When Export Practices Cross the Line: Hidden Foreign Corrupt Practice Act (FCPA) Violations Can Hurt You

April 20th, 2015 by Brooke Driver

By: Stephen Wagner

Your company exports and ships its products all over the world through a small, local third-party logistics provider. The export manager at the shipping company, who is a close personal friend, has been handling your company’s products for years and has been doing a perfect job. The products arrive at your foreign customer locations on time, without problems, and you just pay the invoices for the shipping costs without question. In fact, international shipping is the one part of your company’s operations at which you have never needed to take a second look.

Until today… Today two special agents from Homeland Security Investigations (HSI) arrived at your office to ask about your company’s export activities. They were vague about the nature of the investigation, but asked a lot of questions about your shipping practices. As they were leaving, they handed you a subpoena for five years’ of export records. You started gathering your documents together and now, reviewing your export shipping invoices for the first time in years, you see line items and charges for a “Customs Clearance Fee” in certain countries and an “Import Commission” in other countries. When you called your friend at the shipping company to ask about these charges, he said that the receiving shipping companies in these countries must pay these fees “so your products can sail through customs.”

What are you really seeing when you look at these charges?

Depending on the exact nature of these payments, you may end up seeing federal criminal charges.

The Foreign Corrupt Practices Act, as amended (15 U.S.C. §§ 78dd-1, et seq.) (“FCPA”), was enacted in 1977 and makes it illegal for U.S. companies (including their foreign affiliates) to make payments to foreign government officials. The “anti-bribery provisions” of the FCPA prohibit “any offer, payment, promise to pay, or authorization of the payment of money … directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage[.]” 15 U.S.C. § 78dd-1(a). Additionally, the “accounting provisions” of the FCPA require companies whose securities are listed in the United States to “make and keep books and records that accurately and fairly reflect the transactions of the corporation” and “devise and maintain an adequate system of internal accounting controls[.]” 15 U.S.C. § 78m(b)(2).

Yet, the world of international business is not so black and white. There are myriad court cases, attorney general opinions and legal theories that seek to define a “foreign official.” While someone working for a foreign government (like a uniformed foreign customs officer) is clearly such an “official,” what about employees of a nationalized, or government-owned company? What about employees of private companies that conduct government functions (such as processing customs paperwork) under a contract with the government? What about agents, consultants or lobbyists who “grease” the foreign government processes on your behalf?

Furthermore, recognizing that sometimes payments must be made to foreign government officials just to move paperwork along or obtain routine approvals, the anti-bribery provisions of the FCPA contain an exception for “facilitating payments.” This narrow exception applies to payments made for non-discretionary actions, like processing customs paperwork or import permit applications; actions which would take place even without the payments, but would probably take much longer to occur.

Therefore, looking at your company’s “Customs Clearance Fee” or “Import Commission,” several critical questions arise: who is being paid, and for what?

Even if you think you have found the logical answers to these questions, you will need to consult with your company’s general counsel or a qualified outside attorney, because you may not be able to interpret these answers correctly. Indeed, sometimes, the law does not apply logically to the way businesses operate, and sometimes, the language used in the statutes and regulations can be ambiguous or subject to multiple interpretations. For example, if you think the “fee” or “commission” would qualify as a facilitating payment, the U.S. government’s FCPA Guidance warns, “while the payment may qualify as an exception to the FCPA’s anti-bribery provisions, it may violate other laws, both in Foreign Country and elsewhere. In addition, if the payment is not accurately recorded, it could violate the FCPA’s books and records provision.”

And you cannot stop your investigation with just these “fees” and “commissions,” because no federal government investigation will stop there either. Many exporters may pay intermediaries to obtain business in foreign countries. Whether these payments to “middlemen” are labeled as “sales commissions” or “distribution fees” or “licensing payments,” they may all still be bribes as that term is interpreted by enforcement agencies under the FCPA.

As an example of how broadly the FCPA can be interpreted, in May 2014 a federal appeals court ruled in the case of United States v. Esquenazi (752 F.3d 912 (11th Cir. 2014)), that the FCPA’s definition of “foreign official,” which includes “any officer or employee of a foreign government or any department, agency, or instrumentality thereof,” also includes officials working for “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” Esquenazi, 752 F.3d at 925. Therefore, if your company is doing business with a foreign state-owned or state-controlled business, certain payments to officials of that foreign company could be illegal under the FCPA, because such businesses can be interpreted as being “instrumentalities” of the foreign government.

It is also important to note that FCPA enforcement is expected to be on the rise in 2015. Violations of the FCPA can result in criminal and/or civil charges from the U.S. Department of Justice (DOJ) and (if your company is a “reporting company” under the Securities Exchange Act of 1934) civil or administrative cases from the U.S. Securities and Exchange Commission (SEC). While enforcement actions by these two agencies had been relatively stable over the last three years, there has been a recent uptick in the number of potential FCPA violations reported to the U.S. government. This is due in large part to stronger anti-corruption laws and enforcement measures around the globe, which is increasing corporate awareness of anti-bribery issues. As companies are reporting more to the enforcement agencies, actions under the FCPA should increase as well.

And the stakes in FCPA compliance measures and enforcement actions can be enormous. For 2014, the average value of monetary resolutions in government FCPA enforcement actions against corporations was over $150 Million. And those are just the fines and penalties. On the compliance side the costs can be staggering for businesses as well. In one well publicized case, Walmart self-reported possible FCPA violations to the DOJ and SEC after a New York Times investigation. According to filings with the SEC, Walmart is now spending between $10 Million and $35 Million per quarter for its “global [anti-bribery and anti-corruption] compliance program and organizational enhancements.” In its fiscal 2014 Global Compliance Program Report, Walmart reported it had spent an overall total of $439 million in legal fees and other costs associated with the on-going investigations of alleged FCPA violations, and to revamp its global compliance protocol.

While smaller companies may not have the breadth of operations (and the financial resources) of Walmart, having an effective and robust FCPA compliance program is just as critical. A combination of a strong, written program together with its robust use and periodic audits can help prevent exactly the type of situation that has befallen the company in the scenario above. Moreover, an effective FCPA program can be a critical factor in mitigating possible penalties in any FCPA enforcement action that may arise.

So what does this mean for your company? In the short-term, you should conduct an immediate self-assessment to check foreign transactions for both export violations and FCPA violations. It is common for a company lacking in FCPA internal controls to also be lacking in effective export controls and vice versa. (You also need to have legal counsel carefully review all of the responsive subpoena documents for possible export and/or FCPA violations.) In the long-term, your company must become more vigilant with respect to FCPA issues. Your company’s overall compliance program must address anti-corruption and anti-bribery programs, just as company contracts with foreign entities or with respect to export-related operations should contain standard provisions requiring FCPA compliance.

DDTC Migrates All External Systems to a New Platform

March 30th, 2015 by Brooke Driver

Source: http://pmddtc.state.gov/

DDTC is modernizing its technology infrastructure, and migrating all external systems to a new platform. The migration will occur on Friday, April 17, 2015.

New versions of the DTrade DSP forms will be available from the DDTC web site on April 3, 2015. DS-2032 and DS-4076 form versions will remain unchanged. If you have any questions, please contact the DDTC Helpdesk at 202-663-2838 or dtradehelpdesk@state.gov

Following the migration, Users will be required to submit a DSP-85 for any amendment applications to License for Export/Import of Defense Articles that were previously submitted using a DSP-119. The Ellie system will be decommissioned as of Friday, April 17, 2015.

Industry users will see no functional changes to the remaining online applications. However, effective April 18, 2015, users will access DTrade, Electronic Forms Submission, and MARY using the following new URLs:

- DTrade Application: https://dtrade.pmddtc.state.gov
- Electronic Forms Submission for DS-2032 and DS-4076: https://efs.pmddtc.state.gov
- MARY status application: https://mary.pmddtc.state.gov/mary

BIS Revises Support Document Requirements for License Applications

March 30th, 2015 by Brooke Driver

By: Brooke Driver

Effective March 13, 2015, the BIS has amended the EAR to streamline the support document requirements for license applications in part 748. Under the new rule, it is no longer necessary to obtain an International Import Certificate or Delivery Verification during the licensing process. The changes also limit the requirement to obtain a Statement by Ultimate Consignee and Purchaser to exports, reexports and transfers (in-country) of 600 Series Major Defense Equipment.

Commerzbank to Pay $258,660,796 for Violating Multiple Sanctions Programs

March 30th, 2015 by Brooke Driver

By: Brooke Driver

Commerzbank AG recently agreed to settle with OFAC regarding its 1,596 apparent violations of multiple U.S. sanctions programs, including the Iranian Transactions and Sanctions Regulations, the Sudanese Sanctions Regulations, the June 28, 2005 Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,” the Weapons of Mass Destruction Proliferators Sanctions Regulations, the Burmese Sanctions Regulations and the Cuban Assets Control Regulations.

The bank’s massive $258,660,796 fine reflects the number and enormity of the apparent violations, as does the large scale of its case, with collaboration between OFAC, the U.S. Department of Justice, the New York County District Attorney’s Office, the Federal Reserve Board of Governors and the Department of Financial Services of the State of New York.

Obama Blocks Property and Suspends Entry of Certain Persons Contributing to the Situation in Venezuela

March 30th, 2015 by Brooke Driver

By: Brooke Driver

In response to the situation in Venezuela, specifically the government’s “erosion of human rights guarantees, persecution of political opponents, curtailment of press freedoms, use of violence and human rights violations and abuses in response to antigovernment protestors,” President Obama has declared a national emergency and blocked the U.S. property of any person the State determines as “complicit in, or responsible for ordering, controlling” or otherwise contributing to the turmoil in Venezuela. The president also included an annex listing specific Venezuelan nationals to be included in this order:

  1. Antonio José Benavides Torres [Commander of the Central Integral Strategic Defense Region of the National Armed Forces, former Director of Operations for the National Guard; born June 13, 1961]
  2. Gustavo Enrique González López [Director General of the National Intelligence Service and President of the Strategic Center of Security and Protection of the Homeland; born November 2, 1960]
  3. Justo José Noguera Pietri [President of the Venezuelan Corporation of Guayana, former General Commander of the National Guard; born March 15, 1961]
  4. Katherine Nayarith Haringhton Padron [National Level Prosecutor of the 20th District Office of the Public Ministry; born December 5, 1971]
  5. Manuel Eduardo Pérez Urdaneta [Director of the National Police; born May 26, 1962]
  6. Manuel Gregorio Bernal Mart[iacute]nez [Chief of the 31st Armored Brigade of Caracas, former Director General of the National Intelligence Service; born July 12, 1965]
  7. Miguel Alcides Vivas Landino [Inspector General of the National Armed Forces, former Commander of the Andes Integral Strategic Defense Region of the National Armed Forces; born July 8, 1961]

State Department Posts Industry Notice Regarding Temporary Import without a License of Unclassified and Classified Defense Items

March 30th, 2015 by Brooke Driver

Source: https://www.pmddtc.state.gov/

Pursuant to §126.6(c), the temporary import (and subsequent export) without a license of unclassified and classified defense items that are transferred through the sale, lease or loan by the Department of Defense under the FMS program, and that are specifically identified in an executed U.S. Department of Defense Letter of Offer and Acceptance (LOA) pursuant to the U.S. Foreign Military Sales (FMS) program, is authorized. FAQs are available under “Export Control Reform.”

NNSA Amends Assistance to Foreign Atomic Energy Activities

March 30th, 2015 by Brooke Driver

By: Brooke Driver

For the first time since 1986, the Department of Energy has released a comprehensive update of 10 CFR Part 810, which controls the export of unclassified nuclear technology and assistance by identifying “generally authorized” activities involving nuclear technology and activities that require “specific authorization” from the Secretary.

The DOE states that, while small changes to Part 810 were made in 1993 and 2000, this comprehensive update was necessary in light of the global expansion of the civil nuclear market, especially in China, the Middle East and Eastern Europe. The nuclear industry has also expanded in France, Japan, the Republic of Korea, Russia and Canada.

Export Compliance Position Open at University of Miami

March 25th, 2015 by Brooke Driver

Source: University of Miami

The University of Miami is home to some of the brightest minds in the world. At the U, we are committed to attracting and retaining a talented workforce to support our common purpose of transforming lives through teaching, research, and service. We are leaders in the area of education, scholarship, intercollegiate athletics and service. Come join our team!

The Export Compliance Officer (ECO) will work in conjunction with the Associate Vice President, Research Administration for the implementation of export control policies and procedures throughout the University, rendering training and advice to faculty and staff in all export-related matters. The ECO will develop, oversee and maintain a project management function associated with the coordinated activities of the Office of Research Administration, and apply project management knowledge, technical skills, tools and techniques to meet the project requirements for the development and management of databases and reports. The ECO will serve as a resource for administration regarding compliance regulations and guidelines, and draft responses of substance to regulatory agencies.

Accountabilities (For Non-exempt Employees Include Percent of Effort):

• Work with the Associate Vice President to develop, document, and implement institutional policy requirements regarding U.S. export control laws and regulations.
• Develop and implement an effective export control education and training program, including ongoing education for University personnel, and the development of web-based materials to facilitate learning independently. Prepare and give presentations to faculty and staff on export control matters.
• Maintain and update content on research compliance website.
• Use the Amber Road On-Demand RPS system as part of the University’s compliance efforts; serve as site administrator; manage relationship with vendor.
• Prepare, submit, and monitor licensing authorizations and institutional registrations. Use federal web-based systems for commodity classifications, license applications, and other export control compliance obligations.
• Provide guidance to faculty, staff and students on export control policies, procedures and federal regulations, including but not limited to: advising faculty and staff on foreign travel; assisting PIs and other individuals involved in the conduct of research in obtaining an understanding of the compliance issues associated with the transfer of materials, restrictions of foreign nationals in labs, publication restrictions, etc.; providing guidance with implementing technology control plans; purchasing of controlled technology and securing of technical data.
• Act as liaison and coordinator for export-related matters between the various research and regulatory offices within the University.
• Assist the Associate Vice President and General Counsel as University liaison to the U.S. Departments of Commerce, State and Treasury or any other federal agency in regard to export-related matters.
• Maintain export compliance database, logs, documentation and filing system to ensure accurate and up-to-date information and compliance with recordkeeping requirements.
• Other duties as assigned.
The above statements describe the general nature and level of work being performed by individuals assigned to this classification. This is not intended to be an exhaustive list of all responsibilities and duties required of personnel so classified.
Supervision Received: Minimal

Minimum Qualifications:

• B.S. or B.A in International business or related field required, Masters or JD degree preferred. Five years of progressively responsible experience in project management, including complex projects involving multiple functional groups.
• Five (5) years’ experience in relevant and progressively responsible administrative experience in export control, research, compliance, or other appropriate field.
• Experience in a research university environment. In-depth knowledge of relevant federal export control regulations, including those pursuant to EAR, ITAR, and OFAC, Patriot Act as well as the National Security Decision Directive 189. Working knowledge of restricted party screening software.
• Ability to work with legal counsel and federal agencies regarding export, security, and travel related matters. Additionally, this person must have sufficient understanding of technology to work with investigators and technicians in making accurate technology classifications and licensing determinations.
• Ability to interpret and ensure compliance with federal regulations required.
• Evidence of excellent written and verbal communication skills required, with effective presentation and training skills.
• Advanced computer proficiency including Microsoft Office Suite.
• Any appropriate combination of relevant education and/or work experience will be considered.

Please apply online. Position #031831

Tips on How to Resolve AES Fatal Errors

March 25th, 2015 by Brooke Driver

Source: census@uscensus.service.govdelivery.com, February 20, 2015

When a shipment is filed to the AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. However, if the shipment is rejected, a Fatal Error notification is received.

To help you resolve AES Fatal Errors, here are some tips on how to correct the most frequent errors that were generated in AES for this month

Fatal Error Response Code: 250

- Narrative: USPPI Country Must Be US

- Reason: The USPPI Country Code is not reported as US.

- Resolution: The USPPI Country Code must be the United States, ISO Country Code US. Verify the USPPI Country Code, correct the shipment and resubmit.

Fatal Error Response Code: 546

- Narrative: BIS License No Longer Active

- Reason: The License Code/ License Exemption Code reported indicates a Bureau of Industry and Security (BIS) license number is required and the License Number reported is not active in AES at the time of export.

- Resolution: The License Number must be reported for a BIS licensable shipment and be one that is active in AES at the time of export. See Appendix F, License and License Exemption Type Codes and Reporting Guidelines for requirements that apply to the export shipment as determined by various government agencies. Verify the License Number and Date of Export, correct the shipment and resubmit.

For further assistance, contact the Department of Commerce/ Bureau of Industry and Security/ Office of Technology Evaluation at 202-482-4933.

Census Department Introduces a New Online Export Filing Platform: the International Trade Data System

March 25th, 2015 by Brooke Driver

By: Brooke Driver

The Census Department recently alerted Automated Export System filers to a new AES related functionality on the horizon; this year, Census plans to release preparatory instructions for the International Trade Data System, a “single window” concept for export filing to be officially established by December 2016. The ITDS will allow exporters to continue to transmit the AES transactional data required by many U.S. executive departments and agencies and will streamline the overall reporting demands as other agencies that currently require paper submissions will begin to accept AES reports. In other words, the ITDS single window concept will enable exporters to save time and money by enabling them to submit electronic data one time in AES.

Commerce states that detailed instructions will be sent via email through the year to prepare the exporting community for the change, including information regarding:

  • The new electronic reporting capability for Environmental Protection Agency-regulated Hazardous Waste Exports
  • U.S. Customs and Border Protection’s new electronic reporting capability for Automated Outbound Manifests

Other Government Agencies’ electronic reporting capabilities for regulated export items