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Racketeering - Rico In Need Of Feform

civil act criminal critics

When Congress passed the Racketeer Influenced and Corrupt Organizations (RICO) Act (18 U.S.C.A. § 1961 et seq.) in 1970, its intent was to mount an all-fronts attack on the infiltration of legitimate businesses by organized criminal enterprises. The RICO Act provides criminal and civil remedies, which are designed to imprison racketeers and to destroy the financial base of ORGANIZED CRIME. Since the act's passage, however, its civil provisions have been applied more often than its criminal provisions and have generally been used against businesses and other organizations that are not dominated by organized crime. Plaintiffs have discovered that the act's broad language allows its use in cases involving MALPRACTICE and "garden variety commercial fraud." Critics of this use of civil RICO have called for congressional reform.

The U.S. Supreme Court, in Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), upheld the constitutionality of the RICO Act and made clear that, unless amended by Congress, the statute must be interpreted broadly. The Sedima decision removed a number of judicially created barriers to using civil RICO against legitimate businesses.

Despite congressional attempts to limit the scope of civil RICO, only one major area of law has been removed from the RICO Act. The Private Securities Litigation Reform Act of 1995 (15 U.S.C.A. § 77 et seq.) eliminated liability for RICO claims based on securities FRAUD, unless the defendant has already been criminally convicted of securities fraud. The act thus removed the threat of treble (triple) damages in such cases. Congress concluded that federal securities laws generally provide adequate remedies for victims of securities fraud. Therefore, it was unnecessary and unfair to expose defendants in securities cases to the threat of treble damages and other extraordinary remedies provided by the RICO Act.

Critics of the RICO Act applaud this congressional action but argue that the same reasoning can and should be applied to other areas of CIVIL LAW. These critics maintain that the act's broad scope has given plaintiffs an unfair advantage in civil litigation.

One criticism of civil RICO is that no criminal convictions are necessary to win a civil case under the act. The plaintiff need only show, by a PREPONDERANCE OF EVIDENCE, that it is more likely than not that the ongoing criminal enterprise occurred. As a result RICO has been used in all types of civil cases to allege wrongdoing. By contrast, a criminal RICO case must be proved BEYOND A REASONABLE DOUBT.

In addition, the judge and jury in a criminal RICO case are prohibited from drawing an adverse inference from a defendant's invocation of the Fifth Amendment PRIVILEGE AGAINST SELF-INCRIMINATION. No such ban exists, however, in a civil RICO case. Critics contend that it is unfair for a party in a civil RICO case who has concerns about potential criminal liability to be forced to waive his or her FIFTH AMENDMENT privilege in order to mount an effective defense in the civil action. Once testimony is given in the civil case, the party has effectively waived the privilege against SELF-INCRIMINATION, and the testimony may be used in a subsequent criminal prosecution. Critics contend that the RICO Act should be amended to stay (delay) a civil RICO proceeding until a criminal RICO proceeding has been concluded.

The critics of civil RICO also believe that its use has given plaintiffs an unfair tool that often serves to coerce a party to settle out of fear of a treble damages award. These critics believe that no civil RICO action should be allowed unless the party has been convicted under criminal RICO.

Critics also contend that criminal RICO has been an almost total failure in stopping the infiltration of legitimate businesses by organized crime. Not only have very few criminal RICO cases been brought to trial, but most of the defendants in those cases were not the targets Congress originally intended. According to the critics, most criminal uses of the RICO Act are redundant. Other laws exist to punish government corruption and WHITE-COLLAR CRIMES. The RICO Act merely enhances their penalties.

Despite these criticisms, the RICO Act has many supporters. While agreeing that the statute is broad in scope and imprecise in language, they contend that Congress wanted the act to read just this way. Congress recognized that private enforcement of the act through civil lawsuits would supplement the government's inadequate prosecution resources.

Supporters of civil RICO also point out that parties can be protected from waiving the privilege of self-incrimination. A trial court has the authority to stay a civil RICO proceeding until a criminal RICO prosecution has been concluded or the government announces that a criminal action will be commenced. In addition, a trial court may enter a protective order that keeps the information revealed by the party confidential or sealed. Finally, as in a criminal case a judge in a civil RICO action may advise a jury not to draw an adverse inference if the defendant does not testify.

Finally, supporters believe RICO actions should not be limited to organized crime. They argue that as a matter of public policy, it is reasonable to award treble damages to victims of commercial fraud and other illegal behavior that comes within the language of the act. According to civil RICO's defenders, these damage awards act as a deterrent to businesses and organizations that have created social harm by conducting business in a distinctly criminal way.

In recent years, RICO statutes have been interpreted much more narrowly than in the past. In February 2003, the Supreme Court ruled in Scheidler v. National Organization for Women, 537 U.S. 393 (2003), that federal RICO laws could not be used to stop anti-abortion activists unless there was proof of an underlying crime (e.g., EXTORTION). The ruling ended a case dating to the mid-1980s, when violent anti-abortion protesters targeted ABORTION clinics, injuring patients and clinic staff and damaging buildings and medical equipment. The NATIONAL ORGANIZATION FOR WOMEN (NOW) claimed that antiabortion groups were engaged in a type of nationwide racketeering conspiracy to shut down abortion clinics through the use of threats and force.

FURTHER READINGS

Duffy, Shannon P. 2000. "HMOs Can't be Sued Under RICO Without Claims of Actual Injuries." The Legal Intelligencer (August 14).

"Ruling by Justices Stirs Abortion Protest Debate." 2003. CNN.com: Law Center (February 7). Available online at <www.cnn.com/2003/LAW/02/27/scotus.abortion.protests.ap> (accessed September 3, 2003).

CROSS-REFERENCES

Securities.

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