Racketeering - Module 5 of 5

Racketeering - Module 5 of 5


Module 5: Racketeering

The Federal RICO Act


            Racketeering is a difficult-to-define word that is often used in the context of organized crime. Loosely, it means engaging in a pattern of illegal activity in furtherance of an organization or enterprise.[1] Racketeering is sometimes hard to pinpoint because it is comprised of activity that would otherwise be illegal in any case, sometimes rendering the racketeering label redundant or unnecessary.

            Still, racketeering statutes have become major parts of federal and state arsenals in fighting crime, and organized crime in particular. The centerpiece of that arsenal is the federal RICO statute. 

The Racketeer Influenced and Corrupt Organizations Act[2] was originally passed by Congress in 1970 as a means for fighting organized crime in the United States.[3] The part of the RICO statute that defines criminal activity is divided into four major parts. The first part makes it a violation to use money gained through “racketeering activity” to acquire an interest in any enterprise involved in interstate commerce. The second clause makes it a violation to acquire or maintain, through such “racketeering activity,” an interest in any enterprise involved in interstate commerce. The third section forbids any person that is “employed or associated” with any enterprise, to conduct or participate in any pattern of “racketeering activity,” if the enterprise is engaged in business that affects interstate commerce. The fourth clause makes it a violation to conspire to violate any of the preceding sections.

In defining “racketeering activity” for purposes of RICO, the statute lists, as statutorily defined “predicate acts” necessary for the establishment of a RICO violation, many federal crimes, including bribery, counterfeiting and mail and wire fraud, as well as a number of traditionally state crimes, such as murder, arson and robbery. The statute then goes on to provide severe criminal and civil penalties for RICO violators. Statutory criminal penalties include up to 20 years in prison for each RICO violation plus forfeiture of all property or interest in property acquired because of a RICO violation. Civil remedies call for treble (triple) damages to be awarded to any plaintiff damaged by a RICO violation. The federal sentencing guidelines apply a minimum offense level for RICO violations of 19, with the greater of 19 and the offense level of the underlying crimes applied.[4]

Although RICO was designed to be an aid to federal prosecutors in the fight against organized crime, the statute itself has had a much broader range of applications.[5] RICO has strengthened the power of federal prosecutors, allowing federal prosecutions in areas that were traditionally reserved for the states in the exercise of their general police power.[6] The Supreme Court, rather than describing RICO as a congressionally created way to combat organized crime, has noted that “RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime in general.”[7] The Court has even decided that plaintiffs (or victims) of RICO violations need not suffer an injury that is in any way a “racketeering” injury. The injury need only be a natural result of the predicate act and need not have anything to do with the organizational racketeering activities of the defendant. 


The Enterprise Requirement

One of the fundamental elements of RICO is that the defendant must be part of a criminal organization. While we may think of the Mafia or other criminal rings when we think of criminal organizations, the organizational requirement under RICO has been interpreted much more broadly. One federal grand juror serving on a Southern District of New York grand jury observed that “Prosecutors just seem to tack on a RICO charge to any indictment which alleges two crimes, no matter what those crimes are.” A group of New Jersey plaintiffs even filed a RICO suit against an Atlantic City casino for allegedly shuffling decks of cards too frequently during blackjack games.[8]

The broad interpretation of the organizational requirement stems from the seminal Supreme Court case of United States v. Turkette. There, the Court found RICO applicable when the organization in question (a drug dealing ring) was subjected to RICO prosecution despite having no cohesion as a unit other than that they combined to engage in drug smuggling. The Court held that “any union or group of individuals associated in fact, although not a legal entity” could be considered an organization for purposes of RICO.[9]

In Boyle v. United States, the defendant was charged with RICO violations for participating in a string of bank robberies and other similar crimes with various other people. Although there was no structure or hierarchy in the organization and although there were no leaders, regular meetings or other characteristics normally associated with organizations, the Court found that RICO applied. No “structure” is required except that the group engaged in a pattern of illegal activity. The organizational requirement merely means that there must be a relationship between the members, a common purpose and that they stick together long enough to engage in the illegal conduct.[10]

Moreover, the organization need not be formed or exist for economic purposes. In Nat'l Org. for Women v. Scheidler, NOW sued an anti-abortion group under RICO for engaging in a pattern of threatening and intimidating healthcare providers.[11] Although they had no profit motive, a unanimous Supreme Court held that “RICO did not require proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose,” and therefore, if the protesters had conspired to shut down the clinics through a pattern of racketeering activity, then the clinics could maintain a RICO action.

RICO can also apply to organizations that are formed for legitimate purposes and generally operate legitimately, if they engage in patterns of illegal behavior. The accounting firm Ernst and Young was sued for RICO violations for allegedly producing misleading financial audit statements on behalf of a client (though the case was dismissed on other grounds).[12] Enron and its accounting firm, Arthur Anderson, were also charged with racketeering.[13]

Similarly, in Bennett v. Berg, a not-for-profit corporation that ran a retirement community was considered an enterprise when plaintiffs alleged that representatives of the community “fraudulently promoted the retirement community with materially false statements as to the Village's financial soundness and the promise of affordable life care." The residential community could be considered an "association in fact" for purposes of RICO.[14]


Pattern and Predicate Acts

            RICO requires that the defendants commit a “pattern” of illegal activities, which are also known as the “predicate” offenses under a RICO charge. A pattern is defined very broadly and is satisfied with any two predicate acts committed within 10 years of each other.[15] Still, the predicate acts must further the purposes of the enterprise.[16] Unlike in a conspiracy charge, where the “overt act” can be anything, even an otherwise legal activity, that furthers the conspiracy, each RICO predicate act must be its own crime.

            So, for example, if an alleged racketeering enterprise is shown to have planned a bank robbery and one of the participants is shown to have obtained the blueprints for the bank architecture, purchased a steak knife to use as a weapon, rented a getaway car and participated in the bank robbery, no RICO charge would be justified on these allegations alone. Though the first three would all be overt acts towards a conspiracy charge, none were, in themselves, criminal acts. So, the entire bank robbery would constitute only a single predicate act.[17]

Similarly, the predicate acts must be separate crimes. The Fifth Circuit ruled that “possession with intent to distribute and actual distribution of the same marijuana were one criminal act” towards the two that were necessary to show a pattern of racketeering activity.[18]

Unlike conspiracy, though, the predicate acts don’t necessarily have to be in furtherance of a cohesive set of criminal schemes or plans. In Salinas v. United States, the Supreme Court allowed a RICO conviction when the defendant, a public official, accepted a series of bribes (in violation of federal bribery statutes). The defendant argued that because the jury was “not instructed that he must have committed or agreed to commit two predicate acts himself,” he could not be considered to have acted on behalf of the enterprise. Calling the defendant’s interpretation “wrong,” the Court observed that there “is no requirement of some overt act or specific act in the [RICO] statute before us, unlike the general conspiracy provision applicable to federal crimes, which requires that at least one of the conspirators have committed an act to effect the object of the conspiracy."[19]

The predicate acts’ relationship to the organization can also be a flashpoint in a RICO analysis. The statute requires the racketeering activity to acquire an interest in or participate in the “establishment or operation of” the criminal enterprise, for RICO to apply.[20] This implies at least some distinction between the operation of the enterprise and the conduct of the defendant. For example, if the defendant himself carries out a string of terrorist activities using a pseudonym (say, for example, the “Unabomber”), it would be a stretch to then call his operations a “criminal enterprise” and indict him for racketeering. “RICO requires proof of a fact other than the facts required to prove the predicate acts of racketeering.”[21]

The Supreme Court observed that the enterprise must be more than simply the defendant “operating under another name.” Still, that the defendant incorporated and conducted his alleged racketeering activities under his corporation’s name, was considered a sufficiently separate “enterprise” for RICO to apply. RICO was thus held to apply even when “a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner.”[22]


Civil RICO and Forfeiture

            Though RICO was designed primarily to fight crime, Section 1964 of the federal criminal code provides civil remedies for RICO violations in addition to the criminal ones laid out in Section 1963. Section 1964 includes the following provisions:

1.    Federal courts are given jurisdiction to remedy racketeering violations through injunctions, restrictions and even dissolving criminal organizations;

2.    The Attorney General is given the authority to bring civil RICO actions and to take actions to remedy RICO violations;

3.    People injured by RICO violations are entitled to treble damages, meaning the ability to recover three times the loss sustained, including attorneys’ fees.

Proving a RICO civil violation requires the same elements as proving a criminal RICO violation. In fact, the subject matters of many of the cases that we’ve discussed in this module have been civil RICO cases. However, one additional very important RICO remedy that is often applied in civil RICO cases is civil forfeiture. While Section 1964 doesn’t contain the word “forfeiture,” the injunction power allowed under Section 1964 allows the government to confiscate property used for racketeering.[23]

For example, when a defendant was convicted of racketeering for making illegal (usurious) loans to car lessees who had fallen behind on their payments, the cars themselves were forfeited under RICO even though the illegal loan was between the dealership and the customers and the cars themselves were not the subject of the illegal transactions.

The FBI calls asset forfeiture “a powerful tool used by law enforcement agencies against criminals and criminal organizations to deprive them of their ill-gotten gains through seizure of these assets.”[24]

In United States v. Simmons, the defendants (Fischer and Simmons) were convicted of some counts of racketeering involving a pattern of bribery charges. The court allowed forfeiture of more than $350,000 from Simmons, not all of which were the subject of his bribery convictions. The court held that even if the defendant was not convicted personally on all counts, the government could confiscate the gross proceeds of all illegal activities. In essence, defendants are jointly and severally liable under RICO. If there are proceeds from any of their illegal activities in the hands of any of the other defendants, those are subject to forfeiture.[25]

Moreover, where the defendant sets aside racketeering money subject to forfeiture to pay his attorney fees, that money could still be seized. In response to the argument that this violated the right to counsel, the Supreme Court observed that the right to counsel “guaranteed criminal defendants only the right to be represented by an attorney the defendant could afford.” Forfeited property did not belong to the defendant and he thus had no right to dispose of it.[26]


Other Racketeering Statutes

            Since the enactment of the federal RICO act in the 1970’s, most states have enacted their own anti-racketeering statutes, sometimes known as “Baby RICO” statutes. Despite the underwhelming nickname, these statutes are often more comprehensive and encompassing than their federal counterpart. The Supreme Court of Georgia, for example, observed that Georgia’s racketeering law is so broad as to be “amorphous and chameleon-like" and that it “has been compared to an obscure iceberg, the dim outline of its base extending seemingly forever under the waters of Georgia criminal jurisprudence."[27]

            An American Bar Association 2017 paper lists several reasons that state RICO statutes are important even in light of the existence of the broad federal RICO statute, including:[28]

-       Many state RICO statutes have significantly broader civil and criminal applications than the federal statute, incorporating an array of state law offenses that are outside the scope of the federal statute.

-       Many state RICO statutes have longer periods of limitation than the federal statute.

-       Many state RICO statutes have fewer essential elements than the federal statute.

-       Many state RICO statutes allow the recovery of a broader range of damages in civil actions.

-       Many state RICO statutes specifically authorize equitable relief for private parties that may not be available under the federal statute.

-       While federal criminal RICO prosecutions must receive prior approval from the Organized Crime and Racketeering Section of the Department of Justice, in most states RICO prosecutions can be initiated without centralized review, and

-       Restrictive changes to the federal RICO statute, such as the elimination of securities fraud as a predicate act, do not affect state RICO statutes.

Finally, a federal complement to RICO, the Violent Crimes in Aid of Racketeering, or “VCAR,”[29] statute makes it a federal crime to commit a variety of violent acts in support of an enterprise that engages in racketeering. This statute has the potential to greatly increase the scope of federal criminal law. While acts such as robbery, assault, kidnapping, etc., would not normally be federal crimes, if they are done to aid a criminal enterprise, they can be prosecuted on the federal level.

For example, in United States v. Perez,[30] the defendant was charged with having participated in the activities of the “Latin Kings,” an alleged racketeering enterprise. The indictment charged Perez with a series of criminal acts, such as murder, attempted murder and gun possession in connection with that gang. Perez argued that VCAR was unconstitutional as applied because it criminalized specific acts that are state crimes and that bear no relationship to interstate commerce. The court rejected the argument, saying that VCAR prohibits racketeering which, when looked at in the aggregate, substantially affects interstate commerce.  

Thank you for participating in LawShelf’s video-course on white-collar crime. We hope that this course has provided you with a broad survey of the criminal laws that seek to prevent and punish behaviors that defraud victims, interfere with law enforcement and the justice system and constitute patterns of unlawful behavior. We hope that you will continue your study of criminal laws that corporate officials must be wary of in courses such as securities regulation. Best of luck and please let us know if you have any questions or feedback.

                 

 

 

 



[3] See Organized Crime Control Act of 1970 (OCCA), Pub. L. No. 91-452, § 1, 84 Stat. 922, 922 (1970) (Congressional Statement of Findings and Purpose) (codified at 18 U.S.C. § 1961 note (1982)). In passing the Racketeer Influenced and Corrupt Organizations Act (RICO), Congress noted that organized crime 'annually drains billions of dollars from America's economy [and that] this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions.' Id.

[5] See Jacqueline S. Sawyers, Civil RICO and its Application to ‘Garden Variety’ Fraud Within the Sixth Circuit, 13 N. Ky. L. Rev. 463 (1987) 

[6] See John Delaney, Criminal Law; A Problem Solving Approach 339 (1986).

[7] Sedima,S.P.R.L. v. Imrex Co., 473 U.S. 479, 498 (1985)

[9] United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524 (1981)

[10] Boyle v. United States, 556 U.S. 938, 129 S. Ct. 2237 (2009)

[11] Nat'l Org.for Women v. Scheidler, 510 U.S. 249, 114 S. Ct. 798 (1994)

[12] Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163 (1993)

[14] Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1982)

[16] United States v. Elliott, 571 F.2d 880 (5th Cir. 1978)

[17] See Beck v. Prupis, 529 U.S. 494, 120 S. Ct. 1608 (2000)

[18] United States v. Phillips, 664 F.2d 971 (5th Cir. 1981)

[19] Salinas v. United States, 522 U.S. 52, 118 S. Ct. 469 (1997)

[20] 18 USC § 1962(a)

[21] United States v. Anderson, 626 F.2d 1358, 1367 (8th Cir. 1980)

[22] Cedric Kushner Promotions, Ltd. v.King, 533 U.S. 158, 121 S. Ct. 2087 (2001)

[23] See Kripp v. Luton, 466 F.3d 1171 (10th Cir. 2006); See also http://apps.americanbar.org/buslaw/blt/content/2012/06/article-02-dery.shtml

[26] Caplin & Drysdale v. United States,491 U.S. 617, 109 S. Ct. 2646 (1989)

[27] Pimper v. State ex rel. Simpson, 555 S.E.2d 459, 464 (2001)

[30] 940 F. Supp. 540 (S.D.N.Y. 1996)