Racketeer Influenced and Corrupt Organizations Act.

• Author: Bailey, Lisa Pritchard
• Position: Fourteenth Survey of White Collar Crime

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 organized crime.(3) RICO also has broad application beyond the organized crime context, since Congress has mandated that RICO "be liberally construed to effectuate its remedial purposes."(4) In Sedima, S.P.R.L v. Imrex Co.,(5) the Supreme Court concluded that RICO is not limited to organized crime, but may be applied to legitimate businesses.(6) While the Supreme Court subsequently reaffirmed its reliance on RICO's "liberal construction" clause,(7) it has acknowledged that this clause is not without limits.(8)

   Section 1962 prohibits "any person"(9) from: (a) using income received from a pattern of racketeering activity or from the collection of an unlawful debt to acquire an interest in an enterprise affecting interstate commerce;(10) (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;(11) (c) 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;(12) or (d) conspiring to participate in any of these activities.(13) RICO's purpose is to remove organized crime from the legitimate business community.(14)

   Section 1963 provides criminal sanctions for violations of [sections] 1962 which may exceed those for the underlying offenses.(15) In addition, the statute authorizes forfeiture of any interest the defendant acquired by virtue of a RICO violation(16) and authorizes courts to enter restraining orders prior to conviction to prevent the transfer of potentially forfeitable property.(17) Prosecutors often use RICO in a wide variety of criminal contexts(18) for at least three commonly cited reasons: (1) Congress has mandated that RICO be construed liberally;(19) (2) RICO does not require any mens rea beyond that necessary for the predicate acts;(20) and (3) RICO provides for severe sanctions often beyond those available for the predicate acts.(21)

   In addition to criminal actions, RICO permits private plaintiffs and the government to seek redress in a civil action.(22) Under section 1964, the Attorney General(23) or "any person injured in his business or property by reason of a violation of section 1962"(24) may bring a civil action in either state or federal court(25) 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.(26) 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 presents a comprehensive review of the case law regarding RICO prosecutions for white collar crimes. Section II discusses the elements of a RICO offense. Section III addresses the variety of potential defenses against RICO prosecutions. Section IV covers criminal penalties for RICO violations and describes the applicable Federal Sentencing Guidelines. Section V provides a discussion of civil RICO, and Section VI describes several recent developments in this field.

2. ELEMENTS OF THE OFFENSE

   RICO requires that the government prove 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.(27) Parts A-F of this Section will examine the elements of a RICO offense: (A) two or more predicate acts of racketeering activity; (B) pattern; (C) enterprise; (D) effect on interstate commerce; (E) prohibited acts; and (F) scope of outsider liability. The two most controversial elements of RICO continue to be the "pattern" and "enterprise" requirements.

   1. Two or More Predicate Acts of Racketeering Activity

      The first element of RICO requires two or more predicate acts of "racketeering activity."(28) RICO defendants need not be convicted of each underlying offense before a civil or criminal RICO offense is charged.(29) 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;(30) (b) acts that are indictable under specified provisions of Title 18;(31) (c) acts that are indictable under specified provisions of Title 29;(32) (d) federal offenses that involve bankruptcy, securities fraud, or controlled drugs;(33) and (e) acts that are indictable under the Currency and Foreign Transactions Reporting Act.(34) As long as the "racketeering activity" is "chargeable" or "indictable" under an applicable criminal statute, the substantive RICO charge is available.(35) While a minimum of two acts occurring within ten years of each other is necessary, more than two may be required to establish the RICO violation.(36)

      In the Comprehensive Crime Control Act of 1984,(37) Congress extended RICO's "racketeering activities" to include mailing obscene materials,(38) as well as the non-reporting of currency and foreign transactions.(39) The Antiterrorism and Effective Death Penalty Act of 1996(40) further extended RICO's provisions to include various immigration crimes.(41)

   2. Pattern

      If committing any two predicate acts created liability, a RICO claim would usually overlap with any commercial fraud claim which involved at least two mailings or telephone calls. RICO therefore applies only where the commission of two predicate acts constitutes a "pattern."(42)

      In Sedima, S.P.R.L. v. Imrex Co.,(43) the Supreme Court attempted to clarify what constitutes a "pattern of racketeering."(44) Reviewing RICO's legislative history, the Court noted in dictum that RICO is designed to combat organized crime, not isolated offenses.(45)

      Consequently, isolated predicate acts do not constitute a pattern.(46) Citing the Senate's original report on the proposed RICO statute, the Court stated that a pattern consists of "continuity plus relationship."(47)

      The Sedima Court further relied on the definition of "pattern" provided in 18 U.S.C. [sections] 3575(e),(48) which 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."(49)

      The Supreme Court made a second attempt to clarify the "pattern" concept in H.J., Inc. v. Northwestern Bell Telephone Co.(50) The Court held that when proving a "pattern of racketeering activity," RICO requires both (a) relationship and (b) continuity of predicate acts as separate elements.(51) This test is referred to as the "continuity plus relationship" test.(52) The Court recognized, however, that evidence in proof of these factors can often overlap.(53)

      The relationship prong is defined by the connection of the defendant's criminal acts to one another.(54) The "continuity" prong is successfully proven if a prosecutor can show actual continuity during a past closed period of repeated conduct(55) or an open-ended threat of continued racketeering activity in the future.(56) The H.J., Inc. 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, the Court avoided a black-letter enumeration of particular factors which may constitute a pattern.(57)

      Even with this guidance, the courts of appeals have reached varying conclusions regarding what conduct constitutes a pattern of racketeering.(58) The primary reason for this difficulty is the potential tension between the two prongs of the pattern requirement: "relationship" and "continuity."(59) Events that are proximate in time and closely related may lack continuity.(60) Events not proximate in time may be continuous, yet less related.(61)

      Previously, the First Circuit had utilized a multi-factor test to determine the existence of a pattern.(62) However, the First Circuit adopted H.J., Inc.'s "continuity plus relationship" test in Fleet Credit Corp. v. Sion.(63) The court relies upon H.J., Inc.'s two-tiered analysis for the continuity prong,(64) focusing on the length of time and number of acts required for continuity.(65) This circuit has been lenient regarding the relationship prong.(66)

      In the Second Circuit, a RICO pattern may not be established without a showing that racketeering acts are related both to each other and to the enterprise, and that there is continuity or a threat thereof.(67) The Second Circuit held that proof of two acts of racketeering activity is necessary, but not sufficient, to establish a RICO pattern.(68)

      The Third Circuit also revised its multi-factor pattern inquiry following H.J., Inc.(69) The court held that continuity depends upon whether criminal activity will continue into the future.(70) The Third Circuit applied a liberal approach to the relationship prong,(71) but cautioned against the misuse of RICO to punish isolated activities.(72)

      Before H.J., Inc., the Fourth Circuit adopted a multi-factor test that considered the "number and variety of predicate acts and the length of time over which they were committed, the number of putative victims, the presence of separate schemes and the potential for multiple distinct injuries."(73) Since H.J., Inc., the Fourth Circuit has adopted the "continuity plus relationship" test to determine pattern(74), but reaffirmed its commitment to its prior multi-factor test as a means of determining the continuity prong of the pattern element.(75) The Fourth Circuit...