2.1 Risk scenarios

This section of the report describes three different risk scenarios related to agro-mafia, to show how organized crime can explore vulnerabilities in the food sector. The scenarios are dedicated respectively to the infiltration of the dairy supply chain, parallel market for catering supplies, and the criminal infiltration of online supermarket chains for home delivery of fake food. Subsequently, the report analyses possible technology-based solutions aimed at limiting risks highlighted by the scenarios.

Three risk scenarios have been elaborated in the area of agri-food mafia.

Risk Scenario 1: Infiltration of Dairy Supply Chain (milk and products made from or containing milk)

Always on the lookout for high profits at low risk, the ringleader of a well-structured organized crime group is operating in a country in which renowned vegetables are grown, and different types of cheese are produced. The criminal group intends to infiltrate the dairy supply chain. To do so, it develops and implements the following criminal business model:

Step 1. Control of the distribution market: the criminal group takes over numerous restaurants and supermarkets. By entering into contact with businesses facing economic difficulties, the criminal group offers loans at extremely high interest rates with violent terms of collection upon failure (loan sharking). When the owners are unable to pay back the loan, the criminal group entrusts their businesses to a network of frontmen with no criminal record. They are now under the control of organized crime.

Step 2. Control of the supply chain: the criminal group uses original packaging of the businesses it controls to market substandard and fraudulent products. Consumers are unaware of the change in ownership of the companies and continue to purchase their products.

Step 3. Copying local producers’ design: a clandestine sweatshop (a small factory, in which workers are paid meagre amounts and work many hours in very bad conditions) is installed. The associates copy the design, packaging and trademark of well-known local producers. This step adds to the infiltration of substandard products into the supply chain highlighted in step 2.

Step 4. Procurement of low-level milk or dairy products: through its contacts with other criminal associates operating in the neighbouring countries, the criminal group obtains low-cost dairy products, produced under unsanitary conditions or with the use of contaminated raw milk. The criminal group packages the low-cost dairy products with falsified labels that imitate the design of legitimate and well-known local producers. This step will also allow the criminal group to pass the blame for unsafe products onto its legitimate competitors.

Step 5. Distribution of the falsified goods: the criminal group uses its comprehensive and well-structured network, which includes dozens of wholesalers and supermarkets controlled by its frontmen, to infiltrate the distribution of dairy products. As a result, counterfeit and substandard products are delivered to unsuspecting retailers.

After a year, the infiltration of the dairy supply chain allows the group to generate several million euros in illicit profits. The criminal group infringe the intellectual property rights of the country’s legitimate dairy producers, while disrupting fair competition and reducing fiscal revenues. In the same period, the National Health Service reports an inexplicable surge in cases of food poisoning.

Risk Scenario 2: Parallel Market for Catering Supplies

The same criminal group, operating in the same territory, intends to increase its control over the legal economy and fully exploit the opportunities created by their grasp over licit businesses in the catering industry, by implementing the following business model:

Step 1. Control over legitimate businesses: use of loan sharking and violent intimidation against several businesses in the catering and hospitality sectors. When the owners are unable to pay back the loan, the group takes control of numerous producers and actors of the food supply chain, restaurants, and supermarkets as compensation. The criminal group entrusts them to a network of frontmen with no criminal record to ensure a pretence of legitimacy for its incoming funds.

Step 2. Control of the anti-counterfeiting solutions: with the acquisition of the producers and actors in the supply chain, the group gains access to anti-counterfeiting solutions that are used to authenticate selected foodstuffs and that are integrated into the businesses’ production lines. They use the original packaging and the businesses’ production lines to produce substandard and fraudulent products. Consumers are unaware of the change in ownership of the companies and continue to purchase their favourite products.

Step 3. Develop a fully-fledged supply chain for vegetables and dairy products: the group decides to scale up the operations beyond the domestic market, targeting catering businesses operating in a neighbouring State.

Step 4. Procurement of materials: low-priced farmland, located in areas with significant level of soil pollution, is acquired in the neighbouring State. Local people are illegally employed on these farms to grow a variety of vegetables. To increase the harvest and reduce costs, crops are sprayed with illegal pesticides. The criminal group also takes over a canning company to operate as a legitimate agro-food business and starts importing tomatoes from developing countries in the form of tomato high concentrate. The concentrate is diluted with water, canned by the company and then labelled as premium local produce. The operation is a cover-up for importing low quality tomato concentrate, canning it in the neighbouring country and giving the appearance that it originates from there.

Step 5. Building a parallel market for catering food supplies: the criminal groups dispatch its members to operate as sales agents in the neighbouring country. They rent light-duty trucks and load them with counterfeit foodstuffs, intended for restaurants and grocery stores, promoting the local premium food and cuisine.

Step 6. Distortion of competition: the criminal group fixes the prices of its products, which are considerably lower than the goods of its local competitors in the neighbouring State, while customers are offered discounts up to 30 to 50% less than the price for authentic goods sold on the domestic market. Many grocers are attracted by the offer, which appears to be coming from a reputable holding based in the country. Grocers are thus forced to choose between giving up their former suppliers to match their competitors’ prices or fighting the price war and being driven out of the market.

By disregarding food safety standards, the criminal group puts the safety of consumers at risk by peddling hazardous and substandard products. Moreover, the rental of transport vehicles shelters the criminal group from asset seizures, makes police investigations harder and ensures the resilience of the distribution network. The criminal business model proves highly successful. After the first year, the revenues from the exportation of counterfeit and substandard food are already exceeding profits from domestic sales.

Through a mixture of pressures and implicit threats against uncooperative grocers, the group consolidates its position in both its local and the neighbouring State’s catering market, supplying thousands of unsuspecting customers through a parallel supply chain and thus generating millions of euros per year in profits. Over the months, a sudden wave of food poisoning cases starts affecting both countries.

Risk Scenario 3: E-commerce: Criminal Infiltration of Online Supermarket Chains for Home Delivery of Fake Food

The same country of the previous scenarios has become the leading country in e-commerce. In its largest cities, nearly 50% of the total supermarket food supply is covered by the food e-market, 70% of this is via on-demand delivery. The expansion of e-commerce has attracted the attention of criminal groups, some of which have successfully hacked e-commerce platforms and stolen the personal data of customers, including credit card numbers. Always on the lookout for high profits at low risk, the ringleader of an organized crime group that operates in the most populated cities of the country, infiltrated the e-market of car parts and now plans to extend his operations to the selling of fraudulent food online.