By Paul B. Stephan
For more than forty years, U.S. courts have applied the antifraud provisions of federal securities law to actors and transactions operating outside the United States. In Morrison v. Nat’l Australia Bank Ltd.,[1] decided on June 24, 2010, the Supreme Court gave a firm and unambiguous rebuke to this practice. It is not enough, the Court stated, that international law may permit such regulation. Rather, Congress must clearly indicate that it wants U.S. law to apply to securities transactions in foreign markets. Shortly thereafter, Congress effectively confirmed this result. In the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on June 21,[2] Congress authorized only the U.S. government and the Securities and Exchange Commission, and not private investors, to bring suit with respect to foreign transactions.
Since 1991, the Court has applied a strong presumption against extraterritoriality to force Congress, rather than the judiciary, to manage the risk that U.S.-prescribed rules might conflict with those of other sovereigns. None of its previous cases, however, have overturned such longstanding and extensive lower-court precedent. A petition for certiorari currently before the Court may give it the opportunity to decide next year whether its approach in Morrison applies to the Alien Tort Statute, which the lower courts have embraced as a means for addressing human rights violations. More...
