February 21 2013 Issue
Business Groups Raise Issues with Guidance on Foreign Corrupt Practices Act
More than 30 state, national and international business and advocacy groups sent a letter to the Department of Justice and the Securities and Exchange Commission Feb. 19 that raises a number of concerns with a guidance document issued in November 2012 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 using hypotheticals, examples of enforcement actions and matters that have not been pursued, and summaries of applicable case law and DOJ opinion releases. The letter acknowledges the “tremendous effort” that the DOJ and SEC devoted to preparing this document, which “provides a single central source of information for compliance officers and others in need of guidance,” but states that “further discussion” and possibly revisions are needed concerning the following topics.
Compliance Programs. The guidance includes an extensive discussion of what the enforcement agencies consider to be the key elements or characteristics of a robust compliance program and recognizes that these elements should be tailored to an organization’s specific needs, risks and challenges based on a company’s own assessment. However, the guidance offers little assurance that a strong pre-existing compliance program will be given sufficient weight in the agencies’ charging decisions. This assurance should be provided by amending the FCPA to add an affirmative defense that would permit a company to rebut the imposition of criminal liability if the individuals responsible for the violation circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations and implemented with appropriate vigor.
Voluntary Disclosures. The guidance emphasizes that the DOJ and SEC place a high premium on self-reporting but should also provide some discussion of the application of that principle to real-life circumstances, including through illustrative hypotheticals and examples of actual enforcement decisions.
Foreign Official and Instrumentality. Whether an entity performs governmental functions is only one of many factors on the list of those considered in determining whether the entity is a foreign government instrumentality and is evidently not considered dispositive by the DOJ or the SEC. The business groups continue to believe that if an entity does not perform a governmental function it should not be considered a government instrumentality. They also point out that the guidance’s discussion of the definitions of “foreign official” and “instrumentality” does not contain a single hypothetical to help illustrate the agencies’ approach to this issue.
Parent-Subsidiary Liability. The letter asks the DOJ and SEC to confirm that the guidance’s description of parent company liability for bribes paid by a subsidiary is consistent with the “authorized, directed or controlled” standard previously endorsed by the DOJ and is intended to make clear that both agencies adhere to that view. The letter also requests clarification that under the agency theory of liability, in order for the parent to be liable for the wrongdoing of the subsidiary’s employees that conduct would need to be within the scope of the agency relationship.
Successor Liability. The guidance suggests that if a company conducts appropriate pre-transaction FCPA diligence (or post-transaction diligence if pre-transaction diligence is impractical), voluntarily reports any discovered violations and takes prompt remedial actions, including implementing robust compliance programs and internal controls, the likelihood of an enforcement action against the successor company is low. However, in discussing the necessary components and breadth of such diligence the guidance relies in part on DOJ Opinion Release 08-02, which required the company in question to conduct post-acquisition diligence on a scale equivalent to a massive internal investigation in order to avoid prosecution for any FCPA violations committed by the acquired company prior to the transaction. The letter seeks a clarification that these “sweeping expectations” are not the norm and that ordinarily a more reasonable, less extensive course of diligence will be sufficient.
The letter also points out that in one of the successor liability hypotheticals the guidance gives the impression that disclosure is expected even where there has been no violation of U.S. law (e.g., improper payments by an acquisition target that was not subject to the FCPA prior to its acquisition).
Corporate Criminal Liability. The guidance states that proof of willfulness is not required to establish corporate criminal or civil liability but that proof of corrupt intent (i.e., an intent or desire to wrongfully influence the recipient) is. The business groups understand this to mean that corporate criminal liability cannot be established absent knowledge of the violation and “trust that the [DOJ] will adhere to that standard in future enforcement actions.”
Declination Decisions. The guidance includes six examples of actual matters in which the agencies found sufficient evidence of an FCPA violation but nevertheless declined to pursue prosecution or enforcement action on the basis of other circumstances, such as the company’s voluntary disclosure, cooperation and remedial measures. These examples also provide brief descriptions of the factors that influenced the declination decisions. The letter encourages the DOJ and SEC to make such anonymized disclosures a routine practice, among other things because the FCPA lacks a material body of case law through which it can be interpreted by the business community.
Massive AD Duty Evasion Scheme Nets Federal Charges
U.S. Immigration and Customs Enforcement announced Feb. 20 that five individuals and two domestic honey-processing companies have been charged with evading more than $180 million in antidumping duties by misdeclaring Chinese-origin honey as other commodities and transshipping it through other countries. The two companies have entered deferred prosecution agreements under which they will pay fines of $1 million and $2 million, respectively, and implement corporate compliance programs. The individual defendants include three honey brokers, the former director of sales for a honey company and the president of a Canadian firm serving as a broker and distributor of raw and processed honey.
An agency press release states that the first phase of ICE’s investigation began in 2008 and involved allegations of AD duty circumvention through transshipment and mislabeling on the supply side of the honey industry. This phase resulted in 14 individuals being charged with evading approximately $80 million in AD duties and the seizure and forfeiture of more than 3,000 drums of honey that illegally entered the U.S. The second phase of the investigation is focused on the demand side and involves allegations of illegal buying, processing and trading of honey that illegally entered the U.S., some of which was adulterated with antibiotics not approved by the Food and Drug Administration for use in honey.
The press release notes that ICE and U.S. Customs and Border Protection have stepped up efforts regarding commercial fraud investigations that focus on U.S. economic and health and safety interests. The Department of Homeland Security recently told Congress that such efforts could suffer under the so-called sequestration budget cuts currently scheduled to take effect March 1.
ITC Launches Second Investigation Into Role of Digital Trade
The International Trade Commission launched Feb. 20 the second of two investigations into the role of digital trade in the U.S. and global economies. For the purposes of these investigations, digital trade encompasses commerce in products and services delivered over digital networks, such as software, digital media files (e.g., e-books and digital audio files) and services such as data processing and hosting.
The ITC’s first investigation, which was instituted Jan. 7, will describe U.S. digital trade in the context of the broader economy, examine cross-border digital trade and its relationship to other cross-border transactions (e.g., foreign direct investment), describe notable barriers and impediments to digital trade, and outline potential approaches for assessing the linkages and contributions of digital trade to the U.S. economy, noting any challenges associated with data gaps and limitations. The ITC’s report in this investigation is due to be delivered to the Senate Finance Committee by July 14.
The second investigation will build on the first to estimate the value of U.S. digital trade and the potential growth of this trade, examine the broader linkages and contributions of digital trade to the U.S. economy, present case studies that examine the importance of digital trade to selected U.S. industries that use or produce such goods and services, and examine the effect of notable barriers to digital trade on selected industries and the broader U.S. economy. The ITC will also examine how other industries, such as financial services and retailing, make use of digital products and services for production and trade. The ITC anticipates submitting its report in this investigation by July 14, 2014.
The ITC will hold a public hearing in connection with these investigations on March 7. Requests to appear at this hearing are due no later than Feb. 28. Written submissions for the record are due no later than March 21.
AD/CV Notices: Preserved Mushrooms, Tapered Roller Bearings
Agency: International Trade Administration.
Commodity: Preserved mushrooms.
Nature of Notice: Final results of administrative review of antidumping duty order for the period Feb. 1, 2011, through Jan. 31, 2012.
Details: Dumping margin of 114.76% for Agro Dutch Industries Limited. AD duties at this rate will be assessed on entries of subject merchandise made during the period of review, and AD cash deposits at this rate will be required for all shipments of subject merchandise entered or withdrawn from warehouse for consumption on or after Feb. 21.
Agency: International Trade Administration.
Commodity: Tapered roller bearings and parts thereof, finished and unfinished.
Nature of Notice: Amended final results of 2010/2011 administrative review of antidumping duty order.
Details: Weighted average dumping margins ranging from 14.91% to 92.84%. Importer-specific AD duties based on these rates will be assessed on entries of subject merchandise made during the period of review. AD cash deposits at these rates will be required for all shipments of subject merchandise entered or withdrawn from warehouse on or after Feb. 21.
New Patent Infringement Investigation of Bark Control Collars
The International Trade Commission has instituted investigation 337-TA-870 to determine whether imports of certain electronic bark control collars are violating Section 337 of the 1930 Tariff Act by reason of patent infringement. Complainant Radio Systems Corporation requests that after this investigation the ITC issue temporary and permanent exclusion orders, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondent to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory. The respondent in this investigation is located in the U.S.
New York Foreign-Trade Zone Looking to Expand
The Foreign-Trade Zones Board has received from the County of Orange, grantee of FTZ 37, a request for authority to reorganize this zone to expand its service area under the alternative site framework. The zone currently has a service area that includes Orange and Duchess counties in New York and the applicant is requesting authority to add Rockland County, adjacent to the Newark/New York U.S. Customs and Border Protection ports of entry. Comments on this request are due no later than April 22.
State Dept. Allows Imports/Exports of Rough Diamonds from/to Four More Countries
The State Department has issued an updated list of all countries eligible for trade in rough diamonds under the Clean Diamond Trade Act of 2003 and their respective importing and exporting authorities. The CDTA requires the president to prohibit the importation into, or the exportation from, the U.S. of any rough diamond from whatever source that has not been controlled through the Kimberley Process Certification Scheme, which seeks to prevent trade in diamonds from funding civil wars and terrorist activities. The revised list reflects the addition of Cambodia, Cameroon, Kazakhstan and Panama and now includes a total of 53 countries and political entities.
Amended Maritime Agreement Filed
The Federal Maritime Commission has issued notice that the following amended agreement has been filed. Interested parties may submit comments by March 4.
ABC Discussion Agreement – The amendment would add Seaboard Marine Ltd. as a party to the agreement.