In Pari Delicto is a Defense to Civil RICO Claims in Second Circuit | Practical Law

In Pari Delicto is a Defense to Civil RICO Claims in Second Circuit | Practical Law

The US Court of Appeals for the Second Circuit, in The Republic of Iraq v. ABB AG et al., held that the defense of in pari delicto may be used in a civil action brought pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO).  The court also concluded that a private cause of action does not arise under the Foreign Corrupt Practices Act (FCPA).

In Pari Delicto is a Defense to Civil RICO Claims in Second Circuit

Practical Law Legal Update 1-582-0606 (Approx. 3 pages)

In Pari Delicto is a Defense to Civil RICO Claims in Second Circuit

by Practical Law Litigation
Published on 23 Sep 2014 • USA (National/Federal)
The US Court of Appeals for the Second Circuit, in The Republic of Iraq v. ABB AG et al., held that the defense of in pari delicto may be used in a civil action brought pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO). The court also concluded that a private cause of action does not arise under the Foreign Corrupt Practices Act (FCPA).
In a September 18, 2014 decision, The Republic of Iraq v. ABB AG et al. (No. 13-0618, (2d. Cir. Sept. 18, 2014)), the US Court of Appeals for the Second Circuit held that an in pari delicto defense may be used to defeat civil claims brought under the Racketeer Influenced and Corrupt Organizations Act (RICO; 18 USC §§ 1961 et seq.). In pari delicto is a legal principle recognizing that a plaintiff may not recover after participating equally in the alleged wrongdoing. In affirming the district court's dismissal of the plaintiff's action, the court agreed with the lower court's conclusion that the Foreign Corrupt Practices Act (FCPA; 18 USC §§ 78dd-1 et seq.) does not provide a private cause of action.
The case concerned abuses under the Oil-for-food Programme, which was designed by the United Nations (UN) in 1996 to enable humanitarian supplies into Iraq without allowing money to be directed to the country's then-president, Saddam Hussein. Under the terms of the agreement, Iraq was able to contract to sell its oil on the world market; however, all proceeds would be paid into an escrow account overseen by the UN. The funds in this account could only be used for certain purposes to directly benefit the Iraqi people. Hussein sidestepped the programme to his own benefit, in part by contracting to sell oil at below-market prices in exchange for kickbacks and in part by charging illegal transport and docking fees to oil purchasers.
The plaintiff in this suit is the Republic of Iraq, the post-Hussein government of that nation. The plaintiff alleged that the defendants, individuals and corporations, allegedly contracted with the Hussein-led government to circumvent the Oil-for-food Programme. The plaintiff brought suit in the US District Court for the Southern District of New York alleging civil claims under RICO, a private cause of action under the FCPA and state common-law claims. The district court dismissed the action, finding that:
  • The RICO claims should be dismissed:
    • under the doctrine of in pari delicto;
    • due to the lack of extraterritorial application of RICO; and/or
    • because the amended complaint failed to allege the defendants' racketeering activity was the proximate cause of Iraq's injuries.
  • The FCPA claims should be dismissed because the FCPA does not recognize private causes of action.
  • The remaining common law claims should be dismissed because they arose under state law, and the court declined to exercise supplemental jurisdiction.
In affirming the district court's dismissal, the Second Circuit found that the doctrine of in pari delicto itself was enough to dismiss the RICO claims. The defendants successfully argued that the Hussein regime was the legitimate government of the Republic of Iraq when it was in power, and because the Hussein-led Republic of Iraq engineered the wrongdoing alleged, the post-Hussein Republic of Iraq could not recover from that wrongdoing. With its opinion, the Second Circuit joined the Fifth and Eleventh Circuits in finding that an in pari delicto defense was a valid defense to a civil RICO claim.