The ITAR and the FCPA: What You Disclose May Hurt You October 7, 2014
Presenters Mark Srere Susan Kovarovics Bryan Cave LLP Bryan Cave LLP 2
Agenda • Background on the FCPA • Background on ITAR • ITAR Part 129 brokering provisions and Part 130 provisions • Enforcement actions involving FCPA and ITAR • Compliance tips 3
Foreign Corrupt Practices Act Background 4
Structure of FCPA Antibribery Provisions Books and Records Provisions • • Prohibits bribery of foreign Requires SEC-registered or government or political officials reporting issuers to make and for the purpose of obtaining or maintain accurate books and retaining business or securing records and to implement any improper business adequate internal accounting advantage controls • • Mainly enforced as criminal Mainly enforced as civil violations violations by the Department of by the Securities and Exchange Justice Commission 5
Antibribery Prohibited Acts • It is unlawful for – an ―issuer,‖ ―domestic concern,‖ or ―any person acting within the territory of the United States‖ – with ―corrupt intent‖ – directly or indirectly – to offer, pay, promise to pay, or authorize payment – of ―anything of value‖ – to a ―foreign official‖ – for the purpose of obtaining or retaining business or securing any improper business advantage 6
To Whom Do the Antibribery Provisions Apply? • Any ― issuer ‖ that files reports to the SEC or trades equity or debt on a U.S. exchange – Includes any foreign company that trades, for example, American Depository Receipts (ADRs), on a U.S. exchange. • Any ― domestic concern ‖ – Includes U.S. citizens, nationals, and residents as well as any entity (corporation, partnership, etc.) that is organized under the laws of the United States or a U.S. territory or that has its principal place of business in the United States. • Any ― person ,‖ including an organization, wherever located, that, while in the territory of the United States, does any act in furtherance of the prohibited conduct – Government argues minimum contacts include emails, telephone calls, transfers through correspondent bank accounts in U.S. intermediary banks 7
Why Is This Important? • Violations of anti-corruption and related laws can result in – Serious criminal penalties, including jail sentences for individuals – Serious civil penalties for both company and individuals – Debarment from and termination of government contracts – Costly internal investigations – Bad publicity and reputational consequences 8
Penalties for Violation of FCPA Provisions • Significant Monetary and Criminal Penalties – Antibribery Violations o Fines up to $2 million per violation o Culpable individuals may face fines of up to $250,000 per violation and/or imprisonment for up to five years – Books and Records and Internal Control Violations (Willful) o Corporate fines in excess of $25 million for a company o Fine up to $5 million and/or imprisonment for up to 20 years for culpable individuals – Alternative Fines Statute, 18 U.S.C. § 3571(d) • Collateral Consequences 9
Top Ten FCPA Enforcement Actions 1. Siemens (Germany): $800 million in 2008 2. KBR / Halliburton (USA): $579 million in 2009 3. BAE (UK): $400 million in 2010 4. Total S.A. (France) $398 million in 2013 5. Alcoa (USA) $384 million in 2014 6. Snamprogetti Netherlands B.V./ENI S.p.A (Holland/Italy): $365 million in 2010 7. Technip S.A. (France): $338 million in 2010 8. JGC Corporation (Japan) $218.8 million in 2011 9. Daimler AG (Germany): $185 million in 2010 10. Weatherford International (Switzerland): $152.6 million in 2013 10
Dodd-Frank Whistleblower Provisions • Whistleblowers who – ―Voluntarily‖ provide the SEC with – ―Original information‖ – That leads to a ―successful enforcement‖ action in a federal or administrative court – That results in monetary sanctions greater than $1,000,000 • Are entitled to a mandatory award from the SEC between 10 and 30% of the monetary sanctions • September 2014 developments: – $30 million award to foreign national whistleblower – Award given to company compliance professional 11
International Traffic in Arms Regulations Background 12
International Traffic in Arms Regulations (ITAR) • Administered by the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) • Enforced by Homeland Security, Immigration and Customs Enforcement (ICE) and the FBI • 22 CFR Parts 120-130 • Requires registration for manufacturing defense articles, exporting defense articles and provision of defense services, or brokering defense articles and defense services 13
ITAR • Controls the temporary and permanent export and temporary import of – Defense articles – Technical data – Defense services • Exports require a license to all countries unless an exemption applies • Regulates brokering of defense articles, technical data and defense services 14
ITAR Part 129 Brokering Provisions and Part 130 Reporting Provisions 15
ITAR Part 129 • ITAR regulates brokering of defense articles and defense services • Part 129 imposes registration, prior approval, reporting and record keeping requirements • Part 129 may apply to sales agents or other parties with whom you are dealing 16
ITAR Part 129 • Applies to any person described below who engages in the business of brokering activities: – U.S. persons wherever located – Foreign persons located in the United States – Foreign person located outside the United States where the foreign person is owned or controlled by a U.S. person • Brokering activities: Any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, reexport, or retransfer of a U.S. or foreign defense article or defense service, regardless of its origin. 17
ITAR Part 129 • What actions are covered? – Financing, insuring, transporting, or freight forwarding defense articles and defense services; or – Soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service. – BUT, brokering activities are ―not limited to‖ these actions. 18
ITAR Part 130 • Part 130 reporting requirements are independent of Part 129 brokering • Even if foreign party is not a ―broker‖ engaged in ―brokering activities‖ under Part 129, still need to report political contributions, fees or commissions in accordance with Part 130 19
ITAR Part 130 • ITAR Part 130 requires reporting on the payment of certain political contributions, fees and commissions – Political contributions in an aggregate of $5,000 or more – Fees or commissions in an aggregate of $100,000 or more • A Part 130 Statement must be submitted with all ITAR license applications and agreements submitted for approval – Also applies to FMS transactions 20
ITAR Part 130 • Reporting requirement triggered for transactions involving – exports of defense articles or services – valued in an amount of $500,000 or more – for use of the armed forces of a foreign country or international organization – Covered by an ITAR license, TAA, MLA, WDA or in an FMS transaction • Reporting must cover payments by the license applicant or FMS supplier, as well as payments by any vendors to such party if the vendor furnishes defense articles or services valued in an amount of $500,000 or more which are supplied to or for the use of the armed forces of a foreign country or international organization 21
ITAR Part 130 • Under the ITAR, disclosure of information to DDTC about payments is mandatory if Part 130 criteria are met • Under the FCPA, disclosure of information about payments (or offers to pay) is not required – Yet consideration should be given to what may need to be disclosed to DDTC (and how might that information be shared with other government agencies) 22
Enforcement Actions Involving FCPA and ITAR 23
BAE Systems plc – March 2010; May 2011 • Pleaded guilty to conspiring: – to defraud the U.S. by impairing and impeding its lawful functions – to make false statements about its FCPA compliance program; and – to violate the Arms Export Control Act (AECA) and ITAR • $400 million (criminal fine); independent compliance monitor for 3 years • Civil agreement with DDTC for $79 million in civil penalties and remedial compliance measures 24
BAE’s FCPA Violations • BAE took steps to conceal payments to shell companies and third party ―marketing advisors‖ that likely went to bribes. Total payments ultimately exceeded £135M and $14M. • BAE paid in excess of £10M and $9M to a Swiss intermediary and was aware that this money would likely go to a Saudi official to win an $80B contract. • In its guilty plea, BAE admitted that it had averred to the Department of Defense that it was not knowingly violating the FCPA or other foreign anti-bribery laws, even as conducting the above suspect activities. 25
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