What Is Racketeering?

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Racketeering is a criminal activity in which a person or organization engages in a “racket.” A racket occurs when a criminal creates a scheme that results in an illegitimate income stream, such as fraud or illegal gambling. The person or organization who engages in the racket is called a "racketeer."

Racketeering has often been associated with organized crime, beginning back in the early days of the 1920s.

The Beginnings of U.S. Racketeering

Lucky Luciano, who emigrated from Sicily to the United States in 1906, is widely considered the father of modern organized crime and was a famous member of the Mafia. The Mafia originated in Sicily, and it was originally an organization loosely composed of families charged with protecting the island from foreign invaders.

While there were criminal organizations in the United States before him, Luciano organized young gangsters in New York City to gain power after winning bloody wars with older mob bosses. They dealt in many rackets, with prostitution and bootlegging being the most lucrative. Luciano organized the gangsters into five crime families, which became known as "syndicates."

Luciano was arrested in 1936 after some of the prostitutes gave evidence to prosecutors who had been investigating him. During World War II, Luciano assisted the federal government from his jail cell. He had control, even from jail, of the longshoreman’s union. After that, he was released and deported to Italy, where he later died.

Early Activities

Some of the earliest examples of racketeering include prostitution as well as the numbers racket, which is an illegal lottery that was most popular before state and national lotteries were legalized.

Another popular early racket was providing protection, which involved members of the racket perpetrating crimes on, for example, a small business. Then, they would offer “protection” from similar crimes to the business in return for large amounts of money.


Other early examples of racketeering include drug trafficking, smuggling of weapons, kidnapping, and counterfeiting.

A Famous Racketeering Case

One famous racketeering case in the securities industry involved Michael Milken in 1989. The Milken case is an example of a racketeering case that does not involve the Mafia or a crime boss.

Milken worked for the Drexel investment bank as a bond researcher. He became instrumental in developing the junk bond market. Milken became a powerful player on Wall Street and was thought to sometimes skirt the Securities and Exchange Commission (SEC) regulations. As a result, he came under scrutiny by the SEC.

Milken was eventually indicted on 98 counts of racketeering and fraud with accusations of insider trading, securities fraud, and stock manipulation after being implicated by another defendant in a securities investigation. After a plea bargain, he was fined and imprisoned, but he is now free.

The RICO Act

The Racketeer Influenced and Corrupt Organizations (RICO) Act—also called the Organized Crime Act of 1970—was passed to try to eliminate organized crime. This federal law helped law enforcement correct a problem that prosecutors had when trying to charge crime bosses. They could charge the person in the racket who committed the crime, but they couldn’t charge the crime boss, since they did not actually commit the crime.

After the passage of RICO, crime bosses could be charged and tried for the crimes. Due to RICO, the sources of revenue could be exposed, and both criminal and civil penalties could be imposed. Criminal penalties for racketeering range up to 20 years to life in prison—depending on the racketeering activity—and civil liabilities are triple those of non-racketeering cases.


The RICO law was originally intended to take down Mafia crime bosses.

As the years have passed since the RICO law's enactment, prosecutors have found other uses for it. There are criminal gangs and drug smugglers, and RICO laws can be used in their prosecution just like they were used in the prosecution of crime bosses.

Racketeering in Schools

Another recent racketeering case happened in the Atlanta school system in 2009 and was tried in court in 2015. The No Child Left Behind Act was passed under the George W. Bush administration, and it held schools accountable for student learning.

In 2009, a group of Atlanta school officials engaged in changing student answers on standardized tests that they had taken to determine what they had learned during the school year. The group of school officials was employed in a school district that was traditionally low-performing, and the student scores spiked up during 2009. After a long investigation, several were indicted and convicted on charges of racketeering.

Cyber Extortion

Modern-day examples of racketeering get even more interesting. Cyber extortion occurs when the racketeer demands money or threatens to seize or damage electronic data, like computer data. For example, suppose a hacker gains access to your computer—possibly through discovering your password—and uses that access to either damage your data or use your data in some way that is detrimental to you unless you were to pay them a large sum of money.

Another example of cyber extortion is credit card fraud. Criminals place credit and debit card skimmers on gasoline pumps to capture the data from them. The patrons of gasoline stations often don’t realize that the skimmers are there. Other examples of modern-day racketeering include human trafficking, bribery, wire fraud, identity theft, illegal gambling, and money laundering.

Financial Implications of Racketeering

Racketeering has a high cost to society. In 2009, the United Nations Office on Drugs and Crime estimated that all forms of organized crime together generate 1.5% of the global gross domestic product (GDP) or about $870 billion each year. That is about 7% of the world’s export of merchandise.

Article Sources

  1. National Criminal Justice Reference Service. "The Sicilian Mafia and Its Impact on the United States," Page 1.

  2. FBI. "History of La Cosa Nostra."

  3. The Mob Museum. "Lucky Luciano."

  4. Duquesne University. "The Criminal RICO 'Enterprise' via Salerno, Milken, and Cianci," Pages 44-46.

  5. United States House of Representatives: History, Art, & Archives. "Crime Control Act of 1970."

  6. Congressional Research Service. "RICO: A Brief Sketch," Pages 1-2.

  7. Georgia Public Policy Foundation. "The Atlanta Schools Cheating Scandal."

  8. UNODC. "Transnational Organized Crime: The Globalized Illegal Economy."