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.
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.