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How did the highest paid mafia boss, Michael Franzese, make money from gas station?

The highest-paid mafia boss, Michael Franzese, made money from gas stations primarily through a massive gasoline tax fraud scheme. This sophisticated operation, considered one of the most lucrative rackets since Prohibition, allowed his criminal enterprise to profit by stealing federal and state taxes on gasoline sales. 

How the Scheme Worked

The operation, which involved 350 gas stations at its height, utilized a “daisy chain” of shell companies to exploit the tax collection process. 
    1. Shell Corporations: Franzese and his associates, in partnership with the Russian mob, set up a network of wholesale companies, many of them paper companies based in Panama, to handle gasoline sales on paper.
    2. Tax Evasion: Under the law at the time, gas could be sold tax-free from one wholesale company to the next. The fraud occurred when a dummy company was established to be the final seller to the retail gas stations. This company would forge tax documents indicating the taxes were paid, but in reality, they were pocketed.
    3. The “Daisy Chain” and Bankruptcy: Once enforcement agents attempted to collect the accrued taxes from the dummy company, it would declare bankruptcy and disappear. The operation would then seamlessly continue with another shell company, making it nearly impossible for authorities to track or collect the money.
    4. Undercutting Competitors: By avoiding the significant tax burden (up to 40 cents per gallon at one point), they could sell the gas to their network of stations at a heavily discounted price, effectively muscling out legitimate competitors and dominating the market in the New York metropolitan area. 

Profitability and Scope

The scale of the operation was enormous, supplying a significant portion of the gasoline in the New York area. 

 

  • Massive Revenue: Franzese has claimed his personal earnings reached up to $8 million per week, or about $1.4 million a day at its peak, making him the highest-earning mobster since Al Capone.
  • Laundering: The vast sums of cash were laundered through various legitimate-looking businesses, including a film production company called Miami Gold and car dealerships.
  • Impact: Authorities estimated that the scheme was responsible for stealing hundreds of millions of dollars in New York state alone per year. 
This sophisticated tax fraud, rather than typical street-level crime, allowed Franzese to amass an immense fortune and become one of the most powerful figures in the American Mafia during the 1980s.