Ukrainian Law Blog: Europe Can't Pick and Choose When U.S. Law Applies

Noah Feldman

What comes around, goes around: That was the message the Supreme Court sent today to 26 European countries. The European states had urged the court to let them collect damages from RJR Nabisco for a money-laundering conspiracy that took place mostly in Europe.

The court held that although federal anti-racketeering laws applied abroad to the conspiracy, the European states couldn’t recover. The reason: Several of them had argued in the past that a private legal remedy in the U.S. for conduct abroad might conflict with their own domestic legal systems.

The case sets an important precedent. It allows the U.S. government to bring criminal racketeering charges against international entities like the Federation Internationale de Football Association, or FIFA, world soccer’s ruling body. But it effectively bars private parties from taking advantage of the aggressive federal racketeering law to go after conspiracies that inflicted damages abroad.

The case arose from a conspiracy involving Russian and Colombian cartels. In brief, the cartels would sell drugs in Europe, then launder the money through cigarette importers. The importers would buy cigarettes from wholesalers, who acquired them from RJR. According to the European states who filed the case in U.S. court, RJR would send the cigarettes directly to the importers without asking too many questions.

The European plaintiffs brought the suit under the private damages section of the Racketeer Influenced and Corrupt Organizations (RICO) law, which was designed originally to prosecute the mafia. The criminal enterprise took place outside the U.S. and caused injury in Europe, but the plaintiffs maintained that RJR, based within the U.S., participated in the money laundering.

Importantly, they brought the case in the U.S. largely because the conspiracy-based legal theory might not fly in European courts, which typically have a narrower view of what counts as a criminal enterprise.

In his opinion for the court, Justice Samuel Alito broke the case into two separate but equally important parts. First, he asked whether the RICO law’s substantive provisions apply outside the U.S., or “extraterritorially” in the court’s jargon. Then he asked whether the RICO provision that allows for private civil lawsuits and triple damages applies when the damage occurs abroad.

With respect to the first question, Alito got all seven justices voting in the case to agree with him. Drawing on several recent cases involving extraterritoriality, the court clarified that RICO does apply abroad because it targets at least some conduct that occurs abroad.

The way RICO works is that a defendant has to have committed one of several so-called “predicate offenses,” crimes that provide the basis for a conspiratorial criminal enterprise. One of those predicate offenses is making monetary transactions in property derived from crime, and expressly applies when a “U.S. person” makes such a transaction abroad. Other predicate offenses include prohibitions on assassination and hostage taking, which the court also said have extraterritorial effect.

The court concluded that when a pattern of criminal activity is based on offenses that Congress unmistakably intended to apply abroad, the RICO law applies. It added that the core criminal enterprise can be foreign-based rather than domestic.

That’s a key clarification, because the U.S. government has been willing to bring criminal RICO prosecutions against foreign entities such as FIFA when some of their crimes affected the U.S. Without this clarification, the power of the Department of Justice to bring such cases might have been severely limited.

Yet having found that the RICO law could apply to RJR’s alleged conduct in this case, Alito went on to hold that the European countries weren’t entitled to bring their private suit, which will now be dismissed. He reasoned that the private suit provision of the law doesn’t expressly apply outside the U.S. The language simply says that “any person injured in his business or property by reason of a violation” of the rest of the law may bring suit. This wasn’t explicit enough to overcome a legal presumption against extraterritorial application, Alito argued.

It’s highly legalistic to distinguish the substantive provisions of the law, which do apply abroad, from the right to sue for damages caused by a violation of those same provisions, which the court said did not apply abroad. The three liberal justices sitting on the case all dissented on this point, and would have allowed the suit to go forward.

But Alito gave a reason, one intended to throw the Europeans’ prior views in other cases back into their faces. He explained that the reason to be careful about applying U.S. legal remedies abroad is that they might interfere with alternative remedies provided by European systems. He reminded the Europeans that in prior cases involving antitrust, as well as criminal law, foreign nations had filed friend-of-the-court briefs urging the justices not to apply US law to conduct occurring in their countries.

The most damning quote was one from France, a party in the RJR case, which in a prior case lectured the court that “most foreign countries ... prefer state actions, not private ones for the enforcement of law.”

Now, of course, France was asking the U.S. courts to allow a private action in which it was a plaintiff.

The liberal justices are probably right that it makes little statutory sense to sever RICO into two parts, allowing the federal government to continue to bring international cases while barring private suits.

But Alito has a point nevertheless. Foreign states shouldn’t be able to pick and choose, criticizing the U.S. for applying its law extraterritorially when they don’t like it, and begging for its help when it’s convenient. Today’s decision will remind them of that.