Public Policy

Global Firms and Global Sheriffs? Why Territory Matters for Extraterritorial Enforcement of Regulatory Regimes

Authors

Abstract

International regimes demand states regulate private companies to ensure better governance of markets. Although global firms can evade regulations creating complex ownership structures, a few countries enforce their laws extraterritorially. They prosecute firms regardless of their nationality, like “global sheriffs”. However, these countries only prosecute a fraction of the foreign firms under their jurisdiction. I study this phenomenon focusing on US extraterritorial prosecution. I argue that US authorities are more likely to prosecute foreign companies with US investment. Formally, this is no requirement for the application of American regulations. Yet, it exposes a foreign company to the local public opinion. US prosecutors exploit induced reputational cost to obtain cooperation and retrieve information to build a case. My empirics leverage novel firm-level data on law enforcement under the anti-bribery regime. US authorities are 0.26 more likely to investigate a suspect foreign company when it has investment in the US.

Content

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