FROM ILLEGAL MARKETS TO LEGITIMATE BUSINESSES: THE PORTFOLIO OF ORGANISED CRIME IN EUROPE

Executive Summary

With the financial support of the Prevention of and Fight against Crime Programme European Commission – Directorate-General Home Affairs.

With the financial support of the Prevention of and Fight against Crime Programme European Commission – Directorate-General Home Affairs.

Project OCP has been funded with support from the European Commission. This publication reflects the views only of the authors, and the European Commission cannot be held respon-sible for any use which may be made of the information contained therein.

From illegal markets to legitimate businesses: the portfolio of organised crime in Europe

Final Report of Project OCP – Organised Crime Portfolio (HOME/2011/ISEC/AG/FINEC/4000002220)

www.ocportfolio.eu

Edited by Ernesto U. Savona and Michele Riccardi

Authors (in alphabetical order):

Monica AngeliniFrancesco CalderoniDiana CameriniMarta ChinniciYulia ChistyakovaJeltsje CusvellerMarco DugatoJoras FerwerdaLuca GiommoniJarmo HoutsonenPilar LagunaMarina MancusoJerónimo MárquezJesús PalomoSarianna PetrellMichele RiccardiNuria Ruiz Alexandre SalhaErnesto SavonaCristina SorianiPriscilla StandridgeBrigitte UngerJohn WalkerDavid Wall

Suggested citation: Savona Ernesto U. & Riccardi Michele (Eds.). 2015. From illegal markets to legitimate busi-nesses: the portfolio of organised crime in Europe. Final Report of Project OCP – Organised Crime Portfolio (www.ocportfolio.eu). Trento: Transcrime – Università degli Studi di Trento. © 2015

ISBN 978-88-8443-595-8

Transcrime – Joint Research Centre on Transnational CrimeUniversità Cattolica del Sacro Cuore di Milano – Università degli Studi di TrentoMilan office (headquarters): Largo Gemelli 1 – 20123, Milano (Italy)

www.transcrime.it

Graphic project: Ilaria Mastro and Teodora Tasic (Transcrime)

• Chinese OCGs, Russian/Georgian OCGs, Italian mafias,MotorcyclegangsandOCGsofBritish,DutchandTurkishoriginconstitutethemajorityofcases.Differencesintermsof investment strategy exist among criminal groups andcountries.

• Drivers of criminal investments are profit, moneylaundering,controloftheterritory,influenceonthepoliticalsphere,socialconsensus,personalbenefitorconcealmentofcriminalactivities.

3. What proceeds are confiscated?

• According to the few available data, assets confiscatedfromOCareincreasinginEuropeintermsofbothnumberandvalue.

• Most confiscated assets are movable goods (cashand vehicles) while there is almost no confiscation ofcompanies.

• Asaresult,agapexistsbetweenwhereOCGsinvestandwhatisrecoveredbyEuropeanauthorities.

4. What research and policy implications?

• Thestudyshouldextendtoall28EUMSinordernottomissthetransnationalnatureoforganisedcrimeinvestments.

• All the experts of the EU 28 MS (LEAs, AROs, FIUs,prosecutors, researchers, private organisations) shouldnetwork to collect better data and cases of organisedcrimeinfiltrationinlegitimatebusinesses.

• An innovative methodology should be developed forshifting from a cold picture of past cases (such as thisreport)toanassessmentofthefactorsfacilitatingcriminalinfiltration,inordertoreducetheriskthatthiscouldoccur.

• The organization of LEAs, FIUs and AROs should bereshapedsoas to focuson thesehigh-risksituations.So,the prevention activity of public agencies and privatecompanies.

• Atthesametime,theconfiscationofinfiltratedcompaniesshouldbeimproved,andtheuseofinstrumentsalternativeto seizure (e.g. administrative penalties and temporarysuspensions)shouldbeincreased.

Key Findings

1. Where do organised crime proceeds come from?

• The main illicit markets in the European Union generatearound110billioneuroeachyear.Thisfigurecorrespondstoapproximately1%oftheEUGDP.

• Illicitdrugs(heroin,cocaine,cannabis,amphetaminesandecstasy)remainthemostprofitable‘traditional’market(28billion euro yearly at EU level). Among emerging criminalactivities, fraud appears to the most lucrative (29 billioneuroeachyearfromMTICVATfraudalone).

• Illicitrevenuesaresharedbyapluralityoforganisedcrimegroupsandcriminalactors.Theuseofbusinessfacilitatorsand of legitimate companies to cover illicit trade is alsowidespread.

• The poly-crime nature of criminal groups in Europeexpands the economies of scale among illicit markets,reduces groups’ operational costs and increases theirprofitmargins.

2. Where are organised crime proceeds invested in the legitimate economy?

• IllicitproceedsarewidelylaunderedintheEuropeanlegaleconomy. Evidence of organised crime investments isfoundinalmostallEUMS.

• Inthe7OCPcountries, investmentsconcentrate inareaswitha strongpresenceoforganisedcrime (e.g.SouthernItaly), ones strategic for illicit trafficking (e.g. Andalusia),with keyportsandairports (e.g.Amsterdam/Rotterdam),borderregions(e.g.north-westernItalyandsouth-westernFrance),touristareas(e.g.PACAorCostadelSol)andlargecities(e.g.Rome,Madrid,London,Paris,Berlin,Bucharest).

• Bars and restaurants, construction, wholesale andretail trade (especially of food products and clothing),transportation, hotels and real estate are traditionalsectorsofinfiltration.

• There is growing evidence of infiltration into renewableenergy, waste and scrap management, logistics, moneytransferbusinesses(MTB)andVLT,slotmachines,bettingandgaming.

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This is thefinal report of Project OCP – Organised Crime Portfolio(www.ocportfolio.eu).1AimofOCPistocarryoutanexploratory study of the economics of organised crime inEurope,andinparticulartoaddressthreeresearchquestions,whicharecoveredbythethreesectionsofthisreport:

• Where organised crime proceeds are generated, fromwhichillicit markets(Part1);

• Wheretheseproceedsaretheninvested in the legitimate economy, inwhich regions, assets and business sectors(Part2);

• The extent towhich theseproceeds areconfiscated byEuropeanauthorities(Part3).

Theproject focusesonseven EU member states (Finland,France, Ireland, Italy, the Netherlands, Spain and the UnitedKingdom), represented by OCP partners, and for whichprovides an in-depth analysis. However, the report alsopresentsabroaderexaminationofthesituationinEuropeasawhole.

OCPdealswithissuescrucialfromapolicystandpointbutwhichare characterised by a lack of data and of previous studies.OCPaddresses this researchgapbyadoptingan innovative methodology andusing awide range of information, bothqualitativeandquantitative,derivingfromverydifferentsources.

Despiteitspioneeringnatureanditsdatalimitations,thisreportrepresents a first step towards better understandingof how the organised crime business works. In line with theTranscrime research agenda, it is a starting point for a better identification and reductionof the opportunitiesexploitedbycriminalstoinfiltrateillicitandlegitimatemarketsinEurope.

Inthissense,thisreportconstitutesanimportanttoolforbothpublicandprivateinstitutionstoimprovetheassessment of the risksoforganisedcrimeinfiltrationandtostrengthenthetracing and the confiscationofcriminalassetsinEurope.

Part 1: Where do organised crime proceeds come from? Illicit markets in Europe

IllicitmarketsinEuropearechangingrapidlyinsize,products,actors, routes and flows, but they remain key sources of proceedsfororganisedcrimeinEurope.

Toanalyse their role in theeconomyofOCGs,ProjectOCPhasproducedoneofthefirst measurements at European level of the revenues from illicit markets,andareviewofthemain criminal actors amongwhich these revenuesareshared.2Inparticular:

• Forsomemarkets(heroin,cocaine,traffickingoffirearms,illicit trade in tobacco products, counterfeiting, MTICfraud),OCPhascalculatednewestimatesforallthe28EUMS;

• For other markets it has collected existing estimates,in some cases available for all the 28 MS (cannabis,amphetamines, ecstasy, cargo theft) or only in fewcountries(traffickinginhumanbeings,illegalgamblingandmatch-fixing,extortionracketeeringandusury).

Both when calculating and collecting estimates, OCP hasemployed a transparent and verifiable methodology, whichisdescribed indetail inChapter2and intheMethodologicalAnnex.

How large are the revenues from illicit markets?

Appraisingthemagnitudeoftherevenuesgeneratedbyillicitmarkets is not straightforward. Data are lacking, and thereis the risk to produce ‘mythical numbers’ with no empiricalproof. Taking into account these challenges, the estimatescalculatedbyOCPrevealthat:

• Illicitmarkets in the European Union produce about 110 billion euro each year.3

1.ProjectOCPhasbeencarriedoutwiththefinancialsupportfromthePreventionofandFightagainstCrimeProgrammeoftheEuropeanUnion-EuropeanCommission,DGHomeAffairs, and has beendevelopedby an international consortiumof eightpartners: Transcrime – Joint Research Centre on Transnational Crime (www.transcrime.it)oftheUniversitàCattolicadelSacroCuorediMilanoandtheUniversitàdegliStudidiTrento(Italy),coordinatoroftheproject;PoliceUniversityCollege(PCF–Finland);AgencedeGestionetdeRecouvrementdesAvoirsSaisisetConfisqués(AGRASC–France);AnGardaSíochána-CriminalAssetsBureau (CAB– Ireland);Guardia di Finanza (GDF – Italy); Universiteit Utrecht (UU - The Netherlands);Universidad Rey Juan Carlos (URJC – Spain); Durham University (UDUR – UnitedKingdom).

2.Focushasbeenposedontenmainillicitmarkets:traffickingofillicitdrugs(heroin,cocaine,cannabis,amphetamine,ecstasy),traffickinginhumanbeings,illicittraffickinginfirearms,illicittradeintobaccoproducts,counterfeiting,illegalgamblingandmatchfixing, extortion racketeering, usury, fraud and organised property crime. Not all ofthemcanbedefined‘markets’,asnotallofthemimplytheexistenceofademandandasupply,buttheyareoftendefinedas‘markets’forthesakeofsimplicity.Corruptionhasnotbeenconsideredasanillicitmarketpersebutasanenableronwhichorganisedcrimeoftenrelieswhenactiveintheillicitandthelegitimateeconomy.

3. This figure refers to the estimate of the annual revenues only from those illicitmarketsforwhichestimateswereavailableorhavebeenproducedforallthe28EUMS:traffickingofillicitdrugs(heroin,cocaine,cannabis,amphetamines,ecstasy),illicittraffickinginfirearms,illicittradeintobaccoproducts,counterfeiting,MTICfraudandcargotheft.Itdoesnotincludetraffickinginhumanbeings,illegalgamblingandmatchfixing, extortion racketeering and usury, for which quantifications exist only in fewcountries.Estimatesrefertodifferentyears,butmostto2010.

Executive summary

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• This figure is approximately 1% of the EU GDP.4 TheweightonGDPishigherinsouthernandeasternEuropeancountries(seemapsbelow).

• The seven OCP countries (Finland, France, Ireland, Italy,theNetherlands,SpainandtheUnitedKingdom)produceabout 60% of this amount (64 billion).

• Illicit drugsarestillthemostprofitable‘traditional’market(nearly 28 billion yearly at EU level, 20 inOCP countriesalone);ofwhichheroinisthemostprofitable(8billioneuroin the EU). However, new synthetic substances (suchasmethamphetamines)and the increase inhome-made illicit drugs(suchashome-growncannabis)arereshapingthismarket(seeSection4.1).

• Fraud, in its various forms (e.g.MTIC fraud,VATcarouselfraud, plastic fraud, insurance fraud, social benefits fraud,etc.-seeSection4.9)isbecomingoneofthemostprofitableillicit activities, attractingmany OCGs.MTIC fraud aloneproducesmore than 29 billion euro at EU level each yearaccordingtotheestimatescalculatedinthisreport.5

Table 1 – Revenues from illicit markets per year – billion euro

Illicit market7 OCP

countriesWhole EU

Illicit drugs 20.2 27.7

Heroin 5.7 8.0

Cocaine 5.3 6.8

Cannabis 5.4 6.7

Amphetamines 1.6 2.8

Ecstasy 2.2 3.5

Trafficking in human beings (THB)

Estimate available only in few EU MS

Illicit trafficking in firerarms (ITF)

- 0.4

IIllicit trade in tobacco products (ITTP)

5.2 9.4

Counterfeiting 21.6 42.7

Illegal gambling Estimate available only in few EU MS

Extortion racketeering Estimate available only in few EU MS

Usury Estimate available only in few EU MS

MTIC fraud 16.9 29.3

Cargo theft 0.36 0.42

TOTAL 64.2 109.9

• Counterfeiting is potentially very profitable (estimatedto produce 42 billion euro annually in the EU), given thewillingness of European citizens to purchase counterfeitproducts.However, it isstillunclear ifandhowtheactualillicit supply is able to satisfy the potential demand (seeSection4.5).

• Illicit trade in tobacco products (see 4.4) is able toproducerevenuesequaltothoseofsomeillicitdrugs(e.g.cocaineinOCPcountries)accordingtoestimates.

6. For example in Italy THB for sexual exploitation has been estimated to producearound3billionofeuroannually(Mancuso,2014;seeSection4.2).

7. It covers the following illicit markets and activities: heroin, cocaine, cannabis,amphetamines,ecstasy,ITTP,counterfeiting,illicittraffickinginfirerarms,MTICfraudsandcargothefts.8. It covers the following illicit markets and activities: heroin, cocaine, cannabis,amphetamines,ecstasy,ITTP,counterfeiting,illicittraffickinginfirerarms,MTICfraudsandcargothefts.

Revenues - Mn euro

< 1,000

1,000 - 3,600

3,601 - 11,900

> 11,900

Not available

Figure 1 – Estimates of the revenues from illicit markets in the EU. Absolute values7

Figure 2 – Estimates of the revenues from illicit markets in the EU. Percentage of GDP 20108

% of GDP 2010

< 0.66 %

0.66 - 1.03 %

1.04 - 1.34 %

> 1.34 %

Not available

Source: Transcrime-OCP estimates. In italics estimates by other authors

Source: Transcrime elaboration on OCP estimates

Source: Transcrime elaboration on OCP estimates and Eurostat data

• Trafficking in human beings(forbothsexualandlabourexploitation purposes) is an important activity forOCGs,but estimates of the scale of revenues are almost non-existent(exceptinsomecountries).6

• Therearefewmeasuresoftheproceedsfromorganised property crimeandillicit trafficking in firearms (ITF).Especially the former has attracted a large number ofcriminal groups given the high returns and the low risks(forexamplethetheftofmedicines,seeSection4.10),butonlylimitedfiguresoncargotheftareavailable(about420millioneuroinrevenuesatEUlevel).

• Given the lack of figures on these markets, the overallquantification(110 billion)maybeunderestimated.

4.TheratehasbeencalculatedontheconsolidatedEUGDP2010,referenceyearformostoftheestimates.5.MissingTraderIntraCommunityfraudreferstoaparticulartypeoforganisedVATfraudproducingalosstothegovernmentbudgetandanextraprofitforthefraudster.Typically,acompanybuysgoodsfreeofVATfromasupplierlocatedinoneEUMS,andsellsitdomestically,includingtheVATintheprice,butdisappearingbeforeremittingtheVATtothegovernment(seeSection4.9).

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Who shares the illicit revenues? The actors

Revenues from illegal markets in Europe are shared by a plurality of actors and not monopolized byafewcriminalorganisations. The number, nature, composition and level oforganisationoftheseactorschangeaccordingtothecountry,themarket, theopportunitiesandtheparticularstageoftheillicitsupplychaininwhichtheyareactive:

• Although large and structured groups may be stillimportant in thosecriminalactivitiesentailingahigh leveloforganisation,smaller groupsandfree-lance criminalshavebecomecentral,especiallyinemergingmarketssuchas synthetic drugs, home-grown cannabis, fraud or ITTP (seerespectively4.1,4.4,4.9).

• Criminal groups composed of one dominant nationality or ethnicity still play a key role in some markets (forinstanceAlbanianandTurkishOCGsinherointrafficking)but they are increasingly changing into heterogeneous, multi-ethnic andinter-connectedOCGs.

• Also important are functional links, such as those withthecountriesoforiginofillicitgoods(e.g.thelinksofgangsfrom quartiers sensibles in France with North Africangroupsinthetraffickingofcannabis–see5.2)andcultural ones (e.g. among different national chapters of Outlaw Motorcycle gangs - see5.1).

• Some criminal groups specialize in particular illicit activities(e.g.someEasternEuropeanOCGsinorganisedtheft–see4.10)andmoveacrossEuropetocarryouttheseactivities(e.g.propertycrimesorfrauds).

• But most groups are increasingly involved in multiple crimes,i.e.activeinmorethanonemarketsimultaneously(e.g.ChineseOCGs in counterfeiting, sexual exploitation,illegalgamblingandtaxfraudinItaly–see5.4).

• Thismayleadtoeconomiesofscalederivingfromtheuseofthesame routes and channelstotrafficdifferentillicitgoods,whichmayreduce operational costsandincreaseOCGs’ profit margins.

Given this fragmentedanddynamicpicture, it isdifficult to assess who earns how much in illicit markets in Europe.Future research should seek a better understanding of howillicit proceeds are split among the different criminal actorsandthedifferentmembersofthesamecriminalgroup.

Where and how will criminal groups produce illicit revenues in the future? Emerging trends

TheevidencecollectedbyprojectOCPhashighlightedsomeemerging trends which must be taken into account to fullyunderstandhow the revenues of illicit marketsmaychangeinthefuture:

• First, there is evidence that OCGs may gradually shift from traditionalmarkets (e.g. drugs or THB) to new, lessrisky, underrated but very profitable illicit activities, suchasfraudororganised property crime(e.g.ofmedicines,vehicles, car parts). Besides creating new actors, theseactivities may also attract traditional OCGs (e.g. ItalianmafiassuchasCamorragroups).

• Second,increasinguseismadeoflegitimate companiesinillicitmarkets,forexample:

-Infraud schemes,asshellcompaniesinVATcarousels,exciseorinsurancefrauds;

-Asfronts for illicit activity (e.g. . transportorshippingcompaniestohidethesmugglingofdrugs);

-To ‘launder’ stolen products (e.g. fake wholesalersin order to repack and sell stolen medicines back tohospitalsandpharmacies,see4.10).

• Third, new products are emerging in a twilight zone between licit and illicit. For example, illicit white cigarettes,whichare legallyproduced inonecountryandillegally smuggled to other (see 4.4), are expanding; orfirearm replicas which, when manipulated, can becomeillicitfirearms(see4.3).

These trends are reshaping illicit markets in Europe, butthey are also important drivers of thebusiness strategiesof organised crime groups when theymove from the illegaleconomytolegitimatemarkets(seePart2).

From the generation of illicit revenues to investments in the legitimate economy

Not all the proceeds generated by illicit markets are thenavailable for investment in the legitimate economy.Criminalgroupsmustcoverarangeofexpenses,including:

• Operational costs, such as the purchase of wholesaledrugsandtransportationcosts;

• Management costs, such as the payment of salaries ofcriminalgroupmembersorsubsidiestotheirfamilies;

• Personal expenses,tocoverlivingexpensesorthecostofacertainlifestyle;

• Money laundering costs, such as the fees paid toprofessionalshiredtolaunderillicitproceeds;

Applying an innovative methodology (see chapter 6) tothe heroin market, this report estimates that, for instance,between25% and 42%of the revenuesfromheroininthe7OCPcountries(between1,160and3,160millioneuro)maybeavailable, after subtracting costs, for investment in the legaleconomy.9

9. Themodel developed in Chapter 6 covers the costs for purchase of rawmaterialsandcostsoflivingofthecriminalactorsinvolvedinthesupplychain.Itdoesnotcovertransportationcosts,managementcostsandmoneylaunderingfees.

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Part 2: Where do proceeds go? Organised crime investments in the European legitimate economy

Onceallthecostsofillicitoperationshavebeencovered,whereare theproceeds invested in the legitimate economy?OCPprovides afirst exploratory overview of the investment portfolio oforganisedcrimegroups inthe7OCPcountries.Itconsiders:

• Thegeographic regionswhereinvestmentsoccur;

• Thetypes of assets;

• Thebusiness sectors;

• Thedifferentinvestmentstrategiesofcriminal actors;

• Thedrivers whichcouldexplainthesedifferentinvestmentsstrategies.

To this end, given the lack of official data and in order tocollectasmuchevidenceaspossible,abroad definition of investment was used (seeChapter 2) to conduct a large-scale collection of casesofinvestmentsfromawidevariety of sources ( judicial files, reports by LEAs, FIUs, AROs,academicstudies,opensources).

LegendOCP Countries

Low

Medium-Low

Medium-High

High

Non-OCP Countries

Low

Medium-Low

Medium-High

High

Figure 3a – European regions (NUTS 2) with evidence of organised crime investments - Percentages of the country total10

Source: Transcrime elaboration on DOCI

10. Classes identified using Jenks natural breaks optimization. AlthoughreferencestoOCGsareavailableinmostcountries,insomecasestheydonotreportindicationsabouttherelevantNUTS2,orthenumberofreferenceswithNUTS2 indication is too low tobemeaningful and representative.Therefore,somecountries (Austria,Bulgaria,Cyprus,CzechRepublic,Denmark,Estonia,Greece, Croatia, Hungary, Ireland, Lithuania, Luxembourg, Latvia, Malta,Portugal,Slovakia)areclassifiedaccordingtotheirnationalvalues

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In which geographic areas do criminal investments occur?

Although the analysis focused systematically only on the7 OCP countries (which represent 70% of the evidencegathered),casesoforganisedcrimeinvestmentswere found in almost all EU MS (24 out of 28),andinalargenumberofnon-EUneighbouringcountriesaswell.

Aconcentrationofinvestmentswasfoundinspecificregions:

• InItaly:thesouthernregions,Lazioandnorth-westernregions(especiallyLombardy);

• In France:PACA-Provence-Alpes-Côted’Azur,Île-de-Franceandeasternborderregions;

• InSpain:Andalusia,Madridand,toalesserextent,southeasternregions;

• InUK:theLondonareaandsouth-westernScotland;

• IntheNetherlands:AmsterdamandRotterdamandtheirneighbouringareas;

• Innon-OCP countries:someareaslikeBerlin,theDüsseldorf-Kölnarea,BucharestandtheRomanianborderwithMoldavia.11

Accordingtothisexploration,criminalinvestmentstendtobelarger in areaswith a historically strongpresence of OCGs(e.g.southernItaly),inborder regions,orinareaswhichmayplay a crucial role in illicit trafficking (e.g. Andalusia, orRotterdam and Marseille with their harbours), large urban areas(e.g.London,Amsterdam,Madrid,Berlin)andtourist or coastal areas (e.g.Côted’Azur,Murcia,MalagaorEuropeancapitals) which can provide investment opportunities, forexampleintherealestateorhotelsector.

While some regions (e.g. southern Italy – see 8.4) witnessthe infiltration of mainly local groups, other areas recordinvestmentsofawide range of OCGs:forinstancesouthernSpain has cases of investments by Italian mafias, RussianOCGs,Motorcyclegangsandothergroups(seeSection8.6).

In which types of assets?

EvidencecollectedbytheOCPprojectshowsthatassetsofalltypesmakeuptheinvestmentportfoliosoforganisedcrimegroups:

• Registered assets, such as cars or boats, which areinstrumental to many illicit activities (e.g. boats for drugtransportation), as well as status-symbols for criminalgroup members and reflection of the criminal group’sculture(e.g.“choppers”formotorcyclegangs);

• Movable goods, suchasjewels,valuables,luxury-watches,butalsofinancialinstrumentsandbankaccounts/cash;

• Real estate properties, ranging from lands, to villas, toflats. Immovable goods are considered safe investmentsbyOCGsbecause theyensurehigh returns (especially inareaswithbuoyantrealestatemarkets,suchasPACAor

CostadelSol–see8.2and8.6)andprofitsintheformsofrents.Owningrealestatecanalsofacilitateillicitactivities(e.g.housescanhostbrothelsordepositsforillicitgoods),fraud(e.g.mortgagefrauds–seeinIreland8.3)andcontroloftheterritory(e.g.inItaly,see8.4);

• Companies, which are crucial investments and play amultifacetedroleinthestrategiesofcriminalorganisations.

In which business sectors?

Accordingtotheevidencecollected,thebusinesssectorswiththemostcasesofcriminalinvestmentsare(seeSection7.3):

• Barsandrestaurants;

• Construction;

• Wholesale and retail trade, inparticular of foodproductsandofclothing;

• Transportation;

• Realestateactivities;

• Hotels.

Other economic activities that, according to the collecteddata,haveemergedinrecentyearsasparticularlyattractivetoorganisedcrime investmentsare,amongothers,renewable energy, waste and scrap management, money transfer businesses (MTB) and casinos, VLT, slot machines, betting and gaming (see7.3).

Althoughfutureresearchprojectsshouldexaminethefactorsand vulnerabilities determining the attractiveness of thesesectors,thereseemstobeaprevalenceof:

• Cash-intensive sectors, which can facilitate moneylaundering;

• Low-tech, labour-intensive and not export-orientedsectors;

• Sectors withahighinvolvementof public administration and/or public subsidies;

• Territorial-specific sectors, which can benefit and/orfacilitatethecontroloftheterritorybycriminalgroups.

• Sectorswithweak or developing regulation,whichmayimplyweakermonitoringormoreinfiltrationopportunities (e.g.renewableenergyorVLTandgaming).

But above all, these sectors are often functional for the commission of other illicit activities: for example,transportationisoftenusedasafrontforthetraffickingofillicitgoodsorMTBfortransferringillicitfunds.

Despite these general rules, there are differences among countries. Thesemay depend onmany variables, includingthecountry’sbusiness structureandentrepreneurial culture(e.g.criminalinvestmentsinagricultureandfisheryarehigherinSpain than, for instance, in Finland– see8.6), investmentopportunities,differences in termsofnationaladministrativeand regulatory systems or the nature of the illicit activitiesconductedby thecriminal groupsactive in thecountry (e.g.theinfiltrationoftransportationcompaniesishigherin transit countriesliketheNetherlands–see8.5).

11.Sincethecollectionofcaseswassystematiconlyinthe7OCPcountries,theevidencecollectedinotherEUMSshouldbeinterpretedcautiouslyandonlyasapreliminarypictureofthesituation.

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12.Thedatacollection,whichfocusedonthe7OCPcountries,mayoverestimatethe role and the weight of OCGs, such as Italian mafias or British OCGs,originatingfromthe7OCPEUMS.

What are the differences among actors?

Besides countries and business sectors, there are alsodifferencesamongorganised crime groups.

• First, as in illicitmarkets, aplurality of criminal actors,rangingfromlargeandstructuredorganisationstosmallerandloosercriminalgangs,investinthelegitimateeconomy;

• Taking into account data biases12 the criminal groupsfor which there is most evidence of investments in thelegitimateeconomyareItalian mafias(especiallyCamorraand ‘Ndrangheta), Chinese OCGs, Russian/Georgian OCGsbutalsoMotorcycle gangsandcriminalgroupsofBritish, Dutch and Turkishoriginandnationality;

• Evidence of Italian mafia investments can be foundnot only in Italy but also in a large number of Europeancountries, and in particular in real estate, constructioncompanies,bars,restaurantsandthewholesaleandretailoffoodproducts;

• Chinese OCGspresenceisespeciallyhighinthewholesaleand retail trade, bars and restaurants, personal services(e.g. massage parlours) and money transfer agencies.Moreover, there is growing evidence of transfers of illicitproceedsgeneratedinEurope(e.g.fromcounterfeiting,taxfraudor labour exploitation) toChina (especially throughMSB)(e.g.inItaly,SpainandUK);

• Russian/Georgian OCGsare,accordingtotheevidencecollected, present in the largest number of EU countries,in particular in the wholesale and retail trade, bars,restaurants,realestate,hotelsandcasinosandgaming;

• Evidence can be found of investments by Motorcycle gangs in the private security industry, construction,renovation and repair and retail of vehicles, with anincreasinglevelofsophisticationandinalargernumberofcountries (includingsouthernEUMSsuchasSpain–see8.6);

• Turkish, Colombian and North African OCGs seemto prefer moving and investing the proceeds generatedinEurope(e.g.fromdrugtrafficking)abroad,oftenintheircountry of origin (e.g. in real estate), also usingmoneytransferagenciesundertheircontrol;

Otheremergingissuesshouldbehighlighted:

• First, the evidence collected confirms the key role thatprofessionals andcompany service providersmay playespeciallyinhigh-levelmoneylaunderingandfraudschemes;

• Second, the growing role of freelance entrepreneurs,belonging to the so-called grey area, connected withmultiple OCGs at the same time, and acting either asfrontmenforcriminalgroupsorasfacilitators(e.g.ofCosaNostraorCamorrainvestmentsinthewindpowersectorinItaly,seeSection8.4).

Figure 3b – Business sectors with highest evidence of organised crime investments - 7 OCP countries

Source: Transcrime elaboration on DOCI

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Figure 4 - European countries with evidence of organised crime investments - Selected categories of OCGs

Cosa Nostra

Chinese OCGs

Camorra

'Ndrangheta

Source: Transcrime elaboration on DOCI

Motorcycle gangsRussian OCGs

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• Third, the increasing number of cases of cooperation and joint ventures between different groups in themanagement of legitimate businesses and legitimatemarkets(e.g.betweenCamorraandChineseOCGsintheclothingindustry).13

What are the drivers of organised crime investments?

In summary, theOCPproject shows that the investments inthelegitimateeconomyarewidelyusedbycriminalgroupstoserveavarietyofpurposes,andinparticular:

• Tolaunder criminal proceeds;

• To increaseprofits, e.g. through speculation on the realestatemarket;

• To strengthen control of the territory, e.g. throughinvestmentsinrealestatepropertiesorinhighlyterritorial-specificbusinesses;

• To infiltrate the local political, business and administrative sphere, e.g. with companies active inpublicprocurements;

• Toincreasesocial consensus,e.g.throughthecreationofjobsortheprovisionofpublicservices;

• To satisfy personal benefits, including the purchase ofstatussymbols;

• To facilitate illicit activities, for example through theinvestmentinandcontrolof:

-Wholesaletradecompanies(especiallyoffoodproducts)asfrontsfordrugtrafficking;

-Transportation, logistics and import-export companies,to cover the smuggling of illicit, counterfeit or stolengoods;

-Bars and restaurants, clubs and hotels as covers forprostitutionringsordrugmarkets;

-Moneyservicebusinessestofacilitatethetransferofillicitfundsacrossborders.

-Oilandgascompanies tocommit fraud (e.g. tax frauds,excisefrauds,fuellaundering,etc.).

CriminalgroupsinEuropedonotinvestinthelegaleconomysolely to launder money; they use legitimate businessesas tools to exert their power, influence and to exploit economies of scalewiththecriminalactivitiesinwhichtheyare involved. OCGs do not discriminate between illicit andlegitimate markets, but see them as a continuum alongwhichtograspprofitopportunitiesandexpandtheirinfluence.

Part 3: What proceeds are recovered? The confiscation of criminal assets in Europe

Buttowhatextentaretheproceedsgeneratedbyorganisedcrime from illicitmarketsandthen invested in the legitimateeconomyrecovered by the authorities?

Despite the general consensus on the crucial role of theconfiscation of criminal assetsinthefightagainstorganisedcrimeinEurope(asconfirmedbytheintroductionofthenewDirective2014/42/EU),answeringthisquestionisnotsimple.

First, becauseof the lack of statistics; second,becauseofthemany differences among the confiscation regimes inEU countries (e.g. different types of confiscation, predicateoffencesandtypesofassets–seeChapter10)whichmakeitdifficulttocomparetheavailabledata.

Inordertogainbetterunderstandingoftheseproblems,andinanattempttoanswerthequestionabove,OCPhas:

• Assessedthelevel of availabilityof dataonconfiscatedassetsthroughoutthe28EUMS;

• Analysed,on thebasisof theavailabledata, theamount and types of assets confiscated for serious andorganisedcrime acrossthe7OCPcountries.

What is the availability of data on confiscated assets in Europe?

AccordingtotheassessmentconductedbyOCPamongEUAROsandAMOs,itemergesthat(seeChapter11fordetails):

• Data on confiscated assets in Europe are lacking and of poor quality. While some countries (e.g. Italy, theNetherlands)collectgoodstatistics,othersdonot;

• TheuseofIT systemstoorganisedataisinfrequent;

• Owingtothelegislativedifferences,methods and criteriaforthecollectionofdataonconfiscationvarywidelyacrossEUMS;

• Dataareoftencollectedwithinthesamecountrybyseveral agencies,involvedindifferentstagesoftheassetrecoveryprocess or based in different geographic locations. Thismeansthatstatisticsarenotoftenavailableinacentralizeddataset,withuniforminformation;

• Datacan refer todifferent stages of theasset recoveryprocessandevenprovideoverlapping informationonthesamecourtproceedings;

• It is often not possible to clearly distinguish the main offence(s)forwhichanassetwasconfiscated;

• Otheruseful information (e.g. location and condition oftheconfiscatedasset,dateofseizure/confiscation,typeornameoftherelatedcriminalgroup)isoftenmissing;

• Inmostcases,assetsarenot associated with a unique IDcodethroughouttherecoveryprocess,andthismakesit impossible tracing the assets throughout the wholeprocess.

13. Other interesting cases can be found among Italian mafias for themanagement of some important fruit markets in Italy (see 8.4) and asophisticated money laundering scheme involving. ‘Ndrangheta, former Irishparamilitarymembers,andSpanishOCGsaimedatinvestingintotouristresortsinSouthernEurope(see8.4).

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How many and what types of assets are confiscated, according to the available data?

Despite these obstacles to determine a clear picture of thestateofconfiscationoverall,thecasebycaseanalysisofthe7OCPcountriesrevealsthat(seeChapter12):

• The number and value of confiscated assets hasincreasedoverpasttenyearsinmostofthecountriesforwhichdataareavailable;

• Themajority of confiscated assets aremovable assets.Cash,bankaccounts,vehicles,boatsand,toamuchlesserextent,realestatearecommonlyseized(seebelow);

• ExceptforinItaly,thereisaclearabsence of confiscated companies.Confiscationofcompaniesisnotawidespreadpractice, despite the evidence of criminal investmentsacrossmanydifferentbusinesssectorsinEUMS.

The available data therefore show that significant discrepancy between what criminals invest inandwhat is actually confiscated byEUauthorities,notonlyintermsofamountbutalsointermsoftypesofcriminalassets.

Research and policy implications

Givenitspioneeringnature,itsdatalimitationsandthelimitednumberofEUMScovered, this reporthas tobeconsideredonly a first step towards a better understanding of theeconomicsoforganisedcrimeinEurope,andastartingpointforfurtherstudiesinthisfield.Inparticular,theOCPreporthashighlightedseveralchallengeswhichshouldbeaddressedbyfutureresearchandpolicyinitiatives(seeChapter13).

Fromaresearchstandpoint:

• ThisreportprovidesacoldpictureoftheactivityofOCGsin illicit and legitimate markets in Europe according topolice and judiciary cases.However, there is the need topass from cold pictures of past cases toheat maps of risk,whichcouldhighlightnotonlywhererisksofcriminalinfiltration are, but also where they could emerge in thefuture.

• Inordertodoso,itisnecessarytoextend the studytoall the 28 EU MS,inordernottomissthe transnational natureofcriminalinvestmentsandtoidentifytheareaswheretofocusresearchandpolicyinitiatives.

• OCP has provided a ‘wide-angle’ picture, highlightingmacro patterns and trends of OCGs in illicit andlegitimate markets. There is the need enrich this macroapproach with amicro approach which could focus onmore specific issues. Future research initiatives shouldintegrate the findings of this study with other researchprojects,morelimited-in-scope,conductedatEUlevel.15

Fromapolicyperspective:

• This report has clearly highlighted that data in this field(e.g.onconfiscatedassets,onSTRs,etc)acrossEUMSarelackingandofpoorquality.EUagenciesshouldpropel the collection of better dataacrossEuropeancountriesandguarantee access to researchersactiveinthisfield.

• Thisreporthasshownthatadiscrepancyexistsbetweenwhat criminals invest in and what is confiscated byEuropeanauthorities, inparticularwith regard tocriminalinvestmentsinlegitimatebusinesses.Thereistheneedtoimprove the confiscation of companies, by improvingtheir tracing (e.g. through strengthening the financialinvestigation skills of European LEAs and FIUs andgiving them better access to centralised registries andIT tools),16by improving theregulation (e.g.widening theuse extended confiscation or third-party confiscation) and improving themanagement of the companies onceconfiscated. Also the use alternative instrumentsto seizure (such as temporary suspension of businessadministration or administrative penalties for companies‘polluted’ by organised crime) should be explored andexpanded.

14.TheconsidereddataisfromPatja(Finland),AGRASC(France),CAB(Ireland),ANBSC(Italy)andPNSD(Spain).Seechapter12fordetails.

15.ForexamplewiththefindingsofProjectARIEL(www.arielproject.eu),fundedby DG Home Affairs and expected to finish in spring 2015. ARIEL has beencarryingoutascriptanalysisofsomeselectedcasesstudiesoforganisedcrimeinfiltration into legitimatecompanies in5pilotEUcountries inorder tobetterunderstandhowOCGsacquireandkeepcontrolofEuropeancorporateentities.

16.ForexampleEUfundedProjectEBOCS(www.ebocs.eu)willproducean ITprototypeavailabletoLEAs,FIUsandAROstoeasethecollectionandanalysisofdataonshareholdersandadministratorsacrossdifferentbusinessregistriesof five EUMS. Should this pilot tool be extended to other countries, it wouldfacilitate inacrucialway transnational investigations to identify thebeneficialownersbehindinfiltratedlegitimatebusinesses.

Figure 5 – Average percentages of types of assets confis-cated in five OCP countries14

Source: OCP analysis on AROs public reports and OCP data

14.5%

1.8%

23.9%

59.8%

0% 20 0% 60 0%

Real estate

Companies

Vehicles/Boats

Cash and movable assets

4% % 8

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• Finally,thisreporthasstressedtheneedforbetterpublic-private partnerships (e.g. through a more effectiveexchange of data and of best practices) to prevent thatcriminal groups could exploit loopholes in legal supplychainstocarryoutcriminalactivitiessuchastheft, fraud,counterfeitingormoneylaundering.

Basedonthecurrentresearchgapsandthepolicyperspective,future projects should adopt amore integrated approach tobettercombatorganisedcrime infiltrationandprevent itsspreadinnewareasoftheEuropeanlegitimateeconomy.

Thedevelopment of risk assessments shouldbecoupledwith an holistic analysis of the opportunities that organisedcriminal groups exploit to infiltrate the legal economy. Inturn this requires a micro-approach focusing also on thecontextual vulnerabilities,suchas legislationandthe leveland type of crime control policies. All 28 EU MS need tocollaborate in the systematic collectionof homogenousandcomparabledata.Thedatacollectionprocessshouldrequirethecollaboration of experts from different countries and backgrounds (including LEAs, FIUs and AROs, academic,public officials and representatives of the private sector) toallow for a better interpretation of information as well as toincreasethesharedknowledgeregardingthisphenomenon.

Finally, European institutions and national governmentsshouldprovidehumanandtechnologicalresourcesinordertomeetthesechallenges.The organisation of LEAs, FIUs and AROscouldbereshapedinordertheseagenciescanbetteridentify, assess and manage the risksofcriminalinfiltrationintoillicitandlegitimatemarkets.

Followinganopportunity reduction approach andfocusingonhigh-risksituationscouldleadtotheachievementoftheseresults with fewer resources and less costs for Europeancitizens.