Reggy p gulatory Compliance Challenges for International ......• Many sanctions programs are list-based – OFAC maintains list of “Specially Designated Nationals and Blocked Persons”
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Regulatory Compliance Challenges for g y p gInternational Businesses
Presented by:
Barbara D. Linney, Blank Rome LLP
Shawn M. Wright, Blank Rome LLP
Edward J. Hoffman Agility DGS Holdings IncEdward J. Hoffman, Agility DGS Holdings, Inc.
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7th Annual Emerging Issues for In-House Counsel 11/2011
• An export is…– a privilege, not a right– sending or taking anything out of the United States
d li f d f ti l t f i t i th U it d St t– delivery of a defense article to a foreign government in the United States– releasing controlled technology or technical data to foreign persons
• even in the United States - sometimes referred to as a “deemed export”p– providing technical assistance or defense services to foreign persons in the
United States or abroadT t i d i i t d b t t i• Two separate regimes administered by two separate agencies:
– BIS administers Export Administration Regulations (“EAR”)– DDTC administers International Traffic in Arms Regulations (“ITAR”)
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DDTC administers International Traffic in Arms Regulations ( ITAR )
7th Annual Emerging Issues for In-House Counsel 11/2011
Regulation of Commercial Exportsg p• A BIS export license may be required for commercial or “dual use” items controlled
under the EAR for national security foreign policy (including anti-terrorism) under the EAR for national security, foreign policy (including anti terrorism), nonproliferation, short supply or other reasons
• Items and technology “subject to the EAR” include all items in the United States, all items of U.S. origin wherever located, and items containing more than de minimis levels
f U S i i t d d ith U S i i l t i t t h lof U.S. origin components or produced with U.S. origin plant, equipment or technology• Commerce Control List (“CCL”) includes ten (10) categories of controlled items
(including technology) listed by export classification number (“ECCN”) and reason for control control
• The Country Chart at Supplement No. 1 to Part 738 of the EAR shows controls to which exports to various countries may be subject based upon reasons for control
• Many items do not require a license for export to most countries but controls exist and Many items do not require a license for export to most countries but controls exist and due diligence should be exercised prior to all export
– certain prohibitions apply even if no export license is required based upon the nature of the item and the destination
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7th Annual Emerging Issues for In-House Counsel 11/2011
• Licenses are required for export of most defense articles, services and technical data listed on the ITAR’s U S Munitions List (“USML”) (21 technical data listed on the ITAR s U.S. Munitions List ( USML ) (21 categories of controlled items)
– many categories are not “arms” per se (e.g., military electronics and communications t t ti tsystems, protective gear, etc.
• Specifically designed or modified components remain controlled as export reform is proceeding slowlyreform is proceeding slowly
• Registration requirements apply to manufacturers of defense articles even if they do not export
• ITAR registration and licensing requirements also apply to brokering
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7th Annual Emerging Issues for In-House Counsel 11/2011
Economic Sanctions• OFAC administers numerous U.S. trade embargoes and economic
sanctionssanctions– activities of “U.S. Persons” (U.S. citizens, residents and businesses and
persons in the United States) are restrictedCuba embargo also applies to controlled subsidiaries of U S businesses– Cuba embargo also applies to controlled subsidiaries of U.S. businesses
• Many sanctions programs are list-based– OFAC maintains list of “Specially Designated Nationals and Blocked
Persons” (SDN List)Persons” (SDN List)– entities owned or controlled by SDNs are also off limits
• Countries subject to additional sanctions include Burma, Cuba, Iran, S d d S iSudan and Syria
– each program is different• Some sanctions programs (e.g., Iran Sanctions Act) are
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p g ( g , )administered by U.S. Department of State
7th Annual Emerging Issues for In-House Counsel 11/2011
FCPA Anti-Bribery Provisiony• FCPA fulfills U.S. obligations under OECD Convention on Combatting Bribery of
Foreign Public Officials in International Business TransactionsForeign Public Officials in International Business Transactions• Prohibits the paying or offering to pay “anything of value” whether directly or
indirectly:– to a foreign official (including employees of state owned enterprises and international g ( g p y p
organizations), political party, or candidate for foreign political office, or to any person while “knowing” that all or part of the thing of value will be paid or offered to a foreign official, political party, or candidate;
– “corruptly” for the purpose of influencing the official in some official act or decision;co up y o e pu pose o ue c g e o c a so e o c a ac o dec s o ;– in order to obtain or retain business or to secure any improper advantage
• In certain cases use of U.S mails or other means or instrumentalities of interstate commerce must be proven (e.g., telephone calls, facsimile, wire t f i t t t i t ti l t l)transfers, or interstate or international travel)
• Two affirmative defenses:– lawful under written laws of the foreign country
demonstrating a product or performing a contractual obligation
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– demonstrating a product or performing a contractual obligation
7th Annual Emerging Issues for In-House Counsel 11/2011
Who Is Subject To The FCPA Anti-Bribery P i i ?Provision?• U.S. businesses (“domestic concerns”)• “Issuers” – i.e., companies (including foreign companies) who
have issued securities in the United States or file reports with the SECthe SEC
– issuers are also subject to the FCPA’s books and records and accounting controls requirements (administered by the SEC)
• Any officer, director, employee, agent, shareholder of a domestic concern or issuer or anyone acting on their behalf
S• Foreign companies within the United States• Foreign subsidiaries of domestic concerns and their U.S.
citizen/resident employees
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citizen/resident employees
7th Annual Emerging Issues for In-House Counsel 11/2011
• The FCPA permits small facilitating payments to a foreign p g p y gofficial in order “to expedite or secure the performance of a routine governmental action by a government official” (i.e.,
di ti t )non-discretionary acts)• This exception is very narrow:
– the payment may only be given to encourage an action to which the company is legally entitled (not an illegal or improper action)
– the payment must be properly recorded to reflect the amount the payment must be properly recorded to reflect the amount, purpose and recipient of the payment
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7th Annual Emerging Issues for In-House Counsel 11/2011
• Obtaining permits, licenses, or other official documents to g pqualify a person to do business in a foreign country
• Processing governmental papers, such as visas and work orders
• Providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across countryP idi h i d l l di d • Providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration
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commodities from deterioration• Actions of a similar nature
7th Annual Emerging Issues for In-House Counsel 11/2011
Government Contracts• Global footprint of U.S. Government operations means that government contractors are
increasingly involved in international business (“OCONUS”)increasingly involved in international business ( OCONUS )• Federal government contractors must comply with applicable provisions of the Federal
Acquisition Regulation (“FAR”) and, for DOD contracts, Defense Federal Acquisition Regulation Supplement (“DFARS”)
– FAR & DFARS generally apply irrespective of whether operations are CONUS or OCONUS & may require that clause to be flowed down to local suppliers
– absent a SOFA (Status of Forces Agreement), contractors must comply with local laws as well, which may be in conflict with the FAR/DFARSwhich may be in conflict with the FAR/DFARS
– foreign owned contractors not exempt– significant penalties for false certifications (e.g., False Claims Act; suspension or debarment from
eligibility for government contracts; fines and penalties; qui tam suits, etc. )• Contractors requiring access to classified information must comply with the NISPOM
(“National Industrial Security Program Operating Manual”)– compliance is overseen by DSS
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– additional requirements apply when contractor is subject to FOCI (foreign ownership, control or influence)
7th Annual Emerging Issues for In-House Counsel 11/2011
• President authorized to block an acquisition upon determination that the transaction presents a threat to the U.S. national security that cannot be addressed by other measures
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national security that cannot be addressed by other measures
7th Annual Emerging Issues for In-House Counsel 11/2011
– security/facility clearances– export-controlled information– U.S. government contracts– foreign government purchaser– critical infrastructure (e.g., cyber systems, products or services; ( g , y y , p ;
telecommunications and/or internet products or services; natural resources)– opportunity for surveillance/sabotage– acquirer’s prior dealings with governments/entities unfriendly to the United
St tStates– post-acquisition plans for the acquired business
• Mitigation measures may be required
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g y
7th Annual Emerging Issues for In-House Counsel 11/2011
• “Deemed export” issue may trigger need for export license to p y gg pallow foreign persons to participate in due diligence
• Due diligence phase must encompass review of target’s compliance with export controls, economic sanctions, FCPA, government contracts & defense security regulations
– successor liability for export control violations (even in asset sales)– no successor liability for criminal conduct but significant risk of
conduct continuing post-closingconduct continuing post closing• Compliance with applicable notification requirements should be
condition to closing
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condition to closing
7th Annual Emerging Issues for In-House Counsel 11/2011
• Pre-closing– CFIUS notification is “voluntary” but critical if the target business
involves classified or export controlled technology or manufacturing or is otherwise critical to national securityy
– DSS requires notice of negotiations for sales to a foreign or foreign-owned entity or other indications of FOCI60 day advance notice to DDTC of intended sale of registered – 60-day advance notice to DDTC of intended sale of registered exporter/manufacturer to a foreign person
– 30-day advance notice to BATFE of any change in ownership or control
• new registrations, licenses and/or permits may be required depending upon structure of transaction
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p g p
7th Annual Emerging Issues for In-House Counsel 11/2011
• Sanctions against Syria prohibit U.S. persons from– engaging in transactions with Government of Syria and various
“Specially Designated Nationals and Blocked Persons” (“SDNs”) (unless licensed by OFAC)( y )
– exporting to Syria (except for “EAR99” food and medicine and certain licensed exports of items such as medical devices)importing Syrian origin petroleum or petroleum products– importing Syrian-origin petroleum or petroleum products
– provide services to Syria• Several exemptions and general licenses may apply, such asSeveral exemptions and general licenses may apply, such as
– performance of U.N. contracts– contracts with Syrian diplomatic missions to the United States and
th U it d N ti
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the United Nations
7th Annual Emerging Issues for In-House Counsel 11/2011