“Your country’s laws, applied in mine.” Extraterritorial jurisdiction is the legal authority of a state to apply its laws, regulations, or judicial processes to persons, entities, and transactions outside its own territory.
Executive Summary
Extraterritorial jurisdiction is the legal architecture underlying the most powerful tools of modern economic statecraft. The United States has historically exercised the broadest extraterritorial reach of any legal system — using the dollar’s role in global transactions, the dominance of U.S. capital markets, and the threat of market access denial to compel compliance by foreign companies and foreign governments with U.S. law. In the 2024–2026 period, extraterritorial jurisdiction has become a flashpoint in the rules-based order debate: non-U.S. actors increasingly challenge it as unlawful unilateralism, while Washington treats it as an indispensable instrument of strategic competition.
The Strategic Mechanism
Extraterritorial jurisdiction operates through several legal theories and practical leverage points:
- Effects doctrine: U.S. courts assert jurisdiction over foreign conduct that produces substantial effects within the United States — the basis for most U.S. antitrust and securities enforcement abroad.
- Dollar clearing leverage: Because virtually all dollar-denominated transactions are processed through U.S. correspondent banks, any global transaction in dollars is technically subject to U.S. law — creating compliance obligations for foreign banks far beyond U.S. territory.
- sanctions“>sanctions“>sanctions“>sanctions“>sanctions“>Secondary sanctions: The most aggressive form of extraterritorial reach — threatening non-U.S. parties (companies, banks, governments) that do business with U.S.-sanctioned entities with exclusion from U.S. markets, even if the underlying transaction involves no U.S. persons or territory.
- FCPA and export controls: The U.S. Foreign Corrupt Practices Act and export control regulations (EAR/ITAR) apply to foreign companies that have any U.S. nexus — a U.S. listing, a U.S. employee, or a product containing U.S.-origin technology.
- Blocking statutes (countermeasures): The EU’s Blocking Statute explicitly prohibits EU companies from complying with certain U.S. extraterritorial sanctions (notably on Iran), creating a direct legal conflict between jurisdictions.
Market & Policy Impact
- In 2025, OFAC added nearly 1,000 Iran-linked designations to the SDN List, each carrying extraterritorial compliance obligations for any foreign bank or company with a U.S. nexus.
- The EU Blocking Statute was actively invoked in 2025 to counter U.S. Iran sanctions, with Amnesty International recommending all states adopt national-level blocking statutes to resist U.S. extraterritorial reach.
- Foreign companies face a binary compliance dilemma: comply with U.S. extraterritorial law (alienating non-U.S. trading partners) or resist it (risking exclusion from dollar clearing and U.S. markets).
- Chinese and Russian efforts to build non-dollar payment infrastructure (CIPS, SPFS, BRICS Pay) are explicitly motivated by the desire to escape U.S. extraterritorial jurisdiction over dollar transactions.
- Extraterritorial jurisdiction is increasingly cited as a driver of de-dollarization: nations holding dollars or routing transactions through U.S. banks are legally exposed to U.S. policy decisions they had no role in making.
Modern Case Study: CK Hutchison, Panama, and Extraterritorial Pressure (2025–2026)
The forced cancellation of CK Hutchison’s two-decade Panama Canal port concession in early 2026 illustrated how extraterritorial pressure need not rely on formal legal instruments. U.S. political pressure — including President Trump’s public demands that Chinese influence at the canal be eliminated and Pentagon contingency planning for canal “reclamation” — combined with Panamanian judicial action to achieve what no U.S. statute directly compelled: the removal of a Chinese-linked operator from a globally critical chokepoint. Beijing responded by warning Panama of economic consequences and directing state firms to pause new project discussions — demonstrating the counter-leverage that targets of extraterritorial pressure can deploy. The episode illustrated that extraterritorial jurisdiction in the geopolitical era operates as much through strategic signaling and political pressure as through formal legal process.