Organized crime behavior of shell-company networks in procurement: prevention insights for policy and reform

Abstract

In recent years, the analysis of economic crime and corruption in procurement has benefited from integrative studies that acknowledge the interconnected nature of the procurement ecosystem. Following this line of research, we present a networks approach for the analysis of shell-companies operations in procurement that makes use of contracting and ownership data under one framework to gain knowledge about the organized crime behavior that emerges in this setting. In this approach, ownership and management data are used to identify connected components in shell-company networks that, together with the contracting data, allows to develop an alternative representation of the traditional buyer-supplier network: the module-component bipartite network, where the modules are groups of buyers and the connected components are groups of suppliers. This is applied to two documented cases of procurement corruption in Mexico characterized by the involvement of large groups of shell-companies in the misappropriation of millions of dollars across many sectors. We quantify the economic impact of single versus connected shell-companies operations. In addition, we incorporate metrics for the diversity of operations and favoritism levels. This paper builds into the quantitative organized crime in the private sector studies and contributes by proposing a networks approach for preventing fraud and understanding the need for legal reforms.

Network analysis in peace and state building: revealing power elites

“…For instance, in a social network, an edge might signify a friendship, a familial tie, or another form of social interaction (Scott, 2017). Nodes can also represent diverse relationships within a bipartite network, such as an individual connected to a business organization as a stakeholder, and that business linked to a government institution through a contract (Wachs et al, 2020; Nicolás-Carlock and Luna-Pla, 2023). These interconnections among nodes can take various forms and quantities, from the formation or absence of triads to networks consolidating into a single large component, as exemplified in Figure 1.

Figure 1. Examples of configuration in a network.

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Anticorruption Markets: Law, Public Procurement, and the Colonial Regime of Permission in Puerto Rico

“…While there is substantial criminological scholarship on corruption in public procurement (Davies, 2022;Hudon & Garzon, 2016;Nicolas-Carlock & Luna-Pla, 2023;Stamouli et al, 2023a), the processes of commodification and outsourcing of anticorruption interventions have been underexplored. For instance, the term anticorruption industry typically refers to the exchange of knowledge, strategies, and techniques to combat corruption among transnational and national advocacy networks, corporations, and governments (Sampson, 2010).…”