Expanding Internationally with Confidence by Ensuring Global Trade Compliance

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1 Expanding Internationally with Confidence by Ensuring Global Trade Compliance Justin Cook and Kendra Cook Canopy Consulting International (C2I) / Copyright 2015, C 2 International, LLC Copying this presentation in whole or in part without prior permission is expressly prohibited.

2 Discussion Topics 1. Gain Insight into the Key Components of a Successful Global Trade Compliance Program Export/import, sanctions programs, anti-boycott regulations, and anticorruption regulations Tips for maintaining compliance 2. International Business and International Relations Current trends in international business C2I support activities, including on-site support for international business transactions, analysis and strategy development, language proficiency and analysis support on competitors and opportunities (e.g. Middle East/Asia) 3. Pulling it all Together with Overall Corporate Compliance Organizational Conflict of Interest (OCI), Personal Conflict of Interest (PCI), and business ethics Recommendations to help mitigate risks inherent in global trade

3 1. Gain Insight into the Key Components of a Successful Global Trade Compliance Program

4 U.S. Exports U.S. export control means export activities controlled by government regulations in order to protect the interests of the U.S. and to further U.S. foreign policy objectives. EVERY item or commodity exported from the U.S. is subject to some form of export control. Maintaining Export Compliance is a tug-of-war between meeting customer needs, getting the job done, and complying with laws and regulations put in place to protect the interests of the United States.

5 Methods for Exporting Legally from the U.S. Export License Agreement Technical Assistance Agreement (TAA) Manufacturing License Agreement (MLA) Distribution Agreement (DA) Exemption / Exception (a.k.a. waiver) Foreign companies operating in the U.S. may be required to register with the U.S. Department of State.

6 U.S. Munitions List (USML) Category I: Firearms, Close Assault Weapons, Combat Shotguns Category II: Artillery Category III: Ammunition Category IV: Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets Category V: Explosives and Energetic Materials, Propellants, Incendiary Agents Category VI: Surface Vessels of War and Special Naval Equipment Category VII: Ground Vehicles Category VIII: Aircraft and Related Articles Category IX: Military Training Equipment Category X: Personal Protective Equipment (PPE) Category XI: Military Electronics Category XII: Fire Control/Sensors/Night Vision Category XIII: Material and Miscellaneous Articles Category XIV: Toxicological Agents (Chemical/Biological Agents) Category XV: Spacecraft and Related Equipment Category XVI: Nuclear Weapons and Related Articles Category XVII: Classified Articles, Technical Data, and Defense Articles Category XVIII: Directed Energy Weapons Category XIX: Gas Turbine Engines and Associated Equipment (NEW) Category XX: Submersible Vessels and Related Articles Category XXI: Articles, Technical Data, and Defense Services otherwise not enumerated

7 Commerce Control List (CCL) Category 0: Nuclear & Miscellaneous Category 1: Materials, Chemicals, Microorganisms, and Toxins Category 2: Materials Processing Category 3: Electronics Category 4: Computers Category 5 (Part 1): Telecommunications Category 5 (Part 2): Information Security Category 6: Sensors and Lasers Category 7: Navigation and Avionics Category 8: Marine Category 9: Aerospace and Propulsion (Revised)

8 Export Control Reform (ECR) In August 2009, President Obama directed a broad-based interagency review of the U.S. export control system with the goal of strengthening national security and the competitiveness of key U.S. manufacturing and technology sectors by focusing on current threats and adapting to the changing economic and technological landscape.

9 Export Control Reform: What is the impact? Example: Bushings for Military Aircraft Old Definition: Developmental aircraft, engines, and components thereof specifically designed, modified, or equipped for military uses or purposes, or developed principally with U.S. Department of Defense funding are ITAR controlled. Meaning Bushings on an F-18 or F-22 were ITAR controlled New definition (as of April 16, 2013) incorporates specially designed to determine ITAR/EAR control Bushings are not considered specially designed components With ECR, Bushings are no longer ITAR controlled and were transferred to control by Department of Commerce (DoC) Export Administration Regulations (EAR) Falls into the EAR99 category of DoC controls i.e. limited export controls

10 Consequences for Violations Criminal*: Civil: Entity Fines up to $1M or 5x the value of the export (whichever is greater) Debarment Fines up to $500K Debarment Loss of right to contract with the Government Loss of contracts, award fees, and stockholders Individual Criminal*: Civil: Fines up to $1M or 5x the value of the export (whichever is greater) Debarment 10 years in prison Fines up to $500K Debarment Loss of right to contract with the Government *Generally the outcome of a violation that is committed intentionally, with knowledge, or willfully

11 U.S. Imports Key Compliance Risk Areas: Tariff Classifications and Duty Impact Valuation (assists) and Duty Impact Country of Origin (COO) All products imported into the United States must be classified using the Harmonized Tariff Code System (Often referred to as the HTS Code) Different codes are subject to different duties depending on their COO Duty is calculated using the value of the goods being imported Most common method of Valuation: Transaction Value (price actually paid) Important valuation risk area Assists Is your business adequately capturing the additional value that comes from assists?

12 U.S. Imports Compliance Tips: 1. Have an outside expert/broker/law firm audit your customs classifications on a regular basis. 2. Include country of origin marking requirements as part of your purchasing contracts and audit for same. 3. Conduct an audit of your assists and valuation methods to ensure these are being handled correctly.

13 Sanctions Programs Many governments and regions of the world have enacted trade sanctions and embargos against other countries/regimes U.S. has two types: ITAR Section Military Embargos (No military imports or exports to or from Belarus, Cuba, Eritrea, Iran, North Korea, Syria, Venezuela, Burma, China, and the Republic of the Sudan) U.S. Department of Treasury, Office of Foreign Asset Controls ( OFAC ) trade sanction programs (most recently enacting sanctions against certain individuals and companies in Russia in response to President s Executive Order requiring same) United Nations Security Council also maintains other embargos in which the U.S. participates Other international organizations, banks and regions have their own sanctions programs For example, Russian sanctions against U.S. and EU food products, EU sanctions against Russia, World Bank sanctions

14 Sanctions Programs Key Compliance Risk Areas: Know Your Customer/Supplier Who is the end-customer? Where will your product be put into actual use? Where are your purchased parts and supplies coming from? Compliance Tips: 1. Screen all of your transactions for involvement of sanctioned countries and parties. 2. Obtain end-use certificates for all sales and prohibit re-export to sanctioned parties/locations. 3. Include trade compliance language in all purchase agreements. 4. Conduct due diligence on all companies operating in sanctioned countries to ensure no ownership ties to sanctioned parties.

15 Anti-Boycott Regulations The Arab League has had a boycott of Israel and Israeli-origin products for many years U.S. law makes it illegal for a U.S. person or company to comply with this boycott Example: Arab customer asks you to please replace a component on your product so it is no longer sourced from Israel Arab customer uses letter of credit that prohibits involvement of Israeli persons Compliance Tip: Check the anti-boycott regulations carefully, there are numerous exceptions to these rules (i.e. war risk exception).

16 Anti-Corruption Regulations Most countries now have Anti-Corruption Laws and Regulations in place U.S. Law: The Foreign Corrupt Practices Act ( FCPA ) UK Law: The UK Bribery Act New Brazilian Law: Law to Combat Corruption India: Lokpal Bill United Nations: Convention Against Corruption Some differences between regions and countries All prohibit bribery of government officials, most prohibit private bribery as well

17 Anti-Corruption Regulations Global Trade creates many opportunities for corruption Be aware of the potential for corruption with: Customs brokers/agents/officials Freight Forwarders Logistics/transportation providers Compliance Tips: 1. Perform due diligence on third party providers throughout your trade flows. 2. Require anti-corruption certification and indemnification in all agreements with annual renewals. 3. Train your third parties as to what you expect.

18 2. International Business and International Relations

19 Current Trends in International Business International trade in world GDP has risen from 5.5% in 1950 to more than 20% today Developing countries now account for 36% of world exports, about double their share in the early 1960s EU and U.S. account for more than 45% of Global GDP U.S. exports to the Asia-Pacific region totaled nearly $900 Billion in % increase from 2010 Equal to 60% of total U.S. goods exported In 2014 the U.S. imported more than $37 Billion of Taiwan goods and exported more than $24.4 Billion worth of U.S. goods to Taiwan

20 C2I International Support C2I has significant in-house experience in the Middle East, Asia, and Europe with fluency in English, Chinese (Mandarin), and French Includes international business and diplomatic experience dealing with a wide variety of entities from small & medium enterprises to senior government officials Contract support available for Africa and South America Services Include: On-site business strategy development Business analysis of potential customers and competitors Due diligence background checks available on a contract basis Personal representation on business development team

21 3. Pulling it all Together with Overall Corporate Compliance

22 A Conflict of Interest occurs when: Organizational Conflict of Interest (OCI) a person/company is unable to render impartial assistance or advice a person/company s objectivity is or might be otherwise impaired a person/company has an unfair competitive advantage due to other efforts Perception of an OCI is equally as serious as an actual OCI Compliance Tips: 1. Strive to avoid OCI in all cases, and asses OCI potential before pursuing new business opportunities and throughout contract performance. 2. If avoidance isn t possible, mitigate or neutralize the OCI. 3. Develop OCI Plans/Policies (NDAs, physical separation, training, etc.). OCI must be assessed case-by-case and is impacted by customer policy, solicitation requirements, specific circumstances and perception.

23 Personal Conflict of Interest (PCI) Personal Conflict of Interest occurs when employees engage in any activity, practice, or conduct which conflicts with, or appears to conflict with, the interests of the company, its customers, or its suppliers Compliance Tip: Document corporate policies related to PCI, such as: Employees may not engage either on or off the job in any conduct that is disloyal, disruptive, competitive or damaging to the company. Employees and their immediate families may not accept gifts, discounts, loans or special favors from any person or firm doing or seeking to do business with the company. Employees may not be employed by a competitor while employed by the company, or act as a consultant, officer or director for another company without prior approval. Employees should immediately disclose any personal conflict or potential conflict of interest to the HR representative.

24 Business Ethics Business Ethics covers all aspects of business dealings: General business conduct Relations with customers, suppliers, partners Gifts Participation in political activities Competition and anti-trust activities Equal Employment Opportunities Confidential and proprietary information Harassment / Discrimination Non-Retaliation Compliance Tips: 1. Develop a Code of Business Conduct and Ethics that details expectations and consequences for non-compliance. 2. Train your employees on what is expected of them. 3. Set up anonymous reporting mechanism and encourage employees to use it.

25 Pulling it all Together Develop corporate policies and procedures to guide your employees actions Do your due diligence on all customers and business partners Don t ignore Red Flags Conduct annual training for ALL employees on compliance matters Conduct in-depth training on specific topics for key employees Ensure proper recordkeeping is being conducted to meet all recordkeeping requirements Implement a zero tolerance policy on retaliation, and encourage employees to report suspected violations internally Conduct regular self-audits of your compliance program

26 C2I is Here to Help! C2I can help your company set up an internal compliance program, including creating/reviewing policies and procedures, training, recordkeeping practices, internal program reviews, and setting up effective reporting mechanisms. C2I provides professional services such as engineering, program management, organizational compliance, export compliance, and business development that will support your company s compliance and international expansion requirements. Using C2I s services to ensure integrity and compliance with all applicable laws and regulations, your company can grow and expand with confidence and trust.

27 Questions? Justin Cook and Kendra Cook Canopy Consulting International (C2I) /