Organized Crime Research (kvl-homepage) The Nicotine Racket. Trafficking in Untaxed Cigarettes: A Case Study of Organized Crime in Germany, by Klaus von Lampe

Part 1 * Part 2 * Part 3 * Part 4 * Part 5 * Part 6 (Notes)

Previous Page

Conclusion: The Illegal Cigarette Trade in Germany from the Point of View of a General Theory of Organized Crime

The Distinction of a Primary and a Secondary Market

Despite the incompleteness of the available data and the sketchiness of the above description of the illegal cigarette trade, some cautious remarks can be made concerning the extent to which general assumptions about organized crime are confirmed or called into question.

The first observation that has to be made about the nicotine racket in Germany is that it involves two distinct sets of activity, a primary market for untaxed cigarettes and a secondary market for the extortion of street vendors. The primary market is a classic example of the provision of an illegal good to a demanding public. The criminal activities involved are characterized by the absence of direct victims, by continuity, and, with regard to the street sale, by a high visibility to outsiders.

The Social Conditions Underlying the Illegal Cigarette Trade

The trafficking in untaxed cigarettes in Germany takes place under social conditions that generally seem to be conducive to crime. The contrast between the wealthy Western European Countries on the one hand and the former communist states in the East on the other creates opportunities and incentives for continuous criminal activities while the existing legal and cultural barriers hamper effective law enforcement efforts. Within Germany basically the same socio-cultural conflict between East and West persists putting at least some strain on the legitimacy of the Western dominated legal system in those parts of Germany formerly under communist rule. Finally, the social and cultural cleavages are deepened by ethnic differences with regard to the marginalized community of illegal aliens from post-Stalinist Vietnam.

Criminal Networks, Organizations and Enterprises

At first glance, the conditions favorable to crime may be likewise seen as favorable to the development of criminal organizations. However, the reverse could be true just as well. To the extent that an environment exists that facilitates the cooperation of criminals the establishment of continuous criminal organizations may be unnecessary and inappropriate.

Theoretically, criminal transactions only take place when the participating actors trust each other that the transaction will be kept secret from authorities and that agreements will be respected. There seems to be a direct relationship between the number and strength of the primary bonds providing the basis for trust and the risks involved in the respective transaction(78). (Slide: Criminally Exploitable Contact: Basic Unit of Criminal Networks and Organizations)The strongest bonds sufficient for supporting the riskiest endeavors are apparently established by kinship, lifelong friendship, mutual prison experience or the membership in sects or secret societies like the Chinese Triads or the Cosa Nostra(79). None of these factors seem to play a major role in the illegal cigarette trade as is evidenced by the numerous interethnic relations within smuggling operations and between different levels of the market(80). This corresponds with the relatively minor risks taken by smugglers, wholesalers, street vendors and consumers. The risk of apprehension is generally low and sanctions have long been lenient even for large-scale entrepreneurs and probably still are in light of the profitability of the business. The risk of fraud is limited because of the legal production of the merchandise so that a problem of qualitiy, as it exists, for example, in the drug market, is irrelevant for traffickers in illegal cigarettes, and disputes over payments are apparently avoided through customary cash transactions on all levels of the market(81).

As a result of the low risk factor far reaching social networks can be used for the distribution of untaxed cigarettes and new contacts for the same purpose can obviously be established quite easily. Under such circumstances and bearing in mind the continuity of supply and demand it seems to make economic sense to establish hierarchical organizations to complete transactions only where high investments are at stake or complex tasks require the continuous cooperation of different actors(82). This may be the case on the import level where the storage and distribution of large shipments have to be secured to avoid the loss of substantial investments. Such security can be obtained by vertically integrating smuggling and wholesale operations. It is not clear to what extent this has actually taken place.

On the street level, vending operations that are forced to horizontally differentiate under law enforcement pressure will be likely to organize in a continuous enterprise to avoid the costs connected with constantly reassembling teams on the basis of contractual agreements. This is somewhat of a paradox since law enforcement pressure is usually regarded as a factor restricting the complexitiy of criminal organizations as increasing numbers of participants and the increased need for communication also increase the risk of detection(83). In the case of street vending operations, however, these considerations do not apply because all participants are by nature visible to outsiders.

Concentration Processes

The illegal cigarette trade has undergone a concentration process on the upper levels of the market due to the economies of scale connected with the large-scale procurement of untaxed cigarettes for the black market from legal sources. No indication exists that operations actively seek a monopoly position to secure monopoly profits. This contradicts the widespread notion that the maximization of profits through attempts at cartelization or monopolization is a defining characteristic of organized crime(84).

The absence of any effort to obtain a monopoly on the top level of the market is interesting because theoretically it is here were the use of competitive violence is most likely. As Peter Reuter has pointed out, the elimination of a rival in a noncartel oligopoly, in contrast to a perfectly competitive market, will add significantly to the market share and profitability of the aggressor. On the other hand, monopolies may provoke increased law enforcement efforts or defensive combinations by the other oligopolists(85). Also, the use of violence against competitors may prove futile where transactions are based on the mutual trust between business partners. Under such circumstances, one operator cannot simply replace another because violence or the threat of violence is no sufficient substitute for trust(86). All of these factors probably contribute in some way to the peaceful coexistence between the top level providers of untaxed cigarettes in Germany.

The Absence of an Overarching Power Structure

There are similarly no indications of an illegal power structure overarching the illicit cigarette business. Such a constellation could evolve in response to a demand for nonviolent dispute settlement mechanisms(87) or in an effort to internalize the external costs of the use of violence(88). Neither aspect seems to be of sufficient importance in the cigarette trade. In fact, the absence of violent conflicts or of substantial conflicts per se among market participants may be one of the characterizing peculiarities of the trafficking in untaxed cigarettes. From the data collected for this study only one reported incident of violence could be interpreted as a dispute directly connected with the black market for cigarettes: In 1996 a group of five Poles assaulted four Vietnamese in an apartment in the East German town of Guben and took away money and passports. In the press this event was ascribed to "gang wars over illegal trade deals at the German-Polish boarder"(89).

The Extortion of Street Vendors and the Monopoly of Violence

The extortion of street vendors is a different issue. It cannot be explained in terms of a compensation for the provision of services(90). Instead, the activities of the Vietnamese extortion gangs, as far as can be told from the available data, are purely predatory in nature. This finding corresponds with general assumptions about the respective functional autonomy of extortion gangs and illegal enterprises(91).

The fact that only street vendors are subjected to extortion also meets general expectations. The visibility, continuity and immobility of the street sale of untaxed cigarettes enables extortionists to monitor activities and earnings, whereas clandestine distributors can elude the control by extortion gangs in the same way they avoid detection by law-enforcement agencies(92).´

Finally, the bloody struggle of rivaling extortion gangs over territories seems to fit the picture. After all it is reminiscent of the Chicago gang wars during the 1920s. What comes as a bit of a surprise is that no Vietnamese gang succeeded in gaining control of the Berlin market, probably the biggest regional market for untaxed cigarettes, whereas the Capone gang had supposedly managed to take complete hold of the Chicago bootleg market after eliminating its last rivals in the St. Valentine's Day Massacre of 1929. In fact, the notion of a trend towards the monopolization of violence not only stems from popular imagery, it is corroborated by theoretical assumptions. First of all, extortion gangs who intend to systematically and continuously extract payments by necessity have to establish a monopoly of power in a specific territory(93). Secondly, in staking claims to territories, economies of scale should promote the evolution of larger gangs(94). Finally, if one of the competing gangs can prove its relative superiority, as was the case in Berlin in the mid 1990s, when one of the Central Vietnamese factions obtained control of 2/3 of the vending locations, it can be expected that this gang will eventually prevail by taking advantage of increasing returns to scale while its competitors are discouraged to further invest in their respective potential for violence(95).

A number of countervailing internal and external factors, however, need to be taken into consideration which make the outcome of the power struggle between the Vietnamese extortion gangs in Berlin plausible.

Internally, extortion gangs are subjected to tighter structural restrictions. They run a higher risk of law enforcement interference because of the predatory nature of their activities in comparison, for example, with gangs engaged in the victimless crime of selling untaxed cigarettes. Therefore, the factor of trust plays a more important role for the internal cohesion of a gang. Large organizations may also give rise to vanities and animosities. Frictions of that nature might have been the cause for the break up of the Central Vietnamese "Association of the Benefactors" after it had succeeded in driving the North Vietnamese extortionists out of Berlin. In any case, the origin from Central Vietnam was obviously not a sufficient binding force to hold together members from different villages, towns and provinces.

Externally, large-scale extortion gangs are likely to become the explicit target of law-enforcement agencies(96). And this is exactly what happened in the mid 1990s when the media and the police were creating the concept of the "Vietnamese Cigarette Mafia" in response to the eruption of violence within the Vietnamese community.

The aspect of violence is another factor relevant for the emergence of an illegal monopoly of power. As the experience with the Vietnamese extortion gangs confirms, the use of violence is bad for business because it attracts unwanted attention. In fact, every major change in law enforcement strategy and every major move to intesify law enforcement pressure with regard to the illegal cigarette business, namely the establishment and reinforcement of special investigative units, can be traced directly to acts of violence committed by Vietnamese extortion gangs. In order to avoid these effects the gangs would have been well advised to come to an agreement over exclusive territories or to submit to the leadership of the most powerful gang to internalize the costs of uncontrolled violence(97). The failure to achieve such a non-violent resolution of the gang conflict almost inevitably lead to the destruction of the large gangs by the police, making their reign during the 1990s not more than an episode in the history of organized crime in Germany(98).

The Role of Law Enforcement in the Shaping of the Nicotine Racket

The intensity of law enforcement efforts is probably the most important external factor determining the way in which the trade in untaxed cigarettes has been conducted over the past 10 years. Until the mid 1990s Vietnamese street vendors of untaxed cigarettes could go about their business almost unimpeded as the police and the customs service refrained from exerting sustained pressure on the street sale. It is important to note that this restraint was not brought about by illicit influences thereby contradicting notions, that the continuous, visible and large-scale conduct of criminal acitivities is possible only through corruption(99).

Once the law enforcement agencies turned to vigorously persecuting street vendors, parallel to breaking up the large extortion gangs, the number of vending places sharply declined while street vendors were forced to fundamentally reorganize their operations.

The Role of the Media in the Shaping of the Nicotine Racket

The media played a crucial role by putting pressure on the government to react to the outbreaks of violence within the Vietnamese community and by colaborating with police investigators in defining a specific concept of the enemy centering around certain gangs and their leading figures. It is remarkable that beyond the abstract "Mafia"-label the press began to use the names of gangs and gang leaders to describe and analyze the events taking place among Vietnamese criminals, thereby promoting and reinforcing tendencies to selectively target particular members of the Vietnamese underworld.


In the light of a continuously high level of law enforcement pressure the street sale of untaxed cigarettes in East Germany is unlikely to regain the proportions it had in the early 1990s while the clandestine distribution of cigarettes may well continue to gradually expand in East and West Germany.

The demise of the street sale of untaxed cigarettes along with the determination of the authorities to prevent a recurrence of large-scale gang wars will probably stand in the way of the emergence of new extortion gangs of any considerable size.

Open Questions

Many questions about the inner workings of the nicotine racket have to remain unanswered at this point, for example, how the contacts between the various operators on the different levels of the cigarette market have first been established, to what degree a vertical integration of different market levels and a vertical and horizontal differentiation of operations have actually taken place, what the structure of the large extortion gangs was really like, and if any efforts were made between the rivaling gangs to reach a peaceful agreement.

Further research into the subject promises insights that would not only satisfy curiosity aroused by an enigmatic facet of organized crime in Germany. It would also be of general value for a better understanding of the phenomena commonly labeled organized crime.

Back to Beginning of Text | Notes | home