Glossary term
Extraterritoriality
Subject: Compliance and Regulation, Regulatory Supervision and Enforcement
Also known as: Jurisdictional Reach, Extraterritorial application, Cross-border reach
Extraterritoriality is a country applying its laws to conduct, people or firms outside its borders, usually where there is a link such as its currency, citizens, markets or customers.
Explanation
Laws normally stop at a nation's border, but several reach beyond it. The US Foreign Corrupt Practices Act can apply to non-US firms with a US listing or acts carried out on US soil; US sanctions can bind non-US firms that use US dollars or US-origin goods; the EU's GDPR covers some organisations outside Europe that offer services to people in the EU; and the UK Bribery Act applies to firms that carry on business in the UK. Reach can also come through nationality, effects on a local market, or use of a country's banks. Two countries' rules can conflict, leaving a firm with contradictory duties, and blocking statutes have been passed in response. A compliance programme built only on home-country rules can leave a global firm exposed in markets where it has no office.
Example
A European exporter, with no US office, sells equipment to a customer in a sanctioned country and settles the invoice in US dollars through a New York correspondent bank. US authorities treat the dollar payment as a link to their jurisdiction and open an investigation, despite the exporter's lack of any US presence.
Not to be confused with
- Jurisdiction
- Jurisdiction is a body's authority in general. Extraterritoriality is the specific case of using that authority beyond national borders.