Organized crime

Definition: Organizations set up to operate illegal businesses, frequently through the use of criminal tactics, with profits being reinvested into legitimate operations
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Significance: The diverse enterprises in which various organized crime elements have engaged since the late nineteenth century have created a black market for goods and services in the United States, siphoning off profits from legitimate firms, reducing tax revenues to states and the federal government, and requiring law enforcement agencies to invest significant resources in attempting to stem illegal activities.
For most Americans the term “organized crime” conjures up images of armed gangsters running bootlegging or gambling operations and taking out rivals by violent means, all at the behest of a revered “boss” who heads their “family.” Although these characteristics may be accurate, they do not provide a comprehensive picture of organized crime or its impact on American business since the first formal groups were established during the late nineteenth century.

Nature and Structure

Terms such “mafia,” “mob,” and “Cosa Nostra” have been used to designate criminal organizations, especially those whose membership is largely Italian American. Actually, however, “organized crime” is an umbrella term describing a number of criminal groups of various ethnicities. These entities have common characteristics that distinguish them from bands of ordinary criminal gangs. In the latter there are few attempts to establish formal hierarchies; most operate like bands of brigands or pirates, sometimes with a titular leader but with few other levels of authority. By contrast, many organized crime groups have created structures similar to those found in legitimate corporations or military units. A chief executive, often called the boss, assisted by principal deputies often known as “capos,” supervises a group or “family” of between fifty and several hundred individuals who carry out most of the illegal activities, such as pressuring small business owners to provide a portion of their profits to the mob, collecting illegal payoffs, running gambling and prostitution operations, and using physical force against individuals who refuse to comply with the organization’s directives.
Additionally, unlike gang activity, part of the efforts of organized crime have been aimed at generating a steady stream of revenues by illegal means that can be used not only to support members of the crime group directly, but also to reinvest in legitimate businesses that can supplement, often handsomely, funds derived directly from illicit activities. Everyone within the illegal group shares in the spoils—at differing levels, as the top bosses frequently take a major share of these illegal earnings for their personal use and investment. Some have become millionaires and set themselves up as community leaders and philanthropists, distancing themselves from the illegal activities on which their fortunes had been built. Finally, most organized crime “families” establish some form of succession planning, in which those higher up in the organization designate a successor to take over operations upon the arrest, retirement, or death of the group’s leader. In this way, organized crime elements have been able to sustain operations even when an individual is removed from the group.

History in the United States

The earliest organized crime groups were founded in immigrant communities, where law enforcement was often lax or even hostile to new arrivals. Certain criminal leaders saw ways to extract money from immigrants for “protection,” guaranteeing their homes and businesses would be safe if the leaders were paid. These same men also set up operations supporting gambling, counterfeiting, and prostitution, from which they profited without having to pay any taxes. Frequently organized crime groups were abetted by corrupt local law enforcement and local politicians, who were bribed to provide protection from law enforcement or secure contracts for mob-affiliated businesses. By the 1920’s, organized crime elements were operating in virtually every major American city along the eastern seaboard and in the Midwest, with major centers in New York and Chicago. Other groups operated in large metropolitan areas such as Philadelphia, Miami, Boston, Cleveland, New Orleans, St. Louis, and Kansas City, and in small communities such as Little Rock, Arkansas, and Reading, Pennsylvania.
The era of Prohibition proved a boon for organized crime, as various discrete crime organizations entered into commerce with other groups to form networks for production, distribution, and sales of illegal alcohol. At the same time “families” expanded their operations into a number of other areas. By the 1940’s, organized crime elements had branched out from gambling, prostitution, loan sharking, and protection services into activities such as hijacking, smuggling, mail and wire fraud, and trafficking in counterfeit goods. Their favorite targets among legitimate businesses were those operating principally on a cash basis, since it was easier to skim funds from these operations. Consulting regularly, the various leaders entered into informal syndicates whereby they agreed to parcel out certain activities or territories to reduce competition and thereby maximize profits for everyone.
Organized crime elements also infiltrated a number of legitimate businesses, where they bought in as partners (often silent) or became major investors. Over time, they became deeply enmeshed in a number of unions, where they controlled elections and often siphoned off money from pension funds. Organized crime became a major influence in unions serving the garment industry, trucking and transportation, shipping, entertainment and food service, waste disposal, and construction. An especially nefarious alliance was struck with the International Brotherhood of Teamsters, whose pension fund provided a lucrative source for loans or outright theft.
After World War II, leaders of organized crime made a concerted effort to expand westward, beefing up activities in the motion-picture industry and in the emerging legalized gambling industry in Las Vegas. As they had done on the East Coast, mafia operatives made inroads into the principal businesses as part owners of film studios and casinos, and also infiltrated a number of service industries, including the one for stagehands, through their union connections. The mob’s connections with various political leaders who controlled government budgets and the various licensing agencies for businesses often meant they could obtain both government and private contracts for companies at inflated prices, pad payrolls with friends or associates in their organizations, and receive kickbacks on work being done at various legitimate enterprises. If bribery was not sufficient motivation for politicians, union leaders and members, and business owners, local mafia would resort to tactics such as property damage or bodily injury to get their way.

Law-Enforcement Efforts

Until the 1920’s, efforts to control organized crime were left to local and state law-enforcement agencies. When Prohibition was enacted, federal agencies began seeking to curtail the activities of organized crime. The most famous efforts were made by the Department of the Treasury, which went after a number of high-profile mobsters (including Al Capone in Chicago) for tax evasion. Because Federal Bureau of Investigation Director J. Edgar Hoover was reluctant even to admit the existence of organized crime, the Federal Bureau of Investigation (FBI) did little in this area until after Hoover’s death in 1972. Congress became involved as early as 1950, however, as a committee chaired by Tennessee Senator Estes Kefauver and ably run by its counsel Robert F. Kennedy exposed the activities of organized crime to the American public. Kennedy launched his own crusade against organized crime when he became United States Attorney General in 1961. Subsequently, mob leaders were often arrested and charged with various crimes, and some went to prison. Their operations continued, however, as structures had been put in place for carrying on the business when a leader was removed from his office.
Additionally, despite having their activities revealed, many mob bosses avoided prosecution because the actual crimes were being committed by underlings, most of whom abided by a “code of silence” that members of organized crime units imposed on all members. Few leaders were ever identified as having participated in or directed illegal activities.
Continuing pressure from various government and law-enforcement agencies finally led to the passage of the Racketeer Influenced and Corrupt Organizations (RICO) Act in 1970. Under terms of this law, the government could prosecute individuals who were involved in activities considered illegal even if the accused had not committed a criminal act personally. As a result, a number of high-ranking officials in organized crime outfits were tried and sentenced, and a dent was made in the influence organized crime had on legitimate businesses. The impact of the RICO law became evident when Atlantic City, New Jersey, authorized gambling during the 1970’s. Although organized crime elements were able to exert influence and take profits from the service industries, they could not buy into the casinos themselves, as government regulations made it virtually impossible for criminal figures to become investors. Additionally, during that same decade mafia figures were forced to divest themselves of holdings in Las Vegas casinos.
To counter this loss and others brought on by increased government scrutiny, innovative leaders of crime families began infiltrating the financial services industry, and by the 1990’s they had gained notable influence in that enterprise. The remaining crime families also entered an area where they had not been a major factor in the past. Although initially reticent to become engaged in selling illegal drugs, by the 1980’s many organized crime groups became heavily involved in this lucrative business. Eventually “families” in the United States became part of various international enterprises, including drug smuggling and sales, transnational sales of illegal arms and equipment, and human trafficking activities involving the sale of women and children for illicit purposes.

Impact on Business and Society

The impact of organized crime on American business and society has been significant and insidious. Because operations have always been secretive, it is not possible to get an accurate gauge on the profits organized crime elements have generated from their operations. What is known is that, for more than a century, legitimate operations in a number of industries have been forced to use a portion of their income to make payoffs, insure for property damages that might be caused by elements of organized crime, or purchase goods and services from mob-controlled suppliers. These costs are passed on to consumers in the form of inflated prices. At the same time, those receiving income from illegal activities have managed to shield much of it from government agencies assessing taxes. A single example illustrates the significance of this tactic: In 1985, law-enforcement officials in New York estimated the gross income of the city’s five major crime families at $48 billion, half of which was profit. In the same year Exxon, the largest legitimate business in the United States, grossed $51 billion—with a net profit of only 5 percent.
Although law enforcement managed to make significant progress in curtailing operations of organized crime during the 1980’s and 1990’s, its efforts were not without significant cost. The government spent an estimated $75 million to put away New York crime boss John Gotti in 1992. By 1995, the Federal Bureau of Investigation had spent more than $4 billion on efforts to eliminate organized crime. Nearly a decade later, however, a 2004 study suggested the profits from organized crime still ranged as high as 2 percent of America’s gross national product—a sum in excess of $250 billion. The total may well be higher; in 2005 the Federal Bureau of Investigation estimated that worldwide organized crime was a $1 trillion business.