By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Supreme Court on Monday limited the scope of federal racketeering law, handing R.J. Reynolds a victory in its effort to fend off a lawsuit by European Union nations accusing the cigarette maker of running a global money-laundering scheme involving narcotics smuggling into Europe.

The court, in its 4-3 ruling, reversed a lower-court decision that backed the EU and 26 member states, finding that the racketeering law does not extend to claims not made by U.S. authorities concerning conduct that takes place overseas.

"We are certainly pleased with the court's decision today. The company has long believed that the EU's claims are legally and factually baseless," Jeff Raborn, Reynolds' vice president and assistant general counsel, said in a statement.

Winston-Salem, North Carolina-based R.J. Reynolds is part of Reynolds American Inc, the second-largest U.S. tobacco company with brands including Camel and Pall Mall.

David Frederick, a lawyer for the EU states, said the litigation will continue in federal district court on certain remaining claims.

The case focused on whether the Racketeer Influenced and Corrupt Organizations Act (RICO), a U.S. law used to target illegal conspiracies including organized crime, applied to overseas conduct.

Writing for the court, Justice Samuel Alito said RICO can apply to overseas activity in some instances but not in legal action not brought by the U.S. government. Under the ruling, the federal government can bring both civil and criminal claims under the law based on overseas conduct, an outcome the Justice Department had requested in court papers.

The EU countries accused R.J. Reynolds in 2002 of directing a decade-long scheme from the United States that involved the smuggling of illegal narcotics into Europe by Colombian and Russian crime groups, the laundering of proceeds from the sale of those drugs, and the use of the proceeds by importers to buy R.J. Reynolds cigarettes.

The 2nd U.S. Circuit Court of Appeals in New York ruled in 2014 that the case could go forward.

Cory Andrews, a lawyer with the Washington Legal Foundation conservative advocacy group, said the racketeering law was enacted to combat organized crime but that plaintiffs' lawyers had tried to expand its reach to include the overseas actions of U.S. companies.

"The Supreme Court's decision today, by clarifying that a private RICO plaintiff must be able to allege and prove a domestic injury, puts a welcome end to that gambit," Andrews said.

Only seven justices took part in the case. Antonin Scalia died in February. Sonia Sotomayor recused herself.

(Reporting by Lawrence Hurley; Editing by Will Dunham)