This post is to help you change your mindset and help you prevent any damage to your company while exporting goods
We will explain to you what compliance is, take an example and see how you can prevent it.
What is compliance?
Compliance is a set of internal rules and behaviors of your company in order to obey the law of a country.
More and more countries have promulgated laws against corruption, embargoes (against countries, industry sectors or persons), regulations on arms sales or regulations on exporting certain goods.
Some of the countries promulgating these laws have included extraterritorial application on it, which means if their Justice body find a link (nexus) between your company and their country, they could punish your company for breaking the law (even if you do not have direct sales nor offices in the Justice body’s country!).
Why countries are making compliance laws?
The U.S example
For example, the United States has developed a corpus of laws that applies beyond the U.S territory.
The main reason why they are developing such things is that they want to tackle corruption & terrorism, set ground rules and fair competition for companies and entities worldwide, promoting fairness in financial markets.
Amongst U.S. major laws and regulations, you have:
- The Foreign Corrupt Practices Act (FCPA): to tackle corruption. This one is very famous due to the number of sanctions against non-U.S. companies
- Patriot Act + Freedom Act: in which the U.S. can ask to have information about an email account, copies of the emails and documents stored on IT clouds if the country has signed the Mutual Legal Assistance Treaty with the U.S.
- Bank Secrecy Act: contains an obligation to run due diligence on foreign partner banks from the U.S. banks
- Foreign Trade Antitrust Improvements Act: containing extraterritoriality rules on trade such as if an action has a direct, substantial and predictable effect on U.S. territory and that it is subject to a claim in the U.S. then an action can be taken against an entity which is not on the U.S. territory.
- International Traffic in Arms Regulation: regulating all goods, services, and data listed on the U.S. Munitions List
- Export Administration Regulation: regulating goods with double usage (civil and military) listed on the Commerce Control List
- Public Company Accounting Reform and Investor Protection Act: against financial frauds by all listed company in the U.S. (foreign companies included) as well as U.S. subsidiaries of a foreign company
- Comprehensive Iran Sanctions, Accountability and Divestment Act: to regulate trade with Iran
- Countering America’s Adversaries through Sanctions Act: regarding Russia, Iran and North Korea
- Sanctions against Venezuela
- Rules for Crimea
All domestic companies and issuers must obey the law as well as all foreign companies (or persons) having a link (nexus) with the U.S. Otherwise, you will be exposed to sanctions from the Justice Department.
Amongst the 488 companies targeted by the U.S. on potential failure to comply with FCPA, 148 were foreign companies. And fines on some of those cases were huge! Other countries having extraterritorial laws are UK (UK Bribery Act) and France (Loi Sapin 2) (non-exhaustive list).
Links between your company and the country promulgating the law
U.S example continued for foreign companies
The country pursuing a justice action against your company will have to find a link (nexus) between your entity and the territory. In the U.S. corpus of law, they have nexus like (non-exhaustive list):
- Use of U.S. dollars in transactions
- Having sales in the U.S.
- Having an office/subsidiary in the U.S.
- Being listed on one of the U.S. stock exchanges
- Employment of an American citizen
- Participating in a meeting in the U.S.
- Sending an email through a server located in the United States
- Maybe in the future: using an American software
What are the risks?
- Financial: you might have the chance to cut a deal with the administration and pay a fine, or you will have to go through a judicial procedure which could be even more costly
- Share price: your share price can go down
- Having to fire management staff or employees
- Being denied bids for tenders
- Having to close your U.S market
- Image damages
How to prevent them?
More and more companies will have to set up a department dealing with compliance and training employees about it, especially managers and other people which could be exposed to corruption.
In that case, it would be helpful to make a Conduct Code, to create an alert process, to establish a disciplinary procedures corpus against employees infringing the rules.
You will have to make a map of your risks and exposure to the laws, make sure you have a solid accounting department which has conducted investigations to prevent any corruption or money laundering mechanism.
Another topic is to conduct extensive due diligence on your partners and especially in risky countries. We would advise the same on any fusion and acquisition project.
If you need to make a due diligence (on a company, individual, entity) on a very hard access foreign country (Iran, Russia, Middle East, Africa, etc.), contact us by clicking on the button below for recommendations of companies able to make such due diligence.
This article was based upon the great report: Marion Leblanc-Wohrer, “Comply or die? Les entreprises face à l’exigence de conformité venue des États-Unis”, Potomac Papers, n 34, Ifri, mars 2018 Link to the article
Disclaimer: I am neither a lawyer nor a specialist of compliance or laws in any of the countries above mentioned. This is a purely informative article based on my comprehension of the readings I had on the topic. Please contact an expert to verify or disconfirm what has been said above.
Pic: Beatriz Pérez Moya_Unsplash.com