RICO: A Primer

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RICO: A Primer

The Racketeer Influenced and Corrupt Organizations Act (“RICO”) was enacted in 1970.  Although RICO provides for both civil remedies and criminal penalties, the number of civil RICO claims far outstrips the number of criminal RICO cases brought each year.

RICO provides for a civil action against persons engaged in a “pattern of racketeering activity” or “collection of an unlawful debt.”  A successful plaintiff may recover treble damages, costs, and attorneys’ fees.

RICO is, however, an intricate, complex statutory regime with numerous potential pitfalls.  Yet a civil RICO claim involves several standard, key issues.  We address several of those fundamental issues below.

What is “Racketeering activity”?  

The heart of a RICO case is the existence of a pattern of racketeering activity.  Under the statute, “racketeering activity” includes a host of offenses.  Section 1961(1) defines the phrase to include any crime listed in subdivisions A, B, C, D, E, F, or G of section 1961(1).

Among other things, “racketeering activities” include “any act which is indictable under” a list of federal criminal statutes. The list covers an expansive range of violations, for example, violations of the Hobbs Act, 18 U.S.C. § 1951 (extortion); 18 U.S.C. §§ 1341 (mail fraud) and 1343 (wire fraud); 18 U.S.C. § 1831 (economic espionage); 18 U.S.C. § 1832 (theft of trade secrets); 18 U.S.C. § 1952 (Travel Act); 18 U.S.C. §§ 1956, 1957 (money laundering); and 18 U.S.C. §§ 2318-2320 (copyright infringement).

Mail and wire fraud are the most common predicate acts.

Notably, there must be some nexus to interstate or foreign commerce—it is a jurisdictional element of a civil RICO claim.  Thus, predicate acts will often occur in several States.

Who is a RICO “Person”?

A RICO person “includes any individual or entity capable of holding a legal or beneficial interest in property.” This definition defines those who can be charged under RICO.  While the definition clearly includes a natural person, as well as a corporation, union, partnership and a sole proprietorship, it is not settled whether the definition encompasses a governmental entity.

What is a RICO Enterprise?

A plaintiff is required to demonstrate that the defendant conducted the affairs of an enterprise though a pattern of racketeering activity.  The person and the enterprise generally must be distinct; but, of course, a Rico person can be a part of an enterprise.

A RICO enterprise 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.”  Courts have interpreted “enterprise” broadly, and the definition captures both legitimate and illegitimate enterprises.  The statutory list is not exhaustive but merely illustrative.

What is A RICO “Pattern”?

 A “pattern” may exist where any combination of two or more offenses occurred within a period of time.  In Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), the Supreme Court held that the RICO pattern element requires more than merely proving two predicate acts of racketeering.  Rather, proof of “continuity plus relationship” is necessary.  Nonetheless, the Supreme Court has repeatedly recognized that Congress had a fairly flexible concept of a pattern in mind.

The Supreme Court has stated that:

A “pattern” is an “arrangement or order of things or activity,” . . . . It is not the number of predicates but the relationship that they bear to each other or to some external organizing principle that renders them “ordered” or arranged.

The Court has further explained that “[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.”

The racketeering acts need not be similar or directly related to each other; rather, it is sufficient that the racketeering acts are related in some way to the affairs of the charged enterprise, including, for example, that: (1) the racketeering acts furthered the goals of or benefitted the enterprise,  (2) the enterprise or the defendant’s role in the enterprise enabled the defendant to commit, or facilitated the commission of, the racketeering acts,  (3) the racketeering acts were committed at the behest of, or on behalf of, the enterprise,  or (4) the racketeering acts had the same or similar purposes, results, participants, victims or methods of commission.

The continuity requirement is likewise satisfied where the predicates are a regular way of conducting the defendant’s ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes), or of conducting or participating in an ongoing and legitimate RICO “enterprise.”

A plaintiff may demonstrate a pattern by establishment that the predicate acts pose a threat of continued criminal activity, which is generally demonstrated by showing either:

  • Closed-ended continuity. Proving “a series of related predicate acts extending over a substantial period of time.”
  • Open-ended continuity. A threat of “continuing criminal activity extending indefinitely into the future,” in light of the nature of the enterprise and predicate acts alleged.

 

RICO Violations

There are four separate and distinct RICO violations set out in section 1962: (a) acquiring or operating an enterprise using racketeering proceeds; (b) controlling an enterprise using racketeering activities; (c) conducting the affairs of an enterprise using racketeering activities; and (d) conspiring to so acquire, control, or conduct.

Each of the subsections incorporates the basic elements of “enterprise” and a “pattern of racketeering activity.”

Section 1962(a)

Under Section 1962(a), it is violation to invest the proceeds of racketeering activity in an enterprise that affects interstate commerce.

To prove a violation of Section 1962(a), a plaintiff must prove the following elements:

  1. Existence of an enterprise;
  2. The enterprise engaged in, or its activities affected, interstate or foreign commerce;
  3. The defendant derived income, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal; and
  4. The defendant used or invested, directly or indirectly, any part of that income, or the proceeds of that income, in the acquisition of an interest in, or the establishment or operation of, the enterprise.

Section 1962(b)

Section 1962(b) is the least used of the four RICO subsections.  Under section 1962(b), it is a violation to acquire or maintain an interest in an enterprise affecting interstate or foreign commerce through a pattern of racketeering activity or collection of an unlawful debt.

To prove a violation of Section 1962(b), a plaintiff must prove the following elements:

  1. Existence of an enterprise;
  2. The enterprise engaged in, or its activities affected, interstate or foreign commerce;
  3. The defendant acquired or maintained, directly or indirectly, an interest in or control of the enterprise; and
  4. The defendant acquired or maintained the interest through a pattern of racketeering activity or through collection of an unlawful debt.

Courts have held that a plaintiff must allege a specific nexus between control of the named enterprise and the alleged racketeering activity.

Section 1962(c)

Subsection (c) is, far and away, the most often used and important substantive RICO provision.  Under section 1962(c), it is a violation to conduct the affairs of an enterprise affecting interstate or foreign commerce “through” a pattern of racketeering activity or through the alternative theory of collection of an unlawful debt.

To prove a violation of Section 1962(c), a plaintiff must prove the following elements:

  1. Existence of an enterprise;
  2. The enterprise engaged in, or its activities affected, interstate or foreign commerce;
  3. The defendant was employed by or was associated with the enterprise;
  4. The defendant conducted or participated, either directly or indirectly, in the conduct of the affairs of the enterprise; and
  5. The defendant participated in the affairs of the enterprise through a pattern of racketeering activity or collection of unlawful debt.

Section 1962(d) 

Under Section 1962(d), it is a violation to conspire to commit any of the three substantive RICO offenses.

To prove a violation of Section 1962(d), a plaintiff must prove the following elements:

  1. The existence of an enterprise (or that an enterprise would exist);
  2. That the enterprise was (or would be) engaged in, or its activities affected (or would affect), interstate or foreign commerce; and
  3. That each defendant knowingly agreed that a conspirator would commit a violation of 18 U.S.C. § 1962(c).

The Supreme Court held that to establish a RICO conspiracy offense under Section 1962(d), there is no requirement that the defendant “himself committed or agreed to commit the two predicate acts requisite for a substantive RICO offense under § 1962(c).”  The Supreme Court explained:

A conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense. The partners in the criminal plan must agree to pursue the same criminal objective and may divide up the work, yet each is responsible for the acts of each other. If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators.

Thus, to establish a criminal RICO conspiracy charge the United States is not required to prove that any defendant committed any racketeering act or any overt act.

As such, the RICO conspiracy provision, then, is even more comprehensive than the general conspiracy offense in 18 U.S.C. § 371.

The Court has added that:

A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime’s completion. One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. It is elementary that a conspiracy may exist and be punished whether or not the substantive crime ensues, for the conspiracy is a distinct evil, dangerous to the public, and so punishable in itself.

It makes no difference that the substantive offense under § 1962(c) requires two or more predicate acts. RICO’s conspiracy provision reaches a defendant who did not himself commit or agree to commit the two or more predicate acts necessary to the establish the underlying offense.