Chapter 5

RICO

When Congress passed the Racketeer Infl uenced and Corrupt Organizations Act (RICO) as part of the Organized Crime Control Act of 1970, lawmakers were primarily concerned about organized crime's increasing entry into legitimate business enterprises. RICO's broad language, however, allows the statute to be applied in a wide variety of cases having nothing to do with organized crime. As a result, RICO has become one of the most controversial pieces of legislation affecting business. Supporters of RICO argue that it is an effective and much-needed tool for attacking unethical business practices. Criminal RICO: Under RICO, it is a federal crime for any person to (1) use income derived from a "pattern of racketeering activity" to acquire an interest in, establish, or operate an enterprise; (2) acquire or maintain an interest in an enterprise through a pattern of racketeering activity; (3) conduct or participate in, through a pattern of racketeering activity, the affairs of an enterprise by which he is employed or with which he is affiliated; or (4) conspire to do any of the preceding acts. RICO is a compound statute because it requires proof of "predicate" criminal offenses that constitute the necessary pattern of racketeering activity. Racketeering activity includes the commission of any of more than 30 state or federal criminal offenses. Although most offenses that qualify (e.g., arson, gambling, extortion) have no relation to normal business transactions, such offenses as mail and wire fraud, securities fraud, and bribery are also included. Thus, many forms of business fraud may be alleged to be a racketeering activity. To show a pattern of such activity, the prosecution must fi rst prove the defendant's commission of at least two acts of racketeering activity within a 10-year period. The pattern requirement also calls for proof that these acts are related and amount to, or pose the threat of, continuing racketeering activity. Defendants found guilty of RICO violations are subject to substantial fines and/or imprisonment. In addition, RICO violators risk the forfeiture of any interest gained in any enterprise as a result of a violation, as well as forfeiture of property derived from the prohibited racketeering activity. To prevent defendants from hiding assets that may be forfeitable upon conviction, federal prosecutors may seek pretrial orders freezing a defendant's assets. Civil RICO: Under RICO, the government may also seek various civil penalties for violations. These include divestiture of a defendant's interest in an enterprise, dissolution or reorganization of the enterprise, and injunctions against future racketeering activities RICO's most controversial sections, however, allow private individuals to recover treble damages (three times their actual loss) and attorney's fees for injuries caused by a statutory violation. To qualify for recovery under RICO, a plaintiff must prove that the defendant violated RICO's provisions (as explained above) and that the plaintiff was "injured in his business or property by reason of" the RICO violation. A direct causation link must exist between the RICO violation and the harm experienced by the plaintiff.

Role of Constitutional Safeguards

Constitution, sets forth other rights of criminal defendants. These rights guard against unjustifi ed or erroneous criminal convictions and serve as reminders of government's proper role in the administration of justice in a democratic society. Although the literal language of the Bill of Rights refers only to federal government actions, the U.S. Supreme Court has applied the most important Bill of Rights guarantees to state government actions by "selectively incorporating" those guarantees into the Fourteenth Amendment's due process protection. Once a particular safeguard has been found to be "implicit in the concept of ordered liberty" or "fundamental to the American scheme of justice," it has been applied equally in state and federal criminal trial

Nature of Crimes

Crimes are public wrongs —acts prohibited by the state or federal government. Criminal prosecutions are initiated by a prosecutor (an elected or appointed government employee) in the name of the state or the United States, whichever is appropriate

Deterrence

Deterrence theorists maintain that the threat or imposition of punishment deters the commission of crimes in two ways. The first, special deterrence, occurs when punishment of an offender deters him from committing further crimes. The second, general deterrence, results when punishment of a wrong-doer deters other persons from committing similar offenses

Problems with Punishing Legal Corporations

Does a criminal conviction stigmatize a corporation in the same way it stigmatizes an individual? Perhaps the only stigma resulting from a corporate criminal conviction is felt by the firm's employees, many of whom are entirely innocent of wrongdoing. Is it just to punish the innocent in an attempt to punish the guilty? Larger fines may lead to undesirable results, however, if the corporate defendant ultimately passes along the fines to its customers (through higher prices), shareholders (through lower dividends or no dividends), or employees (through lower wages). Moreover, fines large enough to threaten corporate solvency may harm employees and those economically dependent on the corporation's financial well-being.

Rehabilitation

Even if rehabilitation efforts fail, however, incapacitation of convicted offenders contributes to the goal of prevention. While incarcerated, offenders have much less ability to commit other crimes. Prevention is not the only asserted goal of the criminal sanction. Some persons see retribution —the infl iction of deserved suffering on violators of society's most fundamental rules—as the central focus of criminal punishment. Under this theory, punishment satisfies community and individual desires for revenge and reinforces important social values.

Due Process Clauses

In addition to limiting the sorts of behavior that may be made criminal, the Constitution limits the manner in which behavior may be criminalized. The Due Process Clauses of the Fifth and Fourteenth Amendments (discussed in Chapter 3) require that criminal statutes define the prohibited behavior precisely enough to enable law enforcement officers and ordinary members of the public to understand which behavior violates the law. Statutes that fail to provide such fair notice may be challenged as unconstitutionally vague. Equal Protection Clause The Fourteenth Amendment's Equal Protection Clause prohibits criminal statutes that discriminatorily treat certain persons of the same class or arbitrarily discriminate among different classes of persons Eighth Amendment Finally, the Constitution limits the type of punishment imposed on convicted offenders. The Eighth Amendment forbids cruel and unusual punishments. This prohibition furnishes, for example, the constitutional basis for judicial decisions establishing limits on imposition of the death penalty. Proof beyond a Reasonable Doubt The serious matters at stake in a criminal case—the life and liberty of the accused—justify our legal system's placement of significant limits on the government's power to convict a person of a crime. A fundamental safeguard is the presumption of innocence; defendants in criminal cases are presumed innocent until proven guilty. The Due Process Clauses require the government to overcome this presumption by proving beyond a reasonable doubt every element of the offense charged against the defendant Defendant's Criminal Intent and Capacity Most serious crimes require mens rea, or criminal intent, as an element.

White-Collar Crimes and the Dilemmas of Corporate Control

Introduction White-collar crime is the term used to describe a wide variety of nonviolent criminal offenses committed by businesspersons and business organizations. This term includes offenses committed by employees against their employers, as well as corporate officers' offenses that harm the corporation and its shareholders. It also includes criminal offenses committed by corporate employers and employees against society. Each year, corporate crime costs consumers billions of dollars. It takes various forms, from consumer fraud, securities fraud, mail or wire fraud, and tax evasion to price-fixing, environmental pollution, and other regulatory violations. Corporate crime presents our legal system with various problems that we have failed to resolve satisfactorily. The criminal law, however, was developed with individual wrongdoers in mind. Corporate crime is organizational in nature. Any given corporate action may be the product of the combined actions of many individuals acting within the corporate hierarchy. It may be that no individual had suffi cient knowledge to possess the mens rea necessary for criminal responsibility under usual criminal law principles.

Important White-Collar Crimes

Regulatory Offenses Numerous state and federal regulatory statutes on a wide range of subjects prescribe criminal as well as civil liability for violations. Fraudulent Acts Many business crimes involve some fraudulent conduct. In most states, it is a crime to obtain money or property by fraudulent pretenses, issue fraudulent checks, make false credit statements, or give short weights or measures. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board and charged it with regulatory responsibilities concerning public accounting firms' audits of corporations. The statute also established various requirements designed to ensure auditor independence; bring about higher levels of accuracy in corporate reporting of financial information; and promote responsible conduct on the part of corporate officers and directors, auditors, and securities analysts. Bribery and Giving of Illegal Gratuities: State and federal law has long made it a crime to offer public officials gifts, favors, or anything of value to influence official decisions for private benefit

Rehabilitation

Rehabilitation of convicted offenders—changing their attitudes or values so that they are not inclined to commit future offenses—serves as another way to prevent undesirable behavior. Critics of rehabilitation commonly point to high rates of recidivism as evidence of the general failure of rehabilitation efforts to date.

The Fifth Amendment

The Fifth and Fourteenth Amendments' Due Process Clauses guarantee basic procedural and substantive fairness to criminal defendants. Privilege against Self-Incrimination: In another significant provision, the Fifth Amendment protects against compelled testimonial self-incrimination by establishing that "[n]o person . . . shall be compelled in any criminal case to be a witness against himself." This provision prevents the government from coercing a defendant into making incriminating statements and thereby assisting in his own prosecution. Production of Records: The preceding discussion of the privilege against self-incrimination applies to criminal defendants in general. The Fifth Amendment's scope, however, has long been of particular concern to businesspersons charged with crimes. Documentary evidence often is quite important to the government's case in whitecollar crime prosecutions. Because such entities have no Fifth Amendment rights, the Court has held that when an organization's individual officer or agent has custody of organization records, the officer or agent cannot assert any personal privilege to prevent their disclosure. This rule holds even if the contents of the records incriminate her personally. Double Jeopardy Another important Fifth Amendment provision is the Double Jeopardy Clause, which prevents a second criminal prosecution for the same offense after the defendant has been acquitted or convicted of that offense. Moreover, it bars the imposition of multiple punishments for the same offense. The Double Jeopardy Clause does not, however, preclude the possibility that a single criminal act may lead to more than one criminal prosecution.

The Fourth Amendment

The Fourth Amendment protects persons against arbitrary and unreasonable governmental violations of their privacy rights. It states: The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. Reasonable Expectation of Privacy: The Fourth Amendment's language and judicial interpretations of it reflect the difficulties inherent in balancing citizens' legitimate expectations of privacy and government's legitimate interest in securing evidence of wrongdoing. Citizens are not protected against all searches and seizures—only against unreasonable ones Warrant Requirement and Exceptions: In its treatment of the Fourth Amendment's warrant clause, the Supreme Court has engaged in similar balancing of individual and governmental interests. The warrant requirement further protects privacy interests by mandating that a judge or magistrate authorize and define the scope of intrusive governmental action. As a general rule, the Court has held that searches carried out without a proper warrant are unreasonable. Exclusionary Rule: The exclusionary rule serves as the basic remedial device in cases of Fourth Amendment violations. Under this judicially crafted rule, evidence seized in illegal searches cannot be used in a subsequent trial against an accused whose constitutional rights were violated. 5 In addition, if information obtained in an illegal search leads to the later discovery of further evidence, that further evidence is considered "fruit of the poisonous tree" and is therefore excluded from use at trial. The USA PATRIOT Act Approximately six weeks after the September 11, 2001, terrorist attacks on the United States, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act Included in the Patriot Act are measures allowing the federal government significantly expanded ability, in terrorism-related investigations, to conduct searches of property, monitor Internet activities, track electronic communications, and obtain records regarding customers of businesses. Most, though not all, actions of that nature require a warrant from a special court known as the Foreign Intelligence Surveillance Court

The Sixth Amendment

The Sixth Amendment applies to criminal cases in various ways. It entitles criminal defendants to a speedy trial by an impartial jury and guarantees them the right to confront and cross-examine the witnesses against them. The Sixth Amendment also gives the accused in a criminal case the right "to have the assistance of counsel" in her defense. This provision has been interpreted to mean not only that the accused may employ her own attorney but also that an indigent criminal defendant is entitled to court-appointed counsel

Constitutional Limitations on Power to Criminalize Behavior

The U.S. Constitution prohibits ex post facto criminal laws. This means that a defendant's act must have been prohibited by statute at the time she committed it and that the penalty imposed must be the one provided for at the time of her offense.

Misdemeanor

misdemeanor is a lesser offense such as disorderly conduct or battery resulting in minor physical harm to the victim. Misdemeanor offenses usually involve less—sometimes much less—moral culpability than felony offenses. As such, misdemeanors are punishable by lesser fines and/or limited confinement in jail.

Individual Liability for Corporate Crime

Individuals who commit crimes while acting in corporate capacities have always been subjected to personal criminal liability. Most European nations reject corporate criminal liability and rely exclusively on individual criminal responsibility. In view of the problems associated with imposing criminal liability on corporations, individual liability may seem a more attractive control device. The prospect of personal liability may cause individuals to resist corporate pressures to violate the law. If guilty individuals are identified and punished, the criminal law's purposes may be achieved without harm to innocent employees, shareholders, and consumers.

Felony

A felony is a serious crime such as murder, sexual assault, arson, drug-dealing, or a theft or fraud offense of sufficient magnitude. Most felonies involve significant moral culpability on the offender's part. Felonies are punishable by lengthy confinement of the convicted offender to a penitentiary, as well as by a fine. A person convicted of a felony may experience other adverse consequences,such as disenfranchisement (loss of voting rights) and disqualification from the practice of certain professions (e.g.,law or medicine).

1. First Amendment

By prohibiting laws that unreasonably restrict freedom of speech, the First Amendment plays a major role in limiting governmental power to enact and enforce criminal laws. First Amendment protects a broad range of noncommercial speech, including expression of a political, literary, or artistic nature as well as speech that deals with economic, scientifi c, or ethical issues or with other matters of public interest or concern. The First Amendment protection for noncommercial speech is so substantial that it is called "full" protection. Commercial speech, on the other hand, receives a less substantial First Amendment shield known as "intermediate" protection

Purpose of the Criminal Sanction

Persons accepting the utilitarian view believe that prevention of socially undesirable behavior is the only proper purpose of criminal penalties. This prevention goal includes three major components: deterrence, rehabilitation, and incapacitation.

Criminal Prosecution

Persons arrested for allegedly committing a crime are taken to the police station and booked. Booking is an administrative procedure for recording the suspect's arrest. In some states, temporary release on bail may be available at this stage. After booking, the police file an arrest report with the prosecutor, who decides whether to charge the suspect with an offense. If she decides to prosecute, the prosecutor prepares a complaint identifying the accused and detailing. the charges. Most states require that arrested suspects be taken promptly before a magistrate or other judicial officer (such as a justice of the peace or judge whose court is of limited jurisdiction) for an initial appearance. During this appearance, the magistrate informs the accused of the charges and outlines the accused's constitutional rights. In misdemeanor cases in which the accused pleads guilty, the sentence may be (but need not be) imposed without a later hearing. If the accused pleads not guilty to a misdemeanor charge, the case is set for trial. In felony cases, as well as misdemeanor cases in which the accused pleads not guilty, the magistrate sets the amount of bail. In many states, defendants in felony cases are protected against unjustified prosecutions by an additional procedural step, the preliminary hearing. The prosecutor must introduce enough evidence at this hearing to persuade a magistrate that there is probable cause to believe the accused committed a felony. If persuaded that probable cause exists, the magistrate binds over the defendant for trial in the appropriate court. After a bindover, the formal charge against the defendant is filed with the trial court. The formal charge consists of either an information filed by the prosecutor or an indictment returned by a grand jury. Roughly half of the states require that a grand jury approve the decision to prosecute a person for a felony. Grand juries are bodies of citizens selected in the same manner as the members of a trial (petit) jury; often, they are chosen through random drawings from a list of registered voters. Indictment of an accused prior to a preliminary hearing normally eliminates the need for a preliminary hearing because the indictment serves essentially the same function as a magistrate's probable cause determination An information is a formal charge signed by the prosecutor outlining the facts supporting the charges against the defendant. In states allowing felony prosecution by information, prosecutors elect the information method in the vast majority of felony cases. Misdemeanor cases are prosecuted by information in nearly all states. Once an information or indictment has been fi led with a trial court, an arraignment occurs. The defendant is brought before the court, informed of the charges, and asked to enter a plea. The defendant may plead guilty, not guilty, or nolo contendere. Although technically not an admission of guilt, nolo contendere pleas indicate that the defendant does not contest the charges. At or shortly after the arraignment, the defendant who pleads not guilty chooses the type of trial that will take place. Persons accused of serious crimes for which incarceration for more than six months is possible have a constitutional right to be tried by a jury of their peers.The accused, however, may waive this right and opt for abench trial (i.e., before a judge only).

Essentials of Crime

To convict a defendant of a crime, the government ordinarily must (1) demonstrate that his alleged acts violated a criminal statute; (2) prove beyond a reasonable doubt that he committed those acts; and (3) prove that he had the capacity to form a criminal intent.

Corporate Criminal Liability Today

Under the modern rule, a corporation may be held liable for criminal offenses committed by employees who acted within the scope of their employment and for the benefit of the corporation. A major corporate criminal liability issue centers around the classes of corporate employees whose intent can be imputed to the corporation. It may be impossible to demonstrate that any higher level corporate official had sufficient knowledge to constitute mens rea. Recognizing this problem, the federal courts have adopted a general rule that a corporation may be criminally liable for the actions of any of its agents, regardless of whether any link between the agents and higher level corporate officials can be demonstrated.