Commercial Litigation and Arbitration

Civil RICO, Ripeness, and Extraterritoriality

A civil RICO judgment was entered against the defendant in Liquidation Comm'n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339 (11th Cir. 2008), a Florida businessman, in the amount of approximately $177 million as a result of transactions with the plaintiff’s predecessor in interest, BanInter (Banco Intercontinental) of the Dominican Republic. As described by the Court:

[Transfers from U.S. Bank Accounts to U.S. Bank Accounts.] In each transaction, [defendant] Renta would take some step to cause BanInter funds, typically held in BanInter's dollar-denominated accounts at American banks, to be transferred to an account of [Renta’s company] Bankinvest (at TIBOM [a Miami bank]) or Interduty [a British Virgin Islands entity] (at BankAtlantic or Hamilton Bank). Although they all had the same effect, namely transferring money from BanInter to a Renta-controlled entity, the transactions took several different forms. ***

[$48 Million Transfered.] Altogether, Renta endorsed forty six such transactions which resulted in the transfer of $48,455,625 in BanInter funds to the bank accounts of Interduty, entities controlled by Renta or Baez-Figueroa [a Dominican national and relative by marriage of Renta’s], or, in a few cases, their personal creditors. Of that $48 million, about $33 million ended up in Wadeville, Renta's personal bank account.

[Two Sets of Books.] Meanwhile, these funds transfers were not acknowledged on BanInter's public records. Indeed, BanInter's auditors at Price Waterhouse Coopers were unaware of them until after BanInter's collapse in the spring of 2003. The transfers were booked as "loans" on a secret, parallel set of accounting records. **

[The Notes.] Each transfer of funds described above corresponded to a promissory note, or a similar Dominican instrument called an unica de cambio, signed by Renta on behalf of Bankinvest. In other words, each note ostensibly promised to repay the same amount as one of Renta's requests for funds or security from BanInter. [Footnote 5: These promissory notes form the basis for the RICO predicate acts of mail and wire fraud, the Commission arguing that Renta lacked any intent to repay the notes at the time they were endorsed and transmitted.]

The Court rejected a series of defenses presented by the defendant, including:

Ripeness/Standing. The Eleventh Circuit rejected the argument that the plaintiff’s RICO claim was unripe until it had first pursued contractual remedies it possessed under the Notes against the person who assumed liability for them by acquiring Bankinvest, the obligor to BanInter, given the unlikelihood of recovery. “[W]hether a plaintiff must pursue other remedies before a RICO claim depends on whether those other contingencies are sufficiently likely to mitigate the plaintiff's loss that damages in the RICO case cannot be ascertained, or may not have occurred at all. RICO need not necessarily be the claim of last resort, but neither can a plaintiff seek to treble damages that he did not actually incur.”

Extraterritoriality. Noting a split in the caselaw as to whether RICO has any extraterritorial effect, the Eleventh Circuit held as a matter of first impression “that RICO may apply extraterritorially if conduct material to the completion of the racketeering occurs in the United States, or if significant effects of the racketeering are felt here,” following North-South Fin. Corp. v. Al-Turki, 100 F.3d 1046, 1051 (2d Cir. 1996) and Poulos v. Caesar's World, Inc., 379 F.3d 654, 663-64 (9th Cir. 2004). It stressed the care with which extraterritorial application must be considered:

“It is clear that the effects test is not satisfied here. No United States person or business harmed by this scheme has been brought to our attention. The effects were felt predominantly in the Dominican Republic, where BanInter was based and where the majority of its depositors and creditors were located. Extraterritorial jurisdiction, if it exists, must derive from the conduct test.

“We also agree with the North-South court that use of the conduct test to assert extraterritorial RICO jurisdiction must be undertaken with particular care. The conduct test is borrowed from the securities laws, but American courts will not exercise jurisdiction over a transnational securities fraud suit if the conduct occurring in the United States is preparatory or far removed from the consummation of the fraud.... Likewise, extraterritorial RICO jurisdiction may not be appropriate when conduct occurring in or directed at the United States is not central to consummation of the racketeering, for example, where the sole nexus is utilization of American mail or wires to prepare for or cover up a fraud scheme perpetrated by foreigners against other foreigners.”

The Eleventh Circuit concluded that “[s]ignificant amounts of conduct in furtherance of the RICO conspiracy occurred in both the United States as well as the Dominican Republic. Indeed, the conduct occurring in, or directed at, the United States in this case was not an insubstantial or preparatory part of the overall looting scheme, but the actual means of its consummation. This scheme was carried out by directing transfers of funds to and from accounts at American banks, including the American bank accounts of the victim, BanInter, and of one RICO enterprise, Bankinvest. Among its primary goals was enrichment of an American entity, Wadeville, controlled by an American defendant.”

Judgment affirmed.

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