Title IX of the Organized Crime Control Act of 1970 is known as the Racketeer Influenced and Corrupt Organizations Act or RICO Act. The purpose of the RICO Act is to curb the menace of organized crime and to prevent it from financial infiltration of legitimate business operations affecting interstate commerce. However, the scope of the statute is not strictly limited to these two goals and has a far-reaching civil enforcement scheme covering a wide spectrum of objectives including insuring integrity in the marketplace.
“Racketeering activity” for purposes of the RICO Act means any act “chargeable” under several generically described state criminal laws, any act “indictable” under numerous specific federal criminal provisions, including mail and wire fraud, and any “offense” involving bankruptcy or securities fraud or drug-related activities that is “punishable” under federal law. The RICO Act prohibits the use of income derived from a “pattern of racketeering activity” to acquire an interest in or establish an enterprise engaged in or affecting interstate commerce; the acquisition or maintenance of any interest in an enterprise “through” a pattern of racketeering activity; conducting or participating in the conduct of an enterprise through a pattern of racketeering activity; and conspiring to violate any of these provisions[i].
The gravamen of the offense under RICO Act is the illegal derivation of the funds. The offenses considered as racketeering activity include bribery, counterfeiting, embezzlement from pension and welfare funds, fraud relating to identification documents and access devices, extortionate credit transactions, transmission of gambling information, mail fraud, wire fraud, witness tampering, retaliation against witness, obstruction of state or local law enforcement, interference with commerce, bribery, or extortion, interstate transportation in aid of racketeering, unlawful welfare fund payments, money laundering, monetary transactions in property derived from unlawful activities, sexual exploitation of children, interstate transportation of stolen property, sale of stolen goods, embezzlement from union funds, etc. In addition, 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 indictable under the Currency and Foreign Transactions Reporting Act are considered to be racketeering activity.
Also, violations of state law which constitute “racketeering activity” under the federal RICO Act must be punishable by imprisonment for more than one year. The offenses falling under this category include murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, and dealing in narcotic or other dangerous drugs[ii]. Courts have held that the list of state law crimes that can constitute “racketeering activity” under RICO is exclusive[iii].
Thus, in order to establish a RICO violation, a plaintiff must prove 1) the existence of an enterprise, 2) the defendant’s derivation of income from a pattern of racketeering activity, and 3) the use of any part of that income in acquiring an interest in or operating the enterprise[iv]. In addition, there must be a nexus between the claimed violation and the plaintiff’s injury, which must flow from the use or investment of racketeering income[v].
The term “enterprise,” as defined in the Act, includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. RICO applies to both illegitimate and legitimate enterprises[vi].
The term “racketeering activity” has been defined broadly under the Act in order to embrace any act indictable under a host of federal statutes, in both civil and criminal cases. Courts have held that the RICO Act’s applicability is not limited to members of organized crime and hence no connection with organized crime need be shown. The RICO Act provides for criminal penalties of imprisonment, fines, and forfeiture for violation of its provisions[vii].
A RICO violation requires proof of a “pattern of racketeering activity,” through “at least two acts of racketeering activity, the last of which occurred within ten years[viii].” Courts generally construe RICO liberally in order to effectuate its remedial purposes[ix]. In order to establish a pattern, the plaintiff should prove a relationship between the acts of racketeering activity charged and a threat of continuing activity, or continuity of such activity. In other words, “continuity plus relationship” produces a pattern of racketeering activity[x]. The term “pattern” thus requires at least two acts of racketeering activity within a 10-year period[xi].
An alternative to showing a pattern of racketeering activity is to show the collection of an unlawful debt. While there should be at least two wrongful acts to establish a pattern, only one collection is necessary to establish a violation[xii]. The collection of an unlawful debt can be shown either by showing gambling activity violating federal, state, or local law, or a debt incurred in connection with that gambling activity and collection of the debt. This method of proving the collection of an unlawful debt applies even in a state that has no specific statutory proscription of the business of gambling.
“While enterprise and pattern of racketeering activity are separate elements of RICO offense, proof of these two elements need not be separate or distinct, but may in fact coalesce[xiii].”
RICO creates three substantive offences which prohibit the acquisition, establishment, or operation of an enterprise with illegally derived income. Therefore, it is illegal to acquire control of an enterprise through extortion or a scheme to defraud, or may maintain an interest in an enterprise through bribery[xiv].
It is a substantive offense under the RICO Act to use an enterprise to commit illegal acts. In this connection, the plaintiffs must prove (1) the existence of an enterprise that affects interstate or foreign commerce, (2) that the defendant was employed by or associated with the enterprise, (3) that the defendant participated in the conduct of the enterprise’s affairs, and (4) that such participation was through a pattern of racketeering activity[xv]. However, the plaintiff need not prove defendant’s actual employment or association with the enterprise independent of racketeering activity. The RICO Act only requires proof of the defendant’s association with illegal activities of the enterprise and associated outsiders who participate in a racketeering enterprise’s affairs may also be held liable for a RICO violation[xvi].
In addition to the substantive offenses, the RICO Act also creates a conspiracy offense, which requires proof of violation of a substantive RICO provision. In order to be made liable, a member of an enterprise conspiracy, by his/her words or actions, must have objectively manifested an agreement to participate, directly or indirectly, in the affairs of an enterprise through the commission of two or more predicate crimes. A defendant need not have to actually carry out the predicate acts; a defendant may be convicted as long as he/she agreed to commit such acts[xvii]. Aiding and abetting the commission of two predicate acts is also punishable if all of RICO’s other requirements are satisfied.
In a criminal action, a sufficient indictment must contain the elements of the offense and apprise the defendant of the nature of the charge. In a RICO prosecution, the indictment must sufficiently allege that the enterprise at issue had an effect upon or was engaged in interstate commerce so as to form a jurisdictional basis for the violation under the Act[xviii]. Thus, the government has to particularize its indictment by identifying the type of interests subject to forfeiture under the RICO Act. Also, acts which are seemingly unrelated can be jointed through a RICO substantive count, which will provide an overall connection to the indictment. A RICO conspiracy count can provide the connection between two otherwise unrelated conspiracies necessary to satisfy the requirements of joinder[xix].
The RICO Act does not prohibit serving of subpoenas in a different judicial district[xx].
Prosecutions for both substantive violations of RICO and RICO conspiracies are governed by a five-year federal statute of limitations[xxi]. In the matter of substantive RICO violations, the limitations period begins to run at the time of the last substantive violation committed by the defendant. Where as in the case of RICO conspiracies, the limitation period begins to run at the time the objectives of the conspiracy are either accomplished or abandoned by the conspirators, or at the time of the commission of the last overt act in furtherance of such conspiracy[xxii]. It is to be noted that prosecutions for both substantive violations of RICO and RICO conspiracies are governed by the above mentioned five-year federal statute of limitations and state law statute of limitations are inapplicable in this regard.
RICO violations are proven by both direct and circumstantial evidence. In the matter of predicate offenses, the court has no obligation to read the elements of the state offense and tell the jury whether the commission of the offense constitutes a felony[xxiii].
Also, courts have held that “the prosecution of a defendant for both a RICO substantive offense and a RICO conspiracy offense is not improper, even though the charges may involve a considerable overlap in evidence, especially where the enterprise succeeds as a consequence of the persons associating and committing acts making up a pattern of racketeering activity[xxiv].” Moreover, consecutive sentences may be imposed for both a substantive RICO offense and a conspiracy to commit a RICO offense.
18 U.S.C.A. § 1962 lists the prohibited activities under the RICO Act and states that persons violating the Act are subject to a fine, or imprisonment, or both in addition to the penalty of forfeiture of property. The penalty of forfeiture is intended to destroy the economic base through which individuals constitute a serious threat. A court may order forfeiture in the case of both RICO conspiracies as well as substantive RICO offenses[xxv]. However, if a defendant is convicted of conspiracy to violate RICO, when he/she has not in fact received any proceeds from the illegal venture, then forfeiture would be inappropriate since law only permits forfeiture of interests acquired or maintained as a result of a RICO violation[xxvi].
Property subject to criminal forfeiture includes “real property, including things growing on, affixed to, and found in land, and tangible and intangible personal property, including rights, privileges, interests, claims, and securities[xxvii].” Thus, an office held in an enterprise is an interest in an enterprise subject to forfeiture. So is the defendant’s employment if such employment offered an opportunity to the defendant to engage in a pattern of racketeering activity.
Once the property is forfeited, the Attorney General will direct the disposition of the property by sale or any other commercially feasible means. The defendant or any person acting on behalf of the defendant shall not be eligible to purchase forfeited property at any sale held by the United States[xxviii]. The proceeds of the sale can be used to pay all proper expenses for the forfeiture and the sale, including expenses of seizure, maintenance and custody of the property pending its disposition, advertising and court costs.
Third parties are prohibited from intervening in the trial or appeal of a criminal case involving forfeiture and are allowed to assert their interests only in post conviction proceedings. However, as a means to safeguard third party interests, such party is provided a right to a hearing to adjudicate the validity of his/ her alleged interest in the property.
The civil enforcement scheme provides a private right of action for damages against RICO violators. Civil remedies are broader in nature and are not limited to suits against persons connected with organized crime. However, civil RICO provisions are inapplicable to claims for damages or economic losses arising from personal injuries such as physical injury, emotional distress, loss of consortium, and wrongful death.
To establish a RICO claim, a plaintiff must show a violation of the RICO statute, an injury to business or property and that the injury was caused by the violation of the statute[xxix].
A plaintiff need not establish a racketeering injury distinct from that occurring as a result of the predicate acts themselves. A showing that the injury resulted from any of the predicate acts would suffice. Similarly, a private civil action does not require the defendant’s prior conviction of a RICO violation, or of the underlying predicate offenses.
The limitation period for civil enforcement actions is four years. A RICO cause of action will accrue only if the damages or injury are clear and definite and when a plaintiff can prove multiple RICO injuries, a separate cause of action will accrue and a new four-year statute of limitations will begin to run for each injury[xxx].
The RICO Act provides for treble damages and an injured person can recover threefold the damage he/she sustains. The general presumption is that punitive damages are inappropriate in a civil RICO action. However, there is contrary authority in this regard. For instance, in the District of Columbia, an award of punitive damages is permissible when there is a valid basis for an award of compensatory damages. “Where a plaintiff has sustained actual damages, he may obtain punitive damages by showing that the defendants acted with gross fraud, wantonness, maliciousness, or willful disregard for the rights of others[xxxi].” The injured person is also entitled to costs and a reasonable attorney’s fee.
[i] 18 U.S.C.S. § 1962.
[ii] 18 U.S.C.A. § 1961(1)(A).
[iii] Overnite Transp. Co. v. International Broth. of Teamsters, Chauffeurs, Warehousemen & Helpers of America, AFL-CIO, 168 F. Supp. 2d 826 (W.D. Tenn. 2001).
[iv] United States v. Cauble, 706 F.2d 1322, 1331 (5th Cir. 1983).
[v] Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995), St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 441 (5th Cir. La. 2000).
[vi] United States v. Thevis, 665 F.2d 616 (5th Cir. Ga. 1982).
[vii] 18 U.S.C.S. § 1963.
[viii] 18 U.S.C. § 1961(5), Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris, Inc., 36 F. Supp. 2d 560, 567 (E.D.N.Y. 1999).
[ix] Sedima v. Imrex Co., 473 U.S. 479 (U.S. 1985).
[x] H. J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (U.S. 1989).
[xi] 18 U.S.C.S. § 1961(5).
[xii] 18 U.S.C.A. § 1961(6).
[xiii] United States v. Patrick, 248 F.3d 11 (1st Cir. Mass. 2001).
[xiv] United States v. Parness, 503 F.2d 430 (2d Cir. N.Y. 1974).
[xv] A-Valey Eng’rs, Inc. v. Board of Chosen Freeholders, 106 F. Supp. 2d 711 (D.N.J. 2000).
[xvi] United States v. Tille, 729 F.2d 615 (9th Cir. Wash. 1984).
[xvii] United States v. Teitler, 802 F.2d 606 (2d Cir. N.Y. 1986).
[xviii] United States v. Hooker, 841 F.2d 1225 (4th Cir. Va. 1988).
[xix] United States v. Welch, 656 F.2d 1039 (5th Cir. Tex. 1981).
[xx] 18 U.S.C.A. § 1965(c).
[xxi] 18 U.S.C.A. § 3282.
[xxii] United States v. Persico, 832 F.2d 705 (2d Cir. N.Y. 1987).
[xxiii] United States v. Anderson, 782 F.2d 908 (11th Cir. Ga. 1986).
[xxiv] United States v. Callanan, 810 F.2d 544 (6th Cir. Mich. 1987).
[xxv] United States v. Caporale, 806 F.2d 1487 (11th Cir. Fla. 1986).
[xxvi] 18 U.S.C.S. § 1963(a)(1).
[xxvii] 18 U.S.C.A. § 1963(b).
[xxviii] 18 U.S.C.A. § 1963(f).
[xxix] De Falco v. Bernas, 244 F.3d 286 (2d Cir. N.Y. 2001).
[xxx] Rodriguez v. Banco Cent., 917 F.2d 664 (1st Cir. P.R. 1990).
[xxxi] Al-Kazemi v. General Acceptance & Inv. Corp., 633 F. Supp. 540 (D.D.C. 1986).