Labor Racketeering

Labor racketeering (not a legal or scientific term) is a popular way of referring to organized crime exploitation of unions and union pension and welfare funds. Unions, like most organizations, have their share of corrupt officers and employees. However, unions are unique on account of the extensiveness of corruption perpetrated by the Cosa Nostra (sometimes called “mafia”) organized crime families and union officials with whom they are allied. Indeed, no other country (not even Italy or Japan, with hugely powerful organized crime groups) has experienced the degree of organized-crime-sponsored labor racketeering that has plagued the U.S. labor movement.

Setting the pattern for organized crime labor racketeering early in the 20th century were Jewish, Irish, and other ethnic gangsters like Arnold Rothstein (1882–1928), Jacob Orgen (1894–1927), Louis Buchwalter (1897–1944), and Arthur Flegenheimer, aka “Dutch Schultz” (1903–35). Sometimes hired to help a union defend itself from employers' thugs, these gangsters got a foot in the door and then decided to stay. They took over union locals by means of violence, intimidation, and election fraud. Sometimes, employers voluntarily signed exclusive collective bargaining agreements with gangster-dominated labor organizations because they wanted to prevent communist or socialist dominated unions from representing their workers.

[Page 534]These labor racketeers solicited employer bribes in exchange for sweetheart contracts and other violations of the collective bargaining agreement. In addition, in industries marked by cutthroat competition, the labor racketeers could use the union to establish and police employer cartels. Through their control over the labor force, the union officials could prevent noncartel members from doing business in the city where the cartel operated. The cartels fixed prices and allocated contracts. The mobsters also collected “dues” from the cartels' employer members and sorted out disputes among the cartels' members.

As early as the 1920s and 1930s, dozens of organized crime-controlled unions operated in Chicago, New York, and other cities. The Italian-American organized crime Cosa Nostra (LCN) families that came to dominate organized crime by the 1940s thrived on labor racketeering. Every city with an LCN family had significant labor racketeering. The mobsters took money out of the unions via bloated salaries, fraudulent reimbursement schemes, no-show jobs, and embezzlement. They also benefited from a steady stream of employer bribes. Starting in the 1940s, with the creation of massive employer/union pension and welfare funds, labor racketeering became much more lucrative. The multibillion-dollar Teamsters Central States Fund, for example, functioned as a bank for organized crime. In addition, labor racketeering provided organized crime bosses with social status and political power. Labor racketeers contributed endorsements, money, and manpower to politicians' election campaigns in exchange for the politicians' promise not to interfere with LCN's business interests.

Law enforcement offered little opposition to labor racketeering or to organized crime generally. City police departments were either too corrupt to take on powerful organized crime groups or too lacking in resources, or both. The Federal Bureau of Investigation (FBI) was a much smaller agency in the early and mid-20th century than it is today, and, arguably, its jurisdiction did not extend to investigating organized crime. In any event, the FBI assigned top priority to fighting Communists and other subversives. Not until the mob bosses' notorious Appalachian Conference in 1957 did the FBI begin to collect intelligence information (via illegal electronic surveillance) on organized crime.

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