The relationship between the mafia and the economy is a two-way street. While we know that organised crime harms long-term growth, temporary economic crises provide the fertile ground that criminal groups need to expand.
In a study co-authored with Lucia Rizzica and forthcoming in the Journal of Law and Economics, we provide systematic evidence of how short-term financial distress allows criminal networks to seize control of legal companies (Castelluccio and Rizzica, 2025).
Identifying the link between distress and infiltration
To isolate the cause of infiltration, we analyse a natural experiment from the Covid-19 pandemic, which began in 2020. When the Italian government imposed strict lockdowns, firms in ‘non-essential’ sectors were forced to close for months, while ‘essential’ ones remained open. This created a sudden, unexpected collapse in revenues for some businesses but not others.
Using administrative data on over 500,000 firms, we compare the experiences of these two groups to see if financial struggle leads to criminal infiltration.
A comprehensive collapse in financial health
The forced closures didn’t just hit sales: they triggered a comprehensive collapse in firm performance. We find that the lockdowns caused a significant deterioration in profitability, available liquidity, equity and even worker productivity.
It was this all-around worsening of financial stability that drove the rise in mafia activity. Specifically, a 10% drop in revenues led to a 4.9% rise in the chance of infiltration, while a similar drop in a firm’s cash reserves or profitability increased the risk by roughly the same amount.
The shock of Covid-19 pushed about 200 legitimate businesses in our sample into criminal hands. This proves that the mafia acts as a predatory provider of liquidity, stepping in exactly when a firm’s entire financial foundation begins to fail.
Why the services sector and Northern Italy are at risk
The mafia does not target every industry. They show a clear preference for the services sector, especially retail. These businesses are labour-intensive and deal heavily in cash, making them ideal vehicles for money laundering. Furthermore, they are easier to take over because they often require less specialised technical competence to manage than manufacturing firms.
Geographically, the expansion is not happening in the mafia’s traditional strongholds in the South. Instead, the clans are using their established networks to target the productive provinces of the North. In these regions, where the economy is stronger and business is more profitable, the increase in infiltrations reached 8.5% for firms hit by the shock.
The mafia as the lender of last resort
Our research explains the vulnerability that pushes an honest entrepreneur towards a criminal partner. When a crisis hits, owners face a choice between the formal credit system and the illegal market.
Banks operate within the boundaries of the law, but they are slow and demand high standards. If a business is already struggling with debt, a bank may see them as too risky. This is where the mafia fills the gap. With ‘deep pockets’ from illegal activities, they can provide cash almost instantly. But this ‘help’ is a trap. Unlike a bank, the mafia uses coercion and violence eventually to take full long-term control.
A telling finding from our study is that while mafia interest rose during the pandemic, clean, honest investors pulled back. The likelihood of a legal shareholder joining a struggling firm actually decreased by over 10%.
How grants and debt relief can stop the takeover
Our findings send a clear message to policy-makers: to stop the mafia, the government must provide fast, accessible liquidity that beats the criminals at their own game.
We analyse three types of state aid used in Italy during the pandemic to see what worked: grants (quick, non-repayable cash); debt moratoria (pausing current debt payments); and guaranteed loans (loans backed by the government).
Grants were the most effective weapon against infiltration. Because the money was delivered within two weeks and didn’t have to be paid back, it removed the desperation that drives owners to the mafia. Pausing existing debt was also highly effective, proving that firms are most at risk when they are ‘burdened with existing debts’ that they cannot pay.
But government-guaranteed loans did very little to stop the mafia. These loans often took too long to get approved and they still required a bank’s mediation. In addition, for many small businesses, the amount offered was too low to save them from a total collapse.
What should happen next?
If the goal is to protect the legal economy in the event of a crisis, the government should focus on speedy grants and debt relief rather than just more loans. By relaxing repayment duties for sound firms hit by a shock, the state can prevent honest entrepreneurs from being forced into a ‘deal with the devil’.
Understanding these ‘red flags’ of financial distress – such as a sudden drop in liquidity – can help law enforcement and policy-makers to design better tools with which to protect the heart of the economy from criminal capture.
