Hot Topics in FCPA and Trade Compliance

1. Hot Topics in FCPA and Trade Compliance • CCWC FIFTEENTH ANNUAL CAREER STRATEGIES CONFERENCE • CHICAGO, IL; September 25, 2019Presenters: Karla Haynes, BahiOkupa-Hines, NnediIfudu Nweke & Carol Tate

2. China Tariffs in the News

3. U.S. Dispute with China

4. United States Trade Representative 301? • “Section 301 of the Trade Act of 1974, as amended, gives the U.S. Trade Representative broad authority to respond to a foreign country’s unfair trade practices. If USTR makes an affirmative determination of actionable conduct, it has the authority to take all appropriate and feasible action to obtain the elimination of the act, policy, or practice, subject to the direction of the President,…”

5. Section 301 Tariffs List 4A Effective 9/1/19 15% List 4B Effective 12/15/19 15% Exclusion request TBD

6. What’s Covered: Items + Origin • 301 Lists • listed by Harmonized Tariff code • Not specific company or product description • HTS code determines applicable duties and permit requirements Harmonized tariff system Used across WTO member countries All goods being imported require HTS code Assigned based on rules of classification and the technical capability/functionality of an item Code formally declared to customs at import Using the wrong code can result in fines and penalties

7. What’s Covered: Items + Origin • Items from China and/or Manufactured in China • Items manufactured in China • Items manufactured in China and exported for storage, testing + Imported into the U.S. • Items manufactured in China • Items exported from China to the U.S. • Items manufactured in China and exported to the U.S. from a third country

8. Options for Mitigation Advocacy Classification Assessment Assessing Future Manufacturing Locations • Review alternate mfg. Locations + substantial transformation analysis • Consider applicable CROSS rulings on substantial confirmation On-going assessment with each new product/mfr. Partner Review Classifications impacted products impacted components Consider applicable CROSS Rulings Consider formal classification Requests USG Engagement USTR engagement Exclusion requests Review exclusions issued to date File exclusion requests Verify if vendors are/have filed requests Industry Engagement Partner with industry orgs • Partner with other companies

9. CFIUS Risks on the Rise

10. CFIUS – At a Glance • The Committee on Foreign Investment in the United States (“CFIUS”) is an inter-agency panel authorized to conduct national security reviews of transactions that could result in foreign control of a U.S. business (“covered transactions”). • CFIUS has the authority to require mitigation measures, suspend transactions and recommend that the President block a pending deal or order divestiture in a completed transaction. • Parties submit a voluntary notice to obtain clearance (“safe harbor”) for the transaction to proceed. • The Committee consists of 9 Executive Branch departments/offices and 5 observing members • Others can be added for specific reviews (e.g., USDA, HHS)

11. Voluntary Filings Under the current regime, all filings are voluntary unless CFIUS directs a filing in a specific case. Parties to a transaction determine whether to file based on: Threat posed by non-U.S. buyer Vulnerability presented by the U.S. business National security consequences of the interaction of the threat and vulnerability CFIUS – Pre-FIRRMA Jurisdiction: “Covered Transaction” “any transaction … by or with any foreign person, which could result in control of a U.S. business by a foreign person” “Foreign Person” • Includes any entity controlled by a foreign national “Control” – “the power, direct or indirect, whether or not exercised … to determine, direct, or decide important matters affecting an entity” • No bright-line test • Excludes passive investments of 10% or less voting interest “U.S. Business” • “Any entity, regardless of the nationality of the persons that control it, engaged in interstate commerce in the United States” • Includes non-U.S. companies with U.S. operation

12. The Foreign Investment Risk Review Modernization Act (FIRRMA) FIRRMA Jurisdiction: Expanding “Covered Transaction” • Purchase, lease, or concession by or to a foreign person of U.S. real estate near sensitive U.S. government locations and in U.S. ports. • “Other investments,” which are noncontrolling investments in an “unaffiliated” U.S. business involving critical infrastructure, critical technology, or sensitive personal data of U.S. citizens under certain circumstances. • Any change in foreign investor’s rights that result in foreign control of a U.S. business or an “other investment.” • Any investment or transaction designed to evade CFIUS review. In response to concerns about limited jurisdiction and resources, Congress passed FIRRMA in August 2018. FIRRMA: Expands CFIUS jurisdiction Makes filing mandatory for (1) certain investments involving foreign government interests and (2) investments involving critical technology. Is not effective until final regulations go into effect, which must occur by February 2020, at the latest. CFIUS implemented a Pilot Program, effective November 10, 2018, that expanded jurisdiction to certain non-controlling investments involving “critical technology” and introduced mandatory disclosures.

13. FIRRMA Pilot Program • Is the U.S. business a “Pilot Program U.S. Business? • Does it produce, design, test, manufacture, fabricate or develop a “critical technology” and use it in connection with, or design it for, a targeted industry? • Does the investment: • Provide the foreign person control, or • Provide the foreign person: • access to any “material nonpublic technical information” in the possession of the U.S. business; • membership or observer rights on the board of directors or equivalent governing body of the U.S. business, or the right to nominate an individual to a position on the board of directors or equivalent governing body of the U.S. business; or • any involvement, other than through voting of shares, in substantive decision-making of the U.S. business regarding the use, development, acquisition or release of critical technology? • If yes to both: mandatory filing 45 days prior to closing transaction.

14. Pilot Program: Targeted Industries

15. Implications for Transactions • Recognize that CFIUS will play a bigger role in the M&A process: more deals captured and mandatory reporting. • Account for new requirements that can impact deal timing and expose companies to penalties for failure to comply. Liability applies to the buyer and the seller. • Analyze early in the deal whether the pilot program will apply. Build into diligence process. • Conduct diligence of the U.S. business that focuses on export control issues. Requires an assessment of the technology that relates to the target, including monitoring the emerging and foundational technology process. • Still, consider the “old” CFIUS rules and risks. • Evaluate whether deal terms can be adjusted to avoid falling into a covered non-controlling investment and incorporate other terms to account for CFIUS risk. • Stay tuned for the proposed and final rules that will fully implement FIRRMA.

16. Foreign Corrupt Practices Act: At A Glance • Enacted in 1977 in the wake of reports that numerous U.S. businesses were making large payments to foreign officials to secure business. • Anti-Bribery Provisions: The FCPA prohibits corruptly giving, promising, or offering anything of value to a foreign government official with the intent to influence that official in his or her official capacity or to secure an improper advantage in order to obtain or retain business. • Accounting Provisions: The FCPA also requires issuers to maintain accurate “books and records” and reasonably effective internal controls.

17. FCPA: Who is Covered? • Issuers: Any company whose securities are registered in the United States or that is required to file periodic reports with the SEC. • Includes stockholders, officers, directors, employees, and agents acting on behalf of the issuer. • Domestic Concerns: Any individual who is a U.S. citizen, national, or resident of the United States (not just U.S. citizens), or any business organization that has its principal place of business in the United States or which is organized in the United States. • Includes stockholders, officers, directors, employees, and agents acting on behalf of the domestic concern. • Other Persons: Anyone who takes any act in furtherance of a corrupt payment while in the territory of the United States.

18. FCPA: Who qualifies as a “Foreign Official?” • Any officer or employee (including low-level employees and officials) of a foreign government or any department, agency, or instrumentality of the government, including government-owned or government-controlled businesses and enterprises (even if the government is a minority stockholder). • Officers and employees of public international organizations, including the United Nations, World Bank, and others (as designated by executive order) • Political party officials and political candidates • Members of royal families

19. FCPA: Enforcement Trends • FCPA enforcement remains a priority for the SEC and DOJ • Continued focus on individuals and companies • Voluntary self-disclosure, full cooperation, timely remediation, and effective compliance programs are encouraged • FCPA Corporate Enforcement Policy (2017) • DOJ’s Policy on Coordination of Corporate Resolution Penalties (2018) • AAG Brian A. Benczkowski Memorandum, Selection of Monitors in Criminal Division Matters (2018) • DOJ’s Evaluation of Corporate Compliance Programs (2019) • AG Jeff Session’s China Initiative continues (2018) • More countries enact/strengthen anticorruption laws • Cross-border agency cooperation continues

20. FCPA: Rules Matter, But Culture May Matter More “It’s completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. …[M]y job is to install a new culture.” - Spiegel Interview with Siemens CEO Peter Löscher, December 12, 2007 PRIVILEGED & CONFIDENTIAL

21. FCPA: Trends in In-House Compliance • Reinforce a culture of integrity • Data Analytics-Based Solutions • Marketing Funds • Sales Practices (e.g., discounts, rebates) • Gifts, Meals, Entertainment, Travel • Third Party Due Diligence • Risk Assessment, Audit, and Rapid Response to improvement opportunities • Design Policies and education re: Ephemeral Messaging Platforms • Evaluate M&A Risks and align “as soon as practicable” • Monitor Whistleblower Program Effectiveness

22. Appendix

23. FCPA: What payments are prohibited? • Actual cash/cash in kind payments • Offers and promises to pay • Authorizations to pay • No payment needs to be made nor benefit delivered • An offer to make a prohibited item of value, even if rejected, is a violation of the FCPA. • Indirect corrupt payments • Authorizing a payment to a third party while “knowing” that the third party will make a corrupt payment. • Third parties include local agents, consultants, attorneys, and distributors • Political or Charitable contributions

24. FCPA: What qualifies as “a thing of value”? • There is no “de minimis” exception. • Includes anything a recipient would find interesting or useful, including: • Internships (for Relatives) • Gifts • Theatre Tickets • Entertainment • Red Envelopes • Professional Training • Trips • Loans • Employment • Consulting Fees • Meals • Education • Political or Charitable Contributions

25. FCPA: What qualifies as “Knowledge”? • Being aware of the conduct or substantially certain that it will occur; or • Consciously disregarding a “high probability” that a corrupt payment or offer will be made. The “Ostrich Defense” does not work

26. FCPA: Exceptions & Affirmative Defenses • The FCPA permits otherwise improper payments to government officials in only a few circumstances: 1) Facilitating payments. 2) Payments expressly permitted by the written laws of the host country. 3) “Reasonable and bona fide expenditure[s], such as travel and lodging expenses . . . directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency thereof.” • All are very narrow exceptions and defenses.

27. 2018 FCPA Enforcement

28. Growing Global Enforcement Regime