RICO Enterprises: The Mob and Fraud
Temple Law Review, Vol. 85, 2013 (Forthcoming)
80 Pages Posted: 28 Nov 2012
Date Written: June 27, 2012
The Racketeer Influenced Corrupt Practice Act (RICO), passed in 1970, is a sprawling and complex statute designed to penetrate organizations and impose liability on those who orchestrate criminal acts but insulate themselves with layers of underlings and bureaucracy. RICO is a crime and also provides a civil cause of action for those whose business or property has been damaged by RICO conduct. For a variety of reasons, criminal RICO has fallen into disfavor. Civil RICO, which is an optimal tool to pursue fraud, has not yet reached its potential. This article explores this phenomenon and provides a roadmap for civil RICO’s appropriate use in fraud cases.
This article makes four points. First, that RICO's “enterprise” requirement fits the typical white collar case well. RICO focuses on those who use an "enterprise" to commit crimes. White collar offenders almost always use an enterprise, as defined by RICO, to do their deeds; they operate through collective endeavors and use the resources of an existing organization.
Second, because of globalization and the Internet, white collar crime is on a grander scale, wreaks greater havoc on economic stability, is easier to commit, and easier to conceal, than ever before. Effective tools are needed to combat the threats posed by white collar crime. Used properly, RICO can be a highly effective tool.
Third, RICO, especially civil RICO, historically has not been used effectively or appropriately to pursue against fraud. Often it is over utilized which has caused courts and the business community to resent RICO. At the same time, RICO has not been used as much as it could be against sophisticated, wide-ranging frauds. RICO should be deployed more often by the private bar and by the government to target sweeping white collar schemes. One reason for RICO's inappropriate use, both its overuse and underuse, is its complexity. RICO's approach to white collar wrongdoing is novel and effective but its terms are abstract and the courts have made a confusing mess of RICO as they have strived to sort out its elements.
Lastly, this article discusses the most confusing aspect of RICO: its enterprise element. Case law on RICO enterprises is jumbled, inconsistent and often, wrong. This article sorts through this tangled web, analyzing existing case law and suggesting which makes sense, and which does not. This article concludes with concrete suggestions for proper analysis of RICO enterprise issues. These suggestions build on established principles of corporate law, and provide a roadmap for straightforward application of RICO even in the most complex situations. Such clarity will help RICO serve as a robust tool against white collar crime.
Keywords: RICO, racketeering, class actions, fraud, white collar crime, white collar practice, pharmaceutical, pharmaceutical fraud, plaintiffs, punitive damages, business fraud, crime, gang prosecutions, organized crime, narcotics prosecutions
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