The Controversial Use of Extraterritorial Jurisdiction by the United States

Emily Xu

26 January, 2019

Secretary Mnuchin Provides and Update on Iran Policy and Sanctions at the Washington Foreign Press Center

Secretary Mnuchin Provides and Update on Iran Policy and Sanctions at the Washington Foreign Press Center


 

As a global hegemon, the United States has enjoyed considerable influence over international trade and business relations, often acting as a checks and balances agent for the international community. A prime example of the US’ exercise of extraterritorial jurisdiction is Canada’s arrest of Meng Wanzhou, Huawei’s chief financial officer, on behalf of the United States amid allegations of misconduct.  

Extraterritorial jurisdiction refers to the extension of a government’s legal power beyond their national boundaries. Generally speaking, it is used to maintain international law with regards to respecting human rights and enforcing a competitive economic order. Historically, the US has been a global leader in enforcing international law and imposing sanctions on transgressors. Recently, however, there has been a worrying growth in the number of cases wherein either the US Department of Justice or the Treasury Department enforce American laws internationally, extending the scope of the law beyond its territorial borders and disproportionately punishing foreign firms for transgressions. In these cases, draconian punishments are doled out in the form of sanctions or shutting said firm out of the market and these consequences impact corporations to the extent where continuing to violate such laws would amount to corporate suicide given the considerable size and influence of the US economy.

Extraterritorial jurisdiction exists to maintain a collective global order, but controversies persist in this legal grey area with regards to how the US chooses to exercise its power. Despite, or perhaps because of, the absence of an international regime or precedent in place, there has been an influx on cases wherein the DOJ pursues foreign corporations for violating US law. Consequently, American prosecutors wield considerable discretion in enforcing American laws abroad and selecting appropriate punishments. For one, in order to apply the US’ laws abroad, prosecutors have to establish a link back to America, as the US Supreme Court established precedent in the Racketeer Influenced and Corrupt Organizations Act (RICO) by only allowing extraterritorial jurisdiction to be wielded in cases only in which there is "a domestic injury to its business or property”. However, prosecutors have argued that a link to a domestic institution should be enough to impose domestic laws on international corporations. Room for discretion and interpretation run rampant and connections can be as tenuous as the use of Gmail, which is based in America, or an indirect link to an American financial institution, which is generally unavoidable given the pervasiveness of the influence and ubiquity of both the US dollar and US corporations. Furthermore, extraterritorial jurisdiction is particularly controversial because many of the corporations in question have not violated local laws.  

Aside from overzealousness, another issue with the recent brazenness of the US’ extension of domestic law enforcement abroad is the absence of procedure and transparency. The fact that concrete details of Meng Wanzhou’s arrest, aside from speculations of Iran sanction violations and intellectual property theft, have yet to be released to the public is emblematic of this lack of transparency. Although the United States generally protects free and fair trade, their recent use of extraterritorial jurisdiction raises the question of the legitimacy of the power that they wield, whose interests are being served and the impact of said legal power. Suspicions about whether the US actually has the international community’s best interests at heart have been shared by both Europe and China, where hefty sanctions have been imposed on BNP Paribas, a UK-based bank, and ZTE, a Chinese telecoms corporation, respectively in the name of antitrust laws.

The primary issue, in this case, is the US’ role as the international business community’s sole judge, jury and executioner. In their zealous imposition of sanctions, the DOJ and Treasury Department risks diluting the authority of the United States as a global police force. Extraterritorial jurisdiction is particularly controversial because the corporations in question have not violated local laws. Europe has already been moving away from the US, with the European Union implementing a new electronic payment system, which would allow corporations to transfer money to and from Iran without the threat of scrutiny or sanctions, to protect domestic corporations that continue to trade with Iran in spite of US sanctions. China has been moving in the same direction and seeks to become an alternative to the US or even replace it as an economic superpower. Given that extraterritorial jurisdiction is intended to act as checks and balances for the global community, no real checks and balances system actually exists if the US continues to unilaterally act in the name of the international community.