A Primer on Extraterritoriality
March 25, 2022
Extraterritoriality refers to the application of a state’s law beyond the state’s borders. Although the word “extraterritorial” often has negative connotations, international law permits a great deal of extraterritorial regulation. In a world where trade, information, crime, and lots of other things regularly cross borders, states often have an interest in regulating beyond the strict confines of their territories. Extraterritorial regulation is the natural result. This primer looks first at extraterritorial regulation under customary international law and then at the U.S. approach to extraterritoriality.
Customary International Law
The extraterritorial application of national law is governed by customary international law rules on jurisdiction to prescribe. Jurisdiction to prescribe is the authority of a state to make law that is applicable to persons, property, or conduct. As Section 401 of the Restatement (Fourth) of Foreign Relations Law explains, it is distinct from jurisdiction to adjudicate (the authority to apply law, generally done by courts) and from jurisdiction to enforce (the authority to compel compliance with law, generally done by the police), which are governed by different international law rules.
Under customary international law, a state may exercise jurisdiction to prescribe if there is a “genuine connection” between the state and what it wants to regulate (Restatement (Fourth) § 407). There are six traditional bases for prescriptive jurisdiction: (1) territory, (2) effects, (3) nationality (also called “active personality”), (4) passive personality, (5) the protective principle, and (6) universal jurisdiction. Aside from territorial jurisdiction, each of the other bases authorizes states to regulate extraterritorially.
Effects jurisdiction allows a state to regulate conduct outside its territory that has a substantial effect inside its territory. For example, many states apply their competition (antitrust) laws extraterritorially to foreign conduct that causes anticompetitive effects in domestic markets. The U.S. Supreme Court has held that “the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.”
Nationality jurisdiction allows a state to regulate the conduct of its nationals and residents outside its territory. For example, the U.S. Foreign Corrupt Practices Act (FCPA) prohibits the bribery of foreign officials by “domestic concerns,” a term that the FCPA defines to include U.S. citizens and residents, as well as businesses that have their principle places of business in the United States or are organized under U.S. law.
Whereas nationality jurisdiction regulates conduct by a state’s nationals, passive personality jurisdiction regulates conduct that harms a state’s nationals. It is widely accepted for terrorist offenses but may be more broadly applicable. The United States, for example, criminalizes the killing of U.S. nationals outside the United States.
The protective principle allows a state to regulate conduct outside its territory by non-nationals “that is directed against the security of the state or against a limited class of other fundamental state interests” (Restatement (Fourth) § 412). The classic examples, both of which the United States prohibits, are counterfeiting and espionage.
Finally, a state may exercise universal jurisdiction to prohibit offenses of universal concern even if there is no specific connection to the regulating state. The United States has criminal statutes based on universal jurisdiction for piracy, slavery, genocide, and torture, among other offenses. It provides civil remedies for torture and extrajudicial killing based on universal jurisdiction under the Torture Victim Protection Act.
Because there are so many bases for prescriptive jurisdiction that permit extraterritorial regulations, it will often be the case that more than one state has authority to regulate the same person, property, or conduct. Customary international law has no rules for giving priority to competing jurisdictional claims. Although Section 403 of the Restatement (Third) of Foreign Relations Law took the position that states were required by international law to weigh their own regulatory interests against those of other states, the Restatement (Fourth) subsequently rejected that position as unsupported by state practice and opinio juris (Restatement (Fourth) § 407, Reporters’ Note 3). In short, customary international law recognizes that both extraterritoriality and concurrent prescriptive jurisdiction are common.
U.S. Limits on Extraterritoriality
The main limits on extraterritoriality come not from international law but rather from domestic law. In the United States, the main limit on the geographic scope of federal statutes is a principle of interpretation known as the presumption against extraterritoriality. This presumption has taken different forms over time. The current version has two steps, which the U.S. Supreme Court described in RJR Nabisco, Inc. v. European Community (2016):
At the first step, we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially…. If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute’s “focus.” If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.
One can describe these steps as (1) a “clear indication” step and (2) a “focus” step.
Sometimes the text of a statute gives a clear indication of its geographic scope. For example, in 1991 Congress amended Title VII of the 1964 Civil Rights act to provide for the extraterritorial application of its provisions forbidding employment discrimination. Title VII now provides, “[w]ith respect to employment in a foreign country, such term [employee] includes an individual who is a citizen of the United States.” It goes on to create exceptions for discrimination that is required by the law of the foreign country where the workplace is located and for employment by foreign companies that are not controlled by U.S. companies. But the Supreme Court has also said that courts may look for a clear indication of geographic scope in the context, history, and structure of a statute. In RJR Nabisco, for example, the Court found a clear indication that RICO’s criminal provisions apply extraterritorially to the same extent as the predicate acts on which RICO charges are based because some of those predicate acts expressly apply extraterritorially. If a court finds a clear indication of geographic scope, it applies the statutory provision as indicated.
If (and only if) there is no clear indication of a provision’s geographic scope at step one, then at step two a court must determine the focus of the provision and whether conduct relevant to that focus occurred in the United States. The focus of a statutory provision may be something other than conduct. In RJR Nabisco, for example, the Supreme Court found that the focus of RICO’s private right of action was on “domestic injury to business or property.” In Morrison v. National Australia Bank Ltd. (2010), the Court found that the focus of Section 10(b) of the Securities Exchange Act prohibiting securities fraud was not on the fraudulent conduct but rather on the transaction affected by the fraud. Morrison therefore adopted a “transactional test” for Section 10(b), making its application turn on whether the purchase or sale of securities is made in the United States rather than whether the fraud occurred in the United States.
The Supreme Court has given little guidance on how to determine what conduct is relevant to a provision’s focus. Indeed, the Court’s application of the “focus” step in both Morrison and RJR seemed to require simply that the focus itself—the transaction or the injury—have occurred in the United States. Thus, Section 404 of the Restatement (Fourth) of Foreign Relations Law stated in 2018: “If whatever is the focus of the provision occurred in the United States, then application of the provision is considered domestic and is permitted.” But in 2021, the Supreme Court held that a complaint under the Alien Tort Statute (ATS) for aiding and abetting child slavery “impermissibly [sought] extraterritorial application of the ATS” because “nearly all of the conduct” occurred in another country. The Court found it unnecessary even to determine the focus of the ATS because, regardless of the focus, the plaintiffs had not alleged sufficient conduct in the United States. The implications of this decision may be surprisingly broad.
In summary, under the current presumption against extraterritoriality, a statutory provision may apply to conduct outside the United States if Congress clearly indicated that it should or if the focus of the provision and some conduct relevant to that focus are found in the United States. Applying this presumption to different provisions generates different tests for geographic scope because different provisions contain different indications of scope and focus on different things. Thus, Title VII’s provisions on employment discrimination apply to discrimination against U.S. citizens abroad (with some exceptions), based on the plain language of the statute. Section 10(b)’s provisions on securities fraud apply to fraudulent conduct abroad if the transaction occurred in the United States, based on the focus of that provision. RICO’s criminal provisions apply to conduct abroad to the extent its predicate acts reach such conduct, based on the structure of the statute. And RICO’s private right of action applies to conduct abroad only if there is injury to business or property in the United States, based on the focus of that provision.
Beyond the presumption against extraterritoriality, some courts have imposed additional limits on the geographic scope of federal statutes as a matter of prescriptive comity. This is well accepted in the bankruptcy context. By contrast, U.S. courts are currently divided on whether it is appropriate to supplement Morrison’s transactional test for securities fraud with additional comity limitations, with the Second Circuit allowing claims involving transactions in the United States to be dismissed if they are “predominantly foreign” and the First and Ninth Circuits rejecting that approach.
Federal agencies also sometimes interpret the geographic scope of federal statutes. For example, the Securities Exchange Commission has issued Regulation S, interpreting the registration requirements of Section 5 of the Securities Act with respect to offshore transactions. The Federal Trade Commission has similarly issued regulations defining the geographic scope of the premerger notification requirements in the Hart-Scott-Rodino Antitrust Improvements Act. As I have described elsewhere, the U.S. Supreme Court has consistently applied the ordinary rules of deference to administrative agencies to questions of geographic scope.
The principles of interpretation described above apply only to federal statutes. The geographic scope of state statutes is a question of state law. Some states have adopted their own presumptions against extraterritoriality, while others have rejected any such presumption. Some state presumptions against extraterritoriality operate similarly to the federal presumption, but others operate differently. California’s presumption, for example, turns on the location of the conduct rather than on the focus of the provision at issue. Whereas the U.S. Supreme Court has held that Section 10(b) of the Securities Exchange Act prohibiting securities fraud applies to transactions in the United States regardless of where the fraudulent conduct occurs, the California Supreme Court has held that California’s corresponding state securities fraud statute applies to fraudulent conduct in California regardless of where the transaction occurs.
Another critical difference in the extraterritorial application of state and federal statutes is that state statutes are subject to state choice-of-law rules, whereas federal statutes are not. Thus, the application of a state statute may involve a two-step analysis, first determining the scope of the statute under state principles of interpretation and then considering whether to give priority to the law of another jurisdiction under state choice-of-law rules. Because there are no choice-of-law rules applicable to federal statutes, the extraterritorial application of federal statutes is determined entirely as a matter of statutory interpretation.
Customary international law allows a great deal of extraterritoriality. Both U.S. states and the federal government regulate extraterritorially. The most important limits on extraterritoriality are imposed domestically. The geographic scope of state law is determined by state rules of statutory interpretation and state choice-of-law rules, whereas the geographic scope of federal statutes is determined principally under the federal presumption against extraterritoriality. The result is a series of different tests for the geographic scopes of different statutes, which courts and agencies in the United States then apply in specific cases.