Morrison, RICO And Extraterritorial Reach

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In the wake of Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), a critical question has been whether a statute has extraterritorial reach. In Morrison the Court rejected a claim that Exchange Act Section 10(b) had such effect despite years of Circuit Court president to the contrary. Rather, the High Court in Morrison concluded that the reach of the Section was the U.S. water’s edge – either the securities transaction had to take place on a U.S. exchange or within the country or it was not covered by the statute. This conclusion was based largely on the presumption against extraterritorial effect absent express language in the provision that Congress intended such an effect.

Following Morrison the Second Circuit rejected claims of extraterritoriality in a RICO suit. Norex Petroleum Ltd. v. Access Industries, Inc., 631 F. 3d 29 (2nd Cir. 2010). In European Community v. RJR Nabisco, Inc., 11-2475 (2nd Cir. Decided April 29, 2014) the Court clarified Norex, however, holding that Morrison does not always bar RICO from having extraterritorial reach.

The complaint claims that RJR directed, managed and controlled a global money-laundering scheme with organized crime groups in violation of RICO. The firm is claimed to have laundered money through New York based financial institutions and repatriated the profits of the scheme to the United States. This is accomplished through a multi-step scheme that begins with the sale of drugs which produces euros. Money brokers then sell the euros to cigarette importers at a discount and use the money to buy RJR’s cigarettes. The money brokers then use the funds from the cigarette importers to repeat the cycle. The enterprise is a loose association of Colombian and Russian drug-dealing organizations and European money brokers whose activity were directed outside the U.S. RJR committed various predicate racketeering act including mail fraud, wire fraud, money laundering, violations of the Travel Act and providing material support to foreign terrorist organizations.

The District Court dismissed the RICO claim, following Norex and Morrison. The Circuit reversed. In Norex the Court rejected a claim that RICO had extraterritorial reach simply because it involved an enterprise which is engaged in activities that affect “interstate or foreign commerce.” The Court also rejected claims of extraterritorial effect simply because some of the predicate acts for RICO are based on statutes which in and of themselves clearly have such effect. However, the District Court’s conclusion that Norex rejected of extraterritorially in all of its applications . . “ is incorrect. Rather, the Court “conclude[d] that RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate. Thus, when a RICO claim depends on violations of a predicate statute that manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to extraterritorial conduct, too, but only to the extent that the predicate would.”

This conclusion, the Court held, is compelled largely by the statutory language. RICO itself does not have language which compels the conclusion that it has extraterritorial effect. Yet Section 1961(1), which defines “racketeering activity” for purposes of RICO, incorporates by reference a number of federal criminal statutes. Some of those statutes by their terms can only apply to activities outside the U.S. Other statutes clearly apply to both domestic and extraterritorial conduct. “By incorporating these statutes into RICO as predicate racketeering acts, Congress has clearly communicated its intention that RICO apply to extraterritorial conduct to the extent that extraterritorial violations of those statutes serve as the basis for RICO liability.”

The District Court’s conclusion that RICO could never have extraterritorial effect disregarded the differences between the statutes which can be predicate acts. Likewise the Court’s conclusion that the defendant must be associated with a domestic enterprise to sustain RICO liability is “illogical.” This would mean that foreign actors who engage in domestic crimes are immune under the statute. That clearly is not the meaning of the presumption against extraterritorial application. Rather, “[w]e think it is far more reasonable to make the extraterritorial application of RICO coextensive with the extraterritorial application of the relevant predicate statutes. This interpretation at once recognizes that ‘RICO is silent as to any extraterritorial application’ and thus has no extraterritorial application independent of its predicate statutes.” This result is consistent with the recent ruling in U.S. v. Chao Fan Xu, 706 F. 3d 965 (9th Cir. 2013).

 

Topics:  EU, Extraterritoriality Rules, Money Laundering, Morrison v National Australia Bank, RICO, Rule 10(b), Russia

Published In: Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Securities 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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