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Jackson Walker L.L.P.
   Strategic Issues and Legal
  Challenges in Global Business
    and Foreign Investments
          ...
For International Business …

•   The opportunities are exciting.

•   The potential rewards are great.

•   But … for tho...
For example:

• U.S. exporters need to be VERY vigilant and must
  comply with U.S. export control laws.
   – Some buyers ...
And, it isn’t just the bad guys who get in trouble …
•   Thermon Manufacturing Company, San Marcos, TX remitted
    $14,61...
So … U.S. business persons need to:

• Do their homework in advance

• Budget for compliance initiatives sooner rather tha...
Strategic Issue: Compliance with U.S. Laws
  a. Sector-specific regulatory requirements (e.g., FDA
     registration/appro...
U.S. Export Controls

• The Bureau of Industry and Security (BIS), within
  Department of Commerce, responsible for implem...
Goods Subject to the EARs
•   EARs provide all items in the U.S., including in a U.S. FTZ or
    moving in transit through...
Export Control Violations
• Administrative penalties include termination of export
  privileges and suspension and/or term...
A Key Don’t …
• Don't make an intentionally false or misleading
  statement to BIS.

   – Carol Wilkins individually fined...
Bribery

• A company that encounters a bribe request or considers
  offering a bribe faces four risks:
   – Criminal prose...
FOREIGN CORRUPT PRACTICES ACT
•   15 U.S.C § 78 dd-1 et seq. (Enforced by the SEC & Department of Justice)

• What Does th...
The FCPA Permits …
• Certain Facilitating or Expediting Payments
   – Obtaining permits, licenses to qualify an entity to ...
Strategic Issue: Understanding Target Market
  a. Cultural issues (e.g., certain goods unacceptable)

  b. Preference for ...
Business Structuring Options
• Direct Foreign              • Driven by:
  Presence                       – Target country ...
Business Structuring Options
• Indirect Foreign          • Considerations
  Presence                     – Local Restricti...
Business Structuring Options
• No Foreign Presence
                              Of paramount importance
  – Export by U.S...
Additional Contract Issues
• U.N. Convention on the International Sale of Goods
  (CISG)
    – “Gap filling” rules
    – P...
Additional Contract Issues

• Governing Law                  •   Payment Issues
• Authority (Apparent/Express)   •   Enfor...
• Governing Law
  Applicable laws:
      • U.S. mandatory laws
                                 •   What law will control ...
• Governing Language
  – Enforceability
    concerns

  – Registration
    Requirements

  – Interpretation issues

  – Du...
Strategic Issue: Movement & Protection of Goods
and Intellectual Property
  a. Registrations, licenses & prior permits
  b...
Strategic Issue: Personnel Issues
  a. Target country immigration and labor & employment
     requirements

  b. U.S. immi...
Strategic Issue: Tax Planning

  a. Target country tax issues
  b. U.S. taxation

  •   Income vs. value added vs.excise t...
Strategic Issue: Exit Strategies

   a. Buy-Out Provisions
   b. Dissolution Provisions
   c. Repatriation of funds
Final Thoughts

• Entrepreneurial spirit should be encouraged
• Business risk analysis is appropriate
• But …
   – Short t...
Jw   Uhd   Strategic Issues  Legal Challenges In Global Business  Foreign Investment   10 15 09 Streamlined Final
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Jw Uhd Strategic Issues Legal Challenges In Global Business Foreign Investment 10 15 09 Streamlined Final

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IB&L Presentation by Arcie Jordan, Jackson Walker, LLC
October 2009

Published in: Business
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Transcript of "Jw Uhd Strategic Issues Legal Challenges In Global Business Foreign Investment 10 15 09 Streamlined Final"

  1. 1. 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 512.236.2209 (p) ajordan@jw.com
  2. 2. 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 arise. • Adequate advance research & planning are absolutely essential in dealing with such challenges.
  3. 3. For example: • 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.
  4. 4. 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 per violation.
  5. 5. So … U.S. business persons need to: • Do their homework in advance • Budget for compliance initiatives sooner rather than later • Prioritize compliance throughout the life of their international business activities • Be vigilant in maintaining compliance in the face of evolving standards & requirements
  6. 6. Strategic Issue: Compliance with U.S. Laws a. Sector-specific regulatory requirements (e.g., FDA registration/approval) b. Federal Trade Regulations (FTRs) • Old SED filing requirement • Now EEI filings in Automated Export System (AES) required c. Export controls d. Anti-bribery & Anti-corruption prohibitions • Foreign Corrupt Practices Act • Target country laws • OECD Convention
  7. 7. 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 commercial items. – 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
  8. 8. 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.
  9. 9. 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 individual.
  10. 10. 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 fined $190,000.) – From 2002-2003, RF Micro Devices, Inc. exported spread-spectrum modems (which are classified as ECCN 5A001) to China, without a license.
  11. 11. Bribery • 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 destabilization • Development of individual corporate codes/policies and incorporating them into corporate culture is paramount.
  12. 12. 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 five elements. • 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 indirectly; • to any foreign official, foreign political party of foreign political candidate; • 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.
  13. 13. 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 domestic laws. • 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.
  14. 14. Strategic Issue: Understanding Target Market a. Cultural issues (e.g., certain goods unacceptable) b. Preference for “local” company vs. attraction of a “foreign” company 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
  15. 15. Business Structuring Options • Direct Foreign • Driven by: Presence – Target country regulations, e.g.: • 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 corporate citizen) – Bilateral & Multilateral treaty provisions
  16. 16. Business Structuring Options • Indirect Foreign • Considerations Presence – Local Restrictions – Ability to Terminate – Noncompetition – Distribution Restrictions – Agency – Exclusivity & Territory – Marketing – Permanent representative Establishment Issues – Franchise Disclosure – Licensing/Franchising Obligations • U.S. Law • Local Law
  17. 17. 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 & Risks – Delivery & Payment
  18. 18. Additional Contract Issues • U.N. Convention on the International Sale of Goods (CISG) – “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. 01, 2011
  19. 19. Additional Contract Issues • Governing Law • Payment Issues • Authority (Apparent/Express) • Enforceability Issues • Governing Language • Notifications • Dispute • Force Majeure Resolution/Jurisdiction • Formalities Required • Currency Restrictions
  20. 20. • Governing Law Applicable laws: • U.S. mandatory laws • What law will control validity (tax, export controls, and performance of contract? antitrust) • 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 jurisdiction. • Dual law and jurisdiction clauses. • Possibility of a neutral choice of law.
  21. 21. • Governing Language – Enforceability concerns – Registration Requirements – Interpretation issues – Dual Language Contracts
  22. 22. 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 • Trademarks • Patents • Domain Names • Copyrights • Trade Secrets e. Transfer pricing and super royalties f. IP - Export controls
  23. 23. Strategic Issue: Personnel Issues a. Target country immigration and labor & employment requirements b. U.S. immigration and labor & employment issues
  24. 24. 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 • Unbundling • Treaty vs. Domestic & Foreign laws
  25. 25. Strategic Issue: Exit Strategies a. Buy-Out Provisions b. Dissolution Provisions c. Repatriation of funds
  26. 26. Final Thoughts • 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!
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