CHAPTER XXVIII FOREIGN CORRUPT PRACTICES ACT ANTIBOYCOTT LAWS

CHAPTER XXVIII FOREIGN CORRUPT PRACTICES ACT & ANTIBOYCOTT LAWS t Foreign Corrupt Practices Act (FCPA) t Antiboycott Law 1

Foreign Corrupt Practices Act (FCPA) t Prohibits bribery of a foreign government official, a foreign political party or a candidate for political office in order to obtain or retain a business t Omnibus Trade and Competitiveness Act of 1988 changed responsibility of corporate officers from "having reason to know" to "know of or authorize" illegal payments. t In mid-1970 s, Lockheed Corporation’s bribery to Kakuei Tanaka, then prime minister of Japan, to sell airplanes to Japan Airlines. 2

Foreign Corrupt Practices Act Five Elements 1) Who: § U. S. firms. employees, directors, stockholders, and foreign agents of U. S. firms 2) Corrupt Intent: § An intent to wrongfully influence recipient to benefit payer, whether succeeded or not 3) Payment: § Offering, paying, promising to pay or authorizing to offer or to pay money or anything of value 3

4) Foreign Corrupt Practices Act Five Elements Recipient: § Foreign official, political party, party official, candidate for political office § Not only those of foreign governments & public international organizations, but also foreign government-controlled entities 5) Business Purpose: § To assist the firm in obtaining or retaining business 4

Foreign Corrupt Practices Act Penalties t Criminal penalties: For a firm, max. $2 million and for a individual, 5 years imprisonment or $100, 000 or both per violation t Civil penalties for a firm and an individual: $10, 000 per violation 5

Foreign Corrupt Practices Act Penalties t Stock and Exchange Commission(SEC)'s Fines: t Greater of gross amount of pecuniary gain or specified dollar limitation, $5, 000 to $100, 000 for individual and $50, 000 to $500, 000 for corporation t Barred from doing business with Federal Government t Ineligible to receive export licenses t Illegal payments are not tax-deductible expenses 6

Foreign Corrupt Practices Act Facilitating Payment t “Grease or Lubrication Payment” Allowed, if the payment is: (1) Permitted under the written laws of the host country or for demonstrating a product or performing a contractual obligation (2) To speed up routine government actions such as processing papers, stamping visas, scheduling inspections, securing permits or licenses and obtaining adequate police protection 7

Foreign Corrupt Practices Act International Cooperation • 1970 s: Lockheed-Kakuei Tanaka • 1977: U. S. Foreign Corrupt Practice Act • In 1996, Organization of American States (OAS) – Adopted Inter-American Convention Against Corruption by 35 member states • In 1997, Organization for Economic Cooperation and Development (OECD) – Signed OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions by 34 member countries 8

Foreign Corrupt Practices Act Violators • In 1989, Goodyear Int’l Corp. paid $250, 000 fine for bribing an official of Iraqi state-owned trading firm to get the tire business with “commission. ” • In 1989, Napco International paid $1 million fine for bribing officials in Niger. • In 1995, Lockheed Martin paid $24 million in fines, more than twice the profits for paying $1 million bribe to Egyptian parliament. • In 2007, Baker Hughes Services International paid a $44 million fine for bribing officials of Kazakhstan’s national oil company to win an oil field services contract. • In 2008, Siemens paid a $800 million fine ($450 M to USDJ & $350 M to the SEC) for many foreign briberies from 2000 to 2006. 9

Foreign Corrupt Practices Act Violators • In 2009, Control Components, Inc. paid a $18. 2 M fine for bribing officials and employees of state-owned companies in 30 countries’ • In 2009, Avery Dennison Corp. paid $200, 000 for bribing Chinese officials. • In 2010, GE paid $23. 4 m fine to the SEC for bribing Iraqi officials under the U. N. oil-for-food program. • On May 10, 2011, a jury convicted Lindsay Mfg Company, two of its executives, a Mexican sales agent for bribing officials of Mexican state-owned utilities company. First conviction for 34 -year history of the FCPA of 1977. 10

Antiboycott Laws t Two antiboycott laws t Ribicoff Amendment to the 1976 Tax Reform Act (TRA): Does not prohibit conduct but denies tax benefits-foreign tax credit: Not covered here t 1977 Amendment to Export Administration Act (EAA): Does prohibit some conducts of exporters and facilitators t. Only EAA Antiboycott laws are covered in the chapter 11

Antiboycott Laws • EAA Antiboycott covers U. S. exports and imports, financing, forwarding and shipping, and banking 12

Antiboycott Laws t Prohibit U. S. exporters from § Refusing or agreeing to refuse to do business with others because of unsanctioned foreign boycott § Furnishing information about business relationships with boycotted countries and blacklisted companies (prohibited information) t Prohibit Banks from Implementing letters of credit which contain prohibited boycott terms and conditions 13

Antiboycott Laws t Required to report receipt of boycott requests to the Office of Antiboycott Compliance (OAC) Bureau of Industry and Security (BIS), USDC on a quarterly basis t The scope of the EAR is limited to actions taken with intent to comply with, further, or support an unsanctioned foreign boycott t Also illegal to include any statement "comply with or support an unsanctioned foreign boycott" in commercial invoice or in any document. 14

Antiboycott Laws t Example of Prohibited Statement § "We are neither blacklisted by the Arab boycott of Israel, nor are we a boycotted company, no Israel capital is invested in our firm, no company capital or capital of its owners is invested in any Israel company, our products are not of Israel origin and do not contain Israel raw material or labor. " § Most members of Arab League, except Egypt and Jordan, boycott goods and service from Israel. 15

Antiboycott Laws • Voluntary Self-Disclosure of Antiboycott Violations – It can be made to the Office of Antiboycott Compliance (OAC), Bureau of Industry and Security, U. S. Dept of Commerce (www. bis. doc. gov) 16

Antiboycott Laws Penalties t Violations of EAA Antiboycott § Civil penalty: • Denial or suspension of export privileges • Fines of up to $11, 000 per violation, and/or • Exclusion from practice § Criminal penalty: • Up to $50, 000 or 5 times the value of exports involved, which is greater • 5 years imprisonment or both 17

Antiboycott Laws Violators • • Rosement, Inc. : Fined $10, 000 Brooks Instruments: Fined $7, 000 Panalpina, Inc. : Fined $20, 000 BDP Int’l: Fined $4, 000 Best Power Technology: Fined $4, 000 Itochu Project Management: Fine $4, 000 Kenclaire Electrical Agencies, Inc. : Fine $104, 000 • Bailey Int’l, Inc. : Fine $4, 000 • GM Daewoo Auto: $88, 000 fine for 59 violations 2000 -2006 18