In this issue:

• Top Trade Developments
  • Keep Up with the Latest News on the Section 232 and Section 301 Investigations
  • U.K. Bribery Act 2010: First Contested Prosecution of ‘Failure To Prevent Bribery’ Sends Mixed Messages
  • CIT Grants Temporary Restraining Order to Importer after CBP Triples Bond Amount
  • RUSAL Receives Extended General License from OFAC
  • Generalized System of Preferences Renewed – Retroactive to Jan 1, 2018
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• Crowell & Moring Speaks

This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact Jeff Snyder or any member of the International Trade Group.

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TOP TRADE DEVELOPMENTS

KEEP UP WITH THE LATEST NEWS ON THE SECTION 232 AND SECTION 301 INVESTIGATIONS

To do so, please subscribe to Section 232 Investigations on Crowell & Moring’s International Trade Law blog.

For more information, contact: Dan Cannistra, Robert Holleyman, Bob LaFrankie, Ru Xiao-Graham, Cherie Walterman

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U.K. BRIBERY ACT 2010: FIRST CONTESTED PROSECUTION OF ‘FAILURE TO PREVENT BRIBERY’ SENDS MIXED MESSAGES

In late February 2018, a two-day jury trial in London’s Southwark Crown Court resulted in the first successful contested prosecution of a corporation for failure to prevent bribery. This offence is contained in Section 7 of the Bribery Act 2010 (the Act). 

The particulars of the case may lead one to question the extent to which a prosecution was, in fact, justified, and whether the ramifications are likely to be universally positive.

The Facts

The Defendant was a London-based interior design company, Skansen Interior Limited (SIL). In January 2014, a new CEO of SIL, Ian Pigden-Bennett, was appointed. Upon his arrival, Mr Pigden-Bennett was informed of two payments totaling £10,000 made to a Manchester-based property company. Mr Pigden-Bennett discussed these payments with SIL’s managing director, Stephen Banks, who was seemingly unable to justify them to Mr Pigden-Bennett’s satisfaction. After their discussion, Mr Pigden-Bennett commenced an internal investigation, and put in place an anti-bribery and corruption policy.

Despite this increased scrutiny, Mr Banks attempted to make a third payment of some £29,000 to the same company, which, in the event, was discovered and prevented. It emerged Mr Banks had authorized these payments as bribes to a project manager at the company in order to secure contracts worth £6 million for refurbishing offices in London.

Once this came to light, Mr Pigden-Bennett fired Mr Banks, along with SIL’s commercial director (who, unlike Mr Banks, was not subsequently charged by the police). He also informed the relevant authorities; in this case by contacting the City of London Police and by filing a suspicious activity report with the National Crime Agency. Thereafter, it is understood SIL assisted with the ensuing investigation.

The Offence

SIL was found guilty of breaching Section 7 of the Bribery Act 2010, which provides that:

1. "A relevant commercial organisation (C) is guilty of an offence under this section if a person (A) associated with C bribes another person intending—
   1. To obtain or retain business for C.
   2. To obtain or retain an advantage in the conduct of business for C.
2. But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

And so a commercial organization is strictly liable where an individual associated with that organization has paid a bribe. If the entity in question can demonstrate that, on the balance of probabilities, it had put “adequate procedures” in place to prevent that kind of behavior, it can avoid liability.

The Act gives no consideration to what “adequate procedures” may be. To address this, shortly before the Act came into force in March 2011, the Ministry of Justice published guidance to assist companies. However, given the wide application of the Act, there can be no one-size-fits-all approach and so a degree of uncertainty remained about the practical application of Section 7.

The Prosecution

SIL was able to point to swift action once the offence was discovered: a new anti-bribery and corruption policy, the firing of the relevant individuals, and, perhaps most significantly, the immediate self-reporting and subsequent cooperation with the authorities.

However, this was insufficient for the Crown Prosecution Service (CPS). It has been reported that, at trial, the judge queried why the CPS was pursuing a case against a company which had been dormant for several years. The CPS is understood to have responded that there was a public interest in signaling the seriousness of the requirements of the Act, and the rigorous enforcement regime.

Here, the CPS made a vice of SIL’s virtue: arguing that SIL’s implementation of a new policy, and the fact that the final attempted payment was stopped, revealed the previous procedures were inadequate. It further justified the prosecution on the basis that SIL had seemingly failed to train its staff, and there was no evidence employees had been informed of any existing anti-bribery policies. It was unconvinced by SIL’s protestations that, as the employees were aware bribery was a crime, there was no need for a detailed company policy.

Ultimately, the CPS prevailed, and the jury found SIL failed to enact specific procedures to ensure compliance with the Bribery Act. The judge gave an absolute discharge, meaning, pursuant to the Rehabilitation of Offenders Act 1974, no finding of guilt was registered on the company’s record and there was no financial penalty.

Commentary

In this instance, the CPS appears to have pursued prosecution with a particular zeal.

It has been reported that the CPS considered offering SIL a deferred prosecution agreement. DPAs are a form of settlement agreement which can be offered by the UK Serious Fraud Office (SFO) or the Office of Financial Sanctions Implementation to companies which self-report wrong-doing. The terms are reached between the parties under the supervision of a judge, and permit a company to make reparations for illicit behavior, while avoiding a criminal conviction. It seems, ultimately, SIL was not offered a DPA, ostensibly on the ground that, having been dormant since 2014, and having no assets, it would have been unable to satisfy the financial component of any DPA. One might wonder whether that logic would also hold for the election to prosecute the company.

There is of course some danger that in circumstances where a company does uncover bribery, the temptation would now exist to avoid self-reporting, or worse, take no action at all to avoid arousing suspicion from the authorities. This is perhaps particularly so where such bribery would be unlikely to come to light absent any intervention from the company.

It goes without saying that this temptation should be avoided. Self-reporting remains the best method of securing leniency, however, as the SFO’s own guidance states, this is no guarantee that a prosecution will not follow. The real takeaway is not that reporting crime never pays. Rather, when considering their prevention strategies, companies should be guided by SIL’s failings by, for example, ensuring an appropriate anti-bribery and compliance policy is in place, monitored, and updated as necessary. Internal audit procedures to ensure that accounts payable/receivable are legitimate and supporting a real business purpose also go hand-in-glove with an anti-bribery policy. Nonetheless, a policy is unlikely per se to be sufficient; staff should be made aware of it and trained as necessary. There should also be a designated compliance officer available for staff to report concerns. What constitutes adequate procedures will vary between companies, but these appear to be minima of wide application.

For more information, contact: Cari Stinebower, Michelle Linderman, Gordon McAllister

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CIT GRANTS TEMPORARY RESTRAINING ORDER TO IMPORTER AFTER CBP TRIPLES BOND AMOUNT

The U.S. Court of International Trade (CIT) in U.S. Auto Parts Network, Inc. v. United States, Slip. Op. 18-38 (Apr. 6, 2018) recently granted a Temporary Restraining Order (TRO) and found in favor of an importer who alleged an impermissibly high single entry bond amount was imposed against the company.

U.S. Auto Parts Network (U.S. Auto), a company that imports and sells vehicle grilles and parts, was alleged to have imported 30 shipments of grills that contained counterfeit merchandise. U.S. Auto then received notice of the enhanced bond requirement in an email from U.S. Customs and Border Protection (CBP or Customs) on March 7, 2018. CBP indicated it was requiring single entry bonds valued at three times the value of the shipment. Because of the exceedingly high bond amount, on April 2, 2018, Auto Parts went to the CIT and sought a TRO preventing CBP from imposing such single entry bond requirements.

The CIT considered four factors when evaluating whether to grant a TRO to U.S. Auto. The company had to show the court that:

1. It would suffer irreparable harm absent the restraining order.
2. It was likely to succeed on the merits of the action.
3. The balance of hardships favored the imposition of the temporary restraining order.
4. It was in the public interest.

As to the first requirement, U.S. Auto indicated to the court it was not able to find a surety to post a bond in the amount because the potential risk was approximately $5 million per week. Irreparable harm includes “a viable threat of serious harm which cannot be undone.” U.S. Auto claimed without the restraining order it could not import and its business would effectively wind down. The Government characterized this as speculative harm; however, the Court found it to be sufficient to show irreparable harm.

The court next weighed the third requirement regarding the balance of hardships. The CIT weighed the closing of U.S. Auto's business against CBP's expense in resources. CBP alleged that it had conducted these inspections for months requiring “substantial diversion of resources” and “more than 1,100 man hours.” Still, the Court found that a company that is facing the closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences due to the enhanced bond requirements had the balance of hardships tipped in its favor.

When evaluating the likelihood of success on the merits, the court examined U.S. Auto’s four claims against the Government in its Complaint. The first two claims alleged that Customs’ imposition of the higher bond requirement violated various provisions of the Administrative Procedure Act (APA). U.S. Auto’s third claim contended that the new bond requirement constitutes a punitive action and was unconstitutional under the Eighth Amendment’s Excessive Fines Clause. Plaintiff’s fourth claim asserted that Customs did not provide U.S. Auto with the opportunity to challenge the increased bond requirement, which amounted to a violation of Plaintiff’s right to due process under the Fifth Amendment. 

Under the APA, a final agency action will be overturned if the action is arbitrary, capricious, an abuse of discretion, or not in accordance with law. According to the Court, and a fact that was confirmed by Customs, ninety-nine percent (99 percent) of U.S. Auto's imports were not suspected of being counterfeit. Slip. In other words, U.S. Auto was being put out of business as a consequence of 1 percent of its imports. That, according to the CIT was contrary to Customs’ mandate to set bond amounts to ensure compliance. This was sufficient to show a likelihood of success on the merits of the APA claims.

U.S. Auto's third claim was Customs’ process did not permit the importer an opportunity to challenge the bond amount. If true, this would be a violation of the Fifth Amendment requirement that no person is to be deprived of life, liberty, or property without due process of law. Due process is notice and a meaningful opportunity to be heard. The CIT did not find for the plaintiff because of the longstanding position that there is no “right” to import products into the United States.

Turning to the public interest, U.S. Auto contended allowing it to continue to operate while the case is being decided on the merits was in the public interest. Specifically, it prevented the likely loss of over 350 jobs and provides the public with a source of cheaper replacement parts. The Government contends that the public is best served through the enforcement of the intellectual property laws and by allowing CBP to better allocate resources. The Court found the public interest rose above enforcement of the trade laws.

Because only one of the four factors weighed in favor of the Government, the Court granted the TRO. Under the terms of the TRO, CBP may continue to require a single entry bond at three times the value of the portion of the shipment believed to be counterfeit merchandise. In other words, CBP may impose the enhanced bond requirement on the 1 percent, not the 99 percent of U.S. Auto's imports. The TRO expired on April 20, 2018, so there is likely to be further litigation in this matter.

For more information, contact: John Brew, Frances Hadfield

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RUSAL RECEIVES EXTENDED GENERAL LICENSE FROM OFAC

On April 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 14 in its Ukraine/Russia sanctions program.

According to a Treasury press release, GL 14 “authorizes U.S. persons to engage in specified transactions related to winding down or maintaining business with United Company RUSAL PLC (RUSAL) and its subsidiaries until October 23, 2018. In accordance with preexisting OFAC guidance, OFAC will not impose secondary sanctions on non-U.S. persons for engaging in the same activity involving RUSAL or its subsidiaries that General License 14 authorizes U.S. persons to engage in.”

Treasury Secretary Steven T. Mnuchin said, “RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries. He added, “RUSAL has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”

In addition to extending the time period until October 23, 2018, GL 14 also expands the existing authorization in GL 12 by authorizing (a) the disbursement of previously blocked funds for specific maintenance and wind-down activities, (b) new payments to RUSAL not to be made into blocked accounts, and (c) exports from the United States to RUSAL. GL14 is still, however, subject to many of the same conditions as apply to GL 12, including (a) the transactions must relate to “operations, contracts, or other agreements” in place prior to April 6, 2018 and (b) U.S. persons utilizing the authority must file a report with OFAC within 10 days of GL 14’s conclusion.

In addition to General License 14, today OFAC also published several FAQs regarding the general license’s authorizations and limitations, and issued an amended General License 12A (Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations) that reflects the expanded RUSAL-related authority in GL 14.

To keep up with the latest news on Russia Sanctions, please subscribe to Russia Sanctions on Crowell & Moring’s International Trade Law blog.

For more information, contact: Cari Stinebower, Dj Wolff

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GENERALIZED SYSTEM OF PREFERENCES RENEWED – RETROACTIVE TO JAN 1, 2018

U.S. Customs and Border Protection (CBP) issued a Federal Register Notice on April 20 regarding the renewal of the Generalized System of Preferences (GSP), a preferential trade program that allows the eligible products of designated beneficiary developing countries to enter the United States free of duty.

The renewal takes effect on April 22. The new expiration date for GSP is December 31, 2020.

The notice states, “As of April 22, 2018, the filing of GSP-eligible entry summaries may be resumed without the payment of estimated duties, and CBP will initiate the automatic liquidation or reliquidation of formal and informal entries of GSP-eligible merchandise that was entered on or after January 1, 2018, through April 21, 2018, and filed via ABI with SPI Code “A” notated on the entry.

Requests for refunds of GSP duties paid on eligible non-ABI entries, or eligible ABI entries filed without SPI Code “A,” must be filed with CBP no later than September 19, 2018.”

For more information, contact: Frances Hadfield, Edward Goetz

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CROWELL & MORING SPEAKS

Carlton Greene, the former chief counsel for the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and a member of the firm's International Trade and White Collar & Regulatory Enforcement groups, testified on April 27 before the House Subcommittee on Financial Institutions and Consumer Credit. The hearing concerned FinCEN's customer due diligence rule, also known as the CDD Rule, which covered financial institutions are required to begin implementing on May 11.

For more on Carlton’s testimony, please click here.

Aaron Marx will be speaking at the Virginia Manufacturers Association International Round Table on May 7 in Newport News, VA. He will be on a panel discussing trade agreements and providing a tariff update, to include the new national security tariffs on imported steel and aluminum.