In European Community v. RJR Nabisco, Inc., Case No. 11-CV-2475 (2d Cir. Apr. 23, 2014), the United States Court of Appeals for the Second Circuit held that the Racketeer Influenced and Corrupt Organizations (“RICO”) statute, 18 U.S.C. § 1961, et seq., could apply to conduct outside the territory of the United States. In doing so, the Second Circuit addressed the United States Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) [blog article here], which held that United States statutes are presumed not apply to extraterritorial conduct, unless Congress has clearly indicated its intent that the statute have extraterritorial application. Applying Morrison, the Second Circuit determined that RICO could apply to extraterritorial conduct, because a number of the statutes listed as predicate acts for RICO liability clearly apply extraterritorially. The Second Circuit ultimately concluded “that RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate.” Thus, even after the Supreme Court’s ruling in Morrison, RICO liability can still attach to foreign conduct where the underlying predicate statute applies to extraterritorial conduct.
In this case, the European Community and 26 of its member states (collectively the “European Community”) brought an action against RJR Nabisco, Inc. and a number of its corporate affiliates (collectively, “RJR”) alleging that “RJR directed, managed, and controlled a global money-laundering scheme with organized crime groups in violation of the RICO statute, laundered money through New York-based financial institutions and repatriated the profits of the scheme to the United States, and committed various common law torts in violation of New York state law. The complaint alleged a number of predicate racketeering acts, as required by the RICO statue, including violations of the Travel Act, 18 U.S.C. § 1952, and violations of the statutes criminalizing mail fraud, wire fraud, money laundering and providing material support to foreign terrorist organizations. The complaint also alleged claims under New York state law for fraud, public nuisance, unjust enrichment, negligence, negligent misrepresentation, conversion and money had and received. RJR filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing primarily that RICO could not apply to extraterritorial conduct in the wake of Morrison.
In considering RJR’s motion to dismiss, the United States District Court for the Eastern District of New York determined that the racketeering enterprise alleged in the complaint was a foreign enterprise “which consisted largely of a loose association of Colombian and Russian drug-dealing organizations and European money brokers whose activity was directed outside the United States.” The district court held that the complaint failed to state a viable RICO cause of action, because the “focus” of the RICO statute is the racketeering enterprise, and, absent a domestic enterprise, Morrison’s presumption that United States statutes do not apply extraterritorially would preclude such extraterritorial application.
The Second Circuit disagreed, holding that “Congress manifested an unmistakable intent that certain of the federal statutes adopted as predicates for RICO liability apply to extraterritorial conduct.” The Second Circuit held further that when a predicate act underlying a RICO claim applies extraterritorially, then any claim based upon that act would also. In support of this holding, the Second Circuit cited RICO predicate statutes that only apply to extraterritorial conduct, such as 18 U.S.C. § 2332, which criminalizes killing and attempting to kill United States nationals outside of the United States. The Second Circuit found that these predicate statutes exhibited Congress’s intent that, in certain circumstances, RICO should apply extraterritorially. The Second Circuit then determined that the European Community’s claims that alleged predicate acts of money laundering and providing material support for terrorism could apply extraterritorially in light of the clear indications from Congress that those statutes were designed to criminalize foreign conduct.
The Second Circuit reached a different conclusion with respect to the RICO claims based upon predicate acts of mail fraud, wire fraud and violations of the Travel Act. The Court held that these claims did not apply extraterritorially because Congress did not exhibit the intent to make those statutes apply extraterritorially. The Second Circuit, however, allowed those claims to proceed, because it held that the complaint alleged “that RJR essentially orchestrated a global money laundering scheme from the United States by sending employees and communications abroad.” The Court held that this allegation, and other similar allegations, established a domestic enterprise and that the alleged scheme was directed at the United States in a way that had significant domestic ramifications. Ultimately, those allegations provided a sufficient domestic nexus for the claims to proceed past the pleading stage. The Second Circuit, however, made clear that, at trial and on summary judgment, the European Community would be required to provide proof of the domestic nature of those predicate statutory violations.
Whereas the Supreme Court’s decision in Morrison dealt specifically with the Securities Exchange Act of 1934, the Second Circuit’s application of Morrison to RICO claims in this case suggests that Morrison may have significant implications beyond the securities laws. Future decisions likely will rely upon the Court’s approach here of carefully heeding the underlying principals articulated in Morrison, and requiring a showing of clear Congressional intent before any federal statute will be applied to extraterritorial conduct.