Document Type
Research Memorandum
Publication Date
2018
Abstract
(Excerpt)
The civil portion of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) permits any individual “injured in his business or property by reason of a violation of the statute’s criminal provisions” to pursue a cause of action against a tort feasor. For a party to pursue a civil remedy for economic injury under the civil portion of the statute, its criminal portion must first be violated through illegal activity, such as numerous acts of mail and wire fraud. In RJR Nabisco, Inc. v. European Community (“RJR Nabisco”), the Supreme Court held that RICO’s private right of action under 18 U.S.C. § 1964(c) does not apply extraterritorially.
Because section 1964(c) of the RICO Act does not apply extraterritorially, a foreign plaintiff must allege and prove a domestic injury to its business or property. For a corporate entity, economic injury generally occurs in its principal place of business. This element may prove challenging for foreign plaintiffs with a principal place of business overseas. The first issue is whether a foreign creditor would be precluded from recovering a debtor’s assets when the debtor engages in racketeering and fraud in the transfer of assets that were or would have otherwise been part of the bankruptcy estate. If so, the second issue is whether a similar presumption against extraterritoriality of the United States Bankruptcy Code, codified under title 11 of the United States Code (the “Bankruptcy Code”) can be overcome in a case involving a foreign defendant.
Part I of this memorandum explores how a presumption against extraterritoriality under the civil RICO statute prevents most foreign plaintiffs from recovering a debtor’s illegally transferred assets. Part II examines how a debtor or trustee may recover a claim against a foreign defendant relating to the avoidance of preferential transfers under section 547 of the Bankruptcy Code, despite a similar presumption against extraterritoriality.