A RICO action under section 1962 can allege one or more of four distinct violations. These violations include the less common uses of the RICO statute under sections 1962(a) and 1962(b) and the more typical charges or claims in which the government and private claimants allege that a RICO defendant conducted or participated in the conduct of the affairs of an enterprise through a PORA [section 1962c], or conspired to do so [section 1962d]. In each section, the basic elements of “enterprise” and “PORA” must be proved, but the various offenses can be quite different and involve quite different proof. Moreover, in each subsection, the defendant can be guilty or liable for alternatively engaging in a pattern of racketeering to “collecting unlawful debt.”
Section 1962(a) provides that it is unlawful for a person who has received any income derived from a PORA or through the collection of unlawful debt in which such person has participated as a principal, to use or invest any part of such income, or its proceeds in the acquisition of any interest in or the establishment or operation of any enterprise. In short, this provision makes it illegal to invest the proceeds of racketeering activity in an enterprise that affects interstate commerce. An example may be a person committing fraud to use the proceeds of the fraud to invest in or operate a legitimate business. Unlike the case with section 1962(c), there is no requirement that the defendant be “distinct” from the enterprise. Courts have interpreted the “participated as a principal” language to generally exclude from liability those persons who may be advising a defendant who invests the proceeds of racketeering activity in an enterprise.
Section 1962(b) provides that it is unlawful for any person through a PORA or collection of unlawful debt to acquire or maintain any interest in or control of any enterprise. The cases under this subsection have involved defendants fraudulently or forcibly acquiring interests in ongoing businesses. Courts have required that the section 1962(b) claim allege a specific nexus between the control of the named enterprise and the alleged racketeering activity. Generally, section 1962(b) is used in criminal RICO prosecutions or civil RICO complaints when organized groups infiltrate legitimate businesses.
Section 1962(c) is the most common RICO offense subsection, and is sometimes referred to as a “substantive RICO violation.” To prove a section 1962(c) violation, the government or civil RICO plaintiff must prove that a person employed by or associated with an enterprise conducted or participated in the conduct of the affairs of the enterprise through a PORA. The enterprise and PORA elements have been described above.
The “conduct and participate in the conduct of” element is governed by a Supreme Court case, Reves v. Ernst & Young, 507 U.S. 170 (1993) which set forth the RICO “operation or management” test. Under Reves, a defendant guilty or liable under section 1962(c) must have some part in directing the enterprise’s affairs. He need not be a member of the enterprise’s control group and may be just a “lower rung” participant, but his actions must involve the performance of acts, functions, or duties which are related to the operation or management of the enterprise. A RICO person who is not a member of the enterprise and commits fraud or extortion which only remotely involves or assists the enterprise’s affairs may not be a proper RICO defendant. It is important to note that the Reves test is not required to be met in a RICO conspiracy charge.
The “through” element is similar to and overlaps with the “relationship” element, and generally requires a nexus between the racketeering acts and the affairs of the enterprise. For example, a sufficient nexus exists if the defendant was able to commit the predicate acts by virtue of his position in the enterprise.
Section 1962(d), the RICO conspiracy provision, is described in the next FAQ.