21st Oct 2016

UN highlights economic cost of organised crime in Italy

With Italy increasingly being seen by markets as the next Greece, a major UN report has highlighted how organised crime is harming the Italian economy.

The study by the UN Office on Drugs and Crime in Vienna out on Tuesday (25 October) estimates that organised crime in Italy - mostly illegal waste disposal, drugs and people trafficking - is worth €116 billion a year, equivalent to 7.7 percent of the country's GDP.

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The scale of the problem is far larger than in other industrialised nations - organised crime accounts for 1.3 percent of the economy in Germany, 1.2 percent in the UK and 2.3 percent in the US.

The UN notes that crime has short-term positive effects: Money laundering sees dirty income invested in small businesses, creating jobs, or saved in banks, easing credit flows and liquidity.

But the medium and long term effects are destructive.

Criminal groups tend to invest cash in businesses where it can most easily be hidden - real estate, restaurants, transport companies - rather than where it will generate the most profit.

Criminally-backed enterprises damage competitiveness by driving legitimate firms out of business. "Front companies may offer their goods and services at below-market rates or even at a loss because their primary objective is to launder money. Such companies do not need to compete properly in the marketplace," the UN said.

The lack of transparency also distorts national economic data, macroeconomic analysis and policy-making. Crime aggravates volatility because "criminal flows may be suddenly disrupted and related investments may disappear due to law enforcement actions." Meanwhile, corruption of legal institutions and bribing of "friendly" political parties "can have a negative impact on overall tax morality" and scare away foreign investors.

On top of this, the price of booming illegal drugs consumption in terms of the burden on national health services and the petty crime it generates can cost up to 3.5 percent of GDP.

"International rating agencies will use this information to downgrade the credit risk of the countries concerned," the UN warned.

In global terms, the study notes that organised crime is worth around $2.1 trillion a year with some $580 billion in cash - 1 percent of the world economy - available for money laundering. Just 0.2 percent of the illegal money is currently being intercepted.

The UN points to offshore banking centres in Europe - mostly Luxembourg, Switzerland and the UK - as a favoured destination for cocaine-related laundering. The region is said to legitimise around $7 billion of cocaine income a year, second only to the US on $10 billion.

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