atheism attorney-general Business double-jeopardy Economics federalism felony finance fraud mail-fraud nonprofits Politics Post punishment Religion RICO tax

RICO Is Not So Suave

While researching the RICO statutes, I was astonished to find two disturbing applications of these laws. First, when RICO intersects with mail and wire fraud statutes, it allows the federal government to turn underlying offenses outside the scope of RICO into actual RICO offenses. Second, the federal government can prosecute an offender both under RICO and on the underlying crimes that constitute a RICO violation, creating a scenario equivalent to double jeopardy. After the cut, I will explain what the RICO statute is, how these two applications work, and why this is injust.

RICO stands for the Racketeer Influenced and Corrupt Organizations Act codified in 18 U.S.C. 1961-68. RICO was created to deal with organized crime but Congress judiciously wrote it broadly enough to deal with a range of criminal and civil cases, enabling federal prosecutors to utilize RICO to go after everything from accounting firms to abortion clinic protestors to Don King. In the simplest terms, a RICO violation consists of two elements: (1) a person commits repeated "predicate acts" constituting a "pattern of racketeering activity" and (2) those acts involve an entity known as a RICO "enterprise" used in a manner specified by the statute. There are all sorts of rococo curlicues when it comes to the specific language and Supreme Court cases have delved into ornate statutory construction to determine what exactly "enterprise" or "pattern" means when dealing with edge cases, but good common sense is all that is needed to envision the normal application of RICO.

But common sense flies out the window when you combine RICO with federal wire and mail fraud statutes. The requisite violative acts of the enterprise consist of a slew of federal crimes and also a good number of state crimes that are substantive, if not literal, analogues of the laundry list of offenses listed in the statute. Although this greatly expands the scope of federal control over the traditional domain of the State police power by federalizing any state crimes that meet the RICO standard, this clearly stemmed from Congressional intent. While I lament the continued federalization of all crime, it is fully within the Constitution for Congress to enact such a statute. What I find particularly egregious is the use of mail and wire fraud statutes to expand the scope of RICO beyond its already extremely broad ambit.

Mail and wire fraud is easy to prove. It is the interstate use of the mail or wires to engage in a scheme to defraud. Almost every fraudulent activity can be shown to have an interstate mail component. If your credit card statement that records a fraud is sent from Visa's headquarters to your state, the interstate element is met. If you mail a fraudulent document to a government authority which in turn mails it somewhere else, the interstate element is met. The trouble arises when mail fraud is used as the criminal underpinning of a RICO prosecution. It doesn't matter whether the underlying fraud or crime is within the jurisdiction of RICO because mail and wire fraud explicitly is. For example, if repeated perjury resulted from fraudulent depositions mailed to a court from another state, then not only is there perjury, there is also mail fraud. Further, if this mail fraud activity meets the requirements for RICO, then in effect a RICO prosecution can be brought for the underlying crime of perjury cloaked in the guise of mail fraud. This happened in United States v. Eisen, 974 F.2d 246 (2d Cir. 1992). Tax fraud is another substantive area that can be abused in the same way. Tax fraud is not a predicate crime for RICO but it involves mail fraud in almost every case since the fraudulent tax return has to be sent to the IRS. Again, this is not a theoretical example and was the theory under which United States v. Regan, 937 F.2d 823 (2d Cir. 1991) was brought.

This is a concern for two reasons. First, it gives the government more latitude than it should have under the RICO statute. It is always a concern when the federal government's power is not expressly constrained in a criminal statute because it gives prosecutors the ability to over-apply a law. In this case, they have been able to get away with it because there has been no direct challenge of RICO under the void for vagueness doctrine. It is not fair to expect people to understand that RICO will be applied far beyond its expressly stated limitations. Consequently, it is not fair to punish people for committing "crimes" that only become crimes after judicial acrobatics. Second, this broad application of RICO raises federalism issues already alluded to above. The RICO statutes are so far-reaching that ordinary state criminal and civil cases get federalized for no good reason. From the inception of the Constitution, the police power has always been within the realm of the State. There were only three federal crimes in 1800. Now there is a veritable thicket of federal crimes, often needlessly duplicating state statutes or, as in this case, asserting power over the States for no discernable reason.

The second issue I have with RICO is quite simple: it enables prosecutors to violate the spirit of the double jeopardy rule. The Fifth Amendment states that no person "shall [be] subject for the same offense to be twice put into jeopardy of life and limb." In layman's terms, this says that you cannot be tried for the same crime twice. This is a cornerstone of the American criminal justice system and its jurisprudence. Yet, in the case of RICO, its animating spirit can be circumvented through an overweening technical reading. The government may prosecute a defendant under RICO based on the specified predicate acts necessary for a RICO conviction, such as arson or kidnapping, AND the government can later prosecute the same defendant for the predicate criminal act itself. The Supreme Court itself has upheld this interpretation in the depressing case of Garrett v. United States. To be fair, the Court in that case made certain to indicate that this was possible under the specific facts of this case, but while this leaves wriggle room for future cases, it still functions as persuasive precedent beyond obiter dicta. It is dishonest for the government to create a crime and then create a new crime based on the repetition of that crime in certain situations and then be able to prosecute an individual for both. While I appreciate the Kafkaesque/Borgesian quality to such an interpretation, I prefer my fabulist literature to stay fabulist and not creep into dreary social realism.

RICO is mostly a good and worthwhile statute, as it makes it easier to prosecute criminal organizations which do substantial economic and moral harm to the country. But the application of RICO needs to be constrained in a few very specific circumstances to ensure that it is used primarily to positive and fair ends and is not abused in ways that constrain or injure our liberty.

EDIT: I struck out the last paragraph because RICO is much worse than I thought. A former federal prosecutor mentioned that he didn't like the statute because it was so easily abused. I neglected to mention that RICO is used often in the civil context where treble damages and attorneys' fees are awards if a claim is successful. This gives impetus to plaintiff firms to try to turn every run of the mill state fraud case into a RICO charge, glutting our courts with vexatious litigation. RICO is poorly written, overapplied, and frequently misused: a complete legislative failure.

U.S.C. 1001, A Felony-Generating Federal Felony Statute

It is a federal crime to provide false statements in any matter within the jurisdiction of the executive, legislative, or judicial branch, with some limited, but important, exceptions.* If one is within jurisdiction and willingly and knowingly makes a false representation, uses a false document, or conceals by trick a material fact, one is subject to 18 U.S.C. § 1001. Violation of Section 1001 can result in up to five years in prison. It is similar to perjury, but one does not need to be under oath, so its application is broader and, in a very specific way, insidious. Read on to find out why. The vast majority of applications of this statute are entirely fair and reasonable. But there is one circumstance where it can be exploited to reach unfair results. This is known as the "Exculpatory No" Doctrine. This doctrine descibes a situation where a federal agent asks if you committed a crime, and you have, but you say "no." This situation falls within the literal reading of the statute. It is a simple syllogism: "No" is a statement. That statement was false. Therefore, you have made a false statement, which brings you under the aegis of Section 1001. There are a multitude of problematic situations which may arise if the Exculpatory "No" is considered a false statement, many of which have been laid down by a concerned Justice Ginsburg in Brogan v. United States. Let's examine some of the particular issues that flow from this application. First, this gives a sickening degree of power to prosecutors or federal agents to generate felonies. This can take multiple forms. A prosecutor may already know and have proof of Person A's guilt, although Person A does not know that the prosecutor has such strong evidence. The prosecutor can purposesly ask Person A questions about his involvement with criminal enterprises assuming he will deny involvement like any normal and rational person would. Soon as Person A says "No," he just tacked on potentially five more years to his sentence. What purpose does this serve? The prosecutor was not misled by Criminal A's falsehood. In this scenario it is purely an ancillary crime which seems to serve no public good besides allowing prosecutors to arbitrarily increase someone's sentence. Another hypothetical: A prosecutor can only prove two of the four elements necessary to convict Person B of a crime. Without proof of the remaining elements, there can be no conviction. The prosecutor feels she knows that he is guilty, despite the fact she does not have enough proof, so she decides to trick him into committing a Section 1001 felony so she can mete out some punishment. The prosecutor asks Person B about whether he committed the elements she does have proof for and Person B predictably denies any involvement. Now the prosecutor has a federal felony on her hands, creating it out of thin air, and she can achieve her desired punishment without having to actually prove anything about the underlying crime. This strikes me as even less fair than the previous example. Instead of adding on more time, prosecutors can manipulate the alleged criminals into committing a new crime and then use the new crime as a substitute for what they couldn't prove otherwise. A second concern is that federal agents and prosecutors can lull people into exclaiming exculpatory "no's" by creating informal situations in which the alleged criminal will not realize the severity of his actions. In this scenario, a federal agent stops by to chat with Person C about alleged corruption at their workplace. Person C gives the federal agent the information he wants to know, but leaves out any details about his own involvement. At the end of the interview, which seems to Person C to be about others, not about himself, the federal agent asks if Person C was involved in any illegal shenanigans at the office. Person C, thinking that he is not the subject of the investigation and does not want to implicate himself for no reason, denies any participation. The federal agent, knowing all along that Person C was involved, has just tricked Person C into committing another felony. Now, if Person C knew that there were severe consequences to his lying, he may have evaded the question entirely or refused to answer or even told the truth. If Person C was able to have an attorney present who understood the consequences of saying "no," he could have advised his client to proceed differently. It was only the lulling effect of the informal chat that tricked Person C into denying involvement, while in a more formal setting, like a deposition, Person C would have been able to make more educated choices. Does it strike you as unfair that a five year prison sentence could hinge on such vagarities? Finally, Section 1001 can be used as a way to create federal jurisdiction when there was previously none. Federal jurisdiction is created in one of two ways: you either have litigants from multiple states or you have someone charged with a federal crime. Otherwise, claims are litigated at the state level. In this final scenario, someone is convicted of violating a state law, but the FBI comes in to question the person. If that person denies their involvement when they really were involved, all of a sudden there is a federal felony and the federal government, with all its resources, can now prosecute. Venue and jurisdiction battles are frequently fought because where a case is litigated can confer specific advantages or disadvantages depending on the nature of the case. Section 1001 gives the federal government an ace up its sleeve to bring matters otherwise fully within a state's jurisdiction to the federal district courts. Until the Supreme Court ruled on the issue in Brogan, most federal circuits created an exception for "exculpatory no" situations. Those judicial creations are no longer valid. Luckily, the Department of Justice does not prosecute Section 1001 violations in these circumstances according to their internal guidelines. They understand that there are troubling overtones to such prosecutions that seem to strike at a fundamental unfairness. In other specific circumstances, the Fifth Amendment would protect one, and it seems illogical to deny similar protections in more informal situations. But DoJ guidelines are merely that, guides for their attorneys. They do not have the force of law and never will. Congress should amend the statute to explicitly carve out an exception for "exculpatory no" scenarios in order to preserve some portion of whatever fairness remains in the criminal justice system. *The two exceptions are for certain statements made by parties or attorneys in judicial proceedings and certain statements made in connection with Congressional hearings.

The Attorney General and Nonprofits

The attorney general of most states has quite a bit of power over nonprofits. He is generally charged with the responsibility of supervision and oversight of charitable trusts and corporations and can bring actions against nonprofits to protect the public interest. The following are some of the specific powers attorney generals wield over nonprofits registered in their state: the power to investigate, subpoena witnesses, require the production of books and records, annul corporate existence (corporate death sentence), corporate dissolvement (ultra vires), restrain unauthorized activities, remove directors and trustees, enforce member rights, supervise indemnification awards, investigate transactions and relationships between directors, bring quo warranto actions to assure that absolute gifts are applied according to their terms, etc. The attorney general is a necessary party to litigation against nonprofits, he must receive notice when a suit is initiated by others, and nonprofits must register and file annual reports with his office. Judging by this cursory listing of attorney general powers, it would seem as if nonprofits are comprehensively overseen by the government. Yet, despite the existence of such powers, attorney general oversight remains more theoretical than deterrent. Here is why and here is the solution. Despite the enormous range and depth of powers at the attorney general's office's hands, there is very little litigation brought against nonprofits. In an age where nonprofits have proliferated wildly, it would be surprising if untoward activities were not occurring at a greater rate, yet the statistics (as far as can be compiled) do not show an increase in prosecution. The two main culprits are staffing problems and a relative lack of interest in monitoring nonprofits. Only thirteen states have specific charity sections within the attorney general's office. Attorneys general have much power in many legal realms and they must triage their duties. Nonprofit oversight often finds itself at the bottom of the heap. In ten states, there is no general system of registering and reporting at all. Before moving on to look for solutions, it must be said that the vast majority of nonprofits behave honorably and with good faith, their directors, members, and executives carrying out their fiduciary duties with high fidelity. Charitiable fiduciaries have generally internalized the norms of right behavior and adhere to the best practices promulgated by professional associations such as Independent Sector. One proposed solution to the twin effects of increasing number of charitable organization and decreasing enforcement is to create a new state agency that deals specificly with nonprofits. Kenneth Karst first wrote about this idea in the 1960s, envisioning an agency that would take over the role of the attorney general in this sector and would consolidate all the nonprofit information spread across mutliple agencies. To me, this sounds like a terrible idea. It would be one more bureaucracy prone to laziness and corruption. It would merely be creating two agencies to accomplish what only one did before. If this was the desired type of solution, then why not just divert more tax dollars to the attorney general's office with the purpose of hiring more lawyers to police nonprofits? A better and more efficient solution would be to increase the use of relators, as suggested by some, including James Fishman and Stephen Schwartz. "Relator" in this context refers to a party who may or may not have a direct interest in a transaction, but is permitted to institute an action in the name of the people when the right to sue resides solely in the attorney general. As of now, most states do not allow the general public to instigate suits against nonprofits unless they have been directly and particularly harmed or have a specific and particularized interest in the transaction. This is generally a good thing, shielding nonprofits from vexatious and unserious litigation. Expanding the use of relators by statute would avoid the problems of broadening standing, preserving the constitutional controls that require one to have been directly hurt in some way to initiate a law suit (there are some exceptions to this basic standing rule, but that is for another post). The relator could, with the permission of the attorney general, bring the suit on behalf of the affected interests. The attorney general would retain control over the general conduct of the law suit if it wanted, but the relator would be liable for cost and damages. Relator status has been granted to bar associations in California, cemetery plot holders in Kansas, directors of other state departments in Illinois, and members of social clubs in Florida. The biggest drawback is finding people or entities that want to bring suit knowing that the attorney general can take control at any point during the action and the entity would still be liable for damages found against the plaintiff. Regardless, there are interested parties that are willing to take that risk out of ideological or other concerns. Frivolous lawsuits would remain at a minimum because the attorney general could refuse to grant relator status. But for those cases where suits have merit, but the attorney general's office is too busy to handle them, relator statutes can serve to keep nonprofits in check without exhausting our tax dollars. What do you think? Does this seem a reasonable solution or is it enough of a social good that it is worth throwing more money at the problem?

Atheism and Justifications for State Punishment

NOTE: I just want to sketch out some potentially abhorrent ideas I had. I am quite aware of the gaping logical holes that follow. Consider this fodder for discussion rather than an attempt to create a cohesive argument. There are three basic justifications or rationalizations for state punishment: incapacitation, rehabilitation, and deterrence. They are all generally considered to be acceptable to some degree depending on your philosophical disposition. There is a fourth justification that underlies the other three and is the most convincing for the atheist. First, there is incapaciation, the simplest and most straightforward. The idea is that there is a subset of criminals who need to be segregated from society to protect society. The easiest and most visceral example is the serial pedophile. This type of pedophile will continue to molest children if allowed to roam freely. He is imprisoned to make it impossible for him to continue to molest. Prison functions solely to stop him, and only him, from harming others. Second, there is rehabilitation, the most popular and least realistic justification. Originating with the Quakers in the 1800s, this penal theory holds that prison should be used to educate and help criminals learn to be moral citizens. While locked away, prisoners are given the tools to become better people. Once they learn the error of their ways, they can be released back into society as productive and law-abiding citizens. Third, there is deterrence, the most popular scholarly justification for state incarceration. This simply means that the state imprisons people in order to send a warning to others: if you commit crimes, you will be punished. This warning then reduces crimes because it makes criminal acts less attractive because they are more risky. There are two types of deterrence: specific and general. Specific deterrence is concerned with deterring the individual criminal from committing more crimes. Once they know what it is like to have their liberty and freedom taken away, they are less likely disobey the law because they know the severity of the consequences. General deterrence is concerned with everyone. People in general will be less likely to commit a crime because they know that there is potentially a negative consequence to their actions. Deterrence is a favorite of utilitarians, like Benthem, who sometimes create faniciful moral calculuses to determine the requisite level of punishment needed to maximize the deterrence effect. None of these justifications are discrete. Incarcerating someone to deter others necessarily also incapacitates him. Rehabiliting someone in prison does not remove the stigma from having to be in prison, so deterrence is still present. For the religious, none of these justifications makes a difference in the final analysis. There is a fantastical being in the sky who records all your thoughts and deed and remembers them without forgetting. When you die, you must face this infinite bureaucrat who performs a celestial accounting of your life. If you have done good, you are rewarded. If you have done bad, you are punished. What does it matter what the state thinks is the best justification for punishment when there is someone far more vast and important who performs the final arbitration? The believers know that there will be personal justice for them at some point, even if justice in the world is meted out by and for the benefit of the state. Divine retribution awaits everyone. For the athiest, there is no solace in a just afterlife because such a utopia is a foolish delusion. Punishment must come in the here and now or it will never come at all. The intutive sense of justice that most people have can be explained through genetics and evolution, although I am not going to make that case here today. The argument rests on the assumption that for the reader, concepts such as "justice" and "fairness" have meaning without the foundation of natural law, derived from spiritual or scriptural sources. The religious person has the personal satisfaction that evildoers will receive their just deserts. The athiest can only have that personal satisfaction if people are punished solely for the sake of punishment. Deterrence, incapacitation, and rehabilitation might all be byproducts of the punishment, but the punishment is just regardless of whether any of these other effects occur. Revenge as justification for punishment is considered barbaric by many, but it is the most basic justification, the one that resides deepest in our hearts. Modern society has purged this instinct, replacing it with "rational" philosophies. Who hasn't considered the atrocities they would commit if someone tortured and raped their mother? This is so universal, it must be genetic, perhaps a evolutionary response to and a way of supporting the bond of reciprical altruism that binds us together and which allowed civilization to be born. The danger is that individuals would carry out the revenge-punishment themselves, turning to vigilantism in lieu of the courts. This would remove the procedural and substantive safeguards built into the justice system. To avoid this problem, the state should carry out the punishment on behalf of those affected by the crime, channeling the revenge in order to insure its fairness, rather than treating all crimes as ultimately offenses against the state. This would provide the satisfaction of revenge for the athiest, who cannot rely on a otherwordly satisfaction to come.

2010: An Estate Tax Odyssey

The estate tax is a tax imposed when somebody dies and bequeaths or devises money or property to some beneficiary, like their children. While it is It crops up quite a bit as a political hot button issue. The President and many Republicans want to reform or eliminate the estate tax, referring to it as the "death tax" in order to make it sound sinister and unwholesome. Most Democrats, on the other hand, see the estate tax as a good, in that it disrupts the accumulation of wealth in the hands of a few and makes dynastic fortunes more difficult to sustain. I don't have a particularly strong view one way or another (especially because it is unlikely my parent's estate will be large enough for the estate tax to be an issue). But, if I was a scion of the wealthy I would hope they would die in the year 2010. Here's why: There have already been incremental changes to the estate tax, reducing the percentage estates are taxed at. But, in 2010, the estate tax will be dormant just for that year. In 2001, Congress passed a bill to phase out the tax, culminating in complete elimination in 2010. There are even special changes in the income tax code that will come into force that year, giving automatic increases to what is taxable under the income tax (if there is appreciation or depreciation in value between the original value of the property and the value of the property at time of death, that difference can eventually be taxable to the beneficiary if they ever sell the property. The income tax provisions creates a cushioning effect that would lessen the income tax burden, in conjunction with the elimination of the estate tax burden). Anyway, the bill has a built-in sunset provision that it is only applicable for 10 years. This means that in 2011, everything will revert to the pre-2001 state. Of course, that means there are 5 more years in which Congress can modify the bill or create new regulations, but if they don't, this will just be a decade of fooling around with the Code with no permanent consequences. That just strikes me as amusing, or at least as amusing as the Internal Revenue Code could possibly be. What do you think?