The Department of Justice’s (DOJ’s) Criminal Division has now hired “Compliance Counsel” but the Department has no plans to move towards making a formal compliance defense available to those charged with regulatory violations. Assistant Attorney General Caldwell also noted that “[t]he quality and effectiveness of a compliance program is also an important factor that prosecutors consider in determining whether to bring charges against a business entity that has engaged in some form of criminal conduct.” Ms. Caldwell went on to caution against mere “window dressing” and “paper programs,” encouraging companies to opt for fostering a corporate culture that actually, actively and visibly supports compliance if they want the DOJ to view their efforts favorably when misconduct occurs. (more…)
Recently I have attended several cyber security conferences. What I have learned about protecting information has changed how I view export controls. Senior management and board members should think about the big picture as it relates to information controls and exports rather than dealing with these issues separately. For instance, I was reviewing a nondisclosure agreement today related to export controls. The agreement will apply to an off-site worker. I immediately started thinking of the Target information breach. The breach happened because a new business platform was using a subcontractor that was not vetted for its IT security. The post-event analysis indicated that a broader strategic approach should have been taken in the business planning stage. Senior executives needed to consider all areas of the business operations together to plan procedures to minimize corporate risks. (more…)
The Customs-Trade Partnership Against Terrorism (C-TPAT) certification program is a voluntary government program through which importers and exporters can agree to implement and maintain a set of predetermined supply chain security measures and submit to government site visits in exchange for benefits such as expedited review of shipment documentation at the border. The program is designed to streamline import/export procedures, increase shipment security, and save the C-TPAT partner company time and money. Nearly a year ago, U.S. Customs and Border Protection’s (CBP) expanded the previously importers-only C-TPAT to include exporters, releasing a fact sheet outlining eligibility requirements and the benefits available to participants that I discussed in this September 2014 post. Then in May 2015, CBP deployed “Phase II of Portal 2.0” – an update to the C-TPAT web portal that includes the addition of the exporter application to the site, effectively implementing the September 2014 policy change. (more…)
As you know there are ongoing changes to the Cuba export regulations. President Obama announced the reopening of the U.S. embassy in Havana and a Cuban embassy in Washington. The Commerce Department will remove Cuba from list of countries subject to anti-terrorism (AT) controls, and Cuba has been removed from the list of state sponsors of terrorism (SSOT). Our January blog is still the state of play for permissible business. (more…)
Iran entered into a historic nuclear agreement with the U.S. and other world powers on July 14th 2015. The agreement will allow the licensing of the export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for commercial and civil aviation use. The deal also grants the export of spare parts and components for commercial passenger aircraft. It is reported that Iran is looking to replace hundreds of commercial aircraft. (more…)
The Idea Behind TPA
On September 24 a rare alliance between Republicans and the Obama Administration led to passage of the ‘fast-track’ bill granting the President a 6-year renewal of Trade Promotion Authority (TPA). As a result, for the first time since 2007, the President has the power to negotiate trade deals with foreign governments and present them to Congress to be approved or rejected with no amendments. The bill also requires the President to notify and consult with Congress throughout the negotiation process and prohibits Senators from filibustering to prevent passage of finalized free trade agreements (FTAs). TPA is indispensable to successfully negotiating FTAs because it prevents Congress from dragging its feet or altering final agreements reached by the President. (more…)
Corporate officers and shareholders take note: personal liability for unpaid duties may result from material misrepresentations on import documentation even when the importer of record is a corporate entity. The corporate veil shielding individuals from civil liability affords no protection in such situations. (more…)
On February 24 the SEC charged Ohio-based Goodyear Tire and Rubber Company with violating the books and records provisions of the Foreign Corrupt Practices Act (FCPA). Goodyear agreed to pay $16.2 million to settle the charges, which stemmed from allegations that the company failed to prevent or detect bribes amounting to more than $3.2 million distributed by local executives at two of its Sub-Saharan subsidiaries in order to obtain tire sales. Most of the illicit payments were made prior to Goodyear’s acquisition of the Kenyan company in 2007. The SEC’s enforcement order suggests that the pre-acquisition due diligence Goodyear conducted was insufficient to uncover the illicit behavior. Furthermore, the SEC found Goodyear’s post-acquisition compliance efforts insufficient as well.
Evidence of improper payments in Kenya first came to light five years after Goodyear’s acquisition through an employee tip submitted via Goodyear’s ethics hotline. The company later disclosed its findings to the SEC and increased compliance trainings and audits. Goodyear’s cooperation and compliance efforts helped it avoid additional criminal fines. However, the dollar amount of the settlement doesn’t quite capture the extent to which this lapse in due diligence cost the company. Goodyear is also required to unwind its operations in Sub-Saharan Africa and stomach the loss of investment funds, time, and future opportunity in the region.
Ignorance of foreign subsidiaries’ illicit behavior does not shield a parent company from liability under the FCPA. In this case, Goodyear’s Kenyan subsidiary had independently initiated the illegal practices prior to the acquisition and continued to be managed locally even after Goodyear acquired a majority stake in the company. The U.S. government was able to establish jurisdiction and charge Goodyear with FCPA violations because it had incorporated misleading records of the illicit payments into its accounting records. However, the company could have avoided the violations if it had conducted better pre-acquisition due diligence and implemented anti-corruption training with the subsidiaries right off the bat.
Pre-acquisition due diligence should include:
- A complete audit of all books and records
- An assessment of risks based on the location of the business and the nature of the particular industry
- A review of internal control measures and the compliance culture
- Risk assessments of political activities and third-party relationships (customers, contractors, vendors, agents, distributors, investors and partners)
- A violations inquiry to assess target’s relationship with the DOJ and SEC as well as local agencies
- Pre-acquisition actions to address red flags before the deal goes through
- Thorough documentation of all due diligence efforts (to present in the event of a government investigation)
- Immediate implementation of a compliance education and training program including manuals, policies, certifications and management support of the overall compliance program assessing the likelihood of violations, ability to provide mitigation, and the need for restructuring to provide effective protection against future violations.
After President Obama’s announcement that his Administration will pursue a policy aimed at improving U.S.-Cuba diplomatic relations and ultimately eliminating the economic embargo on Cuba, the U.S. Treasury and Commerce Departments took the first step towards lowering barriers to trade with Cuba by amending existing sanctions regulations. The changes to the Cuban Assets Control Regulations (31 C.F.R. §515) and Export Administration Regulations (15 C.F.R. §§730-774) went into effect on January 16, 2015 and include a number of amendments that open up doors for trade and investment in Cuba, particularly for U.S. companies in the travel and medical industries. Below is a list of dos and don’ts for transactions involving Cuba and Cuban nationals to help your company determine how to take advantage responsibly and effectively of these recent developments. Whether Congress acts to inhibit or roll back these foreign policy changes remains a question at this writing.
- U.S. companies can export and sell certain communications devices, related services, building materials, equipment, tools for use by the private sector to construct or renovate privately-owned buildings, and tools and equipment for private agricultural activity under new license exception SCP (Support for the Cuban People) and license exception CCD (Consumer Communication Devices) has been expanded to include certain personal computers, mobile phones, and consumer software.
- With proper agency approval, U.S. companies can potentially export items related to environmental protection. This includes energy efficient items.
- Airlines and travel agents can engage in transactions incident to approved travel to Cuba without a specific license from the Treasury’s Office of Foreign Assets Control.
- Certain U.S. persons can travel to Cuba without a specific license. This change applies to individuals that would have been authorized to travel to Cuba under one of the 12 preexisting categories, including journalistic activity; professional research; educational activities; religious activities; public performances, and athletic and other competitions.
- U.S. travelers can spend an unlimited amount on expenses incident to travel to Cuba and can also use credit and debit cards while in Cuba.
- U.S. travelers can take $10,000 of family remittances with them to Cuba.
- U.S. travelers can bring $400 of goods back to the U.S. from Cuba. This includes up to $100 of tobacco or alcohol products.
- Insurers can provide health, travel, and life insurance to U.S. travelers and third-country nationals that travel to Cuba.
STILL NOT PERMITTED:
- U.S. persons still cannot export or import items to or from Cuba for commercial purposes absent an applicable license or license exception.
- U.S. persons still cannot transact with Cuban entities absent an applicable license or license exception.
The Department of Commerce’s Bureau of Industry and Security (“BIS”) recently published a final rule adding to existing U.S. government restrictions on trade with Venezuela. The November 7th rule amends Section 744.21 of Commerce’s Export Administration Regulations (“EAR”) to add license requirements on the export, reexport, and transfer of certain items destined for “military end use” or a “military end user” in Venezuela. These items may include dual-use telecommunication equipment, certain software, aircraft navigation systems and lasers. Section 744.21 restrictions originally applied only to China and were extended to cover Russia about a month ago. These latest restrictions on trade with Venezuela come as a response to Venezuelan government and military reactions to domestic protests that began in February 2014. According to BIS the Venezuelan anti-democratic crackdown included “direct violence against protesters, detentions of protesters and political leaders, and acts of intimidation, resulting in numerous deaths and injuries.” The BIS action follows the imposition of visa restrictions on Venezuelan government officials last July and complements an arms embargo imposed on Venezuela by the State Department’s Directorate of Defense Trade Controls (“DDTC”) in August of 2006. Additionally, a select number of former and current Venezuelan government officials have been listed on the Office of Foreign Assets Control’s Specially Designated Nationals (“SDN”) List in past years and as a result, have had their assets frozen and are unable to transact with US persons.
Despite this recent ramp up, keep in mind that there is still not a complete embargo on trade in place against Venezuela – many non-defense related exports are still fair game. So if you are exporting to Venezuela or thinking about it, here is a list of some steps you can take to avoid breaching current trade regulation when transacting with your Venezuelan trade partners:
- Check DDTC’s U.S. Munitions List to make sure that your export item is not included on the list as there is a complete embargo on such items (and any services related to them).
- Check BIS’s Commerce Control List to see if there are any general license requirements that apply to your item’s ECCN.
- Check Supplement 2 to Section 744 of the EAR to make sure the item does not require an export license under the new restrictions imposed by Section 744.21 as of November 7, 2014. If they are listed in Supplement 2, they require an export license if they are intended for “military end use” or a “military end user.” (Note: 600 Series items cannot be exported to Venezuela without a license.)
- Run the names and aliases of all parties involved in the transactions against OFAC’s SDN List to make sure they are not listed (for a more thorough check, online screening tools that run party names against all U.S. government lists are available).
- Perform thorough anti-corruption due diligence on all parties involved in the transaction in accordance with your company’s compliance program, including obtaining anti-corruption policy certifications and completed questionnaires from your business partners and following up on any red flags.