The European Community can pursue racketeering claims against RJR Nabisco alleging a global money-laundering scheme connected to organized crime groups, the U.S. Court of Appeals for the Second Circuit held Wednesday.
In the latest in a series of cases addressing the extraterritorial application of U.S. laws, the circuit reinstated the action brought by the 26 member nations of the European Community against RJR Nabisco and related entities for laundering drug money through the exchange of discounted euros and cigarettes.
Eastern District Judge Nicholas Garaufis (See Profile) had dismissed the case in 2011, finding that there was no extraterritorial application of the Racketeer Influenced and Corrupt Organizations Act (RICO). Garaufis also found there was a lack of diversity jurisdiction.
On Wednesday, Second Circuit Judges Pierre Leval (See Profile), Robert Sack (See Profile) and Peter Hall (See Profile) reversed on both counts and revived European Community v. RJR Nabisco, 11-2475-cv.
The decision is the most recent interpretation of the extraterritorial reach of U.S. laws that began with Morrison v. Nat’l Austl. Bank Ltd., 130 S.Ct. 2869 (2010).
In Morrison, the U.S. Supreme Court held there is a presumption against allowing suits in the U.S. for conduct that happens abroad. And that presumption can only be overcome where Congress clearly states a law can be applied extraterritorially.
Writing for the circuit, Leval said that “with respect to a number of offenses that constitute predicates for RICO liability and were alleged in this case, Congress had clearly indicated” such an intent.
Leval said the lower court also erred in finding that the European Community’s participation as a plaintiff destroyed complete diversity.
“The European Community is an ‘agency or instrumentality of a foreign state’ as that term is defined in 28 U.S.C. §1603(b), and its suit against ‘citizens of a State or of different states’ comes within diversity jurisdiction,” he said.
RJR Nabisco spokesman Bryan Hatchell said the company was considering its options, “including additional appeals.”
“In the meantime, several alternative grounds for dismissing the case exist, and we will ask the district court to dismiss the case again on these grounds,” he said. “We continue to believe the lawsuit is entirely baseless in both fact and law.”
The scheme as alleged by the European Community is that Colombian and Russian criminal organizations smuggle narcotics into Europe and then use money brokers to launder euros by exchanging them for the organizations’ native currency.
The brokers then sell the euros at a discounted rate to cigarette importers who buy RJR cigarettes from wholesalers, or what Leval called “cut-outs.”
The complaint also alleges that RJR conceals the true purchasers of the cigarettes, ships cigarettes through Panama to take advantage of secrecy laws, bribes border guards and files false documents with the U.S. Customs Service and the Bureau of Alcohol Tobacco and Firearms.
Leval said the court disagreed with the plaintiffs’ argument that RICO applies abroad simply because the statute, 18 U.S.C. §1962 states it covers predicate offenses in the context of “any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.”
He said the circuit rejected that approach in Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29 (2d Cir. 2010) where it found that the mere reference to “foreign commerce” was not enough to say Congress meant the law to apply extraterritorially.
But Garaufis, he said, misread Norex to bar extraterritorial applications of RICO in every sense.
Instead, Leval said, the circuit was holding that congressional intent must be clear for individual predicate acts in order to overcome the Morrison presumption.
“Thus, when a RICO claim depends on violations of a predicate statute that manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to extraterritorial conduct, too, but only to the extent that the predicate would,” he said.
Examples, he said, are 18 U.S.C. §2332, which makes it a crime to kill or attempt to kill a U.S. national “while such national is outside of the United States,” and §2423(c), which makes it a crime to engage in “illicit sexual conduct in foreign places.”
Leval said that tying extraterritoriality to congressional intent on the relevant predicate offenses “has the benefit simplifying the question of what conduct is actionable in the United States and permitting courts to consistently analyze that question regardless of whether they are presented with a RICO claim or a claim under the relevant predicate.”
“It also avoids incongruous results, such as insulating purely domestic conduct from liability simply because the defendant has acted in concert with a foreign enterprise,” he said.
In RJR’s case, the court held the predicate allegations of money laundering and material support for terrorism overcome the Morrison presumption. The predicate allegations of wire fraud, money fraud and Travel Act violations do not, Leval said, but they remain because they “were completed in the United States or while crossing U.S. borders.”
John Halloran argued for the plaintiffs, who are also represented by attorneys with Speiser, Krause, Nolan & Granito in New York and Krupnick Campbell Malone Buser Slama Hancock Liberman & McKee in Fort Lauderdale, Florida.
Gregory Katsas, a partner at Jones Day, argued for the defendants.