The Presumption Against Extraterritoriality in Two Steps

The Presumption Against Extraterritoriality in Two Steps

For the past twenty-five years, the presumption against extraterritoriality has been the U.S. Supreme Court’s principal tool for determining the geographic scope of federal statutes. In 2010, Morrison v. National Australia Bank used the presumption to decide the scope of Section 10(b) of the Securities Exchange Act, which prohibits securities fraud. Morrison approached the question in two steps. First, it looked for a “clear indication of extraterritoriality” to rebut the presumption and found none. Second, it looked to see if application of the statute would be domestic or extraterritorial by examining the “focus” of the provision.

Plaintiffs argued that applying Section 10(b) would be domestic because the alleged fraud occurred in the United States, although they had bought their shares in Australia. The Court disagreed, holding that application of Section 10(b) would be extraterritorial because “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States,” and in this case the transaction occurred abroad.

The Supreme Court’s decision in RJR Nabisco, Inc. v. European Community formalizes Morrison’s approach, unanimously adopting “a two-step framework for analyzing extraterritoriality issues.” Because U.S. courts are likely to use this two-step framework going forward, it is essay examines this  new framework and evaluates it was applied to Racketeer Influenced and Corrupt Organizations Act (RICO) in RJR.

By Professor William S. Dodge, published in 110 AJIL Unbound 45 (2016)

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