Transcript Slide 1

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
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Foreign Corrupt Practices Act (FCPA)
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US Exports Control Laws & Regulations
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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?
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FCPA is a law intended to deter bribery of foreign
officials to obtain an improper business advantage
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Two Parts:
– Anti-Bribery Provisions
– Books & Records Provisions
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Exceptions and Affirmative Defenses:
– Facilitation Payments
– Payments lawful under other countries' laws
– Promotional expenditures
Recent Developments
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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
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Best Practices:
– Effective compliance program
– No fear of retaliation atmosphere
– Document problems of misconduct
UK Bribery Act
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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
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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
Key Business Risk Areas
Tendering Process
Vendors
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
Tax/Customs
Customs clearance Customs
assessment
Tax (Corp, payroll) assessment
Regulatory
Permits - customs related,
chemicals, explosives etc.
Environmental
Employment/rights, visas
Financial & exchange controls
Audits (Customs, tax)
Gift, Entertainment &
Travel
G, E & T — the obvious
ones
Promotions Sponsorships
Donations
Political
Local community
Free samples
Financial Controls
Cash
Payment
Vendor adoption Account
coding
M&A/Joint Ventures
Vicarious liability Successor
liability Local JV partners
Government support
Government built
Government funding
作Sovereign funds
作loans
Government official sitting on
the Board
Risk
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Industries
– Energy
– Manufacturing
– Infrastructure
– Pharma
– Defense
– Telecom
Countries: Emerging Markets
– Transparency International’s Corruption
Perception Index
– Mexico
– Nigeria
– Brazil
– China
– India
Freight Forwarding and Logistics Industry
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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
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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
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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
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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?
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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 120-130
– 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 730-774
– Requires export licenses for exports of
commercial equipment, software and
technologies to certain countries, endusers 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 501-598
– 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:
• Emailing 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
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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.
Questions/Discussion