Page 10 - Litigation

S10 | MONDAY, FEBRUARY 24, 2014 | Litigation
| NYLJ.COM

Reach
United States or when title is passed within
of transactions that “in any way or degree whether courts will adopt the more categori-
26 the United States.”
affect[] interstate or foreign commerce” or cal approach—which appears to have been
Implications of ‘Vilar’ for White-Collar that involve inancial institutions “engaged followed in Norex—and hold that the RICO
« Continued from page S4
Practitioners. The signiicance of Vilar for in, or the activities of which affect, interstate statute does not apply extraterritorially no
other securities.”15 The conduct for which white-collar criminal practitioners lies just or foreign commerce in any way or degree.”35 matter the nature of the conduct at issue.
they had been convicted, they claimed, had as much in the framework it establishes for Further, §1956 applies to “foreign persons” 4. Insider Trading. Another common focus
been “extraterritorial” because it “occurred determining whether extraterritorial conduct who commit offenses involving transactions, of white-collar practitioners is insider trad-
in the territory of a sovereign other than the can give rise to criminal liability generally, as property, or institutions with certain speci- ing, which can give rise to criminal and civil

United States.”16 In response, the government it does in the speciic limitation it imposes on ied connections to the United States.36 And liability under §10(b) of the Exchange Act of
argued that “the presumption against extra- §10(b).27 Under the post-Morrison framework §1957 imposes criminal liability on “United 1934—the subject of Morrison and Vilar—and
territoriality for civil statutes . does not set out in Vilar, the irst question to ask is States person[s]” who engage in prohibited §14(e) of the Williams Act of 1968.
apply in the criminal context,” and that at whether a “clear indication of an extrater- transactions “outside of the United States.”37
The extraterritorial application of the
least some of the transactions on which the ritorial application” can be discerned for a Because these statutes contain clear prohibition against insider trading under
convictions were based involved “domes- given statute.28 In the absence of such a “clear guidelines concerning their applicability to SEC Rule 10b-5 is determined by Morrison’s
tic transactions in other securities.”17 The indication,” the second question is whether extraterritorial conduct, their interpretation construction of §10(b). Rules promulgated
government also pointed out that Vilar and the statute is of a “class[] . enacted because should remain untouched by Morrison.38 under §10(b) cannot “extend beyond con-
Tanaka had solicited investments from cus- of the right of the government to defend itself Indeed, courts interpreting Morrison have duct encompassed by [its] prohibition,”44 and
tomers based in the United States, received against obstruction[] or fraud” or whether continued to ind that unlawful activity abroad §10(b) only extends to “fraud in connection
funds through accounts in the United States, it merely identiies “[c]rimes against private can serve as a predicate for money laundering with [] a security listed on a U.S. exchange,
and invested those funds in securities traded individuals or their property.”29 In the event charges under §1956 or 1957.39 That said, no or [] a security purchased or sold in the
on exchanges in the United States.18
that the answer to the irst two questions reported decision has found that the money United States,” even in the criminal context.45
The Second Circuit began its analysis by is “no,” the statute has no extraterritorial laundering statutes protect the interests of However, as Vilar also illustrates, fraudulent

noting that in Morrison, the Supreme Court application, and liability will only arise in the government itself, meaning that where conduct with an extraterritorial component
had invoked a “longstanding principle of connection with foreign activity when there
foreign conduct does not satisfy the speciic
can still give rise to liability under §10(b),
American law” that the “legislation of Con- provided that it takes place “in connection”
gress, unless a contrary intent appears, is with one of these transactions.46 Thus, as
meant to apply only within the territorial the Southern District of New York found in While ‘Morrison’ and its progeny may generally curtail the reach
jurisdiction of the United States.”19 However, S.E.C. v. Compania Internacional Financiera,
the Second Circuit recognized that under the a foreign investor who purchases derivatives of federal laws, it remains to be seen whether the Second Circuit’s
court’s earlier decision in Bowman, this prin- on a foreign exchange based on inside infor-
ciple did not apply to “criminal statutes which mation obtained in a foreign country could airmation of ‘Bowman’ in ‘Vilar’ will place a limit on the class of
are, as a class . enacted because of the right violate Rule 10b-5, and face liability under criminal laws to which ‘Morrison’ will apply.
of the Government to defend itself against §10(b), when the purchase of the derivative
obstruction, or fraud wherever perpetrated.”20
abroad led directly to the purchase of securi-
Having afirmed these two principles, the ties domestically.47
is domestic conduct within the “focus of Con- criteria of these statutes, Vilar and Bowman
Second Circuit rejected the argument that No court has considered the application gressional concern” evinced by the statute.would not prevent the application of the pre-
30
Bowman “limit[ed] the presumption against of Morrison to §14(e) and SEC Rule 14e-3, An application of this framework to the sumption against extraterritoriality.
extraterritoriality to civil statutes,” on the but these provisions are silent concerning statutes that typically concern white-collar 3. The RICO Statute. Congress enacted
ground that this “would establish . the dan- their application to foreign conduct and do practitioners—several of which are consid- the RICO statute in 1970, in an effort to cre-
gerous principle that judges can give the same not appear to fall within the class of statutes ered below—suggests that the impact of ate additional tools for the “eradication of
statutory text different meanings in differ- described in Bowman, given the general treat- Morrison and Bowman will vary depending organized crime in the United States.”40 The
ent cases.”21 Recognizing “broadly worded ment of securities fraud in Vilar. As a result, not only on the precise language of the stat- statute provides for both criminal and civil
. statements” in prior opinions suggesting the presumption against extraterritoriality ute, but also on the interests the statute is
liability for using, or conspiring to use, a
otherwise, the court emphasized that prior would limit the application of the section and intended to protect.
“pattern of racketeering activity” to affect
decisions inding the presumption against rule to domestic tender offers, much as it has 1. Obstruction of Justice. 18, U.S.C. ch.
an “enterprise” in certain ways.41 While one
extraterritoriality inapplicable in criminal limited the application of other securities laws 73 sets out 19 offenses related to methods of could argue that the extraterritorial appli-
cases involved statutes that either contained in the wake of Morrison.48
obstructing governmental activity under the cation of RICO should be determined on a
express provisions concerning extraterrito- 5. Other White-Collar Frauds. 18 U.S.C. heading “Obstruction of Justice.”31 Only two of case-by-case basis, depending on whether
rial application or that “relate[d] to crimes ch. 63 establishes criminal liability for a num- these offenses, witness tampering (§1512) and the charged predicate offenses arise from
against the United States government,” and ber of different types of fraud, including mail retaliation against a witness (§1513), contain extraterritorial conduct, this has not been

thus fell squarely within the exception carved fraud (§1341), wire fraud (§1343), and bank express provisions establishing “extraterrito- the approach taken by courts since Morrison.
out by Bowman.22 The court rejected the argu- fraud (§1344).
rial Federal jurisdiction” over the offenses In Norex Petroleum v. Access Industries, a civil
ment that §10(b) fell within the latter class of In the case of the mail and wire fraud stat- they proscribe.32
case decided less than a year after Morrison,
statutes and held instead that it was within utes, courts have typically found it unneces- Because two sections of Chapter 73 contain the Second Circuit held that because “RICO is
the category of laws that “prohibit ‘[c]rimes sary to reach the question of whether the stat- provisions concerning their extraterritorial silent as to any extraterritorial application,”
against private individuals or their proper- utes should be given extraterritorial effect. In application while the others do not, it could it does not reach foreign conduct, despite the
ty,’ which [are] exactly the sort of statutory Pasquantino v. United States, the U.S. Supreme be argued that Congress did not intend for fact that statutes deining certain predicate
provision for which the presumption against Court avoided the question by concluding other obstruction statutes to apply to conduct offenses do.42
extraterritoriality does apply.”23 The Second that the offense of wire fraud was complete occurring abroad. However, as a class, the Recognizing that RICO is both a civil and
Circuit concluded that because the Morrison when participants in a scheme to defraud the offenses outlined in Chapter 73 fall squarely criminal statute, one court has looked to Bow-
decision rejected extraterritorial application Canadian government of tax revenue made within the exception articulated in Bowman. man for guidance on the question of whether
of §10(b) in “unmistakable terms,” the only telephone calls from New York to Maryland Like the statute at issue in Bowman, the the RICO statute applies extraterritorially. In
question that remained was whether the rel- in connection with the fraud.49 Other courts obstruction laws clearly protect the integrity United States v. Philip Morris USA, the Dis-
evant conduct occurred domestically, or “in have found that no extraterritorial applica- of governmental activity from interference trict Court for the District of Columbia ruled

the territory of a foreign sovereign.”24
tion is needed to reach communications sent and should presumably apply wherever that that Bowman did not create an exception to
Turning to this dispositive issue, the from the United States in connection with governmental activity takes place.33
the presumption against extraterritoriality
Second Circuit sustained Vilar and Tana- frauds against foreign victims,50 or fraudulent 2. Money Laundering. 18 U.S.C. §§1956 in that case because the alleged conceal-
ka’s convictions concerning the GFRDA statements sent to recipients in the United and 1957 impose criminal penalties for ment of information concerning the effects
and SBIC schemes because both schemes States from abroad.51 Indeed, the Second Cir- various money laundering offenses. Under of smoking by tobacco companies “[did]
involved at least one domestic purchase or cuit has held that the “identity and location both sections, the derivation of funds from not implicate the right of the government to
sale.25 In reaching this conclusion, the court of the victim . are irrelevant” to liability speciied unlawful activities is essential to defend itself.”43 It remains to be seen whether
was guided by its decision post-Morrison in when domestic mails or wires are used in the offense, and under both sections the dei- courts in the future will consider the extrater-
Absolute Activist Value Master Fund v. Ficeto, the execution of a scheme.52
nition of unlawful activity includes crimes ritorial reach of the RICO statute on a case-
which held that “a securities transaction is Neither of these statutes would likely fall arising under foreign law.34 Similarly, the by-case basis based on whether the alleged
domestic when the parties incur irrevocable within the Bowman exception. While the mail term “inancial transaction,” which is rele- conduct of the enterprise “implicate[s] the
liability to carry out the transaction within the
fraud statute arguably protects the integrity of
vant to both offenses, includes a wide array
right of the government to defend itself,” or