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Prohibition Profits Transformed the Mob

Before Prohibition started in 1920, members of criminal gangs in large American cities existed on the periphery of society. Since the 19th century, there was, as sociologists call it, a social hierarchy with big-city “bosses” of political machines financing their control of votes in neighborhoods with payments from criminals running gambling and prostitution rackets and bribing police to look the other way. Under them were many local gangs of various ethnic groups, such as Irish, Italian, Jewish and Polish, focused on street-level crimes such as extortion, loansharking, drugs, burglary, robbery and contract violence.

In cities such as New York and Kansas City before 1920, the Sicilian Mafia, whose members were among the four million people who immigrated from southern Italy to America starting in about 1875, made money through the “Black Hand” racket — sending cryptic letters demanding payments from ethnic Italians with threats of violence or death. New York’s Tammany Hall political machine sanctioned gambling and brothel rackets by crime groups such the Five Points gang before Prohibition. But activities by the Mafia and criminal gangs generally were not coordinated under an organization, and in fact terms such as “organized crime” and “syndicate” would not enter popular use until after Prohibition began.

Prohibition practically created organized crime in America. It provided members of small-time street gangs with the greatest opportunity ever — feeding the need of Americans coast to coast to drink beer, wine and hard liquor on the sly. Organized racketeers dominated the illegal “bootlegging” industry as well as the urban machine “bosses” and the vice kings. They understood banking and other legitimate business and bribed policemen, judges, juries, witnesses, politicians and even federal Prohibition agents as the cost of doing business.

By the early 1920s, profits from the illegal production and trafficking of liquor were so enormous that gangsters learned to be more “organized” than ever, employing lawyers, accountants, brew masters, boat captains, truckers and warehousemen, plus armed thugs known as “torpedoes” to intimidate, injure, bomb or kill competitors. They bought breweries closed because of Prohibition and hired experienced brewers. They ran boats out into oceans and lakes to buy liquor from Great Britain and Canada, leading to the term “rum running.” They paid individual citizens to operate stills at home to make gallons of bad-tasting booze. They sold illegal beer, watered-down whiskey and sometimes-poisonous “rotgut” booze in thousands of Mob-owned illegal bars known as “speakeasies.” Often, to screen customers at these illegal bars, a bouncer would look through a peephole in the front door before refusing them or letting them in.

The new alcohol trafficking gangs during Prohibition also crossed ethnic lines, with Italians, Irish, Jews and Poles working with each other, although inter-gang rivalries, shootings, bombings and killings would shape the 1920s and early ’30s. More than 1,000 people were killed in New York alone in Mob clashes during Prohibition. The period sparked a revolution in organized crime, generating frameworks and stacks of cash for major crime families that, though far less powerful, still exist to this day.

Bootleggers operated across the United States, from Boston to St. Louis to Miami, Seattle and San Francisco. In Detroit, the Purple Gang smuggled liquor on the Detroit River. In Cleveland, Moe Dalitz’s Mayfield Road Gang’s speed boats shipped liquor across Lake Erie from Canada. But the largest syndicates born out of Prohibition were based in New York and Chicago, both port cities with considerable populations of downtrodden immigrants from Italy, Ireland, Poland and other parts of Europe. Many of these mobsters were part of a generation born in the 1890s and early 1900s that came of age with Prohibition. The infamous Italian-American “Five Families” of New York (Gambino, Genovese, Lucchese, Bonnano and Colombo) would emerge from the wealth produced by Prohibition.

The main instigator of modern American organized crime was Charles “Lucky” Luciano, an Italian immigrant (from Sicily) who at the outset of Prohibition, at age 23, began working for illegal gambling boss Arnold Rothstein, an important early investor in bootlegging. Other mobsters who rose as Rothstein’s protégés included Dutch Schultz, Owney Madden and Waxey Gordon. Schultz’s gang featured triggerman Jack “Legs” Diamond and brothers Vincent and Peter Coll.

By the mid-1920s, Luciano was a multimillionaire and New York’s top bootlegger, making and importing alcohol with other Prohibition-rich associates including Meyer Lansky, Benjamin “Bugsy” Siegel, Louis “Lepke” Buckhalter and Abe “Longy” Zwillman. Luciano also partnered with Frank Costello and Vito Genovese, who like him served their Sicilian boss, Giuseppe “Joe the Boss” Masseria. In 1930, Masseria’s operation ran up against that of another boss, Salvatore Maranzano, for control of organized crime in New York’s Italian community. The bosses engaged in a conflict known as the Castellammarese War. Luciano, who liked Maranzano’s flexibility and willingness to welcome in Lansky and Siegel, who were Jewish, left the old-school Masseria for Maranzano’s camp.

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The year 1931, two years before the repeal of Prohibition, would be a formative one for Luciano in New York and the future of American organized crime. Luciano arranged for the death of his longtime boss Masseria, in April, 1931, fearing that Masseria was out to get him. Maranzano, who succeeded Masseria as “the boss of bosses,” allowed Luciano to run one of New York’s five families. But five months later, after finding out that Maranzano was plotting to kill him, Luciano had his new boss killed, giving Luciano the role of undisputed leader of the New York Mafia. But Luciano rejected the traditional position of “boss of bosses.” He instituted a new organization for crime family chiefs across the nation, known as the Commission, which operated something like a corporate board of directors and met to talk over and settle disputes peacefully and agree on courses of action. The Commission would last into at least the late 1950s.

In Chicago, Johnny Torrio and Al Capone created their criminal group, the Outfit, just after Prohibition started. Torrio, who toiled under brothel racketeer Big Jim Colosimo before 1920, had Colosimo killed after the boss refused his pleas to get into bootlegging. The Outfit under Torrio, with Capone as his right-hand man, ran bootlegging, brothels and illegal gambling in the Windy City’s downtown and South Side. Torrio made deals with other Chicago gangs to share the spoils of bootlegging to avoid bloodshed. But gang shootouts flared during the Chicago “Beer Wars” from 1922 to 1926, when mobsters killed 315 of their own and police officers killed another 160 gangsters. The Outfit was a mostly Italian-American group that would fight violently in the 1920s with gangsters of Irish and Polish extraction, including Dion O’Banion, Hymie Weiss and George “Bugs” Moran, who controlled the illegal liquor trade on the city’s North Side.

The Outfit gunned down O’Banion in 1924. Torrio, nearly killed in a retaliatory shooting planned by Weiss in 1925, retired and turned over the business to Capone. Weiss was murdered in public by Capone’s men in 1926. Huge sums were at stake. Capone made as much as $100 million a year (equal to $1.3 billion in 2016 dollars). At one point in the 1920s he paid out $500,000 per month (worth about $6 million today) to police to let him operate his illegal booze trade.

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In 1929, seven of Moran’s associates were shot dead in a garage in Chicago during the storied St. Valentine’s Day Massacre. Moran, Capone’s target, luckily avoided the area moments before the shooting. Capone was immediately suspected of orchestrating the massacre, but never charged. The murders stunned the country, greatly eroded national support for Prohibition and influenced President Herbert Hoover to order federal authorities to “get” Capone. By 1930, Capone still ran about 6,000 speakeasies and made more than $6 million a week. His powerful cohorts, who met with Chicago and Illinois pols to negotiate deals, included Paul “the Waiter” Ricca and Murray “the Camel” Humphreys. But Capone finally met his downfall in 1931, when he was convicted of federal income tax evasion and sentenced to 11 years in prison.

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Some individual entrepreneurs turned criminal and made a fortune by exploiting loopholes in the Volstead Act. One such bootlegger was George Remus, a well-known lawyer in Chicago who at first defended bootleggers in court and figured almost right away that he would be better off being one. Remus took advantage of the Act’s exemption for the manufacture and sale of alcoholic drinks for “medicinal” reasons. A person was allowed a quart of wine or a pint of whiskey every 10 days if prescribed by a doctor for treatment of an illness. The Volstead law also exempted alcohol used by clergy for sacraments — in order not to violate constitutionally protected religious rights — and undrinkable industrial alcohol. Remus had bought up 14 distilleries in Cincinnati by 1924 and earned a fortune estimated at $50 million from selling liquor supposedly for medicinal use to illegal liquor dealers and speakeasies. But an undercover agent exposed him and Remus received a three-year stretch in prison. Famously, while out of prison in 1927, Remus killed his wife but was acquitted at trial.

After Prohibition’s repeal on December 5, 1933, organized crime, with its top unlawful moneymaking racket gone, was forced to regroup and focus on other things. While some gangsters entered the legal and licensed liquor business, the laws made it harder to earn as much cash and as fast. But all was not lost. There were still the lucrative vice rackets of prostitution and gambling, as well as drug trafficking and labor racketeering. Organized crime had to be more organized, but many former rumrunners still had plenty of money saved from the Prohibition days. Luciano, for one, continued to enjoy the high life as New York’s crime kingpin, living at the luxurious Waldorf Astoria hotel, until his prostitution rackets led to convictions and prison in the mid-1930s. For others, such as Lansky, Siegel, Costello and Dalitz, Las Vegas and its legal casinos awaited, starting in the 1940s.

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While organized crime groups made infamous during Prohibition remain today, they earn only a fraction compared with the proceeds of bootlegging.