Opinion ID: 184400
Heading Depth: 1
Heading Rank: 6

Heading: RICO Forfeitures

Text: 80 Following the return of the guilty verdicts by the jury, the district court ordered appellants to forfeit the salaries that they earned between 1985 and 1990 from both the union and the umbrella organization of which it was a member, the National MEBA (the national). Appellants served as officers of the national as well as the union. The court also ordered appellants to forfeit the severance pay that they earned after the merger. Because we reverse appellants' RICO convictions, the accompanying forfeitures must also be reversed. See United States v. Chavez, 845 F.2d 219, 222 (9th Cir.1988). To facilitate disposition of the cases on remand, we address several forfeiture issues raised by appellants that present questions of first impression in this circuit. Cf., e.g., United States v. Burke, 888 F.2d 862, 869 (D.C.Cir.1989). 81 Causal Relationship Between Appellants' Salaries and RICO Violation 82 The criminal forfeiture provision of RICO provides: 83 Whoever violates any provision of section 1962 ... shall forfeit to the United States, ... 84 (1) any interest the person has acquired or maintained in violation of section 1962; 85 (2) any-- 86 (A) interest in; 87 (B) security of; 88 (C) claim against; or 89 (D) property or contractual right of any kind affording a source of influence over; 90 any enterprise which the person has ... participated in the conduct of, in violation of section 1962; and 91 (3) any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity or unlawful debt collection in violation of section 1962. 92 18 U.S.C. § 1963(a) (1988). The government must prove its forfeiture allegations by a preponderance of the evidence. 14 Cf. Libretti v. United States, 516 U.S. 29, ---- - ----, 116 S.Ct. 356, 362-63, 133 L.Ed.2d 271 (1995) (holding that criminal forfeiture is an aspect of sentencing). 93 The forfeiture provision requires that there be a causal link between the property forfeited and the RICO violation. Thus, only property acquired or maintained through racketeering activity or derived from[ ] any proceeds ... obtained, directly or indirectly from racketeering activity is subject to forfeiture. 18 U.S.C. § 1963(a)(1), (3). This court has yet to articulate a test for determining whether the government has established an appropriate casual relationship between the property to be forfeited and the statutory violation. Other circuits have assessed the nexus between property and racketeering by applying a but-for test first articulated in United States v. Horak, 833 F.2d 1235, 1242-43 (7th Cir.1987). The Seventh Circuit explained that in order to win a forfeiture order, the government must show ... that [the defendant's] racketeering activities were a cause in fact of the acquisition or maintenance of the property sought. Id. at 1243. The but-for test has been adopted by the First, Second, and Third Circuits. See United States v. Angiulo, 897 F.2d 1169, 1213 (1st Cir.1990); United States v. Ofchinick, 883 F.2d 1172, 1183 (3d Cir.1989); United States v. Porcelli, 865 F.2d 1352, 1365 (2d Cir.1989). Because the but-for test usefully articulates the requirement of a nexus between the targeted property and the racketeering activity, we adopt it. 94 Appellants contend that the government failed to establish an adequate causal link between their ballot tampering and the electoral triumphs that afforded them the salaries they forfeited. In their view, the government's causal burden obligated it to establish that their allegedly illegal ballot tampering changed the outcome of the elections they won. Appellants misapprehend what the but-for test requires, at least in this case. The government need not show the election results would have been different absent the alleged racketeering activities. As the district court noted, 95 [i]n any election, public or private, involving more than a minimal number of voters or ballots, a rule requiring the government to prove that an alternative outcome would have ensued had the election been untainted would render the victors' offices and emoluments virtually invulnerable to forfeiture. 96 United States v. DeFries, 909 F.Supp. 13, 17 (D.D.C.1995). The district court concluded that appellants' racketeering activity infected the entire election, given that 97 [c]ynicism prevailed among the rank-and-file Union members as to the integrity of its electoral processes, making it likely that potential opponents declined to run for office; that an indeterminate number of Union members refused to vote at all; and that others voted for defendants only for self-preservation in the sure knowledge that the secrecy of their ballots would be compromised. 98 Id. These findings, made upon consideration of all the evidence presented at trial and at sentencing, could sustain the necessary causal inference. Appellants cannot contest that but for the elections, which the district court found to be tainted by appellants' racketeering activity, they would not have received their salaries. Their challenge to the district court's application of the but-for test therefore must fail. Forfeiture of Pre-Tax Income 99 Appellants also contend that the district court erred in forfeiting taxes that they had already paid on their salaries and severance payments. 15 We disagree. 100 The courts that have directly addressed the tax deduction question have rejected appellants' position. See United States v. Lizza Indus., Inc., 775 F.2d 492, 498 (2d Cir.1985); United States v. Milicia, 769 F.Supp. 877, 889-90 (E.D.Pa.1991), appeal dismissed, 961 F.2d 1569 (3d Cir.1992); United States v. Elliott, 727 F.Supp. 1126, 1129 (N.D.Ill.1989). Essentially, they reason from Supreme Court decisions and the legislative history of the RICO statute that Congress intended, in allowing forfeiture in a criminal prosecution, to provide an extreme remedy for an extreme situation in which organized crime was corrupting otherwise lawful enterprises and activities with money from illegal drug distribution and other racketeering activities. E.g., Lizza, 775 F.2d at 498; see also Russello v. United States, 464 U.S. 16, 27-28, 104 S.Ct. 296, 302-03, 78 L.Ed.2d 17 (1983); United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2532-33, 69 L.Ed.2d 246 (1981). Although the Seventh Circuit in dicta has interpreted the Supreme Court to have intimate[d] in Russello, 464 U.S. at 22, 104 S.Ct. at 300, that the RICO Act contemplates forfeiture of net, not gross, revenues--profits, not sales, for only the former are gains, United States v. Masters, 924 F.2d 1362, 1369-70 (7th Cir.1991), two other circuits have disagreed. See United States v. McHan, 101 F.3d 1027, 1042 (4th Cir.1996) (noting, in part, that [t]he proper measure of criminal responsibility generally is the harm that the defendant caused, not the net gain that he realized from his condition); United States v. Hurley, 63 F.3d 1, 21 (1st Cir.1995); United States v. Saccoccia, 58 F.3d 754, 785 (1st Cir.1995). Furthermore, even were we persuaded by the view of the Seventh Circuit, in Masters the court was concerned with costs and profits, and not with the question whether taxes paid are properly deducted from the forfeiture amount. See Masters 924 F.2d at 1369-70. These are different questions, to be treated separately. See Lizza, 775 F.2d at 498; Elliott, 727 F.Supp. at 1129. As the district court noted in Elliott, taxes are more like overhead, which the legislative history of RICO indicates should not be deducted. Elliott, 727 F.Supp. at 1129; see also S.Rep. No. 98-225, at 199 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3382 (stating that [i]t should not be necessary for the prosecutor to prove what the defendant's overhead expenses were). 101 The dissenting judge in Lizza suggested, appellants note, that we lose sight of RICO's basic purpose when we require a RICO defendant to forfeit to the Government that portion of the defendant's unlawfully acquired profits which the Government already has taken by taxing the defendant's income. Lizza, 775 F.2d at 499 (Van Graafeiland, J., concurring in part and dissenting in part). However, neither the language of the RICO forfeiture provision nor its legislative history provide support for a deduction of taxes paid from a forfeited salary. RICO's criminal forfeiture provision calls for the forfeiture of any interest ... acquired ... in violation of section 1962. Congress explicitly directed the courts to interpret the RICO Act liberally to effectuate its remedial purposes. See Organized Crime Control Act of 1970, Pub.L. 91-452, § 904(a), 84 Stat. 947 (1970), quoted in Russello, 464 U.S. at 27, 104 S.Ct. at 302. The Supreme Court has concluded from the legislative history that the statute was intended to provide new weapons of unprecedented scope for an assault upon organized crime and its economic roots. Russello, 464 U.S. at 26, 104 S.Ct. at 302. Indeed, the Court concluded in Russello that Congress undoubtedly chose the word interest because it did not wish the forfeiture provision of § 1963(a) to be limited by rigid and technical definitions drawn from other areas of the law.... Id. at 21, 25, 104 S.Ct. at 299, 301. Moreover, the legislative history of the 1984 amendments to the RICO forfeiture provision indicate that the government need not prove net profits when it seeks to forfeit the property of an enterprise. See S.Rep. No. 98-225, at 199 ([T]he term 'proceeds' has been used in lieu of the term 'profits' in order to alleviate the unreasonable burden on the government of proving net profits.). In any event, appellants' construction of interest would lead to the anomalous result that taxes could be deducted in those cases where defendants directly deposited their money in a bank account but not in cases where they used their proceeds to buy real property. 102 In addition, a deduction for taxes could create unwarranted complexities in the administration of the statute. The amount of taxes that a person pays depends upon his or her other income as well as on the nature of deductions taken by the taxpayer. See Elliott,, , 727 F.Supp. at 1129. Recognizing this difficulty, the majority in Lizza concluded that RICO does not require the prosecution to prove or the trial court to resolve complex computations, so as to ensure that a convicted racketeer is not deprived of a single farthing more than his criminal acts produced. Lizza, 775 F.2d at 498. 103 Finally, RICO criminal forfeiture differs from other types of forfeiture because it is targeted at the individual wrongdoer, rather than the property sought to be forfeited. See United States v. $814,254.76 in U.S. Currency, 51 F.3d 207, 210-11 (9th Cir.1995). The forfeiture is not intended to rectify the unjust enrichment of the individual, but to punish the defendant upon conviction of violation of any provision of the section ... by forfeiture of all interest in the enterprise. S.Rep. No. 91-617, at 80 (1969). (quoting Department of Justice commentary). RICO forfeitures mark the revival of the concept of forfeiture as a criminal penalty. Id. As the majority in Lizza explained, [f]orfeiture under RICO is a punitive, not a restitutive, measure. 16 Lizza, 775 F.2d at 498. It follows that the punitive purpose of the forfeiture provision should not be subverted by a rule that could obscure that purpose with technical tax calculations. Indeed, construing the statute more narrowly could hinder the actualization of this punitive intent. 17