Tag Archive | "RICO"

RICO Did Not Intend to Rebut the Presumption Against Extraterritoriality

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On June 20, 2016, the Supreme Court of the United States handed down its opinion in RJR Nabisco, Inc. et al. v. European Community et al., recognizing that in some cases the Racketeer Influenced and Corrupt Organizations Act (“RICO”) may have extraterritorial application. The Court further held that in order to bring a private cause of action, RICO requires that the plaintiff allege an injury to business or property suffered on U.S. territory. Since its enactment in 1970, RICO has become a powerful tool designed to fight organized crime. It allows for prosecution and civil causes of action for racketeering activity, such as fraud, embezzlement, money laundering or unfair trade practices.

To assert a civil claim under RICO, a plaintiff must establish that the defendant engaged in a pattern of racketeering activity connected to an enterprise. Furthermore, if a plaintiff successfully proves the defendant utilized an “enterprise” to commit racketeering, the plaintiff is entitled to recover treble damages and attorney’s fees. RICO prohibits any person from participating in a racketeering activity “to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.” 18 U.S. Code § 1962 (b).

Pursuant to the statute, the term “enterprise” consists of “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” Id. § 1961(4). The statute provides a long and broad list of offenses that constitute “racketeering activity” (also known as predicate acts), such as mail and wire fraud, counterfeiting, murder, kidnapping, gambling, robbery, bribery, and extortion. An enterprise is generally held liable under the statute if it engages in two or more predicate acts of racketeering.

RICO has also been utilized by many plaintiffs as a vehicle for transnational litigation. Although the statute provides detailed information on what constitutes racketeering activity, neither legislative history nor the statute itself clearly indicates whether Congress intended to extend RICO’s coverage beyond U.S. territory. The Supreme Court addressed the question of RICO’s extraterritorial reach in its decision in RJR Nabisco.

In RJR Nabisco, the European Community and twenty-six of its member states filed a claim in the United States District Court for the Eastern District of New York, in 2000, alleging that the RJR Nabisco (former food and tobacco giant) (“RJR”) violated RICO by participating in an international money laundering scheme, providing material support to foreign terrorist organizations, and engaging in mail fraud, wire fraud and Travel Act violations. The European Community alleged that the money laundering scheme consisted of several transactions: foreign drug traffickers smuggled narcotics into Europe and sold them for euros that were then traded for other foreign currencies and subsequently used to purchase cigarettes from cigarette wholesalers, who in turn laundered the money by purchasing the cigarettes from RJR and shipped those cigarettes into Europe. These activities, the plaintiffs claimed, harmed European governments in various ways, including loss of tax revenues and increased law enforcement costs. The Eastern District of New York dismissed the complaint, holding that “RICO is silent as to any extraterritorial application” of the statute to actions that took place abroad.

The Second Circuit reversed the District Court’s decision, concluding that Congress had clearly manifested an intent for RICO to apply extraterritorially in these circumstances. The court reasoned that “RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate,” and, because predicate offenses, such as money laundering and providing material support to foreign terrorists, applied extraterritorially, Congress intended for RICO to apply extraterritorially as well.

The Supreme Court granted certiorari on the issue of whether RICO applies extraterritorially. The Court noted that generally there is a legal presumption against extraterritorial application of U.S. laws. In other words, unless Congress has clearly expressed a contrary intent, federal statutes can only be enforced on U.S territory. Therefore, to decide whether RICO applied extraterritorially, the Court utilized a two-part analysis. Under the two-part analysis, the court must first determine whether there is an indication that Congress intended for the statute to create a private right of action for foreign injuries. If there is no such intent, the Court should apply the second part of the test, which examines, whether the statute’s private right of action applies to business or property injuries and damages suffered in foreign countries.

The Court found that by incorporating some of the predicate offenses involving foreign conduct into the Statute, Congress gave a clear indication that RICO’s substantive provisions were intended to apply extraterritorially. The Court was careful to note that “[t]he inclusion of some extraterritorial predicates does not mean that all RICO predicates extend to foreign conduct.” In analyzing the second part of the test, the Court concluded that because the alleged injuries to business or property occurred outside of the United States, RICO’s private right of action does not overcome the presumption against extraterritoriality.

The Supreme Court’s holding in RJR Nabisco was not surprising in light of prior decisions. Since 2010, the Court has issued several rulings which limited the extraterritorial application of several U.S. statutes, including the Alien Tort Statute, the Torture Victim Protection Act, and the Securities and Exchange Act. A brief summary of two cases, Kiobel v. Royal Dutch Petroleum Co. and Morrison v. National Australia Bank Ltd., provided below, examine the facts and reasoning behind the Supreme Court’s decisions to limit the extraterritorial application of the Alien Tort Statute and the Securities and Exchange Act.

  1. Morrison v. National Australia Bank Ltd.

On June 24, 2010, in Morrison v. National Australia Bank Ltd., the Supreme Court concluded that claims under § 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) are not available for securities purchased on foreign stock exchanges.

In Morrison, National Australia Bank Limited (“National”), a foreign bank whose shares were traded on foreign securities exchanges, purchased HomeSide Lending, Inc. (HomeSide), a U.S. – based mortgage servicing company. Sometime between 1998 and 2001, National and HomeSide overstated the value of HomeSide’s mortgage-servicing rights. The inflated values were disseminated through National’s financial statements. These financial statements represented to the public that the mortgage servicing company was a success. After National announced that the valuation model was incorrect, a group of the bank’s international shareholders (who bought their shares on foreign securities exchanges) brought lawsuit against both National and HomeSide in the U. S. District Court for the Southern District of New York, claiming violations of §10(b) of the Exchange Act. § 10(b), also referred to as the anti-fraud provision, makes it unlawful for any person “to use or employ, in connection with the purchase or sale of any security… any manipulative or deceptive device or contrivance” that would violate the rules and regulations prescribed by the Securities and Exchange Commission. The District Court dismissed the complaint for lack of subject-matter jurisdiction. The Second Circuit Court of Appeals affirmed the District Court’s ruling. The Supreme Court granted certiorari to decide whether U.S. courts had jurisdiction over private claims pursuant to §10(b) of the Exchange Act.

For the first time, the Court addressed the question of “foreign cubed” cases brought by foreign plaintiffs against a foreign company in relation to a transaction that took place outside of the United States. The Court held that §10(b) does not apply to transactions in securities listed on foreign exchanges. The Court further held that the presumption against extraterritoriality prohibited domestic courts from extending U.S. securities laws beyond U.S. soil. The Court reasoned “[i]t is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States[…] When a statute gives no clear indication of an extraterritorial application, it has none.”

  1. Kiobel v. Royal Dutch Petroleum Co.

On April 17, 2013, the Supreme Court issued a landmark decision in Kiobel v. Royal Dutch Petroleum Co., holding that a presumption exists against extraterritorial application of the Alien Tort Statute (“ATS”). For many years, ATS allowed foreign citizens to sue other foreign citizens in the United States for the violations of international law that occurred abroad.

The Kiobel Court ruled that ATS does not generally permit claims based on illegal conducts that took place outside of the United States. The Court explained that in order to overcome the presumption against extraterritoriality, it is necessary that the alleged violations “touch and concern the territory of the United States” with “sufficient force.”

In Kiobel, a group of plaintiffs, residents of the Ogoni region of Nigeria, brought a lawsuit against British, Dutch, and Nigerian oil corporations alleging that the companies aided and abetted the Nigerian government in committing crimes against humanity. The Supreme Court granted certiorari on the question of corporate liability; however, the Court then shifted its focus to the question of the ATS’s extraterritorial application. The Court noted that the statute does not apply extraterritorially unless the legislature explicitly indicated otherwise. After examining the text, history, and purpose of the ATS, the Court concluded that nothing in the text of the statute suggests an intended extraterritorial reach. Further, the Court concluded that ATS claims must “touch and concern” the United States with “sufficient force” to displace the presumption against extraterritoriality.

The opinions in these three cases are reasonable because the Court was trying to limit the jurisdictional overreach of U.S. laws. By curtailing the extraterritorial scope of the ATS and RICO, the Court intended to eliminate the risk of imposing U.S. laws on conduct that occurred within the jurisdiction of a foreign country. Moreover, the Court’s decisions are consistent with the universally acknowledged concept of sovereign equality, which requires mutual respect for the sovereignty and national identity of all States.

 

Jeyla Zeynalova is a staff editor on the Denver Journal of International Law & Policy.

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University of Denver Sturm College of Law

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