Editor’s Note: This is the first column in a 12-part export controls and sanctions series exclusive to Aftermarket Business World. Gregory Husisian is of counsel with Foley & Lardner LLP, a national law firm whose practice areas include corporate governance, compliance, securities and outsourcing, among others.
Last year, the U.S. government imposed record fines in all areas where it regulates exports and international conduct. These included nearly $2 billion in record fines, profit disgorgement and other penalties under the Foreign Corrupt Practices Act (FCPA) and $1 billion in various penalties for U.S. sanctions and export controls. With the government announcing that enforcement of these areas is a top prosecution priority — behind only the fight against terrorism — the likelihood that 2011 will see similar enforcement activity levels is strong.
As a result, all U.S. companies that export or operate abroad, including those in the automotive sector, need to pay increasing attention to compliance with these laws. Main focuses should include the FCPA’s prohibitions on the payment of bribes; the Department of Commerce’s restrictions regarding the export of “dual-use” (largely commercial) goods, information, software and technology; the Office of Foreign Assets Controls (OFAC) economic sanctions and restrictions on the activities of U.S. persons and companies operating abroad in their dealings with banned countries or persons; and, for companies operating in the Middle East or with Middle Eastern countries, the Department of Commerce and the Internal Revenue Service’s restrictions on providing information in support of the boycott of Israel. These complicated regulations expose exporters to potentially large fines, loss of export privileges and even criminal penalties. Even sophisticated companies can run afoul of these laws, as shown by the recent $88,500 fine assessed on GM Daewoo Auto & Technology Company for alleged antiboycott violations.
Further complicating the issue is that there are a number of key enforcement trends that multiply the risks to multinational corporations or exporters subject to U.S. jurisdiction. These include:
- increasing government enforcement activity of laws that apply to international transactions;
- increasing attention to individuals;
- increasing willingness to resort to criminal indictments rather than civil penalties;
- growing fines;
- growing use of dedicated FBI agents with specialized knowledge in identifying violations;
- increasing national and international inter-agency cooperation; and
- simultaneous enforcement of seemingly separate laws regulating the activities of U.S. persons abroad.
This trend of increasing exposure to multiple regulations should raise concerns for all multinational automotive exporters. It is easy to think of fact patterns that could rouse the interest of multiple U.S. agencies. Some examples include:
- Sanctions and export controls. A U.S.-based automotive company exports controlled information to a foreign subsidiary without the required license and then sells the end product to forbidden destinations or end users.
- FCPA and sanctions. A publicly traded automotive exporter pays a bribe to secure a business opportunity with a specially designated national or in a banned country and improperly records the payments in its books and records to hide the transaction.
- FCPA and anti-boycott. An automotive exporter pays a bribe to secure a business opportunity with a foreign entity that it knows complies with the Arab League boycott of Israel.
- FCPA and export controls. A senior officer at a multinational automotive corporation that is a U.S. issuer secures sales that violate U.S. export control laws, in violation of its internal controls, and the company takes steps to hide the sales in its books and records.
None of these situations is far fetched, and not all of them necessarily involve the knowing involvement of the U.S. institution in the transaction. Simple negligence, such as the failure of an automotive supply company to check out an underlying transaction adequately before guaranteeing a letter of credit, or failure of an exporter to check lists of specially designated nationals before shipping, can cause violations of U.S. regulations governing exports and international conduct. With the government looking at the laws regulating international conduct of U.S. persons as a common mosaic, companies at risk also need an integrated approach.
The purpose of this 12-part series is to weave the most common U.S. regulations of exports and international conduct into a common compliance mosaic. Part II begins with an often-neglected topic – the business case for compliance. It then proceeds to detail the reasons why taking an integrated approach to compliance, both across the corporation and among the various laws regulating international conduct, is the best approach for minimizing the regulatory risks posed by these laws.
This approach then is applied in parts III through XII of this series, which first summarize the key requirements of the most commonly encountered regulations of concern to the automotive sector and then provides some key compliance concerns for each of them, including the FCPA, the export-control and sanctions laws and the anti-boycott laws.
Close attention to the concepts presented in these articles is the best way for automotive sector exporters subject to U.S. regulations to manage the pitfalls of their inherently risky area of operation and to ensure that the ever-mounting fines are subjects dealt with in newspaper headlines, rather than through one-on-one attention from the enforcement authorities.
