Font Size

- Aa +

Sat 14 Jan 2012 01:39 PM

Font Size

- Aa +

Italy’s money woes open doors to cash-rich mafia

Looming recession forces some firms to tap crime cartel to stay afloat

Italy’s money woes open doors to cash-rich mafia
Economic protests in Rome as Italy lurches closer to a recession

When Italian construction group Perego was struggling back
in 2008, a white knight flush with cash rode to its rescue.

Unfortunately the "knight" was a powerful mafia
organisation, the 'Ndrangheta, which went on to take control of the
family-owned Lombardy business and tried to steer it on an expansion path,
Italian justice authorities say.

"Luckily it failed," said Milan judge Giuseppe
Gennari. The group has since collapsed and former chairman Ivano Perego is
awaiting trial for opening his door to the crime syndicate.

As the Italian economy slips into a recession and its banks
answer regulatory pressure by curbing loans, more troubled firms could be
tempted to follow in Perego's footsteps.

Former Bank of Italy governor Mario Draghi warned back in
March 2011 that the economic crisis of the last three years had made companies
more vulnerable to the mafia.

Since then, the situation has only worsened.

Italy has reacted to spiralling costs linked to the euro
zone debt crisis with €76bn of belt-tightening measures aimed at balancing the
budget in 2013. The economy is set to shrink in 2012.

Facing funding strains, capital shortfalls and rising bad
loans, Italian banks have started passing on higher financing costs to
customers. Many fear they could turn the taps off altogether.

Italy's mafia organisations, whose revenues from money
laundering activities alone are estimated at around €150bn, are delighted to
step into the breach.

"In this crisis, those who have liquidity have
power," Italy's chief anti-mafia prosecutor Pietro Grasso warned on state
television in November.

Italian crime syndicates have moved in recent years out of
the southern regions where they originated into the richer north, and their
tentacles now reach deep into the world of local businesses and politics.

In particular the 'Ndrangheta, based in Calabria in the foot
of Italy's boot, has grown in importance as its role in international drug
trafficking has increased.

With the cocaine trade estimated to yield returns of at
least 50 times the initial investment, money laundering is one of its key

Anti-mafia investigative authority DIA has said that the
economic potential of Milan's Lombardy region, which accounts for a fifth of
Italy's domestic gross domestic product, made it an obvious target for the

"They are in a position to help troubled businesses.
They have the money to set things right and can help firms win orders, for
example by threatening competitors," said judge Gennari.

"The economic crisis is usury's best ally and it has
increased the mafia's share in this business," said Lino Busa, chairman of
the anti-racketeering association SOS Impresa.

Bankruptcies among Italian companies rose nearly 10 percent
in the first nine months of 2011, according to business information group
Cerved, which said they were relatively more frequent in Lombardy than

Rising bad loans on lenders' balance sheets also point to
Italian companies struggling to stay afloat. The gross total was €102b in
September with a 40 percent annual increase, Italian banking association ABI

The head of Confidi Lombardia said defaults were growing
again on loan guarantees provided by the regional cooperative, which helps
member firms borrow from banks.

"The past two years have been really bad and defaults
are back on the rise. Small businesses are definitely feeling the pinch, credit
is no longer cheap and no longer for everyone," said Managing Director
Andrea Crovato.

Small Italian companies, the backbone of the economy, are
often blind to the dangers hidden behind the mafia's helping hand.

"Sums borrowed hardly ever top €10,000, but a €2,000 loan
turns into a €25,000 debt within six months," said Ilaria Ramoni, a lawyer
with anti-mafia association Libera.

"Then the threats start, but many have a hard time
realising that a familiar face who helped in a moment of need is now a

Article continues on
next page…

SOS Impresa's Busa said small businesses were keen to
quickly pay back banks when they went into the red on their bank accounts for
fear of eventually losing access to credit.

"They don't turn to usurers to fund an investment if a
bank says 'no', nobody is that crazy," he said. "But they will turn
to them for small sums needed to avoid being flagged as risky clients and
denied all credit in the future."

Bank lending to Italian households and firms stalled in
October from September, ABI data showed. The average rate on loans to companies
of up to €1m was 4.42 percent in October from 4.16 percent in September, the
Bank of Italy said.

In an online forum on the website of leading daily Corriere
della Sera, business owners complained of being squeezed between bills that
clients left unpaid and loan repayments to banks.

"That bank manager who used to wish me 'Happy Birthday'
every year now shuns me," small-business owner Matteo wrote in the online

"He'd ask if I wanted money for a new warehouse or to
build. Now you don't take my calls and your assistant tells me you're busy or
sick and reminds me of my overdraft and my mortgage."

A study published by Milan's Bocconi University estimated
that criminal economic activity accounted on average for 10.9 percent of
Italy's annual gross domestic product in 2005-2008.

Construction, logistics, hospitality, retail and wholesale
commerce are traditionally the sectors with stronger mafia infiltrations, said
Michele Polo, an economics professor at Bocconi.

These sectors do not require sophisticated business skills
and often complement the mafia's illegal businesses. Construction sites can
become graves for its enemies, cafes and restaurants meeting places for its
members. And trucks are useful if you need to transport drugs.

"The long-distance freight business for example offers
great synergies with drug trafficking," Polo said.

Last year a Milan court took temporary control of four
Lombardy branches of Dutch freight and delivery group TNT Express that it said
had been infiltrated by the 'Ndrangheta.

The court has since restored management to TNT, which TNT
head of communication Ersnt Moeksis said was "a direct consequence of the
transparent and positive relation between TNT Express Italy and the judicial

In November a Milan court convicted 110 people of
mafia-related activities following one of the biggest anti-'Ndrangheta
operations in recent years, judicial sources said. The suspects had opted for a
fast-track trial that may yield a reduced prison term and hearings were not open
to the public.

The 'Ndrangheta's presence in the north goes back at least
two generations when it moved families up from the south, dividing Milan and
its surroundings into areas of influence in the same way they control their
home turf, acquiring direct or indirect control of companies and gaining
political influence.

"This is not just 'a peripheral off-shoot of the
Calabrian crime syndicate'," prosecutors wrote in a court document.
"It is an autonomous organisation ... with a criminal programme."

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.