It's quite regulated in the western US, but usually in the direction of guaranteeing water to incumbent landowners. Some people end up with really strong water rights, and they can be wasteful if the law helps them do so.

Regulation is not necessarily the same as protecting; as other commenters state the specific regulations around agricultural water use in the drier western united states often encourage wasteful agricultural uses of water.

I don't know the exact situation described above, but water rights are often linked to property rights, and those are regularly treated as sacred. It doesn't matter if the owners are foreigners and the law is outdated. And those with land often have more money and power than the small government with jurisdiction, assuming the lobbyists haven't taken control of the latter.