Export/Import; Customs; Considerations in Forming Entities

1. SPARK - Business Law & Order: Doing Business Overseas
Some US Laws Applicable to
Doing Business Overseas and
Alternative Legal Structures
for Getting Started
Richard G. Goetz
Leader
International Practice Group
March 19, 2012 – Ann Arbor

2. Due Diligence Is Critical
• Transparency International
• World Bank
• U.S. Commerce Department
• Lawyers, Accountants and Others
• Companies Already in the Market
• Don’t Rely Primarily on Legal Remedies
BUT Make Sure There Is a Tight Legal
Agreement
• Investigate the Reputation of the Other
Party

3. Ethics
2011 Transparency International Corruption
2011 Transparency International Corruption
Perceptions Index for Selected Countries
Perceptions Index Selected Countries
Country Rank Country Rank
New Zealand 1 South Africa 64
Denmark 2 Brazil 73
Singapore 5 China 75
Canada 10 India 95
Qatar 22 Mexico 100
U.S.A. 24 Vietnam 112
Poland 41 Russia 143

4. Doing Business
World Bank Group
Doing Business 2011 Report
Country Rank Country Rank
New Zealand 3 South Africa 35
Denmark 5 Brazil 126
Singapore 1 China 91
Canada 13 India 132
U.S.A. 4 Mexico 53
Qatar 36 Vietnam 98
Poland 62 Russia 120

5. An Effective Company Compliance
Program Should Have
• Senior management commitment and involvement
• Clear compliance policies
• Frequent communication of the policies to all levels
• Regular training and follow-up for employees facing
the issues of concern
• Hot lines or other means for employees to
communicate suspected violations
• Audits of compliance
• Procedures for dealing with improper behavior

6. Foreign Corrupt Practices Act
(FCPA)
• Objective – Prevent the bribery of foreign government
and political officials, and officials of public-international
organizations), by companies or individuals subject to
U.S. jurisdiction.
• Structure – FCPA consists of separate, far-reaching
antibribery and accounting provisions.
• Application – Provisions apply to actions of U.S.
companies and U.S. citizens, nationals, and residents
wherever located.
• U.S. nexus – Provisions do not apply to actions of non-
U.S. subsidiaries, or persons who are not U.S. citizens,
nationals, or residents, that are taken wholly outside of
the U.S., they do apply to their actions in the U.S. (only a
remote nexus to the U.S. is required).

7. FCPA Antibribery Provisions
• It is illegal to:
– Corruptly offer or
– Give money or anything of value
– Directly or indirectly
– To a foreign government or political official, or an
official of a public-international organization
– To obtain or retain business, or to secure any
improper advantage
• Actions in furtherance of such an offer or gift are
prohibited, including using a third party such as a
consultant, agent, lawyer, or “friend” to make the
payment or offer.

8. FCPA Antibribery Risks
• Vicarious Liability
– Payments through a third party are prohibited if
there was a conscious disregard or deliberate
ignorance
– Thorough due diligence should be done before
retaining consultants
– Efforts may be made to hold U.S. companies
liable for the acts of distributors
• State owned company employees may be
government officials
• Lavish entertainment, travel and gifts should not be
provided to government officials

9. FCPA Permitted Payments
• Facilitation Payments Allowed
– Routine functions
– Infrequent payments
– Not if official has discretion to act or refuse to act
• Payments are not illegal in the foreign country
• Payments are for a legitimate business purpose
– Travel to inspect or observe operations, plants or
equipment.
– Related reasonable lodging and meals

10. FCPA Accounting Record
Keeping Requirements
• Accounting must accurately reflect the
nature of the expense including reflecting the
true nature of any improper payments
• Accounting and recordkeeping obligations
are imposed to prevent the use of “slush
funds” and “off-the-books” accounts which
could be used by some companies to
conceal illegal or questionable payments.
• Applies to overseas affiliates

11. An Emerging Global Consensus
• OECD Convention Mirrors FCPA
– Recognizes the effectiveness of home country
laws to deter foreign bribery
– Produces a more level playing field for U.S.
companies
• OAS and AU Adopt Similar Measures
• UN Convention Against Corruption
• 2010 UK Bribery Act Exceeds FCPA Prohibits
– Facilitation payments
– Commercial Bribery
– Any bribe not just to obtain or retain business

12. Economic Sanctions
• Administered by the Office of Foreign Assets
Control (OFAC) under Treasury
• OFAC Country Sanctions Programs Have
Included:
Balkans Belarus Burma
Ivory Coast Cuba Congo*
Iran Iraq Liberia*
North Korea Sudan Syria
Zimbabwe
*Congo sanctions are against the Democratic Republic of the
Congo, Liberia Sanctions are against the Former Liberian Regime
of Charles Taylor

13. Economic Sanctions
• Economic Sanctions Programs Vary Widely
– Cuba and N. Korea sanctions are the most severe
– Each sanction program is considered to include a prohibition
against approval or facilitation of prohibited business activity
by US persons
– Requires blocking of assets of sanctioned party
• Economic Sanctions Also Apply to Specially
Designated Nationals (SDNs)
• OFAC’s SDN List Contains Over 100,000 Names of
Individuals and Companies With Whom it is Prohibited
to do Business
• Foreign Subsidiaries of U.S. Companies May Be
Required to Comply with Economic Sanctions Even
Where Prohibited From Doing so by the Law of the
Subsidiaries Domicile (e.g. EU and Canada)

14. Export Controls
• Focus on Where the Goods Were Made and
Their Final Destination
• Export Administration Act (EAR)
Administered by the Bureau of Industry and
Security Under Commerce
• Prohibits the Shipment of U.S. Goods and
Technology to Certain Countries Without a
License Including
– Dual use goods
– Deemed exports – technical information provided
to citizens of countries subject to license
requirements

15. Antiboycott Legislation
• Two Separate and Quite Different Laws
– Tax Law administered by Treasury
– EAA administered by the Commerce Dept.
• Both Originally Intended to Protect
Companies and Individuals from the
Effects of the Arab Boycott of Israel
• Sufficiently Broad to Preclude Support
of any Unsanctioned Boycott but Focus
Remains on the Boycott Against Israel
• Extremely Complex Laws

16. Antiboycott Legislation
• Internal Revenue Code Provisions
– Filing Requirements Include
• From Treasury’s list, indicating the boycotting countries
in which the company does business
• Any requests to adhere to an unsanctioned boycott
• Annual Boycott Report
– Prohibitions Include
• Agreements to refrain from doing business with
boycotted countries, companies or individuals
• Agreements to refrain from hiring or doing business
based on race, religion or national origin
• Accepting provisions that a contract is subject to the
laws of a boycotting country

17. Antiboycott Legislation
• EAR Provisions
– Reporting requirements include
• Request to participate in a boycott activity
• Requests to provide information regarding business and
other relationships with a boycotted country
– Prohibitions include providing information
concerning
• The race, religion, sex or national origin of US persons
• Business relationships with a boycotted country or
blacklisted person
• Implementing a letter of credit with requirements that
would violate antiboycott laws
• Negative certificates of origin

18. Alternative Legal Structures
• Keep it Simple – Where Possible
– Payment Made and Ownership Transfer U.S.
Plant
– Avoid Risks of Non-Payment
– Avoid Being Subject to Buyers Jurisdiction
– Be Aware of Tax, Deemed Employee and
Other Risks Using Independent Contractors
– How Will IP be Protected
– Dispute Resolution

19. Establishing a Foreign Company
– Some Pros & Cons
• Alternatives Vary with Local Law, Many Allow
LLCs or C Corps
• Does Organization Have Overseas Operational
Experience
• Think About the Exit Strategy
• Consider Costs Both to Establish and Maintain
• Joint Ventures Sometimes Work
• Avoids PE but May Bring Employment Issues
• A Longer Term Alternative

20. THANK YOU
Richard G. Goetz
International Practice Group
Leader
Dykema Gossett PLLC
Detroit Office
400 Renaissance
Center
Detroit, MI 48243
(313) 568-5390
rgoetz@dykema.com