Does RICO, the Racketeer Influenced and Corrupt Organizations Act, apply outside the United States?
The European Community sued RJR Nabisco, a cigarette manufacturer, under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. § 1961 et seq. RICO imposes civil and criminal penalties on racketeering activity. The European Community alleges that RJR Nabisco ran an international money laundering operation, which occurred abroad. This case presents the Supreme Court with the opportunity to determine the jurisdictional limits of RICO. RJR Nabisco maintains that RICO should not apply extraterritorially. The European Community counters that Congress clearly indicated that RICO’s reach could extend extraterritorially when the underlying offense is extraterritorial. The Court’s resolution of this case may alter the jurisdictional status of RICO and will affect business interests on both sides of the Atlantic.
Questions as Framed for the Court by the Parties
Whether, or to what extent, the Racketeer Influenced and Corrupt Organizations Act (“RICO”) applies extraterritorially.
The European Community sued cigarette manufacturer RJR Nabisco under the Racketeer Influenced and Corrupt Organizations ("RICO") Act. See European Community v. RJR Nabisco, Inc., 764 F.3d 129, 132 (2d Cir. 2014). The European Community alleges that RJR Nabisco used a multi-step scheme to launder money internationally. See id. at 133. First, Russian and Colombian criminal groups smuggled narcotics into Europe. See id. Second, after selling the drugs, the criminal groups employed European money brokers to exchange the euros for the currency of the criminal groups’ home countries. See id. Third, the brokers sold the euros to cigarette importers, who then used the euros to buy RJR Nabisco’s cigarettes in bulk. See id. Finally, the cigarette importers shipped the cigarettes. See id. “The Complaint alleges that RJR directed and controlled this money-laundering scheme, utilizing other companies to handle and sell their products.” See id.
The European Community alleges that RJR Nabisco violated both RICO and the common law of the State of New York. See European Community, 764 F.3d at 134. The alleged RICO violations include mail fraud, wire fraud, money laundering, violating the Travel Act, 18 U.S.C. § 1952, and supporting foreign terrorist groups. See id. The state law claims include the torts of fraud, public nuisance, unjust enrichment, negligence, negligent misrepresentation, conversion, and money had and received. See id.
The District Court for the Eastern District of New York applied a three-part analysis to the RICO issue. See European Community, 764 F.3d at 134. First, the court decided that RICO does not apply to foreign activities outside the United States or to foreign enterprises. See id. Second, the court decided that the alleged smuggling activities were foreign, not domestic. See id. Finally, the court did not find a clear congressional intent to rebut the presumption that U.S. statues do not apply extraterritorially. See id. Accordingly, the district court dismissed the RICO claims under Federal Rule of Civil Procedure 12(b)(6) for failing to state an actionable violation of RICO. See id.
With respect to the state-law tort claims, the district court held that the European Community is not a “foreign state” for purposes of diversity jurisdiction. See European Community, 764 F.3d at 134; 28 U.S.C. § 1332. Thus the court found that it lacked jurisdiction to decide the state-law claims. See European Community, 764 F.3d at 135.
The U.S. Court of Appeals for the Second Circuit reversed the lower court on both issues. See European Community, 764 F.3d at 149. First, the court held that RICO applies extraterritorially, so long as the underlying federal criminal statute that serves as the basis for the RICO violation displays congressional intent to apply extraterritorially. See id. at 136. Here, the court found that the money laundering and support of terrorism charges applied extraterritorially. See id. at 139. Additionally, the court found that even though the wire fraud, money fraud, and Travel Act statutes do not apply extraterritorially, the complaint nevertheless alleged that enough elements of those charges were committed in the United States to support domestic RICO claims. See id. The Second Circuit also held that the European Community is an organ and agency of a foreign state under 28 U.S.C. § 1332(a)(4), for purposes of federal diversity jurisdiction. See id. at 148. The court reasoned that because the European Community was formed by European Union member nations to exercise governmental functions on their behalf, it is an organ of each member nation. See id. at 144.
The Second Circuit entered judgment on April 23, 2014 and denied rehearing before the panel and en banc. See Brief for Petitioners RJR Nabisco, Inc., et al. at 1. RJR Nabisco petitioned the U.S. Supreme Court for certiorari on July 27, 2015, which the Court granted on October 1, 2015. See id.
RJR Nabisco argues that the Court should presume RICO applies only domestically because RICO is silent on its extraterritorial scope. See Brief for Petitioner, RJR Nabisco at 15–18. RJR Nabisco argues that RICO’s “focus,” based on its text, purpose, and remedies, is fighting the effect of organized crime on legitimate, domestic enterprises, not preventing the predicate crimes (which often have extraterritorial reach). See id. at 24–28. The European Community counters that Congress intended RICO to have at least some extraterritorial reach, as indicated by Congress’ incorporation of predicate, extraterritorial crimes into the definition of “racketeering” in RICO, and its modeling RICO’s remedy provision on the Clayton Act. See Brief for Respondents, European Community, et al. at 24, 44.
RICO’S “FOCUS”: TEXT, PURPOSE, AND REMEDIES
RJR Nabisco argues that federal laws apply only in the United States unless a statute says otherwise. In Morrison v. National Australia Bank, 561 U.S. 247 (2010), the Court held that an ambiguous statute like RICO has no extraterritoriality. See Brief for Petitioner at 15. RJR Nabisco contends that assuming an ambiguous statute applies abroad could result in international friction, and would lead to unpredictable application of federal law. See id. at 15. Even if a statute does have some extraterritorial impact, RJR Nabisco maintains that Morrison requires an inquiry into the “focus” of a statute to determine whether the statute’s application is extraterritorial. In drafting a statute, if Congress focused on a domestic matter, the statute does not apply abroad. If Congress focused on an international matter, the statute does apply abroad. See id. at 20–21.
Based on RICO’s “text, purpose, structure, and remedies,” RJR Nabisco contends that the law’s focus is the corruption of domestic enterprises and not predicate offenses incorporated into RICO, some of which are extraterritorial. See Brief for Petitioner at 24–25. The purpose of RICO, as stated by Congress, is to combat “organized crime in the United States” by targeting corrupted, domestic enterprises. RJR Nabisco notes that the title of RICO contains the word “organizations,” thus demonstrating the act’s emphasis on enterprises, not predicate offenses. See id. at 26–27.
However, the European Community maintains that Morrison does not require a statute to literally read “this law applies abroad” to have extraterritoriality. The statute’s context is highly probative. See Brief for Respondents at 24. The European Community argues that RICO applies extraterritorially in some circumstances, because Congress defined “racketeering” in RICO to include predicate crimes that can have extraterritorial effects. See id. at 24–25. If RICO does not apply extraterritorially, Congress’s inclusion of predicate crimes that occur only overseas, such as “torture committed outside the United States,” would be meaningless. See id. at 26–27.
The European Community argues that enterprises under RICO do not need to be domestic because RICO addresses the actions that section 1962 prohibits, not merely the enterprises themselves. See Brief for Respondents at 30. RICO focuses on the criminal acts, not the enterprises, to target the ways organized crime can corrupt legitimate businesses, by prohibiting the use of racketeering proceeds to influence businesses. See id. at 31. Thus, the European community argues, the location of the enterprise is immaterial. See id. at 32. Although RICO’s title contains the word “organizations,” it also contains the words “racketeer[ing],” influence,” and “corrupt,” which show that the statute’s scope is broader than enterprises. See id. at 35–36.
THE ROLE OF THE COMMERCE CLAUSE
RJR Nabisco asserts that Congress’ power to enact RICO is based on the Commerce Clause, which covers interstate commerce. Congress could not seek to regulate the predicate crimes associated with racketeering because they do not involve interstate commerce. By way of example, Nabisco suggests that one of RICO’s criminal remedies—requiring violators to forfeit their interest in an enterprise—only makes sense in the domestic context. If it applied abroad, it would require forfeiture of foreign enterprises to the United States. See Brief for Petitioner at 37.
But the European Community contends that the Commerce Clause is not determinative. This language is merely “boilerplate” and giving it undue weight runs counter to the Court’s precedent. See Brief for Respondents at 36. The European Community asserts that the application of RICO extraterritorially is consistent with customary limits in international law: RICO only extends as far as its predicate crimes. See id. at 40. The European Community further asserts that Court precedent allows foreign plaintiffs to sue American defendants for actions violating American law, as is the case here. See id. at 41–42.
RJR Nabisco argues that the European Community’s complaint does not implicate a requisite domestic enterprise. The enterprise here committed acts solely in Europe and thus fails the Court’s “nerve center” test. See Brief for Petitioner at 57. RJR Nabisco asserts that the European Community relies on the corruption of a single domestic enterprise (i.e., the Brown & Williamson Tobacco Company), which is never mentioned in the complaint’s allegation of injuries and thus should be dismissed. See id. at 58–59. And most of the alleged harms are to foreign economies, financial institutions, and similar entities. See id. at 59.
The European Community suggests that RJR Nabisco engaged in a sufficient level of racketeering activity in the United States to satisfy the Court’s minimum contacts jurisdictional test. See Brief for Respondents at 18–19. The complaint, when viewed in its totality, properly alleges that the domestic enterprise, the Brown & Williamson Tobacco Company, is implicated. See id. at 20. The European Community asserts that, regardless of where the injuries occurred, RJR Nabisco is a domestic enterprise and the harms resulted largely from domestic racketeering actions. See id. at 22.
The Court will determine the jurisdictional limits of RICO. The resolution of this case will affect business interests on national and international levels.
BALANCING BUSINESS AND CONSUMER INTERESTS
RJR Nabisco and supporting amici fear that the Second Circuit’s decision extending RICO’s reach extraterritorially will unduly burden both U.S. and foreign businesses. See Brief for the National Foreign Trade Council in Support of Petitioners at 25. The National Foreign Trade Council (“NFTC”) notes that RICO, which authorizes treble damages as well as the award of attorney’s fees, raises the specter of massive liability. See id. at 27. Under the Second Circuit’s decision, businesses engaged in activities that are legal in foreign jurisdictions but illegal in the United States may be subject to suit in U.S. courts. See id. at 29. Amici warn that expanding RICO’s reach extraterritorially will incentivize plaintiffs and their attorneys to craft disingenuous RICO claims. See Brief for the Washington Legal Foundation and Allied Educational Foundation, in Support of Petitioners at 8. And they worry that businesses will agree to settle frivolous claims rather than fight them because of the negative publicity that accompanies even the accusation of RICO violations. See id. at 9-10.
But the European Community contends that the Court has already decided, in a way, that RICO can extend to “foreign injuries.” See Brief for Respondents, European Community, et al. at 44. The European Community reasons that RICO’s language closely mirrors the language of the Clayton Act, which governs antitrust violations. The Court concluded that the Clayton Act extended extraterritorially, based on its language and the Court’s concern that businesses could engage in “legal” anticompetitive behavior abroad that affected American consumers. The European Community maintains that the same logic applies to RICO. See id. at 45.
RJR Nabisco argues that, because RICO is silent on the matter, the strong presumption is that RICO applies only domestically. See Brief for Petitioner RJR Nabisco at 15–18. The European Community counters that Congress intended RICO to have at least some extraterritorial reach, as indicated by its incorporating predicate, extraterritorial crimes into the definition of “racketeering.” See Brief for Respondents The European Community at 24. The Court’s resolution of this case will impact the jurisdictional status of RICO, and business interests on national and international levels.
- Alison Frankel, In RJR Case, Supreme Court to Decide if RICO Reaches Abroad, Reuters (Oct. 1, 2015).