DEFINITION of 'Racketeering'

Racketeering, often associated with organized crime, is the act of offering of a dishonest service (a "racket") to solve a problem that wouldn't otherwise exist without the enterprise offering the service. Racketeering as defined by the RICO act includes a list of 35 crimes. If convicted of racketeering, a person could serve up to 20 years and be fined up to $25,000.

BREAKING DOWN 'Racketeering'

A common example of a racket would be if a group of people cut the tires of cars on a specific street, and then that same group, or one in concert with the one cutting tires offered "protection" to the owners of the cars for a price. This fits the definition of a racket because without the organization’s slashing of tires in the first place, the demand for "protection" would be low or non-existent. Other examples of racketeering activity include extortion, money laundering, loan sharking, obstruction of justice and bribery

The Racketeer Influenced and Corrupt Organizations (RICO) Act became U.S. law in 1970, permitting law enforcement to charge individuals or groups with racketeering. This law made it so that organizations or individuals could be charged for up to ten years of ongoing criminal activity, that leaders of those organizations could be charged for activities that they ordered others to do (for instance, murder and extortion) and gave law enforcement more tools to combat racketeering. 

The part of the RICO act that gives it teeth is the prosecutor’s option to seize the indicted party’s assets, preventing transfer of funds and property. This provision makes it so that in the case of a guilty verdict the government would have something to seize from criminal enterprises. Otherwise, it would be possible for organizations to move assets around in shell companies making it harder to seize ill-gotten goods. In addition, this provision made it so it was hard for those indicted to pay for high-powered attorneys. Because of this a many cases are settled in plea deals.

The origin of the term "racketeering" comes from the Employers Association of Chicago. The EA was a group meant to represent the interests of employers, and generally to oppose the unionization of the city of Chicago, although less so as time went on. Founded by the VP of Marshall Field & Company, John Shed, the EA was formed initially to fight a telephone equipment strike in the years 1902 and ’03. In the 1920s and 1930s the EA focused its energy on leveling charges of mob-ties, vandalism, domestic terrorism, and crimes they called "racketeering." A few years after the first use of the term by the EA, the Employers’ Association president, James W. Breen, was linked to racketeering charges, specifically the formation of a battery makers cartel

  1. Money Laundering

    Money laundering is the process of creating the appearance that ...
  2. Business Ethics

    The study of proper business policies and practices regarding ...
  3. Freeriding

    1. An illegal practice in which an underwriting syndicate member ...
  4. Suspicious Activity Report - SAR

    One of the tools provided under the Bank Secrecy Act (BSA) as ...
  5. Anti Money Laundering - AML

    A set of procedures, laws or regulations designed to stop the ...
  6. Catalyst

    A catalyst in equity markets is a revelation or event that propels ...
Related Articles
  1. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  2. Options & Futures

    Spotting A Forex Scam

    Forex scams are more common than you think. We tell you how to spot them.
  3. Retirement

    The Ghouls And Monsters On Wall Street

    Learn about some of the creepiest cases of fraud and the characters behind them.
  4. Options & Futures

    Uncovering A Career In Forensic Accounting

    Does a job as a financial sleuth sound interesting to you? Dig in to learn more.
  5. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  6. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  7. Budgeting

    When Using a Money Order Makes Sense

    Money orders are usually the least expensive way to send "cleared" funds to pay a bill (or traffic ticket). Here's how they work and what to watch out for.
  8. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  9. Investing Basics

    How Financial Statements Are Manipulated

    Financial statement manipulation is an ongoing problem, and investors who buy stocks or bonds should be aware of its signs and implications.
  10. Economics

    3 Notorious American White Collar Criminals

    Learn about the crimes and punishments of some of the most infamous convicted white-collar crooks.
  1. In what states are high-cost payday loans illegal?

    Georgia is the only state where high-cost payday loans are expressly prohibited under racketeering laws. In 2014, several ... Read Full Answer >>
  2. What are some high-profile examples of wash trading schemes?

    In 2012, the Royal Bank of Canada (RBC) was accused of a complex wash trading scheme to profit from a Canadian tax provision, ... Read Full Answer >>
  3. What are examples of inherent risk?

    Inherent risk is the risk imposed by complex transactions that require significant estimation in assessing the impact on ... Read Full Answer >>
  4. What is the difference between wash trading and insider trading?

    Wash trading is an illegal trading activity that artificially pumps up trading volume in a stock without the stock ever changing ... Read Full Answer >>
  5. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  6. Who are the most famous people convicted of insider trading?

    In finance, insider trading refers to the buying and selling of security by a person who has access to material non-public ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center