Second Circuit Reinstates The European Community’s RICO Suit Against RJR Nabisco

On April 23, 2014, the U.S. Court of Appeals for the Second Circuit reinstated the action brought by the European Community and its 26 member states against RJR Nabisco and related entities (collectively, "RJR") for allegedly laundering drug money through the exchange of discounted euros and cigarettes. In the long-running case European Community v. RJR Nabisco, Inc., the Second Circuit applied and clarified the presumption against extraterritoriality of United States laws.

The European Community claims that Columbian and Russian criminal organizations smuggled illegal narcotics into Europe. The drugs were allegedly sold, producing revenue in euros, which the criminal organizations "laundered" by using money brokers in Europe to exchange the euros for the domestic currency of the criminal organizations' home countries. The money brokers then sold the euros to cigarette importers at a discounted rate, and the cigarette importers then used the euros to purchase RJR's cigarettes from wholesalers or "cut-outs." The wholesalers then purchased the cigarettes from RJR and shipped the cigarettes to the importers who purchased them. Finally, the money brokers used the funds derived from the cigarette importers to continue the laundering cycle.

The European Community alleges that RJR directed, managed, and controlled this global money-laundering scheme with organized crime groups in violation of the Racketeer Influenced and Corrupt Organizations statute ("RICO"), laundered money through New York-based financial institutions and repatriated the profits of the scheme to the United States, and committed various common law torts in violation of New York state law.

In 2011, the district court dismissed the RICO claims because it concluded that RICO has no extraterritorial application. The district court also dismissed the state law claims because it determined that the European Community did not qualify as an organ of foreign state under 28 U.S.C. §§ 1332, 1603 so that its participation in the suit destroyed complete diversity, and thus deprived the court of jurisdiction over the state law claims.

The Second Circuit reversed on both counts. First, the Second Circuit disagreed with the district court's conclusion that RICO cannot apply to a foreign enterprise or to extraterritorial conduct. Recognizing that there is a presumption against extraterritorial application of a United States statute unless Congress has clearly indicated that the statute applies...