Part 1 * Part 2 * Part 3 * Part 4 * Part 5 * Part 6 (Notes)
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 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.
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.
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.
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 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 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 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.
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.
Organized Crime Research (kvl-homepage)
The Nicotine Racket. Trafficking in Untaxed Cigarettes: A Case Study of Organized Crime in Germany, by Klaus von Lampe
