What is Racketeering?

The term racketeering broadly refers to criminal acts, typically those involving extortion. It is usually used in reference to patterns of illegal activity specified in the Racketeer Influenced and Corrupt Organizations Act (RICO). This is a U.S. federal law that makes it illegal to acquire or control a business through certain crimes or income from those crimes. It is also illegal to participate, even indirectly, in certain crimes committed by a business or to conspire to do any of the above under the act.

The list of federal crimes specified in RICO includes bribery, fraud, gambling offenses, money laundering, financial and economic crimes, obstructing justice or a criminal investigation, murder for hire, and the sexual exploitation of children.1 At the state level, racketeering includes crimes such as murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, and drug crimes.

Organized groups may operate illegal businesses, known as rackets. An organized group may also divert funds from a legal business to use for illegal activities. Rackets primarily functioned in obviously illegal industries, such as prostitution, human trafficking, drug trafficking, illegal weapons trade, or counterfeiting. Labor unions have also been a frequent target of racketeering allegations. Organized crime groups generally use one or more labor unions to extort money from a company or contractor(s). In other cases, groups use unions to control workers. The Italian-American mafia criminal society, La Cosa Nostra, was famous for its control over labor unions. La Cosa Nostra gained such a strong foothold that both company management and the labor union had to rely on the gangsters for protection.

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 permits enforcement agencies to charge individuals or groups involved in various acts of racketeering. Individuals guilty of committing RICO crimes may be prosecuted and, if found guilty, can face a 20-year prison sentence or more for serious crimes. Fines and other penalties may also apply.

Corporations may also engage in racketeering. For instance, a drug manufacturer may bribe doctors to overprescribe a medicine, thus committing fraud in order to boost their profits. Predatory lending may also be deemed a form of racketeering. This happens when a lender tricks a borrower into taking a loan that deliberately ignores or actively hinders their ability to repay it.

For instance, automobile insurer 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.

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