Extraterritoriality and the Regulatory Power of the United States: Featured Issues of Sovereignty, Legitimacy, Accountability, and Democracy

Extraterritoriality is a negative form of transnationalism. It creates a paradox among state regulatory power because extraterritoriality can both govern the conduct of the state and also constrain the state in reacting to future transnational changes. In governing the state, extraterritoriality provides the state with the power to impose standards to control the activities within its borders. On the other hand, extraterritorialty constrains the state by hindering multi-state progression towards more efficient transnational developments. States have traditionally captured their autonomy in sovereignty, but extraterritorialty challenges this notion. This was an inevitable result, as extraterritoriality became a natural consequence that resulted from globalization and technological advancements. In this study, the criminal extraterritorial enforcement mechanisms of the U.S. Exchange Act of 1934 will be offered as an example of state extension within the broader context of the transnational world. However, there is one problem with the current predicament and trend: since a state’s borders are blurred in modern securities transactions, the state – the United States – is excessively expanding its reach due to this form of transnationalism – extraterritoriality. This extension of U.S. law abroad is unfortunate. While extraterritoriality is a legal way to regulate conduct via prescriptive jurisdiction, it creates problems relating to (1) sovereignty, (2) legitimacy, (3) accountability, and (4) democracy. Regarding state sovereignty, the very definition of extraterritoriality comprises the extension of a state’s law upon the foreign conduct of another state’s nationals. Current uses of extraterritoriality by the United States are arbitrarily applied without the consent of those affected and, because of this, pose a severe threat to both the territorial and economic sovereignty and integrity of other states. Analyses into legitimacy reveal that people are uncomfortable with this process because of the degree of coercion that results from the judiciary’s ability to formulate additional standards in its case holdings. This use is also counter-productive in that it diverts the focus away from victims and perpetrators and instead redirects attention on methods of enforcement. With extraterritoriality, the United States is gaining different regulatory constituents, namely foreigners; however, the United States is not accountable to these foreign actors. This may include the U.S. adjudication of claims with little to no connection to the United States. Furthermore, extraterritoriality hinders a state’s right to self-determination since its basic notion is the imposition of another state’s law upon it with no consent. It also undermines the structure of the United States’ democracy, including its system of government by creating complications between the U.S. branches regarding the separation of powers. Additionally, even though extraterritorial applications by the United States depict the state as a purported strong player in the international sphere, it instead produces a transformed state that risks foreign infringement through this form of regulatory power. A better approach is one that transcends state public law, abandons the over-reliance on U.S. extraterritoriality, and comports with modern objectives of international cooperation and development, such as forms of either procedural and substantive harmonization