He did very much want to be here because organized crime is a high priority within the Criminal Division in the Department of Justice. What I would like to do this afternoon, with your permission, is to introduce in the record the full statement, a scholarly, thoughtful statement that Mr. Heymann had prepared and hoped to deliver. I would briefly summarize this statement and then open myself to questions.

Chairman NUNN. Thank you very much, Mr. Nathan.

Could you pull that mike up just as close as comfortable and talk right into it?

Without objection, his full statement will be a part of the record. I have read it and it is very helpful and very complete.

[The statement follows:]

STATEMENT OF PHILIP B. HEYMANN, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE

Mr. Chairman and members of the subcommittee, I am pleased to be here today on behalf of the Department of Justice and, along with Mr. Webster and Mr. Bensinger, to help initiate the Subcommittee's long-range series of hearings into the nature of modern organized crime.

The Subcommittee's notable tradition, dating back to Senator John McClellan and Chief Counsel Robert Kennedy, has established the value of Congressional investigation in this area. The Department of Justice, charged with the responsibility for enforcing federal criminal law, of necessity focuses in large part on investigating specific crimes and prosecuting individual defendants. We appreciate the important role that can be played by a body such as this Subcommittee. Your inquiry can add to our knowledge of the broader causes, effects and longterm solutions of organized crime. We will do our best to assist in your work. From the law enforcement perspective, the problem of organized crime is one of knowledge and response: what do we know about the phenomenon and how can we shape a program to contend with its peculiar characteristics? For two decades now within the Justice Department we have worked to increase our knowledge of organized crime and to design and implement a program effectively responding to it.

The single largest activity of the Criminal Division is the organized crime program. Supervised by the Organized Crime and Racketeering Section here in Washington, that program consists of 140 of our most skilled trial attorneys assigned to 26 Strike Forces and field offices covering every American city that has a major criminal organization. They receive full investigative support from virtually every federal law enforcement agency, most of which assign specialized investigators to the Strike Forces and pool information on identified targets. Many state and local agencies also participate. These prosecutors and investigators have at their disposal our most innovative and sophisticated law enforce ment tools and the time and institutional support to put them to use. Let me describe how the activities and priorities of these Strike Forces relate to what we know about organized crime.

It seems to me that the answers to three central questions about organized crime should directly determine the shape and focus of our program: (1) What assets make organized crime strong and, conversely, where is it vulnerable? (2) What are its principal activities and sources of revenue? And, (3) what are organized crime's most harmful effects on society? My testimony will address each of these in turn.

I

An analysis of the institutional assets of organized crime must account both for its ability to endure in the face of continual law enforcement assault and for its power and apparent vitality. The mob's resistance to prosecution seems to depend heavily upon organizational cohesion. Vows of secrecy and loyalty, as well as strict discipline, are enforced through violence. In the major organizations these bonds are strengthened by ethnic and family ties. Organized crime invariably attempts to murder informants; consequently, its implied and actual threats

against witnesses are credible. The leadership, kept well insulated from high-risk activities, is especially immune to prosecution. Finally, organized crime is wealthy enough to pay for protection from law enforcement and other public officials, retain highly qualified legal representation, and use bribery to obstruct justice.

These organizational characteristics make it very difficult to obtain against organized crime figures the kind of voluntary testimony that produces most criminal convictions. A number of our most innovative law enforcement tools have been developed specifically to penetrate this curtain of silence. Foremost among these is court-authorized electronic surveillance approved by Title III of the Omnibus Crime Control Act of 1968. We know the identity of most important organized crime figures. This fact and their need to conduct far-flung operations by telephone makes them vulnerable to various forms of electronic surveillance based on probable cause. If successful, such surveillance reduces our reliance on witnesses and often enables us to develop additional witnesses. So-called "consensuals;" i.e., recordings made by undercover agents or informants, are also important. Such recordings of payoff discussions were played with devastating impact in last November's labor racketeering trial of Anthony Scotto, New York labor leader and influential political figure. The relatively small number-150— of Title III's approved in fiscal year 1979 far from adequately indicates their importance.

Of course, documentary proof, especially of financial transactions, also reduces the need for live testimony. This is one reason that prosecution for tax offenses has traditionally been an important tactic against organized crime.

The Strike Forces also employ a number of tools designed to obtain witness testimony against organized crime figures. Penetration of groups by informants and undercover agents, sometimes requiring years of careful preparation, has been instrumental in many major cases. For example, in the investigation preceding the conviction of Buffalo gangster Sam Pieri two years ago, an undercover agent actually worked his way into the position of becoming Pieri's chauffeur. The immunity statute-especially when combined with the special grand jury, whose extended term increases the potential sanction for refusal to testify-has proven an effective means of compelling testimony and was used by the Criminal Division in over 800 cases of all kinds last year. Finally, the Witness Security Program is designed to respond directly to the problem of witness intimidation. About 360 witnesses and their families are now relocated and given new identities and employment each year. In a recently concluded case in Rochester, New York, these included two witnesses relocated just hours before hit men from opposing underworld factions arrived at their former homes. I understand Mr. Gerald Shur, the Criminal Division coordinator of the Witness Security Program, will be here later to discuss the program in more detail. Suffice it to say for now that virtually every major organized crime conviction in the last 10 years has depended on the testimony of protected government witnesses. The security of the program has been excellent.

Along with its ability to resist law enforcement efforts. the outstanding attribute of organized crime is its power and vitality. Single organizations have for decades been able to monopolize entire segments of the illicit economyand portions of the illicit one as well-and at times threaten to supplant the normal rule of law itself. These may, in fact, be the defining characteristics of organized crime. The well-known formal, almost militaristic structure of the most successful groups is an essential factor in acquiring and retaining this power. Control is centralized within each organization. Subordinates carry out the leader's orders in disciplined fashion. Such a structure makes it possible to marshal forces against potential competitors, avoid many disruptive internal disputes, and administer extensive underworld empires.

Throughout their history, the Strike Forces have paid special attention to this organizational structure. A major assumption of the program has been that convicting as many actual members of the principal groups as possible is the best way to reduce their power and impact. This has been considered especially true of the heads of these hierarchies. Depriving organized crime of stable, and presumably its most competent, leadership is a goal that we have pursued with some degree of success. In the near future. for example, we believe that our Strike Forces will be able to convict the top leadership of four of the most important criminal organizations in this country. In fact, of 75 changes in the leadership of these groups in the past five years. 28 resulted from prosecution.

Though we are past the point of believing we will ever eliminate organized crime simply by convicting members or even leaders, I see merit in this organizational focus. It is the best means we now have of keeping these organizations under pressure, of making their activities difficult and risky. I believe, however, that we must seek points of organizational vulnerability other than simply the leadership. In the area of narcotics enforcement, for example, there are indications that the most assailable target may be the laundering of huge illicit money flows through offshore banks. In fact, in the organized crime field in general we are coming to view the flow of money as a vulnerable target. Money is the one aspect of criminal activity from which no organized crime figure can remain insulated. Accordingly, we are making efforts to increase our financial expertise in constructing the "paper trails" of illicit money flows that can lead us to the ultimate recipients.

The Racketeer Influenced and Corrupt organization statute has been a valuable weapon in our attack on the organized crime hierarchy. RICO's concept of a racketeering "enterprise," to which heavy penalties are attached, begins to address the central problem of organized crime that an "enterprise" gives the continuity needed to conduct and maintain the activities on which organized crime depends. The 250 RICO enterprises that have now been subject to prosecution range from unions to hotels and include an entire organized crime leadership group. In the narcotics area, the Continuing Criminal Enterprise statute also focuses on the special danger posed by an ongoing organization.

Characteristics besides its hierarchical structure also contribute to the power of organized crime. There were well over 200 gangland slayings last year, enough to make any potentially resistant businessman or recalcitrant union member reconsider. In the Meli case, the defendants, who controlled a steel hauling firm in Detroit, were convicted last August for intimidating the drivers into actually paying the company's share of their own health and welfare and pension payments to the union. As another example, Tino Fiumara was convicted in Newark last June for extorting a restaurant owner. When the owner had enlisted Fiumara's aid in settling a dispute with an employee, Fiumara set his fee at 25 percent of the business-and throughout the trial the restaurant owner refused to admit he was a victim of extortion.

Although most mob violence is directed internally, it is occasionally used against non-members as well. More often, however, notoriety alone allows the mob to bring people into line. In the Winter case, for example, the defendants operated a horserace-fixing operation in five states. They made millions of dollars, most of it by placing bets with independent bookmakers. These victims feared Winter so much they paid off even if they discovered a race had been fixed.

Developing an effective law enforcement response is a knotty problem, especially since many threats are simply implied or never reported. We do have some suggestions for legislation that we believe would be helpful. I will discuss these later.

The vitality of organized crime is often explained by the fact that it offers serv ices in demand by the public. This may well be so, although it is equally possible that this factor is really another form of the mob's ability to intimidate-in this case to organize, extort and "protect" the individual purveyors of illegal services themselves. Congress has given us important legislation to deal with illicit industries, particularly gambling, though our attempts to employ it have often produced only light sentences. This probably merely reflects society's general ambivalence toward vice, which makes an effective law enforcement response always difficult to achieve.

Finally, there is a self-perpetuating quality to organized crime's power. The major groups have existed long enough to have developed a network of business, labor and political connections and to have generated an image of inevitability, if not acceptability, among the segments of the community with which they interact. More specifically, as these groups have become powerful, they have become wealthy. This has made possible another characteristic mob tool, bribery. Bribery has its most important and detrimental application in the corruption of public officials, either to purchase protection or to obtain favors and assistance. Payoffs to public officials are absolutely essential for the preservation of most ventures conducted by organized crime. Large amounts of available cash also provide investment capital for expansion into new areas, such as legislative businesses or narcotics.

We have begun to place increased emphasis on depriving organized criminals of their profits from illegal ventures. A number of our most useful statutesRICO, the Continuing Criminal Enterprise Statute, the Controlled Substances Act, as well as certain of the Customs and Bank Secrecy statutes-have forfeiture provisions. Though there have been forfeitures in recent cases, including a total of about $11⁄2 million under RICO and even larger totals in the narcotics area, we have, frankly, not yet made optimum use of these statutes. It is often difficult to prove that a defendant's assets are the fruits of a particular crimean obstacle that would be removed by Section 2004 of the Senate's version of the proposed criminal code. However, we can make more effective use of existing law, and Strike Force prosecutors continue to receive instruction in the use of RICO's forfeiture provision.

To this discussion of our response to the characteristics of organized crime that make it strong and resistant to law enforcement should be added one final hallmark of Strike Force work. Penetrating organized crime's curtain of silence, employing the sophisticated tools I have discussed, unraveling the complex manipulations of the mob's financial experts, probing large-scale criminal activity often involving many individuals operating over a wide area-these efforts have necessitated major, long-term investigations involving many agents and prosecutors. The Strike Forces ordinarily conduct our most complex and timeconsuming prosecutions, at times in conjunction with local United States Attorneys. Investigations in important cases have lasted up to two years and more. Strike Force prosecutors are intimately involved in the evidence-gathering process at a very early stage providing coordination and supervision, giving legal advice to agents, obtaining warrants, identifying additional evidentiary needs, and often supplementing the field investigation with grand jury investigations. Special grand juries, now used by every one of our Strike Forces, are an important tool in this process. As I alluded to earlier, they can be extended beyond the normal 18 month term, which provides the continuity needed in these complex cases.

What I've described so far indicates that the institutional assets of organized crime have dictated the use of particular law enforcement tactics. In what areas should those tactics be employed? Achieving the appropriate focus for our efforts depends on the answers to the other two of my central questions, namely. what are the sources of revenue and what are the harmful effects of organized crime?

II

Though lacking specific data, we have a reasonably clear picture of the principal revenue-producing activities of organized crime. Organized crime is still involved in the traditional rackets-gambling, loansharking, prostitution, and pornography. There has undoubtedly been a loss of income from these sources since Senator Kefauver found vast fortunes amassed from slot machines and the race wire, but gambling is still a principal mob activity in certain areas, primarily New England. As the Subcommittee is well aware from its work last fall. changing economic and urban conditions have added arson-for-profit to the mob's list of illegal services. More significant than all those, however, is narcoties, which is now trafficked by most of the traditional criminal organizations as well as many of the emerging ones. Finally, in many urban areas we see the mob engaged in a variety of other important illicit industries, such as car theft/ insurance fraud in Buffalo, cigarette smuggling in Philadelphia, illegal firearms in Miami-all subjects of recent prosecutions.

There seem to be a number of reasons for organized crime's continued emphasis on such activities. The illegality of these highly-demanded services produces extraordinary profit potential. The victimless nature of the crime minimizes the probability of detection. And third, these industries are inherently susceptible to being organized and monopolized. Individual entrepreneurs who are themselves criminals can be forced to pay protection money because they are unlikely to seek official assistance and are unable to conceal their marketing activities.

Labor-management racketeering, another traditional activity, is another major source of organized crime income. There are indications that several hundred union locals are now under some degree of mob control. The sources of revenue are obvious: the union membership can be sold out to corrupting managers who would rather pay bribes than full contract wages, union power can be used

to extort no-show jobs and other benefits, and union treasuries or pension funds can be looted.

The particularly vulnerable unions seem to be those which are made up of unskilled or semi-skilled workers on dispersed job sites, which exercise complete control over who works and who doesn't, and which serve industries unable to tolerate a strike of any duration due to heavy competition, a perishable product, or seasonable business. Construction and transportation unions are two which clearly fit this description. The best example is last fall's conviction of George Boylan, Business Manager for the Boilermakers Union local in New York. Boylan not only decided which workers were assigned to a particular job, but headed the committee which negotiated contracts with construction companies. The services of the boilermakers are essential for the construction of the boiler for any power plant in the New York area. One word from Boylan could tie up utility projects so huge that payoffs for his cooperation-which eventually totaled over $1 million-were a relatively minor cost of doing business.

A third source of mob income has been of increasing importance in recent years. We estimate that organized crime has now infiltrated well over 700 legit1mate businesses in this country, ranging from bars to banks. There are several varieties of infiltration. Criminals need some place to invest or launder their illegitimate income, and they often choose business establishments. Loansharks may accept or demand a portion of a firm in payment of an overdue loan. Extortionists may make similar demands, as in the Fiumara case mentioned earlier. In a similar case, Vito Giacalone was convicted of extortion in Detroit in 1978 for agreeing to have an associate stop bothering Titan Laboratories in return for 10 percent of the company's stock and a $2,500 per month payment. At times a legitimate business may be created or acquired simply as a front for illicit activity. Some types of businesses may be chosen because they offer possibilities for "skimming"-raking off a share of the profits before taxes-or "bust-out” fraud-driving a business into bankruptcy or abandoning it after purchasing large quantities of readily-salable merchandise on credit. More serious than these examples, however, may be organized crime's attempts to monopolize sectors of legitimate business through the same methods that allow it to control the illegal rackets-extortion, intimidation, and corruption. This has occurred in different cities in the vending, cartage, waterfront and restaurant industries. among others.

Organized crime infiltration of businesses is becoming more sophisticated. A year ago, for example, the Aladdin Hotel and Casino in Las Vegas was featured in a major case which disclosed that individuals in Detroit possessed illegal hidden management interests in the Casino. At the sentencing the defendants presented over 150 laudatory letters, many from lawyers and judges in Detroit and from nationally known entertainers.

As with unions, certain characteristics seem to make a business especially vul nerable or attractive to organized crime. Businesses with a heavy cash flow are attractive prospects for skimming or money-laundering, particularly if record keeping is lax. Businesses dependent on corrupt unions can be intimidated. Busi nesses that are undercapitalized or have other financial problems are vulnerable to loansharks. Finally, some kind of technical expertise or common interest may account for an organized crime presence in certain industries-such as the infiltration by motorcycle gangs of repair shops and service stations.

In most localities other activities supplement the income from these three principal sources (illegal services, labor racketeering, and infiltration of legitimate business). For example, until the conclusion last fall of "Operation Lobster," hijacking trailer loads of merchandise had been prevalent in the Boston-New York corridor.

Our effort to interdict these sources of mob income has been fairly direct. In the most general sense, we have gone where the gangsters are. The Strike Force concept permits us to concentrate extraordinary law enforcement capability in those cities with significant criminal organizations; as I stated earlier, all 26 such cities are currently covered.

More specifically, our activities have tended to shift as sources of income have undergone change. Our gambling and other prosecutions of the traditional rackets have declined as the overall significance of these activities has diminished; as organized crime has moved into legitimate business we have attempted to increase our law enforcement expertise and presence there. For example, la t