Volume 2, Issue 5 (Originally Published 20 August 2012)
In early August, Standard Chartered, a UK bank, was accused of violating US law, but not because of anything it had or had not done in North America. Instead, Standard Chartered stands accused of hiding transactions for "Iranian financial institutions" that were subject to US economic sanctions. The bank denies the allegations.
The case is just the latest example of how the US has been extending its so-called extraterritorial powers in recent years. The mere fact that money – usually US dollars – at some point flows through New York for example, suffices for New York to assert jurisdiction. In the case of Standard Chartered, although the dollar transactions originated and terminated in European banks in the UK and the Middle East, they were cleared through its New York branch. It has been investigated; not just by the New York State Department of Financial Services, but also the FBI, the US Treasury, the Department of Justice, and the Federal Reserve.
According to David Pitofsky, a member of the law firm Goodwin Procter's litigation department: ‘As long as dollars are involved, they will eventually touch a US institution. Even if a transaction is done, say, in Japanese yen, if a blip in the system turns these into dollars - however briefly - that in theory could mean it falls under US law.’
The investigation into Standard Chartered has been spearheaded by New York authorities. At the US federal level, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law two years ago. This piece of US legislation provides for extraterritorial jurisdiction for US courts over actions brought, where US investors or markets are harmed by actions outside the United States. It potentially subjects foreign non-bank financial companies to prudential supervision in the US, if the foreign company is considered by the US regulator to be systemically significant or interconnected to the US economy.
Moreover, US anti-corruption laws reach beyond US borders. Rupert Murdoch's US-based global media group News Corporation is co-operating with the US Department of Justice in looking into possible breaches of the US Foreign Corrupt Practices Act in relation to allegations that its now defunct UK newspaper subsidiary News of the World paid UK officials for information, something prohibited by the Act.
In 2010, Daimler pleaded guilty in the US to corruption charges after admitting to paying tens of millions of dollars in bribes to government officials in at least 22 countries. The bribes were not paid in the US, yet the German company agreed to pay US authorities $185m to settle the case.
While few have sympathy for corrupt practices or the financial fudging of big banks, not everyone is happy about the long arm of US law stretching all over the world. Lawyers, however, will doubtless take advantage of the thicket of new and increasingly enforced regulations to make themselves indispensable to any company with an American connection.