Managing the Mob: Techniques to Limit the Risks and Costs of Doing Business in Markets Tainted by Organised Crime
| Published date | 01 February 2001 |
| Pages | 325-331 |
| Date | 01 February 2001 |
| DOI | https://doi.org/10.1108/eb025997 |
| Author | David Reynolds,Grant Newsham |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 8 No. 4
Managing the Mob: Techniques to Limit the Risks
and Costs of Doing Business in Markets Tainted by
Organised Crime
David Reynolds and Grant Newsham
International companies lost some $24bn in 1998 by
ignoring or underestimating organised crime, cor-
ruption and other non-conventional risks in emer-
ging markets, according to a survey conducted by
risk consultancy Merchant International
Group.1
Foreign firms in the 1990s tended to pass up oppor-
tunities to invest directly in countries in Eastern
Europe and the former Soviet Union with high
levels of official corruption in favour of joint ventures
or opportunities elsewhere, according to a study
sponsored by the World Bank and the Brookings
Institution.2
The actual and opportunity costs of organised
crime and official corruption highlight an area in
which risk and security managers can make a signifi-
cant and lasting impact on their firm's business opera-
tions.
It is in countries of the former Soviet Union,
Eastern Europe, and parts of Asia, Africa and Latin
America that organised crime and official corruption
are found in their most virulent form. Many of these
countries, however, offer some of the greatest poten-
tial to international firms as emerging markets for
their goods, services and investment.
If armed with tools to identify and carefully
manage the threats associated with organised crime,
the risk management team should be well placed to
have a profound impact on their firm's efforts to
tap these potential markets. Although a company
should never attempt to tackle the mob indepen-
dently in lieu of turning to the appropriate law
enforcement authorities, in certain emerging mar-
kets,
where the benefits of doing business come
close to matching the costs of crime and the local
enforcement agencies are ineffective or corrupt, the
adept use of one or more carefully tailored defensive
measures may help tip the balance in favour of a
corporation marching ahead with its business plan.
RECOGNISING THE MOB
To manage the risks posed by organised crime effec-
tively, a firm must be able to recognise both when
organised crime is present and how these groups
will be likely to attempt to interact with their
firms. If a fund manager, loan officer or factory direc-
tor is approached and threatened by individuals
claiming to represent the local crime group, is the
firm or bank facing a real threat from members of
a dangerous syndicate, or imposters simply using
the group's name to engender fear? If company
employees are involved in smuggling narcotics or
manufacturing and selling bootleg copies of company
products, are their partners likely to be members of a
dangerous crime syndicate? Does it really matter who
is behind threats against employees and company
facilities?
The short answer is it does matter. Firms must
recognise that although a crime may well require a
good degree of organisational skill, the local mob
may not necessarily run the enterprise or even have
a vested interest in its outcome. Companies or com-
pany employees operating internationally, particu-
larly in regions hard hit by crime and corruption,
can easily come into contact — as victims or co-
conspirators — with narcotics traffickers, financial
fraudsters and product counterfeiters. Many, if not
most, of these criminals will claim ties to one or
more criminal organisations. In some cases these ties
actually exist. More often than not, these criminals
are either mobsters operating independently of their
home organisations, those who have purchased the
right to use the gang's name, or criminals falsely
claiming ties to the
group.3
In cases in which an international firm encounters
criminals involved in entrepreneurial crime — con-
traband trafficking, fraud, counterfeiting — that do
not involve the control of
turf,
a company manager
should never assume that he or she is dealing with
an organised crime syndicate. In these circumstances,
although the threat to the firm and its employees may
well be real, a company often can be more aggressive
in calling in law enforcement without fear of engen-
dering retaliation from a well-organised and violent
syndicate.
Journal of Financial Crime
Vol.
8,
No.
4,
2001,
pp.
325-331
© Henry Stewart Publications
ISSN 0969-6458
Page 325
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