Cross-Border Enforcement: When U.S. Regulators Reach Foreign Conduct

The extraterritorial reach of U.S. enforcement has expanded substantially over my career, and the patterns that defined the early decades of my practice no longer hold. The Supreme Court’s 2010 decision in Morrison v. National Australia Bank seemed at the time to be a significant retrenchment of the federal securities laws’ application to foreign conduct. In the years since, Congress and the lower courts have built around the Morrison framework in ways that have effectively restored broad U.S. jurisdiction over foreign issuers, foreign nationals, and foreign conduct that touches the United States in ways that the original drafters of the securities laws likely did not contemplate. The FCPA has been applied with increasingly aggressive theories of jurisdiction. International cooperation among regulators has reduced the practical barriers to cross-border investigations. The result is a legal environment in which foreign clients face U.S. enforcement exposure that requires substantive expertise to defend.

I have represented foreign issuers, U.S. companies with international operations, and individual foreign nationals in U.S. enforcement matters across multiple administrations and regulatory regimes. The defense framework for these matters draws on principles that are familiar from domestic practice but applies them in a context shaped by international agreements, foreign legal systems, and the practical realities of conducting investigations and litigation across borders. Clients facing this exposure benefit from defense counsel who understand both the U.S. enforcement framework and the international context in which it now operates.

Morrison and the Transactional Test

Morrison established that Section 10(b) of the Exchange Act applies only to transactions in securities listed on U.S. exchanges and to domestic transactions in other securities. The decision was a sharp departure from the conduct-and-effects test that had governed for decades, which had applied U.S. securities law to foreign conduct that had effects in the United States or to U.S. conduct that had effects abroad.

The implications of Morrison for private securities litigation have been substantial. Investors who purchased foreign-listed securities of foreign issuers in foreign transactions cannot bring U.S. securities claims, even if the issuer is otherwise subject to U.S. jurisdiction and the alleged misconduct affected the trading price. The decision has produced a generation of dismissals in cases that would have proceeded under the prior framework.

Congress responded to Morrison through Section 929P of the Dodd-Frank Act, which restored conduct-and-effects jurisdiction for SEC enforcement actions and DOJ criminal prosecutions, while leaving Morrison’s transactional test intact for private litigation. The result is a bifurcated framework: private litigants are constrained by Morrison, while government enforcement agencies retain the broader jurisdictional reach.

The strategic implications for defense counsel are significant. The case that cannot be brought as a private securities class action may still be brought by the SEC. The case that cannot be brought as a securities fraud claim may still be brought as a parallel claim under other statutes — wire fraud, mail fraud, securities-related conspiracy charges — that retain their own jurisdictional analyses. The defense team that understands the bifurcated framework can advise foreign clients about the actual exposure they face, which is often more nuanced than the broad statements about reduced extraterritorial reach that have followed Morrison.

The FCPA’s Aggressive Jurisdictional Theories

The Foreign Corrupt Practices Act has been applied by U.S. enforcement authorities with theories of jurisdiction that have expanded substantially over the past two decades. The statute’s basic framework reaches issuers, U.S. domestic concerns, and foreign nationals who act in furtherance of corrupt payments while in U.S. territory. The applied jurisdictional theories have stretched these categories in ways that have surprised foreign defendants who did not anticipate U.S. exposure.

Issuer jurisdiction has been applied to foreign issuers whose securities are traded in U.S. markets through American Depositary Receipts or other instruments, even when the underlying conduct involved no U.S. nexus other than the ADR listing. The agency theory of issuer liability has reached the conduct of foreign subsidiaries and joint venture partners that were not themselves issuers but whose conduct could be attributed to the U.S.-listed parent. The control person liability provisions have been used to reach foreign executives whose authority over U.S.-listed entities made them accountable for corrupt payments by subsidiaries they oversaw.

Territorial jurisdiction over foreign nationals has been applied based on minimal contacts with the United States. Foreign defendants who attended meetings in the United States in furtherance of corrupt schemes have been prosecuted for conduct that primarily occurred abroad. Foreign defendants who routed payments through U.S. banking systems have been prosecuted on theories that the use of U.S. banking constituted the requisite domestic conduct. Foreign defendants who communicated with U.S. persons via U.S.-located communications systems have faced jurisdictional theories based on those communications.

The defense of FCPA matters involving foreign defendants therefore requires careful analysis of the actual jurisdictional basis the government asserts and the limits of that basis. Some jurisdictional theories are well-supported by the case law and effectively foreclose challenge. Others are more aggressive and may be vulnerable to motion practice. The defense team that does not analyze the jurisdictional basis with rigor is missing one of the most important defensive opportunities in this practice area.

International Cooperation and the Practical Barriers That Have Eroded

The practical barriers to cross-border investigations have eroded substantially over my career. Multilateral memoranda of understanding among securities regulators have created channels for the exchange of investigative information that did not exist a generation ago. Mutual legal assistance treaties with most major trading partners have established processes for compelling evidence from foreign jurisdictions. Joint investigations between U.S. enforcement authorities and their foreign counterparts have become routine in major matters involving cross-border conduct.

The practical implications for foreign defendants are significant. The assumption that documents located in a foreign jurisdiction would be effectively unavailable to U.S. enforcement authorities no longer holds. The assumption that witnesses located abroad could not be compelled to provide testimony has weakened substantially. The assumption that foreign legal frameworks would shield conduct from U.S. enforcement has been undermined by the cooperation arrangements that have developed.

The defense of cross-border matters therefore requires engagement with the international cooperation framework, not avoidance of it. The defense team that attempts to use foreign jurisdictional barriers to obstruct U.S. enforcement investigations is often outflanked by the cooperation channels that the U.S. authorities can deploy. The defense team that engages with the framework — providing information voluntarily through controlled channels, coordinating with foreign counsel to manage parallel proceedings, structuring document productions that satisfy both U.S. and foreign legal requirements — produces better outcomes than the team that fights the cooperation infrastructure.

Privacy and Blocking Statutes

The international cooperation framework operates against a backdrop of foreign privacy laws and blocking statutes that can produce genuine conflicts between U.S. discovery obligations and foreign legal requirements. The European General Data Protection Regulation, the various national blocking statutes in Europe and Asia, and the data localization requirements in certain jurisdictions can make U.S.-style document production legally problematic.

The defense of matters involving these conflicts requires careful navigation. The Hague Evidence Convention provides a framework for taking evidence in foreign jurisdictions through their judicial systems, with the procedural protections those systems require. The application of foreign privacy law to data that must be produced in U.S. litigation requires substantive expertise in both legal systems. The blocking statutes in countries that have them must be considered before the document production decisions are made, not after they have been made and the foreign legal exposure has been created.

The U.S. courts have generally been willing to require document production from foreign defendants notwithstanding foreign legal restrictions, but the willingness has limits and the practical implementation requires careful attention. The defense team that engages with the foreign legal regime, structures the production to minimize the foreign legal exposure, and presents the constraints to the U.S. court in good faith generally produces workable outcomes. The team that ignores the foreign legal regime produces enforcement exposure in multiple jurisdictions for the same conduct.

Coordinated Resolutions and the Practical Mechanics of Settling Cross-Border Matters

The settlement of cross-border enforcement matters has become increasingly coordinated across jurisdictions. The U.S. Department of Justice, the SEC, and their foreign counterparts often coordinate the timing and substance of resolutions to address conduct that has implicated multiple jurisdictions. The result is settlements that involve simultaneous payments, simultaneous admissions, and coordinated factual statements across regulatory authorities.

The advantages of coordinated resolution can be substantial. Credit can be received for payments made in one jurisdiction against potential exposure in another. The factual record can be unified across resolutions, avoiding inconsistencies that might create additional litigation exposure. The reputational impact can be concentrated in a single news cycle rather than extended across multiple separate proceedings.

The challenges of coordinated resolution are equally substantial. Each enforcement authority has its own institutional interests, procedural requirements, and substantive frameworks that must be accommodated. The factual statements that satisfy one authority may not satisfy another. The payment allocations among authorities require negotiations that affect the total settlement amount and the implications for collateral consequences. The timing of the resolutions must be coordinated, which requires alignment across regulators operating on different decisional timelines.

The defense team that navigates coordinated resolutions effectively brings expertise in the substantive frameworks of each relevant regulator, relationships with the lawyers and officials at each authority, and the project-management discipline required to coordinate negotiations across multiple parallel tracks. This is specialized work that benefits from senior practitioners who have done it before, not from general litigation counsel encountering the coordination challenges for the first time.

The Foreign Issuer’s Practical Posture

Foreign issuers whose securities are listed in U.S. markets, or whose business operations create U.S. enforcement exposure, face a set of practical decisions that affect their long-term posture in the U.S. legal system. These decisions include the structure of compliance programs that address U.S. legal requirements, the architecture of internal controls that satisfy U.S. expectations, the relationship with U.S. counsel that can be deployed when issues arise, and the engagement with U.S. regulators that prevents matters from escalating to formal enforcement.

The compliance program is the foundation. Foreign issuers that have implemented compliance programs designed to U.S. standards — with attention to the specific elements that DOJ and SEC guidance emphasize — are in a substantially better position when issues arise than foreign issuers whose compliance programs are designed to home-country standards alone. The U.S. enforcement authorities apply the elements of effective compliance programs as evaluative criteria in resolution negotiations, and the foreign issuer whose program does not address those elements faces materially worse outcomes than the one whose program does.

The U.S. counsel relationship is similarly important. Foreign issuers that have established relationships with experienced U.S. defense counsel before issues arise are in a position to respond when matters emerge. Foreign issuers that begin searching for U.S. counsel after the subpoena lands are managing the matter at substantial disadvantage. The relationships should be in place before they are needed, and the counsel should have substantive familiarity with the issuer’s business before the engagement becomes operational.

The Practitioner’s Perspective on a Changing Landscape

Cross-border enforcement is among the most rapidly evolving areas of practice that I have worked in over my career. The substantive frameworks have shifted with each administration. The practical infrastructure for cross-border investigations has expanded steadily. The expectations applied to foreign issuers and foreign nationals have intensified. The defense practice has had to evolve continuously to keep pace.

The foreign clients I have represented who have navigated this landscape successfully share certain characteristics. They take U.S. enforcement seriously, even when the underlying conduct seems primarily foreign in character. They engage with experienced U.S. counsel early, before matters have escalated to formal proceedings. They invest in compliance programs that meet U.S. standards, recognizing that those standards are the framework against which their conduct will be evaluated. They approach coordinated resolutions with the seriousness that the multi-jurisdictional exposure requires, understanding that the resolution achieved is the resolution they will live with for years to come.

The foreign clients who have not navigated this landscape successfully share a different set of characteristics. They have treated U.S. enforcement as a foreign legal system whose reach they could safely ignore. They have responded to U.S. inquiries through home-country counsel without U.S. expertise. They have invested in compliance programs that satisfy home-country expectations but not U.S. expectations. They have approached settlement as if the U.S. enforcement authorities were one of several regulators whose interests could be balanced rather than recognizing the central role those authorities play in matters with any U.S. nexus.

The difference between these outcomes is the recognition that U.S. enforcement is a substantive legal system that applies to foreign conduct under defined jurisdictional theories, with defenses that exist and protections that can be deployed, but only by counsel who understand the system from the inside. The foreign clients facing U.S. exposure should seek that expertise as a matter of routine business practice, not as an emergency response to the matter that has already escalated. The cost of doing this work properly is small compared to the cost of doing it badly.

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Otto K. Hilbert, II is a Trial Attorney with AEGIS Law. He brings over 36 years of first-chair trial and appellate experience to representing clients in complex commercial litigation, securities defense, and regulatory enforcement matters. He has tried cases in 23 states and is admitted before the United States Supreme Court and multiple United States Courts of Appeals.

This article is provided for general informational purposes and does not constitute legal advice. Readers facing specific legal matters should consult qualified counsel.