On June 20, 2016, the Supreme Court issues an interesting decision on extraterritoriality reach of an American provision, the civil action created under RICO.
The RICO Act (Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. §§1961–1968) prohibits activities of criminal organizations in relation to enterprises (§§1962(a)– (d)). It also created a civil cause of action for “[a]ny person injured in his business or property by reason of a violation” of those prohibitions. §1964(c). The Supreme Court was called to decide whether “RICO applies extraterritorially— that is, to events occurring and injuries suffered outside the United States. ” On June 20, 2016, the Court found that it does not. RJR Nabisco, Inc. v. European Community, 579 U. S. ____ (2016)
Background: The European Community (and 26 member states) filed a RICO suit, alleging that RJR Nabisco and related entities (collectively “RJR”) were involved in a money-laundering scheme in association with criminal organizations. In particular, drug traffickers would smuggle narcotics into Europe and the proceeds of the sales were used to pay for shipments of RJR cigarettes into Europe. The allegation was that RJR violated §§1962(a)–(d).
The District Court dismissed the action finding that RICO did not apply to racketeering activity occurring outside U. S. territory or to foreign enterprises. The Second Circuit reversed finding that RICO applied extraterritorially if the underlying acts of racketeering applied extraterritorially (as it was the case here.) The court also found that a RICO civil action “does not require a domestic injury.”
The Supreme Court (Justice Alito’s opinion) reversed and remanded. The Court relied on the presumption against extraterritoriality. See Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010). “Absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” Id. at 255. The Court then discussed a two-step framework for analysis of extraterritorial issues:
Morrison and Kiobel v. Royal Dutch Petroleum Co., 569 U. S. ___[2013], reflect a two-step framework for analyzing extraterritoriality issues. First, the Court asks whether … whether the statute gives clear, affirmative indication that it applies extraterritorially. … If, and only if, the statute is not found extraterritorial at step one, the Court moves to step two, where it examines the statute’s “focus” to determine whether the case involves a domestic application of the statute.
If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the relevant conduct occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of whether other conduct occurred in U. S. territory.
The Court noted that “[t]he presumption against extraterritoriality has been rebutted with respect to certain applications of RICO’s substantive prohibitions in §1962” but “§1962(a), which targets certain uses of income derived from a pattern of racketeering, arguably extends only to domestic uses of that income.”
The Court also rejected a “domestic enterprise requirement” for those sections of the statute:
Congress intended the §§1962(b) and (c) prohibitions to apply extraterritorially in tandem with the underlying predicates, without regard to the locus of the enterprise. Of course, foreign enterprises will qualify only if they engage in, or significantly affect, commerce directly involving the United States. …
However, extraterritoriality did not apply to the private cause of action under section 1964.
Irrespective of any extraterritoriality of §1962’s substantive provisions, §1964(c)’s private right of action does not overcome the presumption against extraterritoriality, and thus a private RICO plaintiff must allege and prove a domestic injury.
The Court held that “Section 1964(c) does not provide a clear indication that Congress intended to provide a private right of action for injuries suffered outside of the United States.” The policy reason is clear: “providing a private civil remedy for foreign conduct creates a potential for international friction” and it does not matter that here the plaintiffs are foreign governments.
Lastly, the Court rejected the EU’s argument that RICO action would be modeled after §4 of the Clayton Act (allowing recovery for injuries suffered abroad as a result of antitrust violations).
In conclusion, the Supreme Court reversed the Second Circuit’s finding that RICO’s private right of action can be based on injuries suffered abroad.
Full opinion available here.
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