The Racketeer Influenced and Corrupt Organizations Act

Racketeer Influenced and Corrupt Organizations Act (RICO), is an American law that was enacted in 1970 with the intention of eradicating organized crime through establishment of strong sanctions together with other forfeiture provisions. Legislation of this law provided for legal measures against organizations or individual persons who involved themselves in organized or systematic illegal dealings. Since its enactment it has been applied against many socio-economic aspects such as insurance, abortion, judicial proceedings among many others. It was passed by congress as a component of the Organized Crime Control Act of 1970 and as a specific control valve of business enterprises’ criminal activity punishment (Robert, 2004, p.23).

At that time, the major target criminal organization was the Mafia groups which had thrived even with other control laws being in place. In almost all the 1970s, RICO was seldom used in other contexts apart from the Mafia. However, during the 1980s, civil lawyers scrutinized section 1964(c) of the RICO Act and advocated its application in civil claims since it gave an allowance for any individual to complain of a RICO violation against property or business. If such a person could successfully authenticate a civil claim of this nature, then they were guaranteed judgement that amounted to triple compensation of their actual total damages. In addition, they would be awarded the costs of their attorneys’ fees. This resulted to a financial windfall so lucrative that towards the end of 1980s RICO became one of the most commonly asserted federal court claims.

Across the nation, lawyers became very creative especially because every person tried to depict such civil claims like breach of contract, product defect, and common law fraud as crimes that qualified for a RICO claim. They were particularly so creative in cases which had historically been criminally determined and prosecuted via the wire and mail fraud statutes. The trend, however, began to change during the 1990s with the United States Supreme Court giving guidelines to federal courts to limit the number and scope of the RICO in all civil contexts. This concerted effort has over the years made litigants to have to override many pitfalls and hurdles to ascertain RICO’s financial windfall (Beth, 2000, p.12).

Since the repeal of the 21^st Amendment’s alcohol prohibition in 1933, organized crime had progressively increased. Crime families and groups that had originally bootlegged changed their crime approach by moving to other types of moneymaking crimes. They embarked on use of legitimate business enterprises as criminal activity fronts and taking control of them. For many years, the Congress had severally enacted statutes that authorized high punishments for such typical organized crimes like loan sharking, gambling, extortion, and stolen goods transportation. It had not thus enacted a specific legislation that would punish the very organized crime commission act. Due to this ambiguousness, proliferation of organized crime continued to flourish in the 1960s which led Congress to pass a specific organized crime legislation which was after approximately twenty years of debate and investigation of the matter. RICO’s specific goal is punishment of the use of businesses or enterprises to allow engagement in any criminal activity (Laws, 1999, p.88). In this context, an enterprise is defined as any partnership, individual, association, corporation or any other legal entity as well as any group or union of persons association of fact though not necessarily a legal entity.

On the other hand, pattern is defined as a minimum of two racketeering activity acts, of which one occurred after RICO’s effective passage date and the other must have been within ten years after prior commission of a racketeering act. This implies committing two out of the thirty five crimes, categorized as the 8 state crimes and 27 federal crimes in America. There is a myriad of discrete criminal offences which are included in such racketeering activities. Some of these include, as mentioned earlier, gambling, bankruptcy fraud, extortion, bribery , mail fraud, prostitution, securities fraud, murder, loan sharking, and narcotics trafficking among others (Ahmed, 1992, p.65).

A RICO violation requires, regardless of whether an action is civil or criminal, proof of three major components. First and foremost it must prove that an enterprise exists. Secondly, that such an existing enterprise has in one way or another engaged in or has played a role to affect interstate commerce. The third requirement is there is either an unlawful debt collection or a racketeering pattern. The effectuation of this wide Congressional intent demands liberal reading and understanding of RICO provisions such that some courts have come to interpret it as marketplace integrity security legislation.

Moreover, RICO outlaws all manners through which an enterprise or a business can be involved in long-term racketeering activities. At the same time, it refuses any investment of proceeds from a racketeering activity, which are intended to accrue some form of interest in any such enterprise. A person employed by, or associated with such enterprises is also not allowed to conduct any affairs of the enterprise in a racketeering pattern and neither is he/she allowed maintaining or even acquiring any such interest (Laws, 1999, p18).

All punishments involving RICO’s criminal provisions violation are exceptionally harsh. For every RICO violation, a convicted defendant is sentenced to a maximum of twenty years in prison and fined a maximum of $25,000. He/she must also forfeit contractual rights, property claims, or any interest that was gained through racketeering. Another RICO provision allows for any injured party to collect tremble compensation for any damages through a civil suit in court. All these sanctions are fundamentally intended to cripple organized crime enterprises once and for all.

In many cases, the U.S. Attorney decides to seek an injunction or a restraining order pre-trial in order to seize the defendant’s assets temporarily. This is mainly meant to prevent the possibility of transferring forfeitable property. On the same mark, the defendant may also be required to put forth a performance bond. This provision was instituted since many convicted owners of Mafia-related corporations would more often abscond along with the assets. The performance bond therefore acts as security in case a person is convicted. Another provision contained in the RICO Act is one which allows for private parties to sue in case they are injured by a RICO violation. This is partly so because the plaintiff is deemed a separate entity from the ‘criminal enterprise’ (Arthur, 2002, p.87).

There are other areas where RICO laws are applied. The most successful application has been the fact that there is potential ability to sanction or indict individuals for their actions and behaviors which had been committed against victims as well as individuals in some alleged retribution or retaliation for intelligence or law enforcement cooperation. In addition, RICO law violations can be alleged in cases where criminal charges or civil lawsuits are laid against corporations or individuals retaliating that such corporations or individuals are/were working for law enforcement units or against those who filed or sued such criminal complaints against a defendant.

There is also Anti-strategic lawsuit against public participation (Anti-SLAPP) law which can be applied to curb allegations concerning legal system abuses by corporations or individuals who take advantage of the courts as weapons through which they retaliate against victims and whistle blowers in order to silence others’ voice. RICO is also allegeable in case it can proven that litigants and/or their clients collaborated and made a conspiracy to concoct legal complaints that were fictitious in sole retaliation and retribution for their own sake if they had been brought to a court of law. There are quite a number of famous RICO cases that have been brought to book. One example is the 1979 Hells Angles Motorcycle Club case where the federal government of the United States went for Sonny Barger and other associates. The prosecution team tried to prove a behavior pattern that would convict Barger on RICO offences related to illegal drugs and guns. Barger was however acquitted on those RICO predicate acts charges as the club policy could not provide substantial proof. At the same time, the government was unable to provide minutes from the club’s meetings that could incriminate the defendants (Jon, 2000, p.54).

Another case study involves the 1989 indictment of financier Michael Milken on 98 fraud and racketeering counts related to insider trading investigation. He was accused of being in possession and use of contacts of a wide range network in or order to control and manipulate bond prices as well as numerous stocks. This case was among the very first ones in which a RICO indictment was aligned against an individual who didn’t have organized crime ties. Milken was forced by circumstances to plead guilty to six lesser counts to avoid serving a life imprisonment.

Burnham Drexel, who was Milken’s employer, was, under the legal corporations doctrine, was also subjected to a RICO indictment threat on charges that he was supposed to have been responsible for his employee’s crime. He pled no contest to lesser offenses to avoid RICO charges. Some sources however claim that Drexel pleaded guilty to the RICO charges but the fact is that his firm only admitted that it wasn’t in a position to dispute those allegations. If it is true that Drexel was actually indicted, the organization would have been required to surrender a performance bond that could amount to $1 billion so as to avoid its assets from being frozen. Such an amount would have meant wiping out all the shareholders since payment of the bond would have been the priority obligation. On the same note, it would have taken away all loans which accounted for 96% of the total organization’s capital and such an indictment would have possibly taken Drexel out of business since no bank can give credit facilities to an indicted firm (Mathew, 1999, p.25).

Major League Baseball case is yet another example. This was back in 2002 when the former Montreal Expos baseball team minority owners filed a suit under RICO Act against Bud Selig, the commissioner of the Major League Baseball. They claimed that Loria and Selig made a deliberate conspiracy for individualistic benefit by devaluing the team for a move. The case took two years to be concluded and the Expos’ move to Washington was all this time successfully stalled. Eventually, it was referred to arbitration where it was settled for a sum that is not disclosed. If it had been indicted and found liable, the Major League could have paid punitive damages of up to 300 million dollars. Unsuccessful RICO laws were also noted in a National Organization for Women v. Scheidler suit. Some parties had sought an injunction and damages against anti-abortion activists who had physically blocked abortion clinics’ access (Mathew, 1999, p.47).

Several years back the issue of third party civil statutes and those of a criminal nature overlap would not have come up since this overlap never existed. It came to be possible after introduction of the RICO enactment where we have come to witness enforcement of both civil and criminal statutes. This enforcement is further extended government agencies’ jurisdiction. This is based on the rationale that the civil actions third parties are able to provide some assistance with the enforcement.

The notion thus made a favorable appeal to RICO due to the fact that RICO’s initial focus was to eradicate all forms of organized crime. RICO has however gone beyond its original roots and has been interpreted so broadly that it has gone this far together with the third party civil actions. There is therefore need for regular guidelines as concerns the statutes application restrictions particularly on prosecution discretion oversight. The civil actions side did not have such guidelines however. The Congress was thus forced to institute additional limitations on the RICO’s civil side as depicted in the 18 U.S.C. 1964(c). Another example is can be seen in denied attempts to apply civil action in some matters like in the Foreign Corrupt Practices Act (FCPA). It is however interesting that some civil RICO actions use the (FCPA) (Robert, 1994, p.124).

A recent RICO case settlement is the Smithfield and Union issue in which the Associated Press made a report indicating that Commercial Workers International Union, Smithfield Foods and the United Food agreed to settle the racketeering lawsuit between them. This happened slightly before the case was taken for trial in Richmond federal court. In the lawsuit, Smithfield had claimed it experienced extortion that cost it about 900 million dollars from the union’s economic threats. Union attorneys argued that the achievement of a lawful purpose by using economic pressure didn’t amount to extortion.

RICO has employed a wide variety of definitions to encompass very broad enterprise criminal activities within its purview. Loose crime families collection that comprised the Mafia made it had for Congress to legislate laws that would be against specific families or persons. It thus adopted the earlier mentioned far-reaching language so that all categorical RICO crimes could be incorporated. It further had to distinguish between stereotype violent mobsters from a typical RICO defendant. It has been proved that RICO is powerful tool used to fight organized crime by the federal government. In addition, many states have all along enacted RICO based statutes that have specifically been designed to apprehend the unlimited forms of organized crimes that had previously escaped RICO provisions. Lengthy sentences have also been obtained by prosecutors against sundry criminals using these RICO penalties (William, 1989, p.71).

On the contrary, critics have argued that RICO has gone beyond its scope by convicting petty and nonviolent criminals (sentencing them to unreasonable long terms and undue fines) as opposed to its original intention of eradicating and incapacitating traditional organized crime. However, RICO supporters have countered this by saying that the act was meant not only to reach all forms of traditionally organized criminal groups but also all organized crime groups. Furthermore, RICO advocates are of the opinion that RICO has not been unduly harsh in the sense that it is more grievous to conduct criminal activities using business enterprises and also more difficult to eliminate than is the case while dealing with freelance, individual criminal activity. The conclusion here is therefore that anyone who commits a RICO crime genuinely deserves the subjected punishment.

Precisely, there has been general consensus that in many instances civil RICO provisions have been deliberately abused. RICO plaintiffs have for long brought complaints against individuals who sometimes are indirectly and remotely related to a criminal enterprise and who are also equally solvent to settle a RICO judgement. Some of these victims are bankers, accountants, large corporations such as General Motors, security firms and insurance companies. These defendants have frequently been forced to settle the cases after denying any possible wrongdoing due to the fear of losing substantial finances and or property from the RICO judgment (Ruth, 2000, p.65).

In 1993 for example, the Supreme Court overruled limitations of the civil RICO scope in a case where an accounting firm (Reves), was sued by a farmers’ cooperative which sought RICO redress by claiming that the accounting firm had caused the cooperative’s bankruptcy. The note holders of the cooperative insisted that the accountants were parties to a scheme that inflated the cooperative’s value, constituted fraud and more so that the same accountants had directly participated in the management and the operations of the cooperative. The Supreme Court differed with this and held that the level of the accounting firm’s participation within the cooperative’s affairs had not risen to the management or operation. The accounting firm was therefore not liable for a RICO reach.

One drawback of the RICO Act is that it confuses by referring both the plaintiff and the defendant as ‘person’. In section 1962(c), the defendant person is referred to as “person”, while the term ‘person’ in section 1964(c) refers to the victim, the injured party or the plaintiff and not the defendant. This makes parties to confuse the RICO enterprise with the defendant “person”. They therefore end up equating a criminal enterprise with a RICO enterprise. It is worth to note here that a defendant person can be a corporation or an individual. On the same note, RICO enterprises are enterprises that perpetrate crime such as the mafia families, and RICO enterprises may also be victims of criminal activities. Additionally, they may also be used as passive instruments by defendants committing criminal activities. It is a very important thing to acknowledge that it is only a “person” who can bear liability as stipulated under section 1962(c). No liability can be imposed on an entity by merely naming it as a RICO enterprise. For example, law firms, advertising agencies, banks etc which may have unknowingly facilitated criminal activities by a defendant are often regarded as part of or enterprises through which racketeering pattern was conducted by the defendant. There is no liability that can attach to an entity or a person who is simply named as the enterprise itself or as the enterprise member (Ronie, Brandes, 2000, p.40).

Probably the most abundant and useful forms of RICO enterprises are “association-in-fact” enterprises. At the time Congress was passing the RICO Act, the phrase may have directly been intended to refer to the Mafia. This is most likely since the Mafia family can neither be an individual nor can it be a legal entity. It is therefore a group of individuals or a union that is associated in fact though it is not a legal entity. Other forms of this association in fact entities are corporate parents as well as their subsidiaries that have allegedly been involved in criminal activities. Most of this association in fact enterprises are accepted in courts as long as they contain three basic characteristics: shared or common purpose; a pattern of racketeering ascertainable structure; and continuity of structure and personnel. Continuity of structure and personnel in this respect implies that there must be some consistency in membership, which must not be in a constant state of flux (Robert, 2004, p.38). The enterprise or racketeering activity distinction holds that there must be a distinct and separate enterprise from the pattern of racketeering for a RICO claim to hold. The RICO claim will fail if an association-in-fact enterprise’s members are not bound together by anything else other than their racketeering acts.

Additionally, from a long standing law maxim, no person is expected to conspire with him/herself. This maintains that the defendant must at the same time be distinct from the enterprise as much as there must be a distinction from the racketeering activity distinction. There have been some defendant arguments that the enterprise/person distinction is non-attainable especially in cases where a defendant individual person is allegedly a party to an association-in-fact enterprise which consist other individuals as well. It is reasonable that putting into consideration all possible ways, through which a RICO claim can be authenticated, every body the whole world over may have a RICO claim to complain about. Many lawyers and RICO experts or consultants have a common consensus that almost every wrong that is subjected to a person can professionally constitute RICO damages, which is the main reason these RICO claims are scrutinized with very delicate care considering the form of punishment associated with them if one gets acquitted (Paoli, 2003, p.34). This is not forgetting the technological invasion of our lives as well as the extent of the wire and mail fraud statutes involved. If this was not the case, then why don’t we see many RICO cases being alleged on relatively less materially worth individuals?

Today RICO is relevant in the sense that it is an effective societal control tool even though it mustn’t be right for all circumstances that constitute the daily welfare of all the population. Moreover, it has restricted and contained organized as well as individual crimes to an admirable degree, which may have escalated to uncontainable heights in its absence. It must be applied just like any other law with the victim pursuing his/her right for diligent relief although it’s wiser to avoid statute defense limitations where possible.

Reference:

Ahmed Riahi (1992). Morality in Accounting. Westport, CT: Quorum Books, pp.65

Arthur Veno (2002). The Brotherhoods: Inside the Outlaw Motorcycle Clubs. New York: Allen & Unwin Publishers, pp.87

Beth Giddens (2000). Class Action Dilemmas: Pursuing Public Goals for Private Gain. New York: Rand, 12

Jon Moore (2000). Racketeer Influenced and Corrupt Organizations. American Criminal Law Review, Vol. 37, pp.54

Laws Rita (1999). Adoption and Financial Assistance: Tools for Navigating the Bureaucracy. London: Bergin & Garvey Publishers, pp.18, 88

Mathew Sikes (1999). Racketeer Influenced and Corrupt Organizations. American Criminal Law Review, Vol. 36, pp.25

Paoli Letizia (2003). Mafia Brotherhoods: Organized Crime, Italian Style. Oxford: Oxford University Press, pp.34

Robert Kelly (1994). Handbook of Organized Crime in the United States. New York: Greenwood Press, pp.124

Robert Levy (2004). Shakedown: How Corporations, Government, and Trial Lawyers Abuse the Judicial Process. Cato Institute, 23, 38

Ronnie Brandes (2000). Intellectual Property Crimes. American Criminal Law Review, Vol. 37, pp.40

Ruth Milkman (2000). Organizing Immigrants: The Challenge for Unions in Contemporary California. New York: ILR Press, pp.65

 William Buckley Jr. (1989). Meeting with Milken. National Review, Vol. 41, pp.71