When the US government decides to investigate a UK company for bribing a Saudi prince, there are lessons for every company, everywhere: beware the global fraud squad. We Americans have never been shy about using our laws to regulate what happens in other countries, but does it really make sense to run a bribery investigation of BAE (“B” as in “British”) from Washington, DC?

No one yet knows the facts of the BAE Systems case. The US justice department is not talking, and reports of nefarious dealings between the British defence contractor and the House of Saud are unsubstantiated. Those allegedly involved say they did nothing wrong.

But Everyman everywhere should be watching this investigation: if the US thinks it has jurisdiction over what may or may not have happened between a foreign company and a foreign prince, what bit of overseas nastiness would be too foreign for it?

The US government has been stretching the long arm of the 1977 Foreign Corrupt Practices Act (FCPA, the federal foreign bribery law) for years, applying it increasingly to punish corruption on the part of overseas companies with only tenuous connections to America.

But the case for exercising US jurisdiction in the BAE case could turn out to be the most tenuous yet.

Many US legal experts think Washington’s case against BAE faces significant jurisdictional hurdles: BAE is not listed in the US, and its US subsidiary has an arm’s length relationship with head office.

“Recently the justice department has been extremely aggressive in asserting jurisdiction, if they can find any nexus (connection) to the US, including having people from the foreign company come to the US and engage in meetings on US soil,” says Judith Lee of law firm Gibson Dunn & Crutcher. “But that is not to say they are legally correct.”

On the other hand, BAE trades some of its stock as American depositary receipts in the US and files very limited financial reports to the Securities and Exchange Commission (SEC), the federal securities watchdog, which might be enough to give the SEC jurisdiction.

If press reports are correct, a US bank was used for some of the alleged payments by BAE, which could change everything, under US law.

If foreign companies want to enjoy the benefits of the US banking system, they should obey US law — or so the argument goes.

That could be a dangerous argument: “If you take the BAE case to its logical conclusion, what the government seems to be suggesting is that anyone, anywhere, using the US banking system to transfer money in furtherance of a bribe, could come under the jurisdiction of the FCPA under the right set of facts,” says Claudius Sokenu, an expert on US antibribery law at the law firm, Mayer Brown Rowe & Maw, and a former SEC enforcement official.

The justice department may be impermissibly stretching US law to reach BAE — but that will probably never get tested in court.

BAE is very likely to settle the case before it ever gets to a judge. The costs, in public relations and other terms, are just too high.

That would be a shame: US bribery cases involving foreign companies always settle, so courts never get to pronounce on whether Washington really has jurisdiction.

But in this case, the real blame surely lies in London: the decision by the UK’s Serious Fraud Office to call off its investigation after intervention by Tony Blair, then prime minister, left the Americans no choice but to step in.

The international community was outraged by the UK’s assertion that it could not investigate BAE because of national security concerns.

At a time when bribery is out of fashion worldwide, somebody had to act: if not the Saudi-fearing British, then the puritanical Americans, apparently.

But that, too, is a shame. British reluctance has had unintended consequences, says Alexandra Wrage of Trace, an anticorruption compliance group. “The goal is to ensure a level playing field with everyone working to the same rules,” she says.

If the UK does not enforce those rules, the whole system suffers: “If companies don’t believe norms are really changing — that bribery won’t be tolerated — then we are back to where we were when the US was the only country taking this seriously.”

Washington may be overreaching, but London is at fault.

This could so easily have been avoided, if London — unlike Washington, for once — had had the courage of its convictions and pursued allegations of bribery, beyond the bounds of politics. Financial Times

Waldmeir is the FT’s US legal columnist in Washington.

With acknowledgements to Patti Waldmeir and Business Day.