In a recently issued Final Determination, U.S. Customs and Border Protection (CBP) confirmed that the roasting of coffee beans substantially transforms the beans into a product of the country in which the beans were roasted.

Coffee producer Keurig Green Mountain (“Keurig”) requested the determination as to the country of origin assignment to green coffee beans that it imported into the United States and Canada and then roasted in those countries.  Specifically, Keurig sought the determination as it relates to the procurement of its products by the U.S. government and certain regulatory waivers for  “U.S.-made end products.”

CBP answered unequivocally that it has consistently held that the act of roasting coffee beans substantially transforms green coffee beans into a different article of commerce pursuant to 19 U.S.C. section 2518(4)(B).  Noting numerous letter rulings dating back to the mid-1980s, CBP concluded that “roasting” or “roasting and blending” substantially transformed green coffee beans for country of origin purposes.

Interestingly, CBP found that it did not have occasion to address whether other processes in coffee manufacturing would be considered substantially transformative.  For example, a portion of the green coffee beans at issue had been undergone a decaffination process in their country of origin, prior to importation into the U.S.  Accordingly, CBP did not address whether the decaffeination process alone would substantial transform a caffeinated bean to a new article of commerce.  Similarly, the beans at issue were roasted, flavored, ground, degassed, and packaged in the same country (either the U.S. or Canada).  Therefore, CBP did not have occasion to determine whether any of these other processes, alone or in combination, may create different articles of commerce throughout the coffee production process.

As is often the case, a seemingly conclusive determination by CBP can still leave open significant questions related to the issues not squarely placed before the agency. Experienced counsel can help business determine what avenues of trade remain open and which are truly settled issues.

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.


SCS Corporation, Ltd. (SCS), a unit of Houston oil and gas drilling company Hyperdynamics Corporation (“Hyperdynamics”), has filed parallel actions in the Southern District of Texas (4:16-cv-00076) and before the American Arbitration Association against two partners who SCS alleges used an FCPA investigation into Hyperdynamics as a pretext for breaching their joint exploration agreement.

SCS and its partners, Tullow Guinea Ltd. (“Tullow”) and Dana Petroleum (E&P) Limited (“Dana”), have been engaged under a joint operating agreement to explore deposits off the coast of Guinea.  In 2013, the U.S. Securities and Exchange Commission began an FCPA investigation into Hyperdynamics, which was eventually settled in the fall of 2015.  Nevertheless, in 2014, while the FCPA investigation was open, Tullow declared force majeure and halted all work on the exploration project. Tullow eventually withdrew its declaration of force majure, but, according to SCS, has not resumed sufficient activity to meet the drilling timelines required by the Guinean government which expire in the fall of 2016.  The Complaint alleges that Tullow does not have the funds to fulfil its portion of the exploration and that its declaration of force majure and subsequent delays are merely a diversion designed to stall the enterprise. Dana is similarly alleged to have undertaken a dilatory course of conduct.

The parallel actions seek (1) a determination that Tullow and Dana are in breach of the joint operating agreement, (2) orders requiring Tullow and Dana to move forward with their exploration and drilling activities, and (3) damages stemming from the delays.

According to the Complaint, Tullow had ulterior motives when it declared force majure based on the ongoing FCPA investigation.  If Tullow truly believed that force majure applied, however, then its declaration may have bell that could not be unrung.  Although Tullow eventually withdrew its declaration, it has, at least by SCS’s account, not commenced work since the declaration and may now be in breach of contract.

Of course, corporations must be concerned when their partners become the subject of FCPA investigations. They should not, however, take any unnecessarily drastic steps.  Independent counsel can investigate and assess a corporation’s potential liability for the acts of its partner and should be consulted whenever a concern arises. Taking the time to evaluate one’s own potential liability may save the working relationship and avoid litigation tangential such as this.