Labor racketeering is the use of union power for personal profit. One of the first organized criminals to identify labor racketeering as a profitable venture in the early years of this century was New York racketeer Arnold Rothstein. Labor racketeering was developed into a major criminal enterprise by Lepke Buchalter and Jacob Shapiro in the 1930s and 1940s (Block and Chambliss, 1981; Potter and Jenkins, 1985). By the 1950s the Kefauver Committee was suggesting that organized crime groups played dominant roles in the labor unions of eight industries: the hotel and restaurant industry, baking, distilling of alcoholic beverages, trucking, garment manufacturing, carpentry, meat packing, and construction (Moore, 1874: 68-79).
Today, labor racketeering continues to be a major business of organized crime. Illicit profits can be realized through many avenues, but the three major activities of organized crime are 1) sweetheart contracts, 2) the misuse of union benefit funds, and 3) extortion or "strike insurance."
A sweetheart contract is where an employer and union officials conspire to fashion a contract with less tan satisfactory terms for union members. As one might guess, such an arrangement does immeasurable damage to the interests of union members. In return for a bribe paid to corrupt union officials by the company, the company is able to negotiate a highly beneficial contract with its workers. Reduced union demands for higher wages, better working conditions, and stronger benefit packages all benefit the company by increasing profits and hurt the workers by decreasing benefits and wages. The only "winners" in the negotiation of a sweetheart contract are the company and the mob-controlled union officials themselves. In addition to reducing legitimate worker economic gains, a sweetheart contract also usually allows the company to use non-union labor in specific circumstances, thereby reducing even the opportunity for employment of union members.
Union pension and benefits funds offer the opportunity for the misuse of enormous cash reserves. All union contracts contain various benefit packages, such as health insurance, retirement benefits, life insurance, and the like. Sometimes these benefit funds are managed by private insurance companies with those companies taking their cut of the workers' benefits in the form of administrative fees and profits. Sometimes they are administered by the employer. But employer administered benefit funds are most likely to take the profit margin and economic health of the company into consideration before they worry about workers' health problems or retirement prospects. As a result of these problems with private insurers and company-run benefit funds, many unions administer their own benefit funds. The vast majority of these funds are managed responsibly, return greater benefits to the workers than do the other options, and have been more reliable and solvent than the other alternatives. However, in an organized crime dominated union, those funds can be misused and workers' benefits endangered by risky investments determined by the financial needs of criminal syndicates rather than the fiduciary responsibility to the workers.
Workers' benefit funds can be abused in several ways. The first is through irresponsible, unsecured, and illegal loans to organized crime groups. The history of the International Brotherhood of Teamsters' Central States Pension Fund is dotted with such questionable investments. The Central States Pension Fund was administered from the mid-1960s by Allen Dorfman, who made massive real estate loans to organized crime interests in Las Vegas, Florida, and other sunbelt states. Acquisitions of casino properties in Las Vegas by Kansas City and Chicago organized crime interests were financed by Teamster money. Additional casino and real estate speculation by major organized crime figures such as Moe Dalitz, Meyer Lansky, Ed Levinson, and others were financed in a similar way.
In addition to supplying organized crime groups with finance capital, mob-controlled benefit funds have also been used for providing organized crime figures with "no-show" jobs, leased automobiles, vacation properties, and homes. The benefit funds have also been used to pay "debts" to crime syndicates by contracting for services with mob-controlled companies which are never delivered. A prime example of such a relationship was the $1.3 million Teamster contract with the Hoover-Gorin advertising company, an organized crime controlled business which never did any advertising or public relations work for the Teamsters Union.
Finally, organized crime can profit from illegal control of a labor union through extortion, most frequently related to the selling of strike insurance. Strike insurance is an extortion racket where a union leader demands money in return for labor peace. It simply guarantees a construction company or other business that their work will not be interrupted by strikes by workers, even if the workers' grievances are justified. A prime example of this type of extortion is the 2% "organized crime tax" imposed on construction contracts in New York City. Failure to pay this extortion demand means work stoppages and interruptions and an inability to get services from organized crime controlled subcontractors. In particular, construction projects find it virtually impossible to get concrete poured at construction sites in New York City without paying this tax.