Florian Überbacher

Senior Researcher and Lecturer

Institute of Business Administration, University of Zürich

General Deterrence of Systemic International Misconduct: How Swiss Banks’ Territoriality Beliefs Shaped their Responses to U.S. Government’s Claims of Legal Authority

Abstract

For decades, the entire population of Swiss private wealth management (PWM) organizations had systemically engaged in organizational misconduct based on jurisdictional arbitrage. They complied with Swiss law, but persistently transgressed United States (U.S.) law by helping their U.S. clients evade U.S. tax liabilities. We conduct a qualitative, interpretive study to explore why the U.S. government’s enforcement of U.S. law against some law-breaking Swiss banks eventually deterred not only the prosecuted banks (specific deterrence) but also their ‘observing’ peers (general deterrence) from violating  U.S. law.

Our analysis led us to conceptualize governments’ territory, i.e. the scope of issues, actors, and geographic space over which  overnments have legal authority and within which their laws are considered valid and binding, as a socially constructed phenomenon. Specifically, our emergent theory identifies observers’ perceptions about the scope of territory of the challenger (i.e. the U.S.) government and about their conduct’s location within (or outside) that perceived territory as the critical factor for general deterrence because these ‘territoriality beliefs’ impact whether the observers perceive
a high (or low) risk of punishment from the challenger and decide to become compliant (or not). We also find that such territoriality beliefs are shaped by the scope of the territoriality claims that both the challenger government and the incumbent (i.e. the Swiss) government make and by the level of ambiguity of these claims. Our study contributes to institutional, regulatory and territoriality scholarship.

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