Federal and state racketeering, profiteering, and RICO (Racketeer-Influenced and Corrupt Organization) laws make it illegal for criminal organizations to profit from any legitimate business operations. Many of these laws allow for the confiscation and seizure of the criminal organization's legitimate enterprise assets, and are typically used against known "organized crime" groups. The goal is to cripple the operation financially, and cut off sources of cash that support ongoing criminal activity.
Racketeering Traditionally, obtaining or extorting money illegally or carrying on illegal business activities, usually byOrganized Crime. A pattern of illegal activity carried out as part of an enterprise that is owned or controlled by those who are engaged in the illegal activity. The latter definition derives from the federal Racketeer Influenced and Corruption Organizations Act (RICO), a set of laws (18 U.S.C.A. § 1961 et seq. ) specifically designed to punish racketeering by business enterprises.
Racketeering, as it is commonly understood, has always coexisted with business. In the United States, the term racketeer was synonymous with members of organized-crime operations.
Congress passed RICO as part of the Organized Crime Control Act of 1970. Organized crime in the United States had been increasing ever since the Twenty-First Amendment's Prohibition of alcohol was repealed in 1933. Crime groups and families that had been bootlegging moved on to other moneymaking crimes by controlling legitimate businesses and by using some of them as fronts for criminal activity. Over the years, Congress had enacted several statutes authorizing increased punishment for typical organized-crime activities such as illicit gambling rings, loan sharking, transportation of stolen goods, and Extortion. However, it had not passed legislation that specifically punishes the very act of committing organized crime.
Organized crime continued to proliferate in the 1960s. After investigating and debating organized-crime legislation for approximately 20 years, beginning with Senate committee hearings conducted in 1951 by Tennessee Senator Estes Kefauver, Congress finally passed RICO.
The specific goal of RICO is to punish the use of an enterprise to engage in certain criminal activities. A person who uses an enterprise to engage in a pattern of racketeering may be convicted under the RICO criminal statute (18 U.S.C.A. § 1963). An enterprise is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." A pattern is defined as "at least two acts of racketeering activity, one of which occurred after the effective date of [RICO's passage] and the last of which occurred within 10 years … after commission of a prior act of racketeering activity."
Racketeering activity under federal law includes a number of criminal offenses, including: Bribery; sports bribery; counterfeiting; felony theft from interstate shipment; Embezzlement from Pension and Welfare funds; extortionate credit transactions; Fraud relating to identification documents; fraud relating to access devices; transmission of gambling information; Mail Fraud; wire fraud; financial institution fraud; citizenship or naturalization fraud; obscene matter; Obstruction of Justice; obstruction of criminal investigation; obstruction of state or local law enforcement; witness tampering; retaliation against witness; interference with commerce, bribery, or extortion; interstate transportation in aid of racketeering; interstate transportation of wagering paraphernalia; unlawful welfare fund payments; prohibition of illegal gambling business; Money Laundering; monetary transactions in property derived from unlawful activities; murder for hire; sexual exploitation of children; interstate transportation of stolen motor vehicles; interstate transportation of stolen property; sale of stolen goods; trafficking in motor vehicles and parts; trafficking in contraband cigarettes; white slave traffic; restrictions of payments and loans to labor organizations; embezzlement from union funds; Bankruptcy fraud; fraud in the sale of Securities; felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in narcotic or other dangerous drugs; and any act that is indictable under the Currency and Foreign Transactions Reporting Act.
RICO outlaws every manner in which an enterprise can be used for long-term racketeering activity. Under the law, no person may invest racketeering proceeds to acquire any interest in an enterprise; no person may acquire or maintain an interest in an enterprise through a pattern of racketeering activity; and no person associated with or employed by an enterprise may conduct that enterprise's affairs through a pattern of racketeering activity.
The punishment for violating the criminal provisions of RICO is exceptionally severe. If convicted, a defendant is fined and sentenced to not more than 20 years in prison for each RICO violation. Furthermore, the defendant must forfeit any interest, claim against, or property or contractual right over the criminal enterprise, as well as any property that constitutes the racketeering activity or that was derived from the racketeering activity. Finally, RICO contains civil provisions that allow a party who has been injured by a RICO defendant to recover from the defendant in civil court. A successful civil RICO plaintiff may collect treble damages, or three times the amount lost to the defendant, as well as attorney's fees and other costs associated with the litigation. The intent of the many and various sanctions is to cripple, and ultimately eradicate, organized crime enterprises.
RICO employs broad definitions to sweep a wide variety of enterprise criminal activity into its purview. One of the original goals of RICO was to eliminate organized-crime families. However, because Congress could not legislate against specific persons or families, it was forced to use broad language to define racketeering and organized crime. The far-reaching language of the statute has subjected a wide range of criminal defendants to RICO's penalties. The typical RICO defendant is far from the stereotypical violent mobster. A RICO defendant can be anyone who uses a business in any way to commit two or more of the many racketeering offenses.
RICO has proved to be a powerful tool in the federal government's fight against organized crime. Many states also have enacted RICO-style statutes designed to apprehend organized crime that somehow escapes the provisions of RICO, including: Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Louisiana, Nevada, New Jersey, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, Tennessee, Washington, and Wisconsin. While occasionally using different language, these state RICO statues generally concern the same legal areas and provide for damages similar to those under federal law. Prosecutors have used RICO against a variety of criminals and have obtained lengthy sentences for them.
According to many critics, RICO has been expanded beyond its original purpose of eradicating traditional organized-crime groups to convict petty, nonviolent criminals and sentence them to unduly long prison terms. Supporters of RICO counter that the act was intended to reach all organized crime, not just traditional organized-crime groups. Advocates of RICO argue further that the statute is not unduly harsh because the use of a business enterprise to conduct criminal activity is more dangerous and more difficult to eradicate than individual, freelance criminal activity and that, therefore, the defendants who commit acts that bring them under RICO's provisions deserve the punishment they receive.
Most observers have agreed that the civil provisions of RICO have been abused. Beginning in the late 1970s, civil attorneys began to realize the enormous moneymaking potential of RICO's civil provisions allowing payment of treble damages, fees, and costs to successful RICO plaintiffs. It became common for supposed victims to bring civil actions against anyone who was remotely and indirectly associated with a criminal enterprise and financially solvent enough to pay a RICO judgment. Some of the targets of civil RICO claims have included accountants, bankers, insurance companies, securities firms, and major corporations such as General Motors and MCI Communications. In many cases, defendants in civil RICO cases have denied any wrongdoing but have been forced to settle because they were afraid of losing and being forced to pay a significant judgment.
In 1993, the U.S. Supreme Court limited the scope of civil RICO claims with its decision in the case of Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 122 L. Ed. 2d 525. In Reves, an accounting firm had performed three audits of a farmers' cooperative to determine its financial health after its general manager and accountant were convicted of tax fraud. When the cooperative went bankrupt, note holders on the cooperative filed suit against 40 individuals and entities associated with the cooperative. One of the claims was a civil RICO claim against the accounting firm. The note holders claimed that the accountants participated in a scheme to inflate the value of the cooperative above its actual value, that this scheme constituted fraud, and that the accountants had participated in the operation or management of the cooperative's affairs. The high court disagreed, holding that the accounting firm's level of participation in the cooperative did not rise to the level of operation or management of the cooperative's affairs and that it therefore was beyond the reach of RICO liability.
The U.S. Supreme Court moved further to delineate the reach of RICO with three cases decided at the beginning of the 21st century. In Beck v. Prupis, 529 U.S. 494, 120 S.Ct. 1608, 146 L.Ed.2d 561 (U.S. Fla. 2000), the Court ruled 7–2 that a company president's termination, allegedly in furtherance of RICO conspiracy, was not independently wrongful under any substantive provision of RICO, and that it thus did not give rise to a Cause of Action under RICO. Justice Clarence Thomas wrote in his majority opinion that an injury caused by an Overt Act that is not an act of racketeering or otherwise wrongful under RICO is not sufficient to give rise to a cause of action under RICO, regardless of whether there was a conspiracy that caused the plaintiff's injury.
In the 2001 case of Cedric Kushner Promotions v. Don King, 533 U.S. 158, 121 S. Ct. 2087, 150 L. Ed. 2d 198, (U.S. 2001), the high court ruled unanimously that the controversial boxing promoter Don King could be sued under RICO, despite the fact he was the sole owner and shareholder of his corporation. The Court, in a majority opinion written by Justice stephen breyer, agreed that to establish liability under Racketeer Influenced and Corrupt Organizations Act (RICO), one must allege and prove the existence of two distinct entities: a "person" and an "enterprise" that is not simply the same "person" referred to by a different name. However, Breyer stated in his opinion that "the corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status." Thus, Don King the person could be separated from Don King the organization, and could be the subject of a RICO civil suit
RICO in Need of FeformWhen Congress passed the Racketeer Influenced and Corrupt Organizations (RICO) Act (18 U.S.C.A. § 1961 et seq.) in 1970, its intent was to mount an all-fronts attack on the infiltration of legitimate businesses by organized criminal enterprises. The RICO Act provides criminal and civil remedies, which are designed to imprison racketeers and to destroy the financial base of Organized Crime. Since the act's passage, however, its civil provisions have been applied more often than its criminal provisions and have generally been used against businesses and other organizations that are not dominated by organized crime. Plaintiffs have discovered that the act's broad language allows its use in cases involving Malpractice and "garden variety commercial fraud." Critics of this use of civil RICO have called for congressional reform.
The U.S. Supreme Court, in Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), upheld the constitutionality of the RICO Act and made clear that, unless amended by Congress, the statute must be interpreted broadly. The Sedima decision removed a number of judicially created barriers to using civil RICO against legitimate businesses.
Despite congressional attempts to limit the scope of civil RICO, only one major area of law has been removed from the RICO Act. The Private Securities Litigation Reform Act of 1995 (15 U.S.C.A. § 77 et seq.) eliminated liability for RICO claims based on securities Fraud, unless the defendant has already been criminally convicted of securities fraud. The act thus removed the threat of treble (triple) damages in such cases. Congress concluded that federal securities laws generally provide adequate remedies for victims of securities fraud. Therefore, it was unnecessary and unfair to expose defendants in securities cases to the threat of treble damages and other extraordinary remedies provided by the RICO Act.
Critics of the RICO Act applaud this congressional action but argue that the same reasoning can and should be applied to other areas of Civil Law. These critics maintain that the act's broad scope has given plaintiffs an unfair advantage in civil litigation.
One criticism of civil RICO is that no criminal convictions are necessary to win a civil case under the act. The plaintiff need only show, by a Preponderance of Evidence, that it is more likely than not that the ongoing criminal enterprise occurred. As a result RICO has been used in all types of civil cases to allege wrongdoing. By contrast, a criminal RICO case must be proved Beyond a Reasonable Doubt.
In addition, the judge and jury in a criminal RICO case are prohibited from drawing an adverse inference from a defendant's invocation of the Fifth Amendment Privilege against Self-Incrimination. No such ban exists, however, in a civil RICO case. Critics contend that it is unfair for a party in a civil RICO case who has concerns about potential criminal liability to be forced to waive his or her Fifth Amendment privilege in order to mount an effective defense in the civil action. Once testimony is given in the civil case, the party has effectively waived the privilege against Self-Incrimination, and the testimony may be used in a subsequent criminal prosecution. Critics contend that the RICO Act should be amended to stay (delay) a civil RICO proceeding until a criminal RICO proceeding has been concluded.
The critics of civil RICO also believe that its use has given plaintiffs an unfair tool that often serves to coerce a party to settle out of fear of a treble damages award. These critics believe that no civil RICO action should be allowed unless the party has been convicted under criminal RICO.
Critics also contend that criminal RICO has been an almost total failure in stopping the infiltration of legitimate businesses by organized crime. Not only have very few criminal RICO cases been brought to trial, but most of the defendants in those cases were not the targets Congress originally intended. According to the critics, most criminal uses of the RICO Act are redundant. Other laws exist to punish government corruption and white-collar crimes. The RICO Act merely enhances their penalties.
Despite these criticisms, the RICO Act has many supporters. While agreeing that the statute is broad in scope and imprecise in language, they contend that Congress wanted the act to read just this way. Congress recognized that private enforcement of the act through civil lawsuits would supplement the government's inadequate prosecution resources.
Supporters of civil RICO also point out that parties can be protected from waiving the privilege of self-incrimination. A trial court has the authority to stay a civil RICO proceeding until a criminal RICO prosecution has been concluded or the government announces that a criminal action will be commenced. In addition, a trial court may enter a protective order that keeps the information revealed by the party confidential or sealed. Finally, as in a criminal case a judge in a civil RICO action may advise a jury not to draw an adverse inference if the defendant does not testify.
Finally, supporters believe RICO actions should not be limited to organized crime. They argue that as a matter of public policy, it is reasonable to award treble damages to victims of commercial fraud and other illegal behavior that comes within the language of the act. According to civil RICO's defenders, these damage awards act as a deterrent to businesses and organizations that have created social harm by conducting business in a distinctly criminal way.
In recent years, RICO statutes have been interpreted much more narrowly than in the past. In February 2003, the Supreme Court ruled in Scheidler v. National Organization for Women, 537 U.S. 393 (2003), that federal RICO laws could not be used to stop anti-abortion activists unless there was proof of an underlying crime (e.g., Extortion). The ruling ended a case dating to the mid-1980s, when violent anti-abortion protesters targeted Abortion clinics, injuring patients and clinic staff and damaging buildings and medical equipment. The National Organization for Women (NOW) claimed that antiabortion groups were engaged in a type of nationwide racketeering conspiracy to shut down abortion clinics through the use of threats and force.
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