34 year old officer Besnik Llakatura was taken into custody at his Staten Island home.
He was charged with extortion and brandishing a firearm in relation to extortion.
He will appear in federal court in Downtown Brooklyn Tuesday.
Llakatura allegedly helped two career criminals shake down a restaurant owner for $24,000 in Astoria, Queens, in exchange for being permitted to operate in "their" neighborhood.
The two men who "claimed" the neighborhood were also taken into custody.
33 year old Denis Nikolla of Brooklyn and 37 year old Redniel Dervishaj of Queens will also appear in federal court.
Prosecutors say the scheme began shortly after the victim opened a restaurant in Astoria when he was visited by Dervishaj and told that he had opened a business in "our neighborhood" and, as a result, "you have to pay us."
The restaurant owner, who understood that he was targeted because he, like the defendants, is of Albanian descent, sought help from his friend Llakatura.
Unbeknownst to him, Llakatura was conspiring with Dervishaj in the extortion, and he told the business owner to pay, according to the indictment.
"The defendants told their victims they offered "protection," but in reality they peddled fear and intimidation through the Albanian community, their community, of Queens," said United States Attorney Loretta Lynch. "When one victim turned to law enforcement for help, he was betrayed again by a corrupt officer on the take, who turned his back on his badge, his oath and his friend in exchange for extortion money in his pocket."
Both Nikolla and Dervishaj have prior arrests, Nikolla for promoting prostitution, and Dervishaj for burglary.
Federal authorities are also looking into whether Dervishaj was in the country illegally.
Dervishaj was accused in February in the fatal stabbing of Antonio Lacertosa, a groom-to-be, during his Staten Island engagement party.
A grand jury later determined that Dervishaj was acting in self defense.