CIVIL COVER SHEET

cover sheet and the information contained herein he the repace nor supplement the filing and service of pleadings or other papers as required by law except as prouded by local to form approved by the judicial Conference of the United States in September 1974 is required for the use of the Clerk of Court for the purpose of on tating the docket ISEE INSTRUCTIONS ON THE REVERSE OF THE FORM)

Pases of court wheel

IV. CAUSE OF ACTION (CITE THE US CAVE STATUTE UNDER WHICH YOU ARE FILING AND WRITE A OSEF STATEMENT OF CAUSE

Mr. BOUCHER. Thank you, Mr. Chairman.

This is the 13th day of hearings that this subcommittee has held on the subject of civil RICO reform, spanning now 4 years of legislative activity. During the time we have been holding these hearings and considering the subject, the problems that are occasioned by the unrestrained use of civil RICO, what I choose to call an abuse of civil RICO, continue to grow.

The reputations of legitimate business people are being harmed because they are being branded as racketeers, simply because they have become involved in a commercial dispute.

Substantial settlements are being leveraged on of the less than substantial allegations, from companies that fear the hammer of treble damages and attorneys' fees, in nothing more than mere contract cases.

Very carefully tailored and structured Federal remedies in areas such as the securities laws are being undermined by the use of civil RICO, by plaintiffs who find that the pleading requirements under civil RICO are less onerous, and for obvious reasons, including availability of treble damages and attorneys' fees elect those instead.

The courts are being inundated by civil RICO cases that more appropriately should be handled in State court and under State law. So with those problems in mind, legislation is pending before this subcommittee that would address those concerns.

One of the measures sponsored by the chairman of the subcommittee and the ranking democratic member of the subcommittee, Mr. Edwards of California, has a number of commendable aspects, and I am pleased to see that that legislation has in fact been offered. I have also introduced a bill, H.R. 4923, which is identical to the bill which has been reported from the Senate Judiciary Committee by the vote of 11 to 0.

That is the bill sponsored by Senator Metzenbaum to whom the chairman earlier referred.

Mr. Chairman, on the July 13, six members of this committee forwarded to you a letter urging that a markup of civil RICO legislation be sent very promptly, and I would hope, Mr. Chairman, that following this hearing a decision could be made by the Chair to schedule a markup for some early time after we return in September.

Mr. Chairman, I thank you for holding this hearing today and I will look forward to joining with you in receiving the testimony. Mr. CONYERS. Thank you very much.

I say to my colleague, I appreciate his statement. I see we have come some distance. There have been a lot of twists and turns in the years and in the hearings that have occurred on RICO. I think it is important that we move forward as dispositively as possible. I am for that 100 percent.

Thank you, Deputy Assistant Attorney Keeney for your patience this morning. You will be our leadoff witnesses.

The criminal division is where we turn in the Department of Justice to find out how you would react to the new and ever-changing RICO proposals that we bring forward to you, and we are happy to test your reaction against the pending legislation today.

You are accompanied by your Deputy Chief, Paul Coffey, Organized Crime and Racketeering Section. We welcome you both and incorporate your statement fully into the record, as we will do for every witness, and allow you to proceed in your own way.

STATEMENT OF JOHN C. KEENEY, ACTING ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF JUSTICE, ACCOMPANIED BY PAUL COFFEY, DEPUTY CHIEF, ORGANIZED CRIME AND RACKETEERING SECTION

Mr. KEENEY. Thank you. It is a pleasure to appear before the subcommittee this morning. I appreciate the opportunity. I have an extended statement which I would like to offer for the record and I would like to confine my remarks to some general remarks and specific comments with respect to both pieces of legislation.

I would like to emphasize at the inception two points, Mr. Chair

man.

First, the Federal Government needs a strong RICO statute in its criminal and civil forums if our recent successes against organized crime are to continue.

Second, we support the subcommittee's efforts to identify and correct problems in the civil RICO arena.

Mr. Chairman, I have set forth rather extensively some of the highlights of our successes against traditional organized crime and against corruption in the labor industry. Since these are included. in my statement, I will not go into them.

Before turning to comments on a specific bill, Mr. Chairman, I would like to reiterate that the Department of Justice is firmly committed to the idea of civil RICO reform. There is no doubt that the treble damages provision has been abused to some extent by private plaintiffs and some amendments are desirable.

We prefer the prior conviction requirement for private RICO suits. We believe this would be a workable and fair solution to the problem of unjustified private suits.

However, our main concern in commenting on these bills is to ensure that the Department of Justice retains its present ability to use both the criminal and civil RICO provisions to their maximum effect.

It is to that concern that most of my specific comments will be directed. Now, turning to H.R. 4920, section 3 of H.R. 4920 would amend 18 U.S.C. 1964(a), governing equitable actions by the United States in two respects.

First, it would make clear that the burden of proof for such suits is a preponderance of the evidence. This provision re-states existing law of course, and we support it.

Second, this section of the bill would create several limitations on court-ordered trusteeships that are imposed on labor organizations pursuant to suits by the United States. These provisions would set strict limits on the purposes for which trusteeships could be imposed, would impose a limitation regarding the counting of votes of delegates from the organization under trusteeship at conventions and in other bodies within the union, and would set an 18month limit on the duration of the trusteeship unless the trustee could satisfy a burden to justify one or more 6-month extensions.

While we understand that suits involving labor unions, such as the recent suit in New York involving the International Brotherhood of Teamsters, are controversial, the limitations contained in H.R. 4920 are, in our view, unworkable and would be disastrous to the Government's use of civil RICO.

We believe these limitations are not needed and have no place in the context of a trusteeship imposed by a Federal district court after full hearings involving all parties concerning the need to correct the abuses within the organization.

Moreover, the limitations themselves are not appropriate for the reasons set forth in my statement. They run directly counter to the broad remedial purposes of the RICO statute and, as applied in this bill, would not serve to correct any demonstrated abuses.

Section 4 of the bill amends the civil damages provision of 1964(c) in several ways. It also alters the present availability of relief in several ways.

In addition, section 4 establishes a 5-year limitations period for non-Government actions and for Government suits it establishes a period of 6 years after the cause of action accrues or 5 years after the injurious conduct ends.

To the extent that these provisions affect only private civil actions, we do not oppose them. Although we have previously endorsed the approach of requiring a conviction of the defendant before a private person may recover treble damages, we realize the process of finding a workable solution to RICO reform is complex. We have no comment on this aspect of H.R. 4920. We do, however, have comments about several features of the civil provision in section 4 of the bill that would have an impact on the Government's use of RICO.

Mr. CONYERS. Excuse me. We are into the second bell now, so let's suspend briefly for a recorded vote that is pending on the floor and we will return immediately.

[Recess.]

Mr. CONYERS. OK. The subcommittee will come to order.

You were ticking off the pros and cons here, and we are trying to add them up and see whether the scale tilts a little bit here in favor of H.R. 4920 or not.

We appreciate the specific distinctions you are making.

Mr. KEENEY. I will start off with a pro. We strongly endorse the amendment in section 1964(c)(1) to make it clear that the United States, through the Attorney General, can recover treble damages for injuries to its business or property by reason of a RICO violation. In my statement, I cite a decision out of the Eastern District of New York which casts doubt on the Federal Government's ability to bring such a suit.

Subsection 1964(c)(7) would establish an affirmative defense for reliance on a ruling by a Federal or State agency. To the extent this or any other proposed legislation would preclude an appropriate action by the United States because of a State agency ruling, we would object to it. It is important to note, Mr. Chairman, that elimination of the proposal in the bill would not unfairly deprive a civil RICO defendant from raising a good faith reliance on State laws or rules to justify his conduct, as set forth in my statement.

We have serious reservations about new subsection (c)(12) which would prohibit the use of the terms "racketeer" or "organized crime" in referring to a party when the complaint did not allege a crime of violence as a predicate act.

Now, this provision would have a substantial negative impact on Government suits under 1964(c). It is quite common for organized crime groups to engage in white-collar crime such as complex fraud schemes or union fund abuse.

The absence of violence does not mean the absence of racketeers or organized crime. It is important that we be permitted to include these properly descriptive terms in civil RICO complaints when the circumstances call for them. We will continue to use RICO, of course, only in appropriate cases and in accordance with strict internal guidelines.

Mr. Chairman, new subsection 1964(c)(16) would subject all treble damage suits not involving violence to the arbitration procedures of title 9 of the U.S. Code. Frankly, we don't see any purpose in making this provision applicable to suits by the United States.

Section 5 would amend the criminal RICO penalties to provide for a life sentence if death results from a RICO violation. We strongly support this provision.

Section 6 of H.R. 4920 would add a large number of new predicate offenses to the definition of racketeering activity.

Mr. Chairman, in our view the wholesale addition of a new laundry list of State and Federal crimes to RICO might dilute the statute's effectiveness by converting RICO into nothing more than a sentence enhancement provision for the commission of multiple crimes of any sort.

Section 7 of the bill, of your bill, provides for international service of process which we obviously support.

Section 9 in the bill sets forth five "construction directives" which require that certain legal issues arising under RICO be decided in specific ways. We question whether this is the appropriate way to achieve these results, Mr. Chairman.

Now, turning to H.R. 4923. It embodies a general approach to civil RICO reform that we prefer, i.e., private treble damages suits are limited to cases where the defendant has previously been convicted for RICO or for a predicate offense.

This bill also satisfies our concern that the Attorney General be expressly authorized to recover treble damages, as does your bill, Mr. Chairman.

Thus, we generally support H.R. 4923, although we express no view with respect to most of its features dealing with the details of private civil actions. Several of the bill's features are virtually identical to those of H.R. 4920. We will not further comment on those matters.

We object to the bill's prohibition in the new subsection 1964(c)(12) of the term "racketeer" and the substitution of the word "unlawful" for the word "racketeering" unless a predicate act of violence is present. This restriction would apply to suits for treble damages by Government entities as noted earlier. We firmly believe that the "racketeering" label should be retained for appropriate actions by the United States.