On April 20, 2017 the Department of Treasury’s Office of Foreign Assets Control (OFAC) offered new guidance for individuals and entities (and their counsel) who seek to have their names removed from OFAC’s list of Specially Designated Nationals (SDN).

The guidance comes in the form of updates to OFAC’s Frequently Asked Questions and sets forth the procedures for petitioning for removal from the SDN list.  The petition itself appears quite simple.  In fact, the only requirements are that it include: (1) the name and contact information of the SDN; (2) the date of the relevant OFAC listing action; and (3) a “detailed description” of the reasons that individual or entity should be removed from the SDN list. Parties may also submit additional evidence or argument as to why the SDN designation is not appropriate.

While OFAC notes that all petitions are unique, OFAC announces a goal to send its first questionnaire within 90 days of receiving a petition.  The time a party takes to respond to the questionnaire (and any subsequent questionnaires) can, of course, significantly draw out the overall petition process.

Although individuals may submit their own petitions, hiring proper counsel is likely a wise decision.  Not only can knowledgeable counsel navigate the grounds on which OFAC is likely to remove a person from the SDN list (i.e., positive change in behavior, change in the basis for the designation, mistaken identity, or death), counsel can help ensure that information disclosures will comport with OFAC’s expectations (ideally limiting the number of follow-up questionnaires).

Counsel should be cautioned not to run afoul of OFAC’s sanctions regimes while representing an SDN.  Although there are general licenses under most of OFAC’s sanctions regimes permitting legal services to aid a person in contesting SDN status, restrictions on the origin of payments may complicate matters.

New clarity on the path off of the sanctions black list is encouraging evidence of OFAC’s commitment to ensuring that the SDN list encourages good behavior and is not a heavy-handed punishment.  While the reality of the petition process may not be as simple as the FAQ suggests, clear guidelines are a great aid to targeted individuals and their counsel.

Today the Office of Foreign Assets Control (“OFAC”) updated its Specially Designated Nationals List (“SDN List”). OFAC frequently updates the SDN List to add or remove names as necessary and appropriate.

The SDN List is a list published by OFAC that includes the names of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.

OFAC implements and imposes sanctions against those companies and individuals on the SDN List. Any US citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person (i.e., individual or entity) in the United States (collectively, “U.S. persons”) are generally prohibited from dealing with these companies and individuals, including transactions involving commerce, business, trade or finance. U.S. persons must block any property in their possession or under their control in which a company or individual on the SDN List has an interest.

When doing business with a foreign company or individual, it is important to access the SDN List to ensure that transactions with that foreign party are permissible. U.S. persons are expected to exercise due diligence in determining whether any such persons are involved in a proposed transaction. A failure to review the most up-to-date SDN List and review current sanctions can lead to serious consequences.

For more information on OFAC’s update and to review those added to the SDN List, please visit this page.  To review the current SDN List, click here.

In 2008, global technology giant Siemens Aktiengesellschaft (“Siemens”) pleaded guilty to violations of the books and records provision of the Foreign Corrupt Practices Act (“FCPA”).  Siemens paid approximately $450 million in fines for its alleged violations and another $350 million to settle a civil suit brought by the US Securities and Exchange Commission.  In addition, as part of the plea agreement, Siemens agreed to hire Monitor to evaluate and report on its FCPA compliance efforts to the US Department of Justice. The Monitor submitted numerous work plans and annual reports to the DOJ over the next several years.

In 2013, 100Reporters LLC (“100Reporters”), a non-profit organization focused on investigative journalism, submitted Freedom of Information Act (“FOIA”) requests seeking the Monitor’s reports and related documents. The DOJ denied the requests and the administrative appeal.  Accordingly, 100Reporters brought suit in the United States District Court for the District of Columbia.  The DOJ subsequently produced some redacted documents but continued to withhold other documents based on certain Exemptions, including privileged and confidential information, attorney-client and attorney work product (“deliberative process”) privileges, personal privacy, and a lack of segregability due to the intertwined nature of the public and protected information.

In a recent 73-page opinion, the D.C. District Court denied, in part, motions for summary judgment filed by the DOJ, Siemens, and the Monitor and requested in camera review of representative documents.  The Court will now determine what aspects of the Siemens’ post-plea FCPA compliance program should be available for public consumption.  If the Court determines that substantive portions of Siemens’ FCPA compliance efforts should be produced under FOIA, it could offer an unprecedented look inside the FCPA program of a major multi-national corporation.  Further, and while not suggesting that Siemens has anything to hide, the public airing of post-plea compliance efforts could cause a stir if the Monitor’s are less robust than the public might anticipate.   Nevertheless, the mere potential that one’s FCPA compliance efforts could be in the public domain should give companies large and small pause and they should consider whether their policies and training would withstand the trial by public opinion.

 

 

Copyright: bedo / 123RF Stock Photo
Copyright: bedo / 123RF Stock Photo

In a complaint recently filed in Delaware Chancery Court, a shareholder of General Cable Corp. (“General Cable”) has asked the Court to compel the release of documents related to General Cable’s $82 million settlement of claims under the Foreign Corrupt Practices Act (FCPA).

In January, General Cable, a Kentucky-based industrial cable manufacturer, agreed to the $82 million settlement with the US Department of Justice and the US Securities and Exchange Commission. The DOJ and SEC alleged that between 2002 and 2013 General Cable paid approximately $13 million in bribes to secure more than $50 million in contracts in Africa and Asia.  General Cable’s penalties were reduced based its voluntary disclosure of the payments and the SEC noted that there was no evidence of personal misconduct by the former CEO and CFO who had already returned millions in compensation.

In the recent shareholder complaint, the shareholder alleges that he has been improperly denied access to corporate records regarding the investigation and settlement of the FCPA claims.  The shareholder previously requested, and was provided, board meeting transcripts and materials from 2011 to 2015.  The shareholder alleges that General Cable has refused his subsequent requests, including requests for internal audit reports, emails, and other document related to the improper payments and the settlement with authorities.  The shareholder asserts that the documents are necessary to evaluate potential steps to improve corporate governance.

Potential shareholder litigation is yet more collateral damage extending from FCPA violations.  Should the shareholder be successful, there may be significant new precedent as to what investigative and settlement documents a shareholder has the right to review.  Well documented compliance policies and education remain the best way to avoid FCPA violations and the ancillary challenges that so often follow.

 

In a recent enforcement action, the Treasury Department’s Office of Foreign Assets Control (OFAC), took what appears to be an unprecedented step in finding that a Taiwanese shipping company had violated the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR).

Copyright: 1971yes / 123RF Stock Photo
Copyright: 1971yes / 123RF Stock Photo

The alleged violation surrounds a ship-to-ship transfer of oil between a vessel owned by B Whale Corp. (BWC), a subsidiary of TMT Group (TMT), and a vessel owned by the National Iranian Tanker Co., which is listed as a specially designated national (SDN).  BWC and TMT maintain that the transaction involved oil originating in the United Arab Emirates and was conducted by subcontractors who were contractually prohibited from dealing with SDNs.  Nevertheless, OFAC determined that by turning off vessel identification systems and using circuitous routes, the BWC vessel had taken efforts to conceal its actions and the origin of the oil.

The novel issue here, is how OFAC came to assert jurisdiction over BWC and TMT to make its finding.  In 2013, TMT brought a voluntary bankruptcy proceeding in the Southern District of Texas, seeking protection from US creditors.  The allegedly improper oil transfer occurred after the bankruptcy proceeding had commenced.  During that proceeding, there was a motion by TMT’s creditors to remove TMT’s management due to “fraud or dishonesty” under the Bankruptcy Code.  Shortly thereafter,  OFAC conducted its investigation and asserted that it had jurisdiction,  because “BWC was a U.S. person within the scope of the ITSR because it was present in the United States for the bankruptcy proceedings when the transaction occurred.” Further OFAC determined that the vessel “was subject to U.S. sanctions regulations because it was property under the jurisdiction of a U.S. bankruptcy court, and therefore the oil transferred to the vessel was an importation from Iran to the United States as defined in the ITSR.”

With the issuance of an enforcement action against a non-US company, there is concern among foreign companies that OFAC is pushing the bounds of its jurisdiction.  OFAC’s two statements regarding the basis for jurisdiction, however, permit contrasting views of OFAC’s intent and the what this decision means for the future of sanctions enforcement. On one hand, the first statement, that BWC was a US person “because it was present in the United States for the bankruptcy proceeding,” rightfully gives reason for pause as mere presence in the United States as a basis for jurisdiction would signal a massive expansion of OFAC’s understanding of its jurisdiction.  On the other hand, the second statement, that the vessel came under the jurisdiction of the bankruptcy court, may, however, circumscribe the impact of this enforcement action.  With this qualification, it is not the mere presence of the foreign company before a US Court which conferred jurisdiction, but the well established principal that assets of the debtor — regardless of location — fall under the jurisdiction of the bankruptcy court.  While any expansion of jurisdiction is concerning to foreign companies and the US companies who transact with them, this assertion of jurisdiction may well be limited to a foreign company that availed itself of US bankruptcy protection and then used its assets for an unlawful purpose.   Should OFAC find other means of extending its jurisdictional reach, however, a new era of enforcement may be beginning.

 

The U.S. Senate Finance Committee will hold a hearing on March 14th to consider the nomination of Robert Lighthizer, of Skadden, Arps, Slate, Meagher & Flom LLP, to serve as the next U.S. Trade Representative. The U.S. Trade Representative is the head of the Office of the United States Trade Representative (USTR) and is a Cabinet member who serves as the President’s principal trade advisor.

22680785 - washington dc us capitol building with us american flag background illustration

Lighthizer, who has focused his career on trade litigation and policy, was a deputy trade representative during the Reagan administration, and he was chief of staff for the Senate Committee on Finance. Lighthizer is a vocal advocate for an enforcement-focused U.S. trade policy.

Former King & Spalding LLP attorney Stephen Vaughn, who worked with Lighthizer at Skadden, is the current trade representative, on an interim basis.

The selection of Lighthizer as President Trump’s pick to serve as the new U.S. Trade Representative has not been as controversial as other recent Cabinet nominees. However, Lighthizer’s status as an advocate for the Brazilian government in a 1985 trade case appears to require a waiver before he can serve as the U.S. Trade Representative.

President Trump has promised to renegotiate international trade deals like the North American Free Trade Agreement (NAFTA) and punish companies that ship work overseas, and it appears that the selection of Lighthizer is consistent with this approach. President Trump said in announcing Lighthizer as his choice for the U.S. Trade Representative that Lighthizer would help “fight for good trade deals that put the American worker first.”

The USTR is an agency that negotiates directly with foreign governments to create trade agreements to resolve disputes and participate in global trade policy organizations. The USTR is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. The USTR works closely with Congress and specifically with the House Committee on Ways and Means and the Senate Committee on Finance, the two Committees with principle responsibility for international trade issues.

In a recent decision, the Court of International Trade shot down an importer’s argument that its Thanksgiving and Christmas-themed serve ware and dinnerware should be exempt from duties as instruments of “specific religious or cultural ritual celebrations.”

Copyright: alexraths / 123RF Stock Photo
Copyright: alexraths / 123RF Stock Photo

Subheading 9817.95.01 of the Harmonized Tariff Schedule of the United States (“HTSUS”) provides that no duty is to be assessed for: “[u]tilitarian articles of a kind used in the home in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays, or religious festive occasions, such as Seder plates, blessing cups, menorahs or kinaras.”

The crux of importer, WWRD US LLC’s, argument was that the definition of “cultural ritual” was sufficiently broad so as to include the traditions of Thanksgiving and Christmas dinners.  The importer put forth a variety of definitions of the term “ritual”, including Merriam Websters’s definition of “a customarily repeated often formal act or series of acts.”

Judge Mark A. Barnett, however, derived the Court’s understanding of the scope of the subheading from the exemplars included therein.  While Judge Barnett did not question the cultural significance of the Thanksgiving and Christmas holidays, his opinion focused on the subheading’s requirement of “specific” rituals.  The exemplars, the Seder plate used during Passover, the menorah used during Hanukkah, and the kinara used during Kwanzaa, involved specific sequential rituals, not merely the observance of a recurring event such as Thanksgiving of Christmas dinner.

Ultimately, the ITC found that US Customs and Border Protection’s classifications and resulting duty rates, ranging between 3% and 6%, were proper.  While the importer’s creative classification argument was unsuccessful in this case, a zealous advocate can make a significant difference in the duties, and the bottom line, of any import transaction.

February 22, 2017 marked a major milestone for global trade.  The Trade Facilitation Agreement (TFA) entered into force on February 22nd after the World Trade Organization (WTO) obtained the needed acceptance from two-thirds of its 164 members.  Rwanda, Oman, Chad and Jordan submitted their instruments of acceptance to WTO Director-General Roberto Azevêdo, which brought the total number of ratifications over the required threshold for the TFA to take effect.  This is the most significant multilateral deal that has been concluded in the 21 year history of the WTO.

The TFA seeks to expedite the movement, release and clearance of goods across borders. The TFA also aims to simplify and clarify international import and export procedures and to make trade-related administration easier and less costly. The WTO forecasts that the TFA will create a significant boost for the multilateral trading system.

Implementation of the TFA is predicted to benefit all members and should slash members’ trade costs by an average of 14.3 percent.  Developing countries potentially have the most to gain from the implementation of the TFA.  The TFA is predicted to increase the number of new products exported by developing countries by as much as 20 percent, with least developed countries likely to see an increase of up to 35 percent, according to the study by WTO economists in 2015.

While the critical mass has now been reached, allowing the TFA to become effective, there are several remaining WTO members that may still ratify the TFA.

The International Trade Commission (ITC) issued an order on January 27, 2017,  barring the import table saws produced by German tool manufacturer, Robert Bosch GmbH (“Bosch”). The ITC determined that the components of Bosch’s REAXX safety technology infringed the two patents held by US-based SawStop LLC (“SawStop”).  As described in a press release at the outset of the ITC’s investigation, both the saws produced by SawStop and by Bosch contain active injury mitigation technologies which are able to detect when a user comes into contact with the blade can avoid catastrophic injury.

As the ITC had previously determined that Bosch’s saws infringed two of SawStop’s patents, the ITCs recent order was limited to Bosch’s request that the ITC forego any penalties and permit the continued importation of its saws because: (1) SawStop did not have the manufacturing and distribution capacity to meet US demand and (2) by preventing the import of Bosch’s safer saw, the ITC would be increasing potential injuries to consumers.  Indeed, Bosch cited to “millions or billions of dollars” in societal costs for severe injuries from the use of unsafe saws. Ultimately, Bosch’s argument that US consumers should be afforded the ability to buy saws with the latest safety technology (leaving aside the countless antiquated table saws that fill factories and wood shops across the country) was unpersuasive.  Further, the ITC appeared to accept that SawStop was capable of meeting demand and ordered that all of Bosch’s infringing saws be excluded.

In written responses released earlier this week, Senator Jeff Sessions of Alabama reaffirmed that he will enforce the Foreign Corrupt Practices Act and the International Anti-Bribery Act of 1988 if he is confirmed as US Attorney General.  Sen. Sessions was responding to the questions of Sen. Sheldon Whitehouse (D-RI), and others, following Sen. Session’s nomination hearing before the Senate Judiciary Committee.  Sen. Whitehouse’s question focused on a comment by President Trump during a 2012 interview in which President Trump referred to the FCPA as a “terrible law.”  [Editor’s note, President Trump refered to the FCPA as a “horrible law,” not a “terrible law,” during the 2012 interview].  Sen. Whitehouse asked:

13) President Trump has called the Foreign Corrupt Practices Act a “terrible law.” But the Act, as amended by the International Anti-Bribery Act of 1998, is the cornerstone of federal efforts to prevent and prosecute bribery of foreign officials by U.S. corporations, and to maintain a fair and level playing field for small and mid-size corporations doing business overseas. Since 2008, the federal government—DOJ, SEC, and the FBI—have maintained about 150 active investigations at any given time, resulting in $1.56 billion in fines in 2014.

Will you commit to continued vigorous enforcement of the Foreign Corrupt Practices Act and the International Anti-Bribery Act of 1998?

Sen. Sessions responded:

Yes, if confirmed as Attorney General, I will enforce all federal laws, including the Foreign Corrupt Practices Act and the International Anti-Bribery Act of 1998, as appropriate based on the facts and circumstances of each case.

One must take Sen. Sessions at his word and assume that the FCPA and Anti-Bribery Act will enforced to the letter of the law until there is an indication of a shift of DOJ priorities to the contrary.  As always, training and compliance programs remain the as a critical foundation for any company doing business abroad.