Global Mafia

The New global mafia poses the most serious criminal threat in history. A team of NEWSWEEK correspondents spent a month on the trail. The report: ON THE VIA NOTARBARTOLO in Palermo, Sicily, stands a small rubber tree. Taped to its trunk, like prayers for the intercession of a saint, are messages from children--"You have to be a great man," Elisa and Flavio have written. And a great man indeed he was: Giovanni Falcone, to whose memory the tree is dedicated, was the most determined investigator the Sicilian Mafia has ever known. Falcone was killed by a car bomb in Palermo on May 23, 1992; his death enraged Italy. On Nov. 21, an anti-Mafia candidate won 75 percent of the vote in Palermo's local elections. Forty miles south of the city, in Corleone--the hilltop village of "godfathers," real and celluloid--Felice Bellerio, 11, strolls into the office of Dino Paternostro, whose magazine campaigns against the Mafia. "I am Falcone's friend," says the child. "He is our future," says Paternostro.

Perhaps, in the long term: but not any time soon. For just when police from Bologna to Brooklyn believe that they may have a grip on the Sicilian Mafia and its cousins, just when Pablo Escobar has been gunned down, new "mafias" have popped up as if the earth bad been sown with dragons' teeth. Traditional mafiosi, says one Italian cop, were "uneducated jerks"; Escobar was a byword for violence. But the new crime lords, as an international investigation by NEWSWEEK has revealed, are far more sophisticated, more international and just plain more dangerous than either the Sicilians or the Medellin cartel ever were. International organized crime is frightening some sensible policymakers witless. "We have a problem that is accelerating far beyond the ability of our current institutions," says Tim Wirth, the under secretary of state for global affairs. "Organized crime," says Sen. John Kerry, is "the new communism, the new monolithic threat."

Around the globe, intelligence agencies are refocusing their operations from spies to criminals. Some of this may reflect the desire of spooks to protect their budgets in the post-cold-war world. But the threat is real. Roy Godson of Washington's National Strategy Information Center estimates the annual worldwide profits of organized crime at $1 trillion, almost the same size as the U.S. federal budget. From Russia to Thailand, the export of precious raw materials is falling into the hands of organized crime. From Central America to the Pacific Ocean, the political control of small nations is falling into criminal hands.

At the limit, some observers tremble that the new criminals may also pose a threat to the developed world. NEWSWEEK has learned that the CIA is investigating whether organized-crime groups could acquire nuclear weapons. Juri Pihl, the head of Estonia's security police, speaks of a black market for Russian arms that is "totally out of control." Godson calls organized crime's threat to governments "an iceberg; nobody knows the size of it." A senior official at the U.S. Drug Enforcement Administration says plaintively, "When did we put these guys in control?"

We didn't. Rather, a number of social, political and technological trends have met to form a new space for organized crime: a vast hunting ground with no fixed borders and with an entry permit available only to the cruel and deadly.

The first trend is the development of computer and communications technology. Electronic fund-transfer systems can whiz billions of dollars around the globe within seconds. Faxes and cellular telephones can be encrypted, making it all but impossible to trace calls from them. Drug-cartel planes flying north to the United States have signal interceptors to plot radar and avoid monitoring.

Second is communism's collapse. In the former Soviet Union and in Eastern Europe, the rebirth of the profit motive has combined with weak governments to form a devastating mixture. In China, a Communist government has decreed that it is good to grow rich--but it has been unable to control the genies of crime and corruption that it has unleashed.

The third trend--itself the function of the first two--is the declining significance of national borders. As late as the 1960s, the Japanese were not allowed to travel abroad for pleasure. Just a few years ago exit visas for those living in the Soviet Union, Eastern Europe and China were a prized rarity. Now Czech prostitutes work the Italian Riviera; Chinese immigrants to America are transshipped through Hungary; South American drug lords recruit traffickers in Nigeria. In Western Europe, people, goods, money and arms swirl around in an all-but-borderless space.

These three trends have brought a period of unparalleled prosperity to the world, as goods find new markets and people sell their skills to the highest bidder. But when combined with the enormous profits to be made from crime, they have also created an unprecedented opportunity for evil.

There is no single worldwide criminal conspiracy, no board of directors of Crime International ready to take on a latter-day James Bond. "The chief hitch in transnational empire building," says a senior officer at Interpol, "is the issue of trust...In a deal between nationally distinct mobs...everybody is armed and expecting to get cheated or killed--usually with good reason."

Yet though still in its infancy, international criminal cooperation is growing. East European and Russian gangs sell arms to the Sicilian Mafia; last year Japanese and Italian gangsters held a conference in Paris. As criminals from once closed societies like Russia and China move into the rich world, so they provide murderous competition for established criminals; a competition that all too often engulfs the innocent.

Such struggles are bound to intensify, because of a fourth and final trend: the rich world's appetite for narcotics, especially cocaine. Cocaine generates enormous sums of money that slosh around, and corrupt, the world's financial system. The Organization for Economic Cooperation and Development in Paris estimates that at least $85 billion in drug profits is laundered through the financial markets each year.

Never before has one form of criminal activity generated such enormous sums of ready money for investment in businesses legal and not. The cocaine kings are always looking for new territories to conquer, new outlets for their funds. It is the drug cartels' new global reach that, when mated with the post-communist world economy, has bred the new organized crime.

To combat the new threat will take brains and time. When Louis Freeh was sworn in as the FBI's director this year, he praised his friend Giovanni Falcone for his "historic" contribution. Freeh was right to do so; but as NEWSWEEK'S investigations show, it will take a lot more than prayers to law enforcement's secular saint to emasculate the threat we all now face.

FRANKLIN JURADO WAS A sophisticated financier with homes in Paris and Luxembourg and a degree from Harvard. He was scoping out new opportunities in Moscow like any decent modern capitalist when an unfortunate fate befell him. The Luxembourg police charged him with laundering $36 million of drug money through 33 banks. (This was a case of putting theory into practice: Jurado's master's thesis was on money laundering.)

Jurado, now in a Luxembourg jail, allegedly worked for the cartel based in Cali, Colombia. Even before the death of Escobar, drug-enforcement officials thought that the Cali cartel controlled 85 percent of the world's cocaine trade. Cali's reputed kingpins, the brothers Gilberto and Miguel Rodriguez Orejuela, had been feuding with Escobar for years. "The Rodriguez brothers," says a senior DEA official, "had absolutely blown Escobar out in terms of the volume of drug trafficking." Cali had learned from Escobar and his cohorts that excessive violence only invites a government crackdown. Instead, the Cali cartel treats cocaine as a business like any other (give or take the odd murder). The cartel recently tried to lease its own satellite so the CIA and DEA couldn't listen in on conversations. Cali's recruits are intelligent and its systems are high tech. In one case, the DEA arrested a trafficker who had 20 computers to run his distribution network.

But for all their sophistication, the Cali cartel and other kings of cocaine face two problems. The first is a price of success. Drug gangs have generated such huge sums of money that their members need to find something to do with it: after you've bought your second or third soccer team, the thrill is gone. Second, though the drug cartels are always looking for new markets and smuggling routes, the use of cocaine is probably in decline in mature markets like the United States and Western Europe. "It's a terrible thought," says an experienced anti-drug specialist at Interpol headquarters in France, "but we may just put ourselves out of business by the end of the decade."

Now the bad news: the burden of law enforcement will only move elsewhere. In response to new challenges, drug cartels are changing tack. First. they seek new investments in businesses, whether clean or dirty; then they seek new markets.

The first element of this new strategy turns on money laundering--transforming the revenue from drug sales so it can be used in other businesses. Cartels wash their cash in myriad ways, from postal-order and credit-card frauds to old standbys like padded construction contracts.

As much as $10 billion of drug money is thought to be laundered through Canada; $32 billion through Britain. In Panama, money laundering is a national habit. "We have a culture here that believes that money doesn't have any particular smell attached to it," says Ebrahim Asvat, a former Panamanian police chief. About $180 million in U.S. postal money orders cleared Panamanian banks last year, the last step in a fandango that started with cartel foot soldiers in New York. Like the United States and many other countries, Panama has laws requiring banks to identify transactions of more than $10,000 if they look suspicious. In Western Europe, where the borderless economy has made it easier to shift cash around, traditional hotmoney havens like Switzerland and Luxembourg have started to clean up their acts.

But just as rainwater always finds the hole in your new gutter, so the cartels can always find somewhere new to clean their cash. Consider the Baltic Republic of Estonia, with a nice convertible currency and few bank regulations. Pihl, the security-police chief, says, "Criminal money is welcomed here because the banks are new and just want to compete." Kaja Kell of the Bank of Estonia says that suspicious business people have offered the government huge low-interest loans.

It isn't just the lax banking laws in Eastern Europe and the former Soviet Union that attract organized crime. The cowboy capitalism of the region has provided a host of new business opportunities, from a construction boom to smuggling to buying privatized state enterprises. "These people are destabilizing Eastern Europe," says Myles Robertson of St. Andrews University in Scotland. "They move in to exploit the economies, not expand them."

The drug cartels have concluded that Eastern Europe and the former Soviet Union provide both the perfect transshipment route to Western Europe and the requisite new markets. Lt. Col. Josef Doucha, head of the organized-crime division of the Czech police, says that "every day [drug] consumption is increasing."

ADEA official says, "The East Europeans are basically uninformed on drugs...You're lucky if a Polish border-patrol officer even has a radio so he can alert his headquarters when contraband crosses." Not always. In 1991, Czech authorities found 220 pounds of cocaine in a shipment of beans from South America and tipped off the Poles, who found an additional 240 pounds near Gdansk.

The most dramatic proof of Colombian involvement in the region was the recent seizure near St. Petersburg of a ton of cocaine from Colombia, on its way from Finland. Aleksandr Sergeyev, Russia's top narcotics cop, says that Russian, Colombian and Israeli gangs were working together.

A consignment that size needs friends. Igor Ratsep, a Russian who specializes in organized crime, says, "Such a transshipment couldn't be made without contacts. Somebody was controlling the shipment here." And who might that somebody have been? In the lawless roads of Russia, just about anyone. "There's no f-----g fight against the mafia in Russia," says Peter Grinenko, a tough New York ex-cop who has watched the Russian mafia for more than 20 years. "The mafia is the system."

DAVID KAPLAN, A BUSINESSMAN IN Vilnius, Lithuania, sits unhappily behind an imported blackwood desk, smoking Marlboros under the protective eye of a huge bodyguard. Recently, police briefly arrested Kaplan and his girlfriend after the murder of Vitas Lingys, an editor at Respublika, a local newspaper. "I am not a killer," says Kaplan, who claims to be just the local representative of an Israeli company whose sale of military equipment to the Interior Ministry Respublika had investigated. He is something of a philosopher about certain business activity, too. "If the laws and economy and politics and state and the government are not in control of anything here," asks Kaplan, "is it organized crime or not?"

That's the point. In Soviet times, "laws" were backed by a state that was willing to use terror to enforce them. Now that the communist state has collapsed, laws have lost the power that once made them binding. Worse, in post-communist societies, it is easy to consider laws not as the expression of a society's mutual desire for order but as the instrument of a state that traditionally has been cruel and corrupt.

Worse still, there are no laws against money laundering, fraud or organized crime on the books. "I can call them in and tell them to stop doing it," says Sergei Komarov, deputy chief of the anticorruption division of the St. Petersburg police, "but all I can do is wag my finger." "Every business in Russia has to deal with the mafia," says a Western banker in Moscow. "They're not going to go off and control IBM, but here, where there are no functioning institutions and laws, business is stuffed."

Russian emigre criminals, licking their chops, are rushing back to this lawless world, returning to countries where much activity that is criminal in any real sense of the word is technically legal. Shell companies can be set up simply. Economic turmoil, the need for hard currency and a massive transfer of ownership of assets from the state to private hands provided opportunities galore for the control of export commodities like oil, metals and lumber. Corruption is endemic; the average pay of a Russian police officer is 8300 a month, which a zoot-suited boyevik, or mafia soldier, would consider small change at a casino.

Primitive technology helps the gangs. This year alone, says Leonid Fituni, director of Russia's Center for Strategic and Global Studies, more than $12 billion has disappeared from the Russian banking system. The method of interbank transfer is so antiquated that organized crime swindled $40 million from it in one case alone last year. "Only lazy frauds didn't use the system to steal," says Sergei Kochetkov of the East-West Investment Bank.

It would be nice if the rich world could afford to merely cluck with concern about the lawlessness of the former Soviet Union. But criminals from the ex-communist world are heading west. Consider the Baltic states, a traditional bridge between Russia and Western Europe. There have been more than 50 bombings in Estonia this year. Armed boyeviky guard shipments of smuggled metals along the road from St. Petersburg to the Estonian border town of Narva. With no major raw materials of its own, Estonia has become the sixth largest exporter of copper in the world.

Smuggling links the Russian mafia to the West. Police in Tallinn, Estonia, guard an entire parking lot full of freshly imported used cars, stolen in Germany and ready to be driven across the border into Russia. The Russians are involved in more than Western Europe's epidemic of car theft. The Russian mafia now runs some of the biggest prostitution rackets in Eastern Europe--and among the hardest to crack. "Even though [the women] are treated very cruelly," says a Czech cop, "they never turn to the police for help...and they never talk."

No prizes for guessing why the Russian gangs inspire such fear: they are brutal, featuring heavily armed former athletes and veterans of the Afghan war. Both Poland and the Czech Republic have seen recent gangland murders of the kind that are now commonplace within the former Soviet Union itself

With the Iron Curtain rent asunder, there is now nothing that protects Western European governments from infection by the new crime lords. Russian and East European gangs are arming mafiosi in Italy. Last May, David Vaness, the head of Scotland Yard's organized-crime unit, said: "In five years...the major threats confronting inner cities of the U.K. will be Central and Eastern European and Russian criminals." Farfetched? Last month British police intercepted an arms cache, big enough to supply a small army, smuggled out of Poland and bound for paramilitaries in Belfast.

Indeed, the reach of the new Russian crime lords extends across the Atlantic. One of Russia's reputed top godfathers put down roots in Brooklyn, among the Russian emigre community in Brighton Beach. Vyacheslav Ivankov--nicknamed "Yaponchik," or "The Little Japanese"--bought his way out of Russia in 1991 and headed west, says Grinenko. Russian mobsters reportedly gave him an apartment and a luxury car as a sign of respect.

This is what open borders can do. In 1989, 8,000 Russians visited the United States; 140,000 will have visited this year. Jim Moody of the FBI thinks that "a high percentage are staying illegally, with some engaging in criminal activities." The Russians are far from uneducated jerks. Says Grinenko: "They've had to cheat all their lives. They're smarter than the Italian Mafia."

Hence the hallmark Russian crime in America involves complicated fraud. The big money-spinner among the gangs in Brighton Beach, says Eric Seidel, of the organized-crime bureau in the Brooklyn district attorney's office, is selling bootleg gasoline. In California in 1989, authorities uncovered a huge medical-insurance fraud run by Russian emigres headed by two brothers, Michael and David Smushkevich, now awaiting sentencing.

Michael Ahern, who investigated the case for the U.S. Postal Inspection Service, thinks the sophistication of the crime is only half the story. It seems the Smushkevich brothers have associates back in the former Soviet Union. In fact, Ahern thinks they are "business associates" of none other than David Kaplan, the philosopher of Vilnius.

So here is the great irony. Until recently, the West feared the old conspiracy of Russian-led international communism. Now there are signs that a network of Russian criminals is circling the globe just as effectively as the cadres and ideologues ever did. And the Chinese chapter of this tale is no less frightening.

WONG KINFEI, ALIAS FUZHOU PAUL, fled the United States for China some years ago after being accused of murder, kidnapping, armed robbery and extortion. Wong was the reputed head of the Green Dragons, a gang in New York whose members hailed from the Chinese coastal province of Fujian. But officials believe that Wong is still in touch with the action in New York, and smuggles heroin into the United States. So far, so predictable--it's not that hard to fax Flushing from Fujian. Investigators suspect Wong is also involved in a newer international business which is costing U.S. tax dollars: people smuggling.

The scale of such smuggling was revealed last June when a rustbucket called the Golden Venture was beached off New York; 10 immigrants drowned as they tried to reach shore. Some American officials think that 100,000 mainland Chinese enter the United States illegally each year. Drew Arena, a U.S. Justice Department official, says, "Alien smuggling is a manifestation of organized crime, not just an immigration matter. Asian organized crime is a top priority."

This is new. In the past, American law-enforcement efforts played down the threat from Asian gangs. The victims of the gangs' extortion, illegal-gambling and prostitution operation were out of sight in Chinatowns. But now Chinese organized-crime groups both in China and in America are global in their reach and ready to form alliances with La Cosa Nostra and others.

Once more, political and economic changes are driving new opportunities. The recent boom in the illegal-immigrant trade, for example, was fueled when the government of Taiwan, just across the straits from Fujian, agreed to stop fishing with drift nets. This left the owners of hundreds of boats looking for new business, which they found in China, a once closed society where corrupt officials now openly assist immigration. The East Wind, which left China earlier this year with 524 passengers, took nine days to load. The loading of the ship, says Jack Shaw, head of investigations at the Immigration and Naturalization Service, was supervised by official Chinese coastal vessels.

A typical Fujianese immigrant has to pay at least $15,000 for his passage to America, of which only $1,000 will be paid in China. The rest has to be worked off in America through sweat-shop labor, prostitution, extortion or fraud. "It's the new slave trade," says Robert Perito of the State Department. "People are being forced into criminal activities...for failing to

If you think this sounds familiar, it is. By just such methods Sicilian godfathers at the turn of the century recruited fresh-off-the-boat peasants who needed a start in the New World. And there is more familiar stuff: in China, according to a Zhejiang sociologist, "local governments and public security are corrupt or have no control over society, so gangs fill the gap." Such Chinese gangs, for example, enforce contracts among companies--a useful and cheap function in areas where a modern legal system is all but unknown.

Godfathers recruiting migrants to America; gangs in the home country enforcing codes of honor amid conditions of lawlessness take a scalpel to Asian organized crime and you can see the same anatomy as the American-Sicilian Mafia of 80 years ago. And, just as then, law enforcement is woefully unprepared. Only 1.5 percent of FBI agents are Asian-American. The agency can't run a decent wiretap of Fujianese gangs, and the entire New York City Police Department has just one speaker of the dialect of Fujian.

PABLO ESCOBAR KEPT NOT JUST COLOMBIA'S police, but also its army, at bay for nearly a decade. Are governments really powerless before the new organized crime?

Not necessarily. The fight back starts by recognizing crime's new international flavor. French police say that European criminals now intentionally split up their work so that it will be a crime in several countries--and watch as investigations get bogged down in jurisdictional disputes. The key to combating this trend, law-enforcement officials agree, is internationally enforced rules against money laundering. But at a simpler level, rich countries like America just need more police officers who can speak Fujianese, Russian and Estonian.

In most developed countries, another crying need is to coordinate the activities of police bureaus and national-security agencies. Spooks have had their success in the business of crime fighting; NEWSWEEK has learned that the CIA has penetrated the Cali cartel and that a British M.I.6 operation in Spain recently helped crack an organized-crime ring based in London. But without coordination, too many cooks can spoil the broth. A recent meeting in Quantico, Va., between CIA and FBI lawyers broke up testily when the participants could not decide how to share crime intelligence.

In the end, Western officials may just have to sit, offer a bit of help and keep their fingers crossed. As post-communist countries from China to Russia continue to seek foreign investment, so will they need legal systems that protect those investors and punish white-collar crime. That means drafting laws against money laundering and fraud; already, the FBI has conducted seminars for the Polish, Czech and Hungarian police on methods of investigating economic crime.

Similarly, the American effort against the drug cartels is shifting from interdiction--"just not very effective," says the State Department's Tim Wirth--to targeting kingpins. There are also training programs abroad, such as a three-year justice Department operation to boost the skills of Bolivian prosecutors.

All this will take time to bear fruit. When communism collapsed and the world's borders opened, it was the criminals who first appreciated that in the brave new world they could get richer than their wildest dreams. Yet in global terms the 1990s will be a great decade of economic growth for everybody the honest and the dishonest, the policeman and the crook. A decent rule is this: rich countries are a lot better organized to fight crime than poor ones. The nemesis of organized crime may come when nations now emerging from the straitjackets of poverty and communism develop the habits of middle-class Europe and America-intolerant of crime, supportive of laws against it.

You think that this happy consummation can't happen? It can. For all the long-held cynicism about the Colombian government's weakness, in the end it nailed Pablo Escobar. Or walk again down Via Notarbartolo in Palermo to Giovanni Falcone's rubber tree, and see how the cradle of organized crime now worships the memory of a man who fought against it. There is hope yet.