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, 706 F.3d 965, 979 (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, 561 U.S. 247 (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 255.

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 Cmty. v. RJR Nabisco, Inc., 764 F.3d 129 (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 137.

Given the differing approaches adopted by the circuit courts, the Supreme Court granted certiorari and reviewed the Second Circuit’s decision in European Cmty.  With regard to RICO’s substantive liability provision, § 1962, the Supreme Court agreed with the Second Circuit’s decision in European Cmty., holding that “RICO applies to some foreign racketeering activity”:

A violation of § 1962 may be based on a pattern of racketeering that includes predicate offenses committed abroad, provided that each of those offenses violates a predicate statute that is itself extraterritorial.

RJR Nabisco, Inc. v. European Cmty., 136 S.Ct. 2090, 2103 (2016).  The Supreme Court said, however,  that for civil plaintiffs, the extraterritoriality of § 1962 is only half of the equation.  The civil plaintiff must also establish the extraterritorial reach of RICO’s civil remedy provision:

Nothing in § 1964(c) provides a clear indication that Congress intended to create a private right of action for injuries suffered outside of the United States.  The statute provides a cause of action to “[a]ny person injured in his business or property” by a violation of § 1962….  The statute’s reference to injury to “business or property” also does not indicate extraterritorial application.  If anything, by cabining RICO’s private cause of action to particular kinds of injury — excluding, for example, personal injuries — Congress signaled that the civil remedy is not coextensive with § 1962’s substantive provisions….

Id. at 2108.  The Supreme Court went on to hold that “[s]ection 1964(c) requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injuries.” Id. at 2110. The Supreme Court noted that what constitutes a “domestic injury” will not always be self-evident, leaving the precise definition and application of that phrase to the lower courts.

The Courts of Appeal are beginning to give concrete meaning to RJR Nabisco’s “domestic injury” requirement.  In Bascunan v. Elsaca, 874 F.3d 806 (2d Cir. 2017), the Second Circuit held that when a RICO plaintiff alleges separate schemes that harm materially distinct interests to business or property, each injury should be analyzed to determine whether it is a domestic injury.  Id. at 814 (noting that the use of bank accounts located in the U.S. to facilitate or conceal a theft of property outside the U.S., without more, is not a domestic injury).  The court further stated that with regard to injury or damage to tangible property located in the United States, that injury is a domestic injury even if the plaintiff is a foreign resident.  Id. at 824-825.

In Yegiazaryan v. Smagin, 599 U.S. 533 (2023), the Supreme Court clarified that the location of an injury to a property interest is not necessarily determined by the place of the plaintiff’s residence. The Supreme Court held that the location of determined by looking at the context of the injury:

A plaintiff has alleged a domestic injury for purposes of § 1964(c) when the circumstances surrounding the injury indicate it arose in the United States. Smagin alleges that he was injured in California because his ability to enforce a California judgment in California against a California resident was impaired by racketeering activity that largely occurred in or was directed from and targeted at California. Those allegations state a domestic injury.

Id. at 549; see also Global Master Int’l Group, Inc. v. Esmond Natural, Inc., 76 F.4th 1266 (9th Cir. 2023) (applying Yegiazaryan, adopting a contextual approach to the determination of what constitutes a domestic injury, and holding that although defective products were shipped to China, they were delivered to a U.S. port with the bill of lading that said “F.O.B., Los Angeles U.S.A.,” meaning that  that the plaintiff suffered a domestic injury when it took possession of the defective products in Los Angeles).

In Humphrey v. GlaxoSmithKline PLC, 905 F.3d 694 (3d Cir. 2018), the court held that the plaintiff did not suffer a domestic injury because the plaintiff lived in China, had its principal place of business in China, provided services in China, entered the applicable agreement in China (which a Chinese choice of law provision), met with the defendant’s representatives in China, and acknowledged that the claim arose in China on its civil coversheet.  Id. at 707-08.  The plaintiffs alleged loss of goodwill and prospective customers in the United States did not render its injury domestic for purposes of RICO’s application.  Id.; see also Percival Partners Ltd. v. Nduom, 2024 WL 1864970, *7 (4th Cir. 2024) (foreign victims who entrusted Ghanaian funds to a Ghanaian entity, with no expectation that their money would end up in the U.S. did not allege a “domestic injury”; the defendants’ use of American entities to complete their scheme does not domesticate an otherwise foreign injury); City of Almaty v. Khrapunov, 956 F.3d 1129, 1132-33 (9th Cir. 2020) (the plaintiff did not suffer a “domestic injury” when it voluntarily spent money in the U.S. to track down property allegedly stolen by the defendant).

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