BUSINESSWEEK ONLINE : NOVEMBER 27, 2000 ISSUE
INTERNATIONAL -- EUROPEAN COVER STORY

Workers in Bondage (int'l edition)
Europeans are only now learning of the horror of widespread sweatshops that use forced immigrant labor

On a chilly December night almost two years ago, a desperate Chinese man appeared at military police headquarters in Bergamo, Italy, begging for help. His 25-year-old wife, Deng Xingmei, an illegal immigrant, had tried to flee slavelike working conditions in a garment sweatshop near Milan. But the Chinese gangsters who had arranged her illegal passage to Italy for $25,000--and expected her to spend years working off her debt--captured her at gunpoint. The police tapped her husband's phone to trace threatening calls from Chinese mobsters, and five days later they freed a raped and beaten Deng.

Deng Xingmei's kidnapping turned out to be a vital breakthrough for the police. Building on information gleaned from Deng's imprisoned tormentors, Italian authorities launched a nationwide investigation. After 16 months of undercover work, ''Operation Sunrise'' climaxed on Apr. 7 with raids on sweatshops in 28 cities from Milan to Rome. The raids broke up a criminal network of some 200 gangsters in China, Russia, and Italy involved in bringing Chinese immigrants to Italy and forcing them to work 12 to 16 hours a day in textile, apparel, shoe, and leather factories for little or no pay. And the police are far from finished with their work: Similar raids continue to uncover illegal sweatshops every week, some revealing children as young as 11 working 20 hours a day. ''The [immigrants] have no idea what awaits them,'' says Lieutenant Tiziano Benedetti, who headed Operation Sunrise.

HAVOC. And many Europeans have no idea of the horrors that unfold daily in thousands of sweatshops tucked into the grimy suburbs of the region's great cities. Western Europeans have always prided themselves on the high standards its governments impose on employers and in the workplace: Workers have far more rights and protections than workers in the freewheeling U.S. Those vaunted protections, however, are meaningless to the hundreds of thousands of immigrants now flooding into Europe from the old Soviet bloc, China, India, Southeast Asia, and the Balkans--from anywhere, in other words, where millions of people are desperate to escape destitution.

These economic refugees pay dearly for their flight to the prosperous West. Tens of thousands wind up working as forced laborers in factories, sweatshops, and service industries run by mobsters throughout Western Europe's thriving underground economy. Many of these immigrants become part of a secret underclass of the exploited, which experts are now defining as tantamount to 21st century slavery.

This emergence of a new black economy of forced laborers is a dramatic social setback for the welfare states of Europe. ''There is no doubt about it. We are faced with a modern slave trade that cannot be accepted or tolerated by civilized society,'' says Paul Higdon, director of the criminal intelligence directorate at Interpol, the international police force, in the French city of Lyons.

In a two-month investigation involving dozens of interviews with police, victims, immigration authorities, union officials, and industry leaders, BUSINESS WEEK has traced the emergence of this fast-spreading economic crime. Only recently have police and international agencies such as the U.N. started to sound an international alarm, while a series of raids and arrests across Europe in the past year have begun to reveal a widespread problem. ''We are just seeing the tip of the iceberg,'' says Pino Arlacchi, executive director of the U.N. Office for Drug Control & Crime Prevention in Vienna and author of the recent book Slaves: The New Traffic in Human Beings. ''It's the fastest-growing criminal market in the world.''

DARK CORNERS. Europe, of course, is not the only prosperous region afflicted by this underground trade. In the U.S., officials know that illegal immigrants are also pressed into debt servitude, but have trouble defining the problem. U.S. gangs have gotten more sophisticated, says Kingman Wong, head of the trafficking unit for the FBI in Washington. The traffickers let immigrants make a new life on their own, but if they fail to repay mafia bosses, their family members are at risk. That way, ''there are fewer horror stories that deter others from coming,'' says Wong.

In Europe, where the trade is thought to be newer, horror stories haven't scared off the thousands seeking a new chance in a modern economy. The story of Europe's sweatshops and the people who toil in them reveals the dark side of the changes that have swept through the world economy in the past decade. A dangerous mix of factors has come together since the collapse of the Berlin Wall, allowing such bondage to flourish. One is the poverty that drives destitute classes in much of the world to emigrate at any risk. The collapse of ex-Soviet-bloc economies and the rapid growth of international crime rings specializing in the trafficking of human beings have also created an expanding supply of illegal immigrant laborers vulnerable to abuse.

It's a sick twist on free-market economics: Employers squeezed by global competition are desperate to cut costs, and middlemen--the gangs--are eager to provide illegal workers and slash the price of labor to nearly zero. Europe's rigid market regulations and its high labor costs are also fostering a healthy demand for illegal workers just when the opening of the world economy is putting competitive pressures on Europe's second-tier companies.

So the sweatshops that once flourished only outside the rigidly patrolled borders of the European Union, in countries such as Turkey and Morocco, are becoming common in the EU itself. Often, outsourcing production to such sweatshops is the only solution for small and midsize suppliers under intense pressure to match global competition on prices. ''What has emerged is a stratum of slavery-like work that takes advantage of immigrants' vulnerability,'' says Francesco Carchedi, director of research for Parsec, a Rome research outfit working on a report on the trafficking in human beings.

It's impossible to say how many workers in Europe's hidden factories could be called contract slaves--paying with their own sweat the exorbitant fees traffickers charge--under the threat of violence against themselves or family members and earning little more than the food they eat. After all, immigrants through the ages have always worked in the worst conditions in their adopted countries, accepting the hardship as the first step up the economic ladder.

But hardship does not always translate into outright bondage. Certainly not all illegal immigrants become indentured slaves or suffer the fate of Deng. And there is a gray zone between what experts are calling ''superexploitation'' and slavery.

But no matter how you look at it, the problem is huge. Trafficking gangs bring hundreds of thousands of poor immigrants each year into the EU, many of whom are deceived by criminal recruiters who promise them a job. Illegal immigration to the EU has gone from an estimated 40,000 in 1993 to 500,000 this year. The biggest wave of illegal immigrants by far is from China, where highly organized criminal networks transport illegals and press them into work. According to conservative estimates by researchers and others, at least 100,000 illegal immigrants are working in contract slavery in the EU.

The basic method for trapping these immigrants is the same worldwide. Gang members in Asia and the old Soviet bloc agree to smuggle workers into Europe and find them jobs and lodging for a fee: Most illegals agree to pay charges ranging from $5,000 to $25,000 for passage into the EU. Some of the Chinese moving to Europe have enough money to pay the fee upfront and can start their new life debt-free. But most others are poor, ill-educated, and full of fantasies about life in the West.

Once the immigrants land in Europe, without papers, they are at the mercy of the gangs that transported them and the bosses who employ them. Anyone who balks at the dreary underground factories where immigrants often sleep and eat next to their machines may be beaten by the local ringleader who pays them enough only to survive while their debt is paid down. ''Before your employer 'pays' you, he deducts an unspecified sum to pay the debt--that's the trap,'' explains David Ould, deputy director of Anti-Slavery International in London.

Poor immigrants are easily ensnared. One victim, Petronel Olteanu, fled abject poverty in Romania--not realizing he would become an indentured slave in Italy. He was smuggled into Italy by a ''network'' he refused to identify out of fear. The pale, despondent 25-year-old spoke to BUSINESS WEEK after his Italian employer was indicted on charges of murdering one of Olteanu's co-workers. ''I knew the situation I was getting into was bad. But I felt like I was trapped,'' he says after nervously checking a reporter's credentials.

SLEEPING WITH RATS. Sent to Gallarate, 30 minutes north of Milan, Olteanu was forced to work 14 hours a day laying tiles at construction sites around Milan for sustenance pay. His Italian boss hired thugs to intimidate and beat Olteanu and 11 co-workers and keep them from any thought of rebellion. At night, they were locked in a tiny, rat-infested room. Says Olteanu: ''It was obvious that for [the boss] we were possessions.'' Olteanu was finally freed in a March police raid of the warehouse where he and his co-workers were held captive.

Trafficking in and exploiting workers like Olteanu is big business. Global profits from trafficking have zoomed to $9 billion, according to a recent U.N. report, and now exceed drug profits, police say. In Trieste alone, investigators estimate traffickers took in $60 million last year, police believe.

Are the traditional mafia from Italy, Russia, and China involved? Police investigators in Europe are still trying to figure that out. It's clear that highly organized gangs with tentacles stretching from Beijing to Milan recruit immigrants and transport them by plane, truck, and boat to work in much of Europe. Chinese gangs, which are worldwide, also cooperate with gangs in Eastern Europe, Russia, and the Balkans to arrange safe passage and false documents. They collaborate with underground employment contractors throughout Europe. What's not known is whether whole new gangs are springing up to run this illegal commerce. Italian police believe they recently nabbed one of the main bosses of a huge Chinese trafficking operation involving 16 gangs (page 68).

Some traffickers operate independently. British Indian Joginder Singh Kaile, 39, smuggled thousands of fellow countrymen, crammed in vans or cars, 9,700 kilometers across Asia and Europe to Britain. He took their land in the Punjab as payment and forced them on arrival to work in his sweatshops, housing them in squalid conditions and squeezing more and more profit out of their cheap labor. Kaile charged $10,000 a person for a journey. Investigators estimated he made a profit of nearly $3,000 per person, becoming a millionaire in the process. Last November, police investigators nabbed Kaile, who pleaded guilty to multiple counts of trafficking. He is serving a 6 1/2-year sentence.

With inadequate resources to patrol borders, former police states such as Albania, Russia, Slovakia, and Yugoslavia have become bustling transit zones for tens of thousands of immigrants from more distant regions. ''Five years ago, controls were so tight you couldn't even move within Albania from one city to the next, let alone cross the border,'' recalls Albanian Justice Minister Arben Imami, who concedes that his country has become a major thoroughfare for illegal immigrants. Border guards and immigration officials earning only $50 to $80 a month in the ex-Soviet republics are easily bribed to let illegal immigrants pass.

Europe's $80 billion garment industry is a prime target for traffickers who want to place semi-skilled workers. Under intense pricing pressure and subject to sudden swings in demand based on fashion trends, European manufacturers large and small often outsource production to subcontractors--who in turn rely on a chain of other subcontractors.

Illegal-immigrant labor thus provides the low costs and flexible supply that Europe's tough labor regulations have outlawed. Police who have raided sweatshops and taken testimony from workers say these mini-factories produce on a just-in-time basis, responding to bulges in demand by clothing, leather, and shoe manufacturers.

The turnaround between demand and delivery can be as short as 12 to 24 hours and usually involves low-to-mid-priced clothing. When demand surges for a certain style of jacket, for example, manufacturers deliver patterns and expect finished products within hours, investigators say. ''When a series of clothing runs out, a manufacturer will bring the pattern to a subcontractor and ask for 2,000 shirts overnight,'' says Pier Luigi Vigna, head of the National AntiMafia Commission in Rome. An illegal worker with no access to a union or legal papers may be paid only 65 cents per piece--and far less if his pay is being docked. Shirts that might cost $25 from a legal subcontractor paying normal wages and taxes can be obtained for between $1 and $5 from sweatshops, police say. Meanwhile, the items may retail for $50 or more in European shops.

So far, no major manufacturers have been prosecuted for tapping sweatshops staffed by illegal immigrants. But Italian and French investigators say that several large companies are under investigation and that recent raids have revealed links to brand-name apparel companies. ''Many expensive retail shops are making use of sweatshops,'' claims Willy Bruggeman, deputy director at Europol's headquarters in The Hague. ''It's always by subcontracting, so it's difficult to prove that the buyers knew the merchandise was produced by slave labor.'' Italy's Sunrise raid revealed sweatshops producing T-shirts and other articles of clothing with the insignia of Italian soccer teams. These popular items are sold to small shops or distribution companies.

DESPERATE PLEA. Sometimes, forced laborers grow desperate enough to reach out to the police. Rome Municipal Police Commander Antonio Di Maggio has received dozens of anonymous letters and phone calls from captive workers in recent weeks. Among a stack of letters piled on his desk, one typed on old crumpled paper with a manual typewriter pleaded, in broken Italian: ''Help us. We are seven immigrant workers in trouble, forced to work long hours with little food and often abused. We are being kept in a warehouse and want to be freed.''

Following such leads--as well as complaints from neighborhoods about the noise from machines that run all night--Di Maggio led 18 raids in September on sweatshops and warehouses on Rome's periphery, snaring 60 illegal workers, 40 of whom were laboring in slavelike conditions and living in utter squalor. Of that catch, 18 were Chinese garment workers. In one bust, ''the stench inside was like a slap in the face,'' said Di Maggio.

According to Chinese victims' testimonies taken with the aid of an interpreter, the workers were locked into the sweatshop at all times and worked 12 to 14 hours a day. They were paid 50 cents a pair of trousers, or roughly $250 a month. Their employer would arrive once a day with broth.

The same kind of sweatshops are proliferating in the poorer districts of Paris-- in the city's 10th, 11th, and 13th arrondissements and in the suburban neighborhoods to the north and northeast of Paris. Here, abandoned buildings and factories have been transformed into clandestine workshops, many with hidden cellars, trapdoors, and underground escape routes in case of police raids.

Like Di Maggio, Lucien Contou, head of the division for the fight against illegal labor at l'URSSAF, France's social-security collection office, follows up leads about the strange nighttime noise of machines humming and reports by local residents of foreigners walking the streets at 3 a.m., among others. ''We get so many leads that we can't [follow] them all,'' says Contou.

In June, Contou raided a building in Pantin, just northeast of Paris. A small trapdoor under a shelf in the wall led to a workshop with 12 textile machines. Although the sewing machines were still warm, 10 of the 12 workers had already escaped through a small window leading to a back alley. The Chinese boss was fined $6,500 and received a one-year suspended sentence. Another raid by Contou revealed a Paris sweatshop run by a Yugoslavian with false papers. He had locked 24 Laotian workers in a filthy cellar jammed with sewing machines and beds; the case is under investigation.

One illegal Chinese immigrant from southeast China spoke with BUSINESS WEEK on the condition of anonymity who described a furtive world in which it seemed impossible to pay off her debt. The 30-year-old woman had worked in 10 sweatshops for more than five years in Paris, sewing clothing and leather handbags. Because it was safer, she always performed her work at night to pay off the $17,000 cost of her trip and her falsified documents. She earned $21 a day for a 112-hour workweek. Now out of work--since her last employer was shut down by the police in October--she has had to borrow money from friends and survives on rice and bread. As for her $17,000 debt, ''I don't want to think about it,'' she says.

EU policymakers so far have done little to fight the exploitation of illegal immigrants. For starters, many politicians view the presence of immigrants as a social and economic problem in itself. Some are deported when discovered, and others--usually the most maltreated--are classified as victims and allowed to remain in the EU. Still, some illegal immigrants are actually starting to protest in public about their plight. Yet few laws are on the books to severely sanction the new forms of bondage. In the U.S., by contrast, President Bill Clinton recently signed a law raising penalties for traffickers in women and children.

One reason Europe's policymakers may be loath to confront the problem is that a thriving underground economy helps power Europe's growth and competitiveness. ''We [Europeans] are benefiting economically,'' says David Ould, deputy director of Anti-Slavery International.

Illegal immigrant labor, for example, has fueled economic growth in Prato, a leafy suburb of Florence, where companies owned by legal Chinese residents of Italy have rebuilt a moribund textile and garment industry. Unemployment in this prosperous community hovers around 5%, among the lowest rates in Europe. Chinese residents--legal and illegal--cram buses in the city center but live and work in a world of their own. ''We have the world's leading knitwear industry, with sales of $1.2 billion. It is thanks to the Chinese that this sector has been revitalized,'' says Giuseppe Gregori, General Secretary for the Italian labor union CGIL in Prato. But Prato's newfound competitiveness also relies on a labor force that pays no heed to Italian labor or tax law, says Gregori, who maintains that the influx of arrivals is ''growing exponentially and is very difficult to control.''

Some 1,100 Chinese-owned factories and workshops are legally registered in Prato, but officials at the local chamber of commerce believe the total is much larger, with some 40% of production underground. Legal Chinese workers total 8,000--but city officials believe some 4,000 illegal Chinese immigrants and their children may be working in even worse conditions, exploited as forced laborers until their heavy debts are paid.

WILD COASTLINE. While Europol says the exploitation of immigrants is widespread throughout Europe--including Austria, Belgium, Britain, and France--the problem is at its worst in Italy. Its 8,000-km coastline is difficult to patrol. More important, Italy's underground economy--at 28% of gross domestic product, by far the largest of any leading industrialized country--makes it a haven for mobsters intent on wringing big profits out of illegal immigrants. ''The phenomenon of human trafficking and enslavement is expanding--a fact that we [Europeans] should be ashamed of,'' says Italian Interior Minister Enzo Bianco.

Italian authorities have long tolerated a thriving black economy as a kind of social safety net that is preferable to unemployment, refusing to crack down on clandestine enterprises. But as Italy has become more prosperous, the local workers have moved up the social ladder, leaving harder, industrial jobs in the black economy--such as the toxic process of curing leather--to immigrants. Academics think illegal immigrants fuel as much as 70% of Italy's underground economy.

Those recruiting illegal immigrants will concoct elaborate schemes to ensnare new victims. One Romanian immigrant, Maria, told BUSINESS WEEK she was lured to Italy in July, 1999, by a newspaper advertisement in her hometown that sought ''young, ambitious workers looking for a better life.'' Then Maria, 23, arranged to meet in a coffee shop with the employment agent who had placed the ad. He was an Italian who spoke her language and offered seemingly normal terms of employment. Smoothly drawing out her interests, he promised to help Maria eventually enter an Italian university and become a fashion designer.

Maria boarded a plane bound for Venice, along with three other young illegal immigrant women and the agent. She ended up in a sweatshop where one woman factory worker with chains around her ankles fearfully admonished her not to stay. Alone with the agent, she implored him to allow her family to pay off her $4,000 debt in cash and free her from the agreement to work. Eventually he relented, but the criminals who transported Maria still pay her family threatening visits in Romania to keep her from exposing the network.

SPREADING TENTACLES. Sometimes, it's almost impossible to figure out when a factory is legitimate and when it is exploiting workers. In one French bust in April, 1999, dubbed Operation Cite Interdite--whose name echoes the Forbidden City in Beijing and also evokes the fortress-like nature of the buildings housing the workshops--a SWAT team found seven sweatshops in a cluster of housing projects in the Paris suburb of Seine-Saint-Denis. By day, the small-scale factories operated legally, employing regular workers. By night, however, machines continued to hum, operated by illegal Asian immigrants, some of whom are compelled to work 105 hours a week. The bust was organized by Armand Huby, police chief at France's Central Office for the Suppression of Irregular Immigration and the Employment of Illegal Immigrants. Last year alone, the group managed to uncover 18 international networks shuttling illegal immigrants into France.

In Europe, international trafficking gangs are now trying to extend their reach into the local economy, acquiring more factories, restaurants, and shops to launder money and recycle workers. Police and international agencies say that some slaves who eventually pay off their debt sign up with the very criminal organizations that smuggled them into the EU. Certain Romanians living in the Veneto region of Italy ''run the sweatshops as mercilessly as when they were workers,'' says Ugo Melchionda, an immigration specialist at the International Organization for Migration, an intergovernmental organization.

Unlike the U.S., Europe faces the monumental task of coordinating police action across borders. Interpol, for example, has been tracking a Croatian trafficker named Josip Loncarcic, who is believed to be responsible for bringing some 10,000 illegal Chinese immigrants into the EU. When he received a sentence in Croatia for smuggling 5,000 Egyptians through that country on the way to the EU, he fled to Slovenia, where he applied for and received citizenship. Loncarcic is also wanted in Italy in connection with the transport of illegal immigrants.

Closer coordination among various police officers may have kept him from slipping through the net. At least the groundwork is being laid for tighter cooperation. The U.N. hopes to get members to sign a protocol on trafficking and exploitation of human beings in December in Sicily. Bruggeman's Europol unit recently arranged expert meetings to alert authorities in EU member states to the criminal gangs transforming illegal immigrants--including children--into slaves. And Interpol finally established a Children & Human Trafficking Div. last year.

But it's unlikely that trafficking in Italy and the rest of the EU will decline without a major legal crackdown. In the meantime, investigators say the growing profits from workers in bondage may get recycled into a new class of criminal organization. The twin businesses of trafficking and slave labor have already cast a dark shadow over 21st century Europe.

By Gail Edmondson in Prato, Italy, with Kate Carlisle in Rome, Inka Resch in Paris, Karen Nickel Anhalt in Berlin, and Heidi Dawley in London

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