4. making it a crime to belong to (and a more serious
crime to be a leader of) an organized crime group.

24

RICO has been valuable in demonstrating the value of certain kinds of prosecutive strategies. But the statute as a whole is illdefined. Modifying its civil remedies, as the proposed bill would do, would mollify some critics, and, if it succeeded in reducing the volume of civil RICO litigation, would reduce the opposition to RICO of overburdened federal judges.

statute.

It would not solve the basic problem of the

24

These suggestions, and others, are elaborated and defended in my article, cited in note above. 87 Colum. L. Rev. at 971-984.

Mr. HUGHES. At the conclusion of your statement you suggest a repeal of RICO and to begin over again.

Mr. LYNCH. Yes.

Mr. HUGHES. You suggest that you would pass a substitute bill which would include making it a crime to belong to, and a more serious crime to be a leader of, an organized crime group. How would that differ in substance from the existing RICO law?

Mr. LYNCH. The point of the substitution is to differ as little as possible from the existing RICO law as it applies to members of organized crime. Now, members of organized crime can be prosecuted on the theory that they are participating in the affairs of an enterprise, this particular enterprise being the organized criminal group, through a pattern of criminal activity. How else would one participate in the affairs of such a group?

The idea here is not really to change the effect on organized crime, but to accomplish that effect by language that does not also apply to lots of other things as well. The point is not so much to change RICO as it applies to organized crime, as to substitute for RICO-which applies in so many other cases which are not cases of organized crime-something that makes an effort to define specifically what organized crime is. This is not something I dreamed up out of my head. The National Commission for the Reform of Federal Criminal Law, I guess at about the same time that RICO was being proposed, put forward a bill very like what I would propose as part of the comprehensive revision of title 18 that has been before the Congress several times over the past 15 years or so.

Mr. HUGHES. Very appropriately, you discuss at some length two very key terms, "enterprise" and "pattern of racketeering," and I think you aptly point out that both are rather ambiguous. Enterprise could stand for any kind of activity.

How would you tighten the term "enterprise?"

Second, how would you reduce the ambiguity in the term "pattern of racketeering" and yet leave prosecutors with a tool that they can use on the criminal side? Any change should also provide protection for those on the civil side who find themselves confronted with unfounded complaints or allegations that they are engaging in a pattern of racketeering.

Mr. LYNCH. It is very difficult to try to cut back on these terms. The terms are written that broadly for a reason. Remember that RICO integrates several different provisions and these definitions apply to each of them. Sections 1962 (a) and (b) essentially prohibit the infiltration of criminals into legitimate enterprises.

I think the definitions were largely written with those sections in mind. The idea is if you take the proceeds of a pattern of criminal activity and invest them in a legitimate enterprise you would violate subsection (a). If by means of a pattern of crime, for example, loansharking, fraud, or extortion, you muscle your way into a legitimate enterprise, that is also a violation of the statute.

The terms are largely defined with that in mind. For those purposes it should cover virtually any kind of enterprise, it should be written very broadly, and virtually any kind of criminal activity

ve to bri

The problem is in subdivision (c). When you talk about operating an enterprise through a pattern of criminal activity and the enterprise is defined that broadly and the pattern is defined that broadly, there is really nothing much left than saying that somebody who commits crimes is guilty of violating RICO.

I don't know that there is a way of adequately limiting the statute by means of these particular concepts. What I have tried to do—once again, I realize this is a proposal that comes with a certain purist approach, but I think it is worth your consideration as a guide to the way RICO is used-is to isolate why prosecutors think RICO is a good idea.

In many of these cases the reasons why Federal prosecutors are using RICO have nothing to do with the broad terminology that is a problem in the statute. In these local corruption cases the principal problem is that the Federal prosecutors lack a Federal statute that prohibits bribery of State and local officials, so they go looking for various things in the Federal Code that they can use to hang a local corruption case on. The reason they are doing the local corruption cases is that often local authorities are unable or unwilling to do so. But in order to do those cases, Federal prosecutors have to twist or manipulate or bend or extend various other kinds of Federal statutes.

RICO, by incorporating State bribery laws, makes most forms of State bribery violations Federal crimes. That may not be a bad idea. I think it is a good idea, though I am sure that some would have federalism objections if you actually passed a statute that did this on its face as broadly as RICO does it covertly through the back door. The idea should be to identify the legitimate need that RICO serves in these cases and pass particular laws that solve the problem without the potential for abuse inherent in a vague and general law like RICO.

Mr. HUGHES. I thank the gentleman. My time is up.

Because we have so many members in attendance, I am going to ask the members to adhere to the 5-minute rule.

The gentleman from Florida.

Mr. MCCOLLUM. Thank you very much, Mr. Chairman.

Professor, I am kind of curious about your view of one aspect of this dealing with the fact that much of the RICO statute is criminally oriented. We hear all the criticism on the civil side. When you gave us the civil RICO part of this in your prepared analysis, it appears that you don't have any problems with the basic thrust of what is being done in here in the sense that the perpetrator should be found civilly liable. I question whether or not we shouldn't be concerned and whether you are concerned about the potential abuse of the due process concept if there has been no criminal conviction and if there is a higher standard for the criminal element which is here and upon which the civil penalty must be based.

Do you not see a due process problem here with proceeding under a lower standard of proof and allowing treble damages for what is an underlying criminal offense without ever proving the criminal offense?

Mr. LYNCH. In strict legal theory the courts would probably say because the civil RIO S ud in damages

I think that when one is talking about extraordinary remedies, not only the availability of punitive damages, but under RICO it is now an automatic treble damage remedy, and where you are talking about the label of racketeer, there are bases for concern that are similar to those that underlie the due process clause; people are being labeled without the kinds of safeguards that normally apply for that kind of penalty and that kind of label. I think it is a problem, yes.

Mr. MCCOLLUM. Whereas courts can technically interpret their way through this maze, and have, there is still an intellectual policy question that you have just raised.

Mr. LYNCH. I think that is right. I think it is also true on the criminal side, by the way, that in many of these cases a prosecutor can hold a press conference saying that somebody is a racketeer and you have the same kinds of problems. Maybe in the end that person will be adjudged to have committed a crime or more than one crime, but perhaps what the bill does by way of stripping out the "racketeer" on the civil side may be worth doing on the criminal side as well if RICO is left otherwise unchanged. Many of these cases even on the criminal side, even the ones that are perfectly appropriate for prosecutors to bring, simply do not fall within any ordinary understanding of the term "racketeer."

Mr. MCCOLLUM. You have rather elaborately explained to us the rationale you see underlying some of these civil lawsuits because of access to Federal courts and because of the treble damages as the incentives to go in and to file these things. I am curious if from your perspective and your study of criminal law there is a deficiency perhaps in our laws in the basic fraud area. Fraud is the premise in many, many cases. That is the thrust of much of this. Do we have a more fundamental problem currently with Federal fraud laws?

Mr. LYNCH. I think we do. If you want to get that basic, we have a very general problem with Federal criminal law. Federal criminal law has grown on a sort of ad hoc basis out of traditional common law through statutes added over the years. There is not much system and there is not much definition and there is not much regularity in the Federal Criminal Code, unlike the criminal codes of most States which define criminal conduct with great particularity.

The mail and wire fraud statutes use a very general term "fraud." Like RICO itself, that is good from the standpoint of prosecutors because it enables prosecutors, as the Supreme Court said once, to keep one step ahead of the people who commit fraud. The human mind is very ingenious about coming up with new kinds of fraud, and if you have to outlaw them one at a time after they have been invented, the law will never catch up.

On the other hand, it is such a broad and undefined term that there have been numerous cases in which the law has been applied to conduct that people could hardly have known was fraudulent or criminal, and the courts have had to define what fraud means. Just last term, Congress came back and revisited the Supreme Court's McNally case and overruled it by restoring the broader definition of fraud that the lower courts had adopted.

Mr. MCCOLLUM. You are giving us both sides of the argument. Do you personally think that Congress needs to address this issue, or is it something that because of the policy you just described we could well leave alone right now?

Mr. LYNCH. I think unless one wanted to undertake the broad task of reforming title 18, which I commend to you-

Mr. MCCOLLUM. We have done that. We've tried that a few times.

Mr. LYNCH. I understand that. It is too bad that the effort wasn't successful.

Short of that, I wouldn't start tinkering with the mail fraud statute at this point. RICO is bad enough. But I would try to take a very broad look at the way RICO is structured.

Mr. MCCOLLUM. Thank you.

Thank you, Mr. Chairman.

Mr. HUGHES. The gentleman from Virginia is recognized for 5 minutes.

Mr. BOUCHER. Thank you very much, Mr. Chairman.

Mr. Lynch, I want to compliment you on your testimony here today, both your written testimony and your oral presentation.

I was struck in your written testimony with the description that you provide of the ease with which a mere contract case, a garden variety commercial dispute, can be elevated into a civil racketeering claim with treble damages and attorneys' fees attached. That is so because of the ease of demonstrating that an enterprise exists and the ease also of pleading that a pattern of racketeering is present, given the need only to have two incidents of a predicate act having been violated, and that could be a couple of phone calls or a couple of letters in connection with either the formation or breach of the contract.

I notice that you say on page 40 that if over 70 percent of the civil RICO cases are essentially ordinary business disputes in most of which no prosecutor would dream of charging criminal violations, there is little justification for continuing as broad a civil remedy, as is contained in present law. That is a statement with which I agree and I think other members of this panel agree.

Let me get you to describe the way in which the presence of treble damages, the presence of attorneys' fees in these mere garden variety contract disputes plus the potential to brand your opponent as a racketeer by simply filing the case can leverage very substantial settlements. You address that to some extent in your written testimony. I would appreciate it if you could elaborate on that orally.

Mr. LYNCH. I think basically what you are talking about is putting a substantial thumb on the scales for the plaintiff in these cases. Any lawyer defending any kind of civil case has to be concerned about the possibility, however remote it may seem, however unjustified it may seem, that the plaintiff could win.

Šo virtually any lawsuit, given the cost of litigation and given the possibility that, if only through some fluke, the plaintiff could prevail, even the most frivolous lawsuit has a certain settlement value. That settlement value is calculated by comparing how much it is going to cost to defend the lawsuit and what the chances of success are going to be against the scope of the possible verdict