The Crime Book Big Ideas Simply Explained

US energy company US authorities fine German WHITE COLLAR CRIME 99
Enron is exposed engineering giant Siemens for
for a massive Russian malware
and systematic using bribery to win developer Aleksandr
overseas contracts.
accounting fraud. Panin is arrested
for hacking millions of
online bank accounts.

2001 2008 2013

2007–08 2008 2015

In France, rogue trader Wall Street investment The US Environmental
Jérôme Kerviel makes a advisor Bernie Madoff's Protection Agency
number of unauthorized Ponzi scheme collapses
trades at Société Genérale and bankrupts thousands uncovers emissions
and nearly brings down fraud by the German
of people. car maker Volkswagen.
the bank.

that serial killers devastate than the entire organization. The law can be perceived by some
families, while white collar case of Albert Bacon Fall – who, in unscrupulous executives as a
criminals destroy societies. 1922, was convicted of conspiracy perfectly rational business decision.
Nonetheless, punishment for white and bribery while working as US
collar crime tends to be more Secretary of the Interior in what In a situation when virtually
lenient than for violent crimes. became known as the Teapot Dome everybody in the company is
scandal – typifies this behaviour. complicit in either illegal activity or
Apportioning the blame a conspiracy of silence, it becomes
Criminologists identify two broad More troubling are the corporate extremely difficult to establish
categories of white collar crime: crimes such as the Enron scandal, individual culpability beyond
“individual” and “corporate” (also Siemens scandal, and the Bhopal reasonable doubt – especially when
known as “structural” crime). Disaster. Here, criminality is the company can afford to employ
located, motivated, and enacted accomplished defence lawyers.
Individual white collar crime at an organizational level.
occurs when a person or persons In cases such as Jérôme
working within a political or private In cases like these, individuals Kerviel’s, the official narrative of
organization exploits their position may benefit from the wrongdoings a lone wolf operating within an
without the knowledge of the of their company, but they are otherwise law-abiding company
institution, and profits through their players in a larger conspiracy. has been met with outright
illegal activities. They may be in Criminal activity is initiated or scepticism from many quarters.
league with other members of the condoned at an executive level, Critics argue that others higher
organization, or suppliers, or clients, often after a cost-benefit analysis. up in the organization simply had
but it is a small minority of For example, if savings from illegal to know, believing that not being
employees that are corrupt rather activities outweigh the cost of the aware of such systemic crimes
possible fines, then breaking the would be functionally impossible. ■

100

BDMMEEUOLELNNUTESIAYTI…OUCNDAEUHOSSAFESOOFFTTEHNE

THE MISSISSIPPI SCHEME, 1716–20

IN CONTEXT I n 1705, Scottish economist John There are good reasons to
Law proposed major reforms to think that the nature of money
LOCATION the Scottish banking system to is not yet rightly understood.
France reduce public debt and stimulate the
economy. These included the use of John Law
THEME paper currency as money instead of
Financial bubble gold. Law’s theory was rejected, but £2,000 today), a year later, they
in 1716, the Duke of Orléans, regent were worth 20 times as much. The
BEFORE for the young King Louis XV, invited value of the securities grew too.
1630s At the height of “tulip him to try it in France, which was The scheme led to wild speculation,
mania” in the Dutch Republic, near bankruptcy. and stock markets across Europe
speculators trade tulip bulbs boomed. The French authorities
for huge sums of money, until Law founded a national bank responded by printing money, but
the market folds overnight. which accepted gold and silver this caused rampant inflation and
deposits and issued banknotes a loss in the value of currency and
1720 The British South Sea in return. In 1717, he created a securities. In 1720, the value of the
Company, which trades with company with exclusive rights to Mississippi stock plunged, causing
Spanish America, takes over develop France’s US territories a major financial crash. Law fled to
Britain’s national debt. But it, in the Mississippi River valley; Venice, where he died in poverty
and its shares, collapse, and by 1719, the company controlled nine years later. ■
thousands of people of all all of the country’s colonial trade.
classes are ruined.
He then undertook a radical
AFTER restructuring of France’s debt. He
1849 William Thompson devised the “Mississippi Scheme”,
commits a series of scams on selling shares in his company, the
strangers in the streets of New value of which he had greatly
York City. His exploits lead a exaggerated, in exchange for state-
newspaper journalist to coin issued public securities. Investors
the term “Confidence Man” flocked to buy shares, and their
or “con man” for short. price rose sharply: issued at
500 livres tournois each (about

See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21

WHITE COLLAR CRIMES 101

NLHOOOSNTTHOIUSNRAGVIES

THE BLACK FRIDAY GOLD SCANDAL, 1869

IN CONTEXT I n late 19th-century America, government issued huge quantities
the financial markets were of banknotes without the gold
LOCATION unregulated, and some people reserves to back them up. In 1869,
New York City, US known as “robber barons” engaged Ulysses S. Grant’s government
in shady practices to build huge provided the gold to effectively buy
THEME fortunes. In 1869, financiers back the money. In so doing, the
Stock market manipulation James Fisk and Jay Gould secretly Treasury set the value of gold:
stockpiled vast amounts of gold when it sold its reserves, the price
BEFORE in a bid to corner the market. They dropped; when it held on to them,
1821–37 Scottish fraudster planned to drive up the price, then the price rose. If speculators tried
Gregor MacGregor invents a sell for enormous profits. But they to manipulate the gold market, the
“developed colony” in Central faced an obstacle. During the government could do the same.
America and finds investors to Civil War (1861–65), the Union
buy stock in it. Settlers relocate Fisk and Gould had to ensure
there, but on arrival they find a government gold was kept off the
strip of undeveloped jungle. market, which they did through
political influence and bribery.
AFTER They bought up gold, and the price
1986 Wall Street trader Ivan soared. But Grant became aware of
Boesky confesses to a US the plan, and so released $4 million
court that he acquired his (£60 million today) of Treasury gold.
$200 million personal fortune On 24 September 1869 (later called
through illegal market Black Friday), the inflated gold price
manipulation and insider dropped, and the market crashed.
trading deals. Meanwhile, Gould had secretly sold
his gold, before the price fell. ■
1992 Harshad Mehta uses
forged bank receipts as a James Fisk, unlike Jay Gould, did
guarantee for loans of $740 not sell his gold before the prices fell
million on the Bombay Stock on Black Friday, and lost a significant
Exchange. In an attempt to portion of his investment.
avoid prosecution, he then See also: Charles Ponzi 102–107 ■ Jérôme Kerviel 124–25
bribes politicians.

PPOTHFAEEYTROOELPDBRABGUAITNMOLGE

CHARLES PONZI, 1903–20



104 CHARLES PONZI

IN CONTEXT Charles Ponzi smiles for a police a number of temporary jobs, such
mugshot following his arrest for forgery as working as a waiter and
LOCATION in Montreal, Canada, in 1909. At the translator. Ponzi moved to Montreal
Boston, Massachusetts, US time, Ponzi went by one of his many in 1907, where he got a job at the
aliases, Charles P. Bianchi. Bank Zarossi and worked his way
THEME up to become a manager.
Ponzi scheme in cash. As well as the banknotes,
he passed out coffee and doughnuts, Early crimes
BEFORE convincing investors that they had The bank he worked at failed,
1899 William “520 Percent” no reason to worry. However, Ponzi’s leaving Ponzi feeling desperate.
Miller runs a pyramid scheme brazen display attracted the He forged a cheque hoping to raise
in New York, swindling attention of the US Attorney for the enough funds to return to the US,
investors out of $1 million (£19 District of Massachusetts. An audit but was caught, and spent three
million today) with the promise was commissioned on Ponzi’s years in a bleak prison facility on
of 10 per cent interest a week. finances, which unravelled one of the outskirts of Montreal. Upon his
the most notorious and remarkable release, he returned to the US, only
1910 A man calling himself scams in US history. to spend two years in an Atlanta
Lucien Rivier sets up a bank in prison for smuggling Italian
Paris and defrauds 6,000 A keen entrepreneur immigrants into the country.
investors of around 2 million Unlike some of his fraudster Whether it was due to his
francs (£6.5 million today). successors, Ponzi did not appear to circumstances or his character,
start out with nefarious intentions. being a crook soon became second
AFTER In 1903, at the age of 21, the Italian nature to Ponzi.
2010 A whistle-blowing immigrant arrived in Boston with
employee brings down just $2.50 (£48 today) in his pocket. After his release, Ponzi returned
Minnesota businessman to Boston. He met a stenographer,
Tom Petters’s $3.65 billion Although he was broke, Ponzi Rose Maria Gnecco, and they
(£2.5 billion) scheme. had an enduring entrepreneurial married in 1918. For the next few
spirit, and longed to make a name months, Ponzi worked a variety of
1991–2009 Texan Allen for himself. He picked up English jobs, including one for his father-in-
Stanford runs a $7 billion (£5 quickly and travelled around law, while all the time dreaming up
billion) 20-year scheme through the East Coast of America, taking ideas for businesses.
his Antigua-based bank.
He hoped to make it big with a
I n July 1920, Charles Ponzi’s new venture, a trade magazine, but
grand financial scheme was by 1919 this too seemed doomed to
collapsing. As the authorities failure. Faced with not being able
tracked his every move, panicked
investors crowded outside his I landed in this country with
Boston office demanding their $2.50 in cash and $1 million in
money back. The details of his hopes, and those hopes never
scam were splashed over the front
pages of the Boston newspapers. left me.
Charles Ponzi
Confident and charming as ever,
Ponzi seemed unfazed. Dressed in
a designer suit, he faced the horde
of angry investors with a smile. For
the next three days, Ponzi placated
the crowd, handing out more than
$2 million (about £15 million today)

WHITE COLLAR CRIMES 105

See also: Bernie Madoff 116–21 ■ Jérôme Kerviel 124–25

He is one of the best examples Ponzi obtained a loan and sent the initial investors using money from
of misdirected energy in the money to his family back home in new investors, while all of his
annals of American crime. Italy. He asked them to purchase investors were kept unaware of his
postal coupons and send them back methods. To add a sheen of
The Washington Post to him in the US. He reportedly legitimacy to his endeavour, Ponzi
made more than 400 per cent profit opened his own company, the
to afford the following month’s rent on some of his sales. Security Exchange Company. Word
for his office, desperation was quickly spread about the returns he
setting in again. Generating investment had produced, and an initial tiny
The scheme was not illegal – Ponzi pool of investors soon expanded into
It was around this time that was buying an asset at a lower Boston’s elite society, fuelled by the
Ponzi received a letter from Spain price and selling it for a high price impressive rates that initial
with an unusual document inside. in a different market – but he had investors were being paid.
Similar to a self-addressed stamped no idea how to redeem the coupons
envelope, the internal reply coupon for cash. Undaunted, he promised Whether it was a scam from the
(IRC) looked like money but was friends and investors that he could beginning, or whether Ponzi
actually a system for prepaying double their investment in 90 days. intended to pay the investors once
international postage. It could be He confidently explained that the he figured out how to convert the
redeemed in various parts of the fantastic returns on the postal reply coupons into cash, is unclear, but
world, but the fixed prices did coupons made profiting simple. Ponzi made no effort to generate
not reflect the dramatic post-war legitimate profits. Eventually, he
devaluation of some currencies. Many investors were paid as stopped purchasing IRCs and kept
Ponzi realized that he could turn promised, receiving $750 (£4,635) all of the money for himself. By
a profit if he bought the coupons in interest on initial investments of June 1920, Ponzi had made $2.5
Italy, where they were relatively $1,250 (£7,725). However, these million (£19 million) from about
cheap, and exchanged them for profits did not come from trading in 7,800 customers. His desk drawers
more expensive stamps in the US. IRCs. Instead, Ponzi paid back his overflowed with cash; money was ❯❯

Although Ponzi did not have a
plan for converting the coupons into
cash, he figured that he could make
a profit of $2.30 (£14 today) for every
$1 (£6) that he invested. Realizing
the potential for a business venture,

International Reply Coupons,
which could be exchanged for postage
stamps, inspired Ponzi’s scam. This
particular design was adopted by the
Universal Postal Union in 1906.

106 CHARLES PONZI The schemer

A pyramid scheme promises high returns to
investors, who are paid back through the
investments of later investors. As with all
pyramid schemes, Charles Ponzi’s was
mathematically unsustainable because each
round needs to involve at least double the
number of investors as the previous round.

In the first round, the Four friends of
schemer takes a $1,000 the first round
investment from two investors
investors, promising to
double their money.
In the second round, the schemer
finds four more investors and gets them
to invest $1,000 each. With this $4,000,
he pays back the first round investors.

In the third round, he needs $8,000 to
pay the second round investors, and finds
eight investors to invest $1,000 each. The
first round investors are pleased with the
results, reinvest, and tell their friends.
The scheme grows and the schemer is
able to make payments to himself.

even stored in his wastebaskets. Questions raised steered them away from inspecting
Convinced of his genius, investors While Ponzi was making money, his books – his helpful offer to
mortgaged their homes and his operation was running at a refuse new investments during
invested their life savings with tremendous loss, using money their investigation calmed their
Ponzi. Most did not take their collected from new investors to pay suspicions. When the US Attorney
profits when offered, but instead the promised returns to earlier for Massachusetts did look at the
reinvested, trusting him to increase investors. This type of scheme, books, he just found a box of index
their wealth even further. In which “borrows from Peter to pay cards bearing investors’ names.
February 1920, Ponzi was Paul”, eventually came to be named
promising customers a 50 per cent after Charles Ponzi himself. In July came another blow: the
profit a mere 45 days after their US Post Office confirmed that Ponzi
investment. Soon, that number was By the middle of 1920, Ponzi was could not be making the returns he
raised to 100 per cent, sparking making about $250,000 (£1.9 million) had claimed on the international
even more investment. a day, but local newspapers began postal coupons – there were not
to investigate when a furniture enough of them in circulation. The
Ponzi deposited the money in dealer publicly claimed that Ponzi’s Post reported this, too, and Ponzi
Boston’s Hanover Trust Bank – in cheques had bounced. The Boston filed a suit against the newspaper,
which he also bought a controlling Post responded with a series of before spinning a yarn about
stake. With the ever-increasing articles asking hard questions about purchasing coupons in Italy and
influx of cash, Ponzi revelled in his Ponzi’s money machine, noting that selling and reselling throughout
new life of luxury: he bought a he himself was not investing with Europe. He convinced nobody.
mansion with a heated pool in his own company. On 2 August 1920, newspapers
Lexington, smoked cigars from declared Ponzi to be insolvent.
diamond holders, and bought Around the same time, the
dozens of gold-handled canes for Commonwealth of Massachusetts As investors pulled out, Ponzi
parading around town. got involved. Although Ponzi was struggled to find the money to
questioned by state officials, he pay them what they were owed.

WHITE COLLAR CRIMES 107

By 9 August, his main bank selling swampland to investors How Ponzi schemes
account was overdrawn and the with the promise of substantial impact the economy
district attorney froze it. Knowing returns on their money. Ponzi was
his arrest was imminent, Ponzi arrested for fraud and sentenced Ponzi schemes inflict severe
surrendered to federal authorities to one year in prison, but he was financial damage on investors
on 12 August 1920. He was charged freed on appeal. and the economy by diverting
with 86 counts of mail fraud. money away from productive
In New Orleans, he was caught and legitimate investments.
Final years trying to flee to Italy by boat – The bigger the scam, the more
Ponzi had lost around $20 million despite shaving his head and damage it causes, particularly
(£150 million) of investors’ money. growing a moustache to disguise once large banks become
While some were paid, Ponzi was himself – and was sent back to involved. When the scheme
short by $7 million (£53 million). His finish his original jail sentence in is revealed, investors can
arrest brought down six large state Boston. Deported to Italy in 1934, lose confidence in those
banks, including the Hanover Trust. he tried a few more unsuccessful institutions and are reluctant
Many investors were financially schemes in Italy before moving to to invest in them again.
crippled, receiving under 30 cents Brazil, where he died, in 1948. ■
for each dollar they were owed. Discovering and closing
A large crowd gathers outside down Ponzi schemes can be
The impulsive Ponzi used his Charles Ponzi’s Boston office in July difficult. Often, neither the
bail release to flee to Florida, where 1920 after The Boston Post published perpetrators nor the schemes
he launched the “Charpon Land a number of articles questioning his themselves are regulated. And
Syndicate,” another Ponzi scheme business practices. even in regulated institutions,
Ponzi schemes may use
technical language to hide
their true nature.

Ponzi schemes that violate
a number of financial laws
may be investigated
separately by more than one
regulator, which makes it hard
for the bigger picture to
emerge. The financial
significance of the institutions
that have invested in the
scheme can also make
regulators reluctant to
investigate, believing that the
institutions are too big to fail.

108

MCYOOILUNLVCIOIACNNTD’TAOLLARS

THE TEAPOT DOME SCANDAL, 1921–22

IN CONTEXT U ntil Watergate, the illegal oil-producing areas as naval oil
espionage operation that reserves – among them was a
LOCATION led to the resignation of piece of land in Wyoming called
Washington, D.C., US President Richard M. Nixon in 1974, “Teapot Dome”.
US political scandals were defined
THEME by the Teapot Dome incident of Politics and oil
Political corruption the early 1920s. It had nothing to do In 1921, Taft was succeeded by
with tea, or a dome – it was about President Warren G. Harding,
BEFORE corruption, which was enough to who appointed a mixture of able
1789–1966 The corrupt taint a president’s administration. politicians and old cronies to his
leaders of Tammany Hall in cabinet. Among them was Albert
New York, a powerful Early in the 20th century, the Bacon Fall, secretary of the interior.
Democratic political machine, US Navy converted from coal to fuel In 1921, under pressure from Fall,
allow mayoral candidates oil. To ensure that it would always President Harding issued an
to buy their support and have sufficient supplies of fuel, executive order that transferred
influence. President William Howard Taft supervision of the Teapot Dome oil
designated several of the federal
1912 In Britain, senior
members of the Liberal Bribery return – is a formidable task.
government profit from inside This difficulty fuels much of the
information about plans to A bribe is deemed to have taken controversy around the large
issue a lucrative contract to place when an individual cash contributions lobbyists
the Marconi company. exchanges favours with another “donate” to politicians.
party to gain an illegitimate Lobbyists hope these will have
AFTER advantage over what should be an effect on government policy,
1975 The US Senate concludes a neutral process. It can take but proving that any eventual
that American aerospace place at both corporate and changes in policy were a direct
company Lockheed paid governmental levels. result of their donations is nearly
bribes to members of foreign impossible.
governments to guarantee Even today, in countries
contracts for military aircraft. with comprehensive anti-bribery Bribery investigations tend
laws, proving that an illegal to reply on wiretaps or elaborate
quid pro quo has taken place sting operations, in which both
– in which something is parties are tricked into explicitly
specifically given in order stating what they intend to give
for something to be done in and receive.

WHITE COLLAR CRIMES 109

See also: The Mississippi Scheme 100

“Teapot Dome” became part of the President Harding
political lexicon, a synonym for appoints several friends
high-level corruption. It was pressed
into play on campaign cards (left) to senior positions in his
during the 1924 presidential election. government

field and two oil fields in California hidden and to cover his tracks His friends betray his
from the navy department to the administratively, but he was seen trust by accepting bribes
department of the interior. Fall then spending money lavishly on his
covertly, and without competitive New Mexico cattle ranch and other and embezzling
bidding, granted exclusive rights to business ventures. Suspicions government funds
Teapot Dome to Harry F. Sinclair of arose about his sudden prosperity. Secretary of the interior
the Mammoth Oil Company. A Albert Fall leases public
similar deal was made with The scandal blows open oil reserves, including
Edward Doheny of Pan American In 1922, the US Senate launched Teapot Dome, to private
Petroleum and Transport Company an investigation into the leases and companies in return for
for the Elk Hills reserve in contracts negotiated by Fall, and money and gifts
California’s San Joaquin Valley. In his dishonesty was finally exposed. A senate investigation
return, Fall received hundreds of President Harding was ordered to into Albert Fall’s activities
thousands of dollars in interest-free cancel the leases, and the oil fields begins but President
loans from the companies. were shut down. Harding was not Harding dies before it
personally implicated in Fall’s illicit releases its findings
Although these leases and deals, but as the scandal unfolded,
contracts were technically legal, his health began to suffer. In 1923, A Congressional
Fall’s acceptance of the money was he died of a heart attack, before all investigation held
not. He attempted to keep the deals the details of Fall’s wrongdoings after Harding’s death
were made public.
I can take care of my enemies finds that his
in a fight, but my friends, my Fall was found guilty of administration
goddamned friends, they’re accepting bribes in the Elk Hills and was riddled with
the ones who keep me walking Teapot Dome negotiations. He was
fined $100,000 (£865,000 today) and corruption
the floor at nights! sentenced to a year in prison,
President Warren becoming the first cabinet member
to be convicted of a felony. His fine
G. Harding was waived, though, because he
was destitute, and he was released
after nine months on the grounds of
ill health. The heads of Mammoth
Oil and Pan American Petroleum
were acquitted of all charges of
bribery and criminal conspiracy.

Investigations initiated by
Harding’s successor, Calvin
Coolidge, revealed that the Teapot
Dome scandal had been one of
many examples of corruption
during Harding’s tenure. His
reputation was forever tarnished. ■

110 IN CONTEXT

RCWAINIGTEDIRHZECTE,ENDLNSYETIFNRTGE, LOCATION
Bhopal, Madhya Pradesh
THE BHOPAL DISASTER, 1984 state, India

THEME
Industrial accident

BEFORE
1906 An explosion and fire at
a French coal mine owned
by the Courrières mining
company kills 1,099 miners.

1932–68 Methyl mercury
dumped into Japan’s
Minamata Bay by chemical
company Chisso Corporation
contaminates shellfish, which
in turn poisons local residents.

AFTER
31 July–1 August 2014
A series of gas explosions
caused by poorly maintained
pipelines kill 32 people in
Kaohsiung, Taiwan.

I n the early morning hours of
2 December 1984, 40 tons
of the deadly poisonous gas
methyl isocyanate leaked from a
pesticide plant owned by the
Indian subsidiary of US firm Union
Carbide Corporation (UCC) in
Bhopal, Madhya Pradesh, India.

Half a million people were
exposed to the gas cloud that
floated across the packed shanty
towns around the plant. Estimates
of the number of casualties vary,
but the government of Madhya
Pradesh reported that several
thousand people died immediately
from the effects of the gas, and
thousands more were left with
permanent disabling injuries.

WHITE COLLAR CRIMES 111

See also: The Siemens Scandal 126–27 ■ The Volkswagen Emissions Scandal
130–31

Thousands of casualties, among
them people whose eyes had been
seared by the toxic fumes, assembled
in the streets to await rudimentary
treament. The local hospitals and
mortuaries were quickly overwhelmed.

It was the worst industrial accident In the early 1980s, widespread procedures that fell well short of the
in history. The name Bhopal crop failures and famine across the standards maintained in its US
became synonymous with death, Indian subcontinent meant farmers plants. India’s government was
corporate and government were unable to invest in pesticides, aware of the safety issues but was
mishandling, and negligence. and demand fell accordingly. The concerned about the economic
Bhopal plant reduced its output effects of closing a plant that
Warning signs while UCC looked for a buyer. In the employed thousands of local people.
In 1969, chemical manufacturer meantime, the facility continued to
UCC built a plant on land leased to operate with safety equipment and Then came the terrible events
them by the Madhya Pradesh State of 2–3 December 1984. A strong
Government to produce Sevin, a The water caused a reaction wind quickly blew the poisonous
pesticide used throughout Asia. that built up heat and pressure gas plume from the plant through
The Indian government owned the city; it hugged the ground, and
a 49.1 per cent financial stake in in the tank, quickly as victims inhaled it, their throats
the operation. transforming the chemical and eyes burned. Many died
horribly, vomiting or foaming at the
But there were problems from compound into a lethal mouth. Chaos ensued as tens of
the outset. The city of Bhopal was gas that escaped into the thousands of terrified people tried
chosen for its good transport to escape the city. Arjun Singh, the
infrastructure, but the plant’s site cool night air. chief minister of Madhya Pradesh,
was zoned for light industrial and Union Carbide was accused of fleeing to his
commercial use, not for an industry palace outside Bhopal, leaving his
with potential hazards. And Corporation constituents to fend for themselves.
although the plant was supposed to
produce pesticides using chemicals The investigation begins
prepared elsewhere, in order to cut News of the disaster reached UCC’s
costs and gain a competitive edge headquarters in the US, and Chief
in the market, it began making the Executive Officer Warren Anderson
raw materials, too, a far more flew to India with a technical team
dangerous process. to help the government manage the
aftermath. When Anderson arrived,
he was placed under house arrest.
Technicians began to assess the
cause of the gas leak and delivered
medical supplies and equipment to
the local community. What they
discovered was horrifying: the
streets were littered with human
and animal corpses.

Anderson was released after he
promised to travel back to India to
stand trial whenever he was ❯❯

112 THE BHOPAL DISASTER

summoned. Ten days after the Medical experts report a high dependents were still awaiting
accident he appeared before the incidence of lung cancer, compensation more than 20 years
US Congress to report that his adverse outcomes of after the disaster. And some group
company had a commitment to pregnancy, and respiratory, claims remain in litigation.
safety. He promised to take action
to ensure that a similar incident neurological, psychiatric, and While no single saboteur was
“cannot happen again.” In the ophthalmic problems among named, both civil and criminal
months that followed, UCC set up cases were filed against UCC and
a $120,000 (£200,000 today) relief those exposed to the gas. dragged on for years. In 2010, seven
fund for their employees who had John Elliott former executives of UCC, all Indian
been affected by the tragedy, but nationals, were convicted of causing
that did not go far. By April 1985, it and paid $470 million (£460 million death by negligence. Each was fined
had increased the fund to $7 today) in damages. However, some $2,000 (about £1,450) and sentenced
million (£11.1 million today). commentators felt that the company to two years in prison. Given the
significantly underestimated both devastation the gas leak caused the
The struggle for justice the long-term health consequences punishment seems light, but it was
The subsequent investigation into of exposure to the gas and the the maximum allowed by Indian law.
the Bhopal disaster lasted for years, number of people affected. India’s
and eventually revealed that a government and UCC paid for a In terms of public safety, it
faulty valve had allowed 1 ton of hospital to treat victims which seems that some lessons are yet
water meant for cleaning internal opened in 2001, and established a to be learned from Bhopal. In the
pipes to mix with 40 tons of methyl health insurance fund to cover the years since the accident, India has
isocyanate. This caused a chemical expenses of 100,000 people. Yet, undergone rapid industrialization,
reaction that forced a valve to open chronically ill survivors and their but activists say the government
and allowed the gas to escape. The has been slow to regulate industry,
investigators believed this was the continuing to put the health of the
result of sabotage: an employee country’s citizens at risk. Bhopal
must have tampered with the tank. proved the need for preventative
strategies to avoid similar events,
At first, UCC tried to avoid legal enforceable international standards
responsibility for the tragedy, but in for environmental safety, and
1989, it reached an out-of-court industrial accident preparedness.
settlement with India’s government
A toxic legacy
Decades after the Bhopal disaster,
estimates of the death toll vary
from as few as 3,800 people to as
many as 16,000. However, the
Indian government now cites a
figure of 15,000 people, which
includes those who have died from
illnesses related to exposure to the
gas. Several thousand more
survivors continue to battle life-
limiting conditions, such as cancer,
blindness, and neurological and
immune disorders. A large number

Warren Anderson, CEO of UCC at
the time of the disaster, was charged
with manslaughter by the authorities
in Bhopal in 1991. The US refused to
extradite him to India to face trial.

WHITE COLLAR CRIMES 113

Survivors’ organizations and other
local activists regularly stage protests
demanding harsher punishment for
those responsible for the tragedy, and
more compensation for its victims.

of the children born after the was taken over by Dow Chemical government to resolve this
disaster in the area around Company, which has steadfastly impasse. And while local activists
the plant suffered mental and refused to accept liability for the have no doubt that the toxic
physical deformities. Bhopal accident. Dow says the legal waste at the abandoned plant
case was settled in 1989, and that poses serious health risks for
Human rights groups claim responsibility for the cleanup people living nearby, they have
that birth defects have actually operation, as well as for ongoing opposed government plans to
occurred in the area since the plant medical care for victims and fresh remove and incinerate it, on safety
opened in 1969 due to groundwater claims for compensation, now rests grounds. However, in 2015, a small
contamination arising from the with the authorities in Madhya amount of waste from the site was
hazardous waste dumped in and Pradesh state, who assumed control burned in a trial incineration and
around the plant. However, the of the site in 1998. Little has been the emissions were deemed to be
government has not confirmed a done in recent years by India’s within permissible limits. ■
link, and no long-term research has
been carried out that proves the
birth defects are directly related to
the drinking of poisoned water.

Government apathy
Although UCC’s 27-hectare
(67-acre) factory was closed down
immediately after the disaster, the
company was not permitted to
decontaminate the site until the
early 1990s. While litigation was in
progress, the methyl isocyanate
unit was considered “evidence” in
the criminal case. In 2001, UCC

Corporate negligence (£2.5 million today) after spilling
a cup of their scalding coffee in
The jury in the Robinson vs Generally, corporate negligence her lap and suffering serious
Reynolds case found that the tobacco occurs when a company breaches burns. Today, most commercial
giant had marketed its cigarettes as its promise to a third party to do hot drinks carry warning signs.
safe, knowing full well they were not. no harm. Whether it is done
accidentally or intentionally to In 2014, a US jury awarded
save money, a company can be Cynthia Robinson $23.6 billion
held accountable for a negligent (£19 billion) in punitive damages
action, or a failure to act. A parent in her law-suit against cigarette-
corporation may be found liable maker R.J. Reynolds for the
for the negligence of a subsidiary wrongful death of her husband,
company, even if it played no part a smoker who died of lung
in the wrongdoing. Landmark cancer in 1996. She argued that
cases include 79-year-old Stella the company was negligent in
Liebeck, who in 1994 successfully not informing consumers that
sued McDonald’s for $2.86 million its products are addictive and
harmful to health.

114

BMTHIUGEGGGWEISNOTGRLD’S

THE CITY OF LONDON BONDS THEFT, 2 MAY 1990

IN CONTEXT F or John Goddard, a 58-year- Life as an undercover cop:
old messenger for money You’re always one slip away
LOCATION broker Sheppards, based from death or a breakdown.
London, UK in London’s financial district, the
working day on 2 May 1990 began UK police source
THEME just like any other. He left the Bank
Bond theft of England with a briefcase full of But City of London detectives soon
bearer bonds and headed towards discovered that the perpetrators
BEFORE a nearby finance house to deliver were in fact an international fraud
1983 An armed gang steal them. At 9:30am, while walking and money-laundering ring with
£6 million in cash from a along a quiet side street, he was links to organized crime in the US.
Security Express depot in approached by a man in his late
London. Brothers Ronnie and 20s, who held a knife against his Police dispatched a 40-officer
John Knight are later convicted throat, grabbed his briefcase and team to locate the mugger and, in
of masterminding the robbery. wallet, and ran off. a joint operation, worked with
FBI agents who went undercover
AFTER An audacious heist to infiltrate the crime ring. Both
2006 Seven masked men The mugger fled on foot and quickly parties worked with urgency
brandishing guns burst into disappeared into a busy subway following the Bank of England’s
Securitas Cash Management tunnel. He had escaped with 301 warning that the gang might be
Ltd’s building in Kent, UK, bearer bonds – 170 Treasury bills able to turn the bonds into cash.
tie up 14 members of staff, and 131 certificates of deposit from
and in just over an hour steal banks and building societies – Two months after the robbery,
£53 million in Britain’s biggest mostly worth £1 million each. The on 31 July, there was a major
cash robbery. mugger’s total haul was worth breakthrough. Mark Lee Osborne,
an eye-watering £292 million. a Texas businessman, had tried
2007 Guards at a private to peddle £10 million of the stolen
bank in Baghdad, Iraq, steal The Bank of England issued a
$282 million (about £187 global alert, notifying financial
million today) in US dollars institutions of the bonds’ serial
from its vaults. numbers. The following day, the
press reported the robbery as the
work of an amateur opportunist
thief who, without connections,
would be unable to cash the bonds.

WHITE COLLAR CRIMES 115

See also: The Great Train Robbery 30–35 ■ D.B. Cooper 38–43 ■ The Antwerp Diamond Heist 54–55

bonds to a narcotics dealer in
New York. Unfortunately for him,
the potential buyer was undercover
FBI Agent David Maniquis.

Following the money but Cheeseman was the only After the mugging, in order to
Osborne cooperated with the FBI successful prosecution. The prevent similar crimes, the Bank of
and turned on his co-conspirators, mugger is believed to have been England (above) quickly developed a
including British con man Keith 28-year-old Patrick Thomas, a petty service to enable the electronic transfer
Cheeseman, who was cornered criminal from London who shot of sterling securities.
by agents in a sting operation himself in December that year.
codenamed “Operation Soft Dollar”. were sent around the City of
He pleaded guilty to laundering As for the messenger John London by couriers who were
some of the bonds and was jailed. Goddard, he only learned of the not told what they were carrying.
true value of his briefcase after This risky delivery method was
However, when Osborne the event. At that time, money- later discontinued. ■
became an informant, he also market securities worth billions
became a target for organized
crime operatives, who do not take
kindly to snitches. In August 1990,
despite being placed under FBI
protection, Osborne was fatally shot
twice in the head.

The stolen bonds were fenced
worldwide. City of London police
recovered a bag stuffed with
undeclared bonds at Heathrow
airport, and more were seized in
Cyprus. During the summer of
1990, police traced all but two of
the bonds. They made 25 arrests,

Pistone’s cover was so convincing Undercover police work One man who understood that
that before the operation ended, he very well was undercover FBI
was close to being proposed for In order to gather evidence and agent Joe D. Pistone (1939–). In
membership of the Bonanno family. intelligence about the ongoing 1976, he infiltrated one of New
and future illegal activities of York’s five organized crime
groups and individuals, police syndicates, the Bonanno family,
forces use specially trained as jewel thief Donnie Brasco. He
undercover operatives. lived and worked with them for
six years, while collecting
Their assignments include evidence that would convict
short-term stings that can last more than 100 mobsters. The
for just a matter of a few hours, Mafia later put out a contract on
to deep-cover, long-term his life, and he now lives under
investigations that mean months a secret identity. He wrote a
or years in the field. The personal book about his undercover work,
risks can be huge, but the payoff which was the basis for the 1997
– putting criminals behind bars – movie Donnie Brasco.
can outweigh them.

IBJTUI’SGSTALOLINELE

BERNIE MADOFF, 19960s––2200088



118 BERNIE MADOFF

IN CONTEXT high returns. However, where most Madoff is escorted into court in New
Ponzi schemes lure investors by York on 10 March 2009, where he was
LOCATION offering high rates of returns, and charged with eleven felonies, including
New York City, US then proceed to collapse quickly, securities fraud, mail fraud, wire fraud,
Madoff’s annual returns were money laundering, and perjury.
THEME incredibly consistent.
Ponzi scheme Madoff’s firm took off. His first
As news of the miracle major investor – Carl Shapiro, the
BEFORE investments spread, the enticing owner of a successful women’s
6 April 2007 Syed Sibtul regularity of the scheme was a key clothing company – gave Madoff
Hassan, also known as the factor in perpetuating the fraud, $100,000 (£500,000) in 1960. This
“Double Shah”, is exposed by and Madoff could pick and choose signalled both the start of their
an investigative reporter for from the scores of wealthy investors relationship as friends and business
running a Ponzi scheme in desperate for a piece of the action. partners, and the first opportunity
Pakistan, which promised that Madoff could exploit. Over the
a 100 per cent return on Humble beginnings next 50 years, Shapiro would come
investments in only 15 days. Madoff founded his Wall Street firm to see Madoff as a son, provide him
– Bernard L. Madoff Investment with access to circles of wealthy
21 May 2008 Lou Pearlman, Securities LLC – in 1960 after investors, and eventually lose over
the American record producer leaving college. He had saved up half a billion dollars through his
and band manager, is jailed for $5,000 (£25,000) from jobs as a investments in Madoff’s firm.
25 years for running a Ponzi lifeguard and a sprinkler installer,
scheme worth more than $300 and his accountant father-in-law, The firm was able to avoid
million (£185 million today). Saul Alpern, provided a $50,000 scrutiny from the Securities and
(£250,000) loan to help get the firm Exchange Commission (SEC)
AFTER up and running. because Madoff seemingly had so
7 June 2011 Nevin Shapiro is few clients – it relied on an elite
sentenced to 20 years in prison The company initially dealt in pool of wealthy investors.
and ordered to pay more than penny stocks, which were traded Saul Alpern initially helped
$82 million (£65 million) in outside of the New York Stock Madoff recruit these clients for a
restitution for operating a huge Exchange (NYSE) and American commission, but later also acted as
Miami-based Ponzi scheme. Stock Exchange (AMEX), so that a conduit, investing money from
Madoff could avoid their hefty fees.
B ernie Madoff’s elaborate
Ponzi scheme evaded US
financial regulators for
decades. It delivered irresistible
financial gains to thousands of
investors before bankrupting
people on five continents, leaving
behind a trail of financial and
emotional despair. Variously
labelled a monster, a fraud, and a
traitor, Madoff is seeing out the
rest of his life with a 150-year
sentence in jail.

It began like similar swindles
– an individual or organization lures
investors by promising unusually

WHITE COLLAR CRIMES 119

See also: Charles Ponzi 102–07 ■ Jérôme Kerviel 124–25

several clients under his own name served on an SEC advisory
to make it appear that Madoff had committee and as nonexecutive
fewer investors. chairman of the world’s second-
largest stock exchange.
Family business I certainly wouldn’t invest in
Madoff’s firm continued to grow. the stock market. I never When the scale of Madoff’s
By 2008, it was a multibillion-dollar believed in it. deception was revealed, his
family business: his niece was Bernie Madoff hundreds of thousands of victims
employed as a compliance officer, included Hollywood stars Kevin
and his two sons, Andrew and for his investors’ money focused on Bacon, John Malkovich, and Steven
Mark, were placed in charge of the shares in the S&P 100-stock index. Spielberg, the French aristocrat and
company’s legitimate operations It reported a 10.5 per cent annual financier René-Thierry Magon de la
outside of the private investment return for 17 years. Even when the Villehuchet, and the UK army
division. This division was a US stock market collapsed in 2008, veteran William Foxton. Tragically,
secret even within the company, the fund was up. de la Villehuchet and Foxton were
and was highly illegal – clients’ driven to suicide as a result of their
investments were deposited into For decades, people trusted in financial losses.
Madoff’s private accounts rather Madoff’s consistency – and not just
than being invested. the wealthy. Thousands of working Investigations commence
people gave him responsibility for The point at which Madoff began
When investors asked for their their life savings. His firm seemed his Ponzi scheme is unclear. When
money back, Madoff’s firm would legitimate, and he was, by all he finally confessed in 2008, Madoff
return their investment with appearances, a trustworthy and insisted that the fraud had started
interest, along with a fabricated list credible businessman, who had in the early 1990s, but federal
of trades based on real data. The investigators believe that it may
money actually came from other have begun as early as the 1970s
investors’ contributions. Perhaps or mid-1980s. In fact, Madoff’s
because of the aura that developed investment operation may never
around Madoff and his magic have been legitimate – his financial
investments, most saw no reason to operations were always highly
doubt the returns. One Madoff fund secretive, to the extent that his ❯❯

Edward Snowden leaked classified Whistleblowers Whistleblowers, however, are
information in 2013, which revealed also important in other fields,
details about secret US-led global Whistleblowers are an important including education and
surveillance programmes. but controversial factor in the healthcare, where workers are
detection of crimes that might encouraged to speak up against
otherwise continue unchecked by negligence and poor conduct. In
bureaucratic processes. Despite matters of state, whistleblowers
the harassment and intimidation can be extremely controversial.
whistleblowers often experience, Former CIA employee Edward
they are protected by the law. Snowden has been alternatively
celebrated as a patriot and
After noting the due diligence criticized as a traitor, while
of whistleblowers during Madoff’s former US Army soldier Chelsea
case, the SEC set up a specific Manning was court-martialled
whistleblowing fund intended and jailed for leaking
to encourage financiers to come confidential documents to
forward with vital information on condemn US foreign policy.
financial crimes.

120 BERNIE MADOFF

brother, Peter, who worked with The math was so compelling… on aspects of Madoff’s firm. The
him for over 40 years and was a unless you could change the frequent but unproductive contact
codirector of the firm, was ignorant laws of mathematics, I knew between the SEC and Madoff’s
of the scheme’s exact nature. I had to be right. compliance officers even led to the
Harry Markopolos marriage of Madoff’s niece and Eric
Suspicions as early as the 1990s Swanson, an SEC lawyer leading
that something was wrong were they investigated and shut down investigations into the Madoff fund.
easily dismissed as the result of Avellino and Bienes, one of
envy. In 2000, a financial analyst Madoff’s “feeder funds” to attract After years of incompetent
and independent fraud investigator, potential investors, but failed to see investigations by the SEC, in late
Harry Markopolos, told the SEC he the signs that its malpractice was a fall 2008 Madoff knew that his
could prove that it was legally and part of Madoff’s larger operation. scheme, and the economy, were
mathematically impossible to beginning to crumble. Clients
achieve the gains Madoff claimed. Subsequent investigations were suddenly requested a total of
His findings were ignored for years, plagued by incompetence, a lack of $7 billion (£4.4 billion) in returns.
but others also arrived at the same financial expertise, and failures in Madoff had only $200–300 million
conclusion. Apart from Madoff’s communication between SEC (£125–185 million) left to give.
private bank, J.P. Morgan, none of departments working separately
the major Wall Street firms would The truth comes out
invest or trade with Madoff On 10 December 2008, Madoff met
because they did not believe his with his sons to discuss year-end
numbers were real. J.P. Morgan bonuses totalling millions of dollars.
would pay for their involvement – He explained that he wanted to give
they were fined $2 billion (£1.6 them earlier than scheduled. When
billion) in 2014 to compensate his sons were suspicious enough to
victims of his scheme. ask where the money was going to
come from, Madoff admitted that it
The SEC had investigated would come from a part of the
Madoff before 2008, but missed the business they were not involved in,
massive fraud. As early as 1992,

Respected Wall Street figure 1990
Bernie Madoff had been secretly fooling Madoff begins three
investors, regulators, and the years serving as chair
government since the early 1990s, of the NASDAQ stock
when he first devised his Ponzi scheme. exchange.

1960
Madoff founds Bernard
L. Madoff Investment
Securities LLC.

1986 1992
Madoff sets up his firm’s The SEC shuts down
headquarters at 885 Third Avellino & Bienes, a
Avenue in New York. “feeder fund” that
recruited investors in
Madoff’s company, but
fail to find a connection
to Madoff himself.

WHITE COLLAR CRIMES 121

Embroidered velvet slippers were released on bail as he awaited sentenced, Madoff apologized to
included in an auction lot of Madoff’s charges and sentencing. He and his victims, many of whom were
possessions sold to raise funds to his wife Ruth packed up some seated on the benches behind him.
compensate the victims of his $65 personal and family items, including In November 2009, the government
billlion (£47 billion) Ponzi scheme. jewellery, and posted it to their sons. began to sell and auction off
Madoff’s assets to repay his
and confessed to an elaborate Ponzi In 2011, Ruth Madoff stated investors. These included a large
scheme. Instead of accepting the that she and her husband had yacht and two smaller boats; a
money, Madoff’s sons reported him attempted suicide together on property portfolio including a New
to federal authorities; FBI agents Christmas Eve, 2008. Scared and York City penthouse, a beach house
arrested Madoff the next day. acting on impulse, they took a in Montauk, New York, and a
Shortly after his arrest, Madoff was cocktail of different pills – including Florida mansion; artwork by
what they hoped would be an Picasso and Roy Lichtenstein;
overdose of sleeping pills – but his wife’s extensive jewellery
woke up unharmed. collection, a Rolex collection, and
a Steinway grand piano.
Tragic conclusion
On 12 March 2009, Madoff pleaded The unravelling of Madoff’s
guilty to 11 different crimes, scheme – the biggest Ponzi scheme
including securities fraud, in history – had a significant
investment adviser fraud, mail impact on hundreds of families
fraud, wire fraud, three counts of across the US, and Madoff’s own
money laundering, giving false family would fall apart in the
statements, perjury, and making aftermath. His 46-year-old son,
false filings with the SEC. Mark, hanged himself on the
second anniversary of Madoff’s
On 29 June 2009, Madoff was arrest, as a sad finale to a complex
sentenced to 150 years in prison – life lived under the constant but
the maximum allowable sentence elusive authority of his father. ■
for his crimes. Just before he was

2000 2005
Harry Markopolos’s first Following concerns raised
submission proving by Renaissance Enterprises,
Madoff’s guilt is LLC, the SEC begins another
submitted to the SEC ultimately unsuccessful
but eventually rejected. examination of Madoff’s firm.

2002 2008
An anonymous hedge fund Madoff confesses the Ponzi
manager registers a detailed scheme to his sons. They
complaint with the SEC about immediately report their father to
Madoff’s investments. Nothing the FBI and Madoff is arrested.
comes of the investigation.

122

ICTKHRNAIMTOIWINDAIILNDMNOYTMHIINNDG

THE ENRON SCANDAL, 2001

IN CONTEXT O nly 15 years after its claiming $111 billion (£122 billion)
formation, American in revenues and employing 20,000
LOCATION energy company Enron workers in more than 40 countries.
Houston, Texas, US had become America’s seventh-
biggest corporation, but the firm Creative innovation
THEME collapsed following a sensational After Jeff Skilling impressed
Accounting fraud scandal in 2001, during which it as a consultant for McKinsey and
was revealed that the firm’s Company, Lay hired him in 1990
BEFORE success was built on fraudulent as Chief Executive Officer of Enron
1991 The Bank of Credit and accounting practices. Finance Corporation. He soon
Commerce International became Lay’s second in command.
(BCCI) is closed by regulators The company was formed by Skilling began to implement an
after it is implicated in a major businessman Kenneth Lay in 1985, aggressive investment plan,
money-laundering operation. after merging two fairly small earning the company the title
regional energy companies, of “America’s Most Innovative
1998 Waste Management, an Houston Natural Gas Company and Company” from Fortune magazine
American trash disposal and InterNorth Inc. By 2000, the Enron for six consecutive years from
recycling company, pays $457 Corporation had grown remarkably, 1996–2001.
million (£400 million today) to
settle a shareholder class- Skilling used a technique
action lawsuit; the company’s known as mark-to-market
auditor, Arthur Andersen, is accounting to record an asset’s
fined $7 million (£6.1 million). projected profits rather than its real
value. If the eventual revenue
AFTER generated by the asset did not end
March 2008 The US up matching the projected profit,
Securities and Exchange Skilling transferred the asset to a
Commission (SEC) charges secret off-the-books company,
Canadian company Biovail concealing the loss. Enron’s Chief
with engaging in fraudulent
accounting schemes and Sherron Watkins, a vice president at
fines the firm $10 million Enron, testifies at a Senate Committee
(£6.2 million). in 2002. She raised concerns to Enron
bosses in 1996 about financial
irregularities but was reprimanded.

WHITE COLLAR CRIMES 123

See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21 ■ Jérôme Kerviel 124–25

Kenneth Lay arrives at his fraud and
conspiracy trial on 26 April 2006, under
intense scrutiny from the media. He
was convicted but died of a heart
attack before he could be sentenced.

Financial Officer Andrew Farstow Enron’s board of directors and audit company leaders to hearings to
was instrumental in creating a committee on the company’s high- explain Enron’s collapse. The
network of companies to help hide risk accounting practices. hearings revealed that Enron’s
the losses. To the public and the aggressive accounting practices
media, the company appeared to The fallout had been approved by the board of
be growing rapidly. The suit prompted the SEC to directors. The Senate committee
investigate. On 2 December 2001, also discovered that the company’s
It was only on 14 August 2001, Enron filed for bankruptcy and financial statements were so
when Skilling suddenly resigned Chapter 11 protection – at the time, complex that investors could not
on the day that Enron’s broadband the largest bankruptcy in US understand what they were looking
division reported a $137 million history. The US Senate convened at and did not understand the risks.
(£150 million) loss, that confidence a committee, which summoned
began to fall in the company. In June 2002, Arthur Andersen
was charged with obstruction of
justice for destroying Enron’s
documents. The decision was
overturned by the Supreme Court
but the damage to the company’s
reputation was irreversible.

Kenneth Lay and Jeffrey Skilling
were each convicted of securities
and wire fraud in a federal court in
2006. Lay died a month later. In
total, 22 other Enron executives
were convicted in the scandal. ■

The penny drops Forensic accounting The Enron scandal occurred at
Shareholders only learned of the a time during the early 2000s
state of the company’s finances on Forensic accounting is a when the number of corporate
16 October 2001, when Enron filed specialized branch of accounting fraud cases investigated by the
a $618 million (£680 million) third- used to investigate, analyze, FBI surged by an incredible 300
quarter loss. It was later discovered and interpret complex financial per cent, hugely increasing the
that four days before, lawyers at and business issues. need for forensic accountants.
Enron’s auditor Arthur Andersen had
destroyed almost all of Enron’s files. Forensic accountants The fallout from the scandal
are often employed by public has led to more robust
After the company’s stock price accounting firms, law legislation and stricter
spiralled from a peak of $90.75 (£91) enforcement agencies, insurance regulation to improve corporate
per share in mid-2000 to less than companies, government governance. Financial
$1 (£1.10) by the end of November organizations, and by financial institutions and auditors also
2001, shareholders filed a $40 billion institutions to examine increasingly employ forensic
(£44 billion) lawsuit against the allegations of fraudulent accountants to prevent
corporation. The suit claimed that practices, and regularly give fraudulent activities from taking
Enron executives had misled expert evidence in court. place within their organizations.

124

OHTHFEETPHUEXETIBISNATNEPNEKRCIEL

JÉRÔME KERVIEL, 2007–08

IN CONTEXT F rench trader Jérôme over time these became larger and
Kerviel’s career in white- more regular, concealed by false
LOCATION collar crime was relatively hedge trading. Kerviel always
Paris, France short-lived, lasting just over a year. closed his trades within three days,
In that brief period, the 31-year-old before the bank’s control measures
THEME caused one of the leading French kicked in. He did not personally
Rogue trader banks, Société Générale, to profit from these transactions.
lose €4.9 billion (£4.4 billion). But
BEFORE who was really to blame? In January 2008, Société
1992–95 The illegal trades of Générale discovered that Kerviel
Nick Leeson, a futures trader The crime had been making unauthorized
based in Singapore, bring Kerviel joined Société Générale’s deals. They asserted that Kerviel,
down Barings, Britain’s oldest compliance department in 2000 anticipating a decline in market
merchant bank. Leeson is and became a junior trader in 2005. prices, made eight unauthorized
sentenced to six and a half He started to make unauthorized trades in derivatives in December
years in prison. transactions late in 2006. His 2007 and January 2008 totalling
modus operandi was to make only €4.9 billion (£4.4 billion) – more
2004–06 Jordan Belfort, small, occasional transactions, but than the total sum of the bank’s
reputedly the real-life Wolf of stock and net earnings.
Wall Street, serves 22 months There was a tremendous
in jail for securities fraud. culture … to take big risks Kerviel was charged with
breach of trust, forgery, and
AFTER in order to make the unsanctioned use of the bank’s
2011 The unauthorized trading maximum profit. computer systems. His trial began
of UBS Global trader Kweku on 8 June 2010.
Adoboli costs the Swiss bank Bradley D. Simon
£1.5 billion. In 2012, Adoboli is During the proceedings, Kerviel
convicted of fraud and jailed admitted to entering sham trades
for seven years. and falsifying documents to
obscure his actions, but claimed
that his superiors at Société
Générale had secretly condoned his
behaviour because it yielded
significant profits. Kerviel’s lawyers
claimed that he earned the bank
€1.4 billion (£1.27 billion) in the last
quarter of 2007 alone.

WHITE COLLAR CRIMES 125

See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21

Jérôme Kerviel and his lawyer David
Koubbi arrive at the Paris appeal court
in 2012. Kerviel lost this appeal, but a
subsequent appeal in 2016 reduced the
fine to €1 million (£840,000).

On 5 October 2010, Judge Pauthe
sentenced Kerviel to three years
in prison and ordered him to
pay Société Générale €4.9 billion
(£4.4 billion) in compensation.

Alternative opinions appeared in court to appeal his him at the first sign of trouble.
Sceptics of the official narrative, €4.9 billion (£4.4 billion) fine. He Regardless of the level of the bank’s
including Kerviel’s former work won the case and the fine was complicity, Kerviel has taken the
colleagues, have pointed out that reduced to €1 million (£840,000). opportunity for self-aggrandizement
the sheer scale of this unauthorized – in 2014 he made a well publicized
trading could not have escaped the Unfairly or not, Kerviel is seen as pilgrimage to Rome to discuss the
bank’s attention for so long. They a martyr by some: a businessman “tyranny of the markets” with
also said that completing such pressured to compete unethically Pope Francis. ■
large trades within three days by a corrupt system that sacrificed
would have been impossible. (6) know others will benefit from
Furthermore, they argued, Kerviel’s The psychology of lying their deceit, (7) are highly
position in the company made it creative and imaginative, and
unlikely that he had worked alone. In his book The Honest Truth (8) are tired or stressed.
About Dishonesty, Dr Dan
Wrongful dismissal Ariely, a cognitive psychologist In the case of Jérôme Kerviel,
In 2014, France’s Court of Cassation and behavioural economist at the first six factors certainly
reduced the repayment amount on Duke University, North Carolina, apply, while the last two are
the basis that Judge Pauthe’s proposes that the likelihood of possible. Brain imaging has
decision did not consider the role of an individual being dishonest shown that lying and repeated
the bank’s own inadequate risk- increases when they: (1) can deception reduces activity in the
management procedures. Kerviel rationalize the lie, (2) have a amygdala, the area of the brain
was freed that same year. conflict of interest, (3) have lied where emotional responses are
about the matter in the past, processed. This reduction can
However, Kerviel was (4) observe others behaving limit the feelings of shame or
determined to carry on his fight dishonestly, (5) belong to a guilt that are often associated
against the bank. In June 2016, he culture or sub-culture where with lying, making it easier to
convinced a French labour tribunal dishonesty is normalized, continue lying.
that the termination of his
employment from the bank had
been unethical. In a strange
paradox, the labour board ordered
the bank to pay him €300,000
(£250,000) in compensation,
including recompense for unused
vacation and his 2007 performance
bonus. In September 2016, Kerviel

126

…BTORRILBEEERWRAAYTREWDDAEASDND

THE SIEMENS SCANDAL, 2008

IN CONTEXT W hat do a mobile phone Between March 2001, when
network in Bangladesh, Siemens was first listed on the
LOCATION a national identity card New York Stock Exchange, and
Washington D.C., US scheme in Argentina, a UN food-for- September 2007, when US officials
oil programme in Iraq, and two new intervened in the firm’s operations,
THEME rail systems in Venezuela have in Siemens’ staff ran a foreign bribery
Corporate corruption common? They are just a few of operation of unprecedented scale.
the lucrative public works projects
BEFORE awarded to German engineering Allegations of bribery
1914 German company giant Siemens by corrupt state The US stock exchange watchdog,
Siemens and British rival officials who were happy to accept the Federal Securities and
Vickers are exposed for bribing “financial encouragement” when it Exchange Commission (SEC),
Japanese officials for warship came to choosing contractors. brought a case against Siemens in
contracts; Siemens employee
Karl Richter is sentenced to Siemens sets aside large Governments around the
two years in prison. pools of cash for bribery world offer private

1985–2006 British defence companies contracts to
group BAE Systems admits build large-scale
misrepresenting its dealings
with Saudi officials in the infrastructure projects
Al Yamamah arms-for-oil deal.
Siemens bribes government officials to bypass the public
AFTER selection process and simply award the contracts to them
2009 Executives at US
engineering company Kellogg Competitors are shut out, and Siemens profits from
Brown & Root are convicted the day-to-day running of railway lines, energy
for participating in a decade- grids, power plants, and other state projects
long scheme to bribe
government officials in Nigeria
in return for $6 billion (£4.3
billion) of contracts to build
liquefied gas facilities.

WHITE COLLAR CRIMES 127

See also: The Teapot Dome Scandal 108–09 ■ The Enron Scandal 122–23 ■ The Volkswagen Emissions Scandal 130–31

The day is past when (£900,000) could be “withdrawn” at Reinhard Siekaczek was largely
multinational corporations a time to secure contracts for the responsible for Siemens’ accounting at
could regard illicit payments firm’s telecoms arm; few questions the time of the scandal, but he helped
to foreign officials as simply were asked and little paperwork was expose the company’s corruption and,
another cost of doing business. required. Between 2001 and 2004, as a result, received a lighter sentence.
roughly $67 million (£50 million)
Cheryl J. Scarboro was taken out via the cash desks. Germany, the practice had been
outlawed in 1999. In December
September 2008. It had discovered However, most of Siemens’ 2008, Siemens pleaded guilty in a
that between 2001 and 2007, 4,283 illicit business practices were US court; it was ordered to pay fines
bribes and kickbacks totalling carried out less crudely: deniability of $1.6 billion (£1 billion) and to
$1.4 billion (£928 million) were was all. Special off-the-books bank rehabilitate itself by reforming its
made by the firm to government accounts and “consultants” were internal culture. It has since set up
officials in over 60 countries. A widely used to hide the nature of the anti-corruption processes. ■
further 1,185 payments with a total shady transactions. Accounting was
value of $392 million (£260 million) kept deliberately sketchy. Managers
were made to other third parties. would sign payment slips for bribes
using Post-it notes, which would
The SEC was not the only then be removed and disposed of at
institution with allegations against the very moment the authorized
Siemens. In Greece, prosecutors funds were transferred.
pursued the firm for complaints
arising from contracts for security Siemens’ apparent tolerance of
systems at the 2004 Athens these corrupt practices suggests its
Olympics. In subsequent months, staff must have felt, on some level,
fresh accusations were made about they were doing nothing wrong.
Siemens’ activities in other parts This attitude was at odds with the
of the world, from Norway to fact that the firm’s listing on the
Slovakia and from China to Turkey. New York Stock Exchange meant it
was subject to US anti-bribery laws.
Culture of corruption And although offering bribes to
For Siemens’ management and staff, foreign officials was once legal in
offering bribes when competing for
foreign contracts was a standard Defining white collar crime
strategy. The US Department of
Justice revealed that the firm had The term “white collar crime” of a white collar crime was one
three “cash desks” in its offices. was coined in 1939 by American “committed by a person of
Staff would bring in empty suitcases sociologist Edwin Sutherland. respectability and high social
and carry them away stuffed with His work attempted to shift status in the course of his
banknotes. Up to €1 million criminology’s focus away from occupation.” Sutherland claimed
the blue-collar street crimes that the offences white-collar
committed by the working class felons committed – including
– according to the prevailing fraud, forgery, bribery, and
theory, crime was intrinsically money-laundering – were more
linked with poverty. Instead, he likely to be seen as matters for
chose to study the financially civil rather than criminal law.
motivated, non-violent crimes And compared with their
committed by professional, often counterparts in the lower
wealthy, businessmen and other classes, they were far more
pillars of society. His definition likely to “get away” with them.

128

BNUTHAPOSETTIEORJMUMPESANITSRTCENHNEIRTESDF’YINKIDS

THE SPYEYE MALWARE DATA THEFT, 2009–13

IN CONTEXT I n recent years, the growth $8,000 (£5,400), depending on
of the “hidden” part of the whether they wanted a basic or
LOCATION internet has offered criminals premium version. Once in their
Moscow, Russia a wider arena in which to operate. hands, they could use it to infiltrate
Behind the “surface web” of computers and log the keystrokes
THEME indexed sites accessed via search made by their owners. SpyEye’s
Cybercrime engines lies the “deep web”. This main selling point was its ability to
is essentially all the unindexed identify and isolate data entered
BEFORE data behind firewalls: intranets, onto (supposedly) secure online
2000 RBN, a Russian internet archives, password-protected banking pages, whisking it away
service provider that hosts sites, and so on. The deep web before protective software could
illegal and questionable also contains “the dark web”, encrypt it. Armed with passwords
businesses, including malware anonymously hosted sites that can and PINs of their victims’ accounts,
distribution sites, becomes a be accessed only by using special the hackers were able to steal funds.
major information highway for software. Some of these sites are
organized crime worldwide. marketplaces for guns and drugs, The creator and administrator of
or the release of computer viruses SpyEye was a young Russian man
2007 Hackers steal at least invented by criminal coders. called Aleksandr “Sasha” Panin,
45.6 million credit card who worked out of an apartment in
numbers from the servers of Data theft Moscow. Outwardly respectable
TJX, who own several US Software programs designed to and studious, he had an entirely
discount stores, and bring facilitate online fraud are one of the different persona online, where he
massive data breaches to greatest risks to the security of went by the alias “Gribodemon”.
public awareness. billions of internet users worldwide. Panin’s partner in crime was
Among the most damaging of these Hamza Bendelladj – or “Bx1” – an
AFTER was SpyEye, a piece of malicious Algerian computer-science grad
2010–13 Turkish hacker Ercan software used by hackers between who marketed the tool kit online.
Findikoglu’s cybercrime ring 2010 and 2012 to secretly infect 50
distributes debit card data to million PCs and net confidential The pair acquired a Robin
“cashing crews” around the information from individuals and Hood-style mystique when rumours
world, who use it to syphon financial institutions worldwide. circulated that Panin intended to
millions from ATMs. invest his profits in technology
Cybercriminals could purchase research that could transform
SpyEye’s ready-made malware tool human life, and that Bendelladj
kit for between $1,000 (£675) and made generous donations to
Palestinian charities.

WHITE COLLAR CRIMES 129

See also: Frank Abagnale 86–87

Cybercriminals exploit the speed, among the billions of streaming It’s detective work –
convenience, and anonymity of the bits that make up computer code. good, old-fashioned
internet to commit a diverse range of The firm put 1,200 researchers on
crimes that know no borders, either the case; for four years they detective work.
physical or virtual. mapped SpyEye’s infrastructure. Rik Ferguson,
They found IP addresses and one Trend Micro
Finding the evidence infected computer in Atlanta,
For law enforcement agencies in Georgia, which was used as a main An anonymous hacker
the US, catching the cybercrooks server. It was remotely operated writes a malicious
behind the anonymous screen from Algeria by Bendelladj. software program
names was a challenging task.
The FBI hired the private computer A team of researchers then This programme is offered
security firm Trend Micro to impersonated cybercriminals to for sale on the dark web
identify the suspicious bytes that infiltrate the online forums used to Cybercriminals purchase
signal the presence of malware distribute SpyEye. By June 2011,
Trend Micro had evidence in place. the program and
The purchase of a SpyEye kit led it adapt it
to Panin’s money processor. Even
after the online Gribodemon had The data and
been decisively linked to the real- identities of hundreds,
world Panin, the FBI had to wait
two more years for him to leave thousands, or even
Russia – which has no extradition millions of people
treaty with the US – before it could can be accessed
act. Panin was finally arrested in
July 2013, when he incautiously and stolen
took a vacation in the Dominican
Republic. He was jailed for 9½
years. Bendelladj, captured six
months earlier in Thailand,
received a 15-year sentence. ■

The rise of cybercrime when faced with the innovations
used by hackers. In the case of
Today, cybercrime – defined as hacking tool kits that automate
any type of criminal activity the theft of credit card and bank
that uses computers or the web details, even after their creators
as a tool to steal money, goods, are apprehended, their software
information, or other assets – continues to circulate online. It
is expanding as rapidly as can change form and name as
legitimate online activities. easily as IP addresses.
Cybercriminals can target
individuals, corporations, The creator of a notorious
institutions, and even piece of malware called Zeus,
government departments. which inspired the creation of
SpyEye, has never been caught,
As more people conduct and his or her original source
business online and utilize code has since been leaked,
cloud storage, firms and adapted, and further circulated
individuals can be powerless by hackers.

130

GTVHOOELAKIGRSARWIENAGSGUTELNEAVSRETIRTAYINETDSHS…INFGOR

THE VOLKSWAGEN EMISSIONS SCANDAL, 2015

IN CONTEXT The Volkswagen emissions I n an unprecedented move in
scandal is the greatest 2015, the US Environmental
LOCATION corporate scandal Protection Agency (EPA)
Worldwide since the global accused German car manufacturer
financial crisis. Volkswagen (VW) of installing
THEME Peter Spence prohibited “defeat device” software
Software manipulation on diesel-powered vehicles sold in
the US.
BEFORE
2010 Cummins, Inc. motor The software reduced nitrogen
vehicle engine company, oxide emissions when the cars
headquartered in Columbus, were placed on a test machine but
Indiana, pays a $2.1 million allowed higher emissions and
(£1.4 million today) penalty improved engine performance
and recalls 405 engines after it during driving. Once on the road,
ships over 570,000 heavy-duty cars would pump out up to 40
diesel engines without times the permitted level of
pollution control equipment.
Corporate punishment especially where internal
AFTER controls are found to be lacking
2016 In Japan, Mitsubishi The typical punishment for or companies have failed to
Motors admits falsifying fuel corporate wrongdoing is to levy cooperate with investigators.
economy tests for 157,000 of fines against the corporation,
its own cars and for 468,000 treating it as a legal “person”, In September 2016, Deutsche
vehicles that Mitsubishi rather than against its Bank, Germany’s largest lender,
produced for Nissan. executives. The US – which faced a $14 billion (£11 billion)
established the concept of demand from the US Department
corporate criminal liability in of Justice for mis-selling
the 19th century – investigates mortgages to investors during
and prosecutes corporate a housing bubble in 2005.
wrongdoing most vigorously,
but other countries are also Critics claimed that such an
embracing this concept. enormous fine could cause
Recent trends have been to international financial instability
increase fines substantially, and argued that Deutsche Bank
should be restructured and
strengthened instead.

WHITE COLLAR CRIMES 131

See also: The Enron Scandal 122–23 ■ The Siemens Scandal 126–27

Defeat device software put into 11 million VW engines
to fool emissions tests

A portable emissions During emissions test, car produces low emissions
measurement system is shown and passes the test
attached to the exhaust of a car during
tests performed by Germany’s biggest On the road, engine emits nitrogen oxide at
independent technical testing agency. 40 times the allowable level

nitrogen oxide. In September 2015, Testing at the University of West Virginia in May 2014
Volkswagen admitted that reveals the diesel dupe
11 million VW and Audi 2.0 litre
diesel cars had been equipped with
software used to cheat on
emissions tests. The auto giant’s
chief executive Martin Winterkorn
apologized and resigned.

The ringleader VW recalls millions of cars
US investigators reviewed 1.5 worldwide and agrees to pay $15 billion
million documents as part of its
criminal probe into the scandal. (£12 billion) to settle claims in the US
Key to the investigation was James
Robert Liang, a German citizen $15 billion (£12 billion). The deal, were false. Federal investigators
who headed the Volkswagen Diesel announced in August 2016, further contended that Liang
Competence team in the US. He involved 652 US car dealers. emailed colleagues in Germany
had been a member of the team about the software while
of engineers that developed the In September 2016, Liang committing the crimes in the US.
so-called “clean diesel” engine in pleaded guilty to US federal
Germany. According to court charges for his role in the scandal Liang faces up to five years in
documents, he and his colleagues and agreed to cooperate with the a US prison, deportation following
concluded they could not design a investigation of other Volkswagen his release, and a fine of up to
diesel engine that would meet the employees. It came out that Liang $250,000 (£200,000). However, this
strict US emissions standards, had answered questions from is unlikely to be the end of the
so they designed and implemented environmental regulators about the scandal: the company still faces
software that would cheat the engines’ test results, knowing they criminal and civil litigation. ■
emissions tests instead.

In June 2016, VW agreed to a
separate civil settlement to pay
regulators and consumers up to

CORRIGMAENIZ

ED

134 INTRODUCTION Mafia activity begins on During Prohibition in
the island of Sicily in the Chicago, the Beer
A smuggling ring Wars break out
known as the form of citrus fruit between rival
protection rackets.
Hawkhurst Gang bootlegging gangs.
plagues towns and

villages in the
southeast of England.

1735–49 MID-1800s 1923–29

1761 1889–1908

The Heaven and Earth Society, Butch Cassidy’s Wild
the precursor to the Chinese Bunch holds up trains
Triads, forms in Manchuria in across the western states of
the US. The outlaws are
southeastern China. wanted “dead or alive”.

T he FBI defines organized Marginal groups coincidence that cocaine cartels
crime as a category of Crime groups often start out on emerged from the impoverished
crime perpetrated by a the fringes of societies. The Triads city of Medellín in Colombia, or
group of people with a formal were originally anti-Qing Dynasty that the Kray brothers and the
structure whose primary purpose revolutionaries who arose in Richardson crime family stemmed
is to obtain money through illegal 19th-century China; the Italian Cosa from deprived parts of south
activities. Such groups use violence, Nostra and its American offshoots London. Modern Triad branches
graft, and extortion to maintain evolved in the rural backwaters took root in the poorest areas of
their position, often bribing corrupt of Sicily; and the Hells Angels Hong Kong and Macau.
public officials to turn a blind eye or Motorcycle Club, which formed
even lend their support. after World War II, mainly included In many cases, such individuals
disaffected war veterans. These have been blocked by racial
Organized crime can be both organizations thrive on unlawful prejudice. Prohibition-era mobs
a local issue or a worldwide activities, such as drug trafficking, were largely made up of Italians,
phenomenon. In the late 1800s, prostitution, moneylending, Jews, and the Irish, while 30 per
Butch Cassidy’s Wild Bunch, gambling, and labour racketeering. cent of Yakuza are Japanese-born
derided as two-bit outlaws by the Koreans, who face persistent
lawmen they eluded for so long, was The American sociologist discrimination. The crack cocaine
perhaps the most successful train- Robert Merton believed that epidemic was fuelled by African
robbing gang in US history. At the individuals turned to organized American street gangs. “Freeway”
other end of the scale are crime crime when they were unable to Rick Ross, who was illiterate and
syndicates whose tentacles spread obtain society’s goals through unable to land a job in 1980s’ Los
across the world, such as Japan’s socially accepted means because Angeles, built a multimillion-dollar
Yakuza, and the Sicilian Mafia. of class hatred and poverty. It is no empire selling crack cocaine.

The Hells Angels emerge ORGANIZED CRIME 135
in San Bernadino, California,
and spread all over the world, The Medellín Cartel begins its
operations in Colombia and uses
fighting rival gangs and extreme violence to monopolize
trafficking narcotics.
the cocaine trade and
undermine the government.

1948 1972

1946 1960s 1980–95

In Japan, Kazuo Taoka The Krays and the In Los Angeles,
becomes the boss of the Richardsons – rival “Freeway” Rick Ross
Yamaguchi-gumi Yakuza gangs – rule the criminal creates a multimillion-
crime syndicate and underworld in the East
becomes known as the dollar market dealing
“godfather of godfathers”. End of London. crack cocaine.

Perhaps the strongest allure of support as benevolent outlaws. notion that mainland Italy simply
organized crime is that the groups Using both a populist platform and did not understand the nuances
provide a sense of kinship to his savvy political manoeuvring, of Sicilian culture.
individuals estranged from their the “King of Cocaine” Pablo
families or otherwise alienated Escobar even managed to win Hells Angels and other biker
from society. election to Colombia’s Chamber clubs attempt to market themselves
of Representatives. as rowdy but ultimately harmless
Underground activities throwbacks to an era of personal
Some organized crime gangs have The Yakuza and the Triads have freedom exemplified by groups
been glamorized by the public, infiltrated white-collar positions all such as the Wild Bunch. In doing
especially groups operating in the over Asia, from the most powerful so, these groups exploit a collective,
dim and distant past, such as corporations to the civil service and often misplaced nostalgia for a less
during the Prohibition in 1920s’ judiciary. However, unlike Pablo centralized world.
America. Fast-forward to the street Escobar, who operated in the public
gangs of the 1980s and 1990s – spotlight, these groups have been Mobsters often associated with
who wreaked havoc on many poor successful precisely because of pop icons, such as crooner Frank
communities with drive-by their ability to work behind the Sinatra and the American Mafia,
shootings, burglaries, vehicle scenes, causing them to become which helped to legitimize them.
thefts, and drug sales – and the almost invisible. After all, they could not be such
public’s attitude is less benign. bad people, could they, if they
Until the last quarter of the socialized with such respected
Sophisticated criminal groups 20th century, the Sicilian Mafia stars? For these organized crime
became adept at operating under flourished by obscuring the fact groups, who were attempting to
the radar and garnering public that they were a highly organized disguise what was actually going
criminal syndicate through the on, the ruse worked. ■

136

OSTTHHFMEAUATLMGLOGOFLTSERTTRHAHDEAEZSA,RDOUS

THE HAWKHURST GANG, 1735–49

IN CONTEXT S muggling in England peaked pistols and sabres at the ready. The
in the 18th century. When smugglers were notoriously violent,
LOCATION the government began to and did not hesitate to use force
South coast of England, UK tax imports heavily in order to against revenue officers. In 1740,
finance the country’s military the gang ambushed excise officer
THEME campaigns against France, the rise Thomas Carswell and his dragoons
Smuggling in the cost of goods – the price of on Silver Hill as they transported
tea alone rose by 70 per cent in the 750 kg (1,650 lbs) of tea seized from
BEFORE mid-1700s – made smuggling a barn in Etchingham. The gang
1735–1816 The Hadleigh lucrative. A band of smugglers shot Carswell dead, captured his
Gang operates along the east known as the Hawkhurst Gang men, and claimed the tea.
coast of England. Two of its became the most well-known.
members are hanged for the Dawn raid
murder of a dragoon. Taking their name from a town In spite of such violence, the
in southeast England, the gang general public admired the gang
AFTER plotted their exploits at the for outsmarting the taxman and
1799–1831 Jack Rattenbury, a Mermaid Inn in Rye, Sussex, their
smuggler on England’s south
coast, keeps diaries of his The Robin Hood effect their culture’s goals through
exploits. They are published institutionalized means some
with the help of a clergyman. The generally law-abiding pursue their goals illegitimately.
public has long held popular Less bold citizens may idolize
1817–26 A battle between the outlaws in high esteem. It is an the lawbreaker’s flagrant
Aldington Gang, on England’s attitude that sometimes comes rebellion and daring. However,
Kent coast, and excise officers out of resentment against when gang violence claims
leaves five dead and 20 injured. draconian laws imposed by the innocent victims, this
ruling class. At other times, it admiration changes to outrage.
2014–16 NASCAR driver comes about when governments
Derek White takes part in a are unable or unwilling to The murders of Daniel Chater
major North American tobacco protect their citizens and the and William Galley turned the
smuggling operation – selling resulting power vacuum is filled public against the Hawkhurst
tobacco bought in the US in by organized gangs. Gang. The London Gazette,
Canada and evading $409 the government’s newspaper,
million (£323 million) in tax. American sociologist Robert printed the smugglers’ names
Merton theorized that when and promised a royal pardon in
individuals cannot achieve return for information on them.

ORGANIZED CRIME 137

See also: Bonnie and Clyde 26–29 ■ The Beer Wars 152–53

Shoemaker Chater and revenue
officer Galley are kidnapped, tied to
a horse, and flogged by members of
the Hawkhurst Gang before their
brutal murder.

giving them access to cheaper (3,000 lb) of tea. A £200 (£30,000) abducted Chater and customs
goods. However, this changed in reward was offered for the capture officer William Galley from the
October 1747, when the smugglers of the smugglers, and former soldier White Hart Inn near Rowlands
sought to recover £500 (about William Sturt formed the Goudhurst Castle, where the pair had stopped
£70,000 today) worth of contraband Militia to stand up to the gang. for refreshment on their way to
tea, spirits, and coffee by attacking Chichester. Tying the men to a
the custom house in Poole, Dorset, No one came forward to horse, the smugglers took them to
where the goods were held. incriminate the smugglers. The the Red Lion Inn at Rake and into
following year, however, a comment nearby fields. They murdered them
The gang had been smuggling made by Fordingbridge shoemaker in cold blood, burying Galley alive
the goods from Guernsey to Daniel Chater, who was acquainted and throwing Chater headfirst
Christchurch aboard The Three with one of the gang, led to the down a well.
Brothers when their ship was arrest and imprisonment of John
intercepted by the Swift, a revenue “Dimer” Diamond. Chater had Final retribution
vessel commanded by Captain been given a small bag of tea by The gruesome violence used
William Johnson. Although the Diamond as the gang passed against Galley and Chater turned
gang evaded capture by escaping through the town of Fordingbridge, public opinion overwhelmingly
in a rowing boat, the goods were drawing a large crowd of onlookers. against the smugglers. The
confiscated and taken to Poole. Proud to be singled out by this ringleaders were arrested, tried,
gesture, Chater had bragged to and found guilty of raiding the
Determined to recover their neighbours about his friendship custom house in Poole. On
merchandise, in the early hours of with Diamond. 26 April 1749, Kingsmill and
8 October, gang leader Thomas three of his associates were
Kingsmill and 30 armed men broke Diamond was subsequently executed by hanging at Tyburn
into Poole Custom House and arrested and plans were made gallows in London. Kingsmill’s
absconded with more than 1,500 kg to take Chater to the court at corpse was hung in chains at
Chichester to testify against Goudhurst – a town he had once
They are so immensely rich the smuggler. threatened to burn to the ground
that they bribe ye private for turning against him. ■
men… [who] at this time Alerted to the impending trial,
harbour the outlawed persons fellow gang members William
in their houses and are the Jackson and William Carter
support of the whole affair.

Mr Pelham

IN SICILY

THIEVESTHERE IS A SECT OF

THE SICILIAN MAFIA, MID-1800s–



140 THE SICILIAN MAFIA

IN CONTEXT 19th-century mafiosi exchange fire My name is Mori and I will
with the carabinieri in the town of Vita make people die! Crime must
LOCATION in the province of Trapani in West vanish just as this dust carried
Sicily, Italy Sicily, one of the region’s six towns away by the wind vanishes!
with a strong Mafia presence.
THEME Cesare Mori
Crime families Failed investigations
Dr Galati of Palermo – the transported the goods. A member
BEFORE capital of Sicily and the Mafia’s of the Italian parliament, Diego
c.1800 The Camorra, a epicentre – was driven from his Tajani, asserted that the Sicilian
confederation of criminal citrus farm by this type of racket. Mafia was not intrinsically deadly
families, emerges in the Although he complained to the and invincible; rather, it was its
Kingdom of Naples; eventually, police, they did nothing about it. ability to collaborate with and
it controls the region’s milk, This convinced the doctor that the embed itself in local governments
coffee, and fish industries. investigators were working in that gave the Mafia great power.
tandem with his harassers. In 1874,
AFTER Dr Galati abandoned his business In August 1875, Galati
1850s ’Ndràngheta forms in and moved his family to Naples. submitted the first known report
Calabria, southern Italy. By the of “Mafia” activities in Sicily to the
late 1990s, it has become the Galati had learned that an Minister of the Interior in Rome,
most powerful crime syndicate influential gangster named Antonio noting that although the population
in Italy. Its activities include Giammona, who was based in the of Uditore was 800, there had been
extortion, money laundering, village of Uditore, was running 23 murders in 1874 alone. Although
and drug trafficking. protection rackets to extort money nothing was done to help Galati,
from the owners of western Sicily’s his memorandum forced the
Late 19th century The lemon groves. His goal was to national government to look at
American Mafia emerges develop a monopoly on the fruit. the growing problem in the south.
among Italian immigrant Giammona’s influence not only
families in New York’s East extended to the police and local From the 1800s to the end of
Harlem, the Lower East Side, politicians but also to the cart World War I, government officials
and Brooklyn. drivers and dock workers who and scholars conducted further
investigations into the Mafia, or
T he Mafia has its roots in “Cosa Nostra”, often following a
the 19th-century orange high-profile murder or a spate of
and lemon groves of killings. Although individual
western Sicily. Citrus fruits were mafiosi (members of the Mafia)
a particularly lucrative commodity were indicted, the organization was
during this period, and if the yield never successfully systematically
was good, the owner of a Sicilian pursued or prosecuted. Meanwhile,
lemon grove could expect to turn the Mafia continued to conspire
a substantial profit. Unfortunately, with municipal governments and
lemon trees were vulnerable to police to exercise a subtle,
temporary water shortages – profitable, and coercive influence
something all too common in Sicily. on Sicilian life.
The potential to reap significant
profits combined with the fruit’s
precariousness gave rise to a
particularly Sicilian form of crime:
citrus fruit protection rackets.

ORGANIZED CRIME 141

See also: The Triads 146–49 ■ The Beer Wars 152–53 ■ The Yakuza 154–59

Fascist enforcers
The most successful efforts to
quash the Sicilian Mafia were
initiated in 1925 by Cesare Mori,
a prefect of Palermo operating
under the Fascist government of
Benito Mussolini. His tactics were
simple – the use of authoritarian
power in conjunction with strong-
arm tactics. Mori, who did not
believe that the Mafia was a
unified structure, set up an
“interprovincial” anti-Mafia police
force and arrested 11,000 Sicilians,
including many mafiosi and bandits
but also innocent civilians. He
processed them through mass
trials, which he concealed from
the press. Eventually, Mussolini
could proclaim to the nation that
organized crime had been crushed
in Italy. During this time,
approximately 500 mafiosi fled to
the US, where they established the
Sicilian mob in America.

The Allied invasion of Sicily in
1943 inadvertently restored the
Mafia to power. When the fascist
government was overthrown, a
power vacuum ensued, particularly
at municipal levels. This allowed
the Mafia to step back into the
positions they had occupied before
Mussolini’s rise.

Resolving disputes disputes among families and An Italian police handout of nine
During a 1957 trip to Sicily, individuals, to determine suspected Mafia members accused of
New York mobster Joe Bonanno punishment for breaching the rules drug trafficking in Sicily. The handout
suggested that their European of the Mafia, and to control the was part of a 2008 international
counterparts establish a committee use of violence against members operation codenamed “Old Bridge”,
to resolve disputes. Prominent of government, lawyers, and ❯❯ which targeted 50 suspects in New
mafiosi Tommaso Buscetta, York and 30 in Sicily.
Gaetano Badalamenti, and
Salvatore Greco began drafting the
rules, and the following year, the
first Sicilian Mafia Commission
was formed in Palermo. The
commission intended to resolve

142 THE SICILIAN MAFIA

journalists, as these murders collusion between former mayor of We are at war… The mafiosi
brought unwanted attention to Palermo, Salvo Lima, and the Cosa are firing with machine
Sicilian organized crime as a whole. Nostra – the political will to act on guns and TNT. We can
If a boss wished to order a person the final report was lacking. The only hit back with words.
killed, it would have to be approved Sicilian Mafia temporarily dissolved There are thousands
by the commission. their commission and hundreds of of them and only a few
prominent members fled to other hundred of us.
Warring mafiosi countries to avoid prosecution.
For approximately 20 years the Anonymous policeman
commission wielded little power, Beginning in the late 1970s,
largely because regional bosses mafiosi from the village of Corleone Palermo’s chief prosecutor were
were accustomed to operating made a successful bid for killed in Mafia hits. In 1982, the
independently. The commission dominance of the Cosa Nostra in murder of Pio La Torre, an active
was unable to prevent the so-called what would become known as the member of the Anti-Mafia
First Mafia War which erupted in Second Mafia War (1981–83). Led Commission, prompted a law that
1961 between the Greco and the by Salvatore “Totò” Riina, the made it illegal to belong to a
La Barbera families, claiming 68 Corleonesi successfully took over “Mafia-type association”. Later that
victims. The war culminated in the the largely ineffective Sicilian Mafia same year, General Carlo Alberto, a
infamous 1963 Ciaculli massacre, Commission and transformed it national hero, anti-Mafia advocate,
in which seven police and military into a tool for exercising absolute and prefect of Palermo, was
officers were killed while they tried power. Although uneducated, the murdered alongside his wife when
unsuccessfully to defuse a car Corleonesi more than made up for a dozen mafiosi sealed off the road
bomb intended for Salvatore Greco. this deficit with deviousness and on which they were travelling and
The fallout for the Cosa Nostra violence. Predictably, their rise emptied their machine guns into
was significant. Within 10 weeks, was accompanied by a dramatic his car. His funeral was broadcast
1,200 mafiosi were arrested. spike in the murder of public to weeping eyes all across Italy.
figures, a departure from Cosa
The government established Nostra’s modus operandi. Legal offensive
an Anti-Mafia Commission headed For the first time, the Italian public
by Cesare Terranova, Palermo’s In 1979, four establishment and the government decided to act
former chief investigative figures including Terranova were to break the Cosa Nostra’s deadly
prosecutor. Ultimately, although killed in separate incidents. The grip on Sicily. A new law allowed
the investigation made many following year, the captain of the government to confiscate the
significant discoveries – such as Monreale’s carabinieri, the wealth of convicts found to be
president of the Sicilian region, and mafiosi, hindering their ability to
Losing face exercise power while in prison.
what the appropriate response
In Mafia nomenclature, sfregio should be. If he chooses not In July 1983, a car bomb
(literally translating as “scar” to respond, then he can be detonated in Palermo, killing chief
or “insult”) refers to a wound perceived as being weak and investigating magistrate Rocco
resulting in disfigurement, dominated by his aggressor. Chinnici, his two bodyguards,
either in the form of a physical The exchange of insults may and an innocent bystander. The
scar or through humiliation escalate to deadly levels. violence spurred Antonino
which causes the recipient to
“lose face”. One example of this is the
1897 executions of Olivuzza
A common form of sfregio family members Vincenzo Lo
is the vandalism or theft of Porto and Giuseppe Caruso,
property owned or under the which were sanctioned by the
protection of another mafioso. heads of the eight families. They
This forces the victim to decide had unanimously agreed that
whether or not he should the two men had inflicted an
respond to the injury and, if so, ill-conceived insult upon the
leadership of their clan.

ORGANIZED CRIME 143

Caponnetto, a career magistrate providing information that would Sicilian police inspect the aftermath
who was planning to retire, to finally prove the Cosa Nostra was of the car bomb attack that killed
step in as Chinnici’s replacement. a single unified organization. Judge Paulo Borsellino and his police
Caponnetto developed a team of Caponnetto declared that the entire guards near the judge’s mother’s house
anti-Mafia magistrates. Going on Mafia, rather than individual in Palermo, Sicily, on 20 July 1992.
the offensive, he announced members or groups, was going on
that the authorities were now trial. Caponnetto’s team went on to squad member, Antonino Cassarà,
working with ex-Mafia informant issue 366 arrest warrants on the was riddled with 200 bullets while
Tommaso Buscetta, who was strength of Buscetta’s testimony. his wife looked on in horror.
When further witnesses came
I obeyed orders, and I knew forward, more arrests were made. The sheer scale of the violence
that by strangling a little boy I triggered what was known as the
Fierce response “Palermo Spring”. Students held
would make a career for Rather than toning down their anti-Mafia demonstrations in
myself. I was walking on air. violence, the Corleonesi-controlled Palermo, an influential clergyman
Mafia escalated it. As Italy had yet spoke openly of the “Mafia” for the
Salvatore Cancemi to develop an effective witness first time and shamed the national
protection programme, the Cosa government for not addressing the
Nostra gunned down informant problem, as did the mayor of
Leonardo Vitale, Tomasso Palermo. Meanwhile, the anti-Mafia
Buscetta’s brother-in-law. Flying magistrates had accrued enough
squad officer Beppe Montana, evidence to open a maxi-trial on
responsible for tracking down Mafia 10 February 1986, in which 474
fugitives, was killed in July 1985. mafiosi and their allies were to face
The next month, another flying charges. On 16 December 1987, ❯❯

144 THE SICILIAN MAFIA

Mafia chain of command

Boss (king): Also known as Consigliere (rook): A trusted
a “Don”, he is in charge of advisor to the boss. He can
the organization. represent the boss in
Underboss (queen): The boss’s important meetings.
second in command. He is usually
a family member who takes over if Caporegime (bishop): Usually
the boss is killed or incapacitated. shortened to “capo” (head), he
leads a crew of soldiers. There
Soldier (knight): The may be anywhere between two
lowest level of mobster and 20 in a family.
attached to a gang. He
is required to take Associate (pawn): An
omertà, the code of individual who has not
silence, and works yet become a “made”
in a small group. man, but works for a
Mafia crew under the
supervision of a soldier.

360 of the accused were found No one should provide of Appeal, ruled that some of the
guilty and sentenced to a total of the police or judiciary with maxi-trial convictions should be
2,665 years in jail. This was only facts that help uncover any overturned based on technicalities.
the beginning: Caponnetto’s
team had already prepared for two crime whatsoever. In 1991, Giovanni Falcone was
more maxi-trials, and thanks to Niccolò Turrisi Colonna appointed Director of Penal Affairs
new information from informant in the Ministry of Justice. He
Antonio Calderone, was poised to against his incompetence but were united anti-Mafia police from
trigger another. In March 1988, ignored. To make matters worse, various organizations in a single
160 arrests were made. The Mafia the anti-Mafia mayor of Palermo, entity. New legislation allowed
responded by murdering Palermo Leoluca Orlando, lost his position in phone taps on Mafia members,
appeal court judge Antonio Saetta 1990. The bleakest moment came combated money laundering, and
and his son. when Judge Corrado Carnevale, dissolved municipal councils
presiding over the Palermo Court infiltrated by organized crime.
Administrative setbacks
When Caponnetto stepped down at Again, the Mafia answered
the end of 1987, he was succeeded the threat with violence. In
by the inexperienced Anthony August 1991, they contracted the
Meli. He made countless clumsy ’Ndràngheta to murder Antonio
decisions which endangered the Scopelliti, a Court of Cassation
entire project. Judges Paolo prosecutor. Palermo businessman
Borsellino and Giovanni Falcone Libero Grassi, who campaigned
of the anti-Mafia team spoke out against extortion rackets, was the
victim of a similar homicide three
weeks later.

ORGANIZED CRIME 145

Wanted posters for the Mafia’s
“boss of bosses” Bernardo Provenzano
appeared in Palermo in 2005. They
were based on a 1959 mugshot – the
only photo of him then in existence.

New laws Mafiosi informants Provenzano wielded very little
On 31 January 1992, the Italian This law was passed at the perfect power, and the organization
Supreme Court overturned Judge time. In the wake of the Court of decentralized. Local Mafia leaders
Carnevale’s verdict, marking an Cassation’s verdict, many mafiosi returned to small-time protection
unprecedented victory for the anti- became informants. Based upon rackets, which were less profitable
Mafia cause in Italy. However, it information provided by a captured but allowed them to operate in
drew a furious response from the mafioso, Riina was caught in 1993. relative secrecy.
Corleonesi. On 23 May 1992, Leadership of the Mafia passed to
Falcone and his wife were Leoluca Bagarella – who was, in On 11 April 2006, after an
murdered in a car bomb attack. turn, arrested in 1995 – and then extensive manhunt, Provenzano
Paolo Borsellino and five members to Bernardo Provenzano. was finally captured. In the years
of his escort were murdered two since, the Mafia has laid low,
months later by another bomb. The anti-Mafia efforts of the unlikely ever to be as powerful as
1980s and early 1990s practically they were during the second half
At this point, the government castrated the Cosa Nostra. of the 20th century. ■
finally decided that enough was
enough. They sent 7,000 soldiers
to Sicily to take charge of day-to-
day police duties, which freed up
local forces to hunt down Riina and
his men. The police were granted
legal powers to infiltrate the Mafia
and set up sting operations
involving fake drug deals and
money laundering. A significant
new law also helped to protect
informants by enabling them to
change their identities.

Giovanni Falcone A self-described “servant of the Sicilians hung bedsheets from
state in the land of infidels,” their windows emblazoned with
Judge Giovanni Falcone, more “Falcone lives”, and a tree
than any other politician before outside his house was quickly
him, fearlessly and dutifully set transformed into a shrine
about crushing the Sicilian Mafia. adorned with photographs,
flowers, and messages to the
Through his conversations statesman who had exposed
with informant Tomasso Buscetta, the Mafia.
he became the first Italian
government official to learn about Palermo’s airport was even
and document the structure of renamed Falcone–Borsellino
the Sicilian Mafia. When Falcone Airport in honour of Falcone and
was targeted and killed by a his friend Paolo Borsellino, a
Mafia bomb on 23 May 1992, fellow anti-Mafia judge who
along with his wife and three was murdered in a similar car
police officers, he was hailed as a bombing incident in Palermo
hero to the Italian people. just two months after Falcone.

146 IN CONTEXT

DTHOEAYNDYATRHEING LOCATION
China and worldwide
THE TRIADS, MID-1800s–
THEME
International crime
syndicates

BEFORE
1761–1911 The Heaven and
Earth Society is established
in southeastern China as a
secret sect; after 1911, it
evolves into the Triads.

AFTER
1850s The “Tong” brotherhood
originates among Chinese
expatriates in the US, and
acquires a reputation for
trafficking women.

1990 The Asian-American
street gang Jackson Street
Boys forms in San Francisco,
US, and becomes involved in
extortion, racketeering, and
narcotics trafficking.

A t the top-tier of the
Chinese criminal
hierarchy are the Triad
societies, with 250,000 members
worldwide and representation in
Macau, Hong Kong, Taiwan,
southeast Asia, and in Chinatowns
worldwide. Triad members range
from low-level thugs to those who
occupy positions in politics and
the criminal justice system.

The three most powerful Triad
societies are the Sun Yee On, 14K,
and Wo Shing Wo. Founded by
Heung Chin in 1919 in Hong Kong,
the Sun Yee On is the largest, with
approximately 55,000 members. Its
operations extend to southeast
Asia, Australia, Europe, and North

ORGANIZED CRIME 147

See also: The Sicilian Mafia 138–45 ■ The Yakuza 154–59 ■ The Medellín Cartel 166–67

The arrest of Samson Tan, a
Chinese chemist, by Philippine
police in 2008. Tan was charged with
producing methamphetamine for
Hong Kong-based Triad gangs.

and Central America. Since the late ended Qing rule and led to the ranks are known as “49 ers”. A
2000s, it has acquired a reputation establishment of the Republic of special number – 25 – is used to
for trafficking methamphetamine China. After this time, the Triads denote spies, informants, or
(crystal meth), and for supplying found new purpose and gained undercover police agents.
Mexican drug cartels with the raw significant wealth through illegal
materials needed to produce it. gambling and prostitution. The traditional initiation
ceremony for new recruits can last
Sun Yee On’s main rivals are up to three days. It comprises 18
the 14K. Founded in Guangzhou in steps and historically involves
1945, the 14K moved its base to drinking the blood of members and
Hong Kong in 1949 and also formed sacrificing a chicken. Modern
a major branch in Macau during the ceremonies are much shorter with ❯❯
1970s. It is the second largest Triad,
with 25,000 members. I like to describe Chinese
organized crime as the flu
The Wo Shing Wo emerged
from Toronto’s Chinatown in 1930 virus because they’re
before it transferred its operations constantly mutating.
to Hong Kong in 1931; it also has Kingman Wong
a strong presence in London’s
Chinatown. The Wo Shing Wo is
allegedly the top narcotics trafficker
in Hong Kong.

Early origins Triad hierarchy
Most historians trace the origins of Triads are devoted to the ancient
the Triads to the Heaven and Earth rituals and symbols of their
Society – a secretive fraternal founders. As such, they rely on
organization founded in 1761 in traditional Chinese numerology
southeastern China. Also known as corresponding to the I Ching to
the Hung Clan, the sect regarded structure their organization.
the ruling Qing Dynasty, based in The leader of a Triad, who makes
Manchuria, as “foreigners” and the executive decisions, is known
plotted their overthrow. Among as the Dragon Head with the
their other activities during the number designation 489. He is
18th century, the Hung Clan assisted by one or more office-
conspired with foreign merchants bearing ranks, designated with
to import opium. The English word the number 438, which include his
“Triad” first appeared in reference Deputy and the Incense Master –
to the triangular motifs on Hung usually a senior official in terms of
Clan banners. rank and age. The lowest officer
ranks – 415, 426, and 432 – include
The Triads are believed to have Enforcers, who work as military
been a driving force in the Xinhai commanders. Non-office-bearing
Revolution of 1911. This finally

148 THE TRIADS

The Rank Structure of a Triad Society

489: Dragon Head (“Mountain Master”)
The boss of the Triad

438: Deputy (“Deputy Mountain Master”)
The underboss, who leads the Triad if the Dragon Head

is incapacitated

438: Ceremonies Officer (“Incense Master”) 438: Operations Officer (“Vanguard”)
Organizes new recruits and the Assistant to the Incense Master
induction ceremony

415: Administrator 426: Enforcer (“Red Pole”) 432: Liaison Officer
(“White Paper Fan”) A military commander (“Straw Sandal”)
Advisor on financial and
overseeing a group of 49ers A coordinator between
business matters and Blue Lanterns different units

49: Ordinary members (“49 ers”) Uninitiated members (“Blue Lanterns”)
After passing the initation ceremony, a Blue Individuals not yet regarded as

Lantern becomes a “soldier” full members have no number designation but
are connected to a Triad gang

the chicken sacrifice omitted and stability. This led to a surge in Du became the leader of the
recruits required to suck only their Triad power from the 1920s to the 100,000 member Green Gang, a
own blood from their finger. 1940s. Their hub during this period secret society originally formed in
was Shanghai, where the gangster the early 1900s by grain shippers
The rise of the Triads Du Yuesheng secured the city’s in Shanghai. The society soon
In 1916, following the death of the opium trade by forcing “protection” became corrupt and dominated
Chinese Republic’s first president, on local opium traders. Du bribed criminal activity in the city,
Yuan Shikai, China split into a land French authorities $20 million (£180 especially in the opium trade.
of feuding warlords. In the ensuing million today), and freely smuggled
chaos, the Chinese people turned opium into Shanghai through the By 1923, the Kuomintang – the
to the Triads for protection and French Concession area. Chinese nationalist republican
army – allied with the Communists