Global Firms and Global Sheriffs? Why Territory Matters for Extraterritorial Regulation of Global Corporate Crime∗

States have adopted laws to prohibit multinational companies from committing financial crime. Although global firms can evade regulations creating complex ownership structures, some countries enforce their laws extraterritorially. They prosecute firms regardless of their nationality, behaving as “global sheriffs”. However, these countries only prosecute a fraction of the foreign firms under their jurisdiction. This variation remains largely unexplained. I study this phenomenon focusing on US prosecution of foreign companies. I argue that US authorities are more likely to prosecute foreign companies that have US investment. Formally, this is no requirement for the application of American extraterritorial regulations. Yet, US prosecutors exploit reputational risk induced by the investment, which increases exposure to the US public opinion. They use it to obtain cooperation by the firm and retrieve necessary information to build a case. I test my argument building a novel firm-level data on enforcement of policies under the anti-bribery regime. I merge this data with information on non-US companies’ investment in the US. I find that the probability that US authorities investigate a suspect foreign company increases from 0.33 to about 0.61 when it has investment in the US. The study shows that even powerful extraterritorial regulators need a territorial leverage to rule on foreign multinationals.