US Court of Appeals Rejects Venezuelan Bankers Rico Claim

by Michael Diaz Jr. - Diaz Reus International Law Firm

The US Court of Appeals has upheld a lower court ruling in favour of Venezuelan government officials and businessmen accused of violating the US Racketeer Influenced and Corrupt Organizations Act (RICO) on the grounds that the complaint did not fall under US jurisdiction, in a case that tested the extraterritorial reach of the RICO statute.

The case was first filed before the United States District Court for the Southern District of New York by Eligio Cedeño, a Venezuelan banker living in exile in Miami having left Venezuela after spending three years in prison in connection with a money laundering operation. Cedeño argued that the operation amounted to an extraterritorial violation of RICO and also alleged a conspiracy between several high ranking Venezuelan government officials and businessmen who he said used a combination of official pressure and threats to extort his interest in two Venezuelan banks while he was imprisoned.

In August 2010 the District Court ruled that the act did not cover the complaint and Cedeño took the case to the US Court of Appeals, which upheld the ruling on 25 January this year, confirming that the business enterprise in question was Venezuelan and that the facts were insufficient to support extraterritorial application of the RICO statute.

Diaz Reus & Targ, LLP partner Gary Davidson, counsel to one of the defendants, says, “This case had enormous importance because it was one of the first to address the possible extension to RICO [based on a] very recent US Supreme Court precedent admonishing the lower courts about extending the reach of US laws extraterritorially in the absence of a clear mandate from Congress to do so.”

Davidson refers to Morrison v. National Australia Bank, in which the US Supreme Court held that fraud provisions of US securities law do not affect transactions made by non-US investors in securities of non-US companies listed on non-US exchanges, even if the investors claim that their losses arose from conduct in the US.  “That opinion represented a significant step towards reinforcing the way the court rules extraterritorially,” says Davidson.

Marcus & Auerbach LLC partner Jerome Marcus, counsel to Cedeño, says his client’s argument focused on the fact that, despite the money laundering operation being based in Venezuela, an essential part of it took place in the US.

According to Marcus, Cedaño became embroiled in illegitimate trade when, working in a Venezuelan bank, he was asked to facilitate a transaction for some prospective clients that said they ran a business importing computers from Florida to Venezuela. It emerged that the company was a front for a money laundering operation, and Cedaño was jailed in Venezuela for three years.

The court documents read that that the civil action, brought under RICO, seeks “damages arising out of a wide-ranging money laundering scheme that utilized New York-based US banks to hold, move and conceal the fruits of fraud, extortion, and private abuse of public authority” by Venezuelan government officials and their confederates. The documents say that the complaint alleges that these individuals and entities arranged to have Cedeño unjustifiably imprisoned for almost three years in Venezuela, as well as damaging his business, co-plaintiff Cedel International Investment.

Marcus argues that the court’s opinion on RICO’s extraterritorial reach could prove to be a political stumbling block in the future. He notes that the RICO act is frequently used by the US government to prosecute dictators in other parts of the world engaging in money laundering. As the majority of the world’s money laundering involves the exchange of US dollars, part of the transaction will usually take place in the US, which should give US courts jurisdiction over the crime. “Were the US courts to hold that RICO doesn’t reach this kind of activity, that would be a problem for the government,” he says.


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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