What is 'Racketeering'

Racketeering, often associated with organized crime, is the act of getting involved in a dishonest and fraudulent business dealing or offering a service to solve a problem that wouldn't otherwise exist. The law defines 35 different offenses that constitute racketeering, and the list includes gambling, kidnap, murder, arson, drug dealing and bribery. Law provisions a racketeering convict to serve up to 20 years in prison, in addition to a fine of up to $25,000.

BREAKING DOWN 'Racketeering'

In the movie “The Wolf of Wall Street,” the character of Jordan Belfort played by Leonardo DiCaprio asks his fellow-mates to show how to sell an ink pen. While all try hard with the usual pitches of “It’s a very good pen,” or “Your writing will improve by using this pen,” one of them (Brad) asks Jordan to write his name for which Jordan asks for a pen. The short exercise in the movie concludes by citing the importance of “creating a need when none exists to conduct a sale and earn.”

Racketeering works on a similar theme, and involves malpractices of offering a deceitful service to fix a problem that otherwise won’t exist. Derived from the word racket - which refers to a planned or organized criminal act that may involve more than one person acting in a group and is a repeated or ongoing criminal activity - racketeering involves criminal act as a form of business or a means to make illicit gains quickly, regularly, and repeatedly.

Examples of Racketeering

Common examples include cyber extortion on a user’s computer or carjacking/vandalism in a particular area. In the first case, a hacker may illegally push malware on a user’s computer which blocks all the access to the computer and to the data stored on it. The hacker (or his partner), disguised as a computer expert, then demands money to restore the user's access. In the second case, a group of individuals may vandalize the cars parked in an area to create a ruckus, and then they (or their partners) offer protection to the car owners against a payment. In both the cases, the problem that didn't exist was specifically created to offer a fix and earn money illegally.

Other common examples include kidnap – where someone is illegally detained to be set free against a demanded ransom, a fencing racket - where individual(s) act as intermediaries to buy stolen goods from thieves at low rates and resale them for a big profit to unsuspecting buyers, or an illegal gambling operation - where a corrupt dealer colludes with his associates disguised as gamblers to rip other unsuspecting gamblers off their money. Beyond the examples of such mobsters-led activities in the high crime areas of a city, racketeering practices may also exists at corporate levels in different forms. For instance, a drug manufacturer may bribe doctors to overprescribe a medicine and commit a fraud on insurance companies to reap profits.

RICO Act of 1970

To contain the growing menace of illegal colluding and profiteering through the racketeering practices, the U.S. government introduced the Racketeer Influenced and Corrupt Organizations (RICO) Act in October 1970. The law permitted enforcement agencies to charge individuals or groups involved in various acts of racketeering, and 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 about RICO charges. The available details mandate that in order to be found guilty of violating the RICO statute, the government must prove beyond a reasonable doubt: (1) that an enterprise existed; (2) that the enterprise affected interstate commerce; (3) that the defendant was associated with or employed by the enterprise; (4) that the defendant engaged in a pattern of racketeering activity; and (5) that 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. 

Most of the racketeering activities involved different mobsters perpetrating the crime. In the absence of a suitable law prior to RICO, the prosecutors had no choice to connect the dots and they could not build up a holistic case against the organized crime group. They were forced to try such mob-related racketeering crimes individually. Despite many different individuals being involved in each crime, the law agencies could only prosecute criminals individually instead of taking action against the entire criminal organization. 

The RICO act filled the void that then existed, and allowed law enforcers to file cases against the whole racket. The RICO act allows prosecutors an option to seize the assets of the indicted party, thereby preventing transfer of funds and property through shell companies. Giving more tools to the law enforcement agencies to combat racketeering, the law allows for charging organizations or group of individuals for up to twenty years of ongoing criminal activity for each count of racketeering, and for charging the leaders of such organizations for activities that they ordered others to do.

Federal versus State Offenses

The RICO Act provisions imposing charges against a person if he has committed at least two acts of racketeering within a 10-year period. A total of 35 crimes qualify to be called as acts of racketeering, of which 27 are classified as federal crimes and rest 8 are classified as state crimes.

Federal crime is an act that is deemed illegal by the U.S. federal legislation and leads to prosecution at both the federal and the state levels. They include acts like drug trafficking, immigration-linked crimes, weapons charges, organized crimes, white-collar crimes and computer-related frauds and crimes. Their investigation involves federal government agencies like 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 Secret Services.

State crimes are acts deemed illegal by the law of a particular state, and are investigated by local cops, state investigating agents, or county sheriffs. They include offenses like kidnap, robbery and assault. 

Sentences for federal crimes are generally lengthier and harsher compared to those for state crimes. Depending upon the type of acts committed under the racketeering charges, the guilty faces the sentence(s).

Historical Instances of Racketeering

In June 2018, two Kansas counties and two Missouri counties filed federal racketeering cases against more than a dozen manufacturers and distributors of opioid, a substance used in a class of pain-relieving medicine but often prone to misuse as a drug. The defendant business entities were charged of “false, deceptive and unfair marketing and/or unlawful diversion and distribution of prescription opioids.” The accusations include the companies falsely representing the danger of addiction, and turning "patients into drug addicts for their own corporate profit." Similar opioid-linked RICO cases are ongoing in Alabama, Massachusetts, Mississippi and Pennsylvania.

Racketeering cases involving labor unions have been popular. They involved an organized crime group using labor unions to extort a company or contractor(s), or use a union to control workers. The Italian-American mafia criminal society called as Cosa Nostra is famous for their efficiency in controlling the unions during the last century. They gained a strong foothold such that both the management and the labor had to rely on the gangsters for protection and as a counterforce to communist and socialist elements.

In May 2015, many FIFA 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 legally in full capacity. Such shady businesses of black market offer unsecured loans, run illegal financial schemes or operate illegitimate pawnshops, and exist from America to Afghanistan. Racketeering groups not only offer them protection from authorities to a great extent by bribery and other means, they also guarantee their monopoly and help with any attempts of recovery of money from clients who may be dodgy or unable to pay.

RICO Convictions in Real Life

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 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 racketeering case. Five more gang members also received similar tough sentences. The gang was found guilty of illegally controlling a six-block section of West Garfield Park in Chicago, and the racketeering conviction included four murders committed by the gang members amid involvement in drug deals.

Beyond gang level cases, there are multiple instances of fraudulent practices at corporate level.

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 were seeking 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 taking the total to around $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.

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