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Eva Danzi ■ To tackle the Mafia we must end financial secrecy

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In January 2023, Italy’s most wanted man, Matteo Messina Denaro, was arrested in the country. While this may seem like a victory in the fight against the Mafia, the truth is that this criminal network has outlasted all its leaders and remains alive. The organisation that has killed hundreds of its opponents has now learned to keep itself away from public displays of power. It now operates more in the shadows, using financial secrecy to maintain a stranglehold of power and influence.    

Matteo Messina Denaro, the last of the ‘old generation’ of the Sicilian Mafia, also known as Cosa Nostra, was arrested in Sicily after 30 years on the run. Throughout his ‘career’, Messina Denaro was involved in various criminal activities, including murder, drug trafficking, extortion, and money laundering. He is also one of the instigators of the murder of Giovanni Falcone and Paolo Borsellino, two anti-mafia judges who have become symbols of the fight against organised crime in the country. Our monthly podcast the Taxcast covered his arrest, and the use of financial secrecy by organised crime here.

Sicily, a land which bears deep wounds inflicted by the Mafia, still suffers from widespread distrust in the State, which has failed to provide its people with adequate infrastructure and support to retain human capital in the region. According to anti-mafia activist Don Luigi Ciotti, “Messina Denaro’s fugitive status was accompanied by the indirect complicity of the political class. The failure to establish, in Italy as well as in the world, a social and economic model based on fundamental rights – housing, work, education, healthcare – an antithetical model to the predatory one that generates injustices, inequalities, and democratic gaps that are opportunities for profit and power for criminal organisations worldwide.” 

Despite the government’s intensified efforts to combat the Mafia, particularly since 1992, the Sicilian “branch” of Italian organised crime continues to operate successfully. A major issue lies with the financial system, where Cosa Nostra has adopted subtler methods of operation, no longer acting as overtly as it once did, killing hundreds of people who opposed it in the past. However, there was a change of pace after the murders of Falcone and Borsellino, which had a profound impact on the country’s collective conscience, leading to decisive government action.  

As a result, the Sicilian Mafia learned that it cannot afford to draw attention to itself and has shifted its focus to more clandestine activities through money laundering and investments, that have allowed it to keep its bank accounts in good health. In recent years, the Italian State has confiscated approximately 4 billion euros believed to have been indirectly controlled by Messina Denaro. Still, the estimated turnover of all mafia business in Italy accounts for a staggering 38 billion euros a year, or 2% of GDP, according to the Bank of Italy.  

The Panama and Pandora Papers provide ample evidence of how illegally obtained money can swiftly cross borders and find its way back into the legal economy. Major leaks are full of examples of the use of secrecy jurisdictions by Cosa Nostra affiliates, featuring not just the ‘usual suspects’ in the Caribbean such as Panama, but also notorious European tax havens such as Luxembourg and Malta. These activities enable criminal organisations to move and conceal large sums of money, making it difficult for Italian authorities to track and seize assets.  

It’s crucial to understand that the movement of several billion euros cannot happen without the participation of financial institutions, service providers and the like. A major issue is that there currently isn’t an effective policy mechanism in place that would discourage these institutions from engaging in such activities. Despite increasing regulations against money laundering and banks being required to conduct customer due diligence, these measures have proven to be ineffective in deterring such criminal activity.  

Compliance with anti-money laundering due diligence requirements is currently heavily dependent on the discretion of operators when it comes to verifying the identity of their customers. Unfortunately, this approach is not sufficient, as these operators (who we often refer to as professional enablers) stand to gain financially by allowing such funds into the system. Shockingly, evidence indicates that entities which are required to do customer checks, including major providers like Credit Suisse and HSBC, have failed to prevent crime due to systemic flaws. 

Full transparency remains the most efficient policy response to counter the free circulation of dirty money. The creation of public beneficial ownership registers is crucial to achieving this goal. When a criminal wants to open a company, they hide behind nominees so that the activity is not directly linkable to them. They create complex ownership structures that span multiple jurisdictions to avoid being identified. The beneficial ownership register requires not only legal ownership but also the disclosure of beneficial owners when a company is set up. The information provided should be comprehensive, regularly updated and verified. There are multiple ways to ensure the accuracy of the data declared. Additionally, robust deterrence mechanisms should be put in place, including fines and criminal prosecutions.  

By implementing these measures, we can make it much more challenging for criminals to exploit our financial systems and hold them accountable for their crimes. Following a series of high-profile scandals, the European Union took action to increase transparency on beneficial ownership and finally introduced a requirement for countries to implement public registers of beneficial ownership information, a crucial step towards greater financial transparency. However, despite years of hard work and progress, this positive development was short-lived. A ruling from the European Court of Justice compelled the EU to take a step back, wiping out all progress made. The importance of financial transparency cannot be overstated when it comes to fighting the Messina Denaros of this world, because to tackle these criminal networks, we must target their offshore accounts and the financial secrecy that is protecting them.  

Transparency campaigns have historically had a difficult time because financial secrecy is not exclusive to organised crime and mafia affiliates, but is also beneficial to legitimate players. Multinational corporations and wealthy individuals seeking ways to avoid taxes, and who are well-positioned to lobby policy-making processes, are often able to water down proposed reforms. 

It is sincerely disappointing to see progress on beneficial ownership transparency fade because of one misguided court ruling, but it’s important that we don’t give up the fight. Efforts to increase financial transparency are key to ensure that criminal networks, responsible for human suffering in many corners of the world, have nowhere to hide. Moreover, the struggle for greater transparency goes beyond the fight against organised crime, in fact, it speaks for the vision to build fairer and thriving societies, ensuring that our financial systems are safe, fair and work in the interest of all.  

Image: Alessandrobottone, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

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