Racketeer influenced and corrupt organizations.

• Author: Holt, Michael W.
• Position: Twenty-Fourth Annual Survey of White Collar Crime

1. INTRODUCTION II. ELEMENTS OF THE OFFENSE A. RICO Person B. Two or More Predicate Acts of Racketeering Activity C. Pattern D. Enterprise 1. Types of Enterprises 2. Proving the Enterprise 3. Person-Enterprise Rule E. Effect on Interstate Commerce F. Prohibited Acts 1. Investment of Racketeering Proceeds 2. Illegal Acquisition of Enterprise Interest 3. Conducting an Enterprise Through Racketeering Acts 4. Conspiracy III. DEFENSES A. Invalidity of One or More Predicate Acts B. Limitation of Actions C. Withdrawal From Conspiracy D. "Horizontal Preemption" or "Primary Jurisdiction" E. "Reverse Vertical Preemption" F. Constitutional Challenges IV. CRIMINAL PENALTIES A. Overview B. Forfeiture 1. "Seize and Freeze" Orders 2. Rights of Innocent Third Parties 3. Attorney's Fees C. Sentencing V. CIVIL RICO A. Civil Penalties B. Civil Cause of Action for Private Parties 1. Standing 2. The Person/Enterprise Distinction 3. Statute of Limitations VI. RECENT DEVELOPMENTS IN THE RICO STATUTE A. Protests B. Tobacco Litigation C. Health Care Fraud D. Police Misconduct I. INTRODUCTION

   Congress designed The Racketeer Influenced and Corrupt Organizations Act ("RICO"), (1) enacted as Title IX of the Organized Crime Control Act of 1970, (2) to combat organized crime. (3) RICO aims to eliminate organized crime by bringing "the highly diversified acts of a single organized crime enterprise under RICO's umbrella" (4) and "to curb the infiltration of legitimate business organizations by racketeers." (5) RICO, however, has broad application beyond the organized crime context because Congress mandated that RICO "be liberally construed to effectuate its remedial purposes." (6) Thus, the Supreme Court has held that RICO may be applied to legitimate businesses (7) and to enterprises without a profit motive. (8) Although the Supreme Court adheres closely to the congressional mandate of RICO's "liberal construction" clause, (9) it has acknowledged that this clause is not without limits. (10)

   Prosecutors use RICO in a wide variety of criminal contexts (11) because it has been construed liberally, (12) it does not require mens rea beyond that necessary for the predicate acts, (13) and it provides for severe sanctions in addition to those a defendant may receive for the underlying offenses. (14)

   In addition to criminal actions, RICO permits private plaintiffs and the government to seek redress in civil actions. (15) Under [section] 1964, the Attorney General (16) or a private plaintiff (17) may bring a civil action in either state or federal court. (18) RICO provides equitable relief through divestiture of the defendant's interest in the enterprise, restrictions on future activities or investments, and dissolution or reorganization of the enterprise. (19) While this Article focuses primarily on the criminal aspects of RICO, the close relationship between criminal and civil RICO actions necessitates some discussion of civil cases.

   This Article generally addresses RICO prosecutions for white collar crimes. Section II discusses the elements of a RICO offense. Section III addresses a variety of potential defenses to RICO prosecutions. Section IV addresses criminal penalties for RICO violations, including the now advisory United States Sentencing Guidelines ("Guidelines"). Section V provides a discussion of civil RICO. Section VI describes several recent developments in this area of the law.

2. ELEMENTS OF THE OFFENSE

   Section 1962 of RICO prohibits "any person" (20) from: (i) using income derived from a pattern of racketeering activity, or from the collection of an unlawful debt, to acquire an interest in an enterprise affecting interstate commerce; (21) (ii) acquiring or maintaining through a pattern of racketeering activity, or through collection of an unlawful debt, (22) an interest in an enterprise affecting interstate commerce; (23) (iii) conducting, or participating in the conduct of, the affairs of an enterprise affecting interstate commerce through a pattern of racketeering activity or through collection of an unlawful debt; (24) or (iv) conspiring to participate in any of these activities. (25)

   To prosecute a defendant under RICO, the government must prove that the defendant: (i) through the commission of two or more acts constituting a pattern of racketeering activity; (ii) directly or indirectly invested in, maintained an interest in, or participated in, an enterprise; (iii) the activities of which affected interstate or foreign commerce. (26) Parts A through E of this Section examine the elements of a RICO offense. Part F addresses prohibited acts.

   1. RICO Person

      Under RICO, the term "person" includes "any individual or entity capable of holding a legal or beneficial interest in property." (27) This broad definition allows for a variety of entities other than a natural person to qualify under RICO as a "person," including unincorporated political associations, (28) public utilities, (29) and others. (30)

   2. Two or More Predicate Acts of Racketeering Activity

      A RICO offense requires two or more predicate acts of "racketeering activity." (31) RICO defendants need not be convicted of each underlying offense before a RICO offense is charged. (32) In fact, offenses of which the defendant has been acquitted nonetheless may serve as the basis of a RICO offense. (33)

      Under [section] 1961(1), the term "racketeering activity" includes a broad assortment of state and federal crimes. These crimes include: (i) certain acts that are chargeable under state laws and punishable by imprisonment for more than one year; (34) (ii) acts that are indictable under specified provisions of Title 18; (35) (iii) acts that are indictable under specified provisions of Title 29; (36) (vi) federal offenses that involve bankruptcy, securities fraud, or controlled drugs; (37) (v) acts that are indictable under the Currency and Foreign Transactions Reporting Act; (38) (vi) acts indictable under [section] [section] 274, 277, or 278 of the Immigration and Nationality Act if such acts are done for profit, (39) and (vii) any act that is indictable under any provision listed in [section] 2332b(g)(5)(B). (40) In the Comprehensive Crime Control Act of 1984, (41) Congress extended the definition of "racketeering activities" under RICO to include dealing in obscene materials (42) as well as the non-reporting of currency and foreign transactions. (43) The Antiterrorism and Effective Death Penalty Act of 1996 (44) further extended the RICO provisions to include various immigration crimes. (45) Congress, however, has restricted the definition of "racketeering activities" in other areas, prohibiting use of unconvicted securities fraud as a predicate act under RICO. (46)

   3. Pattern

      RICO applies only where the commission of two predicate acts constitutes a "pattern of racketeering activity." (47) While the statutory definition of "pattern of racketeering activity" requires at least two acts of racketeering that occur within ten years of each other, (48) proof of such acts, without more, may not suffice to establish a RICO violation. (49) There must also be proof that the predicate acts are continuous and interrelated. (50) Thus, "two isolated acts of racketeering do not constitute a pattern." (51)

      In H.J. Inc. v. Northwestern Bell Telephone Co., (52) the Court held that the government must establish both a relationship between the predicate acts and continuity of those acts to prove a "pattern of racketeering activity" for RICO purposes. (53) Although these two requirements, referred to as the "continuity plus relationship" test, (54) must be separately established, the Court has recognized that evidence on these two prongs often will overlap. (55)

      In H.J. Inc., the Court looked to a provision of the Organized Crime Control Act of 1970 (56) for guidance in defining the relationship prong of RICO's pattern requirement: "[c]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." (57)

      The "continuity" prong is satisfied by proof of either closed-ended continuity or open-ended continuity. Closed-ended continuity is defined as "a series of related predicates extending over a substantial period of time." (58) Open-ended continuity is defined as conduct that may last only a short period of time but nonetheless, poses a threat of extending into the future. (59) The Court suggested a case-by-case examination of this issue, noting that the existence of a "threat of continued racketeering activity" is a function of particular facts. (60) The Court offered a non-exhaustive list of situations that may constitute a pattern (61) and stated "development of these concepts must await future cases." (62)

      With this guidance, the circuits have reached varying conclusions regarding what conduct constitutes a pattern of racketeering. The primary reason for this difficulty is the potential tension between the two prongs of the pattern requirement: "relationship" and "continuity." (63) Nine federal circuits consistently apply some form of the "continuity plus relationship" test. (64) These circuits use a two-tiered analysis for the continuity prong, focusing on the length of time and number of acts required for continuity. (65) Proof of either closed-ended or open-ended continuity can satisfy the continuity prong in these circuits. (66) These circuits also take a lenient approach to the relationship prong. (67) The remaining "continuity plus relationship" circuits have yet to clearly define the elements of the test. (68)

      The Seventh and Tenth Circuits, while facially employing the H.J. Inc. test and considering duration and open-endedness of the racketeering activity, continue to use the multi-factor test applied prior to H.J. Inc. (69) The Fourth Circuit, using a hybrid approach, adopted the "continuity...