United States: Know The Risks: Domestic And International Compliance

An open question coming into 2017 was whether the aggressive enforcement posture that had characterized the Obama and Bush administrations would continue under the Trump administration. Any questions were answered with the announcement of the first billion-dollar export controls penalty at the outset of the new administration. With the Trump administration continuing to aggressively pursue anti-money laundering, economic sanctions and Foreign Corrupt Practices Act antibribery enforcement actions, companies acting in the international realm, especially those within the automotive sector, are well-advised to take all available steps to ensure that their international regulatory compliance is in good shape.

Other regulatory developments, however, have underscored that the Trump administration raises unique compliance concerns. Ongoing efforts to renegotiate the North American Free Trade Agreement have emphasized the importance of customs compliance in a potentially new, higher-tariff environment. An aggressive international trade litigation environment under the new administration also underscores the importance of planning for potential business disruptions that can be caused by antidumping, countervailing duty, safeguard and other international trade remedies. And with the foreign policy objectives of the new administration (and Congress) at times sharply changing from the prior administration, maintaining a nimble trade posture with countries that potentially will see major changes to economic sanctions regulations are essential.

The U.S. government has continued under the new administration to push a strategy of aggressively enforcing U.S. laws governing extraterritorial conduct. These include the FCPA, economic sanctions largely administered by the Office of Foreign Assets Control and export controls on U.S.-origin goods. These laws underscore the premium that all multinational companies need to place on aggressively identifying and managing regulatory risk, particularly for their international operations.

These risks are especially prevalent in the automotive sector, which often attracts special enforcement and regulatory attention. In addition to the well-publicized antitrust enforcement actions that have targeted the industry, high-profile FCPA investigations involving prominent OEMs and the prior enactment (currently suspended) of special OFAC sanctions that target the automotive sector and any such operations in Iran underscore the risks that automotive suppliers incur when selling or operating overseas. Similar developments are evident in the domestic domain as well, where the growing frequency and intensity of antitrust, False Claims Act and government contract investigations present new challenges for manufacturers, suppliers and service providers of all kinds.

Many automotive companies—reading the headlines and not the actual changes in the law—have mistakenly concluded that the recent easing of sanctions with regard to Cuba and Iran mean that these countries are "open for business." This is especially true with regard to their non-U.S. operations, which often have only a hazy understanding of how aggressive and creative the U.S. government is with regard to applying these laws abroad. The reality is, the primary sanctions remain in place for both countries (especially Iran), meaning that the risk of dealing with these countries remains high.

Further exacerbating the risks is the ongoing hostility of President Trump to several of the signature economic sanctions easings of the Obama administration. The administration is required to certify periodically that the Joint Comprehensive Plan of Action, which is the agreement by which the major world powers agreed to ease the very tight economic sanctions on Iran in return for Iran sharply cutting back on its nuclear enrichment activities.
Although President Trump has continued (on the advice of his advisors) to certify Iranian compliance with the JCPOA, he continues to state at regular intervals that the JCPOA is a "horrible" deal that should be overturned. President Trump also is no fan of the easing of the Cuban sanctions.

Many automotive companies have taken advantage of the JCPOA-related easing, particularly through use of "General License H," which allows U.S. companies to establish separately incorporated subsidiaries to deal with Iran, provided that they divorce these separate legal entities from the United States and the U.S. financial system (no U.S. nationals involvement without a license, no use of the U.S. financial system, no facilitation by U.S. persons, and so forth). These legal, but still risky efforts need to be carefully monitored, not only to determine that the rules are followed, but also to ensure that there are no changes in the regulatory structure that would once again disallow such methods for engaging with the Iranian economy.

Greater Risk Awareness Leads to Greater Exports and International Compliance

U.S. laws governing exports and international conduct pose unique risks for the automotive sector. From the FCPA to ever-changing sanctions and export controls, companies involved in the automotive supply chain face an increasingly complex universe of requirements governing how and where they conduct business overseas. These regimes also shape business decisions at home, with the so-called "deemed export" rule compelling exclusively domestic companies to seek export licenses before disclosing controlled articles, data, software and technology to their non-U.S. employees. Combined with new disclosure requirements for listed companies and government contractors, the regulatory environment grows more complicated with each passing day.

Enforcement trends amplify these risks. In recent years, U.S. government agencies have targeted automotive and automotive supply chain companies under a number of different regulatory regimes. Notable examples include FCPA enforcement actions against AB Volvo, Daimler AG, Fiat, Iveco, Ingersoll-Rand, and Renault. Sanctions enforcement is also on the rise with Toyota Motor Credit Corporation and Volvo Construction Equipment North America, both targeted by OFAC. Automotive companies like GM-Daewoo have even faced government enforcement actions in relatively obscure areas like anti-boycott violations — a little-known legal regime that has both export and tax implications.

The importance of compliance also is underscored by the posture, reiterated by the new administration, that the Department of Justice will require that in investigations, companies identify individuals who participated in the conduct at issue. The goal is to bring an element of personal liability and responsibility into enforcement actions. Given that all of the laws that have major enforcement activity (FCPA, OFAC sanctions, export controls, antitrust and anti-money laundering) all have resulted in criminal convictions of individuals, this increased focus on identifying persons who participated in violations is a sobering reminder of the stakes that arise from poor compliance with these laws.

Many companies in the automotive sector have attributes that contribute to elevated risk. Chief among them are large global supply chains, downstream manufacturing by worldwide affiliates and frequent international trade in U.S.-origin goods, services and technologies. Multinational business practices also raise concerns, with sales, operations and joint ventures reaching into countries known for high levels of corruption, industrial espionage and illegal export diversion. With U.S. companies increasingly liable for the actions of their overseas agents and affiliates, a risk-based, integrated approach to international compliance offers the best means of identifying, managing and mitigating these risks.

Develop a Comprehensive Approach to International Compliance

Faced with these challenges, automotive companies should carefully consider how U.S. laws impact behavior both within and outside the U.S. This means identifying and addressing the risks that are likely to arise based on the nature of their business, the places where they conduct business and the customers they serve. It also means evaluating the degree to which foreign parties — whether subsidiaries, joint ventures or even contractors — engage in activities that expose their U.S. counterparts to civil and criminal liability. By taking a comprehensive approach, companies can best manage their risk and mitigate costs by conducting periodic risk assessments, crafting tailored internal controls, conducting frequent training and coordinating common standards across their entire organizations.

The same principles apply in the domestic compliance context. Suppliers need to understand their areas of risk and rigorously monitor and enforce their compliance policies, procedures and codes of conduct. Conducting periodic internal reviews, reviewing and updating written policies and procedures and updating and enhancing training programs are all components of a robust compliance program. Encouraging your employees to report any improper, unethical or illegal conduct is critical to uncovering any potential fraud within your organization. Clearly delineating responsibility for compliance with various policies and internal controls ensures accountability.

New Risks Arise in the Customs Arena

Many automotive companies have come to rely on the tariff-free movement of goods within the NAFTA region. Beyond the dollar and cents implications of the potential renegotiation of NAFTA, it should not be overlooked that the renegotiation of NAFTA will greatly upend the compliance implications.

Under the current regime, which allows many automotive-sector companies to export and import to and from Mexico and Canada without paying duties, it has become somewhat common for companies to pay less attention to the importance of customs compliance. But if the revised NAFTA raises tariff rates or changes regional content rules, missteps in classification, valuation or tracking regional content could be magnified. Even something as simple as not having NAFTA certificates of origin in hand at the time of importation already can lead to major bills from customs. A shifting NAFTA environment likely will multiple such opportunities for missteps.

These risks arise in an environment where customs enforcement risks already are rising. After years of focusing on security issues and the C-TPAT program following the 9/11 terrorist attacks, customs once again is re-emphasizing revenue collection goals. Even in a low-tariff environment, customs compliance missteps can be costly, particularly if they involve failure to recognize and declare anti-dumping and countervailing duties (where special tariffs can exceed 100 percent of the value of the goods in some cases). Major importers who fail to adapt to the new customs reality could be due for a major wake-up call from U.S. Customs and Border Protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions