Contents:
- ABB AFFILIAES PLEAD GUILTY TO BRIBING NIGERIAN OFFICIALS
- FINAL RULES ON EXPORTS TO IRAQ ANNOUNCED
- PROPOSED RETALIATORY SANCTIONS AGAINST JAPAN ANNOUNCED
- U.S. SUPREME COURT DENIES FALSE ARREST CLAIM UNDER ALIEN TORT CLAIM ACT
ABB AFFILIAES PLEAD GUILTY TO BRIBING NIGERIAN OFFICIALS
Two affiliates of global construction and technology company ABB pleaded guilty on July 7 to charges of bribing Nigerian government officials in violation of the U.S. Foreign Corrupt Practices Act (the "FCPA"), and each agreed to pay a separate fine of $5.25 million (for a total of $10.5 million). The plea agreement ended a Department of Justice ("DOJ") investigation into ABB’s oil, gas and petrochemicals business. In addition, ABB separately resolved civil charges brought by the Securities and Exchange Commission ("SEC") arising out of the FCPA violations in Nigeria and agreed to pay an additional $5.9 million fine. Among other things, the FCPA prohibits U.S. companies and their agents or consultants from making illicit payments to foreign government officials in order to obtain business or to secure some wrongful advantage.
According to DOJ documentation, the two companies — ABB Vetco Gray Inc., a U.S. company ("Vetco US"), and ABB Vetco Gray (UK) Ltd., a U.K. entity ("Vetco UK") — sought to obtain improper advantages while bidding on a series of oil-related government contracts in Nigeria by paying bribes and providing gifts to various Nigerian officials. Both companies are part of ABB’s oil, gas and petrochemicals division. The DOJ alleged that commencing in 1998, the Vetco companies were preparing to bid on a contract to provide equipment for a Nigerian oil exploration project. The companies were apparently approached by officials of National Petroleum Investment Management Services ("NPIMS"), a Nigerian government entity responsible for overseeing investment in petroleum exploration and production. The officials reportedly advised the Vetco companies that they should show their "appreciation" to NPIMS officials in order to bolster their chances of obtaining government contracts.
Thereafter, Vetco US and Vetco UK employees are reported to have provided numerous gifts (including an automobile and several shopping trips), travel, entertainment and cash payments in excess of $1 million to officials at NPIMS in connection with several petroleum projects. In some cases, the benefits were provided directly to the NPIMS officials by Vetco employees. However, a substantial amount of money was funneled to the officials with the help of a Nigerian sales agent. To put funds in the agent’s hands, the Vetco companies entered into several consulting contracts with various businesses owned by the Nigerian agent. The agent then paid the funds received under the consulting contracts to NPIMS officials.
The ABB case is particularly noteworthy because the charges were brought not only against Vetco US but also directly against Vetco UK. In 1998, Congress amended the FCPA to allow enforcement directly against a foreign person or foreign company or any "officer, director, employee, or agent . . . acting on behalf of such person" that has sought to bribe foreign government officials "while in the territory of the United States." The DOJ’s allegations against Vetco UK do not suggest that Vetco UK employees undertook any activities in the United States. Rather, the DOJ action appears to be based on an assertion that certain Vetco US employees were acting as "agents" for Vetco UK. In several instances, a Vetco US employee took NPIMS officials on expensive shopping excursions while such officials were in the United States. In each case, Vetco UK employees in the United Kingdom approved reimbursing the Vetco US employee’s expenses.
In addition, Vetco UK worked with a Vetco US employee to provide cash and gifts to various NPIMS officials with the help of the Vetco sales agent in Nigeria. The Vetco US employee provided approximately $140,000 in payments and benefits (such as pedicures and paying for medical procedures) to Nigerian officials. The Vetco US employee would then submit invoices for reimbursement to the Nigerian agent. The agent would in turn submit invoices to Vetco UK for payment. Vetco UK would wire the funds to bank accounts held by one of the agent’s companies. Finally, the Nigerian agent would send the funds to the Vetco US employee by check or wire transfer.
The ABB case suggests that the DOJ intends to use a broad interpretation of the 1998 amendments against foreign companies. As indicated above, there is no indication in the court records that Vetco UK employees conducted activities related to the Nigerian scheme while in the United States. Moreover, there is no suggestion that Vetco US employees were actually Vetco UK employees. Rather, the case against Vetco UK — and the resulting $5.25 million fine — rests on the suggestion that the Vetco US employees were agents of Vetco UK, and were performing tasks in the United States on Vetco UK’s behalf. The case should serve as a warning shot across the bow of foreign companies with U.S. operations: if employees of a U.S. affiliate participate in an illicit scheme hatched by a foreign company, the DOJ is prepared to level charges directly against the foreign company. This may well be the case even if no employee of the foreign company sets foot in the United States.
The case also stands out because of the size of the fines. According to DOJ documentation, the Vetco companies collectively paid approximately $1.2 million in cash bribes to Nigerian officials, in addition to various in-kind gifts, travel and entertainment. The projects awarded to the Vetco companies in Nigeria had a combined gross profit of $228 million. However, the net profit for these deals totaled approximately $12 million. In the end, the Vetco companies and ABB paid in excess of $16 million in criminal and civil fines, completely erasing any economic gain from the contracts the Vetco companies won in Nigeria.
*****
FINAL RULES ON EXPORTS TO IRAQ ANNOUNCED
New Rules Ease Licensing Requirements for Some Exports, Add New Licensing Requirements for Some Transfers Within Iraq.
On July 29, 2004, the White House issued Executive Order 13350, which further lifted and modified export controls imposed upon shipments to Iraq. Pursuant to that Executive Order, the Bureau of Industry and Security ("BIS") of the Department of Commerce published new rules in the Federal Register which, among other things, codify the transfer of licensing authority for dual-use goods from the Department of Treasury to the Department of Commerce. Dual-use goods are items on the BIS Commodity Control List which have both civilian and military uses, such as certain navigational systems, toxic chemicals and encryption software. These rules do not affect defense articles and munitions, exports of which are under the jurisdiction of the Directorate of Defense Trade Controls at the Department of State. Defense articles are items that are devoted primarily or exclusively to military use, such as weapons, guidance systems and ballistics.
The new rules lift certain restrictions on exports of dual-use goods from the United States to Iraq. Items that are only classified on the Commerce Control List ("CCL") as controlled for reasons of anti-terrorism ("AT") will no longer require licenses. Most items controlled for anti-terrorism are often controlled for national security ("NS"), missile technology ("MT") or other reasons, but there are some items on the CCL — civilian aircraft, for example — which are controlled only for anti-terrorism reasons.
There are six categories, or Export Control Commodity Numbers ("ECCN") on the CCL that are subject only to AT controls, but which will nonetheless still require a license. Those categories are the following:
- ECCN 0B999 (Specific processing equipment such as hot cells and glove boxes suitable for use with radioactive materials);
- ECCN 0D999 (Specific software for neutronic calculations, radiation transport calculations and hydrodynamic calculations/modeling);
- ECCN 1B999 (Specific processing equipment such as electrolytic cells for fluorine production and particle accelerators);
- ECCN 1C992 (certain types of explosives);
- ECCN 1C999 (a catch-all classification for certain materials including, for example, tributyl phosphate, which is used to extract uranium and plutonium); and
- ECCN 6A992 (certain optical sensors, e.g. night vision equipment).
Although BIS has always controlled re-exports of controlled items from the licensed destination to a new destination, the new rules concerning Iraq also require licenses for transfers of items wholly within Iraq. Items that would require a license for export to Iraq also require a separate and new license to transfer those items within Iraq. In addition, transfers within Iraq of "items subject to EAR" (i.e. items subject to the Export Administration Regulations") require licenses where the transfer is known to be for a military end-use or military end-user (other than the U.S. Government, the Interim Government of Iraq or the Multinational Forces) even where the original export did not require a license. It should be noted that an item may be "subject to EAR" even if it is not a dual-use item listed on the CCL. An item can be "subject to EAR" if it is an item, within the United States, with more than de minimis U.S. content or is manufactured in a non-U.S. facility using U.S. technology.
The licensing policy under the new rules applicable to items requiring license for export to, or transfer within, Iraq, is a somewhat of a mish-mash; it reflects an effort to resolve various competing interests raised by the Departments of Defense and State on the one hand and Commerce Department on the other. As a result, a large number of items requiring a license will still be subject to a general policy of denial while other items requiring a license will be considered on a case-by-case basis. If you need additional information on the applicable licensing policy for a contemplated export to Iraq or transfer within Iraq, please contact one of the attorneys listed at the end of this alert.
Most of the licensing exceptions available under the EAR are applicable to exports to Iraq with several significant exceptions. The licensing exception for limited value shipments (LVS) is not available. Additionally, the exception available for certain restricted technology and software (TSR) is not available.
Finally, the new rules provide for a new type of blanket export license called a Special Iraqi Reconstruction License ("SIRL"). An SIRL is available to export items to, or transfer items within, Iraq in furtherance of reconstruction projects funded by specified entities including the United States Government, the World Bank and other similar entities. An SIRL does not permit export or transfer of items subject to missile technology ("MT"), nuclear nonproliferation ("NP") or chemical and biological weapons ("CB") controls. The advantage of an SIRL is that it allows exports of multiple qualifying items (otherwise subject to a licensing requirement) to end-users designated in the SIRL rather than requiring individual licenses for each export.
*****
PROPOSED RETALIATORY SANCTIONS AGAINST JAPAN ANNOUNCED
Trade You an Apple for a Silk Scarf…
What, you may ask, do apples and silk scarves have in common? Under the brewing trade dispute between the United States and Japan, their future may be more entwined than previously thought possible. In short, if we can’t sell apples to Japan, they can’t sell silk to us.
The United States has been fighting for access to the Japanese market for U.S. apples since November 1982. Following years of unsuccessful meetings, negotiations, studies, and more meetings, the United States finally appealed its case to the World Trade Organization ("WTO"). The United States’ complaint focused on import restrictions imposed, Japan claimed, to prevent the introduction of fire blight (a bacterial infection native to North America).
The apples exported, the United States argued, were not carriers of fire blight bacteria. The United States further claimed that there was no scientific evidence to justify the import restrictions, and, therefore, they violated both the General Agreements on Tariffs and Trade and the Agreement on Sanitary and Phytosanitary Measures. On July 15, 2003, a World Trade Organization ("WTO") panel agreed with the United States, holding that the measures did not have sufficient scientific justification. On November 11, 2003, the Appellate Body reviewing the Panel’s decision agreed, and directed Japan to bring its import provisions into conformity with its WTO obligations. By agreement, Japan had until June 30, 2004 to change its laws.
On the June 30 deadline, the Japanese issued a revision to their import law. The revisions do not, according to the U.S. Trade Representative ("the USTR"), bring Japan into compliance with its WTO obligations. In other words, the revised law continues to discriminate against imports of U.S. apples. Consequently, the USTR has asked the WTO to review whether Japan has complied with WTO rulings concerning import restrictions on apples imported from the United States.
If the WTO agrees with the USTR that Japan continues to discriminate against U.S. apples, the impact may be felt well beyond the apple orchards of the Pacific Northwest. In addition to asking the WTO to review Japan’s revised import law, the USTR has requested authorization to impose trade sanctions on imports from Japan totaling $143.4 million. If the WTO approves the retaliation, the United States may impose retaliatory tariffs on a wide variety of imports from Japan, including live animals, meat and fish, certain prepared foods, produce, plants, coffee, tea, spices, sugars and candy, leather goods, certain textiles, and, of course, silk.
The USTR has not finalized the retaliation list. Rather, the USTR will publish a proposed list with greater specificity as to the targeted imports and the proposed tariff rate(s). In the past, USTR has imposed tariffs as high as 100 percent. The USTR will seek comments on the list and the public may submit arguments as to why certain products should be removed from the retaliation list, or other products added to the list.
In deciding which products to include on the retaliation list, the USTR seeks to harm Japanese exporters but not U.S. importers or consumers. Thus, the USTR will target export interests that can bring political pressure on the Japanese government to remove, or change, the offending import restriction. In addition, although the retaliation is not directed exclusively at apples from Japan, the targets are, typically, from the same sector (i.e., agricultural or food products rather than industrial goods). At the same time, the USTR will try to avoid products that can only be sourced from Japan in order to limit injuring U.S. importers and consumers.
Companies importing from Japan, or even using imported Japanese products, especially agricultural goods and food products, should, therefore, be concerned about this looming retaliation. If the WTO grants the USTR’s request for authorization to retaliate, Japan will likely contest the level of retaliation and that aspect of the dispute will go to an arbitrator with a 60 day deadline. But the United States has also requested that a WTO panel review whether Japan’s revised import law complies with the panel and Appellate Body reports. That panel has 90 days to issue its decision. Thus, although no action will likely be taken for at least 60 days, the USTR will be refining the retaliation list. Accordingly, interested companies should start discussions with the USTR as soon as possible. If you believe that your company may be affected by the retaliation list, please contact on of the attorneys listed at the end of this alert, and we will be happy to assist you in commencing discussions with the USTR on inclusion of the product in the retaliation list.
*****
U.S. SUPREME COURT DENIES FALSE ARREST CLAIM UNDER ALIEN TORT CLAIM ACT
Court’s Decision Leaves Open More Questions Than It Answers
On June 29, 2004, the United States Supreme Court denied a claim by a Mexican plaintiff brought under the Alien Tort Claims Act ("ATCA") against another Mexican national that had been hired by the U.S. Drug Enforcement Administration ("DEA") to abduct the plaintiff from Mexico and bring him to the United States for trial. Although the decision defines one type of conduct that may not give rise to an ATCA claim, it leaves open questions as to other types of conduct that may support such a claim.
The procedural history of the case decided by the Supreme Court was both complicated and unusual and deals with events that took place almost two decades ago. In 1985, an agent of the DEA was captured on assignment in Mexico and taken to a house where he was tortured and then murdered by Mexican drug kingpins. DEA officials came to believe that Dr. Alvarez- Machain, a Mexican physician, was present in the house and acted to prolong the DEA agent’s life for purpose of prolonging the torture and interrogation.
In 1990, a federal grand jury indicted Dr. Alvarez-Machain for the torture and murder of the DEA agent, and a warrant was issued for his arrest. The DEA requested assistance from the Mexican Government in extraditing Dr. Alvarez-Machain but the requested assistance was not forthcoming. The DEA decided to take matters into its own hands and hired several Mexican nationals, including Francisco Sosa, to bring Dr. Alvarez-Machain to the United States for trial. Francisco Sosa and the other Mexican nationals abducted Dr. Alvarez-Machain from his house, held him overnight in a motel, and brought him in a private plane to El Paso, Texas, where he was arrested.
Dr. Alvarez-Machain initially argued that the forced abduction was "outrageous governmental conduct" and deprived the U.S. courts of jurisdiction. The trial court and the federal appeals court agreed, but the Supreme Court reversed the lower courts and remanded Dr. Alvarez-Machain’s case for trial. In 1992 the case went to trial, and Dr. Alvarez- Machain was acquitted by the court at the close of the government’s case without even having to mount a defense to the murder and torture charges.
Upon acquittal, Dr. Alvarez-Machain returned to Mexico and thereafter sued Francisco Sosa under the ATCA, which provides that "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." The trial court awarded $25,000 to Dr. Alvarez-Machain on the ATCA claim. The U.S. Court of Appeals for the Ninth Circuit upheld the trial court, holding that the detention of Dr. Alvarez-Machain as part of his abduction to the United States violated a "clear and universal norm prohibiting arbitrary arrest and detention" and was, therefore, a violation of the "law of nations" giving rise to an ATCA claim. The Supreme Court reversed and denied Dr. Alvarez-Machain’s claim under the ATCA.
The ATCA, enacted in 1789, has been referred to, by the eminent Judge Friendly, as a "legal Lohengrin" because "no one seems to know whence it came." For over 170 years, the ATCA lay dormant until resurrected by the U.S. Court of Appeals for the Second Circuit in 1980. The Second Circuit applied the statute to find a cause of action in the United States against a Paraguayan police officer who had tortured to death in Paraguay a Paraguayan citizen. When the police officer subsequently moved to the United States, the family of the murdered Paraguayan brought an action against the police officer under the ATCA. The court held that torture violated the universally-accepted "law of nations" and therefore was cognizable under the ATCA. Various lower courts have found such actions as enforced servitude, torture, wrongful death and similar injuries as violations of the law of nations. Scholars and commenters have suggested that war crimes and other crimes against humanity might fall within the "law of nations" actionable under the ATCA.
The Supreme Court had its first opportunity to consider the scope and application of the ATCA in the Alvarez- Machain case, and it took a radically different approach than the lower courts that had previously looked at the Having said that, the Supreme Court provided little guidance as to what parts of the "law of nations" were incorporated in the federal common law. It did acknowledge that the Congress that enacted the ATCA probably considered denial of safe conduct to foreigners with valid passports, violations of the immunity of ambassadors, and piracy on the high seas to be violations of the "law of nations" that were part of the "federal common law." These are all violations that, it should be noted, are unlikely to be the subject of much potential current litigation. Beyond these three recognized norms, the Supreme Court admonished that the federal judiciary proceed with caution. The opinion of the Supreme Court suggests, without concluding, that torture under color of law may be such a violation of the law of nations. A passing reference suggests, but does not demonstrate, that the Supreme Court might find that slavery or enforced servitude is another such cause of action.
Even though the Supreme Court provided no definition of what might be a violation of the law of nations incorporated in the federal common law, it did hold that what happened to Dr. Alvarez-Machain was not such a violation. The court concluded that "a single illegal detention of less than a day, followed by the transfer of custody to lawful authorities . . . violates no norm of customary international law so well defined as to support the creation of a federal remedy." Chief Justice Rehnquist and Justices Scalia and Thomas dissented on the ground that the ATCA was jurisdictional only and that there was no federal common law which gave Mr. Alvarez-Machain, or anyone else, a cause of action thereunder.
The Supreme Court’s decision in the Alvarez-Machain case will no doubt be cited by, if not be dispositive of, the recent cases brought by Iraqi prisoners alleging that they were abused in the Abu Ghraib prison outside Baghdad. Although the Court’s decision is vague about what does and does not constitute a violation of the ATCA, its decision that one day of detention is not a violation of the Act might be relied upon to justify a holding that certain of the interrogation techniques used in Abu Ghraib (for example, forced displays of nudity in front of other prisoners) do not rise to the level of violations of the law of nations that have been incorporated in the federal common law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
