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

TOPIC: Complexity, Change and Risk  Treasury’s Office of Foreign Assets Control (OFAC) and Committee on 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 obtained 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

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