For 100 years, organized crime, working through corrupt unions, has levied a huge tax on New Yorks economy. Now prosecutors and pols are learning how to fight back.
One of the worst consequences of New Yorks long love affair with the labor unions has been the power it has given to organized crime. For decades, the mob, working through corrupt unions, has infiltrated whole swathes of Gothams economyeverything from the garment industry to garbage carting to constructionwhile timid politicians, fearful of losing union support, have determinedly looked the other way. As a result, the wise guys have levied a steep mob tax on the cityenforced by intimidation, violence, even murderthat has added billions of dollars to the already high cost of doing business in New York.
Recently, criminologists have proclaimed that organized crime is dead in Gotham. This report is, emphatically, premature. True, over the last decade, prosecutors have at last begun to figure out how to break the mobs hold; they have thrown some big racketeers in jail and forcibly injected economic competition into mobbed-up industries. Whats more, both Mayor Rudy Giuliani and Governor George Pataki have shown a lot more backbone in fighting gangsters than their predecessors and have gotten real results. But recent indictments in the construction industry are a stark reminder that the mobs costly, malignant influence persists, so that prosecutors must intensify their efforts to clean up mob-corrupted markets and politicians must be willing to legislate changes that make industries less liable to mob influence. It will take unflagging political will to get the job done.
The mobs control of labor unions, which gives it power over New Yorks economic life, goes back to the 1920s, when unions, their members mostly Jewish and Italian immigrants, turned to street gangs to provide muscle against strikebreakers and rival workers groups. These petty immigrant gangs took advantage of Prohibitions vast opportunities for bootlegging to build themselves into larger, more organized crime groups with their own system for divvying up criminal markets. With Prohibitions end in 1933, these gangsforerunners of the five families that dominated organized crime in the city for much of the twentieth centurychanged their relation to organized labor: they moved beyond breaking kneecaps for union bosses to taking control of big unions themselves.
The crime families command over labor unions gave them the power to shake down company bosses who sought to buy labor peace or an exemption from onerous union work rules or merely the assurance that their jobs would get done on time. As Genovese crime soldier Vincent Fish Cafaro told prosecutors in 1988: With the unions behind us, we could shut down the city, or the country, for that matter, if we needed to get our way. . . . We got power over every businessman in New York. With the unions behind us, we could make or break the construction industry, the garment business, to name a few. Worse, power over the unions gave the mobsters leverage to gain hidden ownership of companies and power over employer associations, creating cartels that have controlled entire industries within the city. Every industry Ive ever seen the mob take control of started with their influence in the union, says Daniel Castelman, chief of investigations for Manhattan District Attorney Robert Morgenthau.
The saga of New Yorks garment district shows exactly how the mob and the unions first became symbiotic, how the wise guys typically use corrupt unions to take over an industry, and how prosecutors, after decades of ineffectiveness, at last learned how to fight back.
In the early 1920s, the United Hebrew Trades union asked Lepke Buchalter and his Jewish and Italian gangster pals from Brooklyn to work as union enforcers. Buchalter deployed 250 toughs, who threatened owners and threw acid on the merchandise of companies that dared buck the union. Sometimes, his troops squared off with those of another Jewish gangster, Dutch Schultz, who broke strikes for the garment bosses. Occasionally, the two hoodlums would work both sides of a strike for mutual benefit. Buchalter also struck up an alliance with Sidney Hillman, legendary founder of the Amalgamated Clothing Workers Union that represented 50,000 garment industry laborers and a close advisor to Franklin Delano Roosevelt. Working for Hillman, Buchalter battled company goons and fought to keep Communists from taking over the union.
But the ambitious Buchalter wasnt content merely with being hired union muscle. Grasping how the industry functioned, he launched a plan to control it. The business, he realized, couldnt operate without the 1,900 workers who cut the cloth and shipped the goods. If you had the power to withhold their labor at will, youd have leverage over the entire industry.
By the early 1930s, Buchalter had persuaded the Amalgamated cutters local to align with him by offering their officials protection from rival union forces, and he managed to get the drivers behind him, too. In exchange for labor peacehe could now shut down business with a wordBuchalter coerced the garment companies into doling out sweetheart contracts to trucking firms that gave him kickbacks. News accounts from the thirties estimate that, at the height of their power, he and his crew took home $5-10 million yearly from these criminal enterprises$50-100 million in todays dollars. Buchalter died in the electric chair in 1944 for the murder of a trucker, detailing his links to Hillman and the Amalgamated before he went to the chair. But neither the union nor Hillman ever faced charges, some said because of the union leaders close ties to FDR. Meanwhile, Buchalters garment-district rackets went to his associate, Albert Anastasia, chief executioner of Murder Inc., the murder-for-hire organization that evolved out of their old street gang.
It took Carlo Gambino, who assumed control of the garment district in 1957, after a mob hit at a Manhattan barbershop had rubbed out Anastasia, to transform what was a mob-influenced industry into a full-fledged organized crime cartel. He and his family used their control of the unions to take over the trucking companies that serviced the garment district, so that few manufacturers could get a delivery or make a shipment without their say-so.
Already in the early 1950s, Carlo had set up his son Joseph as a minor partner in Consolidated Carriers Corporation, in exchange for giving that firm a union-friendly edge on the competition, and son Thomas joined later. As other Consolidated partners retired, the Gambinos became owners of what had become the districts most important trucking company, and they acquired interests in other trucking firms, sometimes partnering with rival crime families like the Luccheses. By the mid-1980s, operating 90 percent of the trucks that serviced the garment district, the mob held the industry in a vice-like grip. In the early 1990s, to take just one example, a production manager for fashion designer Nicole Miller testified that once, when he tried to use a small gypsy trucker, trench-coated mob goons showed up and stood around menacingly, hands in pockets, until the frightened independent operator fled. District kingpin Thomas Gambino, honored as the garment industrys Man of the Year at a 1981 dinner at the Plaza Hotel, grew extremely rich: by 1992, investigators estimated his personal wealth at $75 million.
But the $2.5 billion garment industry suffered. Records from the early 1990s showed that mob trucking companies generated yearly revenues of about $50 million and operating profits of $22 million, a hefty 44 percent profit margin, compared with the 10 to 15 percent margins that typical city truckers averaged. The added costs that mob trucking imposed, in other words, amounted to $15-17 million yearly. The estimated mob tax on the district as a wholeif you include extortion, double billing, and other illegal activitieswas a staggering $60 million a year by the early 1990s. Combined with New Yorks inflated legitimate taxes, it accelerated the flight of garment jobs from the city. From the mid-1950s, when the Gambinos took over the garment district, until 1992, the business shrank 75 percent, costing New York 225,000 jobs. The mob helped bump off a once vibrant industry.
Where were the cops? you might ask. They kept jailing foot soldiers one by one, only to see others immediately take their places, leaving the mobs infrastructure intact. But beginning in the late 1980s, prosecutors worked out a way to cripple that infrastructure in the garment district and elsewhere. First, they fostered competition in mobbed-up industries, by using existing antitrust laws aggressively and protecting competitors brave enough to risk the mobs wrath. Second, after a seven-year fight, they persuaded the state legislature to pass the Organized Crime Control Act (OCCA), which expanded their power to charge mobsters for criminal conspiracy, letting them reach beyond the union functionaries and leg breakers to snare the kingpins. Finally, after these new weapons had broken open a mob cartel, they kept up the pressure to prevent the wise guys from coming back.
Key to bringing down the Gambinos was Manhattan D.A. Robert Morgenthau. Hed been trying to boot the gangsters out of the apparel industry ever since the early sixties, when, as a federal prosecutor, he had approached David Dubinsky of the International Ladies Garment Workers Union and asked for help in an investigation of the district. Dubinsky said no. He told me that he would only help if Bobby Kennedy asked, but when I got Kennedy to ask, he still refused, remembers Morgenthau.
Twenty years later, now Manhattan D.A. and armed with OCCA, Morgenthau tried again, without union help. At midnight on Halloween 1989, his agents picked 13 locks and disabled two alarm systems to plant a bug in the Gambino offices. The bug caught Thomas and Joseph Gambino bluntly describing how theyd carved up the market, how mob-owned trucking companies allocated customers, and how threats kept competitors out.
Meanwhile, Morgenthaus investigators also bought a small apparel company, Chrystie Fashions, for $10,000 and staffed it with undercover cops who tried to get a rise out of the Gambinos by replacing them as the firms truckers. The ruse worked: a Gambino salesman made a call to a Chrysties client from a bugged phone, telling him that he shouldnt ship anything to the firm unless it went via a Gambino truckif he knew what was good for him.
In October 1990, Morgenthau indicted the Gambinos under OCCA, also charging them with antitrust violations. When agents arrested the Gambinos, they ostentatiously ripped the bug from the ceiling as the mobsters watched.
In the citys first major win against the mob, the D.A. reached an innovative deal with the Gambinos: in exchange for not going to jail, they agreed to get out of the business and pay $12 million to fund a special monitor to oversee the industry for five years and sell off mobbed-up companies. It took almost two years for garment-district companies to believe that the mob was really gone and that they could sign up with new truckers without fearing reprisal. Soon, some 75 independent truckers, many of them enterprising ethnic Chinese, flooded into the district. The cost of shipping dropped from 40 cents a garment to 15 cents.
The prosecutors new approach has had its most important success in garbage carting, a huge, city- wide, $1 billion-a-year industry in the early 1990s, serving fully 250,000 establishments, from the Empire State Building to Jerrys Sub Shop. Organized crime seized control of the industry in the late fifties, after taking over the private garbage workers union. The mob cartel charged customers the highest price allowed by the citys Department of Consumer Affairs (which nominally was supposed to be supervising the industry), and then the mobbed-up carting companies gilded the lily further by overstating how much trash they picked up from a clientby 40 to 50 percent. The wise guys enforced their rule with ruthless brutality: in one notorious instance, the Lucchese family murdered two rebel Long Island carters in 1989.
A fearless, heavyweight national carting firm proved the key to breaking the cartel. In January 1993, Houston-based Browning-Ferris Industries began to solicit New York customers; in February, a BFI supervisor awoke one morning at his new home in suburban New City, New York, to find a bag on his lawn, containing a severed dogs head. A message taped inside its mouth read: Welcome to New York.
BFI soon discovered that the mob was operating with near impunity in the garbage industry. Despite the warnings of his Consumer Affairs commissioner, Mayor David Dinkins showed little enthusiasm in taking on the cartel, and the citys establishment had reconciled itself to permanent mob control of garbage collection, as BFI head William Ruckelshaus (a former FBI chief and deputy attorney general of the United States) discovered in a meeting with members of the New York Times editorial board. During the meeting, a Times editor naively asked: Who picks up our garbage? After a few snickers, a less clueless editor enlightened him: the mob. That was the problem, says Ruckelshaus. The financial capital of the world was being shaken down, and no one would do anything about itincluding the nations newspaper of record and self-proclaimed champion of good government. That breeds cynicism.
And New York businesses were deeply cynical. Few showed interest in BFI: why risk it? An executive at Tishman-Speyer, a big owner of Manhattan office towers, began a meeting with BFI sales representatives by relating how developer Harry Helmsley once hired his own people to collect garbage at buildings he owned, only to have his trucks burned. After he finished the story, recalls Phillip Angell, former special assistant to Ruckelshaus, he told us the company was satisfied with its carting contract, and that was the end of the meeting.
So BFI turned to prosecutor Morgenthau, who, having just busted the garment-district mob, had begun to investigate the garbage carters. In June 1993, Ruckelshaus and Morgenthau crafted a plan for BFI to work undercover to help nail the carting cartel.
Morgenthau already had a cop working undercover as the manager of 55 Water Street, a financial-district building owned by Alabama Retirement Systems, whose head was the D.A.s friend. The undercover officer, calling himself Paul Vassil, managed a staff of 34 building workers. Wearing new suits that the D.A.s office had bought for him from discounter Moe Ginsburg, Vassil set out to become known in New Yorks real-estate world. He got newspapers to quote him as a real-estate expert, negotiated with real-estate brokers on tenant leases, and lunched with Angelo and Vincent Ponte, who controlled the carting company that served the building. (Subsequently, Vassil left the NYPD and became a real-life building manager.)
Playing his role to the hilt, Vassil told the Pontes that his boss wanted him to cut costs, so hed have to put the carting contract up for bid. Prosecutors then brought in BFI to make an offer but didnt tell the firm that 55 Water was currently paying a whopping $100,000 a month to have its recyclable paper hauled away. BFI concluded that it could profitably serve the building for about $120,000 a year. To keep the contract, carting boss Vincent Ponte paid Vassil a series of bribes cumulatively worth $10,000. Ponte also asked Vassil if he could see the lowest bid in order to beat itin violation of antitrust law.
Slowly, BFI began landing a few contracts from recession-squeezed businesses. The Hotel InterContinental on Lexington Avenue, pressed by corporate bosses to cut its $15,000 monthly carting cost, signed on after BFI bid 40 percent less. Restaurateur Alan Stillman, whose chain includes Smith & Wollensky and Cité, asked BFI to audit his garbage bills and learned that carters were charging him for 40 percent more garbage than they were picking up. He too signed on with the Houston company.
The mob began to harass BFIs operations, sending trucks to pick up garbage at BFIs new clients before the companys own trucks arrived and then bringing the garbage backearning clients city fines. In a scene right out of The Sopranos, a tail followed a BFI truck out of the Lincoln Tunnel one evening and nearly ran it off the road in New Jersey. Morgenthau put police escorts on BFI trucks.
At times, the cartels attempts to stop BFI bordered on the comical. In one taped conversation, mob bosses talked about buying BFI, not realizing that it was a Fortune 500 corporation with a market capitalization far beyond their reach (in 1999, Allied Waste purchased the company for $7.3 billion). Cartel reps sat down at the Waldorf Astorias Bull & Bear restaurant with senior BFI managers, suggested that the firm was hurting its shareholders with low prices, and threatened a shareholder suit.
At this point, Morgenthaus undercover efforts, many undertaken with BFIs help, began to pay off. Bugs planted in carting-industry associations turned up further incriminating evidence. An undercover cop working at one of the few independent trucking companies in the city received mob bribes and threats. Morgenthau eventually had enough evidence to close in: in June 1995, he indicted the four mob-controlled carting groups, 17 individuals, and 23 companies for antitrust violations and for criminal conspiracy under OCCA.
Hoping to pry open the market further, Morgenthau then asked some of the citys biggest landlords to entertain BFI bids. Even with mob carters under indictment, many refused. Some even defended the carters. Prominent developer Lewis Rudin, founder of the Association for a Better New York, told Fortune: I think theyre making a mountain out of a molehill with these guys.
Recognizing that indictments alone were not enough, Mayor Rudy Giuliani proposed establishing a carting commission to oversee the industry: it would require background checks on carting companies and deny licenses to those with mob connections. After a bitter fight in the City Councilwhere some members, including Stephen DiBrienza from Brooklyn and Julia Harrison from Queens, accused the Giuliani administration of favoring outsiders like BFI over local businessesthe Council approved the plan. It denied many mobbed-up companies licenses, and other national carters joined BFI in bidding for New York contracts. Unfortunately, the Giuliani plan retained the governments right to set prices, limiting the free-market competition that helped break the cartel in the first place, and it set no cut-off date for the carting commission, leading to fears that it might become a permanent bureaucracy. I would feel more comfortable if the commission would sunset at some point, admits former BFI executive Angell.
One thing that makes organized crime so difficult to eradicate is that the mobs close union connection keeps politiciansespecially Democrats heavily dependent on union supportextremely hesitant to mess with it. New Yorks most spectacular illustrations of the truth of this proposition are the city-owned Fulton Fish Market and the states Javits Convention Center.
Mob control of the Fulton Fish Market began in the 1920s, when a tough fish handler, Joseph Socks Lanza, organized the markets largely Italian immigrant workers into United Seafood Workers Local 359. Lanza insisted that only his workers could unload the ships that dropped off their daily catch on the docks, and he levied a $10 union fee on each ship for the service. He also charged market wholesalers up to $2,500 a year to keep labor peace.
Even after fish began to arrive not by ship but by truck from as far away as Florida, Lanza maintained his domination by controlling just a few hundred union workers and six loading and unloading companies. He brought in mob associates, including the Bonanno family and his ultimate successor Carmine Romano, to run several of the loading companies. Together they ruled the market as a fiefdom, even creating parking spaces on city property that the fish delivery trucks had to pay to use, putting an extra $250,000 a year into their pockets. In 1975, the union formed a protection association that charged wholesalers $1,300 a month to safeguard them from theft, though the mob itself did much of the stealing.
Despite these outrages, for decades the mobs domination of the market faced little resistance from city law enforcement, though federal prosecutors sometimes interfered. In the late seventies, the feds removed Lanzas successor Romano from the seafood union for shaking down wholesalers and enforcing a cartel, but Romanos handpicked candidate won the union presidency in an unsupervised election. In 1987, U.S. Attorney Rudolph Giuliani filed a successful federal RICO suit against Local 359. A federal court appointed a new monitor for the union, but he had little control over other mob activity in the market.
These federal prosecutions failed to galvanize the Koch or Dinkins administrations into asserting control over Fulton. The city was essentially an absentee landlord, says Randy Mastro, former deputy mayor under Giuliani, because, Mastro believes, neither Koch nor Dinkins believed that he could really succeed in driving out the crooks. It was symptomatic of a mindset in New York by the early 1990s that saw certain problems as intractable, Mastro says. In 1992, then-U.S. Attorney Otto Obermaier ended the monitors role at Local 359, pointedly observing that it was time for the city to take responsibility.
It took a change of administrations for the city finally to step up to the plate. Soon after taking office in 1994, Rudy Giuliani charged Mastro with the task of kicking the mob out of Fulton. Mastro crafted legislation to allow the city to manage the market and ban union members with mob connections. The day after the administration announced the legislation, a market building went up in flamespresumably torched by the mob. The outrage that the arson provoked propelled the bill through the City Councila rare case of anti-mob legislation meeting with little resistance. The Giuliani administration also evicted mob-owned wholesalers and ended the gangsters grip on loading and unloading. In the mobs place, the administration installed Laro Maintenance, which won the contract after agreeing to charge $1.10 per each 100-pound box of fish that it unloaded, a 19 percent cut from the mob rate. The price for a parking spot to unload deliveries fell from $20 to $4.
A year after these changes, statistics from the National Marine Fisheries Service found that, while the wholesale price of fish nationwide rose 13 percent, the overall price of fish at Fulton fell 2 percent. The volume of fish coming into the market increased to 183 million pounds that year, up 32 percent since 1992. In other words, it had taken only a matter of months for the city to liberate the market, once it made up its mind to do so.
Incredibly, nobody cheered. Both the New York Times and the Village Voice asked whether the new administration was running the fish market with the same ruthless efficiency, in the Voices phrase, as the mob had run it. These stories voiced a persistent, cynical New York belief: that the mob rationalizes complicated industries for businesses. But though the mob created an orderly transition at the fish market when boats gave way to trucks, consumers ended up paying higher prices. And theres a moral price paid when organized crime can operate freely and violently, and on government-owned property to boot. Says Ronald Goldstock, former head of the states Organized Crime Task Force: The mob tax can also be measured in a loss of freedom and democracy in institutions like unions, and in the cynicism it breeds in ordinary citizens and businesses, who see how things work and think that they, too, must cheat to succeed.
The failure of government to police the mob was even more disastrous at the state-owned Javits Center, where the gangsters engaged in stealing on an industrial scale.
The stealing started even before construction began in 1980. Thanks to a mob-ruled cartel, in which seven crooked concrete companies met every other week to divvy up bids on big public contracts, the state got only two bids for the concrete needed to build Javits, one for $30 million and one for $40 million, on a quantity whose free-market cost would have been an estimated $18 million. After a second call for bids produced only the same two offers, the state gave the contract to mobster Anthony Fat Tony Salernos S&A Concrete, sticking New York taxpayers with an extra $12 million cost (part of an estimated $40-50 million a year in overcharges that the New York State attorney generals office determined the concrete cartel reaped in the mid-1980s, largely on public works projects).
Corruption continued after Javits opened in 1986. A lethal mix of supine state officials and mobbed-up unions had produced contracts paying laborers, electricians, carpenters, and other workers double and sometimes triple what convention centers in Chicago, Atlanta, and other major cities paid. Equally absurd work rules required, for instance, that only electriciansat $80 an hourcould plug in lamps. Hiring practices reeked of corruption. In most unionized industries today, the employer controls hiring, and workers only join the union once the firm engages them. But a federal exemption allows (though it doesnt require) construction unions to run old-time hiring halls, where the union hires workers, runs apprenticeship-training programs, and dispenses workers to companiesan enormous source of patronage and power, and, of course, the practice at Javits.
With the hiring halls help, the mob turned Javits into a nest of cronyism. In 1995, investigators accused the head of the teamsters union at Javits of dishing out a host of center jobs (including some with $100,000-and-up salaries) to friends and relatives of gangsters. Many of the jobs were no-show.
Lawlessness and disorder were epidemic. Police estimated the center lost nearly $1 million a year in pilferage. In the loading dock, a giant, rat-infested trash heap rose where workers discarded their garbage. For fun, workers would take forklifts and drive them into the centers walls, leaving great gouges. The inmates were in control of the asylum, says Robert Boyle, a former construction-industry executive who eventually received the assignment to clean up the center.
The Javits Center gained such a reputation for high costs and unruly workers that from 1992 to 1995 it didnt attract one new show. Its largest tenant, the New York Auto Show, threatened to leave.
Chalk up the mobs unopposed takeover of Javits to the extraordinary cowardice of Governor Mario Cuomos administration. Mayor Koch alerted the state to widespread complaints about organized crimes influence at the center soon after it opened, but Cuomo did almost nothing, beyond holding a news conference. In 1991, he appointed his general counsel and longtime friend Fabian Palomino as Javits president. Four years later, a state audit accused Palomino of mismanaging the center, adding to its long list of woes.
Cuomos passivity was sadly typical of Democratic officeholders, who, confronted with obvious union corruption, too often refuse to act for fear of alienating organized labor. Cuomos apathy sent a dispiriting message to prosecutors. The specter of being accused of union busting always hung over us when we pursued cases of the mob in unions, says Robert Castelli, a former investigator with the states Organized Crime Task Force.
The turning point for Javits didnt come until Republican George Pataki became governor and appointed Boyle as president in 1995. An investigator from Morgenthaus office, Gerald McQueen, became the new inspector general. The new team took hiring away from the unions, fired lots of people, advertised for new workers, and started performing background checks on workers. The center also renegotiated contracts with the unions to eliminate onerous work rules. Many of the reforms, it turned out, required only simple administrative procedures.
But a Pataki bill that would have allowed the centers management to fingerprint prospective employees and check the prints against an FBI criminal database foundered in Albany, sunk by the Democratic-controlled State Assembly. Boyle accused Democrats of protecting the perpetually mobbed-up District Council of Carpenters, which had contributed heavily to the campaigns of state officials, including the Assembly Democrats campaign committee. The following year, the Assembly passed a bill giving back the carpenters union the right to control hiring, but fortunately the Republican-controlled State Senate blocked it.
The new team improved things dramatically. A state audit praised Javitss leadership in 1996, as costs dropped as much as 40 percent on some shows. The center, with revenues of $36 million in 1995, when it lost $1.6 million, recorded revenues of about $100 million in 2000, earning a $4 million profit. Just as at Fulton, all it took to get the mob out of Javits was political backbone.
Even after being kicked out of the garment district, garbage carting, the fish market, and the Javits Center, the mob remains a strong presence in New York. It looms large in the citys huge, $25 billion construction industry, adding hundreds of millions of dollars a year to the already sky-high cost of building in the city. Just this September, the Manhattan D.A. brought a series of new indictments against the Lucchese crime family for bid rigging and bribery in construction contracts. Also indicted: the latest head of the District Council of Carpenters, the third council president since 1980 to have charges brought against him.
Corruption in New Yorks construction industry goes back at least 100 yearswhen United Brotherhood of Joiners boss Robert Brindell gained control of all the construction unions and made a cynical deal with the Building Trades Employers Association that drove independent contractors out of town and tripled or even quadrupled construction prices in the city. But New Yorks five big crime families have had a lock on many of the main construction unions since the 1920s. By the 1980s, the states Organized Crime Task Force observed, mobbed-up unions gave the wise guys a grip on numerous facets of construction, including transportation, cement and concrete work, masonry, painting, carpentry, and plumbing. Prosecutors estimated that the mob controlled 16 of the 31 unions representing general laborers. In the familiar pattern, the mobsters used their influence in unions to obtain interests in companies and to create cartels in the concrete, drywall, painting, and plumbing businesses.
A mob cartels ability to control the flow of workers through a corrupt unions hiring hall allows it to scare off potential competitors without even resorting to real strong-arm stuff, as Lucchese crime soldier Salvatore Avellino explained in a secretly recorded conversation: We gotta have the [union] strength, so when a f-ker comes along and bids on a contract that is supposed to be limited to members of the family, tomorrow hes got four Gold Tooths [Lucchese strong men] in front of him saying, Now that you have the contract, where are the workers? Thats the power.
Mob-controlled unions have extracted large concessions and extraordinary work rules in negotiations with timid construction-contractor associations. These rules often serve as a means to extort payments from businesses. Throughout the 1980s, for example, the master contract between the painters union and its contractors association in New York City stipulated that contractors could only use paintbrushes on jobs, even though spray guns and rollers would be more efficient. Wiretapped conversations of union officials showed that the absurd rule was simply a tool for shaking down contractors who wanted workers to be able to use spray guns or rollers. Its clear that some work rules are just negotiated by unions as a way of encouraging bribery, says prosecutor Morgenthau.
On a big, unionized construction project, the mob tax, extorted principally from subcontractors, could be huge. The painters unions and carpenters unions, under Lucchese crime family control, extracted a hefty 10 percent tax on contracts. Drywall contractors paid a 2 percent mob tax. Every window installed on public projects and on private unionized projects required until 1991 a $1 or $2 mob charge. In the mid-1980s, when mob control of sectors of the industry was at its height, the tax often totaled 5 percent of a major project. These days, say prosecutors, even if the mob tax is 1 or 2 percent, that still amounts to $250-500 million yearly added to the cost of building in the city.
Though the construction industry is an easy mob targetwork is seasonal and goes in boom and bust cycles, so contractors often feel compelled to get jobs done at any cost, even if it includes payoffs to get around union work rules or government requirementsexcessive government regulation has made the business even more susceptible to mob influence. The citys labyrinthine building regulations discourage big national construction companies, whod have the heft to resist mob takeover attempts, from competing in the city for building contracts. Its just too difficult for outsiders to get permission to build.
In addition, New York States prevailing wage law, which requires that municipalities pay workers union wages on all public building projects, fosters mob corruption. The law creates an incentive for mobsters and contractors to enter into illegal agreements to evade it. In last Septembers indictments, prosecutors charged members of the Lucchese crime family and their union associates with extorting payoffs from contractors on government jobsamong them, three School Construction Authority contracts worth in total $32 millionin exchange for letting the companies get around the prevailing wage laws.
Even worse is the states 80-year-old Wicks Law. Wicks requires government agencies to issue four separate contractsfor plumbing, electrical work, heating and ventilation, and the actual building of roofs and wallsfor every government building project costing over $50,000, instead of bidding the job to one major contractor who could use its market leverage and expertise to enlist smaller subcontractors at favorable prices and supervise their work carefully. By multiplying the number of small contractors98 percent of New York Citys 10,000 construction firms employ fewer than 100 peopleWicks makes the bidding process harder to police. Moreover, the smaller firms have little power to resist the mob, and their employer associations, which negotiate union contracts, are invariably weak.
Using Rico suits and trusteeships, prosecutors have wrested control from mobbed-up unions representing concrete workers, masons, and painters. They have seized companies run by mobsters in the drywall, window-replacement, and painting industries to bust up cartels. But if the mobs influence has diminished, recent indictments make clear that it hasnt disappeared.
With such problems in mind, Mayor Giuliani proposed legislation in 1998 to extend the structural reforms in carting to construction by forming a commission to perform background checks on companies and deny licenses based on associations with organized crime figures. The administration also demanded that companies with questionable records hire certified auditors to vet their integrity.
Builders, union officials, and developers reacted angrily and used their influence to keep the law stuck in the City Councils finance committee. But now that the recent indictments have given renewed urgency to calls for reform, members of the Building Trades Employers Association, to head off tougher reforms, have begun discussing industry self-regulation, including background checks and licensing, says chairman Louis Coletti. In formulating its counterproposals, the industry clearly has emphasized its own interests over the publics. The employers organization has urged more funding for inspectors to ensure compliance with prevailing-wage lawsa popular item with unionized contractors, because it keeps out non-union bidders.
With his term running out, Giuliani is unlikely to get his current version of the commission bill passed. But without structural reform, the construction industry is certain to remain highly vulnerable to corruption.
Some changes are obvious. New York should junk the Wicks Law, which serves only to protect union jobs without regard to the integrity of the industry or to the cost to municipalities. The states prevailing wage law similarly contributes to corruption and needs repeal. New York City should also simplify its building regulations to encourage national competitors to enter the market. On the federal level, Congress should outlaw construction-union-run hiring halls, and, in the meantime, New Yorks builders should work hard to negotiate them out of future contracts. Finally, it may be up to the next mayor to consider whether the construction industry, or at least segments of it, needs a monitor or oversight commission (ideally with a sunset clause) to organize and direct the anti-mob efforts of various law-enforcement agencies and to develop anti-corruption reforms.
In the war against the mob, Morgenthau rightly says, We cant declare victory and walk away.