United States v. Chao Fan Xu (US Court of Appeals, 9th Cir., Jan. 3, 2013)
The US Court of Appeals for the Ninth Circuit affirms the conviction of four Chinese nationals under RICO, finding that, although the illegal conduct was conceived and planned abroad, it had a sufficient geographic connection to the US for criminal RICO liability.
While living and working in China, two of the defendants, who were Chinese nationals, defrauded the Bank of China of nearly a half billion US dollars. Their wives, Chinese nationals as well, were also named as defendants. To avoid Chinese law enforcement, each of the defendants entered into additional, false marriages with spouses with valid US immigration status.
Before the fraud was detected, the defendants twice traveled to Las Vegas, where they gambled using the improperly obtained funds. After Bank of China discovered the fraud, the defendants fled to the US using fraudulently obtained US immigration documents.
In deciding whether RICO applied extraterritorially, the Ninth Circuit began by observing that the answer to the question would depend on Congress’s “focus” when enacting the statute. The court noted a disagreement among courts regarding whether the focus of RICO was the criminal “enterprise” itself or the “pattern of racketeering activity” conducted by the enterprise. Under the former approach, a “nerve center” test is used whereby the enterprise’s geographic location is “where the enterprise’s decisions are made, as opposed to carried out.” The Ninth Circuit rejected this approach, holding that instead courts must examine the pattern of racketeering activity as a whole—an analysis that will likely result in criminalizing conduct within a larger geographic area. The court of appeals also noted that whether RICO applied to extraterritorial conduct was not a jurisdictional issue more likely to be resolved at the beginning of the case, but merely one of many elements of a RICO violation that the government must prove at trial.
Turning to the case before it, the Ninth Circuit analyzed the defendants’ pattern of racketeering in two parts: (1) the fraud on the Bank of China and (2) immigration fraud. The court held that RICO did not apply to the Bank of China fraud activities. Even though some of the bank fraud money entered the US, the relevant racketeering activities giving rise to the fraud were conducted primarily in China and thus were beyond RICO’s reach.
The court of appeals did, however, find that the defendants’ immigration fraud activities constituted a pattern of racketeering with sufficient US contacts to sustain a RICO prosecution. Several of the immigration violations occurred within the territorial US, such as entering the US using fraudulent visas and passports. In addition, “[b]y conspiring to enter and hide out in the United States with the fruit of their ill-gotten gains, Defendants engaged in an enterprise that had the implicit goal to breach United States immigration laws in furtherance of the overall goal of the enterprise.” The court thus concluded that defendants’ conviction was based upon a “pattern of racketeering activity” that occurred in sufficient part in the US.
[Editor’s note: The LIBOR and Mitsui O.S.K. Lines, Ltd., cases, discussed in this issue, also address the focus of RICO. The three cases do not reach the same conclusions.]