5 ways corporations can avoid international liability

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5 Ways Corporations Can Avoid International

Liability

Florida Bar Continuing Legal Education Committee International Law Section of the Florida Bar

Santiago A. Cueto, Esq.Board Certified International Attorney

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Top 5 Areas of International Liability Risk

1. 1. Employment Laws2. 2 Privacy and Data Laws3. 3. Products Liability4. 4. Alien Tort Claims Act5. 5. Import/Export Control Laws

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Sources of International Liability for U.S. Companies:

Extraterritorial application of U.S. Law

Application of Foreign Law

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U.S. Law Presumes No Extraterritorial Application UnlessCongressional Intent as Reflected in Plain Meaning of Statute.

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Many U.S. laws have extraterritorial application that may apply if your business:

• Employs U.S. citizens abroad;• Has subsidiaries or affiliated organizations operating

abroad;• Enters into contracts to supply products with

international parties; • Exports goods or services; or• Has business operations that could implicate human

rights issues.

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Extraterritorial Application of U.S. Employment Law

1. Title VII of 1964 Civil Rights Act

2. Americans with Disabilities Act

3. Age Discrimination and Employment Act

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AA

Who’s Covered? A U.S. Citizen employed Outside the U.S..

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Threshold Question

How many employees employed by employer?

ADEA--- 20 or more Title VII and ADA --- 15 or more.

Count = total employed in U.S and Foreign Branches

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Still Must Meet Several Factors

1. Employer incorporated in U.S. or foreign branch of U.S. company.

2. Not incorporated in U.S. but sufficient minimum contacts.

3. Non U.S. company controlled by a U.S. Company

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Defenses

1. Foreign Law Defense

2. Foreign Sovereign Compulsion Defense

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1st Way to Avoid International Liability:

Comply with U.S. Employment Laws Overseas.

• Educate• Establish Written Policies for

nondiscrimination• Set-up Complaint Handling Mechanism• Investigate complaints• Review Employment Agreements

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Countries across the world have a variety of data protection laws, in the form of secrecy laws, privacy statutes and blocking statutes.

Commercial secrecy laws typically protect corporate and banking data.

Privacy statutes typically protect consumers and their personal information. Blocking statutes have typically been enacted for the express purpose of frustrating U.S. discovery.

Foreign Privacy/Data Laws

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European Union Privacy Laws

Privacy laws in the European Union derive from EU Directive 95/46/EC and protect personal data from disclosure in virtually all cases.

Switzerland, France and the United Kingdom, for example, have enacted blocking statutes that restrict discovery of information meant for disclosure in a foreign jurisdiction.

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E European Union Privacy Laws

Two important ways to legitimize the release of data in in the EU:

1. Data may be released if the data subject gives their unambiguous consent.

2. Data may be released if necessary to comply with a “legal obligation.” Although this provision is strictly interpreted, a US court order directing a company to produce data from a European subsidiary would most likely constitute a legal obligation. This may vary among EU member states. France, for example, has demonstrated an unwillingness to authorize the release of data pursuant to a foreign court order.

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Other Data Protection Laws Affecting

U.S. CompaniesChina: The State Secrecy Law is implicated when any information is deemed by the Chinese government to be a state secret, which may include civil matters when the government is involved (e.g., as an owner). The Unfair Competition Law is for the protection of commercial secrets.

Hong Kong: The Personal Data (Privacy) Ordinance of 1995 has a provision for the onward transfer of personal data that requires that there be a reasonable belief that any personal data transferred outside Hong Kong without consent is transmitted only to a recipient operating under similar privacy laws. Bank secrecy is contractual instead of statutory.

Japan: The Personal Information Protection Act of 2003 protects personal data and does not allow un-consented transfers of personal data to third parties, with the exception of certain outsourcing companies (e.g., payroll processing). It also has notice and opt-out provisions. Japan protects commercial secrets under the Unfair Competition Prevention Act.15

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2nd Way to Avoid International Liability:Comply with Foreign Privacy/Data Laws.For example, one often overlooked mechanism to streamline issues concerning the exchange of data in the EU is the US-European Union Safe Harbor Framework. The Framework offers a more simple and efficient means of complying with the adequacy requirements of EU privacy laws, which should particularly benefit small and medium enterprises.

The Framework applies only to US companies and allows for transfers of data without prior approval. A certification form can be found at the U.S. Department of Commerce’s Safe Harbor Self-Certification website.

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U.S. Liability for Foreign-Made Goods

Managing suppliers and preventing supply-chain failures is critical for U.S. manufacturers because of the potential risk that many products pose to their end-users.

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U.S. Liability for Foreign-Made Products

Generally, anyone in the chain of commercial distribution of a consumer product, including manufacturers, importers or other intermediate distributors, and retail sellers, may be liable if the product is defective and injures someone .

U.S. companies that provide product design specifications to foreign manufacturers or that put their own name on a foreign-made product so that it appears to consumers that the importer is actually the product’s manufacturer face additional risk potential.

Because U.S. companies potentially bear the burden of litigation, they may be importing liability along with the products they receive from foreign suppliers. 

Even if no lawsuit, result in substantial expense for U.S. importers.

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Take Control of Your Global Supply Chain

• Improve Supplier Qualification Practices.

• Expand the Use of Audit Procedures.  

• Verify Supply Chain Integrity and Safety. 

• Shifting Risk Back to the Supplier. 

3rd Way to Avoid International Liability:

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International Liability under the Alien Tort Claims Act

Enacted by the First Congress in 1789 as part of the original Judiciary Act.

The statute simply provides that “[t]he district courts shall have original jurisdiction over any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”

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Alien Tort Claims Act

Foreign citizens are increasingly targeting US companies in lawsuits which claim that the company acted in concert with foreign governments, or rogue elements within a foreign country, to commit torture, rape, murder, genocide or a host of other human rights violations.

Current circuit split will likely lead to a continued increase in ATCA filings against corporations in the U.S. courts for events having no conceivable relation to the corporations’ primary business activities or to the United States.

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4th Way to Avoid International Liability: Use Strategic Contract Language

Limit exposure to "aiding and abetting liability" claims by including contractual language that:

• expressly defines the duties of each party;• puts in place limitations on liability, and, where appropriate, • states that the US company has no authority to direct, supervise or

otherwise control any actions of any foreign government employee; and

• mandates that all parties shall comply with all applicable domestic and international laws.

These same contractual provisions should be included in agreements with foreign contractors that US companies hire.

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Import/Export Control Laws

Most countries impose some form of legal control on the export of goods from within their jurisdiction and on the import of physical goods into their jurisdictions.  

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Import RequirementsDuties

All imports into the US are subject to customs duty unless specifically exempted by law as determined by their classification under the applicable items in the Harmonized Tariff Schedule of the US unless otherwise exempted.

Other Regulations

• Labeling & marking regulations, e.g. country of origin.• Products Standards• Anti-dumping actions• Textiles • Toys• Electrical Product Standards• Food

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Export Regulations

The core distinction between the rules that govern exports is whether the controlled product or service is “commercial” or “defense-related.”

May also be classified as “dual use.”

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Export Regulations

The consequences of violating the EAR may be severe. Violators may be subject to both criminal and administrative penalties.

Administrative penalties may also include denial of export privileges. 

Not only will you be prohibited from export activities, but also others may not participate in an export transaction with you as a “denied person.”

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5th Way to Avoid International Liability: Comply with Import/Export Control Laws

Imports

Duties, Product Standards, other Regulations

Exports

Commercial, Defense, Dual-use, End User

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Summary: 5 Ways U.S. Corporations Can Limit Their International Liability.

1. Comply with U.S. Employment Laws Overseas.2. Comply with Foreign Data/Privacy Laws.3. Take Control of the Supply Chain.4. Use Strategic Contract Language.5. Comply with Import/Export Control Laws.

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5 Ways Corporations Can Avoid International Liability

THANK YOUSantiago A. Cueto, Esq.

Board Certified International Attorney

4000 Ponce de Leon Blvd., Suite 470Coral Gables, FL 33146

+1 305 777 0377sc@cuetolawgroup.com

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