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    Libya Sanctions Cause Confusion The Wall Street Journal, March 31, 2011

    Justice Department, SEC cracking down on U.S.

    companies engaging in bribery abroad The Washington Post, March 24, 2011

    U.S. business community asks for leeway on Libya sanctions

    The Cable, March 3, 2011

    FCPA Fines Made Up Half of All DOJ Criminal Division Penalties in Fiscal 2010 The Wall Street Journal, January 24, 2011

    GULC IBT Spring 2011: Class 10 - Prof. Devine

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    U.S. Export Controls and Economic Sanctions

    2GULC IBT Spring 2011: Class 10 - Prof. Devine

    *with special thanks for contributions by Steve McNabb,Gozie Onyema and Kim Walker

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    Overview of U.S. Trade Controls

    Export Controls Economic Sanctions and Embargoes Anti-boycott Controls

    3GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Dual Use Export Controls Main regulator : U.S. Commerce Department, Bureau of Industry & Security (BIS) Regulations : Export Administration Regulations (EAR)

    Product Destination Controls: products listed on Commerce Control List (CCL)

    according to Export Control Classification Number (ECCN) End Use/End User Controls

    Penalties : Under the International Emergency Economic Powers Act (IEEPA)

    Civil fines (up to the greater of $250,000 or twice the value of thetransaction)

    Criminal fines (up to $1 million) or if an individual, imprisonment (up to 20years), or both

    Possibly greater fines if imposed under the Alternative Fines Act, which (amongother things) allows fines to be imposed up to twice the pecuniary gain or loss of the transaction

    Seizure and forfeiture of goods Loss of export privileges Possible reputational damage

    4GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Dual Use Controls (contd) What is covered? Dual Use Items generally, U.S.-origin items not

    specifically designed or modified for military use(even if the item is frequently used by the military,e.g. , a water bottle)

    EXAMPLE 1: U.S.-origin bicycle helmet notspecifically designed/modified for a military use.[Dual use item]

    EXAMPLE 2: U.S.-origin bicycle helmet speciallyconfigured to be compatible with militarycommunication hardware. [ITAR item]

    5GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Dual Use Controls (contd) General Prohibitions (exceptions may apply):

    Export and reexport of controlled items to

    listed countries Reexport and export from abroad of foreign-made items incorporating more than a de

    minimis amount of controlled U.S. content 25% U.S.-origin content by value for most destinations 10% U.S.-origin content by value for sanctioned countries

    (e.g., Iran, Syria) Reexport and export from abroad of the

    foreign-produced direct product of U.S.

    technology and software to listed destinations6GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Dual Use Controls (contd)

    Common License Exceptions: Temporary imports, exports, and re-exports (TMP) Technology and Software-Unrestricted (TSU)

    Baggage (BAG)

    7GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Key Concept: Deemed Exports Release of technology to a foreign national is

    deemed to be an export to the country or

    countries of the foreign national Foreign national :

    Any person who is not a U.S. citizen or permanent resident A valid work or student visa does not change status

    Technology can include technical data,

    documentation, manufacturing know-how Release includes transmission of information to aforeign national anywhere, including in the United

    States8GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Arms Export Controls Main regulator : U.S. State Department, Directorate of

    Defense Trade Controls (DDTC)

    Regulations : International Traffic in Arms Regulations (ITAR) Penalties :

    Civil fines (up to $500,000) Criminal fines (up to $1 million) or if an individual,

    imprisonment (up to 10 years), or both Possibly greater fines if imposed under the Alternative Fines Act

    Loss of export privileges Possible reputational damage

    9GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Arms Export Controls (contd) What is covered?

    Exports of all U.S.-origin defense articles (itemslisted on U.S. Munitions List) A defense article is defined as any item that has

    been specifically designed or modified for amilitary use Includes controls on transfers of technical data

    related to defense articles to non-U.S. persons,whether that data is transferred orally, visually,electronically, or through any other means

    10GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Arms Export Controls (contd) With very few exceptions, licenses or other

    authorizations are required for exports to alldestinations of defense articles Exports of defense articles are prohibited to:

    Embargoed destinations (including Belarus, China,Cote dIvoire, Venezuela, and about 20 more),

    State Department Debarred Parties, and Prohibited parties under U.S. law

    11GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Economic Sanctions and Embargoes

    Main Regulator : U.S. Department of Treasury, Officeof Foreign Assets Control (OFAC)

    Types of Programs : May be comprehensive (e.g., Cuba, Iran, Sudan)

    or selective (e.g., Burma, Syria, Zimbabwe) Embargoes on Trade and Services

    Asset Freezes Entry Restrictions

    12GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Sanctions and Embargoes (contd) Apply to U.S. persons:

    U.S. citizens, wherever located U.S. companies Any person in the United States, regardless of

    nationality May also cover:

    Non-U.S. persons directing or involved inprohibited conduct by U.S. persons

    Also for Cuba embargo: Covers all entities

    owned or controlled by certain U.S. persons13GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Sanctions and Embargoes (contd) Penalties :

    IEEPA sanctions programs: Civil fines (up to the greater of $250,000 or twice the value of

    the transaction) Criminal fines (up to $1 million) or if an individual,imprisonment (up to 20 years) or both

    Possibly greater fines if imposed under the Alternative Fines Act

    Trading With the Enemy Act (TWEA) sanctions programs (e.g.,Treasurys Cuban Assets Control Regulations): Civil fines (up to $65,000) Criminal fines (up to $1 million) (if an organization) or if an

    individual, criminal fines (up to $100,000) or imprisonment (upto 10 years), or both Possibly greater fines if imposed under the Alternative Fines Act

    Seizure and forfeiture of goods Possible reputational damage

    14GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Key Concept: Specially Designated National Specially Designated Nationals (SDNs) (e.g., terrorists,

    drug cartels, certain vessels) Unlawful for U.S. persons to conduct any transaction

    with an SDN Names change regularly and SDN List is updated

    regularly May be based in non-sanctioned countries, such as:

    Canada Mexico UK United States

    15GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Key Concept: Export of Services Many economic sanctions programs prohibit U.S.

    persons from directly or indirectly exportingservices to sanctioned parties, including sanctionedindividuals, entities, and countries

    Example : A U.S. person cannot repair the computer of an

    SDN because such conduct would constitute the provisionof a service to the SDN Sanctions also prohibit a U.S. person facilitating any

    transaction that a U.S. party could not conduct Example : A U.S. person cannot refer Iran business to a non-

    U.S. competitor because that U.S. person could not itself

    conduct such business as a general matter.16GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Key Concept: Export of Services (contd)

    Prohibition on export of service covers U.S.persons, wherever located

    Example: U.S. citizen in Kosovo cannot facilitate aprohibited transaction simply because they are outsidethe United States.

    17GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Anti-Boycott Controls

    Main Regulators : Departments of Commerce and Treasury Regulations:

    Export Administration Regulations (Commerce) Internal Revenue Code (Treasury)

    18GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Anti-Boycott Controls (contd)

    Evasion : any action to avoid U.S. anti-boycott laws andregulations

    Very fact-specific Current Treasury Department boycott countries :

    Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, UnitedArab Emirates, and Republic of Yemen Boycott requests also may be received from Bahrain,

    Bangladesh, Indonesia, Iraq, Malaysia, Oman, or others Reporting : Boycott requests generally have to be reportedto Commerce and or Treasury

    19GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Restricted Parties Screening

    5 Principal U.S. Government Lists of Restricted Parties :

    Specially Designated Nationals List:http:www.treas.gov/offices/enforcement/ofac/sdn Denied Persons List: http://www.bis.doc.gov/dpl/default.shtm Unverified List:

    http://www.bis.doc.gov/enforcement/unverifiedlist/unverified_parties.html Entity List: http://www.bis.doc.gov/entities/default.htm Debarred Persons List:

    http://www.pmddtc.state.gov/compliance/debar.html

    20GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA Anti-bribery provisions apply to

    All U.S. companies, citizens, or residents, whether or notthey act within or outside of the United States

    Any non-U.S. company listed on the U.S. stock exchanges Any non-U.S. company or individual who executes any part

    of a bribery scheme within the United States, and All officers, directors, employees, or agents of the above

    U.S. parent companies may also be liable for the acts of non-U.S. subsidiaries where the parent authorized,directed, or controlled the activity in question

    21GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA (cont.) Accounting provisions apply to

    Issuers, which are companies with securities

    registered in the United States or that fileperiodic reports with the SEC

    Foreign subsidiaries of issuers are not bounddirectly by these provisions, but a parentcompany must generally in good faith use its

    influence to cause its subsidiary to devise andmaintain efficient accounting controls

    22GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA (cont.) Facilitating payments exception

    Made to secure routine governmental action

    Must be small, reasonable, and well-documented Most local laws prohibit them Examples include

    Obtaining copies of or speeding the processing of permits, licenses, official documents

    Expediting the processing of governmental papers (e.g.,visas)

    Providing police protection Delivering mail Providing utilities (phones, power, water)

    23GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA (cont.)

    Two limited affirmative defenses Payment is lawful under foreign countrys written laws Payment is a reasonable and bona fide expenditure

    to demonstrate or promote a product or execute acontract

    24GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA (cont.) Criminal PenaltiesAnti-Bribery Provisions

    Up to a $2 million fine per violation for companies Up to 5 years in jail and up to $250,000 fine for

    individuals Criminal PenaltiesAccounting and Internal

    Controls Provisions

    Up to a $25 million fine per violation for companies Up to 20 years in jail and up to a $5 million fine forindividuals

    Fines for both companies and individuals may beeven higher than the ones included in the FCPAstatute (up to 2x the benefit sought or received)under a federal alternative fine provision

    25GULC IBT Spring 2011: Class 10 - Prof. Devine

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    FCPA (cont.) Civil Penalties

    FCPA statute permits both the DOJ and SEC to impose a

    basic $10,000 per violation civil fine upon individuals andcompanies The SEC may also impose additional civil penalties

    ranging between $5,000 to $100,000 upon individualsand $50,000 to $500,000 upon companies These additional penalties, and the SEC basic FCPA civil

    fine, are adjusted for inflation Alternatively, the SEC may impose a civil penalty equal to

    the gross pecuniary gain to an individual or company

    26GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Other Potentially Relevant Laws

    27GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Dodd-Frank ActWhistleblower Provisions Permit awards of between 10 and 30% of monetary

    sanctions the SEC imposes upon a company > $1million to those who assist the SEC with informationabout a securities violation (including FCPA violations)

    This information must be independently gained (i.e., not froman internal investigation, audit, annual report, court filing, ornews article)

    Create a private right of action for whistleblowers whoare discharged, threatened, suspended, harassed, ordiscriminated against for reporting securities violations

    Other Potentially Relevant Laws (cont.)

    28GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Other Potentially Relevant Laws (cont.)

    Travel Act (18 U.S.C. 1952) Prohibits domestic or international travel or

    use of facilities to commit, attempt tocommit, or help commit certain crimes (eitherstate or federal)

    Facilities is defined to include the mails, the wires,emails, advertising, telephones, etc.

    29GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Other Potentially Relevant Laws (cont.)

    Wire & Mail Fraud (18 U.S.C. 1341-43) Prohibits use of the U.S. wires/mails in connection

    with any scheme to deprive anyone of a thing of value(i.e., submitting inflated bids/false invoices)

    May also apply to non-U.S. companies and individuals

    30GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Other Potentially Relevant Laws (cont.)

    Bribery of U.S. government officials Federal law prohibits directly or indirectly providing

    anything of value to U.S. government officials inexchange for an official act (this includes procurementfraud)

    31GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Other Potentially Relevant Laws (cont.)

    Many states have anti-bribery laws Many of these laws apply to bribery of both public

    officials and private persons e.g., Texas Penal Code 36.02 (public officials) and 32.43

    (commercial bribery)

    32GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Recent Enforcement Trends

    33GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Recent Enforcement Trends (cont.)

    Top enforcement priority and increasedresources Significant growth in both the number of FCPA

    reported enforcement actions and the size of the penalties imposed Dedicated Department of Justice (DOJ) and

    Securities and Exchange Commission (SEC)FCPA teams

    34GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Recent Enforcement Trends (cont.) Increased use of industry-wide investigations and

    growth in the number of industries under scrutiny Industries recently under review include

    Oil & gas Medical devices & pharmaceuticals Cosmetics Law enforcement & military products Financial services

    Sovereign wealth funds Insurance Construction & engineering Tobacco Computer & information technology

    35GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Recent Enforcement Trends (cont.) More proactive enforcement techniques Traditional law enforcement techniques

    Both the DOJ and SEC are seeking increasinglylarge penalties Nearly $2 billion in fines and penalties were levied

    against companies for FCPA-related offenses in2010 Also in 2010, several individuals were sentenced to

    prison terms ranging from 6 months to over 7years

    Both agencies are also clearly focused on

    prosecuting individuals36GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Recent Enforcement Trends (cont.) DOJ and SEC are increasingly utilizing expansive

    theories of liability, including aiding and abetting,

    agency, and conspiracy theories Anti-corruption enforcement is heating up all over

    the world International enforcement agencies have increased the

    number of anti-corruption related investigations andprosecutions

    Cooperation is increasingly routine New anti-corruption legislation is being enacted U.S. style approaches to investigations and resolutions

    are being adopted by other nations enforcers37GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Policies Regarding Business Courtesies Anti-corruption compliance policies

    requiring that business courtesies (i.e.,

    gifts, entertainment, and travel-relatedexpenses) be pre-approved by anappropriate supervisor or the companys

    compliance officer Expenditures cannot be lavish or frequent

    and must be compliant with local laws Focus on transparency to avoid any

    appearance of corrupt intent

    39GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Facilitating Payments Effective anti-corruption policies generally

    prohibit or place strict limits on facilitatingpayments, including Pre-approval procedures

    Procedures to ensure such payments areaccurately recorded on the company s books andrecords

    40GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Third Parties

    The FCPA and other anti-corruption lawsprohibit direct and indirect corruptpayments

    Including robust anti-corruption provisionsin all contract agreements with third partiesis one way of mitigating potential anti-corruption risks presented by thoserelationships

    41GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Joint Ventures

    Joint venture partners, and the joint ventureitself, can raise substantial compliance issues

    As with third parties, keys to joint venturecompliance involve careful due diligence and theincorporation of robust anti-corruptionprovisions into the joint venture agreement

    42GULC IBT Spring 2011: Class 10 - Prof. Devine

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    Mergers & Acquisitions

    Anti-corruption liability has often arisen inconnection with mergers and acquisitions

    Requires robust due diligence