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April 24, 2014
  European Community v. RJR Nabisco
Case Name: European Community v. RJR Nabisco

Headline: Second Circuit Holds That Racketeer Influenced and Corrupt Organizations (RICO) Statute Can Apply Extraterritorially, Reinstating European Community's Claims Against RJR Nabisco

Area of Law: International Criminal Law

Issue(s) Presented: Whether the claims brought against RJR Nabisco by the European Community and 26 of its member states under the Racketeer Influenced and Corrupt Organizations ("RICO") statute are impermissibly extraterritorial, and whether the European Community qualifies as an organ of a foreign state for purposes of diversity jurisdiction.

Brief Summary: The European Community and 26 of its member states sued RJR Nabisco ("RJR") under RICO, alleging that RJR had facilitated a worldwide money-laundering scheme in connection with organized crime groups, laundered money through New York financial institutions, and committed common law torts in violation of New York law. The United States District Court for the Eastern District of New York dismissed the complaint on the grounds that the RICO statute has no extraterritorial application, and also dismissed the state law claims on the grounds that the European Community did not qualify as an organ of a foreign state under 28 U.S.C. §§ 1322, 1603, which "deprived the court of jurisdiction over the state law claims." The Second Circuit disagreed, vacating the judgment below and remanding the case to go forward. In regard to the RICO issue, the Second Circuit held that Congress had clearly manifested an intent for RICO to apply extraterritorially in the type of circumstances alleged here. The Second Circuit further held that the European Community qualified as a "foreign state" under 28 U.S.C. § 1332(a)(4), and "its suit against 'citizens of a State or of different States' comes within the diversity jurisdiction." To read the full opinion, please visit http://www.ca2.uscourts.gov/de...5f17e650ebd/1/hilite/

Extended Summary: The plaintiffs alleged that RJR directed and controlled a money-laundering scheme that involved a multi-step process. According to the complaint, Colombian and Russian organized criminal entities smuggled illegal narcotics into Europe. They then sold the drugs, making a profit in euros, which they laundered through money brokers who changed the euros into the "domestic currency of the criminal organizations' home countries." The money brokers then sold the euros money to cigarette importers at a discounted rate. Next, the cigarette importers would use these euros to purchase RJR's cigarettes from wholesalers, who obtained their cigarette supply from RJR. The plaintiffs contended that RJR directed and controlled this money-laundering scheme, thereby committing racketeering acts that violated the RICO statute "including mail fraud, wire fraud, money laundering, violations of the Travel Act, 18 U.S.C. § 1952, and providing material support to foreign terrorist organizations." They also alleged that RJR violated New York state law by committing fraud, unjust enrichment, public nuisance, negligence, negligent misrepresentation, conversion, and money had and received.

The district court dismissed the complaint, holding that RICO did not apply to activity outside the territory of the United States and could not apply to a foreign enterprise. The court further held that it lacked jurisdiction to hear the remaining state law claims because the European Community did not qualify as a "foreign state" under federal law, and therefore there was not complete diversity between the parties.

On appeal, the Second Circuit rejected both conclusions. First, as to the RICO claim, the court held that
when a RICO claim depends on violations of a predicate statute that itself manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to that conduct as well. Conversely, when a RICO claim depends on violations of a predicate statute that does not clearly apply to extraterritorial conduct, RICO will not apply extraterritorially either. "In all cases, what constitutes sufficient domestic conduct to trigger liability is the same as between RICO and the predicate that forms the basis for RICO liability," the court held. The court further held that the money laundering and material support of terrorism statutes both applied extraterritorially in circumstances such as those alleged in the complaint. The court added that although the wire fraud, money fraud, and Travel Act statutes did not apply extraterritorially, the plaintiffs' RICO claims based on those predicates also applied here because the plaintiffs had alleged that the elements of those statutes were violated in the United States. Accordingly, the plaintiffs' claims could go forward.

Second, the Second Circuit held that the European Community (which, after the lawsuit was filed, was incorporated into the European Union) qualified as a "foreign state." Specifically, the court deemed the European Community an "organ of a foreign state," and "thus an agency or instrumentality of a foreign state" under the relevant statutory provisions. The Second Circuit used the five factors set forth in Filler v. Hanvitt Bank, 378 F.3d 213, 217 (2d Cir. 2004) to determine whether or not the Plaintiff is considered an "organ". These five factors are: (1) whether the foreign state create the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the [foreign] country; and (5) how the entity is treated under foreign state law. It concluded that the European Community satisfied most, if not all, of these factors.
To read the full opinion, please visit http://www.ca2.uscourts.gov/de...5f17e650ebd/1/hilite/

Panel: Judges Leval, Sack, and Hall.

Argument: 02/24/2012

Date of Issued Opinion: 04/23/2014

Docket Number: 11-2475-cv

Decided: Vacated and remanded.

Case Alert Author: Amy Stein

Counsel: John J. Halloran, Jr., Speiser, Krause, Nolan & Granito, for the Plaintiff-Appellants. Gregory G. Katsas, Jones Day, for the Defendants - Appellees.

Author of Opinion: Judge Leval

Case Alert Circuit Supervisor: Emily Gold Waldman

    Posted By: Emily Waldman @ 04/24/2014 02:20 PM     2nd Circuit  

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