What Is Racketeering

Racketeering refers to crimes committed through extortion or coercion. A racketeer attempts to obtain money or property from another person, usually through intimidation or force. The term is typically associated with organized crime. The law defines 35 different offenses that constitute racketeering in the U.S. The list includes gambling, kidnap, murder, arson, drug dealing, and bribery. Convicted racketeers can serve up to 20 years in prison, in addition to paying a fine of up to $25,000.

In the popular 2013 film "The Wolf of Wall Street," the character Jordan Belfort asks a room full of salesmen to sell him a pen. After everyone in the room tries to pitch him the pen, one of them asks Jordan to write his name, forcing him to ask for the pen. The short exercise concludes by citing the importance of “creating a need when none exists to conduct a sale and earn.”

Racketeering works similarly. Racketeers offer a deceitful service to fix a problem that otherwise wouldn't exist. The term derives from the word racket, a criminal activity that cheats individuals out of their money.

Racketeering takes many forms. Recently, cyber extortion on a user’s computer has become more common. In this case, a hacker may illegally push malware onto a user’s computer, which blocks all the access to the computer and to the data stored on it. The hacker (or their partner), then demands money to restore the user's access.

Racketeering may also take the form of a protection racket. In a protection racket, a criminal entity may threaten to cause harm to a business or an individual's private property if the owner does not pay a fee for protection. In both examples, the criminal entity created a specific problem in order to offer a fix and earn money illegally.

Other common examples of racketeering include:

• Kidnapping: An individual is illegally detained and their captors agree to set the kidnapped individual free once a ransom is paid
• Fencing racket: Individual(s) act as intermediaries to buy stolen goods from thieves at low rates and resell them for a profit to unsuspecting buyers
• Numbers racket: A form of illegal gambling in which a corrupt dealer colludes with his associates disguised as gamblers to cheat other unsuspecting gamblers of their money

Beyond traditional examples that are perpetrated by criminal enterprises, corporations may also engage in racketeering. For instance, a drug manufacturer may bribe doctors to overprescribe a medicine, thus committing a fraud on insurance companies to boost profits.

To contain illegal collusion and profiteering through racketeering, the U.S. government introduced the Racketeer Influenced and Corrupt Organizations (RICO) Act in October 1970. The law was enacted as Title IX of the Organized Crime Control Act of 1970, signed into law by President Richard Nixon. The law permits enforcement agencies to charge individuals or groups involved in various acts of racketeering. The act “has as its purpose the elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce."

The U.S. Department of Justice (DoJ) provides an expansive view on RICO charges. According to the DoJ, in order to be found guilty of violating the RICO statute, the government must prove beyond a reasonable doubt that:

1. An enterprise existed
2. The enterprise affected interstate commerce
3. The defendant was associated with or employed by the enterprise
4. The defendant engaged in a pattern of racketeering activity and
5. The defendant conducted or participated in the conduct of the enterprise through that pattern of racketeering activity through the commission of at least two acts of racketeering activity as set forth in the indictment. 

At the time that RICO was enacted, government prosecutors primarily used it to target organized crime. Before the law was in place, prosecutors had few legal methods to prosecute an entire criminal organization. Instead, prosecutors were forced to try mob-related racketeering crimes individually, even though a large number of individuals may have been involved in the commission of a crime.

RICO allows law enforcement officials to file cases against the whole racket. The law gives prosecutors an option to seize the assets of the indicted party, thereby preventing transfer of funds and property through shell companies. Providing more tools to law enforcement agencies to combat racketeering, the law allows prosecutors to charge organizations or a group of individuals for up to 20 years of ongoing criminal activity for each count of racketeering. The law also allows prosecutors to charge the leaders of such organizations for activities that they ordered others to do.

Through RICO, prosecutors can charge a person if they have committed at least two acts of racketeering within a ten-year period. A total of 35 crimes qualify to be called acts of racketeering, of which 27 are classified as federal crimes and the remaining eight are classified as state crimes.

Federal crimes lead to prosecution at both the federal and the state levels. They include drug trafficking, immigration-related crimes, weapons charges, white-collar crimes, and computer-related fraud. Investigation of federal crimes involves national agencies such as the Federal Bureau of Investigation (FBI), Drug Enforcement Agency (DEA), Border Patrol, Department of Homeland Security, Internal Revenue Service (IRS), Bureau of Alcohol, Tobacco and Firearms (ATF), and the Secret Service.

State crimes violate the laws of a particular state, and are investigated by local, state, or county police. Kidnap, robbery and assault—provided that they occur within the boundary of a particular state—are state crimes.

Sentences for federal crimes are generally longer and harsher than those imposed for for state crimes.

In June 2018, two Kansas counties and two Missouri counties filed federal racketeering cases against more than a dozen manufacturers of opioid painkillers. The defendant business entities were charged with “false, deceptive and unfair marketing and/or unlawful diversion and distribution of prescription opioids.” The prosecution alleged that the defendant companies falsely represented the danger of addiction and turned "patients into drug addicts for [the companies'] own corporate profit." RICO lawsuits have also been filed in against opioid manufacturers in Alabama, Massachusetts, Mississippi, and Pennsylvania.

Labor unions have also been a frequent target of racketeering allegations. In these instances, an organized crime group has used one or more labor union(s) to extort a company or contractor(s), or has otherwise used a union to control workers. The Italian-American mafia criminal society, La Cosa Nostra, was famous for its control over labor unions. La Cosa Nostra gained a strong foothold such that both company management and the labor union had to rely on the gangsters for protection .

In May 2015, many FIFA (Fédération Internationale de Football Association) officials and corporate executives were indicted for racketeering conspiracy and corruption charges that involved bribes and kickbacks paid to secure profitable media and marketing rights to international soccer tournaments.

Other examples include protection rackets that thrive on offering security to businesses that don’t operate fully legally. Such businesses may be involved in offering unsecured loans, running illegal financial schemes, or operating illegitimate pawnshops. Racketeering groups offer such businesses protection from authorities, guarantee their monopoly, and help with recovering assets from clients who are unable or unwilling to pay.

In November 2013, Kevin Eleby, a longtime leader of the Pueblo Bishop Bloods street gang that operated in Los Angeles, was sentenced to 25 years in federal prison in a RICO case. The gang used violence and intimidation in an attempt to control the Pueblo del Rio Housing Projects in South Los Angeles. The RICO trial determined that the criminal enterprise engaged in drug dealing, firearms trafficking, murder, witness intimidation, and armed robbery as part of the gang’s efforts to control and terrorize the housing projects.

In July 2017, two former Baltimore police officers pleaded guilty to federal racketeering charges. They, along with few more members of Baltimore's Gun Trace Task Force, were accused of scheming to steal money, property and narcotics by way of detaining individuals, entering residences, conducting traffic stops and swearing out false search warrant affidavits.

In June 2018, Cornel Dawson, the leader of a violent street gang called Black Souls, was hit with multiple life sentences in a racketeering case. Five more gang members received similar sentences. The gang was found guilty of illegally controlling a six-block section of West Garfield Park in Chicago. The racketeering conviction included four murders committed by the gang members amid involvement in drug deals.

In addition to traditional criminal enterprises, numerous instances of corporate racketeering have been found.

One of the largest American auto insurers, State Farm, was accused of illegally funding Judge LLoyd Karmeier’s 2004 election campaign by channeling money through advocacy groups that didn’t disclose donors. The case relates to long-running litigation by State Farm customers who alleged that they were given generic, substandard car parts instead of original equipment for more than a decade. The plaintiffs sought damages worth $1 billion plus $1.8 billion in interest, in addition to the damages that could have been tripled under the federal RICO Act. The total damages sought neared $8.5 billion. In September 2018, State Farm agreed to pay $250 million to settle the racketeering case just before opening statements were set to begin.