Linda K. Tiller...Kansas City, MO in Arms Regulations (ITAR). Direct: 816.983.8223 Fax: 816.983.8080 [email protected] Industry Industrial Production Related Services

Husch Blackwell LLP

Kansas City, MO Direct: 816.983.8223 Fax: 816.983.8080 [email protected]

Industry Industrial Production

Related Services Customs & Trade International Mergers & Acquisitions

Linda K. Tiller PARTNER

Linda leads the firm’s Customs & Trade practice and is a member of the Industrial Production & Technology team. With deep international experience, Linda guides clients involved in global production and the transportation of goods across borders. She assists manufacturers and distributors in all corners of the world and represents a diverse clientele, such as suppliers to the oil and gas industry, importers of a variety of consumer and industrial products, and exporters of defense articles and technology. Her engagements cover a wide range of trade matters, including advising on U.S. economic sanctions, import seizures, export licensing, antidumping cases, trade compliance and foreign distribution.

Linda is a frequent speaker on U.S. economic sanctions and export controls, including the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). She currently serves on the Advisory Board of Law 360 International Trade and is a past member of the Board of Directors of the International Trade Council of Greater Kansas City and World Services Group.

Representative Experience

Numerous voluntary disclosures to Directorate of Defense Trade Controls (DDTC) regarding ITAR compliance issues, including unlicensed exports of goods and technical data.

ITAR evaluation and internal audit of fire suppression equipment used on space vehicles, military aircraft and submarines.

Preparation and submission of ITAR applications for export licenses, manufacturing license agreements and technical assistance agreements for various manufacturers and suppliers.

Obtained license from Department of Commerce for re-export of computer equipment and software to Syria.

Obtained favorable ruling from the Department of Commerce for off-shore production of “crime control” devices for sale to the People’s Republic of China.

Defended DDTC/Commerce Department commodity jurisdiction review regarding surveillance and intercept software.

Defense of Office of Foreign Assets (OFAC) subpoenas alleging violations of U.S. economic sanctions.

Compliance reviews for numerous clients related to OFAC economic sanctions.

Achieved revocation of anti-dumping order at International Trade Administration.

Negotiated significant reduction in administrative fraud penalty imposed by Customs and Border Protection (CBP).

Obtained exclusion of gluten-free pasta from antidumping order related to imported pasta from Italy.

Achieved cancellation of million-dollar penalty imposed by U.S. Customs over client's alleged negligent tariff classification of certain parts of electrical machines based on error by customs, while advocating a corrected classification with a zero rate of duty.

Obtained release of thousands of pairs of shoes seized by U.S. Customs due to counterfeit trademarked components with expedited release and significant mitigation down to nominal penalties.

Husch Blackwell LLP

Professional Associations & Memberships

Customs and International Trade Bar Association

International Bar Association

American Bar Association

Missouri Bar Association, International Committee

Kansas City Metropolitan Bar Association

International Trade Council of Greater Kansas City, Board of Directors, 2011-2013

Law 360 International Trade, Advisory Board, 2013

Admissions

Missouri, 1995

U.S. Court of International Trade, 1998

Education

J.D., George Washington University Law School, 1990 Order of the Coif Dean’s Fellow Moot Court Board George Washington Journal of International Law and Politics, Notes Editor

B.S.B.A., University of Missouri-Columbia, 1975

Publications & Presentations

Author, “You Can’t Sell That Overseas,” Thinking Bigger Business, October 2011

Speaker, “Conflict Minerals: What They Are and Why Manufacturers Should Care,” webinar, June 2013

Speaker, “Basics of Export Distributor Agreements,” U.S. Commercial Service and U.S. Department of Commerce, June 2013

Speaker, “Trading with Asia: Compliance – A Hot Topic,” Terralex annual meeting, October 2012

Speaker, “Global Compliance Training: Embargoed Countries, Anti-Corruption, and Anti-Trust,” client international sales meeting, October 2012

Moderator, “Anticorruption – Enforcement Has Gone Global!” World Services Group annual meeting, September 2011

Speaker, “Do Long Distance Relationships Really Work? Sourcing From and Exporting to Foreign Countries,” Kansas City International Trade Council, March 2011

Speaker, “International Law: Around the World in Less Than 60 Minutes,” Kansas City Chamber of Commerce, February 2011

Speaker, “NAFTA 2010,” World Trade Group, October 2010

Speaker, “BIS and OFAC: The World of Export Controls & Economic Sanctions,” Kansas City International Trade Council, April 2010

Speaker, “What Every Lawyer Should Know About International Business Law,” International Law Committee of the Kansas City Metropolitan Bar Association, September 2009

Speaker, “International Law and Resources: Import and Export,” Kansas Bar Association, March 2009

Speaker, “U.S. Export Controls (ITAR, BIS, OFAC),” Kansas City Metropolitan Bar Association, May 2008

Speaker, “Export Management and Compliance”, Kansas City International Trade Council, March 2008

Speaker, “Common Legal Issues in International Contracting,” World Trade Week Conference, June 2007

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© Husch Blackwell LLP

By Linda Tiller

OFAC – The Changing Landscape of Economic Sanctions

816.983.8223 - [email protected] August 27, 2013

Agenda

Basics of Economic Sanctions

Iran - Pre- and Post-2010

Syria

Cuba

Facilitation

Enforcement and Sample Cases

How to Protect Your Company

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OFAC Basics

Office of Foreign Assets Control (OFAC)

OFAC’s Primary Mission: To administer and enforce numerous economic sanctions in furtherance of US national security against:

Targeted foreign governments and regimes (e.g., Sudan, Iran)

Individuals (e.g., terrorists, narcotics traffickers)

Entities (e.g., drug front companies, charities linked to terrorist groups)

Practices (e.g., trade in non-certified rough diamonds, proliferation of weapons of mass destruction)

Purpose

Economic sanctions are intended to: deprive the target of the use of its assets, and

deny the target access to the US financial system and the benefits of trade, transactions and services involving US markets, businesses, and individuals.

Much debate over effectiveness vs. collateral costs

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OFAC’S World-Wide Reach

Economic sanctions reach transactions within the United States or by persons, or with respect to property, subject to US jurisdiction

1. “US Person”- Individuals

• American citizens and permanent resident aliens located anywhere in the world

• Any individual, regardless of citizenship, who is physically located in the United States

- Businesses• Corporations organized under US law, including foreign branches of US

companies• Any corporation or company physically located in the US, including US

branches, agencies and representative offices of foreign corporations• Cuba - foreign subsidiaries of US companies

2. Iran sanction - Foreign entities owned or controlled by a US parent

OFAC’S World-Wide Reach

2. Indirect Activities covered:• US Persons are responsible for acts of their employees/agents worldwide• Facilitation – US Persons prohibited from “facilitating” dealings by foreign

persons that US Persons cannot directly undertake

3. “Secondary” extraterritorial measures:• Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010

(CISADA) – Allows sanction of non-US entities operating in certain sectors or transactions with Iran (e.g. energy, shipping, automotive, and shipbuilding) even if the non-US company or bank has little or no connection with the US

• “Foreign Sanction Evaders” – By Executive Order dated 5/1/2012, the US Treasury is authorized to target non-US banks and companies that violate, conspire to violate, or cause a violation of US sanctions concerning Syria or Iran, or that have facilitated deceptive transactions for persons subject to US sanctions concerning Syria or Iran.

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Sanctions Programs Cuba Iran Sudan Syria North Korea Burma (Myanmar)* Libya* Belarus Somalia Zimbabwe Balkans-related sanctions Cote d'Ivoire-related sanctions Democratic Republic of the Congo-

related sanctions*Substantially eliminated by general license or

Executive Order

• Iraq-related sanctions

• Lebanon-related sanctions

• Yemen-related sanctions

• Former Liberian Regime of Charles Taylor

• Narcotics Trafficking

• Diamond Trading

• Non-Proliferation (WMD)

• Russian Uranium

• Anti-Terrorism (under several sanctions programs)

• Transnational Criminal Organizations

Sanctioned Persons or Entities

OFAC -SPECIALLY DESIGNATED NATIONALS (SDN) Designated (a) Individuals, or (b) entities that are owned or

controlled by or acting on behalf of a sanctioned country, individual, or entity, anywhere in the world

Other countries/organizations also have prohibited party lists United Kingdom United Nations Canada Singapore

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Blocking Statutes

Prohibit compliance with any foreign sanction that is not approved by home country

Potential conflict of laws: European Union and Canada prohibit certain compliance with the

US embargo on Cuba EU and Canadian law require local subsidiaries to report instances

where US parent directs compliance with US embargo against Cuba

Mexico prohibits compliance with any US embargo

Conflict can be difficult to resolve

Iran – Pre-2010

No Imports of Iranian goods

Exportation of Goods and Services: Prohibition - No export, re-export, sale or supply, directly or indirectly, from the U.S., or by a

U.S. Person, wherever located, of any goods technology, or services to Iran or the Government of Iran.

Exportation to a Third Country with Knowledge: Prohibition - No exportation of goods, technology or services to a third country where you

know that: (1) they are intended specifically for Iran or the Government of Iran; or (2) they are “intended specifically for use in the production of, for commingling with, or for incorporation into goods, technology, or services to be directly or indirectly supplied, transshipped, or reexported exclusively or predominantly to Iran or the Government of Iran.

Dealing: Prohibition – No U.S. Person may engage in any transaction or “dealing” in or related to

goods/services of Iranian-origin or controlled by the Government of Iran; or (b) goods, technology, or services for exportation, reexportation, sale or supply, directly or indirectly, to Iran or the Government of Iran.

Defined to include “purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing”

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Iran – Pre-2010

The Iranian Transactions Regulations (ITR) (1979) Total embargo for “US Persons” Restrictions on transactions by US Persons and US-origin goods,

services, & technology Prohibited exports to Iran from the US or by a US Person anywhere

in the world Barred imports of Iranian goods (even if from a 3rd country) Prohibited US persons from “facilitating” or “evading”

The Iranian Sanctions Act (ISA) (1996) Only exception to the “US Person” requirement Required the President to sanction any company (US or foreign)

exceeding the investment threshold (originally $40M but dropped to $20M) that would contribute to Iran’s ability to develop petroleum resources

2010 - The Turning Point

Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) (July 1, 2010)

1. Ability to impose sanctions on Foreign Financial Institutions (FFIs) Sanctionable Activities: Facilitating Iranian efforts to acquire WMDs or support international terrorism;

Helping to launder money;

Facilitating any Iranian financial institution in the above;

Dealing with Iranian entities that are under United Nations sanctions; or

Conducting significant business with Iran’s Islamic Revolutionary Guard Corps (IRGC) or designated Iranian financial institutions

Mandated that US financial institutions should be subject to penalties if their owned/controlled foreign subsidiaries knowingly engage in transactions benefiting the IRGC

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2010 - The Turning Point

CISADA (continued)

2. Expanded Petroleum Sector Sanctions under the ISA President required to impose sanctions on any person worldwide

determined to have “knowingly” (meaning knew or “should have known”): Made investments contributing to the enhancement of Iran’s ability to develop

petroleum resources; Provided goods, services, technology or other support to Iran to facilitate the

maintenance or expansion of Iran’s domestic production of refined petroleum products;

Provided refined petroleum products to Iran; or Provided goods, services or technology or other support for Iran’s ability to

import refined petroleum products.

Each is subject to a finding of certain financial thresholds and potential waivers

Companies in Belarus, China, Iran, Jersey, Liberia, Monaco, Singapore, Syria, the UAE, and Venezuela have been sanctioned

After CISADA

Iranian Financial Sanctions Regulations (IFSR)(8/16/2010) Implemented the CISADA sanctions on FFIs Once Treasury Department determines that a FFI has

engaged in a sanctionable activity, Treasury may impose strict conditions on a US financial institution’s opening or maintaining a correspondent or payable-through account in the US for the FFI

E.g. – prohibiting trade finance, placing transaction size or volume limits, etc.

Designated FFI’s are on OFAC’s “Part 561 List”

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Iran - 2011

OFAC General License (10/12/2011) Authorizing food exports from US to Iran

Executive Order 13590 (11/20/2011) Expanded sanctions against Iranian petroleum industry identifying

the following acts as sanctionable: Provision of goods, services or technology above $1 million that could

help Iran develop its petroleum resources or above $250,000 for its production of petrochemical products.

Authorizes “blocking” of assets of sanctioned parties Note: The sanctions may be applied to any successor companies,

parents and other affiliates under certain circumstances. Also designated the entire Iranian financial sector as a “primary

money laundering concern” under the USA PATRIOT Act Effect - Increased pressure on US banks to terminate relationships with

foreign banks doing business with Iran

Iran – 2012 was a big year!

National Defense Authorization Act for Fiscal Year 2012 (2012 NDAA) (12/31/2011)

Provided for sanctions on FFIs that knowingly finance or otherwise facilitate petroleum-related transactions with Iran

Goal - reduce Iranian oil revenues

Exception – President can waive the sanctions on any FFI if the President determines that the country with primary jurisdiction over that foreign financial institution has significantly reduced its volume of crude oil purchases from Iran

Effect - Forced every country in the world to choose among significantly reducing purchases of Iranian oil, having its banks shut out of the international financial system, or seeking a waiver

Numerous waivers have been granted (e.g. India, Japan, & EU countries)

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Iran Threat Reduction and Syria Human Rights Act (ITRSHR) (8/10/2012) Extended OFAC reach to foreign entities owned or

controlled by US companies Provides civil penalties on a US parent company (and possibly

the foreign sub) if the foreign sub knowingly engages in any transaction directly or indirectly with the GOI or persons subject to the jurisdiction of Iran if the transaction would violate US sanctions law if engaged in by a US Person

Does NOT require any knowledge or involvement by the US parent in the prohibited transaction


ITRSHR (cont.)

New SEC Reporting Requirement

ITRSHR imposes an SEC reporting requirement on all issuers to disclose if the issuer or its affiliates knowingly conducted any transaction or dealing with the GOI, terrorists, or WMD proliferators

Effective for all reports with a due date after 2/6/2013

President must initiate an investigation

Expansion of ISA Petroleum Sector Sanctions

Added more sanctionable activities:

Participating in joint ventures that may benefit Iran’s petroleum sector;

Providing goods, services, technology, or other support for Iran’s development of petroleum resources, refineries or petrochemical products production;

Transporting crude oil from Iran to another country;

Concealing the Iranian origin or crude oil or refined petroleum products transported on vessels

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Iranian Transactions and Sanctions Regulations (ITSR) (10/22/2012) Incorporates prior regulations and is now the primary

regulation

Provided a general license for foreign subsidiaries of US parents to “wind-down” Iran activities (expired 3/8/2013)

Provides a new general license for exports of medicine and basic medical supplies to Iran Basic medical supplies list was greatly expanded in July 2013

and now covers most EAR99 medical supplies


Executive Order 13608: Targeting Foreign Sanctions Evaders (5/1/2012) [Applies to both Iran and Syria] Further expands US jurisdiction by authorizing imposition of

sanctions on foreign persons who facilitate deceptive transactions for or on behalf of sanctioned persons

Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) (1/3/3013) Further expansion of energy and shipping sector restrictions

New restrictions related to precious metals and other materials including aluminum, steel, and coal

Expansion of Insurance Restrictions

Expansion of Restrictions on FFIs

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Syria

Syria Accountability and Lebanese Sovereignty Act of 2003 Prohibitions (unless licensed or waived):

New investment in Syria Direct or indirect exportation, reexportation, sale, or supply of any services or U.S.-

origin goods to Syria Imports of Syrian petroleum products or any transaction or dealing in or related to

Syrian petroleum products Approval, financing, facilitation or guarantee by a US person or a foreign person where

the transaction by the foreign person would be prohibited if performed by a US person or within the US

Permitted: Exports to Syria licensed by Dept. of Commerce DOC has a general policy of denial for exports to Syria, but effective 6/12/2013, DOC is

authorized to license export or reexport of U.S. origin items to liberated areas of Syria for the benefit of the Syrian people)

Exports of food and medicine (under a State Dept. waiver) Certain transactions related to intellectual property protection

Cuba 1963 – Comprehensive sanction under Trading With the Enemy

Act (TWEA)

Unless authorized by general or specific license, the following activities are prohibited:

Travel to Cuba

Transactions involving property in which Cuba or a Cuban national has or has had an interest

Imports from Cuba (including anything that has been transported through Cuba)

Exports to Cuba - No products, services or technology to Cuba or a Cuban national either directly or indirectly through a 3rd country

Vessels engaged in trade with Cuba cannot enter US ports if: owned by a Cuban national,

carrying Cuban goods or passengers, or

within 180 days after entering a Cuban port.

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Cuba

General and specific licenses available

Permitted transactions include: Trademark filing in Cuba

Certain telecommunications services

Exports of food, medical supplies, and agricultural commodities

Donations for humanitarian aid

Cuba

Indirect transactions are difficult to identify Example:

Great Western Malting Co. (a US company) performed back-office functions for sales by a foreign affiliate of non-US origin barley malt to Cuba

Base penalty amount - $5,990,000 Settlement amount - $1,347,750 Factors considered: Large, sophisticated company No compliance program No previous OFAC violations Cooperation by Great Western

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Facilitation - What Is It and Will You Know It When You See It? Basic Principle: A US Person may NOT facilitate activities of a non-

US person that the US Person could not engage in directly. This provision refers to facilitating the activities of any foreign person

Each country sanction is slightly different Activities that could be considered “facilitation”:

Altering operating policies and procedures to enable transactions

Referring to a foreign person a business opportunity prohibited to the US Person

Approval or direction

Negotiation/drafting/review of commercial terms/contracts

Discussing business strategies

Support functions – technical, credit review, legal support

Enforcement

OFAC investigations may be the result of: Reports from financial institutions

Voluntary self disclosures from companies or individuals

Reports from other government agencies

Referrals from other OFAC divisions

Anonymous Tips / Hotline Calls

Public News Stories

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Enforcement Guidelines –General FactorsA. Willful or Reckless Violation of LawB. Awareness of Conduct at IssueC. Harm to Sanctions Program ObjectivesD. Individual CharacteristicsE. Compliance Program?F. Remedial ResponseG. Cooperation with OFACH. Timing of Apparent Violation in Relation to Imposition of

SanctionI. Other Enforcement ActionJ. Future Compliance/Deterrence EffectK. Other Relevant Factors on a Case by Case Basis

Penalties

Civil Penalties:

Trading With the Enemy Act (Cuba): $65,000

International Emergency Economic Powers Act: Greater of $250,000 or 2X Transaction Value

Foreign Narcotics Kingpin Designation Act: $1,075,000

Anti-Terrorism and Effective Death Penalty Act: $55,000

Criminal Penalties

Up to $1,000,000 fine

Up to 20 years in jail

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Sample Cases

Stanley Drilling Equipment (July 2013) Exports of goods from the US to the UAE in 2008 with “reason to know”

that the shipments were intended specifically for transshipment to an oil rig located in Iranian waters

Base penalty $156,000 / Settlement $84,240

Intesa Sanpaolo S.p.A (June 2013) Intesa maintained a customer relationship with IRASCO S.r.l., an Italian

company owned or controlled by the GOI. Intesa failed to identify IRASCO as meeting the definition of “GOI” and processed transactions between 2004-2008 that terminated in the US or with a US Person.

Base penalty $9,362,000 / Settlement $2,949,030

How to Protect Your Company

Conduct a Risk Assessment Document Policies and Procedures

Identify compliance personnel

Transaction/Business Activity Monitoring, Screening, Surveillance

Monitor program to ensure proper implementation Training Advice & counsel – ensure a team is in place Plan for program changes to react to sanction changes Independent Testing/Audit

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Avoiding the TrapsWatch for RED FLAGS

• Offers cash up-front• Willing to pay in excess of

market value• Won’t provide end user / end

use information• End use information

incompatible with normal product use

• “Final” consignee is shown as Freight Forwarder, etc.

• Delivery to warehouse/FTZ in known transshipment point (e.g. U.A.E)

• Customer is unfamiliar with the product, its application, or required support

• Product performance is inconsistent with customer’s needs

• Customer orders products not compatible with their business

• Customer has no business background

• Customer requests shipping documents that don’t reflect the transaction

Husch Blackwell LLP

Kansas City, MO Direct: 816.983.8253 Fax: 816.983.8080 [email protected]

Industry Industrial Production Transportation

Related Services Business Litigation Construction & Design Transportation

David M. Buffo PARTNER

As a member of the Industrial Production & Technology team, David helps his clients make business decisions that are critical to their long-term objectives. He negotiates, mediates and argues in commercial matters of transportation, premise liability, contract disputes and collections. David’s exposure to the industrial sector began before law school, as he sold machine tools and machine tool accessories primarily to the automotive industry. His contacts in the machine tool industry continue to this day.

Among his representations, he has:

- Defended a building-products manufacturer against claims of defective roofing materials.

- Counseled a transportation company in claims of cargo loss and damage.

As national counsel for a Fortune 500 transportation service provider, David coordinates and directs litigation across the United States and Canada and has extensive experience in handling cargo loss and damage claims for motor carriers. He has participated in more than 50 mediations as part of his transportation litigation practice.

Additionally, David represents owners, contractors and subcontractors in all aspects of construction litigation, ranging from the filing of mechanic’s liens to making bond claims to litigating claims for defective work.


Defended a maker of commercial and residential building products against allegations of defective roofing materials.

Defended retail management company in bench trial involving claims that a customer was injured because of dangerous parking lot conditions. The judge ruled in favor of the retail management company on all claims.

Obtained summary judgment on behalf of transportation client in case involving cargo loss claims. E&S International Enterprises Inc. v. Yellow Freight System Inc., et al., No. CV 08-3224 PSG (JTSLx), 2009 U.S. Dist. LEXIS 9407

Obtained summary judgment on behalf of transportation client in case involving counterclaims against transportation client for cargo loss and damages in excess of $600,000 related to more than 1,200 shipments transported by client. YRC Inc. v. Royal Consumer Products LLC and Mafcote Inc., 2011 WL 3819651 (D. Conn 2011)

Represented property owner in dispute with adjacent quarry over alleged property damage due to discharge and runoff from quarry. Achieved favorable settlement on behalf of plaintiff after only three days of a possible three-week jury trial.

Advised commercial cleaning franchise in breach of contract, employment and noncompete disputes.

Awards & Recognitions

Missouri Pro Bono Wall of Fame, 2011

Husch Blackwell LLP

Professional Associations & Memberships

Kansas Bar Association

Kansas City Metropolitan Bar Association

The Missouri Bar

Transportation Lawyers Association

Admissions

Missouri, 2003

Kansas, 2004

U.S. District Court, District of Kansas, 2004

U.S. District Court, Western District of Missouri, 2003

U.S. Court of Appeals, Eighth Circuit, 2012

Education

J.D., University of Missouri-Kansas City School of Law, 2003 Order of Barristers Moot Court national qualifier UMKC Law Review, Managing Editor Urban Lawyer

M.B.A., Northern Illinois University, 1997

B.S.B.A, Finance, Creighton University, 1990

Clerkships

Law Clerk, Pro Se Office, U.S. District Court, Western District of Missouri, 2001-2002

Publications & Presentations

Co-author, “Delay & Disruption,” Kansas Construction Law Handbook, Chapter 4, 2006

Speaker, “Staying Ahead of the Curve and Protecting Your Business: New Risk Trends and Solutions When Arranging Motor Carriage,” Roanoke Trade webinar, November 2012

Speaker, “Adulteration of Food and Pharmaceuticals,” Transportation Lawyers Association annual conference, Carlsbad, Calif., 2009

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By David Buffo

Trade-Based Money Laundering

Money Laundering = The attempt to disguise the nature,

source, ownership or control of the proceeds of illegal activity

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1. Placement = The illegal funds are introduced into the legitimate financial system

2. Layering = Then, the money is moved around to create confusion, such as by wiring or transferring it through multiple accounts

3. Integration = Finally, it is integrated into the financial system through additional transactions so that the illegal money appears “clean”

Typically involves Three Steps

Trade-based Money Laundering = disguising the proceeds of illegal

activity as legitimate tradeAccomplished by:

Over‐ and under‐invoicing of goods and services

Multiple invoicing of goods and services

Over‐ and under‐shipments of goods and services

Falsely described goods and services

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Example 1: Over‐invoicing

Company E (exporter) ships 1 million widgets worth $2 each, but invoices Company I (importer) for 1 million widgets at a price of $3 each. Company I pays Company E for the goods by sending a wire transfer for $3 million. Company E then pays $2 million to its suppliers and deposits the remaining $1 million (the difference between the invoiced price and the fair market price) into a bank account

$1 million is moved from importer to exporter

Example 2: Under‐invoicing

Company E (exporter) ships 1 million widgets worth $3 each, but invoices Company I (importer) for 1 million widgets at a price of only $2 each. Company I then sells the widgets on the open market for $3 million and deposits the extra $1 million (the difference between the invoiced price and the fair market value) into a bank account

$1 million is moved from exporter to importer

Example 3: Falsely described goods

Company E (exporter) ships 1 million gold widgets worth $10 each to Company I (importer) but invoices Company I for 1 million silver widgets worth $5 each. Company I pays Company E for the goods by sending a wire transfer for $5 million. Company I then sells the gold widgets on the open market for $10 million and deposits the extra $5 million (the difference between the invoice value and the actual value) into a bank account

$5 million is moved from exporter to importer

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Anti-Money Laundering (AML)Laws, Regulations and Initiatives

The Currency and Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly referred to as the “Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

It was passed by the Congress in 1970. The BSA is sometimes referred to as an “anti‐money laundering” law (“AML”) or jointly as “BSA/AML.”

Bank Secrecy Act (BSA)Establishes the basic framework for AML obligations

Source: www.fincen.gov/statutes_regs/bsa/

Financial Crimes U.S. by Enforcement Network (FinCEN) Regulations

FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities

To fulfill its responsibilities toward the detection and deterrence of financial crime, FinCEN:

Issues and interprets regulations authorized by statute;

Supports and enforces compliance with those regulations;

Supports, coordinates, and analyzes data regarding compliance examination functions delegated to other Federal regulators;

Manages the collection, processing, storage, dissemination, and protection of data filed under FinCEN's reporting requirements;

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Maintains a government-wide access service to FinCEN's data, and networks users with overlapping interests;

Supports law enforcement investigations and prosecutions;

Synthesizes data to recommend internal and external allocation of resources to areas of greatest financial crime risk;

Shares information and coordinates with foreign financial intelligence unit (FIU) counterparts on AML/CFT efforts; and

Conducts analysis to support policymakers; law enforcement, regulatory, and intelligence agencies; FIUs; and the financial industry.

The basic concept underlying FinCEN's core activities is “follow the money.” The primary motive of criminals is financial gain, and they leave financial trails as they try to launder the proceeds of crimes or attempt to spend their ill-gotten profits.

Source: www.fincen.gov/avbout_fincen/wwd/

USA PATRIOT Act

The official title of the USA PATRIOT Act is “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001”

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USA PATRIOT Act

The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include: To strengthen U.S. measures to prevent, detect and prosecute international

money laundering and financing of terrorism; To subject to special scrutiny foreign jurisdictions, foreign financial

institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse;

To require all appropriate elements of the financial services industry to report potential money laundering;

To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.

Source: www.fincen.gov/statutes_regs/patriot

Financial Action Task Force (FATF)

Source: www.fatf-gafi.org/pages/faq/

There are currently 36 members of the FATF; 34 jurisdictions and 2 regional organizations (the Gulf Cooperation Council and the European Commission). These 36 Members are at the core of global efforts to combat money laundering and terrorist financing.

There are also 31 international and regional organizations which are Associate Members or Observers of the FATF and participate in its work

Source: www.fatf-gafi.org/pages/faq/membercountriesandobservers/

If you are aware of a case that you believe may be related to money laundering, you should contact your local authorities, in particular the Financial intelligence unit of your country (FinCEN in the USA)

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FATF Recommendations

Source: www.fatf-gafi.org/pages/faq/moneylaundering

Set out measures that governments should have in place to combat money laundering

2012 Update focuses on a risk‐based approach, customer due diligence, targeted financial sanctions, improved transparency and international cooperation

The FATF also produces Guidance, Best Practice Papers, and other advice

What is an AML Program?

An anti-money laundering (AML) program is a set of procedures designed to guard against someone using the firm to facilitate money laundering or terrorist financing. The main components that must be included are:1) internal policies, procedures, and controls reasonably designed to

assure compliance with the Bank Secrecy Act and implementing regulations;

2) appointment of a designated compliance officer to oversee the program's day-to-day operations;

3) an ongoing training program; and4) an independent audit

Source: www.nfa.futures.org/nfa-faqs/compliance-faqs/anti-money-laundering/index.HTML

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Who is required to have an AML Program

Under the USA PATRIOT Act, the definition of “financial institutions” was extended to include more than 20 different types of businesses that provide financial services, including, but not limited to, broker‐dealers, currency exchanges, insurance companies, trust companies, dealers in precious metals, stones or jewels, and issuers of traveler’s checks, money orders or similar instruments.

For additional guidance on the other types of financial institutions now required to comply with AML laws and regulations, please refer to the USA PATRIOT Act and Nonbank Financial Institutions and Nonfinancial Businesses sections

AML Programs for Financial Institutions (Bank Secrecy Act, 31 USC 5318(h))

“In order to guard against money laundering through financial institutions, each financial institution shall establish money laundering programs, including, at a minimum—A. The the development of internal policies, procedures

and controls;

B. the designation of a compliance officer;

C. an ongoing employee training program; and

D. an independent audit function to test programs.”

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Additional Requirements –FinCEN Regulations

Each financial institution should refer to subpart B of its Chapter X part for any additional program requirements

31 CFR:

Part 1020: Rule for Banks

Part 1021: Rules for Casinos and Card Clubs

Part 1022: Rules for Money Services Businesses

Part 1023: Rules for Brokers or Dealers in Securities

Part 1024: Rules for Mutual Funds

Additional Requirements –FinCEN Regulations

Part 1025: Rules for Insurance Companies

Part 1026: Rules for Futures Commission Merchants and Introducing Brokers in Commodities

Part 1027: Rules for Dealers in Precious Metals, Precious Stones, or Jewels

Part 1028: Rules for Operators of Credit Card Systems

Part 1029: Rules for Loan or Finance Companies

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Nonfinancial institutions that engage in international trade of goods and services can still be vulnerable to trade-based money laundering

Refer to: The Office of Foreign Assets Control (OFAC)’s Sanctioned Country Programs and OFAC’s Specially Designated Nationals List

Lists individuals and companies owned or controlled by, or acting for or on behalf of targeted countries

Also lists individuals, groups, and entities such as terrorists or drug traffickers that are not country-specific

Red Flags

Red flags should go off if one or more of the following factors is present in a transaction (not all inclusive): The customer is unable or unwilling to supply identity or source of

funds information when requested

A customer’s inability to produce appropriate documentation (i.e. invoices) to support a requested transaction

The customer is located in a jurisdiction that has been identified by authorities as being of particular money laundering concern

The customer uses unusual means of payment (i.e. third party payments for goods or services made by an intermediary apparently unrelated to the seller or purchaser of goods)

The transaction makes no economic sense or is inconsistent with the customer’s line of business

Structured transactions

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The customer wishes to conduct business in a high-risk jurisdiction Unnecessary routing of funds through third party accounts Requests for unnecessarily complex transaction structure Unusual shipping routes or transshipment points Obvious over- or under- pricing of goods and services Amended letters of credit without reasonable justification Significant discrepancies between the description of the goods on the

transport document (i.e. bill of lading), the invoice, or other documents (i.e. certificate of origin, packing list, etc.)

Negotiable instruments (such as traveler’s checks, cashier’s checks and money orders) in round denominations under $3,000 used to fund domestic accounts

BE ALERT AND IF CONFRONTED WITH A SITUATION THAT RAISES A RED FLAG—DIG IN YOUR HEELS

Source: FinCEN, FIN-2010-A001, Issued February 18, 2010

Reporting Suspicious Transactions

Certain financial institutions operating in the US are required to file a Suspicious Activity Report (SAR) (31U.S.C. § 5318(g)) when they know, suspect, or have reason to suspect: Insider abuse involving any amount

Violations aggregating $5,000 or more where a suspect can be identified

Violations aggregating $25,000 or more regardless of a potential suspect

Transactions aggregating $5,000 or more that involve potential money laundering or violations of the BSA

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Reporting Suspicious Transactions

Persons wishing to voluntarily report suspicious transactions can call the FinCEN hotline at: 1‐866‐556‐3974

A financial institution must also file a Currency Transaction Report (CTR) for each deposit, withdrawal, exchange of currency or other payment or transfer through the institution which involves a transaction or related transactions > $10,000

Reporting requirements currently extend to: depository institutions, money services businesses, casinos & card clubs, broker‐dealers, futures commission merchants, brokers in commodities, insurance companies, and mutual fund operators

Husch Blackwell LLP

Washington, D.C. Direct: 202.378.2386 Fax: 202.378.2319 [email protected]

Industry Real Estate, Development & Construction

Related Services White Collar Criminal Defense Government Compliance, Investigations & Litigation Government Contracts

Kevin P. McCart PARTNER

An accomplished litigator, Kevin is a go-to legal advisor for corporations and individuals ensnared by government allegations of white-collar criminal and civil violations. His specific insights, effective legal strategies and investigative skills help clients avoid prosecution and minimize potentially dangerous outcomes, such as debarment. Kevin has been lead counsel in criminal and civil matters in federal district and circuit courts, as well as military courts-martial. He guides clients in responding to criminal and civil government investigations throughout the country and the parallel administrative, regulatory and civil litigation that often accompanies these investigations.

Kevin represents clients in Department of Justice, Federal Trade Commission, Department of Labor and Department of State investigations, as well as inquiries and proceedings before other federal and state entities. His global government and internal investigations background includes Foreign Corrupt Practices Act, False Claims Act and Export Control matters. In addition to his government enforcement work, Kevin represents plaintiffs and defendants at the state and federal levels in disputes involving fraud, breach of fiduciary duty, breach of contract and the Racketeer Influenced and Corrupt Organizations Act (RICO). He has secured favorable outcomes in mediation and arbitration, furthering his clients' civil litigation objectives.

Before joining Husch Blackwell, Kevin was a Partner at Patton Boggs in Washington, D.C. Previously, he served as an active duty Army judge advocate, where he gained considerable trial experience as a felony prosecutor and civil litigation attorney. While deployed to Afghanistan, he led sensitive criminal and administrative investigations into allegations of detainee abuse, fraud and war crimes.


Counseled Massey Energy in criminal, administrative and civil matters regarding the fatal Upper Big Branch Mine explosion.

Represented a national home healthcare staffing company in parallel criminal and civil False Claims Act investigations.

Lead counsel in securing favorable resolution for individual charged in federal criminal aggravated identity theft investigation.

Assisted multiple defense contractors in responding to civil and criminal export control investigations.

Represented patent owner in fraud litigation that yielded a Law360 “top 10” settlement for 2009 of $70 million.

Counseled former major law firm name partner in numerous federal and state lawsuits and arbitrations, including favorable resolution of firm's $120 million demand.

Recovered $1.6 million for former business owners in earn-out dispute with purchaser.

Investigated and arbitrated disciplinary matters for Laborers International Union of North America.

Represented company CEO in Federal Trade Commission investigation alleging $100 million fraud.

Represented international infrastructure company in Foreign Corrupt Practices Act investigation.

Husch Blackwell LLP

Admissions

District of Columbia, 2008

Massachusetts, 2000

U.S. District Court, District of Columbia

U.S. Court of Federal Claims

U.S. Supreme Court

Education

J.D., University of Virginia School of Law, 2000

B.A., Dartmouth College, magna cum laude, 1997

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The Foreign Corrupt Practices ActBy Kevin McCart

Agenda

FCPA Fundamentals

DOJ/SEC FCPA Resource Guide

Enforcement Trends and Priorities

Increased International Cooperation

Continued Emphasis on Individuals

Conducting Credible Internal Investigations

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FCPA FUNDAMENTALS

FCPA Anti-Bribery Provisions

Apply to:

Issuers: Any Publicly Traded Company Registered in the United States or its agents

Includes foreign companies with ADRs

Any “domestic concern” organized under the laws of the United States or its agents

Includes U.S. citizens, nationals, and residents

Any “foreign national or business” acting or causing actions within the United States

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Prohibit:

Offer, Payment, Promise to Pay, or Authorization of Payment of “anything of value” (directly or through a third party)

To a “foreign official”, foreign political party, or candidate for office, including employees of state-owned businesses

With a “corrupt intent”

To influence a government decision, obtain/retain business, or obtain an improper advantage


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Foreign Official U.S. Government liberally construes “foreign official”

Recent attempts to limit this approach have been unsuccessful

Examples of “foreign officials”:

Doctors at foreign government-owned hospitals

Employees of foreign government-owned liquor stores

Employees of a natural gas joint venture majority owned by multinational oil companies and 49% owned by the Nigerian National Petroleum Co.

Employees of a Malaysian telecom company in which the Malaysian Government held a 43% stake

Third Party Knowledge

It is unlawful to make a payment to a third party while knowing all or a portion of that payment will go directly or indirectly to a foreign official

Knowledge under FCPA can be established if you are aware of a high probability of the existence of a fact and you consciously avoid confirming it History of Corruption Do not follow up on red flags

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FCPA “Red Flags”

Country has a history of corruption Agent recommended by a foreign official or has close family or

business ties to a foreign official Agent requests unusually large commission or cash payment Request that payments be made to third party or to country

other than where the agent resides or is providing services Agent refuses to provide anti-bribery certification Mischaracterization of work performed on invoices or proofs of

services Request to be the only one to interact with foreign officials Large Discounts Contract addenda, retro-active documents

FCPA Exceptions/Affirmative Defenses

“Facilitating Payments” “purpose of which is to expedite or secure the performance of a

routine government action”

Non-discretionary actions

Examples:

Obtaining copies of or speeding the processing of permits, licenses, official documents

Expediting the processing of governmental papers (e.g., visas)

Delivering mail

Providing utilities (phones, power, water)

Not permitted under UK Bribery Act, other international conventions, and some local laws

As many as 80% of US companies have banned them

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FCPA Exceptions/Affirmative Defenses

Payment lawful under written laws and regulations of the foreign official’s country Not enough that: Customary

Not prosecuted

Law is silent

“Promotional expenses” Reasonable and bona fide Promotion, demonstration, explanation of products/services Directly related to execution or performance of a contract No safe harbor if there is a quid pro quo

FCPA Books and Records Provisions

Apply to “issuers”:

Registered securities, including ADRs

Otherwise required to file reports with the SEC

Require issuers to:

make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer

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FCPA Internal Controls Provisions

Apply to “issuers”

Require issuers to: Devise and maintain a system of internal accounting

controls sufficient to provide reasonable assurances that

(i) transactions are executed in accordance with management's general or specific authorization;

(ii)transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets

FCPA Enforcement

Criminal: U.S. Department of Justice (DOJ)

Criminal Division, Fraud Section based in Washington, DC

Some civil jurisdiction

Civil: Securities and Exchange Commission (SEC)

FCPA Unit based in Washington, DC Works with regional offices

Limited jurisdiction

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Largest FCPA Corporate Dispositions

DOJ SEC/Other TOTAL YearSiemens AG $450M $350M/€395M $1.37B 2008

TSKJ JV $1.15B $400M $1.55B 2009-12-- KBR $402M $177M-- Snamprogetti/ENI $240M $125M-- Technip $240M $98M-- JGC Corp. $218.8M-- Marubeni $54.6M

BAE plc $400M £30M $400M 2010

Total S.A. $245.2M $153M $398.2M 2013

Panalpina $156.5M $80M $236.5M 2010-- Panalpina $70.5M $11.3M-- Pride International $32.6 $23.5M-- Royal Dutch Shell $30 $18.1M

Daimler AG $93.6M $91.4M $185M 2010Alcatel-Lucent $92M $45.4M $137.4M 2010

DOJ/SEC FCPA Resource Guide

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FCPA Resource Guide

Compilation of DOJ/SEC thinking on the FCPA

Contains both settled law and government’s litigation positions

Provides valuable insight into government’s approach and evaluation criteria

Includes hypotheticals

FCPA Resource Guide Provides guidance on:

Hallmarks of an effective FCPA compliance program Third-party due diligence

Mergers & Acquisitions: Pre-acquisition FCPA due diligence

Post-acquisition compliance integration

Corporate successor liability

Expansive Enforcement Theories

Government’s charging decisions, including weight given to voluntary disclosure

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Effective Compliance Program

1. Commitment from Senior Management and a Clearly Articulated Policy Against Corruption

2. Code of Conduct and Compliance Policies and Procedures

3. Oversight, Autonomy, and Resources

4. Risk Assessment

5. Training and Continuing Advice


6. Incentives and Disciplinary Measures

7. Third-Party Due Diligence and Payments

8. Confidential Reporting and Internal Investigation

9. Continuous Improvement: Periodic Testing and Review

10. Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition integration

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Key Take Aways:

One size does not fit all

Compliance program must be risk-based

Must be effectively disseminated

Must be continually evolving

Mergers & Acquisitions

Pre-acquisition FCPA due diligence

Post-acquisition compliance integration

Corporate successor liability

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Expansive Enforcement Theories

Jurisdiction

Parent-Subsidiary Liability

Use of Complementary Laws

Government Charging Decisions

Guided by the Principles of Federal Prosecution of Business Organizations

DOJ asserts that in 2011-2012, it declined several dozen cases against companies

All of the examples cited in Resource Guide involved:

Voluntary disclosure

Immediate remediation

Improvements to Compliance Program

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Enforcement Trends and Priorities


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International cooperation is at an all time high

Foreign countries are not only responding to U.S. requests, but commencing their own investigations

“Today we announce the first coordinated action by French and U.S. law enforcement in a major foreign bribery case. Our two countries are working more closely today than ever before to combat corporate corruption.” – May 29, 2013


Since January 2012, DOJ has publicly recognized the contributions of at least 9 countries in resolved FCPA prosecutions

United Kingdom

France

Italy

Switzerland

Greece

Costa Rica

Mexico

Panama

Indonesia

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It is no longer just the usual suspects

Pressure from international organizations continues to mount

Mexico, Canada and others responding

This month, Brazil passed anti-corruption law

As international enforcement and cooperation increase, the costs of violations also increase


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“Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategybecause, as long as it remains a tactic, paying large monetary penalties cannot be viewed by the business community as merely ‘the cost of doing business.’”

Attorney General Eric Holder,OECD Address 2010


“Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”

Former Assistant Attorney General Lanny Breuer,ABA Address 2010

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Reports of the demise of individual prosecutions were premature

5 Individual cases filed in 2013

Alstom (2013)

2 guilty pleas

2 pending individual indictments

Frederic Cilins (2013)

Obstruction of FCPA investigation


CCI (2009-2013) 3 individuals sentenced to prison terms 4 additional individuals received home confinement

Morgan Stanley/Peterson (2012) Haiti Teleco (2011)

Numerous individuals sent to prison Longest individual FCPA sentence: 15 years

Lindsey (2010-2011) 3 Individuals convicted at trial

Siemens, Noble, Magyar Telekom Employees charged after corporate resolution

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Quick, meaningful response to allegation of misconduct can pay huge dividends

Credible investigations are a critical part of this response

They demonstrate robustness of compliance program

Allow company to make informed decisions

Frame interaction with government

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Common Sense

Communicate with stakeholders

Don’t over promise

Deliver what you say you will

Know when you have an advocacy opportunity and when you have to take your medicine

Not one size fits all


Triage Who is alleged to be involved? Low-level employees

Senior executives/directors

Is misconduct ongoing?

How specific is allegation?

Who should conduct? In-house counsel

Outside counsel

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Develop Facts Documents Preserve

Collect

Review

Interviews Background

Specifics

Immediate Action Employees Other transactions/jurisdictions


Report Written or Oral Audience

Interaction with Government Self-Disclosure Scope of Report

Remedial Actions Employees Compliance Program