November 15 2012 Issue
Long-Awaited Guidance on Foreign Corrupt Practices Act Released
The Department of Justice and the Securities and Exchange Commission released Nov. 14 their long-awaited guidance on the Foreign Corrupt Practices Act. This 120-page guide provides a detailed analysis of the FCPA and closely examines the two agencies’ approach to FCPA enforcement. It uses hypotheticals, examples of enforcement actions and matters that have not been pursued (including the factors that went into those decisions), and summaries of applicable case law and DOJ opinion releases. Topics addressed include the following.
- who and what is covered by the FCPA’s anti-bribery and accounting provisions (noting that actions taken to “obtain or retain business” include winning a contract, influencing the procurement process, circumventing the rules for importation of products, evading taxes or penalties, influencing the adjudication of lawsuits or enforcement actions, and obtaining exceptions to regulations)
- the definition of “foreign official” and what constitutes a department, agency or instrumentality of a foreign government (noting that as a practical matter an entity is unlikely to qualify as an instrumentality of a foreign government if a government does not own or control a majority of its shares and that in the limited circumstances in which enforcement actions have involved foreign officials employed by entities in which a foreign government has less than 50% ownership there have been clear indicia that the foreign government controls the entity at issue)
- what constitute proper and improper gifts and travel and entertainment expenses (noting that DOJ and the SEC have not focused enforcement efforts on the payment of reasonable travel and entertainment expenses but instead have brought cases where the corrupt payment of travel and entertainment expenses occurred in conjunction with other conduct reflecting systemic bribery or other clear indicia of corrupt intent)
- the exception to the FCPA’s prohibition on bribery for facilitating and expediting payments (including examples of routine governmental actions for which such payments may be made)
- how successor liability applies with respect to mergers and acquisitions (noting that DOJ and the SEC only take action against successor companies in limited circumstances, generally in cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop the misconduct from continuing after the acquisition) and practical tips to reduce the risk of FCPA violations in this context
- effective corporate compliance programs (noting that there is no one-size-fits-all program and that effective programs are usually tailored to a company’s specific business and the risks associated with that business) and the factors that DOJ and the SEC consider when evaluating a company’s compliance program
- the different types of civil and criminal resolutions available in the FCPA context
Statistics on CBP’s Foreign Textile Factory Visits in FY 2011
U.S. Customs and Border Protection recently made available statistics on the foreign factory visits conducted by its textile production verification teams in fiscal year 2011. Highlights of these statistics include the following.
• Of the 174 factories CBP visited in nine countries in Latin America, the Middle East and Africa for illegal transshipment verifications, 21 were closed and 21 were deemed high-risk. One of the factories refused to admit CBP inspectors or produce requested documents, and evidence of transshipment was found at two factories.
• In Lesotho nine factories were found to be compliant with the African Growth and Opportunity Act, none of the factories visited were in violation, and two had insufficient documents to support AGOA claims.
• CBP found 59 factories in five countries to be in compliance with DR-CAFTA while ten were in violation, 17 had insufficient documents to support DR-CAFTA claims, and 13 were closed.
• Ten factories in Jordan were determined to be in compliance with the U.S.-Jordan FTA, none were in violation, three had insufficient documents to support FTA claims and two were closed.
• In Egypt CBP found 14 factories that were in compliance with requirements under the Qualifying Industrial Zone program and none that were not, although seven had insufficient documentation to support QIZ claims and one was closed.
• CBP found nine factories in Peru to be compliant under the U.S.-Peru FTA but 11 had insufficient documents to support FTA claims and two were closed.
CBP notes that shipments from closed or high-risk factories (those unable to provide production records to satisfy CBP as to the origin of the merchandise) will be scrutinized and validated at U.S. ports of entry. In addition, shipments from non-compliant factories claiming preferences under any of the above programs will be verified for eligibility.
Vehicle and Engine Importers to Pay Civil Penalty for Clean Air Act Violations
The Department of Justice and the Environmental Protection Agency jointly announced Nov. 13 a settlement with two companies that allegedly imported and sold 17,521 recreational vehicles, highway motorcycles and non-road spark ignition engines from China in violation of Clean Air Act requirements. The settlement also resolves claims for failure to adequately respond to EPA’s requests for information and labeling violations under the CAA. The settlement is subject to a 30-day public comment period and approval by a federal court.
The companies and their senior executives will pay a combined civil penalty of $50,000, an amount based on the determination that they have a limited ability to pay because both companies are no longer in operation. In addition, the executives must (a) enter into a compliance plan with the EPA prior to any future importation, distribution, selling or offering for sale of any products covered by the CAA and (b) provide the EPA with notice prior to forming any U.S. business entity that engages in the importation, distribution, selling or offering for sale of any products covered by the CAA or before individually engaging in such activities. These individuals may be liable for any additional penalties for any violations of the settlement agreement, including $25,000 per vehicle or engine imported, sold or distributed that is not in accordance with an EPA-approved compliance plan, and up to $5,000 per day for each failure to provide notice to the EPA as mentioned above.
The Clean Air Act prohibits any vehicle or engine from being imported and sold in the U.S. unless it is covered by a valid EPA-issued certificate of conformity indicating that the vehicle or engine meets applicable federal emission standards. The certificate of conformity is the primary way the EPA ensures that imported vehicles and engines meet emission standards.
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State Dept. Issues Policy Guidance on Iran Sanctions
The State Department has issued policy guidance that outlines its authorities under the Iran Sanctions Act and related executive orders, provides guidelines to further describe the technologies that may be considered sensitive for purposes of section 106 of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, and provides information on State’s authorities under certain other EOs and statutory provisions related to terrorism and weapons of mass destruction. Comments on this guidance, which includes the following provisions, are due no later than Jan. 12, 2013.
Due Diligence. All persons involved in activities in high-risk sectors should consider implementing enhanced due diligence to minimize the risks of inadvertently becoming engaged in a sanctionable transaction. This could include confirming that transactions in these sectors do not involve an entity owned or controlled by Iran or that Iran is not otherwise connected to any entities in the transaction, including by reviewing the Office of Foreign Assets Control's Specially Designated Nationals and Blocked Persons List, searching commercial databases and verifying ownership structures of unknown companies and, in the case of transportation or insurance of crude oil and petroleum products, verifying that Iran is not the origin of the cargo.
Sensitive Technologies. In determining whether a particular transaction involves a good or technology that may be considered sensitive technology under CISADA, the U.S. government will closely examine transactions that could provide significant surveillance, censorship or network disruption capabilities to the Iranian or Syrian governments as a result of the particular end-user, end-use or type of technology.
Sensitive technology does not generally include technology essential for ordinary network operation, personal computing or private communications, including Wi-Fi access points, network routers, switches and mobile phone base stations; cables (fiber optic, coaxial and twisted pair); basic network performance monitoring tools; wireless antennas and other architectural elements; mobile phones and mass market desktop, laptop and tablet computers without external monitoring or surveillance capabilities such as keyloggers; computer monitors, screens, speakers, mice, headphones, headsets and other accessories; defensive technologies to protect individual computers against malware and related security threats (including software and definition updates); software development tools including libraries, integrated development environments, hosting services and collaboration platforms; mass market document creation, viewing and editing tools without special surveillance capabilities; censorship-circumvention technologies and services; virtual private network services; anti-tracking and encryption technologies to protect user privacy, if supplied without monitoring or surveillance capabilities; personal communications technologies (including software updates) such as instant messaging, chat, email, social networking, photo and movie sharing, web browsing and blogging; web browser plug-ins for rendering web content; data and web hosting and storage technology without monitoring or surveillance capabilities; RSS feed production, distribution and reading tools and comparable information transmission technologies; and other similar equipment.
When making an assessment of whether or not a company, entity or individual is exporting, transferring, facilitating the transfer of, or providing services that may be considered sensitive technology with regard to Iran or Syria, State will review all available information, including whether a company knew or should have known that a particular end-user of its technology was likely to misuse such technology or that a particular technology has a history of being misused in Iran or Syria to further human rights abuses. Individuals or entities engaged in transactions with Iran or Syria involving telecommunications goods, services or technology should therefore conduct rigorous due diligence and assess the potential risk that a particular technology is likely to be used to facilitate human rights abuses, restrict the free flow of information, or disrupt, monitor or otherwise restrict speech of the people of Iran and Syria.
Subzone, Production Authority Sought for Medical Device Facility in Puerto Rico
The Foreign-Trade Zones Board has received from CODEZOL, C.D., grantee of FTZ 163, a request for special-purpose subzone status for the Zimmer Manufacturing BV facility in Ponce, Puerto Rico, which is used for the production, warehousing and distribution of orthopedic implants for knee and hip reconstruction as well as trauma devices. CODEZOL has also submitted a notification of proposed production activity at this facility.
Production under FTZ procedures could exempt Zimmer from customs duty payments on the foreign status components used in export production, and on its domestic sales Zimmer would be able to choose during customs entry procedures the duty rates that apply to the finished products (zero) for foreign status inputs (which have duty rates of zero to 6.5%). Customs duties also could possibly be deferred or reduced on foreign status production equipment.
Comments on both proposed actions are due no later than Dec. 26.
BIS Reviewing Information Collection on Export Licenses
The Bureau of Industry and Security is soliciting comments through Dec. 17 on an information collection concerning export license transfers and duplicate export license services. BIS states that this collection is needed to provide services to exporters who have either lost their original license and require a duplicate or who wish to transfer their ownership of an approved license to another party.
Foreign Regulatory Changes Could Affect Exports of Foods, Seeds, Transport Drums
According to the National Institute of Standards and Technology, the World Trade Organization has been notified of regulatory changes that may affect exports of specific products to the following countries. For information on how these restrictions may affect your business, contact ST&R.
Albania – draft decision on marketing criteria, certification and testing varieties for cereal seeds and fodder seeds (comments due by Jan. 12, 2013)
Canada – public consultation on proposed policy and framework for managing the unintended low-level presence of genetically modified crops in imported grain, food and feed (comments due by Jan. 19, 2013)
Czech Republic – draft general measures establishing metrological and technical requirements on transport drums (comments due by Dec. 22)
El Salvador – amended technical regulation on quantity of product in pre-packages