§ 2.07 Other Potential Charges

• Jurisdiction: United States
• Publication year: 2020

§ 2.07 Other Potential Charges

[1] Money Laundering

Money laundering is the process by which one conceals the existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate.⁵¹³ In recognition of this problem, Congress passed the Money Laundering Control Act of 1986.⁵¹⁴ There are two principal federal money laundering statutes, Title 18, Sections 1956 and 1957 of the United States Code. As originally passed the Act did not include intellectual property crimes in the list⁵¹⁵ of violations that constitute "specified unlawful activity." In 1994, however, Congress added to this list copyright infringement under Title 18, Section 2319 of the United States Code, and trafficking in counterfeit labels.⁵¹⁶

Defendants in intellectual property cases may violate the Money Laundering Act in a variety of ways but most commonly by engaging in financial transaction involving proceeds of their specified unlawful activity with the intent to promote the carrying of further specified unlawful activity. For example, an individual might violate Section 1956 by selling counterfeit CDs and depositing the proceeds of these sales into his bank account and then using this money to purchase additional blank CDs or equipment to make even more counterfeit product.⁵¹⁷

Similarly, a defendant might violate Section 1957 by knowingly engaging in a monetary transaction in property of a value greater than $10,000 derived from a criminal offense that is a specified unlawful activity, such as the sale of counterfeit goods.⁵¹⁸ The ability of the government to charge a defendant with a violation of the Money Laundering Act may be extremely important because of the possibility of greatly enhanced penalties for money laundering as compared to an intellectual property violation.

Defendants convicted of violating Section 1956(a)(1) and Section 1956(a)(1)(a)(2) may be sentenced to a maximum of twenty years imprisonment and a fine equal to the greater of not more than $500,000 or twice the value of the property involved in the transaction. Money laundering in connection with a sting operation is punishable by a maximum of twenty years imprisonment and a fine as prescribed under Title 18. Violations of Section 1957 are punishable by a maximum term of imprisonment of ten years and a maximum fine of the greatest of $250,000; twice the profit gained by the defendant; twice the loss suffered by another; or twice the amount of criminally derived property involved in the transaction.

The Federal Sentencing Guidelines establish a significantly higher base offense level for money laundering than for a criminal intellectual property violation. For example, individuals convicted for violating Section 2319 or 2320 are sentenced pursuant to United States Sentencing Guideline Section 2B5.3, which sets the Base Offense Level at 8. In comparison, an individual convicted under Section 1956 is sentenced pursuant to Sentencing Guideline Section 2S1.1, which sets the Base Offense Level at 20 or 23.⁵¹⁹ Thus, a defendant who is convicting of money laundering faces a considerably longer sentence than for a conviction for copyright infringement standing alone. For example, before making any adjustments to the money laundering base offense level, a defendant convicted of violating that section would be facing forty-six to fifty-seven months whereas would only be facing zero to six months for criminal copyright infringement.⁵²⁰ The availability of the money laundering statute is thus a powerful tool for the government to combat criminal copyright infringement.)

[2] The Racketeer Influenced and Corrupt Organization Act (RICO)

Congress amended the Racketeer Influenced and Corrupt Organization Act (RICO) to include counterfeit labeling,⁵²¹ criminal copyright infringement,⁵²² trafficking in recordings of live musical performances,⁵²³ trademark counterfeiting⁵²⁴ and theft of trade secrets⁵²⁵ as predicates for racketeering charges under Title 18, Section 1961(1)(B) of the United States Code.⁵²⁶ The amendment was passed as part of the Anti-counterfeiting Consumer Protection Act of 1996⁵²⁷ which significantly increased the penalties for a violation of criminal copyright and trademark statutes. In passing the Act, Congress noted that "existing Federal law is not adequate to protect consumers and American businesses from the crime of counterfeiting copyrighted and trademark products."⁵²⁸ Congress recognized that, despite the then existing criminal sanctions, organized crime had begun to use the proceeds of such activities to finance other criminal activities such as "robbery, extortion and murder"⁵²⁹ and counterfeit goods posed a significant health risk to the American public.⁵³⁰ Moreover, the RICO provisions were "essential to allow law enforcement agents to take down the entire criminal organization rather than merely react to each crime the organization commits."⁵³¹ Notably, however, a violation of the Computer Fraud and Abuse Act is not a predicate act for the purposes of RICO. However, a violation of the Economic Espionage Act is now a RICO predicate.⁵³²

Congress originally passed RICO in 1970 as part of the effort to fight organized crime. The purpose of the RICO statute was "the elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce."⁵³³

However, the statute is sufficiently broad to encompass illegal activities relating to any enterprise affecting interstate or foreign commerce, including those involved in criminal copyright violations or in trafficking in counterfeit goods. The central provision of RICO states that "it shall be unlawful for any person through a pattern of racketeering activity which is engaged in, or the activities of which affect, interstate or foreign commerce."⁵³⁴ A person includes "any individual or entity capable of holding a legal or beneficial interest in property."⁵³⁵ This term is intentionally broad and includes a variety of entities, such as corporations, non-profit organizations, and "members of organized crime."⁵³⁶ In order for the government to establish a violation of RICO it must prove that the defendant engaged in (1) a pattern (2) of racketeering activity that involved (3) an enterprise engaged in interstate commerce.⁵³⁷

In the intellectual property arena, courts have reached different conclusions on the definition of a "pattern of racketeering activity" within the meaning of RICO. For example, at least one court has held that the definition is met by a single scheme to misappropriate trade secrets if there are sufficient allegations of concerted activity directed toward a goal of injuring the plaintiff.⁵³⁸ The plaintiff therein alleged that the defendant's scheme to misappropriate the plaintiff's trade secrets included multiple mailings and telephone conversations in violation of the mail and wire fraud statutes which according to the court established a pattern of racketeering activity.⁵³⁹ In contrast, another court held that an isolated criminal episode, though accomplished through several fraudulent acts, does not establish a "threat of continuing criminal activity" so as to give rise to a "pattern of racketeering activity" within the meaning of RICO.⁵⁴⁰

Since copyright piracy and trafficking in counterfeit goods increasingly involve a highly structured organization the government can in many instances charge RICO, in addition to the substantive criminal intellectual property offenses. Indeed, the Department of Justice notes that...