Proposal for an experimental model of governance of confiscated companies. Ideas for the discussion.

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PROGETTO SOS LEGALITÀ IMPRESE E BENI CONFISCATE ALLA MAFIA: LO SVILUPPO SOCIOECONOMICO COME STRUMENTO DI PREVENZIONE DEL CRIMINE E DI PROMOZIONE DELLA LEGALITÀ With the financial support of the Prevention of and Fight against Crime Programme (European Commission - Directorate-General Home Affairs) SOS Legality Seized businesses and goods from mafia to strategically prevent crimes and promote legality through socioeconomic development. (Grant Agreement No. HOME/2011/ISEC/AG/4000002 530) Proposal for an experimental model of governance of confiscated companies. Ideas for the discussion.

ORGANISED CRIME IN EUROPE The investments in the legal economy play a crucial role in the activities of organized crime and respond to multiple objectives (recycling, profit, control of territory, social consensus). There are many European countries affected by the phenomenon of organized crime investments: between them Italy, Spain, Germany and the United Kingdom play a leading role. Numerous assets (real estate, companies, vehicles, other personal property) and the economic sectors are involved. The real estate sector and the restaurant industry are common elements among most groups but can also be present differences in investment strategies. For example, the Italian criminal organizations are active in several areas: among others, in construction and in emerging sectors (eg. logistics, renewable energy and VLT-slot machines); abroad, especially in restaurants and in wholesale trade of food products. The investment strategies of Chinese organizations (eg. Textiles and wholesale trade) and Russian/Georgian organizations (eg. Import export) and motorcycle gangs (eg. Private security) are different.

STRENGTHENING OF JOINT MEASURES TO COMBAT CRIMINAL INFILTRATION Council Framework Decision 2006/783/JHA of 6 October 2006 on the application of the principle of mutual recognition to confiscation orders. The value of confiscated property will be shared equally between the issuing and executing State. The Directive follows a series of measures that promote the use of confiscation of proceeds from crime and tend to ensure a common approach to confiscation within the EU. Cooperation between law enforcement authorities and overcoming the obstacles related to divergent national approaches: Systematic exchanges of information; Greater use of the opportunities offered by EU agencies and the European investigative tools; Development of common investigative and prevention techniques; Dntensification of cooperation with Third counhtries; Strengthening in terms of resources (financial and human) and sufficient and adequate common legislative framework; Quick and adequate access to databases and judicial statistics on confiscated assets

THE PROJECT SOS LEGALITA The project SOS Legality is promoted by Unioncamere and Universitas Mercatorum and implemented in partnership with Libera Association, the Chamber of Commerce of Reggio Emilia, Caserta and Syracuse. The initiative, funded by the European Commission (DG Home Affairs), under the Programme for the Prevention of and Fight against Crime, has been selected by the EU as a pilot action aims to deepen and share at European level the Italian experience on the management of companies and assets confiscated from organized crime..

THE PROJECT SOS LEGALITA Objectives Define and strengthen models and instruments of territorial governance based on multi-stakeholder public-private partnerships for monitoring, allocating, managing and valuing of assets and companies confiscated from organized crime. 1 2 Develop and test management tools for governance, consolidation and sustainability of confiscated companies.. Verify and share with other Member States models and pilot tests for their capitalization at European level. 3

THE PROJECT SOS LEGALITA Activities Capitalization and transferability at EU level - Transnational Pilot Panel for the assessment of models and tools developed by the project and the evaluation of their transferability -Transnational Workshop for sharing of experiences and the capitalization of project outputs - Final Conference Corporate governance - Working group at the national level for the development of the model and tools of corporate governance and corporate consolidation - Testing of the model and tools in selected companies in each of the three territories (with the involvement of shareholders/managers/ employees) - Training courses for would-be entrepreneurs and unemployed youth Territorial governance For every pilot territory (RE, CE, SR): - Activation of a "Territorial Laboratory" (for the definition of guidelines and operational protocols) - Study on the use of confiscated property - Organization of awareness workshop for civil society on the issue of confiscated assets from mafia

THE STARTING POINT OF THE EXPERIMENTATION: THE ITALIAN MODEL OF SEIZURE Italy has a mixed system of confiscation of assets: on the one hand there is the general procedure based on a criminal conviction; on the other hand, there is a special procedure, called precautionary seizure, which applies especially in the case of criminal organizations in order to confiscate the illegal gains obtained through mafia crimes or other crimes (also corruption). The social value of the confiscated goods: the allocation of confiscated assets for social purposes is a distinctive feature of the Italian model and relies heavily on the economic and social value of the good

THE ITALIAN MODEL OF SEIZURE Strengths The long tradition of the fight against organized crime The flexibility of a system with different procedures depending on the different types of crime. The low level of discretion of the different actors of the process, thanks to the numerous laws regulating confiscation procedures. The independence from politics of public officials working in the process of confiscation

THE ITALIAN MODEL OF SEIZURE Weaknesses Bureaucratic and financial burdens on assets. Restrictions on the sale of assets. The maintenance in good condition of seized and confiscated assets. The operational difficulties of the National Agency. Difficulty of connection between relevant public administrations. Timing for allocation of assets between confiscation and re-use. Lack of an integrated information system of data on assets. Working environment and socio-psychological perception of the company and hostilities on the territory.

THE PROJECT SOS LEGALITA The experimental model of governance The project has developed and tested a matrix model, sistema camerale italiano, based on an integrated approach to SUPPORT AND ASSIST the different actors involved in the management of the confiscated companies. It works on two levels: A. Territorial governance: (public private partnership instruments: interinstitutional territorial laboratories; protocols of intervention on the side of the confiscated companies; integrated pathways of assistance to business start-up) B. Corporate governance (targeted pathways of tutoring and business check-up to support the administrators, in collaboration with associations and professional associations)

THE PROJECT SOS LEGALITA Experimentation in confiscated companies was based on : 22 check up in 22 companies confiscated from organized crime in various stages of their life, aiming at studying their financial economic production, characteristics, for drawing up action plans and feasibility or development plans 3 Territorial laboratories in 3 Italian regions to define protocols and lines of action with stakeholders 1 Assistance for the creation of a productive chain in the concrete sector in Sicily

THE PROPOSED GOVERNANCE MODEL: LE COMPONENTS AND ACTORS Confiscated companies Task Force Territorial level. Publicprivate multistakeholders Corporate level

THE PROPOSED GOVERNANCE MODEL: LEVELS AND ACTIONS Territorial level multistake holders Institutional round tables Institutions, local actors Corporate level Companies audits and check-ups Territorial laboratories to support businesses (public-private) Memoranda of understanding Mentoring and support for supply chain projects and network contracts Training on entrepreneurial culture in the confiscated companies Drawing up of develompment programmes and plans

THE PROPOSED GOVERNANCE MODEL: CONDITIONS The full implementation of the governance model requires the presence of the following elements: enhanced cooperation, which is sponsored, conducted and accompanied by a proactive action on national level (not only at local level), thanks to a single Steering Committee"; partnership between stakeholders in the management of the confiscated companies; definition of an action plan, adapted to the context and on the characteristics of companies transparency, thanks to the accessibility to data and information and civic monitoring of projects continued monitoring of indicators of risk of infiltration

THE PROPOSED GOVERNANCE MODEL: POTENTIAL RISK-ASSESSMENT INDICATORS Check-ups in the companies participating to the project "SOS Legality" has also been made in order to verify, through the analysis of financial statements in variours years, the existence of dynamics in the management of companies that can be used in models of risk assessment and prevention of criminal infiltration. Three areas considered in the analysis of the economic-financial management of the criminal enterprises: 1. FUNDING SOURCES 2. USE OF THE COMPANY ASSETS 3. PROFITABILITY AND STRUCTURE OF COSTS Because of the small size of the sample tested, this activity was carried out not with the aim to determine the range of values relevant to specific indicators but with the aim of giving confirmation to the assumptions made by the report "Investment of the Mafia" drafted by Università Cattolica (University Centre Transcrime) for the Ministry of the Interior ("National Operational Programme Security for Development - Convergence Objective 2007-2013").

POTENTIAL RISK ASSESSMENT INDICATORS Funding sources The financial structure is influenced by the purpose of money laundering and secreting of criminal activities. Following the analysis of the companies, these assumptions are confirmed : significant impact of the debts to the total liabilities carried in the Balance Sheet, especially when compared with that of legal businesses in the same sector. and vice versa, a weight less significant of the equity on the total assets; this in order to mask the cash injection of unlawful origin in the company; high debts to suppliers of goods and services; this is the result of the strong control on the territory and the consensus in the areas of influence that occur through the pressure on suppliers and the delayed payment to them; high levels of bank debt which is the confirmation of consent enjoyed by criminal groups at the level of the administrative and financial local system.

POTENTIAL RISK ASSESSMENT INDICATORS Use of the assets Use of assets is influenced by the purpose of money laundering and concealment of criminal activities. The analyzed companies are (or were) all enterprises operating in the market; a part of the assets are tangible fixed-assets ( buildings, plant, machinery and other means of production). It is not about bogus companies where no productive activity is carried out with the result that the asset is held mainly in working capital (eg. cash, bank and postal deposits, trade credits, etc), and, to a lesser extent, in property. The hypothesis of an abnormal level of non-financial and non-tax credits is confirmed: criminal organizations mask the expenditures to other affiliates or to companies colluded in the form of trade credits, receivables from associates/subsidiaries/controlled companies

POTENTIAL RISK ASSESSMENT INDICATORS Profitability and structure of costs As they are productive enterprises, it was noted an income statement format similar to that of the 'normal' companies with revenues, costs, and ultimately, an income that should be maximized. At the same time, it was possible to find some elements that confirm the potential collusion, intimidation and violence that can be used in order to increase profits. In particular: reduced costs for the purchase of goods and services as a result of pressure on suppliers; lower staff costs than the average thanks to the use of illegal labor and the non-payment of social security contributions, insurance and overtime work; lower production costs thanks to the use of raw materials, semi-finished products and services to low-cost or poor quality; significant share of the local total production value of the sectorobtained through pressure on competitors and public administration during tendering..

EXPECTED RESULTS FROM THE MODEL Increase in the number of used assets and social cooperatives created to manage assets; increase in the number of seized and confiscated companies kept in activity; increase of employees of companies that keep their jobs; increase of young people who find their first job; increase of tutoring services, counseling, promotion and support aimed at seized and confiscated companies; improvement of the organizational processes and the management of seized assets; reduction of the deficit of information and transparency in the monitoring procedures; improving processes for democratic participation in favor of legality and economic and social cohesion of the country.

IDEAS FOR THE DISCUSSION Collection of best practices at European level to be compared to the model of the project SOS Legalità Elements for improving the proposed governance model Risk indicators at European level to harmonize the analysis on companies Tools and actions to propose in order to prevent infiltration into the economic fabric