Term paper:

Business communication in the underground economy

Presentation and writing skills Foreign Trade / International Management Faculty of Business and Social Sciences Department of Business Winter semester 2009/2010

Table of contents

List of Figures................................................................................................................................................... 3

List of Tables.................................................................................................................................................... 3

List of Abbreviations..................................................................................................................................... 3

1. Introduction................................................................................................................................................. 4

1.1 Problem........................................................................................................................................................................ 4

1.2 Way of Investigation...............................................................................................................................................5

2. Definition of Business communication...............................................................................................5

3. Business communication in the Underground Economy.............................................................6

3.1 Definition/Circumscription of “Underground economy”.......................................................................6

3.2.1 Ways of business communication in the Underground Economy..................................................9

3.2.2 Message is obvious, sender is cryptic..........................................................................................................9

3.2.3 Message is encrypted, sender is obvious................................................................................................10

4. Conclusion.................................................................................................................................................. 11

4.1 Summary...................................................................................................................................................................11

4.2 Critical acclaim....................................................................................................................................................... 11

4.3 Outlook...................................................................................................................................................................... 12

Bibliography.................................................................................................................................................. 13

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List of Figures

Fig. 1: The Flow of Business Communication..........................................................................................................6Fig. 2 "Criminal acts involving internet as an instrument of crime = 167.451 cases" (Germany).12

List of Tables

Tab. 1: Categorisation of the Underground Economy..........................................................................................7Tab. 2: Types of Sex Market Economies.....................................................................................................................8

List of Abbreviations

ETA - Euskadi Ta Askatasuna

Fig. - Figure

IRA - Irish Republican Army

P. - Page

Tab. - Table

U.K. - United Kingdom

U.S. - United States of America

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1. Introduction

1.1 Problem

“Communication is inherent to the conduct of business and businesses. Whether you want to

prompt a specific action, instigate discussion or idea generation1, change attitudes or go through

specific communications processes such as appraisal, say, it all starts with communication – and

good communication can ensure or enhance all these processes.” 2

Market economies can be seen as dual economies consisting of two sections, first the official

sector, second the unofficial sector. While the official sector is comprised by the national

product, the latter part, the unofficial sector, covers all private economic activities that are not

implied in the calculation of the gross national product, despite the fact that they conduce to

added economic value. This sector can be subdivided into legal activities, that have self-sufficient

character and illegal activities, which are in some way illicit market transactions. 3 The

proportion of illegal activities, also known as the shadow economy or underground economy, is

estimated to be about 14.7 per cent of the gross national product in 2007 for Germany. 4 On this

side of the dual economy there are different ways of business communications, since there arise

several communication problems coming with this sector’s own idiosyncrasies, listed as

followed:

Problem of direct communication (communication between business partners without

being detected)

Problem of identification (finding potential business partners)

Problem of advertisement (advertise goods and services to attract interested people)5

1 Also ideation, “the capacity for or the act of forming or entertaining ideas”; see http://www.merriam-webster.com/dictionary/ideation2 Patrick Forsyth and Frances Kay, 'Communication: its nature, scope and purpose', in The Art of Successful Business Communication (London, U.K.: The Institution of Engineering and Technology, 2008), p. 3.3 Friedrich Schneider and Dominik Enste, 'Defining the shadow economy', in The Shadow Economy - An International Survey (Cambridge, U.K.: Cambridge University Press, 2002), pp. 7-9.4 See Friedrich Schneider, 'Does the shadow economy pose a challenge to economic and public finance policy?', in Public economics and public choice (Berlin: Springer, 2007), pp. 157-80. This number is derived from usage of the cash approach that has a quite a few obvious weaknesses and is therefore controversial, but due to default of reliable approaches to measure the real percentage, the outcome of this approach remains the most useful, See Friedrich Schneider and Dominik Enste, 'Methods to estimate the size of the shadow economy', in The Shadow Economy - An International Survey (Cambridge, U.K.: Cambridge University Press, 2002), pp. 20-21. 5 See Diego Gambetta, 'Conventional and Iconic Signals', in Codes of the Underworld - How criminals communicate (Princeton, New Jersey, U.S.: Princeton University Press, 2009), pp. 149-50.

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Within the scope of the term paper at hand the issue should be investigated in which ways

business communication is carried out in the underground economy, subtle enough to not

expose market players to authorities or law-abiding citizens yet still evident enough to reveal

oneself as a delinquent to potential business partners, and if successfully, in addition

communicate with them in a code that can exclusively be decrypted among one another.

1.2 Way of Investigation

After the objective of study has been outlined by the previous deliberations and the aim of this

term paper has been presented hitherto, in chapter two the processes and purposes of business

communications will be elaborated on with the aid of illustrations. Various methods and

channels will be discussed before the discussion sharpens finally to the ways of business

communication in the underground economy in chapter three. After a precise circumscription of

the underground economy in point 3.1, problems that occur within communication processes

between its market participants, as well as their solutions will be investigated by an empirical

and theoretical approach within the following subsections. In the final chapter the insights

gained will be summarized and critically acclaimed and afterwards, on the basis of the remarks

of the preceding chapters, a short outlook of future challenges and developments of the research

topic will complete this term paper.

2. Definition of Business communication

“The main purpose of any business is to sell or provide goods and/or services to customers. A

business that fails to communicate the right information clearly and at the right time to customers

is in danger of losing them to business rivals”.6 In general there are three most common agents in

business communication as followed:

Customers

Other businesses (resellers, companies)

Work colleagues (employees, various departments)7

The first two agents are viewed as external while the latter is an internal agent. The flow

between these and other agents, who are frequently communicated with, is illustrated in Fig. 1.

The most common purposes of business communication are to show business interest,

trustworthiness and competence to potential partners.

6 Dan Moynihan and Brian Titley, Advanced business (Oxford, U.K.: Oxford University Press, 2001), p. 78.7 Dan Moynihan and Brian Titley, Advanced business (Oxford, U.K.: Oxford University Press, 2001), p. 78.

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Fig. 1: The Flow of Business Communication

Source: Shapira, Philip; International Research Group on R&D Management, 'Human Communications', in The R&D workers: managing innovation in Britain, Germany, Japan, and the United States (Westport, Conneticut, U.S.: Quorum Books, 1995), p. 145.

3. Business communication in the Underground Economy

3.1 Definition/Circumscription of “Underground economy”

The term underground economy identifies cash transactions and unreported barter which are

scheduled exterior reported market channels. In other respects some are lawful activities

executed to circumvent taxes and governmental regulations whereas others entail criminal

activities, for instance trafficking narcotics and prostitution.8 This is one within the wide ranges

of essentially different definitions of the term “underground economy”, which gives a rough

demarcation of this sector. Since there is no homogenous definition of this term9, the activities

that fall within this sector have to be further defined.

8 SeeJames D. Gwartney and others, 'Taking the Nation's Economic Pulse', in Economics: Private and PublicChoice, 12th edn (Stamford, Connecticut, U.S.: Cengage South-Western College Publishing, 2008), p. 161.9 Friedrich Schneider and Dominik Enste, 'Defining the shadow economy', in The Shadow Economy - An International Survey (Cambridge, U.K.: Cambridge University Press, 2002), p. 6.

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Tab. 1: Categorisation of the Underground Economy

Source: Friedrich Schneider and Dominik Enste, 'Defining the shadow economy', in The Shadow Economy

- An International Survey (Cambridge, U.K.: Cambridge University Press, 2002), p. 11.

Table one shows that the underground economy consists of four interrelated sub-sectors, which

are differentiated by their scale of illegality and each of them, overlap with the bounds of the

formal economy. The household sector as well as the non-monetary barter exchange among

networks of friends and neighbours, such as painting a room for car repair or diverse kinds of

reciprocal support and aid, is included in the least problematic sections, which are called the

“household sector” and the “informal sector”. The more problematic “irregular sector” generally

refers to off-the-books employment, or work outside of formal employment, that avoids

government taxes, by having its exchanges transacted in cash. The irregular sector violates

taxation laws, and may also break social security, health and safety laws and local ordinances;

In contrast, the fourth and most serious underground sub-economy is the “criminal sector”.10

This is itself comprised of three sub-economies. The first sub-sector of the criminal sector is

occupational or workplace crime involving embezzlement, pilfering, sabotage, and fraud. The

10 Friedrich Schneider and Dominik Enste, 'Defining the shadow economy', in The Shadow Economy - An International Survey (Cambridge, U.K.: Cambridge University Press, 2002), pp. 7-9.

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second sub-sector of the criminal sector is organized crime. This sub-sector includes everything

from familiar street drugs trading, such as guns, knives, and explosives, vice, sex and

pornography, racketeering, loan sharking, gambling, protection and extortion, burglary, robbery,

theft (auto theft and shoplifting), and fencing, to the more recently established activities of

identity theft, and trading in human parts, exotic animals, expensive pets, children and babies.

Finally, the third sub-economy of the criminal sector is the prison inmate sector, which is largely

run by either indigenous prison gangs imported into the prison from ghetto neighbourhoods. 11

Since there are various laws in different countries all over the world, the exact activities that

belong in each sector are varying, which is further illustrated in table two by investigating the

legal status of sex market economies in diverse judicial systems.

Tab. 2: Types of Sex Market Economies

Source: Teela Sanders, 'Selling sex in the shadow economy', International Journal of Social Economics

Vol. 35 Issue 10, 2008, pp. 704-16.

The research topic of this term paper will be limited to activities, where ether the production or

distribution of a good or the service is illegal or the output good or service itself is illegal. When

tangible examples of business communication in certain fields are mentioned, sources prove that

these requirements were met if it could remain unclear by the nature of their activities.

11 See Louis Kontos and David Brotherton, 'Gangs and the underground economy', in Encyclopedia of gangs (Westport, Connecticut, U.S.: Greenwood Publishing Group, 2008), pp. 87-88.

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3.2.1 Ways of business communication in the Underground Economy

Rigorous constraints on communication imposed by the action of the law hinder criminals, and

therefore, unlike the rest of us, they cannot easily build up institutions designed at

circumventing them. Communication and more than that all reliable communication are

extraordinarily tough to sustain because of this essential aspect of criminal lives. For example

the same concealment that protects criminals from the law hampers their chances to advertise

their goods and qualities. Additionally, in the criminal sector, retributions for faults and

irrational actions are harsher than they are elsewhere. In the regular business world,

malfunction of communication can lead to a loss of business, but in the criminal world they can

consequence prison bids, or worse.12

Since market participants of the underground economy face so harsh consequences they must

make sure not to be exposed as criminals by possible informants of authorities, meaning more or

less the general public, or by authorities themselves. The flow of business communication

displayed in Fig. 1 might be the same in principle but the crucial difference is that within the

underground economy in no event someone else but the agents, which are basically the same

three most common, should be able to identify both, the message and the sender. Therefore

they rely on codes when communicating, which means, that ether the message is encrypted or

the sender himself remains cryptic.

3.2.2 Message is obvious, sender is cryptic

There are situations in which the sender of a signal will not encipher his message but will try to

hide everything that makes it possible to identify him. An example well-known through news

reports and fictional crime thrillers of this way of communication is the ransom demand by a

kidnapper. While the sender will frankly admit to have committed a crime he will do everything

to crypt his identity to the receiver of the message. Another example with a daunting actuality is

the letter or in recent times often used video message claiming responsibility for a crime. This is

usually used by terror groups to show the seriousness of their political demands. These terror

groups hide their identity behind anonymous criminal organisations like IRA, ETA or Al-Qaeda13.

12 See Diego Gambetta, 'Introduction', in Codes of the underworld - How criminals communicate (Princeton, New Jersey, U.S.: Princeton University Press, 2009), pp. x-xi.13 Even though in this case the leader of the organisation, Usama Bin Ladin is namely known to authorities and the general public, the vast majority of its members hide their identity through different means, when sending messages in the name of Al-Qaeda.

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3.2.3 Message is encrypted, sender is obvious

Another way of communicating is by using encrypted messages. Since the message is encrypted

and therefore cannot be used as evidence by authorities the sender can remain obvious. But to

make it possible to the receiver to decrypt the message he must be able to

Detect the signal from the background (a example from the legal life is the usage of red to

signal one has to stop before entering the street, since it is even in the dark easy to detect

opposed to other colours)

Discriminate the signal (a bad signal would be trying to send a message by wearing a tie

in business environment, since the receiver would not be able to discriminate it)

Memorize the signal easily (if the receiver has to memorize a 78-character long word

with no vowels, communication will most likely fail)14

Prison tattoos for instance include certain messages to others, who are familiar with the code

and therefore able to decrypt it. It has been observed, that the persons wearing special tattoos

show their membership to a prison gang or provide information about their crimes to other

inmates. The best known example might be a tear tattooed outside the corner of the eye, which

symbolizes the imprisonment of the man wearing it or sometimes having committed a

homicide.15 Another example is that of “Gioacchino Basile, a trade unionist in the Palermo

shipbuilding industry, who found a dead bird in his car after trying to organize an anti-mafia

conference”.

This example is also world famous through its appearance in Francis Ford Coppola’s “The

Godfather” movie. In the Japanese underworld it is quite common to cut-off a finger as a ritual, it

is estimated that in certain circles at least 39 per cent of the criminals only have nine fingers.16

4. Conclusion

4.1 Summary

At the beginning of the term paper a first examination with the topic of research displays the

problems of business communication in the underground economy lying in 1. Direct

communication between agents, 2. Identification of potential business partners and 3. The

14 Diego Gambetta, 'Conventional and Iconic Signals', in Codes of the Underworld: How Criminals communicate (Princeton, New Jersey, U.S.: Princeton University Press, 2009), p. 153.15 Marco DeMello, 'Cultural Roots', in Bodies of inscription: a cultural history of the modern tattoo community (Durham, North Carolina, U.S.: Duke University Press, 2000), p. 69.16 See David E. Kaplan and Alec Dubro, 'Part III: The Modern Yakuza', in Yakuza: Japan's criminal underworld (Berkeley, California, U.S.: University of California Press, 2003), p. 140.

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advertisement of goods and services. The further course of investigation comments on the

agents and purposes of business communication in general, and singles the three most common

ones out and categorizes them in ether external or internal agents. A more in-depth analysis of

the term “underground economy” delineates the topic of research clear. The flow of business

communication is with regard to the underground economy investigated in the following by

dividing it the communication process and taking a close look on the sender and the message

what leads to the final finding and further investigation of this term paper, that ether one of

these sides is encrypted in business communication of the underground economy.

4.2 Critical acclaim

The findings of this term paper show, that even though authorities and vigilant citizens make it

hard for criminals, they still find ways to communicate by using unilateral encryption. This is

done through conventional and iconic signals when the message itself is encrypted or through

disguising the identity of the sender. Especially this classification by encryption contrary to

Diego Gambetta’s classification in “Codes of the underworld – How criminals communicate” by

the costs of communication is a more stringent and correct reflection of reality since the costs,

may not always be cheaper by using conventional or iconic signs as the example of the cut-off

finger in the Japanese underworld may depict. To further verify the findings of this term paper

the use of new technologies to communicate within the investigated part of business

communication in the underground economy might be of great significance for the reason that

this can lead to changes on a large scale because of the wide-ranging methods of encryption they

offer. At this time there are no consolidated findings of academic quality concerning this topic

since these technologies are rather new and moreover because business communication in this

sector is still neglected for the reason of reservation on both sides’, market players as well as

scientists willing to acknowledge this sector as economical market with rational acting

participants. The findings have been gained through the application of particularized theoretical

and extensive empirical means regarding the limited amount of time and effort that could be

invested in this term paper. Nevertheless the findings of this term paper could be relevant for

those dealing with this topic for scientific and/or professional reasons like students, professors

or even law authorities since they haven’t been published in that way before.

4.3 Outlook

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It is expectable that criminals will keep on integrating newer technologies linked to the internet

more frequently in to their communication, as an increase from 54.92617 to 167.45118 during

2004 and 2008 in internet crimes may assume. Figure 2 shows in which areas the internet is

applied most often. Even though these new technologies have one big disadvantage regarding

criminal business, laying in their nature as online devices, namely the easy to track-back

information about the sender like the location, the time and others that can ultimately lead to his

detection. But on the other side it will become even more difficult to abandon these technologies

since they are omnipresent and therefore hard to avoid. Considering the ingenuity of criminals

they will keep on finding new ways to circumvent the disadvantages of these new media types

and use them in their interest.

Fig. 2 "Criminal acts involving internet as an instrument of crime = 167.451 cases" (Germany)

Merchandise fraud43%

Other crimes23%

Other commercial credit fraud

11%

Spreading of pornographic con-

tents6%

Copyright in-fringement

6%

Service fraud2%

Service credit fraud3%

Computer fraud5%

Source : Author’s design; based on 'Straftatenanteil an Straftaten mit "Tatmittel Internet"'

(Polizeiliche Kriminalstatistik 2008, Bundesministerium des Inneren, 2009), p. 18.

Bibliography

DeMello, Marco - Bodies of inscription: a cultural history of the modern tattoo community Durham, North Carolina, U.S.: Duke University Press, 2000

17 'Straftaten mit Tatmittel Internet' (Polizeiliche Kriminalstatistik 2004, Bundesministerium des Inneren, 2005), p. 247. This number only includes the criminal acts counted in Schleswig-Holstein, Bremen, Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Berlin, Brandenburg, Mecklenburg-Vorpommern, Sachsen-Anhalt and Thüringen, since there is no data available regarding whole Germany, and should therefore be only compared with some reservations18 'Straftatenanteil an Straftaten mit "Tatmittel Internet"' (Polizeiliche Kriminalstatistik 2008, Bundesministerium des Inneren, 2009), p. 18.

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Forsyth, Patrick, and Frances Kay. “Communication: its nature, scope and purpose.” In The Art of Successful Business Communication, London, U.K.: The Institution of Engineering and Technology, 2008

Gambetta, Diego Codes of the underworld - How criminals communicate, Princeton, New Jersey, U.S.: Princeton University Press, 2009

Gwartney, James D., Richard L. Stroup, Russell S. Sobel, and David MacPherson - Economics: Private and Public Choice, Stamford, Connecticut, U.S.: Cengage South-Western College Publishing, 2008

Kaplan, David E., and Alec Dubro - Yakuza: Japan's criminal underworld, Berkeley, California, U.S.: University of California Press, 2003

Kontos, Louis, and David Brotherton - Encyclopedia of gangs, Westport, Connecticut, U.S.: Greenwood Publishing Group, 2008

Merriam-Webster Online Dictionary. http://www.merriam-webster.com/dictionary/ideation (accessed December 7, 2009)

Moynihan, Dan, and Brian Titley - Advanced business. Oxford, U.K.: Oxford University Press, 2001

Sanders, Teela - “Selling sex in the shadow economy.” International Journal of Social Economics Vol. 35 Issue 10, 2008: 704-716

Schneider, Friedrich - Public economics and public choice, Berlin: Springer, 2007

Schneider, Friedrich and Dominik Enste - The Shadow Economy - An International Survey, Cambridge, U.K.: Cambridge University Press, 2002

Shapira, Philip; International Research Group on R&D Management - The R&D workers: managing innovation in Britain, Germany, Japan, and the United States, Westport, Conneticut, U.S.: Quorum Books, 1995.

„Straftaten mit Tatmittel Internet.“ Polizeiliche Kriminalstatistik 2004, Bundesministerium des Inneren, 2005, 247.

„Straftatenanteil an Straftaten mit "Tatmittel Internet".“ Polizeiliche Kriminalstatistik 2008, Bundesministerium des Inneren, 2009, 18.

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