# Organized Crime: An Evolving Challenge for U.S. Law Enforcement

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URL: https://www.frixlaw.com/law-library/documents/crs%3AR41547

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** January 11, 2013
- **Citation:** R41547

## Text

Organized Crime: An Evolving Challenge for
U.S. Law Enforcement
-name redactedSpecialist in Organized Crime and Terrorism
Kristin M. Finklea
Specialist in Domestic Security
January 11, 2013

Congressional Research Service
7-....
www.crs.gov
R41547

CRS Report for Congress
Prepared for Members and Committees of Congress

Organized Crime: An Evolving Challenge for U.S. Law Enforcement

Summary
In the last two decades, organized crime has grown more complex, posing evolving challenges for
U.S. federal law enforcement. These criminals have transformed their operations in ways that
broaden their reach and make it harder for police to combat them. They have adopted morenetworked structural models, internationalized their operations, and grown more tech savvy. They
are a significant challenge to U.S. law enforcement.
Modern organized criminals often prefer cellular or networked structural models for their
flexibility and avoid the hierarchies that previously governed more traditional organized crime
groups such as the Cosa Nostra. Fluid network structures make it harder for law enforcement to
infiltrate, disrupt, and dismantle conspiracies. Many 21st century organized crime groups
opportunistically form around specific, short-term schemes and may outsource portions of their
operations rather than keeping it all “in-house.”
Globalization has revolutionized both licit and illicit commerce. Commercial and technological
innovations have reduced national trade barriers, widened transportation infrastructure, and
bolstered volumes of international business. The Internet and extensive cellular telephone
networks have fostered rapid communication. Integrated financial systems, which allow for easy
global movement of money, are exploited by criminals to launder their illicit proceeds. Estimates
suggest that money laundering annually accounts for between 2% and 5% of world GDP.
Simultaneously, borders are opportunities for criminals and impediments to law enforcement.
Organized criminals have expanded their technological “toolkits,” incorporating technologydriven fraud into their capabilities. They can harm U.S. citizens without ever having a physical
presence in the country via crimes such as cyber intrusions into corporate databases, theft of
individual consumer credit card information, fencing of stolen merchandise online, and money
laundering. Further, criminal organizations—which have historically burrowed into and exploited
local ethnic communities—can now rely on Internet connectivity and extensive, international
transportation linkages to target localities around the globe.
Since the terrorist attacks of September 11, 2001, there has been a shift in law enforcement
attention and resources toward counterterrorism-related activities and away from traditional crime
fighting activities including the investigation of organized crime. Although the effects of
organized crime may not be seen in a large-scale attack, they are far-reaching—impacting
economic stability, public health and safety, and national security.
In July 2011, the Obama Administration issued its Strategy to Combat Transnational Organized
Crime. It addresses the fact that federal investigation of organized crime matters has not
historically been a centralized effort. Regardless, there still is no single agency charged with
investigating organized crime in the way the Federal Bureau of Investigation (FBI) has been
designated the lead investigative agency for terrorism. Further, resources to tackle this issue are
divided among many federal agencies. As such, Congress may exert its oversight authority
regarding the federal coordination of organized crime investigations via the 2011 strategy.
Policymakers may also debate the efficacy of current resources appropriated to combat organized
crime.

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Organized Crime: An Evolving Challenge for U.S. Law Enforcement

Contents
Introduction...................................................................................................................................... 1
Organized Crime Adapting to Globalization ................................................................................... 2
Borders and Organized Crime ................................................................................................... 3
Copycats and Smugglers ..................................................................................................... 3
Drug Trafficking .................................................................................................................. 8
Money Laundering .............................................................................................................. 9
Organized Crime and Technological Change .......................................................................... 11
Mass Marketing Fraud ...................................................................................................... 12
Cyberspace, Electronic Information, and Organized Crime.............................................. 14
Online Identity Theft and Sophisticated Credit Card Fraud .............................................. 14
Organized Retail Crime and Online Fencing .................................................................... 15
Bulk Narcotics Smuggling and Technology ...................................................................... 16
Exploitation of Ethnic Diaspora Communities ........................................................................ 19
Changing Structures ................................................................................................................ 22
Network Models ................................................................................................................ 23
Corruption................................................................................................................................ 25
“Ground-Level” Exploitation of Private Businesses ......................................................... 25
Big Business and Organized Criminals ............................................................................. 27
Corruption of Public Officials ........................................................................................... 28
Organized Crime, a “National Security” and “Public Security” Concern ..................................... 30
Conceptualizing Organized Crime .......................................................................................... 31
Transnational Organized Crime Defined........................................................................... 31
Statutory Definition ........................................................................................................... 36
Issues.............................................................................................................................................. 37
Defining Organized Crime in Statute ................................................................................ 37
Congressional Commission ............................................................................................... 38
Incentives for Investigating Organized Crime .................................................................. 39
Implementing the National Strategy to Combat TOC ....................................................... 40

Figures
Figure 1. Transnational Organized Crime Strategy ....................................................................... 36

Contacts
Author Contact Information........................................................................................................... 42

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Organized Crime: An Evolving Challenge for U.S. Law Enforcement

Introduction
In the last two decades, organized crime has grown more complex, posing evolving challenges for
U.S. federal law enforcement. This is largely because these criminals have transformed their
operations in ways that broaden their reach and make it harder for law enforcement to define and
combat the threat they pose. Globalization and technological innovation have not only impacted
legitimate commerce, but they have simultaneously revolutionized crime. In response to these
forces, organized criminals have adopted more-networked structural models, internationalized
their operations, and grown more tech savvy. Criminals have become more elusive. They see
international borders as opportunities while law enforcement views them as obstacles. Criminals
have expanded their range of tools and targets as well. Meanwhile, law enforcement “plays by
yesterday’s rules and increasingly risks dealing only with the weakest criminals and the easiest
problems,” according to the Strategic Alliance Group, a partnership of seven law enforcement
agencies from five nations.1
Motivated by money, organized crime fills needs not met by licit market structures and/or exploits
businesses, consumers, and nations for profit. Organized criminals have capitalized on
commercial and technological advances that have bolstered communication and international
business. They use innovative methods of moving illegal proceeds around the world. Some
nations have also witnessed the creation of ties between powerful business figures, politicians,
and criminals.
Modern organized criminals may prefer cellular or networked structural models for their
flexibility and avoid the hierarchies governed by elaborate initiation rituals that were favored by
their predecessors. Fluid network structures make it harder for law enforcement to infiltrate,
disrupt, and dismantle conspiracies. Many 21st century organized crime groups opportunistically
form around specific, short-term schemes. Further, these groups may outsource portions of their
operations rather than keeping all of their expertise “in-house.”
In July 2011, to address these and other issues, the Obama Administration issued its Strategy to
Combat Transnational Organized Crime (2011 Strategy). It described transnational organized
crime (TOC) as a strategic threat to national security, laid out a definition of TOC, and set forth
five policy objectives and six categories of priority actions in an attempt to devise a cohesive
federal response to transnational organized crime.2 Complicating all of this, since the terrorist
attacks of September 11, 2001 (9/11), there has been a shift in law enforcement attention and
resources more toward counterterrorism-related activities and away from traditional crime
fighting activities—including the investigation of organized crime.

1
These law enforcement agencies include the U.S. Federal Bureau of Investigation (FBI); Drug Enforcement
Administration (DEA); Immigration and Customs Enforcement (ICE); the United Kingdom’s Serious Organised Crime
Agency (SOCA); the Australian Crime Commission and Australian Federal Police; the New Zealand Police; and the
Royal Canadian Mounted Police. See SOCA, “SOCA Working in Partnership Worldwide,” http://www.soca.gov.uk/
about-soca/working-in-partnership/international-partnerships. Intelligence Committee Futures Working Group, Crime
and Policing Futures, Strategic Alliance Group, March 2008, p. 2. (Hereinafter, Intelligence Committee Futures
Working Group, Futures.)
2
For details see Strategy to Combat Transnational Organized Crime, July 2011, http://www.whitehouse.gov/sites/
default/files/Strategy_to_Combat_Transnational_Organized_Crime_July_2011.pdf. (Hereinafter, Strategy to Combat
Transnational Organized Crime.)

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Organized Crime: An Evolving Challenge for U.S. Law Enforcement

This report provides an analysis of how organized crime has capitalized on globalization by using
borders as opportunities, relying on fast-paced technological change, and adapting its
organizational structures. It illustrates how these transformations can impact U.S. persons,
businesses, and interests. The report includes a discussion of how U.S. law enforcement
conceptualizes organized crime in the 21st century and concludes by examining potential issues
for Congress, including the extent to which organized crime is a national security threat (partly to
be tackled by U.S. law enforcement agencies), congressional oversight regarding the federal
coordination of organized crime investigations, and the utility of current resources appropriated to
combat organized crime.
This report employs a broad conceptualization of organized crime in its narrative discussion of
criminal activity. In other words, the analysis includes groups engaged in sustained criminal
enterprises, such as—but not limited to—drug traffickers, mafia families, smugglers, violent
gangs, and fraudsters. These operations may or may not have a transnational dimension to them
(which is a requirement under the guidelines of the 2011 Strategy), but they directly impact U.S.
persons, businesses, and/or interests. While this conceptualization may be broader than the
definition laid out in the 2011 Strategy, it incorporates a range of criminality that may inform
Congress in future legislation impacting organized crime. The cases and examples discussed in
this report are not intended to set definitional boundaries for organized crime.

Organized Crime Adapting to Globalization
Organized crime targeting the United States has internationalized, and its structures have
flattened. The popular image of mobsters employing elaborate initiation rituals and strict codes of
conduct to control crews that assail their own communities is outmoded. Today, nimble, adaptive,
loosely structured small groups with global reach harm consumers, businesses, and government
interests on a daily basis. Commercial and technological innovations are behind this
transformation. They have helped to reduce national trade barriers, widen transportation
infrastructure, and bolster volumes of international business. Smugglers have taken advantage of
growing international commerce to hide illicit trade. The Internet and extensive cellular telephone
networks have fostered rapid communication, simultaneously revolutionizing licit and illicit
commerce. For example, integrated financial systems allow for easy global movement of money.
Estimates suggest that money laundering annually equals between 2% and 5% of world GDP.3
Criminal organizations targeting the United States operate in many of the world’s nations. Areas
wracked by social disorder, inadequate policing, and poor governance offer opportunities for
organized crime to take root.4 These groups exploit diaspora communities in the United States as
cover for their operations, situating elements of their global operations among immigrant
enclaves.
Organized crime groups are becoming more entrepreneurial or market focused, reacting to
changes in both illicit and licit economies.5 Of course, they are still heavily involved in activities
3

Moisės Naím, Illicit: How Smugglers, Traffickers, and Copycats are Hijacking the Global Economy (New York:
Anchor Books, 2006) p. 16. (Hereinafter, Naím, Illicit.)
4
Intelligence Committee Futures Working Group, Futures, p. 5. See also United Nations Office on Drugs and Crime
(UNODC), The Globalization of Crime: A Transnational Organized Crime Threat Assessment, (Vienna: UNODC,
2010), p. 221.
5
Jharna Chatterjee, The Changing Structure of Organized Crime Groups, Royal Canadian Mounted Police, 2005, pp. 2,
(continued...)

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such as narcotics trafficking and money laundering (which have been greatly impacted by
globalization), but organized criminals are increasingly involved in less “traditional” high-tech
operations encompassing identity theft, counterfeiting of goods, and various types of fraud.

Borders and Organized Crime
Modern organized criminals prey upon weaknesses in international transportation and customs
security regimens.6 Border policing efforts have attempted to keep pace with the expansion of
international commerce. Organized criminals attempting to smuggle goods, people, or
information across borders also face enhanced border security regimens resulting from the
terrorist attacks of 9/11. Regardless, specialized criminal networks smuggle items such as
narcotics, counterfeit goods, stolen goods, and bulk cash, as well as humans, around the world
and into the United States. They have hidden their contraband within the growing volume of
legitimate global trade. Prior to the global recession, between 1995 and 2008 the volume of
global containerized traffic tripled.7 Drug traffickers move large loads of cocaine, eventually
destined for U.S. markets, from South America to Mexico via containerized shipping.
International counterfeiters use containers to smuggle their fake goods into the United States. As
Moisės Naím has succinctly put it, most illicit trade involves copycats, smugglers, and
traffickers.8 While individuals can and do engage in these activities, a good deal can be attributed
to organized crime.

Copycats and Smugglers
Criminal groups engage in counterfeiting and smuggling across and within the borders of the
United States. This activity includes a wide range of products and influences the lives of everyday
Americans, U.S. businesses, and government.

Counterfeiting and Piracy
Counterfeiting highlights the nexus between globalization and the modernization of organized
crime. Although it is difficult, if not impossible, to determine how deeply immersed organized
criminals are in this activity, at least one study has suggested serious involvement.9 Further, in a
recent speech before the International Intellectual Property Summit, Attorney General Holder
reinforced the need for the international law enforcement community to combat “the international
networks of organized criminals now seeking to profit from IP [intellectual property] crimes.”10
(...continued)
7-8, http://dsp-psd.pwgsc.gc.ca/Collection/PS64-9-2005E.pdf. (Hereinafter, Chatterjee, The Changing Structure.)
6
For more on this, see Naím, Illicit; Melvyn Levitsky, “Transnational Criminal Networks and International Security,”
Syracuse Journal of International Law and Commerce, vol. 30, no. 2 (Summer 2003), pp. 227-240.
7
Research and Innovative Technology Administration, Bureau of Transportation Statistics, America’s Container Ports:
Freight Hubs That Connect Our Nation to Global Markets, Department of Transportation, June 2009, pp. 7-8.
8
Naím, Illicit, pp. 1-8.
9
See, for example, Gregory F. Treverton et al., Film Piracy, Organized Crime, and Terrorism, RAND Corporation,
Santa Monica, CA, 2009, p. 27, http://www.rand.org/pubs/monographs/2009/RAND_MG742.pdf. (Hereinafter,
Treverton et al., Film Piracy.)
10
Department of Justice, “Attorney General Eric Holder Speaks at the International Intellectual Property Summit,”
press release, October 18, 2010, http://www.justice.gov/iso/opa/ag/speeches/2010/ag-speech-101018.html.

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In areas such as film piracy, counterfeiting does not necessarily involve high entry costs or large
legal penalties when compared to more conventional criminal activity such as drug trafficking.11
It is also potentially very lucrative. With little infrastructure—a high-speed Internet connection,
scanner, and copier and off-the-shelf software—criminals around the globe can easily imitate the
branding and packaging that accompanies products, let alone copy the products themselves.12
Counterfeiting and pirating goods13 involves the violation of intellectual property rights (IPR),14
essential to creative and high-tech industries particularly reliant on copyrights, trademarks, and
patents to protect innovation. Counterfeiting and piracy potentially harm legitimate businesses
and consumers, sapping profits and brand value and flooding markets with inferior and even
dangerous products masquerading as legitimate goods. Aside from enforcement outlays, the
activity also costs governments tax revenue and may slow economic growth by driving down
incentives to innovate.15
In FY2011, the domestic value16 of IPR-related law enforcement seizures of contraband in the
United States was $178.9 million, a 5% drop from the previous year.17 Federal officials attributed
11

Treverton et al., Film Piracy.
Treverton et al., Film Piracy, p. 3; Deputy Assistant Attorney General Criminal Division, Department of Justice,
Jason M. Weinstein, Statement Before the United States House of Representatives Committee on Oversight and
Government Reform Subcommittee on Government Management, Organization, and Procurement, Department of
Justice, Prepared Testimony “Protecting Intellectual Property Rights in a Global Economy: Current Trends and Future
Challenges,” December 9, 2009, p. 2.
13
Government Accountability Office, Intellectual Property: Observations on Efforts to Quantify the Economic Effects
of Counterfeit and Pirated Goods, GAO-1-423, April 2010, p. 5, http://www.gao.gov/new.items/d10423.pdf.
(Hereinafter, Government Accountability Office, Intellectual Property.) The Government Accountability Office offers
the following definition: “‘Pirated copyright goods’ refer to any goods that are copies made without the consent of the
right holder or person duly authorized by the right holder. ‘Counterfeit goods’ refer to any goods, including packaging
or bearing without authorization, a trademark that is identical to a trademark validly registered for those goods, or that
cannot be distinguished in its essential aspects from such a trademark, and that, thereby, infringes the rights of the
owner of the trademark in question. According to the U.S. Food and Drug Administration (FDA), ‘counterfeit drugs’
are defined under U.S. law as those sold under a product name without proper authorization, where the identity of the
source drug is knowingly and intentionally mislabeled in a way that suggests that it is the authentic and approved
product.”
14
Government Accountability Office, Intellectual Property, p. 5. The Government Accountability Office defines
intellectual property (IP) as “any innovation, commercial or artistic, or any unique name, symbol, logo, or design used
commercially. IP rights protect the economic interests of the creators of these works by giving them property rights
over their creations.” The report describes copyright as “[a] set of exclusive rights subsisting in original works of
authorship fixed in any tangible medium of expression now known or later developed, for a fixed period of time. For
example, works may be literary, musical, or artistic.” The report defines trademark as “[a]ny sign or any combination
of signs capable of distinguishing the source of goods or services is capable of constituting a trademark. Such signs—in
particular, words (including personal names), letters, numerals, figurative elements, and combinations of colors, as well
as any combination of such signs—are eligible for registration as trademarks.” Patents are “[e]xclusive rights granted to
inventions for a fixed period of time, whether products or processes, in all fields of technology, provided they are new,
not obvious (involve an inventive step), and have utility (are capable of industrial application).”
15
Government Accountability Office, Intellectual Property; U.S. Chamber of Commerce, “Protecting Intellectual
Property,” pp. 9-15, http://www.uschamber.com/IP.htm. IPR infringement may also have some positive effects for
consumers who may derive benefit from the lower costs of pirated goods. Industry may also eventually generate more
sales as consumers possibly develop interest in purchasing legitimate versions of cheaper counterfeit products they
have sampled.
16
According to Customs and Border Protection, “domestic value” is the “cost of the infringing merchandise when it was
last purchased, including all duties, fees, broker’s charges, profit, unloading charges, and U.S. freight charges to bring
the property to the importer’s premises.” See U.S. Customs and Border Protection, Intellectual Property Rights: Fiscal
Year 2011 Seizure Statistics, p. 6, http://www.cbp.gov/linkhandler/cgov/trade/priority_trade/ipr/ipr_communications/
seizure/ipr_seizures_fy2011.ctt/ipr_seizure_fy2011.pdf. (Hereinafter, Customs and Border Protection, Intellectual
Property Rights, 2011.)
12

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the decline to “a shift toward using international mail, express courier and consolidated shipping
services to import counterfeit and pirated goods.”18 Products originating in China—both
Mainland China and Hong Kong—accounted for 80% of these IPR seizures.19

Auto Theft Rings
Another example of organized criminals viewing borders as opportunity involves auto theft.
Although international automobile theft has existed almost as long as cars have been around,20 the
integration of worldwide markets and expansion of international shipping have greatly impacted
it by facilitating international transport of stolen automobiles. Assessing the level of such activity
is very difficult since few metrics for it exist. Regardless, today’s international automobile theft
rings benefit from the high levels of cargo container traffic ushered in by globalization. These
groups profit by stealing vehicles in the United States and shipping them abroad, where they are
sold. Such illicit operations react to global demand for luxury vehicles, and in some instances are
extremely responsive to market forces. They trawl large U.S. metropolitan areas that have
assortments of vehicles and rely on rail or port facilities to move stolen vehicles abroad.21
•

In 2011, the Department of Justice (DOJ) brought a civil suit against a money
laundering network with ties to Mexican drug traffickers and the terrorist group
Hezbollah. The scheme reportedly involved used auto sales in the United States.
The December 2011 suit targeted the Lebanese Canadian Bank (LCB) and two
Lebanese exchange houses—the Hassan Ayash Exchange Co. and Ellissa
Holding—regarding more than $300 million that was allegedly part of a money
laundering operation.22 DOJ also asserts that the money laundering network’s
U.S. operations included about 30 U.S. automobile buyers and a shipping firm.23
In essence, the network reportedly comingled criminal proceeds held by LCB and
the two exchange houses with other monies and transferred these funds to U.S.
automobile buyers. The cash transfers supposedly paid for used car purchases in
the United States. According to DOJ, the cars were then shipped to and sold in
West Africa, and some of the profits returned to Hezbollah via LCB accounts and
the exchange houses.24

(...continued)
17
Ibid.
18
In FY2011, the number of seizures increased by 24% from FY2010—see Ibid. For quotation see
http://www.cbp.gov/xp/cgov/trade/priority_trade/ipr/ipr_communications/seizure/.
19
Customs and Border Protection, Intellectual Property Rights, 2011, Table 6.
20
See “Stolen American Autos Clog the Mexican Market,” New York Times, February 5, 1922,
http://query.nytimes.com/mem/archive-free/pdf?res=9D0DE5D71130EE3ABC4D53DFB4668389639EDE.
21
Eva Dou, “New-York Based Theft Ring Shipped Hot Cars to Senegal,” Associated Press, June 30, 2010.
22
Drug Enforcement Administration “Civil Suit Exposes Lebanese Money Laundering Scheme for Hizballah,” press
release, December 15, 2011, http://www.justice.gov/dea/pubs/pressrel/pr121511.html. (Hereinafter, Drug Enforcement
Administration, “Civil Suit.”) In February 2011, the Department of the Treasury identified LCB as a “Primary Money
Laundering Concern” under Section 311 of the USA PATRIOT Act for its ties to reputed Lebanese drug trafficker
Ayman Joumaa and to Hezbollah. Treasury also stated that “U.S. government information” indicated Hezbollah
received support from Joumaa’s criminal activities. See Department of the Treasury, “Treasury Acts to Protect the U.S.
Financial System from Bank with Ties to a Global Narcotics Trafficking and Money Laundering Network and
Hizballah,” press release, February 10, 2011, http://www.treasury.gov/press-center/press-releases/pages/tg1057.aspx.
23
Drug Enforcement Administration, “Civil Suit.”
24
Ibid; Jo Becker, “Beirut Bank Seen as a Hub of Hezbollah’s Financing,” New York Times, December 13, 2011,
(continued...)

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Human Smuggling and Trafficking
Criminal organizations are taking advantage of an unprecedented era of international migration,
including illegal migration to the United States.25 However, since 2007 illegal immigration to the
United States has declined.26 This may be attributable, in part, to dwindling job opportunities
resulting from the global recession and increased immigration enforcement activity along the U.S.
Southwest border.27 Nonetheless, criminal organizations continue to capitalize on the desire of
unauthorized immigrants to enter the United States. Networks of human smugglers and others—
including Mexican drug trafficking organizations (DTOs) that have broadened their moneygenerating activities to include human and weapon smuggling, counterfeiting, kidnapping for
ransom, and extortion—bring unauthorized immigrants across the border and into the United
States.28 In one well-known case, Cheng Chui Ping—also known as “Sister Ping”—sentenced in
March 2006, had led an international human smuggling ring that was responsible for smuggling
Chinese villagers to the United States between the early 1980s and April 2000. In a 2006 press
release, DOJ described her as “one of the first, and ultimately most successful, alien smugglers of
all time.”29 At the start, Ping’s smuggling ring brought small numbers of villagers to the United
States via aircraft, using fake immigration documents. She turned from exclusive reliance on air
transit to include the use of maritime shipping as her operation matured. This way, Ping likely
exploited increasing volumes of international seaborne cargo engendered by globalization to
mask her illegal movement of human beings. She eventually developed the capability to smuggle
hundreds of victims at a time via cargo ships, where the villagers could be stashed below the deck
until they reached their U.S. destination and eventually paid her exorbitant smuggling fees.30
Criminals who smuggle individuals into the United States may also turn the smuggling into a
trafficking situation by increasing the immigrants’ debts owed once they have been smuggled to
the United States. The smugglers/traffickers may then require their victims to work for a period of
time to pay off the debts.31

(...continued)
http://www.nytimes.com/2011/12/14/world/middleeast/beirut-bank-seen-as-a-hub-of-hezbollahs-financing.html?
pagewanted=all.
25
Naím, Illicit p. 89; Jackie Turner and Liz Kelly, “Intersections Between Diasporas and Crime Groups in the
Constitution of the Human Trafficking Chain,” British Journal of Criminology, vol. 49, no. 2 (March 2009), p. 184.
26
Jeffrey S. Passel and D'Vera Cohn, U.S. Unauthorized Immigration Flows Are Down Sharply Since Mid-Decade,
Pew Hispanic Center, Report, Washington, DC, September 1, 2010, p. i, http://pewhispanic.org/files/reports/126.pdf.
27
Miriam Jordan, “Illegal Immigration to U.S. Slows Sharply,” Wall Street Journal, September 1, 2010,
http://online.wsj.com/article/SB10001424052748703882304575465742670985642.html?mod=googlenews_wsj.
28
Also, while some drug trafficking organizations may not be directly involved in human smuggling, they may tax the
smugglers who wish to use the established drug trafficking routes. For details on Mexican cartels and human
smuggling, see David Luhnow and Jose De Cordoba, “Mexican Military Finds 72 Bodies Near Border,” Wall Street
Journal, August 26, 2010, http://online.wsj.com/article/
SB10001424052748703632304575450761550490920.html#articleTabs%3Darticle; Josh Meyer, “Drug Cartels Raise
the Stakes on Human Smuggling,” Los Angeles Times, March 23, 2009, http://articles.latimes.com/2009/mar/23/nation/
na-human-smuggling23.
29
Department of Justice, “Sister Ping Sentenced to 35 Years in Prison for Alien Smuggling, Hostage Taking, Money
Laundering, and Ransom Proceeds Conspiracy,” press release, March 16, 2006, http://www.justice.gov/usao/nys/
pressreleases/March06/sisterpingsentencingpr.pdf.
30
Ibid.
31
Department of Justice, “Hudson County Bar Owner Pleads Guilty to Role in International Human Smuggling Ring,”
press release, September 12, 2006.

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Organized crime exploits individuals through both labor and sex trafficking. In 2006, the FBI
reported that human trafficking generates about $9.5 billion for organized crime annually.32
However, as the Government Accountability Office (GAO) has noted, estimates regarding the
global scale of human trafficking are questionable;33 as such, any estimates regarding the
proceeds generated through these crimes may not be representative of their true scope. These
criminal organizations target both U.S. citizens and foreign nationals who are drawn to visions of
better lives in the United States.
International borders often play a central role in the dynamics involved in forced labor and sex
trafficking. In many instances, victims likely perceive borders and border security regimens as
insurmountable barriers via legitimate means, requiring them to turn to illicit methods of transit
offered by traffickers. Organized criminals prey on victims’ powerful desires to live or work in
other countries. While the following two cases may not have been prosecuted by DOJ as
traditional “organized crime,” the networks involved highlight some of the dynamics involved in
labor and sex trafficking. In August 2010, federal law enforcement announced an indictment of
six individuals for participation in an alleged conspiracy to exploit Thai nationals through forced
labor in the United States. The defendants allegedly enticed workers to the United States by
offering opportunities for lucrative jobs. Once in the United States, the approximately 400 Thai
workers had their passports confiscated, were threatened with economic harm and deportation,
and were forced to work on farms in Washington and Hawaii.34 In another case, four individuals
from the United States, Mexico, and Guatemala were sentenced in April 2010 for involvement in
a sex trafficking organization that targeted young Mexican women. They lured these women to
the United States on the promise of better lives or legitimate employment. Once the women were
brought to the United States, they were instead physically threatened, beaten, intimidated, and
forced to engage in commercial sex.35 DOJ has also reported an uptick in Asian organized crime
groups becoming involved as pimps or brokers in domestic human sex trafficking. Although the
increase is noted for Asian organized crime groups, involvement in sex trafficking is certainly not
limited by ethnic or geographic origin; these criminals collaborate with other, non-Asian groups
to further their sex trafficking enterprises.36 In September 2012, the Obama Administration
expanded its anti-trafficking efforts, including training and guidance to federal prosecutors,
judges, and law enforcement.37

32

Department of State, Trafficking In Persons Report 2006, June 2006, p. 13.
Government Accountability Office, Human Trafficking: Better Data, Strategy, and Reporting Needed to Enhance
U.S. Antitrafficking Efforts Abroad, GAO-06-825, July 2006, http://www.gao.gov/new.items/d06825.pdf.
34
Department of Justice, “Six People Charged in Human Trafficking Conspiracy for Exploiting 400 Thai Farm
Workers,” press release, September 2, 2010, http://www.justice.gov/opa/pr/2010/September/10-crt-999.html. For
another case involving forced labor, see Department of Justice, “Uzbek Man Sentenced for Role in Multi-National
Racketeering and Forced Labor Enterprise,” press release, May 9, 2011, http://www.justice.gov/opa/pr/2011/May/11crt-589.html.
35
Department of Justice, “Four Defendants Sentenced to Prison in Human Trafficking Ring,” press release, April 28,
2010, http://www.justice.gov/usao/gan/press/2010/04-28-10.pdf.
36
Comments by DOJ officials at the 2010 National Conference on Human Trafficking, May 3–5, Arlington, VA.
37
See http://www.whitehouse.gov/the-press-office/2012/09/25/fact-sheet-obama-administration-announces-effortscombat-human-trafficki.
33

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Drug Trafficking
In the last decade, cocaine has become a truly global commodity reacting to illicit market
fluctuations. Traffickers now can leverage wide, international distribution networks to ride out
pressures or changes that may make their traditional illicit markets less hospitable. According to
media reports, some Colombian and Mexican cocaine suppliers have shifted sizeable amounts of
product using containerized shipping—hiding their illicit material within the daily globalized
flow of legitimate seaborne international commerce.38 And some of the Mexican Gulf Cartel’s
smuggling activity involving European markets has used the United States as a transshipment
point.39
When it comes to the internationalization of cocaine markets, not all the news involves the
growth of supply, however. Global demand for cocaine has partly impacted U.S. bound supplies
of the drug. Cocaine availability levels in the United States have decreased since 2006. Diversion
of cocaine to European and Latin American markets by Colombian and Mexican drug cartels has
fueled this downturn in availability, as have coca eradication efforts, large seizures, law
enforcement pressure on Mexican cartels, and violent inter-cartel rivalries.40
While the story of globalized drug smuggling impacting the United States often revolves around
big Colombian and Mexican cartels specializing in drugs such as cocaine, marijuana, heroin, and
methamphetamine, criminal groups trafficking narcotics come in all sizes and handle a variety of
drugs. Also, partly because international communications, travel, and transportation networks are
readily exploitable, large-scale Latin American drug trafficking organizations are not the only
ones to have significant worldwide reach.
•

In November 2012, U.S. Immigration and Customs Enforcement (ICE)
announced the extradition of a reputed criminal syndicate leader from Albania to
the United States. According to ICE, Arif Kurti led an organization with hundreds
of members that allegedly imported tens of thousands of kilograms of hydroponic
marijuana into the United States from Canada and Mexico. The group also
supposedly smuggled the drug ecstasy (MDMA, 3,4-methylenedioxy-Nmethylamphetamine) into the United States from the Netherlands and Canada as
well as cocaine from Mexico, Colombia, Venezuela, and Peru. Additionally, ICE
asserts that Arif’s network diverted prescription pills, such as oxycodone. The
group is said to have distributed the narcotics throughout the United States,
Canada, and Europe.41

38
Mark Townsend, “How Liverpool Docks Became a Hub of Europe’s Deadly Cocaine Trade,” The Guardian, May
16, 2010.
39
Michele M. Leonhart, DEA Acting Administrator, “Prepared Remarks: Project Reckoning Press Conference,”
September 17, 2008.
40
Office of National Drug Control Policy, “Survey Shows Significant Drop in Cocaine Production in Colombia,” press
release, July 30, 2012, http://www.whitehouse.gov/ondcp/news-releases-remarks/survey-shows-significant-drop-incocaine-production-in-colombia; Office of National Drug Control Policy, “Update: New Data Show Cocaine Market
Remains Under Significant Stress,” press release, June 16, 2011, http://www.whitehouse.gov/sites/default/files/ondcp/
press-releases/20110617_new_data_show_cocaine_market_remains_under_significant_stress.pdf; National Drug
Intelligence Center, National Drug Threat Assessment, February 2010, p. 29.
41
Immigration and Customs Enforcement, “Alleged Leader of Ethnic Albanian Organized Crime Syndicate Extradited
to the US to Face Drug and Money Laundering Charges,” press release, November 20, 2012, http://www.ice.gov/news/
releases/1211/121120newyork.htm.

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•

In another case, Phuong Thi Tran pled guilty in February 2010 for her
involvement in what has been described in press reports as an Asian drug
trafficking ring that smuggled ecstasy pills and other drugs into the United States
from Canada, where they were manufactured. Tran, who lived in Canada, is
originally from Vietnam and served as the group’s ringleader. She oversaw an
operation that smuggled millions of ecstasy pills into the United States between
2002 and 2008, when she was arrested.42

Money Laundering
Making ill-gotten gains appear legitimate is critical to the success of organized criminals. For
many criminals, the movement of money—either as bulk cash or digital transactions—across
international borders plays an integral role in this process. They use many techniques to launder
money, often exploiting legitimate financial structures to mask the illegal origins of their profits.
Money laundering includes three fundamental steps: (1) placement, the introduction of illicit
funds into licit financial systems; (2) layering, the movement (often international) of illicit funds
through a variety of business structures to obscure its origins; and (3) integration, the use of illicit
funds that at this stage appear legitimate in lawful business transactions.43
•

In June 2012, DOJ announced an indictment charging 14 defendants, including
Miguel Angel Treviño Morales (Treviño), for laundering millions of dollars in
drug trafficking proceeds in the United States. The scheme purportedly involved
the racing of quarter horses.44 According to DOJ, since 2008, Trevino—a leader
within Los Zetas, a Mexican drug trafficking organization—oversaw the
operation, which funneled money to his brother, José, in the United States. The
indictment filed in the case asserts that José laundered drug proceeds by
pretending to be a legitimate quarter horse breeder. He purchased, trained, and
raced horses, relying on front companies to conceal the origin of the money used
to fuel these efforts.45

It is impossible to determine with any accuracy the amount of money that is laundered by
organized criminals whose operations impact the United States. However, U.S. government
estimates suggest that Mexican and Columbian drug trafficking organizations earn between $18
billion and $39 billion annually from sales in the United States.46 Annually, perhaps between $20
42

Department of Justice, “Ringleader of International Drug Trafficking Ring Pleads Guilty for Role in Drug Smuggling
Case,” press release, February 24, 2010, http://www.justice.gov/usao/pae/News/Pr/2010/feb/
tran_guilty_plea_release.pdf; Troy Graham, “Woman at Center of Asian Drug-Trafficking Ring Gets Nearly Six Year
Term,” Philadelphia Inquirer, August 25, 2010, http://www.philly.com/inquirer/local/
20100825_Woman_at_center_of_Asian_drug-trafficking_ring_gets_nearly_six-year_term.html.
43
Brian Seymour, “Global Money Laundering,” Journal of Applied Security Research, vol. 3, no. 3-4 (2008), pp. 374375. (Hereinafter, Seymour, “Global Money.”)
44
American Quarter Horses are often raced over short distances and used at timed events at rodeos. See
http://aqha.com/About/Content-Pages/The-American-Quarter-Horse/Breed-Characteristics.aspx.
45
United States vs. Miguel Angel Trevino Morales, et al., Indictment in the U.S. District Court for the Western District
of Texas, filed May 30, 2012; Department of Justice, “Federal Grand Jury in Texas Indicts Los Zetas Leader in Money
Laundering Scheme,” press release, June 12, 2012, http://www.fbi.gov/sanantonio/press-releases/2012/federal-grandjury-in-texas-indicts-los-zetas-leader-in-money-laundering-scheme.
46
Dennis C. Blair, Director of National Intelligence, “Annual Threat Assessment of the US Intelligence Community for
the Senate Select Committee on Intelligence,” Office of the Director of National Intelligence, February 2, 2010, p. 31.
(Hereinafter, Blair, “Annual Threat Assessment.”)

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billion and $25 billion in bank notes is smuggled across the Southwest border into Mexico.47 How
much of this is profit and then laundered is unclear.48
Bulk cash smuggling is an important means by which criminals move illegal profits from the
United States into Mexico, but drug traffickers have also turned to stored-value cards49 to secretly
transport their illegal earnings. With these cards, criminals are able to avoid the reporting
requirement under which they would have to declare any amount over $10,000 in cash crossing
the border.50 Aside from bulk cash smuggling and stored-value cards, Mexican traffickers move
and launder money by using digital currency accounts, e-businesses that facilitate money
transfers via the Internet, online role-playing games or virtual worlds that enable the exchange of
game-based currencies for real currency, and “mobile payments through cell phones that provide
traffickers with remote access to existing payment mechanisms such as bank and credit card
accounts and prepaid cards.”51
Organized criminals also use the globalized international financial system in the layering stage of
money laundering. The United States is impacted by this from at least two directions. Criminals
operating abroad can exploit U.S. structures to launder money while those operating domestically
can wash their illicit profits abroad in an attempt to avoid U.S. law enforcement. Large financial
markets such as New York, where criminal activity is potentially hidden within voluminous
legitimate business, are used by criminals. Criminals use banks and businesses to launder money
in offshore locations with strict privacy laws such as Panama, the Cayman Islands, or the Isle of
Man. In these locales, law enforcement struggles to determine the true ownership of assets.52
International or domestic shell companies can be used for money laundering. They are legal
entities that have no independent operations or assets of their own and largely exist only on paper.
Shell companies have legitimate purposes, for example, “they may be formed to obtain financing
prior to starting operations.”53 Regardless, DOJ has identified U.S.-based shell companies as
especially difficult to investigate because “lax company formation laws [allow] criminals [to]

47

William Booth and Nick Miroff, “Stepped-Up Efforts by U.S., Mexico Fail to Stem Flow of Drug Money South,”
Washington Post, August 25, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/08/25/
AR2010082506161.html.
48
For a discussion of estimates, see Douglas Farah, Money Laundering and Bulk Cash Smuggling: Challenges for the
Mérida Initiative, Woodrow Wilson International Center For Scholars, Mexico Institute and University of San Diego
Trans-Border Institute, Working Paper Series on U.S.-Mexico Security Cooperation, Washington, DC, May 2010, p. 6.
(Hereinafter, Farah, Money Laundering.)
49
A stored value card looks like a debit or credit card, but stores value directly on the card using magnetic strip
technology.
50
Current federal regulations regarding international transportation only apply to monetary instruments as defined
under the Bank Secrecy Act. A stored value card is not, however, considered a monetary instrument under current law,
and thus is not subject to these international transportation regulations. The Financial Crimes Enforcement Network
(FinCEN) has proposed to amend the definition of a monetary instrument to include stored value/prepaid access
devices. See Department of the Treasury, Financial Crimes Enforcement Network, “31,” 76 Federal Register 64049,
October 17, 2011.
51
Farah, Money Laundering, 23.
52
Seymour, “Global Money,” pp. 375-376.
53
Government Accountability Office, Company Formations: Minimal Ownership Information Is Collected and
Available, GAO-06-376, April 2006, p. 1, http://www.gao.gov/new.items/d06376.pdf. (Hereinafter GAO, Company
Formations.)

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form [them] quickly and cheaply and obtain virtual anonymity.”54 One study has suggested that
establishing a shell company is “easier in the U.S. than in the rest of the world.”55
Organized criminals likely rely on the veneer of legitimacy conferred by U.S.-based shell
companies, which in many instances allow criminals to conceal their ownership.56 Most U.S.
states do not require owner information when companies are formed or even on annual or
biennial reports.57 Individuals can distance themselves from the actual formation of specific shell
companies by using company formation agents (registered agents) to establish them. Shell
companies enable criminals to move money around the globe through legitimate bank accounts
without attracting law enforcement scrutiny. With relative ease, a criminal organization can open
multiple shell companies worldwide and systematically distance ill-gotten gains from their
criminal origins, leaving behind a hard-to-untangle web of accounts, legitimate corporations, and
transactions.58 Both Mexico’s Sinaloa Cartel and alleged Eurasian organized crime figure Semion
Mogilevich have likely used U.S. shell companies to launder money.59

Organized Crime and Technological Change
Organized criminals have expanded their technological “toolkits.” They have adapted to
incorporate technology-driven fraud into their capabilities.60 Their operations can harm U.S.
citizens without ever having a physical presence in the country. Organized crime groups engage
in a wide variety of tech savvy mass marketing frauds. Even traditional arenas of criminal activity
such as illegal gambling have been transformed by the Internet. For example, illegal gambling has
been a staple in the Cosa Nostra’s criminal diet for decades. In recent years, they have branched
out into Internet gambling,61 which debuted in the mid-1990s.62 Operation Heat, an investigation
by the New Jersey Division of Criminal Justice, led to the arrest of Brian Cohen, who allegedly
facilitated the Lucchese family’s offshore gambling activities. According to law enforcement

54
Jennifer Shasky Calvery, then-Senior Counsel to the Deputy Attorney General, Department of Justice, Statement
Before the United States Senate Committee on Homeland Security and Governmental Affairs, Hearing, “Examining
State Business Incorporation Practices: A Discussion of the Incorporation Transparency and Law Enforcement
Assistance Act,” June 18, 2009, pp 1-2. (Hereinafter, Shasky, “Examining State Business.”)
55
Michael Findley, Daniel Nielson, Jason Sharman, Global Shell Games: Testing Money Launderers’ and Terrorist
Financiers’ Access to Shell Companies, Centre for Governance and Public Policy, Griffith University, n.d., p. 17,
http://www.anzsog.edu.au/magma/media/upload/ckeditor/files/Global_Shell_Games_CGPP.pdf.
56
GAO, Company Formations, p. 1.
57
GAO, Company Formations, p. 13.
58
Shasky, “Examining State Business,” pp. 4-5; Seymour, “Global Money,” p. 375.
59
Jennifer Shasky, Senior Counsel to the Deputy Attorney General, Department of Justice, Statement Before the
United States Senate Committee on Homeland Security and Governmental Affairs, Hearing, “Business Formation and
Financial Crime: Finding a Legislative Solution,” November 5, 2009, p. 1. Legislation was introduced in the 111th and
112th Congresses (111th—S. 569, H.R. 6098; 112th—S. 1483, H.R. 3416) that would have established uniform
requirements for states regarding beneficial ownership of public corporations and limited liability companies.
60
Criminal Intelligence Service Canada (CISC), 2010 Report on Organized Crime, May 2010, p. 12,
http://www.cisc.gc.ca/annual_reports/annual_report_2010/document/report_oc_2010_e.pdf. (Hereinafter, CISC, 2010
Report.)
61
For information on unlawful Internet gambling, see CRS Report RS22749, Unlawful Internet Gambling Enforcement
Act (UIGEA) and Its Implementing Regulations, by (name redacted) and (name redacted).
62
On the advent of Internet gambling, see David G. Schwartz, Roll the Bones: The History of Gambling, (New York:
Gotham Books, Penguin Group (USA), 2006) pp. 488-494.

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officials, the family earned billions of dollars via offshore Internet activity that included a website
and a Costa Rican wire room that handled transactions, both managed by Cohen.63

Mass Marketing Fraud
The International Mass-Marketing Fraud Working Group defines mass marketing fraud as
Fraud schemes that use mass-communications media—including telephones, the Internet,
mass mailings, television, radio, and even personal contact—to contact, solicit, and obtain
money, funds, or other items of value from multiple victims in one or more jurisdictions.64

Mass marketing fraud involves a wide range of criminal activity that has been transformed by
globalization and technological change. It can be perpetrated by individuals, small groups, or
sophisticated criminal enterprises. Parsing out exactly how much of this activity can be attributed
to organized criminals is tricky, but experts suggest that “fraudulent mass marketing operations
are increasingly transnational, interconnected, and fluid.”65
•

In December 2012, DOJ announced arrests in Romania, the Czech Republic, the
United Kingdom, and Canada related to what the department described as an
“international organized crime cyber fraud ring” that bilked victims of more than
$3 million.66 DOJ asserts that the criminal network tricked U.S. consumers into
sending it money by creating false advertisements for non-existent merchandise
that the network’s operatives posted on websites such as eBay.com and Cars.com.
Some of the individual instances of fraud allegedly perpetrated by the group
entailed sham sellers with elaborate back stories—phony auto dealerships, fake
websites, fraudulent documents (such as certificates of title), and authentic
looking invoices from online payment services such as PayPal, for example.67

“Boiler room” scams, one type of mass marketing fraud with a long history, entail groups of
fraudsters making high-pressure deceptive merchandise pitches and misleading service offers to
unwitting customers around the world. Recently, criminals have innovated based on tried-andtrue boiler room schemes by outsourcing some activity to specialists, internationalizing their
operations, and adopting sophisticated concealment strategies for their communications
capabilities and locations.
•

The Cosa Nostra and other organized criminals use boiler rooms.68 In June 2010,
the FBI raided an alleged boiler room operation involving Anthony Guarino, a

63

George Anastasia, “Officials Charge Man Who Allegedly Ran Mob Gambling Website,” Philadelphia Inquirer, May
29, 2010.
64
International Mass-Marketing Fraud Working Group (IMMFWG), Mass-Marketing Fraud: A Threat Assessment,
June 2010, p. 3. (Hereinafter, IMMFWG, Mass Marketing Fraud.) The IMMFWG includes law enforcement,
regulatory, and consumer protection agencies from Australia, Belgium, Canada, the Netherlands, Nigeria, the United
Kingdom, and the United States. Europol is also involved.
65
IMMFWG, Mass Marketing Fraud, p. 14.
66
Department of Justice, “International Organized Crime Cyber Fraud Ring Responsible for Millions of Dollars in
Fraud Dismantled,” press release, December 5, 2012, http://www.fbi.gov/newyork/press-releases/2012/internationalorganized-crime-cyber-fraud-ring-responsible-for-millions-of-dollars-in-fraud-dismantled?utm_campaign=emailImmediate&utm_medium=email&utm_source=new-york-press-releases&utm_content=159203.
67
Ibid.
68
IMMFWG, Mass Marketing Fraud, p. 14.

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purported Bonnano family soldier. According to law enforcement officials, the
boiler room hoodwinked elderly investors into buying shares of companies, and
40% of the money taken in was handed over to the boiler room operators as
commissions.69

Technology Transforms Advance Fee Fraud (AFF)
Since the 1970s, technological advancements have revolutionized advance fee fraud (AFF)
operations—a form of mass marketing fraud used by criminal organizations and individual
fraudsters. Today, these schemes often involve criminals appealing for money via unsolicited
(spam) emails. These emails typically request an initial cash payment from recipients. The initial
cash payment supposedly facilitates the disbursement of a much larger sum of money to the email
recipients.70 The later sum never arrives. A recent AFF email scam attempting to dupe people into
believing they had been contacted by the FBI’s Detroit Field Office asked email recipients to
forward $14,300 in return for the release of over $18 million to their accounts. In one of the
emails associated with this scheme, the fraudsters suggest that “the International clamp down on
Terrorist [sic]” has frozen the larger pot of money.71
Also known as “419 scams” after a section in the Nigerian criminal code, the broad outlines of
the modern version of AFF originated in Nigeria during the 1970s and early 1980s, and perhaps
even earlier. AFF’s original incarnation may stretch back to the 1500s in the “Spanish Prisoner”
scheme. Wealthy English business owners were asked to help pay for a rescue mission to save
someone held captive in Spain. In return, they would supposedly receive part of the vast alleged
reward payment. Of course, it never came.72 In the late 1970s and early 1980s, Nigerian
fraudsters became known for mailing unsolicited letters requesting monetary assistance in
transferring frozen or hidden funds out of West African countries. When fax machines became
commonplace, perpetrators quickly reached many more victims with less effort. The Internet and
email further revolutionized AFF operations.
Today, these schemes are global, emanating from many other countries.73 The spamming
networks involved often have short lives focusing on specific schemes.74 Recent estimates
suggest that AFF networks may have swindled over $2 billion from U.S. companies and citizens
in 2009.75
•

In July 2011, six defendants were sentenced for running an AFF scam that tricked
U.S. sweepstakes participants into believing that they had won substantial cash
prizes. This money would have purportedly been sent to the victims once they

69

Chad Bray, “FBI Raids Alleged Boiler Room,” Wall Street Journal, June 10, 2010.
Federal Bureau of Investigation, “Common Fraud Schemes,” http://www.fbi.gov/majcases/fraud/fraudschemes.htm.
71
Federal Bureau of Investigation, Detroit Division, “Scam E-Mail/Letter Claiming To Be Associated with FBI Detroit
SAC Arena,” press release, May 25, 2010, http://detroit.fbi.gov/pressrel/pressrel10/de052510.htm.
72
Harvey Glickman, “The Nigerian ‘419’ Advance Fee Scams: Prank or Peril?,” Canadian Journal of African Studies,
vol. 39, no. 3 (2005), pp. 463-476.
73
Edward Fokuoh Ampratwum, “Advance Fee Fraud, ‘419,’ and Investor Confidence in the Economies of SubSaharan Africa (SSA) ,” Journal of Financial Crime, vol. 16, no. 1 (2009), pp. 68-69.
74
Matthew Zook, “Your Urgent Assistance Is Required: The Intersection of 419 Spam and New Networks of
Imagination,” Ethics, Place, and Environment, vol. 10, no. 1 (March 2007), pp. 66-70.
75
Jeremy Kirk, “Advance Fee Fraud Scams Rise Dramatically in 2009,” Compuworld, January 28, 2010,
http://www.computerworld.com/s/article/9149890/Advance_fee_fraud_scams_rise_dramatically_in_2009.
70

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paid the required taxes and fees. Ultimately, there was no lottery prize, and the
fraud netted about $2 million.76
Estimates indicate that today’s AFF networks only need to dupe 1% of the people or businesses
they reach to turn a profit.77

Cyberspace, Electronic Information, and Organized Crime
As the history of AFF may indicate, organized criminals have adapted to the digital age by
becoming expert at stealing information stored and shared electronically. Many are adept at
manipulating and defrauding victims in the virtual world. All of this covers a range of activity
including cyber intrusions into corporate databases, the theft of individual consumer credit card
information, and a wide variety of fraudulent online activity. The criminal groups operating in
cyberspace can be broken into two categories: (1) part-timers—those who leverage digital
information to enhance other activities, and (2) full-timers—those who solely commit and
specialize in online or digital crimes.78 While this is a helpful distinction to draw for discussion
purposes, it is difficult to attribute specific volumes of criminal activity to each category of
actors. General statistics suggest that organized criminals from both categories play a large role in
online data theft. For instance, a study of 855 data breaches involving businesses around the
globe in 2011 noted that “Organized criminals were up to their typical misdeeds and were behind
the majority of [cases].”79 They accounted for 83% of all breaches committed by actors outside of
the targeted business or organization.80

Online Identity Theft and Sophisticated Credit Card Fraud
Organized criminals are involved in stealing the identities of online consumers and have engaged
in technologically advanced credit card fraud. These illicit ventures pilfer from the bank accounts
of ordinary citizens and often cast a wide net to maximize the number of victims.
Eurasian criminals in California have engaged in identity theft in which they leveraged
technological savvy, old-school organized crime strategies, and Internet connectivity to reap
76
Federal Bureau of Investigation, “Six Defendants Sentenced in Manhattan Federal Court for Their Involvement in a
Multi-Million-Dollar Lottery Telemarketing Fraud Scheme,” press release, July 1, 2011, http://www.fbi.gov/newyork/
press-releases/2011/six-defendants-sentenced-in-manhattan-federal-court-for-their-involvement-in-a-multi-milliondollar-lottery-telemarketing-fraud-scheme.
77
Blaise J. Bergiel, Erich B. Bergiel, and Phillip W. Balsmeir, “Internet Cross Border Crime: A Growing Problem,”
Journal of Website Promotion, vol. 3, no. 3/4 (2008), p. 135.
78
This parallels the first two elements in Kim-Kwang Raymond Choo’s three-part typology of criminal activity in
cyberspace. The typology includes “(1) traditional organized crime groups which make use of ICT [information and
communications technologies] to enhance their terrestrial criminal activities; (2) organized cybercrime groups which
operate exclusively online; and (3) organized groups of ideologically and politically motivated individuals who make
use of ICT to facilitate their criminal conduct.” See Kim-Kwang Raymond Choo, “Organized Crime Groups in
Cyberspace: A Typology,” Trends in Organized Crime, vol. 11, no. 3 (September 2008), pp. 271.
79
Verizon RISK (Researching, Investigating, Solutions, Knowledge) Team, 2012 Data Breach Investigations Report,
2012, p. 3, http://www.verizonbusiness.com/resources/reports/rp_data-breach-investigations-report-2012_en_xg.pdf.
The Australian Federal Police, Dutch National High Tech Crime Unit, Irish Reporting and Information Security
Service, the United Kingdom’s Police Central e-Crime Unit, and United States Secret Service were involved in the
study as well.
80
Ibid., p. 20.

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thousands of dollars in profits. In 2009 in the city of Redondo Beach in Southern California,
Armenian or Russian criminals allegedly targeted a gas station with an Armenian owner
(exploiting their own ethnic group). They placed one of their crew members as an employee at
the station, where he implanted high-tech skimming devices at gas pumps to steal customer credit
card information, victimizing more than 1,000 individuals, including Redondo Beach police
officers. The employee quit work and the group made off with more than $300,000 from people’s
accounts.81 Another case, this time in the Las Vegas area in 2008, involved an alleged Armenian
criminal group that reportedly skimmed more than 1,000 credit and debit cards using insiders at
restaurants, bars, and smoke shops. In some instances, the crew manufactured its own cards using
stolen information.82 Losses approached $1.5 million.83 In 2009, Las Vegas authorities also
uncovered a skimming scheme complete with a credit card manufacturing lab.84 This crew used
skimmers that captured information from magnetic strips on credit cards as well as pin numbers
using a camera.85
In March 2010, Albert Gonzalez, the leader of the largest identity theft and retail hacking ring
prosecuted by the United States, was sentenced to 20 years in prison.86 Through “wardriving”—a
technique in which individuals drive around in a car with a laptop computer and search for
unsecured wireless networks—the ring hacked into credit card payment systems at retailers
including TJX Companies, BJ’s Wholesale Club, OfficeMax, Boston Market, Barnes & Noble
and Sports Authority, and stole more than 40 million credit and debit card numbers. Gonzalez
also provided malware to hackers to aid them in evading anti-virus programs and firewalls in
order to access companies’ networks and payment systems. The conspirators, located in the
United States, Ukraine, and Estonia, laundered their illicit proceeds through banks in Eastern
Europe.

Organized Retail Crime and Online Fencing
While not necessarily viewed as “organized crime” by U.S. law enforcement agencies, as its
name implies organized retail crime (ORC), or organized retail theft, bears some of the hallmarks
of organized criminal activity. ORC typically refers to large-scale retail theft and fraud by
81

Paul Teetor, “Russian or Armenian Mob Used ‘Model Employee’ Con at PCH Arco,” LA Weekly, June 18, 2009.
Lawrence Mower, “ID Theft Operation Outlined,” Las Vegas Review-Journal, December 8, 2008.
83
“Eurasian Organized Crime Task Force Members Arrest 12 Individuals Following Federal Credit Card Fraud and
Identity Theft Charges,” States News Service, December 9, 2008. See also: Department of Justice, “Men Sentenced for
Credit Card Fraud Conspiracy,” press release, June 10, 2011.
84
“Three Arrested in Credit Card Forgery Ring,” KTNV ABC, March 26, 2009.
85
“18 Month Credit Card Fraud Ring Leads to Three Arrests,” KTNV ABC, March 25, 2009. Additionally, in February
2011, DOJ announced an indictment charging 29 defendants tied to an organized crime group called “Armenian
Power” or “AP.” DOJ noted “Among the conspiracies charged in the racketeering indictment is a bank fraud and
counterfeit credit card scheme that victimized hundreds of customers of 99 Cents Only Stores throughout Southern
California. AP members allegedly caused more than $2 million in losses when they secretly installed sophisticated
‘skimming’ devices to steal customer account information at cash registers and then used the skimmed information to
create counterfeit debit and credit cards.” See Department of Justice, “Armenian Power Organized Crime Group
Targeted in Federal Indictments That Allege Racketeering Offenses, Including Bank Fraud Schemes, Kidnappings, and
Drug Trafficking,” press release, February 16, 2011, http://www.fbi.gov/losangeles/press-releases/2011/la021611.htm.
For another case involving skimming, see Department of Justice, “Rancho Cordova Man Arrested for Identity Theft
and Trafficking in Counterfeit Credit Card Information,” press release, April 21, 2011, http://www.justice.gov/usao/
cae/news/docs/2011/04-21-11AvagyanIndictment.html.
86
Department of Justice, “Leader of Hacking Ring Sentenced for Massive Identity Thefts from Payment Processor and
U.S. Retail Networks,” press release, March 26, 2010, http://www.justice.gov/opa/pr/2010/March/10-crm-329.html.
82

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organized groups of professional shoplifters, or “boosters.”87 ORC involves a host of retail crimes
ranging from retail, manufacturing, distribution, and cargo theft to gift card fraud, receipt fraud,
and ticket switching.88 The organized crime rings resell illegally acquired merchandise in a
variety of fencing operations such as flea markets, swap meets, pawn shops, and, more recently,
online marketplaces. Most stolen merchandise is sold to a low-level fence, commonly called a
“street fence.” Street fences will either sell these goods directly to the public or will sell the
merchandise to mid-level fences who run “cleaning operations” that remove security tags and
store labels as well as repackage stolen goods so they appear as though they came directly from
the manufacturer. This “cleaning” may even involve changing the expiration date on perishable
goods such as over-the-counter medication and infant formula.
Globalization and technological innovation have allowed more and more transactions to take
place online rather than face-to-face. This holds true for retail crime, where thieves have turned to
“e-fencing”—using the Internet and online marketplaces as means to fence ill-gotten goods.89
This has increased criminals’ anonymity, global reach, and profitability. Online markets allow
criminals to easily distribute stolen goods across the nation and around the globe. E-fencing has
also proven to be more profitable to criminals than has fencing at physical locations. While
criminals may profit about 30 cents on the dollar (30% of the retail price) by selling goods at
physical fencing locations, they can make about 70 cents on the dollar via e-fencing.90
A criminal network based in Baltimore serves as an example of an operation that integrated
traditional as well as more technologically advanced fencing techniques. As of April 2011, at least
13 defendants, including the owners of pawn shops implicated in the scheme, had pled guilty to
roles in this organized retail crime ring.91 In this conspiracy, boosters stole products, including
over-the-counter medications, health and beauty aids, gift cards, DVDs, and tools, from retailers
such as Target, Safeway, Wal-Mart, and Kohl’s. Several pawn shops bought these stolen goods
from boosters, cleaned them, and then transported them to other locations for resale. Some coconspirators used online marketplaces such as eBay and Amazon.com to fence the stolen goods.
In all, the case involved about $20 million in stolen goods.

Bulk Narcotics Smuggling and Technology
Technological advances have transformed cocaine and other narcotics trafficking. In the early
1990s, Colombian traffickers—moving narcotics to the United States and elsewhere around the
87
A “booster” is someone who steals merchandise and then sells it to a fence for a profit. A “fence” is someone who
knowingly buys illegally obtained goods from a booster and then sells the goods for a profit. For more information on
ORC, see CRS Report R41118, Organized Retail Crime, by Kristin M. Finklea.
88
Ticket switching involves means by which criminals alter the UPC bar codes on merchandise so that the items ring
up differently–significantly below the original price–at check-out.
89
King Rogers, “Organized Retail Theft,” in Retail Crime, Security, and Loss Prevention: An Encyclopedic Reference,
ed. Charles A. Sennewald and John H. Christman (Elseiver Inc., 2008).
90
National Retail Federation, 2009 Organized Retail Crime Survey, 2009, p. 8.
91
Department of Justice, “Pawn Shop Owner Sentenced to Prison in Scheme to Launder $20 Million in Proceeds of
Stolen Merchandise,” press release, April 12, 2011, http://www.fbi.gov/baltimore/press-releases/2011/pawn-shopowner-sentenced-to-prison-in-scheme-to-launder-20-million-in-proceeds-in-stolen-merchandise; Department of Justice,
“Pawn Shop Owner Pleads Guilty in Scheme to Launder $20 Million in Proceeds of Stolen Merchandise: Admitted
Laundering Millions of Dollars in Proceeds of Stolen Over-the-Counter Medicines, Health and Beauty Aid Products,
Gift Cards, DVDs, Tools, and Other Items,” press release, September 3, 2010, http://baltimore.fbi.gov/dojpressrel/
pressrel10/ba090310a.htm.

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globe—began experimenting with semisubmersible maritime smuggling vessels, which at first
were likely too impractical, costly, and risky to operate. Hybrids of traditional submarines and
boats, these craft have small above-water profiles—about 18 inches. Increased law enforcement
seizures of cocaine shipments carried by more traditional surface vessels encouraged traffickers
to adopt semisubmersible technology.92 Colombian traffickers likely co-opted experts from the
legitimate world to develop this technology. Semisubmersibles can have their cargo “unloaded in
shallow waters or transported to shore by small boats.”93 They have been interdicted in both the
Eastern Pacific and the Caribbean.94 While their current use likely responds in part to interdiction
pressures, it also reflects the global availability of expertise, designs, and materials. Vast illicit
global cocaine markets have also made such endeavors possible, producing huge profits for
traffickers that are then tilled into technology to circumvent law enforcement. But
semisubmersibles, which according to figures provided by the U.S. Coast Guard in 2010,
accounted for 27% of the maritime movement of cocaine toward the United States, themselves
are not immune to capture.95 Since 2006, law enforcement has regularly seized semisubmersible
cocaine smuggling vessels from Colombian drug traffickers on the high seas or in clandestine
shipyards hidden in coastal mangrove swamps. The Drug Trafficking Vessel Interdiction Act of
2008 (P.L. 110-407) enhanced the federal government’s ability to prosecute traffickers operating
submersible and semisubmersible vessels by making it a federal crime to operate, embark on, or
conspire to operate these vessels in international waters with the intent to avoid detection.
In early July 2010, police in Ecuador seized a fiberglass submarine designed to operate fully
submerged at a depth of 65 feet. The diesel-powered, twin-screw sub, a marked step forward in
technology, was likely intended to transport cocaine on the high seas and could carry 10 tons of
cocaine on a 10-day voyage. This vessel represented a large improvement over the
semisubmersibles that have been regularly seized from traffickers since 2006.96
Mexican drug traffickers have increasingly relied upon ultralight aircraft97 to smuggle drugs
across the Southwest border into the United States. These small planes can fly as low as tree level
92

“Colombia Captures Drug Trafficker Who Pioneered Use of Submarines,” Fox News Latino, March 18, 2012,
http://latino.foxnews.com/latino/news/2012/03/18/colombia-captures-drug-trafficker-who-pioneered-use-submarines/;
Steven S. Dudley, Drug Trafficking Organizations in Central America: Transportistas, Mexican Cartels, and Maras,
Woodrow Wilson International Center For Scholars, Mexico Institute and University of San Diego Trans-Border
Institute, Working Paper Series on U.S.-Mexico Security Cooperation, Washington, DC, May 2010, p. 17.
93
Michael S. Schmidt and Thom Shanker, “To Smuggle More Drugs, Traffickers Go Under the Sea,” New York Times,
September 9, 2012, http://www.nytimes.com/2012/09/10/world/americas/drug-smugglers-pose-underwater-challengein-caribbean.html?pagewanted=all.
94
Rear Admiral Charles Michel, Director Joint Interagency Task Force South, Testimony before the House
Subcommittee on Border and Maritime Security, House Committee on Homeland Security, June 19, 2012,
http://www.hsdl.org/?view&did=713514.
95
Rear Admiral Vincent Atkins, U.S. Coast Guard, Testimony before the House Subcommittee on Homeland Security,
on Department of Homeland Security Air and Marine Operations and Investments, April 19, 2010, http://www.dhs.gov/
ynews/testimony/testimony_1271690315007.shtm.
96
Jim Popkin, “Authorities in Awe of Drug Runners’ Jungle-Built, Kevlar-Coated Supersubs,” Wired Magazine, March
29, 2011, http://www.wired.com/magazine/2011/03/ff_drugsub/all/1; “DEA Intel Aids in Seizure of Fully-Operational
Narco Submarine in Ecuador,” press release, July 3, 2010; Chirs Kraul, “Ecuador Police Seize 100-foot NarcoSubmarine Being Built Secretly,” Los Angeles Times, July 6, 2010, http://www.latimes.com/news/nationworld/world/
la-fg-ecuador-narco-sub-20100706,0,162212.story; Douglas A. Kash and Eli White, “A New Law Counters the
Semisubmersible Smuggling Threat,” Federal Bureau of Investigation, March 2010; U.S. Southern Command, “The
Self-Propelled Semi-Submersibles Threat.”
97
To enhance law enforcement’s ability to investigate and prosecute cases involving drug smuggling via ultralights, the
Ultralight Aircraft Smuggling Prevention Act of 2012 (P.L. 112-93), among other things, amended the Tariff Act of
(continued...)

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and are less easily detected than the larger aircrafts that were used by the traffickers prior to
2007.98 While some traffickers may land the ultralights on the U.S. side of the border to pass off
drug loads to distributors, others attach drop baskets that can carry over 300 pounds of marijuana
or other drugs. These drop baskets release packages of drugs that will fall to the ground when a
lever in the aircraft is activated, and then local gangs or traffickers can pick up and distribute the
drugs. In May 2009, a low-flying ultralight aircraft carrying about 275 pounds of marijuana,
estimated to be worth $220,480, crashed in Yuma, AZ. The pilot escaped, but two suspected coconspirators were arrested.99

Cross-Border Tunnels
Mexican drug traffickers use underground, cross-border tunnels to smuggle drugs from Mexico
into the United States. Tunneling, while not in and of itself a new phenomenon (having been used
for hundreds of years during conflicts and for escapes), has increased not only in prevalence but
in sophistication.100 Early drug tunnels were rudimentary, “gopher hole” tunnels dug on the
Mexican side of the border, traveling just below the surface, and popping out on the U.S. side as
close as 100 feet from the border. Slightly more advanced tunnels began to rely on existing
infrastructure, which may be shared by neighboring border cities such as the tunnel shared by
Nogales, AZ, in the United States and Nogales, Sonora, in Mexico. Some of these interconnecting
tunnels tap into storm drains or sewage systems in order to move drugs even further than
smugglers could move them by digging tunnels alone. The most sophisticated tunnels can have
rail, ventilation, and electrical systems. In January 2006 in Otay Mesa, CA, a tunnel, stretching
nearly three-quarters of a mile in length and traveling over 85 feet below the surface of the earth,
was discovered, where more than two tons of marijuana was seized.101 The tunnel had lighting,
ventilation, and groundwater drainage systems. In November 2010, the San Diego Tunnel Task
Force—created in 2003 as a partnership between ICE, DEA, and the U.S. Border Patrol working
along with state law enforcement and Mexican counterparts—uncovered a 600-yard passageway
stretching from Tijuana to Otay Mesa. About 30 tons of marijuana, with an estimated street value
of about $20 million, were seized in the United States and Mexico.102 About a year later, the task
force unearthed two other tunnels in Otay Mesa within a two-week period. One of them stretched

(...continued)
1930, defining aircraft as including ultralight vehicles. For the Federal Aviation Administration definition of an
ultralight, see the Code of Federal Regulations (CFR) Title 14, Section 103, http://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=77f64066b8e425c01339f918e6e9f291&rgn=div5&view=text&node=14:2.0.1.3.16&idno=14.
98
Agence France-Presse, “Mexican Drug Traffickers Using Tiny Planes for US Market,” MSN News, September 2,
2010.
99
U.S. Customs and Border Protection, “Ultralight Plane Crashes in Arizona, Smugglers Apprehended,” press release,
May 30, 2009.
100
Ken Stier, “Underground Threat: Tunnels Pose Trouble from Mexico to Middle East,” Time, May 2, 2009.
101
U.S. Drug Enforcement Administration, “DEA/ICE Uncover ‘Massive’ Cross-Border Drug Tunnel, Cement lined
passage thought to link warehouses in Tijuana and Otay Mesa,” press release, January 26, 2006,
http://www.justice.gov/dea/pubs/pressrel/pr012606.html.
102
U.S. Drug Enforcement Administration, “Tunnel Task Force Discovers Cross Border Tunnel, 30 tons of Marijuana
Seized in Investigation,” press release, November 3, 2010.

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612 yards and had electric rail cars, lighting, reinforced walls, and wooden floors.103 In July 2012,
three drug smuggling tunnels were uncovered along the Southwest border in less than a week.104
U.S. law enforcement uses various tactics and simultaneously faces numerous challenges in
detecting these cross-border tunnels. More than 150 tunnels have been discovered since the
1990s105—primarily in Arizona and California—and more than 75 of these have been found since
2006.106 One such method of tunnel detection is the use of ground penetrating radar (GPR).107
However, this technology is limited by factors including soil conditions, tunnel diameter, and
tunnel depth. Law enforcement may also use sonic equipment to detect the sounds of digging and
tunnel construction and seismic technologies to detect blasts that may be linked to tunnel
excavation. U.S. officials have acknowledged that law enforcement currently does not have
technology that is reliably able to detect sophisticated tunnels.108 Tunnels are more effectively
discovered as a result of human intelligence and tips rather than technology.

Exploitation of Ethnic Diaspora Communities
Criminal organizations structured along ethnic lines sometimes base their operations in immigrant
communities.109 They use these enclaves to provide cover for their dealings and occasionally also
exploit their ethnic compatriots. Historically, criminal groups have burrowed into their immediate
surroundings, but now this is enhanced by the fact that they can leverage Internet connectivity
and extensive, international transportation linkages from localities around the globe. A number of
recent cases highlight these issues.

103

Immigration and Customs Enforcement, “Highly Sophisticated Cross-Border Drug Tunnel Discovered Near San
Diego,” press release, November 15, 2011, http://www.ice.gov/news/releases/1111/111130sandiego.htm.
104
Elliot Spagat and Jacques Billeaud, “Drug Tunnels Discovered Between U.S.-Mexico Border Contained Railcar
System, Tons Of Pot,” Huffington Post, July 13, 2012.
105
Statement of James A. Dinkins, Executive Associate Director, Homeland Security Investigations, U.S. Immigration
and Customs Enforcement, before the U.S. Congress, Senate United States Senate Caucus on International Narcotics
Control, Illegal Tunnels on the Southwest Border, 112th Cong., 1st sess., June 15, 2011.
106
Michael Thurston, “Record drugs haul seized from US-Mexico border tunnel,” AFP, November 4, 2010,
http://www.google.com/hostednews/afp/article/ALeqM5jQ20K1Iy7AaXLBGtqiAxnfkCMTGQ?docId=
CNG.a14f67109bad6c916ff3ce51f338a2d8.3b1.
107
For more information, see http://www.geophysical.com/militarysecurity.htm.
108
Ken Stier, “Underground Threat: Tunnels Pose Trouble from Mexico to Middle East,” Time, May 2, 2009.
109
Klaus von Lampe, “Re-Conceptualizing Transnational Organized Crime: Offenders as Problem Solvers,”
International Journal of Security and Terrorism, vol. 2, no. 1 (2011), p. 9. (Hereinafter, von Lampe, “ReConceptualizing.” )

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In October 2010, a total of 73 individuals were indicted in the largest single Medicare fraud ever
charged.114 As described by DOJ, the Mirzoyan-Terdjanian organization, an Armenian criminal
group, ran fake clinics in 25 states, but had its leadership based in Los Angeles and New York
City,115 two areas with large immigrant populations from the former Soviet Union, (e.g.,
Glendale, in the Los Angeles region, is home
Organized Crime and
to 200,000 Armenian Americans). According
Health Care Fraud
to the president of the Los Angeles chapter of
In 2010, then-Acting Deputy Attorney General Gary G.
the Armenian-American Chamber of
Grindler stated that “the emergence of international
Commerce, this community is exploited by a
organized crime in domestic health care fraud schemes
handful of criminals who were “raised under
signal[ed] a dangerous expansion that poses a serious
communist rule in the former Soviet republic
threat to consumers.”110 The health care system as well
as both public and private assistance programs have been
of Armenia, where exploiting a corrupt
targets of individual scammers and organized criminals
government was seen as fair game.”116
Members of the Mirzoyan-Terdjanian group
allegedly billed Medicare for more than $163
million in fraudulent medical services. They
reaped about $35 million in profits.117 The
case involves the stolen identities of both
doctors and Medicare beneficiaries and the
creation of at least 118 spurious medical
clinics across at least 25 states, all part of a
largely “virtual” operation. FBI Assistant
Director in Charge Janice K. Fedarcyk
described the organization as

alike. Criminals steal the identities—or create fake
identities—of medical providers, clinics and businesses,
and patients. In FY2011, federal prosecutors “filed
criminal charges in 489 cases involving 1,430
defendants.”111

News reports suggest that organized crime has turned to
targeting Medicare and Medicaid for profit.112 It is very
likely that some groups favor stealing doctor and patient
identities for fraudulent billing over more violent and less
lucrative criminal activity. One expert has suggested,
“[Health care fraud is] lucrative and it’s safe for them
[organized criminals]. Why rob a bank and risk getting
shot when you can click a mouse and bill Medicare or
Medicaid, basically lie on some forms and make millions
of dollars doing so?”113

completely notional. There were no real
medical clinics behind the fraudulent billings, just stolen doctors’ identities. There were no
colluding patients signing in at the clinics for unneeded treatments, just stolen patient

110

Department of Justice, “Seventy-Three Members and Associates of Organized Crime Enterprise, Others Indicted for
Health Care Fraud Crimes Involving More Than $163 Million,” press release, October 13, 2010,
http://www.justice.gov/opa/pr/2010/October/10-dag-1140.html, (Hereinafter, DOJ press release, “Seventy-Three
Members.”)
111
It is unknown, however, how much of this is attributable to organized crime. For data, see Department of Health and
Human Services and Department of Justice, Health Care Fraud and Abuse Control Program, Annual Report for Fiscal
Year 2011, February 2012, p. 1, https://oig.hhs.gov/publications/docs/hcfac/hcfacreport2011.pdf.
112
Allan Chernoff, Sheila Steffen, “Organized Crime’s New Target: Medicare,” CNN, October 24, 2009,
http://www.cnn.com/2009/CRIME/10/22/medicare.organized.crime/.
113
“Organized Crime Muscles in on Health Care,” NPR, January 16, 2010, http://www.npr.org/templates/story/
story.php?storyId=122645717.
114
Department of Justice, “Manhattan U.S. Attorney Charges 44 members and Associates of an Armenian-American
Organized Crime Enterprise with $100 Million Medicare Fraud,” press release, October 13, 2010,
http://newyork.fbi.gov/dojpressrel/pressrel10/nyfo101310.htm. (Hereinafter, DOJ press release, “Manhattan U.S.
Attorney”); DOJ press release, “Seventy-Three Members.”
115
DOJ press release, “Seventy-Three Members.”
116
Thomas Watkins, “Armenian Organized Crime Grows More Complex,” Associated Press, October 16, 2010.
117
In December 2011, one of the group’s leaders, Robert Terdjanian, pled guilty to charges related to the case. See
Bruce Golding, “Swan Song for Gangster,” New York Post, December 20, 2011, http://www.nypost.com/p/news/local/
manhattan/swan_song_for_gangster_T3KqaxeuQkAVNhHjioXmaJ.

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identities. The whole doctor-patient interaction was a mirage. But the money was real, while
it lasted.118

The indictment in the case also linked Armen Kazarian to the scheme. Arrested in Los Angeles,
Kazarian, an Armenian residing in the United States, had substantial influence in the criminal
underworld as a vor v zakone, a Russian term meaning “thief-in-law.”119 Kazarian had reputedly
lied to federal authorities to obtain asylum after emigrating to the United States in 1996.120 In the
course of the scheme, Kazarian mediated disputes for the Mirzoyan-Terdjanian group and
allegedly threatened to assault and kill an associate. In July 2011, Kazarian pled guilty to
racketeering in the case.121 The indictment suggests that members of the organization, many of
them Armenian nationals or immigrants, sent criminal proceeds to Armenia, purchasing real
estate and operating businesses with the funds.122
In June 2010, DOJ charged five Ukrainian brothers with extortion and conspiring to engage in a
pattern of racketeering activity. This far-flung operation based out of Philadelphia and Ukraine
had allegedly trafficked about 30 Ukrainians into the United States via Mexico, exploiting them
in cleaning crews operating in stores, private residences, and office buildings in Pennsylvania,
New York, New Jersey, Maryland, and Washington, DC. According to DOJ, the brothers failed to
pay their victims, threatened them with violence, physically abused them, and housed them in
overcrowded quarters. One of the brothers is accused of raping a trafficked woman on several
occasions.123 The victims of this scheme likely trusted the brothers as fellow immigrants who had
ties to the United States and were willing to help others start new lives in the country.

118

DOJ press release, “Manhattan U.S. Attorney.”
The indictment describes a thief-in-law as “a member of a select group of high-level criminal figures from Russia
and the Former Soviet Union who receives tribute from other criminals, offers protection, and uses his recognized
position of authority to resolve disputes among criminals, including through threats and instances of violence.” See
United States vs. Armen Kazarian, Davit Mirzoyan, Robert Terdjanian, et al., Indictment in the U.S. District Court for
the Southern District of New York, filed October 13, 2010. (Hereinafter, United States vs. Armen Kazarian.)
120
Michael Wilson, William K. Rashbaum, “Real Patients, Real Doctors, Fake Everything Else,” New York Times,
October 13, 2010, http://www.nytimes.com/2010/10/14/nyregion/14fraud.html?_r=1&scp=1&sq=
Real%20Patients,%20Real%20Doctors,%20Fake%20Everything%20Else&st=cse; United States vs. Armen Kazarian.
121
Department of Justice, “Leader of Armenian Organized Crime Ring Pleads Guilty in Manhattan Federal Court to
Racketeering,” press release, July 8, 2011, http://www.justice.gov/usao/nys/pressreleases/July11/
kazarianarmenpleapr.pdf.
122
United States vs. Armen Kazarian.
123
Department of Justice, “Five Brothers Charged in Human Trafficking Scheme that Smuggled Young Ukrainian
Migrants,” press release, June 30, 2010, http://www.justice.gov/opa/pr/2010/June/10-crt-765.html; Nathan Gorenstein,
“5 Brothers Charged with Human Trafficking,” Philadelphia Inquirer, June 30, 2010, http://www.philly.com/philly/
news/breaking/97508149.html?cmpid=15585797; United States v. Omelyan Botsvynyuk, et al, Indictment in the U.S.
District Court for the Eastern District of Pennsylvania, n.d. http://www.justice.gov/usao/pae/News/Pr/2010/Jun/
botsvynyuk_indictment.pdf. In October 2011, two of the brothers, Omelyan and Stepan Botsvynyuk, were convicted
“of conspiracy to violate the Racketeer Influenced and Corrupt Organizations (RICO) Act in connection with a human
trafficking scheme.” At the time of the duo’s trial, two other brothers were in Canada awaiting extradition and the
remaining sibling was a fugitive. See Department of Justice, “Brothers Convicted in Human Trafficking Scheme,”
press release, October 12, 2011, http://www.fbi.gov/philadelphia/press-releases/2011/brothers-convicted-in-humantrafficking-scheme; Michael Matza, “Trial Set to Begin for Botsvynyuk Brothers in Human-Trafficking Case,”
Philadelphia Inquirer, September 13, 2011, http://articles.philly.com/2011-09-13/news/30149728_1_t-visa-programhuman-trafficking-immigrant-rights-groups. For more information see Department of Justice, “Second Ukrainian
Brother Sentenced to the Maximum for Human Trafficking Operation,” press release, July 17, 2012,
http://www.fbi.gov/philadelphia/press-releases/2012/second-ukrainian-brother-sentenced-to-the-maximum-for-humantrafficking-operation.
119

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In another case, at least five Chinese citizens involved in operating Asian massage parlors in
Kansas were sentenced between April and October of 2009 for their roles in exploiting Chinese
women in the United States.124 The defendants recruited women from China to work in the United
States as masseuses. They then confiscated the women’s identification documents and used these
documents to fraudulently wire proceeds from illegal activities back to China. They forced the
women to work for 14 hours every day, locked them inside the massage parlors to sleep at night,
and forced them to perform sexual services for the male patrons of the massage parlors.
West African criminal networks specializing in AFF operate in many nations including the United
States, where members have assimilated into local ethnic communities. Many West African
fraudsters based outside of their home countries direct proceeds back to organizations in their
homelands. More recently, it appears that some of these diaspora-based criminals are operating
independently and retaining their ill-gotten gains.125

Changing Structures
The traditional image of organized crime involves elaborate hierarchies, behavioral codes, and
initiation rituals. Some criminal organizations like the Cosa Nostra retain a strong element of
hierarchy. However, in the last 20 years, the criminal underworld has likely moved away from
rigid hierarchical organizational structures and toward decentralized and more flexible “network”
models. One scholar has argued that the public is still wedded to hierarchical archetypes
particularly when conceptualizing how smugglers operate:
Still infused with images of cartels and syndicates—rigid, top-down organizations—we are
not accustomed to thinking of flexible, even unchartable networks of intermediaries that
operate across many borders and provide different services. Some are permanently linked
and others vary in their composition, activities, and geographical scope depending on
markets and circumstances. Thus, brokers and agents with access to multiple suppliers,
conveyors, and buyers are more significant in the drug trade than are old-fashioned
“kingpins.” For all these brokers, expanding into new product lines, legal or illegal is just a
logical business step.126

As discussed elsewhere in this report, criminals (much like legitimate businesses) have
internationalized their operations, particularly in the last two decades. The fast movement of
people, goods, and information stimulated by globalization and technological change has
encouraged decentralization and outsourcing. Networks are especially suited for this type of
environment.127 Global businesses and criminal organizations now give critical roles to
individuals or groups outside of an organization’s core that are often physically separated by
124
Federal Bureau of Investigation, “Leader of Asian Massage Parlor Scheme Sentenced for Coercing Prostitution,
Money Laundering, Identity Theft,” press release, October 14, 2009, http://kansascity.fbi.gov/dojpressrel/pressrel09/
kc101409.htm.
125
IMMFWG, Mass Marketing Fraud, p. 15.
126
Naím, Illicit, pp. 219-220. For a similar discussion that also cites Naím, see Juan Carlos Garzón, Mafia & Co. The
Criminal Networks in Mexico, Brazil, and Colombia, (Washington, DC: Woodrow Wilson International Center for
Scholars, Latin American Program, English translation of 2008 Spanish ed., 2010) pp. 33-34. (Hereinafter, Garzón,
Mafia & Co.)
127
Phil Williams, “Transnational Criminal Networks,” in Networks and Netwars, ed. John Arquilla, David Ronfeldt
(Santa Monica, CA: National Defenses Research Institute, RAND, 2002), pp. 77-78. (Hereinafter, Williams,
“Transnational Criminal Networks.”)

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thousands of miles. In some cases, such as Colombian drug trafficking organizations, law
enforcement successes against criminal hierarchies may have encouraged the adaptation of
networks.128 Criminals conduct more business offshore because of the efficiencies offered by the
Internet and advances in the world’s transportation and communication infrastructures.129 In the
underground economy, these changes have encouraged the abandonment of exclusivity implied
by the elaborate codes of behavior, ethnic bonds, and rigid hierarchy that once typified organized
crime.130
Networked structures shield organized criminals from law enforcement efforts.131 Beyond its
immediate duties, one element or node in a network can have little understanding of the entire
network’s criminal activity. It is possible for a network to operate without a single constituent part
knowing the entire scheme. In larger networks with clear cut leaders, layers of peripheral nodes
likely do not know who directs them. Disruption of peripheral network elements by law
enforcement may alert core players to shut down the enterprise.132

Network Models
Illicit networks broadly follow two models. “Hub and spoke” networks involve peripheral nodes
tied to a leadership core. Core players initiate schemes, settle conflicts, and provide guidance to
others. In this model, activity moves from core to peripheral players while the peripheral entities
do not interact with one another. “Chain” networks involve the flow of information or movement
of criminal goods from node to node in linear fashion without a discernable center of gravity or
central command.133 They often lack obvious individual focal points for policing efforts.
Networks can quickly adapt to changing market conditions or the elimination of nodes by law
enforcement by quickly recruiting replacement specialists. Unlike hierarchies such as the Cosa
Nostra, networks have few membership requirements, initiation rituals, or loyalty tests. These
organizations can also shift allegiances easily, opportunistically drawing in participants for
specific tasks.134

Blurring of Forms
Some powerful criminal groups that still favor traditional hierarchical structures featuring distinct
lines of authority simultaneously exhibit networked characteristics as well, especially a flattening
of leadership arrangements and outsourcing of some activities to criminals outside their
immediate command and control structures. For example, in the United States hierarchical
128
Scott H. Decker and Margaret Townsend Chapman, Drug Smugglers on Drug Smuggling: Lessons from the Inside
(Philadelphia: Temple University Press, 2008), pp. 34-36.
129
Stephen Aguilar-Millan et al., “The Globalization of Crime,” The Futurist, November/December 2008, p. 42.
130
Chatterjee, The Changing Structure. pp, 2, 7-8.
131
Carlo Morselli, Inside Criminal Networks (New York: Springer, 2009), p. 71.
132
Williams, “Transnational Criminal Networks,” pp. 64-75.
133
Mette Eilstrup-Sangiovanni and Calvert Jones, “Assessing the Dangers of Illicit Networks: Why al-Qaida May Be
Less Threatening Than Many Think,” International Security, Fall 2008, pp. 12-13.
134
For networked structures among Colombian drug traffickers, see Michael Kenney, “The Architecture of Drug
Trafficking,” in From Pablo to Osama: Trafficking and Terrorist Networks, Government Bureaucracies, and
Competitive Adaptation (University Park, PA: Pennsylvania State University Press, 2007), pp. 25-47. (Hereinafter,
Kenney, From Pablo to Osama.)

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Mexican drug cartels rely on networks to handle aspects of trafficking. Violent U.S. gangs
transport wholesale quantities of narcotics into the United States and procure weapons for some
cartels.135 Prison gangs, for instance, are highly structured, and both national- and regional-level
prison gangs have formed alliances with Mexican DTOs. For example, the Barrio Azteca prison
gang—operating primarily in southwestern Texas and southeastern New Mexico—has partnered
with the Juárez cartel and generates much of its money from smuggling marijuana, heroin, and
cocaine across the Southwest border.136 Similarly, one author of a broad study of criminal
organizations in Mexico, Brazil, and Colombia has noted that these groups embody
characteristics of what he dubs the “Godfather Model”—rigid hierarchy—and the “Facebook
Model”—dynamic network.137

Advantage: Networks Challenge Law Enforcement
The shift to networked structures may suggest that criminals are more elusive than ever as the
illicit world evolves rapidly, while law enforcement “plays by yesterday’s rules and increasingly
risks dealing only with the weakest criminals and the easiest problems.”138 According to one
study, when combating agile drug cartels, a number of impediments hobble law enforcement
officials. Most broadly, the hierarchical authority embodied in bureaucratic structures complicates
the decision-making process.139 Additionally, law enforcement potentially faces
interagency coordination problems that further complicate, and decelerate, decision making,
comprehensive legal and bureaucratic constraints to action, and ambiguous incentive
structures that undermine some agents’ willingness to share information—and others’
commitment to winning the war on drugs.140

Yet another challenge for law enforcement investigating more-networked organized criminal
groups may arise from constraints in extraterritorial jurisdiction. While some criminal actors in a
network may conduct business offshore or overseas and federal law enforcement does have
extraterritorial jurisdiction to investigate and prosecute individuals who criminally violate U.S.
interests abroad, this jurisdiction does not necessarily cover all crimes committed by organized
crime groups.141 Further, jurisdictional issues can present substantial diplomatic and practical
challenges for law enforcement.

135
National Gang Intelligence Center, National Gang Threat Assessment: Emerging Trends, 2011, (n.d.) pp. 26-28,
http://www.fbi.gov/stats-services/publications/2011-national-gang-threat-assessment/2011-national-gang-threatassessment-emerging-trends; National Gang Intelligence Center and National Drug Intelligence Center, National Gang
Threat Assessment, 2009, January 2009, pp. 11-12, http://www.fbi.gov/publications/ngta2009.pdf.
136
Ibid., p. 28. Barrio Azteca members are also involved in other crimes, such as extortion, kidnapping, and alien
smuggling. For more information, see Tom Diaz, “Barrio Azteca—Border Boys Linked to Mexican Drug Trafficking
Organizations—Part Three,” April 17, 2009.
137
Garzón, Mafia & Co. pp. 23-24.
138
Intelligence Committee Futures Working Group, Futures, p. 2.
139
Kenney, From Pablo to Osama, p. 132-133.
140
Ibid.
141
See the Omnibus Diplomatic Security and Antiterrorism Act of 1968, Title XII of P.L. 99-399. For more detailed
information regarding the United States extraterritorial jurisdiction as well as the specific crimes included in this
jurisdiction, see CRS Report 94-166, Extraterritorial Application of American Criminal Law, by (name redacted).

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Disadvantage: Networks Have Exploitable Weaknesses
Some of the strengths suggested by network structure can also be interpreted as weaknesses.
Their inherent compartmentalization potentially impedes efficient information sharing, as key
players keep peripheral actors in the dark about important aspects of complex schemes. This
suggests that highly networked organizations more effectively engage in simpler criminal
conspiracies. Decentralization can undermine the development of strategy and slow down
decision making. It may also encourage excessive risk taking by peripheral actors who are not
controlled by hierarchical roles rooted in rules enforced by the organization. Decentralization
possibly also nurtures challengers who compete with core leaders and foster organizational
instability.142 Maintaining networks also likely requires “time-consuming” effort geared toward
“building and fostering relationships.”143

Corruption
Some criminal networks co-opt or attract participants from the licit realm, using their specialized
skills to provide “logistical advantages.”144 These skills are especially valuable in a globalized,
high tech era in which technology is critical in overcoming geographical barriers that once slowed
international trade. Corrupt individuals maintain their status in above-board business or
governmental jobs, providing criminals with clean assets, closely guarded information,
specialized access, sensitive information, or resources. Corrupt licit-realm actors also potentially
lend criminal enterprises a sense of legitimacy.145 Because of globalization, it is likely harder to
disprove a criminal’s claims that he is a legitimate businessman, especially if the proof lies
overseas or in multiple jurisdictions. The efforts of organized criminals to draw into their
organizations legitimate persons can be described from three broad perspectives: ground-level,
private sector criminal infiltration of businesses; co-optation of powerful business leaders; and
public corruption.

“Ground-Level” Exploitation of Private Businesses
Non-executive employees or self-employed individuals can provide criminal organizations with
highly specialized capabilities in our highly networked age. The possibilities for co-opted private
sector specialists are plentiful. The three examples below suggest this.
•

Viktar Krus operated a network that illegally brought foreign workers into the
United States. He relied on legitimate facilitators such as Beth Ann Broyles, an
Illinois immigration attorney who prepared fraudulent immigration petitions for
the organization. Broyles claimed that she initially did not know that she was
involved in criminal activity. When she eventually discerned that she was,
Broyles rationalized her participation by believing that she was actually

142

Mette Eilstrup-Sangiovanni and Calvert Jones, “Assessing the Dangers of Illicit Networks: Why al-Qaida May Be
Less Threatening Than Many Think,” International Security, Fall 2008, pp. 16-33.
143
von Lampe, “Re-Conceptualizing,” p. 9.
144
Ibid.
145
CISC, 2010 Report, p. 15, http://www.cisc.gc.ca/annual_reports/annual_report_2010/document/
report_oc_2010_e.pdf. See also Carlo Morselli and Cynthia Giguere, “Legitimate Strengths in Criminal Networks,”
Crime, Law, and Social Change, 2006, pp. 185-200.

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somehow assisting immigrants. She was among two dozen co-defendants who
worked in Krus’s network. Additionally, Krus likely relied on bribing hotel
employees to inflate the number of workers they needed to hire. Between 2003
and 2008, he used at least 10 shell companies and evaded millions of dollars in
taxes while bringing in 3,800 immigrants, many illegally, to work in the service
sector and industrial jobs in the Norfolk, VA, region and elsewhere around the
United States. He grossed $34 million, forced people to live 12-15 to an
apartment, garnered fees from their wages, and charged legitimate businesses $10
per hour for their labor. Krus received a seven-year prison sentence for
conspiracy, tax fraud, visa fraud, and money laundering.146
•

According to DOJ, the Tran organization, a criminal group that cheated
approximately 27 casinos in the United States and Canada out of more than $7
million, bribed card dealers and supervisors at casinos to advance its scheme. In
what has been dubbed “the largest cheating ring of all time,”147 corrupt dealers
rigged their shuffles during mini-baccarat and blackjack games. The group also
used technologically advanced tools such as hidden transmitters and custom
software to predict the order in which cards would reappear during games.148 The
organization began its operations in 2002, and the initial indictment was returned
against the group in May 2007.149

•

DOJ’s Organized Crime and Racketeering Section helped prosecute Victor
Kaganov in connection with an illegal money transmitting business he allegedly
ran in Oregon. In March 2011, Kaganov pled guilty to operating an illegal money
transmitting business.150 DOJ has not publicly linked Kaganov, who was indicted
in March 2010, to any organized crime figures. However, Kaganov purportedly
opened multiple shell corporations in Oregon on behalf of Russian clients. He
used the shells to shuttle more than $172 million via more than 4,200 wire
transactions “in and out of the United States to more than 50 countries,”
according to DOJ.151 His supposed criminal activity highlights services that
organized criminals could potentially use to launder money.

146
Tim McGlone, “Lawyer Sentenced for Part in Immigration Fraud Ring,” The Virginian-Pilot, January 26, 2010;
McGlone, “Belarus Man Gets 7 Years for Illegal Workers,” The Virginian-Pilot, July 18, 2009,
http://hamptonroads.com/2009/07/belarus-man-gets-7-years-illegal-workers; McGlone, “Prosecutors Tie Illegal
Workers to International Crime Syndicate,” The Virginian-Pilot, January 17, 2009; McGlone, “Illegal-Immigrant
Network Supplied Region and Beyond,” The Virginian-Pilot, January 14, 2009; Bureau of Immigration and Customs
Enforcement, “22 Charged with Massive International Visa Scheme,” press release, January 13, 2009. For similar
examples involving Eurasian organized criminals, see Alexander Sukharenko, “The Use of Corruption by ‘Russian’
Organized Crime in the United States,” Trends in Organized Crime, vol. 8, no. 2 (Winter 2004).
147
Liz Benston, “As Baccarat Grows in Popularity, So Does Cheating,” Las Vegas Sun, August 30, 2010,
http://www.lasvegassun.com/news/2010/aug/30/baccarat-grows-popularity-so-does-cheating/.
148
Department of Justice, “Former Mohegan Sun Card Dealer Sentenced to Prison for Involvement in Cheating
Conspiracy,” press release, April 7, 2010, http://newhaven.fbi.gov/dojpressrel/pressrel10/nh040710.htm; Department of
Justice, “Leader of Casino-Cheating Criminal Enterprise Sentenced to 70 Months in Prison for Targeting Casinos
Across the United States,” press release, March 15, 2010, http://www.justice.gov/opa/pr/2010/March/10-crm-265.html.
149
Department of Justice, “Eight More Individuals Charged in Casino-Cheating Conspiracy,” press release, September
18, 2009, http://www.justice.gov/opa/pr/2009/September/09-crm-999.html.
150
Department of Justice, “Tigard Man Pleads Guilty to Operating Illegal Money Transmitting Business,” press
release, March 1, 2011.
151
Department of Justice, “Tigard Man Indicted in Connection with Illegal Money Transmitting Business Shell
Corporations Created by Defendant to Move Millions of Dollars in and out of United States,” press release, March 3,
(continued...)

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Big Business and Organized Criminals
In his Annual Threat Assessment for 2010, then-Director of National Intelligence Dennis Blair
noted that government, organized crime, intelligence services, and big business figures are
growing increasingly close in their interactions. He stated,
an increasing risk from Russian organized crime is that criminals and criminally linked
oligarchs [powerful Eurasian businessmen who rose to power in the immediate post-Soviet
period] will enhance the ability of state or state-allied actors to undermine competition in
gas, oil, aluminum, and precious metals markets.152

However, based on open source information, it is often difficult to determine with any degree of
certainty whether oligarchs or other powerful international entrepreneurs with interests in U.S.
markets or investors have criminal connections.
Russian billionaire Oleg Deripaska exemplifies this difficulty. According to unnamed U.S. federal
officials cited in news reports, Deripaska has struggled to maintain a U.S. visa because of his
alleged ties to organized crime.153 Prior to the global financial crisis, he possessed a $28 billion
fortune and was the ninth-wealthiest person in the world.154 He obtained a U.S. visa in 2005, but
it was revoked soon thereafter.155 According to press reporting, in 2009 the FBI set up two U.S.
visits by Deripaska for undisclosed reasons on a limited entry permit from the Department of
Homeland Security (DHS).156 Claims of criminal connections have publicly dogged him for years.
But Deripaska has never been convicted of a crime and has strongly denied all accusations.157 His
difficulty getting a U.S. visa may have kept some U.S. bankers from participation in an initial
public offering (IPO) involving his aluminum company, UC Rusal.158 The IPO occurred in
January 2010 on the Hong Kong stock exchange.159
Like Deripaska, Stanley Ho, a billionaire casino magnate from Macau, has routinely denied
accusations of ties to organized crime. According to media reports, U.S. officials have long
suspected Ho had links to Chinese criminal groups known as triads.160 These suspicions
(...continued)
2010, http://portland.fbi.gov/dojpressrel/pressrel10/pd030310.htm.
152
Blair, “Annual Threat Assessment,” p. 44.
153
Gregory L. White and Diana Cimilluca, “Some Bankers Cool on Hot Rusal IPO,” Wall Street Journal. November 9,
2009. (Hereinafter, White and Cimilluca, “Some Bankers.”) Evan Perez, Gregory L. White, “FBI Lets Barred Tycoon
Visit U.S.,” October 30, 2009. (Hereinafter, Perez and White, “FBI Lets Barred Tycoon.”)
154
“The World’s Billionaires: #9 Oleg Deripaska,” Forbes.com, March 5, 2008, http://www.forbes.com/lists/2008/10/
billionaires08_Oleg-Deripaska_UCP9.html.
155
Perez and White, “FBI Lets Barred Tycoon.”
156
White and Cimilluca, “Some Bankers”; Perez and White, “FBI Lets Barred Tycoon.”
157
John Helmer, “Deripaska in ‘Russian Mafia’ Probe,” BusinessDay, May 14, 2010, http://www.businessday.co.za/
articles/Content.aspx?id=108965; Misha Glenny, Robert Booth, and Tom Parfitt, “US Refused Oligarch Visa Over
Alleged Criminal Associations,” The Guardian, October 31, 2008, http://www.guardian.co.uk/world/2008/oct/31/olegderipaska-us-visa-rusal.
158
White and Cimilluca, “Some Bankers.”
159
“Aluminum giant RusAl raises $2.24 bln with Hong Kong IPO,” RIA Novosti, January 22, 2010, http://en.rian.ru/
business/20100122/157651607.html.
160
Neil Gough, “Triads Thrive in Ho’s Casinos, US Report Says,” South China Morning Post, March 19, 2010.
Alexandra Berzon and A.D. Pruitt, “MGM Mirage Knew Ally Was Unfit,” Wall Street Journal, March 17, 2010.

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resurfaced in 2009 and 2010 involving his daughter, Pansy, and a casino venture in Macau. At the
time, Pansy and Nevada-based MGM Resorts International (MGM)161 each controlled half of the
MGM Macau, which opened in December 2007.162
Pansy Ho’s co-ownership of MGM Macau emerged as an issue for New Jersey gaming regulators
because MGM also possessed a 50% share in Atlantic City’s Borgata Hotel Casino and Spa.
According to New Jersey law, MGM had to prove “by clear and convincing evidence, its ‘good
character, honesty and integrity’ on a continuing basis” to maintain its 50% share in the
Borgata.163 In essence, the company and its partners had to be found suitable to operate in New
Jersey.
It appears that MGM’s direct ties to the Ho family were troubling to New Jersey regulators. In
May 2009, the New Jersey Division of Gaming Enforcement (DGE) published a report based on
its own investigation of MGM’s partnership with Pansy Ho in Macau. The DGE report
recommended that both Pansy and Stanley Ho be found “unsuitable persons” by the New Jersey
Casino Control Commission.164 The DGE noted the elder Ho’s “continued business ties to persons
associated with organized crime” and his daughter’s “direct, substantial, and continuing business
and financial ties to her father.”165 In March 2010, MGM decided to sell its interest in the Borgata
rather than sever ties with Pansy Ho.166

Corruption of Public Officials
Organized criminals corrupt public employees, especially individuals who have sensitive jobs. In
many cases, criminals seek people who have skills, particular access to information, or job
responsibilities that lend themselves to specific schemes. For example, some criminals whose
operations depend on personal identification documents seek to inveigle employees with unique
access to such information, and smugglers lure people charged with protecting borders into their
operations.
In August 2010, Vitaly Fedorchuk was sentenced to 46 months in prison for leading a criminal
organization in the Cleveland, OH, area that fraudulently procured Ohio driver’s licenses and
identification cards for foreign nationals. To do so, Fedorchuk’s group relied on Sonya Hilaszek, a
corrupt employee at the Deputy Registrar’s Office in Parma, OH. She also pled guilty in the case
and received a prison sentence of 33 months. DOJ accused Hilaszek of producing documents for
161

Formerly MGM Mirage.
In July 2012, it was reported that MGM held 51%, and Pansy Ho held nearly 27% of the venture’s stock, which was
publicly offered on Hong Kong’s stock exchange in 2011. Howard Stutz, “Ties to Pansy Ho Could Damage MGM
Resorts Plans for Maryland Casino,” Las Vegas Review-Journal, July 23, 2012, http://www.lvrj.com/blogs/stutz/
Ties_to_Pansy_Ho_could_damage_MGM_Resorts_plans_for_800_million_Maryland_casino.html; Fox Hu, “Pansy Ho
Raises $1.5 Billion in MGM China IPO at Top of Range,” Bloomberg, May 26, 2011, http://www.bloomberg.com/
news/2011-05-27/mgm-china-prices-h-k-ipo-shares-at-hk-15-34.html; Tom Mitchell, “Spotlight on MGM Mirage’s
‘Wild Card,’” Financial Times, March 19, 2010.
163
State of New Jersey Department of Law and Public Safety, Special Report of the Division of Gaming Enforcement
to the Casino Control Commission on Its Investigation of MGM Mirage’s Joint Venture with Pansy Ho in Macau,
Special Administrative Region, People’s Republic of China, Redacted, May 18, 2009, p. 1, http://www.state.nj.us/
casinos/home/info/docs/MGM/dge_%20report_redacted.pdf. (Hereinafter, DGE, “Report.”)
164
DGE, “Report,” pp. 70-71.
165
DGE, “Report,” p. 71.
166
Wayne Parry, “NJ: Asian Casino Boss Has Mob Ties in China,” Associated Press, March 17, 2010.
162

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR41547. Public record. Not legal advice.