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Yes, These Rules May Apply To You

By Sonjui L. Kumar Email By Sonjui L. Kumar
July 2018
Yes, These Rules May Apply To You

There are some important government regulations that are often overlooked, especially by new business owners or small- and mid-size companies. In this article, we highlight rules that apply to all companies that are importing or exporting goods to or from the United States, or otherwise conducting business overseas.

The Foreign Corrupt Practices Act (FCPA) makes it unlawful for any U.S. person or entity to make payments to foreign government officials to assist in obtaining or retaining business. Additionally, the rules may apply even if the U.S. company has not directed the bad actions and has a strict ethics policy in place. The Department of Justice and the U.S. Securities and Exchange Commission (SEC), which administer this program, expect companies to audit and monitor these programs to make sure they are not being violated. Even if a practice is considered to be commonplace and expected in the country, such as facilitating routine government processes, the FCPA strictly prohibits such activity. A common misconception is that if a broker or other third party is used to make payments, then the U.S. business is insulated from liability. That is not the case. These “anti-bribery” rules prohibit any payments, including providing entertainment, in certain situations, to influence a foreign official, induce them to do or not do something in violation of their lawful duty, or create an improper advantage to secure business with any specific person. Companies with any type of overseas activities would be well served to become familiar with these rules and make sure all personnel are trained to comply.

The U.S. Office of Foreign Assets Control (OFAC) and U.S. Customs and Border Protection prohibit trading with some countries and certain people, and also restrict a number of products and services, with potential military uses, even if those products and services also have civilian uses. OFAC administers and enforces trade sanctions based on current U.S. foreign policy and national security objectives against certain nations, regimes, terrorists, and traffickers. Because OFAC operates under Presidential emergency powers, legislation, and United Nations mandates, the scope of its actions can be broad and sweeping. Accordingly, U.S. businesses must take great care to ensure that they are not violating any of the prohibitions either by trading with the sanctioned countries or by dealing in products/services that are banned. The rules also require companies to look beyond the named customer and find out who the ultimate buyer is and what their intentions might be, no matter how removed that information may be from the original order. The “known” or “should have known” tests mentioned above will apply, so each business must ensure that its product does not end up in the hands of a prohibited party, to avoid liability or penalties. This demands a higher degree of engagement by U.S. distributors when dealing overseas, as the failure to conduct the proper level of due diligence in building a commercial network can expose your company to potential fines and penalties that were otherwise avoidable. The list of sanctioned countries and prohibited goods and services are available on the “Resources” page for the Department of Treasury (https://www.treasury.gov/resource-center).

Another agency of the federal government that regulates exports is the U.S. Bureau of Industry and Security (BIS) within the Department of Commerce. The BIS maintains a Country List and a Commerce Control List that must be consulted before products are shipped overseas. Generally, products related to nuclear energy, chemicals, software, computers, navigation, technology and other similar fields are most likely to fall under the export restrictions. Regulated products require an export license before shipping. Similar to OFAC controls, export controls require the U.S. business to determine the ultimate destination of the product or services to avoid liability.

Accessing overseas markets are a natural part of growing a business. Being aware of these rules, that don’t apply to domestic commerce, is an important aspect of conducting that business cautiously and avoiding inadvertent penalties.


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Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.



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