(Roughly) Daily

It seems that money can trump sin, at least in the professional services arena in Italy…

We investigate if organized crime groups (OCG) are able to hire good accountants. We use data about criminal records to identify Italian accountants with connections to OCG. While the work accountants do for the OCG ecosystem is not observable, we can determine if OCG hire “good” accountants by assessing the overall quality of their work as external monitors of legal businesses. We find that firms serviced by accountants with OCG connections have higher quality audited financial statements compared to a control group of firms serviced by accountants with no OCG connections. The findings provide evidence OCG are able to hire good accountants, despite the downside risk of OCG associations. Results are robust to controls for self-selection, for other determinants of auditor expertise, direct connections of directors and shareholders to OCG, and corporate governance mechanisms that might influence auditor choice and audit quality.

“Does the Mafia Hire Good Accountants?“

Commenting on the report, Cory Doctorow (@doctorow) notes…

The authors suggest that when the mafia chooses an accountant, they have to choose between two mutually exclusive strategies:

I. Hire a stupid accountant that you can trick into signing off on dirty books; or

II. Hire a smart accountant who can turn your dishonest business into one that is honest on paper, even if that erodes your profits.

The authors make a compelling case that the mafia choose the second strategy. What’s more, they show that even accountants with known mob connections have no trouble finding non-criminal clients (“it is disheartening the Mafia can hire seemingly good accountants who appear to suffer no adverse reputation effects from their Mafia ties”).

Perhaps that’s because the mafia is so crucial to both the Italian and global business world: the authors quote a 2017 ISTAT study that says that 12% of Italian GDP is mafia activity and a 2011 UNODC study that attributes 3.6% of global GDP to Italian mafia groups.

But it would be a mistake to think that just because the mafia has clean books that it runs good businesses. Businesses that are run or colonized by mobsters aren’t good firms – they pay poorly, produce low-quality goods and services, and engage in a variety of crimes and regulatory violations.

This is a fascinating and clever analysis, though it’s short on recommendations. The most concrete policy proposal the authors advance is for police to maintain a public registry of accountants under investigation for mafia ties, and to bar those accountants from practicing until they are cleared…

* Upton Sinclair

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As we deconstruct the devil’s due, we might note that today is Groundhog Day, rooted in Pennsylvania Dutch lore that if a groundhog emerging from its burrow on this day sees its shadow due to clear weather, it will retreat to its den and winter will persist for six more weeks; if it does not see its shadow because of cloudiness, spring will arrive early.

While the tradition remains popular in the 21st century, studies have found no consistent correlation between a groundhog seeing its shadow and the subsequent arrival time of spring-like weather.

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