International Trade

Companies that conduct business in the United Kingdom should review their existing anticorruption programs in light of the U.K. Bribery Act.

On March 7 and 8, 2013, President Obama took two important steps to further U.S. export control reform. First, the President notified Congress of the proposed transfer of certain items relating to aircraft and gas turbine engines from the jurisdiction of the State Department’s International Traffic in Arms Regulations (ITAR), which govern the export of military products and technology, to the Commerce Department’s Export Administration Regulations (EAR), which governs the export of commercial products and technology. The President also issued an Executive Order reallocating regulatory authorities under the Arms Export Control Act (AECA) to facilitate the shifts in jurisdiction.

This also appeared in Competition Law360, International Trade Law360, Private Equity Law360, Securities Law360 and White Collar Law360 on March 1, 2013.

Until a few years ago, private equity firms enjoyed relative insulation from regulatory scrutiny of overseas acquisitions and the operations of multi-national portfolio companies. No longer is that the case. Spurred by the unfounded belief that PE firms are not invested in compliance or the conduct of their portfolio companies, the DOJ and SEC are now training their attention on how PE firms exert oversight and control over their portfolios, with a particular emphasis on FCPA issues. PE firms should prepare for this new scrutiny by taking proactive measures to demonstrate both their awareness and their commitment to earning profits on a level playing field. Most importantly, PE firms must recognize that these efforts are not about appeasing regulators, but go directly to maximizing return on investment.

Financial businesses operating in the European Union will need to consider implementing stricter anti-money-laundering and anti-terrorism-financing controls or face a potential fine of up to 10 percent of their annual revenue, if the proposed rules issued on 5 February by the European Commission are adopted.

Although 2012 did not bring a major prosecution, it was not without note-worthy events. The UK Serious Fraud Office (SFO), on top of the withdrawal of previous Bribery Act guidance and the publication of new guidelines in October, has put out new supplemental guidance on self-reporting financial crimes. These new guidelines require companies that self-report to the SFO to submit full details of their internal investigations into any wrongdoing, as well as supporting evidence such as emails, documents, banking or financial evidence, and witness statements. These requirements may appear onerous, but they underscore the significance that the SFO attaches to self-reporting and the detailed focus they expect businesses to display in dealing with compliance and wrongdoing.

This also appeared in Intellectual Property Law360, International Trade Law360 and Public Policy Law360 on November 14, 2012.

With the relaxation of sanctions regimes around the world in 2012, Myanmar (also known as Burma) offers opportunities for both small businesses and the largest and most recognized companies around the world. Large or small, companies are finding that Myanmar’s intellectual property (IP) laws generally do not recognize their trademarks and other property. It is necessary to take steps locally to establish and protect IP rights. Implementation of a strategy for protective measures should be at the top of the list of actions for companies considering entry into this opening market.

On October 9, 2012 President Obama issued an Executive Order (“E.O.”) implementing several provisions of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“Iran Threat Reduction Act”). Most significantly, the E.O. applies to foreign subsidiaries of U.S. persons for the first time most of the sanctions rules that apply to U.S. persons or persons in the United States. Further, the E.O. makes the U.S. parent subject to penalties for violations of the subsidiary. However, such penalties will not apply where the U.S. parent divests or terminates business with the subsidiary by February 6, 2013. It will be important for U.S. companies with non-U.S. subsidiaries to assess whether these affiliates are engaging in prohibited activities vis-à-vis Iran and determine whether U.S. parent needs to take action prior to the divestment date.

As noted in our Alert on Oct. 1, 2012 and presaged by the withdrawal of previous guidance, new rules published Oct. 9 by the UK Serious Fraud Office (SFO) have opted for stricter language. The SFO now says that it will prosecute under the Bribery Act based primarily on the statute itself rather than on previous, more lenient and somewhat subjective guidance principles issued after the new law was introduced in July 2011. The newly announced policy had been predicted by many observers based on promises to tighten up enforcement made by the current director, David Green QC, on his appointment this past May. The new rules cover the SFO’s approach to corporate hospitality, facilitation payments and self-reporting. 

The U.S. Treasury Department is preparing a Proposed Rule to clarify, and potentially expand, requirements for financial institutions to conduct customer due diligence and assess beneficial ownership. FinCEN (Financial Crimes Enforcement Network) has announced a Roundtable Discussion on October 5, 2012 in New York. Requests to attend must be made no later than September 28 with space limited. FinCEN published its Advance Notice of Proposed Rulemaking on March 5, 2012 and closed comments on June 11, 2012. For Financial Institutions seeking input on this important rulemaking, the October 5th Roundtable offers a strategic opportunity to influence the Proposed Rule.

The 2012 Summer Olympic and Paralympic Games in London offer a unique opportunity for companies to promote their businesses through entertainment of customers or clients at the various game venues. Has the UK Bribery Act 2010 put a damper on these time-honored business practices and the manner and methods by which business organisations seek to obtain and retain business?

Directorship of the UK Serious Fraud Office ("SFO") passed this month to David Green QC. Mr. Green joins the SFO from private practice, where he was a barrister specializing in serious crime. He also previously served as the first director of the UK's Revenue and Customs Prosecutions Office. Mr. Green has taken office promising, in remarks to the Financial Times, to "rebalance the relationship between prosecution and civil settlement" and focus on "strategically significant cases". This would suggest a departure in approach from that of Richard Alderman, Mr. Green’s predecessor.

The U.S. government would like companies to offer useful technologies and services that enable free communication in Syria and Iran but will also target those who are involved in the direct or indirect provision of goods, services, or technology “likely to be used to facilitate computer or network disruption, monitoring, or tracking that could assist in or enable serious human rights abuses.” This challenging balance is the goal of the “GHRAVITY” sanctions introduced by Executive Order effective April 23, 2012. Technology and telecom companies are faced with a number of compliance questions.

Much has been written about the Bribery Act’s new strict liability corporate offence of failure to prevent bribery and the advisability of having in place a comprehensive anti-bribery policy adopted and enforced by senior company management as the only recognized defence available against the spectre of criminal prosecution and potentially unlimited fines. However, it is not just the criminal prosecutors at the Serious Fraud Office (SFO) but the regulators of the financial services industry in the UK at the Financial Services Authority (FSA) who will be reviewing the adoption and implementation of adequate internal management procedures to combat corporate corruption.

Much has been written about the Bribery Act’s new strict liability corporate offence of failure to prevent bribery and the advisability of having in place a comprehensive anti-bribery policy adopted and enforced by senior company management as the only recognized defence available against the spectre of criminal prosecution and potentially unlimited fines. However, it is not just the criminal prosecutors at the Serious Fraud Office (SFO) but the regulators of the financial services industry in the UK at the Financial Services Authority (FSA) who will be reviewing the adoption and implementation of adequate internal management procedures to combat corporate corruption.

Senior officials in the Department of Justice’s Foreign Corrupt Practices Act Unit have long touted the position that individuals who engage in criminal conduct on behalf of corporate entities will be targeted alongside the entities themselves. Two major cases confirm that the enforcement effort against individuals is increasing. A recent significant Second Circuit decision and the indictment of eight individuals related to the Siemens corruption probe—all of whom were citizens of foreign countries—establish new standards for guilty knowledge and the jurisdictional reach of the FCPA respectively.

Without a huge expansion of nuclear energy production, it is clear to India’s business and political leaders that the economic miracle of 9 percent growth cannot be sustained. The real question for India is whether it will be able to select from among the widest choice of global industry suppliers in building its nuclear facilities.

On April 8, Johnson & Johnson (J&J) entered into a Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice (DOJ) to resolve issues arising from improper payments made by wholly owned subsidiaries to various government officials in Greece, Poland and Romania. Settlements were also entered into with the U.S. Securities and Exchange Commission (SEC), the UK Serious Fraud Office (SFO) and the Government of Greece. The agreements evidence a high level of international cooperation and coordination among the governments and investigative and prosecutorial agencies, and include separate but significant penalties.

The impact of the new Bribery Act 2011 (the “Act”) will extend far beyond UK shores. In his capacity as Chair of the British American Business Law Forum, London-based Pillsbury partner Rafi Azim-Khan recently chaired a briefing with the Director of the UK Serious Fraud Office (“SFO”), Richard Alderman, who provided valuable insight into the enforcer’s priorities. Along with the Ministry of Justice's guidance on the Act released today, we look briefly at the key points that companies should note and take action on before July 1, 2011.

The twice-delayed implementation of the Bribery Act 2010 to allow further development of guidance by the Ministry of Justice, and additional time for companies to develop adequate anti-corruption policies and procedures, appears close to resolution with the issuance of what some have called "weakened" enforcement procedures. Regardless of whether any tinkering might provide relief to some, it appears clear the new statutory regime will have real teeth should the prosecutors choose to grind them.

The new UK Bribery Act 2010 and its corporate offence provisions extend the potential prosecutorial reach far beyond the country’s borders. The Act has serious potential implications for non-UK companies. Its provisions apply to companies who simply have a UK business presence and to acts undertaken by persons of any nationality, anywhere in the world. In light of the strict liability nature of the offence and limited defence available, counsel should be taken and careful consideration given to developing responsive policies and procedures.

The International Traffic in Arms Regulations (ITAR) control the export and retransfer of defense hardware, defense-related technology, and satellites. As part of the Obama Administration’s ongoing export control reform initiative, on August 11, 2010 the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) proposed significant changes to how foreign entities may control access to U.S.-origin defense articles and technology covered by the ITAR. The proposal could ease certain regulatory burdens, but may require additional employee screening by foreign companies.

The Obama administration has taken the first step in export control reform by easing the pathway for U.S. companies to export certain encryption items. In this article, Sanjay Jose Mullick, a Washington-based member of Pillsbury's International Trade Practice, explains what the new encryption rules mean for U.S. exporters.

The U.S. Department of Justice and the New York District Attorney’s Office, together with the Office of Foreign Assets Control and federal and state bank regulators, have brought a number of cases in 2009 – 2010 against foreign financial institutions that clear dollar transactions through the United States involving prohibited entities and individuals under U.S. sanctions regulations. In the past, banks not subject to U.S. jurisdiction have generally avoided penalties under these regulations. The U.S. Government, however, has widened its enforcement to target financial institutions outside the U.S. for allegedly “causing” U.S. persons to violate U.S. sanctions regulations.

Considerable publicity has surrounded the recent enactment by Parliament of the Bribery Act 2010 (Bribery Act), with many commentaries about the fundamental change in conduct this legislation will require. In fact, bribery was and is a crime at common law and statutorily in the UK’s Prevention of Corruption Acts 1889 – 1916. However, the law in this area was seen as fragmented, certainly very old, and not entirely in compliance with the Organization for Economic Co-Operation and Development (OECD) Anti-Bribery Convention. The new Bribery Act provides a single, modern statute to tackle bribery in the UK and abroad, in both the public and private sectors. It is aimed at issues companies face in the current economic environment, offering greater certainty and consistency regarding the do’s and don’ts. It also signals a greater focus by the UK Government on newly aggressive anti-corruption enforcement.

In a new white paper published by the United States Industry Coalition (USIC), an association of high tech businesses and research institutions, Pillsbury attorneys Elina Teplinsky and Sanjay Mullick detail U.S. export control programs and economic sanctions administered by multiple federal agencies, and their growing influence over key industries in a globalized world, including nuclear energy, and information technology. They describe the purpose and scope of applicable regulations, their enforcement, and offer best practices for establishing effective and ongoing compliance programs. 

Nancy Fischer, partner in Pillsbury's International Trade practice, authored this article, which originally appeared in International Trade Law360, March 16, 2010.

Cases That Made a Difference: This 32-page color brochure highlights some of the significant matters handled by Pillsbury litigators in 2009, including cases on behalf of the City of New York, Guantanamo detainees, and across a wide range of industries and clients.

Christopher R. Wall, partner in Pillsbury's International Trade practice, authored this opinion piece which originally appeared in North American Free Trade & Investment Report, January 15, 2010.

The U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) recently proposed significant changes to the export licensing exemptions and brokering rules under the U.S. International Traffic in Arms Regulations (ITAR). The proposals would modify licensing exemptions for hand-carried data, Foreign Military Sales (FMS) shipments, and exports in support of government activities. They would also impose additional compliance requirements on the brokering of defense articles. Public comments on the FMS and hand-carried data proposals are due by January 25, 2010.

On January 6, 2010, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) published a redacted advisory opinion dated September 14, 2009 that clarifies the application of the Export Administration Regulations (EAR) to foreign-made products incorporating other foreign-made products with U.S.-origin content. The written guidance in some circumstances will simplify the application of the EAR de minimis exemption to foreign-made products.

International trade counsel Sanjay Mullick, litigation counsel Ronan McHugh and litigation consultant attorney Irene Dallas co-authored this article, which originally appeared in the "Russia/Eurasia Executive Guide" issue of the World Trade Executive.

On November 2, 2009, the Indian Ministry of Defence (MOD) published an amendment to its Defence Procurement Procedure (DPP) with an aim to increase the effectiveness of technology transfer requirements in fostering an indigenous defense industrial base in India. This new requirement sharpens the need for proactive offset and export control planning for U.S. firms interested in supplying goods or services to the MOD during its current expansion. It also encourages formation of joint ventures with foreign partners in order to achieve licensed production or indigenous production in India.

On September 8, 2009, the Office of Foreign Assets Control ("OFAC") of the Department Treasury and the Bureau of Industry and Security ("BIS") of the Department of Commerce issued final rules in the Federal Register amending the Cuba Sanctions program and the Export Administration Regulations ("EAR") to increase the range of telecommunications services that can be provided between the United States and Cuba and exports and re-exports of items to implement those services, as well as authorizing related payments and travel. These are included in a larger set of rule changes implementing the President's April 13, 2009, directive to promote contact between family members and the flow of information between the two countries.

The Department of Defense ("DoD") has published a final rule implementing recent statutory changes in its acquisition of specialty metals. 74 FR 37626, July 29, 2009. The final rule, effective July 29, 2009, implements provisions of both the National Defense Authorization Act for Fiscal Year 2007 (P.L. 109-364) and the National Defense Authorization Act for Fiscal Year 2008 (P.L. 110-181). This final rule made only minor changes to the proposed rule issued last year. 73 FR 42300, July 21, 2008. The rulemaking is significant because it creates a settled scheme designed to protect critical defense industries but also recognizes numerous necessary exceptions to the general requirement that DoD purchase only specialty metal melted or produced in the United States.

Section 1605 of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) (“Recovery Act”) provides that funds made available under the Act may not be used on projects for construction, alteration, maintenance, or repair of a “public building or public work,” unless all of the “iron, steel or other manufactured goods” used in the project are produced in the United States, subject to certain exceptions. As a practical matter, the Recovery Act mandates that U.S. origin products be given a 25% price preference over foreign products.

New legislation before the House Committee on Foreign Affairs includes a section that would return to the President the authority to determine the appropriate export control jurisdiction for satellites, which could prompt a move to the Commerce Control List of some or all commercial satellites and their related components.

On May 13, 2009, professor emeritus J. Reece Roth of the University of Tennessee is scheduled to be sentenced for violations of the Arms Export Control Act (AECA) , the International Traffic in Arms Regulations (ITAR) , and other violations due to a conviction on all 18 counts of an indictment arising from deemed and actual exports to China.  Professor Roth faces a maximum penalty of 180 years in prison and fines of up to $16 million; however, the prosecution has recommended a sentence of 78 to 97 months’ imprisonment.  Professor Roth was convicted of providing controlled technical data regarding plasma technology for use in drone aircraft to a Chinese national graduate student and traveling to China with a laptop containing controlled technical data.  The University escaped indictment in this matter because Professor Roth’s illegal activities were conducted as part of his work with a private company licensed by the University to use University-patented technology, and not directly for the University, and because the University had in place export control policies and procedures.  The conviction, however, raises significant questions for university awareness of export controls, the outside activities of university staff, and the 600,000 international students in the United States.

Congressional interest in the application of military export controls to satellite technology is heating up in the 111th Congress.

The Department of Treasury recently published guidance on the considerations examined by the Committee on Foreign Investment in the United States (“CFIUS”) to determine whether national security risks are presented by particular types of transactions covered by the Foreign Investment and National Security Act of 2007 (“FINSA,” amending 50 U.S.C. App. 2170). The guidance provides important insight into the manner in which CFIUS is likely to apply the new regulations it issued on November 21, 2008.

The U.S. Customs and Border Protection (CBP) published its interim final rule for the Importer Security Filing (ISF) / "10 + 2" proposal in a November 25, 2008 Federal Register notice. The regulations fulfill a requirement of the 2006 SAFE Port Act that the Department of Homeland Security obtain advance information on cargo destined for importation into the U.S. The 10 + 2 rule builds upon previously implemented post-9/11 CBP security initiatives such as the 24-Hour Rule, Container Security Initiative (CSI), and the Customs-Trade Partnership Against Terrorism (C-TPAT).

The Committee on Foreign Investment (“CFIUS”), which is chaired by the Treasury Department, reviews acquisitions by foreign companies of U.S. companies to evaluate whether they could negatively affect U.S. national security. On November 15, 2008 the Treasury Department released an advance copy of the final version of new regulations that will govern CFIUS reviews of proposed transactions.

The Department of CommerceTwo updates were published as interim final rules and became effective immediately. The first interim rule revised provisions of the EAR pertaining to U.S.-origin parts, components, software and technology incorporated into foreign-made items, i.e., the EAR's "de minimis" rules. The second interim rule amended the EAR's  treatment of encryption items to make it more consistent with the treatment of other items, as well as simplifying and clarifying regulations on encryption items. The third significant regulatory update is a proposed rule to establish a new license exception for "Intra-Company Transfer (ICT)."

In response to a request by Halliburton, the U.S. Department of Justice agreed to forgo enforcement action against the company for any Foreign Corrupt Practices Act violation by a potential acquisition target in exchange for implementation of a rigorous system of compliance and due diligence pre- and post-acquisition. The novel agreement may be a welcome option to companies seeking to acquire targets conducting business in areas that are at a high risk for FCPA violations.

Robert A. James, co-leader of Pillsbury Winthrop Shaw Pittman's Global Energy industry team, and Christopher R. Wall, Pillsbury's senior international trade partner, co-wrote this article which originally appeared in the January 28, 2008 issue of Executive Legal Advisor.

On January 4, 2007, the International Trade Commission published on its website a comprehensive revision to the U.S. Harmonized Tariff Schedules (HTS) to implement changes agreed upon last year by the multilateral World Customs Organization. Although the version published on the website is marked a “draft,” the revision is noteworthy because it will require many companies to change the tariff classification numbers used to import their products. Without the correct tariff classification numbers, processing of import shipments may be delayed, and correcting import entries that have already been made with incorrect classifications can be a cumbersome and expensive process.

“A Section 337 investigation is not mere litigation among private parties.” [2]

Effective today, the US Government has lifted restrictions on transactions relating to travel to, from, and within Libya. Specifically, the US Department of the Treasury, Office of Foreign Assets Control (OFAC) has issued a general license to be published at 31 CFR § 574 authorizing US persons to engage in travel-related transactions involving Libya. Separately, the US Department of State has lifted the restriction on the use of US passports for travel to Libya.