RICO Act of 1970

Extracted from: Internet Gambling in Nevada: Overview of Federal Law Affecting Assembly Bill 466,
Courtesy of Liebert Publishing, Gambling Law Review

In 1970, as part of the Organized Crime Control Act that included the Illegal Gambling Business Act discussed above, Congress, exercised its broad power once again under the Commerce Clause [136] and enacted RICO. [137]  Like the Illegal Gambling Business Act, RICO was intended to eradicate organized crime by attacking the sources of its revenue, such as syndicated gambling or bookmakers. [138]  RICO imposes both criminal (imprisonment from 20 years to life, depending on the racketeering activity involved) [139] and civil liability (including treble damages, costs and attorneys fees) [140] for those who engage in certain prohibited acts. Section 1962, sets forth the following prohibited activities:

(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.[141]

Essentially, RICO is an aggressive initiative that is remedial in its purpose by supplementing old methods for fighting crime and providing "new weapons of unprecedented scope for an assault upon organized crime and its economic roots." [142]  RICO was enacted, in large part, as a Congressional response to organized crime's financial infiltration of legitimate business operations that affected interstate commerce. [143]  Congress wanted to remove the profit from organized crime and separate the racketeer from his or her revenue source. [144]  Yet, RICO makes no mention of "organized crime." Instead, Congress chose to target "racketeering activity." The provisions of RICO demand a liberal reading to effectuate this broad Congressional intent. [145]  Some courts have even interpreted RICO as legislation that ensures marketplace integrity. [146]

"Section 1962 establishes a threefold prohibition aimed at stopping the infiltration of racketeers into legitimate organizations." [147]  Subsection (a) makes it unlawful to invest funds derived from a pattern of racketeering activity or collected from an unlawful debt. [148]  "Subsection (b) forbids acquiring or maintaining an interest in an enterprise which affects commerce through a pattern of racketeering activity or through collection of an unlawful debt; and subsection (c) forbids participation in the affairs of such an enterprise through those means."[149]

Regardless of whether the action is criminal or civil, a violation of RICO "requires proof of (1) the existence of an enterprise, (2) either a pattern of racketeering activity or the collection of an unlawful debt, and (3) that the enterprise be engaged in or affect interstate commerce." [150]  Section 1961 defines several key terms, such as "racketeering activity," "enterprise," "pattern of racketeering activity" and "unlawful debt" as follows:

"Racketeering activity" generally means (1) any act or threat involving, among other things, gambling, which is a felony under state law, or (2) an act which is indictable under certain provisions of Title 18, such as the Wire Act, the Travel Act, the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act. [151]·

"Enterprise" is defined to include "any individual, partnership, corporation, association, or other legal entity, and union or group of individuals associated in fact although not a legal entity." [152]·

"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." [153]·

"Unlawful debt" generally means a debt that is incurred or contracted in a gambling activity or business in violation of federal, state or local law or is unenforceable, in whole or part, due to usury laws. [154]  Congress clearly intended that evidence proving the collection of an unlawful debt would substitute for a showing that two or more predicate offenses were engaged in forming a pattern of racketeering activity. [155]

In 1989, the United States Supreme Court rejected the Eighth Circuit's test that a pattern of racketeering activity required proof of multiple illegal schemes. [156]  The term "pattern" requires a two-prong showing of a "relationship" between the predicate offenses and the threat of a "continuing activity." [157]  A relationship is established where the conduct amounts to a pattern that embraces offenses having the same or similar purposes, results, participants, victims, or methods of commission, or were interrelated by distinguishing characteristics and not merely isolated events. [158]  Continuity will be found where the predicate offenses amount to or pose a threat of continued conduct. [159]  For example, since Congress was concerned with long-term activity, continuity may be demonstrated by a series of predicate offenses over a substantial period of time, rather than a few weeks or months with no threat of future conduct. [160]  Continuity may also be shown by a few predicate offenses within a short period of time with the threat of the acts extending indefinitely into the future. [161]

A predicate racketeering activity involving gambling could arise as either violations of a particular state statute or as one of the enumerated provisions in Title 18, such as the Wire Act, the Travel Act, the Interstate Transportation of Wagering Paraphernalia Act or the Illegal Gambling Business Act. [162]  In United States v. Tripp, the defendant argued that his activities did not constitute "gambling" under either Ohio or Michigan law, but rather larceny by trick since the poker games in question were rigged. [163]  The court rejected the defense's argument and found that traditional gambling existed, because the poker games began honestly and subsequent thereto the dealer inserted a marked deck of cards. [164]  Even if the element of chance were eliminated, the court found that the conduct still fell within the parameters of the state statutes. [165]

In proving a nexus between the racketeering activity and interstate commerce, it is not necessary that the alleged acts directly involve interstate commerce. [166]  Thus, evidence that the supplies used in an illegal Maryland bookmaking operation originated outside the state was sufficient to show a nexus between the enterprise and interstate commerce to trigger RICO. [167]  Even minimal evidence is sufficient to demonstrate a nexus. [168]  Therefore, merely traveling between states in furtherance of an illegal gambling operation will establish a nexus to interstate commerce. [169]

In dismissing a RICO suit against a credit card company by a disgruntled Internet gaming patron, the federal district court in Jubelirer v. MaterCard Int'l, Inc., held that merely performing financial, accounting or legal services for an alleged RICO enterprise, such as various on-line casinos, does not constitute involvement in that enterprise since the services fell short of participation in the operation or management of the enterprise. [170] 

The First Circuit also addressed the requirement of an enterprise in United States v. London. [171]  The defendant, in London operated a bar in Massachusetts and a separate check cashing service in an enclosed area of the bar. [172]  The bar was organized as a closely held corporation and the check cashing service was a sole proprietorship. [173]  Frequently, the check cashing service cashed checks (that banks would not accept) from illegal bookmakers who patronized the bar. [174]  The defendant did not inquire about the checks he was cashing nor did he require the checks to be indorsed. [175]  Moreover, the defendant did not file cash transaction reports or CTRs notifying the Internal Revenue Service of his many currency transactions in excess of $10,000. [176]  These business practices, in turn, were enormously beneficial to the bookmakers who were able to accept more checks and increase their volume of business. [177]  The court of appeals found that two or more legal entities, such as a corporation and a sole proprietorship, could form or be a part of an association-in-fact to comprise a RICO enterprise. [178]  The court further held that the enterprise in question had a common shared purpose or relationship with those associated with it for which it acted in continuity (i.e., the economic gain of the defendant). [179]  Although a RICO defendant and a RICO enterprise cannot be one and the same, the court held that there was sufficient evidence showing separateness, given the fact that the check cashing service employed an additional person and the bar was incorporated and employed several individuals. [180]

The issue of separation was further addressed in In re MasterCard Int'l.  The district court relying on the Eighth Circuit's test held that the alleged enterprise, consisting of an Internet casino, a credit company and an issuing bank, were separate and distinct from the alleged pattern of racketeering activity, Internet gambling. [181]

If Internet gambling is illegal under a particular state law and/or one of the enumerated provisions of Title 18 of the United State Code that have been discussed herein, then operators of such sites could face civil action or criminal prosecution under RICO.

End notes:

[136]    See United States v. Vignola, 464 F. Supp. 1091, 1098 (E.D. Pa. 1979), aff'd, 605 F.2d 1199 (3rd Cir. 1979), cert. denied, 444 U.S. 1072 (1980).

[137]    See Racketeer Influenced and Corrupt Organizations Act, Pub. L. No. 91-452, §901(a), 84 Stat. 941 (1970).

[138]    See Ante Z. Udovicic, Sports and Gambling a Good Mix? I Wouldn't Bet on It, 8 Marq. Sports L.J. 401, 407 (Spring 1998).

[139]    See 18 U.S.C. § 1963.

[140]    See 18 U.S.C. § 1964.

[141]    18 U.S.C. § 1962; see also Salinas v. United States, 522 U.S. 52, 63 (1997) (unlike the general conspiracy principals applicable to federal crimes, section 1964(d) does not require the conspirator to commit an overt act - i.e., commit or agree to commit two or more predicate acts).

[142]    See 31A Am. Jur. 2d Extortsion, Blackmail, and Threats §128 (1989).

[143]    See id.; see also United States v. Cappetto, 502 F.2d 1351, 1358 (7th Cir. 1974), cert. denied, 420 U.S. 925 (1975)

[144]    See supra, n. 142.

[145]    See United States v. Forsythe, 560 F.2d 1127, 1135-1136 (3rd Cir. 1977).

[146]    See supra, n. 142.

[147]    S. 30, 91st Cong., 2nd Sess., 1 U.S. Code & Cong. News 4033.

[148]    See 18 U.S.C. § 1962(a).

[149]    Cappetto, 502 F.2d at 1358.

[150]    See supra, n. 142, § 138.

[151]    See 18 U.S.C. § 1961(1)(A), (B); see also United States v. Joseph, 781 F.2d 549, 555 (6th Cir. 1986) (conspiracy to commit a violation of state gambling laws constitutes racketeering activity).

[152]     18 U.S.C. § 1961(4).

[153]     18 U.S.C. § 1961(5).

[154]     See 18 U.S.C. § 1961(6).

[155]     See United States v. Bertolino, 964 F.2d 1492, 1496-1497 (5th Cir. 1992).

[156]     See H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 236-237 (1989).

[157]     See id. at 239

[158]     See id. at 240.

[159]     See id.

[160]     See id. at 242.

[161]     See id.

[162]     See 18 U.S.C. § 1961(1)(A), (B).

[163]     See United States v. Tripp, 782 F.2d 38, 42 (6th Cir. 1986), cert. denied, 475 U.S. 1128 (1986).

[164]     See id.

[165]     See id. at 43.

[166]     See United States v. Allen, 656 F.2d 964 (4th Cir. 1981).

[167]     See id.

[168]     See United States v. Mazzio, 501 F. Supp. 340, 342 (E.D. Pa. 1980), aff'd, 681 F.2d 810 (3rd Cir. 1982), cert. denied, 457 U.S. 1134 (1982).

[169]     See id.

[170]     See Jubelirer v. MasterCard Int'l, Inc., 68 F. Supp. 2d 1049, 1053 (W.D. Wis. 1999).

[171]     United States v. London, 66 F.3d 1227 (1st Cir. 1995), cert. denied, 517 U.S. 1155 (1996).

[172]     See id. at 1230.

[173]     See id.

[174]     See id.

[175]     See id.

[176]     See id.

[177]     See id.

[178]     See id. at 1243.

[179]     See id. at 1244.

[180]     See id.; see also 18 U.S.C. 1962(c).

[181]     See In re MasterCard Int'l, 132 F. Supp. 2d at 484-486; see also Handeen v. Lemaire, 112 F.3d 1339, 1352 (8th Cir. 1997) (to determine if an enterprise is separate and distinct from the pattern of racketeering activity, the court examines whether the enterprise would still exist if the predicate acts were removed from the analysis).