The World in U.S. Courts: Spring 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO) | February.08.2017
Various Cayman Island hedge funds claim to have been defrauded by a number of individuals and companies and suffered damages in excess of US$200 million. The alleged scheme involved extensive efforts to cover up the fraud, and the present suit names as defendant the nominal ex-wife of a principal alleged fraudster, described as a citizen of the US and Brazil. Among other issues, the District Court in Florida addressed the question whether the multi-national allegations of wrongdoing and damages could be redressed in a private civil RICO action.
The Court observed that, pursuant to the Supreme Court’s 2016 decision in the RJR Nabisco case, RICO applied to conduct outside the US to the extent the “pattern of racketeering activity” alleged was based on violations of statutes that themselves had extraterritorial effect. The Court proceeded to identify RICO predicate violations alleged in the complaint that may have extraterritorial effect: money laundering (18 USC § 1956) and the related claim of aiding and abetting the money laundering; engaging in monetary transactions in criminally-derived property (id. § 1957(d)(2)); transportation of fraudulently-taken goods (id. § 2314); receipt and disposal of illegally-taken goods (id. § 2315); and wire fraud (id. § 1343). The Court found that § 1956 and its aiding and abetting claim as well as § 1957(d)(2) had extraterritorial effect under the conditions stated in those statutes; two provisions (18 USC §§ 2314 and 2315) arguably had language calling for extraterritorial application, and the extraterritoriality of a third, wire fraud under § 1343, was the subject of disagreements among courts. Ultimately, however, the Court concluded it was unnecessary to resolve these issues because adequate US conduct had been alleged to state a RICO violation regardless of the geographic scope of the predicate offenses.
The Court then turned to the question whether a private Civil RICO claim could be brought in light of the RJR Nabisco decision’s requirement that a plaintiff in such case show a US “domestic” injury. The parties differed as to the proper analysis for determining where an injury had occurred—the plaintiffs favoring either the place where the acts causing the injury took place or the location of the property when it was harmed (both pointing to the US), and the defendant looking to the “locus of the [ex-US] injury.” The Court again declined to address the analytical question definitively. Rather, it noted the complaint alleged injuries to the plaintiffs’ ability to seek legal recovery through Swiss proceedings, and various other costs borne by the plaintiffs, concluding that the injuries “were suffered by the plaintiffs in the only location where the plaintiffs were located”—in the Cayman Islands. The Court added that the complaint alleged significant acts occurring outside the US, and as to other acts no location could be determined, leaving many of the claims “gutted” from the standpoint of showing a US injury. For these reasons, the plaintiffs’ RICO claims were dismissed.
[Editor’s note: The “domestic injury” requirement for a private right of action for violations of § 1962(d) was recently the subject of an article by editors of The World in US Courts, and may be found here. The article points out that none of the cases that had then sought to interpret the RJR Nabisco “domestic injury” requirement appeared to follow the methodology required by that case. Absolute Activist adds to that record.]