The Expanding Territorial Reach of RICO: It's Not Just For U.S.-Based Organized Crime Anymore

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Background

The Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–68 ("RICO"), was passed in 1970 for the primary purpose of "seeking the eradication of organized crime in the United States." Pub. L. 91-452, 84 Stat. 922, 923. Although RICO was intended to reach organized crime perpetrated by the Mafia, in the four decades since its inception, RICO has been used to reach conduct as varied as municipal tax evasion, civil fraud, and even terrorism.

Unsurprisingly, as RICO's substantive scope has expanded, so too have courts considered whether RICO may apply extraterritorially. For example, may a plaintiff (or the government) use RICO to seek redress for conduct occurring wholly outside the United States? Conversely, may foreign litigants use RICO to address activities that, while occurring in the United States, have little effect on parties in America? Courts have adopted varied "tests" to determine whether RICO may apply extraterritorially and have reached mixed results.

Now, a case pending on a writ of certiorari to the Supreme Court brings a number of these issues to the fore. United States v. Philip Morris USA, Inc. 566 F.3d 1095 (D.C. Cir. 2009) (hereinafter, BATCo), petition for cert. filed, 78 U.S.L.W. 3501 (U.S. Feb. 19, 2010) (No. 09-980) is part of a $280 billion civil RICO case the government has been pursuing against the tobacco industry for over a decade. Defendant British American Tobacco (Investments) Ltd. ("BATCo") is a British corporation with its principal place of business in England.1 BATCo is among eleven tobacco industry entities the United States government sued to recover the costs of tobacco-related illnesses allegedly caused by the defendants' conduct. See United States v. Philip Morris USA, Inc., 449 F. Supp. 2d 1, 31–32 (D.D.C. 2006). BATCo never marketed cigarettes in the United States and did not directly cause fraudulent statements to be made to U.S. consumers regarding the potential health effects of smoking. Yet, both the district court and the D.C. Circuit Court of Appeals held that BATCo's wholly foreign conduct provided a sufficient basis for RICO liability because that conduct was part of the tobacco industry's scheme to hide the health effects of smoking; a scheme that had consequent effects in the United States.

Indeed, the D.C. Circuit held that any time foreign conduct has adverse effects within the United States, there is actually no "true" question of extraterritoriality for the court to examine at all. BATCo, 566 F.3d at 1130. Instead, in a departure from long standing precedent establishing a presumption against the extraterritorial application of U.S. laws, the D.C. Circuit held that where such adverse effects are felt in the United States, the court need not consider that presumption, nor whether Congress intended the law to apply outside the United States. Id. at 1130.

If the D.C. Circuit Court's decision is left intact, it will represent a substantial expansion of the extraterritorial application of RICO which could present palpable risks for U.S. companies with foreign affiliates and foreign companies that conduct operations in the United States.

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