Understanding Organised Crime - Part 3

NZPA - Police News | Thu July 1st, 2010

LIFTING THE LID ON ORGANISED CRIME: Understanding organised crime - Part 3

Last year, following mounting concern amongst members about the unchecked rise of organised crime in New Zealand, the Police Association undertook an in-depth investigation to build a better understanding of the problem.

Over the past two issues, Police News began exploring 10 key features of organised crime.

This month, we continue our series by looking at how organised crime weaves in and out of lawful society, laundering its enormous wealth, corrupting officials and institutions, and frustrating law enforcement efforts.

The 10 key features of organised crime

The Police Association’s work, drawing on overseas studies such as that conducted by Victoria Police and the Australian National University, identified 10 key features of organised crime:

1. Organised crime does not begin; it evolves.

2. Organised crime is not gangs.

3. Organised crime is criminal enterprise.

4. Organised crime is networked.

5. Organised crime is profit motivated.

6. Organised crime is opportunistic and adaptable.

7. Organised crime seeks to hide and legitimise wealth.

8. Organised crime seeks to corrupt.

9. Organised crime networks are resilient.

10. Traditional policing is not enough.

Over the past two months Police News has explored the first six of these features. This month we examine the final four.

7. Organised crime seeks to hide and legitimise wealth.

Organised crime doesn’t operate only in the black market. The speed with which it can adapt means it can operate ‘just ahead’ of regulation in emerging business areas: taking advantage of slow regulatory responses to changing technology or business paradigms, to trade in the ‘grey market’.

This has particularly been the case in newer market economies, such as Russia, China and South East Asia, and the rise of ‘dodgy’ Internet businesses.

Illegally-derived profits are also diverted into lawful markets, especially ‘boom’ markets,

both for the profit-making opportunities, and also because a presence in such markets

legitimises visible wealth, and launders the proceeds of crime.

Wealth also flows back the other way: from legitimate sources, to fund criminal enterprise.

Investments from crime

The Hells Angels are believed to have heavily invested their profits from early methamphetamine manufacture and distribution in the sharemarket boom of the 1980s.

They, and other groups, are also believed to have invested large amounts of wealth in real estate – commercial, residential, and property development.

Other gangs have invested drug wealth in vice businesses such as strip clubs and escort agencies.

Legalisation of prostitution has seen at least one major gang in New Zealand recently move to gain strategic control of the high-end industry, as a ‘riskfree’ cash cow and money laundering front.

An organised crime presence in some forms of gambling and associated industries is well established worldwide and that presence is believed to extend to New Zealand.

It is not just the established New Zealand criminal gangs, which are seeking to launder ‘P’ profits.

Newer groups with offshore origins are also known to be strategically acquiring significant property and establishing front businesses.

This is to be expected. Trans-national organised crime ‘piggybacks’ onto legitimate international flows of communications, goods, and people.

Transport and communications links enable illegal trade in commodities and services, just as they enable growth in legitimate business.

Obfiscation

The higher the volumes of legitimate traffic, the easier it is for illegal business to slip through undetected.

This applies both to importations of commodities such as drugs (whether hidden in container shipments, or using human mules), and also to flows of capital (whether payment transfers, or money laundering transactions), through the international banking and remittance systems.

Principles of disguising illicit dealings in ‘legitimate’ activity also apply to domestic commodity flows.

Front companies and legitimate business play a key role in disguising activities.

The most significant players in organised crime in New Zealand, as elsewhere, do not look like criminals.

They conduct their business through an elaborate web of legal entities, such as interlinked holding companies, front businesses, trading trusts, family trusts, and associated bank accounts.

Frequently there will be both on and offshore entities. They will retain expert advice on law, taxation, regulation, and business structures, to ensure they are able to capitalise on both legal and illegal business opportunities, while avoiding drawing attention to their unexplained wealth.

Global pattern

This is an established global pattern: International organised crime in its highest form is far removed from the streets.

These groups are highly sophisticated, have billions of dollars at their disposal, are highly educated, and employ some of the world’s best accountants, lawyers, bankers and lobbyists.

They go to great lengths to portray themselves as legitimate businessmen and even advocates/benefactors for the local populace and others.1

In relation to Yekaterinburg-based Russian organised crime groups:

The diversified interests…included the local soccer team, restaurants, automobile dealerships, hotels, and other commercial enterprises, including their own brokerage firm…

Preferring to avoid clashes with law enforcement authorities that might ensue from direct involvement in overt criminal activities, [the] central group has pursued global investment projects, the export of strategic raw materials, and illicit real-estate market operations, e.g., buying up real estate for money laundering purposes.

In addition, they control many commercial enterprises …including insurance companies, casinos, fashionable restaurants, and the street trade of the central marketplace. They control gambling through their “Globus” business club.

The central group is also associated with representatives of legal businesses, is co-owner of the Urals commodity and raw materials exchange, and contributes to a variety of charities.

The Uralmash network, despite being portrayed in the media as a respectable financial and industrial group, dominates the criminal world of the Sverdlovsk region… [and] controls some 140 commercial enterprises, including a network of banking and lending institutions.

They are heavily engaged in exporting raw materials, rare and precious metals, weapons, medicines, and, from time to time, radioactive materials.

Their international connections extend to China, Cyprus, Germany, Poland, and the United States, among other countries.

Similarities

While on a significantly larger scale, these examples show similarities to emerging New Zealand patterns of organised crime.

Known and suspected organised crime figures in New Zealand are linked to literally hundreds of companies and trusts.

Some of these are investment shells and holding companies, designed to obscure true ownership interests and launder money.

However, a large number are also apparently ‘legitimate’ trading companies and finance/investment companies, represented across a large number of industries.

Money laundering in Canada was estimated by the International Monetary Fund (IMF) at between C$22-$55 billion a year.

That is equivalent to between 1.4% and 3.6% of the Canadian economy.

The Australian Institute of Criminology estimated laundering of proceeds of crime alone in Australia in 2004 at between A$2.8-$6.3 billion, or between 0.3% and 0.7% of GDP.5 The Australian Crime Commission warned: “these figures are conservative and underestimate the level of illicit funds being transferred out of the Australian legitimate economy.”

The sums involved indicate the potential for major influence over national economies.

Money laundering in NZ

Our investigations lead us to suspect money laundering in New Zealand, or through our banking and financial systems, is likely already to have reached proportionately similar levels.

Police estimate the methamphetamine trade alone is worth up to $1.5 billion per annum;7 that single crime type alone represents money that must be laundered equivalent to 0.8% of GDP, based on IMF figures for 2008.

To put it another way, that is greater than the current market capitalisation of several of New Zealand’s Top 10 companies.

Real levels of money laundering are likely to be far higher. New Zealand’s relatively poorly regulated financial system, combined with its corruption-free image and virtually seamless links into global banking systems, is known to be promoted by and to offshore organised crime groups for its money laundering potential, and information given to us confirms such money laundering is taking place.

Deals involving offshore crime groups laundering sums into the hundreds of millions of dollars, facilitated by New Zealand groups on a commission basis, are believed to have been contemplated.

8. Organised crime seeks to corrupt.

Organised crime participants actively seek power and influence within lawful society, both to gain access to information related to business opportunities, and to protect their interests against law enforcement attention or regulatory reform.

They use a range of overt, covert, lawful, unlawful, direct and indirect means. These include violence; intimidation; threats; public relations activity; economic power; political donations; and corruption.

Corruption of individuals

The more wealth that organised crime is able to accumulate, the more its wealth and influence tends to spill over into ‘lawful’ society.

As it does so, it tends to corrupt both by design and effect.

That spill-over corruption exposes ordinary (and frequently wealthy) people to organised crime-linked activity, turning them into potential clients in illicit markets, placing them at risk of compromise, and enticing them (consciously or otherwise) into facilitating or investing in criminal enterprises or associated activity, such as money laundering.

It also tends to disguise the key organised crime players, by blurring the edges of the criminal network with social and legitimate business networks, and it becomes increasingly difficult to identify and target the criminals.

Deliberate corruption of regulatory and law enforcement authorities can be achieved by a range of means.

These include placement of associates in official positions, and corruption of officials through bribery, threats and intimidation, or compromise.

Compromise might be achieved through enticing a target into a legally compromising or career-threatening position involving drugs, sexual misdemeanour, questionable personal business dealings (such as favourable loans, donations, or insider trading tips) or inappropriate personal relationships.

Corruption

Frequently, a corruption target will have no real appreciation that they are dealing with organised crime, or of the fact they are being corrupted or have been compromised, since it will often take place under cover of a carefully cultivated social relationship.

Some compromised individuals may never actually be called on to do favours. As well as targeting officials who may prove to be of practical use, organised crime groups worldwide typically target high-profile people for compromise so as to build a veneer of respectability and secure friendly attitudes from ‘those in high places’, and to ‘hedge’ by accumulating leverage for future use, if and when needed.

New Zealand is a relatively small country, and the ‘power elite’ is smaller again.

We have reason to believe several high profile and extremely wealthy business people and politically active individuals in New Zealand are associating with people who are involved in organised crime, at least through social and apparently legitimate business interaction.

Many of those individuals are probably unaware of the true nature of their acquaintances or the risky situation they are placing themselves in.

Others have already discovered the true nature of their ‘friends’ the hard way. Once hooked, demands have been made, and property systematically stripped or ‘taxed’ from them.

Several wealthy New Zealanders are known to have lost virtually all their wealth to organised crime. That wealth is now being used to fund further crime.

Corruption of State institutions

Corruption of State institutions is a key strategic goal of organised crime, because it allows the criminals access to inside information about law enforcement or regulatory action affecting their activities, allows criminals to bypass normal regulatory checks and processes, undermines the effectiveness of the institutions in carrying out action against organised crime, and can thwart reform.

The large number of Mongrel Mob and Black Power members in prisons gives effective control over prisoner behaviour to the gangs.

This provides a critical source of power to organised crime figures, who can direct whether the gangs provide protection, intimidation, violence or even execution of any person who may be sent to prison.

This power is used to control criminals and business partners in the outside community.

This power is also used to extort prison cell ‘rentals’, and/or sell protection to the wealthy families of ‘nice kids’ and others who are imprisoned, principally on drug matters.

Cell rentals are now standard practice and provide an important source of income for organised crime.

Prisons as a source of income

Prisons are now an important source of income and power for the gangs: to the point where gangs now ensure they have trusted ‘managers’ imprisoned in each prison to run their business.

During the late 1990s, official reports cited at least 26 examples of corruption of officials across at least the following organisations:

• Department of Corrections;

• Department of Courts;

• Department of Social Welfare;

• Local councils;

• Land Transport Safety Authority;

• New Zealand Employment Service;

• New Zealand Immigration Service;

• New Zealand Police; and

• WINZ

Our information gives us strong reason to believe that individuals are now being strategically placed by organised crime in employment in State institutions.

Again, this has been the pattern in every other market economy in the world, including Australia.

Usually it takes a major scandal and subsequent inquiry to lift the lid on the extent of corruption, even within a very limited area of government.

Yet examples of corruption detected in New Zealand are quickly dismissed as isolated individual criminality.

Corruption of strategic industries

Organised crime also seeks to corrupt strategically important industries such as transport networks, and especially ports.

The Canadian Senate National Security Committee in 2002 identified that Canadian organised crime groups had a great deal of control over Canadian ports and the ports were major conduits for drug smuggling, export and import of stolen vehicles, and theft of cargo.

Informants have told us that New Zealand organised crime networks are similarly strategically targeting New Zealand ports, especially regional ports.

The activity includes placing or acquiring ‘insiders’, and also strategically acquiring real estate near the ports.

Such control clearly facilitates importations of illegal goods. However, also have information that New Zealand is being used as a trans-shipment hub for major international trafficking operations.

Corruption of the economy

Control of a significant proportion of wealth and commerce means significant control of the economy.

Money laundering activities, which may move hundred of millions of dollars through financial institutions using bank instruments and share trades, are dressed as ‘investment activities’ and thus have the potential to seriously distort markets, whether by accident or design.

9. Organised crime networks are resilient.

Organised crime is extremely difficult to seriously disrupt.

The networked nature of organised crime means enforcement activity targeting any given individual or group does not destroy the network as a whole.

Disruptions are relatively easily bypassed, and the network quickly recovers from the loss of individuals.

In the long term, the network may even be strengthened as participants learn from their mistakes, and through disclosure in court of law enforcement techniques.

Networks are also extremely adaptable and able to respond quickly to law enforcement or regulatory pressure. For example, intensively targeting the trade in one illicit substance through increased border detection, increased penalties, and demand reduction strategies may affect the viability or attractiveness of trade in that substance, but does not seriously disrupt the network itself. Individuals caught as a result of such activity are usually lower-level players recruited to perform limited tasks.

Networks trade in a diverse range of goods and services, and if the profit potential or risk associated with one of those becomes unattractive, the organised criminal network simply shifts its focus to other activities.

For that reason, a narrow focus on one activity, such as drug dealing, or one commodity, such as methamphetamine, can only have a limited long-term impact on organised crime, even though it might reduce the problems specifically associated with the targeted activity or commodity in the short term.

10. Traditional policing is not enough.

‘Traditional’ policing is effective at investigating and prosecuting individuals who can be linked to a specific criminal act to the satisfaction of a criminal court (“beyond reasonable doubt”).

In the context of organised crime networks, specific criminal acts detected by proactive policing or alleged by a complainant/informant might be specific transactions between two or more criminals (e.g., a drug deal), or criminal acts related to gaining or maintaining market position (e.g., violence and intimidation aimed at rivals or debtors).

Often the investigative and prosecutorial task may be more difficult where organised crime is involved, because of the (generally) more carefully planned and executed nature of the offending, as compared to ‘ordinary’ offending, which is often spontaneous or ill-conceived.

As a result, more intensive investigative methods such as surveillance and/or electronic interceptions, or specialised anti-gang or anti-drug measures such as controlled delivery operations, may be necessary to gather the required evidence.

Intimidation

Prosecutions may also be complicated by juror or witness intimidation and there are a number of cases where such complications are suspected to have played a part in failed prosecutions in New Zealand.

Organised crime participants also go to great lengths to manage and resolve internal conflicts, to ensure no crime is reported to Police especially where (for example) gang-on-gang violence has occurred.

Resolution of disputes between individuals or organisations may be, for example, by way of compensation payments or internal disciplinary action.

Modern organised crime is, in that sense, self-policing, so as to stay ‘under the radar’ of law enforcement authorities.

This is a deliberate strategy demonstrated by organised crime worldwide, including in New Zealand.

For example, in New Zealand in 1995, the self-styled “A-Team” of OMCGs (previously known as “the Federation”) met and formally resolved that ‘public enemy number one’ was the Police. Inter-gang hostilities were to cease, in favour of the sharing of intelligence and operational techniques to protect and develop their mutual business interests.

This included adoption of counter-intelligence strategies to probe Police surveillance and response capabilities and seek out advanced technology to stay ahead of Police capability.

The A-Team gangs then propagated this new approach out beyond their federation through their relationships with ‘independent’ gangs.

Sharing of information

It is now standard practice for New Zealand gangs to share – even with their ‘enemies’ – Police disclosure files on operations their members have been subject to.

This is especially the case where the files reveal information about Police techniques, for example in running electronic interceptions, surveillance operations, or controlled deliveries.

One major organised crime group in New Zealand is now known to be imposing itself on the criminal underworld as the absolute authority in resolving disputes and enforcing settlements.

It operates a schedule of fees for various services, and parties to disputes or debts (whether criminal or civil/personal) are made to understand that complaints are not to be made to Police – the crime group’s decision is ‘law’.

This mirrors the role played by Italian mafia groups and other often ethnic-based organised crime groups to grow their sphere of influence in communities worldwide.

However, the key issue facing law enforcement is that organised crime networks are deliberately configured to insulate the most important players from specific criminal acts.

The big players

The most important and least easily replaceable players in an organised crime network are those who, through their wealth, influence, and connections (i.e., personal and business relationships) are crucial to the smooth and efficient conduct of other transactions, such as illegal commodity flows.

These key people are also the best insulated from the specific criminal acts, which can be targeted effectively through traditional policing.

Often they are connected to the perpetrators of provable crime only by various indirect transactions of wealth and/or influence, which generally cannot themselves be established to be criminal acts to the standard required by a criminal court.

For example, in the mid-to late-1990s, the Hells Angels are believed to have changed their drug distribution methodology to deal through associates rather than gang members.

This was a deliberate strategy to make surveillance more difficult, and insulate the senior figures and the accumulated wealth from law enforcement action.

Potential for effective policing

‘Proceeds of crime’ actions, especially those which use a lower civil court burden of proof (“on the balance of probabilities”), expand the potential for effective policing activity, by directly and deliberately targeting key players’ economic wealth.

This may affect their power and even their ability to continue to operate within the network.

However, proceeds of crime actions and ‘traditional’ Police investigations are just tools.

To be effective at combating organised crime, their use must be targeted for maximum disruption.

That makes it critical that law enforcement authorities understand and consider the wider picture of organised crime networks, and understand how a specific offence or individual fits in.

This requires ongoing, in-depth intelligence work as broad ranging as the crime networks themselves.

Otherwise, the structure of organised crime networks virtually guarantees that the individuals prosecuted and wealth targeted will tend to be the “low hanging fruit,” and actions will have limited strategic or long-term impact.

There is even a perverse risk that successful prosecutions simply educate the organised criminal community as to policing and forensic investigative techniques, and how to defeat them.

Head Hunters East Chapter President Wayne Doyle once summed this effect up when ‘thanking’ a police detective for his work.

He said: “You make the strong stronger, and the weak #@!# off, and that’s good for the club.”

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