U.S. Supreme Court Holds That Some RICO Claims Apply Extraterritorially, but a Private RICO Plaintiff Must Prove Domestic Injury

SUMMARY

In RJR Nabisco, Inc. v. European Community, 1 the Supreme Court considered the extent to which the Racketeer Influenced and Corrupt Organizations Act (RICO) applies extraterritorially. The Court held that some of RICO’s racketeering prohibitions can apply to extraterritorial conduct, if the conduct violates an underlying predicate statute that itself applies extraterritorially. The Court further held, however, that RICO’s private cause of action for any person “injured in his business or property” does not apply extraterritorially. As a result, civil RICO plaintiffs may only seek to recover for domestic injuries, not injuries suffered abroad.

BACKGROUND

The European Community (now the European Union) and 26 of its Member States brought a civil RICO suit against R.J. Reynolds Tobacco Company and various corporate affiliates (collectively, RJR) alleging that RJR was involved in a global money-laundering scheme in association with various organized crime groups. The alleged scheme involved a multi-step process through which Colombian and Russian criminal organizations smuggled illegal narcotics into Europe, sold the narcotics for revenue in euros, and then, through a series of concealed transactions, used those funds to pay for large shipments of RJR cigarettes into Europe. The plaintiffs also alleged that RJR dealt directly with the drug traffickers and money launderers in South America, sold cigarettes to Iraq in violation of international sanctions, and acquired the Brown & Williamson Tobacco Corporation for the purpose of expanding its illegal activities. The plaintiffs based their RICO claims on several alleged patterns of predicate acts, including mail fraud, wire fraud, money laundering, violations of the Travel Act, and providing support to foreign terrorist organizations.2

RJR moved to dismiss the complaint, asserting that RICO does not apply to racketeering activity conducted outside of the United States or to foreign enterprises. The district court agreed and dismissed the RICO claims as impermissibly extraterritorial.3 The Second Circuit reversed, holding that “Congress has clearly communicated its intention that RICO apply to extraterritorial conduct to the extent that extraterritorial violations of [the underlying predicate statutes] serve as the basis for RICO liability.”4 Although it denied RJR’s petition for rehearing, the court of appeals issued a supplemental opinion holding that a civil RICO plaintiff need not demonstrate a domestic injury.5 The Second Circuit’s decision contributed to a split among the courts of appeals regarding the extent to which RICO applies extraterritorially.6

THE SUPREME COURT’S DECISION

In a 4-3 decision authored by Justice Alito, the Supreme Court held that the plaintiffs’ civil RICO claims had to be dismissed as impermissibly extraterritorial. The Court’s analysis proceeded in two stages. First, the Court unanimously concluded that at least two of RICO’s substantive prohibitions, 18 U.S.C. § 1962(b) and § 1962(c), may be applied to extraterritorial conduct so long as the alleged pattern of racketeering activity “include[s] or consist[s] of offenses committed abroad in violation of a predicate statute for which the presumption against extraterritoriality has been overcome.”7 For example, if a RICO claim is based on a pattern of money laundering abroad, and the underlying money-laundering statute applies extraterritorially—as the Second Circuit held and RJR did not contest—then the RICO claim based on that pattern of money-laundering activity also applies extraterritorially. In reaching this conclusion, the Court rejected RJR’s contention that the alleged RICO enterprise must be domestic, and held that the RICO statute may be applied to any alleged RICO enterprise—foreign or domestic—that “engage[s] in, or affect[s] in some significant way” commerce involving the United States.8

Second, the Court held that a plaintiff seeking to bring a private right of action pursuant to Section 1964(c) must nonetheless allege and prove a domestic injury to business or property in order to pursue a civil RICO claim.9 The Court reasoned that a separate extraterritoriality inquiry must be applied to Section 1964, notwithstanding its determination that the substantive prohibitions in Section 1962(b) and Section 1962(c) have extraterritorial effect in some cases.10 The creation of a private right of action, the Court explained, involves different considerations beyond the decision to prohibit the underlying conduct, including heightened risks of international friction.11 Applying the presumption against extraterritorial application anew to Section 1964, the Court saw no indication that Congress intended to allow private plaintiffs to recover for injuries suffered outside of the United States, and thus held that civil RICO plaintiffs may recover only for domestic injuries.12

Justice Ginsburg, joined by Justice Breyer and Justice Kagan, dissented from the Court’s conclusion that Section 1964 does not provide a civil cause of action for injuries suffered abroad. In her view, there is no basis for distinguishing the extraterritoriality inquiry between Section 1962 and Section 1964, given that Section 1964 is expressly triggered by a violation of Section 1962.13 Justice Breyer also wrote separately to state that he was particularly unpersuaded by the government’s assertion, without examples, that permitting extraterritorial application of Section 1964(c) would create international friction.14

IMPLICATIONS

Yesterday’s decision is a qualified win for potential RICO defendants, particularly multinational corporations. On the one hand, the Court approved some extraterritorial application of RICO’s substantive prohibitions to conduct taking place entirely abroad, so long as the underlying predicate statute reaches that extraterritorial conduct. On the other hand, the Court limited the universe of private civil RICO claims such corporations might face, as private plaintiffs can no longer bring RICO claims based solely on injuries suffered outside the United States. As a result, only the government will be able to enforce RICO violations based on extraterritorial conduct that causes no injury within the United States, and only if the predicates supporting the RICO claim apply extraterritorially. At a more general level, the decision continues the recent trend of the Court’s rigorously applying the presumption against extraterritorial application of statutes, and it did so in RJR Nabisco even though this required divergent interpretations of two provisions of the same statutory scheme.