In an unusual four-member majority opinion in RJR Nabisco, Inc. v. European Community, the U.S. Supreme Court settled a host of controversial questions about the extraterritorial scope of the Racketeer Influenced and Corrupt Organizations Act (RICO). The decision, announced June 20, 2016, bolsters the ability of federal prosecutors to pursue cases based on foreign misconduct by foreign enterprises under RICO's criminal provisions.

The RICO statute now joins the Foreign Corrupt Practices Act (FCPA), money-laundering statutes, and other laws as available tools for U.S. prosecutors targeting alleged criminal conduct abroad. The Court's further conclusion that private parties may not seek relief under RICO’s civil provisions for injuries sustained abroad all but ended a bid by the European Community and 26 member states to hold RJR Nabisco civilly liable for an alleged global money-laundering scheme.

Justice Alito, writing for the Court, first consolidated the Court's previous jurisprudence regarding extraterritorial application of federal statutes into a two-step framework. Consistent with Morrison v. National Australia Bank Ltd. and Kiobel v. Royal Dutch Petroleum Co., a court must "ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially." If the statute gives no such indication, the court must look to whether conduct relevant to the statute's "focus" occurred in the United States or abroad.

With respect to RICO, the Court concluded that because a number of RICO predicate offenses (such as money laundering) expressly apply to foreign conduct, RICO itself also applies extraterritorially. In other words, "[a] violation of § 1962 may be based on a pattern of racketeering that includes predicate offenses committed abroad, provided that each of those offenses violates a predicate statute that is itself extraterritorial." And crucially, the Court clarified that the federal government can pursue RICO charges against even foreign enterprises, so long as the enterprise "engage[s] in, or affect[s] in some significant way, commerce directly involving the United States."

Lastly, the Court held that RICO's private right of action under § 1964(c) "requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injury." The Court inferred that the potential for "international friction" posed by lawsuits in which foreign plaintiffs seek relief in U.S. courts for foreign injuries was substantial enough that Congress could not have intended extraterritorial application of § 1964(c) under such circumstances. Justices Ginsburg, Breyer, and Kagan dissented from that portion of the holding and from the judgment. Justice Sotomayor recused.

The upshot of RJR Nabisco is that so long as a foreign RICO enterprise's alleged misconduct touches domestic commerce in a "significant" way—a low bar for predicate offenses such as money laundering—such enterprises risk being hailed into U.S. courts, even where the enterprise maintains no physical domestic presence and takes no domestic action. Under certain circumstances, this broad interpretation of RICO's criminal provisions will offer the federal government even greater leverage in addition to its well-established extraterritorial authority under the FCPA and various money-laundering provisions.

Ballard Spahr's White Collar Defense/Internal Investigations Group provides a full range of anti-corruption services, including compliance advice, transactional due diligence, investigations, and representation before enforcement authorities.

Copyright © 2016 by Ballard Spahr LLP.
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