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U.S. court revives EU money laundering case vs RJ Reynolds

Source: Reuters - Wed, 23 Apr 2014 17:17 GMT
Author: Reuters
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(Adds details from decision, case history, comments, first-quarter results, byline)

By Jonathan Stempel

NEW YORK, April 23 (Reuters) - A U.S. appeals court has revived a European Union lawsuit accusing R.J. Reynolds of running a global money-laundering scheme with organized crime groups that involved the smuggling of drugs and cigarettes.

The 2nd U.S. Circuit Court of Appeals in New York said a lower court judge erred in finding that a U.S. anti-racketeering law known as RICO did not cover foreign conduct, barring claims by France, Germany, Italy and 23 other European countries.

In a lawsuit begun in 2002, the EU had sued RJ Reynolds and related entities for unspecified damages, accusing them of running a decade-long scheme involving Colombian and Russian crime syndicates that hurt economies and legitimate marketplaces, and deprived member nations of tax revenue.

RJ Reynolds is now part of Reynolds American Inc, the 2nd-largest U.S. tobacco company, whose cigarette brands include Camel and Pall Mall.

Writing for a unanimous three-judge panel, Circuit Judge Pierre Leval said the U.S. Congress "unmistakably" intended RICO to cover conduct such as RJ Reynolds' alleged wrongdoing.

He said this was because some of the criminal laws underlying RICO necessarily involve foreign conduct, and that violating those laws can provide a basis for a finding of "racketeering activity" that is punishable under RICO.

"Indeed, it is hard to imagine why Congress would incorporate these statutes as RICO predicates if RICO could never have extraterritorial application," he wrote. RICO stands for Racketeer Influenced and Corrupt Organizations.

The case is the latest to turn on a 2010 U.S. Supreme Court decision, Morrison v. National Australia Bank, that found a presumption against applying U.S. laws to conduct that occurred outside the country.

Wednesday's decision overturned a 2011 dismissal of claims brought under federal and New York state law by U.S. District Judge Nicholas Garaufis in Brooklyn. It returned the case to his court for further proceedings.

Bryan Hatchell, a Reynolds American spokesman, said the company is considering its options, including an appeal.

"Several alternative grounds for dismissing the case exist, and we will ask the district court to dismiss the case again on those grounds," he said. "We continue to believe that the lawsuit is entirely baseless in both fact and law."

NO CARTE BLANCHE

As described by the 2nd Circuit, the alleged scheme began with the smuggling of illegal narcotics into Europe by Colombian and Russian crime groups, with euro-denominated proceeds from the sale of those drugs then "laundered" by money brokers.

Importers would allegedly use these proceeds later to buy RJ Reynolds cigarettes via wholesalers, with payments and shipments shielded from government scrutiny. Brokers using funds derived from the importers would then allegedly repeat the cycle.

The EU accused the RJ Reynolds entities of essentially directing the scheme from the United States, using U.S. mails and wires and frequent travel by employees to Colombia.

In dismissing the case, Garaufis said RICO did not apply because the scheme was centered on foreign crime groups operating outside the country.

Leval, however, said that standard could create "illogical" results, such as immunizing people from RICO liability for murders and kidnappings in the United States simply because they were done in conjunction with a foreign enterprise.

"Surely the presumption against extraterritorial application of United States laws does not command giving foreigners carte blanche to violate the laws of the United States in the United States," he wrote.

"We conclude that RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate," Leval added.

The 2nd Circuit took more than two years to decide the case, having heard oral arguments on Feb. 24, 2012.

John Halloran, a lawyer for the EU countries, did not immediately respond to requests for comment.

In afternoon trading, Reynolds American shares were down 62 cents at $54.39 on the New York Stock Exchange.

The case is European Community v. RJR Nabisco Inc et al, 2nd U.S. Circuit Court of Appeals, No. 11-2475. (Reporting by Jonathan Stempel in New York; Editing by Andrea Ricci and Jonathan Oatis)

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