A Typology of Profit-Driven Crimes

Appendix I : The Sweatshop and its Criminal Milieu

One of the most striking examples of the mixing of various offences in a self-supporting matrix of criminal activity, and its interface with the apparently respectable corporate world, occurs in the case of the garment district sweatshop.[20]

The garment districts of the big North American cities had a long history of criminal association. Mobsters entered at the invitation of bosses in the 1920s to smash unions. The mobsters then stayed to organize cartels of truckers. Truckers in turn allocated sweatshops and jobbers among themselves, swapping them back and forth or selling them outright. If a manufacturer wanted to use an independent trucker, that was fine – provided the manufacturer paid twice.

Over time the criminal hold extended to actually financing, usually through the front of trucking companies, the operation of sweatshops, and to controlling the flow of orders. Typically a jobber who received a request from a retail chain would contact, not the sweatshop, but the trucking firm to whom the jobber was "married," and the trucking firm would allocate the manufacturing to a particular shop. It actually meant stability to the industry – there was no more cut-throat competition among shops or trucking firms. If the mobsters increased the prices of trucking services, the hikes applied across the board, permitting the industry to simply pass on the extra in price increases, or, much more commonly, to offset the extra costs by squeezing whoever was below them in the pecking order. Thus, retail chains demanded lower costs from the jobbers, the jobbers cut back on what they would pay manufacturers, and the manufacturers would take it out of the hides of the workers, reassured by the absence of unions – which the mobsters kept at bay.

The labour supply of the typical garment district is based on multiple forms of criminality. Sweatshop workers are typically: first time entrants into the labour force with no previous documented existence on which taxes and social security assessments can be based; moonlighters from formal employment, working for tax-free cash on the side; people cheating the welfare or unemployment insurance departments; and, probably most important in recent decades, illegal aliens in a state of debt-bondage to the immigrant smuggling rings who brought them into the country. Moreover the actual enterprises, blocked from the legal capital market by the lack of formal books to audit or collateral to pledge, often rely for financing on loan sharks who might be recycling criminal money, or, as happened often in New York, on the same trucking companies who control the movement of raw materials and output.

Thus taxes were evaded; wages were reduced; social security charges were unpaid; and regulations regarding working conditions were ignored. But on a brighter note, what the workers lost in wages and benefits and the public sector in revenue turned up on the other side of the balance sheet in the form of extra profit. This in turn got nicely divided between two sets of participants. The big, respectable retail firms that subcontracted to the jobbers took their share in the form of increased corporate income; and mobsters raked in their returns in high interest charges, kickbacks, and extortion payments as well as from the occasional extra like the opportunity to place mob associates on the payroll of participating companies or to profit from alien smuggling.

In all, it was an astounding mixture of predatory (e.g., extortion, social security fraud), market-based (e.g., illegal alien smuggling, recycling criminal money), and commercial (e.g., usury and price-fixing cartels) crimes, ultimately underwritten by the respectable fashion industry without whose quiet complicity it could never have survived. Yet it does.

It had long been presumed that the phenomenon was dying, the result of (non-Communist) union pressures and the universalization of the social security system on the one hand and the rise of cheap labour centres in South East Asia and liberalized global trade flows on the other. But the decline of union power, rising transport costs, increased wages in the Pacific Rim and the growing availability of marginalized labour in North America meant that the sweatshop returned with a vengeance to the North American garment trade in the 1970s and beyond. Waves of undocumented aliens, especially Latinos but also Chinese rolled in as the sweatshops returned from Asia. In fact, when the sweatshops returned, they had sometimes acquired Chinese mob partners who arranged the alien labour flows. Illegal aliens were easy to keep in line – by the threat of being exposed and deported. They were paid less than minimum wage and earned no overtime, while they remained uncovered by health, disability, or any other form of social insurance. Sometimes entire families were employed, with their earnings going directly to the alien smuggling rings until their debts were discharged. By the mid 1990s, it was reckoned in the USA that about half of all manufacturing operations in the garment trades could be classified as sweatshops. There were no comparable studies in Canada, where the sweatshop business, though not as common, certainly makes its presence felt, particularly in Montreal.

Furthermore, the phenomenon was also rife across the USA in fruit-picking, construction, and meat-packing which had the highest percentage of occupational accidents in the country (an amazing 36% of production workers were injured on the job every year.) Despite this, the garment trade situation in New York (the one that relates closest to Montreal) attracted the most attention. In New York, the trucking firms were supposedly controlled by the Gambino family.  Hence prosecutors went after them with a vengeance. They claimed that mob extortion was the primary cause of the decline of the industry in New York.  When attempts to hit the Gambino brothers with coercion and extortion charges collapsed (for the simple reason there was no evidence of any direct threat) they opted for a divestiture deal, then promptly congratulated themselves in public for saving the consumer the 3 to 7% formerly imposed in the form of a "mob tax."[21]

Yet, once the uproar subsided, there were those in the garment trade who insisted that the supposedly criminal trucking firms would be sorely missed. Much as had happened in the garbage business, the legitimate firms who moved in to replace them quickly established a reputation for hiring illegal aliens, dodging taxes and disregarding safety regulations. They were also seen as far less efficient, hardly a surprise given that the trucking cartel run by mob associates had over fifty years of experience. Also the old Gambino-linked companies provided far better security for the trade, for free.[22]Far from lauding the introduction of competition, some in the trade lamented the inability to take for granted uniformity of rates. Others claimed that the "mobsters" had been a real benefit to an industry under siege from sweated labour centres abroad – they helped locate work for jobbers and when jobbers had trouble meeting bills, the "criminals" would let them go for months without paying, while a bank would likely have shut them down. Violence to enforce shipping contracts was extremely rare. And while trucking costs dropped after the divestiture, in reality the cost of shipping a $40 garment had never been more than 40 cents. The real reason prices dropped sharply for garments had little or nothing to do with breaking the "cartel." Rather it reflected that the victory over the New York mob was followed closely by a major recession.[23]As one retail consultant put it, "The fact that truckers may have dropped prices may help ease pain by a nickel’s worth."[24]