The crime of associating with criminals? An argument for extending the Reves "operation or management" test to RICO conspiracy.

• Author: Baumgarterl, Sarah

1. INTRODUCTION

   [T]he interpretation of the conspiracy provision presents the recurring theme of RICO jurisprudence: to interpret the statute to its full breadth in order to encompass the congressional goal of convicting insulated ring leaders runs the risk of expanding the net so wide that unintended fringe actors are also brought within the purview of RICO. (1)

   When the Supreme Court announced the "operation or management test" in Reves v. Ernst & Young (2) in 1993, requiring that individuals control or manage an enterprise in order to be liable under 18 U.S.C. [section] 1962(c), it represented a significant breakthrough in that it was the first time the Court instituted any broad-stroke restriction on the application of the Racketeer Influenced and Corrupt Organizations Act (RICO) since its 1970 inception. While many thought the decision heralded an end to the liability of so-called "outsiders," including lawyers, accountants, and various other professionals sometimes pulled into RICO suits, (3) many commentators argued that its effects would be narrow and would not extend beyond the specific facts of the particular case. (4)

   Since the test was initially announced, questions concerning its proper application have persisted, and the Supreme Court has declined to clarify the intended reach or specifics of the standard. One particularly troubling question concerns the application of the Reves test when the charge is not directly under [section] 1962(c), but rather involves an allegation of conspiracy to violate [section] 1962(c), criminalized under [section] 1962(d), commonly known as RICO conspiracy.

   Although many circuits have considered this question, most have failed to do so in a thorough or convincing way, preferring to repeat the shibboleths of conspiracy law rather than engage in a close and meaningful analysis of the text and legislative history of RICO. (5) Lower courts' confused efforts on this front have been further complicated by the Supreme Court's decision in Salinas v. United States, (6) which seemed to imply only the slightest limits on RICO conspiracy.

   Contrary to the rulings of most circuit courts that consider this issue, and even in light of the Salinas decision, a searching analysis of RICO, the Reves standard, and traditional conspiracy law makes clear that the Reves "operation or management" test should be extended to apply to RICO conspiracy cases prosecuted under [section] 1962(d). This extension is necessary to effectuate the congressionally-intended limit on RICO liability explicated in Reves and to ensure that outsiders otherwise exempt from the statute are not simply swept back in by a broad construction of RICO conspiracy. In addition, such an extension best accords with the important criminal justice goals of RICO, while at the same time comporting with substantive and procedural fairness for potential defendants.

   Section II of this Article will describe the history of RICO and the elements that constitute the statutory offense. Section III will relate the development of the "operation or management" test adopted by Reves, including its formulation in the lower courts and the eventual decision by the Supreme Court. Finally, Section IV will consider the interaction of Reves and [section] 1962(d), RICO conspiracy, both before and after the Supreme Court's seminal decision in Salinas v. United States, which interpreted the scope of RICO conspiracy. This section will argue that even in light of the broad standard of RICO conspiracy enunciated by Salinas, courts should require that defendants agree to operate or manage an enterprise in order to incur liability to effectuate the important aims of Reves and ensure that RICO conspiracy does not become merely an associational offense.

2. THE ORIGINS AND ELEMENTS OF RICO

   1. THE HISTORY OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT

      Congress passed the Racketeer Influenced and Corrupt Organizations Act as Title IX of the 1970 Organized Crime Control Act. (7) The ostensible purpose of RICO was the eradication of organized crime. (8) The law evolved from recommendations to Congress by the 1967 President's Commission on Law Enforcement and Administration of Justice, also known as the Katzenbach Commission. (9) The Commission report evinced particular concern with traditional organized crime, including crime families like La Cosa Nostra, and their illegal activities, including gambling, loan sharking, and drug dealing. (10) Beyond wholly illegal activities, however, the Commission noted great concern with the infiltration of legitimate businesses by organized crime syndicates, (11) resulting in corruption across a diverse field of professions.

      As a result of the Commission's work and findings, in 1968, Senator Roman Hruska introduced two bills that would eventually evolve into RICO. (12) Although Congress took no immediate action on his proposed legislation, the following year, Senator John L. McClellan introduced another major bill seeking to act on the Commission's suggestions. (13) Just as the Commission had done, Senator McClellan emphasized the evils of organized crime and the dangers of their corrupting effects on legitimate businesses. (14) Senator Hruska, in turn, introduced a new bill tracking the initiative of his first two, entitled the "Criminal Activities Profits Act." (15) The bill was "aimed specifically at racketeer infiltration of legitimate business." (16) In response to Congressional hearings, debate, and analysis, Senators Hruska and McClellan next joined together and introduced a modified version of Hruska's new bill, entitled the "Corrupt Organizations Act of 1969." (17) With slight modification, this legislative plan was embodied in Senate Bill 1861, which was ultimately enacted as Title IX of the Organized Crime Control Act of 1970, RICO. (18)

      The stated purpose of RICO is to combat "organized crime.., by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime." (19) Thus, while general congressional priorities in enacting the legislation seem clear, there is some confusion about the specific intended breadth of RICO and the actual means by which RICO was meant to effectuate its ends. (20) Regardless, many commentators and judges alike agree that the application of RICO today has been stretched far beyond the specific considerations of the enacting Congress, especially where civil suits are involved. (21) Today, RICO reaches past the prosecution of organized crime to encompass what might otherwise be categorized as everyday business fraud, securities violations, political corruption, and various other white collar crimes. In fact, while organized crime, criminal infiltrations of legitimate businesses, and antitrust violations were clearly the focus of the congressional debate, the Supreme Court has bound RICO only by its expansive language, employing its broad terms and so-called liberal construction clause to continually knock down limiting constructions that lower courts have sought to impose on the statute. (22) Thus, the Reves "operation or management" test is particularly significant, because it marks one of the only limitations the Court has placed on a broad reading of the text, despite the repeated efforts of lower courts and litigants.

   2. THE ELEMENTS OF A RICO OFFENSE

      RICO comprises 18 U.S.C. [subsection] 1961-68. The substantive provisions of the statute, [subsection] 1962(a)-(c), criminalize conduct committed, in conjunction with an enterprise, that constitutes a pattern of racketeering activity. (23) Under the statute, then, the elements of a RICO violation include (1) the presence of a defendant "person," (2) an "enterprise," (3) and a "pattern" of (4) specifically defined predicate "racketeering" acts. (24)

      First, "person" is defined as "any individual or entity capable of holding a legal or beneficial interest in property." (25) "Enterprise," in turn, is defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." (26) In United States v. Turkette, the Supreme Court explicitly ruled that this definition was intended to encompass wholly illegitimate enterprises, such as criminal gangs, along with more traditional organizations, such as businesses. (27)

      Next, the term "pattern" is defined, in relevant part, as "at least two acts of racketeering activity.., the last of which occurred within ten years.., after the commission of a prior act of racketeering activity." (28) The Supreme Court elaborated on this definition in its seminal case, H.J. Inc. v. Northwestern Bell Telephone Co., describing both open and closed patterns of racketeering activity sufficient to satisfy the statute. (29)

      Finally, predicate "racketeering activity" is defined to include a litany of generic state law crimes (such as murder, bribery, and extortion) and specifically enumerated federal law offenses (including, for example, mail and wire fraud). (30)

      If each RICO element can be established, as defined above, an individual can be either criminally (31) or civilly (32) liable in four different ways. First, [section] 1962(a) bars a person from investing income obtained from a pattern of racketeering activity or collection of unlawful debt. (33) Second, [section] 1962(b) prohibits acquiring an interest in an enterprise through a pattern of racketeering activity. (34) Section 1962(c), the focus of this Article, prohibits a person from conducting an enterprise through a pattern of racketeering activity, stating in relevant part: "It shall be unlawful for any person employed by or associated with any enterprise.., to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a...