Cornell Law Review Volume 65 Article 1 Issue 2 January 1980 Controlling the Contemporary Loanshark: The Law of Illicit Lending and the Problem of Witness Fear Ronald Goldstock Dan T. Coenen Follow this and additional works at: http://scholarship.law.cornell.edu/clr Part of the Law Commons Recommended Citation Ronald Goldstock and Dan T. Coenen, Controlling the Contemporary Loanshark: The Law of Illicit Lending and the Problem of Witness Fear, 65 Cornell L. Rev. 127 (1980) Available at: http://scholarship.law.cornell.edu/clr/vol65/iss2/1 This Article is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell Law Review by an authorized administrator of Scholarship@Cornell Law: A Digital Repository. For more information, please contact [email protected]. CORNELL LAW REVIEW Volume 65 January 1980 Number 2 CONTROLLING THE CONTEMPORARY LOANSHARK: THE LAW OF ILLICIT LENDING AND THE PROBLEM OF WITNESS FEAR Ronald Goldstockt Dan T. Coenentt TABLE OF CONTENTS INTRODUCTION ................................................................................ 131 I. CONTEMPORARY LOANSHARKING: ORIGINS, EFFECTS, AND METHODS OF OPERATION ................................................... 134 A. The Dominant Role of Organized Crime ........................ 134 B. The Economics of Loansharking...................................... 137 C. The History of Loansharking.......................................... 139 1. Early History of Interest Assessments .......................... 139 2. Loansharking in America ........................................... 141 a. The Post-Civil War Period: The Salary Lender .... 141 b. 1915-1935: Organized Crime and Consumer Credit ................................................................... 144 c. Post-1935: The Maturation of Organized Loansharking ........................................................ 146 t Former Director, Cornell Institute on Organized Crime, A.B. 1966, Cornell Uni- versity; J.D. 1969, Harvard University. tt B.S. 1974, University of Wisconsir; J.D. 1978, Cornell Law School. An earlier version of this Article was published under the auspices of the Cornell Institute on Organized Crime in R. Goldstock & D. Coenen, Extortionate and Usurious 128 CORNELL LAW REVIEW [Vol. 65:127 D. Loansharking Operations ................................................ 147 1. The Transaction........................................................ 147 2. Collection of the Debt ................................................ 148 3. The Structure of the Operation .................................. 151 E. Loansharking Customers .................................................. 153 1. The Legitimate Individual.................... 153 2. The Criminal Borrower .............................................. 156 3. The Legitimate Businessman....................................... 157 F. Loanshark Infiltration of Businesses ................................ 158 1. Methods of Loanshark Infiltration.............................. 160 2. Purposes of Syndicate Infiltration of Businesses .......... 162 a. Operating a "Front"............................................. 162 b. Obtaining Services and Concessions ....................... 164 c. "Busting Out" a Legitimate Business .................... 164 d. Skimming Company Profits ................................... 166 II. THE LAW OF LOANSHARKING ............................................. 167 A. Extortionate Credit Transaction Laws .............................. 167 1. Historical Development and Basic Principles.............. 167 2. Elements of the Offense .............................................. 168 a. C onduct ................................................................ 169 b. The Creditor's Understanding................................ 170 c. The Debtor's Understanding .................................. 171 d. State of Mind ....................................................... 172 B. Laws Prohibiting the Collection of Credit by Extortionate Means ......................................................... 173 1. Historical Development and Basic Principles.............. 173 2. Elements of the Offense .............................................. 173 a. Conduct ................................................................. 174 b. Attendant Circumstances........................................ 175 c. R esult .................................................................... 179 d. State of Mind ....................................................... 179 Credit Transactions: Background Materials (1978). The research in these materials was supported by the Law Enforcement Assistance Administration, United States Department of Justice, Grant Number 78PT-AX-OO01. The viewpoints expressed, however, do not necessarily represent the official position or policies of the United States Department of Justice. The authors wish to thank the students who assisted in researching this Article: Michael Banks, Steve Blow, Karsten Boone, Gerard Bradley, Lawrence Brann, Margaret Clancy, Kate Fitzgerald, Bruce Garren, Jody Healy, Edward LaRose, Doris Long, James McFarland, John Sander, and William Stern. Special thanks go to Bruce Garren, student research supervisor. The footnotes in Section I direct the reader to the most important sources on loan- sharking, a body of scholarship far less than adequate. In preparing Section I, however, 1980] LOANSHARKING C. Criminal Usur, ............................................................... 180 1. Historical Development and Basic Principles....... 180 2. Elements of the Offense .............................................. 181 a. C onduct ................................................................. 181 b. Attendant Circumstances ........................................ 183 c. R esult .................................................................... 183 d. State of Mind ....................................................... 183 D. Other Loansharking Laws ............................................... 184 1. Laws ProhibitingFinancing Extortionate Extensions of Credit ................................................... 184 2. Laws Prohibiting Receipt of Loansharking Proceeds ... 186 3. Laws Proscribing the Possession of Records of Loansharking Transactions ........................................ 186 4. Miscellaneous Provisions ........................................... 186 E . Extortion ......................................................................... 187 1. Historical Development ............................................... 187 2. Elements of the Offense .......................................... 189 a. Conduct and Result ............................................... 189 b. Attendant Circumstances........................................ 192 c. State of Mind ........................................................ 193 3. Other Statutory Provisions.......................................... 193 III. PROOF OF THREATS, FEAR, AND UNDERSTANDING ............ 194 A. Direct Evidence .............................................................. 194 B. Equivocal Conduct and CircumstantialEvidence ............. 195 C. Character Evidence ......................................................... 197 1. Decisional Authority for the Introduction of Character Evidence ................................................ 198 a. Reputation Evidence ............................................. 198 b. Prior-Acts Evidence .............................................. 201 2. Statutory Authority for the Introduction of Character Evidence ................................................ 203 the authors did not rely exclusively on existing literature. These pages also reflect the first-hand experience of one of the authors in investigating and prosecuting illicit lenders and conversations with observers of and persons engaged in organized crime. In citing the literature, the authors do not wish to vouch for its unwavering accuracy. The study of any illegal activity poses severe problems. For this reason and others, existing materials tend to be sketchy, speculative, unduly sensationalized, and largely out of date. Nonetheless, the vast majority of statements made in the text (including those for which outside materials are cited) reflects the views of the authors; equivocal phrasing, on the other hand, gener- ally indicates the authors' uncertainty as to the truth of the matter asserted. Notwithstand- ing this caveat, the authors believe that the first section taken as a whole accurately de- scribes the realities of loansharking. CORNELL LAW REVIEW [Vol. 65:127 IV. PROTECTING INFORMANTS AND WITNESSES-THE PRACTICAL PROBLEMS OF DEALING WITH FEAR IN OBTAINING CITIZEN A SSISTANCE ........................................................................... 206 A . The Dutv to R eport ...........................................................206 B. The Duty to Protect ..........................................................209 1. Fact P atterns ...............................................................209 2. Maturation of the Duty to Protect ................................210 3. Scope of the Duty to Protect......................................... 211 4. Practical Considerations ...............................................2.12 5. Implicationsfor Law Enforcement Officers ...................213 C. Nondisclosure of Witness Identities ..................................213 1. Constitutional Dimensions of the Duty to Disclose ..... 214 2.