Look Before You Leap –
Legal Considerations When Doing Business in
Dynamic International Markets
Boston, February 7, 2007
Jonathan M. Epstein
Partner, Holland & Knight LLP
Tel: 202-828-1870
E-Mail: [email protected]
Legal Considerations
• US Government Legal Issues
• Laws of Foreign Jurisdiction
– Foreign Corrupt Practices Act
– Import Restrictions
– U.S. Export Controls
– Marking/Certification Requirements for
Products
– Customs/Import Requirements
– Foreign Taxes
Export Clearance
– Laws Restricting Foreign Companies
– Anti-Boycott Laws
– Foreign Environmental Laws
– Anti-Trust Laws
– Foreign Privacy Laws
– Environmental Laws
– Employment Laws
• Commercial Legal Issues
– Intellectual Property Protection
– Setting Up Joint-Ventures
– Foreign Agents/Distributors
– Logistical Arrangements for Import/Export
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The Foreign Representative with “Connections”
• For a high commission, he can get that major
foreign government contract for your company
– Payments to a person to induce a foreign official to obtain
or retain business
– Foreign Corrupt Practices Act violation is probably one of
the most lethal statutes to violate
– Criminal penalties, debarment from certain exports,
government procurement, etc.
– U.S. companies can be held liable for the actions of their
agents, representatives, and foreign subsidiaries
3
The Joint Venture/Exclusive Distribution
Agreement
• High percentage of joint ventures/distribution
arrangements fail within a few years
• If you give exclusive distribution rights:
– Tie it to performance criteria/minimum sales
– Limit the “exclusive” territory
– Limit the term
• Joint ventures
– Protection/retention of intellectual property
– Clear rights upon dissolution
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The Unnamed Principal: Know Your
Customer/Business Partner
• Distributor in Middle-East who didn’t disclose
purchaser, but then . . .
• Business Partner in domestic real estate
partnership that was designated by Treasury on
Anti-Narcotics Trafficking list
• Tailor due-diligence to the transaction/product
• Checking the various government lists
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Backing Unknowingly into Exports (Export
Violations)
• Small to mid-size software companies are often
unaware of complex restrictions on exports of
software containing encryption functionality
– Use of offshore (Indian) developers
– Hiring of non-U.S. nationals in the U.S. to work on
software
– Foreign sales via the Internet
– Compliance with rules is not particularly onerous
6
We Don’t Make Any Products Subject to the
International Traffic in Arms Regulations (ITAR)
• Our last three voluntary disclosures involved
companies, some large, that didn’t realize they
were manufacturing military items
• Electronics subcontractor may not have any idea of
end-use of product, and either send it offshore for
production or fill a foreign order
• If specifically designed for a military/satellite
equipment, then it is controlled under the ITAR
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Workarounds for Customs Duties/Country of Origin
• Import of goods where the final packaging or
minimal steps are done in a particular country for:
tariff reduction/ WTO procurement agreement
reasons
– Bulk of production, product origin in non-WTO or non
procurement agreement country
– If no substantial transformation/tariff shift in final stage
this won’t work
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Conclusion
• No company would/should commit resources to
overseas markets without a business plan.
• That plan must include solid legal planning and
due diligence.
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