Marking the International Anti-Corruption Day this week and the 10 year anniversary of the entry into force of the Organization of Economic Cooperation and Development (OECD) Anti-Bribery Convention, the OECD held a high level roundtable meeting in Paris and heard various officials, including U.S. Secretary of State Hillary Clinton and U.S. Secretary of Commerce Gary Locke.
Importantly, the OECD also released its Recommendation for Further Combating Bribery of Foreign Public Officials. The Recommendation urges OECD member countries to prohibit or discourage using facilitating payments. Specifically, the OECD recommends that member countries periodically review their policies on and approach to facilitating payments.
The OECD also encourages companies to set out internal controls, ethics policies, and compliance programs that expressly prohibit or discourage using facilitating payments, recognizing that these “grease” payments are often illegal in the countries where they are paid. The OECD recommends that, in all cases, these payments be recorded accurately in a company's books and records, including not using agents and intermediaries to carry out the bribe for the company. It is recommended that member countries were advised to raise awareness of public officials about domestic bribery and solicitation laws, with the idea that soliciting and accepting facilitating payments could be stopped through greater awareness.
Under the U.S. Foreign Corrupt Practices Act, of course, facilitating payments are a limited exception to the prohibition against bribery. These payments can only be made to expedite “routine government action.” Examples of acceptable facilitating payments would include small payments to obtain permits, licenses, or other official documents; processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery; providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; and scheduling inspections associated with contract performance or transit of goods across country. U.S. companies and nationals may request a statement from the U.S. Department of Justice Department enforcement intentions regarding any proposed business transaction or conduct.
The OECD’s recommendations are not binding on any member countries, including the U.S. Each member country would have to enact changes in their laws. Companies operating within OECD member countries would be wise to heed the recent Recommendation and review their current antibribery policies and practices, particularly with respect to facilitating payments. Adopting these recommended practices now will instill a culture of compliance and avoid potential civil and criminal liabilities. Companies should also work with their compliance advisors and counsel to monitor potential changes in the FCPA and the laws of other OECD member countries.
11 December 2009
05 December 2009
Six-figure Antiboycott Penalty Settlement Announced
Last month the Office of Antiboycott Compliance, Bureau of Industry and Security, and York International Corporation settled a civil penalty totaling nearly $141,000. The case involved 122 alleged violations of the antiboycott regulations, 15 C.F.R. 760. In general, the antiboycott regulations prohibit a “U.S. person” from supporting the boycott of Israel sponsored by the Arab League and some countries with significant Muslim populations.
It is important for U.S. and foreign companies and organizations to know that a “U.S. person” includes not only individuals and corporations in the U.S., but also permanent domestic affiliates of foreign parties, as well as U.S. citizens abroad, and “controlled in fact” affiliates of domestic entities. “Controlled in fact” means that the party has the ability to establish company policies and control the daily operations of the foreign affiliate.
This recent settlement should be a wake-up call to companies and organizations of all sizes involved in international business transactions to diligently screen, report, and decline to take actions that violate the antiboycott regulations. York International faced charges that: in 6 instances it engaged in sales involving the sale or transfer of goods or services (including information) from the U.S. to Lebanon, Syria, and the UAE and knowingly refused to do business “with another person” under an agreement with, a requirement or request of a boycotting country; 15 times it engaged in sales or transfers of goods or services from the U.S. to Lebanon, Libya, Kuwait, Oman, Qatar, Syria, Sudan, and the UAE, and supported an unsanctioned boycott by furnishing information about its business relationships with or in the boycotted country; an on 101 occasions, the company failed to report to the Department of Commerce requests to engage in restrictive trade practices or a non-U.S. sanctioned boycott, as required by the regulations.
The settlement agreement shows that 6 violations were based on York International proceeding with transactions that involved documents containing prohibitions or conditions in letters of credit containing language such as: “Under no circumstances may a bank listed in the Arab Israeli boycott blacklist be permitted to negotiate documents under this documentary credit” and “We do not undertake to ship the goods described in this invoice on…vessel…mentioned in the black list of Arab countries…” Invoices and certificates contained statements such as: “We declare that no raw materials of Israeli origin have been used for the production or presentation of the goods mentioned in this invoice.”
The settlement agreement does not disclose the value of the transactions involved, but it will be assumed the overall value was sizeable given the number involved and the size of the penalty. York International voluntarily disclosed to BIS the information concerning the transactions, so the company likely received favorable treatment again demonstrating the importance for companies, non-profits, and other organizations involved in international trade to have a robust export compliance program and the benefits of making a voluntary disclosure.
It is important for U.S. and foreign companies and organizations to know that a “U.S. person” includes not only individuals and corporations in the U.S., but also permanent domestic affiliates of foreign parties, as well as U.S. citizens abroad, and “controlled in fact” affiliates of domestic entities. “Controlled in fact” means that the party has the ability to establish company policies and control the daily operations of the foreign affiliate.
This recent settlement should be a wake-up call to companies and organizations of all sizes involved in international business transactions to diligently screen, report, and decline to take actions that violate the antiboycott regulations. York International faced charges that: in 6 instances it engaged in sales involving the sale or transfer of goods or services (including information) from the U.S. to Lebanon, Syria, and the UAE and knowingly refused to do business “with another person” under an agreement with, a requirement or request of a boycotting country; 15 times it engaged in sales or transfers of goods or services from the U.S. to Lebanon, Libya, Kuwait, Oman, Qatar, Syria, Sudan, and the UAE, and supported an unsanctioned boycott by furnishing information about its business relationships with or in the boycotted country; an on 101 occasions, the company failed to report to the Department of Commerce requests to engage in restrictive trade practices or a non-U.S. sanctioned boycott, as required by the regulations.
The settlement agreement shows that 6 violations were based on York International proceeding with transactions that involved documents containing prohibitions or conditions in letters of credit containing language such as: “Under no circumstances may a bank listed in the Arab Israeli boycott blacklist be permitted to negotiate documents under this documentary credit” and “We do not undertake to ship the goods described in this invoice on…vessel…mentioned in the black list of Arab countries…” Invoices and certificates contained statements such as: “We declare that no raw materials of Israeli origin have been used for the production or presentation of the goods mentioned in this invoice.”
The settlement agreement does not disclose the value of the transactions involved, but it will be assumed the overall value was sizeable given the number involved and the size of the penalty. York International voluntarily disclosed to BIS the information concerning the transactions, so the company likely received favorable treatment again demonstrating the importance for companies, non-profits, and other organizations involved in international trade to have a robust export compliance program and the benefits of making a voluntary disclosure.
15 November 2009
Case Dismissed in Michigan; Parties to Arbitrate Contract Dispute in Ontario
The importance of a clearly stated arbitration provision in a cross-border agreement has benefitted a Canadian company this past week as shown by a decision from the U.S. District Court for the Eastern District of Michigan.
In Powertrain Production Systems, L.L.C. v. Nemak of Canada Corp., the defendant filed a motion to dismiss the complaint filed against it and compel arbitration pursuant to an arbitration provision in its agreement with Powertrain. Powertrain is a manufacturer and supplier of automotive parts in Michigan, while Nemak is an Ontario corporation that produces automobile components for sale to motor vehicle manufacturers. After finding a Powertrain proposal acceptable, Nemak submitted a purchase order (PO) to Powertrain that stated the contract was subject to Nemak’s Global Terms and Conditions. The Global Terms and Conditions provided that all disputed matters under the agreement must be submitted to arbitration, and that the contract terms were to be governed by Ontario law. Binding arbitration was to be conducted before a single arbitrator under the Ontario Arbitrations Act.
Powertrain filed its lawsuit in federal court alleging that Nemak breached its agreement by failing to install anticipated casting capacity which caused a shortfall in the production levels projected in Nemak’s request for proposal. Nemak moved to dismiss the case and compel arbitration and Powertrain did not oppose the motion. Nonetheless, the district court had to determine whether the issue of arbitrability was governed by the U.S. Federal Arbitration Act (the “FAA”) or Ontario law, the stated choice of law contained in the Global Terms and Conditions.
The court concluded that the arbitrability issue was governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq. It found support for its conclusion in one of its earlier decisions where it concluded that “even in international agreements, the [Federal Arbitration Act] governs the arbitrability of claims and choice-of-law clauses will be applied to the substantive aspects of the arbitration proceedings.” The court went on to note that the U.S. Supreme Court had found that “the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; neither sentence intrudes upon the other.” The court noted that Powertrain did not dispute the validity of the arbitration agreement. Therefore, applying the principles of its past decision involving similar facts, the court determined that while the FAA governed the arbitrability question and that the dispute was subject to arbitration, the substantive law to be applied in that arbitration was Ontario law. The court ordered the case dismissed and the parties to “submit their issues of disagreement to arbitration forthwith.”
While distance to the forum in Michigan would not be significant, and the Eastern District could quite easily have decided the dispute under Ontario substantive law, Nemak quite likely will benefit from avoiding the expense and invasiveness of U.S. pretrial discovery by having the arbitration conducted in Ontario. It can also be expected that the dispute will be resolved faster than if it were heard in a U.S. court and, of course, the details of the dispute will now become more private. So this case presents me with yet another opportunity to extol the virtues of international arbitration and how its inclusion in almost any type of cross-border agreement can serve the parties well, particularly non-U.S. parties.
In Powertrain Production Systems, L.L.C. v. Nemak of Canada Corp., the defendant filed a motion to dismiss the complaint filed against it and compel arbitration pursuant to an arbitration provision in its agreement with Powertrain. Powertrain is a manufacturer and supplier of automotive parts in Michigan, while Nemak is an Ontario corporation that produces automobile components for sale to motor vehicle manufacturers. After finding a Powertrain proposal acceptable, Nemak submitted a purchase order (PO) to Powertrain that stated the contract was subject to Nemak’s Global Terms and Conditions. The Global Terms and Conditions provided that all disputed matters under the agreement must be submitted to arbitration, and that the contract terms were to be governed by Ontario law. Binding arbitration was to be conducted before a single arbitrator under the Ontario Arbitrations Act.
Powertrain filed its lawsuit in federal court alleging that Nemak breached its agreement by failing to install anticipated casting capacity which caused a shortfall in the production levels projected in Nemak’s request for proposal. Nemak moved to dismiss the case and compel arbitration and Powertrain did not oppose the motion. Nonetheless, the district court had to determine whether the issue of arbitrability was governed by the U.S. Federal Arbitration Act (the “FAA”) or Ontario law, the stated choice of law contained in the Global Terms and Conditions.
The court concluded that the arbitrability issue was governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq. It found support for its conclusion in one of its earlier decisions where it concluded that “even in international agreements, the [Federal Arbitration Act] governs the arbitrability of claims and choice-of-law clauses will be applied to the substantive aspects of the arbitration proceedings.” The court went on to note that the U.S. Supreme Court had found that “the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; neither sentence intrudes upon the other.” The court noted that Powertrain did not dispute the validity of the arbitration agreement. Therefore, applying the principles of its past decision involving similar facts, the court determined that while the FAA governed the arbitrability question and that the dispute was subject to arbitration, the substantive law to be applied in that arbitration was Ontario law. The court ordered the case dismissed and the parties to “submit their issues of disagreement to arbitration forthwith.”
While distance to the forum in Michigan would not be significant, and the Eastern District could quite easily have decided the dispute under Ontario substantive law, Nemak quite likely will benefit from avoiding the expense and invasiveness of U.S. pretrial discovery by having the arbitration conducted in Ontario. It can also be expected that the dispute will be resolved faster than if it were heard in a U.S. court and, of course, the details of the dispute will now become more private. So this case presents me with yet another opportunity to extol the virtues of international arbitration and how its inclusion in almost any type of cross-border agreement can serve the parties well, particularly non-U.S. parties.
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