On July 1 and 2, 1985, the United States Supreme Court decided two cases, each of which is separately of substantial significance to litigating lawyers, and, when taken together, have important implications for international arbitration. This chapter discusses the extent to which the Sedima and Mitsubishi decisions mean that the powerful Racketeer Influenced and Corrupt Organizations Act (“RICO”) may now be the basis for claims in international arbitration proceedings in this country and abroad.

There are currently many contracts in effect between American and foreign parties in which disputes are to be resolved through arbitration. Such contracts may be, for example, distributorship agreements or contracts for the sale of equipment. If a dispute arises, either party may consider itself the victim of misrepresentations and make a claim for fraud in connection with the making or even the performance of the contract. If the fraud constitutes an indictable offense under the mail or wire fraud statutes, it may also serve as the foundation for a civil RICO claim. The aggrieved party would be able to seek treble damages and attorneys’ fees in an international arbitral proceeding, if civil RICO claims may be heard there.

Background to Sedima

In the Sedima case, the Supreme Court broke the logjam of uncertainty created by numerous conflicting lower court decisions which had imposed limitations on the scope of relief available to civil litigants under the RICO statute. The court declared, in effect, that RICO means what it says—that there are few, if any, limitations on the rights of a person to sue if his case is within the literal coverage of the act. Although on the statute books ever since the first Nixon administration,6 RICO’s potential as a weapon for plaintiffs in civil cases seems only to have been broadly realized in the late 1970s.

The RICO statute is complex. In what was obviously an effort to deal with criminal organizations such as the Mafia,8 Congress enacted a statute that makes it unlawful to use income derived from “a pattern of racketeering activity or through collection of an unlawful debt” to invest in or establish an enterprise in or affecting interstate or foreign commerce; to directly or indirectly acquire or maintain an interest in or control of such an enterprise, or conduct or participate in the conduct of the affairs of such an enterprise, through “a pattern of racketeering activity or through collection of an unlawful debt”; or finally, to conspire to do any of the same things.