United States: 'Microsoft,' 'RJR Nabisco' And Extraterritorial Reach Of U.S. Law

Two recent decisions—one by the U.S. Court of Appeals for the Second Circuit and one by the U.S. Supreme Court—highlight the extent to which the courts continue to grapple with the question of when to apply a U.S. statute beyond the territorial boundaries of the United States. Given the many cases, both civil and criminal, that involve at least some conduct overseas, how the courts answer this question has the potential to dramatically diminish or extend the impact of U.S. law on people, corporations and other entities around the world.

On July 14, 2016, the Second Circuit issued its decision in In the Matter of a Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft, which arose in the context of a federal narcotics investigation. The government had sought and received from a federal magistrate a warrant, issued pursuant to Section 2703 of the Stored Communications Act, for the content of emails from the account of a Microsoft customer, having shown probable cause to believe that the account had been used in furtherance of narcotics trafficking.

While the warrant was served on Microsoft in the United States, the emails were stored in a facility in Dublin, Ireland, operated by a wholly owned Microsoft subsidiary. A subsequent motion by Microsoft to quash the warrant on the ground that it could not be compelled to obtain emails stored outside of the United States was denied, and Microsoft appealed to the Second Circuit. On appeal, the court reversed, after finding that the SCA did not apply outside the territorial United States and that execution of a warrant pursuant to the SCA in this context did not constitute a domestic application of the statute.

The Microsoft decision has received significant attention, as it is the latest of a series of cases involving the intersection of technology, privacy and the power of law enforcement to access personal information. But, as Judge Gerard Lynch pointed out in an incisive concurrence in the case, the outcome of the case was not so much a result of balancing of the competing interests of law enforcement and the right to privacy, as it was of the application of a framework that has emerged from recent Supreme Court jurisprudence for determining whether a given statute may reach conduct that takes place overseas.

That framework came into sharper focus just three weeks prior to the Microsoft decision, when the Supreme Court decided RJR Nabisco v. European Community, 579 U.S. __, 2016 WL 3369423 (June 20, 2016). In RJR, the court took up the question of whether another statute—the Racketeer Influenced and Corrupt Organizations Act (RICO)—applied outside the United States. RICO is the federal racketeering statute. It is a complex law, but essentially it criminalizes the control or operation of an "enterprise"— which can include, among other things, a corporation, or, less formally, an association of persons or other entities—through a pattern of criminal activity.

RICO was enacted in 1970, as part of the government's effort to combat the infiltration of businesses and labor unions by organized crime. But in the following 45 years, the statute has been applied far beyond this context, to prosecute all manner of corporations, associations and other entities alleged to have engaged in criminal conduct.

In addition to being a powerful tool used by the government to prosecute crime, the RICO statute includes a private right of action, whereby parties injured in person or property as a result of violations of the statute can bring civil suit and seek treble damages. In RJR, the European Community and 26 of its member states brought suit in the Eastern District of New York against RJR Nabisco and related entities, claiming that RJR, working with organized criminal groups in South America and Europe, was involved in a scheme to launder drug trafficking proceeds, violate international sanction regimes and commit other offenses.

The district court granted RJR's motion to dismiss the RICO claims on the ground that the statute did not reach the alleged conduct because it took place outside the United States. On appeal, the Second Circuit reversed and, in a close vote, subsequently declined to grant en banc review. The Supreme Court issued a writ of certiorari to determine whether the RICO statute applied extraterritorially.

Recent Jurisprudence

In answering this question, the Supreme Court reviewed and synthesized its recent jurisprudence on the reach of U.S. law, in particular its decisions in Morrison v. National Australia Bank, 561 U.S. 247 (2010), and Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013). In Morrison, the court found that Section 10(b) of the Securities Exchange Act, which prohibits fraud in the purchase or sale of securities, did not apply extraterritorially and thus was unavailable to a group of foreign plaintiffs suing an Australian bank whose shares were listed abroad. In Kiobel, the court similarly found that the Alien Tort Statute did not reach the alleged conduct of Royal Dutch Petroleum in a suit brought by Nigerian nationals living in the United States claiming that Royal Dutch had abetted crimes by the Nigerian government committed in Nigeria.

Writing for the court in RJR, Justice Samuel Alito discerned in Morrison and Kiobel a two-step framework that, while not specifically articulated as such, had been used by the court to analyze the statutes at issue in those cases. Noting a long-standing presumption against the extraterritorial application of U.S. law, the court found that courts must first ask whether the statute "gives a clear, affirmative indication that it applies extraterritorially." (Slip. Op. at 9). Only if Congress "has affirmatively and unmistakably instructed that the statute will apply" beyond U.S. borders, can the statute be applied to wholly foreign conduct. (Id. at 7). In Morrison and Kiobel, the court found no such clear indication, and thus concluded that the statutes at issue had only domestic application.

Justice Alito next described the second step in the framework, also foreshadowed in Morrison. Where there is no clear indication in the statute of extraterritorial application, courts must determine whether the conduct at issue has sufficient nexus to the United States, such that it is effectively domestic in nature, and thus reached by the statute. If conduct relating to "the focus of congressional concern" in enacting the statute occurred within the United States, then the statute may be applied to all of the conduct at issue, both foreign and domestic. (Id. at 8).

Applying this two-step approach in RJR, the court found clear indication that Congress intended the criminal RICO statute to apply abroad, as long as the statutes governing the crimes alleged as part of the pattern of racketeering activity themselves had extraterritorial application. However, as to the statute's civil private right of action, the court found no such indication and thus concluded that the presumption against extraterritoriality had not been overcome. With regard to the second step of the framework, the court noted that in the district court the plaintiffs had stipulated that they were waiving any damages claim for injuries sustained in the United States. In the court's view, there was accordingly insufficient domestic nexus and thus the claim had correctly been dismissed by the district court.

The Supreme Court's decision in RJR is important because, building on Morrison and Kiobel, it clarifies the manner in which courts are to assess the international reach of U.S. law, making clear that the two-step analysis is to be applied regardless of the type of statute at issue. A clear framework is crucial given that, over the last several years, prosecutors and plaintiffs have been using the laws of the United States to reach ever further beyond our borders. This is true not solely of statutes explicitly designed by Congress to do so, like the Foreign Corrupt Practices Act, 15 U.S.C. §§78dd-1, et seq., but also of other laws that have historically had primarily domestic application, like the wire fraud statute.

Relatedly, the lines between domestic and foreign conduct have continued to blur, as technology and an integrated global financial system increasingly tie the United States to the rest of the world. It is now commonplace, for example, that a complex financial fraud will involve some conduct overseas, be it money laundering through foreign accounts or sheltering money offshore. Likewise, financial crimes hatched abroad will often have some U.S. nexus, whether through transmission of funds through U.S.- based correspondent accounts, use of U.S.-based email servers and phone lines, or travel through the United States in furtherance of the scheme.

Microsoft Case

Of course, a clearly articulated framework is one thing; the application of that framework to a particular statute and set of facts is another. Indeed, the difficulties lurking in the application of the framework described in RJR were highlighted in the Microsoft case. All three judges on the Second Circuit panel hearing Microsoft agreed that it was clear, under the first step of the framework, that the SCA did not apply extraterritorially.

With regard to the second step, two judges concluded that the focus of the SCA was protecting the privacy of stored electronic communications, and that, in this case, it was clear that the invasion of the customer's privacy interests by execution of the warrant would occur abroad, in Ireland. But Judge Lynch, writing separately, observed with respect to the second step of the framework that distilling a single focus of the SCA "may be impossible" and suggested that endeavoring to do so was not the wisest way to draw the line between domestic and extraterritorial application of a complex statute, like the SCA, that does not merely proscribe conduct, but sets forth the circumstances under which the government may access personal information, among other things. (Slip Op. at 14 (Lynch, J., concurring)). It seems likely that how best to draw that line will continue to vex litigants and courts, and eventually require further explication and refinement by the Supreme Court itself.

Previously published in the New York Law Journal – July 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions