The “extraterritorial” application of federal statutes has been a big issue since the Supreme Court’s Morrison decision four years ago. Morrison rejected the attempt to apply U.S. Securities law to the purchase by a American citizen of securities on the Australian stock exchange. The Court reaffirmed the long-standing presumption against the application of American law to conduct occurring abroad. But this has been difficult to apply to RICO cases with foreign elements- as many illegal schemes sprawl through foreign holding companies, banks and co-conspirators.
At what point does a RICO case become “extraterritorial?” Some district judges have looked at the RICO enterprise and decided it was the key element. Others have drawn the line at the locus of the racketeering activity, believing that was the point of the law. The Second Circuit muddied the inquiry with its Norex decsion three years ago holding that complicated case involving control of the Russian oil industry was extraterritorial because it had “slim contacts” with the U.S. The slimness of the contacts were not ascribed to either the enterprise or the racketeering activity, and the opinion was too short to lend much guidance in future cases.
Last week the Second Circuit decided European Community v. RJR Nabisco, which clarifies what makes a RICO case extraterritorial. It’s the location of the racketeering acts, not the enterprise. There the European Community is alleging RJR Nabisco “orchestrated a global money laundering scheme from the U.S. by sending employees and communications abroad.” Since these schemes were committed in the U.S., they are not considered extraterritorial even though they are alleged to have been directed at foreign entities. This has significant implications for future RICO cases involving foreign plaintiffs. Many frauds are committed by Americans using mails and wires for the purpose of defrauding foreign businesses or people. Under this decision, those cases are not extraterritorial and can be heard in U.S. courts. (RICO cases can also be brought in state courts.) The extraterritoriality problem only arises when a plaintiff wants to use RICO to sue for damages committed abroad. So the European Community can proceed with its massive RICO suit in New York.
The decision also clarified that certain RICO predicate acts can be the basis of RICO claims if those laws provide for extraterritorial application. The federal money laundering statute is one such law, which by its own terms applies abroad. So that part of the European Community’s case can proceed even though the illegal conduct occurred abroad. This is consistent with Morrison because it recognized some laws are written to expressly apply to extraterritorial conduct.
The decision basically supersedes the confusing Norex opinion, which raised more questions than it answered. But European Community only applies in the Second Circuit. Federal judges elsewhere are not bound by it. Yet in the absence of other competing appellate decisions applying a different take on extraterritoriality, this should be persuasive to federal district judges, more so than the slew of contradictory district court opinions out there. So for now, this is the leading case on extraterritoriality, and it favors many RICO plaintiffs.