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DeConcini's Loco Approach To Rico

When it comes to cases of fraud, there's no question where Dennis DeConcini stands.

Arizona's senior senator has been busy this past week trying to get his colleagues to gut the federal Racketeer Influenced and Corrupt Organizations Act. If DeConcini is successful, it will tie the hands of consumers and some government consumer-protection agencies. And it would exempt certain industries from being sued under the civil RICO statutes.

Arizona Attorney General Bob Corbin and state insurance director Susan Gallinger both blast DeConcini's efforts, as does Congress Watch, a branch of the Ralph Nader-formed Public Citizen. But it won't do you any good to call the senator's office to find out why he persists. What you'll get from press aide Bob Maynes is a list of special-interest lobbyists in Arizona who want the law changed.

At the heart of the dispute is a 1970 law originally enacted as a weapon against organized crime. One of the most potent provisions allows the government or other victims to ask a court to seize a defendant's assets even before a trial--before the cash can be hidden--with an ultimate determination of what happens to the funds made later. It also allows victims to seek triple damages.

What has caused apoplexy in the business community is that some attorneys have figured out the law can be used not only against the more traditional forms of organized crime but against businesses accused of a pattern of fraud. All of a sudden banks, stockbrokers and accountants were being named as RICO defendants. So they went crying to their friends in Congress. Last year, consumer groups beat back a similar measure which didn't involve DeConcini. This year DeConcini decided to try his hand at the special-interest legislation.

One of the key elements of DeConcini's bill eliminates the triple-damages provisions for consumers. Only certain specified government officials, such as a state attorney general, could seek the extra penalties. But, even with that language, Corbin finds no reason to support the change. "What's the deterrent to fraud if all he has to do is give the money back that he took?" asks Corbin.

The DeConcini bill does allow individuals to sue for triple damages but only when the person already has been convicted of a crime related to the same action. Corbin scoffs at this exemption as meaningless. He says consumers should not have to depend on whether a prosecutor decides to file criminal charges, which are more difficult to prove. Beyond that, Corbin says, is a practical matter. "If you have to have a conviction before filing a RICO suit, that person is going to hide their assets," he says, leaving nothing for victims to collect. He says that's why his office files civil RICO suits "long before we go criminal" to make sure a defendant doesn't ship everything out of the country.

Gallinger is unhappy because state insurance directors are not listed as one of those authorized to seek triple damages. She says the National Association of Insurance Commissioners complained to DeConcini about the problem. The senator's response was that the attorney general could sue on behalf of the insurance department.

That response, Gallinger says, shows just how little DeConcini understands the problem of fraud by insurance companies. She points out her department often serves as a court-appointed receiver when insurance companies become insolvent, a role designed to protect the company's customers. In these types of cases the attorney general cannot step in to sue company officials for fraud, she says.

It gets worse.
The DeConcini bill allows a company accused of fraud to avoid RICO liability by arguing it relied on the action--or inaction--of a regulatory agency. Insurance-industry lobbyists argue that their business is so heavily regulated at the state level they should be able to use this regulation as a defense.

That assertion comes as a surprise to Gallinger. Arizona allows only limited regulation. State laws provide that if the insurance department doesn't actually prohibit a practice--whether because of inadequate staff or time or whatever--the insurance company can proceed. A prime example is when a company submits a form it wants to use to sell insurance. Under Arizona law the company doesn't have to prove to the state the form is fair and properly discloses all pertinent information. It can use the form unless and until the department specifically disapproves it. "Our statutes presume inaction," Gallinger says. She says an insurance company should not be able to hide behind very limited state insurance laws if it turns out it is defrauding customers.

That same roadblock would benefit the savings and loan industry, allowing it to escape RICO penalties simply by showing that state and federal regulators didn't catch a fraud.

DeConcini has crafted other special-interest provisions. One provides a blanket exemption from triple damages for securities and commodities dealers unless the perpetrator already has been convicted of a crime. And the senator even put in a retroactivity provision, meaning that pending cases would be governed not by the laws under which they were filed, but the watered-down version DeConcini wants.

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Howard Fischer