clearing regulatory hurdles selling abroad.032610

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Clearing Regulatory Hurdles Clearing Regulatory Hurdles When Selling Abroad:When Selling Abroad:

Export Controls, Anti-Bribery Laws, Export Controls, Anti-Bribery Laws, and Other Regulatory Issuesand Other Regulatory Issues

Global Gateway SeriesGlobal Gateway Series

Beachwood, OhioBeachwood, OhioMarch 26, 20109March 26, 20109

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DisclaimerDisclaimer

The information provided is believed to be The information provided is believed to be accurate as of the date of the accurate as of the date of the presentation, but is subject to change presentation, but is subject to change without notice.without notice.

This presentation is designed for This presentation is designed for informational purposes only and is not informational purposes only and is not intended to be, nor should it be deemed, intended to be, nor should it be deemed, specific legal advice. If such advice is specific legal advice. If such advice is required, please consult with qualified required, please consult with qualified legal counsel.legal counsel.


ObjectivesObjectives

► Introduce/review U.S. export controls Introduce/review U.S. export controls basics for Ohio exporting companies, non-basics for Ohio exporting companies, non-profit entities, entrepreneurs, others profit entities, entrepreneurs, others exporting U.S.-origin commodities, exporting U.S.-origin commodities, software or technologysoftware or technology

► Encourage planning, compliance, and Encourage planning, compliance, and preventative strategiespreventative strategies


Government Agencies Government Agencies

► U.S. Bureau of Industry and Security (BIS)U.S. Bureau of Industry and Security (BIS)► U.S. Census BureauU.S. Census Bureau► U.S. Customs and Border Protection (CBP)U.S. Customs and Border Protection (CBP)► Office of Foreign Assets Control (OFAC)Office of Foreign Assets Control (OFAC)► U.S. Immigration and Customs Enforcement (ICE)U.S. Immigration and Customs Enforcement (ICE)► Directorate of Defense Trade Controls (DDTC)Directorate of Defense Trade Controls (DDTC)► Department of Justice (DOJ)Department of Justice (DOJ)► Securities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)


Export ComplianceExport Compliance

►Part of Overall Compliance ProgramPart of Overall Compliance Program

►Upper Management “Buy-in”Upper Management “Buy-in”

►Risk Management ToolRisk Management Tool

►Cost SavingsCost Savings


Export Compliance (cont’d)Export Compliance (cont’d)

Basic Questions:Basic Questions:

WhatWhat is to be exported? is to be exported?

WhereWhere is the destination? is the destination?

WhoWho is the end-user? is the end-user?

WhatWhat is the end-use? is the end-use?


U.S. Department of CommerceU.S. Department of Commerce

Bureau of Industry and SecurityBureau of Industry and Security


Commercial Export ControlsCommercial Export ControlsBIS implements and enforces BIS implements and enforces

Export Administration Regulations (EAR) – Export Administration Regulations (EAR) –

15 CFR §§§730- 774

Govern export and Govern export and re-exportre-export of commercial goods, services, and technologies of commercial goods, services, and technologies

““Dual-use” items – commercial and military purposeDual-use” items – commercial and military purpose


Commercial Export Controls (cont’d)Commercial Export Controls (cont’d)

Some General Prohibitions – 15 CFR §736 Some General Prohibitions – 15 CFR §736

Export and re-export of controlled U.S.-origin Export and re-export of controlled U.S.-origin items to prohibited country without export items to prohibited country without export license or license exceptionlicense or license exception

Denial Order Denial Order

Prohibited End Users or End UsesProhibited End Users or End Uses

Embargoed countries – who does U.S. have trouble with? Embargoed countries – who does U.S. have trouble with? Humanitarian aid requires license Humanitarian aid requires license

Proceeding with transaction knowing it violates EAR, order, license or Proceeding with transaction knowing it violates EAR, order, license or license exception license exception


Export Administration Regulations Export Administration Regulations

Govern “dual use” items, software and technologiesGovern “dual use” items, software and technologies

What is an export?What is an export?

actual shipment or transmission of items subject to actual shipment or transmission of items subject to the EAR out the U.S.;the EAR out the U.S.;

release or disclosure, including verbal and visual release or disclosure, including verbal and visual inspection of technology, software or technical inspection of technology, software or technical informationinformation


Reasons for ControlReasons for Control

AT – Anti-terrorismAT – Anti-terrorismCB – Chemical and Biological WeaponsCB – Chemical and Biological WeaponsCC – Crime ControlCC – Crime ControlMT – Missile TechnologyMT – Missile TechnologyNS – National SecurityNS – National SecurityNP – Nuclear NonproliferationNP – Nuclear NonproliferationUN – United Nations EmbargoUN – United Nations Embargo


Commerce Control List

10 Categories

0 – Nuclear Materials, Facilities and Equipment and Misc.

1 – Materials, Chemical, “Microorganisms,” and Toxins2 – Materials Processing3 – Electronics4 – Computers5 – Telecommunications and Information Security6 – Lasers and Sensors7 – Navigation and Avionics8 – Marine 9 – Propulsion Systems, Space Vehicles and Related

Equipment


Commerce Control List (Cont’d)

5 Product Groups

A Systems, Equipment and Components

B Test, Inspection and Production Equipment

C MaterialD SoftwareE Technology


EAR (cont’d)EAR (cont’d)

Entity ListEntity List – proliferators – proliferators License required for exports and License required for exports and re-exportsre-exports

Last updated – February 19, 2010Last updated – February 19, 2010

Armenia, Canada, China, Egypt, Germany, HK, Armenia, Canada, China, Egypt, Germany, HK, India, Iran, Ireland, Israel, Kuwait, Lebanon, India, Iran, Ireland, Israel, Kuwait, Lebanon, Malaysia Pakistan, Russia, Singapore, S. Malaysia Pakistan, Russia, Singapore, S. Korea, Syria, Taiwan, UAE, and UK Korea, Syria, Taiwan, UAE, and UK

Supp. No. 4 to Part 744Supp. No. 4 to Part 744


Red FlagsRed Flags

13 Red Flag Indicators 13 Red Flag Indicators

Customer/address is similar to one on Denied Persons Customer/address is similar to one on Denied Persons ListList

Reluctance to give information about end-useReluctance to give information about end-use

Willingness to pay cash for expensive itemsWillingness to pay cash for expensive items

Shipping route is unusual for product and destinationShipping route is unusual for product and destination


U.S. Department of StateU.S. Department of State

Directorate of Defense Trade Directorate of Defense Trade ControlsControls


Defense Trade ControlsDefense Trade Controls

International Traffic in Arms Regulations International Traffic in Arms Regulations – (ITAR) – 22 CFR 120, et seq.– (ITAR) – 22 CFR 120, et seq.

Govern “defense articles” and “defenseGovern “defense articles” and “defense

services”services”


Key ITAR Terms (cont’d)Key ITAR Terms (cont’d)

Defense Service – 120.9

1. Providing assistance to foreign persons (in U.S. or abroad) in the:

design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles

2. Furnishing to foreign persons technical data controlled under the USML


Key ITAR Terms (cont’d)Key ITAR Terms (cont’d)

Technical data – 120.10Technical data – 120.10

1.1. Information required for design, development, production, Information required for design, development, production, manufacture, assembly, operation, repair, testing, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. maintenance or modification of defense articles.

Blueprints, drawings, photos/videos, plans, instructions Blueprints, drawings, photos/videos, plans, instructions or or documentationdocumentation

2. 2. Classified information relating to defense articles and defense Classified information relating to defense articles and defense servicesservices

Does NOT include scientific, math or engineering principles Does NOT include scientific, math or engineering principles taught in schools, information in the public domain, or basic taught in schools, information in the public domain, or basic marketingmarketing


ITAR Registration – Part 122ITAR Registration – Part 122

“Any person” engaging in the U.S. in:

manufacture or export of defense articles; or

furnishing defense services

9/25/08 – New Rule:9/25/08 – New Rule:

Annual renewalAnnual renewal

3 tier registration system3 tier registration system


Agreements Subject to Agreements Subject to DDTC ApprovalDDTC Approval

►Manufacturing License Agreement (MLA) Manufacturing License Agreement (MLA)

►Technical Assistance Agreement (TAA) Technical Assistance Agreement (TAA)

►Warehouse and Distribution Agreements Warehouse and Distribution Agreements

DDTC approval and required languageDDTC approval and required language


Other AgreementsOther Agreements

►Commercial agent – brokering reg (22 Commercial agent – brokering reg (22 CFR Part 129)CFR Part 129)

►NDA – joint research with universitiesNDA – joint research with universities

““Fundamental research” – 15 CFR Fundamental research” – 15 CFR 734.8734.8

Key: Public releaseKey: Public release


Other Export Compliance Concerns


Office of Foreign Assets Control (OFAC)

What does it do?

Administers and enforces sanction programs against foreign countries, terrorists, narco-traffickers, and WMD proliferators

Focuses on money – front companies, banks, drug traffickers


OFAC (cont’d)

Country Sanctions Programs - Cuba, Iran, N. Korea, Sudan, Syria

Also: Balkans, Belarus, Burma (Myanmar), Cote d’Ivorie, Democratic Republic of the Congo, Iraq, Zimbabwe

Destination of Diversion Concern: UAE


““Deemed Export” RuleDeemed Export” Rule

Technology subject to the EAR is “deemed” to be exported when it is released to a foreign national within the U.S.

“Technology” is specific information needed to develop, produce or use a controlled product

ITAR – “technical data”


“Deemed Export” Rule (cont’d)

When does release/transfer/disclosure occur?

When technology/technical data is made available to a foreign national:

For visual inspection – reading technical specifications, blueprints, drawings, plans;

Oral exchange; or

By practice or application under guidance of those with knowledge – think training


““Deemed Export” Rule - continuedDeemed Export” Rule - continued

““foreign national” – a person other than foreign national” – a person other than

a U.S. citizen, U.S. permanent resident a U.S. citizen, U.S. permanent resident (“green card” holder) or “protected (“green card” holder) or “protected individual” (e.g., political refugee or individual” (e.g., political refugee or asylee) asylee)

H-1B workers - largest group potentially H-1B workers - largest group potentially needing deemed export licenseneeding deemed export license


Anti-Boycott Regulations

Cannot support boycott of Israel Cannot support boycott of Israel

Caveat: Not limited to Middle EastCaveat: Not limited to Middle East

China, India, Indonesia, Malaysia, TaiwanChina, India, Indonesia, Malaysia, Taiwan

Office of Antiboycott ComplianceOffice of Antiboycott Compliance


Anti-Boycott Regulations (cont’d)

Examples:

Goods of Israeli origin not acceptable.(PO from Bahrain)

Does your company have a plant in Israel; has it sold

to Israel; does it own shares in an Israeli firm; has it provided services to an Israeli firm; granted IP

rights to an Israeli firm?(POA from Lebanese company)

Anti-Corruption and Anti-Corruption and

Anti-Bribery LawsAnti-Bribery Laws


Indices of CorruptionIndices of Corruption

Corruption Perception Index (2009) Corruption Perception Index (2009)

1.1. NZNZ Brazil - 75Brazil - 75

2.2. DenmarkDenmark Russia - 146Russia - 146

19. USA19. USA India - 84India - 84

179. Afghanistan179. Afghanistan China - 79China - 79

180. Somalia180. Somalia


Indices of Corruption (cont’d)Indices of Corruption (cont’d)

Bribe Payers Index (2008)Bribe Payers Index (2008)

► Belgium and Canada shared first place with a score of 8.8 out Belgium and Canada shared first place with a score of 8.8 out of a very clean 10, indicating Belgian and Canadian firms are of a very clean 10, indicating Belgian and Canadian firms are seen as least likely to bribe abroad. The Netherlands and seen as least likely to bribe abroad. The Netherlands and Switzerland shared third place. Russia ranked last with a score Switzerland shared third place. Russia ranked last with a score of 5.9, just below China (6.5), Mexico (6.6) and India (6.8). of 5.9, just below China (6.5), Mexico (6.6) and India (6.8).

► The BPI also shows public works and construction companies The BPI also shows public works and construction companies to be the most corruption-prone when dealing with the public to be the most corruption-prone when dealing with the public sector, and most likely to exert undue influence on the sector, and most likely to exert undue influence on the policies, decisions and practices of governments. policies, decisions and practices of governments.



Foreign Corrupt Practices Act (FCPA)

Criminal statute - Anti-bribery and Record-keeping provisions (15 U.S.C. §§78dd-1, et seq.)

In general applies to:

publicly-traded (domestic and foreign) and private parties; companies and individuals including foreign nationals in the U.S. and U.S. persons abroad and U.S. and foreign agents

Need written compliance policy, training, include confirmation by foreign agents, etc.


Foreign Corrupt Practices Act Foreign Corrupt Practices Act (cont’d)(cont’d)

Very generally, prohibits parties from:

making or offering to make corrupt payments of value (money, gifts, etc.) to foreign officials or political parties for the purpose of obtaining or retaining business – corrupt intent

Q: What about officials of state-owned companies?


Foreign Corrupt Practices Act (cont’d)Foreign Corrupt Practices Act (cont’d)

Main Exception –

“Facilitating Payment” aka “grease” payment

Payment made to facilitate or expedite “routine government action” - utility service; load/unload cargo; inspections

Foreign Anti-Corruption LawsForeign Anti-Corruption Laws

Do not overlook national lawsDo not overlook national laws

OECD Anti-Bribery Convention (1997) – OECD Anti-Bribery Convention (1997) –

38 countries38 countries


Spotlight: IndiaSpotlight: India

KPMG India Fraud Survey (2008)KPMG India Fraud Survey (2008)

84% companies surveyed believed 84% companies surveyed believed paying bribes or making facilitating paying bribes or making facilitating payments is necessary payments is necessary

Lack of penalties; political patronageLack of penalties; political patronage



Prevention of Corruption Act (1998)Prevention of Corruption Act (1998)

Focuses on “demand side”Focuses on “demand side”

Payers – aiding and abettingPayers – aiding and abetting



FCPA v. FCAFCPA v. FCA

FCA does NOT permit facilitating paymentsFCA does NOT permit facilitating payments

U.S. corporate trend – prohibiting facilitating U.S. corporate trend – prohibiting facilitating paymentspayments

Due diligence to review paymentsDue diligence to review payments


Anti-bribery and anti-corruption Anti-bribery and anti-corruption recommendations:recommendations:

-Create or enhance compliance -Create or enhance compliance programsprograms

*Coordinate US and local compliance *Coordinate US and local compliance

-Actively review and monitor-Actively review and monitorAttorney Advertising


Successor Liability for Export Violations

Due diligence is needed

Successor liability imposed

asset or stock purchase

regardless of indemnity provisions

Successor Liability for Export Violations



Successor Liability for Export Successor Liability for Export ViolationsViolations

Some due diligence itemsSome due diligence items

- compliance program- compliance program

- export documents- export documents

- personnel- personnel

deemed exportsdeemed exports


Successor Liability for Export Successor Liability for Export ViolationsViolations

Discovery of violations Discovery of violations

voluntary-self-disclosurevoluntary-self-disclosure

negotiate price, indemnity, other termsnegotiate price, indemnity, other terms

short honeymoon short honeymoon

walk-awaywalk-away


It’s all about complianceIt’s all about compliance


Export Compliance QuestionsExport Compliance Questions

WhatWhat is to be exported? is to be exported?

WhereWhere is its destination? is its destination?

WhoWho is the end-user? is the end-user?

WhatWhat is the end-use? is the end-use?


Benefits of ComplianceBenefits of Compliance

““Effective compliance” = “great weight” mitigationEffective compliance” = “great weight” mitigation

Burden on company to show effective compliance Burden on company to show effective compliance program:program:

- risk analysis performed- risk analysis performed- written compliance program- written compliance program- senior management - senior management - training- training- screening of parties/transactions- screening of parties/transactions- process to report violations- process to report violations

Case StudiesCase Studies

►Entity List ViolationsEntity List Violations

►ValvesValves

►Multiple Penalties and AgenciesMultiple Penalties and Agencies



Thank YouThank You

Jon P. YormickJon P. YormickManaging AttorneyManaging Attorney

Yormick & AssociatesYormick & Associates

[email protected]@yormicklaw.comToll Free: +1.866.967.6425 Toll Free: +1.866.967.6425

Mobile: +1.216.269.5138Mobile: +1.216.269.5138

Fifth Third Center – Suite 1300Fifth Third Center – Suite 1300600 Superior Ave., E.600 Superior Ave., E.Cleveland, Ohio USACleveland, Ohio USA

clearing regulatory hurdles selling abroad.032610

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