Case o' The Week: Bank Bureaucrats and Baccarat -- Xu, RICO and Foreign Relevant Conduct
|Chao Fan Xu|
Hard to imagine two victims with less of a sense of humor, to target for a fraud scam: the People’s Republic of China, and casinos.
Chao Fan Xu hit ‘em both.
United States v. Xu, 2013 WL 28392 (9th Cir. Jan. 3, 2013), decision available here.
Players: Decision by Judge Goodwin, joined by Judges Reinhardt and Murguia.
Facts: Xu, and three other Chinese nationals, “stole as much money as possible from the Bank of China; transferred the stolen funds out of the Bank of China; escaped, through immigration fraud, to a safe harbor in the United States; and then spent the funds in, among other places, Las Vegas casinos.” Id. at *3.
(Almost half a billion dollars, in total loss).
The defendants gambled with a big chunk of the money, playing baccarat in Macao, Australia, Malaysia, the Philippines and Las Vegas. Id. at *2. There were basically two steps in the scheme: massive Chinese bank fraud, followed by the U.S. immigration fraud, money laundering, and conspiracies. After the Chinese government discovered the bank fraud, the defendants were arrested, tried, and convicted in the U.S. of RICO allegations, conspiracy, money laundering, and immigration fraud. Id. at *2-*3.
Issue(s): “Defendants argue that their count one convictions are invalid because the charged conspiracy was extraterritorial and outside the reach of RICO.” Id. at *3.
Held: “We affirm Defendant’s count one conviction because the convictions are not based on an improper extraterritorial application of RICO, but rather are based on a pattern of racketeering activities that were conducted by the Defendants in the territorial United States.” Id. at *8.
Of Note: In Morrison v. Nat’l Australia Bank Ltd., the Supremes rejected extraterritorial application of the Securities Exchange Act. Id. at *3. After Morrison, it has been an unsettled question whether RICO applies to extraterritorial schemes. Id.
In Xu, Judge Goodwin holds for the first time in the Ninth that RICO can apply to extraterritorial schemes, if there was a “pattern of racketeering activities” within the United States. Id. at *6-*7. Xu is an important and dangerous expansion of RICO’s scope. Anticipate much litigation on what “pattern of racketeering activities” means: seems a fact-bound inquiry, and it is still unclear how extensive a domestic “pattern” must exist to trigger RICO exposure.
How to Use: Xu lost the RICO battle but won big in the sentencing war. In another important holding of first impression, Judge Goodwin holds that it is procedural error at sentencing to rely on relevant conduct from foreign crimes in the guideline analysis. Id. at *20-*21. With roughly $482 million in Chinese fraud in Xu, that holding should shave off an offense level or two on remand! Any limitation on the hated guideline relevant conduct rules is a defense win: remember Xu if faced with relevant conduct generated from foreign crimes. (Query whether we can expand Xu’s relevant conduct limitation in international drug and smuggling cases?).
For Further Reading: On Monday Jan. 7, the Supreme Court will hear argument on Decamps – an important case on the Taylor modified categorical analysis. In the en banc Aguila Montes de Oca (AMdO) opinion, the Ninth took a (largely unintelligible) stab at the Decamps issue: how to deal with a state prior conviction that is missing an element of a generic federal offense. The Supremes will consider AMdO in the guise of review of the unpublished Decamps mem dispo., and the outcome could have a huge impact on federal sentencing.
For a particularly thoughtful description of the Decamp contretemps (and musings on the much bigger Apprendi issues at stake), see "When is a burglary a 'burglary'? here.
Baccarat image from http://www.baccaratstrategy.info/gfx/baccarat.jpg Image of Chao Fan Xu from http://www.chinadaily.com.cn/china/2008-09/02/content_6988048.htm
Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org