The extraterritorial application of American law is one of the enduring bones of contention in the transatlantic relationship, particularly in France. Following the momentous fines imposed a few years ago by the U.S. authorities on BNP Paribas for violating sanctions against Iran, Sudan and Cuba, and on Alstom for corrupting foreign public officials, the debate on this issue has moved from the technical realm of international law to the political and media stage, with the approximations and excess that inevitably follow.
According to some, the extraterritorial application of U.S. law is supposed to be the main instrument of an ‘economic war’ led by the U.S. against French and European companies. In the aftermath of the BNP Paribas resolution, a politician usually as moderate as former French Prime Minister Michel Rocard did not hesitate to describe the U.S. practice of extraterritoriality as ‘extortion.’ According to this theory, the proceedings brought by the U.S. authorities against Airbus for corruption of foreign public officials are part of the titanic duel with Boeing, and those against Alstom were intended to allow General Electric to take over the energy branch of the French group advantageously. Worse still, the introduction of “compliance” into French business law is pictured as a U.S. plot with geopolitical aims. Add a variable dose of an- ti-Americanism to these ‘strategic’ concerns, and you get the denun- ciation of ‘American legal imperialism.’
This caricatural vision, however, overlooks more complex realities. It has long prevented public authorities and companies from responding adequately to a phenomenon, the potential abuses of which undoubtedly call for vigilance, but that it is essential to better understand as it is consubstantial with globalization.
The French-American controversy over the extraterritorial application of U.S. law seems primarily based on misunderstandings. It is even less justified today, in light of the developments and convergences that can be observed between the two sides of the Atlantic on the main bones of contention.
Transatlantic Misunderstandings
Most French criticisms have focused on the 1977 Foreign Corrupt Practices Act (FCPA), the leading U.S. legal instrument in the fight against transnational corruption. It gained fame in France due to prosecutions by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) against French industrial giants such as Total, Alstom, Technip, and Alcatel-Lucent. Considering the FCPA’s goal of sanctioning bribery of foreign officials, the FCPA has per se an extraterritorial reach consistent with international law. Indeed, the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions compels States Parties to exercise jurisdiction over bribery offenses committed abroad where there is a minimum point of contact with them, and allows for a broad interpretation of the connection, even partial, to their territory.
Hostility has also been expressed towards so-called ‘secondary’ or ‘extraterritorial’ economic sanctions, i.e., those applicable to foreign persons outside the U.S. and the targeted countries – such as a European company subject to U.S. jurisdiction because of its activities in the U.S. and, therefore, compelled to choose between these activities and its projects in Iran or other countries under sanctions.
However, the most emblematic cases in the transatlantic dispute on the extraterritorial application of U.S. law reveal, first and foremost, a striking lack of understanding from French and European players regarding the specificities of the U.S. legal system. The first misunderstanding is entertained in the French public debate through parliamentary reports, think tanks’ memoranda or press articles: the use of the dollar and the Internet is widely believed to be sufficient to allow the extraterritorial jurisdiction of the United States. However, the FCPA does require a connection between the
U.S. territory and the perpetrators prosecuted by the U.S. authorities, such as the listing on a U.S. stock exchange. To the extent that this connection exists, foreign companies are subject to the FCPA if their fraudulent payments involve the use of mail or instruments of interstate commerce. This was the case for Total or Alstom. Therefore, using the U.S. dollar is not enough to authorize U.S. jurisdiction. It must be combined with other criteria, such as monetary compensation through the U.S. banking system, a company’s business activity on
U.S. territory, the exercise of a regulated activity, or the granting of a governmental license for this purpose. These criteria were met in the settlement imposed on BNP Paribas by the U.S. federal and New York State authorities in June 2014 for deliberate violations of U.S. embargoes. None of the controversial U.S. statutes refer to the dollar as a jurisdictional ground for U.S. prosecuting authorities. Moreover, U.S. case law would oppose this sole criterion without express legislative provisions. In the landmark ruling of June 24, 2010, Morrison v. National Australia Bank, the U.S. Supreme Court reaffirmed the general presumption against extraterritoriality, absent an express statutory provision voted by Congress.
Another specificity of U.S. law is the use of civil and criminal non-trial resolutions in white-collar criminal matters and the associated preventive compliance mechanisms. France has long held on to the idea of judicial debate. However, the recourse to transactional and preventive mechanisms by U.S. federal prosecuting authorities has demonstrated their efficiency in successfully combating international fraud, bribery, money laundering, and tax evasion, as evidenced by the growing use of these negotiated instruments since 2000. In exchange for this transactional approach, the prosecution authorities require a certain level of cooperation from companies, including a thorough internal investigation into the alleged facts, adequate sanctions against individuals responsible for the breach, and the enhancement of compliance programs. On the other hand, the absence of cooperation, or even concealment, may result in increased fines, like in the BNP Paribas and Alstom cases. During the negotiation of criminal resolutions, U.S. federal prosecutors impose their own interpretations of U.S. law on prosecuted companies. The content of the settlements and the potentially extraterritorial effect attached to them do not necessarily reflect the law as validated by U.S. courts. Case law on white-collar crime matters is rare in the U.S. because of the predominance of transactional justice. It is doubtful that U.S. courts would always endorse interpretations as extensive as those of the DOJ or SEC: the presumption against extraterritoriality would stand in the way, unless otherwise expressly provided by an Act of Congress.
European companies, and sometimes public authorities, have long taken lightly the constraints imposed by the fight against corruption and economic sanctions, considered as obstacles to business, and even challenged the objectives pursued by these laws, accused of moralism or inefficiency, if not hypocrisy. The denunciation of the extraterritorial application of U.S. law hid the merits of the cases, in which European companies agreed to pay considerable sums to ‘agents’ and other intermediaries, without being unaware that all or part of the commissions paid were intended to corrupt foreign officials. The rhetoric of ‘economic warfare’ is particularly misleading since it sweeps under the carpet the legal or ethical dimension of the merits of the cases, particularly the companies’ criminal behavior in violation of U.S. law, but also of international and French rules. Compared to their U.S. competitors, this attitude delayed European companies in preventing foreign bribery through the implementation of an effective compliance program. The Sapin II Law in France and the UK Bribery Act in the UK have fortunately remedied this in recent years.
Finally, the focus on the extraterritorial application of U.S. law diverted attention from the significant production of global standards by the European Union, which are sometimes extraterritorially applied. Data protection is an area where the EU imposes its standards beyond its borders. This is evidenced by the adoption of the General Data Protection Regulation 2016/678 (“GDPR”), the extraterritorial reach of which is asserted in its Article 3. Extraterritoriality is all the more justified by the structure of the Internet, which ignores territory, and by the need to protect the privacy rights of European Internet users. Therefore, the protection of personal data underscores a European normativity ‘from the top’, by setting the highest standards. It enabled the EU to gain a negotiating power rarely reached in its bilateral relations with the U.S. The extraterritorial application of EU law can also be observed in competition law. The so-called ‘effects theory’ prohibits anti- competitive agreements or practices by undertakings established outside of the Union when the effects of such agreements extend to the territory of the Union.
An Increasing Convergence
While the extraterritorial application of U.S. law has fueled media polemics, the convergence it has produced between the two sides of the Atlantic in the fight against financial crime has gone largely unnoticed. Far from being a geopolitical plot hatched by the U.S., the extraterritorial application of U.S. law has been the spearhead for harmonizing economic regulation across the Atlantic. Competition law provides the first example of this transatlantic convergence. In the 1960s and 1970s, U.S. antitrust proceedings were the European and French companies’ nightmare. Twenty years later, these proceedings became standard practice in Europe, and the European Commission has established itself as a leading regulator in competition matters, as evidenced by the fines imposed by the Commission on Google for abuse of a dominant position since 2018. EU competition law can impact situations located outside the EU borders. The European Commission also adopted efficient practices, such as the conclusion of settlements by which companies admit their participation in anti-competitive agreements, the possibility for third parties affected by these agreements to seek compensation in court for damages suffered as a result of them (private enforcement), or the total or partial reduction of fines imposed on companies in exchange for disclosure to the Commission of the existence of a cartel (leniency programs). More broadly, convergence and cooperation in this area now prevail between the legal systems and the competition authorities on both sides of the Atlantic.
The fight against transnational corruption provides an even more striking example of convergence. The U.S. used the FCPA to promote the negotiation of the 1997 OECDAnti- Bribery Convention, signed by 44 State Parties who committed to upgrade their anti- bribery regimes. The Sapin II law in France and the Bribery Act in the United Kingdom marked a European leap forward. Before adopting these laws, the French and UK legal regimes against corruption were far below the international requirements of the OECD.
Beyond the harmonization of anti-corruption legal frameworks, these laws introduced in France, the UK and the Netherlands an enforcement regime against economic crime based on preventive compliance, the cooperation of companies in investigations, and the negotiated settlement of criminal proceedings. The introduction into French law of the ‘Judicial Public Interest Agreement’ (CJIP) in cases of integrity breach involving companies places cooperation between prosecutors and defense attorneys at the heart of white-collar crime cases settlements. This has overcome what was mildly termed ‘slow justice,’ which concretely meant inefficiency and impunity.
The CJIP concluded between the French National Financial Prosecutor (PNF) and Airbus on January 29, 2020, illustrates all the innovations enshrined in the Sapin II law: non-trial resolution of the criminal proceedings, strengthening of sanctions, imposition of targeted audits of the company’s anti-corruption compliance program by the French Anti-Corruption Agency, and, most of all, cooperation between prosecuting authorities from both sides of the English Channel and the Atlantic (dividing up the investigation, prosecution and fines between the PNF, the UK Serious Fraud Office and the DOJ). The PNF is now a stakeholder, if not a leader, in multi-jurisdictional settlements of transnational corruption cases involving French companies.
Finally, in the more controversial area of international economic sanctions, the response to the Russian aggression against Ukraine led to a common approach in the restrictive measures adopted by Washington and Brussels, which reflects the rise of the European Union as a geopolitical actor. The Europeans understood on that occasion the need for secondary sanctions to ensure the effectiveness of primary sanctions. The upcoming criminalization of the violation of EU sanctions will likely speed up their enforcement and bring U.S. and European sanctions practices one step closer.
The extraterritorial practices of the United States and the European Union are a powerful catalyst for the convergence of legal standards and the cooperation of regulators across the Atlantic.
In this era of geopolitical conflict, however, this harmonization comes with a growing divorce between Western countries governed by the rule of law and authoritarian regimes weaponizing it. The increasing instrumentalization of law by the autocratic regimes of emerging powers in the international economic sphere, in an arbitrary way and without the guarantees of the rule of law, constitutes a threat to globalization. It deserves the transatlantic partners’ attention much more than rearguard controversies about extraterritoriality.