Consumer Protection: Civil RICO doesn’t apply to Ghanaian fraud

Where the case involved “losses alleged to have occurred in Ghana stemming from investments made in Ghana,” that was a foreign injury that cannot be remedied under the private right of action provision of the civil Racketeer Influenced and Corrupt Organizations Act, or RICO.

Background

Investors in Ghana placed their funds with a Ghanaian private investment firm, hoping to recoup a profit. Instead, a Ghanaian family domiciled in Virginia allegedly used a web of shell companies across Ghana and the United States to illicitly transfer those funds out of the investors’ reach.

The investors sued in federal district court in Virginia. Five of their six claims arose under Virginia state law. The sixth was the RICO claim premised on four predicate RICO crimes.

Because the case involved “losses alleged to have occurred in Ghana stemming from investments made in Ghana,” the district court concluded the plaintiffs were alleging a foreign injury that cannot be remedied under RICO’s private right of action. Turning to the plaintiffs’ state law claims, there was no diversity jurisdiction. And because it had dismissed the only federal claim in the case, it declined to exercise supplemental jurisdiction over the state claims.

RICO

As alleged by the plaintiffs, the victims are Ghanaian investors. They placed their funds with Gold Coast, a Ghanaian firm. They expected their money would be distributed as microloans within the African continent and then returned to them in Ghana. Instead, the Ghanaian funds were stolen from the Ghanaian plaintiffs in Ghana, when the Nduoms took the money from their Gold Coast accounts. Across all these dimensions, what is alleged is a distinctly foreign injury.

But as the plaintiffs argue, this case does have one domestic element, as well: the transfer of the foreign funds to IBS, the Nduom-owned company in Virginia, and sometimes from IBS to other United States shell companies used to launder the funds. According to the plaintiffs, that is where the court should focus its attention. And because their property – the stolen money – was in the United States when the defendants committed at least some of these racketeering acts, the plaintiffs say, those acts must have caused a domestic injury.

It is true that the RICO case law instructs that the place of racketeering conduct may be relevant to whether an injury is domestic or foreign. But at the same time, it cannot be the case that a RICO injury necessarily arises wherever RICO conduct occurs. To determine whether racketeering conduct is subject to RICO’s criminal prohibitions, RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325 (2016), asks where the conduct occurred: If it occurred in the United States, RICO applies; if it occurred overseas, RICO may or may not apply, depending on the extraterritoriality of the relevant predicates.

But either way, that racketeering activity gives rise to a private cause of action under RJR Nabisco only if it also inflicted a domestic injury, a distinct and independent inquiry. Allowing the location of the racketeering conduct to dictate whether an injury is domestic would conflate the two inquiries that RJR Nabisco took pains to keep apart.

Perhaps recognizing that a rule centered on the location of racketeering conduct cannot be squared with RJR Nabisco, the plaintiffs emphasize that the allegations here put both some of the racketeering activity and the stolen funds together in the United States. Instead of a conduct-based rule, the plaintiffs advance a conduct-plus-property rule: a RICO injury arises in the place where a plaintiff’s property is located at the time of the racketeering conduct.

This attempted refinement of a conduct-based rule is unavailing. The court does not think the racketeering alleged to have occurred in the United States – primarily, the use of United States bank accounts and shell companies to facilitate the theft of foreign funds – is enough to turn what otherwise would be a foreign injury into a domestic one.

Because the investors had no reason to believe the money they invested in Ghana would migrate to the United States, they also had no reason to expect that United States law would protect their funds. And because the only federal claim in the case was properly dismissed, the court also affirms the district court’s dismissal of the plaintiffs’ state law claims.

Affirmed.

Percival Partners Limited v. Nduom, Case No. 23-1309, Apr. 30, 2024. 4th Cir. (Harris), from EDVA at Alexandria (Alston). Shomik Ghosh for Appellants. Robert Maxwell Andalman for Appellees. VLW 024-2-123. 16 pp.