to launder money. With the creation of the world wide web it is possible for anyone anywhere to do virtually anything they want. For example, one can shop online, talk to friends and family through an instant messenger system, gamble, pay bills, view bank statements and book vacations among a long list of other things. It is essential to realize that all the above activities can be accomplished without ever making face to face contact with someone on the other end. This is very convenient for criminals because no one can see them, they achieve complete anonymity. To give an example say a criminal has made money from a large drug sale, the criminal can purchase a piece of artwork from an online seller with money that has already been placed into the banking system and then turn around and sell that same work of art to someone else through an online medium. The dirty drug money has now turned into clean money that has been made off the legitimate sale of artwork.
In 1999 police in Sicily discovered a money laundering scheme that was being carried out by the Sicilian mafia. This scheme involved both the stock exchange and the world wide web. “Prosecutors and police in Palermo…stumbled upon a £330 m[illion] fraud [that] they believe[d] [was] part of a global scam recycling tainted profits into legitimate assets” (Carroll & Atkinson). This case underscores the important role that the internet plays for criminals who launder money. “‘The internet is a powerful weapon. It eliminates the middleman. There’s no need to find corrupt bankers,’ said Professor Mario Centorrino of Sicily’s Messina University” (Carroll & Atkinson). If the Sicilian mafia was already pulling off a such a large scale scheme in 1999, when the internet was still relatively new, imagine what they could be pulling off today.
To clean their dirty money the Sicilian mafia had to rely on outside help. Often times the mafia would enlist the help of a financier. Problems arise here because the financiers are probably not members of the mafia and therefore pose a greater risk. Because financiers are not mafiosi they are not bound by omerta, the code of silence. There have been at least two instances in the past in which outsiders entrusted to launder the Sicilian mafia’s dirty money have been killed.
Michele Sindona and Roberto Calvi were both bankers in Italy with similar resumès. Both had highly successful careers as bankers, both had Vatican connections through the Vatican bank and both were involved with laundering money for the Sicilian mafia. In 1982 Calvi was found hanging from the Blackfriars bridge in London and in 1986 Sindona was killed in prison by drinking coffee poisoned with cyanide (Dickie, 363). Although Sindona’s death has the Sicilian mafia written all over it, Calvi’s death was ruled as a suicide, initially. Later investigations have indicated that foul play was involved and it is highly probable that Calvi was also murdered by the mafia. Both were probably murdered by the mafia because the mafia was afraid that Sindona and Calvi would talk. The last similarity between Sindona and Calvi, then, lay in their deaths.
A lot of money laundering activities occur in countries that are not considered first world countries, but that is not to say that it does not happen in first world countries. On the contrary money laundering happens in the U.S. and even in Italy. For Italy, though, “The good news is that Italy is not a major centre for the laundering of international criminal proceeds by groups of non-Italian origin. The bad news is the Mafia…The response by the Italian authorities towards money laundering has been described as exemplary” (Lilley, 174).
Based on my research I do not believe that it will be easy to mount a sufficient battle against money laundering. There will always be laws put in place against money laundering but on the flip side there will always be laws put in place to protect the customer. The problem arises in where the line is drawn between customer and criminal. For the majority of the time this line is blurred because the criminal is technically a customer. It seems that laws meant to stop criminals and laws to protect customers cancel each other out and eventually puts law making bodies and authorities back in square one. Besides this problem with laws there is also the problem of corruption. It is far easier for organized crime groups to exert its influence over corrupt governments or corrupt employees of financial systems, thereby making it much easier to launder money. Furthermore there is also the problem of private banking (which was previously mentioned). In the business of private banking it does not necessarily matter if the private banker is corrupt or not. If the private banker is corrupt that will make the process go more smoothly, but even if the banker is not corrupt chances are that the banker will make every accommodation to please the wealthy criminal that is the customer—in short the banker does not want to lose a wealthy client.
The Sicilian mafia and other organized crime groups are heavily involved in money laundering. This is the result of the globalization of organized crime. Based on what I have learned, I believe that organized crime groups learn from one another. Whether advertently or inadvertently, I also believe that organized crime groups spread their individual ideas within the international organized crime community. Money laundering is the perfect example, the practice of money laundering has become so widespread within the organized crime community that it is nearly impossible to stop, especially with the existence of the internet. The internet makes it even more difficult to figure out who is behind the screen. Laws can be put in place, employees of financial institutions can be more vigilant and governments can be less corrupt but, sadly, criminals will never change—they will always find the detour that will take them around their obstacle.
Works Cited
Dickie, John. Cosa Nostra: A History of the Sicilian Mafia. Chatham, Kent: Mackays of
Chatham Ltd, 2004.
Kochan, Nick. The Washing Machine: Money, Crime & Terror in the Offshore System. London,
UK: Gerald Duckworth & Co. Ltd., 2005.
Lilley, Peter. Dirty Dealing: The Untold Truth About Global Money Laundering, International
Crime and Terrorism, Third Edition. London, UK: Kogan Page Limited, 2006.
Peter Stoler, “The Sicilian Connection,” Time Magazine, October 15, 1984.
[http://www.time.com/time/magazine/printout/0,8816,923697,00.html]. 28 October 2006.
“Pizza Penance,” Time Magazine, March 16, 1987.
[http://www.time.com/time/magazine/printout/0,8816,963782,00.html]. 28 October 2006.
Rory Carroll and Dan Atkinson, “Mafia money vanishes into black hole of cyberspace,” The
Guardian, December 08, 1999.
[http://www.guardian.co.uk/international/story/0,3604,244730,00.html]. 11 October
2006.
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