ORGANIZED CRIME is a society that seeks to operate outside the control of the American people and their governments. It involves thousands of criminals, working within structures as complex as those of any large corpo ration, subject to laws more rigidly enforced than those of legitimate governments. Its actions are not impulsive but rather the result of intricate conspiracies, carried on over many years and aimed at gaining control over whole/ fields of activity in order to amass huge profits.1

2

The core of organized crime activity is the supplying of illegal goods and services-gambling, loan sharking, narcotics, and other forms of vice-to countless numbers of citizen customers. But organized crime is also extensively and deeply involved in legitimate business and in labor unions. Here it employs illegitimate methods— monopolization, terrorism, extortion, tax evasion-to drive out or control lawful ownership and leadership and to exact illegal profits from the public. And to carry

on its many activities secure from governmental interference, organized crime corrupts public officials."

Former Attorney General Robert F. Kennedy illustrated its power simply and vividly. He testified before a Senate subcommittee in 1963 that the physical protection of witnesses who had cooperated with the Federal Government in organized crime cases often required that those witnesses change their appearances, change their names, or even leave the country." When the government of a powerful country is unable to protect its friends from its enemies by means less extreme than obliterating their identities surely it is being seriously challenged, if not threatened.

What organized crime wants is money and power What makes it different from law-abiding organizations and individuals with those same objectives is that the ethical and moral standards the criminals adhere to, the

1 The Kefauver committee found that:

"1. There is a Nation-wide crime syndicate known as the Mafia, whose tentacles are found in many large cities. It has international ramifications which appear most clearly in connection with the narcotics traffic.

"2. Its leaders are usually found in control of the most lucrative rackets in their cities.

"3. There are indications of a centralized direction and control of these rackets, but leadership appears to be in a group rather than in a single individual.

"4. The Mafia is the cement that helps to bind the Costello-Adonis-Lansky syndicate of New York and the Accardo-Guzik-Fischetti syndicate of Chicago as well as smaller criminal gangs and individual criminals throughout the country. These groups have kept in touch with Luciano since his deportation from this

country.

"5. The domination of the Mafia is based fundamentally on 'muscle' and 'murder.' The Mafia is a secret conspiracy against law and order which will ruthlessly eliminate anyone who stands in the way of its success in any criminal enterprise in which it is interested. It will destroy anyone who betrays its secrets. It will use any means available-political influence, bribery, intimida. tion, etc., to defeat any attempt on the part of law-enforcement to touch its top figures or to interfere with its operations."

Sen. Special Comm. to Investigate Organized Crime in Interstate Commerce [hereinafter cited as Kefauver Comm.], 3d Interim Rep., s. REP. NO. 307, 82d Cong., 1st Sess. 150 (1951). See also OFFICE OF THE N.Y. COUNSEL TO THE COV. ERNOR, COMBATING ORGANIZED CRIME-A REPORT OF THE 1965 OYSTER BAY, NEW YORK, CONFERENCES ON COMBATING ORGANIZED CRIME (1966).

Johnson, Organized Crime: Challenge to the American Legal System (pts. 1-3), 53 J. CRIM. L., C. & P.S. 399, 402-04 (1962), 54 J. CRIM. L., & P.S. 1, 127 (1963).

3 See generally Sen. Select Comm. on Improper Activities in the Labor or Management Field [hereinafter cited as McClellan, Labor-Mgt. Reps.], 1st Interim Rep., s. REP. NO. 1417, 85th Cong., 2d Sess. (1958), 2d Interim Rep.

laws and regulations they obey, the procedures they use are private and secret ones that they devise themselves, change when they see fit, and administer summarily and invisibly. Organized crime affects the lives of millions of Americans, but because it desperately preserves its invisibility many, perhaps most, Americans are not aware how they are affected, or even that they are affected at all. The price of a loaf of bread may go up one cent as the result of an organized crime conspiracy, but a housewife has no way of knowing why she is paying more. If organized criminals paid income tax on every cent of their vast earnings everybody's tax bill would go down, but no one knows how much.s

7

But to discuss the impact of organized crime in terms of whatever direct, personal, everyday effect it has on individuals is to miss most of the point. Most individuals are not affected, in this sense, very much. Much of the money organized crime accumulates comes from innumerable petty transactions: 50-cent bets, $3-a-month private garbage collection services, quarters dropped into racketeer-owned jukeboxes, or small price rises resulting from protection rackets. A one-cent-a-loaf rise in bread. may annoy housewives, but it certainly does not impoverish them.

Sometimes organized crime's activities do not directly affect individuals at all. Smuggled cigarettes in a vending machine cost consumers no more than tax-paid cigarettes, but they enrich the leaders of organized crime. Sometimes these activities actually reduce prices for a short period of time, as can happen when organized crime, in an attempt to take over an industry, starts a price war against legitimate businessmen. Even when organized crime engages in a large transaction, individuals may not be directly affected. A large sum of money may be diverted from a union pension fund to finance a

(pts. 1 & 2), s. REP. No. 621, 86th Cong., 1st Sess. (1959), Final Rep. (pts. 1-4), S. REP. NO. 1139, 86th Cong., 2d Sess. (1960), Index to Reports, 86th Cong., 2d Sess. (1960).

4"A gangster or racketeer in a legitimate business does not suddenly become respectable. . . . [E]vidence was produced before the committee concerning the use of unscrupulous and discriminatory business practices, extortion, bomb. ing and other forms of violence to eliminate competitors and to compel customers to take articles sold by the mobsters." Kefauver Comm., 3d Interim Rep., s. REP. NO. 307, 82d Cong., 1st Sess. 170 (1951).

5 Johnson, supra note 2, at 412-14, 419-22: Kefauver Comm., 3d Interim Rep., S. REP. No. 307, 82d Cong., 1st Sess. 181-86 (1951).

Hearings Before the Permanent Subcomm. on Investigations of the Senate Comm. on Government Operations (hereinafter cited as McClellan, Narcotics Hearings], 88th Cong., 1st Sess., pt. 1, at 25 (1963).

7 Kefauver Comm., 3d Interim Rep., s. REP. NO. 307, 82d Cong., 1st Sess. 170-71 (1951): "There can be little doubt that the public suffers from gangster penetration into legitimate business. It suffers because higher prices must be paid for articles and services which it must buy The public suffers because

...

it may have to put up with shoddy and inferior merchandise in fields where gangsters have been able to obtain a monopoly."

One indication of the amount of tax revenue lost is found in the testimony of Comm'r of Internal Revenue Sheldon S. Cohen before the Senate Subcom. mittee on Administrative Practice and Procedure on July 13, 1965. He stated that during the period between February 1961 and March 13, 1965, more than $219 million in taxes and penalties had been recommended for assessment against subjects of the Federal organized crime drive. Hearings Before the Subcomm. on Administrative Practice and Procedure of the Sen. Comm. on the Judiciary [hereinafter cited as Long Comm. Hearings], 89th Cong., 1st Sess., pt. 3, at 1119 (1965).

See generally McClellan, Labor-Mgt. Reps., Final Rep., s. REP. NO. 1139, 86th Cong., 2d Sess., pt. 4 (1960).

1

It is organized crime's accumulation of money, not the individual transactions by which the money is accumulated, that has a great and threatening impact on America. A quarter in a jukebox means nothing and results in nothing. But millions of quarters in thousands of jukeboxes can provide both a strong motive for murder and the means to commit murder with impunity.11 Organized crime exists by virtue of the power it purchases with its money. The millions of dollars it can invest in narcotics or use for layoff money give it power over the lives of thousands of people and over the quality of life in whole neighborhoods.12 The millions of dollars it can throw into the legitimate economic system give it power to manipulate the price of shares on the stock market,13 to raise or lower the price of retail merchandise, to determine whether entire industries are union or nonunion, to make it easier or harder for businessmen to continue in business.11

The millions of dollars it can spend on corrupting public officials may give it power to maim or murder people inside or outside the organization with impunity; to extort money from businessmen; to conduct businesses in such fields as liquor, meat, or drugs without regard to administrative regulations; to avoid payment of income taxes or to secure public works contracts without competitive bidding.15

The purpose of organized crime is not competition with visible, legal government but nullification of it. When organized crime places an official in public office, it nullifies the political process. When it bribes a police official, it nullifies law enforcement.

There is another, more subtle way in which organized crime has an impact on American life. Consider the former way of life of Frank Costello, a man who has repeatedly been called a leader of organized crime. He lived in an expensive apartment on the corner of 72d Street and Central Park West in New York. He was often seen dining in well-known restaurants in the company of judges, public officials, and prominent business

men.

Every morning he was shaved in the barbershop of the Waldorf Astoria Hotel. On many weekends he played golf at a country club on the fashionable North Shore of Long Island. In short, though his reputation was common knowledge, he moved around New York conspicuously and unashamedly, perhaps ostracized by some people but more often accepted, greeted by journalists, recognized by children, accorded all the freedoms of a prosperous and successful man. On a society that treats such a man in such a manner, organized crime has had an impact.

And yet the public remains indifferent. Few Americans seem to comprehend how the phenomenon of or

10 Such bootlegging activities cost the city and State of New York about $40 million a year in lost tax revenues. N.Y. Times, Feb. 2, 1967, p. 21. For a discussion of the problems of cigarette smuggling in New York State, see Weintraub, A Report on Bootlegging of Cigarettes in the City and State of New York, Jan. 1966 (prepared for Cigarette Merchandisers Ass'n, Inc., New York, N.Y.); Weintraub & Kaufman, Bootlegged Cigarettes, Jan. 1967 (prepared for Wholesale Tobacco Distributors of New York, Inc., New York, N.Y.). See also Weintraub, The Bootlegging of Cigarettes Is a National Problem, Oct. 1966 (prepared for Wholesale Tobacco Distributors of New York, Inc., New York, N.Y.). 11 Peterson, Chicago: Shades of Capone, Annals, May 1963, p. 30.

12 Kefauver Comm., 3d Interim Rep., s. REP. No. 307, 82d Cong., 1st Sess. 171 (1951).

13 See Lefkowitz. New York: Criminal Infiltration of the Securities Industry, Annals, May 1963, p. 51. See also excerpt from Porter, On Wall Street, N.Y. Post, Aug. 3-7, 1959, in ORGANIZED CRIME IN AMERICA 298 (Tyler ed. 1962). 14 Johnson, supra note 2, at 406.

15 Kefauver Comm., 3d Interim Rep., s. REP. NO. 307, 82d Cong., 1st Sess. 30-144 (1951).

16 See generally COOK, THE TWO DOLLAR BET MEANS MURDER (1961).

17 For an excellent discussion of the influences of underworld money in politics, see HEARD, THE COSTS OF DEMOCRACY 154-68 (1960).

gambling with bookmakers, or borrowing money from loan sharks, forwards the interests of great criminal cartels.16 Businessmen looking for labor harmony or nonunion status through irregular channels rationalize away any suspicions that organized crime is thereby spreading its influence. When an ambitious political candidate accepts substantial cash contributions from unknown sources, he suspects but dismisses the fact that organized crime will dictate some of his actions when he assumes office.17

President Johnson asked the Commission to determine why organized crime has been expanding despite the Nation's best efforts to prevent it. The Commission drew upon the small group of enforcement personnel and other knowledgeable persons who deal with organized crime. Federal agencies provided extensive material. But because so little study and research have been done in this field, we also secured the assistance of sociologists, systems analysts, political scientists, economists, and lawyers.1 America's limited response to organized crime is illustrated by the fact that, for several of these disciplines, our call for assistance resulted in their first concentrated examination of organized crime.

18

THE TYPES OF ORGANIZED CRIMINAL ACTIVITIES

CATERING TO PUBLIC DEMANDS

Organized criminal groups participate in any illegal activity that offers maximum profit at minimum risk of law enforcement interference. They offer goods and services that millions of Americans desire even though declared illegal by their legislatures.

Gambling 19 Law enforcement officials agree almost unanimously that gambling is the greatest source of revenue for organized crime.20 It ranges from lotteries, such as "numbers" or "bolita," to off-track horse betting, bets on sporting events, large dice games and illegal casinos. In large cities where organized criminal groups exist, very few of the gambling operators are independent of a large organization. Anyone whose independent operation becomes successful is likely to receive a visit from an organization representative who convinces the independent, through fear or promise of greater profit, to share his revenue with the organization.

21

Most large-city gambling is established or controlled by organized crime members through elaborate hierarchies.23 Money is filtered from the small operator who takes the customer's bet, through persons who pick up

18 Selected papers of Commission consultants appear in the appendices to this volume.

19 See generally Permanent Subcomm. on Investigations of the Sen. Comm. on Gov't Operations, Gambling and Organized Crime [hereinafter cited as McClellan, Gambling Rep.), s. REP. No. 1310, 87th Cong., 2d Sess. (1962). See also N.Y. TEMPORARY COMM'N OF INVESTIGATION, SYNDICATED GAMBLING IN NEW YORK STATE (1961).

"Gambling is the principle source of income for organized criminal gangs in the country." Kefauver Comm., 2d Interim Rep., s. REP. No. 141, 82d Cong., 1st Sess. 11 (1951).

According to major Federal, state and local law enforcement officials who have made studies and who are known to the subcommittee staff, organized crime in the United States is primarily dependent upon illicit gambling, a multibillion dollar market, for the necessary funds required to operate other criminal and illegal activities or enterprises' McClellan, Gambling Rep., s. REP. No. 1310,

87th Cong., 2d Sess. 43 (1962).

Information submitted to Commission by a Federal agency.

22 Statement by then Deputy Inspector Arthur C. Grubert, New York City Police Dep't, In-Service Training Program, Apr. 19, 1965, New York, N.Y.

"Number gambling follows the general pattern of organization of all large scale vice and crime. This pattern consists of four basic elements: (1) an

24

money and slips, to second-echelon figures in charge of particular districts, and then into one of several main offices. The profits that eventually accrue to organization leaders move through channels so complex that even persons who work in the betting operation do not know or cannot prove the identity of the leader. Increasing use of the telephone for lottery and sports betting has facilitated systems in which the bookmaker may not know the identity of the second-echelon person to whom he calls in the day's bets. Organization not only creates greater efficiency and enlarges markets,25 it also provides a systematized method of corrupting the law enforcement process by centralizing procedures for the payment of graft.26

Organization is also necessary to prevent severe losses. More money may be bet on one horse or one number with a small operator than he could pay off if that horse or that number should win. The operator will have to hedge by betting some money himself on that horse or that number. This so-called "layoff" betting is accomplished through a network of local, regional, and national layoff men, who take bets from gambling operations.27?

There is no accurate way of ascertaining organized crime's gross revenue from gambling in the United States. Estimates of the annual intake have varied from $7 to $50 billion.28 Legal betting at racetracks reaches a gross annual figure of almost $5 billion, and most enforcement officials believe that illegal wagering on horse races, lotteries, and sporting events totals at least $20 billion each year. Analysis of organized criminal betting operations indicates that the profit is as high as one-third of gross revenue- —or $6 to $7 billion each year. While the Commission cannot judge the accuracy of these figures, even the most conservative estimates place substantial capital

in the hands of organized crime leaders.29

elaborate hierarchical organization of personnel, (2) a spatial organization in which a wide territory is controlled from a central metropolitan area, (3) the 'fix, in which public officials, principally police and politicians, are drawn into and made a part of the organization, (4) legal aid in which members of the legal profession become the advisors and consultants of the organization." Carlson, Numbers Gambling, A Study of a Culture Complex 68, 1940, unpublished Ph.D. dissertation, Univ. of Mich. Dep't of Sociology.

It was reported, for example, that in Detroit there were almost 100 positions involved in the operation of one lottery enterprise. Bet slips were delivered by 50 "pick up" men to substations where they were tabulated. After a "bookkeeper" determined the winning slips, the proceeds were taken to a "section chief" who passed a portion up through the hierarchy. Narcotics Hearings, 88th Cong., 1st Sess., pt. 2, at 460-62 (1963).

net on

McClellan,

25 In his statement to the Temporary Commission of Investigation of the State of New York on Apr. 22, 1960, Charles R. Thom, Comm'r of Police of Suffolk County (Eastern Long Island), N.Y., said: "The advantages of syndicate opera. tion to the previously independent bookie included: (1) unlimited resources with absolute backing which eliminated the need to lay off, thus permmiting vast expansion, and the average bookie quickly discovered he was making a bigger a 50-50 basis than he formerly made when he controlled the entire operation; (2) New York City telephone numbers could be passed along to regular bettors and players, which made the bookie merely a collector of money, credited on the books of the syndicate through an efficient bookkeeping system, and adding the tremendous factor that use of telephones was thus changed, greatly reducing the efficiency of telephone taps; and (3) the syndicate agreed to provide 'stand-up men' where feasible." Mimeo. p. 2.

"It is somewhat startling to learn that the syndicates are particularly happy with the consolidation of the nine police deparments into the Suffolk County Police Department, as they feel that protection is easier to arrange through one agency than through many. The intensive campaign against gamblers instituted by this Department commencing January 1st had the astounding side effect in solving the recruitment problem of the syndicate, as our drive successfully stampeded the independents into the arms of the syndicate for protection, and the syndicate can now pick and choose those operators which they wish to admit." Ibid.

27 See Cressey, The Functions and Structure of Criminal Syndicates, Sept. 1966, at 35-36, printed as appendix A of this volume.

28 [G]ambling is the leading source of organization revenue, accounting for probably half of organization profits. It has been estimated that illegal gambling grosses from seven to twenty billion dollars annually." Johnson, supra note 2, at 402. For some estimates on the volume of illegal gambling, see id. at 402 n.22.

"Gambling profits are the principal support of big-time racketeering and gangsterism. These profits provide the financial resources whereby ordinary criminals are converted into big-time racketeers, political bosses, pseudo business men, and alleged philanthropists." Kefauver Comm., 3d Interim Rep., s. REP. NO.

bling profits provide the initial capital for loan-shark operations.32

No comprehensive analysis has ever been made of what kinds of customers loan sharks have, or of how much or how often each kind borrows. Enforcement officials and other investigators do have some information. Gamblers borrow to pay gambling losses; 33 narcotics users borrow to purchase heroin. Some small businessmen borrow from loan sharks when legitimate credit channels are closed.31 The same men who take bets from employees in mass employment industries also serve at times as loan sharks, whose money enables the employees to pay off their gambling debts or meet household needs.35

Interest rates vary from 1 to 150 percent a week, according to the relationship between the lender and borrower, the intended use of the money, the size of the loan, and the repayment potential.30 The classic "6-for-5" loan, 20 percent a week, is common with small borrowers. Payments may be due by a certain hour on a certain day, and even a few minutes' default may result in a rise in interest rates. The lender is more interested in perpetuating interest payments than collecting principal; and force, or threats of force of the most brutal kind, are used to effect interest collection, eliminate protest when interest rates are raised, and prevent the beleaguered borrower from reporting the activity to enforcement officials.37 No reliable estimates exist of the gross revenue from organized loan sharking, but profit margins are higher than for gambling operations, and many officials classify the business in the multi-billiondollar range.38

Narcotics.39 The sale of narcotics is organized like a legitimate importing-wholesaling-retailing business. The

distribution of heroin, for example, requires movement of the drug through four or five levels between the importer and the street peddler.40 Many enforcement officials believe that the severity of mandatory Federal narcotics penalties has caused organized criminals to restrict their activities to importing and wholesale distributon.11

307, 82d Cong., 1st Sess. 2 (1951).

30 For an excellent treatment of the subject in New York State, see N.Y. TEMPORARY COMM'N OF INVESTIGATION, THE LOAN SHARK RACKET (1965).

31 "[S]hylocking . . . represents a substantial portion of the multibillion dollar take of organized crime." Johnson, supra note 2, at 403.

33 Permanent Subcomm. on Investigations of the Sen. Comm. on Gov't Operations, Organized Crime and Illicit Traffic in Narcotics [hereinafter cited as McClellan, Narcotics Rep.], s. REP. No. 72, 89th Cong., 1st Sess. 18 (1965); testimony of J. Edgar Hoover, Hearings Before the Subcomm. on Dep'ts of State, Justice, and Commerce, the Judiciary, and Related Agencies Appropriations of the House Comm. on Appropriations, 89th Cong., 2d Sess. 272 (1966).

33 In his statement to the Temporary Commission of Investigation of the State of New York on Apr. 22, 1960, Comm'r Charles R. Thom described how loan sharking provided the means for organizing previously independent bookmakers:

"Speaking generally, prior to 1958, professional gambling in Suffolk County was conducted primarily by independent operators. There was no known pattern of organized gambling beyond the usual facilities for laying off, and no reported rackets or collateral criminal activities.

"About two years ago, representatives of one or more syndicates began approaching these independent gambling operators with a view to incorporating them into syndicated operations. By and large, these independent gamblers refused to be so organized, and the syndicates withdrew their efforts without resort to rough tactics. The syndicates then commenced an insidious campaign of infiltration, wherein the principle M.O. was finance. With open pocketbook, the syndicate recruited a number of independent operators, by financing their opera. tions until these bookies were hooked. Part of this system included the notorious 6 for 5 plus 5 per cent per week, which meant simply that they financed the bookies on the basis that the gambling operator had to return $6.00 for every $5.00 borrowed, plus the staggering interest of 5 per cent per week. It follows that a bookie who had a couple of bad weeks was completely hooked and fell under the control of the syndicate. Most of these independent bookies were small businessmen, including the typical barber, candy store operator and the like, without the financial resources to withstand this squeeze, which was effectively accomplished by the money men of the syndicate. Once hooked, the bookies now worked for the syndicate on a 50-50 basis."

34 N.Y. TEMPORARY COMM'N OF INVESTIGATION, THE LOAN SHARK REPORT 45 (1965). 35 Information submitted to Commission by a Federal agency.

See McClellan, Labor-Mgt. Reps., Final Rep., s. REP. NO. 1139, 86th Cong., 2d Sess., pt. 4, at 772 (1960).

37 Information submitted to Commission by a Federal agency.

33 N.Y. TEMPORARY COMM'N OF INVESTIGATION, THE LOAN SHARK REPORT 17 (1965). 39 See generally McClellan, Narcotics Hearings, 88th Cong., 1st Sess., pts.

1 & 2 (1963), 1st & 2d Sess., pts. 3 & 4 (1963-64), 2d Sess., pt. 5 (1964). McClellan, Narcotics Rep., S. REP. NO. 72, 89th Cong., 1st Sess. (1965).

They stay away from smaller-scale wholesale transactions or dealing at the retail level. Transactions with addicts are handled by independent narcotics pushers using drugs imported by organized crime.42

(The large amounts of cash and the international connections necessary for large, long-term heroin supplies can be provided only by organized crime. Conservative estimates of the number of addicts in the Nation and the average daily expenditure for heroin indicate that the gross heroin trade is $350 million annually, of which $21 million are probably profits to the importer and distributor. Most of this profit goes to organized crime groups in those few cities in which almost all heroin consumption

44

BUSINESS AND LABOR INTERESTS

Infiltration of Legitimate Business. A legitimate business enables the racket executive to acquire respectability in the community and to establish a source of funds that appears legal and upon which just enough taxes may be paid to avoid income tax prosecution. Organized crime invests the profit it has made from illegal service activities in a variety of businesses throughout the country.18 To succeed in such ventures, it uses accountants, attorneys, and business consultants, who in some instances work exclusively on its affairs.49 Too often, because of the reciprocal benefits involved in organized crime's dealings with the business world, or because of fear, the legitimate sector of society helps the illegitimate sector.50 The Illinois Crime Commission, after investigating one service industry in Chicago, stated:

There is a disturbing lack of interest on the part of some legitimate business concerns regarding the identity of the persons with whom they deal. This lackadaisical attitude is conducive to the perpetration of frauds and the infiltration and subversion of legitimate businesses by the organized criminal element.51

Because business ownership is so easily concealed, it is difficult to determine all the types of businesses that

42 Id. at 121-22. 43 Id. at 120.

44 Information submitted to Commission by a Federal agency.

45 "Gambling has supplanted prostitution and bootlegging as the chief source of revenue for organized crime. Before the First World War, the major profits of organized criminals were obtained from prostitution. The passage of the Mann White Slave Act, the changing sexual mores, and public opinion, combined to make commercialized prostitution a less profitable and more hazardous enterprise." Kefauver Comm., 2d Interim Rep., s. REP. NO. 141, 82d Cong., 1st Sess. 11 (1952).

For a recent investigation of commercialized prostitution, see N.Y. TEMPORARY COMM'N OF INVESTIGATION, AN INVESTIGATION OF LAW ENFORCEMENT IN BUFFALO (1961).

40 People v. Luciano, 277 N.Y. 348, 14 N.E.2d 433, cert. denied sub nom., Luciano v. New York, 305 U.S. 620 (1938). See also POWELL, NINETY TIMES GUILTY (1939), and for a brief description of Charles Luciano's role in organized crime, see excerpt from SONDERN, BROTHERHOOD OF EVIL (1959), in ORGANIZED CRIME IN AMERICA 302 (Tyler ed. 1962).

47 See Kefauver Comm., 3d Interim Rep., s. REг. No. 307, 82d Cong., 1st Sess. 170 (1951).

49 "[C]riminals and racketeers are using the profits of organized crime to buy up and operate legitimate enterprises." Kefauver Comm., 3d Interim Rep., s. REF. NO. 307, 82d Cong., 1st Sess. 170 (1951).

organized crime has penetrated.52 Of the 75 or so racket leaders who met at Apalachin, N.Y., in 1957, at least 9 were in the coin-operated machine industry, 16 were in the garment industry, 10 owned grocery stores, 17 owned bars or restaurants, 11 were in the olive oil and cheese business, and 9 were in the construction business. Others were involved in automobile agencies, coal companies, entertainment, funeral homes, ownership of horses and race tracks, linen and laundry enterprises, trucking, waterfront activities, and bakeries.53

Today, the kinds of production and service industries. and businesses that organized crime controls or has invested in range from accounting firms to yeast manufacturing. One criminal syndicate alone has real estate interests with an estimated value of $300 million.5+ 54 In a few instances, racketeers control nationwide manufacturing and service industries with known and respected brand names.55

Control of business concerns has usually been acquired through one of four methods: (1) investing concealed profits acquired from gambling and other illegal activities; (2) accepting business interests in payment of the owner's gambling debts; (3) foreclosing on usurious loans; and (4) using various forms of extortion.56

Acquisition of legitimate businesses is also accomplished in more sophisticated ways. One organized crime group offered to lend money to a business on condition that a racketeer be appointed to the company's board of directors and that a nominee for the lenders be given first option to purchase if there were any outside sale of the company's stock. Control of certain brokerage houses was secured through foreclosure of usurious loans, and the businesses then used to promote the sale of fraudulent stock, involving losses of more than $2 million to the public.68

57

Criminal groups also satisfy defaulted loans by taking over businesses, hiring professional arsonists to burn buildings and contents, and collecting on the fire insurance. Another tactic was illustrated in the recent bankruptcy of a meatpacking firm in which control was secured as payment for gambling debts. With the original owners remaining in nominal management positions, extensive product orders were placed through established lines of credit, and the goods were immediately sold at low prices before the suppliers were paid. The organized criminal group made a quick profit of three-quarters of a million dollars by pocketing the receipts from sale of the products ordered and placing the firm in bankruptcy without paying the suppliers. 59

49 "Mobsters and racketeers have been assisted by some tax accountants and Id. at 4. tax lawyers in defrauding the Govermnent."

50 "In some instances legitimate busienssmen have aided the interests of the underworld by awarding lucrative contracts to gangsters and mobsters in return for help in handling employees, defeating attempts at unionization, and in breaking strikes." Id. at 5.

51 1965 ILL. CRIME INVESTIGATING COMM'N REP. 11.

53 "Using dummy fronts, the real owners of a business, the men who put up the money, never have to list themselves as owners or partners or as even being involved in any way in the business." Grutzner, Mafia Steps Up Infiltration and Looting of Businesses, N.Y. Times, Feb. 14, 1965, p. 1, col. 3, at 65, col. 1. 53 McClellan, Labor-Mgt. Reps., Final Rep., s. REP. No. 1139, 86th Cong., 2d Sess., pt. 3, at 487-88 (1960). The report of the Kefauver Committee provides a discussion of the degree of infiltration into legitimate business, including a list of 50 types of business enterprises in which organized crime is involved. Kefauver Comm., 3d Interim Rep., s. REP. NO. 307, 82d Cong., 1st Sess. 170-81 (1951).

51 Information submitted to Commission by a Federal agency.

55 Ibid. 50 Ibid.

57 lbid.

58 Ibid. See also Grutzner, supra note 5, at 65, cols. 5-6.

50 Id. cols. 1-3. Hearings Before the Subcomm. on Criminal Laws and Procedures of the Sen. Comm. on the Judiciary, 89th Cong., 2d Sess., at 204-06 (1966).