Mafia Cash Increases Grip on Sinking Italy Defying Berlusconi
2009-05-26 22:01:00.1 GMT


By Steve Scherer and Vernon Silver
May 27 (Bloomberg) -- In the southern Italian port city of Palermo, home to bustling outdoor markets and Arab-influenced architecture, prosecutor Roberto Scarpinato has hunted Mafia money for two decades.
Now, as the rest of the world tightens its belt in the global recession, he’s tracking how the mob is profiting by lending and investing what’s become a scarce commodity these
days: a growing hoard of cash.
Scarpinato points to the 2.7 billion euros ($3.8 billion) of assets he’s seized on the island of Sicily, where Palermo is located, since the start of 2008. In one haul, he confiscated 12 businesses, 220 buildings, 33 plots of land and a 25-meter (82-
foot) yacht from grocery-chain owner Giuseppe Grigoli.
Known as Sicily’s king of supermarkets, Grigoli, 59, is on trial in Marsala for running the food stores and other enterprises at the behest of the Sicilian Mafia. He denies the criminal charge of being a member of an organized crime group.
Unlike overleveraged companies burned in the credit crisis, the Mafia and its cash-based, debt-free business model are breezing through economic hard times. With young, savvy leaders at the helm, organized crime is poised to expand as legitimate companies founder.
“There’s a risk that Mafia organizations can profit from the current crisis by buying control of struggling businesses, infiltrating all regions of the country,” Italian President Giorgio Napolitano cautioned in May.

Grocery Connection

Not even billionaire Prime Minister Silvio Berlusconi, who’s won praise for his response to Italy’s deadly April earthquake and has vowed to keep the Mafia out of reconstruction contracts, has been able to control the mob and its riches. This year, Berlusconi’s government has proposed legislation to make it easier to seize assets from organized crime.
Grigoli’s grocery operation and its alleged links to the Mafia and money laundering represent just a slice of the estimated 130 billion euros in annual revenue the mob handles.
Some of the money is making the rounds via easy-to-transport 500-euro bills as far away as South America.
Italy’s three main organized-crime groups had combined net income of 70 billion euros last year, producing a 54 percent profit margin, according to Rome-based research institute Eurispes. Exxon Mobil Corp., the world’s biggest publicly traded oil company, had a profit of about half that at $45.2 billion.

Bodyguards, Pistols

“There’s a credit crisis that’s putting many businesses in a difficult position,” says Scarpinato, 57, whose dark suit sets him apart from his jeans-wearing bodyguards who tote pistols under their black-and-blue windbreakers. “The banks have tightened the purse strings, and many companies risk going bankrupt. Then there’s the Mafia world, which has vast amounts of cash.”
Prosecutors opened a window on how the Mafia was positioning itself for financial expansion in 2006, when police captured Bernardo Provenzano, the Sicilian Mafia’s boss of bosses. Credit markets worldwide began to freeze in late 2007.
By then, Provenzano had helped a new generation of mobsters secure a foothold in the legitimate economy through mainly cash- based operations such as food distribution.
Today, as weakened banks get government stress tests, corporations slash jobs and families struggle to recover amid the economic rout, Italian organized crime is enjoying the fruits of its liquidity.

‘Ramping Up’

“The Mafia is ramping up its investing,” says Antonino Di Matteo, a fellow Mafia prosecutor whose bodyguard stands watch outside his office door in the Sicilian capital’s fascist-era courthouse. “The Mafia’s financial managers are trying to invest now, while the time is right, so that they can launder their fortunes once and for all.”
Italy’s cash-depleted banks may be helping the Mafia become even stronger, says Antonio Maria Costa, executive director of the United Nations’ Vienna-based Office on Drugs and Crime.
The country’s four biggest lenders -- UniCredit SpA, Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA and Banco Popolare SC -- are planning to raise more than 9 billion euros to weather the financial crisis by selling convertible bonds to the government.
On May 6, the Bank of Italy, which regulates lenders, cautioned that banks have lowered their guard against money laundering. The central bank plans a new set of anti-laundering rules to classify, monitor and collect data on clients.
In one of Scarpinato’s investigations, UniCredit Suisse Bank, a UniCredit unit based across the border in Lugano, Switzerland, was the apparent destination for 450,000 euros he eventually seized from another Sicilian grocery store owner.
UniCredit spokesman Marcello Berni says the bank declines to comment on matters involving individual clients.

Fake Bonds

On May 22, Palermo prosecutors busted an alleged Sicilian Mafia ring that had tried and failed to use fake Venezuelan bonds as collateral to borrow $2.2 billion from HSBC Holdings Plc, Bank of America Corp. and unnamed British banks. The two banks declined to comment.
Italy’s three main organized crime groups divvy up a big chunk of southern Italy. The Sicilian Mafia, or Cosa Nostra, is the most tightly knit. It’s the inspiration for the American version of the mob, says Salvatore Lupo, a history professor at the University of Palermo.
The Campania region’s Camorra is centered in Naples. It’s made up of independent Mafia families who control neighborhoods or towns. Roberto Saviano’s 2007 book “Gomorrah” (Farrar, Straus & Giroux) and the movie a year later have brought the Camorra into the public eye.

‘I Sell Money’

Investigators consider the third group, the Calabria region’s ‘Ndrangheta, to be Europe’s biggest cocaine traffickers. Its name comes from a word for a network of ‘ndrine, or clans.
Italy’s black market lenders have already stepped in to provide financial services.
“I sell money,” alleged loan shark Vincenzo Senese told a businessman who was trying to raise funds for a startup venture, according to the transcript of a phone call included as evidence from Senese’s Rome arrest warrant on charges related to drug trafficking.
High-interest lending to consumers and businesses posted the biggest gains among illicit commercial activities in Italy last year. Such loan-sharking jumped 17 percent to 35 billion euros, according to SOS Impresa, a Rome-based business group that fights extortion.
People shut out from legitimate lenders paid as much as 730 percent annual interest, outstripping the high of 440 percent SOS Impresa documented in 2007, according to evidence from criminal cases compiled by the organization.

Loan Shark

One desperate borrower is Maurizio Vara. On a sunny morning in March, he’s avoiding eavesdroppers in the back corner of an outdoor cafe in Mondello, a beach town outside Palermo. As a tabby cat naps on a table beneath a nearby magnolia tree, the 40-year-old hotelier and construction contractor explains that banks aren’t lending to entrepreneurs in the economic downturn.
Like countless Italian business­people, he turned to a loan shark as his business faltered.
“I haven’t been able to get credit from banks,” says Vara, who has wraparound Fila sunglasses perched atop his balding head. His loan shark sent thugs to collect the 45,000 euros he owes.
“I want to pay,” says Vara, who says he doesn’t have the cash. “I’ve lost my future.”
Unlike traditional lenders, the mob has no qualms about resorting to violence, says Alberto Caperna, a Rome prosecutor who’s pursued usury cases for 20 years.

Broken Teeth

“A bank can’t break all of your teeth if you don’t pay,”
he says as he chain-smokes Merit cigarettes in his modern office near the Vatican.
As strong and feared as the Mafia is now, it’s angling for greater riches and influence once the economy rebounds, Scarpinato says. Italian organized crime groups invested 26 billion euros in industries including tourism, restaurants, car dealerships and fashion last year, according to SOS Impresa.
Senese’s son Michele used his cash to muscle in on an auto dealer in Genzano di Roma, south of the capital, according to the arrest warrant in a pending case in Rome. The owner needed capital. He also wanted Senese’s thugs to pressure another dealer to pay off a debt, according to the allegations.
While the Mafia and its hardball tactics are fixtures in popular culture, mobsters’ modern business model has emerged only in the past few years.

New Generation

In the late 1990s, younger family members with formal educations began taking the reins from older Mafiosi, says Pietro Grasso, Italy’s chief anti-Mafia prosecutor. Provenzano, 76, who was captured in a two-room shepherd’s shack, never finished second grade. By contrast, Giuseppe Guttadauro, a convicted mobster and head of a Palermo crime family, is a surgeon.
Guttadauro, 60, is part of a generation that includes his brother’s brother-in-law, Matteo Messina Denaro, a rising star who’d reported to Provenzano.
Under the old business strategy, the ‘Ndrangheta made its money in the 1970s by collecting ransoms for kidnappings. It grabbed the spotlight with its suspected involvement in the 1973 abduction of oil billionaire J. Paul Getty’s grandson John Paul Getty III.
It has since transformed into a multinational cocaine- trafficking syndicate with members posted in South America.
Those overseas representatives buy cocaine wholesale and then organize shipments to Europe to other Mafiosi in Spain, Holland and Italy, Grasso says.

Cocaine

Steered by its younger leaders, Italian organized crime has taken over most of the European portion of the global $320 billion cocaine trade for 2009, says Russell Benson, the U.S.
Drug Enforcement Administration chief for Europe and Africa. He says investigations show that the ‘Ndrangheta then invests its cash as far away as Canada and Australia.
“There’s a tsunami of cocaine coming to Europe,” Benson says, sitting at a mahogany table in a room with 6-meter-high ceilings at the U.S. Embassy in Rome, where he’s based.
“They’re out to make a profit and invest that profit in businesses throughout the world.”
The new Mafia bosses are poised to put some of their money into financial markets. They’ll probably behave much like any investor who looks for good deals in stocks and bonds, says Ivanhoe Lo Bello, chairman of Banco di Sicilia, a Palermo-based unit of UniCredit, Italy’s largest bank.
Mafia members invest anonymously by handing their cash to frontmen -- sometimes known as gatekeepers -- who place the money in accounts held in the names of corporations or other people untraceable to the Mafiosi, Italian investigations show.

Mob Investors

“Mobsters care about their money, and they try to invest wisely,” says Lo Bello, who was born and raised near Syracuse in Sicily. “They are invested in international financial markets, more or less anonymously, or in their own territory through people who are known in their sectors as legitimate businesspeople.”
During Provenzano’s arrest, police discovered more than 200 letters, known as pizzini, which helped shed light on the Mafia’s tactics. The correspondence written to him and a few of his own letters were carefully organized next to an electric typewriter in Provenzano’s hide-out.
Through the notes, Provenzano mediated disputes, distributed cash and communicated with the outside world during his four decades on the run. He didn’t trust telephones or computers, which can be tapped and traced.

‘The Godfather’

Until Provenzano was captured, the Sicilian Mafia had been controlled by his Corleone clan, based in the town south of Palermo that gives the fictional family of Mario Puzo’s “The Godfather” its name. His arrest marked the end of the Corleone crime family’s grip on Cosa Nostra. More important for the new generation of mobsters, it opened the gates for expansion.
Under Provenzano’s rule, younger Mafiosi with global ambitions were on the verge of starting a war over who would control legitimate local businesses, including food markets, the notes show. Among the junior bosses was Messina Denaro -- today one of Italy’s 30 most-wanted fugitives and the highest-ranking Sicilian Mafia boss at large.
Messina Denaro, 47, has been on the run since 1993, when he was sought for participating in bombings that killed 10 people in Florence, Milan and Rome. The blasts targeted Italian cultural sites, including Florence’s Uffizi Gallery, the home of Sandro Botticelli’s painting “The Birth of Venus.” The attacks were an attempt to force the state to ease its use of solitary confinement for mobsters imprisoned in Italy.

‘Diabolik’

A year earlier, Palermo prosecutors Giovanni Falcone and Paolo Borsellino were assassinated in separate bombings.
During his time in hiding, Messina Denaro has strengthened his hold on Mafia business and enhanced his legend as a fashion- plate villain, Scarpinato says.
Unlike Provenzano, who wore jeans and wool sweaters while living as a fugitive, Messina Denaro is known for his Giorgio Armani and Versace suits. His nickname, “Diabolik,” comes from a character in an Italian comic book series, a thief who’s embedded machine guns in the hood of his black Jaguar sports car
-- something that Mafia turncoats say Messina Denaro told them he admired.
Provenzano went by the less-glamorous nicknames of “Tractor” for his ability to roll over enemies and “The Accountant” for his skill in dividing up money.
Messina Denaro and other bosses pioneered the financial structure that’s benefiting the mob in today’s recession, trial documents of cases in Sicily based on Provenzano’s pizzini show.

‘A Clean Face’

Food stores were an entry point to that network. The Mafia controlled the distributor from which a market bought its merchandise. The distributor, in turn, handpicked the growers and suppliers. Mobsters, who made their cash from the drug trade, loan-sharking and extortion, pumped the money through the stores and onward through the network.
Shopping centers and supermarkets are attractive investments for all of Italy’s crime syndicates, investigations in Calabria, Campania and Sicily show, Grasso says. With a hand on the whole chain of commerce, the mob could set prices to regulate the market and position itself to prosper during hard times.
Messina Denaro, whose letters to Provenzano were among the pizzini found, laid out the food-store-based business plan.
“You have to find a clean face, someone who has never been in trouble with the law,” he wrote. He mentioned Grigoli, the market owner who’s on trial, referring to him as his paesano, or townsman. Grigoli had a license to run stores under the Despar brand of Amsterdam-based Spar International, which calls itself the world’s largest retail food store chain.

Muscling In

“As soon as you have found this person, I’ll tell my paesano” -- meaning Grigoli -- “to buy the outlet in your town and kick out the current owner,” Messina Denaro wrote in a message dated May 25, 2004.
Grigoli denies being part of Cosa Nostra. He says he was a victim of extortion, according to Paolo Tosoni, one of his lawyers. In Sicily, it’s inevitable for the Mafia to try muscling in on businesses. That’s what happened to Grigoli, Tosoni says.
“He doesn’t deny having been in contact with some lower- level criminal figures,” Tosoni says. “He didn’t benefit from this relationship. On the contrary, he did nothing but pay.”

Police Bug

The Mafia’s ability to mix illicit and legal funds from cash-based businesses has multiplied its power, Scarpinato says.
Another of his cases involved a chain called Sisa SpA. The Sicilian Mafia used Sisa stores to invest and launder criminal money, according to the asset seizure request Scarpinato filed in November against the estate of Paolo Sgroi, the late owner of some of the chain’s stores.
Scarpinato won court approval to seize 250 million euros from the estate as part of his recent 2.7 billion euro haul. The evidence he’s uncovered indicates that millions more have already made it into the global financial system.
Scarpinato got a break on April 29, 2006, when Sgroi and his wife, Monica, were driving to the Palermo airport in their Mercedes-Benz car. A police bug picked up their conversation as they concocted an alibi for the 450,000 euros they’d stashed in their luggage. If caught while boarding their flight to Milan, they’d tell the police they were smuggling the cash to evade taxes, Sgroi said.
His wife agreed, rehearsing the scene: “‘Where are you going?’” she said, playing an airport official. “To the Virgin Islands or Caymans,” she answered as herself.

Smuggler

Tax evasion would have been a minor offense compared with what Italian prosecutors say the couple was really up to.
Sgroi’s bag contained the profits of organized crime, including some that probably belonged to a Sicilian Mafia fugitive convicted in Italy and Switzerland of money laundering and drug trafficking, according to the asset seizure request.
Sgroi and his wife landed in Milan with the money, rented a Renault Megane at Linate airport and drove to find a Polish man who’d agreed to ferry the cash across the border to Lugano.
Paolo Sgroi and the Pole met in front of a bar on Viale Beatrice d’Este, near Bocconi University.
The man, carrying an apparently empty black briefcase, walked up to Sgroi, according to an account of police surveillance in the seizure request. Sgroi called his wife, who met them at the front door of their Milan apartment. The pair handed over a white plastic bag of cash.
When police pulled over the smuggler’s car heading toward the Swiss border, he was traveling with his wife and their 8- year-old son as decoys. The 450,000 euros was in the white bag in the trunk.

Swiss Bank

The planned destination for the cash was UniCredit Suisse Bank, the Polish man said, according to court documents. Sgroi told investigators the money drop was to evade taxes and that it was his money, not the Mafia’s. The UniCredit bank account Sgroi was aiming for already had 1.7 million euros in it, Scarpinato found.
Prosecutors who seized Sgroi’s estate allege he aided Cosa Nostra and attempted to launder money for the group. Cosa Nostra probably controlled part of his supermarket chain as a shadow investor, the seizure document says. Neither UniCredit nor its employees were charged with any crime.
Sgroi’s estate denies the charges, says Ernesto D’Angelo, a Palermo lawyer representing Sgroi’s family. The supermarkets were his, as was the money he was trying to take to Switzerland to avoid taxes, the lawyer says.

500-Euro Bills

“All of his assets were obtained legally, including what was found abroad,” D’Angelo says of Sgroi. He says Sgroi had been forced to pay extortion money to the mob. “We hope the court recognizes the fact that he was a victim,” D’Angelo says.
The contents of Sgroi’s money bag show how cash plays a role in the Mafia’s new business model. Half the money was in 500-euro bills, a denomination that was first circulated in 2002 with the introduction of the common European currency.
Today, the purple note with its depiction of 20th-century architecture is a symbol of the Italian mob’s increasing reach, the DEA’s Benson says. The bills, worth about $690 each, are hard to spend in shops in Europe. Yet they’re easy to transport.
A million dollars in $100 bills weighs about 22 pounds (10 kilograms), while $1 million in 500-euro bills weighs about 3.5 pounds, Benson says.
Those bills are turning up in drug busts in Colombia and Mexico, giving Mafia hunters like Scarpinato another means of tracking the mob’s cash flow.
Scarpinato says this new evidence shows that Italy’s crime syndicates pose a growing threat to the global economy, particularly in its weakened state. He says he worries that once the recession ends, the Mafia will have sunk its hooks into scores of new markets and businesses, magnifying its financial clout.
“The Mafia isn’t part of the past, it’s part of the future,” the prosecutor says. “Organized crime has evolved. It has become the criminal protagonist of the third millennium.”