1. 1 The Regulation of Exports Chapter 13 © 2002 West/Thomson Learning

2. 2 Trade Controls Trade Restrictions over Arms Arms Export Control Act – State Dept. Directorate of Defense Trade Controls International Traffic in Arms Regulations US Munitions List exporter must register with govt. put restrictions in any license, and register license with govt. Restrictions for Foreign Policy and National Security Reasons Restrictions on State Sponsors of Terrorism Cuba, Iran, N. Korea, Sudan, Syria Libya and Iraq – recently removed 1979 – Ban on grain sales to USSR UN Approved Sanctions – more effective than unilateral sanctions Controls for Reasons of Short Supply – medicines, foodstuffs, basic metals, petroleum Controls for Protection of Antiquities, Wildlife, Environment or Public Safety

3. 3 B-West Imports v. U.S. (Fed. Cir. 1996) Facts: Pres. Clinton bans imports of arms and munitions from China to protest human rights abuses BATF revoked import permits B-West challenges ban in Ct. of Int. Trade Issue: Does revocation of the exemption and ban of imports from China constitute a violation of due process and takings clause of the 5 th Amendment to the U.S. Constitution? Decision:No Reasons: AECA gives President great latitude to prohibit imports of controlled items

4. Multilateral Efforts to Control Technology COCOM–1949 prevent Soviet Bloc from access to technologies – disbanded in 1994 Wassenaar Agt.– 1996: has 40 members – coordinate practices and recommendations – loose arrangment Australia Group – focus on biological and chemical weapons Missile Technology Control Regime Nuclear Suppliers Group – share information and voluntary guidelines 4

5. US Export Control Laws Balance national interests and Commercial interests Export Administration Act of 1979 – basis of current export restrictions Concern about diversions of controlled technology Toughened Environment after 9/11/01 Focus on Chinese Industrial Espionage 5

6. 6 US Restrictions of Exports Trade Sanctions and Export Controls Trade Sanctions: specific countries subject to trade sanctions: Cuba, North Korea, Iran, Myanmar, Iraq Sanctions apply to US firms and to their foreign subsidiaries – control test US firms not allowed to facilitate any transaction with sanctioned country Exception for information services – websites, etc. Canada and EU: legal provisions against firms complying with US sanctions

7. Export Controls on Dual Use Goods Export Administration Act and Regulations (EAR) Adopted in 1979 – Act expired in 2001 Regulations continued under Executive Order by President under IEEPA Dual Use Commercial Goods and Technologies Covers Export, Re-export and Deemed Export Export restrictions follow the goods – Export License Reqts. Is product under export control – Commerce Control List? Where is product going – Country Chart in EAR – DCS in documents Who is going to use it? Entity List Specially Designated Nationals and Blocked Persons List Unverified List Denied Persons List Debarred List Extraterritoriality of US Controls Goods made in US, or goods resulting from US technology - - regardless of seller Also applies if goods contain US parts or components (>10%) 7

8. Anti-Boycott Provisions US Anti-Boycott legislation aimed at Arab boycott on Israel Apply to US firms and citizens – and foreign affiliates of US firms Prohibit participation in boycott Prohibit providing information Required to report any request for boycott Briggs & Stratton v. Baldridge – upholds provisions 8

9. 9 Compliance and Enforcement Export Management System Policies, audits, voluntary notification systems Records relating to export license must be kept for 5 years Enforcement and Sanctions Bureau of Industry and Security (BIS) enforcement Civil and Criminal Penalties Civil – up to $250K Criminal – for willful conduct or conscious avoidance – up to $1 million and 20 years in prison Denial of Export Privileges Recent Enforcement Actions Stena Bulk LLC paid $426K penalty for violation of Sudan restrictions – transported Sudanese oil ITT Corp. - $100 Million fine for export of night vision technology to China Chiquita Brands - $25 million fine for payments to Columbian paramilitary group on US terrorist list Boeing - $15 million fine for sale of jets with gyrochips in guidance system

10. 10 Presidents Emergency Powers Trading with the Enemy Act: repealed in 1977 National Emergencies Act: requires Congressional approval of state of emergency declarations after 1 year Int. Emergency Economic Powers Act: grants wide discretion to control int. financial transactions Freeze assets, impose embargos, or other sanctions Usually implemented by Treasury Dept. USA Patriot Act: antiterrorism powers Amended IEEPA for more flexibility Seizure of property, financial transactions reporting

11. 11 Challenges to IEEPA Powers Chas. Main v. Khuzestan Chas. Main v. Khuzestan (1st Cir. 1981) President Carter, as part of a deal to free hostages in Iran, issued an Executive Order under IEEPA suspending claims against Iran in US court IEEPA gives President has authority to transfer blocked Iranian assets to the Tribunal and to require claims to be arbitrated by Tribunal U.S. v. Lindh (E.D. Va. 2002) American Taliban charged with providing material support to terrorist organization in violation of IEEPA orders IEEPA grants broad authority - orders neednt be limited to commercial transactions

12. US Sanctions on Cuba 1963 – Restrictions imposed under Trading with Enemy Act Froze Cuban Assets in US Banned all trade and financial transactions 1992 – Cuban Democracy Act 1996 – Helms Burton Act – US citizen claims against Cuba for seized property Allowed suits against foreign nationals using property Bush Administration – tightened sanctions, restricted educational travel Congress – some food and medicine sales – cash only Freedom to Travel Campaign v. Newcomb (9 th Cir. 95) – upheld restrictions on travel to Cuba Recent indications Obama Administration may liberalize restrictions 12

13. 13 Foreign Corrupt Practices Act Passed in 1977, amended in 1999 to reflect OECD Convention Prohibits bribery of foreign officials Requires firms to establish internal accounting and record keeping mechanisms to detect bribery Criminal provisions not vigorously enforced OECD and EU adopted similar provisions

14. 14 FCPA: Anti-bribery Provisions Anti-bribery provision: prohibits US firms from corruptly paying foreign official for assistance in obtaining or retaining business Prohibits payment to agent if firm knows portion of payment will go to public official Payment must be knowing Excepts payment of facilitating payments for routine government action Penalties: fines up to $2 million for firms; fines of $100,000 and up to 5 years in jail for individuals

15. 15 FCPA: Accounting Provisions Firms required to keep records and accounts that accurately reflect transactions and dispositions of assets Firms must devise and maintain internal accounting controls to provide reasonable assurances that transactions are authorized and access to assets is tracked No concept of materiality – relative scale of payments to be tracked

16. 16 FCPA Cases In Matter of Statoil (S.E.C. 2006) Norwegian firm listed on NYSE subject to FCPA Bribery payments to Iranian officials for access to oil and gas reserves Payments through 3 rd party Consulting firm - $5.2 million Norway fined firm $3 million US – penalty of $10.5 million International Sanctions OECD EU IMF Inceysa Vallisolenta, S.L. v Republic of El Salvador ICSID refused to enforce contract by contractor acting fraudulently, in bad faith and in violation of public policy

17. 17 Adler v. Fed. Rep. of Nigeria (9 th Cir. 2000) Facts: A, US citizen, controls Mexican firm Firm offered $60 million contract with Nigerian oil company Required to make payments to officials in return for contract – paid officials $5 million Firm never got contract A sues for recovery of payments to officials Trial court refuses to allow recovery – clean hands rule Issue: Can A recover payments to officials Decision: No; clean hands rule bars recovery Reasons: Person seeking relief must have acted without fraud or deceit A attempted to bribe officials to get contract A was party to scheme to steal $60 million from Nigerian treasury Wont let A sue for failed bribe