Spring 2011 In this issue: International Shipping Companies Face Increased Risks from U.S. and U.K. Anticorruption Efforts.......................................................................................... 1 Iran Sanctions.......................................................................................................... 1 New Congress Brings New Priorities – Budget and Fiscal Austerity Dominate Debate............ 2 Above Board Lawyers and Policy Professionals to the Maritime Industry New Withholding Tax Rules on the Maritime Horizon...................................................... 4 Iran Sanctions By Mike O’Neil, Partner (Washington, D.C.) and Darrell Conner, Government Affairs Counselor (Washington, D.C.) Last July 1, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) International Shipping Companies Face Increased Risks from U.S. and U.K. Anticorruption Efforts went into effect. Passage was overshadowed by the protracted diplomacy and final adoption in June of By Robert Kritzman, Partner (Miami) Violations can result in substantial criminal and civil penalties. The regulations, however, apply only to Matt Morley, Partner (Washington, D.C.) Ed Fishman, Partner (Washington, D.C.) new UN Security Council sanctions. Since then, several global companies have pulled out of Iran and the Secretary of State has declared CISADA a success. Yet, many in the maritime industry appear not to be concerned. They should be. Before CISADA, U.S. sanctions against Iran consisted of regulations administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”). These regulations impose a comprehensive ban on transactions with Iran, including a ban on exports to and imports from Iran. U.S. citizens, companies organized and located in the U.S., overseas branch offices of U.S. companies, and any person or business in the U.S. CISADA permits the imposition of sanctions for many of the same types of activities prohibited by Companies engaged in international OFAC - such as investments in and support to: (i) the petroleum sector in Iran, (ii) Iranian efforts to obtain business, such as global shipping concerns, weapons and weapons technology, and (iii) efforts by the Iranian government to stifle dissent. What face increasingly significant risks from the distinguishes CISADA from OFAC’s approach is that CISADA permits the imposition of sanctions on any efforts of both U.S. and U.K. authorities person, including persons and companies organized and located outside the U.S. In addition, CISADA to enforce laws against corruption in allows the imposition of sanctions on a corporate parent with actual knowledge of its subsidiary’s international business transactions. U.S. sanctionable activities or any affiliate that knowingly engaged in such activities. authorities are pursuing unprecedented numbers of cases and collecting ever-higher CISADA sanctions can be tough. They can include bans on receiving Export-Import Bank assistance or fines and penalties for violations of the U.S. bank loans, denial of foreign exchange transactions or export licenses, bans on property transfers Foreign Corrupt Practices Act (“FCPA”), and U.S. government contracts, and prohibitions against dealing in U.S. debt instruments or serving as a while the United Kingdom has undertaken repository for U.S. government funds. If sanctions are imposed, at least three of these must be imposed. a wholesale revision of its antibribery laws to make them even more rigorous than the FCPA. Both statutes provide for very broad jurisdiction, and the risks of running afoul of these laws, and the consequences of doing so, have never been greater. continued on page 7 In addition, CISADA requires a certification from each government contractor that neither it nor any affiliate it owns or controls engages in any activity that may result in the imposition of sanctions. Failure to certify means loss of the contract. A false certification will lead to termination of the contract or suspension from eligibility for contracts for a period of up to 3 years. The U.S. government publishes a listing of all suspended companies. continued on page 6 K&L Gates Above Board • Spring 2011 1 New Congress Brings New Priorities – Budget and Fiscal Austerity Dominate Debate By Darrell Conner, Government Affairs Counselor (Washington, D.C.), Yvette Wissmann, Government Affairs Analyst (Washington, D.C.) and The Honorable Jim Walsh, Government Affairs Counselor (Washington, D.C.) The tide has turned significantly since the last Congress. After spending much of the 111th FY12 Budget Takes Wind Out Congress focused on government spending and other ways to stimulate the economy, the new of the Sails for Key Maritime 112th Congress has focused predominantly on fiscal austerity measures that include spending cuts and deficit reduction. The maritime industry finds many of its issues hung up in this political Programs tsunami, with many of its programs under the threat of spending cuts and rescissions. The As Congress negotiates this year’s budget, it is simultaneous paths being taken by Congress to negotiate funding for the remainder of Fiscal Year also considering the budget for the next fiscal year, 2011 (FY11) and a Fiscal Year 2012 (FY12) budget increase the complexity of the situation. 2012. The President has proposed a $3.7 trillion How the budget situation is resolved could have far-reaching and long-term impacts on the FY12 budget that includes a five-year spending maritime industry. Stalemate Looms on Fiscal Year 2011 Funding Because the 111th Congress failed to enact any appropriations bills, the U.S. government is operating under a short-term continuing resolution (CR) providing funding for programs and operations of the agencies. Republicans continue to insist on significant spending cuts, upwards of $100 billion (on an annualized basis). Democrats are strongly resisting cuts of that magnitude. As a result, it is expected that short-term CRs will be dominant in the near term as Congress seeks to avert a government shutdown while negotiations continue. The House Republicans have passed legislation intended to send a message to the public – and to the Democratic leadership in the Senate – about their intent to cut government spending. H.R. 1, a CR that would have funded government for the remainder of FY11, proposes to cut the Administration’s FY11 budget proposal by more than $100 billion, representing the single largest freeze on non-security discretionary spending. It is intended to reduce the deficit by over $400 billion discretionary spending reduction in the history of over the next decade. Congress. The legislation proposes cuts to some The maritime industry did not fare well in the maritime-related programs, including reduction in President’s budget request, with the Administration funding for marine highways, a rescission of the proposing the following: Small Shipyard Grant Program. Significant cuts to food aid programs, such as Food for Peace and budget of $5 million; McGovern-Dole Food Aid, were also included in the House-passed bill. financing program; as well as a compromise measure that would cut • Elimination of the Small Shipyard Grant program; H.R. 1 is likely to never be enacted, the measure offers a glimpse into the mindset of the Republicans • A rescission of more than $54 million in unobligated funds from the Title XI ship Not surprisingly, the Senate failed to pass H.R. 1, $6.5 billion for the remainder of FY11, and while • A reduction in the Maritime Administration’s • No funding for the marine highways initiative in the House on how they intend to address (despite the inclusion of a comprehensive government spending. Negotiations will continue transportation reauthorization proposal in the over how to fund the government for the remainder budget); and of the year. But it will be difficult to bridge the significant gap between the positions of the Republicans and the Democrats. Thus, it is possible • Significant cuts in the Food for Peace and McGovern-Dole Food Aid programs. that government will be funded for this fiscal year The Maritime Security Program was one maritime- only through a series of short-term CRs. related program that survived the budget cuts, continued on page 3 K&L Gates Above Board • Spring 2011 2 continued from page 2 with the Administration proposing a bump up in on the President’s proposal to eliminate funding for will likely be discussed at the hearing, as past the program to $186 million (from $174 million). Title XI loan guarantees and about the length of debate on the topic has focused on liability issues At that level, the program would be funded at the time it takes for the agency to process applications. and who is responsible for providing protection authorized level of $3.1 million per ship for the 60 ships enrolled in the program. The House Armed Services Committee has also against pirates. issued its oversight plan. Among the issues on Shippers are expected to continue to push for their agenda of interest to the maritime sector amendments to the Shipping Act, including repeal are: the Quadrennial Defense Review, which of antitrust immunity. Because the issue is not at the will make recommendations on changes to the top of the Republican agenda and the champion of Maritime Agenda defense structure (including some that could impact such legislation last year is no longer in Congress, the maritime sector); the health of the defense it is unlikely that this bill will receive much, if any, The appropriations debate is taking a great deal industrial base, notably the shipbuilding industry; attention. The fallout from Deepwater Horizon of oxygen out of the air in Congress, but the and the Maritime Administration reauthorization continues, with continued discussion of legislative authorizing Committees are plodding along in their bill. The committee has specifically stated its intent changes. But given the change in power in the efforts to review the budgets and programs of the to hold hearings and briefings to “assess the need House, legislation addressing these issues will various government departments and agencies for legislative action to recapitalize infrastructure likely focus on issues like the de facto moratorium under their jurisdiction. The two House Committees of public and private shipyards constructing or and permitting delays rather than a complete of jurisdiction over the maritime industry – the maintaining Navy vessels and vessels of the overhaul for the industry as was proposed under the House Transportation and Infrastructure Committee National Defense Sealift Force.” Consolidated Land, Energy, and Aquatic Resources Beyond Appropriations – Insight into the Authorizing Committees’ and the House Armed Services Committee – have Act of 2010. Liability limits for offshore facilities are issued their agendas for the year.1 While the Senate Commerce, Science and The House Transportation and Infrastructure agenda for the year, Sen. Jay Rockefeller (D-WV), Committee has stated that it plans to review the Chairman of the Senate Commerce Committee, Maritime Domain Awareness, Short Sea Shipping, has outlined an agenda with a focus on jobs, Congress may also consider the Army Corps oil spill prevention and response, piracy, ballast economic security, and growth. Among his priorities of Engineers and funding for its dredging and water and incidental discharges, and vessel is “improving transportation in the highway, rail, inland waterways infrastructure projects, as well capacity issues in the international trades. It has pipeline, and maritime sectors.” It is expected, as a discussion surrounding repeal of the harbor also indicated a desire to “review efforts to improve however, that much of the Committee transportation maintenance tax. However, these issues will be the efficiency and effectiveness” of the U.S. Army agenda will be focused on a transportation impacted by the budgetary constraints as well as Corps of Engineers civil works program, which reauthorization bill. In fact, during a Senate the restrictions on earmarks. includes dredging financing of harbor and inland Commerce Committee hearing on the Department waterways infrastructure, and implementation of of Transportation’s FY12 budget, the only discussion water resource projects. of maritime-related programs was on funding for the Its Coast Guard and Maritime Transportation Subcommittee has already held a FY12 budget hearing for the U.S. Coast Guard, Federal Maritime Commission, and the Maritime Administration. Members at the hearing expressed concern about Transportation Committee has not released an there will be a push in that chamber for liabilityrelated legislation. Conclusion Marine Highway Grant Program, which Secretary The budgetary pressures and attention on fiscal LaHood indicated could be funded through the austerity will continue to squeeze many businesses. infrastructure bank proposed in the FY12 budget As the current debate indicates, the maritime instead of as a separate budget item within the industry will not be spared in the process, and Maritime Administration. many of the programs the industry utilizes could the strain on the Coast Guard’s budget and about The budget will not be the only matters on the proposed budget increase for the FMC. On the Congress’ plate in the coming year. Piracy and the Maritime Administration budget, members focused U.S. response to piracy attacks continue to receive attention, particularly on U.S.-flag vessels and 1 House Transportation & Infrastructure Committee Oversight Plan: http://transportation.house.gov/ Media/File/112th/112th_Oversight_Plan.pdf House Armed Services Committee Oversight Plan: http://armedservices.house.gov/index.cfm/oversight-plan. a priority for some senators and it is expected especially since four Americans were recently killed by pirates. As of the time of this writing, Chairman face cuts in spending. Cargo preference programs, the Title XI loan guarantee program, shipyard grant programs, and many others are expected to see cuts in funding. In the end, from a budget perspective this will not be the year of the rabbit; it will be the year of the bear. LoBiondo’s House subcommittee is scheduled to hold a hearing on the issue. Legislative proposals K&L Gates Above Board • Spring 2011 3 New Withholding Tax Rules on the Maritime Horizon By Mary Burke Baker, Government Affairs Advisor (Washington, D.C.) and Pat Heck, Partner (Washington, D.C.) Amid all the clamor about deficits and budgets on Capitol Hill, little attention has been paid to an reporting and withholding is approximately 99%; obscure income tax withholding provision affecting government contractors that is slated to take the compliance rate on other types of payments effect in January 2012. If the measure proceeds as planned, the Department of Defense will be declines as information reporting and withhold- required to withhold 3% of the gross amount payable from any payments for goods and services ing do not occur. Payments made by government made to maritime operators. entities, both to corporations and individuals, were, and remain, subject to information reporting What is the 3% annually, and payments made in connection with Withholding Tax? Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) requires a 3% withholding tax on certain payments for goods and services made by government entities. In general, any payments for goods and services made by the Federal government and all units of state and local governments, including counties and parishes, to government contractors are subject to a public assistance or public welfare program The Government Accountability Office conducted for which eligibility is determined by a needs or a series of studies that found widespread tax non- income test. As enacted, the provision applied to compliance among government contractors even payments made after December 31, 2010. The with information reporting. For example, one study effective date was delayed to apply to payments of Department of Defense and IRS records showed made after December 31, 2011 in the American that over 27,000 Federal contractors owed about Recovery and Reconstruction Act of 2009. When $3 billion in unpaid taxes. originally enacted, the provision was estimated to raise $6.4 billion over ten years. Referring to the IRS research and GAO findings, the 3% withholding tax was included in the Joint a 3% withholding tax. The withholding tax does History and Rationale for the not apply to payments already subject to withhold- 3% Withholding Tax ing under another code section, payments made before and after enactment of 3% withholding. on classified or confidential contracts, payments The Internal Revenue Code requires withholding to tax exempt entities and foreign governments, on payments for wages and certain other types payments for interest and real property, intergov- of payments. In general, non-wage payments for ernmental payments, payments made by a politi- goods and services are not subject to withholding. cal subdivision of a state or instrumentality thereof IRS research demonstrates that the voluntary com- making less than $100 million of such payments pliance rate for wages subject to both information Committee on Taxation’s “Options to Improve Tax Compliance and Reform Tax Expenditures,” released in 2005, and was enacted shortly thereafter in TIPRA. continued on page 5 Withholding can be applied only against income taxes, not employment or other types of taxes. K&L Gates Above Board • Spring 2011 4 continued from page 4 How Does the 3% Withholding 3%, so withholding could exceed any profit Tax Apply to Maritime Operators? and any income tax liability • Withholding can be applied only against income taxes, not employment or other In general, any payments made to govern- types of taxes. If a contractor’s income ment contractors from government entities will tax liability is less than amounts withheld, be subject to the 3% withholding tax, meaning the contractor has overpaid and will be contractors will receive only 97% of gross amounts required to file a claim for refund and wait receivable from the government. For example, to get its own money back assuming an annual $1 million contract, maritime operators doing business with the Department of • Profit margins on contracts may be less than Immediate Risks It is important to address this issue immediately because 3% withholding applies to payments made after December 31, 2011. It will take considerable time and expense for government entities to put systems in place to implement the new rules. Maritime operators and other government contractors need to know how to determine the terms of their contracts, including profit margins; how to manage cash flow and tax deposit issues; and • Federal, state and local governments with whether to expend resources on systems program- Defense (DOD) will receive $970,000 in actual funding shortages may have insufficient ming to accommodate the changes that will ensue payments. The remaining $30,000 will be with- funds to implement the new law. The when 3% withholding is in place. held by the DOD and remitted to the IRS. If pay- Department of Defense has estimated it will ments subsequently are made to sub-contractors cost the agency $17 billion to implement or third parties, there is no authority in the statute the new requirement to allow general contractors to withhold 3% from those payments. Possible Options to Address Maritime operators may incur substantial costs the Concerns to reprogram business systems to track amounts withheld and to manage changes in cash flow patterns, or to renegotiate contracts to ensure that cash flows are adequate and that profit margins There are several options to address concerns about 3% withholding: are sufficient to absorb the new withholding requirement (profit margins on certain government contracts may be less than the rate of withholding). The effect on cash flow may affect the avail- • Repeal the provision; however, finding a viable offset may be difficult • Delay the effective date again • Revise the statute to allow general Even if Congress decides to delay or repeal the new requirements, it could take considerable time to accomplish this. Since the enactment of 3% withholding, various proposals have been introduced to repeal it, but the cost is more than $6 billion to repeal. Senator Vitter introduced legislation in January 2011 to repeal the law, and Senator Snowe filed an amendment on the FAA bill to repeal it. Representative Herger has introduced similar legislation in the House. Recent experience demonstrates that even with bi-partisan, bi-cameral agreement, actually getting a bill across the finish line is problematic. Examples include modifying the 6707A penalty for failure to disclose a report- contractors to withhold 3% on payments able transaction, a penalty that disproportionately to sub-contractors; small businesses may Some Concerns with the 3% harmed small businesses. It took 16 months for find this practice onerous, similar to their the change to become law, even with agreement Withholding Provision position on the expanded Form 1099 in both chambers and both parties. Also, the reporting requirements in the health care bill expanded Form 1099 requirements in the health ability and cost of surety bonds. The 3% withholding provision raises several con- cerns, including: • Cash flow is reduced by 3% • Substantial programming costs may be against employment taxes • There is no authority in the statute for general contractors to withhold 3% on • Reduce the withholding rate from 3% to a lesser amount to address lower profit margins and cash flow issues incurred to track amounts withheld and to manage cash flows • Allow amounts withheld to be applied care bill are not expected to be acted on in the House at least until March, and even then the pay-for may be at issue. It is unclear when repeal of the new 1099 rules will be completed, leaving taxpayers in limbo whether they need to gear up for them or not. • Allow exceptions for credit card sales, which will be reported under the new credit card reporting rules payments to subcontractors and third parties, further impairing cash flows K&L Gates Above Board • Spring 2011 5 continued from page 1 Iran Sanctions CISADA permits state and local governments to A last example involves a very basic question prohibit investment or require divestment by state about CISADA. Generally, the new law appears or local government institutions (e.g., state pension to allow for the imposition of sanctions on those funds) in companies that invest $20 million in engaged in providing services and goods the energy sector of Iran, including companies into Iran, because that is how Iran will receive that provide “oil or liquefied natural gas tankers, prohibited support to its refining capacity, refined or products used to construct or maintain petroleum products, or weapons, but it is possible pipelines” to Iran. In addition, semi-annual public to contemplate circumstances in which exports U.S. government reports will identify specific from Iran could also result in sanctions. For investments, imports and joint ventures made in the example, “directly and significantly” facilitating energy sector of Iran. Iran’s domestic refining capacity almost certainly How to interpret CISADA is a problem because many of its terms are broad in scope, but the U.S. government has issued only limited guidance on how they will be interpreted. The result is deliberate ambiguity that only adds to the caution occurs when a company ships refining equipment to Iran, but if a company also ships refining equipment from Iran for repair abroad, that too might fall within the activities subject to CISADA sanctions. foreign companies will necessarily employ in Such uncertainties can make CISADA due interpreting CISADA. diligence difficult. The Act was also written to For instance, sanctions may be imposed on companies that provide goods, services, technology, information or support that “directly and significantly” facilitate the maintenance or expansion of Iran’s domestic refining capacity. Presumably, shipping machinery critical to the operation of a refinery meets this test, but what about shipping chemicals that can be used both in refineries and cement plants? Available guidance says such questions will be evaluated on a caseby-case basis. Uncertainty also arises in determining the dollar thresholds that must be met for the imposition of sanctions. CISADA subjects to sanctions transactions involving shipment of refined petroleum products to Iran worth $1 million, or a number of such transactions over a 12-month period worth $5 million in the aggregate. Either the value of the services (e.g., shipping) or the value of the goods shipped may be used for this calculation, but when multiple transactions are to be counted, there is no guidance as to when the make investigation mandatory in the face of credible evidence and the imposition of sanctions automatic, unless an exception applies. There are several such exceptions, but each has a downside. Investigation is not required, nor must sanctions be imposed, if those in question no longer conduct sanctionable activities and undertake not to knowingly engage in such activities again. Also, sanctions can be waived, but only after a public report is submitted to Congress beforehand identifying the person. Waivers must be renewed in the same way. CISADA is aggressively and deliberately broad ranging. The U.S. government simply urges companies to “minimize their exposure to the Iranian energy sector and to exercise as much due diligence as possible.” Global firms wishing to do business in the U.S., whose stock is publicly traded, and that are paid in dollars need to weigh possible CISADA sanctions against their involvement in Iran. For many, compliance with CISADA makes good economic sense. 12-month period begins. This makes calculations of what shipments could result in the imposition of sanctions all the more difficult. K&L Gates Above Board • Spring 2011 6 continued from page 1 do, anywhere in the world, regardless of International Shipping Companies Face Increased Risks from U.S. and U.K. Anticorruption Efforts any specific connection to the U.K.. U.K. These risks can be addressed by developing and and significant jail time, and the imposition of implementing policies and procedures designed enormous fines on companies. U.S. authorities to prevent improper payments. A well-designed are now employing the kinds of aggressive corporate compliance program can reduce the investigative methods, such as “sting” operations, potential consequences of an FCPA violation, and previously reserved primarily for narcotics and in the case of the U.K. Bribery Act, can serve as organized crime cases. a complete defense to corporate liability in many circumstances. 1. The US Foreign Corrupt Practices Act. Under the FCPA, it is a federal civil and criminal offense to pay or promise to pay anything of value to a foreign government official to obtain a business-related benefit. Included within the definition of a “foreign official” are not only executive, legislative or judicial officers or employees, but also those employed by stateowned or state-controlled enterprises—even where those companies are engaged in ordinary commercial activities. authorities say they will prosecute such companies for bribery undertaken on their behalf, regardless of where it occurs. • Commercial bribery. The Act covers not only improper payments to foreign government officials, but private commercial bribery as well. • Strict corporate liability. Companies subject to the Bribery Act will be strictly Many FCPA violations result from payments made liable for bribes given or offered on their by agents, consultants and other intermediaries, behalf, by any person, acting anywhere in as companies can bear responsibility for improper the world, and without regard to whether payments made on their behalf, even where such anyone in the company had knowledge of payments were unauthorized. For the maritime the bribe. This means that it will be easier industry, the use of port agents, local customs for U.K. authorities to prove a violation of brokers and clearing agents, and other contractors the Bribery Act than for U.S. authorities to raises particular risks in this regard. U.S. establish an FCPA violation. prosecutors are already focused on this area, as signaled by recent settlements involving Panalpina, the Swiss shipping and logistics company, and six of its customers in the oil services industry, who paid U.S. authorities a total of $236.5 million to resolve potential FCPA charges. The probe had focused on whether Panalpina, through various agents and contractors, paid officials in • Adequate procedures defense. The Bribery Act provides a complete defense to strict corporate liability where a company can establish that it had “adequate procedures” to prevent corrupt payments from occurring. This creates a compelling reason for companies to ensure that they have effective compliance mechanisms to U.S. companies, citizens and permanent residents places including Nigeria, Saudi Arabia, Algeria are subject to these provisions regardless of and Kazakhstan to expedite services, such as where in the world their actions take place. They clearing drilling rigs and other equipment though also apply to companies with securities listed customs. These and other recent cases highlight on US exchanges, and to persons who use the the importance of bringing third party agents The U.K. authorities have issued preliminary instrumentalities of U.S. interstate commerce— and contractors within the reach of an effective guidelines as to the components of such such as U.S. banking or telecommunications compliance program, and suggest that ocean “adequate procedures,” and these guidelines networks—in furtherance of an FCPA violation. carriers, forwarders and logistics companies essentially embody current best practices for should consider performing due diligence reviews Companies that have securities listed on U.S. corporate anticorruption compliance programs. of their own foreign subsidiaries and affiliates to exchanges are also subject to what are known as Companies subject to the FCPA are not required understand their business practices. to have such programs, but those that do the FCPA’s “accounting” provisions, which require that companies maintain books and records that fairly reflect the company’s transactions as 2. The U.K. Bribery Act authorized by management, and that companies The U.K.’s new Bribery Act is expected to take have a system of internal controls designed to effect in mid-2011. While similar to the FCPA in produce materially accurate financial statements. many some (which one- many or some) respects, U.S. authorities say that FCPA violations are one of their top priorities—one that they often mention in the same breath with the fight against international terrorism. Recent cases have increasingly stressed the criminal prosecution of individuals, with the prospect of individual fines there are some important differences. prevent improper payments. 3. Preventative steps. may face reduced sanctions for any violations that do occur, while companies without such programs may be subjected to particularly harsh consequences. The U.K. guidance sets out six elements that will be found in any procedures that U.K. authorities will consider to be “adequate” to prevent bribery. • Aggressive assertion of jurisdiction. The Act applies not only to U.K. persons and 1. Risk Assessment. Companies are expected to acts taken in the U.K., but also extends, to identify and evaluate the risks their employees for companies doing even a small amount or others acting on their behalf will pay a bribe, of business in the U.K., to everything they continued on page 8 K&L Gates Above Board • Spring 2011 7 continued from page 7 and use this knowledge as a basis for developing 4. Clear, Practical and Accessible Policies procedures are sufficient to mitigate the risks appropriate measures to reduce those risks. This and Procedures. The company’s policies and identified. Effective compliance programs assessment should take into account the nature procedures to prevent bribery should be known to often include: of the company’s business, including the sectors all relevant personnel, and clear guidance should and markets in which it operates, and should • A policy prohibiting improper payments. be provided as to how to follow them, such as be revisited as the company’s business changes, how to properly provide gifts, entertainment and • Controls over gifts and entertainment. expands or develops. charitable contributions. • Due diligence procedures to evaluate the 2. Top Level Commitment. Senior management 5. Effective Implementation. Simply having should establish a culture in which bribery is a “paper program” is not sufficient. Compliance never acceptable. The company’s policy against must be assured through appropriate internal bribery must be clearly communicated to all levels controls, and responsibility for implementation of of management, the workforce and any relevant the program should be clearly assigned. external actors. A senior officer should be legitimacy and reputation of third parties that may act on the company’s behalf (such as agents, consultants, and other intermediaries) and joint venture partners. • Employee training. • Procedures to monitor and assure designated to oversee the company’s antibribery 6. Monitoring and Review. Companies must efforts, and its response to any incidents of bribery undertake efforts to monitor compliance with their that occur. antibribery measures, and follow up on issues Corporate violations of anticorruption laws can as they arise. This generally requires financial 3. Due Diligence. Companies need to result in substantial fines and penalties, negative monitoring and internal audit procedures, as well publicity, and debarment from public contracts, know whom they are doing business with, and as internal reporting mechanisms (“hotlines”) for while the individuals may face imprisonment or assure themselves that business relationships employees and others to report concerns about the ruin of their careers. By taking some relatively are “transparent and ethical.” This requires potential policy violations. simple and inexpensive preventative measures, appropriate efforts to identify and address the risks of bribery in these relationships, particularly The starting point for any company is to identify its those with their agents, intermediaries, and points of contact with foreign government officials, business partners. and to consider whether its existing policies and compliance. however, companies can make it less likely that an improper payment will be made in the first place, and significantly reduce consequences of any violation that does occur. K&L Gates Above Board • Spring 2011 8 For more information on our Maritime practice, please visit klgates.com or contact one of the individuals listed below: Miami Robert M. Kritzman Partner +1.305.539.3303 robert.kritzman@klgates.com Washington D.C. Jonathan Blank Of Counsel +1.202.661.6250 jonathan.blank@klgates.com Singapore Raja Bose Partner +65.6507.8125 raja.bose@klgates.com Darrell L Conner Government Affairs Counselor +1.202.661.6220 darrell.conner@klgates.com Rolf Marshall Partner +1.202.661.6249 rolf.marshall@klgates.com Anchorage Austin Beijing Berlin Boston Brussels Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles San Diego Miami Moscow San Francisco Newark Seattle New York Shanghai Orange County Singapore Palo Alto Paris Spokane/Coeur d’Alene Pittsburgh Taipei Tokyo Portland Raleigh Research Triangle Park Warsaw Washington, D.C. K&L Gates includes lawyers practicing out of 37 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. 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