This changing landscape raises an important question. When governments increasingly exercise power beyond their traditional borders, how do organizations decide whether those laws apply to them? What makes some companies recognize a new reality immediately while others continue to rely on assumptions that no longer hold?

Research by Prof. Emmanuelle Reuter of the University of Neuchâtel, and her colleagues Florian Überbacher of the University of Linz and Andreas Georg Scherer of the University of Zurich, explores these questions through a remarkable case study of Swiss private banking. Although the research focuses on one industry, it offers much broader insights into how organizations interpret changing forms of global power and why they sometimes underestimate the reach of foreign regulators.

The case centered on Swiss private banks that allegedly conspired in assisting wealthy American clients evade taxes from U.S. tax authorities. Under Swiss law at the time, many of these practices existed in a grey area or were tolerated. Banking secrecy and the financial privacy it enacts were deeply tied to Swiss national identity, to values of individual freedom and protection from state overreach. Following the foundational territoriality principle in international law, Swiss institutions believed they were operating legally because their activities were conducted on Swiss soil under Swiss rules.

In 2009, the prosecution of UBS by the U.S. Department of Justice stunned the Swiss banking world. UBS, one of Switzerland’s largest banks and a global leader in private wealth management, eventually agreed to pay massive fines and hand over client information. Yet the bigger surprise was not the punishment itself. It was the message behind it. The United States was signaling that even activities conducted through Swiss entities no longer guaranteed protection from American law.

Still, not all Swiss banks reacted the same way. Some banks quickly moved to change their behavior. They demanded tax compliance forms from American clients and began shutting down undeclared accounts. Others carried on much as before. Many believed the UBS case was exceptional and tied specifically to UBS’s activities in the United States. Smaller banks with no physical presence in America assumed they remained safely outside the reach of U.S. regulators.

Then came a second shock. In 2011, American prosecutors targeted Wegelin & Co., Switzerland’s oldest private bank. Unlike UBS, Wegelin had no offices in the United States. The bank operated entirely from Switzerland. Yet prosecutors still charged it with helping Americans evade taxes. The message could not have been clearer. Physical presence in the United States was no longer necessary for American authorities to claim jurisdiction.

This second prosecution changed everything. Banks that had previously felt protected suddenly reconsidered their assumptions. Many rushed to comply with U.S. demands. Others exited the American client business entirely.

The fascinating question explored by Prof. Emmanuelle Reuter and her coauthors is why banks interpreted the same events so differently. Why did some immediately recognize the threat while others remained confident until much later?

The answer lies in legal calculations and also in deeply ingrained ways of thinking. The researchers found that Swiss banks tended to fall into two broad cultural groups. One group, which the researchers call “locals,” viewed the world through a traditional understanding of national sovereignty and mutually exclusive regulatory territories. These banks believed laws were tied tightly to geography. If a bank operated in Switzerland and followed Swiss law, it assumed foreign governments had limited authority over its activities.

These locally oriented banks often relied heavily on domestic legal advice and Swiss professional networks. Their executives were usually educated and trained within Switzerland. Many trusted strongly in the stability of Swiss institutions and in the idea that countries generally respected one another’s territorial boundaries.

The second group, described as “cosmopolitans,” thought differently. These banks were more internationally oriented and more sensitive to global political realities. Their executives often had international experience, worked closely with foreign legal advisers, and paid greater attention to how powerful governments behaved in practice rather than how international law was supposed to function in theory.

Cosmopolitan banks recognized early that the United States was willing to pursue foreign institutions if American interests were threatened. They understood that access to the U.S. financial system gave American regulators enormous leverage. As a result, these banks quickly concluded that they themselves could become targets, even without any physical connection to American soil.

The difference between these groups reveals something important about human behavior inside organizations. People do not simply react to laws or punishments mechanically. They interpret events through cultural assumptions and shared mental models. Two companies can face the same threat and still arrive at completely different conclusions because they see the world differently.

This insight matters far beyond banking. Today, governments increasingly try to regulate activities that cross borders. Technology companies face pressure over data privacy and online speech. Environmental laws affect global supply chains. Financial sanctions can isolate firms from international markets overnight. In many industries, organizations can no longer assume that legal authority ends neatly at national borders.

The research also highlights how power operates in globalization. For decades, many people imagined globalization would weaken states and make borders less important. Yet the Swiss banking case suggests something more complicated. States possess enormous power, especially large states with control over critical resources, technologies, infrastructure, markets, currencies, and financial systems. In some ways, globalization may even amplify that power by increasing other countries’ dependence on access to these systems, and in recent years states have become increasingly willing to “weaponize” others’ dependence for their advantage.

The United States succeeded not because it physically occupied Swiss territory but because Swiss banks depended on participation in the global dollar-based financial network. The threat of exclusion from that network carried enormous consequences.

At the same time, the story reveals how fragile long-standing assumptions can become when reality changes. Many Swiss bankers sincerely believed they were protected by traditional ideas about sovereignty and territorial law. Those assumptions had shaped their thinking for decades. Yet once American authorities demonstrated their willingness to act differently, the old mental map no longer worked.

The transformation was not immediate. It unfolded through confusion, disagreement, and gradual adaptation. Some banks resisted until the evidence became impossible to ignore. Others adjusted more quickly because their worldviews already accounted for shifting forms of global power.

Ultimately, this story is about far more than Swiss banking or tax enforcement. It is about how organizations make sense of a world in which regulatory power increasingly extends across national borders. As governments become more willing and able to project their authority through global financial systems, technologies, markets, and other forms of interdependence, understanding where regulatory power begins and ends has become a strategic question for organizations everywhere.