Transcript of "Jw Uhd Strategic Issues Legal Challenges In Global Business Foreign Investment 10 15 09 Streamlined Final"
Jackson Walker L.L.P.
Strategic Issues and Legal
Challenges in Global Business
and Foreign Investments
October 15, 2009
Arcie I. Jordan
Jackson Walker L.L.P.
100 Congress, Suite 1100
Austin, Texas 78701
For International Business …
• The opportunities are exciting.
• The potential rewards are great.
• But … for those that do not recognize & deal with
the legal challenges, significant problems may
• Adequate advance research & planning are
absolutely essential in dealing with such
• U.S. exporters need to be VERY vigilant and must
comply with U.S. export control laws.
– Some buyers are determined to circumvent U.S. law: In
the case of Aviation Services International, B.V. ("ASI"), an
aircraft parts supply company, the buyers were using false
end-user certifications & third countries as trans-shipment
points for controlled goods to Iran without a license.
– U.S. exporters cannot self-blind and ignore red flags.
– Even when the U.S. exporter may not know that the buyer
is not being truthful, if the U.S. exporter does not have a
systematic approach to compliance with export controls, it
may also have a problem.
And, it isn’t just the bad guys who get in trouble …
• Thermon Manufacturing Company, San Marcos, TX remitted
$14,613.24 to settle allegations of violations of the Sudanese
Sanctions Regulations occurring in three separate transactions in
2004 & 2005, and involving the export and/or re-export of heat
tracing equipment, and facilitation of such exports and/or re-exports.
– Note: This settlement followed a voluntarily disclosure by
Thermon to OFAC and the adoption of corrective measures and
improvements to its OFAC compliance procedures.
– More importantly: This matter was resolved according to
OFAC's 2003 enforcement guidelines that set the maximum
penalty at $11,000 per violation. The current maximum penalty
for violating the Sudanese Sanctions Regulations is $250,000
So … U.S. business persons need to:
• Do their homework in advance
• Budget for compliance initiatives sooner rather than
• Prioritize compliance throughout the life of their
international business activities
• Be vigilant in maintaining compliance in the face of
evolving standards & requirements
Strategic Issue: Compliance with U.S. Laws
a. Sector-specific regulatory requirements (e.g., FDA
b. Federal Trade Regulations (FTRs)
• Old SED filing requirement
• Now EEI filings in Automated Export System (AES)
c. Export controls
d. Anti-bribery & Anti-corruption prohibitions
• Foreign Corrupt Practices Act
• Target country laws
• OECD Convention
U.S. Export Controls
• The Bureau of Industry and Security (BIS), within
Department of Commerce, responsible for implementing
& enforcing the Export Administration Regulations
(EARs), which regulate export and re-export of most
– Often referred to as "dual-use” since items often have both
commercial and military or proliferation applications
– Include technology and software, including encryption
software and high performance computers
– Encryption items have special provisions
Goods Subject to the EARs
• EARs provide all items in the U.S., including in a U.S. FTZ or
moving in transit through the U.S. are subject to the EARs, unless
they are subject to a more specific jurisdiction.
• A license to export an item subject to the EARs will depend on the
item's technical characteristics, the export destination, the end-
user and the end-use.
• To determine if a license is required, the item must be classified
under the Commerce Control List (CCL) and a determination must
be made that it does not fall under the United States Munitions List
– Items in the USML include items that are specifically designed
for military purposes.
– Manufacturers may self-classify their products, but only way
to obtain a binding classification is by submitting a formal
Commodity Classification Request to the BIS.
Export Control Violations
• Administrative penalties include termination of export
privileges and suspension and/or termination of
government contracting privileges.
• Monetary penalties of:
• For criminal (knowing) violations
– Up to $1 million per company
– Up to $250 thousand per individual
• For civil (negligent) violations
– Up to $12 thousand dollars per company or
A Key Don’t …
• Don't make an intentionally false or misleading
statement to BIS.
– Carol Wilkins individually fined $15,000 for doing so.
(Her employer, RF Micro Devices, Inc., separately
– From 2002-2003, RF Micro Devices, Inc. exported
spread-spectrum modems (which are classified as
ECCN 5A001) to China, without a license.
• A company that encounters a bribe request or considers
offering a bribe faces four risks:
– Criminal prosecution
– Dysfunctional relationships
– Damage to reputation
– Destruction of markets (political/economic
• Development of individual corporate codes/policies and
incorporating them into corporate culture is paramount.
FOREIGN CORRUPT PRACTICES ACT
• 15 U.S.C § 78 dd-1 et seq. (Enforced by the SEC & Department of Justice)
• What Does the FCPA Prohibit?
– The “foreign corrupt practices” prohibited by the FCPA consist of
• The use of an instrumentality of interstate commerce (e-mail,
telephone, fax air transportation, mail in furtherance of;
• a payment or an offer to pay “anything of value” directly or
• to any foreign official, foreign political party of foreign political
• if the purpose of the payment is the “corrupt” one of getting
such person to act or refrain from acting or otherwise
securing an improper advantage;
• in order to assist the company in obtaining or retaining
business or in directing business to any particular person.
The FCPA Permits …
• Certain Facilitating or Expediting Payments
– Obtaining permits, licenses to qualify an entity to do business in
a foreign country
– Processing papers, such as visas
– Providing police protection, mail service, certain inspections
– Providing utility services, loading or unloading cargo
As long as they do not violate the foreign country’s
• Travel & Promotional Expenses
– Must be reasonable and bona fide expenses
– Travel and lodging expenses must be directly related to
promotion, demonstration, explanation of products, technology.
Provided payments that are lawful under the written laws
and regulations of the recipient’s country.
Strategic Issue: Understanding Target Market
a. Cultural issues (e.g., certain goods unacceptable)
b. Preference for “local” company vs. attraction of a
c. Legal framework
1) Local partner legal requirements
2) Foreign investment restrictions
3) Entity-level registrations or permits
4) Industry regulations
5) Business structuring options
Business Structuring Options
• Direct Foreign • Driven by:
Presence – Target country regulations,
• Local presence requirement
– Foreign subsidiary • Domestic entity requirement
– Branch office
• But, also by:
– Representative office – Tax considerations
– Joint Venture – Corporate image concerns
– Partnership (i.e., being a good
– Bilateral & Multilateral
Business Structuring Options
• Indirect Foreign • Considerations
Presence – Local Restrictions
– Ability to Terminate
– Agency – Exclusivity & Territory
– Marketing – Permanent
representative Establishment Issues
– Franchise Disclosure
– Licensing/Franchising Obligations
• U.S. Law
• Local Law
Business Structuring Options
• No Foreign Presence
Of paramount importance
– Export by U.S. directly contracts for the sale of
to foreign purchaser goods
– Transmission of
information via • Basics:
internet/computer – Terms of Sale
networks – Allocation of Costs &
– Delivery & Payment
Additional Contract Issues
• U.N. Convention on the International Sale of Goods
– “Gap filling” rules
– Provides for rights & obligations of buyers & sellers
– Applies to international sales of goods (not services, not
consumer goods) when buyer & seller have places of
business in different states that are parties to the Treaty
– “Law of the State” since it is a Treaty
• ICC – INCOTERMS 2000
• International commercial terms re: Risk of loss, Insurance &
Freight – not Title
– In the process of being revised; new version expected by Jan.
• Governing Law
• U.S. mandatory laws
• What law will control validity
(tax, export controls,
and performance of contract?
• Where is the contract likely to
• Foreign mandatory be enforced?
laws (tax, customs, • Does foreign jurisdiction
labor, environment) involved recognize/uphold
• International law choice of law by parties?
(Treaties) • Evidentiary issues in foreign
• Dual law and jurisdiction
• Possibility of a neutral choice
• Governing Language
– Interpretation issues
– Dual Language
Strategic Issue: Movement & Protection of Goods
and Intellectual Property
a. Registrations, licenses & prior permits
b. Duties, quotas, & taxes
c. Local/international registration of trademarks &
patents & enforcement
d. Property involved
• Know How
• Domain Names
• Trade Secrets
e. Transfer pricing and super royalties
f. IP - Export controls
Strategic Issue: Personnel Issues
a. Target country immigration and labor & employment
b. U.S. immigration and labor & employment issues
Strategic Issue: Tax Planning
a. Target country tax issues
b. U.S. taxation
• Income vs. value added vs.excise taxes vs. asset taxes
• Withholding obligations
• “Gross-up” provisions
• Treaty vs. Domestic & Foreign laws
Strategic Issue: Exit Strategies
a. Buy-Out Provisions
b. Dissolution Provisions
c. Repatriation of funds
• Entrepreneurial spirit should be encouraged
• Business risk analysis is appropriate
• But …
– Short term gains may not justify the real costs that
now accompany violations in a variety of areas
• And always remember …
– An ounce of prevention may be a better
investment than a pound of cure!
A particular slide catching your eye?
Clipping is a handy way to collect important slides you want to go back to later.