Legal Environments & Business Decision Making REGULATORY IMPERIALISM?

2023
(Case Study #2)
Teaching team: P. Abadie, C. Collard, A. Witt.

Regulatory Imperialism?
“The Long Arm of the Law”

KEY CONCEPTS:

• Jurisdictional Competence
Jurisdiction is an aspect of sovereignty: it refers to a state’s competence under international law to regulate the
conduct of natural and juridical persons. […] The starting-point in this part of the law is the presumption that
jurisdiction (in all its forms) is territorial, and may not be exercised extra-territorially without some specific basis in
international law. […] The principle that the courts of the place where the crime is committed may exercise
jurisdiction is universally recognized. It is an application of the essential territoriality of sovereignty, the sum of legal
competences which a state has. […] Nationality, as a mark of allegiance and an aspect of sovereignty, is also
generally recognized as a basis for jurisdiction over extra-territorial acts. The application of the principle may be
extended by reliance on residence […]

Source: https://lawexplores.com/jurisdictional-competence/

• Do an Internet search on the following concepts:

o extraterritoriality/extraterritorial jurisdiction
o primary/secondary sanctions

1. Example 1: Supreme Court of the United States, Morrison v. National Australia Bank,
June 24, 2010, 561 U.S. 247.

The U.S. Supreme Court’s ruling in Morrison v. National Australia Bank rendered an entire
category of securities class actions, those known as “F-cubed”, extinct. An F-cubed securities
class action is a case brought by a foreign plaintiff who bought the securities of a foreign issuer
on a foreign exchange. Similarly, F-squared securities class action is typically a case brought by
U.S. plaintiffs who bought securities of a foreign issuer on a foreign exchange. On, June 24,
2010, the Supreme Court affirmed the dismissal of Morrison v. National Australia Bank.
Morrison was an F-cubed securities class action brought by Australian securities owners
against the National Australia Bank (NAB) in the wake of the bank’s disastrous purchase of a
U.S.-based mortgage servicer. NAB’s ordinary shares are not traded on a U.S. exchange.
The Supreme Court, in an opinion authored by Justice Antonin Scalia, held that “Section 10 (b)
[of the Securities Exchange Act of 1934] does not provide a cause of action to foreign plaintiffs
suing foreign and American defendants for misconduct in connection with securities traded on
foreign exchanges.” The opinion reasoned that section 10(b) is not extraterritorial. The ruling
basically wiped out an entire class category of securities litigation.

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 Legal Environments & Business Decision Making REGULATORY IMPERIALISM? 2023
(Case Study #2)
Teaching team: P. Abadie, C. Collard, A. Witt.

In its ruling, the Court noted that:

“It is a longstanding principle of American law that legislation of Congress, unless a contrary
intent appears, is meant to apply only within the territorial jurisdiction of the United States.
[EEOC v. Arabian American Oil Co.]. When a statute gives no clear indication of an
extraterritorial application, it has none”.

QUESTION. Reformulate the sentence ‘When a statute gives no clear indication of an

extraterritorial application, it has none’ by an a contrario reasoning (i.e. reverse the sentence).
What are the implications of the result you obtain?

2. Example 2: BNP Paribas Admits Guilt and Agrees to Pay $8.9 Billion Fine to U.S.
by Ben Protess and Jessica Silver-Greenberg. June 30, 2014 (The New York Times)

After months of heated negotiations, state and federal authorities on Monday announced a criminal
case against BNP Paribas, taking aim at France’s biggest bank for transferring billions of dollars on
behalf of Sudan and other countries blacklisted by the United States.

BNP agreed to plead guilty to criminal charges and pay an $8.9 billion penalty, a record sum for a bank
accused of doing business with countries that face United States sanctions. State and federal
authorities portrayed BNP, the seventh bank to settle a criminal sanctions violation case but the first
to plead guilty, as the worst offender.

Like other banks, BNP hid the names of Sudanese and Iranian clients when sending transactions
through its New York operations and the broader American financial system. But the wrongdoing was
more pervasive at BNP, the authorities found, stretching from at least 2002 into 2012, by which time
the investigation was already in full swing. […] Some units tried to cover up the transactions, the
authorities said. In the bank’s Geneva office, “there was policy to strip, amend and omit” information
identifying Sudanese clients. […]

“This conspiracy was known and condoned at the highest levels of BNP,” Edward Starishevsky, an
assistant district attorney in Manhattan, said in court on Monday when the bank pleaded guilty to one
count of falsifying business records and one count of conspiracy. […]

The decision to require BNP’s parent company to plead guilty, coming six weeks after Credit Suisse
pleaded guilty to helping American clients evade taxes, reflects a broader policy shift after decades of
civil settlements and so-called deferred prosecution agreements.

“This outcome should send a strong message to any institution — any institution anywhere in the world
— that does business in the United States: that illegal conduct will simply not be tolerated,” United
States Attorney General Eric H. Holder Jr. said at a news conference on Monday.

Preet Bharara, the United States attorney in Manhattan who accused BNP of “perpetrating what was
truly a tour de fraud,” has argued that no bank is too big to charge. […]

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 Legal Environments & Business Decision Making REGULATORY IMPERIALISM? 2023
(Case Study #2)
Teaching team: P. Abadie, C. Collard, A. Witt.

Mr. Lawsky [the New York state banking regulator] announced on Monday that he would suspend
[BNP’s] ability to process payments in dollar denominations, a function known as dollar clearing, which
is essential to doing business with international clients. The deal with BNP will prevent certain units
within the bank’s headquarters in Paris, as well as its offices in Geneva, Rome, Milan and Singapore,
from clearing dollar transactions for one year beginning in January 2015. […] Mr. Lawsky focused the
suspension on the specific units that processed transactions at the heart of the case, a move that will
most likely generate a logistical headache for the bank and undercut its revenue as it has to outsource
the business to another bank. The bank’s oil and gas units in Paris and elsewhere, for example, are
subject to the suspension. […]

Mr. Lawsky also required the bank to part ways with 13 employees, including one of its chief operating
officers. […]

Still, not one BNP employee was criminally charged. And prosecutors have yet to demonstrate that
their newfound enforcement muscle applies equally to American banks. […]

“We deeply regret the past misconduct that led to this settlement,” said the bank’s chief executive,
Jean-Laurent Bonnafé. […]

QUESTIONS. What does justify American jurisdiction over this case? How did BNP Paribas handle the
proceedings launched by U.S. authorities?

3. EU’s response to unilateral secondary sanctions: the Blocking Statute

“EU firms can scrap Iran deals if U.S. sanctions' costs too high, EU top court says”

Dec 21, 2021 (Reuters) - European companies can end contracts with Iranian firms pressured by U.S.
sanctions if upholding the deals would lead to "disproportionate economic loss," the EU's top court
said on Tuesday. The judgment from the European Court of Justice (ECJ) in Luxembourg was prompted
by a lawsuit from the German branch of Iran's state-owned Bank Melli against Deutsche Telekom after
the telecommunications provider terminated a contract with the bank in 2018 prior to its expiry. The
Higher Regional Court in Hamburg will have to decide whether upholding the contract with Bank Melli
would expose Deutsche Telekom, which makes about half of its turnover with its U.S. business, to such
a disproportionate economic loss. It is not clear when the Hamburg court will make its decision. In
2018, then U.S. president Donald Trump decided to withdraw unilaterally from the Iran nuclear deal
and to reimpose sanctions on Iranian companies that had been suspended under the agreement struck
in 2015. To try to rescue the nuclear deal and its economic benefits for Iran, the European Union as a
signatory issued a "blocking statute" that prohibited individuals and companies in the bloc from
complying with the renewed U.S. sanctions. The court on Tuesday backed the EU blocking statute in
its ruling, saying "the prohibition imposed by EU law on complying with secondary sanctions laid down
by the United States against Iran may be relied on in civil proceedings". But the judges also said the
rules of the blocking statute "cannot infringe the freedom to conduct a business... by leading to
disproportionate economic loss". At the same time, the Hamburg judges must take into account that
Deutsche Telekom did not apply for an exemption from the EU blocking statute's rules, the ECJ said.

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 Legal Environments & Business Decision Making REGULATORY IMPERIALISM? 2023
(Case Study #2)
Teaching team: P. Abadie, C. Collard, A. Witt.

QUESTIONS. What is the “EU Blocking Statute”? When was it enacted? What is your opinion about the
efficiency of such a regulation? What are the consequences of the CJEU decision in Bank Melli v.
Deutsche Telekom?

4. Airbus pays $4 billion to settle global bribery and trade offenses.

Harry Cassin, The FCP Blog, January 31, 2020

Airbus SE paid $4 billion (€3.6 billion) to settle global bribery and trade charges with French, UK, and
U.S. authorities Friday after an eight-year investigation triggered by a British whistleblower. […/…]

In the United States, Airbus entered into a DPA [Deferred Prosecution Agreement] with the
Department of Justice and paid a total of $582.4 million to settle FCPA and International Traffic in Arms
Regulations (ITAR) conspiracy charges. […/…]

In the DPA, the DOJ imposed a criminal penalty of $2.09 billion for FCPA-related offenses. The DOJ
agreed to credit amounts paid to French prosecutor PNF up to $1.8 billion.

The DOJ’s $2.09 billion penalty makes this the biggest FCPA enforcement action ever. Petrobras’ $1.78
billion settlement in 2018 formerly topped the list of the biggest FCPA enforcement actions.

QUESTIONS. What is FCPA? Based on your own research, identify the legal bases that justify U.S.
authorities’ jurisdiction over foreign entities and individuals for conduct that occurred overseas.
By comparison with fines imposed on French corporations on sanctions matters (BNP, 2014) or anti-
bribery (Alstom, 2014), to what extent does this case mark a step forward?

5. Mergers: Commission clears acquisition of Fitbit by Google, subject to conditions.

EU Commission Press release, 17 December 2020.

The European Commission has approved, under the EU Merger Regulation, the acquisition of Fitbit by
Google. The approval is conditional on full compliance with a commitments package offered by Google.
(for more information, see: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2484)

QUESTION. Is it an example of an extraterritorial application of EU law?

6. EU GDPR – General Data Protection Regulation

Recital 22: Any processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union
should be carried out in accordance with this Regulation, regardless of whether the processing itself takes place within the Union.
Establishment implies the effective and real exercise of activity through stable arrangements. The legal form of such arrangements,
whether through a branch or a subsidiary with a legal personality, is not the determining factor in that respect.

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 Legal Environments & Business Decision Making REGULATORY IMPERIALISM? 2023
(Case Study #2)
Teaching team: P. Abadie, C. Collard, A. Witt.

Recital 23: […] factors such as the use of a language or a currency generally used in one or more Member States with the possibility of
ordering goods and services in that other language, or the mentioning of customers or users who are in the Union, may make it apparent
that the controller envisages offering goods or services to data subjects in the Union.

QUESTION. After having read the above excerpts of the Regulation (EU) 2016/679 (General Data
Protection Regulation), what can you say about its extraterritorial applicability? What are the
conditions for a website operated by a company located outside the EU to fall under the scope of the
GDPR?