Racketeer influenced and corrupt organizations.

• Jurisdiction: United States
• Author: Donovan, Emily R.
• Date: 01 January 1995

1. Introduction

   The Racketeer Influenced and Corrupt Organizations Act ("RICO"),(1) enacted as Title IX of the Organized Crime Control Act of 1970,(2) is designed to combat criminal organization.(3) It prohibits "any person"(4) from: (a) using income received from a pattern of racketeering activity or through collection of an unlawful debt to acquire an interest in an enterprise affecting interstate commerce;(5) (b) acquiring or maintaining through a pattern of racketeering activity or through collection of an unlawful debt an interest in an enterprise affecting interstate commerce;(6) (c) conducting or participating in the conduct of, through a pattern of racketeering activity or through collection of an unlawful debt, the affairs of an enterprise affecting interstate commerce;(7) or (d) conspiring to participate in any of these activities.(8) RICO's purpose is to remove organized crime from the legitimate business community.(9)

   Section 1963 provides criminal sanctions for violations of section 1962 that often, but not always, exceed those that could be imposed for the incorporated offenses.(10) In addition, the statute authorizes forfeiture of any interest the defendant acquired by virtue of the RICO violation" and authorizes courts to enter restraining orders prior to conviction to prevent the transfer of potentially forfeitable property.(12) RICO has become a favorite tool of prosecutors(13) for the following three reasons: (1) Congress has mandated that the statute be construed liberally;(14) (2) it does not require any mens rea beyond that necessary for the predicate acts;(15) and (3) RICO provides for severe sanctions beyond those available for the predicate acts.(16)

   In addition to criminal actions, RICO permits private plaintiffs and the government to seek redress in a civil action.(17) Under section 1964, the Attorney General,(18) or "any person injured in his business or property by reason of a violation of section 1962"(19) may bring a civil action(20) in either state or federal court(21) for redress. 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.(22) While this article focuses primarily on the criminal aspects of RICO, the similarities between the two types of action will necessitate some discussion of civil cases.

   Congress has mandated that RICO "be liberally construed to effectuate its remedial purposes."(23) In the past, some courts have read the statute as narrowly limited to "organized criminals." These courts discouraged RICO actions arising out of "garden variety" commercial disputes or fraud.(24) However, in Sedima, S.P.R.L. v. Imrex Co.(25) the Supreme Court attempted to halt this trend by concluding that RICO applies to legitimate businesses.(26) The Court candidly acknowledged its ruling would deprive "legitimate businesses" of the judicially-created protections developed to shield such businesses from a statute clearly not aimed at them, but the Court stressed that its holding was dictated by the language of the statute as written and that "correction" of "this defect . . . must lie with Congress."(27)

   While the Supreme Court has reaffirmed its reliance on RICO's "liberal construction" clause,(28) it has acknowledged the clause is not without limits.(29) Congress, however, has failed to enact restrictions, and other courts have followed the Supreme Court's liberal lead.(30)

   This article will present a comprehensive review of the case law regarding RICO prosecutions for white collar crimes. Part II will discuss the elements of a RICO offense. Part III will cover penalties for conviction under RICO. Part IV provides detailed information on the variety of defenses used in fighting RICO prosecutions. The final section of the article briefly describes the Federal Sentencing Guidelines applicable to RICO convictions.

2. Elements of the Offense

   RICO indictments require that the government prove: (1) that the defendant, through the commission of two or more acts; (2) constituting a pattern of racketeering activity; (3) directly or indirectly invested in, or maintained an interest in, or participated in; (4) an enterprise; (5) the activities of which affected interstate or foreign commerce.(31) This article will examine the following elements in turn: (1) two or more predicate acts of racketeering activity; (2) pattern; (3) enterprise; (4) effect on interstate commerce; and (5) prohibited acts. The two most controversial elements of the crime continue to be the "enterprise" and "pattern" requirements.(32)

   1. Two or More Predicate Acts of Racketeering Activity

      RICO complaints must allege that each predicate act is a "racketeering activity" as delineated in section 1961(1).(33) RICO defendants need not be convicted of each "racketeering activity" before a substantive RICO offense is charged.(34) As long as the "racketeering activity" is "chargeable" or "indictable" under an applicable criminal statute, the RICO charge is available.(35) While a minimum of two acts are necessary, more than two may be required to establish the RICO violation.(36)

      Under section 1961(1), the term "racketeering activity" includes a broad assortment of state and federal crimes. These crimes include: (a) certain acts that are chargeable under state laws and punishable by imprisonment for more than one year;(37) (b) acts that are indictable under specified provisions of Title 18;(38) (c) acts that are indictable under specified provisions of Title 29;(39) (d) federal offenses that involve bankruptcy, securities fraud, and controlled drugs;(40) and (e) acts that are indictable under the Currency and Foreign Transactions Reporting Act.(41)

      Congress extended RICO's provisions to include mailing obscene materials(42) as well as reporting currency and foreign transactions43 in the Comprehensive Crime Control Act of 1984.(44)

      If liability were created simply by committing two predicate acts, a RICO claim usually would overlap any commercial fraud claim which involved at least two mailings or telephone calls.(45) RICO, therefore, requires that the commission of two predicate acts constitute a "pattern."(46) Early judicial interpretations of RICO's "pattern" requirement differed. Some courts interpreted the term broadly, finding the commission of two acts, by themselves, to constitute a pattern.(47) Other courts construed the pattern requirement strictly.(48)

      1. Pattern in the Supreme Court

         In Sedima,(49) the Supreme Court attempted to clarify what constitutes a "pattern of racketeering."(50) Reviewing RICO's legislative history, the Court noted in dictum that the evil RICO is designed to remedy is organized crime, not isolated offenses. Consequently, isolated predicate acts do not constitute a pattern.(51) Citing the Senate's original report on the proposed RICO statute, the Court stated that a pattern consists of "continuity plus relationship."(52) The Sedima Court further relied upon a definition of "pattern" provided in section 3575(e) of Title 18 of the United States Code.(53) That section states: "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics."(54)

         Sedima, however, failed to clarify the issue for the lower courts. The prime contention between various courts was whether the ongoing commission of predicate acts, in itself, satisfied the "pattern" requirement, or whether a pattern consists only in the commission of acts in furtherance of multiple schemes.(55)

         The Supreme Court made a second attempt to clarify the "pattern" concept. In H.J. Inc. v. Northwestern Bell Telephone Co.,(56) the Court confronted a civil RICO action brought against Northwestern Bell for allegedly bribing public utility commission officials.(57) The United States Court of Appeals for the Eighth Circuit found that the plaintiffs had failed to establish a "pattern" because they did not demonstrate that Northwestern Bell was engaging in other criminal activities or had engaged in "similar" endeavors in the past.(58) The Supreme Court reversed the Eighth Circuit's decision, holding that in order to prove a "pattern of racketeering activity," a plaintiff or prosecutor must show both "relationship" and "continuity" as separate elements.(59) However, the Court recognized that these factors will often overlap.(60)

         The relationship prong is defined by the connection of the defendant's criminal acts to one another. As the Court wrote: "[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."(61) "Continuity" is successfully proved if a plaintiff can show actual continuity or the threat of continuity of racketeering activity."(62) The Court seemed to propose a case-by-case examination of this issue by noting that the existence of a "threat of continued racketeering activity" is a function of the particular facts.(63)

      2. Pattern in the Circuit Courts

         Even with this guidance, the courts of appeals have reached varying conclusions regarding what conduct constitutes a pattern of racketeering. The primary reason for this difficulty is a tension between the test's two prongs.(64) Events that are proximate in time and closely related may lack continuity.(65) Events not proximate in time may be continuous, yet less related. However, at least one commentator has suggested that the pattern tests in the lower courts are coalescing into a multi-factor test, breaking down the two-pronged test of "continuity plus relationship," and developing a more flexible approach in which no single factor is dispositive.(66) This multi-factor test depends on...