Business and the law
The power and
reach of America’s racketeering law make its frequent use in commercial
settings a big deal for business
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 Organisations 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, Mr 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 Mr Wolf. Congress passed
RICO in 1970 to go after organised-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) 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-isation 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 labour
(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 US 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 organise, and muscular anti-corporate campaigns, amount to offences 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 $500m, alleging that he
illegally siphoned that sum out of the business. Mr 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 Mr 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.
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