But good law doesn’t make good policy.
Over‐criminalization is a serious problem in America. Increasingly crimes are not malum in se, that is, inherently immoral, and do not require mens rea, that is, knowledge that conduct is illegal. For instance, government increasingly treats a host of economic and environmental actions as criminal rather than civil offenses. Prosecutorial tools also have expanded. In 1970 Congress approved the Racketeer Influenced and Corrupt Organizations Act to target the mafia. Since then RICO has been wheeled out against most any collection of individuals, such as abortion protestors.
Criminal law traditionally was left to the states. Today there are some 4500 federal criminal laws and even more regulations. Warned federal appellate court judge Alex Kozinski: “Violations are so common that any attempt to go after all criminals would sweep up millions of people.” For instance, in April eight Atlanta school employees were sentenced to prison for “racketeering”—after changing their students’ answers to improve their competency test scores.
Former Speaker Denny Hastert recently was indicted for making cash withdrawals under the amount which must be reported. But in complying with that requirement he violated the law by breaking up (“structuring”) his withdrawals. The discreditable conduct he apparently was hiding doesn’t turn his cash practices into a valid reason to prosecute him.
As American power has grown, so has Washington’s willingness to apply its laws to the rest of the world. Traditionally a government had to have actual jurisdiction over you before it could claim the authority to jail you. But might rather than right has spurred U.S. extraterritoriality. America hosts the world’s largest economy and most important financial system. It is hard for global actors to avoid it. Moreover, U.S. economic and military power allows it to demand of others what they would never demand of Americans.
Washington has routinely abducted foreigners overseas, both those charged with drug offenses and terrorism. Perhaps the most extreme case of armed extradition of a sort was the 1989 invasion of Panama, after which ousted dictator Manuel Noriega was transported to America and convicted of violating U.S. drug laws. He had been indicted nearly two years before for allegedly accepting a bribe to protect the Medellin cocaine cartel and conspiring to ship drugs to America. Although Noriega had not committed his crimes in America or used the U.S. banking system, President George H. W. Bush cited arresting Noriega as one of his four justifications for war.
Washington relied on the “protective principle,” allowing extraterritorial action in cases where vital interests are threatened. But that’s a tough case to make for normal criminal activity. Nevertheless, Noriega lost his fight against U.S. jurisdiction. His intent to violate the law was ruled to be enough. The federal district court stated that “even if no overt acts or effects occurred within the territorial borders, the object of the alleged conspiracy was to import cocaine into the United States.” At least U.S. drug laws then were consistent with those of other nations. That, however, is changing, as Latin American governments increasingly recognize the harm caused by drug prohibition. Imagine if Saudi Arabia indicted and extradited Americans for conspiring to smuggle Bibles or booze into the Kingdom.
Even more problematic has been the Justice Department crusade to turn foreign banks into arms of the IRS. The U.S. has gone after Swiss banks with the greatest enthusiasm, paying informants, filing criminal prosecutions, and imposing multi‐billion dollar fines for accepting deposits from Americans. The campaign got rolling with a major court victory over UBS in 2008. Since then several other banks have pled guilty and around 100 accepted a “settlement” involving “total cooperation,” as in snitching on their American depositors. Just last week Rothschild Bank AG and Banca Credinvest SA agreed to pay multi‐million dollar fines for offering banking services to Americans. Whatever the moral responsibility of wealthy U.S. taxpayers, foreign bankers commit no wrong in handling such accounts. Citizens of Switzerland and the rest of the world have no obligation to help fill Uncle Sam’s coffers to finance more waste and wars.
Congress also passed the Foreign Account Tax Compliance Act (FATCA) requiring all non‐American financial institutions to report any accounts held by Americans. As a result, foreign banks face substantial costs in dealing with U.S. citizens, even those fully compliant with American tax laws. Foreign financial institutions must either transmit the information to their government for release to the U.S. or send the information directly.
As a consequence, many foreign banks now refuse to serve Americans. More Americans living abroad are renouncing their citizenship. Foreign governments also have complained about Washington conscripting their financial institutions as tax collectors. The U.S. has offered reciprocity, but only America taxes income wherever earned in the world.
Perhaps the most expansive form of extraterritoriality is sanctions. Washington is ever ready to ban or limit trade, financial transactions, and even travel. By one count, the U.S. imposed 61 different economic penalties between 1993 and 1998, as many as during the previous eight decades. Sanctions predate America’s founding, with the “nonimportation” movement and boycott of tea, for instance. In the early 1800s Washington prohibited trade with Britain and France.
Today Cuba, Iran, North Korea, Russia, Sudan, and Syria face various economic restrictions. But the U.S. does not just order about American companies. It also threatens foreign firms and banks. Washington’s dictates are amplified not only by the size of the American market, but through Swift, the Brussels‐based organization which manages international financial transfers.
Traditionally sanctions applied to “U.S. persons,” that is, American citizens and residents, companies formed in the U.S. and their branches, and firms located in America. In an attempt to prevent construction of the natural gas pipeline between Western Europe and the Soviet Union Washington targeted U.S. subsidiaries and licensees, without great effect. Since no one else was prepared to join America in its embargo against Cuba, in 1996 Congress approved the Helms‐Burton Act penalizing foreign subsidiaries of U.S. concerns and foreigners who “trafficked” in confiscated American property. Later sanctions against Iran, Libya, Sudan, and Syria also applied to resale of U.S.-origin goods, transactions with foreign firms, and foreign banks financing prohibited transactions.
Through both legislation and regulation Washington has constantly expanded the extraterritorial reach of U.S. penalties. European companies, in particular, have found themselves fined for activities which are legal under national as well as European Union law. American prosecutors have sought extradition of foreign nationals acting legally at home. Explained attorneys Ronald Meltzer and David Ross of WilmerHale, “U.S. law has undergone a significant shift: it effectively creates an expanding regime of secondary sanctions that are triggered by transactions that do not require a nexus to the United States.”
Helping foreign firms comply with complex U.S. sanction rules has become big business for major American law firms. Increasingly foreign banks are unwilling to handle transactions legal under domestic law. Many enterprises simply avoid dealing with disfavored nations entirely. Ironically, the system sometimes has favored U.S. firms, which are better able to obtain waivers. Sometimes other governments have enacted “blocking” statutes which prohibit their nationals from complying with foreign, i.e., American, restrictions deemed harmful to their national interest. Companies then have been caught in an impossible middle.
The moral fervor behind many of Washington’s many fevered crusades often is laudable. But a desire to do good does not warrant America attempting to play dictatress to the world. The end really does not always justify the means.
So it is with the U.S. indictments against corrupt soccer officials, and even more so with Washington’s determination to make foreign banks agents of the IRS and foreign individuals and companies tools of U.S. foreign policy. Such overreach inevitably breeds abuse. It also invites retaliation in the future, when America no longer so dominates the globe. If Americans eventually find themselves in a foreign court for legal conduct in the U.S., they will have today’s lawmakers and officials to thank.