What is Civil Rico: An Overview of Civil Racketeering Lawsuits

What is Civil Rico?

What is Civil Rico?

Can Civil Rico be Ignited by Tax Violations: When a US Person runs afoul of the Internal Revenue Code, oftentimes their immediate thought is usually whether or not they will get charged with a tax crime, such as Tax Evasion under 26 USC 7201. But, even when a US Person avoids criminal charges, they may still be hit with substantial civil repercussions. One example of how civil enforcement against a US Person can be very damaging is when the matter involves a Civil Rico claim — which involves treble damages and attorney’s fees. A common question we receive is whether or not a Civil Rico lawsuit be brought for tax related matters?  The answer is, maybe.

Let’s review the basics of RICO.

Definition of RICO

RICO refers to the Racketeer Influence and Corrupt Organizations Act (RICO) of 1970. As provided in the DOJ Criminal Resource Manual:

• • • It is unlawful for anyone employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. 18 U.S.C.A. § 1962(c) (West 1984).

    • The Racketeer Influenced and Corrupt Organization Act (RICO) was passed by Congress with the declared purpose of seeking to eradicate organized crime in the United States. Russello v. United States, 464 U.S. 16, 26-27, 104 S. Ct. 296, 302-303, 78 L. Ed. 2d 17 (1983); United States v. Turkette, 452 U.S. 576, 589, 101 S. Ct. 2524, 2532, 69 L. Ed. 2d 246 (1981). A violation of Section 1962(c), requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985).

    • A more expansive view holds that in order to be found guilty of violating the RICO statute, the government must prove beyond a reasonable doubt: (1) that an enterprise existed; (2) that the enterprise affected interstate commerce; (3) that the defendant was associated with or employed by the enterprise; (4) that the defendant engaged in a pattern of racketeering activity; and (5) that the defendant conducted or participated in the conduct of the enterprise through that pattern of racketeering activity through the commission of at least two acts of racketeering activity as set forth in the indictment. United States v. Phillips, 664 F. 2d 971, 1011 (5th Cir. Unit B Dec. 1981), cert. denied, 457 U.S. 1136, 102 S. Ct. 1265, 73 L. Ed. 2d 1354 (1982).

Civil RICO Basics

Lawsuits for RICO can quickly become frivolous — and be used to put Taxpayers in a state of fear. Courts acknowledge this fact, so in order to combat frivolous lawsuits, civil RICO statute has specific pleading requirements. But, for cases that may it past the initial pleading phase — one important factor to keep in mind is that since Civil Rico is not “criminal,” it does not require the Plaintiff to meet the Beyond Reasonable Doubt standard:

18 USC 1961 – Important RICO Definitions

Here are some of the more important definitions involving a RICO allegations as provided under 18 USC 1961.

Racketeering Activity

• • • (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year;

    • (B) any act which is indictable under any of the following provisions of title 18, United States Code (select list):

      • Section 201 (relating to bribery)

      • section 224 (relating to sports bribery)

      • sections 471, 472, and 473 (relating to counterfeiting)

      • section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious

      • section 664 (relating to embezzlement from pension and welfare funds)

      • sections 891–894 (relating to extortionate credit transactions)

      • section 1028 (relating to fraud and related activity in connection with identification documents)

      • section 1029 (relating to fraud and related activity in connection with access devices)

      • section 1084 (relating to the transmission of gambling information)

      • section 1341 (relating to mail fraud), section 1343 (relating to wire fraud)

      • section 1344 (relating to financial institution fraud),

      • section 1351 (relating to fraud in foreign labor contracting),

      • section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers),

      • section 1427 (relating to the sale of naturalization or citizenship papers),

      • sections 1461–1465 (relating to obscene matter)

      • section 1503 (relating to obstruction of justice)

      • section 1510 (relating to obstruction of criminal investigations)

      • section 1511 (relating to the obstruction of State or local law enforcement)

      • section 1512 (relating to tampering with a witness, victim, or an informant)

      • section 1513 (relating to retaliating against a witness, victim, or an informant)

      • section 1542 (relating to false statement in application and use of passport)

      • section 1543 (relating to forgery or false use of passport)

      • section 1544 (relating to misuse of passport)

      • section 1546 (relating to fraud and misuse of visas, permits, and other documents)

      • sections 1581–1592 (relating to peonage, slavery, and trafficking in persons).,

      • Sections 1831 and 1832 (relating to economic espionage and theft of trade secrets)

      • section 1951 (relating to interference with commerce, robbery, or extortion)

      • section 1952 (relating to racketeering)

      • section 1953 (relating to interstate transportation of wagering paraphernalia)

      • section 1954 (relating to unlawful welfare fund payments)

      • section 1955 (relating to the prohibition of illegal gambling businesses)

      • section 1956 (relating to the laundering of monetary instruments)

      • section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity),

      • section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire)

      • section 1960 (relating to illegal money transmitters)

      • sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children)

      • sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles)

      • sections 2314 and 2315 (relating to interstate transportation of stolen property)

      • section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works)

      • section 2319 (relating to criminal infringement of a copyright)

      • section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances)

      • section 2320 (relating to trafficking in goods or services bearing counterfeit marks),

      • section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts)

      • sections 2341–2346 (relating to trafficking in contraband cigarettes)

      • sections 2421–24 (relating to white slave traffic)

      • sections 175–178 (relating to biological weapons)

      • sections 229–229F (relating to chemical weapons)

Enterprise

• • • • “Enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;

Pattern of Racketeering Activity

• • • • “Pattern of Racketeering Activity” requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity;

18 U.S. Code § 1962 – Prohibited activities U.S. Code

• • • (a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

    • (b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

    • (c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. (d)It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.

18 U.S. Code § 1964 – Civil Remedies (Civil RICO)

• • • (a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.

    • (b) The Attorney General may institute proceedings under this section. Pending final determination thereof, the court may at any time enter such restraining orders or prohibitions, or take such other actions, including the acceptance of satisfactory performance bonds, as it shall deem proper.

    • (c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962. The exception contained in the preceding sentence does not apply to an action against any person that is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to run on the date on which the conviction becomes final.

    • (d) A final judgment or decree rendered in favor of the United States in any criminal proceeding brought by the United States under this chapter shall estop the defendant from denying the essential allegations of the criminal offense in any subsequent civil proceeding brought by the United States.

Tax Fraud not listed as a Civil Rico Racketeering Activity, But…

Section 1961 provides a laundry list of different potential activities that may qualify as Racketeering for RICO purposes — and noticeably missing form the list are Tax Violations. Still, that does not mean that Tax cannot be the lead in for a RICO charge — as in the case of US v. Porcelli, which involved local state tax in NY.

As provided by the Court in Porcelli

• • • Oscar Porcelli appeals a conviction on sixty-one counts of mail fraud, 18 U.S.C. § 1341 (1982), and one count of violating the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c) (1982). These acts all relate to the filing of a series of — some one hundred — fraudulent New York State sales tax returns with respect to sales at twelve retail gasoline stations owned in whole or in part by Porcelli or one of his corporations.

    • After a jury trial before Charles P. Sifton, Judge, in the United States District Court for the Eastern District of New York, resulting in the convictions, the jury also returned a verdict of forfeiture of $4,755,000 representing the unpaid sales taxes as well as of thirty-four of Porcelli’s corporations to the United States. Porcelli was sentenced to concurrent two-year terms on each of the sixty-two counts, with the execution of all but six months suspended, and was placed on probation for a period of five years. He was ordered to make restitution to the State of New York in the amount of $4,755,000 less any sums collected by the State pursuant to the judgment of forfeiture in this case or any civil tax proceeding.

    • Viewing the evidence most favorably to the Government, twelve of defendant’s retail gasoline stations filed false sales tax returns between 1978 and 1982, enabling them to omit to pay approximately $4,755,000 in state sales tax. This represented two-thirds of the $6.7 million in taxes the stations owed on sales during that period.

    • On appeal Porcelli argues that use of the mail fraud statute violated due process, that proof of mail fraud was legally insufficient in terms of proof as to specific criminal intent and in terms of proof as to “mailings”; that the mail fraud statute does not encompass tax violations; that the Government’s use of RICO to prosecute Porcelli for state sales tax underpayments violates the intent of Congress; that the RICO conviction should be reversed because there was no evidence that the enterprise charged in the indictment was conducted through racketeering activity; that the forfeitures are supported by insufficient evidence and are tainted by erroneous instructions and ambiguous special interrogatories to the jury; that the forfeitures should be reversed because they are cruel, unusual, and grossly disproportionate to the misdeeds of the retail gasoline companies involved; and that appellant was denied the effective assistance of counsel.

    • We conclude, therefore, that the evidence is sufficient to prove a RICO enterprise consisting of the twelve operating companies that underpaid their sales taxes, the realty companies that owned or leased those operating companies’ land and Ditmas Oil Associates, Inc., the management company. It was incorrect, however, to include in the RICO enterprise four other operating companies that were acquired with funds from the twelve operating companies but that did not underpay their sales taxes. Those four companies might well be forfeitable, in whole or in part, but they are not part of Porcelli’s RICO enterprise. Nor should realty companies that did not have offending companies on their land be included in the RICO enterprise. Similarly, the trucking and security companies were not part of Porcelli’s RICO enterprise.

    • They provided services to the offending retail gasoline companies; but, unlike the realty companies or the management company, they were not an integral part of Porcelli’s fraudulent scheme. The variance between the charged enterprise and the proof did not prejudice Porcelli and does not warrant reversal of his RICO conviction.

    • Porcelli’s defense to the RICO charge against all of the corporations specified in the indictment necessarily included his defense against an identical RICO charge against the twelve offending operating companies, the realty companies, and the management company. See United States v. Ianniello, 808 F.2d 184, 189 (2d Cir. 1986), cert. denied, ___ U.S. ___, 107 S.Ct. 3229, 97 L.Ed.2d 736 (1987); United States v. Heimann, 705 F.2d 662, 666-68 (2d Cir. 1983), cert. denied, 466 U.S. 962, 104 S.Ct. 2178, 80 L.Ed.2d 560 (1984); United States v. Sindona, 636 F.2d 792, 798-99 (2d Cir. 1980), cert. denied, 451 U.S. 912, 101 S.Ct. 1984, 68 L.Ed.2d 302 (1981).

What does this Mean?

It means that while Civil Rico does not specifically identify Tax Fraud/Evasion as a racketeering activity — that is not to say that if the Court wanted to, that it couldn’t find a way to maneuver around the black-letter law, and reach a ruling it sees fit. See Here for more information.

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