Innocent Abroad? Morrison, Vilar, and the Extraterritorial Application of the Exchange Act

By Herz-Roiphe, Daniel E. | The Yale Law Journal, April 2014 | Go to article overview

Innocent Abroad? Morrison, Vilar, and the Extraterritorial Application of the Exchange Act


Herz-Roiphe, Daniel E., The Yale Law Journal


During the fall of 1919, two American sailors bound for Rio de Janeiro hatched a plan to defraud the United States government. (1) When their scheme--which involved an unscrupulous Standard Oil agent, a Rio-based shipbuilder, and a large quantity of fuel--came to the attention of American authorities, the sailors offered a simple defense: since their crimes were committed on the high seas, outside the territorial jurisdiction of the United States, they were presumptively beyond the reach of American law. (2)

Unfortunately for the conspirators, the Supreme Court did not agree. Instead, in United States v. Bowman, the Court held that some criminal statutes "are, as a class, not logically dependent upon their locality for the Government's jurisdiction," and are therefore presumed to apply extraterritorially even if they contain no explicit indication to that effect. (3) The Bowman decision was remarkable: in most contexts, courts assume that ambiguous statutes do not have extraterritorial application. (4) Yet Bowman's exception to the general rule, which many subsequent courts chose to read as a broad carve-out for all criminal statutes, (5) has proven highly influential. It helped give rise to a comparatively liberal approach to the extraterritorial application of criminal law that has endured for decades. (6)

Some eighty-eight years after Bowman, though, the Supreme Court handed down another landmark ruling that seemed to question the presumptive extraterritorial application of criminal statutes. In Morrison v. National Australia Bank, (7) the Court significantly limited the extraterritorial reach of section 10(b) of the Securities Exchange Act of 1934, holding that this provision only barred frauds committed in connection with domestic securities transactions. (8) Since [section] 10(b) covers both civil and criminal violations, the Court's reasoning, which relied heavily on the principle that "[w]hen a statute gives no clear indication of an extraterritorial application, it has none," (9) potentially implied that criminal statutes were not exempt from the presumption against extraterritoriality. Yet Morrison did not make this point explicit. Its holding--which arose from a shareholder lawsuit brought against an Australian bank by Australian investors - only directly addressed "whether [section] 10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants." (10) The opinion therefore left a question of tremendous importance unanswered: Did its narrow reading of the Exchange Act's reach apply to criminal violations of section 10(b) as well? Or did Bowman, and the corresponding tradition of construing criminal statutes to permit extraterritorial enforcement, limit Morrison's approach to civil actions?

In August 2013, the Second Circuit offered a definitive answer: "Morrison does apply to criminal cases." (11) In its opinion in United States v. Vilar, the court roundly rebuffed the government's assertion that Bowman confined Morrison's presumption against extraterritoriality to civil contexts. While noting that some opinions interpreting Bowman had been "broadly worded," Vilar returned to a narrow reading of the ninety-year-old decision, restricting its carve-out to crimes committed against the United States itself. (12) Even more significantly, the Second Circuit rebuked the government for providing "little reason, beyond its misplaced reliance on Bowman, for why the presumption against extraterritoriality should not apply to criminal statutes." (13) There was simply "no reason," the court argued, why the justifications for the presumption-which it identified as a belief that Congress "legislates with domestic concerns in mind" and a reluctance to create conflicts with foreign laws--were any "less pertinent in the criminal context." (14)

Vilar has far-reaching implications for a world in which financial markets, and the enforcement actions that police them, have grown increasingly transnational. …

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