Presentation on theme: "Doing Business Abroad: Anti-Corruption Laws (including FCPA) & US Export Control Laws November 15, 2012 By: Evelyn Suarez & Jahna Hartwig."— Presentation transcript:
Doing Business Abroad: Anti-Corruption Laws (including FCPA) & US Export Control Laws November 15, 2012 By: Evelyn Suarez & Jahna Hartwig
U.S. laws Affecting Companies Doing Business Abroad Foreign Corrupt Practices Act (FCPA) US Exports Control Laws & Regulations –Arms Export Control Act & International Traffic in Arms Regulations –Export Administration Regulations –Office of Foreign Assets Controls (OFAC) Sanctions Programs
Foreign Corrupt Practices Act (FCPA)
What is the FCPA? FCPA is a law intended to deter bribery of foreign officials to obtain an improper business advantage Two Parts: –Anti-Bribery Provisions –Books & Records Provisions Exceptions and Affirmative Defenses: –Facilitation Payments –Payments lawful under other countries' laws –Promotional expenditures
Recent Developments Dodd-Frank (May 2011) –Pays whistleblowers awards of 10-30% of monies recovered –SEC rules do not require internal reporting –Company incentives to report internally rather than going to SEC Best Practices: –Effective compliance program –No fear of retaliation atmosphere –Document problems of misconduct
UK Bribery Act Comprehensive framework covering domestic and foreign bribery (July 1, 2011) Implications for all companies with “close connections” to the UK Created a corporate offense of failure to prevent bribery “Adequate procedures” affirmative defense Notes and Distinctions from FCPA: –Jurisdictional reach –Prohibition against commercial bribery –No Facilitation Payments exception –Public procurement debarment –SFO plea agreements
Enforcement Trends Multi-jurisdictional — cooperation and partnering of countries to take action Pursuit of Individuals — charge those "in control“ Intent and Knowledge - willful blindness Increased Penalties -Siemens = $800 m in fines and disgorgement of profits -Halliburton = $579 m in fines and disgorgement of profits Voluntary disclosures — internal investigations and risk assessment Use of Monitors
Severe Ramifications for Violations Corporate penalties of $2 million per act, plus additional Federal Sentencing Guideline factors Potential individual incarceration plus fines Disgorgement of corporate profits Appointment of Monitor Loss of export privileges Suspension from procurement (i.e., defense contracts and subcontracts) Intangible Losses: –Lost time associated with investigations –Loss of shareholder value –Reputational damage
Tendering Process Vendors Gift, Entertainment & M&A/Joint Ventures Travel Pre-qualification RFPs Bid evaluation Local content Royalties, revenue sharing Local agents Unauthorised use of bank accounts 作 Marketing 作 Customs 作 Visa 作 Logistics Suppliers 作 Goods and staffing Legal and Tax consultants G, E & T — the obvious ones Promotions Sponsorships Donations Political Local community Free samples Vicarious liability Successor liability Local JV partners Tax/CustomsRegulatory Financial ControlsGovernment support Customs clearance Customs assessment Tax (Corp, payroll) assessment Permits - customs related, chemicals, explosives etc. Environmental Employment/rights, visas Financial & exchange controls Audits (Customs, tax) Cash Payment Vendor adoption Account coding Government built Government funding 作 Sovereign funds 作 loans Government official sitting on the Board Key Business Risk Areas
Freight Forwarding and Logistics Industry Panalpina Targeted –November 4, 2010 — US DOJ and SEC settled case with Panalpina World Transport and its US subsidiaries for bribing officials around the world –Purpose of alleged payments to avoid local import regulations and duties on behalf of customers in oil & gas industry –Recording of payments as "local processing," "special intervention," "special handling," or other descriptions violated books & records provisions –Total amount of penalties & disgorgement exceeded $200 million DoJ expanded FCPA probe of Industry –To competitors - at least 3 including Kuenhe + Nagle International, DB Schenker and a French company, said to be under investigation by DoJ and SEC for possible FCPA violations –To oil & gas customers (see case study)
Panalpina: Case Study Lessons Learned: –Failure to implement anti-corruption controls can lead to major consequences –Remediation efforts can play a significant factor in overall fine calculations and settlement –Agent liability: Panalpina acted as an agent for US issuers who paid bribes or conspired to pay bribes –Tag on investigations: initial DoJ FCPA probe into Panalpina led to the antitrust investigation of Panalpina and other freight forwarders –Enforcement agencies are leveraging resources for industry-wide investigations
Panalpina: Case Study Facilitation Payments Exception to FCPA: –Facilitation payments are "payments to expedite or secure the performance of a routine governmental action by a foreign official, political party, or party official." –Do not always apply to books/records as an exception –Non-discretionary administrative tasks –Panalpina cases important for defining what is not a facilitation payment — the amount of these payments varied, but what appeared to distinguish many of them from mere facilitation payments was that they were intended to obtain more than "routine governmental action"
Oil Services Company : A Related Case Study Settled Nov 2010 – An oil and gas service customer of Panalpina settled with US DoJ & SEC for FCPA violations. Fines amounted to $20.6m (criminal crime: $13.4m; disgorgement of profits: $7.2m) Facts: Between 2002 and 2007, the Company paid about $900,000 in bribes to Nigerian government officials through its freight forwarding/customs agents to clear drill rigs through Customs, obtain false paperwork and obtain improper clearance authorization. Illicit payments were made via Panalpina to Nigerian government officials to expedite: the import of various goods, equipment and materials into Nigeria (in most instances customs duties were not paid for these items); and the delivery of medicine and other materials into Nigeria – some items which were not permitted into the country The payments were falsely recorded as legitimate business expenses in the company's corporate books.
Oil Services Company : Lessons Learned Careful observance of all applicable local laws and regulations Know what your agents/third parties are doing or risk vicarious liability for their actions - Companies need to not only police their own actions but those of their service providers Tone at the top: Managers authorized improper conduct
Retail- Wal-Mart Who would ever think that a retail company would be subject to FCPA? Think twice! In April 2012, allegations of bribing Mexican officials surfaced in the press about Wal-Mart. See WSJ article “With Wal-Mart Claims, Greater Attention on a Law,” April 25, 2012 Alleged to have paid over $24 million to foreign officials to get permits for stores in Mexico Allegations of cover-up US Chamber’s Institute for Legal Reform’s legislative efforts to update FCPA criticized because of Wal-Mart and RILA involvement
What Next? Long awaited DOJ Enforcement Guidance –Quest for Guidance came as a result of US Chamber lobbying efforts Tighter definition of who is a foreign official Corporate Compliance Defense Limits on liability of a parent for acts of a subsidiary US response to Chamber’s ideas: would weaken the law –Hope for a single unifying document to inform corporate bar & citizenry –Many doubt that Guidance will provide much detail US Free Trade Agreements containing anti-corruption provisions, e.g., TPP Outcome of October 2012 OECD Anti-bribery Meeting OECD Pressure on countries to enforce their existing laws, e.g., US, Canada, UK New Anti-bribery laws, e.g., Russia. Might be important to PNTR. Popular outcry for governments to crack down on public corruption, e.g., India
U.S. Export Control Laws & Regulations
U.S. Export Laws & Regulations Defense Articles & Services Arms Export Control Act –22 USC 2778 provides authority to the President to control the export of defense articles and services –Statutory authority delegated to State Department International Traffic in Arms Regulations (ITAR) –22 CFR Parts –Requires registration and licenses for the export and temporary import of defense articles and technical data, provision of defense services, and brokering of defense articles
U.S. Export Laws & Regulations Commercial Articles Export Administration Regulations –15 CFR Parts –Requires export licenses for exports of commercial equipment, software and technologies to certain countries, end- users and end-uses Most sensitive items are controlled to almost all countries Even basic items controlled to embargoes countries and prohibited persons, uses
U.S. Export Laws & Regulations Sanctions Programs Regulations vary by country/entities –31 CFR Parts –Programs cover countries (e.g., Cuba, Iran, Syria) and entities (e.g., narcotics traffickers, terrorism supporters, WMD proliferators) –In most cases, US persons are prohibited from transacting any business with sanctioned entities
Export Defined “Exports” include: Sending or taking an item out of the U.S. Providing technical data or technologies to foreign persons, whether in the US or abroad: ing technical data to foreign persons Discussing technical data with foreign persons Giving a facility tour to a foreign person Performing a defense service for foreign persons
Foreign Person Defined “Foreign Persons” are: Any person who is not a lawful permanent resident of the United States –US citizens and “Green Card” holders are US permanent residents –Visa Holders (e.g., H-1B) are not US permanent residents Any foreign corporation, business association, partnership, or other group that is not incorporated or organized to do business in the United States International organizations, foreign governments, and any agency of a foreign government.
Controlled Items –Defense Hardware, Technical Data & Services controlled for export by State Department –Commercial Goods, Software and Technologies controlled for export by the Commerce Department –Only Public Domain Information is not controlled
Companies with Highest Risk Defense Contractors –Almost all hardware, software and other data produced by defense contractors are defense articles subject to stringent export control. Examples include everything from rifle scopes to navigation systems to drones to chem-bio agents. Also includes parts, components, software and data. –Most defense contractors have dealings with foreign allies and their prime contractors, foreign subcontractors, foreign vendors, etc. All of these interactions likely require authorization from the State Department (not Defense)
Companies with Highest Risk High Tech Companies –Under the EAR, more sophisticated commercial products and technologies are subject to more stringent export control requirements. Examples include encryption and other information security products, sensors and lasers, navigation and avionics, certain materials, etc. –Even smaller companies are selling internationally –Companies may need to collaborate with foreign vendors to outsource part and component manufacturing –Many companies have foreign employees
Other High Risk Activities Selling to or dealing with companies on restricted parties lists (Cuba, Iran, Syria, Terrorism Supporters, WMD Proliferators, etc.) Selling low-tech electronics parts or components that may be diverted from customer to prohibited end-user (e.g., for use in IEDs) Using agents or distributors for international sales (requires due diligence regarding export controls and Foreign Corrupt Practices Act compliance)
Recent Cases United Technologies Corp. (UTC) UTC subsidiary Pratt & Whitney Canada sold and exported commercial helicopter engines to the Chinese Government, along with Electronic Engine Control (EEC) software –EEC software is a product of UTC ‘s US subsidiary Hamilton Sundstrand Corp. (HSC) –EEC software was specifically modified by HSC to integrate the engines with a Chinese Military Z-10 Attack Helicopter –Modified EEC is a US-origin defense article subject to ITAR Consent Agreement to settle charges included $55,000,000 penalty and remedial measures. Lesson Learned: Commercial items modified for foreign military organizations are defense articles subject to the ITAR.
Recent Cases Muscle Gauge Nutrition Sold protein supplement to UAE logistics company with knowledge that end-user was in Iran After being informed of the Iran Sanctions by freight forwarder, company revised shipping documents to remove references to Iranian end-user and sent to UAE logistics company Co-owner made false statements to BIS regarding knowledge of end-user Company fined $62,500; Co-owner fined $37,500 Lesson Learned: Even unsophisticated items create risk.