Fall 2011- Chapter 7- Enterprise Crime, Contrepreneurial Crime, and Technocrime- Parts 1 and 2

Fall 2011- Chapter 7- Enterprise Crime, Contrepreneurial Crime, and Technocrime- Parts 1 and 2

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Unformatted text preview: Enterprise Crime, Contrepreneurial Enterprise Crime, Contrepreneurial Crime, and Technocrime­ Part 1 White Collar Crime CRJU E491W­ Fall 2011 William C. Smith Definitions Definitions Enterprise Crime ­White collar crime in which the interrelated dealings of legitimate businesspeople, political officials, and syndicated racketeers take the form of an “enterprise.” Contrepreneurial Crime ­The “profession” of white collar con artists, who combine the characteristics of a swindler and an entrepreneur. Technocrime ­White collar crime facilitated by any sophisticated from of technology, mostly with the use of computers. Enterprise Crime Enterprise Crime Conceptually, enterprise crime embodies two terms: “organized crime” and “syndicated crime.” The terms are often used interchangeably although “syndicated crime” best describes the widespread activities of a single affiliated group, such as the American Mafia. “Organized crime” can best be understood as the broader concept and involves the criminal association of different individuals, such as businesspeople, police, politicians, and criminals, that is formed for the purpose of conducting specific illegal enterprises in order to make a profit. Organized Crime Organized Crime Organized crime groups have four common features: They are self­perpetuating organizations with a defined hierarchy, limited membership, specialized roles for their members, and specific requirements, such as a vow of secrecy (omerta). They conspire to gain monopolistic control over specific illegal enterprises in a particular area and use the threat of or actual force, violence, and intimidation, as a primary instrument for achieving their aims. Their success results from providing goods and services for which there is a demand but no legal supply. They seek to protect themselves from prosecution by corrupting the political and legal system. Development of the Network Development of the Network The essential attribute of any organized crime group is its network of alliances through which it operates its corrupt and illegal enterprises. The development of the network, however, may have both planned and unplanned components. While the structure and network of a syndicated crime group may be closely delimited by its membership requirements (e.g. La Cosa Nostra), a more global organized crime group may develop its network through a pattern of intermittent, but casual, contacts with “outsiders” as they pursue moneymaking opportunities. Resemblances Resemblances Legitimate businesses and organized crime groups may resemble each other to the extent that they engage in many of the same types of business activities (e. g., lending money) but in different ways that are arbitrarily defined as either being “legal” or “illegal.” Some researchers, however, argue that the term organized crime can be appropriately applied to the activities of many so­called “legitimate” businesses and that when a business becomes a vehicle for engaging in “collective embezzlement,” such as during the Savings and Loan scandal of the 1980s, the line between white collar crime and organized crime is effectively erased. The Origins of U.S. Syndicated Crime The Origins of U.S. Syndicated Crime The syndicated form of U.S. organized crime is generally considered to have its roots in the criminal organization commonly referred to as “the Mafia,” which significantly emerged in Sicily in the middle 1800s. Although the term “Mafia” is used indiscriminately to refer to the activities of a number of syndicated crime groups, it is, in reality, an umbrella term that describes not only different criminal organizations but, as well, a way of life. Today, the FBI refers collectively to Mafia affiliated groups as Italian Organized Crime. Coming to America Coming to America By the turn of the twentieth century, the Mafia had become very powerful and widespread throughout Italy. In the face of widespread unemployment and poverty that permeated the country, however, many Sicilians, and Italians generally, began to immigrate to America to find better jobs to support their families. By 1922, the dictator Mussolini had taken firm control of Italy and began to crack down on the Mafia, causing many of their members to come to America. Prohibition Prohibition At the time that increasing numbers of Mafiosi were coming to America, the nation entered the prohibition era. Prohibition, which lasted from 1919 until 1933, created a huge demand for alcoholic beverages for which there was no legal supply, effectively turning the alcoholic beverage industry over to criminals and providing the perfect opportunity for the growth of syndicated crime. Prohibition also led to increased contact between the crime syndicates and the upper classes, establishing an enduring basis for combining syndicated and white collar crime. Post­Prohibition Activities Post­Prohibition Activities With the repeal of Prohibition, the Mafia moved beyond bootlegging and into a range of underworld activities, from illegal gambling to loan­sharking to prostitution rings. The Mafia also became involved heavily in labor racketeering in unions and in running legitimate businesses, including construction, garbage collection, trucking, restaurants and nightclubs. It raked in enormous profits through kickbacks and protection shakedowns. Instrumental to the Mafia’s success was its ability to bribe corrupt public officials, union leaders, and business leaders, along with witnesses and juries in court cases. Labor Racketeering Labor Racketeering Labor racketeering is the domination, manipulation, and control of a labor movement in order to affect related businesses and industries. It often leads to the denial of workers’ rights and inflicts an economic loss on the workers, business, industry, insurer, or consumer. Labor racketeering has become one of the American Mafia’s fundamental sources of profit, national power, and influence. Labor unions provide a rich source for organized crime groups to exploit: their pension, welfare, and health funds. Today, there are approximately 75,000 union locals in the U.S., and many of them maintain their own benefit funds. The Mafia and the Unions The Mafia and the Unions In the mid­1980s, the International Brotherhood of Teamsters controlled more than 1,000 separate funds with total assets of more than $9 billion. Organized crime groups, particularly the Mafia, attempted to control the health, welfare, and pension plans managed by the unions by offering “sweetheart” contracts, peaceful labor relations, and relaxed work rules to companies, or by rigging union elections. In 1986, the President’s Council on Organized Crime reported that five major unions, including the Teamsters, were “dominated by organized crime.” Jimmy Hoffa and the Mob Jimmy Hoffa and the Mob Much legend hasgrown around the story of Jimmy Hoffa and his relationship with the Mafia. Hoffa was said to have been closely intertwined with the Mafia once stating that the union needed them “because they had the power to disrupt strikes, so deals had to be made with them.” Hoffa was President of the International Brotherhood of Teamsters from 1957 to 1971, but went to federal prison in 1967, appointing Frank Fitzsimmons as acting President of the union. Hoffa’s relationship soured with some mob members, however, when he stated his intention to seek his old position as President upon his release from prison in 1971. On July 30, 1975, Hoffa was scheduled to meet with two Mafia leaders at the Machus Red Fox Restaurant in Bloomfield Township, Michigan where he believed that they would discuss his interest in reclaiming the presidency of the teamsters. The Mafia leaders did not show up for the meeting and Hoffa disappeared from the parking lot, never to be seen again. He was declared legally dead in 1982. According to some sources, Hoffa was murdered by Anthony "Tony Pro" Provenzano, a capo in the Genovese crime family as well as an International Brotherhood of Teamsters vice president. Other sources attribute Hoffa’s murder to Frank "the Irishman" Sheeran, a hitman for Mafia boss Russell Bufalino. The FBI’s investigation of Hoffa’s disappearance resulted in the publication of the 1976 “Hoffex Memo,” which simply concluded that Hoffa was murdered at the behest of organized crime figures who deemed his efforts to regain power within the Teamsters to be a threat to their control of the union's pension fund. As recently as September 2009, the FBI and Detroit police used cadaver dogs and heavy equipment to dig up areas around an abandoned lumber yard on the west side of Detroit; with no results. Italian Organized Crime Italian Organized Crime Today, the FBI identifies five groups as forming the core of Italian Organized Crime in the U.S. The first four groups are based in Italy but conduct their activities within the U.S. and exert a major influence on the fifth group, La Cosa Nostra, commonly referred to as the American Mafia: The Sicilian Mafia (based in Sicily) Camorra or Neapolitan Mafia (based in Naples) ’Ndrangheta or Calabrian Mafia (based in Calabria) Sacra Corona Unita or United Sacred Crown (based in the Puglia region) La Cosa Nostra (based in the U.S.) Sicilian Mafia Sicilian Mafia The Sicilian Mafia specializes in heroin trafficking, political corruption, and military arms trafficking, and is also known to engage in arson, fraud, counterfeiting, and other racketeering crimes. There are an estimated 2,500 Sicilian Mafia affiliates in the U.S. today and it is the most powerful and active Italian organized crime group in the U.S. Camorra Camorra The Camorra originated as an Italian prison gang and, today, is heavily involved in money laundering, extortion, alien smuggling, robbery, blackmail, kidnapping, political corruption, and counterfeiting. It is believed that today only about 200 Camorra affiliates reside in this country. Originally, many of the Camorra arrived in New York City between 1914 and 1917 and became engaged in a major gang war with members of the Sicilian Mafia over who would control gambling in Manhattan. ’Ndrangheta ’Ndrangheta specializes in kidnapping and political corruption, but also engages in drug trafficking, murder, bombings, counterfeiting, gambling, frauds, thefts, labor racketeering, loan­ sharking, and alien smuggling. ’Ndrangheta cells are loosely connected family groups based on blood relationships and marriages. In the U.S., there are an estimated 100­200 ’Ndrangheta members and associates, primarily in New York and Florida. Sacra Corona Unita Sacra Corona Unita Sacra Corona Unita began as a prison gang and specializes in smuggling cigarettes, drugs, arms, and people. It is also involved in money laundering, extortion, and political corruption. Very few Sacra Corona Unita members have been identified in the U.S., although some individuals in Illinois, Florida, and New York have links to the organization. La Cosa Nostra La Cosa Nostra According to the FBI, La Cosa Nostra (LCN) is the foremost organized criminal threat to American society. Literally translated, the term means “this thing of ours” or “our thing.” LCN is also referred to simply as “the Mafia,” or sometimes as “the American Mafia” in order to distinguish it from other Italian organized crime groups. LCN is a nationwide alliance of criminals, linked by blood ties or through conspiracy, dedicated to pursuing crime and protecting its members. LCN has its roots in Italian organized crime, but has been a separate criminal organization for many years, although it cooperates in various criminal activities with other Italian organized crime groups that are headquartered in Italy . LCN is most active in the New York metropolitan area, parts of New Jersey, Philadelphia, Detroit, Chicago, and New England. LCN is involved in a broad spectrum of illegal activities: murder, extortion, drug trafficking, corruption of public officials, gambling, infiltration of legitimate businesses, labor racketeering, loan sharking, prostitution, pornography, tax­fraud schemes, and stock manipulation schemes. A Family Affair A Family Affair LCN consists of different “families” arranged geographically and engaged in racketeering activity. The five major LCN families operating in the New York area are: The Bonanno family The Colombo family The Gambino family The Genovese family The Lucchese family Other well­known families operating outside New York include: The Patriarca family (New England) The Bufalino family (Northeastern Pennsylvania) The Trafficante family (Tampa, Florida) LCN families have a specific power hierarchy: Boss­ The boss is the head of the family, sometimes called the Don or “Godfather” and receives a cut of every operation taken on by every member of his family. Underboss­ The underboss, usually appointed by the boss, is second in command of the family and in charge of all caporegimes (capos) Consigliere­ The consigliere is an advisor to the family and sometimes seen as the Boss' “right­hand man.” Caporegime (or capo)­ A caporegime is in charge of a crew; a group of soldiers who report directly to him. Soldier (or soldato in Italian)­ A soldato is a member of the family, and traditionally can only be of Italian background. Associate­ Associates are not members of the family and their role is similar to that of an errand boy. They are sometimes people the family does business with (restaurant owners, etc.) In other cases, an associate might be a corrupt labor union delegate or businessman. Enterprise Crime, Contrepreneurial Enterprise Crime, Contrepreneurial Crime, and Technocrime­ Part 2 White Collar Crime CRJU E491W­ Fall 2011 William C. Smith Syndicated Crime and the Government Syndicated Crime and the Government On the national level, ties between government agencies and syndicated crime groups have been reported as far back as the early 20th century. From 1942 to 1945, during World War II, the federal government, in “Operation Underworld,” sought the assistance of organized crime figures, including “Lucky” Luciano, who was the head of the five major New York crime families, in an effort to avoid wartime labor union strikes, and limit theft by blackmarketeers of vital war supplies and equipment. In a different perspective, government has also been used to facilitate the commission of crimes by syndicated crime groups. Syndicated Crime and White Collar Crime Syndicated Crime and White Collar Crime Legitimate businesses operated, supported, or infiltrated by organized crime groups provide both a front and an important tax cover for the syndicate’s illegal activities. A syndicated crime group’s involvement with a legitimate business can mask the source of illegal funds, reduce the exposure of group members to criminal prosecution, and also lend an air of respectability to the group members’ public image. Syndicated Crime and Finance Crime Syndicated Crime and Finance Crime Syndicated crime groups have been long involved in relationships with financial institutions, such as banks and brokerage houses. Syndicated crime groups that wish to hide large amounts of illegally obtained cash, face serious risks of prosecution and forfeiture if the assets are discovered. In order to “launder” the illegally obtained cash, the involvement of a financial institution, such as a bank, is typically required in order to convert the cash to another financial medium that erases any link to the illegal activity that generated it. Syndicated crime groups often use the services of financial brokerage houses in order to engage in fraudulent stock transactions, such as penny stock “Pump and Dump” scams, that generate large profits for the group. In an indictment returned in March 2003, prosecutors alleged a two­ headed scheme: People who called 1­800 phone numbers advertising free samples of phone sex, psychic hot lines and dating services unwittingly triggered recurring monthly charges that appeared on their phone bills as “voice­mail services" and other innocuous services. At the same time, the scheme trapped Web surfers seeking adult content on the Internet by enticing them to enter their credit card information for “free” tours, only to begin billing them between $20 and $90 a month. The defendants routinely changed corporate billing names and merchant banks to stay one step ahead of authorities and foil Visa USA’s fraud­ detection system, according to court documents. In 1999, they began processing credit transactions in Guatemala to further muddy the waters, the documents said. Prosecutors charged that the Web sites used in the Internet scam were part of a joint venture formed in 1996 between Crescent Publishing Group Inc., a Manhattan company that published such high­profile adult magazines as, and Lexitrans Inc., a Web hosting company that they said was secretly controlled by Richard Martino, a member of the Gambino crime family. Pump and Dump Scams Pump and Dump Scams “Pump and Dump” scams involve artificially inflating the value of so­called “penny stocks” and then selling them when investor demand for the stocks has driven their share to an artificially high selling price. Penny stocks are stocks that normally trade for under one dollar, sometimes for under a penny. The stocks are poorly regulated and penny stock fraud has become widespread. The “Pump and Dump” scam often occurs when a company's web site posts a glowing press release about its financial health or some new product or innovation. Newsletters that purport to offer unbiased recommendations may suddenly declare the company as the latest “hot” stock. Messages in chat rooms and bulletin board postings may urge potential investors to buy the stock quickly or to sell before the price goes down. The company may even be mentioned by a radio or TV analyst. In reality what has happened behind the scenes in the “Pump and Dump” scam is that a small group which has accumulated a large number of shares in the penny stock has orchestrated the release of the false financial information with the intent of getting small­time investors to start trading irrationally. When that happens, as it almost always does because of the relatively small cost of the shares, the price of the stock skyrockets. The original speculators then sell their shares and stop hyping the stock, exiting with large profits, at which point the stock price plummets, causing investors to lose their money. The converse of the “Pump and Dump” scam is a penny stock fraud called the “Poop and Scoop” where group behind the scam spreads highly negative, and false, rumors about a company’s stock in order to drive its price down. They then buy the stock as it plummets, counting on a rebound in price once the rumor is dispelled. Contrepreneurial Crime Contrepreneurial Crime Contrepreneurial crime addresses the activities of so­ called “professional” criminals. The classic example of contrepreneurial crime is the “the big con,” which involves the activities of a “confidence man,” a smooth­talking, quick thinking, mostly nonviolent, criminal who takes money, or some other valuable commodity, from victims through acts of deception. The activities of professional criminals, sometimes referred to as “con men” or “grifters,” have been romanticized in films such as “The Sting” and the series of films describing the activities of the fictional character Danny Ocean. Professional Criminals: Attributes Professional Criminals: Attributes Professional criminals differ from the typical white collar criminal in that they possess highly developed skills for committing certain types of crimes, enjoy high status or esteem in the criminal world, and typically become involved in professional affiliations with other criminals of similar inclination. Additional differences include: A difference in self­identity, professional criminals being more likely to accept their status as criminals; A deliberate decision to engage in white collar crime , professional criminals being more likely to have decided to engage in their activities, as opposed to the typical white collar criminal who “drifts” into crime; and A proclivity to engage in “pure theft,” professional criminals being more likely to simply take something of value and not seek to defraud the victim by giving something of little or no value in return, as is often the case with typical white collar criminals. The Ponzi Scheme The Ponzi Scheme One of the most frequently recurring con schemes is the Ponzi scheme. The scam is named after Charles Ponzi, an Italian immigrant, who, in 1920 convinced thousands to invest in a scheme in which international postal reply coupons could be redeemed for U.S. postage stamps at a profit. A Ponzi scheme pays returns to separate investors from their own money or money that is paid in by subsequent investors, rather than from any actual profit earned. Ultimately, the scheme will collapse based on the inability to pay later investors. Bernie Madoff Bernie Madoff To date, the largest Ponzi scheme in history was that operated by Bernie Madoff which involved almost $65 billion in losses to its investors. Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008. Rather than offer high returns to all investors, Madoff offered modest but steady returns to an exclusive clientele. Madoff's annual returns were around 10%, and were a key factor in perpetuating the fraud. Ponzi schemes typically pay returns of 20% or higher, and collapse quickly. Madoff marketed his investment method as “too complicated to understand.” The scheme began to unravel in December 2008, as the stock market continued to plunge. As the general market downturn accelerated, investors tried to withdraw $7 billion from Madoff’s firm, and in the weeks prior to his arrest, Madoff struggled to keep the scheme afloat. To pay off those investors, Madoff needed new money from other investors. Madoff began asking others for money and said he was raising money for a new investment vehicle, seeking between $500 million and $1 billion for exclusive clients, was moving quickly on the venture, and that he needed financial backing quickly. On December 10, 2008, Madoff suggested to his sons, that the firm should pay out over $170 million in bonuses two months ahead of schedule, from the $200 million in assets that the firm still had. When his sons asked him how they could pay bonuses when they could not pay their investors, Madoff told them that the asset management practice of the firm was a Ponzi scheme. The sons immediately reported him to the authorities. Madoff was arrested by the FBI on December 11, 2008, on a criminal charge of securities fraud. On March 12, 2009, Madoff appeared in federal court in a plea proceeding, and pled guilty to all charges. There was no plea agreement and he simply pled guilty and signed a waiver of indictment. On June 29, 2009, he was sentenced to 150 years imprisonment and ordered to pay $170 billion in restitution. Madoff is currently imprisoned at the Federal Correctional Complex in Butner, North Carolina. Technocrime Technocrime Technocrime is a broader concept than computer crime and encompasses crime facilitated by any form of advanced technology. Common forms of technocrime include computer crime, identity theft, and telecommunications services theft. In a broader sense, technocrime includes any illegal or unethical treatment of secured information, hacking, identity theft, and certain types of unlawful usage of the Internet. The Zeus Trojan The Zeus Trojan Zeus is a Trojan horse that steals banking information by keystroke logging and is spread mainly by “drive­by downloads,” a type of malware, and phishing schemes, a scheme in which a user is asked for personal information by what appears to be an official, or authorized, source. As of October 28, 2009 Zeus had sent out over 1.5 million phishing messages on Facebook. Zeus also spread via e­mails purporting to be from Verizon Wireless and, as well was linked to false LinkedIn invitations. In October 2010, the FBI announced that using Zeus, hackers in Eastern Europe managed to infect computers around the world. The virus was disseminated in an e­mail. When targeted individuals at businesses and municipalities opened the e­mail, the trojan software installed itself on the victimized computer, secretly capturing passwords, account numbers, and other data used to log into online banking accounts. The hackers then used the information to take over the victims’ bank accounts and make unauthorized transfers of thousands of dollars at a time, often routing the funds to other accounts controlled by a network of “money mules.” ...
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