Do you agree that the legislation as drafted and before the subcommittee now meets that test and would not restrict your ability to use either criminal or civil RICO?

Mr. KEENEY. It would not restrict our ability.

Mr. BOUCHER. Thank you, Mr. Keeney.

Mr. HUGHES. If such statutory terms as "pattern" and "enterprise" were to be modified by any new legislation, that would have an impact on the Justice Department's use of both criminal and civil RICO, would it not?

Mr. KEENEY. It certainly would.

Mr. HUGHES. Has the Justice Department ever looked at that possibility?

Mr. KEENEY. We have looked at it, Mr. Chairman. That statute was enacted in 1970. It was very little used by the Justice Department for a number of years. Gradually, we began to use it. Maybe we were intimidated by the statute. It is complex. But we used it slowly.

We developed a body of case law. We are in our 19th year of developing that body of case law. We think we have come a long way. It was a very difficult road. We are there now. We have got very few problems. There are a couple before the Supreme Court which it will resolve and we will be able to live with them no matter how it resolves them.

We have now a fairly stable body of law and we would urge the subcommittee not to tamper with that and not force us to go back over that very tough road.

Mr. HUGHES. I understand that, but that wasn't my question. My question was, has the Justice Department ever looked at it?

As Professor Lynch, I think, very aptly pointed out, the basic problem is that enterprise means almost any activity. Pattern of racketeering has taken on some connotations that I would submit were never contemplated in 1970 when the statute was passed.

Frankly, while the legislation before us is an attempt to patch a few areas to get over major problems, the reason the United States doesn't bring more RICO suits is because the Justice Department has been somewhat restrained. I suspect you are quite correct when you suggest that you went very slowly, because there was, I suspect, some concern, if you utilized the statute fully. The concern was whether or not it would pass constitutional muster because of the ambiguities involved in just those terms alone.

We have seen, however, an expansive use of RICO, particularly on the civil side. While Justice has been restrained, Justice basically could bring literally thousands of more criminal prosecutions than it now does because the statute is so broad.

My question was, have you looked at possibly attempting to tighten what I think everybody has agreed are very ambiguous terms, "pattern" and "enterprise?"

Mr. KEENEY. Neither term is that ambiguous anymore. We have got judicial sanction with respect to the interpretation of those. I don't think vagueness is a big problem now.

To go back to your original question, have we looked at it? We have. In the prior subcommittee that had jurisdiction there were bills before it which would change these definitions and we opposed them largely for the reasons which I have articulated here.

Mr. HUGHES. The proponents of civil RICO reform state that civil RICO is circumventing the use of causes of action traditionally brought in State courts. Is the Justice Department concerned about the federalism problems that presents?

Mr. KEENEY. We are not seeing so much the federalism problems, but we are concerned about the proliferation of these suits which are frowned upon by courts and frowned upon by commentators, and the ultimate effect is to make it more difficult for us to use. Mr. HUGHES. Isn't it true that what we are seeing is a federalizing of State civil law by civil RICO?

Mr. KEENEY. To some extent, yes.

Mr. HUGHES. Does that give you any concern?

Mr. KEENEY. To go back to your original question, I do have some federalism concerns. This statute does provide in some situations Federal jurisdiction in situations where the Federal jurisdiction did not previously exist. It also provides jurisdiction under the RICO statute in situations where there is otherwise Federal jurisdiction. I guess the short answer is yes, I am concerned about federalism. Mr. HUGHES. The Department has, in its recent labor union cases and one prosecution involving the Fulton Fish Market, crossed over into the area of creating trusteeships or similar court-monitored supervision as a result of civil RICO litigation.

That raises a whole series of questions that I would like you to address.

In the case of labor unions, how does one balance this new Government role with the rights of union members and other Federal labor laws?

Mr. KEENEY. What we tried to do in the 560 case was to go in and get the court involved and get a trustee so that it would enable the labor union members to exercise the rights that are given to them by the Federal labor laws. That is exactly what we did. And we tried to create an environment where a free election could be held. We have done the same thing in several of the other suits. Mr. HUGHES. Once a trusteeship is created, how do you envision it should operate?

Mr. KEENEY. It should operate so that the trusteeship addresses the evils that exist within the union. If those are undemocratic evils, they should be addressed. If the right to vote without intimidation is a problem, that should be addressed. If the union is not acting properly as a union, as the law requires, the trustee's obligation would be to address whatever evils he finds.

Mr. HUGHES. Basically what you are saying is that a Federal judge should make that determination.

Mr. KEENEY. Yes, sir. We are talking, Mr. Chairman, about what we would hope would be a temporary thing. Now the 560 case has been in trusteeship for a while.

Mr. HUGHES. What are the guidelines to be followed? Is a judge to decide on a case by case basis as to what guidelines represents democracy in a union?

Mr. KEENEY. The judge is pretty much in charge. The Justice Department is out of it. We bring the action. If we are successful and there is a monitor or a trustee appointed, then that trustee is responsible to the court.

Mr. HUGHES. Does the Justice Department provide any recommendations to the court as to how that trusteeship should operate? Mr. KEENEY. I don't think we have.

Mr. COFFEY. We have made recommendations only to the extent the trustee operates to remove the racketeering. We don't make recommendations as to how the trustee should carry on his day-today duties and the normal affairs of the union. In fact, because of some of the criticism that has occurred in the media about these suits, we have taken action to remind the Federal prosecutors as part of the approval process that civil RICO suits under 1964(a) are not designed to restore-this may sound remarkable at first blush to hear me say this-democracy within the union. I put it that way because people disagree as to what democracy is and how a union should operate. That has generally been left to a balance established by Congress and the labor laws.

The trustee's job in our opinion is not to go in and, while there to cure racketeering, suddenly reorganize these labor unions in a manner as we see fit because we just simply don't like for some reason how a union operates. The trustee's duty under RICO is only to remove the racketeering.

In order to remove the racketeering influence, it must be fair game and it ought to be done if the suit is necessary. Presumably, a trustee is necessary because it means the end of the case after the court has found that the Government's case is meritorious.

Because it is in our interest to protect this statute, we do not want prosecutors asking the court to appoint a trustee simply to take over a union and run it indefinitely with respect to all its activities.

We haven't had a lot of experience yet and we don't have a lot of cases where trustees have been appointed where I think a fair assessment can be made as to how well this statute works.

There is a court appointed trustee in New Jersey, in Local 560, and a court appointed trustee in Local 814 in Brooklyn. The other cases all involve something less than a trusteeship. In the recent IBT civil RICO case, the parties agreed to some type of supervision less than a trusteeship.

We think that the track record so far is that we are getting rid of the hoods in the unions. We recently filed a civil RICO case where we lost a judgment against two labor officials. Having said that, we have yet to file a civil RICO case where we have not significantly removed La Cosa Nostra members or other organized crime figures from the unions.

Mr. HUGHES. In your statement you specifically object to the proposed subsection_1964(c)(7) involving the affirmative defense in relation to the good faith reliance on a regulatory ruling.

It would seem that your arguments against this section would apply to all plaintiffs and not just the United States.

Mr. COFFEY. A plaintiff in a civil RICO has to show, by definition and requirement of the statute, that the defendant has committed two felonies as part of a pattern. Under our system of law, a felony requires criminal intent. So by definition, whether there is a good faith defense in the statute or not, the plaintiff is going to have to show that the defendant acted criminally.

A good faith defense is nothing more than saying that if the defendant can show that he did not act with a criminal intent, he did not violate RICO.

What we are worried about is a situation in which a defendant, perhaps in a Government civil RICO case, who has corrupted an official in a regulatory body, then defends against the Government action on the grounds that his friend who has been corrupted gave him a regulatory decision upon which he has an affirmative defense. That is not a fear that is just drawn out of thin air. We prosecute quite a few RICO cases involving activity regulated by the State which has been found to have infiltrated legitimate business such as organized gambling.

Mr. KEENEY. Mr. Chairman, generally we oppose affirmative defense as creating some confusion.

Mr. HUGHES. There really wouldn't be any difference. The same argument would prevail with regard to non-U.S. litigation.

You oppose a number of the provisions that would add predicate offenses to civil RICO. The ones that you would accept would be computer fraud, something that we wrote in this subcommittee a few years ago.

Mr. KEENEY. Yes, sir.

Mr. HUGHES. Do you think it is a good idea for us to go down that route? That is a misdemeanor.

Mr. KEENEY. I am not sure it is a misdemeanor in all circumstances.

Mr. HUGHES. Well, 18 U.S.C., section 1030 is a misdemeanor. That is computer fraud.

Mr. KEENEY. I am not sure in all circumstances. But that aside, our general approach here is to pick up the fraud statutes, because the fraud statutes are among the statutes which organized crime elements frequently violate.

Mr. HUGHES. My question is, should we reserve RICO for felony violations or should we accept predicate offenses that create misdemeanors?

Mr. KEENEY. To the extent that it's a misdemeanor it's probably not a good idea.

Mr. HUGHES. The gentleman from Virginia.

Mr. BOUCHER. Mr. Coffey, with respect to the affirmative defense, would it satisfy your concern if we amended that affirmative defense to say that it applies in all contexts except where the administrative ruling upon which the defendant relies was fraudulently obtained, where there is evidence of that and that is demonstrated during the course of the case?

Mr. COFFEY. It would meet the concern. I think in order to write in the trap door to that affirmative defense you are now adding unnecessarily an amount of language that really isn't needed. What you just stated precisely addresses the problem. That might add another two or three paragraphs to the statute.

Mr. BOUCHER. I've scribbled it down in about eight words.

Mr. COFFEY. I thought you had it right. One of our concerns about RICO is that, in dealing with each particular problem, the statute is becoming so complex that it is no longer understandable. If it is not broken, I don't think we have to fix it.

Mr. BOUCHER. There are some reasons that underlie the presence within the bill of that affirmative defense. If this subcommittee is willing to move forward with the legislation with that affirmative defense intact, would you then want the kind of exception to it that I have just described?

Mr. COFFEY. As you expressed it, it sounded fine to us. But I am a worker bee on that. It would have to go through the Department process.

Mr. BOUCHER. Thank you very much.

Mr. KEENEY. Mr. Boucher, we will still request that you not make a case more difficult by putting even your provision into it. Your provision is, as Paul suggested, what we are trying to address and what we are trying to avoid. We would strongly prefer that you keep it simple and stay out of the affirmative defense area. Mr. BOUCHER. Thank you.

Mr. HUGHES. Mr. Keeney, we are developing a number of felony statutes in the area of environmental law. Is that an appropriate area where we should look to make it a predicate offense in RICO and do you see more and more organized crime moving into that?

Mr. KEENEY. Organized crine has been involved to some extent, particularly the disposal of hazardous waste. We would look at that very seriously if you had it in mind.

Mr. HUGHES. Why don't you take a look at it.

Thank you very much. You have been very helpful to us and we appreciate it.

Next we have a panel of witnesses consisting of Steve Twist, chief assistant attorney general, State of Arizona, who is testifying on behalf of the National Association of Attorneys General.

Mr. Twist is a graduate of Arizona State University where he received a bachelor of arts and a Juris doctor degree in law. Prior to this position he served as an administrative assistant to Gov. Jack Williams in Arizona, was a staff attorney to the Navajo Tribe, and was in the private practice of law in Scottsdale and Phoenix, AZ. He has been chief assistant attorney general since 1979. Mr. Twist is directly responsible for managing the State attorney general's Organized Crime and Racketeering Division.

Our second panelist is Philip A. Feigin, who is the securities commissioner for the State of Colorado, a position he assumed in 1988. Prior to that time Mr. Feigin spent 10 years as head of enforcement for the Colorado and Wisconsin securities divisions. Mr. Feigin is vice chair of the enforcement section of the North American Securities Administrators Association. The North American Securities Administrators Association members are the agencies that supervise the securities industry, regulate the capital markets, and enforce investor protection statutes in the 50 States and the District of Columbia.

Our final witness on the panel today is Mr. James E. Long, the North Carolina commissioner of insurance. Commissioner Long is representing the National Association of Insurance Commissioners. He is a graduate of North Carolina State University and also received a law degree from the University of North Carolina Law School at Chapel Hill. Commissioner Long is a former member of the North Carolina House of Representatives, chief deputy commissioner of the North Carolina Department of Insurance, legal coun