Penetration into Legit Business

Organized Crime has penetrated the deepest into legitimate business in Ontario, Canada, focusing on every form of business imaginable: the fashion industry, bakeries, legal system, accounting, trucking, home building, stock markets, real estate, car dealerships, medicinal marijuana, car dealerships, automotive repair, towing, etc. [Source: Toronto Sun, The Star, CTV News, CBC News, New York Times, Google News, Retail Dive, ZDNet].  They are even creating their own ‘start-up’ companies [Sources: National Post, NY Times, Esquire]. This problem is finally becoming recognized and is reaching print [Source: Financial Post]. As an example, as recent as May 9, 2019 an expert panel on money laundering issued its report, “Combating Money Laundering in BC Real Estate”, having estimated money laundering in Canada at $46.7 billion in 2018. However, a recent C.D. Howe Institute report, “Why We Fail to Catch Money Launderers 99.9% of the Time”, estimated it at $100 billion to $130 billion. Often these numbers vary – but perhaps we’ll agree that both are quit large [Source: CD Howe Institut]. In 2019 it was reported that money laundering activity resulted in house pricing rising by 5% in BC. And in 2020 a leaked FBI bulletin advised us that US hedge funds and private equity firms are being used to facilitate money laundering, organized crime, and sanctions evasion.

Organized Crime penetrated deeply into the Canadian construction industry, winning contracts with the offering of kickbacks and political donations.  They became “untouchable”, wielding influence through intimidation, threats, vandalism, racketeering, prostitution and pimping [Sources: Reuters, CBC News, Huffington Post, Huffington Post].  But of course, not all of their profit comes from penetration into legit business – they also profit from such things as human trafficking (women / children), and even spying on us [Source: CBC News, The Star]. To help ease their way into the fabric of society, they have been working to reduce on their visible footprint (reduction in violent crimes, etc.), which makes people feel more comfortable in working with them.  This is helping them to quickly expand [Source: CBC News].

Of course these crime groups may have come from other countries, or be affiliated with other overseas crime groups or governments.  Therefore, it is possible that companies in Ontario are being influenced, guided, or are taking direction from overseas “agents” – who may be working to soften our economy. Take, for instance, a “high-profile” court case alleging crime groups based out of China as circulating drug money through Vancouver-area casinos.  It is alarming that this high-profile case “collapsed” and will no longer be held in court.  B.C. Attorney General David Eby said that it was unclear as to why the federal government stayed — or discontinued — the criminal charges, stating “Something obviously went terribly wrong”.  Eby’s office had been hired to review potential links between criminal proceeds flowing into the province’s casinos, real estate, luxury cars and horse betting.  Global News reported that a police study into more than 1,200 luxury real estate purchases in the Vancouver area in 2016 found that more than 10 percent were tied to buyers with criminal records — of those, 95 percent were believed to be linked to Chinese crime networks.  “This is a crisis for our province,” said Eby, who has pleaded with the federal government for resources and a coordinated national approach to combating money laundering. “It is a disturbing signal that a prosecution of this magnitude collapses.” [Sources: BNN Bloomburg, Global News, Global News, The Epoch Times].

And of course, this activity is not just limited to North America. Organized Crime has taken a foothold in the European Union, having taken advantage of the bloc’s single market and lavish cash subsidies. Read about how crime bosses have abused the Brussels project to make billions!

And even though legislation, task forces, and government agencies have been introduced to help curb money laundering it is still occurring, and some have managed to escape investigation, as this report shows that over 400,000 British companies managed to evade anti-money laundering checks.

Organized Crime – Infiltration Tactics

In what I’ve read and come to understand about how these groups would infiltrate the economy, I would understand the overall tactics to infiltrate a business as being:

  • offering financial support to the company (financial backing / loans / partnerships)
  • gaining credibility and stepping in as an alternative to the state
  • improving the companies financial results by aligning purchasing and sales to other companies under their control
  • aligning businesses together to absorb competitors, choke competitors, or weaken companies so they can be acquired
  • bribing or otherwise influencing owners / executives / managers into ‘joining’
  • make existing employees nervous about losing their jobs, or make it known they will be “harassed” should they go to the police
  • replacing the Executive Leadership team

Staff Replacement
New employees are hired in already a member, or are bribed or coerced into joining.  As their footprint in the company grows (high-level positions join), political means are used to ‘out’ individuals in key departments, replacing them with more gang members with intent to steer the company.  Those in lesser positions will often have no idea as to what has happened, or have already been asked to join if they ‘fit the mold’.  Depending on the desired outcome for the company, these key individuals will work together in an attempt to either weaken or strengthen the company.

The group will work together through their companies to grow key, strategic companies that can be used to expand the crime group. As these companies grow, they expand their geographical footprint, leading to the absorption of more competitors.  Of course, as each company is absorbed key staff are replaced or recruited.

Operating Tactics
Companies often change suppliers as they deem fit – so depending on how many companies are ‘owned’ it can be easy to ‘choke’ out legit suppliers simply by changing away from them en-mass.  Volumes will increase at those companies favored by the crime group making everything look well run – all at the expense of legit business who would be viewed as incapable of competing in that market.

This would all be very difficult to detect as governments and crime detection groups have limited insight into these types of operations inside the company, because:

  • Companies can obtain financial support from different sources as they wish.
  • People can invest in any company they choose.
  • Suppliers are often changed.
  • People are hired and fired every day.
  • Companies hope that those hired bring a capacity to increase profits and applaud their efforts when this happens – they would have no knowledge that the newly hired person has illegal motives, connections, or loyalties.
  • Not everyone at the company will be a member of the crime family.
  • Companies and employees involved with organized crime are often involved in charity work, are religious, and even join the auxiliary police in attempts to mask their actions.
  • Companies work hard to ensure they are viewed positively by and public and appear to be trustworthy.
Who Finances Organized Crime?

Would you believe – the Vatican?
The Vatican has ties to organized crime and money laundering [Source: Business Insider].  This was made public back in 2013, and as of 2017 they are still working on reforms and changes [Source: Associated Press]. As of 2020, a European anti-money laundering agency has started its inspection of the Vatican, to assess the effectiveness of the legislative and institutional measures that had been adopted by the jurisdictions in recent years.

Unfortunately, banks sometimes work a little ‘too hard’ to make money!  It seems that not only do they have ties to organized crime, but they will also work together in bids to gain power, such as:

  • a decade long scheme that skimmed billions of dollars from the coffers of cities and small towns across the US
  • paying rating agencies like Standard and Poor’s (which is a conflict of interest)
  • making money off financial hardships created by their other activities
  • insider trading
  • and even lying to get money for bailouts

Sources: Rolling Stone Magazine, Forbes, Rolling Stone Magazine.

In a NetFlix documentary, “Dirty Money”, we learn that HSBC purchased the Banco International, S.A. in 2002, and since then over 100,000 men, women, and children were killed as a result of drug cartel violence, while $881 Million USD was laundered for the drug cartels [Source: Netflix “Dirty Money” series].

In 2012, HSBC admitted to violating US sanctions laws and failing to stop Mexican and Colombian cartels from laundering hundreds of millions of dollars in drug proceeds.  The government fined HSBC and entered into a five-year deferred prosecution agreement that stipulated all charges would be dropped if HSBC agreed to install an independent monitor to help improve compliance [Source: Reuters, Forbes].  The US Justice Department decided not to prosecute the bank after launching an investigation to determine the effects of prosecuting the bank, as they concluded the action might cripple the world’s economy.  But in doing so they created a grouping of individuals and companies deemed ‘un-jailable’ and ‘un-touchable’ by our justice system.

As of November 2016, HSBC continues to be linked to customers having ties to terrorists [Source: Express].  And in December 2017, the US Department of Justice dismissed all of the charges against the HSBC [Source: NY Times, Financial Post, Bloomburg].  The above case was U.S. v HSBC Bank USA NA et al, 2nd U.S. Circuit Court of Appeals, No. 16-308 [Source: Reuters].

One of the most impacting cases was brought to light in 2008 with the collapse of the Lehman Brothers, as this initiated the failure of the global economy [Source: Independent].  In the following economic crisis, Antonio Maria Costa, head of the UN Office on Drugs and Crime, said there is evidence that the proceeds of organized crime were “the only liquid investment capital” that was made available to the banks that were failing.  It is stated that the majority of the provided USD $352 Billion was actually from the profit of the sale of illegal drugs – which was therefore absorbed into the economic system (laundered) [Source: The Guardian, Utrecht University School of Economics, The Netherlands, United Nations Office of Drugs and Crime]. It’s a sad day when the government needs to be bailed out by Organized Crime!

It seems to me that this will continue until we lower the risk / profit ratio to that of an amount low enough that banks will cease to afford the risks of money laundering.  For instance, in 2018 ING and Danske Bank paid $775 Million Euros in fines for compliance failures that allowed the alleged laundering of $30 Billion Euros in a single year through a branch in Estonia [Source: The Financial Times].  In truth – what is a fine of 775 Million compared to the profits generated by 30 Billion being laundered?  I’d say obviously not enough since this continues.

Revenue Generation Methods

Human Trafficking
To help combat Human Trafficking, DARPA has created a system called, “MEMEX”, which scours the Internet (bypassing search engines), indexing and recording information as it finds it, and providing it to law enforcement agencies world-wide [Source: Scientific American, Military Aerospace, V3 Co, Business Insider, Security Affairs]. It seems that human traffickers are turning to the bitcoin and other cryptocurrencies in order to hide the money trail and avoid law enforcement.

Transaction Laundering
Illegal transactions are funneled through legit legal financial payment and transaction systems, exposing them to financial and legal liability.

Shell Companies
Shell companies are entities that usually employ few or no workers, do not conduct any substantive business, and allow their owners to store or route money while hiding their identities.  They are especially useful for laundering real estate transactions.  The Council on Foreign Relations released a document advising as to how insurgents, organized crime, and even dictators are funneling money though shell companies.  The U.S. Department of the Treasury recently found [PDF] that approximately 30 percent of high-end, all-cash real estate purchases in six major metropolitan areas involved a “beneficial owner or purchaser representative that is also the subject of a previous suspicious activity report.”

Drug Manufacturing and Distribution
As this April 2016 report informs, it would seem that ISIS and organized crime have joined forces and are trafficking drugs together [Source: AWD News].  In 2014, ISIS seized control of a 4 billion drug ring from the Mafia [Source: Mirror].

US Intelligence explored how ISIS and organized crime use the section of the Internet not indexed by Google to make and distribute money [Source: Security Affairs, Europol].  These websites offer illegal items for sale, and are often only online for short periods of time:

  • black markets (selling / purchasing all kinds of illegal products and services)
  • illicit on-line trading of drugs, weapons, stolen goods, antiquities, stolen personal and payment card data
  • forged identity documents
  • child abuse materials / human trafficking
  • Bitcoin – a good way to hide and transfer money [Source: SMH, Europol]

Some sellers are more bold, hiding in the open community on sites like Facebook [Source: McAfee Institute].  The United Nations suggests that police are not equipped to deal with them [Source: SC Magazine].