Mr. HUGHES. Mr. Lehner, welcome. Likewise, we have your statement. Without objection it will be made part of the record and we hope you can summarize.

STATEMENT OF PETER LEHNER, ESQ., ASSISTANT CHIEF, AFFIRMATIVE LITIGATION DIVISION, NEW YORK CITY, NY, ON BEHALF OF PETER L. ZIMROTH, CORPORATION COUNSEL OF THE CITY OF NEW YORK

Mr. LEHNER. Thank you, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to present the position of the city of New York on the amendments to civil RICO today. As is stated in more detail in the city's prepared statement, we have found the civil RICO remedy to be very effective against a variety of schemes used to cheat the city. We are thus very pleased that in H.R. 1046 the city's ability to bring civil RICO actions is continued in largely its current form.

In these oral remarks, I would like to emphasize one central point: That civil RICO actions by local governments do not present the types of "abuses" that some are concerned about. Rather, they are efficient and effective ways to recover public moneys and deter corruption.

What we've heard repeatedly is that the RICO reform movement is motivated primarily by stories and fears of abuse of RICO, and while the term "abuse" isn't always consistently defined, it seems to be focused on straight-forward commercial fraud and breach-ofcontract cases, which are being brought in Federal court as RICO, or more threateningly, as racketeering cases.

If that indeed is the evil which RICO reform is meant to address, then I think it is important to acknowledge that cities such as the city of New York have not been associated with such abuse. Thus, their access to RICO should not be curtailed. I think it's fair to say that there really is no evidence of abuse of civil RICO by local governments, and there's several reasons for that.

First, and most important, is that local governments, like yourselves, members of the subcommittee, are subject to the political process. If frivolous or abusive cases are brought by local government officials, those who bring the cases can be voted out of office. Second, city officials, unlike corporate officers and unlike the private lawyers who are hired by corporate officers, are not simply obligated to maximize shareholder profits. Instead, they're obligated to provide credible governmental services. The Government must be viewed as fair in its punishment of wrong-doers as well as in the distribution of benefits. Bringing abusive cases cuts against the credibility of the Government, and thus destroys the foundation of the city.

Finally, city officials are government officers, as are prosecutors. Thus, they can be expected to use the same "wise" discretion with civil RICO that prosecutors use with criminal RICO. As Professor Lynch commented, the language of civil RICO is the same as the language of criminal RICO, but no one is concerned with abuses of criminal RICO, which is because of the general faith in prosecutorial discretion. I would suggest that in the same way, the potential for abuse of governmental use of civil RICO is the same as the po

tential for abuse of criminal RICO. In both cases, we are protected largely by proper use of government discretion. I think if one examines the cases where RICO has been used by local governments, you would see no evidence of abuse.

I would like to mention a few city cases to demonstrate that they are not in any way the contract cases or the simple fraud cases that are of concern. We have brought civil RICO actions against landlords who bribed the city's chief lease negotiator. We have brought actions against the operators of welfare hotels, who have paid cash for the rent checks that the city has given to homeless persons, in order to obtain housing. The operators of the welfare hotels pay cash to the homeless but don't provide a room for them. We have brought RICO actions against sewer contractors who bribed inspectors in order to evade inspection, and somewhat the flip side of that, against inspectors who've extorted the private parties for sums of between $50 and $1,000. We have brought RICO actions against distributors of fuel oil, who have rigged bids and submitted fraudulent invoices to the city.

In all these cases, RICO is acting as a singularly effective weapon for the recovery of taxpayer's money. It also acts as an important adjunct to the criminal process. For many reasons, the criminal process has not been an adequate deterrent for this type of lowlevel corruption, and the city's civil RICO actions have been important in deterring such behavior.

Perhaps the easiest way to emphasize that is to say that we have in the last few years recovered over $6 million of taxpayers' money that has been cheated from the city. It is important to retain the ability of the city to recover taxpayer money that has been taken by schemes and patterns of illegal behavior.

Like the other members, I'll be happy to answer any questions. [The prepared statement of Mr. Zimroth follows:]

SUMMARY OF TESTIMONY

OF

PETER L. ZIMROTH,

CORPORATION COUNSEL OF THE CITY OF NEW YORK

The City of New York has found civil RICO to be an effective remedy against corruption and the wide variety of schemes used to cheat the City. We are thus pleased that HR 1046 continues the City's ability to bring such suits essentially unchanged.

The City has been very successful with civil RICO, having recovered over $6.3 million in civil RICO suits over the last 3 years. This success itself demonstrates that civil RICO fills an important need.

Local governments face the same constraints in the use of civil RICO as prosecutors face in the use of criminal RICO political accountability, the need for credibility, and the fact that the government's goal is social welfare, not just maximizing profits. Thus, Congress should feel confident that local governments will not "abuse" civil RICO, just as criminal RICO has not been abused by prosecutors.

RICO is often criticized because such a wide variety of conduct fits within its reach. Yet the variety of conduct aimed at defrauding local governments is also distressingly wide. Thus, it would be difficult, if not impossible, to narrow RICO without excluding same admittedly corrupt activities from its sweep. Moreover, RICO is highly efficient because it encourages defendants to settle, thus avoiding a burden on the courts and on government lawyers.

In City's experience, civil RICO, in addition to providing for recovery of damages, often supplements the criminal justice system. The City often brings civil RICO actions on the heels of criminal investigations, suing both the convicted and the unindicted conspirators. These RICO actions, in addition to compensating the City as victim of the crime, serve the criminal justice purposes of deterrence and punishment as applied to those who, for one reason or another escaped criminal prosecution but participated in the crime.

The City recommends that HR 1046 delete the word "actual" from the statement of damages recoverable. This word is unclear and appears to add little substance; it will only cause further needless litigation. It could, moreover, be read to exclude consequential "damages which would dramatically restrict RICO's scope, excluding from its ambit a large variety of legitimate damages. The City also recommends deleting the affirmative defense of reliance on governmental statements.

Mr. Chairman, Members of the Subcommittee:

Thank you for the opportunity to testify today on behalf of

Peter L. Zimroth, the Corporation Counsel of the City of New York, regarding the proposed amendments to the Racketeer Influenced and Corrupt Organizations (RICO) Act, and particularly H.R. 1046.

The City has found civil RICO to be an effective remedy against corruption, tax frauds, and other systematic schemes to cheat the City and its citizens. We are thus pleased to note that in H.R. 1046, the City's ability to bring such civil RICO suits would be continued essentially unchanged. In H.R. 1046, local governments of general jurisdiction, like the City of New York, are treated together with the state and federal governments in terms of the availability and scope of civil RICO actions. We urge that this Subcommittee, however it decides to amend this bill or RICO, continue to recognize the importance of this remedy for local governments.

In 1986, my colleague Martin Aronchick testified before this Committee's Subcommittee on Criminal Justice. At that time, three years ago, he explained that the City had commenced a number of civil RICO suits against parties who through bribery of government officials, money laundering and evasion of sales taxes had injured the City in its business or property. Today, I am pleased to report that the City has achieved significant victories or reached substantial settlements in many of those cases. In fact, the City has recovered over 2.9 million dollars from the suits mentioned earlier. In addition, the City has recovered another 3.4 million dollars through other RICO

claims based on corruption or fraud. We think this success, more dramatically than any abstract argument, demonstrates the imperative need to continue the availability of a civil RICO cause of action for local governments.

There has been a great deal of concern that RICO is being abused by its use in "garden-variety" fraud actions such as simple contract fraud or securities fraud. Without opining on the appropriateness of this use of RICO, we must point out that local governments such as the City of New York have never been associated with that type of action. The civil RICO actions which the City has initiated are far from "garden-variety." Because cities are

not associated with the type of alleged abuse that is of concern to some members of Congress, there is no reason to restrict the access of local governments to civil RICO.

Indeed, local governmets, unlike private plaintiffs, face several constraints that make it unlikely that they will abuse civil RICO. First, local government officials, like federal legislators, are subject to the political process. That accountability prevents them from commencing frivolous or inappropriate lawsuits. Second, local governments must retain a high level of credibility to be effective and to ensure compliance with their mandates. The government must be viewed as fair and even-handed, in its punishment of wrong-doers, as well as in its provision of services. Again, commencing inappropriate cases threatens that credibility. Finally, city officials, unlike corporate officers, are not simply concerned to maximize