Circuit Board Jurisdiction: Electronic Payments and the Presumption Against Extraterritoriality

• Jurisdiction: United States,Federal
• Citation: Vol. 48 No. 2
• Publication year: 2020

Circuit Board Jurisdiction: Electronic Payments and the Presumption Against Extraterritoriality

Samuel L. Hatcher^*

Table of Contents

I. Introduction................................................................................593

II. Extraterritorial Prescriptive Jurisdication in United States............................................................................................595

A. The Presumption Against Extraterritoriality in United States Law and Its Application....................................................595
B. International Law Limiting Countries' Abilities to Promulgate and Enforce Legislation with Extraterritorial Effects................................................................................598

III. The History and Current State of Electronic Dollar-Clearing ........................................................................................601

A. Previous U.S. Treatment of Dollar-Clearing Operations in Relation to Extraterritoriality...........................................603

IV. Legal Analysis of Dollar-Clearing in Relation to Extraterritoriality....................................................................605

A. Dollar-Clearing and the U.S. Presumption Against the Extraterritorial Application of Legislation.......................605
B. Dollar-Clearing Under International Law........................607

V. International Implications......................................................608

VI. The United States Should Decisvely Resolve the Status of Dollar-Clearing and Find that It Alone Is Not Enough to Implicate U.S. Jurisdiction........................................................609

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A. U.S. Courts Should Not Interpret Dollar-Clearing Operations as Actions with Sufficient "Touch and Concern" to Displace the Presumption Against Extraterritoriality...609
B. The United States Should Actively Pursue a Restrained Agreement or Norm Regarding the Territoriality of Financial Transactions at the International Level............610

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I. Introduction

In 2018, the Supreme Court severely limited the applicability of the Alien Tort Statute by holding that foreign corporations cannot be defendants under the current statute.¹ By deciding the case on these grounds, however, the Court avoided resolving a much broader question. The plaintiffs in Jesner, in an attempt to overcome the presumption against extraterritoriality that is embedded in U.S. statutory interpretation, argued that Arab Bank's conduct did "touch and concern" the United States with sufficient force to sustain a claim.² The plaintiffs specifically focused on Arab Bank's New York based dollar-clearing operation.³

Each year globally, the U.S. Dollar is used in transactions totaling in the trillions.⁴ Many of these transactions occur electronically, and often neither the originator nor the receiver of the transaction is a U.S. person.⁵ Electronic transactions must be cleared so that the originator's and receiver's accounts are correctly adjusted.⁶ In the modern global financial system, accounts are cleared electronically, with essentially zero human activity in the actual clearing process.⁷

The Supreme Court is far from the first court to dodge the delicate issue of electronic payment systems. In a decision leading up to Jesner, the Second Circuit wrote:

It seems to us to be unwise to decide the difficult and sensitive issue of whether the clearing of foreign dollar-denominated payments through a branch in New York could, under these circumstances, displace the presumption against the

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extraterritorial application of the [Alien Torts Statute], when it was not the focus of either the district court's decision or the briefing on appeal.⁸

Part of this apparently shared reluctance is undoubtedly because conclusively deciding whether dollar-clearing operations touch and concern the United States will have significant policy implications, regardless of the decision. The Supreme Court is wary of turning itself into a court of global judicial jurisdiction, as evidenced by its history of limiting the rights of foreign civil plaintiffs to sue in U.S. court.⁹ At the same time, however, the United States has pursued an aggressive global financial regulatory scheme often with the potential for criminal liability. This global enforcement is sometimes justified by relatively insignificant contact with U.S. territory or areas of jurisdiction. The Department of Justice and the Securities and Exchange Commission have both opined that dollar-clearing operations are enough to subject the entire transaction and its participants to U.S. law.¹⁰ There are, of course, different substantive policy considerations involved when the government is the party bringing the suit. In the case of an enforcement action, the government has already made the decision that the case is worth bringing in U.S. court—and presumably any negative foreign policy implications were already considered and overcome. In contrast, there is no sovereign filter when foreign plaintiffs attempt to bring an action.¹¹ While different concerns may animate a court's thinking, it is not clear that there is an easy method for treating the same action differently in the civil or criminal context. Without a change to the underlying statute, or a bifurcation of the law of extraterritoriality, a determination of whether a particular activity is a sufficient nexus to the United States to be territorial would cut across contexts. In this specific context, for example, a determination that dollar-clearing could support criminal prosecution—based on the activity's touch and concern to the United States—would presumably also support a civil action by a non-government plaintiff.

Given that a large portion of international transactions involve dollar-clearing at some point, the status in U.S. law of dollar-clearing operations is one of global financial concern.¹² The United States has traditionally

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exercised significant influence in shaping the global economic system through both foreign and domestic policy.¹³ However, continued indecisiveness on the limits of U.S. prescriptive jurisdiction has potential negative repercussions for the entire global financial system and the norms surrounding regulation of a system that at times appears to have no borders.

This Note will examine the treatment of currency-clearing operations in U.S. law from the perspective of international financial institutions. First, this Note will examine the presumption against extraterritoriality in U.S. law and the norms regarding extraterritorial prescriptive jurisdiction in international law. Next, this Note will examine the treatment of currency-clearing operations in relation to extraterritoriality in United States and selected foreign jurisdictions. Finally, this Note will argue that the United States, as a global financial leader, should definitively establish a restrained approach to basing prescriptive and adjudicative jurisdiction on currency-clearing, with an eye towards creating an international norm on the topic.

II. Extraterritorial Prescriptive Jurisdiction in United States

A. The Presumption Against Extraterritoriality in United States Law and Its Application

Historically, United States courts have limited the impact of domestic law beyond the country's borders.¹⁴ The modern theory of extraterritoriality, especially in the realm of financial crimes, was spawned by Oliver Wendell Holmes in 1909.¹⁵ Holmes wrote in an early antitrust case that "the general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done."¹⁶ The doctrine lost much of its bite, however, until the Supreme Court's decision in E.E.O.C. v. Arabian American Oil Co. (ARAMCO), where the Court

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revived the presumption.¹⁷ Chief Justice Rehnquist there noted that "[i]t 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.'"¹⁸ Importantly, Rehnquist was careful to state that the presumption is only one of statutory construction; with explicit instruction, Congress is free to pass laws governing conduct anywhere.¹⁹

Since the Court's decision in ARAMCO, the Court has strengthened the presumption. In Morrison v. National Australia Bank Ltd. the Court clarified that for a statute to apply extraterritorially, it must state explicitly that it does so.²⁰ The Court there said courts ought not to interpret whether Congress would have intended the statute to apply extraterritorially, stating:

The results of judicial-speculation-made-law—divining what Congress would have wanted if it had thought of the situation before the court—demonstrate the wisdom of the presumption against extraterritoriality. Rather than guess anew in each case, we apply the presumption in all cases, preserving a stable background against which Congress can legislate with predictable effects.²¹

Morrison held that a "clear indication" of Congressional intent is necessary to get around the presumption.²²Morrison involved Australian stockholders suing an Australian bank whose stock was not directly listed in the United States, alleging securities violations.²³ The Court focused on the fact that the bulk of the allegedly fraudulent actions occurred overseas, and the harm the plaintiffs suffered similarly occurred on foreign soil.²⁴

The Supreme Court has strengthened the presumption even more since Morrison. While Morrison required only a clear indication, the Court in RJR Nabisco, Inc. v. European Community went even further, requiring that Congress "affirmatively and unmistakably" indicate a statute's extraterritorial

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application.²⁵ In that case, the European Community and its member states sued RJR Nabisco in U.S. federal court for violations of the Racketeer Influenced...