Friday, October 01, 2010

Conduct of Venezuelan Officials Not Subject to Civil RICO Claims

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

A Venezuelan businessman and his investment company could not pursue civil RICO claims against Venezuelan government officials and their associates because the action exceeded the territorial reach of federal RICO law, the federal district court in New York City has ruled.

The businessman alleged that the defendants had him unjustly imprisoned, for political reasons, and damaged his business through fraud, extortion, and the private abuse of public authority.

According to the businessman, the defendants engaged in a wide-ranging money-laundering scheme that used U.S. banks to hold, move, and conceal the fruits of their unlawful activity.

Extraterritorial Reach

The Second Circuit held, in Alfadda v. Fenn (CCH RICO Business Disputes Guide ¶7774), that foreign entities were not immunized from RICO’s reach. That holding, however, was essentially overruled by the U.S. Supreme Court’s June 24, 2010 decision in Morrison v. National Australia Bank Ltd. (130 S.Ct. 2869), the district court reasoned.

Addressing the extraterritorial reach of the federal securities laws, the Supreme Court in Morrison concluded that a presumption against extraterritoriality applied whenever a statute offered “no clear indication of an extraterritorial application.” The Supreme Court also repudiated the Second Circuit’s use of an “effects test” and a “conduct test” to evaluate the reach of statutes that were silent on the issue extraterritoriality.

Applicability of Morrison

Because the reasoning of Morrison was applicable to RICO, which did not manifest any concern with foreign enterprises, the presumption against extraterritoriality was applicable in this case, the court held.

The businessman argued that the presumption was successfully rebutted because his RICO claims were predicated on violations of the federal money-laundering statutes, which were extraterritorial in nature. RICO, however, did not apply in contexts where, as here, the enterprise and the impact of any predicate activity upon it were entirely foreign.

The Morrison decision itself was effectively nullified by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010, a month after the Morrison decision was issued.

Dodd-Frank effectively expanded the territorial reach of the antifraud provisions of the federal securities laws, but it did not address the territorial reach of RICO.

The August 24, 2010, decision is Cedeno v. Intech Group, Inc., CCH RICO Business Disputes Guide ¶11,914.

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