If you have ever exported, you know that the regulations are horribly written, overlapping, and open to a great deal of subjective interpretation. President Obama has been claiming for some time now that our export laws need revamping, and last week he took his first concrete steps towards realizing this goal by issuing a slew of new changes in export regulations. He calls his effort the Export Control Reform Initiative.
One of the most important proposed revisions is the creation of a new license exception called Strategic Trade Authorization (STA). A license exception is exactly what is sounds like. If the Export Administration Regulations require an export license to ship to a particular destination, there are a few loopholes available. This latest proposal seeks to create the most sweeping license exception ever. STA appears to be a license exception that swallows up the current licensing scheme for many controlled items. It effectively removes a bunch of items from the Commerce Control List so that an export license is required only for the most sensitive items.
The interesting part is that President Obama is making these changes through executive fiat, by amending the regulations. Obama, like a couple presidents before them, just can’t convince Congress to amend the export statutes (good luck with the IRS code). The problem is that when presidents bypass Congress, sometimes they get called on the carpet, they can get challenged, especially by those who stand to suffer from the changes in the law. But maybe I’m not giving the President sufficient credit. It is hard to imagine that many exporters will argue against this huge liberalization of US export controls that this proposed amendment would make.
Exporters must report to the BIS whenever they invoke the STA exception, which is different and an additional step from most license exceptions. Exporters also have to go back and forth with the consignee regarding some information, a new wrinkle in terms of license exceptions. STA will also require a special Destination Control Statement on your export documents. The exporter informs the consignee of certain information, including the ECCN. The exporter can ship after the consignee provides a written acknowledgment, a written commitment to comply with the EAR, and a promise to furnish information about the transaction if the US Government ever asks.
People have until February 7, 2011 to submit comments to the BIS.
I recently read all the advisory opinions that the Department of Justice posts online (there are dozens) in regards the Foreign Corrupt Practices Act (FCPA) [as you may appreciate, this was client-related, not recreational]. The FCPA makes it illegal to bribe foreign officials. I could find no advisory opinion where the DOJ said that a transaction violated the FCPA.
It is popular for white collar crime lawyers to insist that the FCPA has somehow morphed into a strict liability statute thanks to prosecutors’ expansive definitions. Crocodile tears. Maybe there is an argument that when the Securities and Exchange Commission (as opposed to the DOJ) enforces the FCPA’s bookkeeping requirements on publicly-traded companies, this comes close to strict liability. But even that is a stretch. While the mens rea standard is not been set in concrete, prosecutors generally must prove “willfulness” and “corruptly.” We would see more people going to prison if the FCPA did impose strict liability. FCPA prison sentences are exceedingly rare even as prosecutions and open investigations have boomed.
Which got me to thinking: has the FCPA advisory opinion procedure ever resulted in an indictment? Is it even possible for prosecutors to prove mens rea against people requesting an advisory opinion from the DOJ? How can you “corruptly” intend a bribe if you first check with federal prosecutors? Has the DOJ ever decided that, no, this transaction just doesn’t pass muster? With over three decades of interpretation, you would think that there would be at least a few cases where that happened...unless there is something in the process of requesting an advisory opinion that inoculates the transaction against criminal liability.
So, I emailed the DOJ’s Fraud Division the following:
Do you publish any opinion procedure releases, or do they even exist, where you tell the party requesting the opinion that, no, the transaction does not pass muster and is illegal under the Foreign Corrupt Practices Act? It appears that all the releases conclude with a "we see no problem and do not plan to take any action." If there any releases that say the opposite or something different, please me where to find these releases.
Oscar Gonzalez, Attorney
After a couple weeks of not hearing anything back, I emailed the DOJ again. And then again. My persistence finally paid off when last month the DOJ emailed me back the following:
Dear Mr. Gonzalez –
All of our opinions are available on the website. Releases under the prior procedure (pre-1988) are under a separate heading on the FCPA page.
Because the opinion procedure involves consultation between the parties, the requestors generally have the opportunity to adjust the circumstances to ensure they are compliant with the FCPA. Thus, the Department has not yet had occasion to state that a transaction would violate the FCPA in an opinion.
Fraud Section, Criminal Division
U.S. Department of Justice
The DOJ conceded that it has never issued a written advisory opinion that concludes that a transaction violates the FCPA.
There are, of course, a few possibilities to explain this state of affairs. First, it is unlikely that someone who blatantly violates the FCPA will ever file a request for an advisory opinion with the DOJ. The FCPA is not the most complicated law on earth, and you pretty much know when you violate it. It is hard, for example, to accidentally bribe someone. The advisory opinion procedure is designed for borderline cases, and is probably taken advantage of mostly by requestors who think they are already on the “no violation” side of the risk analysis. Second, as the DOJ explained, the DOJ and requestors work out and eliminate potential violations during their collaboration and before the DOJ releases a written opinion. The DOJ is playing nice, in other words.
I suspect there is a third factor at work: mens rea. The DOJ’s own regulations require that the transaction be an actual one. No hypotheticals accepted. 28 CFR 80.3. If the DOJ ever told a requestor “this is a violation,” then the DOJ might feel obligated to indict. Not only would that dissuade others from requesting written advisory opinions, but the DOJ would be shouldering a burden of proof and persuasion it would find nearly impossible to discharge. The DOJ (actually, the Attorney General) would be required to prove some level of bad intent, a huge hurdle given that the requestor came hat-in-hand to ask for the DOJ’s special guidance and blessing.
Thus, the DOJ created a procedure that inoculates would-be violators against FCPA enforcement actions.
How often does one see an enforcement agency divest itself of enforcement powers?
All this makes me reconsider the worth of requesting a FCPA written opinion from the DOJ.
This article is about writing compliance policies that make sense, and voiding those that do not.
Did you ever see the Princess Bride, the Spielberg movie about a princess who has been kidnapped by three bad buys? There is a swashbuckling, dashing hero who sets out to rescue the princess. The kidnappers throw obstacles in front of our hero, but he overcomes each obstacle methodically and with great flair. The boss kidnapper describes each successful triumph by our hero as “inconceivable”. “It is inconceivable” he keeps repeating. Finally, one of the his fellow kidnappers tells the boss kidnapper: “You keep using that word. I do not think it means what you think it means.”
People relish using their own little language for their own little social or business circles. It’s insider lingo meant to exclude outsiders. I appreciate the desire talk in code, except often no one really has taken the time to confirm that the insiders are really understanding each other. Often people don’t understand each other but are embarrassed to say to. Further, when it comes to legal compliance, you shouldn’t have secret code. Inclusivity is the goal. You can’t follow orders if you don’t understand the order. Here I don’t just mean the legalese and technical jargon that suffocate that are suffocate communication. I also mean the business jargon.
Take “sanction,” for example. This is one of those rare words, maybe the only one there is, that has two opposite meanings. Sanction means permission and it also means penalty. In trade compliance, it often refers to embargoes. We have embargoes against Cuba and Iran, for example. You may hear a sentence that goes something like this:
“I cannot sanction that export shipment because we risk sanctions for violating US sanctions against Cuba.”
I know. Scary, right? The sentence may have its own internal logic, but it is unwieldy and repetitive. Here is how I would revise it:
“I don’t think we should export because our company might be penalized for violating the US embargo against Cuba.”
What do you think of this sentence?
“We need to be proactive by following these best practices and incentivize and leverage our core competency to establish metrics that will lay the groundwork for the company’s new paradigm.”
Do you know anyone who talks like that? Do you want to strangle them? They seem very smug, very proud. I don’t know why. They haven’t said anything, at least not anything worth paying attention to. Or, maybe that is exactly why they are proud. They managed to string together popular non-sense and threw it all out there in the middle of an important meeting, daring anyone to challenge the integrity of what they said. The challenge is almost never answered.
You need to be or find a brutal editor to make avoid the evils of modern business and legal jargon. Fortunately, there are a few detanglers out there, websites and books that help you remove the debilitating jargon. Some are free. I found this one. It’s called Unsuck-it.com. Not only does it reveal and let’s you cut through the awful jargon, but you get to submit your own entries and corrections.
Principal and a founding member of GRVR Attorneys.