RICO and the Mueller Investigation

Special Counsel Robert Mueller’s investigation has produced guilty pleas from two individuals and the indictment of two more. It remains to be seen what additional charges, if any, will follow. Some have floated the idea that Mueller might consider charging violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO, 18 U.S.C. §§ 1961-1968. Although originally aimed at organized crime, RICO can be a powerful tool in complex white collar cases as well.

So could Mueller be mulling RICO charges? RICO could potentially apply – depending on what Mueller finds, of course. But in the end I think he’s unlikely to play the RICO card.

Special Counsel Robert S. Mueller, III

The Different Areas of Mueller’s Investigation

The potential charges in Mueller’s investigation vary depending on which of several possible tracks the investigation follows. The first such track involves the heart of Mueller’s inquiry: any crimes directly related to Russian interference with the election and possible collaboration by Trump campaign officials. If prosecutors find evidence of those crimes, charges could include conspiracy to defraud the United States or conspiracy to violate federal election laws or computer hacking laws.

A second investigative track includes cover-up crimes: false statements, perjury or obstruction of justice in connection with the Russia probe. This could include lying to the FBI during interviews, lying on security clearance forms, false testimony before Congress or in the grand jury, or efforts to obstruct the investigation. Two cooperating witnesses, Michael Flynn and George Papadopoulos, have already pleaded guilty to false statements for lying to the FBI. There have been allegations that Jared Kushner and Attorney General Jeff Sessions may have unlawfully concealed contacts they had with Russians during the campaign. And claims that the president himself may have obstructed justice through such actions as firing James Comey have been a key part of the investigation.

There is a potential third track as well: the possibility that while investigating connections between Trump and Russia Mueller will uncover other crimes not directly related to the campaign. The charges filed against former Trump campaign manager Paul Manafort, for example, include allegations of years of money laundering involving Ukrainian connections that predated the campaign. The infamous Russia “dossier” includes claims about ties between Russian individuals and the Trump organization that could involve crimes such as international money laundering. In Michael Wolff’s controversial new book Fire and Fury, former Trump advisor Steve Bannon also predicts that money laundering involving Russia will end up a centerpiece of Mueller’s probe.

Mueller’s investigation could result in charges in any one of these areas. RICO is potentially a better fit for some than for others.

A Quick Primer on RICO

Congress passed the Racketeer Influenced and Corrupt Organizations act in 1970. As its name suggests, RICO’s primary purpose was to give the federal government new tools to prosecute criminal groups, such as organized crime families, seeking to infiltrate and control legitimate organizations. But the breadth of RICO’s language has made it possible for prosecutors to apply it in more routine white collar business and corruption cases as well.

RICO doesn’t really define a new crime. Instead, it prohibits engaging in a sustained pattern of already criminal activity in connection with a business or other “enterprise.” This has led one prominent commentator to characterize RICO as “the crime of being a criminal.” RICO provides hefty penalties of up to twenty years in prison, as well as forfeiture of any assets related to or derived from the criminal activity.

Every RICO case shares two requirements: proof of an “enterprise,” and proof of a “pattern of racketeering activity.”

Enterprise: In some RICO cases the enterprise is the organization through which the defendants commit their criminal acts, such as an organized crime family. In other cases the enterprise is more like a victim, such as a legitimate corporation or labor union that is infiltrated by the RICO defendants through their criminal activity.

Enterprise is defined in the statute to include any legal entity such as a corporation or partnership. An enterprise may also consist of a group of individuals associated together but not a legal entity, called an “association in fact” enterprise. Rejecting arguments that RICO should be limited to cases involving formal business organizations, the Supreme Court has made it clear that an association in fact enterprise need not have any legitimate purpose or formal structure. Any group of individuals who come together to commit a series of crimes may potentially be characterized as an association in fact enterprise. Another name for such a criminal group, of course, is a conspiracy – and the breadth of the enterprise definition has led some to suggest that RICO is simply a conspiracy statute on steroids.

Pattern of Racketeering Activity: Every RICO case also requires the government to prove a “pattern of racketeering activity.”  This requirement has two components: there must be acts of racketeering activity, and those acts must form a “pattern.”

Racketeering activity is defined in the statute to include a lengthy list of federal crimes. It includes many offenses traditionally associated with organized crime such as narcotics, illegal gambling, extortion, and trafficking in stolen goods. It also includes a number of white collar offenses such as bribery, mail and wire fraud, obstruction of justice, and money laundering. The inclusion of these crimes as “racketeering activity” is what makes RICO potentially applicable to many white collar cases.

Racketeering activity also includes crimes such as murder, kidnapping, extortion and arson that are punishable under state criminal laws. This was one of RICO’s more powerful innovations: federal prosecutors could now take a widespread group committing different crimes previously punishable only at the state level, package the crimes as a RICO case, and bring a single prosecution in federal court. In organized crime cases where local prosecutors were either unable or unwilling to bring charges, RICO allowed the federal government to step in and take those organizations down.

A “pattern” of racketeering activity requires at least two different instances of racketeering activity no more than ten years apart. In reality, a pattern usually involves far more than two acts. The Supreme Court held in H.J. Inc. v. Northwestern Bell Telephone Co. that a pattern requires proof of “continuity plus relationship” among the acts of racketeering. The acts must have the same or similar purpose, results, participants, victims or methods of commission or be otherwise interrelated, and must take place over some substantial period of time.

RICO contains four different prohibitions:

Section 1962(a) prohibits using the income generated by a pattern of racketeering activity to acquire an interest in, or to establish or operate, any enterprise. A violation of 1962(a) is a two-step process: the defendant earns money from a pattern of racketeering activity, and then uses that money to invest in or operate the enterprise. This is the type of offense at which RICO was primarily aimed: the infiltration of businesses and other organizations by those who earned their money through criminal operations.

Section 1962(b) is similar to 1962(a) but involves only a one-step process. It prohibits using the racketeering activity directly to acquire an interest in or control over an enterprise. This would apply, for example, to a criminal organization using extortion or bribery to control the behavior of those operating a business or government organization.

Section 1962(c) is by far the most commonly-used RICO provision. It prohibits any individual employed by or associated with an enterprise from conducting or participating in the conduct of the enterprise’s affairs through a pattern of racketeering activity. In Reves v. Ernst & Young the Supreme Court adopted the “operation or management” test for determining who is covered by this section. To participate in the conduct of an enterprise’s affairs a defendant must have some role in the operation or management of the enterprise and not just be a low-level employee following orders.

Finally, Section 1962(d) is a conspiracy provision, making it a crime to conspire to violate sections (a), (b), or (c).

RICO Charges and the Mueller Investigation

Due to RICO’s breadth, there is little doubt it could theoretically apply to a number of the allegations surrounding the Russia investigation. Whether RICO would make sense and exactly how it could apply would depend on the nature of the crimes Mueller ended up pursuing.

First, there are several different enterprises that would satisfy RICO. One would be the Trump campaign, Donald J. Trump for President, Inc.  As a corporation, the campaign itself qualifies as an enterprise. If Mueller determined that individuals conducted the campaign’s affairs through a pattern of racketeering activity, RICO section 1962(c) could apply.

Another potential enterprise would be the Trump Organization itself, or any one of its subsidiary corporations. If the investigation were focused more on the Trump Organization’s financial ties with Russian individuals, that could lead to charges that Trump and others participated in the conduct of the Trump Organization’s affairs through a pattern of racketeering activity under 1962(c), or used funds generated by a pattern of racketeering activity to operate the Trump Organization under 1962(a).

There also could be an association-in-fact enterprise made up of various individuals involved In the campaign. Again, this requirement is essentially equivalent to a conspiracy, so if individuals in the campaign were engaged in a pattern of criminal acts prosecutors could potentially name that group as an enterprise and charge their activity under RICO.

For the pattern of racketeering activity, the most obvious candidate is money laundering. If there are charges similar to those against Manafort involving ties between Russian individuals and the Trump Organization, long-term money laundering schemes could easily be charged as a pattern of racketeering activity used to fund and operate the Trump Organization.

If the criminal focus is on the campaign itself and a possible conspiracy with Russian individuals, a potential pattern of racketeering activity is less obvious. The most likely criminal violations, including election crimes and computer crimes, do not qualify as “racketeering activity.” Any crimes involving Russian interference with the election probably also took place over a relatively limited and discrete period of time and might lack the continuity necessary to form a pattern.

As far as cover-up crimes are concerned, obstruction of justice does qualify as racketeering activity, although false statements and perjury do not. If prosecutors found a long-running pattern of obstruction of justice related to the campaign and its aftermath, that might qualify as a pattern of racketeering activity. The enterprise could be the campaign itself or an association in fact of individuals involved in the campaign. The charge would be that the defendants conducted the affairs of that enterprise through a pattern of obstruction of justice designed to thwart investigations by the FBI or Congress.

Why RICO Charges Are Unlikely

RICO’s breadth makes it a potential charge in Mueller’s investigation, particularly if the investigation ends up focusing on international money laundering involving the Trump Organization. On the other hand, if all Mueller finds is a pattern of obstructive conduct, using RICO would seem like an unnecessary stretch. But in the end, regardless of what Mueller uncovers, RICO charges are probably unlikely.

One reason they’re unlikely is that Mueller simply doesn’t need RICO. If you’re prosecuting a gang for a series of state law crimes, or a massive global conspiracy like the FIFA corruption case, RICO can be a useful tool. But in most federal white collar cases, RICO really doesn’t get prosecutors much that they can’t already get through charges such as conspiracy, fraud, and money laundering. RICO’s twenty-year penalty used to be unusual, but now is the norm for more routine federal crimes including mail and wire fraud and obstruction. Other statutes, including money laundering, also allow prosecutors to seek forfeiture. It’s hard to see what RICO would add to Mueller’s already substantial arsenal. Why spend time and effort proving complicated concepts like a pattern of racketeering activity to a jury when you can just focus on the underlying crimes themselves?

A second reason is that all criminal RICO charges must be approved by the Organized Crime and Gang section in the Criminal Division at the Department of Justice. Main Justice requires all federal prosecutors to obtain this approval in order to ensure RICO is used only in cases where it is truly appropriate and necessary. The DOJ guidelines provide that RICO charges will not be approved in cases where other federal statutes can adequately address the misconduct.

The special counsel regulations provide that Mueller is subject to all DOJ rules, regulations, and procedures. That means he would have to seek review and approval of any RICO charges by Main Justice – something Mueller is probably (and understandably) reluctant to do. Mueller does not want the Sessions Justice Department second-guessing his prosecutorial decisions. He also would need to be concerned about leaks that might come out of DOJ if he submitted charges for their review. (This also may be the reason tax crimes were not included in the Manafort indictment, even though they seemed like fairly obvious charges. Charging tax crimes would have required Mueller to seek review and approval from the DOJ Tax Division.)

We have some hints from the Manafort indictment about how Mueller may view these questions. Given the nature of those charges, RICO would have been an easy fit. Prosecutors could readily have charged that Manafort and his co-defendant Richard Gates funded and operated Manafort’s consulting firms (the enterprises) through a pattern of racketeering activity (money laundering) over a number of years. But Mueller chose not to include RICO charges.

In the nearly half-century since RICO was passed, its significance for white collar cases has diminished. Federal prosecutors have more — and usually better — options now. RICO still carries a certain mystique, and Trump’s critics may find the idea of RICO allegations of a grand conspiracy appealing. But no matter what else the special counsel’s investigation turns up, we are unlikely to see a RICO indictment.

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DOJ Doubles Down on the FIFA Indictment

This past May the U.S. Department of Justice stunned the international sports world by unveiling a 161 page, 47 count federal indictment charging widespread corruption within the Federation Internationale de Football Association (FIFA), the global soccer organization. Last week, DOJ made it clear that the May indictment was merely the tip of the FIFA corruption iceberg.

The original indictment charged fourteen defendants: nine current and former FIFA officials, four sports marketing executives, and one intermediary. (I wrote about that indictment in a post you can find here.) Now a superseding indictment, unsealed last week, has added sixteen additional FIFA defendants and has nearly doubled the number of charges: the new indictment runs 236 pages and contains 92 felony counts. (The DOJ press release and a link to the superseding indictment can be found here.)

A superseding indictment, as the name implies, replaces the original indictment in a case that is already pending. It generally means the grand jury has continued to investigate and has voted to add additional charges, additional defendants, or — as in this case — both.

The fundamental nature of the case remains the same: senior FIFA officials and officials within FIFA’s constituent organizations are alleged to have accepted more than $200 million in bribes and kickbacks in exchange for being influenced in awarding lucrative sports marketing contracts, rigging FIFA elections, agreeing to participate in certain competitions, and awarding the right to host soccer’s premier event, the World Cup.

When the superseding indictment was unsealed, DOJ also announced that eight additional defendants have pleaded guilty since the first indictment, bringing the total number of known guilty pleas to fourteen. Three of the eight – Jeffrey Webb, a former senior FIFA official; Alejandro Burzaco, former manager of an Argentinian sports marketing company; and José Marguilies, who acted as an intermediary for bribe payments – were among the fourteen defendants charged in the original indictment. Due to their pleas, they are not charged in the superseding indictment. The remaining five new guilty pleas came from FIFA officials and sports executives who waived indictment and pleaded guilty under seal.

The sixteen new defendants thus join the eleven remaining original defendants in the superseding indictment. Although the basic nature of the allegations is unchanged, the superseding indictment against the (now) twenty-seven defendants dramatically expands the universe of charges, including not only charges against the new defendants but also additional charges against the original defendants.

The FIFA superseding indictment greatly expands the conspiracy case

The Structure of the FIFA Superseding Indictment

Despite its length, the superseding indictment, like the original, consists almost entirely of three types of charges:

  • The Racketeer Influenced and Corrupt Organizations Act (RICO)
  • Money laundering and money laundering conspiracy
  • Wire fraud and wire fraud conspiracy

A massive RICO conspiracy lasting for more than twenty years continues to be the heart of the indictment. RICO is the statutory glue that allows the many different corruption schemes and far-flung defendants to be joined together in a single prosecution.

RICO requires that the defendants conducted of the affairs of an “enterprise” through a pattern of racketeering activity. As in the original indictment, the government charges that FIFA, its six continental confederate organizations, and other soccer organizations and sports marketing companies together constitute a single RICO enterprise, bound together by the common purpose and goal of promoting soccer worldwide. Because FIFA soccer organizations are present in more than 200 countries and territories around the world, this RICO enterprise is undoubtedly one of the most sweeping ever charged.

The alleged enterprise includes all six of FIFA’s continental confederate organizations, including those governing soccer in Asia, Africa and Europe. Almost all of the alleged corruption, however, relates to officials and events in only two of those organizations: CONCACAF, the confederation covering North and Central America and the Caribbean; and CONMEBOL, the confederation covering South America. (The United States Soccer Federation is a member of CONCACAF.)

To establish the required “pattern of racketeering activity,” the indictment alleges a series of different corruption schemes involving various soccer tournaments, different sports marketing and media agreements, and events such as the selection of the host city for the World Cup. The original indictment charged twelve such schemes. The superseding indictment has expanded one of those schemes and added three new ones, for a total of fifteen.

The individual criminal schemes are charged using two principal statutes: wire fraud and money laundering. The essence of each scheme is a series of bribes and/or kickbacks involving FIFA officials or officials from FIFA member organizations, along with financial transactions designed to facilitate or disguise the payments. Most of the alleged bribes were paid by individuals (a number of whom have been indicted or have pleaded guilty) seeking lucrative contracts for soccer media and marketing rights or to have certain countries participate in tournaments they were promoting.

To charge bribery and kickbacks the indictment uses honest services wire fraud, charging that various officials violated the duty of honest services they owed to FIFA and its member organizations. (For a more detailed analysis of the use of honest services fraud to charge bribery, see my posts here and here.)

The money laundering charges stem from financial transactions, many of them international wire transfers, used to facilitate the bribe payments and/or to conceal those payments. The defendants are accused of using various intermediaries, secret bank accounts, shell companies, and other methods to disguise the nature, source and ownership of the funds involved in various bribery transactions. They are also charged with transmitting funds across the U.S. border in order to promote their criminal activity, a form of international money laundering.

Following the overarching RICO conspiracy charge that encompasses all defendants, the great bulk of the indictment consists of a series of wire fraud and money laundering charges related to each of the fifteen different schemes in turn. Each of these schemes involves a different set of corruption allegations and a different combination of defendants. There are also a handful of additional charges, including tax fraud and obstruction of justice, that apply to only a couple of the defendants.

soccer balls

What’s New in the Superseding Indictment

The most significant change in the superseding indictment is, of course, the addition of the sixteen new defendants. All of the new defendants are current or former FIFA or FIFA-affiliated officials, seven from CONCACAF and nine from CONMEBOL.

The superseding indictment answers a lot of questions that were raised by the original charges in May. That first indictment included many allegations that described the criminal acts of anonymous individuals identified only by number, as in “co-conspirator #1” and “co-conspirator #2.” The superseding indictment includes many of those same allegations, but with formerly anonymous co-conspirators now identified as among the new defendants. As a result, a fuller picture of many of the corruption allegations has started to emerge.

The other significant change is the addition of three entirely new corruption schemes and the expansion of a fourth. One new scheme, titled “CONMEBOL Copa Libertadores Scheme #2,” charges a number of CONMEBOL officials with accepting millions of dollars in bribes over more than a decade in connection with selling the broadcast rights to a popular South American soccer tournament. A second, titled the “UNCAF Region Friendlies Scheme,” alleges that FIFA officials in El Salvador, Guatemala, Costa Rica and elsewhere accepted bribes in exchange for agreeing to participate in various “friendlies” soccer matches organized by private promoters. (UNCAF is a regional federation within CONCACAF that includes the soccer organizations of countries in Central America.)

The third new scheme, the “CONCACAF Media and Marketing Rights Scheme,” charges that several CONCACAF officials accepted hundreds of thousands of dollars in bribes in connection with an unsuccessful attempt to influence the sale of the media marketing rights to CONCACAF tournaments. It also alleges that various conspirators — including current FIFA vice president and CONCACAF president Alfredo Hawit — obstructed justice in July 2015, following the first indictment, by creating phony contracts and other documents to attempt to conceal their participation in this scheme.

Finally, the superseding indictment greatly expands the allegations in a scheme contained the original indictment titled the “UNCAF Region World Cup Qualifiers Scheme.” The scheme alleges that soccer officials from nearly every country in Central America solicited and accepted hundreds of thousands of dollars in bribes in connection with the sale of the media rights to their country’s World Cup qualifying matches.

The Nature of the Case and What to Watch Going Forward

The superseding indictment seems to take great pains to describe the effect of the FIFA corruption scheme on the United States. As did the original indictment, it stresses that a number of financial transactions related to the bribe payments were routed through U.S. banks. A number of the new charges also emphasize how some soccer matches in tournaments that were the subject of various bribe schemes were played in the U.S., or how the U.S. media market made up a significant portion of some media rights that were the subject of bribes, or how some bribes were actually paid within the U.S. These details may help address questions that have been raised over whether the United States was really the appropriate place to prosecute a massive corruption scheme in which the overwhelming majority of criminal acts took place in other countries.

The heart of the case remains bribery, on a massive and worldwide scale. The “victims” in a bribery case often do not suffer any identifiable economic damages. For example, if a Congressman takes a bribe in exchange for awarding a defense contract, the money for the bribe comes not from the Congressman’s constituents but from the bribe payer. The constituents are harmed not by losing money but in a more intangible way: by losing their right to the fair, honest, and unbiased services of the person elected to represent them. The harm is more diffuse; the damage is the corruption of the system, not a direct monetary loss as in a fraud case.

Similarly, in the FIFA case, the principal harm is the deprivation of the right of various FIFA member organizations and individuals to the honest and impartial services of the FIFA defendants who were supposed to represent their interests, and the resultant corruption of the entire FIFA decision-making process. The indictment does suggest other types of harm as well; for example, the wire fraud allegations claim that the defendants deprived their victims not only of the intangible right to honest services (the bribery allegation) but also of tangible money or property. But how this deprivation of money or property allegedly took place is never spelled out, and it appears that honest services fraud is definitely the primary theory.

There is one very interesting paragraph in the superseding indictment that did not appear in the original. It appears in the description of the racketeering conspiracy and is titled “Embezzlement and Misappropriation.” It alleges that “The conspirators’ corruption of the enterprise extended beyond the payment and receipt of bribes and kickbacks,” and notes that FIFA maintained hundreds of millions of dollars in various programs intended to benefit its member organizations, including youth leagues. It further alleges that certain defendants, including former CONCACAF executives Jack Warner and Jeffrey Webb, embezzled or otherwise misappropriated some of these funds, “including funds intended for natural disaster relief.”  News reports suggest this last clause refers to alleged embezzlement of funds intended to aid the victims of the 2010 earthquake in Haiti.

But after unveiling this tantalizing new allegation, the indictment provides no further detail and no specific charges related to this embezzlement. The DOJ press release concerning the superseding indictment does not mention embezzlement at all. We will have to await further developments to learn more details about any such misappropriation of FIFA funds, whether related to natural disaster relief or otherwise. Webb has already pleaded guilty and may well be a key source of this information for the prosecution.

The defendants who have pleaded guilty have agreed to forfeit more than $40 million, and DOJ is seeking tens of millions more in forfeiture. Typically, forfeited proceeds would go to the U.S. treasury, but this case is a bit unusual because the U.S. and its citizens are not the primary victims of most of the alleged misconduct. The DOJ press release notes that all forfeited money is being held in reserve so it can be used to satisfy any future orders of restitution entered at sentencing, “for the benefit of any individuals or entities that qualify as victims of the defendants’ crimes under federal law.” This could mean that some of the forfeited money ends up being distributed to the soccer organizations outside the U.S. whose officials were involved in the corruption.

The eight additional guilty pleas that DOJ announced last week are significant. Most, if not all, of these defendants are likely cooperating in the ongoing investigation, providing DOJ with information and testimony that will allow it to pursue the corruption allegations even further.

But in terms of the future of the investigation, the most significant thing to note about the superseding indictment is that it contains references to another 24 still unnamed and unidentified co-conspirators. That means there are at least two dozen more potential defendants out there – some of whom likely have already pleaded guilty under seal and are cooperating as the grand jury investigation continues.

And that means when it comes to FIFA corruption, the Department of Justice is just getting warmed up.

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