There was a time when only mobsters had anything to fear from the federal government's anti-racketeering laws. Those days are gone. Today, reputable corporations and businesses -- companies such as Shearson-American Express, Lloyd's of London, and Price Waterhouse -- are just as likely as underworld mobsters to face racketeering charges.
The culprit in this development is the increasingly popular civil section of the 1970 Racketeer Influenced and Corrupt Organizations (RICO) Act. Today, it is being used by creative private-sector lawyers against the very companies it was designed 15 years ago to protect.
``It seems redundant to say that the Racketeer Influenced and Corrupt Organizations Act . . . of the Organized Crime Control Act of 1970 was intended to deal with organized crime,'' says John M. Finch of the National Association of Manufacturers. ``Redundant, perhaps, but necessary,'' he adds.
``This is not what Congress had in mind when it passed RICO,'' says Irvin B. Nathan, a Washington lobbyist for the insurance industry.
RICO has proved to be one of the government's most powerful weapons in striking back at organized crime nationwide. In recent years mafia bosses have been convicted or indicted on broad criminal RICO charges in New York, Cleveland, Los Angeles, and many others cities. But now, private-sector lawyers are discovering that the same broad interpretation of RICO, so essential to gaining convictions against mobsters, can also be useful in boosting the stakes in favor of their clients in common commercial lega l disputes.
On July 1, the Supreme Court upheld this broad reading of RICO, in effect giving lawyers nationwide a go-ahead to tack civil RICO counts on lawsuits ranging from routine contract disputes, to landlord-tenant and possibly even divorce suits. Not only are RICO suits relatively easy to file, but they offer a reward of triple damages plus legal fees for anyone who can prove he or she was a victim of a ``pattern of racketeering.''
Under RICO, racketeering exists when an individual or an enterprise commits at least two offenses within a 10-year period. The long list of offenses includes murder, extortion, and kidnapping, as well as mail, wire, and securities fraud.
Because of extensive use of telephone and mail services by most businesses, mail and wire fraud charges are particularly easy to bring in the context of most business disputes.
Defending against such charges is another matter entirely.
For some firms just the threat of substantial legal fees while being tarred with federal racketeering charges -- no matter how groundless the allegations -- are enough to persuade them to settle out of court.
For others, enduring such charges is becoming a regular part of doing business.
In 1983, Lloyd's of London and the Lincoln Insurance Company were sued in Michigan because they refused to pay a fire claim to the person they believed set the fire.
One of the charges was a racketeering charge, based allegations that the insurance companies collected premiums with no intention of ever paying claims should they arise. Because policy documents and payments were sent by mail on more than two occasions, the actions constituted a ``pattern of racketeering'' under RICO.
The federal judge in the case refused to dismiss the RICO charge before the trial, but the charge was ultimately dropped by the filing attorneys because they did not think it would hold up under judicial scrutiny during the trial.
The attorney for the insurance company, Charles Tuffley, says including a RICO count in a business dispute case generally ``makes the case more expensive to litigate. [And] ``most of those claims are brought to give the insured additional leverage to obtain a settlement.'' As a result of such cases, RICO has taken on a life of its own. Some legal experts suggest that it has already eclipsed state fraud laws.
``It really is revolutionizing commercial litigation,'' says Susan O'Connor of the American Law Institute in Philadelphia.
``RICO is likely to be a prominent feature of the commerical dispute landscape in a wide range of cases from corporate takeovers to loan defaults,'' says Stephen Glasser, president of Legal Times, a weekly law review.
In the meantime, several members of Congress are examining how to amend RICO to prevent what some consider abuses by private lawyers. The problem is that no one can agree on what constitutes ``racketeering.''
Business groups would like to see the racketeering statute apply only to illicit criminal enterprises, such as Mafia syndicates.
Others maintain that the RICO statute should stay as is, applying to both legal and illegal organizations. Some lawyers contend that the current RICO statute, if left alone, will help restore true ethics to the US business community and help reduce fraud in America.
Still others contend that the ultimate costs of maintaining civil RICO in its current form will be a growing case load in federal court and increasingly expensive commercial lawsuits. How RICO emphasis has changed
Congress passed RICO as part of the Organized Crime Control Act of 1970. In it, federal prosecutors are granted broad powers to charge alleged organized criminals with committing a series of crimes or what amounts to a ``pattern of racketeering.'' Rather than stop there, Congress also wanted to encourage the private sector's participation in the fight against organized crime. A civil section was included in the anti-racketeering law. It was aimed at encouraging businessmen and their lawyers to, in
effect, become private-sector prosecutors.
Fifteen years ago, the congressional spotlight was on the archetypal godfather version of racketeering. Members of Congress were concerned that Mafia bosses using strong-arm tactics and stolen riches could make offers that honest but frightened businessmen couldn't refuse.
Today, only 9 percent of RICO civil suits relate to typical mobster activity such as embezzlement, extortion, political corruption, and bribery. And 81 percent of all RICO suits filed involve either alleged securities fraud, business disputes, or antitrust allegations, according to an American Bar Association study.