EC’s RICO Claims Against Tobacco Companies Fail

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

The European Community and 26 European countries could not pursue RICO claims against several tobacco companies that allegedly engaged in an elaborate money laundering scheme involving the sale of illegal drugs by criminal organizations and the sale of cigarettes by the defendants, the federal district court in Brooklyn has ruled.

Because the RICO claims were extra-territorial in nature, they did not state a legally cognizable right of action, and thus were dismissed.

Allegations

According to the plaintiffs, criminal organizations originating in Colombia and Russia smuggled into Europe drugs (cocaine and heroin, respectively) that were sold for Euros. The organizations then used European black-market money brokers to exchange the Euros for Colombian pesos and Russian rubles.

Subsequently, illicit cigarette importers purchased the dirty Euros from the money broker, at a discount, and used them to buy cigarettes from U.S. and European wholesalers, who would ship the cigarettes to the illicit importers after purchasing them from the defendant tobacco companies.

The plaintiffs further alleged that the defendant tobacco companies used other companies to handle their illicit transactions, including the management of special handling instructions for shipments that were sent to customers that the defendants knew were involved in criminal activities.

Finally, the plaintiffs alleged that the tobacco companies traveled around the world to negotiate business agreements with individuals who the defendants knew, or should have known, were involved in the laundering of narcotics proceeds.

Territoriality

Because the focus of RICO is the enterprise, a RICO enterprise must be a domestic enterprise, according to the court. Moreover, an analysis of the territoriality of an enterprise in a RICO complaint should “focus on the decisions effectuating the relationships and common interest of its members, and how those decisions are made.”

In this case, the RICO enterprise comprised the tobacco company defendants and associated distributors, shippers, currency dealers, wholesalers, money brokers, and other participants. The plaintiffs alleged that the tobacco companies had participated in the management of the enterprise through a pattern of racketeering activity.

Involvement in Scheme

Nothing in the plaintiffs’ complaint, however, indicated that the tobacco companies were involved in the planning, decision-making, or overall “corporate policy” of the drug smuggling, currency exchange, or currency purchase parts of the alleged scheme. Indeed, the complaint clearly and repeatedly stated that the overall corporate policy regarding those elements originated with European and South American criminal organizations.

In addition, the plaintiffs failed to allege how the defendants’ involvement in the purchase and shipment of cigarettes to wholesalers demonstrated that the defendants had organized, orchestrated, planned, or even participated in the other parts of the scheme.

When read as a whole, the complaint strongly suggested that the money laundering cycle was directed by Colombian and Russian criminal organizations, not the tobacco companies. Defendants thus appeared to be nothing more than sellers of fungible goods in a complex series of transactions that were directed by foreign gangs.

The decision is European Community v. RJR Nabisco, Inc, CCH RICO Business Disputes Guide ¶12,016.