The Section 1962(a) Claim

Section 1962(a) provides, in relevant part:

"(a) It shall be unlawful for any person who has received any income derived ... from a pattern of racketeering activity ... in which such person has participated as a principal... to use or invest ... any part of such income... in acquisition of any interest in, or the establishment or operation of, any enterprise..."

Since the enterprise can be a legitimate business, § 1962(a) interdicts the investment of money derived from the pattern of racketeering in legitimate businesses. So at its heart, § 1962(a) is a tool against money laundering.

Thus, in one case, agencies of the Republic of Colombia involved in liquor distribution sued U.S. liquor distributors involved in money laundering for Colombian drug traffickers. The drug traffickers sold drugs in the U.S. for dollars, and needed a way to repatriate the dollars to Colombia in the form of Colombian pesos. The U.S. companies, using drug money, acquired Colombian liquor importers for use in repatriating the dollars. Because the repatriation activities harmed the Colombian government's own distribution activities, the government stated a claim under § 1962(a). That is, the acquisition of the Colombian importers with drug proceeds fell squarely within the prohibition of that section.

The Need for an Investment Injury

In Ouaknine v. MacFarlane, 897 F.2d 75, 83 (2nd Cir. 1998), the Second Circuit held that, for purposes of § 1962(a), it isn't enough to allege that plaintiff was injured by the predicate acts. Rather the plaintiff must be injured by the act of investing the proceeds of racketeering activity. (As noted elsewhere, this is different from a 1962(c) violation, for which injury from the predicate acts themselves suffices.)

Thus, in one case, the general partner of limited partnerships allegedly engaged in wire and mail fraud-- namely, using the wires and mails to false financial information to the limited partnerships. By means of such fraud, the general partnership obtained funds which were then reinvested in legitimate companies that competed with other companies owned by the limited partners. Under such circumstances, the limited partners had stated a § 1962(a) claim: their injuries were caused, not by the acts of wire and mail fraud, but by the investment of the proceeds of the fraud in the legitimate businesses.

Investing in the Day-to-Day Operations of the Enterprise is Insufficient

Many § 1962(a) claims allege that the defendants took the profits from the prior acts, invested it in the day to day operations of the enterprise, which enabled the enterprise to continue long enough to injure the plaintiff. But this has been held to be insufficient.

Rather, § 1962(a) requires an investment in something other than the day to day operations of enterprise. So to take my example, if the proceeds from the first strike merely went to paying the salaries of the union officials and to pay the rent on its office space, that wouldn't be enough. But since, under the example, the money went to induce the union officials to conduct a second strike, that would make out the § 1962(a) claim.

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