Risk Management and International Research

Panel

• Denise Wallen, PhDResearch Officer/Senior Fellow, Robert Wood Johnson Foundation Center for Health Policy at The University of New Mexico and Research Officer/Research Assistant Professor, College of Education, University of New Mexico

• David BradyDirector, Office of Export and Secure Research Compliance, Virginia Polytechnic Institute and State University

• Janet SimonsDirector, Research Policy, Office of Research and Development, University of Maryland Baltimore

Topics

• International Subawards and Risk Management

• Protecting the Fundamental Research Exclusion

• Intellectual Property and Risk Management• Foreign Corrupt Practices Act (FCPA), Anti-

boycott Compliance, and International Collaboration

International Subawardsand Risk Management

Proposal considerations• Read FOA for restrictions/limitations– Participation of foreign collaborators– Direct and F&A cost limitations

• Who and where are our collaborators?– Country sanctions– Denied/debarred/restricted parties

• Who will lead communications with the subrecipient?– Program expectations and specifications– Administrative requirements and transactions

Proposal considerations

• Scope of project– Export control issues– Intellectual property issues– Student involvement– Expertise/experience of collaborator– Human subjects research or animal research by

subrecipient organization– Material transfer, shipping (any cross-border issues?)– Timeline

Scope of Work (SOW)

• Specific to the subrecipient – not a general description of the entire project

• Subrecipient’s obligations – specific aims, milestones, timelines, methods

• Any specific work to be delivered or performed with due dates if applicable (examples: data, meeting attendance, manuscripts, training, etc.)

• Technical/project reporting requirements• Consistent with Sponsor obligations• High risk subrecipient = more detailed scope of work, more

frequent reporting, shorter period of performance

Front-end subrecipient monitoring• Fiscal risk assessment

– Questionnaire addressing financial systems and standards– Audited financial statement– F&A rate agreement when available

• Compliance and performance risk assessment– US institution’s history with the subrecipient– Our PI’s relationship with the subrecipient PI– General assessment of experience, reliability

• DUNS # required to award a 1st tier subaward under Federal funding– http://fedgov.dnb.com/webform - typically the entity’s fiscal officer

makes the request– NIH – ALL 1st tier subs– Other Federal agencies – 1st tier subs >$25,000

Award stage• Document sponsor’s approval of subaward

– State Department clearance may be required• As required…

– Export licenses – Material transfer agreement– Certification for human subjects or animal research by

subrecipient (and human subjects protection training for NIH)– NIH – certification of FCOI training

http://grants.nih.gov/grants/policy/coi/tutorial2011/fcoi.htm • Address potential currency exchange issues in the

agreement• Address potential compliance and financial risk issues in

the agreement (payment terms, reporting requirements)

Flow-down of Prime Award Terms and Conditions

• Review each requirement and certification to determine if it is applicable to the foreign subrecipient

• May be able to refer to comparable local law/standards• Ensure that references to regulations or sponsor policies will

be clear – cannot assume that a foreign organization will be familiar with sponsor requirements or U.S. regulations

• Federal prime awards – Many public policy requirements need to be passed through to foreign subs (e.g., conflict of interest, Fly America Act)– NIH reference: http://grants.nih.gov/grants/foreign/public_policy.htm – FDP Foreign Subaward Template –

http://sites.nationalacademies.org/PGA/fdp/PGA_063626

Award management and monitoring

• Performance monitoring– Performance expectations/reporting/feedback– Higher risk subs – site visit may be appropriate– Common reasons for lack of progress

• Subrecipient does not understand timeline and/or project goals• Training needed (capacity building)• Resource issues (cash flow, personnel problems)

• Invoice review and payment– All invoices - verify performance before payment is authorized– Cost-reimbursement

• Make sure invoices are submitted on schedule• Check key person effort against committed effort (Federal prime)• Obtain and document translations of invoices • Document currency exchange rate applied

Award management and monitoring

• Annual audit requests• New RPPR data – what percentage of the

award budget is being spent in foreign country(ies); information on partner organizations

• Close-out – invention and other reports

Protecting theFundamental Research Exclusion

What is export control?• The U.S. export control regulations are designed

to advance the national security, foreign policy and economic interests of the United States– Regulate physical shipments as well as transmission of

information regarding specified controlled technologies/technical data

– Regulate exports to foreign nationals/foreign organizations whether they are “across the border” or in the United States

• International Traffic in Arms Regulations (ITAR)• Export Administration Regulations (EAR)

What are sanctions?

• The U.S. sanctions regulations are designed to implement foreign policy and economic interests of the United States– Regulate importation and exportation of goods

and services to sanctioned countries and their nationals, and sanctioned entities and individuals (Specially Designated Nationals)

• Foreign Asset Control Regulations (FACR)

Potential exclusions and exemptions

• Most research and teaching that takes place in the U.S. on campus can qualify for exclusions and/or exceptions/exemptions from the export control regulations

Fundamental Research Exclusion

• Simply stated: no export license is required to disclose to foreign persons information that is “published and which is generally accessible or available to the public through fundamental research in science and engineering at universities where the resulting information is ordinarily published and shared broadly in the scientific community.”

Fundamental Research Exclusion• Applies to research data and information• Applies to research performed on campus here in the

U.S. and only if there are no restrictions on publication or dissemination of the research results

• May not apply to • Certain regulated end use activities (e.g., WMD)• Certain activities with sanctioned countries and parties

• Does NOT apply to– Physical goods– Encryption software– Research where there is no intention to publish the results– Research conducted outside of the United States (ITAR)

Potential restrictions that could void the FRE

• Restriction on publication of results – watch for: – Publication approval requirements– Classified research– Restricted dissemination of reports– Note: Prepublication review for inadvertent

disclosure of proprietary information does not void the FRE – but FRE does not apply to any controlled proprietary information disclosed by the sponsor

• Restrictions on participation in the research based on citizenship or country of origin

• PI makes a “side agreement” agreeing not to publish

More red flags that could void the FRE

• Export controlled equipment is used in the research (“use” definition differs between EAR and ITAR)

• Award contains language referring to or mandating compliance with export laws or regulations – these provisions need careful review

• Sharing of controlled research materials with foreign nationals or foreign organizations

Tools to Preserve the FRE

• For non-DoD federally funded research refer to the following: – 48 CFR 27.404-4(a),(b) Contractor’s release,

publication, and use of data.

• For DoD-funded research refer to the following:– DoD Policy Memo Contracted Fundamental

Research May 24, 2010

Assessing the Risk

• If FRE does not apply, some foreign persons (eg, students, post-docs) may be unable to participate without a license

• While there is some risk of not getting a license, creating a situation where one group of individuals is unable to participate as fully as any other group poses a much greater risk to institutional programs

• Ensuring that sponsored awards consistently allow unrestricted participation and open publication helps to protect equality in the higher education international experience

• Failure to obtain a license, where required, may result in jail time or other sanctions, including debarment of the institution

If FRE does not apply• Each foreign national working on the project should be screened to

determine if a license, or a license exception/exemption, is needed and/or available– Foreign national = a person in the U.S. in non-immigrant status

including visa-holders (H-1B, H-3, L-1, J-1, F-1, O-1, etc) and persons unlawfully in the U.S.

• If the project is international, the foreign recipient may also need to be screened to determine if a license, or license exception, is needed

• Research should be segregated and access restricted• Frequent, periodic reviews should be conducted to ensure that all

access is appropriate and licensed, as required • no unauthorized access or inappropriate dissemination of

information

Case Study: International Visitor “Using” aDefense Article

Dr. Xu has a fundamental research project for the Department of Transportation. He wants his Bulgarian post doctoral candidate to use an ITAR- restricted Honeywell Inertial Measurement Unit (IMU) to take road measurements. The PostDoc will need access to operate the IMU and process the output data of the IMU to complete the research.

Are there any export concerns?

What if the PostDoc were from China?

Case Study: International Collaboration: Tangible Exports

Dr. McDuff in the Chemistry Department has been asked by a researcher in King Fahd University of Saudi Arabia to share the results of his research and samples of novel fluorinated aromatic polyamides.

Are there any export concerns?

What if the University was Sichuan University of China?

Case Study: International Collaboration

University’s Dr. Rhea is providing assistance under a USAID project to rebuild higher education in war-torn Sudan. He will need to ship laboratory equipment , laptop computers, and books to Catholic University of Sudan and several branch campuses, destroyed in the civil war. USAID has authorized these transactions under the contract with University.

Are there any sanctions concerns?

Are there any export concerns?

Intellectual Property &

Ownership of Deliverables

Intellectual Property & Ownership of Intellectual Property & Ownership of DeliverablesDeliverables

• US Patent law vests ownership of IP to inventor- foreign patent laws may not have similar protections

• Foreign corporations/entities are generally unfamiliar with US university position on retention of ownership of IP- there is a significant learning curve in the negotiation

• Most foreign Universities do not share the retention of ownership position making negotiation even more challenging

Intellectual Property & Ownership of Deliverables

• Types of Intellectual Property Protections– Copyright– Patent– Trademark

Intellectual Property & Ownership of Intellectual Property & Ownership of DeliverablesDeliverables

• US Patent law vests ownership of IP to inventor- foreign patent laws may not have similar protections

• Foreign corporations/entities are generally unfamiliar with US university position on retention of ownership of IP- there is a significant learning curve in the negotiation

• Most foreign universities do not share the retention of ownership position making negotiation even more challenging

Intellectual Property & Ownership of Deliverables

• Some issues to watch for with international collaborators on intellectual property owner-ship– Background IP– Patent costs– Field of use– Choice of law

Intellectual Property & Ownership of Intellectual Property & Ownership of DeliverablesDeliverables

Choice of law

•Traditionally regulated on a territorial basis

•When contract is silent on choice of law, there are issues of– Jurisdiction– Enforcement of foreign judgments

•Source material on various national IP laws:

– World Intellectual Property Organization(WIPO): Collection of Laws for Electronic Access– United Nations Educational, Scientific, and Cultural Organization (UNESCO) Collection of

National Copyright Laws – Major Multi-Lateral Intellectual Property Treaties: Citations and Sources – Paris Convention (Patents & Trademarks)

Source: Columbia University Law Libraryhttp://library.law.columbia.edu/guides/International_intellectual_property#www.wipo.int

Intellectual Property & Ownership of Intellectual Property & Ownership of DeliverablesDeliverables

• Some issues to watch for with international collaborators on intellectual property ownership

– Publishing results of research/foreign patents

• First to Invent (US) vs First to File (most foreign)Until March 16, 2013 Until March 16, 2013

(implementation of (implementation of America Invents America Invents Act), US is a First to Invent Act), US is a First to Invent NationNation

• Publishing can jeopardize foreign patents

Intellectual Property & Ownership of Intellectual Property & Ownership of DeliverablesDeliverables

• Some issues to watch for with international collaborators on intellectual property ownership

– Marketing pre-patentable information (export issues)

– Joint ownership of IP

• Sounds good- but watch out for tax and legal Sounds good- but watch out for tax and legal presencepresence

– Foreign taxes on royalties of inventions created overseas

Corruption and Anti-boycott Laws

• Foreign Corrupt Practices Act (FCPA)• Department of Commerce

corrupting foreign officials

• Export Administration Act (EAR) Department of Commerce

transactions with boycott language and behavior/ furnishing profile data

• Ribicoff Amendment/ Tax Reform Act (TRA) U.S. Treasury

benefits from anti-boycott agreements or behavior

Corruption and Anti-Boycott Laws

November 5, 2012

• “…was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.” DoJ

• Section 8 of the Export Administration Act of 1979, as amended, 50 U.S.C. app. §§ 2401 – 2420 (2000), International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1707 (2000)

Foreign Corrupt Practices Act

November 5, 2012

The Scope of the FCPAThe Scope of the FCPA

Applies to:

• Activities of any individual who is a citizen, national, or resident of the United States, also any corporation and other business entity organized under the laws of the United States, or having its principal place of business in the United States, and certain applicable foreign entities (mainly issuers of securities on a U.S. exchange

• Limited to “corrupt” payment of anything of value to a foreign official, foreign political party or official thereof for the purpose of influencing any act or decision of such person to secure an improper advantage or obtain or retain business

November 5, 2012

Prohibitions of the FCPAProhibitions of the FCPA

Conduct that may be penalized under the FCPA includes:

• Making a bribe, or offering or authorizing any inducement for the purpose of obtaining or retaining business with a US entity.

• “Inducements” include gifts, samples, interests in business enterprises, loans on favorable terms, offers of employment, tuition payments, payments to third parties contribution to a foreign politician or political party

• Failing to adequately document a legitimate “facilitating payment”

• The FCPA extends to anyone transacting business while in the USA

• Helpful guidance: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf

Source: http://www.fcpa.us/

November 5, 2012

Foreign OfficialsForeign Officials

For the purposes of the FCPA, “foreign official” includes:

• Any officer or employee of a foreign government, or of a department, agency or other instrumentality of a foreign government,

• Government advisors, contractors, and others acting in an official capacity for a government, even though not directly employed by the foreign government

November 5, 2012

Exception to the FCPAException to the FCPA

“Facilitating payment”, aka “Grease”:

• A “facilitating Payment” is “a payment to a foreign official, political party or party official for "routine governmental action," such as processing papers, issuing permits, and other actions of an official, in order to expedite performance of duties of non-discretionary nature, i.e., which they are already bound to perform. The payment is not intended to influence the outcome of the official's action, only its timing.”

• Determining if your payment is a bribe or a facilitating payment is challenging:– Is the payment authorized under host country’s written laws?– Is it reasonable and for a legitimate purpose?

• When in doubt, consult your Legal Counsel

Source: Stuart H. Deming (2005) The Foreign Corrupt Practices Act And the New International Norms", American Bar AssociationNovember 5, 2012

Affirmative Defenses to the FCPAAffirmative Defenses to the FCPA

Lawful Payment:The payment is lawful under the laws of the foreign country under which the payment was made if the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country; or

Bona fide expenditure:The payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to— (A) the promotion, demonstration, or explanation of products or services; or(B) the execution or performance of a contract with a foreigngovernment or agency thereof.

When in doubt, consult your Legal CounselWhen in doubt, consult your Legal CounselNovember 5, 2012

Reporting and Penalties of the FCPAReporting and Penalties of the FCPAPenalties:•Voluntary disclosure procedure•Civil and criminal•Individual and entity•No allowance for “willful ignorance”

As reported in a recent NYU Law School Draft Study:

Penalties: •Penalties rise proportionately with the size of the bribe•Higher penalties are imposed on foreign firms than on U.S. firms•No evidence of benefits for voluntary disclosure

Source: http://blogs.wsj.com/corruption-currents/2012/09/06/study-says-voluntary-disclosure-doesnt-change-fcpa-penalties/

November 5, 2012

Misperceptions - FCPA does not apply because:

– No contact with elected government officials• Consider “instrumentality” of a foreign government

– No presence in the foreign country• Consider “willful blindness” to subawardee

– No “obtain” or “retain” any business• Consider “improper advantage”

– Compliance policies and procedures are voluntary • Consider training/education

November 5, 2012

Contract language

• Terms and conditions addressing FCPA compliance (anti-corruption clause)

Anti-boycott Laws• Export Administration Act (EAR)

Department of Commerce

• Section 8 of the Export Administration Act of 1979, as amended, 50 U.S.C. app. §§ 2401 – 2420 (2000), International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1707 (2000)

(15 CFR 760-766) Restrictive Trade Practices and Boycotts

• Ribicoff Amendment/ Tax Reform Act (TRA) U.S. Treasury “Ribicoff Amendment” to the Tax Reform Act of 1976, adding 26§

999 to the Internal Revenue Code-Reports by taxpayers; determinations

November 5, 2012

Anti-boycott Laws• Export Administration Act (EAR)

Department of Commerce • Helpful guidance:

http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm

http://beta-www.bis.doc.gov/index.php/enforcement/oac

• Ribicoff Amendment/ Tax Reform Act (TRA) U.S. Treasury

• Helpful guidance: At BIS Beta Sitehttp://beta-www.bis.doc.gov/index.php/enforcement/oacSee Department of Treasury Links and Information Tab on the right hand side of the page

November 5, 2012

Anti-boycott Laws

• Arab League boycott of Israel• Laws control three areas:– Boycott/ blacklist participation– Discriminatory behavior or furnishing information

another person’s race, religion, sex, national origin, or nationality

– Reporting of boycott contacts, operations in boycott countries

November 5, 2012

List of Countries Requiring Cooperation with an International Boycott

• Iraq*• Kuwait• Lebanon• Libya• Qatar• Saudi Arabia• Syria• United Arab Emirates• Yemen

*Added August 13, 2012November 5, 2012

The Scope of the EARThe Scope of the EAR

Applies to:

• Activities of U.S. persons in the interstate or foreign commerce of the United States; but

• Limited to actions (conduct) taken with intent to comply with, further, or support an unsanctioned foreign boycott

“The term "U.S. person" includes all individuals, corporations and unincorporated associations resident in the United States, including the permanent domestic affiliates of foreign concerns. U.S. persons also include U.S. citizens abroad (except when they reside abroad and are employed by non-U.S. persons) and the controlled in fact affiliates of domestic concerns. The test for "controlled in fact" is the ability to establish the general policies or to control the day to day operations of the foreign affiliate.”

Source: http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm

November 5, 2012

Prohibitions of Anti-Boycott LawsProhibitions of Anti-Boycott Laws

“Conduct that may be penalized under the TRA and/or prohibited under the EAR includes:

• Agreements to refuse or actual refusal to do business with or in Israel or with blacklisted companies.

• Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin or nationality.

• Agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies.

• Agreements to furnish or actual furnishing of information about the race, religion, sex, or national origin of another person.”

Source: http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm

November 5, 2012

Reporting Requirements of Anti-Boycott LawsReporting Requirements of Anti-Boycott Laws

EAR (15 CFR 764)

• Receipt of any requests to take certain actions to comply with, further, or support an unsanctioned foreign boycott (Quarterly)

• BIS-621P Report of Request for Restrictive Trade Practice or Boycott single Transaction

• BIS-6051P Report of Request for Restrictive Trade Practice or Boycott Multiple Transactions

• BIS-6051PA Report of Request for Restrictive Trade Practice or Boycott Multiple Transactions (continuation sheet)

November 5, 2012

Reporting Requirements of Anti-Boycott LawsReporting Requirements of Anti-Boycott Laws

TRA (IRC Sec. 999)

• …"operations" in, with, or related to a boycotting country or its nationals ; the Treasury Department publishes a quarterly list of "boycotting countries.“

• requests received to participate in or cooperate with an international boycott (see EAR criteria for “requests to participate”)

• IRS Form 5713 International Boycott Report (Annual)

November 5, 2012

Penalties for Violating Anti-Boycott LawsPenalties for Violating Anti-Boycott Laws

EAR (15 CFR 764)

• General denial of export privileges;• The imposition of fines of up to $11,000 per violation; and/or• Exclusion from practice.

TRA

• TRA does not prohibit conduct but penalizes tax credits and foreign subsidiary deferral benefits- no sanction, but still have to report

• U.S. taxpayers who participated in the boycotts listed may lose their right to claim certain tax benefits provided by U.S. domestic law.

November 5, 2012

Questions?