The infiltration of the legitimate economy in the EU by organised crime

The infiltration of the legitimate economy by organised crime (OC) is a major challenge not only for the European Union but on a global level as well. However, on the one hand, the opportunities for criminal activities increase because of the economic globalization and the de-regulation of movement of goods or capital in the global “space of flows”. On the other hand, the capabilities of law enforcement agencies (LEAs) are limited due to responsibilities based on national borders, difficulties regarding cooperation and divergent jurisdictions. This paradox opens the path for new and different methods for groups involved in OC to infiltrate the licit economy.

OC is progressively moving from traditional patterns (e.g. violence) to new forms of infiltration in the EU licit economy as a way to expand its profits and power. In particular, the infiltration of legal businesses is emerging as the most effective modus operandi to carry out or facilitate OC activities (Savona, Riccardi & Berlusconi, 2016).

As stressed by the European Agenda on Security in 2015, international criminal  networks  are using  legal  business  structures  to  conceal  the  source of  their  profits. Therefore, action is  needed  to  address the infiltration of the licit economy by organised crime. In May 2017 also the Council of the EU has included criminal finances and money laundering as one of the ten EU priorities for the fight against organised and serious international crime between 2018 and 2021, calling for ‘horizontal’ actions to address this problem.

Investigating infiltration

OC infiltration poses a systemic threat to the European Union as it harms the economic and societal fabric, it distorts the competition and the security of financial markets and it imposes extra-costs on EU political institutions, businesses and consumers (Directive 2015/849/EC; Directive 2014/42/EC).

OC-practices infiltrate different business sectors and are usually not perceived by citizens. The practices and patterns usually change rapidly. Hence, it is very difficult to investigate and prosecute them as there are many different strategies for OC to infiltrate the licit economy. For example, OC can transfer illicit funds to a legitimate business or impose administrators, shareholders and/or suppliers connected with the criminal group.

The enablers of money laundering

Recent research at European level has shown that – related to this strategy – money laundering and corruption are playing an increasing role as enablers of OC infiltration:

First, legitimate assets, and in particular companies and real estate, are increasingly used to launder OC proceeds. Organised criminals may inject illicit funds into businesses active in various territories and economic sectors often using accounting manipulations and other financial crime techniques. This allows OC to launder criminal proceeds and at the same time to expand its revenues and influence.

Second, organised criminals can infiltrate the licit economy using corruption. They can obtain public procurement by corrupting public officials; or facilitate the movement of (licit or illicit) goods across borders by corrupting custom authorities. Moreover, the proceeds of corruption could themselves be invested in the licit economy and further distort the competition and security of EU markets.

Modi operandi, vulnerabilities and threats

When adopting these modi operandi, OC groups exploit the vulnerabilities at territory, business sector and company level. For example, they opt to infiltrate cash-intensive territories and sectors, where it is easier to disguise illicit funds. Furthermore, they use certain types of corporate arrangements, often set up in territories, which are characterised by regimes with a lower transparency, in order to make it more difficult for LEAs to trace assets back to the real beneficial owner.

Most often the risk factors facilitating corruption and financial crime are the same: high levels of cash-intensiveness and underground economy can ease the laundering of illicit proceeds, the transfer of corruptive funds and tax fraud; and off-shore countries and opaque business structures can be exploited in both financial crime or corruption schemes. As a result, all these vulnerabilities facilitate OC activities, which are intended to penetrate the licit economy.

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