US Court Decision Confirms Broad use of AML by Authorities to Pursue Foreign Parties

The US Supreme Court's recent decision in the RJR Nabisco, Inc. v European Community case confirms the broadness with which US authorities can pursue individuals and firms using anti-money laundering rules as a pretext, a former White House attorney said. Although the case concerned the Racketeer Influenced and Corrupt Organisations Act (1970), D.E. Wilson, Jr., a partner with law firm Venable in Washington, DC, said that from the standpoint of the extraterritorial application of US rules and regulations, financial institutions in Asia should be concerned about the decision because AML was one of the favourite levers to be used by prosecutors these days.

"They [US authorities] have shown they feel comfortable using it in an international setting," Wilson said. 

"It [the case] means that AML can be a predicate offense for a RICO claim outside the US and in that respect, it confirms the broadness of the US government's use of AML to go after someone, whether entity or individual, outside of the US. In fact, the anti-money laundering laws are one of a US prosecutor’s favourite tools. Not just prosecutors, but also bank regulators such as the Federal Reserve, and securities regulators, including the Securities and Exchange Commission, are very comfortable using the AML laws domestically and internationally," Wilson said.

Wilson was a former lawyer with the US Treasury Department in the 1980s and had a hand in the ultimate founding of its Financial Crimes Enforcement Network ("FinCEN") in 1990.

Predicate Acts

The court decision, which was published on 21 June 2016, clarified the scope of the RICO Act, with the court holding that while certain provisions of RICO did apply to foreign conduct, those which provided for a private right of action under the act did not allow civil plaintiffs to sue for injuries outside the US. Section 1962 of RICO makes it illegal to engage in a "pattern of racketeering activity" to infiltrate, control, or operate an enterprise. RICO defines "racketeering activity" to include a number "predicate acts".

A defendant must have engaged in at least two predicate acts within a 10-year period for a RICO violation to occur. RICO violations are subject to criminal penalties and may also be addressed by the government through civil actions. In addition, s. 1964(c) of the Act provides for a private right of action, allowing "any person injured in his business or property" resulting from a violation of RICO to sue in federal court to recover treble damages, costs and fees.

"The [US] Supreme Court has said that in the civil context, a RICO case must be supported by a predicate offense ... and you have to look at each predicate offense individually. If it [the predicate offense] can support a RICO claim, ask if there are any damages regardless of where they took place. If there are no damages in the US, then you cannot file a RICO claim in an American court."

The court held that a violation of s. 1962 may be based on a pattern of racketeering outside the US, as long as the predicate acts that form the basis of the RICO violation either took place within the US or took place elsewhere but still constituted a violation of a US law that itself applies extraterritorially.

More to Come

Down the road, international institutions and corporations should expect more litigation in the RICO context as to what constitutes a domestic injury, Wilson said. He said the decision was important in that it gave the US Department of Justice guidance on what allegations it can use to support a RICO indictment.

"So, when bad acts occur abroad and one of those acts is or, as importantly, may be characterised as money laundering, a US jurisdictional basis exists. Moving forward, we will see an increase in the use of AML in the RICO world by the government in criminal cases," Wilson said, stressing the interconnectedness of AML and anti-corruption in enforcement actions brought by US regulators.

Yet, some question why firms in Asia-Pacific should spend so much time and money complying with a US-directed AML regime when there was no clear evidence of any illegal activity occurring within the domestic US.

"The Supreme Court has just stated clearly that in the absence of a domestic action breaking US laws, there is no US extraterritorial jurisprudence. If this is the case, I suspect you will see less adherence to bulking up an AML regime in Asia-Pacific that ought to rightly be done only by firms operating within the domestic US as per this decision," said Bill Majcher, chief executive of EMIDR in Hong Kong.

Jurisdictions

Ajay Shamdasani is a senior staff writer with Thomson Reuters Regulatory Intelligence in Hong Kong. He covers regulatory developments in Hong Kong, India and South Korea. He also writes about money laundering, fraud, corruption, data privacy and cybercrime.

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