Transcript Globalization of Transactions Leading in a Changing World

Globalization of Transactions
Leading in a Changing World
National Association of
Women Lawyers GCI 10
November 6, 2014
Introduction
“If the rate of change on the outside exceeds the rate of
change on the inside, the end is near.” - Jack Welch
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Introduction
 What is a multijurisdictional transaction?
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When is a U.S. entity
“doing business” in a nonU.S. jurisdiction?
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Triggering Events – what changes is
your business facing?
What is a multi-jurisdictional transaction?
 Mergers and Acquisitions
 Dispositions / spin offs (supporting obligations/transition agreements)
 Partnerships, joint ventures and similar business “alliances”
- Parties governed by laws of different jurisdictions
- Parties with subsidiaries/divisions in different jurisdictions
- Parties with employees resident in foreign jurisdictions
- Parties with employees working in foreign jurisdictions
- Target with ownership or lease of real property in non-US locations
- Acquisition of real property, tangible assets located outside US
- Target with significant contracts with entities located outside US
 Regional expansion – acquisition or construction of office, plant, facility
 Raising capital / investors
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Triggering Events – what changes is
your business facing?
When is a U.S. entity “doing business” in a non-U.S. jurisdiction?
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Formation/organization – registration and licensing (and tax issues)
Location of employees (consultants) - consider sales force travels
Location of customers and targets
Location of tangible assets
Products services imported/exported
Location of suppliers/vendors
Outsourcing
Marketing and promotion
Financing / investments from foreign persons/entities
New products
- consider implications of customer / supplier growth and relocation
- beware of jurisdictional creep
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Mergers and Acquisitions - Structuring
TAX
EFFICIENCIES/
RISK
EXPOSURE
EFFECTIVENESS
ALLOCATION
BUSINESS/
ORGANIZATIONAL
CULTURE
INDUSTRY
CONSIDERATIONS
ACQUISITION
STRATEGY/
GOALS
ORGANIZATIONAL
KEY
ELEMENTS
SPECIFIC
JURISDICTIONAL
ISSUES
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Mergers and Acquisitions - Structuring
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Stock vs. Asset vs. Lease/license vs JV or other
partnering arrangement
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338(h)(10) elections
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Other tax efficiencies
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Comfort letters
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Contract implications (merger vs. transfer)
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Mergers and Acquisitions – Regulatory
and Compliance Considerations
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Significant statutes: FCPA, AML, Patriot Act, HSR and
foreign counterparts
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Stock market listing and compliance requirements: US
and foreign
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Governance requirements – e.g., SarbOx
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US-based jurisprudence (Haliburton, Dimon)
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Registration and licensing
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Financing – including minimization of currency and rate
fluctuations
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Fundamental Transactions
Typical Categories of Initial Diligence
Organizational Matters
Intellection Property
Financial and Accounting
Matters
Material Agreements
Liens, Claims and
Encumbrances
Customer and Vendor
Relationships
Employee, Deferred
Compensation and
Benefits Matters
Litigation and
Regulatory Matters
Governmental Permits,
Licenses and Approvals
Environmental Matters
Human Resources
Insurance Information
Federal and State
Taxation Information
Information
Technology and
Operations
Information
Compliance Information
Mergers and Acquisitions - Diligence
Sampling of compliance-focused due diligence requests
 Governmental/Agency Reports/Correspondence (and evidence of compliance)
 A copy of the most recent Form EEO-1, a schedule of any pending or threatened civil litigation
or agency
 If applicable, Compliance Committee minutes for the past few years
 Latest Regulation O disclosures made by directors, executive officers and principal
shareholders
 Administrative Agreements, Memorandum of Understanding, Cease and Desist Orders, etc., if
any, with any regulatory agency
 OFAC policy and procedures
 Disclosure controls and procedures (with backup documentation, certifications or reports
relating to the same)
 If applicable, Disclosure Committee minutes for the past few years
 If applicable, copies of insider trading policies and procedures
 Suspicious Activity Reporting (“SAR”) procedures
 Copy of related party transaction policy
 Copy of vendor management policy and procedures
 In practice, supplemented based on industry specifics (i.e. financial sector transaction would likely
request compliance with Gramm-Leach-Bliley and Basel III policies and procedures)
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Mergers and Acquisitions - Diligence
Justice Department has been aggressive in prosecuting those
who purchase violations (successor liability), with a particular
focus on FCPA violations.
Examples:
1.
Dimon, Inc.
 Dimon, Inc. and Standard Commercial Corporation merged in 2005 to become Alliance
One. In 2010, the DOJ brought a criminal case against Alliance One for FCPA violation
committed by foreign subsidiaries of both predecessors before the 2005 merger.
 Alliance One disgorged approximately $10 million to the SEC and $9.45 million in fines
to the DOJ.
2.
Halliburton
 Halliburton settled with the DOJ on a successor liability matter involving a subsidiary’s
violation of the FCPA prior to and after Halliburton’s acquisition of the subsidiary.
 DOJ suggested liability may have been avoided if Halliburton had demonstrated careful
attention to the due diligence process after it identified certain risks and had developed
an effective FCPA compliance policy in a post-acquisition integration effort
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Fundamental Transactions
DOJ Opinion Procedure Release 08-01 suggests that the DOJ believes FCPA
liability is reduced where a buyer requires anti-corruption compliance
representations, warranties, termination provisions and audit rights. However,
the FCPA has no firm due diligence guidelines as to what constitutes
comprehensive diligence efforts.
Examples:
 DOJ and SEC declined to prosecute a buyer because, in part, when the buyer’s due
diligence investigation revealed corruption within the target company it (i) ensured the
voluntary disclosure by the target to the appropriate government officials; (ii) ensured the
target’s cooperation with the government investigation; and (iii) incorporated target
(post-acquisition) into buyer’s compliance program/monitored internal controls.
 The DOJ declined to bring an action in connection with a large investment made by a
wholly owned, foreign subsidiary of a Delaware corporation in a foreign company where
FCPA-related risks were identified and the Delaware corporation obtained (i) certain
anti-corruption compliance representations and warranties and (ii) termination provision
triggered by the discovery of “violations of anti-corruption laws”.
Tax Issues
 ENGAGE AN EXPERT!!! Goals:
 1. Maximize tax efficiencies
 2. Avoid double taxation: seek exemptions,
exceptions and favorable tax treaties
 3. Avoid penalties, fines
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Tax Issues
Considerations:
 Acquirer/target characterization and structuring implications
 Transfer tax
 Property Tax
 VAT
 Payroll and benefits
 Transfer pricing and profit shifting
 Compiling and adjusting non-US financial data for US Tax
purposes
 Permanent Establishment (“PE”) risk
 FiIings and clearances required
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Labor/Employment Issues
Considerations:
A.
Hiring and firing policies, tenure, severance
B.
Collective bargaining units
C.
Benefits, vacation and related practices
D.
Anti-discrimination
E.
Terminations, non-competes, non-solicitations
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Fundamental Transactions - Integration
Post-acquisition compliance efforts are essential for
effective Integration of the acquired business/entity
Integration activities might include:
 Updating policies (or creating encapsulated deviations therefrom) to take into account foreign law requirements or
differences in certain state laws
 Establishment of industry-specific compliance requirements
 Additional regulatory overlay from the acquisition of a regulated entity
 Education and training of new employees on policies
 Cross-cultural training of both targets’ and acquirers’ employees
 Implementation of comprehensive post-acquisition compliance procedures, with
schedules, deadlines, reporting protocols, etc. – covering all operational aspects
Example: SEC v. Tyco International Limited (2006) - the acquirer did not implement
effective post-acquisition compliance efforts (FCPA specific), and the result was acquirer
liability for the actions of the target
Regional and Extraterritorial
Expansion
Do you know where the business is going?
 Expansion is a significant change that will create new
obligations and risks.
 Example: International data transfer, data security and
privacy laws
 Be cognizant of gradual expansion.
 Example: Outsourcing, new purchasing agreements
 When expanding into new regions:
 Assess and incorporate local laws and regulations.
 Evaluate whether the business has sufficient infrastructure and staffing.
 Respect local and regional practices while conveying the company’s core values.
 Provide early training and education.
 Focus on high risk areas such as FCPA, privacy and money movement.
 Conduct additional monitoring and audits to ensure that new policies and
processes are being followed.
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New Products – Implications and
Opportunities
Compliance and governance programs can provide a competitive
advantage
 A company with a strong compliance and governance
program can:
 Identify new product opportunities due to legal or regulatory change.
 Assist with de-commoditizing a company’s product by guaranteeing
products or services.
 Formal coordination between compliance lawyers and the
business during new product development will ensure that:
 Product risk is adequately assessed.
 Sourcing of materials and use of third-party vendors receive
appropriate due diligence.
 New policies and procedures are in place for a new product launch.
 Regulatory and/or licensing obligations are met.
 Products/services and customers receive adequate notice about
upcoming legal or regulatory changes.
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Final Takeaways
What you should remember tomorrow when you think about this
presentation and your company’s multinational presence…
GENERAL:
 Become an expert in the law in all jurisdictions impacting your company - - or have available someone
who does. If responsibility is segmented, make sure all of your experts are talking to each other for
interjurisdictional issues.
 Become knowledgeable about local customs and practices - - or have available someone who does. It’s
not only the statutes and codes that matter.
 Beware of jurisdictional creep: track involvement with other jurisdictions not only by formal business
your company conducts, but by location of its assets, employees, customers, vendors/suppliers and
subcontractors; consider target locations for media and marketing efforts (including fundraising). Your
marketing could also have IP implications if it generates sufficient awareness of a “use” or trade name.
 Training and education of personnel is just as important as creating effective policies – and not once and
done – reinforcement is key.
 Minimize risk in acquisition transactions with comprehensive due diligence and take quick and decisive
curative actions during the integration phase; in addition, consider curative actions prior to the
acquisition. The Justice Department has been aggressive in prosecuting those who purchase violations
(successor liability), with a particular focus on Foreign Corrupt Practices Act (FCPA) violations.
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Final Takeaways
What you should remember tomorrow when you think about this
presentation and your company’s multinational presence…
IP SPECIFIC:
 Engage local outside IP counsel – you’ll need them to navigate the myriad of IP laws in jurisdictions in
which you plan to do business.
 Know your competitors and likely infringers. This is the best way to predict an effective form and scope
of IP protection to mitigate IP risks and protect your business.
 Understand any country-specific IP laws and how they could affect your company’s strategy and
resource requirements: consider for any potential collaborations the default IP ownership models.
Understand whether inventor remuneration needs to be considered and if reporting of IP use and/or
licensing is required or compulsory licensing is a factor.
 Know what you have in your IP portfolio and how it may be encumbered. Have standards bodies
granted existing licenses or commitments which could impair your company’s ability to use its IP assets,
whether defending or asserting its rights against others?
 Identify any IP coverage gaps and devise a strategy to fill them (encompassing offensive and defensive
as well as regional and enforcement considerations).
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Questions?
“The chains of habit are too light to be felt
until they are too heavy to be broken.”
– Warren Buffett
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Speakers
Wendy E. Miller, Partner
Cooper & Dunham LLP
[email protected]
212-278-0519
Lisa R. Jacobs, Partner
DLA Piper, Philadelphia Office
[email protected]
215-656-2452
Jill Hubbard Bowman, Senior
Intellectual Property Counsel,
Intel Corporation
[email protected]
408-765-3829
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