Deterring Business Crime: RICO, False Claims Act, & Sarbanes-Oxley Act

Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

To deter business crime, Congress has three different laws, including the Racketeer Influenced and Corrupt Organizations, or RICO Act, the False Claims Act, and the Sarbanes-Oxley Act, which made executives accountable for the financial dealings of their business. Examine the types of business crimes addressed and how each law protects shareholders, employees, and consumers. Updated: 09/28/2021

What Is a Business Crime?

Simply, a business crime, often called white-collar crime, is a crime that is either financial or economical that is committed by corporations and their employees, like fraud, that has a negative impact on investors, employees and customers.

There is a long list of business crimes, including:

  • Embezzlement
  • Tax evasion
  • Insider trading
  • Anti-trust violations
  • Bribery
  • Money laundering

To name a few! Because business crimes have far-stretching consequences, legislators created acts to deter businesses from committing crimes. We will focus on three important acts designed to discourage corporate leaders from acting in ways that violate investors and others: the RICO Act, False Claims Act and Sarbanes-Oxley Act.

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  • 0:07 What Is a Business Crime?
  • 0:55 RICO Act
  • 2:53 False Claim Act
  • 4:14 Sarbanes-Oxley Act
  • 5:11 Lesson Summary
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RICO stands for Racketeer Influenced and Corrupt Organizations and is generally applied in federal court for crimes committed by individuals and corporations, like mail and wire fraud, but can include extortion and financial fraud. Actions that violate the RICO Act can be criminal or civil acts. The RICO Act was originally established to prosecute mafia activities but has been extended to include corporations.

To better understand the act, let's define racketeering as carrying on a set pattern of illegal business activities, like extortion or fraud, perpetrated by those who own the business. A pattern means that at least two criminal activities occurred by the business.

An example may help. In a case reported by the Federal Bureau of Investigation (FBI), owners Frank Colacurcio, Sr. and Frank Colacurcio, Jr. operated a strip club in Seattle, Washington. In the course of doing business, the pair also ran a prostitution ring. Violation of the RICO Act was easy to establish. Prostitution is illegal in most states, including Washington, and the prostitution business was ongoing. It was established that the Colacurcios set a pattern of moving money earned by prostitutes through his legitimate business.

Typically, prostitution is a cash-only business. As a result, other crimes go hand-in-hand with money laundering, like tax evasion and mail fraud. Hiding cash revenue and misleading authorities about the amount of people served at the strip club further prove the act's violation. Simply stated, the Colacurcios were able to accept cash for illegal activities, report only a fraction of income and avoid paying taxes on actual income earned. Tax evasion also violates the False Claims Act.

False Claims Act

The False Claims Act was established in the 1800s to deter citizens from requesting benefits from the Army. In recent times, it is used to punish people who file false claims with the government for the purpose of receiving a benefit that they did not earn or do not deserve.

To establish a violation of the False Claims Act, a few things need to be established:

  • The defendant has actual knowledge of the false claim.
  • The defendant deliberately ignored the truth.
  • Disregard was reckless.

Doctors generally accept both private and government insurance as a means to offset the cost of a visit. Once the patient leaves the office, there is really no way of knowing what services the doctor will bill the insurance company for. What we do know is that a doctor can only bill for services he actually performed.

If an unscrupulous doctor bills a government-issued insurance plan, like Medicaid, for services he did not perform on a patient, he is committing a crime. The important element in an insurance fraud case is intent. The doctor must know the information is false yet continue billing the company. You may have noticed by now that fraud seems to be the common thread amongst business crimes. Let's take a look at an act that holds corporate executives liable for financial reporting.

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