Earlier this year the founder of Medical Marijuana of the Rockies, Jerry Olson, was selling his firm’s dope for $120 an ounce, half the average retail price for good gear. He had fallen victim to the Racketeer Influenced and Corrupt Organizations Act (RICO) and had to liquidate his inventory. The nascent firm had been targeted by an anti-drugs group, which complained that its presence on the high street in Frisco, Colorado, was putting guests off going to a nearby hotel. A RICO suit was filed against a bank, a bonding company, and others that were planning to service the business. They backed away, fearing portrayal as accomplices to racketeering.
This is “clearly not what RICO was intended for,” according to Adam Wolf, Olson’s lawyer. With medical marijuana legal under state law, and the federal government happy to turn a blind eye, the lawsuit is “a political crusade by those who have lost on the legislative front,” says Wolf.
Congress passed RICO in 1970 to go after organized-crime syndicates that were infiltrating legitimate businesses. It was named after a gangster played by Edward G. Robinson in a 1931 film, “Little Caesar,” and used to pursue big mafia families.
From time to time, courts have clipped the wings of over-eager plaintiffs. But the statute is still widely used (see chart, below) and is set to undergo what Jeffrey Grell, a follower of its ups and downs, calls “a RICO renaissance,” as foreign parties increasingly turn to American courts, deemed relatively plaintiff-friendly, to pass judgment on international business cases.
RICO can be used against anyone alleged to have been part of a criminal enterprise — defined as anything from a small, loosely connected group of individuals to a huge firm — that commits a “pattern” of racketeering activity. The list of “predicate” (underlying) crimes that count towards a pattern is long, and includes mail and wire fraud — potentially ensnaring anyone who sent an e-mail or made a phone call linked to the alleged activity.
RICO’s attractions are that it is broad and powerful. It carries prison terms of up to 20 years and offers a way around statutes of limitations: as long as prosecutors can show that at least two people committed one of the many predicate offences, no matter how minor, the statute of limitations for all other offences connected to it, stretching back years, is in effect waived. This leeway is being used to target bribe-taking extending back to the early 1990s at FIFA, which oversees world football.
The flow of criminal RICO cases has been slow and steady. These mostly focus on drugs, gangs and public corruption. Most of the action, though, is on the civil side. RICO is rare among federal criminal statutes in that it allows private parties to bring civil cases. They can claim triple damages — hence RICO’s popularity with the plaintiffs’ bar. Also rare in American justice, they can make the other side pay their costs if they win. RICO gives courts strong powers to seize property.
After an explosion of civil RICO cases threatened to overwhelm courts in the 1980s, the Supreme Court limited its application. Other adverse rulings have kept the overall number of cases from rising but lawyers say the variety of cases in which the law is used to target mainstream firms has steadily broadened. The result has been a “RICO-ization of business and consumer-fraud litigation,” says Randy Gordon of Gardere Wynne Sewell, a law firm.
RICO suits filed in the past few years have spanned a broad spectrum, from cases against firms involved in the Gulf of Mexico oil spill, or in hiring immigrant labor (brought by domestic workers alleging immigration fraud that threatens their jobs and amounts to racketeering), to a case in which a group of Atlanta teachers and school administrators received sentences of up to seven years for test-score manipulation. Sheldon Whitehouse, a U.S. senator, has suggested using RICO to charge fossil-fuel companies and climate-change deniers, on the ground that they are engaged in a conspiracy of lies. If that seems a stretch, RICO has been used against senior Catholic clergymen over sex abuse committed by their priests.
RICO is riding the anti-corporate-corruption wave, with companies caught up in foreign bribery cases being accused if the alleged palm-greasing was more than an odd isolated case — and thus arguably amounted to a pattern of racketeering. Pemex, Mexico’s state oil firm, for instance, is suing HP in connection with “influencer fees” that the tech firm allegedly paid in Mexico to firms linked to corrupt officials to help it win contracts. In this and all the other live cases in this article, the defendants reject the accusations of racketeering and are contesting them.
Though big businesses moan about RICO they sometimes use the law. Corporations have filed suits against all manner of tormentors. Chevron is suing a plaintiff lawyer the oil firm accuses of shaking it down in connection with environmental damage in Ecuador. Multinationals use the law to attack each other: Rio Tinto has a RICO suit against Vale in a dispute over mining rights in Guinea. Firms are also going after trade unions, claiming that the pressure they exert to allow them to organize, and muscular anti-corporate campaigns, amount to offenses under RICO.
RICO is also being used in family disputes. The scorned spouse of a hedge-fund manager claimed her husband was a racketeer because he had engaged in legally questionable short-selling. The ex-wife of Gaston Glock, who founded the gunmaker named after him, has filed a RICO claim for $500 million, alleging that he illegally siphoned that sum out of the business. Glock denies all wrongdoing.
A RICO Without Borders?
An area in which RICO is particularly controversial is the extent to which it can be used to target conduct largely occurring outside America. The general rule is that it does not apply extraterritorially. But in recent years cases with only a tenuous domestic link (an e-mail here, an American bank account there) have been allowed to proceed. Some lawyers fret that using RICO this way could end up harming American justice, if America is seen to be playing the role of global policeman without a solid claim to jurisdiction.
Another worry is that RICO cases clog up America’s court system. The potential for new types of civil suit is vast. One study predicts that cases linked to pharmaceutical fraud, such as promoting prescription drugs for uses that have not been approved by regulators, could be a new frontier. Some recent rulings appear to have loosened restrictions on RICO class actions, notes Gordon, paving the way for a possible resurgence of such cases.
At the end of “Little Caesar,” Robinson’s character is gunned down. His final words are “Mother of mercy, is this the end of Rico?” Far from it.
© The Economist Newspaper Limited, London (August 8, 2015)