Did MLB Clubs Violate RICO?

On September 28, Yahoo! Sports reported that the Department of Justice had empaneled a grand jury to investigate corruption in Major League Baseball. Four days later, Sports Illustrated published redacted documents showing that the Los Angeles Dodgers, in particular, were targets of the investigation in connection with signings of foreign players, especially those from Cuba.

The emails published by Sports Illustrated appeared to show officials of one team helping to usher a player through a visa interview process in Haiti after he failed to secure necessary immigration documents in the Dominican Republic.

Baseball and the Cuba Embargo

As I’ve described here, these allegations are closely related to the Cuba embargo, its impacts on Major League Baseball, and MLB’s rules in response. Because the embargo prohibits U.S. businesses from engaging in most deals with Cuban nationals or entities, MLB clubs salivating over the island’s wealth of baseball talent find themselves in a spot.

Unable to legally hire players in Cuba, they can wait until a player decides to defect to the United States or a third country. If the player defects to the United States, however, he will be subject to the draft – not something the players (nor the agents, trainers, and handlers taking a cut) want. 

If, however, the player becomes a resident of a third country – say, Haiti or the Dominican Republic – he’s fair game to the clubs and can still be signed as a free agent.

This remains true even after the Department of Treasury under Obama issued a regulation permitting U.S. entities to pay salaries to Cuban nationals. The caveat to that regulation is that the payment is only permitted if the “national of Cuba is not subject to any special tax assessments by the Cuban government in connection with the receipt of the salary or other compensation.” This is a problem for Cuban baseball players because MLB clubs would somehow have to compensate the government-controlled Cuban baseball league before they could sign the players. 

So despite the Obama regulations (which remain in force), signing players straight out of Cuba to MLB contracts would seem to violate the embargo – hence the attractiveness of Cuban players who turn up with Haitian or Dominican residencies.

The Big Kahuna of Federal Criminal Liability: RICO

But how, exactly, does a member of the Cuban baseball league suddenly turn up with Haitian residency? Media reports (such as this one about Dodgers star Yasiel Puig) and a federal prosecution of a baseball agent and trainer in 2017 have revealed stories of players obtaining residency papers outside of Cuba under false pretenses. What’s unclear is how much MLB and the clubs know about and usher along the process.

Yahoo! Sports and Sports Illustrated reported that the grand jury investigation is focusing on potential violations of the Foreign Corrupt Practices Act. As noted by Sheryl Ring for FanGraphs, however, the acts described by the SI report suggest violations not only of the FCPA but also of the Racketeer Influenced and Corrupt Organizations Act, or RICO.

Proving a RICO Violation

RICO is serious stuff. The law was enacted in 1970 to give prosecutors and private plaintiffs a tool to tackle organized crime. It allows suits by private plaintiffs as well as federal prosecution. Criminal penalties include twenty years imprisonment (or even life if the underlying offense provides for it) and forfeiture of property. Civil suits can be brought by “[a]ny person injured in his business or property by reason of a violation of section 1962 ….” That would include baseball agents who would love to get a chance at representing Cuban players but don’t have access to them under the current system. Remedies include treble damages and attorneys’ fees – big money for plaintiffs and plaintiffs’ counsel.

A RICO violation is outlined in 18 U.S.C. § 1962. RICO prohibits:

•  investing the proceeds of a pattern of racketeering in an enterprise;
• acquiring or maintaining an interest in an enterprise through a pattern of racketeering;
• participating in an enterprise through a pattern of racketeering; or
• conspiring to do any of the above.

To establish federal jurisdiction, the enterprise must also be engaged in or its activities must affect interstate commerce.

There’s a lot packed into those few lines, and court decisions have elaborated on various elements of a RICO violation. There are questions about what constitutes an “enterprise” and a “pattern” of racketeering activity. For the third type of violation described above (§ 1962(c)), prosecutors or plaintiffs must show that the defendant conducted or participated in the “operation or management” of the enterprise.

These elements can sometimes be difficult to prove, depending on the structure of the organization and its activities. But many of these structural elements should be pretty straightforward in the case of MLB clubs, and possibly MLB itself (legally known as Major League Baseball Enterprises, Inc.).

First, it should be uncontroversial that MLB and the individual clubs could constitute “enterprises” that would be separate from the individuals participating in them for purposes of a § 1962(c) claim.

Second, multiple illegal signings within a ten-year period may show a pattern of acts that are “part of an ongoing entity’s regular way of doing business” (to cite a standard used by one circuit), especially in the context of MLB rules that still make such signings lucrative.

And third, team or MLB employees might be shown to have conducted or participated in activities through the questionable signings, and the Supreme Court has held that the “operation or management” test can go pretty far down the chain of command.

Possible Predicate Offenses Related to Trafficking of Cuban Players

To prove a RICO violation, prosecutors or plaintiffs would have to prove that the defendants committed certain underlying crimes or “predicate offenses.” Media reports on Cuban player signings suggest several possible RICO predicate offenses beyond the garden variety mail and wire fraud, each of which could spell trouble for MLB or team executives if they knowingly participated in such activities.  

Each of the following offenses are specifically enumerated in the definition of “racketeering activity”:

Identity document fraud. Section 1028 of Title 18 of the United States Code outlines criminal penalties not just for people who hold or use fake IDs, but also for anyone who “knowingly transfers an identification document … or a false identification document” if the person knew it was stolen or unlawfully produced.  

Forgery or false use of passports. Section 1543 provides for fines or imprisonment for “whoever willfully and knowingly uses, or attempts to use, or furnishes to another for use any … false, forged, counterfeited, mutilated, or altered passport or instrument purporting to be a passport.”

Misuse of passports. Section 1544 also provides criminal penalties for any person who “willfully and knowingly furnishes, disposes, of, or delivers a passport to any person, for use by another person than the person for whose use it was originally issued and designed.”

Visa fraud. Section 1546 extends to anyone who “knowingly subscribes as true, any false statement with respect to a material fact in any application, affidavit, or other document required by the immigration laws or regulations prescribed thereunder, or knowingly presents any such application, affidavit, or other document which contains any such false statement or which fails to contain any reasonable basis in law or fact.”

“Racketeering activity” is also defined to include offenses more commonly associated with organized crime and rumored to be involved in trafficking Cuban players, such as “any act or threat involving murder, kidnapping, … robbery, bribery, extortion ….” These types of acts or threats have been the subject of court testimony and media reports.

The definition also includes “forced labor” as described in Section 1589 (“whoever knowingly provides or obtains the labor or services of a person … by means of force, threats of force, physical restraint, or threats of physical restraint to that person or another person …”). Related offenses defined as “racketeering activity” include “trafficking with respect to … forced labor” in Section 1590 and “unlawful conduct with respect to documents in furtherance of trafficking” in Section 1592.

But there’s no need for prosecutors or plaintiffs to prove that MLB or team executives fit the public perception of old-time movie gangsters in order to establish RICO liability. Even if it proved difficult to connect executives with violent crimes and trafficking offenses, knowing immigration fraud alone could form the predicate for RICO liability and might give federal prosecutors grounds to indict on RICO charges.