The first appellate decision following the Supreme Court’s “domestic injury” requirement in civil RICO has cleared up the vexing uncertainty about what this really means. In Bascunan v. Elsaca the Second Circuit reversed a lower court decision which had held a dispute between two Chileans over the theft of large sums of money held in family trusts did not involve a “domestic injury.”
The district judge in New York City had focused on the citizenship of the parties in his analysis rather than the location of the RICO violations. He relied primarily on New York’s accrual rules for tort claims, which might have made sense since RICO is a statutory tort and the RJR Nabisco decision intentionally left the analysis of “domestic injury” open for judicial debate. (The plaintiff in the Supreme Court conceded it had not suffered a “domestic injury,” an unecessary concession since there was no settled understanding of what that meant.) The result of the district court’s decision is that RICO would not apply to foreigners even if they commit crimes in this country, which the Supreme Court suggested was an untenable outcome in RJR Nabisco.
The Second Circuit took a more factual analysis of the case and examined each of the Plaitiff’s four alleged injuries separately. It decided that two were not domestic because the thefts were committed abroad. The only U.S. connection was parking the money in accounts in New York financial institutions thereafter. But the other two thefts occurred from New York. So those were domestic. Thus, the rule enunciated is that the property involved in an injury must be “physically located in the U.S.” for there to be a domestic injury. This is going to please the financial services sector because so much of the world’s wealth passes through accounts based here. This surely was a factor in the Second Circuit’s reasoning as it sits in Manhattan. where the largest banks are headquartered.
But foreigners who orchestrate crimes which are carried out in this country can clearly be sued under RICO. They cause “domestic injuries” for purposes of 1964(c), RICO’s civil damages provision, and although this case did not pass on the issue of the extraterritoriality of the wire fraud statute, that has already been interpreted by the lower courts to apply to “domestic applications.” This is a welcome clarification to a huge uncertain area in RICO cases with foreign players.