timothy meyer vanderbilt law school … · choice of law issues! ... investment securities,...
TRANSCRIPT
Face-to-face
Payment and Delivery Simultaneous
Buyer Inspects Goods and Seller Money before transacting
Communication instantaneous
Buyer and Seller separated by distance and may be in different legal jurisdictions
What risks does this create?◦ Goods must be shipped from Seller to Buyer
◦ Buyer may not be able to inspect goods prior to shipment
◦ Buyer and Seller may not know each other—informational problem
◦ Payment likely not in cash
◦ Choice of Law issues!
How do lawyers structure transactions to reallocate and reduce these risks (the Practice Question)?
How does the law try to allocate and minimize these risks (the Policy Question)?
The Documentary Sale of Goods◦ Shipping and Delivery – INCOTERMS 2010
◦ International Sales Contracts -- UN Convention on Contracts for the International Sale of Goods (“UNCISG”)
◦ International Letter of Credit Law – Uniform Customs and Practices (“UCP”) 600
Non-establishment Forms of Business (licensing, distributorships, intellectual property)
Foreign Direct Investment◦ International Investment Law
◦ Anticorruption
Sale of Goods
Non-
establishment
Forms of
Business
Foreign Direct
Investment
Contract Law Competition Law, Intellectual Property
Employment Law, Corporations Law, Property law
3 Kinds of Transactions that have an “international character”
◦ 1) Between parties in different States
◦ 2) Transaction between parties in the same state having effects in a different State
◦ 3) Movement of Goods, IP, Services, or Capital across national Borders
1) Trade in Goods
2) Trade in Services
3) Technology Transfer (including intellectual property)
4) Foreign Direct Investment (trade in capital)
Public International Law◦ Obligations nations undertake with respect to each
other
◦ Often resulting from treaties, customary international law, or rules made by international organizations
Private International Law◦ The law governing transactions having an
“international character”
◦ Formerly consisted of national choice of law rules
Share of World Gross Domestic Product, 1969-2009
1) multilateral conventions --UNCISG 2) bilateral treaties -- BITs 3) supranational legislation – EU Directives 4) Model laws – UNCITRAL Model Arbitration
Law 5) a codification of custom or compilation of
trade terms by an NGO –UCP 600 6) model contracts – UNCITRAL Model
Arbitration clause 7) restatements of the law by scholars –
UNIDROIT Principles
Sales Contract◦ Includes essential terms (quality of goods, price,
quantity)◦ Also includes Commercial Terms◦ Often negotiated without lawyers
Letter of Credit◦ Contract between Seller and Bank◦ 2 key principles: Strict Compliance and
Independence
Contract of Affreightment◦ Contract between Shipper (usually seller) and carrier
Insurance Contract
E – Seller makes goods available at a particular place (EXW)
F – Seller delivers goods to carrier, cleared for export (e.g., FOB). ◦ Risk of loss passes with delivery, “at the ship’s rail”
C – Seller delivers goods to carrier, plus undertakes additional obligations◦ CFR—cost and freight; CIF—cost, insurance, and freight
◦ Risk of loss passes with delivery
D – Seller must deliver to a specified destination◦ Risk of loss passes with delivery
Multilateral treaty negotiated by UNCITRAL, adopted in 1980, entered into force in 1988
85 parties
Designed to provide a single contract law applicable to international sales
Removes choice of law uncertainty!
Article 1
(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application
of the law of a Contracting State.
(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.
Article 2 This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction;(c) On execution or otherwise by authority of law;(d) Of stocks, shares, investment securities, negotiable instruments, or money; (e) Of ships vessels, hovercraft or aircraft(f) Of electricity
Article 3
(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.
Article 4: Does not apply doctrines of validity (e.g., unconscionability, duress) or property law
Article 5: Does not apply to tort liability arising from use of products
Article 6: “The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.”
Microtel is a multinational enterprise engaged in the manufacture and sale of computer equipment with offices in five continents and headquarters in the United States. Microtel’s wholly-owned foreign subsidiary in Panama manufactures microprocessors and enters into a contract to sell microprocessors to a Ugandan company. All of the early negotiations concerning the contract occur between in-house lawyers from the Panamanian subsidiary and executives of the Ugandan company. During these negotiations, the in-house lawyers for the Panamanian subsidiary repeatedly asked for and received instructions from management in the U.S. headquarters. When the negotiations reached a critical stage, two senior executives from the U.S. headquarters traveled to Uganda and worked out the final details of the contract. When the final details were worked out, the CEO of Microtel, the U.S. headquarters, traveled to Uganda and signed the contract.
Is this contract governed by CISG?
Acindar Argentine Steel (Acindar), located in Buenos Aires, enters into a joint venture agreement with Akron Steel (Akron), located in Ohio, for the manufacture, distribution, and sale of steel in Argentina and South America. Under the joint venture contract, the new joint venture company, Akron-Acindar Steel, promised to “use its best efforts to purchase up to $2 million in steel” in the first two years of the contract and serve as Akron’s Argentinian distributor. In return, Akron promised to purchase chromium from the joint venture, which would comprise 35 percent of the ingredients used by Akron to manufacture the steel that would be sold to the joint venture. During the first year, the JV submits a purchase order with Akron for $350,000 in steel, which Akron fills. Later, Akron argues that the JV has breached its good faith purchasing obligations under the JV contract and has also failed to secure various Argentinian government approvals required by the contract.
Is this issue governed by CISG? What about the $350,000 purchase of steel?
Article 8: Parties’ statements are to be interpreted in accordance with their intent.
Article 9: (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves; (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.
.
Article 11: “A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.”
Article 12: Countries may preserve their writing requirements if they so wish.
Article 14: “A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.”
Article 16
(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offereebefore he has dispatched an acceptance.
(2) However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.
Article 18(1): A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
Article 18(3): “ . . . if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.”
Article 19(1): “A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.”
Only applies to “material alterations.” Non-material alterations become part of contract unless objected to.
Price, quantity, quality, delivery, and dispute resolution are all deemed material.
Statute of Frauds: ◦ CISG: None
◦ UCC: writing required for contracts over $500
Offers:◦ CISG requires “definite” offers
◦ UCC: open price terms not fatal as long as intent to enter into contract
Revocability◦ CISG: Offers are irrevocable if they say they are
◦ UCC: Offers are irrevocable if they are in writing and period does not exceed 3 months
CISG – qualified mirror image rule An acceptance that varies the offer is a rejection
UCC◦ An acceptance that varies the terms of the offer is
an acceptance.
◦ Different terms become part of the contract unless objection or material alteration, in which case they fall out and are replaced by default rules.
A Czech buyer contacts an American seller for the purchase of replacement parts for heavy industrial production equipment in the buyer’s factory. After several weeks of negotiations, the buyer sends the seller a purchase order for the parts for a total price of $1 million with delivery in the Czech Republic by October 10 and payments against documents by confirmed irrevocable letter of credit. The purchase order is a single one-page printed form. On the front of the page in large bold letters is a printed clause stating, “Seller will be responsible for damages caused by any defects in replace parts, including consequential damages.”
The seller replies with a standard order acknowledgment form confirming the quantity of parts, price, delivery and payments terms. The seller’s form is also a short one-page form. On the front of the seller’s form is a handwritten clause in large bold letters stating, “Seller will repair or replace any defective parts, but Seller is in no event liable for any other damages including consequential damages.”
The seller ships the parts, which arrive in the Czech Republic by October 10. The buyer pays the price against documents while the parts are en route. The parts are installed in the buyer’s factory but a malfunction in the parts causes serious damage to the buyer’s production facilities. The buyer also misses several big production orders. The buyer bring an action against the seller for recovery of the purchase price of $1 million, plus $10 million in consequential damages. The seller argues that the buyer is limited to replacement costs.
What is the result under the CISG? See Articles 18(3) and 19
The Telecommunications Bureau of Argentina (TBA) is negotiating to purchase a telecommunications system from General Telecom (GT), a multinational enterprise with its headquarters in Chicago. The TBA needs a system that brings telephone, Internet and television access to an entire region of Argentina. The preliminary negotiations take several months and involve numerous visits by GT’s personnel to Argentina. After studying Argentina’s situation, GT’s representatives tell TBA that there are three options: (a) basic, (b) sophisticated, and (c) state-of-the-art. Eac options requires extended training programs for maintenance and upgrade of the systems. GT engineers and finance managers have estimates for the cost of each option, but these estimates are rough figures only. There is no “market price” for the installation of entire telecommunications systems as each situation is different. The TBA says that it is sure it will purchase a system from GT over its rival Western Electronics. The TBA has now asked GT to send a senior management team to Buenos Aires to engage in negotiations.
GT is worried that negotiations have already gone on for several months. GT’s management would like to sign a binding contract with the TBA as soon as possible. GT is nervous that all of these negotiations may finally lead to nothing. GT has heard rumors that TBA is using the negotiations with GT as leverage to get a better deal from Western Electronics.
Can a binding contract be structured now with the three options with prices to be determined during the five-year period it will take to install the system?
Applicant: The party establishing the credit (usually the buyer) is the applicant.
Beneficiary: The party entitled to payment (usually the seller) is the beneficiary.
Issuing Bank: The applicant’s bank is the issuing bank, which undertakes to honor the L/C against the presentation of a specified set of documents.
Revocable versus Irrevocable credits: A revocable credit may terminated at any time by the applicant. An irrevocable credit is subject to expiration after a specified period of time
Straight versus Negotiation Credits: With a straight credit, the issuing bank’s obligation runs only to the named beneficiary. With a negotiation credit, the issuing bank promises to pay any authorized (nominated) purchaser of the credit.
Advising Bank: The issuing bank may engage another bank, usually in the beneficiary’s locale, to notify the beneficiary of the establishment and terms of the credit. An advising bank has an obligation to make reasonable efforts to authenticate the credit but has no obligation to pay
Confirming Bank: A second bank, usually in the beneficiary’s locale, that undertakes an independent obligation to pay the beneficiary. The confirming bank is entitled to sell the credit to the issuing bank provided documents are properly presented
Nominated Bank: An issuing bank may authorize another bank (the nominated bank) to pay under the L/C. Unless the nominated bank is also a confirming bank, the former undertakes no obligation to pay under the L/C but may choose to do so for a fee.
Beneficiary
Confirming
Bank
Issuing
Bank
Nominated
Bank
Transfer: If the credit so provides, it may be transferred. A transfer of the credit means that the transferee acquires the right to perform all or some of the obligations of the credit, to receive all or a portion of the payment under the credit, and to enforce payment.
Assignment: An assignee receives the right to receive all or a portion of the payment under a credit after all the conditions of the credit have been satisfied. The assignee may not enforce payment, but an assignment need not be authorized.
The beneficiary under the prime L/C assigns the right to payment to its bank.
On the strength of the assignment, the bank issues a second letter of credit to pay the beneficiary’s supplier
Key is that the documents under the back-to-back credit must match those under the prime credit, or the bank must be able to switch the documents.
A letter of credit used to guarantee the seller’sperformance for the benefit of the buyer
Common in infrastructure and construction projects
Standby L/C is established by the seller (as applicant) in favor of buyer (as beneficiary)
Buyer generally must only submit pro forma declaration that Seller has breached underlying contract to trigger payment
A is the beneficiary of a negotiation credit. The issuing bank has nominated National Bank, a large and well known bank in A’s locality, to be the negotiating bank. A comes to your law office with the following questions:
1) “I don’t like dealing with National Bank? Can I submit the draft to my own bank for negotiation?
2) Must the nominated bank pay the draft or can it lawfully refuse to do so?
3) Are there any circumstances in which a nominated bank under a negotiation credit is obligated to negotiate the credit?”
The seller, the beneficiary under a confirmed L/C, assigns the L/C to the confirming bank to establish a back-to-back credit for the purpose of paying T, a third-party manufacturer of goods that the seller has contracted to sell to the buyer. The seller uses the back-to-back credit because the seller does not want the buyer or T to know each other’s identities. The prime L/C provides for payment against a draft drawn on then issuing bank, a negotiable bill of lading, and a commercial invoice. T produces the goods and has them loaded on board the carrier for shipment to the buyer. T gives the confirming bank (1) a bill of lading naming T as the shipper consigned to order, (2) a draft drawn on the confirming bank naming T as the payee, (3) and a commercial invoice from T to the seller detailing the quantity of the goods and the price.
The confirming bank pays T under the back-to-back credit and asks you the following question: “Can we simply forward these documents to the issuing bank for payment under the prime L/C? If not, why not? How would you suggest we get the documents we need?
UCP 600 Art. 4(a): “A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honor, to negotiate or to fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from its relationship with the issuing bank or the beneficiary.
UCP 600 Art. 5: Beanks deal with documents and not with goods, services, or performance to which the documents may relate.
A Kuwaiti buyer entered into a contract with a U.S. seller for the purchase of medical devices in three shipments of $100,000 each. The sales contract called for the seller to sterilize the medical devices so that they are safe for human implantation and to provide with each shipment a certification that each device in the shipment has been sterilized. The contract also included the following provision:“Payment is to be made by documentary credit subject to UCP 600. Buyer shall open a credit in favor of seller at the Kuwait National Bank (KNB) in the amount of $300,000. KNB shall make payment to seller upon the presentation of a bill of lading, commercial invoice, packing list, insurance certificate, and a written notification by seller that the delivered devices have been sterilized and are safe for human implantation. Seller acknowledges the importance of the sterilization procedure and that failure to perform this procedure shall be treated as a breach of the contract. Seller further acknowledges that in the case that it fails to test the devices buyer shall have the right to test the devices and deduct the costs of the tests from the purchase price of the goods.”
The seller makes the first shipment to the buyer and includes the certification specified in the contract. The buyer learns from industry sources that the seller’s tests may have been conducted by untrained staff. It conducts its own tests, finds the devices unsuitable, and sterilizes them at its own expense.
Meanwhile, the seller has sent the second shipment and has forwarded the documents to KNB for payment for both shipments under the L/C. The buyer send KNB written instructions directing KNB to pay on the first shipment minus a set-off for the costs of the tests and sterilization and to refuse payment on the second shipment unless the buyer retests the devices with properly trained staff.
1) Must KNB pay the entire amount of the credit for the first two shipments ($200,000) or can KNB make the first payment minus for set-off for the costs of testing and sterilization and refuse payment on the second shipment?
2) The buyer’s concern is that it will receive medical devices that are not suitable for use. The certificate of inspection by the seller did not adequately address this concern. How would you advise the buyer to structure the L/C to alleviate these concerns?
3) If KNB must pay and does not, it is liable for wrongful dishonor. What damages can the seller recover? Can the seller recover damages against the bank for the third shipment, which has not yet been sent?
UCP Art. 14: “A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.”
Even small discrepancies or typos can be fatal.
Some estimates are that banks reject more than half of initial presentations as non-conforming
A U.S. buyer purchases computer chips from Sine-Tech, a manufacturer in Taiwan, under a contract calling for payment by L/C. The buyer’s bank advises the Taiwanese manufacturer of the credit as follows:“Payment against the letter of credit will be made upon the submission of a commercial invoice, full set original on board bills of lading in triplicate, a certificate of insurance, and inspection certificate. All documents to refer to Altima III Central Processing Units at 1250 Megahertz and 2048 Random Access Memory Chips shipped from Sine-Tech.
The buyer’s vice president for sales stops by Sine-Tech on a business trip to Asia and is able to inspect the shipment of chips. He signs the inspection certificate and writes a handwritten note on the certificate: “Samples fit our specifications. Please pay seller without delay.”
Sine-Tech subsequently ships the chips and submits the documents, including the inspection certificate, to its own bank in Taiwan. The seller’s bank then forwards the documents to the buyer’s bank in the U.S. The bill of lading refers to:
“Altima III CPUs @ 1250 MHz and 2048 RAM memory chips shipped from Sino-Tech.”
The examiner in the credit department of the buyer’s bank looks at the documents and writes a memo to the head of the department: “ I have two master’s degrees in computer science and I know for a fact that the terms that are being used in the documents are well-known technical equivalents that completely match the tersmunder the L/C. The documents are conforming and we should pay”
Is he right? Is it safe for the bank to pay on the basis of the vice president’s written instructions on the inspection certificate?
The Old Way—The Law of Diplomatic Protection◦ Investors had no recourse against foreign states that
expropriated their assets in violation of international law
◦ States could “exercise diplomatic protection” on behalf of their nationals, meaning they could advocate for their nationals
◦ Usually this took the form of purely diplomatic measures because no international court had jurisdiction.
◦ Sovereigns could only exercise diplomatic protection over companies incorporated in their nation
Also a debate about the appropriate standard for compensation
Developed countries, led by US, argued that international law required “prompt, adequate, and effective compensation” – the Hull Rule
Developing countries argued that the standard for compensation was determined by domestic law – the Calvo Doctrine.
BITs (about 3000)
Regional trade treaties (NAFTA, Trans-Pacific Part.)
Industry-specific treaties (energy charter treaty –investment in energy projects)
Ad hoc institutions (Iran-US claims tribunal)
Multilateral pacts (ICSID/WTO)
Accomplish two things: 1) Clarify the content of international
investment law. In particular, solidify the Hull Rule
2) Establish investor-state dispute settlement. Investors can directly bring claims against foreign governments before international tribunals. Most commonly done under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID), an arm of the World Bank.
What is an “investment”?
“Investment” is defined broadly to include not only interests in real property, but also intellectual property, debt, equity, contractual interests, and even licenses or authorizations held under domestic law.
A “covered investment” is one in existence at the time the treaty is entered into or that comes into existence after that date.
1) Admission of the Investment◦ Some investment treaties require liberalization of
rules limiting foreign investments◦ May also require nondiscrimination in the granting
of investment permits
2) Minimum Standard of Treatment/Fair and equitable treatment◦ Requires parties “not to deny justice” in matters to
local courts, administrative bodies, applicable taxes, administration of regulations
◦ Requires that the host state provide a stable legal environment
3) Nondiscrimination Rules◦ National Treatment: Must treat foreign investors or
investments “no less favorably” than you treat your own nationals and their investments that are “in like circumstances.”
◦ Most favored nation: Must treat investors and investments of the other State Party “no less favorably” than you treat your nationals and their investments “in like circumstances.”
4) Ban on performance requirements◦ May not condition treatment on the use of local
products (requirements to use a certain amount of local labor often permitted)
5) Expropriation◦ A taking of property is lawful if it is:
Nondiscriminatory
Done for a public purpose
In accordance with due process
And compensation is paid.
Expropriations can be both direct (the government actually takes title to your property), or “creeping”
“Creeping expropriations” are where the government takes regulatory action that devalues your property in a way that is “tantamount to a taking.”
5) Standard for compensation◦ Prompt—Need not be immediate, but interest accrues
from the date of expropriation◦ Adequate—Quantum of compensation, usually defined
as “market value,” or “fair market value” or “just compensation.” Compensation shall be equivalent to the fair market value of
the expropriated investment immediately before the expropriation took place ("date of expropriation"), and shall not reflect any change in value occurring because the intended expropriation had become known earlier. Valuation criteria shall include going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value.
◦ Effective—must be in a form that is usable by the investor
6) Dispute Settlement◦ Investment treaties typically provide consent by the
state to arbitrate a dispute with an investor arising from an investment within the host state’s territory
◦ Investors can file their claims at ICSID when both states (the respondent and the investor’s home state) are ICSID parties and the respondent state consents (typically through the investment treaty)
CIC is a Mexican corporation controlled by a U.S. investor, Logan Sawyer. CIC’s business is to purchase American branded cigarettes produced in Mexico under license and then export them into the United States. Mexico imposes a tax on cigarettes sold in Mexico, but offers a rebate on that tax when the cigarettes are exported. Because cigarettes are cheaper to buy in Mexico than in the United States, companies like CIC engage in “gray market” transactions, purchasing, for example, Marlboro cigarettes in Mexico for less than the price in the U.S., and then reselling them for a profit in the U.S.
The law providing the rebate, which existed prior to CIC’s establishment, requires that the exporter provide authorities with tax invoices that are only available to cigarette producers. Consequently, gray market exporters such as CIC could not practically claim the tax rebate at export. For some years, CIC is nevertheless granted the rebate, although beginning in 1998, the authorities deny CIC the tax rebates due to the lack of an invoice. Two Mexican-controlled corporations engaged in the same business, however, are all times granted the tax rebates despite not having tax invoices.
CIC brings a NAFTA claim alleging violations of 1) fair and equitable treatment, 2) expropriation, and 3) national treatment. What result?
Passed in 1977 in response to revelations about American corporations bribing foreign officials in order to get business concessions
Prompted concern that American businesses were disadvantaged abroad, leading to two further efforts◦ U.S. pushed for adoption of anti-bribery laws by
other countries, especially through UN and OECD conventions
◦ U.S. prosecuted foreign companies under the FCPA
YOU DO NOT HAVE TO BE LOCATED IN THE UNITED STATES TO VIOLATE THE FCPA.
IF YOU TOUCH A U.S. FINANCIAL MARKET, OR ARE PHYSICALLY PRESENT IN THE UNITED STATES WHILE CONDUCTING FCPA-RELATED BUSINESS, OR HAVE TELEPHONE OR INTERNET TRAFFIC ROUTED THROUGH THE U.S., YOU CAN BE LIABLE UNDER THE FCPA
Are national anti-bribery laws, applied extraterritorially, a wise policy decision?
Possible reasons why not:◦ Competitive disadvantage
◦ Cultural Imperialism
◦ Adverse effects— “good” business may be driven out of markets where bribery is a routine part of business, leaving only those business with relatively more corrupt practices.
6 elements, 2 affirmative defenses and 1 exception
1) Covered entities◦ Issuers as defined under U.S. securities law◦ Domestic concern (i.e., U.S. national or corporation)◦ Any other actor provided that they act while in the
U.S.
2) Actus◦ Any act “in furtherance of an offer, payment,
promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value”
Recipient◦ Foreign official◦ Foreign political party or candidate◦ An intermediary (“any person, while that all or a
portion of such money or thing of value” will be given to a foreign official or foreign political party
Mens Rea (Intent)◦ “corruptly . . . for purposes of influencing any act or
decision of such foreign official, inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or securing any improper advantage.”
5) Jurisidictional element◦ Must make use of the mails or wires
◦ Easy to satisfy – phone call, email, etc.
6) Business Purpose Test◦ The act must be “in order to assist [the covered
entity] in obtaining or retaining business.”
The “Grease Payment Exception”◦ Statute does not apply to payments whose purpose
is to “expedite or to secure the performance of routine governmental action.”
◦ Applies to ministerial acts, such as issuing permits, licenses, granting visas, providing utilities services, etc.
◦ Does not apply to discretionary acts, such as decisions about whether or on what terms to award contracts.
The payment, gift, offer, or promise “was lawful under the written law’s and regulation of the [recipient’s] country
The payment, gift, offer, or promise “was a reasonable and bona fide expenditure, such as travel and lodging expenses” related to:◦ the promotion, demonstration; or
◦ The explanation of products or services, or the execution of a contract
Medtech is a publicly traded company located in Atlanta, GA. Medtech wishes to establish a foreign subsidiary to manufacture and sell its products in a developing country but has been warned by a local business consultant that it is customary to pay “substantial” fees for a business license. In addition, Medtech has been told that it is expected for new companies to make an additional payment of a “closing fee” of $1 million to the minister of trade. The consultant says, “Don’t worry, this is all part of the business and legal culture here. Everybody knows that it is legal and no one ever gets into trouble. It’s been done in the open for years and the ministry has even said that the practice will be codified in a new law. All of your foreign competitors are making payments and you don’t want to lose out to them. I’ll handle everything for you and you won’t need to concern yourself with details. Just send payments to me when I ask for them.
What issues under the FCPA are involved?
Medtech is one of several companies that has applied to establish a $30 million joint venture in Chile. Before Medtech submitted its joint venture project application, several officials from Medtech’s U.S. headquarters flew to Chile and invited various officials of the national bureau on foreign investment, which will decide whether to approve Medtech’s application for the project, out for an evening’s get together in order to get acquainted with Medtech’sbusiness and its plans for Chile and South America. The government officials were first treated to a World Cup soccer match between Chile and Germany, then a lavish champagne dinner at an expensive restaurant, and finally an extravagant evening at an exclusive club, all paid for by Medtech. The whole evening cost more than a year’s salary of the chief of the investment bureau. As the evening concluded, the chief of the investment bureau asked Medtech official where he can find a scholarship for his daughter to attend university in the United States. The Medtech official later send the following email message to Medtech’s finance department in Atlanta: “Can you look into the scholarship? There must be a way to provide one, so let’s find it.”
What legal issues are involved under the FCPA?
Hyde Chemicals, a Delaware corporation, has established a wholly-owned subsidiary in South Africa. Under South Africa’s foreign investment laws, foreign companies are eligible to receive one of three designations: Level 1 for state-of-the-art; Level 2 for advanced technology; and Level 3 for high technology. Each designation carries a number of benefits. For example, a Level 1 designation exempts the company from the country’s burdensome environmental laws for 20 years. Under South Africa’s laws, any foreign company can apply to the government for a review for a fee of $500,000. Most companies that apply receive a designation.
In 2003, Hyde donated $5 million to South Africa’s environmental protection agency in order to allow the agency to purchase new computers. In 2004, Hyde applied for a review and received a Level 1 designation. Later that year, the U.S. Justice Department initiates a prosecution against Hyde for violating the FCPA. In its defense, Hyde argues that the donation was not for the purpose of obtaining new business. Hyde’s plant was already established and Hyde had no plans to expand.
Is this a good argument under the FCPA?