19-0506 Monday “Daily Bugle'”

(Source:
American Shipper, 3 May 2019.) [Excerpts.]

(Source:
Volkov Law Group Blog, 3 May 2019. Reprinted by permission.)

 

* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.

 

The Justice Department’s new Corporate Compliance Guidance is keyed to the concept of a “well-designed compliance program.”  Under this concept, we first examined risk assessments and policies and procedures.  DOJ’s Corporate Compliance Guidance also addresses training and communications, reporting and investigations, third-party management and mergers and acquisitions.  As explained herein, DOJ’s new guidance advances ethics and compliance expectations, with the exception of mergers and acquisition where it falls short of capturing current pronouncements and expectations.

 

Training and Communications

 

In the training and communications function, DOJ’s Guidance emphasizes training and certification for all directors, officers, relevant employees and, where appropriate, agents and business partners.  In delivering training programs and communications, companies are advised to “tailor” such information to the “audience’s size, sophistication, or subject matter expertise.”  As an example, DOJ cites companies providing real-life examples and scenarios to underscore and highlight prior compliance incidents.  Further, DOJ cites the importance of determining how the company measures the effectiveness of its training program.

DOJ’s expectations cover a number of important issues in the training and communications functions.  In particular, DOJ asks whether training has been provided to “relevant control functions,” “high risk and control employees,” and “supervisory employees.”  The implication of these listed subjects is that the company has to properly tailor its training program to employees based on risk and control functions, including supervisors.  On more specific issues, DOJ cites the need to provide training in language appropriate for the audience, in what form (online or in-person) and the reason for that decision, including testing of employees.

 

Under the communications prong, DOJ’s Guidance asks whether senior management has communicated its position concerning misconduct, whether such communications include anonymized information about specific disciplinary actions companies and the type of misconduct at issue, and whether the company offers guidance resources.

 

Reporting and Investigations

 

The DOJ Guidance includes examination of whether a company’s compliance program offers an “efficient and trusted mechanism” for employees to confidentially (or anonymously) report breaches of the company’s code of conduct, company policies or suspected misconduct.  As part of this inquiry, this factor includes an assessment of the company’s “pro-active measures to create a workplace atmosphere without fear of retaliation, appropriate processes for submission of complaints and processes to protect whistleblowers.”  Guidance at 6.  In handling complaints companies have ensure “the routing of complaints to proper personnel, timely completion of thorough investigations, and appropriate follow-up and discipline.

 

Under the DOJ Guidance, a company has to offer an anonymous reporting avenue, publicize the reporting mechanisms, and assess the serious ness of an allegation to make sure it is properly investigated and resolved.  A Company’s compliance function should have full access to all reporting and investigation information.

 

Companies also have to ensure that their internal investigations are properly scoped, accurately assessed in terms of seriousness, independently conducted, properly documented, and conducted by a qualified and independent investigator.  In response to specific deficiencies identified in reviewing internal investigations, DOJ will examine whether the reporting and investigating mechanisms are sufficiently funded, whether the company is collecting,  tracking and analyzing reporting and investigation data and identifying patterns of misconduct or other weaknesses for compliance deficiencies.

 

Third-Party Management

 

Under third-party risk management, DOJ’s Guidance reiterates many important principles emphasized by DOJ in prior guidance and enforcement actions.  In particular, DOJ stated that due diligence should reflect the size and nature of the company or transaction, the qualifications and associations of third-party partners, including the agents, consultants and distributors.  DOJ will also examine if the company identified the third-party’s reputations and relationships with foreign officials and the business rationale for needing the third party in the transaction.  For example, DOJ cites the importance of examining the contract terms to ensure that it includes a specific description of the services to be performed, confirmation that the third party is actually performing the work, and compensation commensurate with the work in that industry and region.  As to post-engagement monitoring, DOJ points to the need to use various tools such as “updated due diligence, training, audits, and/or annual compliance certifications.

 

In setting out relevant issues in third-party risk management, DOJ intends to focus on whether the company’s third-party risk process corresponds to the nature and level of enterprise risk identified by the company; whether the company adequately verifies the business rationale for using the third-party; that appropriate contract terms are included; whether the company adequately considered and analyzed the compensation and incentive structures for the third parties; how the company monitors its third parties; whether the company has secured audit rights and exercised those rights; and whether the company has conducted training of its third parties.

 

Finally, DOJ intends to review whether a company tracks red flags identified and resolved in the due diligence process; whether a company keeps records of third parties that are rejected in the due diligence process (o they are not hired at a later date), and whether a company reviewed similar third parties after identifying misconduct committed by a third party. 

 

Mergers and Acquisitions

 

DOJ’s Guidance relating to mergers and acquisitions is questionable in its failure to include several policy pronouncements previously articulated by DOJ officials and prior enforcement actions.  The focus of DOJ’s merger and acquisition discussion is on pre-acquisition due diligence, and omits any meaningful discussion of post-acquisition audit principles.

In the pre-acquisition area, DOJ’s Guidance notes the importance of the due diligence process to accurately determine the target company’s value.  In particular, DOJ seeks to determine whether post-acquisition misconduct was identified during due diligence, how the due diligence was conducted, and what general policies and procedures are in place.  DOJ asks generally whether the compliance function was integrated into the merger, acquisition and integration process, and what process the company has to track and remediate misconduct or risks identified during the due diligence process.

(Source:
Brexit Legal, 2 May 2019.)

 

* Author: Véronique Collin, Esq.
Veronique.collin@squirebp.com. Of Squire Pattong Boggs, Paris.

 

The French Parliament authorized the government to take measures – known as orders (ordonnance) – which should otherwise be taken pursuant to law, in order to map out the consequences of a “no-deal” Brexit. The government had either six months or a year to pass those orders, following publication of the law.

 

The government was authorized to take any measure relating to the control of goods to and from the UK and relating to the administrative status of legal entities established in the UK and carrying out business in France. The orders define the conditions pursuant to which economic activities related to the UK and goods flowing to and from the UK can carry on.

 

The orders provide, in some instances, pragmatic adjustments to existing French legislation, unusual exemptions, and simplified administrative procedures and shorter delays to allow regularization of the status of corporates or individuals concerned.

 

By way of example, the orders cover the following matters:

  – The carrying on by the beneficiaries of licenses and authorizations for the transfer of products and materials (e.g. satellites, space rockets, etc.) to the UK, delivered pursuant to Articles L.2335-10 and L.2335-18 of the Code of Defense, prior to the exit of the UK, of the supply of such products and materials until the term of such licenses and authorizations

  – The access of French entities to interbanking payment and settlement and delivery systems of third-party countries (including, of course, the UK) by ensuring the final nature of

transactions effected through these systems

  – The designation of a competent authority to supervise activities linked to securitization

  – The introduction of specific rules for the management of certain collective investments

  – The continuity of the use of framework agreements (typically ISDA documentation) in the realm of financial services

  – The “sécurisation” of the conditions in which agreements entered into prior to the loss of recognition of licenses granted to UK entities in France will be performed

  – The continuity of the transport of persons and goods between France and the UK through the Channel tunnel

 

The obvious aim of the orders is to preserve the interests of France and the status of French citizens and other persons whom European legislation protects.

 

Last but not least, a simplified temporary procedural regime is envisaged to enable the carrying out of works needed to build, modify or develop, with a degree of urgency, premises, facilities or port, train, airport or road infrastructures, as required to re-establish a control of goods to and from the UK.

 

The consequences of these measures could greatly affect not only the property of individuals, but also that of corporates, with a probable impact on their activities, which may not be neglected. Indeed, derogations and adjustments brought changes to the legislation relating to expropriation, urban planning, zoning, preservation of cultural or historical sites, roadway, public domain, public procurement, rules applicable to maritime ports, public consultation and environmental assessment. It is clear that the wording of the orders was dictated by the urgency of the actions to take.

 

Other issues French corporates will face include:

  – The transfer of personal data to the UK

  – The export/import of goods

  – The access to funding to the extent it used to be provided by UK entities

(Source:
Akin Gump Strauss Hauer & Feld LLP, 1 May 2019.) [Excerpts.]

 

* Authors: Wynn Segall, Esq.,
wsegall@akingump.com; Nnedinma C. Ifudu Nweke, Esq.,
nifudu@akingump.com; and Dallas Woodrum,Esq.,
dwoodrum@akingump.com. All of Akin Gump Strauss Hauer & Feld LLP.

 

Limitations

 

There are a number of practical and legal limitations for plaintiffs seeking to sue under Title III, some of which could, in some cases, make it impossible to pursue actions or to enforce judgments. These limitations include:

 

Actions Excluded from Suit: The term “trafficking,” while broadly defined, does not include “transactions and uses of property incident to lawful travel to Cuba, to the extent that such transactions and uses of property are necessary to the conduct of such travel.” [FN/13] Thus, U.S. persons traveling to Cuba pursuant to specific or general authorization by the Office of Foreign Control (OFAC) would not be a target of a lawsuit for staying at a hotel that was previously expropriated by the Cuban government.

 

Additionally, the term “trafficking” does not include (1) the delivery of international telecommunications signals to Cuba; (2) trading or holding securities publicly traded or held, unless done with a Specially Designated National (SDN); and (3) transactions and uses of property by a person who is both a citizen and resident of Cuba, provided that person is not an official of the Cuban government or Communist Party of Cuba. [FN/14]

 

Personal Jurisdiction over Defendants: The U.S. Constitution requires that, for a court to exercise power over a defendant, the defendant must have sufficient minimum contacts with the forum where it is being sued-a concept known as personal jurisdiction. It will likely be difficult for plaintiffs to establish personal jurisdiction over non-U.S. defendants that do not have business in the U.S., particularly when the defendants’ “trafficking” activities also occurred abroad.

 

Statute of Limitations: There is a two-year statute of limitations that prohibits an action from being brought “more than two years after the trafficking giving rise to the action has ceased to occur.”15 Additionally, as explained above, plaintiffs who were entitled to bring claims before the FCSC during the two Cuba Claims Programs, but did not, are barred from bringing suit under Title III.

 

Evidentiary Challenges: Plaintiffs may run into challenges proving that defendants “knowingly” and “intentionally” trafficked in their property, establishing ownership over a claim, or determining the value of a claim, particularly since many foreign governments and courts will object to discovery requests related to Title III suits. As mentioned below, certain foreign blocking statutes prohibit foreign persons and companies from complying with discovery obligations in Title III cases.

 

Challenges in Enforcing Judgments: Plaintiffs who successfully obtain Title III judgments may encounter difficulties enforcing them. If a defendant does not have any assets in the U.S., a plaintiff will be unable to enforce a judgment in his or her favor domestically and would have to go through the complicated process of trying to enforce the judgment abroad. Moreover, as explained below, Canada and the EU have signaled that their courts will not enforce judgments obtained in the U.S. under Title III, and other foreign courts may similarly decline.

 

EU and Canadian Response

 

The EU and Canada quickly condemned the Trump administration’s move to allow implementation of Title III and threatened to enforce their established blocking measures against U.S. sanctions on Cuba to protect EU and Canadian companies. [FN/16] These measures respectively prohibit EU and Canadian courts from enforcing judgments obtained under Title III and permit EU and Canadian persons to pursue counterclaims against Title III plaintiffs in European and Canadian courts.

 

Additionally, the EU has threatened to reinstate a case against the U.S. before the WTO, which was initiated following enactment of the Helms-Burton Act in 1996, but was subsequently suspended in 1998 based on assurances from the Clinton administration that the U.S. would waive implementation of Title III. [FN/17]

 

In that context, it appears likely that implementation of Title III will create legal challenges and litigation in other countries and multilateral venues. Some of these challenges may present defendants in Title III cases with certain protection from discovery obligations or judgment enforcement outside the United States.

 

Mitigating Risk

 

It remains to be seen how Title III lawsuits will proceed, as judicial proceedings for such claims are unprecedented. However, given the potential for substantial damages that U.S. courts could award under Title III, companies and investors with established or prospective trade or investment interests associated with Cuba should exercise care to perform due diligence to identify and help safeguard against litigation risk and other complications that could result from Title III lawsuits. This may include seeking disclosure of business and ownership records for property and property interests associated with Cuba, as well as including focused contractual clauses, representations, covenants, and indemnities in commercial agreements to establish assurances and protections against potential risks associated with Title III litigation. Among other measures, such steps may help mitigate the risk of being sued, establish a potential defense against allegations of knowing and intentional trafficking, and provide a basis for other structural business and legal protections. Additionally, for any company with active business in Cuba, performing diligence on property associated with activities in Cuba may be helpful to identify potential litigation risk and develop strategies and mechanisms to limit that risk and defend its commercial interests.

 

Plaintiffs that initiate lawsuits under Title III will also face related challenges and risks. As discussed above, Title III plaintiffs may face significant jurisdictional, procedural, and evidentiary hurdles that could effectively prevent them from enforcing a final judgment rendered by a U.S. court against a defendant. Plaintiffs with interests in Canada or the EU should also consider the possibility that they could face counterclaim litigation risks if they pursue Title III claims.

 

Title IV of the Helms-Burton Act: Visa Restrictions on Foreign Nationals Who Deal in Confiscated Property

 

On April 17, 2019, National Security Advisor John Bolton also announced that the Trump administration would actively enforce Title IV of the Helms-Burton Act, which restricts the issuance of U.S. visas for foreign nationals that “traffic” in property confiscated from U.S. nationals. The restriction covers any individual who, after March 12, 1996, (1) “has confiscated, or has directed or overseen the confiscation of” such property, or “has converted [it] for personal gain,” or (2) “traffics” in such property. Furthermore, the restriction applies to (3) “a corporate officer, principal, or shareholder with a controlling interest of an entity which has been involved in the confiscation” of such property, or is a “spouse, minor child, or agent” of a person described in (1), (2), or (3). Importantly, unlike Title III, the process for enforcing visa restrictions under Title IV falls within the purview of the U.S. Department of State, rather than U.S. courts.

 

Active enforcement of Title IV could cause a significant number of foreign nationals to be denied entry into the U.S. For example, certain foreign nationals who work at buildings that the Cuban government expropriated from U.S. nationals could potentially fall under this provision. Furthermore, a foreign national who has been an officer or controlling shareholder of an entity that “traffics” in property confiscated from U.S. nationals may be denied a U.S. visa, as well as his or her spouse or children. However, it remains to be seen how the Department of State will enforce Title IV.

 

To date, this provision has only been used a handful of times in the past. Most notably, in 1996, the State Department used this provision to deny visas to the director of Canadian company Sherritt International Corporation, as well as other top officers of the company and their immediate families. As noted in the company’s 2018 annual report, the action had the collateral effect of making recruitment of directors for the company more challenging, given the risk that directors, their spouses, and children could be prohibited entry into the U.S. [FN/18] The Trump administration’s renewed focus on Title IV could generate similar concerns for officers and major shareholders of other non-U.S. companies that engage in business in Cuba involving property previously expropriated from U.S. nationals that could be subject to U.S. claims.

 

New Travel and Financial Services Sector Restrictions and Other Sanctions Measures

 

In addition to announcing that the administration would allow and actively pursue implementation of Titles III and IV of the Helms-Burton Act, on April 17, 2019, National Security Advisor John Bolton announced that the Department of the Treasury will implement other measures to roll back certain Cuba sanctions relief that occurred under the Obama administration. The measures announced include restrictions on “nonfamily travel” to Cuba by U.S. persons and rescinding a general license issued by OFAC that allowed U.S. banks to process certain “U-turn” transactions involving Cuba. Additionally, the administration announced a cap on personal family remittances to Cuba of $1,000 per person per quarter. Finally, effective April 24, 2019, the administration added five entities owned by the Cuban military or intelligence services, including Cuban airline Aerogaviota, to the “Cuba Restricted List,” prohibiting U.S. persons from engaging in direct financial transactions with such entities.

 

As of the date of this publication, only the additions to the Cuba Restricted List have been implemented. OFAC is expected to issue guidance and necessary amendments to the Cuban Assets Control Regulations in the coming weeks to implement these additional sanctions measures announced on April 17, 2019.

 

Conclusion

 

The measures announced by the Trump administration on April 17, 2019 mark a significant escalation of U.S. sanctions against Cuba. In the near term, implementation of Title III of the Helms-Burton Act, in combination with the other sanctions measures announced by the Administration, can be expected to further worsen U.S.-Cuba relations and bilateral relations between the U.S. and the EU and Canada, as well as elevate perceived risks of doing business in Cuba for both U.S. and non-U.S. companies.

 

——-

  [FN/13] Id. at § 4(13)(B)(iii).

  [FN/14] Id. at § 4(13)(B)(i)-(iv).

  [FN/15] Id. at § 302(a)(5)(C).

  [FN/16] See Joint Statement by Federica Mogherini, Chrystia Freeland and Cecilia Malmström on the decision of the United States to further activate Title III of the Helms-Burton (Libertad) Act, European Union (Apr. 17, 2019),
here.

  [FN/17] See Joint Statement by Federica Mogherini and Cecilia Malmström on the decision of the United States to further activate Title III of the Helms-Burton (Libertad) Act, European Union (Apr. 14, 2019),
here.

  [FN/18] See Sherritt International Corporation, Notice of Annual Meeting of Shareholders and Management Information Circular, May 4, 2018,
here at 16.