Be Careful Alleging Money Laundering as a Predicate: Ninth Circuit Affirms Dismissal of Civil RICO Claim Finding Money to Trace Alleged Money Laundering of Proceeds in U.S. Did Not Proximately Cause RICO “Injury”

City of Almaty v. Viktor Kharpunov, ___F.3d ___, 2020 WL 1933125 (9th Cir., April 22, 2020)


The panel affirmed the district court’s dismissal for failure to state a claim of an action brought under RICO by a city in Kazakhstan (City) against defendant Victor Khrapunov which had alleged his family engaged in a scheme to defraud the City of millions of dollars in Kazakhastan. After absconding with the money to Switzerland, the City alleged that it was forced to spend money and resources in the United States to trace where its money was laundered as the Khrapunovs cycled the stolen money in and out of California real estate and other investments in order to prevent the City from locating and recovering the funds.

Holding:  The panel held that the city failed to state any cognizable injury other than the foreign theft of its funds, and its voluntary expenditures in the United States were not proximately caused by defendants’ alleged acts of money laundering. Accordingly, the City failed to state a RICO claim.

The Court held that it did not need to determine the question of how to determine whether an injury is domestic or foreign after RJR Nabisco.  This is because Plaintiff’s alleged injury was  merely a consequential effect of its admittedly foreign injury, and not an independent injury cognizable under § 1964(c).  The Court explained that the district court properly determined that Plaintiff’s alleged injury was a mere downstream effect of the Khrapunovs’ initial theft and not an independent harm itself.

Analysis:  The Defendants’ predicate acts of money laundering were not the actual cause of the City’s  expenditure of monies, and thus the Plaintiff failed the proximate cause test, i.e., “some direct relation between the injury asserted and the injurious conduct alleged.” Holmes v. Sec. Inv’r Prot. Corp., 503 U.S. 258, 268 (1992).  The Court explained that the Plaintiff was not separately harmed by the money laundering, and the amount allegedly due to it has not been devalued as a result of Defendants’ money laundering.

Accordingly, the Court need not determine whether Plaintiff states a domestic or foreign injury, since Plaintiff failed to state a cognizable injury at all. The City of Almaty’s expenditure of funds to trace its allegedly stolen funds is a consequential damage of the initial theft suffered in Kazakhstan and is not causally connected to the predicate act of money laundering.

Ed Note:   The court is correct; predicate acts are actionable if they are the proximate and direct cause of injury.  Money laundering, section 1956 and 1957, are predicates and are an important predicate in the hands of the government bringing criminal cases, who do not have to allege and prove “domestic injury.”   But, this decision points out that money spent to trace dollars in the United States the subject of money laundering does not proximately and directly cause injury, a requirement for civil RICO. This case is more properly before a USAO.

This is a well-thought out argument by the Circuit.  I cannot imagine the Supreme Court taking this case given that it is not an interpretation of RJR at odds with any other circuit.

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