International Trade Issues for the Pump Industry Eric McClafferty - - PowerPoint PPT Presentation

international trade issues for the pump industry
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International Trade Issues for the Pump Industry Eric McClafferty - - PowerPoint PPT Presentation

International Trade Issues for the Pump Industry Eric McClafferty Chair, International Trade Group Kelley Drye Warren LLP (202) 342-8841 emcclafferty@kelleydrye.com Kelley Dryes International Trade Compliance Team Larry Paul Eric Rob


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International Trade Issues for the Pump Industry

Eric McClafferty Chair, International Trade Group Kelley Drye Warren LLP (202) 342-8841 emcclafferty@kelleydrye.com

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Kelley Drye’s International Trade Compliance Team

Rob Slack Bill Reinsch Eric McClafferty Brooke Ringel Greg Rohling Larry Lasoff Paul Rosenthal Scott Wise

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TOPIC: Complexity, Change and Risk

  • Treasury’s Office of Foreign Assets Control (OFAC) and Committee
  • n Foreign Investment in the U.S. (CFIUS)
  • Denied Party Screening
  • Country Sanctions
  • Commerce’s Bureau of Industry and Security (BIS)
  • Sanctions
  • Product and Know How Export Controls
  • State’s Directorate of Defense Trade Controls
  • ITAR
  • Department of Justice and Securities and Exchange Commission

Foreign Corrupt Practices Act (FCPA)

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Topics

  • Focus on Individual Culpability – Yates Memo
  • Whistleblowers - rewards
  • What to do if you spot a violation
  • Dealing with inquiries from the government and

enforcement “visits”

  • Responding to Complexity, Change and Risk
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SLIDE 5

Complexity, Change and Risk

  • OFAC Sanctions
  • Russia
  • Crimea
  • Belarus
  • Cuba
  • Iran
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SLIDE 6

Key Industry Cases

  • Schlumberger – $232 million paid, including $155

million criminal fine

  • Guilty plea criminal case involving trade with Iran

and Sudan

  • Weatherford International and Subsidiaries Pay $252

Million in OFAC and Export Penalties and Fines

  • Individual cases
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SLIDE 7

Example -- FCPA - Potential Penalties

  • Criminal Penalties, per violation
  • Anti-bribery
  • Businesses -- fine up to $2 million
  • Individuals (officers, directors, stockholders, agents) fine up to

$250,000 and imprisonment for up to five years

  • Accounting
  • Businesses -- fine up to $25 million.
  • Individuals -- fine of up to $5 million and imprisonment up to 20

years

  • Alternative Fines Act, fine up to twice the benefit that the defendant
  • btained by making the corrupt payment
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Penalties cont’d

  • Note: Fines imposed on individuals may not be paid by their

employer or principal

  • U.S. Sentencing Guidelines
  • When calculating penalties for criminal violations of the FCPA, DOJ

focuses its analysis on the U.S. Sentencing Guidelines

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SLIDE 9

Civil Penalties

Antibribery

  • Business entities and individuals -- up to $16,000 per violation
  • Individual penalties may not be paid by employer or principal

Accounting

  • Civil penalty not to exceed the greater of

(a) the gross amount of the gain to the defendant as a result of the violations or (b) a specified dollar limit based on egregiousness, ranging from $7,500 - $150,000 for an individual and $75,000 - $725,000 for a company

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Collateral Consequences

  • Debarment
  • Federal Acquisition Regulations and Defense Federal

Acquisition Regulations (FAR and DFARs)

  • Cross Debarment by Multilateral Banks
  • Loss of export privileges under the U.S. International Traffic in Arms

Regulations (ITAR)

  • Monitorship
  • Reputational Concerns
  • Shareholder derivative suits alleging that directors and officers failed

to prevent violation and did not implement proper internal controls

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Top Ten FCPA enforcement cases

  • 1. Siemens (Germany): $800 million in 2008
  • 2. Alstom (France): $772 million in 2014
  • 3. KBR / Halliburton (USA): $579 million in 2009
  • 4. Och-Ziff (USA): $412 million in 2016
  • 5. BAE (UK): $400 million in 2010
  • 6. Total SA (France) $398 million in 2013
  • 7. VimpelCom (Holland) $397.6 million in 2016
  • 8. Alcoa (U.S.) $384 million in 2014
  • 9. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365

million in 2010

  • 10. Technip SA (France): $338 million in 2010
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Trade Rules and Extraterritoriality

  • Note that 7 of the top 10 FCPA cases involved companies

headquartered outside the U.S.

  • Jurisdictional issues are critical -- and triggers for FCPA jurisdiction

are expanding

  • Unitel and VimpelCom – Unitel management “used U.S.-based

email accounts to communicate with others and effectuate the scheme”

  • And DOJ alleged that the companies made “numerous corrupt

payments” executed through correspondent bank accounts at New York financial institutions

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Knowledge and Controls

  • Standard – Know or Should Have Known
  • Lack of Internal Controls
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Complexity, Change, and Risk

  • Complexity of the rules and the chilling effect of blurry

lines

  • Penalties
  • Significant increase in frequency and severity of

penalties over last 10 years

  • Yates memo: Focus on executives, employees

involved and individual criminal penalties

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Government ‘contacts’

  • Calls
  • Visits
  • Requests for Documents
  • Administrative Subpoena
  • Grand Jury subpoenas
  • Search warrants
  • Ambush interviews (‘voluntary’ so no Miranda warning)
  • Border interviews
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Increasing Enforcement and Prosecution Resources

  • Added three new operational squads to FBI’s International

Corruption Unit focusing on FCPA

  • 10 new prosecutors being added to Fraud Section’s FCPA unit

(increase of 50%)

  • Effectively need to deal with an active and very interested SEC

when dealing with DOJ, but,

  • SEC also acts independently
  • 9 SEC corporate enforcement cases on its own in 2015
  • International Cooperation on increase as is international

enforcement

  • Export and Sanctions – Thousands of ICE agents now involved, FBI,

Homeland Security Investigators, BIS enforcement, DOJ training

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Dodd Frank and Whistleblowers

  • Receipt of letter / email
  • Who sees it and who is responsible for next steps and

investigation?

  • Role of company outside counsel
  • Whistleblower = insider or insider + lawfirm?
  • Incentive to report? Monetary or just fix the problem?
  • Also sent to authorities?
  • Company contact with authorities
  • Contact the whistleblower or lawfirm?
  • Tread carefully
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Voluntary Self-Disclosure Considerations

  • Complex analysis
  • Getting the facts is key to making the right determination
  • Scope of the investigation is critical
  • Get initial facts
  • Prior acts?
  • What steps are needed? Interviews, document reviews?
  • Think about how your investigative decisions will look to an agency

in a year

  • Disclose and face review process and agency decision, or not
  • What if others disclose for the company – loss of VSD opportunity
  • Worse off?
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RESPONSE TO THESE CHALLENGES

Key steps

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Implement a Program

  • Sentencing Guidelines and Agency Recommendations
  • But what is really needed?
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Conservative Approach?

  • Companies sometimes adopt conservative approaches to

compliance

  • Result of:
  • Ambiguity in the rules
  • Difficulty of obtaining formal guidance from agency
  • Reputational and brand damage
  • Risk of substantial penalties for non-compliance
  • Limited ability to challenge agency determinations
  • Aren’t “Disclosures” Voluntary?
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Allocate risk

  • Require counterparties to comply with U.S. sanctions laws
  • May require partners to perform sanctions compliance processes,

like prohibited party screening

  • Strict liability regime, but can mitigate risk
  • Trust, but verify approach
  • Strongest agreements contain monitoring or auditing rights
  • Consider costs and benefits of this approach
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Monitoring & auditing

  • Adopt a process to regularly monitor compliance
  • Unanticipated areas of risk?
  • Procedural gaps?
  • Policies being implemented?
  • Take and record corrective action
  • Internal audit is not always a good fit
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Eric McClafferty emcclafferty@kelleydrye.com (202) 342-8841

Questions?