The Silent Contagion: When Exposure to the Mafia Weakens Controls in the Legitimate Economy
For years, the debate on the mafia and the economy has focused on businesses that were directly infiltrated. But organized crime is not a world apart: it operates within the legal economy and leaves its mark on those it gets in contact with, even when contact occurs on the seemingly neutral ground of professional relationships. Networks of consultants and intermediaries operate in this gray area, and among them, auditors serving on audit committees occupy a key position, as they are tasked with monitoring the accuracy of financial statements and compliance with regulations.
The starting point of the study is precisely this paradox: what happens when those who are supposed to monitor have been exposed to opaque contexts? It is a question that the literature has only touched upon so far, and that closely concerns the Italian production system: in the sample analyzed, 59% of clean companies rely on a board of auditors that includes at least one auditor with this type of exposure.
“Exposed” auditors: who they are and why they matter
Investigating the phenomenon are Pietro A. Bianchi, Antonio Marra, and Nicola Pecchiari (all from Bocconi’s Department of Accounting) together with Jere R. Francis (University of Missouri). The authors introduce an original category, “suspect accountants”, defined as professionals who have served on the board of statutory auditors of companies whose directors, executives, or shareholders are involved in investigations related to organized crime. The definition does not imply actual wrongdoing, but it highlights a crucial element: exposure to an environment where illegal or borderline practices may be more frequent.
The true innovation of the study, however, lies elsewhere. The authors do not analyze these auditors when they work for suspect companies, but rather observe their behavior when they audit completely “clean” firms. It is here that any spillover effect is measured.
The methodology: confidential data and cross-firm comparisons
To address the issue, the study employs a particularly robust and novel methodology. The researchers cross-referenced the companies’ accounting data with information from a confidential investigative database, which allows for the identification of individuals involved in investigations for mafia-style crimes (mafia association, usury, extortion, drug trafficking, false invoicing, and other crimes falling within the scope of organized crime). This made it possible to construct a unique dataset in which it is possible to track both the firms linked to criminal activity and the professionals who worked there.
The final sample includes over 11,000 private Italian companies based in Lombardy, for a total of approximately 63,000 firm-year observations covering the period 2006–2013. The study distinguishes between “clean” firms whose boards of statutory auditors include at least one exposed auditor and similar firms overseen by boards whose members are not linked to such contexts. Using advanced econometric models and matching and selection bias correction techniques, the authors compare the quality of financial statements and tax practices across the two groups, isolating the effect of the presence of such auditors.
Lower taxes and weaker controls
The results show a consistent and significant pattern. “Clean” firms supervised by exposed auditors tend to exhibit more aggressive accounting behavior, particularly in the direction of reducing their tax burden. The point, the authors emphasize, is that these firms push harder to reduce taxable income, and the auditors who are supposed to rein them in turn out to be more tolerant: discretion in profit management expands, and the checks and balances of oversight weaken.
This is not merely a marginal effect. The firms involved consistently exhibit lower effective tax rates, a higher frequency of tax adjustments, and a greater likelihood of reporting losses. The gap in the effective tax rate is 1–2 percentage points compared to the control group: a disparity that, when applied to the entire subset of companies audited by boards of statutory auditors with exposed members, the authors translate into an estimated €200–400m in lost revenue for the Italian tax authorities in the sample examined alone. All else being equal, these audit committees cost more—they charge higher audit fees—and in their reports, the alarm bell regarding the company’s going concernrings much less frequently, even when the client’s numbers would justify it. All signs point in the same direction: lower-quality oversight.
Learning and normalization
To explain these results, the study draws on the mechanisms of behavioral learning. The idea is that repeated exposure to aggressive practices can alter their perception, making them progressively acceptable: a professional who observes aggressive tax planning schemes succeed without consequences is led to internalize them as acceptable practice.
The paper notes that no explicit fraudulent intent is required: a gradual process of adaptation is sufficient, in which what was once anomalous becomes familiar and then normal. The most significant innovation of the study, however, is the empirical verification of this mechanism. By comparing the behavior of individual auditors before and after their first appointment to the board of a company linked to organized crime, the authors observe a change: the same professionals, once they have come into contact with that world show lower tax rates, more tax adjustments, more losses, and more aggressive financial policies for their “clean” clients. These auditors are therefore not selected because they are already inclined to aggressive practices in the first place: it is exposure, the study suggests, that shifts the bar of what is considered acceptable over time.
The Italian context: fertile ground
Italy is a particularly suitable case for observing these phenomena. The strong integration between statutory financial statements and the tax base creates powerful incentives to reduce reported profits. Added to this is a corporate tax rate among the highest in Europe, which amplifies the pressure on accounting decisions. At the same time, the system of audit committees—three external professionals who jointly sign the audit report and are jointly liable for their work—makes individual auditors personally responsible for the client’s tax and financial statement compliance, in a structure different from that of large international audit networks. On paper, therefore, Italy has a more stringent control framework than many other countries. In practice, however, enforcement is considered relatively weak: the literature cited by the authors themselves describes a tax and judicial system characterized by long delays, a low rate of actual convictions, and limited sanctioning capacity. It is precisely this gap between regulatory rigor and actual enforcement that creates room for opportunistic behavior: the formal structure of audit committees promises enhanced oversight, but in the absence of effective ex post controls, the deterrent effect on individual auditors is weakened, and it becomes more plausible that exposure to opaque situations will ultimately influence the decisions of those who are supposed to be watching over them.
In this context, even a slight reduction in the quality of oversight can have amplified effects, both at the level of individual firms and for the system as a whole.
A systemic risk
The study’s most important contribution is perhaps precisely this: demonstrating that the influence of organized crime can spread through indirect channels. Not only ownership and control, but also professional relationships and operational routines.
When the authors conclude that these auditors carry out less effective monitoring even within the legal economy, they are pointing to a problem that goes beyond individual cases. The risk is that of a widespread deterioration in the quality of controls, with effects on transparency, competition, and tax revenue.
From the perspective of supervisory authorities, the lesson is that the fight against organized crime cannot be limited to formally infiltrated companies. What is needed is a structural focus on professionals who, due to their past roles, have had prolonged exposure to opaque environments: from revising the criteria for membership and supervision of professional associations to strengthening tax and anti-money laundering oversight tools. Because it is in these intermediate spaces between the legal and illegal economies, the findings suggest, that a significant part of the battle is fought.
