Federal Racketeering (RICO) Racketeering/Illegally Conducting an Enterprise

In 1970, the Federal Government enacted the Racketeer Influenced and Corrupt Organizations Act (“RICO”). RICO prohibits a person from utilizing a pattern of unlawful activities to infiltrate an interstate enterprise. Whether in New Jersey, or anywhere in the Country, in order to state a RICO violation, under U.S.C. §1961, a criminal indictment must include the following elements:

  • That a “person”, or any individual or entity capable of holding the legal or beneficial interest in a property
  • Has utilized a “pattern of racketeering activity” or the proceeds thereof
  • To infiltrate an interstate “enterprise” by (a) Investing the income derived from the pattern of racketeering activity in the enterprise; (b) acquiring or maintaining an interest in the enterprise through the pattern of racketeering activity; (c) conducting affairs of the enterprise through the pattern of racketeering activity; or (d) conspiring to commit any of the above acts.

As a general rule, regarding Element number (1), a principal owner (i.e., a “person”) is liable for the harm caused by his agents or employees when those agents were acting within the scope of their employment or apparent authority.

Regarding Element number (2), in order to have a “pattern of racketeering activity” there must be two or more specified “predicate acts” which constitute a pattern showing a continuity and relationship. These approximate 56 predicate acts for a Federal RICO action are outlined in 18 U.S.C. §1961(1)(B)-(F). State offenses qualify as predicate acts generally if there is “any act or threat involving murder, kidnapping, gambling, arson, robbery, which is chargeable under state law and punishable by imprisonment for more than one year”. The Federal Government has now added acts of terrorism and acts committed under the Immigration and Nationality Act, (if committed for the purposes of financial gain a person is bringing in illegal aliens in general, or for immoral purposes).

Regarding Element number (3), in order to infiltrate an interstate “enterprise”, the Federal Government has defined an enterprise as including “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 courts have interpreted this to mean that the enterprise needs to have an organization or structure beyond that which is necessary to commit the Racketeering acts themselves. In other words, it must have a structure whose purpose is separate from the predicate acts themselves.

Regarding Element number (4)(a), the Government must show that the defendant was investing the income derived from the pattern of racketeering activity in the enterprise. 18 U.S.C. §1962(a) states that it is unlawful for any person to use or invest any income, or the proceeds of any income, derived from the pattern of racketeering activity or the collection of an unlawful debt, to establish, operate or acquire any interest in the enterprise engaged in or affecting interstate commerce. The subsection further requires that the defendant “participated as a principal”. This helps prevent the situation in which this statute could be used to criminalize the conduct of a person who receives the proceeds of a pattern of racketeering activity innocently or unknowingly. Also, the victim has to suffer an injury resulting from the investment of the unlawfully obtained proceeds of racketeering activity, as opposed to any injuries caused by the racketeering activities themselves.

Element number 4(b) requires the Government to show that a defendant acquired or maintained an interest in the enterprise through a pattern of racketeering activity. The “interest” must be shown to be material in some relevant aspect. As to “control” this is not limited through stock or capital ownership. “Control” normally is thought to be the “kind of power that an owner of 51% or more of an equity would normally enjoy”. However, there is no requirement that “the defendant participate in the actual operation for management of the enterprise”.

Next, Element number 4(c) requires the Government to prove that the defendant was conducting the affairs of the enterprise through a “pattern of racketeering activity”. This particular element of RICO is probably one of the most complex. It involves the “operation or management test”. The U.S. Supreme Court held that one must “participate in the operation or management of the enterprise itself” to be subject to liability under this provision. Since the U.S. Supreme Court’s decision in Reves v. Ernst and Young, there have been many interpretive cases.

The final Element, under 4(d), requires that the Government must prove a defendant was conspiring to omit any of the above acts. In other words, defendant must be in agreement with others to commit a certain act. The defendant is still responsible for conspiracy even if he or she did not commit the substantive acts that could constitute the violation itself. Also, conspiracy to violate RICO is not the same as a conspiracy to commit predicate acts. There must be an agreement to employ a pattern of racketeering activity, or the proceeds thereof, so as to effect an enterprise in one of the three ways set forth in one of those sections under 18 U.S.C. 1962(a), (b), or (c). In the Ninth Circuit, the court has also concluded that a parent corporation can conspire with its wholly own subsidiaries to violate 18 U.S.C. 1962(d).

Possible Punishment for Federal Racketeering (RICO) Racketeering/Illegally Conducting an Enterprise

In 1987, the United States Sentencing Commission presented its Sentencing Guidelines. One of the goals of the Sentencing Commission was to bring about tougher sentencing for “White Collar crimes”. Even the most minor White Collar felonies would draw incarceration under the guidelines. Until 2005, these guidelines were mandatory, then the U.S. Supreme Court’s decision in U.S. v. Booker changed the rules and held that the sentencing guidelines are now advisory in nature (in other words, the judge has much more discretion).

The sentencing guidelines assign a numerical offense level (ranging from number one to number forty three) for every Federal offense. Level one is the lowest, and level forty three is the highest (i.e., a level forty three results in life imprisonment).

RICO offenses are automatically given a base offense level of nineteen or the level applicable to the predicate act, whichever is greater. A defendant with no prior significant record who was assigned the minimum level (nineteen) would receive a sentence of thirty (30) to thirty seven (37) months in prison. This is the minimum. However, the guidelines also provide for a number of adjustments that can either increase or decrease an offense level. This means that a judge can tailor a particular sentence to a defendant based on the factors set forth in 18 U.S.C. §3553(a).

Not only will a skilled RICO defense attorney attack the length of the sentence, but also the place of incarceration. Although the judge cannot dictate where a sentence will be served, he can recommend to the Bureau of Prisons where the sentence should be carried out. They normally will attempt to follow the judge’s recommendation. Where a Defendant is incarcerated is obviously important due to access to family, medical treatment, and overall quality of life.

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