RICO Act Research Paper

Origins

RICO grew out of concern about the infiltration of legitimate institutions by organized crime. After this problem was highlighted in the 1967 report of a presidential commission on crime, a number of bills were introduced in Congress that would have prohibited the investment of money derived from criminal activities into a legitimate business. In addition to making such investment a crime, these bills used the model of the antitrust laws to permit civil law suits by businesses injured by such infiltration, and to divest criminals of their ill-gotten interests in legitimate businesses by requiring forfeiture of those interests to the government. Aspects of several such bills were eventually combined into what ultimately passed as RICO. The actual language adopted by Congress, however, was susceptible to much broader application.

Crimes

RICO’s broadest and most-used section prohibits conducting the affairs of any ‘‘enterprise’’ (defined broadly to include just about any form of human endeavor) through a ‘‘pattern of racketeering activity’’ (defined as two or more criminal acts from an extremely broad list, that are related to each other, that do or threaten to persist over a period of time). This language makes it a crime for those with a significant role in operating any business, government office, labor union, social or political organization, or informal grouping to commit a series of crimes in furtherance of that organization’s goals or by using the organization’s resources. Indeed, since the Supreme Court has held that enterprises are covered whether or not they are legitimate (United States v. Turkette, 452 U.S. 576 (1981)), RICO permits the prosecution of members of an organized crime family or other criminal gang or association for conducting its affairs.

Other new crimes created by RICO, which have been rarely used by prosecutors, derive from the original concept of preventing criminal elements from gaining entry into legitimate business. The relevant provisions prohibit acquiring or maintaining an interest in any ‘‘enterprise’’ (other than by purchase of a trivial interest via the stock market), by investing the proceeds of loansharking or a pattern of racketeering activity (for example, investing the profits from narcotics dealing in a legitimate business), or by using such criminal means (for example, by the use of threats of violence to extort an interest in a business from its owner). In addition, RICO also prohibits conspiring to commit any of these new crimes.

Effects

One might wonder what is valuable or innovative about prohibiting actions that are by definition already crimes. The answer is largely procedural. By defining as a single offense the commission of a series of distinct crimes, RICO avoids a variety of traditional procedural, evidentiary, and jurisdictional rules that tend to discourage prosecuting separate offenses together. For example, RICO includes as ‘‘predicate acts’’ that may form part of a pattern of racketeering such crimes as murder, robbery, bribery, and arson, which normally are violations only of state law, thus permitting them to be investigated and prosecuted by federal officials in federal court.

When criminal organizations operate in several states, their offenses would normally have to be prosecuted separately in the states of federal judicial districts where the individual crimes occurred; however, by defining these offenses as part of a single pattern, the entire pattern can be prosecuted together as a single crime in any federal district where one of the predicate acts occurred. Procedural rules limiting the joinder of crimes or of defendants in a single indictment are inapplicable once the separate crimes or offenders are conceptualized as part of a single ‘‘racketeering enterprise’’ jointly committing the same crime. Evidentiary rules that seek to avoid ‘‘guilt by association’’ or easy conviction of the ‘‘usual suspects’’ by limiting reference to a defendant’s prior convictions, other criminal acts, or associations with other criminals or criminal organizations are similarly inapplicable where the commission of a number of crimes, in association with other members of an enterprise, is the very crime to be proved. Where the statute of limitations precludes prosecution of crimes committed years ago, those crimes may often still be made part of a lengthy pattern of racketeering offenses, so long as at least one predicate racketeering act was committed within the limitations period. These and other effects of defining the RICO pattern as a single crime have facilitated the prosecution of cases involving members of the Mafia and other criminal groups. Critics of RICO have charged that the resulting ‘‘megatrials’’ of large numbers of defendants for a wide variety of separate crimes have diluted traditional protections against wrongful conviction, by complicating the task of jurors; making trials longer, more burdensome, and more expensive for defendants; and by permitting unfair ‘‘spillover’’ of inferences of guilt from one crime or defendant to other charges that are less well established, or to other defendants against whom the evidence is weak.

RICO has not been used only against organized crime groups. Because corporations, labor unions, and government offices are also ‘‘enterprises’’ as defined in RICO, the law has been used in cases of business fraud, labor corruption, and bribery of police or other government officials as well. In these cases, the criminal schemes are usually less wide-ranging than in the organized crime cases, and the cases typically could be brought within conventional procedural rules. However, the serious penalties available under RICO, including forfeiture remedies, and the increased stigma of a conviction for ‘‘racketeering,’’ have made RICO an attractive tool for prosecutors in serious white-collar criminal cases. Critics of these prosecutions have pointed out that the expansive definition of a pattern of racketeering activity provides little if any definitional limitation on the kinds of fraud or corruption cases that can be brought under RICO, thus leaving the choice of which cases are ‘‘serious’’ enough to merit RICO penalties entirely to the discretion of prosecutors.

Penalties

RICO authorizes severe penalties of fine and imprisonment. The maximum punishment for an individual on a single RICO charge is imprisonment for twenty years (life if any of the predicate acts charged, such as murder, would permit such a punishment), and a fine of $250,000 or twice the proceeds of the offense. In addition, RICO revived the punishment of forfeiture of property, which before 1970 had been little used in American criminal law.

RICO imposes, as a mandatory penalty, a judgment of forfeiture to the United States government not only of any proceeds or property derived from the proceeds of the crime, but also of any interest the defendant holds in the enterprise, or any property of any kind that provides a source of influence over the enterprise. The latter provisions, rooted in the statute’s original purpose of preventing criminal control of legitimate business, aim not only to punish the offender, but also to deny continuing power over an enterprise to anyone who has corrupted it to criminal ends.

Such forfeitures can be extremely harsh, and even disproportionate to the offense. For example, if an executive defrauds a number of customers of one division of a giant corporation, the forfeiture would encompass all of the offender’s stockholdings in the company, whether the dollar value of those holdings was large or small in proportion to the losses caused by the fraud. In one Supreme Court case, the proprietor of an adult bookstore, convicted under RICO for selling a number of obscene books, forfeited to the government his entire store, including a large volume of nonobscene material. The Court held that since all the books were now property of the government, they could be destroyed, whether or not they were obscene (Alexander v. United States, 509 U.S. 544 (1993)).

A number of procedural provisions relating to forfeiture increase the impact of the forfeiture remedy. For example, RICO permits the government to obtain a restraining order in advance of trial, freezing any of the defendant’s assets that are subject to forfeiture. Thus, before a jury has evaluated the case against the defendant, he can be deprived of the use of his property, and hampered from using that property to obtain legal counsel. Moreover, a judgment of forfeiture ‘‘relates back’’ to the time the property was obtained. Thus, if the court eventually finds that property was obtained by means of a RICO violation, the property is declared to have been the government’s from the moment the violation occurred. Consequently, it can be recovered not only from the defendant, but also from anyone else to whom it had been transferred. Even someone who received a bona fide payment for legitimate goods or services from funds held to be racketeering proceeds would lose them to the government, unless he or she had no reasonable cause to believe that the property was forfeitable. Since defense lawyers in particular are on notice that the government has brought racketeering charges, legal fees paid to them could be recovered by the government. This possibility can complicate a RICO defendant’s ability to retain counsel.

Civil Remedies

In addition to these criminal law provisions, RICO also authorizes civil suits, both by the government and by private individuals who are economically injured by a RICO violation. (Somewhat curiously, no provision is made for suits by plaintiffs who were physically injured by racketeering acts.)

The government has found civil RICO to be a valuable tool against labor racketeering and other forms of criminal corruption. Once the government establishes that an enterprise has been the subject of RICO offenses, courts are permitted to enter wide-ranging equitable orders, including banning individuals from participating in the management of the enterprise, or reorganizing or even dissolving the enterprise itself. Unlike these provisions, corrupt labor unions have been ordered to democratize, and to operate under the supervision of courtappointed independent monitors with the power to investigate its affairs, and officials found to be corrupt or to have associated with organized crime have been banned from holding union office.

Private civil actions under RICO have become extremely common and extremely controversial. Unlike most ordinary civil suits, suits for violation of RICO permit recovery not merely of compensation for losses, but for treble damages and attorneys’ fees. The attraction of these enhanced remedies, as well as of obtaining access to federal court, has led plaintiffs in ordinary business disputes to exercise considerable ingenuity to cast their claims not in ordinary terms of contract, tort, or common law fraud, but as violations of the federal mail, wire, bank, and securities fraud statutes, which are predicate acts under RICO. The broad coverage of these statutes permits many claims to be formulated in this fashion, leading to the escalation of many ordinary business disputes into ‘‘racketeering’’ cases. (Such claims became so widespread in the securities industry that Congress amended RICO in 1995 to prohibit civil suits based on securities fraud, except where the defendants had previously been criminally convicted.)

Civil RICO actions have also been brought against political activist groups, such as antiabortion demonstrators and animal rights activists, whose tactics sometimes verge on or cross over into violence (National Organization for Women, Inc. v. Scheidler, 510 U.S. 249 (1994)). Critics of such actions argue that the potential for imposing extensive litigation costs and treble damages on activists who may have a tenuous connection to actual perpetrators of violence, poses a threat to legitimate dissent. Defenders point out the violent activity is as dangerous in pursuit of a political enterprise as of an economic one, and that RICO actions can be an effective tool against organizations that encourage terrorism.

Influences

RICO was little noticed, and little used, in the first ten years after its adoption. During the 1980s, however, as prosecutors and civil plaintiffs discovered its potential, the number of RICO cases increased dramatically. The many successful RICO prosecutions of organized crime figures and corrupt civil servants and businessmen, and the use of civil RICO as a tool of labor law reform, provided significant law enforcement benefits. Moreover, RICO has had an influence in the creation of other laws. The use of forfeiture as a punishment for crime, pioneered in RICO, has been extended more broadly to narcotics and money laundering offenses. The extensive use of RICO forfeiture also led to a renewal of interest in civil forfeiture remedies, which have also been greatly expanded. RICO’s original concern with the introduction of criminal proceeds into the legitimate economy was developed further in the money-laundering statutes, which also follow the RICO pattern of using traditional crimes as the predicates for more complex prohibitions. Finally, the increased use of proactive investigative techniques, such as electronic surveillance and infiltration by undercover agents and informants, coupled with RICO prosecutions that present the results of such investigations in full context, has contributed to a more effective understanding of crime in terms of enterprises and criminal careers, rather than simply as isolated instances of illegal behavior.

On the debit side, RICO is complex and overbroad. The private civil action has generated excessive litigation, while having little effect on serious criminal conduct. Because RICO defines its prohibitions not in terms of specific behaviors, but in terms of differing relationships of broad abstract concepts like the ‘‘enterprise’’ and the ‘‘pattern of racketeering,’’ its coverage is broad and somewhat elusive. In the area of fraud and corruption cases, the severe penalties and federal jurisdiction provided by RICO can be invoked or declined by prosecutors almost at will. Even with respect to criminal groups, the existence of an organized enterprise, as distinct from shifting combinations of loosely acquainted offenders who join and dissolve to commit ad hoc, opportunistic offenses, is sometimes in the eye of the beholder. It is hardly clear that the severe penalties and dangerous dilutions of traditional procedural rights are justified in all such cases.

Bibliography:

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