Clearing Regulatory Hurdles  When Selling Abroad: Export Controls, Anti-Bribery Laws, and Other Regulatory Issues Global G...
Disclaimer Attorney Advertising The information provided is believed to be accurate as of the date of the presentation, bu...
Objectives <ul><li>Introduce/review U.S. export controls basics for Ohio exporting companies, non-profit entities, entrepr...
Government Agencies  <ul><li>U.S. Bureau of Industry and Security (BIS) </li></ul><ul><li>U.S. Census Bureau </li></ul><ul...
Export Compliance <ul><li>Part of Overall Compliance Program </li></ul><ul><li>Upper Management “Buy-in” </li></ul><ul><li...
Export Compliance (cont’d) <ul><li>Basic Questions: </li></ul><ul><li>What  is to be exported? </li></ul><ul><li>Where  is...
<ul><li>U.S. Department of Commerce </li></ul><ul><li>Bureau of Industry and Security </li></ul>Attorney Advertising
Commercial Export Controls <ul><li>BIS implements and enforces  </li></ul><ul><li>Export Administration Regulations (EAR) ...
Commercial Export Controls (cont’d) <ul><li>Some General Prohibitions – 15 CFR §736  </li></ul><ul><li>Export and re-expor...
Export Administration Regulations  <ul><li>Govern “dual use” items, software and technologies </li></ul><ul><li>What is an...
Reasons for Control <ul><li>AT – Anti-terrorism </li></ul><ul><li>CB – Chemical and Biological Weapons </li></ul><ul><li>C...
Commerce Control List   <ul><li>10 Categories </li></ul><ul><li>0 – Nuclear Materials, Facilities and Equipment and Misc. ...
Commerce Control List (Cont’d) <ul><li>5 Product Groups </li></ul><ul><li>A  Systems, Equipment and Components </li></ul><...
EAR (cont’d) <ul><li>Entity List  – proliferators  </li></ul><ul><li>License required for exports and  re-exports   </li><...
Red Flags <ul><li>13 Red Flag Indicators  </li></ul><ul><li>Customer/address is similar to one on Denied Persons List </li...
<ul><li>U.S. Department of State </li></ul><ul><li>Directorate of Defense Trade Controls </li></ul>Attorney Advertising
Defense Trade Controls <ul><li>International Traffic in Arms Regulations – (ITAR) – 22 CFR 120, et seq. </li></ul><ul><li>...
Key ITAR Terms (cont’d) <ul><li>Defense Service – 120.9  </li></ul><ul><li>1. Providing assistance to foreign persons (in ...
Key ITAR Terms (cont’d) <ul><li>Technical data – 120.10 </li></ul><ul><li>1. Information required for design, development,...
ITAR Registration – Part 122 <ul><li>“ Any person” engaging in the U.S. in: </li></ul><ul><li>manufacture  or   export of ...
Agreements Subject to  DDTC Approval <ul><li>Manufacturing License Agreement (MLA)  </li></ul><ul><li>Technical Assistance...
Other Agreements <ul><li>Commercial agent – brokering reg (22 CFR Part 129) </li></ul><ul><li>NDA – joint research with un...
<ul><li>Other Export  </li></ul><ul><li>Compliance Concerns </li></ul>Attorney Advertising
Office of Foreign Assets Control (OFAC) <ul><li>What does it do?  </li></ul><ul><li>Administers and enforces sanction prog...
OFAC (cont’d) <ul><li>Country Sanctions Programs - Cuba, Iran, N. Korea, Sudan, Syria </li></ul><ul><li>Also: Balkans, Bel...
“ Deemed Export” Rule <ul><li>Technology subject to the EAR is “deemed” to be exported when it is released to a foreign na...
“ Deemed Export” Rule (cont’d) <ul><li>When does release/transfer/disclosure occur?  </li></ul><ul><li>When technology/tec...
“ Deemed Export” Rule - continued <ul><li>“ foreign national” – a person other than  </li></ul><ul><li>a U.S. citizen, U.S...
Anti-Boycott Regulations <ul><li>Cannot support boycott of Israel  </li></ul><ul><li>Caveat:  Not limited to Middle East <...
Anti-Boycott Regulations (cont’d) <ul><li>Examples: </li></ul><ul><li>Goods of Israeli origin not acceptable. </li></ul><u...
<ul><li>Anti-Corruption and  </li></ul><ul><li>Anti-Bribery Laws </li></ul>Attorney Advertising
Indices of Corruption <ul><li>Corruption Perception Index (2009)  </li></ul><ul><li>1. NZ Brazil - 75 </li></ul><ul><li>2....
Indices of Corruption (cont’d) <ul><li>Bribe Payers Index (2008) </li></ul><ul><li>Belgium and Canada shared first place w...
Foreign Corrupt Practices Act (FCPA) <ul><li>Criminal statute - Anti-bribery and Record-keeping provisions (15 U.S.C. §§78...
Foreign Corrupt Practices Act (cont’d) <ul><li>Very generally, prohibits parties from: </li></ul><ul><li>making or offerin...
Foreign Corrupt Practices Act (cont’d) <ul><li>Main Exception – </li></ul><ul><li>“ Facilitating Payment” aka “grease” pay...
Foreign Anti-Corruption Laws <ul><li>Do not overlook national laws </li></ul><ul><li>OECD Anti-Bribery Convention (1997) –...
Spotlight: India <ul><li>KPMG India Fraud Survey (2008) </li></ul><ul><li>84% companies surveyed believed paying bribes or...
Spotlight: India <ul><li>Prevention of Corruption Act (1998) </li></ul><ul><li>Focuses on “demand side” </li></ul><ul><li>...
Spotlight: India <ul><li>FCPA v. FCA </li></ul><ul><li>FCA does NOT permit facilitating payments </li></ul><ul><li>U.S. co...
<ul><li>Anti-bribery and anti-corruption recommendations: </li></ul><ul><li>-Create or enhance compliance programs </li></...
Successor Liability for Export Violations <ul><li>Due diligence is needed  </li></ul><ul><li>Successor liability imposed  ...
<ul><li>Successor Liability for Export Violations </li></ul>Attorney Advertising
Successor Liability for Export Violations <ul><li>Some due diligence items </li></ul><ul><li>- compliance program </li></u...
Successor Liability for Export Violations <ul><li>Discovery of violations  </li></ul><ul><li>voluntary-self-disclosure </l...
<ul><li>It’s all about compliance </li></ul>Attorney Advertising
Export Compliance Questions <ul><li>What  is to be exported? </li></ul><ul><li>Where  is its destination? </li></ul><ul><l...
Benefits of Compliance <ul><li>“ Effective compliance” = “great weight” mitigation </li></ul><ul><li>Burden on company to ...
Case Studies <ul><li>Entity List Violations </li></ul><ul><li>Valves </li></ul><ul><li>Multiple Penalties and Agencies </l...
Thank You <ul><li>Jon P. Yormick </li></ul><ul><li>Managing Attorney </li></ul><ul><li>Yormick & Associates </li></ul><ul>...
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Clearing Regulatory Hurdles Selling Abroad.032610

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When selling into foreign markets, a company must be aware of the variety of regulatory issues that may be triggered abroad – or else risk the possibility of significant penalties. Jon Yormick, the managing attorney of Yormick &amp; Associates, will give an overview of the types of regulations that every company should be aware of before entering foreign markets and will share his insights into how a company can manage its compliance obligations in a cost-effective manner.

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Clearing Regulatory Hurdles Selling Abroad.032610

  1. 1. Clearing Regulatory Hurdles When Selling Abroad: Export Controls, Anti-Bribery Laws, and Other Regulatory Issues Global Gateway Series Beachwood, Ohio March 26, 20109 Attorney Advertising Attorney Advertising
  2. 2. Disclaimer Attorney Advertising The information provided is believed to be accurate as of the date of the presentation, but is subject to change without notice. This presentation is designed for informational purposes only and is not intended to be, nor should it be deemed, specific legal advice. If such advice is required, please consult with qualified legal counsel.
  3. 3. Objectives <ul><li>Introduce/review U.S. export controls basics for Ohio exporting companies, non-profit entities, entrepreneurs, others exporting U.S.-origin commodities, software or technology </li></ul><ul><li>Encourage planning, compliance, and preventative strategies </li></ul>Attorney Advertising
  4. 4. Government Agencies <ul><li>U.S. Bureau of Industry and Security (BIS) </li></ul><ul><li>U.S. Census Bureau </li></ul><ul><li>U.S. Customs and Border Protection (CBP) </li></ul><ul><li>Office of Foreign Assets Control (OFAC) </li></ul><ul><li>U.S. Immigration and Customs Enforcement (ICE) </li></ul><ul><li>Directorate of Defense Trade Controls (DDTC) </li></ul><ul><li>Department of Justice (DOJ) </li></ul><ul><li>Securities and Exchange Commission (SEC) </li></ul>Attorney Advertising
  5. 5. Export Compliance <ul><li>Part of Overall Compliance Program </li></ul><ul><li>Upper Management “Buy-in” </li></ul><ul><li>Risk Management Tool </li></ul><ul><li>Cost Savings </li></ul>Attorney Advertising
  6. 6. Export Compliance (cont’d) <ul><li>Basic Questions: </li></ul><ul><li>What is to be exported? </li></ul><ul><li>Where is the destination? </li></ul><ul><li>Who is the end-user? </li></ul><ul><li>What is the end-use? </li></ul>Attorney Advertising
  7. 7. <ul><li>U.S. Department of Commerce </li></ul><ul><li>Bureau of Industry and Security </li></ul>Attorney Advertising
  8. 8. Commercial Export Controls <ul><li>BIS implements and enforces </li></ul><ul><li>Export Administration Regulations (EAR) – </li></ul><ul><li> 15 CFR § §730- 774 </li></ul><ul><li>Govern export and re-export of commercial goods, services, and technologies </li></ul><ul><li>“ Dual-use” items – commercial and military purpose </li></ul>Attorney Advertising
  9. 9. Commercial Export Controls (cont’d) <ul><li>Some General Prohibitions – 15 CFR §736 </li></ul><ul><li>Export and re-export of controlled U.S.-origin </li></ul><ul><li>items to prohibited country without export </li></ul><ul><li>license or license exception </li></ul><ul><li>Denial Order </li></ul><ul><li>Prohibited End Users or End Uses </li></ul><ul><li>Embargoed countries – who does U.S. have trouble with? Humanitarian aid requires license </li></ul><ul><li>Proceeding with transaction knowing it violates EAR, order, license or license exception </li></ul>Attorney Advertising
  10. 10. Export Administration Regulations <ul><li>Govern “dual use” items, software and technologies </li></ul><ul><li>What is an export? </li></ul><ul><li>actual shipment or transmission of items subject to the EAR out the U.S.; </li></ul><ul><li>release or disclosure, including verbal and visual inspection of technology, software or technical information </li></ul>Attorney Advertising
  11. 11. Reasons for Control <ul><li>AT – Anti-terrorism </li></ul><ul><li>CB – Chemical and Biological Weapons </li></ul><ul><li>CC – Crime Control </li></ul><ul><li>MT – Missile Technology </li></ul><ul><li>NS – National Security </li></ul><ul><li>NP – Nuclear Nonproliferation </li></ul><ul><li>UN – United Nations Embargo </li></ul>Attorney Advertising
  12. 12. Commerce Control List <ul><li>10 Categories </li></ul><ul><li>0 – Nuclear Materials, Facilities and Equipment and Misc. </li></ul><ul><li>1 – Materials, Chemical, “Microorganisms,” and Toxins </li></ul><ul><li>2 – Materials Processing </li></ul><ul><li>3 – Electronics </li></ul><ul><li>4 – Computers </li></ul><ul><li>5 – Telecommunications and Information Security </li></ul><ul><li>6 – Lasers and Sensors </li></ul><ul><li>7 – Navigation and Avionics </li></ul><ul><li>8 – Marine </li></ul><ul><li>9 – Propulsion Systems, Space Vehicles and Related Equipment </li></ul>Attorney Advertising
  13. 13. Commerce Control List (Cont’d) <ul><li>5 Product Groups </li></ul><ul><li>A Systems, Equipment and Components </li></ul><ul><li>B Test, Inspection and Production Equipment </li></ul><ul><li>C Material </li></ul><ul><li>D Software </li></ul><ul><li>E Technology </li></ul>Attorney Advertising
  14. 14. EAR (cont’d) <ul><li>Entity List – proliferators </li></ul><ul><li>License required for exports and re-exports </li></ul><ul><li>Last updated – February 19, 2010 </li></ul><ul><li>Armenia, Canada, China, Egypt, Germany, HK, India, Iran, Ireland, Israel, Kuwait, Lebanon, Malaysia Pakistan, Russia, Singapore, S. Korea, Syria, Taiwan, UAE, and UK </li></ul><ul><li>Supp. No. 4 to Part 744 </li></ul>Attorney Advertising
  15. 15. Red Flags <ul><li>13 Red Flag Indicators </li></ul><ul><li>Customer/address is similar to one on Denied Persons List </li></ul><ul><li>Reluctance to give information about end-use </li></ul><ul><li>Willingness to pay cash for expensive items </li></ul><ul><li>Shipping route is unusual for product and destination </li></ul>Attorney Advertising
  16. 16. <ul><li>U.S. Department of State </li></ul><ul><li>Directorate of Defense Trade Controls </li></ul>Attorney Advertising
  17. 17. Defense Trade Controls <ul><li>International Traffic in Arms Regulations – (ITAR) – 22 CFR 120, et seq. </li></ul><ul><li>Govern “defense articles” and “defense </li></ul><ul><li>services” </li></ul>Attorney Advertising
  18. 18. Key ITAR Terms (cont’d) <ul><li>Defense Service – 120.9 </li></ul><ul><li>1. Providing assistance to foreign persons (in U.S. or abroad) in the: </li></ul><ul><li>design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles </li></ul><ul><li>2. Furnishing to foreign persons technical data controlled under the USML </li></ul>Attorney Advertising
  19. 19. Key ITAR Terms (cont’d) <ul><li>Technical data – 120.10 </li></ul><ul><li>1. Information required for design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. </li></ul><ul><li>Blueprints, drawings, photos/videos, plans, instructions or documentation </li></ul><ul><li>2. Classified information relating to defense articles and defense services </li></ul><ul><li>Does NOT include scientific, math or engineering principles taught in schools, information in the public domain, or basic marketing </li></ul>Attorney Advertising
  20. 20. ITAR Registration – Part 122 <ul><li>“ Any person” engaging in the U.S. in: </li></ul><ul><li>manufacture or export of defense articles; or </li></ul><ul><li>furnishing defense services </li></ul><ul><li>9/25/08 – New Rule: </li></ul><ul><li>Annual renewal </li></ul><ul><li>3 tier registration system </li></ul>Attorney Advertising
  21. 21. Agreements Subject to DDTC Approval <ul><li>Manufacturing License Agreement (MLA) </li></ul><ul><li>Technical Assistance Agreement (TAA) </li></ul><ul><li>Warehouse and Distribution Agreements </li></ul><ul><li>DDTC approval and required language </li></ul>Attorney Advertising
  22. 22. Other Agreements <ul><li>Commercial agent – brokering reg (22 CFR Part 129) </li></ul><ul><li>NDA – joint research with universities </li></ul><ul><li>“ Fundamental research” – 15 CFR 734.8 </li></ul><ul><li>Key: Public release </li></ul>Attorney Advertising
  23. 23. <ul><li>Other Export </li></ul><ul><li>Compliance Concerns </li></ul>Attorney Advertising
  24. 24. Office of Foreign Assets Control (OFAC) <ul><li>What does it do? </li></ul><ul><li>Administers and enforces sanction programs against foreign countries, terrorists, narco-traffickers, and WMD proliferators </li></ul><ul><li>Focuses on money – front companies, banks, drug traffickers </li></ul>Attorney Advertising
  25. 25. OFAC (cont’d) <ul><li>Country Sanctions Programs - Cuba, Iran, N. Korea, Sudan, Syria </li></ul><ul><li>Also: Balkans, Belarus, Burma (Myanmar), Cote d’Ivorie, Democratic Republic of the Congo, Iraq, Zimbabwe </li></ul><ul><li>Destination of Diversion Concern: UAE </li></ul>Attorney Advertising
  26. 26. “ Deemed Export” Rule <ul><li>Technology subject to the EAR is “deemed” to be exported when it is released to a foreign national within the U.S. </li></ul><ul><li>“ Technology” is specific information needed to develop, produce or use a controlled product </li></ul><ul><li>ITAR – “technical data” </li></ul>Attorney Advertising
  27. 27. “ Deemed Export” Rule (cont’d) <ul><li>When does release/transfer/disclosure occur? </li></ul><ul><li>When technology/technical data is made available </li></ul><ul><li>to a foreign national: </li></ul><ul><li>For visual inspection – reading technical specifications, blueprints, drawings, plans; </li></ul><ul><li>Oral exchange; or </li></ul><ul><li> By practice or application under guidance of those with knowledge – think training </li></ul>Attorney Advertising
  28. 28. “ Deemed Export” Rule - continued <ul><li>“ foreign national” – a person other than </li></ul><ul><li>a U.S. citizen, U.S. permanent resident (“green card” holder) or “protected individual” (e.g., political refugee or asylee) </li></ul><ul><li>H-1B workers - largest group potentially needing deemed export license </li></ul>Attorney Advertising
  29. 29. Anti-Boycott Regulations <ul><li>Cannot support boycott of Israel </li></ul><ul><li>Caveat: Not limited to Middle East </li></ul><ul><li>China, India, Indonesia, Malaysia, Taiwan </li></ul><ul><li>Office of Antiboycott Compliance </li></ul>Attorney Advertising
  30. 30. Anti-Boycott Regulations (cont’d) <ul><li>Examples: </li></ul><ul><li>Goods of Israeli origin not acceptable. </li></ul><ul><li>(PO from Bahrain) </li></ul><ul><li>Does your company have a plant in Israel; has it sold </li></ul><ul><li>to Israel; does it own shares in an Israeli firm; has it </li></ul><ul><li>provided services to an Israeli firm; granted IP rights to </li></ul><ul><li>an Israeli firm? </li></ul><ul><li>(POA from Lebanese company) </li></ul>Attorney Advertising
  31. 31. <ul><li>Anti-Corruption and </li></ul><ul><li>Anti-Bribery Laws </li></ul>Attorney Advertising
  32. 32. Indices of Corruption <ul><li>Corruption Perception Index (2009) </li></ul><ul><li>1. NZ Brazil - 75 </li></ul><ul><li>2. Denmark Russia - 146 </li></ul><ul><li>19. USA India - 84 </li></ul><ul><li>179. Afghanistan China - 79 </li></ul><ul><li>180. Somalia </li></ul>Attorney Advertising
  33. 33. Indices of Corruption (cont’d) <ul><li>Bribe Payers Index (2008) </li></ul><ul><li>Belgium and Canada shared first place with a score of 8.8 out of a very clean 10, indicating Belgian and Canadian firms are seen as least likely to bribe abroad. The Netherlands and Switzerland shared third place. Russia ranked last with a score of 5.9, just below China (6.5), Mexico (6.6) and India (6.8). </li></ul><ul><li>The BPI also shows public works and construction companies to be the most corruption-prone when dealing with the public sector, and most likely to exert undue influence on the policies, decisions and practices of governments. </li></ul>Attorney Advertising
  34. 34. Foreign Corrupt Practices Act (FCPA) <ul><li>Criminal statute - Anti-bribery and Record-keeping provisions (15 U.S.C. §§78dd-1, et seq .) </li></ul><ul><li>In general applies to: </li></ul><ul><li>publicly-traded (domestic and foreign) and private parties; companies and individuals including foreign nationals in the U.S. and U.S. persons abroad and U.S. and foreign agents </li></ul><ul><li>Need written compliance policy, training, include confirmation by foreign agents, etc. </li></ul>Attorney Advertising
  35. 35. Foreign Corrupt Practices Act (cont’d) <ul><li>Very generally, prohibits parties from: </li></ul><ul><li>making or offering to make corrupt payments of value (money, gifts, etc.) to foreign officials or political parties for the purpose of obtaining or retaining business – corrupt intent </li></ul><ul><li>Q: What about officials of state-owned companies? </li></ul>Attorney Advertising
  36. 36. Foreign Corrupt Practices Act (cont’d) <ul><li>Main Exception – </li></ul><ul><li>“ Facilitating Payment” aka “grease” payment </li></ul><ul><li>Payment made to facilitate or expedite “routine government action” - utility service; load/unload cargo; inspections </li></ul>Attorney Advertising
  37. 37. Foreign Anti-Corruption Laws <ul><li>Do not overlook national laws </li></ul><ul><li>OECD Anti-Bribery Convention (1997) – </li></ul><ul><li>38 countries </li></ul>Attorney Advertising
  38. 38. Spotlight: India <ul><li>KPMG India Fraud Survey (2008) </li></ul><ul><li>84% companies surveyed believed paying bribes or making facilitating payments is necessary </li></ul><ul><li>Lack of penalties; political patronage </li></ul>Attorney Advertising
  39. 39. Spotlight: India <ul><li>Prevention of Corruption Act (1998) </li></ul><ul><li>Focuses on “demand side” </li></ul><ul><li>Payers – aiding and abetting </li></ul>Attorney Advertising
  40. 40. Spotlight: India <ul><li>FCPA v. FCA </li></ul><ul><li>FCA does NOT permit facilitating payments </li></ul><ul><li>U.S. corporate trend – prohibiting facilitating payments </li></ul><ul><li>Due diligence to review payments </li></ul>Attorney Advertising
  41. 41. <ul><li>Anti-bribery and anti-corruption recommendations: </li></ul><ul><li>-Create or enhance compliance programs </li></ul><ul><li>*Coordinate US and local compliance </li></ul><ul><li>-Actively review and monitor </li></ul>Attorney Advertising
  42. 42. Successor Liability for Export Violations <ul><li>Due diligence is needed </li></ul><ul><li>Successor liability imposed </li></ul><ul><li>asset or stock purchase </li></ul><ul><li>regardless of indemnity provisions </li></ul>Attorney Advertising
  43. 43. <ul><li>Successor Liability for Export Violations </li></ul>Attorney Advertising
  44. 44. Successor Liability for Export Violations <ul><li>Some due diligence items </li></ul><ul><li>- compliance program </li></ul><ul><li>- export documents </li></ul><ul><li>- personnel </li></ul><ul><li>deemed exports </li></ul>Attorney Advertising
  45. 45. Successor Liability for Export Violations <ul><li>Discovery of violations </li></ul><ul><li>voluntary-self-disclosure </li></ul><ul><li>negotiate price, indemnity, other terms </li></ul><ul><li>short honeymoon </li></ul><ul><li>walk-away </li></ul>Attorney Advertising
  46. 46. <ul><li>It’s all about compliance </li></ul>Attorney Advertising
  47. 47. Export Compliance Questions <ul><li>What is to be exported? </li></ul><ul><li>Where is its destination? </li></ul><ul><li>Who is the end-user? </li></ul><ul><li>What is the end-use? </li></ul>Attorney Advertising
  48. 48. Benefits of Compliance <ul><li>“ Effective compliance” = “great weight” mitigation </li></ul><ul><li>Burden on company to show effective compliance program: </li></ul><ul><li>- risk analysis performed </li></ul><ul><li>- written compliance program </li></ul><ul><li>- senior management </li></ul><ul><li>- training </li></ul><ul><li>- screening of parties/transactions </li></ul><ul><li>- process to report violations </li></ul><ul><li> </li></ul>Attorney Advertising
  49. 49. Case Studies <ul><li>Entity List Violations </li></ul><ul><li>Valves </li></ul><ul><li>Multiple Penalties and Agencies </li></ul>Attorney Advertising
  50. 50. Thank You <ul><li>Jon P. Yormick </li></ul><ul><li>Managing Attorney </li></ul><ul><li>Yormick & Associates </li></ul><ul><li>[email_address] </li></ul><ul><li>Toll Free: +1.866.967.6425 </li></ul><ul><li>Mobile: +1.216.269.5138 </li></ul><ul><li>Fifth Third Center – Suite 1300 </li></ul><ul><li>600 Superior Ave., E. </li></ul><ul><li>Cleveland, Ohio USA </li></ul>Attorney Advertising

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