Extraterritorial Application

The application of RICO to claims that are based, in whole or in part, on racketeering activity occurring outside the United States has become an increasingly important issue in the global economy.  In Liquidation Comm’n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339 (11th Cir. 2008), a commission formed by the government of the Dominican Republic took over the assets of one of the country’s largest banks after it collapsed.  The commission brought a RICO claim against the defendant, a Florida businessman, alleging that the defendant and insiders at the bank wrongfully diverted millions of dollars to the defendant to finance his business ventures and personal expenses.  Id.  at 1343.  The defendant moved to dismiss the commission’s claims on the basis that RICO cannot reach extraterritorial conduct.  The Eleventh Circuit applied the traditional “conduct and effects” test, holding that “RICO may apply extraterritorially if conduct material to the completion of the racketeering occurs in the United States, or if significant effects of the racketeering are felt here.”  Id. at 1351-52.  Relying on the “conduct” prong of the extraterritorial standard, the court further concluded that the commission’s RICO claim was actionable:

Significant amounts of conduct in furtherance of the RICO conspiracy occurred in both the United States as well as the Dominican Republic.  Indeed, the conduct occurring in, or directed at, the United States in this case was not an insubstantial or preparatory part of the overall looting scheme, but the actual means of its consummation.  This scheme was carried out by directing transfers of funds to and from accounts at American banks. . . .  We have no doubt that under these circumstances, Congress would intend [the commission] to have recourse to American courts and remedies.

Id. at 1352; see also United States v. Chao Fan Xu, 2013 WL 28392, *8 (9th Cir. 2013) (holding that the defendants could be prosecuted under RICO: “Defendants’ pattern of racketeering activity may have been conceived and planned overseas, but it was executed and perpetuated in the United States. Under Morrison, we look “not upon the place where the deception originated,” but instead upon the connection of the challenged conduct to the proscription in the statute. . . .  [W]e conclude that Defendants’ criminal plan, which included violation of United States immigration laws while the Defendants were in the United States, falls within the ambit of the statute”].

Other circuit courts have, however, adopted a more restrictive rule regarding RICO’s extraterritorial application.   In Norex Petroleum Ltd. v. Access Ind., Inc., 631 F.3d 29 (2d Cir. 2010), the plaintiff alleged that the defendants participated in a widespread racketeering and money laundering scheme designed to seize control of the Russian oil industry.  The plaintiff also alleged that the defendants committed acts of racketeering in the United States in furtherance of the scheme.  Id. at 31.   The Second Circuit began by analyzing the Supreme Court’s decision in Morrison v. National Australia Bank, 130 S.Ct. 2869 (2010), which rejected the extraterritorial application of the United States’ securities laws.  The Supreme Court stated that “when a statute gives no clear indication of an extraterritorial application, it has none” – regardless of whether the defendants’ conduct or its effect relates to the United States.  Id. at 2878.

The Second Circuit extended Morrison’s logic to Norex, noting Second Circuit precedent holding that “RICO is silent as to any extraterritorial application” and that RICO did not regulate the largely foreign-based claim alleged by the plaintiff.  631 F.3d at 33.  In particular, the Second Circuit stated:

. . . simply alleging that some domestic conduct occurred cannot support a claim of domestic application.  “[I]t is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States.”  [Morrison, 130 S.Ct. at 2884 (emphasis in original).]  The slim contacts with the United States alleged by [the plaintiff] are insufficient to support extraterritorial application of the RICO statute. . .

 Id. at 33.   The Second Circuit further explicitly noted that its reasoning was limited to civil RICO claims brought under section 1964(c) and that it was expressing no opinion with regard to RICO actions brought by the government.  Id.

Just when it looked like the circuits could be splitting on the issue of RICO’s extraterritorial application, the Second Circuit softened its approach in European Community v. RJR Nabisco, Inc., 2014 WL 1613878 (2d. Cir. 2014), holding that “Congress has clearly communicated its intention that RICO apply to extraterritorial conduct to the extent that extraterritorial violations of those statutes [listed as acts of racketeering] serve as the basis for RICO liability.”  Id. at *5.  The court further held that the plaintiff alleged sufficient domestic conduct for the claims involving mail and wire fraud violations to sustain the application of RICO:  

The Complaint alleges that RJR essentially orchestrated a global money laundering scheme from the United States by sending employees and communications abroad.  It claims that RJR “communicated … with [its] coconspirators on virtually a daily basis by means of U.S. interstate and international wires as a means of obtaining orders for cigarettes, arranging for the sale and shipment of cigarettes, and arranging for and receiving payment for the cigarettes in question.” … The Complaint also states that RJR and its coconspirators “utilized the interstate and international mail and wires, and other means of communication, to prepare and transmit documents that intentionally misstated the purchases of the cigarettes in question so as to mislead the authorities within the United States, the European Community, and the Member States.” … The Complaint alleges that “the U.S. mails and wires are used by [RJR] to bill and pay for the cigarettes, to confirm billing and payment for the cigarettes, to account for the payment of the cigarettes to [RJR] and [its] subsidiaries, and to maintain an accounting of the proceeds received by [RJR] from the sale of cigarettes, with said proceeds ultimately being returned to [RJR] in the United States.”

Id. at *9.  Time will tell whether the competing standards of the Eleventh Circuit and Second Circuit are sufficiently similar to avoid a conflict that must be resolved by the Supreme Court.

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