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 Drye’s International Trade Compliance Team

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

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)

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

Complexity, Change and Risk

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

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

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

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

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

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

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

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

Knowledge and Controls

• Standard – Know or Should Have Known
• Lack of Internal Controls

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

Government ‘contacts’

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

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

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

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?

RESPONSE TO THESE CHALLENGES

Key steps

19

Implement a Program

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

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?

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

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

Eric McClafferty emcclafferty@kelleydrye.com (202) 342-8841

Questions?