The US Supreme Court has granted RJR Nabisco's request for clarification of the test for determining the extraterritorial reach of the US Racketeer Influenced and Corrupt Organizations Act (RICO).
This action follows a ruling last year by the federal court of appeals for the Second Circuit that allowed twenty-six European Union member states to proceed with civil racketeering claims against RJR Nabisco for its alleged involvement in a supposed racketeering scheme involving the use of laundered drug-cartel monies for the purchase and resale of cigarettes. In April, a majority of the circuit's active judges denied en banc review of the panel's decision, with four judges dissenting on the merits and one on the basis that full circuit review was appropriate.
1. EU Community: the "Predicate Acts" Test
Significantly expanding RICO's dragnet in EU Community, the Second Circuit held that the statute applies extraterritorially to the same extent Congress intended the predicate acts in question to apply beyond US borders. In doing so, it declined to apply the tests for RICO extraterritoriality used by other US courts, which focus on the geographic location of either the racketeering enterprise or the racketeering activity at issue. We previously summarized the different approaches being taken to the question of RICO extraterritoriality for Law360
2. Chao Fan Xu: the "Pattern of Racketeering Activity" Test
The Second Circuit's decision brought it into conflict with the approach taken by the federal court of appeals for the Ninth Circuit, which applies RICO extraterritorially only to the extent a foreign enterprise engages in a pattern of racketeering activity within the US. This test was established in the context of an Asia-centric enterprise engaged in a pattern of conduct within the US that involved real-estate investments and the use of fraudulent marriages in violation of US immigration policies. See United States v. Chao Fan Xu, 706 F.3d 965 (9th Cir. 2013); see also Liquidation Com'n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339 (11th Cir. 2008).
3. Cedeño: the "Enterprise" Test
Prior to EU Community, the Second Circuit held that the RICO statute had no clearly stated extraterritorial application, and declined to link RICO's extraterritorial reach to the scope of its predicate offenses. Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29 (2d Cir. 2010). Its district courts limited RICO's application to domestic enterprises, holding that no amount of US conduct or connections could extend its reach to foreign enterprises. See, e.g., Cedeño v. Intech Group, Inc. 733 F. Supp. 2d 471 (S.D.N.Y. 2010). The Second Circuit, however, summarily affirmed dismissal of the RICO claims inCedeño based on the lack of a sufficient domestic nexus, without committing itself to either the domestic-enterprise test or the domestic-pattern-of-activity test. Cedeño v. Castillo, 457 Fed. App'x. 35 (2d Cir. 2012). Then came EU Community, and the broadest test to date for determining RICO's extraterritorial application.
Once More unto the Breach
The Supreme Court's decision is expected to bring much-needed clarity to the issue of when, if ever, RICO applies to conduct occurring partly, or entirely, outside the United States. This issue is significant to a wide range of non-US companies, insofar as civil RICO claims are often used by the US-plaintiffs' bar to pursue treble damages for a wide range of otherwise garden-variety business torts.
The case, likely to be argued in January or February 2016, will mark the Court's third exposition of extraterritoriality doctrine in the past five years -- following Morrison (2010) and Kiobel (2013).