In a recent post, we discussed the lawsuit brought by battery behemoth Duracell against a company that it was importing “gray market” versions of its copper-topped products. In that action, Duracell has argued that the warranty that comes with its U.S. batteries is ten times longer than the warranty that comes with the batteries that Duracell sells to electronic manufacturers and which the defendant sought to import.  Accordingly, Duracell argued that this material difference in the warranty should permit it to block the importation of the unauthorized batteries under the Lever-rule which permits the restriction of gray market imports which are materially different from those generally offered to U.S. consumers.

Duracell’s battle to control gray market goods, however, is one fought on many fronts.

In the recently amended complaint in a separate action before the Court of International Trade, an Milecrest Corp., an importer and distributor of gray market Duracell batteries, challenged U.S. Customs and Boarder Protection’s grant of Lever-rule protection to Duracell.  Specifically, the Milecrest alleges that CBP failed to comply with the Administrative Procedure Act, 5 U.S.C. 551 et seq., when it granted Duracell Lever-rule protection in March 2017 based purported material differences in “label warnings, consumer assistance information, product guarantees, and warrant coverage.”  Milecrest alleges that CBP did not take required public comment before issuing the grant notice and, if it had done so, it would have been made aware that many of Duracell’s own products are not sold with label warnings, customer assistance information, guarantees, or warranty information on the batteries themselves, which would have undercut Duracell’s claim for Lever-rule protection.  In addition, Milecrest argues that the grant is arbitrary and capricious because CBP should have considered Duracell’s own non-conforming batteries and denied the request for protection.  Finally, Milecrest argues that the grant is vague because it fails to specifically identify the products to which it applies or what warnings, etc. will trigger Lever-rule protection and which products will be permitted to be imported.

An interesting aside, the Court recently rejected Milecrest’s efforts to proceed anonymously, holding that potential infringement lawsuits by Duracell were not a sufficient reason to warrant concealing the company’s identity in connection with this matter.

Duracell’s ongoing efforts to control gray market goods demonstrates how producers and importers must be constantly vigilant and take appropriate offensive as well as defensive positions regarding the same goods and the same core legal issues.  Proper counsel can help companies navigate when offensive legal action are advantageous and when defensive advocacy becomes required to protect ones’ business.

 

On Wednesday, the U.S. Department of Commerce began its preliminary phase antidumping and countervailing duty investigations pursuant to the Tariff Act of 1930. The Department of Commerce is looking into whether the imports of stainless steel flanges from China and India, which are alleged to be sold in the U.S. at less than fair value and alleged to be subsidized by the Chinese and Indian governments, are materially injuring the U.S. industry.

The U.S. antidumping law imposes special tariffs to counteract imports that are sold in the U.S. at less than fair value. The U.S. countervailing duty law imposes special tariffs to counteract imports that are sold in the U.S. with the benefit of foreign government subsidies. For these duties to be imposed, the U.S. government must determine that there is material injury, or a threat of material injury, by reason of the dumped and/or subsidized imports.

The probe by the Department of Commerce comes after two privately held companies filed petitions. The two petitioners are the individual members of the Coalition of American Flange Producers: Core Pipe Products, Inc. and Maass Flange Corporation. The petitioners alleged dumping margins in China ranging from 99.23% to 257.11%, and for India margins ranging from 78.49% to 145.25%.

The products covered by these investigations are certain forged stainless steel flanges, whether unfinished, semi-finished or finished. The term “stainless steel” refers to an alloy steel containing, by actual weight, 1.2% or less of carbon and 10.5% or more of chromium, with or without other elements.

It is the job of the Department of Commerce to determine whether the alleged dumping or subsidizing is occurring, and if so, the margin of dumping or the amount of the subsidy. The United States International Trade Commission (“USITC”) will determine whether the U.S. industry is materially injured or threatened with material injury by reason of the imports under investigation. If both the Department of Commerce and the USITC reach affirmative final determinations, then the Department of Commerce will issue an antidumping or a countervailing duty order to offset the subsidy.

The USITC is scheduled to make its preliminary determination regarding the injury on or before October 2, 2017. If the USITC determines that there is injury, the investigations will continue, and the Department of Commerce will makes its preliminary countervailing duty determination in November 2017, and its antidumping determination in January 2018, though these dates may be extended.

The results of the investigation could impact both importers and purchasers. Importers will be liable for any potential duties that are imposed by the U.S. government. Purchases could be impacted because the determination could result in increased prices and/or decreased supply of stainless steel flanges.

In its recent decision in United States v. Allen, 16-cr-898, the Second Circuit Court of Appeals held that testimony which is compelled pursuant to laws of foreign jurisdictions violates the Fifth Amendment right against self-incrimination when used as part of a U.S. prosecution.  The ruling may have a far-reaching impact on the U.S. Department of Justice’s (DOJ) enforcement of the Foreign Corrupt Practices Act, which often rely on evidence obtained by foreign investigators.

In US v. Allen, the defendants were accused of being part of a conspiracy to manipulate the London Interbank Offered Rate (LIBOR), a benchmark interest rate underlying financial instruments around the world. The LIBOR scheme and the defendants, U.K. nationals, were originally investigated by U.K. authorities.  As part of that investigation, the defendants were compelled to give testimony to the U.K.’s Financial Conduct Authority (FCA). The FCA is duly authorized to compel the testimony of those under investigation and there is no allegation that the circumstances under which the defendants’ testimony was compelled violated of U.K. law.  The defendants’ testimony before the FCA became the centerpiece of charges in the United States for wire fraud and conspiracy to commit wire fraud.

The Second Circuit voiced its concern that, even though the statements were obtained in accordance with U.K. law, the statements still constituted compelled statements under the Fifth Amendment to the United States Constitution.  Therefore, the Court found that the use of any such compelled statement  against the defendants in a criminal matter was a facial violation of the Fifth Amendment.  Accordingly, the Court overturned the defendants’ convictions and dismissed the indictment

The Court was unmoved by the DOJ’s arguments that their FCPA investigations and prosecutions, many of which rely on evidence obtained from foreign governments and compelled statements, would be undermined by an adverse ruling from the Court.  While it appears clear that FCPA prosecutions cannot rely on the contents of compelled statements as the basis for a U.S. prosecution, it remains to be seen how extensively Courts may apply the fruit of the poisonous tree doctrine.  Indeed, while confronting a defendant with compelled statement may run afoul of the Fifth Amendment, Court’s could question the admissibility other evidence collected by foreign authorities following or as a direct result of a defendant’s compelled statements.  While Constitutional Law scholars could likely fill volumes regarding such a debate, the practical effect on FCPA may unfold quickly as prosecutors will need to sure up their ongoing cases with admissible evidence if compelled statements are no long permissible.

On Thursday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $415,350 settlement agreement with COSL Singapore Ltd. (“COSL”). The parties settled a potential civil liability claim for 55 apparent violation of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR), which took place between October 2011 and February 2013.

COSL is a Singapore-based subsidiary of a Chinese oil field service company. It has several offshore drilling oil rigs and enters into charter agreements with third-party drilling companies to allow those parties to use its oil rigs.

Between October 2011 and February 2013, the procurement specialists for COSL purchased at least 55 orders of supplies from vendors located in the U.S. that were specifically intended for export or re-export to oil rigs located in Iranian territory. These purchases were made despite some warning from U.S. vendors that the goods should not be shipped or re-exported to countries subject to U.S. sanctions, including Iran.

OFAC determined that COSL used its own subsidiary companies, COSL Drilling Pan Pacific (Lbuan) Ltd. and COSL Drilling Pan Pacific Ltd., to export or attempt to export the oil rig supplies from the U.S. to Singapore and the United Arab Emirates before re-exporting or attempting to re-export the supplies to oil rigs located in Iranian territory.

COSL has agreed to pay $415,350 to settle potential civil liability, which is a lot less than what the potential liability could have been for COSL. The statutory maximum penalty amount for the apparent violations is $13,750,000, and the base penalty amount is $923,000.

OFAC considered aggravating and mitigating factors in determining the settlement amount. Some of the aggravating factors included: (1) COSL is a large sophisticated company doing business throughout the world; (2) COSL did not have an OFAC compliance program in place at the time of the transactions; and (3) OFAC determined that the exportation or re-exportation aided in the development of Iran’s energy resources.

The mitigating factors included: (1) COSL did not have any prior sanctions history; (2) COSL took remedial action by instituting an OFAC sanctions compliance program; and (3) COSL displayed substantial cooperation throughout the investigation process.

Companies that are involved in international trade and conduct business in the U.S. or with U.S. companies should have an OFAC compliance program in place. If companies are in a situation where they may have violated Iranian sanctions programs (or other U.S. sanctions programs), full cooperation with OFAC is essential.

President Trump can officially begin renegotiating NAFTA tomorrow, August 16th. The negotiation process can only start 90 days after President Trump officially notified Congress of this intention, which took place on May 18th.

The North American Free Trade Agreement (NAFTA) became law in 1994. NAFTA is a comprehensive trade agreement that sets the rules of trade and investment between the U.S., Canada, and Mexico. NAFTA created one of the world’s largest free trade zones. Pursuant to the deal, each NAFTA country forgoes tariffs on imported goods originating in the other NAFTA countries.

Supporters of NAFTA believe the agreement has helped boost the economies of the NAFTA countries. According to the U.S. Chamber of Commerce, 14 million U.S. jobs depend on trade with Canada and Mexico. Others believe NAFTA has hurt the economy by creating incentives for companies to relocate manufacturing and other jobs offshore.

President Trump has called NAFTA the worst trade deal in history, and he believes NAFTA is responsible for sending millions of U.S. manufacturing jobs to Mexico. Instead of leaving the trade pact and scrapping it entirely, the Trump administration will renegotiate the agreement.

Since announcing the decision to renegotiate the trade deal, the United States Trade Representative (USTR), Robert Lighthizer, has been consulting with and receiving input from members of Congress, the public, and various trade associations and special interest groups. For example, members of Congress have supported the inclusion of a competition chapter in NAFTA as a way to demonstrate the U.S.’s leadership in promoting competition and fairness in trade.

The public has also been responsive to the USTR’s request for public comment, which resulted in more than 12,000 responses and testimony from over 140 witnesses during three days of public hearings. See our earlier post here regarding the public comments on matters relevant to the modernization of NAFTA.

The USTR released a detailed summary of the negotiating objectives related to the NAFTA renegotiation. The USTR has included deficit reduction as a key objective of the renegotiation. Another major goal is to improve market access in Canada and Mexico for U.S. manufacturing, agriculture and services.

We will be following the negotiations in the coming weeks and months to see how the renegotiation will impact trade policies and practices moving forward.

On the firm’s Energy Law Today blog, Fox Partner Mark V. Santo discusses the renegotiation of the North American Free Trade Agreement (NAFTA) and its potential impact on the natural gas trade between the U.S. and Mexico.

North America from space
Copyright: antartis / 123RF Stock Photo

“Mexico imports nearly all of its natural gas from the U.S. and exports to Mexico are expected to double by 2019, with Texas fields being the primary source. At least 17 pipelines currently carry four billion cubic feet of natural gas a day from Texas to Mexico, with four additional cross-border pipelines in the works. Mexico’s demand for U.S.-sourced natural gas has been a boon to domestic producers as it has greatly offset the oversupply of natural gas production. Without this outlet to Mexico, natural gas producers in the U.S. will face a severe downturn with wells shut, job losses and investment curtailed.

The U.S.-Mexico natural gas symbiotic relationship is just one example of the tri-nation supply chain intricacies and complexities forged under NAFTA. There are countless others, such as deep supply chains in agriculture, construction materials and autos to name a few….”

Mark notes the key provisions of the agreement that the Trump Administration will seek to alter. These provisions relate to the remedies available should a NAFTA nation’s exports injure the domestic market of another NAFTA member.

To read Mark’s full post, please visit the Energy Law Today blog.

Co-Author, Santos Ramos

On June 16, 2017, President Trump announced changes to United States’ Cuban sanctions regime which will stem the tide of liberalization that Obama Administration set in motion 2014. While the regulatory changes have not yet taken effect, the Department of Treasury’s Office of Foreign Assets Control (OFAC) released updated its online resources to reflect the Trump Administration’s forthcoming changes.  Most notably, under the announced changes, individual “people-to-people” travel will no longer be permitted and any trade or business ventures involving Cuba’s military, intelligence and security services is strictly prohibited.

Travel

Trump Administration’s new Cuban travel policies crack down on the potential for individual ‘vacation’ travel to Cuba. Under the Obama Administration’s reforms to the Cuban sanctions, individuals could travel to Cuba as long as they affirmed that they were engaged in permitted activities, such as educational and artistic study, news reporting, or other endeavors designed to promote and aid the Cuban people.  Under the newly announced changes, individuals will no longer be able to travel to Cuba on their own for “people-to-people travel” (i.e., educational travel that does not involve any academic study towards the pursuit of a degree and is not under the auspices of an organization). Group people-to-people travel will still be permitted as long as the group is led by a U.S.-based organization and maintains a full-time schedule of educational or other permitted activities. Unfortunately for those who may have already booked their tickets to Havana, the new regulation will not be prospective, meaning that any travel that does not conform with the new regulations (even if previously planned) will be prohibited.

Trade and Business

Companies seeking to do business in Cuba will also have to navigate stricter regulations. While trade and business ventures with the Cuban government remained restricted under the Obama Administration’s revised sanctions, the new rules will more clearly delineate entities which are associated with Cuban military conglomerate Grupo de Administración Empresarial SA (GAESA). GAESA, which is comprised of Cuban military, intelligence, and security services, has an extensive web of subsidiaries and ownership interests which some estimate touch as much as 60 percent of the Cuban economy. OFAC and Department of Commerce, Bureau of Industry and Security (BIS) will publish an extensive list of prohibited entities when the new regulations are completed. The new trade policy will be prospective, however, meaning that any contracts and licenses executed and issued prior to effective date of the new regulations will not be terminated.

What Should U.S. Companies Do?

U.S. companies which have already entered into contracts with a GAESA-related companies will be able to continue operating without any change. Any U.S. company seeking to begin or expand business in Cuba after the new policy takes effect, however, must heed the warning that any transaction with GAESA-related entities is prohibited. Moreover, while OFAC and BIS will strive to produce a comprehensive list of GAESA-related entities, it may prove to be a difficult and ever-evolving challenge.  Accordingly, despite any published list of entities, it will almost certainly remain the responsibility – and potential liability – of U.S. companies to know with whom they are conducting business. In addition, U.S. companies must be vigilant about any renewals of contracts or licenses with GAESA-related entities, as there has been little guidance as to whether renewing an existing contract will be considered continued operation or a new, prohibited engagement.

Last week the Trump administration announced new Iran-related sanctions imposed against 18 Iranian entities and individuals. The sanctions are the administration’s response to Iran’s ballistic missile program and destabilizing actions in the region.

The actions of the administration were taken pursuant to Executive Order (E.O.) 13382, which targets proliferators of weapons of mass destruction and their means of delivery by freezing the assets of those proliferators, as well as E.O. 13581, which blocks the property of transnational criminal organizations.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed sanctions on individuals and entities for their support of the Iranian military and the Islamic Revolutionary Guard Corps, and for engaging in international hacking efforts. The U.S. Department of State placed sanctions on entities for their involvement in ballistic missile research and development for the Iranian government.

These sanctions were announced only a day after the Trump administration recertified Iran’s compliance with the Joint Comprehensive Plan of Action (JCPOA). The JCPOA is a 2015 nuclear deal that was agreed to by the P5+1 (China, France, Germany, Russia, the United Kingdom, and the U.S.), the European Union (EU), and Iran, to ensure a peaceful nuclear program in Iran. The JCPOA offers Iran sanctions relief if it continues to curb its nuclear program and follow the timeline of requirements set forth in the JCPOA.

The JCPOA states that its participants anticipate that the “full implementation of this JCPOA will positively contribute to regional and international peace and security.” However, the U.S. believes that the other actions taken by Iran undermine the positive contributions and goals of the JCPOA to bring about peace and security in the Middle East.

These new sanctions mean that Americans are prevented from doing business with these newly sanctioned entities and individuals. It also means that any assets these entities and individuals have in the U.S. will be frozen.

In a press release issued in connection with the announcement of the sanctions, the State Department also called upon Iran to release Baquer Namazi, Siamak Namazi, and Xiyue Wang, all of whom are U.S. citizens detained by Iran.

Despite the announcement of the new sanctions, the U.S. is still committed to complying with its commitments under the JCPOA, and Iran will continue to receive the same sanctions relief it received under former President Obama.

Zachary Feldman writes:

Model of an atom
Copyright: Yulia Glam / 123RF Stock Photo

What Is the NRC and Who Does It Regulate?

For those corporations that create, sell, and distribute goods with traces of radioactive materials, the United States Nuclear Regulatory Commission (NRC) is the governing agency. Smoke detectors, clocks, fertilizer, lanterns, and even glass can be subject to regulation depending on the chemical composition of the items.

Congress created the NRC as an independent agency in 1974 to ensure the safe use of radioactive materials for beneficial civilian purposes while protecting people and the environment. The companies that sell regulated products are designated licensees under the agency, and their facilities are consistently inspected to ensure compliance with NRC requirements.

Any allegations of wrongdoing are thoroughly investigated and reported through a comprehensive procedure within the agency. The allegation is vetted through a series of steps and ultimately results in a 90-day investigation phase, concluding with a closure report addressing each specific allegation of wrongdoing.

The NRC’s assigned Special Agent for a given case conducts an investigation looking for both criminal and regulatory law violations, and the more information that the Special Agent has to work with, the easier his or her job becomes. If the NRC finds wrongdoing outside the scope of its regulations, the NRC is permitted to refer the issue to the appropriate governing body.

The NRC’s investigative reach proved useful in the case In the Matter of the Shaw Grp. Inc.[1] In this case the defendant company moved to quash a subpoena for confidential information by the NRC, and it was denied. The Commissioner held that the associated concerns about revealing confidential company information were outweighed by the NRC’s obligation to conduct investigations to ensure nuclear safety. This means that in the world of regulating radioactive materials, companies have an increased ability to learn information about potentially infringing companies when they go through the NRC.

Why Is This Important?

When a company operating under an NRC license suspects that its product is wrongfully advertised, sold, and/or distributed by another person or company, it would be a prudent first step to file an allegation with the NRC. There are substantial costs associated with NRC regulation compliance, and it would be to a company’s benefit to monitor where and how its products are sold. An NRC investigation could help bring some of this information to light.

When an investigation substantiates misconduct, the alleging company or persons could additionally have a case for copyright or trademark infringement – two causes of action the NRC does not handle, but which are nonetheless viable.

Working with a law firm can be helpful when navigating the allegation filing process through the NRC. In order to amass the necessary evidence and support for the NRC to conduct its full-fledged investigation, companies can employ attorneys to gather as much information as possible to prepare preliminary memorandums of law. By outlining the company’s grievances and reasons for believing their validity, a company is effectively beginning and supporting a successful investigation by the government agency.

[1] See In the Matter of the Shaw Grp. Inc., Nuclear Reg. Rep. (CCH) ¶ 31672 (N.R.C. Apr. 2, 2013).


Zachary Feldman is a summer associate in the firm’s New York office.

Almost one year ago, the Department of Justice (DOJ) announced that Norwegian Shipping company Wallenius Wilhelmsen Logistics AS (WWL) had agreed to pay a $98.9 million fine for its role in a conspiracy to control prices for roll-on, roll-off cargo (such as cars, trucks, and agricultural equipment) shipped to and from the United States.  At the time, the DOJ acknowledged that, in addition to the fine, WWL was cooperating in ongoing investigations and affirmed the Department’s commitment to holding “companies and executives” accountable.

Last week, the DOJ announced that the indictment against three current and former executives of WWL subsidiaries had been unsealed and that the prosecutions of these individuals were proceeding.  The indictment – presented to the grand jury in November 2016 – alleges that the individuals attended meetings and engaged in communications in which executives from several large shipping companies allocated customers and routes by agreeing to the amounts that each company would bid for certain contracts.

The DOJ also announced that these prosecutions represented three of eleven executives who have been charged in connection with this conspiracy. Four executives had plead guilty and were sentenced to prison terms. The rest are considered “international fugitives.”  Further, the DOJ again made clear that it remains committed to prosecuting individuals as well as corporations, stating: “WWL has pleaded guilty. Now we are working to ensure that its executives who conspired to suppress competition at the expense of American consumers will be held accountable.”

It appears that the DOJ is following through with the directives of the September 2015 Yates Memo and is no longer satisfied by large corporate fines.  The fact that four executives have been sentenced to prison, three are being actively prosecuted, and five more are considered fugitives — all almost a year after the $98.9 million fine headline — shows that the DOJ is genuinely re-focused on individual accountability.  Accordingly, compliance and whistle-blower programs must have new found importance not only to corporations, but to the individual officers, directors, and executives who may be held accountable for corporate malfeasance.