THE MAFIA'S BITE OF THE BIG APPLE Byzantine building codes and horrendous logistics help the mob control New York City construction -- at a price that the big developers have been all too willing to pay.
By Roy Rowan REPORTER ASSOCIATE Julia Lieblich

(FORTUNE Magazine) – A CONCRETE-POURING job like Manhattan's new $486 million Jacob K. Javits Convention Center, completed two years ago, should have drawn a flock of bids. Not in New York City. Only two came in for the mammoth structure designed by I. M. Pei. The contract was awarded to S&A Concrete Co., a concern partly owned by Anthony Salerno, first among the nation's organized crime bosses, who is now serving a 100-year prison sentence for being part of the Mafia's ruling Commission. S&A thought the job could be done for a shade over $30 million. The only other bid was a suspiciously high $41 million. A Connecticut contractor spent three months working up a bid that would have been under S&A's, then dropped out at the last minute after a visit and a couple of phone calls from a Salerno lackey. Says Thomas Galvin, former chief executive of the convention center and now president of Xerox Realty Corp.: ''It was an open secret that concrete was Mafia-controlled.'' During the past decade, 17 federal, state, and city investigative agencies have been probing New York's crime-ridden construction industry. This scrutiny has resulted in scores of indictments and convictions. Just two weeks ago, Salerno and Vincent DiNapoli, another partner in S&A Concrete, were convicted of racketeering in federal district court in Manhattan, along with three other mobsters and four of their business associates. After a 13-month trial prosecuted by Assistant U.S. Attorneys Alan M. Cohen and Mark Hellerer, they were found guilty of rigging bids for building the concrete superstructures of 16 major projects in Manhattan, among them the Javits Center. The jury stripped Salerno and DiNapoli of their interests in S&A. Crime is so deep rooted that New York Governor Mario Cuomo this year ordered the formation of a special Construction Industry Strike Force, consisting of about 100 prosecutors, investigators, accountants, and analysts. It is the first law enforcement group in the country to concentrate exclusively on the building industry. Eventually Cuomo hopes to add a second agency to monitor and regulate the business. Says the governor: ''We must begin the enormous task of cleaning up a vital industry that has failed utterly to rid itself of corruption.'' The way the system works illustrates how criminal elements can take advantage of bureaucratic complexity, politics, and leave-well-enough-alon e businessmen to penetrate an industry vital to a great city's well-being. Manhattan developer William Zeckendorf Jr. describes how the costs flow from . mobster to builder to buyer to renter. ''There's too much money floating around,'' he says. ''So if you overpay by $5 or $10 a square foot, it gets passed on to the customer anyway.'' Construction costs in Manhattan may have been inflated over the years by as much as 20% because of the mob, according to a contractor who testified behind a screen at hearings held by the President's Organized Crime Commission in Washington. Whatever the surcharge, it affects the cost of doing business for any company in New York City. Ready-mix, the wet concrete that is delivered to building sites in lumbering 50-ton trucks with rotating drums, is the mob's main extortion weapon in Manhattan. But the Mafia has also infiltrated other building trades, including blasting, carpentry, and drywall. Several corrupt Teamster locals have pitched in by slowing or blocking delivery of building materials on command. While a few of the best-known Mafia bosses like Salerno are now in jail and some of their businesses dormant, law enforcement officials fear that mob penetration of New York City's $5-billion-a-year construction industry will worsen. A new state report titled Corruption and Racketeering in the New York City Construction Industry warns, ''Participants in the industry must be awakened from their complacency.'' Manhattan's megabuilders are not greeting that prospect with the enthusiasm you might expect. If anything, the industry seems alarmed that the governor just might succeed and end up hurting business. ''If people have a problem, they shouldn't build here,'' says Lewis Rudin, 61, chairman of Rudin Management Co. ''Arrest us if we're corrupt. If there's something wrong with what I'm doing, put me in jail.'' Rudin is also a member of the Citizens Crime Commission in New York City, a private watchdog group that has executives from six FORTUNE 500 companies on its board. He fears that the governor's plan will do to the construction industry what the gang-busting Waterfront Commission of New York Harbor did on the docks. ''Now,'' he says, ''we've got a clean shipping industry with no business.'' ONE OF THE FEW builders to endorse the need for a cleanup is Samuel LeFrak, who at 70 still rolls up his shirt-sleeves combatively and calls himself ''the Lone Ranger of my industry.'' The voluble chairman of the Lefrak Organization (the company uses a lower-case f) argues that featherbedding, bid rigging, and other corrupt labor practices raise the cost of building in New York astronomically, and he isn't afraid to say so. ''I'm not worried about any of these mob guys,'' he says. ''What are they going to do, put a bullet in me? Look, I'm a survivor. I'm here for the duration.'' Prompting Cuomo's call to clean up the construction industry is the scathing 130-page Corruption and Racketeering report, prepared by Ronald Goldstock, director of the New York State Organized Crime Task Force. It was to have been made public last July, but was withheld by the governor until there was a verdict at the construction racketeering trial just ended. The language Goldstock uses for his accusations is harsh. The document's most disturbing charge is that the construction industry is alarmingly comfortable with the Mafia. The report bluntly concludes that many developers, builders, and contractors ''believe that the monetary costs of corruption are more than offset by the money saved or earned through corruption.'' As a result, the report contends, the industry has ''become dependent upon'' the crime brotherhood. Mafia muscle, it states, assures ''contractors that they will only have to pay off once, that the amount will be reasonable, and that the services paid for will be delivered.'' Services include the strong- arm tactics needed to keep building materials flowing to job sites and to avoid labor disruptions. The developers' trade association responds to these charges with indignation. ''We resent being pictured as the enemy,'' says Joseph Newman, 63, chairman of the New York Building Congress and president of Tishman Research Corp. ''We're the victims.'' Newman's boss, John L. Tishman, 62, chairman of the 90-year-old Tishman Realty & Construction Co., which has built some 75 Manhattan skyscrapers, also denies knowledge of contractor complicity but concedes that ''there are some abuses in labor.'' Does Tishman mean the Teamsters, notorious for mob connections? Tishman, who is a student of psychic phenomena, glares at his questioner and snaps, ''Look, you said Teamsters. I didn't. I may believe in the afterlife, but I want to stay here awhile.'' The Goldstock report reveals that Harry Gross, a Teamster racketeer, and Philip Doran, a Teamster business agent convicted of attempted grand larceny and bribe-taking, were on Tishman's payroll up to 1985. The company says the two men were assigned to their jobs by the union. Tishman believes, as do others in his business, that the biggest impediment to building in New York is not corruption but the exasperating logistics. He has a point, but the problems also encourage the proliferation of fixers. Narrow city streets do not provide much storage space for building materials, so steel beams, concrete, brick, and glass must be trucked to the job on a precise schedule geared to when they will be used. Construction sites in New York are enclosed by wooden fences, and Teamster foremen are posted at the gates to check the union membership of all drivers delivering materials. These foremen can withhold labor and disrupt deliveries. That power gives mob-run unions a lot of leverage over an industry that employs 100,000 workers in New York City alone. EIGHT YEARS AGO, during the ground-breaking ceremony for the $250 million Gateway Plaza apartment complex at the southern tip of Manhattan, the builder, Sam LeFrak, told John Cody, then president of Teamster Local 282, that he was planning to use labor-saving precast concrete instead of ready-mix. Cody, who has since done a little time for labor racketeering and lost his Teamster post, made it clear that his boys who drove the ready-mix trucks wouldn't like LeFrak's idea. What he didn't mention was that Paul ''Big Paul'' Castellano, godfather of the Gambino crime family until he was gunned down on a midtown sidewalk in 1985, wouldn't like it either. Cody, the Goldstock report revealed, was a captive of the Gambinos and was paying Castellano $200,000 a year as his share of the labor shakedowns. Today LeFrak says that the precast suppliers reached some sort of compromise with Cody. Tom Galvin, who spent six years as chief operating officer of the Battery Park City Authority, the agency that oversaw Gateway Plaza, before becoming CEO of the Javits Center, disputes that: ''LeFrak didn't get around John Cody. Nobody did.'' And the New York Times reported that the Teamster boss's strong-arm tactics added $10 million to Gateway Plaza's costs. By deploying captive unions such as Teamster Local 282 as their enforcement arm, the Mafia chiefs have intimidated the developers and extracted immense plunder from them. Much of the booty comes from contractors and subcontractors who are hired by developers to do the work and who pass along the costs to the developers. Irving Fischer, president of HRH Construction Corp., prime contractor for the Javits Center, was one of the few builders who dared testify at Salerno and DiNapoli's trial. He described how ''a bunch of labor goons once stormed into our office and held the switchboard operator at knife point.'' Fischer says they demanded no-show jobs when he was building Trump Tower. But it is not the fear of violence that has kept the building industry from rooting out corruption. As Governor Cuomo told FORTUNE, ''It's the fear of upset, the fear of delay, the fear of impediment to construction, and then it's the ease with which the builders can put those added costs into the price of the job. If the industry had been eager to cleanse itself, builders would be walking into the D.A.'s office and saying, 'Hey, this guy's putting the arm on us.' ''

NEW YORK CITY'S maze of statutes and byzantine building codes makes the construction industry highly susceptible to Mafia infiltration. Tortuous permit requirements for demolition, excavation, hoisting, and other on-site operations, as well as the endless approvals needed from myriad municipal departments such as the Department of Buildings, City Planning Commission, Department of Environmental Protection, Department of Transportation, Fire Department, and Landmark Preservation Commission, plague the whole construction process with seemingly infinite bureaucratic obstacles. A racketeer with control over suppliers, union officials, and city inspectors can vastly improve the speed and efficiency with which buildings rise in Manhattan. Last November, New York Mayor Edward Koch summoned two dozen developers to a closed meeting at City Hall. He challenged them to hang tough and take a strike if necessary to curb the illegal labor practices. Later Koch complained that the group seemed defensive and ''conveyed the impression that there was no corruption. I must say, I saw a lot of slender reeds in that room.'' Lewis Rudin, one of the developers pressent, says, ''The mayor accused us of pussyfooting around about corruption. But to me, the need to get so many city approvals causes more of an increase in construction costs than all this nonsense about mob collusion.'' Rudin describes how the Department of Buildings ordered a four-day halt to the steel work on a 35-story office tower that he is cantilevering over the Broadway Theater, where Les Miserables is playing. ''It was an improper decision,'' Rudin says. ''But it cost me hundreds of thousands of dollars in lost time, and there was no gangster putting a gun to my head.'' The buildings commissioner says the stoppage was for safety reasons. Cuomo thinks Rudin may have a point. ''Sometimes I think the building codes were written to allow for chicanery,'' says the governor. He is now asking Thomas Reppetto, president of the Citizens Crime Commission, to gather all the industry's recommendations for streamlining work practices and abolishing outmoded regulations that invite extortion. For decades mobsters have proved skillful at seizing labor organizations by terror to loot their treasuries and pension funds. In the last dozen years or so, Mafia leaders like the bulging, 300-pound DiNapoli have demonstrated considerable flair for organizing corrupt union locals to shake down the developers. DiNapoli achieved underworld status as the protege of Salerno, 77, the head of the Genovese crime family. But the shabby storefront social clubs in East Harlem where ''Fat Tony'' and the other Mafia chiefs conducted their business were not to Vinnie's taste. He maintained a penthouse on Manhattan's East Side, from which to dabble in the usual loan sharking and gambling while devoting most of his energies to racketeering in the construction industry. Early on DiNapoli, 51, revealed a remarkable ability to roll with the reprisals of law enforcement. Convicted in a sports bribery case in 1978, he was sentenced to three years in federal prison. Serving time was not onerous. Locked up only on weekends, he was free to go about his business on working days, and after just three months of that convenient incarceration, Vinnie was released on probation. THE JUSTICE Department's Brooklyn-based Organized Crime Strike Force says that DiNapoli continued to dominate the city's drywall business while he was on probation. Drywall construction uses Sheetrock instead of plaster for interior walls and ceilings. DiNapoli reportedly owned two drywall companies and held sway over eight others in collusion with other gangsters, setting the price of a good part of this work in Manhattan. His contribution to the science of criminal control was to guarantee builders against delays. Astride both labor and management, DiNapoli exacted $1,000-a-week payments from drywall contractors he didn't own in return for labor peace. After arranging for a union slowdown, he would offer the hapless contractor an unconditional warranty against further interruptions -- but for a price. For additional sums, contractors were allowed to hire non-union workers or to operate so-called ''double-breasted'' shops, employing both < union and non-union laborers. He also ensured that contractors won whole jobs by getting the mob to rig the bids -- for a fee of up to 2% of the project. DiNapoli's big blackjack over the drywall industry was the 30,000-member New York City District Council of Carpenters. Its president, Theodore Maritas, was a puppet manipulated by Tony Salerno and other Genovese heavyweights. Maritas made sure that his union carpenters and the builders bidding for construction jobs played by the mob's rules. The tactics he used to discipline wayward contractors were recorded by FBI listening devices. He was overheard discussing how one contractor won a job worth more than $1 million without proper mob authorization. ''You know, my ears are ringing with this man,'' said Maritas. ''He don't get the message. I got to go in now with a f ----- hammer and break all his work down.'' In the end, Maritas apparently became a victim of the mobsters who controlled his unions. Indicted with DiNapoli and others on racketeering charges in 1981, he disobeyed mob orders and refused to plead guilty as Vinnie and the rest of the defendants did after their trial resulted in a hung jury. Before he could be retried, Maritas disappeared and is believed to have been murdered. DiNapoli went to jail for his drywall shakedowns (he got five years), leaving his wonderful money machine in the safekeeping of his mentor, Fat Tony. Salerno saw its vast profit potential and turned what had been a mere jalopy into a juggernaut to extort millions from the builders of Manhattan's shimmering towers. So great were the anticipated spoils that three other organized crime families -- the Gambinos, Colombos, and Luccheses -- horned in on Salerno. The result was a cartel secretly manipulated by the four Mafia families. Two Mafia-controlled firms producing ready-mix -- Transit-Mix Concrete Corp. and Certified Concrete Co. -- were part of it too, plus a half dozen participating contractors, who did not make but simply sold and poured the concrete. Enforcing the cartel's edicts were two corrupt labor groups: the District Council of Cement and Concrete Workers, and good old Teamster Local 282, representing the truck drivers who deliver all the ready-mix to the building sites. THE MAFIA got profits from the cartel in two ways. First, it exacted dues from its contractor members for the many benefits bestowed: protection from competition, the ability to charge inflated prices, assurances of supplies and a skilled labor force, and the right to ignore collective bargaining agreements. Second, it made money through the operation of its own companies. The cartel decided who could participate in the concrete, drywall, and other trades; it determined who would be awarded the contracts; and it decreed the prices to be charged. For example, the rigging of the Javits Convention Center bids followed a heated Mafia sitdown at a cafe in Manhattan called Paul & Jimmy's Place. After finally agreeing that Salerno's S&A Concrete Co. would submit the winning bid, the cartel then disposed of a presumptuous outsider who it had heard was also going to bid on the job. The Corbetta Construction Co. of Hamden, Connecticut, specialized in office buildings and airport work. It had just completed the $65 million concrete superstructure of the Union Carbide headquarters in Danbury. Dazzled by I.M. Pei & Partners' plans for the convention center with its 15-story atrium entryway, Louis J. Corbetta, the firm's president, planned to submit a bid of $29 million to pour the concrete. Says Corbetta: ''We had the perfect team to go in and build that job, we thought.'' Confident of winning, he even began negotiating with the Transit-Mix Corp. to supply the concrete. WHAT CORBETTA didn't know about was Transit-Mix's participation in the cartel. The day before the bidding deadline, Alvin Chattin, a vice president of the concrete supplier, showed up at Corbetta's office. Chattin, as Corbetta told a federal prosecutor last year, ''informed me that he was there to get us to consider doing something other than bidding the job as we planned, such as a complimentary price ((an intentionally high bid)).'' Corbetta said, ''I was floored. I had worked three months on this deal, personally. This job was perfect for us, and I would be goddamned if I was going to drop out.'' It took a while before he stopped steaming. He then told Chattin that ''under no circumstances'' would he ''bid the job other than straight.'' Despite his bravado, Corbetta knew he was swimming in scary waters. ''I was frightened,'' he remembers poignantly seven years later. The next morning Chattin telephoned. Corbetta told the prosecutor that Chattin said, ''this was a play that was not in Chattin's control,'' but that there was ''muscle behind the whole deal. It was not just a simple little thing of two contractors getting together.'' Finally, Corbetta asked him to call back a little later. When Chattin telephoned, Corbetta recalled, ''I told him I had decided to drop out. I was not going to bid the job. I was going to walk away.'' Chattin was among those convicted with Salerno and DiNapoli. The cartel's practices were part of the evidence cited by prosecutors in the Commission trial, in which Salerno and three other members of the Mafia's ruling council were convicted early last year of being part of a racketeering enterprise. With these gangsters now in jail, some of the cartel's operations have been suspended or have gone deeper underground. Stone walls do not a prison make, however, as long as there is a telephone through which Mafia leaders like Salerno can pass their instructions. One of the primary missions of Cuomo's new Construction Industry Strike Force will be to uncover the cartel's remnants. THE GOLDSTOCK report shows that contractors pouring concrete in the city benefited from Mafia control because they could get guaranteed market shares. Developers and builders had nothing to do with the selection process other than to fork over the rigged price. In return the contractors kicked back to the mob according to a sliding scale based on the price of the job. On concrete contracts under $2 million, a 1% tax was paid to the Colombo family, which because of its lower standing in the Mafia caste system was conceded all the small payoffs. Contracts of between $2 million and $15 million were taxed 2% by the ruling Mafia Commission, headed by Tony Salerno. Jobs exceeding $15 million were the exclusive province of S&A Concrete Co., owned by Salerno and DiNapoli. Exactly how all this worked in practice was carefully explained by Ralph Scopo, president of the District Council of Cement and Concrete Workers, in a conversation recorded by the FBI. Another cement contractor, ''Sally'' D'Ambrosia, contended that the spirit of free enterprise entitled him to bid on a job that exceeded $2 million at JFK Airport. Scopo insisted that contracts of this size were reserved for members of the Mafia Commission. ''Why can't I do the concrete?'' asked D'Ambrosia naively. ''Over $2 million, you can't do it,'' Scopo explained. ''It's under $2 million, hey, me, I tell you go ahead and do it.'' But D'Ambrosia persisted. ''Who I gotta go see?'' he asked. ''You gotta see every family,'' said Scopo. ''And they're gonna tell you, no. So don't even bother.'' Scopo was convicted of extortion and racketeering in 1987, and is currently serving a 100-year sentence. Rigged bids resulted in many other lucrative jobs for Salerno and DiNapoli. Listed among the racketeering acts for which they were just convicted is a $7.8 million concrete subcontract awarded to S&A in the construction of the Trump Plaza luxury apartments on East 61st Street built by HRH. Their indictment cited another rigged contract, for $5.5 million, of concrete supplied to an Upper East Side condominium built by Tishman Construction Corp. Describing his concrete suppliers, John Tishman says, ''They're a small, protected group, and they're all interconnected.'' He doesn't use the word ''Mafia.'' SALERNO and DiNapoli had yet another way of wringing money from stones -- through their secret interest in the concrete makers, Transit-Mix and Certified. Their front man in this enterprise was Edward ''Biff'' Halloran, former owner of the midtown hotel Halloran House. Halloran ostensibly owned both ready-mix companies and was Al Chattin's boss. The two firms are currently in receivership, having declared bankruptcy in 1987 after Halloran was convicted of a $9.2 billion check-kiting scam. He was convicted again of racketeering two weeks ago along with Salerno and DiNapoli. Salerno's close connection with Transit-Mix and Certified did not stop him from taxing Halloran on his concrete. He was able to exact a $2-per-cubic-yard levy on just about all ready-mix sold in Manhattan, but on Halloran's concrete Salerno upped the ante to $3 per cubic yard. Joe Culek, Halloran's butler, valet, chauffeur, and messenger, delivered the tax to Salerno's bagman. Culek described to a federal prosecutor how he and Halloran House controller John Horl once wadded $20,000 into an envelope. Then, said Culek, he ''ran on foot'' to mob lawyer Roy Cohn's office and handed the boodle to Cohn to give to Salerno. Cohn, who died of AIDS two years ago, had been Salerno's lawyer. Tracking down the racketeers is slow, frustrating work. Manhattan District Attorney Robert Morgenthau, who will share direction of the Construction Industry Strike Force with Ronald Goldstock, claims the biggest problem is getting victims to cooperate. ''Their fear of physical harm is too great,'' Morgenthau says. He also mentions a tactical problem impeding his prosecutors: ''Most of these crimes involve extortion. There is no overt act. So it takes ten to 15 investigators just to follow the paper trail on each case.'' But the biggest problem of all is the construction industry's reluctance to resist. It remains to be seen whether the new Construction Industry Strike Force can replace the power held by Fat Tony Salerno in keeping supplies flowing to job sites and assuring labor peace.