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March 2012 - Business Law & Order - Richard G. Goetz


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Export/Import; Customs; Considerations in Forming Entities

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March 2012 - Business Law & Order - Richard G. Goetz

  1. 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. 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. 3. Ethics2011 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. 4. Doing Business World Bank Group Doing Business 2011 Report Country Rank Country RankNew 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 20. THANK YOU Richard G. GoetzInternational Practice Group Leader Dykema Gossett PLLC Detroit Office 400 Renaissance Center Detroit, MI 48243 (313) 568-5390