Nothing wrong with extortion in any area, like it has been mentioned; IC issue. Should be treated that way. I don't think we should regulate the areas you're allowed to do that sort of crime in anyways. Extortion is something that can be executed and treated in so many diverse ways. There are stupid ways to both do it and handle it, and there are smarter ways to go about it.
I do agree though - to the whole deal about escalating quickly and unrealistic. That's why, on behalf of illegal faction management we also try to advise people that wanna escalate too quickly - to slow it down and roleplay scenarios and escalation out properly. This is very much up to the individuals though, but we can point you in the right direction.
I am involved in a large racket of extortion ICly and it's a huge part of my roleplay and for many of the people involved with my character as well. I think this is fine the way it is, it's an important aspect of the server and creates unique RP for illegal roleplayers, business owners, and police. It's mainly an IC issue unless people purposefully go to unrealistic means to get their way.