The Regulation of Exports

1. The Regulation of Exports Chapter 13 © 2002 West/Thomson Learning

2. Trade Controls • Trade Restrictions over Arms • Arms Export Control Act – State Dept. Directorate of Defense Trade Controls • International Traffic in Arms Regulations • US Munitions List • exporter must register with govt. • put restrictions in any license, and register license with govt. • Restrictions for Foreign Policy and National Security Reasons • Restrictions on “State Sponsors of Terrorism” • Cuba, Iran, N. Korea, Sudan, Syria • Libya and Iraq – recently removed • 1979 – Ban on grain sales to USSR • UN Approved Sanctions – more effective than unilateral sanctions • Controls for Reasons of Short Supply – medicines, foodstuffs, basic metals, petroleum • Controls for Protection of Antiquities, Wildlife, Environment or Public Safety

3. B-West Imports v. U.S. (Fed. Cir. 1996) • Facts: Pres. Clinton bans imports of arms and munitions from China to protest human rights abuses • BATF revoked import permits • B-West challenges ban in Ct. of Int. Trade • Issue: Does revocation of the exemption and ban of imports from China constitute a violation of due process and takings clause of the 5th Amendment to the U.S. Constitution? • Decision:No • Reasons: AECA gives President great latitude to prohibit imports of controlled items

4. Multilateral Efforts to Control Technology • COCOM–1949 prevent Soviet Bloc from access to technologies – disbanded in 1994 • Wassenaar Agt.– 1996: has 40 members – coordinate practices and recommendations – loose arrangment • Australia Group – focus on biological and chemical weapons • Missile Technology Control Regime • Nuclear Suppliers Group – share information and voluntary guidelines

5. US Export Control Laws • Balance national interests and Commercial interests • Export Administration Act of 1979 – basis of current export restrictions • Concern about diversions of controlled technology • Toughened Environment after 9/11/01 • Focus on Chinese Industrial Espionage

6. US Restrictions of Exports • Trade Sanctions and Export Controls • Trade Sanctions: specific countries subject to trade sanctions: Cuba, North Korea, Iran, Myanmar, Iraq • Sanctions apply to US firms and to their foreign subsidiaries – “control” test • US firms not allowed to “facilitate” any transaction with sanctioned country • Exception for “information services” – websites, etc. • Canada and EU: legal provisions against firms complying with US sanctions

7. Export Controls on Dual Use Goods • Export Administration Act and Regulations (EAR) • Adopted in 1979 – Act expired in 2001 • Regulations continued under Executive Order by President under IEEPA • Dual Use Commercial Goods and Technologies • Covers Export, Re-export and “Deemed Export” • Export restrictions “follow the goods” – Export License Reqts. • Is product under export control – Commerce Control List? • Where is product going – Country Chart in EAR – DCS in documents • Who is going to use it? • Entity List • Specially Designated Nationals and Blocked Persons List • Unverified List • Denied Persons List • Debarred List • Extraterritoriality of US Controls • Goods made in US, or goods resulting from US technology -- regardless of seller • Also applies if goods contain US parts or components (>10%)

8. Anti-Boycott Provisions • US Anti-Boycott legislation aimed at Arab boycott on Israel • Apply to US firms and citizens – and foreign affiliates of US firms • Prohibit participation in boycott • Prohibit providing information • Required to report any request for boycott • Briggs & Stratton v. Baldridge– upholds provisions

9. Compliance and Enforcement • Export Management System • Policies, audits, voluntary notification systems • Records relating to export license must be kept for 5 years • Enforcement and Sanctions • Bureau of Industry and Security (BIS) enforcement • Civil and Criminal Penalties • Civil – up to $250K • Criminal – for willful conduct or conscious avoidance – up to $1 million and 20 years in prison • Denial of Export Privileges • Recent Enforcement Actions • Stena Bulk LLC paid $426K penalty for violation of Sudan restrictions – transported Sudanese oil • ITT Corp. - $100 Million fine for export of night vision technology to China • Chiquita Brands - $25 million fine for payments to Columbian paramilitary group on US terrorist list • Boeing - $15 million fine for sale of jets with gyrochips in guidance system

10. President’s Emergency Powers • Trading with the Enemy Act: repealed in 1977 • National Emergencies Act: requires Congressional approval of state of emergency declarations after 1 year • Int. Emergency Economic Powers Act: grants wide discretion to control int. financial transactions • Freeze assets, impose embargos, or other sanctions • Usually implemented by Treasury Dept. • USA Patriot Act: antiterrorism powers • Amended IEEPA for more flexibility • Seizure of property, financial transactions reporting

11. Challenges to IEEPA Powers • Chas. Main v. Khuzestan(1st Cir. 1981) • President Carter, as part of a deal to free hostages in Iran, issued an Executive Order under IEEPA suspending claims against Iran in US court • IEEPA gives President has authority to transfer blocked Iranian assets to the Tribunal and to require claims to be arbitrated by Tribunal • U.S. v. Lindh (E.D. Va. 2002) • “American Taliban” charged with providing material support to terrorist organization in violation of IEEPA orders • IEEPA grants broad authority - orders needn’t be limited to commercial transactions

12. US Sanctions on Cuba • 1963 – Restrictions imposed under Trading with Enemy Act • Froze Cuban Assets in US • Banned all trade and financial transactions • 1992 – Cuban Democracy Act • 1996 – Helms Burton Act – • US citizen claims against Cuba for seized property • Allowed suits against foreign nationals using property • Bush Administration – tightened sanctions, restricted educational travel • Congress – some food and medicine sales – cash only • Freedom to Travel Campaign v. Newcomb (9th Cir. 95) – upheld restrictions on travel to Cuba • Recent indications Obama Administration may liberalize restrictions

13. Foreign Corrupt Practices Act • Passed in 1977, amended in 1999 to reflect OECD Convention • Prohibits bribery of foreign officials • Requires firms to establish internal accounting and record keeping mechanisms to detect bribery • Criminal provisions not vigorously enforced • OECD and EU adopted similar provisions

14. FCPA: Anti-bribery Provisions • Anti-bribery provision: prohibits US firms from “corruptly” paying foreign official for assistance in obtaining or retaining business • Prohibits payment to agent if firm knows portion of payment will go to public official • Payment must be knowing • Excepts payment of “facilitating payments” for routine government action • Penalties: fines up to $2 million for firms; fines of $100,000 and up to 5 years in jail for individuals

15. FCPA: Accounting Provisions • Firms required to keep records and accounts that accurately reflect transactions and dispositions of assets • Firms must devise and maintain internal accounting controls to provide reasonable assurances that transactions are authorized and access to assets is tracked • No concept of materiality – relative scale of payments to be tracked

16. FCPA Cases • In Matter of Statoil (S.E.C. 2006) • Norwegian firm listed on NYSE subject to FCPA • Bribery payments to Iranian officials for access to oil and gas reserves • Payments through 3rd party “Consulting firm” - $5.2 million • Norway fined firm $3 million • US – penalty of $10.5 million • International Sanctions • OECD • EU • IMF • InceysaVallisolenta, S.L. v Republic of El Salvador • ICSID refused to enforce contract by contractor acting fraudulently, in bad faith and in violation of public policy

17. Adler v. Fed. Rep. of Nigeria (9th Cir. 2000) • Facts: A, US citizen, controls Mexican firm • Firm offered $60 million contract with Nigerian oil company • Required to make payments to officials in return for contract – paid officials $5 million • Firm never got contract • A sues for recovery of payments to officials • Trial court refuses to allow recovery – “clean hands” rule • Issue: Can A recover payments to officials • Decision: No; clean hands rule bars recovery • Reasons: Person seeking relief must have acted without fraud or deceit • A attempted to bribe officials to get contract • A was party to scheme to steal $60 million from Nigerian treasury • Won’t let A sue for “failed bribe”