On August 29, 2018, the United States circulated a request for consultations to the World Trade Organization (WTO) members. The US has requested that the WTO help resolve a dispute between the US and Russia concerning additional duties imposed by Russia on certain US goods.

A request for consultations is similar to other forms of dispute resolution. The request for consultations formally initiates a dispute in the WTO. If after 60 days of consultations, the parties have not been able to resolve the dispute, the complainant may request adjudication by a panel.

In its claim initiated earlier this week, the US claims that the additional duties imposed by Russia are inconsistent with provisions of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, and appear to impair the benefits accruing to the US under GATT 1994. The US claims that Russia is imposing duties on US goods, and that it is not imposing comparable duties on similar products originating in the territory of other WTO members.

The claim also includes a statement that Russia appears to be applying duty rates that are greater than those in Russia’s WTO schedule of concessions. The “schedules of concessions” is a document that reflects specific tariff concessions and other commitments a member gives in the context of trade negotiations.

 

In consultation with the Department of State and pursuant to Executive Order 13662, the Director of the Office of Foreign Assets Control (“OFAC”) has updated Directive 4, which will expand sanctions on the Russian energy industry.

The new rules issued by OFAC prohibit certain activities by a U.S. person or within the United States, except where such activities are otherwise authorized by law or a license. The rules bar persons subject to U.S. jurisdiction from providing, exporting, reexporting (directly or indirectly) goods, services (except financial services), or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to Directive 4.

Additionally, Directive 4 further prohibits the provision, exportation, or reexportation (directly or indirectly) of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that meet all three of the following criteria: (1) the project was initiated on or after January 29, 2018; (2) the project has the potential to produce oil in any location; and (3) any person determined to be subject to Directive 4, including their property or interests in property, either has a 33% percent or greater ownership interest in the project or owns a majority of the voting interests in the project.

Examples of prohibited projects include, for example, drilling services, geological services, and mapping technologies. The prohibitions do not apply to the provision of financial services, for example, clearing transactions or providing insurance related to such activities.

The full text of Directive 4, as amended, can be found here.  For a listing of persons that are subject to a directive under Executive Order 13662, see OFAC’s Sectoral Sanctions Identifications List.

Recently OFAC also announced new sanctions on Russia’s financial sector and energy sector, as set forth in the revised Directive 1 and Directive 2, respectively.

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On June 16, 2016, Teva Pharmaceutical’s Russian subsidiary (Teva LLC) pled guilty to one count of conspiring to violate the Foreign Corrupt Practices Act (FCPA).  Judge Kathleen M. Williams of the United States District Court for the Southern District of Florida hesitated, however, in entering a final judgment under which Teva LLC would pay no fine.  While there is no doubt that Teva LLC’s parent entity will pay over a half-billion dollars for violations of the FCPA, the proposed sentence for Teva LLC did not include any obligation to pay fines or civil claims.

The claims against Teva LLC stem from payments made to a Russian official who also ran a pharmaceutical distribution company.  Between 2010 and 2013, Teva LLC offered the official’s company favorable pricing terms in exchange for his push to have Russian government entities purchase more Teva drugs for the national health care system.  Notably, Teva LLC’s transactions passed internal FCPA checks because Teva LLC omitted key facts such as the official’s ownership of the distribution company and a Russian investigation of possible corruption within the distribution company.  The facts of Teva LLC’s violations are not what raise questions at this phase.

Rather, potential cause for concern in the contemporaneous settlement of numerous FCPA against Teva Pharmaceuticals and its subsidiaries in Europe and Mexico.  Collectively, Teva Pharmaceuticals and federal prosecutors have agreed to settle all of the outstanding claims in exchange for (i) a $238 million criminal penalty, (ii) a deferred prosecution agreement and (iii) $236 million to settle civil claims.  Significantly, while Teva LLC agreed to plead guilty as part of the settlement, Teva Pharmaceuticals has been given a deferred prosecution agreement and is not admitting guilt. Teva Pharmaceuticals, however, will pay the criminal penalty and civil claims.  As a result, Judge Williams was presented with the prospect of a guilty plea accompanied by no punishment.  In particular, the Court expressed concern regarding what would happen if Teva Pharmaceuticals did not pay its fine and final judgment had already been entered against Teva LLC.

While there is no concern that the Court and counsel will work out the nuts and bolts of the the overall settlement and component pleas in the near future, the potential complexities of FCPA litigation should give practitioners and their clients pause.  Further, with directives in place focused on individual liability and strict parameters on cooperation credit, counsel must keep an eye on the broader liability landscape because, ultimately, the Court will demand that violators are held responsible.

 

On Thursday, the Senate passed legislation to impose additional sanctions on Russia. The bill passed by an overwhelming majority, 98-2, with only Senator Rand Paul and Senator Bernie Sanders voting against it.

In addition to the Russian sanctions, Iran sanctions, and the requirement that Congress review any effort by the Trump administration to loosen sanctions against Russia, the bill also includes a reassertion of the United States’ commitment to the North Atlantic Treaty Organization’s Article 5 charter provision that states that an attack on one member of NATO is considered an attack on all members.

The bill will now go to the House of Representatives, where the fate of the bill is less certain. Although the White House has signaled that it wants to improve relations with Russia, it has not yet said whether President Trump would sign the bill into law.

 

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On Monday, U.S. senators reached an agreement regarding imposing new sanctions against Russia. The agreement will be filed as an amendment to a larger Iran sanctions bill that is nearing passage in the Senate.

The sanctions are meant to punish Russia for several Russian actions. The sanctions will punish Russia for the alleged meddling in the U.S. 2016 presidential election, its annexation of Ukraine’s Crimea region, and its support of, and supplying weapons to, the government of Syria.

The new measure will also codify existing sanctions and place new economic restrictions on Russia. It will allow new sanctions on Russian mining, metals, shipping and railway industries.

The proposed legislation is backed by both Republicans and Democrats, and it is expected to pass the Senate. It could come to a vote as early as later this week. To pass into law, the legislation will also need to be approved by the House of Representatives and be signed into law by President Donald Trump.

In a statement released late Monday, top Republican and Democratic senators on the Foreign Relations Committee and the Committee on Banking, Housing and Urban Affairs said the agreement would “provide for a mandated congressional review” if the White House sought to ease penalties against Russia unilaterally.

UK-Based biopharmaceutical company AstraZeneca agreed to pay the U.S. Securities and Exchange Commission (SEC) $5.5 million to settle claims that its Chinese and Russian subsidiaries had made improper payments to state-controlled health care providers in violation of the Foreign Corrupt Practices Act (FCPA).

In an order released earlier this week, the SEC outlined both the claims against AstraZeneca and the company’s cooperative and remedial efforts which were taken into account as part of the settlement.

Between 2007 and 2010 in China, sales staff made payments and gave gifts to physicians and administrators to ensure that state-owned health care providers would purchase AstraZeneca products. In one scheme described in the SEC Order, Chinese sales staff paid individuals for their appearance at fabricated speaking engagements. The conduct in Russia occurred between 2005 and 2010 and similarly paid members of state-owned health care providers to use AstraZeneca products.

AstraZeneca did not self-report its violations; however, it was still able to work toward a settlement based on its cooperation with the SEC. The SEC specifically noted that AstraZeneca disclosed documents and information collected during its own internal investigation including translations of key documents. The SEC also cited AstraZeneca’s remedial efforts including creation of a centralized compliance program with key compliance individuals placed in high-risk markets. AstraZeneca also took appropriate steps with regard to the employees involved ranging from trainings and reassignment to lower-risk areas of responsibility to voluntary separations and dismissals.

Yet again, full and complete cooperation appears to be the key to forging settlement of FCPA claims. Even after failing to self-report, the SEC lauded AstraZeneca’s cooperation and the information that the company’s internal investigation provided which would not have been discernable without the company’s assistance. In addition, the SEC recounted the numerous remedial steps that AstraZeneca undertook. If a company does not have the capacity to guide its own internal investigation or plan and implement remedial measures, it should contact a law firm that has the knowledge and resources to help the company make meaningful contributions to the investigation of any claims that arise.

AstraZeneca will pay $5.5M to the Securities and Exchange Commission to settle claims that it violated the Foreign Corrupt Practices Act by making improper payments to state controlled health care providers in China and Russia.

Background

The SEC complaint provides that the staff of AstraZeneca’s foreign
subsidiaries bribed health care providers in China and Russia with cash and 123rf.comgifts to persuade them to purchase products from the company.   In addition, the SEC stated that AstraZeneca lacked proper internal accounting controls over the relations of its China and Russia subsidiaries and government officials and falsely recorded the improper payments as “bona fide business expenses” in its financial statements.  The SEC added that AstraZeneca did not track employee reimbursements or speaker fees, gifts, travel and entertainment, and did not enforce its corporate policy against improper payments to government officials in China and Russia.  It also did not provide adequate FCPA training to sales staff who regularly interacted with local officials in the health care industry, according to the SEC.

The SEC indicates that AstraZeneca has taken steps to become compliant with the Foreign Corrupt Practices Act by providing anti-corruption training and revamping its internal controls and procedures.

Implications for U.S. Companies that do Business Abroad

AstraZeneca’s settlement and the $5.5M payment that it must make emphasizes the importance of FCPA compliance by U.S. companies that do business abroad.  The line between proper and improper payments, gifts, travel and entertainment expenses to foreign officials under the FCPA can be difficult to draw by company staff without proper training.  Doing business in countries where the level of corruption is high, such as Russia and China, can make FCPA compliance especially challenging.

As such, it is key for U.S. companies to have robust FCPA compliance programs and audit testing, to provide careful due diligence for particular transactions and relationships, to keep proper records, and to promptly respond to violations or indications of violations.  Our team of international trade attorneys at Fox Rothschild can assist with any of these matters.

The U.N. Security Council has delayed its vote on the proposed sanctions against North Korea until Wednesday, at the request of Russia.

Last week, the United States and China proposed expanded sanctions against North Korea, which include mandatory inspection of cargo leaving or entering North Korea, by sea or air. The United States and China had spent seven weeks negotiating the new sanctions in response to North Korea’s nuclear tests.

The U.N. Security Council, composed of 15 member nations, will vote on the resolutions on Wednesday. The vote was delayed after Russia invoked a procedural 24-hour review of the resolutions.  Russia has requested more time to review the lengthy text of the resolutions and consider the changes to the current sanctions.

Copyright: kagenmi / 123RF Stock Photo
Copyright: kagenmi / 123RF Stock Photo

On July 14, 2015, the so-called P5+1 countries (United States, United Kingdom, Germany, France, Russia and China) and Iran agreed on the Joint Comprehensive Plan of Action (the “JCPOA”) to lift certain sanctions on Iran in exchange for Iran’s assurance and commitment not to pursue certain weapons proliferations activities.   On July 20, 2015, the United Nations Security Council unanimously endorsed the JCPOA.

Continue Reading Iran Nuclear Deal – The Joint Comprehensive Plan of Action