Extraterritorial Criminal Enforcement of Securities Frauds Regulations after U.S. v. Vilar

In August 2013, the Court of Appeals for the Second Circuit in the case of United States v. Vilar denied extraterritorial application of the criminal law antifraud provisions contained in the Securities and Exchange Act. The specific object of this paper is to criticize this decision and negate its premises. After delving in depth into the notion of extraterritoriality, the paper offers a dynamic interpretation of the 1922 Supreme Court’s decision in U.S. v. Bowman, which is still the governing precedent on extraterritorial application of criminal laws. Furthermore, the paper criticizes the application of the 2010 Supreme Court’s decision in Morrison v. National Australia Bank to criminal cases, and explains the Dodd-Frank Act’s failed attempt to overrule it. The paper undertakes a detailed analysis of each of U.S. v. Vilar’s supporting arguments, using the German criminal law model to identify some of this decision’s significant shortcomings. It begins with discussion of the extent and significance of the U.S. v. Bowman exception to the presumption against extraterritoriality in light of the need to protect the integrity of a delocalized capital market. Next, the paper interprets section 32(a) of the Securities and Exchange Act in accordance with modern developments of criminal law theory. Consequently, the paper analyzes the significant distinctions between criminal law and civil law, in contrast with their equation by the Vilar court. The discussion ultimately leads to a justification of the Act’s extraterritorial enforcement through a contextual and dynamic interpretation of section 32(a), taking into consideration the transnational nature of market integrity and public wealth values protected by this provision.