Racketeer influenced and corrupt organizations.

AuthorBeard, Glen
PositionEleventh Survey of White Collar Crime
  1. Introduction II. Elements of the Offense

    1. Two or More Predicate Acts of Rackeetering Activity

    2. Pattern

    3. Enterprise

      1. Types of Enterprises

      2. Proving the Enterprise

      3. Person-Enterprise Rule

    4. Effect on Interstate Commerce

    5. Prohibited Acts

      1. Investment of Racketeering Proceeds

      2. Illegal Acquisition of Enterprise Interest

      3. Illegal Use of Enterprise

      4. Conspiracy III. Penalties

    6. Overview

    7. "Seize and Freeze" Orders

    8. Attorney Fee Forfeiture

    9. Civil Penalties IV. Defenses

    10. Invalidation of One or More Predicate Acts

    11. Limitation of Actions

    12. "Horizontal Preemption"

    13. "Reverse Vertical Preemption"

    14. Constitutional Challenges

      1. Vagueness

      2. Ex Post Facto

      3. Double Jeopardy

      4. First Amendment Challenges

      5. Eighth Amendment Challenges

      6. Equal Protection

      7. Due Process

      8. Tenth Amendment V. Sentencing

  2. 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 [sections] 1962 that often, but not always, exceed those which 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(11) 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 in a wide variety of criminal contexts(13) for at least three commonly cited 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 usually 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 [sections] 1964, the Attorney General,(18) or "any person injured in his business or property by reason of a violation of [sections] 1982"(19) may bring a civil action in either state or federal court(20) 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.(21) 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."(22) In the past, however, some courts have read the statute as narrowly limited to "organized criminals." These courts discouraged civil RICO actions arising out of "garden variety" commercial disputes or fraud.(23) However, in Sedima, S.P.R.L. v. Imrex Co.,(24) the Supreme Court halted this trend when it concluded that RICO may be applied to legitimate businesses as well as to traditional organized crime.(25) While the Supreme Court has reaffirmed its reliance on RICO's "liberal construction" clause,(26) it has acknowledged that the clause is not without limits.(27) However, because Congress has failed to enact restrictions, other courts have followed the Supreme Court's liberal lead.(28)

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

  3. Elements of the Offense

    RICO indictments require that the government prove: that the defendant, through the commission of two or more acts constituting a pattern of racketeering activity, directly or indirectly invested in, or maintained an interest in, or participated in, an enterprise, the activities of which affected interstate or foreign commerce.(29) This section 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.(30)

    1. Two or More Predicate Acts of Racketeering Activity

      RICO indictments must allege that each predicate act is a "racketeering activity" as delineated in [sections] 1961(1).(31) RICO defendants need not be convicted of each "racketeering activity" before a substantive RICO offense is charged.(32) As long as the "racketeering activity" is "chargeable" or "indictable" under an applicable criminal statute, the RICO charge is available.(33) While a minimum of two acts are necessary, more than two may be required to establish the RICO violation.(34)

      Under [sections] 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;(35) (b) acts that are indictable under specified provisions of Title 18;(36) (c) acts that are indictable under specified provisions of Title 29;(37) (d) federal offenses that involve bankruptcy, securities fraud, and controlled drugs;(38) and (e) acts that are indictable under the Currency and Foreign Transactions Reporting Act.(39)

      Congress extended RICO's provisions to include mailing obscene materials(40) as well as reporting currency and foreign transactions(41) in the Comprehensive Crime Control Act of 1984.(42)

    2. Pattern

      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. RICO, therefore, requires that the commission of two predicate acts constitute a "pattern."(43) 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.(44) Other courts construed the pattern requirement strictly.(45)

      In Sedima, S.P.R.L v. Imrex Co.,(46) the Supreme Court attempted to clarify what constitutes a "pattern of racketeering."(47) Reviewing RICO's legislative history, the Court noted in dictum that the evil which RICO is designed to remedy is organized crime, not isolated offenses. Consequently, isolated predicate acts do not constitute a pattern.(48) Citing the Senate's original report on the proposed RICO statute, the Court stated that a pattern consists of "continuity plus relationship."(49)

      The Sedima Court further relied upon a definition of "pattern" provided in [sections] 3575(e) of Title 18 of the United States Code.(50) 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."(51)

      The Supreme Court therefore made a second attempt to clarify the "pattern" concept. In H. J. Inc. v. Northwestern Bell Telephone Co.,(52) Supreme Court held that in order to prove a "pattern of racketeering activity," a prosecutor must show both relationship and continuity as separate elements.(53) However, the Court recognized that proof of these factors will often overlap.(54)

      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."(55)

      "Continuity" is successfully proved if a prosecutor can show actual continuity during a past, closed period of repeated conduct or the threat of continuity of racketeering activity in the future.(56) 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.(57)

      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.(58) Events that are proximate in time and closely related may lack continuity.(59) Events not proximate in time may be continuous, yet less related. The First Circuit has adopted a fact-based test.(60) It has relied upon a two-tiered analysis for the continuity prong,(61) focusing on the length of time and number of acts required for continuity.(62) The circuit has been more lenient regarding the relationship prong.(63) The Sixth and Tenth Circuits have also adopted similar approaches.(64)

      The Second Circuit held that proof of two acts of racketeering activity without more does not suffice to establish a RICO pattern; that the concepts of...

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