FCPA, Sanctions, Export, & Antiboycott Compliance

Charlie Parker 713-632-8000

Cam Barker 512-533-0150

The Law

• US PERSONS CANNOT: – Bribe foreign government officials –

FCPA – Enter into transactions with

Sanctioned Countries – Sanctions Regulations

– Enter into transactions with specific individuals and entities – Sanctions Regulations

– Export or disclose controlled goods, services, software or technology without a license – ITAR & EAR

– Participate in non-US sponsored embargos - Antiboycott

Tone at the Top

• Sentencing Guidelines – “to have an effective compliance and

ethics program…an organization shall…promote an organizational structure that encourages ethical conduct and a commitment to compliance with the law.”

Tone at the Top

• No paper Compliance Program • Training, Training, Training

Penalties -FCPA

• Business – Maximum fine of $2,000,000 per violation or twice the gross loss or gain

• Individuals – Maximum fine of $250,000 or twice the gross loss or gross gain; imprisonment of not more than five years; or both

Penalties –Sanctions & Exports

• Administrative – Civil:

• > of $250,000 or 2x value of the transactions Denial of export privileges

– Criminal: • $1,000,000; 20 years

Penalties • KBR

– $559 million settlement – Monitor 3 years – CEO – 84 month prison sentence

• Baker Hughes – $44 million in sanctions – Monitor and organizational probation for

3 years

• Willbros Group – $32.3 million settlement – Monitor 3 years

• Dresser – Energy equipment to Iran, Libya & Cuba

• $1.1 million settlement

DOJ Focus

• DOJ Fraud Division is actively investigating FCPA

• DOJ created National Export Control Coordinator to improve the investigation and prosecution of illegal exports

US Foreign Corrupt Practice Act

• Two different approaches – Anti-bribery Sections – Books and Records Sections

FCPA- Anti-bribery

• Unlawful: – To offer or anything of value – To a foreign official

• To influence an official act, • induce to do or omit to do any act in

violation of lawful duty, • to secure an improper advantage, or • to use influence with the government to

affect or influence any act or decision of the government

• To obtain, retain or direct business to any person

Obtain or Retain Business

• DOJ/SEC view of what violates FCPA includes payments beyond those directly related to any contract or business;

• “obtain or retain business” includes all payments that provide a competitive advantage;

• Could include incentives to officials for favorable customs/sales tax rulings (i.e., to reduce payments your company would otherwise have to make)

FCPA – Who is Covered

• Issuer – essentially any company whose stock is traded in the U.S.

• Domestic concern – U.S. citizen, national, resident, or a U.S. company or a company with its principal place of business in the U.S. or officers, directors, stockholders, employees, and agents of such an entity

• Any person, if acting in U.S. territory • Any U.S. national or U.S. company

acting outside the U.S. – requires no use of interstate commerce

FCPA- Foreign Official • Any officer or employee of a foreign

government, department, entity or instrumentally of such government

INCLUDING: – Any person acting in an official capacity – Third parties hired to review and accept bids for

government agency; – Uncompensated honorary/ceremonial officials

if they have actual influence in award of business;

– Government owned corporation/company

• Any foreign political party or official or candidate for foreign political office

• Any officer or employee of a public international organization: World Bank, IMF, Olympic Committee

FCPA Exception

• Facilitating payment • Small Payment to expedite the

performance of non-discretionary, legitimate and customary duties such as mail delivery, electricity, visas.

FCPA Affirmative Defenses

• Payments permitted by local law; – Limited government statutes –

something that is customary is not sufficient

• Gifts/promotional expenses – but must be: – Customary and reasonable; – Directly related to either the

promotion or explanation of the company’s products or services;

– Not directly related to obtaining/ retaining business

FCPA – Books and Records

• Keep books, records and accounts, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer – Record-Keeping provision do not

require any showing of materiality, regardless of the amount of any transactions

– All transactions must be recorded

FCPA – Books and Records

• No person shall knowingly – Circumvent or fail to implement a

system of internal accounting controls or

– Knowingly falsify any book, record, or account

• Criminal liability applies

Problem Areas

• Facilitating/Grease Payments • Use of Agents/Representatives • Shipping Agents • Promotional Activities • Gifts and Entertainment • Travel Expenses • Taxes

Compliance Strategies Facilitating/Grease Payments

• Place complete or other restrictions to keep employees from blanket acceptance of country culture;

• Require employees to make formal written request to make payments;

• Monitor and properly record facilitation payments.

Compliance Strategies for Agents

• Perform due diligence on Agent/Reps/Contractors including shipping agents) – Require completion of the questionnaire – Check reference – Check whether compensation is

reasonable – May need to conduct interview

• Require a written agreement with specific anti-corruption clauses

• Require annual certification of compliance – No ownership by public official – No violation of anti-corruption laws

Compliance Strategies for Promotional Activities/ Gifts and

Entertainment • Where possible pay for expenses (e.g.,

airfare) directly • Per diem payments should not be

excessive and should be tied to a standard or reasonable estimate where possible

• If possible pay per diem’s to the government, not the individual

• Let the government select the individual that will be traveling and notify you in writing

• Properly documents the reason for any trip and all costs

• Set approval limits

Political Contributions

• Company should consider whether political contributions will be allowed

Compliance Strategies for Donations to Charities/Community

Development

• Perform due diligence on the charities – Verify that not owned or controlled by

public officials (or their relatives) or terrorist organization, etc.

– Is this a reputable charity

• The donation should generate publicity and goodwill for the company and demonstrate commitment to the community

• Get written commitment from government that the funds will only be used for the project.

Sanctions Basics

• In general, Sanctions programs require: – Blocking of property – No imports from or through the

sanctioned country – No exports to or through the

sanctioned county – No facilitation of such transactions

Who Licenses Exports?

• Bureau on Industry and Security (BIS) • Directorate of Defense Trade Controls

(DDTC) • Offices of Foreign Assets Control (OFAC) • Arms & Control & Disarmament Agency • Nuclear Regulatory Commission • Department of Energy • Defense Technology Security Administration • Department of the Interior • Drug Enforcement Administration • Food and Drug Administration • Patent and Trademark Office • Environmental Protection Agency

Bureau of Industry and Security

• Department of Commerce • Most comprehensive source • All items not controlled elsewhere • Maintains the Commerce Control

List • Export Control Classification

Numbers • Denial List, Entity List; Unverified

List • Antiboycott Compliance

Offices of Foreign Assets Control

• Enforce Economic and Trade Sanctions

• Specific Countries • Anti-Terrorism • Narcotics Traffickers • Non-proliferation • Diamond Trading • Specifically Designated Nationals

and Blocked Persons List (SDN List)

Country Based Sanctions

• US Person cannot provide its goods, technology, or services to the following without a license(s): – Cuba, any Cuban national, company

organized in Cuba, or any other person entity if US Person knows it will be used to benefit Cuba

– Burma (natural resources related contracting)

– Iran – Syria – Sudan – North Korea (impacts imports, vessels,

exports subject to EAR)

Facilitation

• USA Persons, wherever located, may not be involved in transactions associated with Sanctioned countries persons or entities, such as: – Business planning – Legal planning – Decision making – Approval of transaction – Designing, ordering, transporting goods – Financial, insurance, warranties,

guarantees or backing other risks – Change its or subs policies or operating

procedures – Refer POs, RFPs, or other business

opportunities

Sanctions Checklist

• Written Sanctions Policy • Written procedures for checking

representatives, customers • Sales to Sanctioned destinations • OFAC Licenses • Interdiction Software • Non-US Affiliates with US Persons • Product mix (e.g., Oilfield equip or

service?)

Export Controls What is an Export?

• “An actual shipment or transmission of items out of the United States”

• Disclosure of technology to foreign national

• Transmission of electronic data that will be received abroad

• Items produced abroad using US technology

• Reexport of previously exported items

• Making technology available on the Internet

What is Controlled?

• Commodities, products, tangible things

• Software • Technology • Technical data • Technical Know-how • Services

Deemed Export Rule

• Any release of technology or source code to a foreign national – Visual inspection of U.S. –origin

equipment or facilities – Oral exchanges of information in US or

abroad – The application to situations abroad of

personal knowledge or technical experience acquired in the U.S.

Commercial Goods or Technology

• Commerce Controlled List Items – Identifies items controlled for national

security, missile tech, non-proliferation, antiterrorism

• Export Control Classification Number (ECCN) determines if license in required – Some Exceptions apply

• Can I ship this product to this person in that country?

Export Checklist

• Documented policy and procedures • ECCN Classification • Technology transfer issues

– H1B Visa holders – Affiliates (IT access restrictions, global

engineering)

Antiboycott - Prohibitions

• Agreements to refuse to do business with or furnishing info about your relationships with Israel or blacklisted companies

• Agreements to discriminate or furnish info concerning race, religion, sex, national origin, nationality

• Implementing letters of credit that contain prohibited boycott terms or conditions

Antiboycott – 2 Laws • EAR §760

– Same penalties as above – Quarterly reporting requirements

• IRS – Lose foreign tax credit – Annual tax form must be submitted

Antiboycott – Look for:

• Contract Clauses • Purchase order clause • Tender documents • Letter of Credit • Customs Forms • Power of attorney form • Trademark application form

Antiboycott – Yes, it is a problem

• 7/13/07 – Dresser, Inc. failed to report 9 requests from Pakistan.

• 5/16/07 - Cooper, Inc. transmitted info regarding relationship with Israel to Kuwait and UAE

• 11/17/05 – Oceanic Container Line, Inc. eligibility of vessel to enter port of Qatar.

Constraints

• Foreign Blocking Statutes – Canada – Must report to Canadian

government any restraint or trading with Cuba; Can’t agree to restraint on trade on Cuba;

– EU – Each EU country has implemented blocking statutes;

– Mexico

Constraints

• U.K./E.U. Privacy Laws – Can’t share personal information with a US person.

Constraints

909 Fannin Street, Suite 3600 Houston, Texas 77010 phone 713.632.8026

fax 713.632.8002

221 West 6th Street, Suite 750 Austin, Texas 78701 phone 512.533.0150

fax 512.533.0120

info@yettercoleman.com www.yettercoleman.com