Thursday, October 11, 2007

State of Illinois Was a RICO Enterprise in U.S. Action Against Former Governor

This posting was written by Sonali Oberg, editor of CCH RICO Business Disputes Guide.

A sovereign state was considered a legal entity and, therefore, could be an enterprise under the RICO statute, according to the U.S. Court of Appeals in Chicago. Improprieties in awarding four leases and three contracts formed the basis of the RICO and mail fraud counts against former Illinois Governor George Ryan and state employee, Lawrence Warner, as the leases and contracts were steered improperly to entities controlled by Warner. The result was hundreds of thousands of dollars in benefits to Ryan and Warner.

The legislative history of the RICO statute was silent as to whether public entities, such as governments and states, may be considered an enterprise for purposes of RICO liability. The governor of Illinois and the state employee engaged in racketeering activity by depriving the state of proceeds by misusing state resources for their personal gain. The federal government's indictment identified the RICO enterprise, which consisted of Ryan and Warner engaging in acts of extortion, mail fraud, money laundering, and obstruction of justice.

In determining whether an enterprise should be construed to include public entities, the court observed that the definition of an "enterprise" in Sec. 1961(4) did not differentiate between public and private individuals or entities, and emphasized that the congressional statement of purpose and findings in the statute denounced racketeering activities because they subvert the democratic process. To the extent that an enterprise is merely the vehicle through which defendants conduct allegedly illegal activity, a major purpose of the RICO statute was to protect legitimate enterprises by attacking and removing those who had infiltrated them for unlawful purposes. The government provided sufficient evidence that Ryan and Warner infiltrated legitimate state government and defrauded the citizens of the state of Illinois.

The September 6, 2007, decision in U.S. v. Lawrence E. Warner, et al., No. 06-3517, will appear in the CCH RICO Business Disputes Guide.

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