The World in U.S. Courts: Summer 2014 - Racketeer Influenced and Corrupt Organizations Act (RICO) | April.23.2014
The European community and 26 member states sued RJR Nabisco and related entities for RICO and other violations, alleging a global money laundering scheme in connection with cigarette smuggling and the nonpayment of taxes. A trial court dismissed the claim, finding among other things that the allegations were extraterritorial in nature and thus outside the scope of the RICO statute. The U.S. Court of Appeals in New York reversed this decision and reinstated the complaint.
Prior decisions applying the presumption against RICO having extraterritorial applicability reflected a split of authority: some decisions stated that the focus of the analysis should be on the geographic reach of the “enterprise” while others stated that the focus should be on the reach of the “pattern of racketeering activity.” The Court of Appeals in New York disagreed with both approaches. It reasoned that, while the RICO statute was itself silent as to extraterritorial application, certain of the underlying “predicate” violations of law that make up the required “pattern of racketeering activity” clearly reflect an intent that they be applied to conduct outside the U.S., and that the scope of RICO should follow the scope of those violations. Thus, the Court of Appeals reasoned, where the alleged “pattern of racketeering activity” was comprised of conduct outside the U.S. that nonetheless violated a provision of law that was a RICO predicate, there was no reason to deny application of the RICO statute itself. The Court of Appeals accordingly held that RICO’s geographic scope would follow the geographic scope of the alleged “predicate” offenses implicated by the facts alleged.
Applying this standard to the complaint, the Court of Appeals concluded that the alleged predicate violations of money laundering and material support of terrorism did have extraterritorial applicability, whereas those of wire fraud and money fraud and the Travel Act (interstate or travel to destinations outside of the U.S. in aid of a violation of law) did not. As to these latter violations, however, the Court of Appeals stated that the complaint’s allegation that the money laundering scheme had been orchestrated from the U.S. was sufficient to establish U.S.-based jurisdiction without the concept of extraterritoriality even being raised. Further, the Court of Appeals believed that the complaint alleged schemes directed to the U.S. and that had a substantial U.S. effect, further supporting its conclusion that RICO should apply.