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Racketeering

A legal term that refers to acts committed that are part of an ongoing criminal enterprise

What is Racketeering?

Racketeering is a legal term that refers to acts committed that are part of an ongoing criminal enterprise. The term is most commonly associated with the activities of organized crime organizations – such as the Mafia – but in recent years, it’s been applied to any sort of ongoing illegal practice or scheme.

 

Racketeering

 

Concerning the world of finance, racketeering includes the acquisition, operation, or use of a business to engage in illegal activity. Racketeering charges have been filed against Wall Street operators for crimes such as insider trading and fraud.

 

Summary

  • Racketeering is the term applied to any activities that are considered part of an ongoing criminal enterprise or organization.
  • Originally applied only to the activities of organized crime groups, the term racketeering has been broadened to include virtually any ongoing criminal activity.
  • In the modern world, increasingly common racketeering enterprises include cyber extortion, identity theft, and credit card fraud.

 

The History of Racketeering

Roughly a century ago, the term “racket” was applied to several ongoing, organized criminal activities. Among the most common examples were prostitution, the numbers racket (an illegally operated lottery), and loan sharking (private loans where the borrowers were charged exorbitant interest rates, such as 10% per week).

With the rise of organized crime in the form of the Mafia, racketeering came to refer to any part of the ongoing illegal activities of the Mafia or any other organized crime organization or group.

Within the past few decades, the definition and recognition of the term have broadened to include crimes committed by corporations and by individuals working in the financial services industry. An example of the broader definition of racketeering is the crime of predatory lending.

Racketeering has also been applied to the actions of pharmaceutical companies found guilty of concealing material information about the dangers of their products.

 

The RICO Act to Combat Racketeering

Frustrated by its inability to successfully prosecute Mafia bosses who were rarely directly engaged in committing illegal acts, the United States government passed the RICO (Racketeer Influenced and Corrupt Organization) Act. The RICO Act essentially made it a federal crime for someone to be either employed by or associated with any ongoing criminal organization or criminal enterprise.

Armed with the RICO statute, federal prosecutors were able to go after the leaders of criminal organizations, even if the leaders did not directly participate in the crimes they directed others to commit.

Both state and federal racketeering laws have been used to prosecute the perpetrators of virtually any sort of criminal activity – including the possession and sale of stolen goods, human trafficking, bribery, extortion, illegal gambling, counterfeiting, tax evasion, and political corruption.

 

Examples of Racketeering in the Financial World

Racketeering charges were brought against Michael Milliken in the late 1980s. The case was one of the first instances of racketeering charges being used against someone outside of the circle of organized crime. Milliken was an employee of Drexel Burnham Lambert on Wall Street, in charge of the company’s high-yield bond department. He was a key player in the overall rise of the junk bonds market.

Milliken was charged with violations related to securities fraud and insider trading activities in 1989 after a federal investigation lasting nearly a decade.

A more modern racketeering crime is that of cyber extortion. Cyber extortion occurs when a computer hacking enterprise gains control of the financial data of either an individual or a corporation and then threatens to destroy the data or damage the victim’s computer system unless they pay an amount of blackmail.

Racketeering charges have also been used to prosecute individuals or organized groups that engage in the increasingly common crimes of credit card fraud and identity theft. Various real-world and online tactics are used to obtain people’s credit cards or other financial information and then use the stolen information to make purchases, obtain loans, or withdraw money.

 

Keep Learning

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

  • Corporate Fraud
  • Embezzlement
  • Money Laundering
  • White-Collar Crime

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