The Hands of Crime on Business

I read about this the other day in the Financial Times.  (You can see the original press release here.  The income statement, which, like me, you’ll be able to puzzle out with the help of an online dictionary, is especially interesting.)

The Mafia, consisting of five crime families, had a banner year in 2009 despite the financial crisis, according to the report–the twelfth annual– released last week by the Confesercenti, an association of Italian businessmen.

high revenues

Organized crime, which generated an estimated €135.22 billion in gross profits (7% of Italian GDP), has four main lines of business:

—illegal trafficking, mostly drugs, which accounts for half of gross

—“taxes” on usury and rackets, 18% of the total

—“commercial” operations, like gambling and forgery, which amount to 19%, and

—“ecoMafie,” which is things like trash hauling and makes up almost all the rest.

low expenses

Expenses are relatively low.

—money-laundering costs, at  €19.6 billion, are by far the largest outlays

—expense reimbursement, €6.5 billion, comes next

—bribes, at €2.75 billion,  are the third-largest expense, and

—salaries, €1.17 billion, are the final significant item listed in the report.

Profits before investments for the Mafia rose last year to €104 billion from €100 billion the year prior.  The gain comes mostly from increases on profits from usury, with smaller gains from drug trafficking.  Crime also kept a tight lid on expenses, with salaries falling by about a third and bribes paid by over a quarter.

looks a lot like banking

As I was reading about this, it crossed my mind that if we replaced “illegal trafficking” with “proprietary trading” and “bribery” with “lobbying” we might end up with a story about  the major financial institutions in the US and Europe.

two differences, though

Both have to do with compensation.

The Mafia has had the wit not to pay large bonuses to its executives.  Salaries of “capi” are flat, year on year.  Also, within overall compensation, pay for associates has fallen sharply, while compensation paid to “prisoners” and “fugitives” has risen markedly.  This is presumably the result of the Italian government’s efforts to crack down on organized crime.

For bankers, on the first count there’s probably nothing we can do.  On the second, we can only hope.