Modern Shylocks

‘If you repay me not on such a day . . . Let the forfeit be . . . an equal pound Of your fair flesh.’

Such were the immortal words of Shylock, the usurious character penned by Shakespeare centuries ago

Appropriately, twentieth-century loan sharking — very much the domain of organised crime figures, or people associated with them, or businessmen of the same ruthless and exploitative nature — is euphemistically called shylocking.

With organised crime moving into various forms of legitimate business, Australia’s vulnerable money-lending field has not been immune. Even publicly registered money-lending companies have been caught engaging in classic New York Mafia-style loan-sharking or shylocking practices.

Just like the crime syndicates of New York and Chicago, they have preyed on people least able to afford it — particularly concentrating their predations on people in poorer neighbourhoods.

Documents produced before the Woodward Royal Commission into Drug Trafficking have disclosed that criminals have been resorting to loan-sharking tactics in their own money-lending transactions.

As yet, there is no evidence of any known crime syndicate actually owning any significant loan company, but various criminals are recorded as having their own private companies through which they do lend money.

Since their loans are largely among people directly and indirectly associated with the underworld, no public complaints have been made.

One major finance institution with a national name has been found to have provided loans for a large-scale, drug-trafficking operation. To gain access to the borrowed funds, a criminal syndicate used connections between people in the company and corrupt elements of the used car trade.

Shady practices among so-called legitimate operators in the personal money-lending field illustrate the danger of a criminal takeover in the American sense.

Indeed, one such company is on record as having offered a seat on the board of management to an illegal gambling identity, formerly of the United States, who has direct ties to the most powerful figures in organised crime in Australia. The lending organisation concerned has been one of five companies under close scrutiny for loan-sharking practices in contravention of money-lending laws. Between them, the five companies in the late 1970s handled nearly 150000 loans, with hawkers touting loans door-to-door in defiance of the law . . . and, in many cases, imposing interest rates that would put the New York Mafia to shame.

In punitive loan arrangements revealed before the NSW Woodward drugs inquiry, interest charges have been as high as 400 per cent.

In each case, the deals were formalised by air-tight written agreements prepared by solicitors.

The figure of 400 per cent is more than double the highest figures involved in complaints against registered companies investigated by consumer bodies in Sydney or Melbourne.

The Woodward Commission heard evidence of business dealings between Karl (The Godfather) Bonnette and people arrested in the seizure of $70 million worth of buddha sticks from Thailand imported to Australia by yacht, among them Murray Riley and Reg Parkin. In March 1978, four months before the yacht case arrests, Bonnette lent $30000 to Parkin, repayable within one month, at interest amounting to $10000, an effective interest rate of 400 per cent. When Parkin failed to repay on time, Bonnette foreclosed and took possession of a twin diesel motor cruiser, Mashkee II, imported from Hong Kong and worth more than $40 000.

Registered loan companies that have come under notice have been just as ruthless.

In one recorded case, a Sydney woman, short of ready cash, fell victim to a loan shark for a loan of $39 to buy a Christmas hamper. When she did not make repayments on time, she was encouraged to take out another loan to cover the arrears. After again falling into arrears, she was induced to take another loan, and another, and another, and another, until ultimately she had paid out $2000 under twenty-eight separate personal loans — about $1150 of it in interest at 150 per cent.

She told Consumer Affairs investigators that she had always been pressured by a salesman for the money-lending company to enter into a new agreement before the previous one expired.

She complained that she was pressured under threat that her husband would be told if she did not agree. She had not obtained, as required under the NSW Money-Lenders and Infants Loans Act, consent of her husband before taking out the original loan. Nor had she been advised of interest rates and other provisions as stipulated in the Act.

Her predicament came to light only after her husband noticed she was no longer wearing her engagement ring. She admitted having pawned the ring to keep up her loan repayments.

When inquiring into her complaint, the NSW Department of Consumer Affairs uncovered hundreds of similar practices involving a number of companies. Officers tabulated a consistent pattern of ‘sheer usury’, with interest rates ‘scandalously high’ and practices that were ‘deplorable and sometimes vicious’.

The Director of the Department, Phil Gallagher, describes the directors of one company as ‘crooks’.

Because of the nature of people usually organising loan sharking, the ever-present threat of violence discourages default and promotes a willingness for victims to fall into greater and greater debt through re-loaning.

Joseph Valachi, a member of the United States Mafia for thirty years — and the first to admit belonging to it and give prosecutory evidence — has explained that loan sharking concentrates on people unwilling or unable to get loans through legitimate channels. Giving firsthand testimony on loan-sharking operations he himself had been involved in, Valachi said: ‘The loans went for twenty per cent interest, which is what we call vigourish. Take an example. You loan out $1000 and the guy is supposed to pay back $100 a week for twelve weeks. Figure it another way. For every $5 you lend out a week, you get back $6.

‘You find as you go along that most of these people get in the habit of reborrowing before they pay up. This was regarded as a windfall or “sweet” loan. When a person already in debt wants more money, then the loan shark simply deducts what is still owed to him, but charges for the entire amount now covered by the new loan.’

Evidence has been given before the Moffitt Royal Commission into crime in clubs, as well as the Woodward Commission, that criminals have been used to collect gambling debts.

Mafia identity Vinnie Teresa, who visited Australia in 1977 and who has since been named in bird smuggling from Australia, has gone on record before a Senate inquiry saying that gambling is the single most important activity for organised crime, with loan sharking tied to it.

‘Gamblers bet and then can’t pay when they lose’, he says. ‘say a man loses $200 on a firm bet, and doesn’t have it. You offer it to him, to be repaid at $10 a week and five per cent juice. That’s the interest per week. When he can’t make it with you, probably because he’s still gambling, you offer him more with a little less interest. Pretty soon he owes you a thousand dollars.

‘The juice is what hits the borrower. On $400 he owes me, he has to pay me $20 a week. That’s only the juice. He can pay me $20 a week for five years and he still owes me $400. Most of the people who go to loan sharks are gamblers.’

In the Moffitt Commission, it was disclosed that one club identity linked with criminals did run his own loan company, but in a small way.

Organised crime figures of the United States who have been shown to have developed a working relationship with Australian criminals are heavily involved in major loan-sharking operations in California and other American States. Chicago mobster Joe Testa, who gave a lot of advice to Australian criminals on visits to Sydney, had his own loan company turning over millions of dollars. Of twenty-two companies known to be owned or controlled by Testa, at least sixteen had some connection, or suspected connection, with the Chicago syndicate.

In unravelling drug trafficking rings revolving around people involved in used-car rackets in Sydney and Melbourne, the Woodward Commission detailed considerable information on credit arrangements negotiated by known criminals with reputable finance companies.

As far back as 1973, the NSW Department of Consumer Affairs warned in a report tabled in parliament that even large finance companies were advancing consumer credit to unscrupulous operators.

The report stated that an analysis of abuses in the credit field had found ‘an attitude of disinterest and lack of responsibility on the part of some of the largest finance companies in Australia and their insurance subsidiaries which can only be described as deplorable’.

The report added: ‘However much one may appeal to the myth that the consumer selects the goods and the finance company merely advances the money for the purchase, the fact remains that the financier must surely have some responsibility for the conduct of a dealer’.

The report said that there was ample evidence in Consumer Affairs files to indicate that some finance companies were only too prepared to advance moneys which would clearly ‘enmesh the consumer in a debt out of all proportion to the value of the goods provided and to conveniently overlook price jacking, evasion of the law and falsification of the papers relating to the transaction’.

Loan sharking emerged in New York City back in 1920 and started to spread to other cities in America in the 1950s. According to a 1980 report of the Pennsylvania Crime Commission, studies of identities involved in loan sharking in New York and Chicago discovered that they were mostly of Italian and Jewish descent.

In the words of the former United States Attorney-General Ramsey Clark, ‘Loan sharking, sometimes called “juice”, is believed to be the second most important source of income for crime syndicates’.

In Australia, it is in the personal money-lending field outside the banking and major institutions that malpractice has been more evident.

Companies have been found to have hawked loans door-to-door in contravention of the law, ensnaring people with effective interest rates of 100 per cent and additional default rates of more than fifty per cent.


Details of interest rates were not entered on contracts before they were signed. Borrowers had no idea what rates they were paying. Schedules outlining a borrower’s protections under lending laws were not provided and statutory declarations in contracts were not witnessed or dated.

Husbands and wives have not known of loans of more than $100 made to their partners, in contravention of the law. In some cases, where amounts lent were more than the $100 limit, several separate loans for less than $100 have been given at the one time so that the spouse’s consent provisions could be evaded.

Contract forms were initialled HDNK or WDNK which stands for ‘Husband (or Wife) Does Not Know’.

Repayment of loans has been structured so that the final payment is much larger than the normal amount of repayment, so that when borrowers cannot meet it they become liable to default rates of interest.

Some borrowers have been induced to take out unnecessary insurance against accident, sickness or death and so add to their indebtedness.

They were then given a choice: they could borrow more to pay off the arrears or their husbands would be told.

Records have been investigated where people have been asked to forge signatures of others. In one instance, a woman had two loan agreements with one company, one with a second company and five with a third company. She also had two credit sales agreements with the third company. Her total repayments were $60.89 a week, and, since her husband was unaware of the loans, she had to find the money as best she could from a part-time job paying only $20 a week or by taking out further loans as she went along to meet existing debts and arrears.

Two loan agreements were in her husband’s name. Three were in the names of her daughter and son-in-law. Neither her husband nor her daughter or son-in-law knew anything about them.

Consumer Affairs investigators were told that she signed for them in the presence of a company representative who encouraged her with such advice on disguising the handwriting as ‘write them differently’ or ‘slant it a bit more’.

Another woman was found to have five agreements for loans totalling $1350 as well as a merchandise account with the one company. She found the money to meet repayments of $30 a week by taking out more loans to finance current debts and arrears. The company representative insisted at the last loan renewal that her husband be listed as employed to get the loan through, though he knew that the husband had had to stop work and go on the invalid pension.

A woman whose husband earned $110 a week net ended up with personal loan agreements with four different companies, with repayments amounting to $115 a week.

When one woman’s husband died, though he had paid insurance with a loan to cover accident, sickness or death, she was tricked into accepting responsibility for the loan, signing the loan into her own name.

As a pensioner, she was naturally entitled to continue receiving her pension cheque if she became ill or had an accident, yet the company induced her to sign up for insurance on the loan against accident, sickness or death.

The former NSW Minister for Consumer Affairs Sid Einfeld has used the terms ‘scandalous’ and ‘wicked’ to denounce some unethical and illegal practices.

The Australian Consumers Association has issued warnings about people being deluded over interest rates. The association says that extra charges for credit insurance, stamp duty and establishment fees can tip the balance and mean that an apparently cheap loan can prove expensive.

Bankruptcy throughout Australia caused by credit, hire purchase debts and high-pressure sales techniques has doubled to record levels.

Valachi has testified as to how ruthless mobsters can be when they move in on a businessman upon default of a loan. The manager of a large meat wholesale company borrowed money from a Mafia loan shark in New York. Under the guise of safeguarding the loan, the company was forced to accept Valachi’s old protege, Joseph Pasano, as its president. Pasano and his mobster friends then used the company to buy meat and poultry on credit, resold it immediately for cash at discount prices, then pushed the company into bankruptcy. They cleaned up $1.3 million in just ten days.

In a paper entitled ‘Organised Crime’ presented to the 53rd Anzaas Congress in Perth in May 1983, Douglas Meagher QC, counsel assisting the Costigan Royal Commission into the Painters and Dockers Union, warned that in Australia there was little public awareness of the existence of loan sharking.

Meagher reported that the Costigan inquiry had taken evidence of strong-arm techniques employed to enforce repayment of loans. There was also some evidence that, where default occurred, restitution was demanded by the criminal organisation being granted equity in the business.

‘In these circumstances’, said Meagher, ‘it is used to penetrate legitimate business and often take a stranglehold of it’.

from Connections 1 by Bob Bottom

Illustration by Michael Fitzjames