Volume 17
Issue
1
Date
2019

Studying the Hegemony of the Extraterritoriality of U.S. Securities Laws: What It Means for Foreign Investors, Foreign Markets, and Efforts at Harmonization

by Alina Veneziano

We live in an interconnected, globalized world where territorial borders are increasingly blurred, and a single decision can have international effects. But there is one concept that hinders the progress of further multilateral efforts in global securities law—extraterritoriality. The United States has been using extraterritoriality for decades to inject its presence into the global sphere. Extraterritorial applications have been unrestrained, arbitrary, inconsistent, unnecessary, and dangerous. Any restraint shown by the United States in curbing this abusive practice has been rendered meaningless over the years. For example, comity considerations or the reinvigoration of the presumption against extraterritoriality are the veil by which the United States hides its true intention: utilizing the unilateral expansion of U.S. law as a means to assert its dominance internationally to achieve global regulation. By adjudicating the claims of other nationals in cases that have little to no connection the United States, extraterritoriality creates over-regulation.
The United States applies its laws extraterritorially to advance its own economic and political interests, and will similarly decline to assert extraterritorial jurisdiction when that too advances its interests. The effects of this attitude impact mostly foreign states, as it is foreigners who feel the consequences of extraterritorial applications, and not the United States. Three issues demonstrate this hegemony: (1) the manipulation potential under current standards for determining if extraterritorial application is appropriate (Morrison’s transactional test and the domestic “focus” analysis); (2) the United States’ unwillingness to enter into multilateral agreements; and (3) the injurious effects on investors and capital markets—both domestic and foreign. This study aims to highlight these shortcomings and stresses the need for an international solution. With the Exchange Act’s regulatory functions, it is possible to geographically reach foreign investors and markets in new, creative ways. An approach that considers comity, reduces foreign friction, and emphasizes accountability, free trade, transparency, and protection for all investors and markets—domestic and foreign—is the basic premise for progress. The study concludes by underscoring the critical need to revive the United States’ willingness to promote multilateral decision-making and work towards the harmonization of securities laws—either procedurally or substantively.

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