Judge Stein on Saddam, Oil for Food and RICO

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In Republic of Iraq v ABB AG, Judge Stein dismisses claims by the current Iraqi government, the Republic of Iraq, against BNP Paribas under RICO for facilitating the corruption of the United Nation’s Oil for Food Program by the Saddam Hussein Regime. The Oil for Food Program was intended to allay the suffering of the Iraqi people caused by worldwide trade sanctions against Iraq after its 1990 invasion of Kuwait. The Program allowed Iraq to sell oil to third parties so long as the proceeds were used to purchase food and medical supplies for the Iraqi population. Under the Program, the proceeds of approved sales were deposited in a UN escrow account at the New York Branch of BNP Paribas. According to the complaint, the Hussein Regime, with the active assistance of the Bank and other defendants, exploited the Program to siphon off millions of dollars in kickbacks for itself and its political allies.

In a fascinating decision, Judge Stein finds the Republic has standing to sue for wrongful depletion of the UN escrow account because the account was held for Iraq’s “proprietary benefit,” and further finds that the Republic’s claims are not barred by either the act of state or political question doctrines. But, after dangling those hopeful signs before the Republic, he then dismisses its case against BNP with prejudice.

First, Judge Stein finds that the RICO scheme concerning the Oil for Food Program “is primarily foreign…” Accordingly, there is no basis for adjudication of the claim in the SDNY. “The RICO statutes do not apply extraterritorially… [and] the peripheral contacts with the United States - up to an including the use of a New York bank account - do not bring an otherwise foreign scheme within the reach of the RICO statutes.” 

But, Judge Stein goes further and also finds that the corruption of the Program by the Hussein Regime is attributable to the Republic. Therefore, the Republic's RICO claims also are dismissed on the grounds of its own in pari delicto. “The ethicality, illegitimacy, or illegality of the acts [of the Hussein Regime] does not immunize the Republic of Iraq from responsibility. Instead, the Republic of Iraq bears responsibility for the Hussein Regime’s conduct alleged here because that conduct was governmental.” Judge Stein also finds that BNP’s servicing of the escrow account was too remote to be the proximate cause of Iraq’s RICO injuries.

The American court system can look pretty appealing to aliens, even foreign governments – you don’t have to pay the other side’s legal fees if you lose, and you get wide ranging discovery with the benefit of capacious statutes that allow for a cocktail of claims (RICO, 10b-5, aiding and abetting liability to name a few). And sometimes even the threat of treble damages. Why wouldn’t an alien plaintiff try to get his case heard here? Yet, like Judge Stein, our courts are more and more testing the notion that they should welcome claims arising outside our borders.   


 

Topics:  Dismissal With Prejudice, International Litigation, Iran Sanctions, Oil for Food Program, Political Question Doctrine, RICO

Published In: Civil Procedure Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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