RICO and White Collar Prosecutions

Young corrupted businessman behind the prison barsProsecutors sometimes threaten to charge defendants with RICO, even in white-collar cases. This threat often comes when the prosecutor wants to force a plea deal.

The Racketeering Influenced and Corrupt Organizations law allows prosecutors to group a wide array of offenses by many different people and entities into a single charge. RICO is advantageous for prosecutors because the whole enterprise’s wrongdoing can be used to calculate the loss amount for each individual member, kind of like a conspiracy.

Given that loss amounts drive sentences, a RICO charge is a serious matter.

That said, white-collar RICO cases are rare. Why is that?

There are two primary reasons. First, it’s not easy to prove a RICO violation. There are a lot of elements and some of them are complicated. Second, DOJ’s Criminal Division is surprisingly strict on when the statute can be used.

What Is RICO?

The statute itself is at 18 U.S.C. §1961-1968 (though that includes the civil remedy sections as well). Section 1962 sets forth the basic offenses:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt, . . . to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. . . .

(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.

As a general matter, the government must prove three elements elements to win a RICO case:

  1. A pattern of racketeering. A pattern is two or more “predicate acts” committed in a ten-year period. The acts must be related in some sense, though it’s not a high bar. The predicate acts under RICO are defined in the statute and include wire fraud, mail fraud and obstruction. There must also be evidence of “continuity,” which can mean that the conduct is ongoing (open-ended continuity) or continued for a substantial amount of time (close-ended continuity).
  2. A criminal enterprise. An enterprise is defined in 18 U.S.C. § 1964 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.” The government must show that the entities and individuals are organized in some sense.
  3. An effect on interstate commerce. In these days of email and cell phone calls, proving the interstate commerce requirement is an easy one for the feds.

The pattern and enterprise elements are considerably more complicated and nuanced than describe above. Meeting the enterprise and continuity elements are particularly difficult. Plus, the circuits have somewhat differing law as to how to interpret these elements, which further complicates things.

The takeaway here is that RICO is no easy shakes for a prosecutor.

The DOJ’s RICO Policy

The Justice Department has a policy in the U.S. Attorneys’ Manual regarding the ability of government attorneys to charge defendants under the statute.

The policy makes it very clear that prosecutors should only use the statute in narrow circumstances. It states:

Despite the broad statutory language of RICO and the legislative intent that the statute “. . . shall be liberally construed to effectuate its remedial purpose,” it is the policy of the Criminal Division that RICO is selectively and uniformly used. It is the purpose of these guidelines to make it clear that not every proposed RICO charge that meets the technical requirements of a RICO violation will be approved. Further, the Criminal Division will not approve “imaginative” prosecutions under RICO which are far afield from the congressional purpose of the RICO statute. A RICO count which merely duplicates the elements of proof of traditional Hobbs Act, Travel Act, mail fraud, wire fraud, gambling or controlled substances cases, will not be approved unless it serves some special RICO purpose.

According to the policy, prosecutors must seek approval from the Organized Crime and Gang Section of the Criminal Division to bring a RICO case. The circumstances in which a RICO charge will be permitted are:

1. RICO is necessary to ensure that the indictment adequately reflects the nature and extent of the criminal conduct involved in a way that prosecution only on the underlying charges would not;.

2. A RICO prosecution would provide the basis for an appropriate sentence under all the circumstances of the case in a way that prosecution only on the underlying charges would not;

3. A RICO charge could combine related offenses which would otherwise have to be prosecuted separately in different jurisdictions;

4. RICO is necessary for a successful prosecution of the government’s case against the defendant or a codefendant;

5. Use of RICO would provide a reasonable expectation of forfeiture which is proportionate to the underlying criminal conduct;

6. The case consists of violations of State law, but local law enforcement officials are unlikely or unable to successfully prosecute the case, in which the federal government has a significant interest;

7. The case consists of violations of State law, but involves prosecution of significant or government individuals, which may pose special problems for the local prosecutor.

The prosecutor must also include with her request a thorough prosecution memorandum which, among other things, must contain “a discussion of the nexus between the enterprise and the crime of violence, the defendant’s relationship to the enterprise, and the evidentiary basis for each [RICO] count.”

Finally, after the indictment, the AUSA must keep the Division informed about any unusual legal problems that arise throughout the case for guidance purposes.

RICO Moving Forward

Before indictment, you should press the prosecutor on whether the facts really meet the high RICO standard both in the statute and in the USAM.

After indictment, RICO is a rare case where a motion to dismiss an indictment may actually be worth it. Unlike a case with a straightforward statute like wire fraud, RICO has several potential weak spots for the government.

Consider seeking dismissal because the government has not alleged an illegal “enterprise,” or a “pattern” of racketeering activity with the required “continuity.” Run-of-the-mill fraud does not equal RICO and you may actually get some traction on a dismissal motion in this type of case.

A few other white collar RICO resources:

You can read several excellent blog posts about RICO in white collar cases here.

You can read an analysis of whether RICO may be used to charge FIFA executives who are part of the soccer scandal here.

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