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Supreme Court Clarifies RICO's Extraterritorial Application

Supreme Court Clarifies RICO's Extraterritorial Application

In RJR Nabisco, Inc. v. European Community, the Supreme Court was asked to determine whether a private action under the Racketeer Influenced Corrupt Organization statute (“RICO”), 18 U.S.C. §§ 1961-1964, could extend to injuries that occurred outside the United States.

The European Community (“EC”), on behalf of 26 of its member states, filed a civil suit against RJR Nabisco, Inc. (“RJR”) under § 1964(c), the RICO provision permitting private plaintiffs to pursue civil RICO claims. EC alleged RJR had engaged in a complex global money laundering scheme where drug traffickers smuggled narcotics into Europe and used the proceeds from narcotics sales to import and sell RJR cigarettes throughout Europe. EC claimed that RJR’s racketeering activity injured its members by harming state-owned cigarette businesses, lost tax revenue, harmed European financial institutions, and increased law enforcement costs. EC also claimed that RJR conducted business with drug organizations directly and engaged in numerous patterns of predicate acts under RICO, including mail fraud, wire fraud, money laundering and providing support to foreign terrorist organizations.

On June 20, 2016, the Supreme Court handed down its ruling in a 4-to-3 vote and held RICO only applies extraterritorially in certain cases, and therefore RJR could not be sued under RICO over its conduct abroad.

Generally, the Supreme Court has held there is no presumption a United States law should apply abroad unless it is expressly stated in the language used by Congress. However, the Court held that RICO is a rare statute that applies extraterritorially without an expressed statement due to its unique structure. All seven justices hearing the case agreed on this analysis, but the majority went on to state that the text of 1964(c) does not provide any indication that Congress intended to create a private right of action for foreign injuries. Therefore, because EC’s suit was brought under RICO’s private cause of action, and alleged only foreign injuries, the Court held the suit must be dismissed.

In its opinion, the Court provided a few examples of predicate acts which contain adequate language to rebut the presumption against extraterritoriality. For example: the prohibition against engaging in monetary transactions in criminally derived property, 1957(d)(2); the assassination of Government officials, 335(i), 1751(k); and hostage taking, 1203(b). Going forward RICO’s treble damages remedy is only available for plaintiffs that can show an injury occurred in the United States. This ensures that the federal government will not be required to deal with foreign policy problems created by private lawsuits under RICO, while at the same time preserving its own option to bring a RICO suit involving foreign conduct.

Because the Court did not comprehensively analyze all RICO predicate acts, questions still remain on RICO’s extraterritorial application, and it will be up to the lower courts to decide which specific predicate acts apply extraterritorially. Until this is sorted out, RICO could present real-world implications for companies that operate abroad for the foreseeable future.

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