compliance challenges
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Compliance Challenges. For Multinational Companies. Export Controls Enforcement. - PowerPoint PPT PresentationTRANSCRIPT
2011 OFII General Counsel Conference Washington, D.C.
Compliance Challenges
For Multinational Companies
2011 OFII General Counsel Conference Washington, D.C.
Export Controls Enforcement âEach year, billions of dollars in âdual-useâ
itemsâwhich have both commercial and military applicationsâ and defense items
are exported from the U.S. To protect national security, foreign policy, and
economic interests, the U.S. government controls the export of these items
[collectively referring to commodities, software, technology and services]. The Departments of Commerce and State are principally responsible for regulating the
export of dual-use and defense items, respectively.â
--Government Accountability OfficeReport, December 2006
2011 OFII General Counsel Conference Washington, D.C.
U.S. Interests
⢠National Security: Iran
⢠Foreign Policy: Cuba
⢠Economic Interests: China
2011 OFII General Counsel Conference Washington, D.C.
Export Controls Enforcement Landscape
⢠National Security Issues: Post-9/11
⢠Economic Concerns: Global Market Challenges
⢠Customs Enforcement: Munitionsâ Clearer violations involving weapons and classified technology
⢠Commerce Enforcement: Dual Useâ More difficult compliance issues/classification
⢠FBI: Jurisdiction as of 2003â Resources
2011 OFII General Counsel Conference Washington, D.C.
What Do We Mean By Export Controls?
⢠Bureau of Industry and Security (BIS)â âDual-useâ commodities, software and technology
(collectively âitemsâ)â Export Administration Regulations (EAR)
⢠Directorate of Defense Trade Controls (DDTC)â Defense articles and defense servicesâ International Traffic in Arms Regulations (ITAR)
⢠Office of Foreign Assets Control (OFAC)â Range from total embargoes to more limited sanctions â Various regimes, each unique
2011 OFII General Counsel Conference Washington, D.C.
Penalties/Consequences
⢠Criminal Prosecution
⢠Denial of Export Privileges/Debarment
⢠Fines
⢠Intrusive Monitorships
⢠Reputational Harm
2011 OFII General Counsel Conference Washington, D.C.
Drastic Rise in Enforcement Penalties
$50,000
$250,000
$100,000
$150,000
$200,000
1979 2001 2002 2003 2004 2005 2006 2007 2008 2009
2011 OFII General Counsel Conference Washington, D.C.
Iran
National Security Interest
⢠Enforcement / FBI
⢠Cooperation
⢠U.S. Personsâ International Internal Investigations
⢠Inventory Rule
⢠Broader Pressures
2011 OFII General Counsel Conference Washington, D.C.
Cuba
Foreign Policy
⢠U.S. Embargo
⢠Canada / European Union
⢠10 Percent Rule â U.S. Content
⢠S.E.C. Reporting
2011 OFII General Counsel Conference Washington, D.C.
China
Economic Interests
⢠Economic Espionage / FBI
⢠Market Forces
⢠Competition
2011 OFII General Counsel Conference Washington, D.C.
Deemed Exports
2011 OFII General Counsel Conference Washington, D.C.
What is a Deemed Export?
⢠âReleaseâ of technology/technical data or source code to a âforeign personââ Can occur in the United States or abroad (deemed reexport)â Deemed to be an export to the home country or countries of the
foreign national
⢠A âreleaseâ includes:â Visual inspection by foreign nationals of U.S.-origin equipment
and facilitiesâ Oral exchanges of informationâ Application to situations abroad of personal knowledge or
technical expertise acquired in the U.S.
2011 OFII General Counsel Conference Washington, D.C.
When Do Deemed Exports Happen?
⢠Foreign national employee or visitor at your U.S. facilityâ Involved in developing sensitive/controlled softwareâ Using sensitive/controlled equipmentâ Repairing a sensitive/controlled partâ Observing the production of a sensitive/controlled deviceâ Reviewing blueprints
2011 OFII General Counsel Conference Washington, D.C.
Why Can Deemed Exports Be More Likely for a U.S. Subsidiary?
⢠Foreign management and technical experts often visit facilities of subsidiariesâ Ensure that global quality standards are being metâ Collaborate on a technical problemâ Install a new production line to mirror overseas production
⢠Headquarters staff are often seconded to subsidiaries â Develop relationships within the global enterpriseâ Share ideas across entities in a global group
⢠Multinational companies often attract international talent⢠Parent company employees are unfamiliar with requirements and
find them intrusive
2011 OFII General Counsel Conference Washington, D.C.
Technology Transfers
2011 OFII General Counsel Conference Washington, D.C.
What is a Technology Transfer?
⢠Closely related to deemed exports because typically not characterized by physical shipments
⢠Transfer of controlled technology/technical data to a foreign person abroad
⢠Examples:â Emailâ Faxâ Technical discussionsâ Electronic file access
2011 OFII General Counsel Conference Washington, D.C.
Why Can Technology Transfers Be More Likely for a U.S. Subsidiary?
⢠Collaboration with headquarters technical experts is commonâ Pool resources to develop a new productâ Collaborate on a technical problemâ Share technical tips to improve global output
⢠Sales territory may extend into Canada, Mexico and/or Central/South America
⢠Sourcing is centralized to achieve economies of scale across the corporate group
⢠IT management is centralized at headquarters to reduce costs and ensure that global systems interface smoothly
2011 OFII General Counsel Conference Washington, D.C.
Tips for Accessing Data⢠U.S. subsidiaries should not assume that their electronic data
are stored in the United Statesâ Increasingly common for parent company to institute centralized
IT systems, with systems located abroadâ Consider location of:
⢠Document server⢠Email server⢠Technical specification database (e.g., MFG/Pro)
â Be comprehensive:⢠Primary server⢠Backup server⢠Backup tapes
⢠Must incorporate export controls into physical set-up of IT system
2011 OFII General Counsel Conference Washington, D.C.
Tips for Accessing Data (cont.)⢠Note that many parent companies maintain global sales and
invoicing databasesâ Example: U.S. subsidiary has access to all sales files of
overseas affiliates
⢠Does not implicate U.S. export controls â This is because data is being transferred to the U.S.â Export controls of other countries may be implicated
⢠But may implicate U.S. economic sanctions (facilitation)â Example: U.S. subsidiary has access to and in some way helps
to process sales files from overseas affiliates, which sell products to Iran
â Consider need for access controls here as well
2011 OFII General Counsel Conference Washington, D.C.
Other Export Vulnerabilities
⢠Acquisitionsâ Buying an Export Problemâ Company-Wide Policy Flowing Down to Local Levels and
Locations
⢠Anti-Boycott Rules
⢠Lack of Industry Standardsâ Resources / Training / Backgroundâ Structure / Reporting
2011 OFII General Counsel Conference Washington, D.C.
Environmental Compliance and the Global Supply Chain â An Update
Sam BoxermanSidley Austin LLP
November 16, 2011
2011 OFII General Counsel Conference Washington, D.C.
Summary
⢠Environmental issues in your supply chain â an update
⢠Real world examples
⢠Some thoughts on best practices
2011 OFII General Counsel Conference Washington, D.C.
Global Supply Chain⢠Wherever you manufacture, assemble, sell â you are
connected to the global supply chainâ Raw materials, components, finished products, etc.â Not limited to a single home market
⢠EHS / product compliance increasingly extendedâ Back to suppliers/forward to customersâ You can outsource: but still retain the risk
⢠Supply chain interruptions critical business issuesâ Reliability critical, âjust-in-timeâ manufacturing â EHS supply chain issues are business issues
2011 OFII General Counsel Conference Washington, D.C.
Some pressure points⢠Environmental chemical/product content restrictions
â EU: REACH, RoHSâ US: Conflict minerals CA: âGreen Chemistryâ
⢠Other product performance, labelingâ Globally Harmonized System (GHS) of classification and
labelingâ Prop 65
⢠âEnd of lifeâ requirementsâ EU WEEE directive + states in the U.S.: âtake backâ electronics
⢠http://www.electronicstakeback.com/promote-good-laws/state-legislation/
⢠Increased attention to outsourced operationsâ E.g., California Transparency in Supply Chains Act
2011 OFII General Counsel Conference Washington, D.C.
EU â REACH - Update
⢠Registration implementation continuesâ 3500 dossiers for existing + 1300 new chemicalsâ Next dossier registration deadline - May 31, 2013
⢠Manufacture/import > 100 tonnes/yr of covered substance
⢠Listing of âSubstances of Very High Concernââ Growing: 50+ listed and more under considerationâ Some widely used (e.g., boric acid, used in glass/fiberglass)
⢠SVHC listing triggers supply chain notificationsâ âArticlesâ contain > 0.1% = notice to ECHA, customers/recipients
⢠Q: complete product (ECHA) or components (States)
2011 OFII General Counsel Conference Washington, D.C.
EU - REACH â Annex XIV⢠REACH Annex XIV âauthorisationâ list
â No use/mfg in EU after sunset date (3-4 yrs)â Can obtain authorisation â but burden on petitionerâ Several listed this year â more under consideration
⢠Should be actively managed â Users should monitor and engage in advocacy on SVHC and
authorisation listings to avoid supply disruptionsâ http://echa.europa.eu/chem_data/authorisation_process_en.asp
-- can track authorisation activities
⢠Risk of market removal of SVHCs
2011 OFII General Counsel Conference Washington, D.C.
EU â RoHS
⢠Restriction of Hazardous Substances Directiveâ Restricts usage of lead, mercury, cadmium, etc. in electrical and
electronic equipment (EEE)
⢠EU has âre-castâ RoHS effective July 2011â Member States have 18 months to adopt national lawâ 3â8 year compliance phase-in for newly covered equipment
⢠List of restricted substances was not expanded â But â there will be enhanced compliance obligations
2011 OFII General Counsel Conference Washington, D.C.
EU â RoHS
⢠Existing requirements for demonstrating complianceâ Putting a product on the market was a declaration of complianceâ So â implemented through voluntary declarations / due diligence
⢠ROHS Recast expands compliance requirementsâ Require documented declaration of compliance and CE markingâ Additional notification and record keeping requirements
⢠Note: Similar process underway for EUâs âWEEEâ
2011 OFII General Counsel Conference Washington, D.C.
US â TSCA
⢠TSCA âreformâ received a lot of attention
⢠Proposals would make it more like REACH:â Review of chemicals that have not gone through PMNâ Enhanced testing and information gatheringâ Whether should be requirement to prove a chemical is safeâ Any legislation in this Congress unlikely
⢠EPA regulatory initiatives
2011 OFII General Counsel Conference Washington, D.C.
US â Californiaâs âGreen Chemistryâ
⢠New proposal 10/31/2011 â creates multi-step process:â Identify âchemicals of concernââ Identify/prioritize combinations of products and chemicals of
concern for which assessments must be conductedâ The âresponsible entitiesâ (i.e., mfrs, retailers, importers) will
have to notify CA of their âproducts of concernâ and conduct âalternatives assessmentsâ on those products (e.g., how to reduce use of or exposure to chemicals of concern), and
â CA will then take regulatory action based on those assessments
⢠Given size of CA market, this would be very significant
2011 OFII General Counsel Conference Washington, D.C.
US - Conflict Minerals Law
⢠Buried in financial legislationâ Dodd-Frank § 1502
⢠Intent â curb âconflicts mineralsâ sourced in central Africa â E.g., tin, tungsten, tantalum, gold (and others to be identified by
State Department) from Democratic Republic of Congo + neighboring countries
⢠SEC reporting requirement â Disclosure, not a prohibition
2011 OFII General Counsel Conference Washington, D.C.
US - Conflict Minerals Law
⢠Scope to be defined by regulationâ Draft regulations â final due November/December 2011
⢠Who is subjectâ Files with the SEC + minerals are ânecessary to the functionality
or productionâ of products manufactured
⢠What will be required â still uncertainâ A âreasonableâ inquiry + declaration âconflict freeâ or notâ If use / cannot declare non use â âConflicts Minerals Reportâ
⢠Need active engagement â 4Q 2012/1Q 2013â To comply will have to know what is in your products
2011 OFII General Counsel Conference Washington, D.C.
Some examples⢠Who bears the risk of errors in declarations
⢠Engineer signs a âdeclarationâ of compliance; but customerâs products are denied entry due to what you supplied.
⢠Communication among marketing, EHS, and Legal⢠Your marketing dept. sees opportunity to ship into a market, only to find out
that the product was not properly registered.⢠Your operations/purchasing find a new supplier with a lower cost raw
material, but that supplier has not registered or properly labeled its product.
⢠Know the details⢠An R&D program to conclude with roll-out of a new product, but you canât
ship key materials because not registered and volume exceeds exemption.
⢠Do your due diligence⢠You are importing a product into the U.S. You rely on supplier assurances,
but find out that the product contains a regulated hazardous substance and there might be both worker and public exposure.
2011 OFII General Counsel Conference Washington, D.C.
What to KnowâŚ.⢠Know your products
â What substances are in them? What is in the design pipeline?â Take EHS into account when considering new markets, new
product lines, transactions, etc.
⢠Know your supply/value chainâ Who is in it? Where are they? What do they do/supply? â How do they get it to you or your customers?â How do you manage changes (e.g., in supplier or substances)?
⢠What are the impacts and risks?â Over the life cycle of your products and services?â What is âcarbon footprintâ of supply chain, products services?â Regulatory trends in key markets?
2011 OFII General Counsel Conference Washington, D.C.
Managing the Risk⢠Integrate EHS into supply chain/vendor selection
â Include competence on complying with regulatory requirements
⢠Communicationâ Avoid surprises to/from suppliers, customers or the public
⢠Traditional risk management measuresâ E.g., insurance
⢠Auditing and verificationâ The fact that a contract says it is so doesnât mean that it is true
⢠Advocacy â Donât just let it happen to you: monitor what is going on and get
involved to defend your interests