What Corporate Lawyers Should Consider When Working On A Deal

U.S. Import And Export Compliance & Documentation

1.         Generally

  • Does the Target Company have an internal policy for complying with import or export requirements?
    • If so, what topics does the Target Company policy cover?
    • If not, what internal procedures does the Target Company have to ensure compliance with import or export requirements?
  • What Target Company personnel are responsible for compliance with import and export regulations? Include title and contact information, and indicate which individuals are dedicated full time or predominantly to these activities.
  • What individuals and firms (including but not limited to legal, accounting and consulting personnel) advise the Target Company on compliance with import and export matters?
  • How does the Target Company monitor the activities of its agents involved in import and export activities (e.g., Customs brokers or foreign sales representatives)?

2.         Product Classification

  • Does the Target Company have an import and/or export "product listing" or "product matrix" giving the HTSUS or Schedule B numbers for products?
    • If so, does it cover all products imported and exported by the Target Company?
    • If not, how were products not included on the list classified for import or export purposes?
  • Who determines the import and export classifications of products imported and exported by the Target Company?
  • Has the Target Company requested U.S. Customs Rulings on any imported items?
  • Does the company regularly file Automated Export System reports with the U.S. Census Bureau?

3.         Valuation

  • How is Customs valuation of imported products determined, particularly products obtained from related foreign companies?

4.         Country of Origin

  • Does the company claim duty preference on products it imports (e.g., NAFTA or FTA, HTSUS Chapter 98)?  If so:
    • Who determines whether the imported merchandise is eligible for preferential treatment?
    • Who executes certificates or declarations required by the applicable programs?
    • Who maintains certificates or declarations obtained from other parties pursuant to the applicable programs?

5.         Recordkeeping

      • Does the Target Company maintain a centralized database of import and export transactions from which it can retrieve all documents relating to a particular transaction for a period of five years?
      • If so, what documents are maintained in the database?

6.         Documents to Request

  • Any product listing or product matrix with product classification.
  • Target Company policies relevant to international transactions or trade compliance manuals.
  • Supply chain security documentation, including any C-TPAT agreements and submissions to Customs.
  • All documents relating to previous, pending, threatened or suspected government audits, investigations or enforcement actions related to import or export operations.
  • List of U.S. Customs brokers engaged by the Target Company and associated powers of attorney.
  • Importer ID numbers used by the company.
  • Current U.S. Customs bonds.
  • Samples of import and export filings made with U.S. Customs and Border Protection (CPB) or the Census Bureau.
  • Samples of NAFTA or FTA certificates of origin.
  • List of products for which the Target Company claims duty preference.
  • Samples of import and export documents.

U.S. Trade Remedies

1.         Target Company Goods

  • Are the Target Company's goods subject to AD, CVD or safeguard duties, quotas or orders? Are the Target Company's goods not subject to such duties, quotas or orders, but similar to or the same as goods that are?
  • Are the Target Company's goods subject to any AD, CVD or safeguard proceedings?  Have the Target Company's goods been subject to any AD, CVD or safeguard proceedings in the last ten years?
  • Has the Target Company anticipated or been made aware of the initiation or planned initiation of an AD, CVD or safeguard investigation against its products or products that it imports?

2.         Target Company Inputs

  • Does the Target Company rely substantially on foreign inputs that are or could be (or have in the last ten years been) subject to AD, CVD or safeguard duties, quotas or orders?
    • Does the Target Company rely substantially on foreign inputs that are sold in other markets at a higher price than they are sold to the Target Company?
    • Does the Target Company rely substantially on foreign inputs that are subsidized by a foreign government?
    • Have imports into the Target Company's home market of any crucial input increased in the last five years?

3.         Documents to Request

  • List of foreign input suppliers and input prices.
  • Documents prepared for or in anticipation of an AD, CVD or safeguard proceeding.

U.S. Export Controls, Economic Sanctions and Anti-Boycott Regulations

1.         Generally

  • Where are the Target Company and its U.S. and non-U.S. subsidiaries (collectively referred to as the "Target Company") incorporated/organized?  In addition, where does the  Target Company have branch/representative offices?
  • In what non-U.S. markets does the Target Company do business?
    • In particular, what is the nature of the company's transactions with the following countries during the last 5 years?
      • Burma
      • Cuba
      • North Korea
      • Sudan
      • Iran
      • Kuwait
      • Lebanon
      • Libya
      • Qatar
      • Saudi Arabia
      • Syria
      • United Arab Emirates
      • Yemen
  • What is the Target Company's understanding of the application to its activities of U.S. export controls, U.S. economic sanctions regulations, and U.S. anti-boycott regulations?
  • Is the Target Company subject to any proceedings or investigations instituted by:
    • U.S. State Department, Directorate of Defense Trade Controls (DDTC);
    • U.S. Department of Commerce, Bureau of Industry and Security (BIS); or
    • U.S. Department of Treasury, Office of Foreign Assets Control (OFAC)?
  • Has the Target Company communicated to, or received any oral or written notice from, DDTC, BIS or OFAC regarding any potential violations of U.S. export controls, economic sanctions or anti-boycott regulations?

2.         U.S. Economic Sanctions / Export Controls

  • Has the Target Company ever directly or indirectly through third parties:
    • had any dealings with U.S. sanctioned governments, entities or persons?
    • exported goods or supplied services to any U.S. sanctioned governments, entities or persons?
    • exported goods or supplied services for any of the following uses:
      • nuclear facilities not licensed by the U.S. Government?
      • chemical, biological or nuclear weapons?
      • rocket, missile or uncrewed aircraft systems (UAVS)?
      • terrorist activities?
  • Does the Target Company have a manual, policy or program for compliance with U.S. economic sanctions/export controls? If so, does the manual, policy or program require officers, managers and employees, as appropriate, to:
    • check customers, agents, consultants, distributors, joint venture partners and prospective employees against U.S. Government lists ("Prohibited Lists")?
    • check whether any contemplated transaction would involve a sanctioned country or prohibited end use?
    • check whether a contemplated transaction raises any "red flags"?
    • conduct due diligence on all new customers, agents, consultants, distributors and joint venture partners to ensure that they are not U.S.-sanctioned governments/entities/persons?
  • Does the Target Company adequately train officers, managers and employees on compliance with U.S. economic sanctions/export controls?
    • How often is training conducted?
    • Who conducts and who receives training?
  • Does the Target Company have a "whistleblower" procedure, compliance hotline or other internal procedure for reporting possible violations?

3.         U.S. Export Licensing

  • Does the Target Company export/re-export products, technology or software? If so:
    • Are any of the products U.S.-origin? Do any of them have greater than 10% (by value) U.S. content?
    • Does the Target Company know the Export Control Classification Number ("ECCN") or the United States Munitions List ("USML") Category for each of its products?
    • Do any of the Target Company's products constitute "defense articles" – e.g., goods, services or technology that is modified for military application or is otherwise on the USML?
      • If so, has the Target Company registered with DDTC?
    • Has the Target Company obtained appropriate licenses for such exports when required?
    • Has the Target Company complied with all license conditions, including record-keeping requirements?

Does the Target Company employ foreign nationals with access to controlled items, technology or software?  If so, has it obtained "deemed export" licenses when required?

4.         U.S. Anti-Boycott Regulations

  • Does the Target Company do business in, or have assets or investments in, the Middle East or other boycotting countries (e.g.,Arab League countries)? If so:
    • Does the Target Company have a U.S. anti-boycott compliance manual/policy/program?
    • Has the Target Company adequately trained appropriate employees to identify boycott-related language?
    • Has the Target Company properly reported to BIS boycott-related requests received from suppliers, customers, business partners or other persons?
    • Do the Target Company's contracts contain boycott-related language that could lead to loss of the Target Company's foreign tax credits and certain other U.S. tax benefits?

5.         Documents to Request

  • An organizational chart showing location and function of all company entities, including subsidiaries, branches, affiliates and joint venture partners.
  • A copy of the manual/policy for compliance with U.S. economic sanctions, export controls and anti-boycott regulations.
  • A copy of all related compliance training materials.
  • If applicable, a copy of DDTC registration statement.
  • A list of the ECCN or USML for each item produced and sold by the Target Company.
  • Copies of the all current and expired export licenses issued by DDTC, BIS and OFAC.
  • Copies of all pending export license applications submitted to DDTC, BIS and OFAC.
  • If applicable, copies of all commodity classification determinations made by BIS.
  • If applicable, copies of all commodity jurisdiction determinations made by DDTC.
  • List of customers, agents, suppliers and joint venture partners, by name and country, over the past five years.
  • Copies of all communications with DDTC, BIS and OFAC, over the past five years.

U.S. Foreign Corrupt Practices Act

1.         Generally

  • Does the Target Company do international business and, if so, where and how is it conducted?
  • What international sales has the Target Company made during the past five years?
    • Where?
    • How many sales in each country?
  • How have these sales been made?
    • Does the Target Company use international agents, representatives, consultants, distributors or resellers?
    • In what countries are these representatives and consultants used to make sales?
  • What amounts of commissions, retainers and expenses have been paid to these representatives and consultants over the past five years in each country?
  • Does the Target Company have any foreign subsidiaries, branches or offices?
    • Where?
    • What is their role in making foreign sales?
    • Do they have their own international consultants?
    • What percent of their annual revenues is derived from government sales?

2.         Government Transactions

  • Does the Target Company do business directly with government agencies or state-owned companies?
    • What is the nature and volume of this business?
    • What proportion of the Target Company's overall business is derived from government contracts?
    • Which governments or state-owned companies? Who is the Target Company’s principal contact within these government agencies and state-owned companies?
    • Does the Target Company use agents or consultants in connection with this business? Who?
  • Does the Target Company regularly seek licenses or permits from government agencies?

3.         Compliance Program

  • What internal controls does the Target Company have to ensure anti-bribery compliance?
  • Does it have a "whistleblower" hotline?
  • Does it have a Code of Ethics and Business Conduct that prohibits bribery of foreign officials and requires compliance with U.S. and applicable foreign laws?
  • Does it provide this code to all employees in the U.S. and abroad, employees of its foreign subsidiaries and branches, and international consultants?
  • Does the Target Company provide training to its employees and international consultants on anti-bribery compliance?
  • Does the Target Company perform any FCPA due diligence on its international consultants before hiring them, or on an ongoing basis?
  • How often has the Target Company provided anti-bribery compliance training for its employees, consultants, agents, intermediaries and distributors?
  • Does the Target Company have written agreements with all of its international consultants? Do these agreements contain the following:
    • FCPA anti-bribery certifications and warranties?
    • Provisions for short-notice termination without cause and/or the right to terminate for cause upon reasonable belief that a violation of the FCPA may have occurred?
    • A prohibition on the use of sub-agents without the prior written approval of the Target Company?
    • Requirement of payment in the country where services are performed (i.e., a prohibition on paying agents in countries other than where the work occurred)?
    • Rights to audit consultants' books?
  • What is the percentage of commissions being paid to these international consultants? How much has the Target Company paid to each consultant over the last tent years?
  • What FCPA due diligence does the Target Company perform on its international joint venture partners and affiliates?  What internal controls does it maintain with respect to them?

4.         Reputation for Integrity and Ethical Conduct

  • The acquirer should consult public information to assess the Target Company's general reputation for integrity and ethical conduct. Some sources to check include the following:
  • Statements by country desk officers at U.S. Department of State and Department of Commerce and commercial attache officers at the U.S. or European embassy in the relevant foreign country.  The U.S. State Department may be able to provide an "Enhanced International Company Profile," which includes, in addition to various types of information and data, the embassy's opinion of the prospective agent.
  • The World Bank's publication of firms it has reprimanded or barred from its programs.
  • Public records and court dockets.
  • Published press reports.

5.         Requests for Information

  • Interview the Target Company's CEO, General Counsel, Chief Compliance Officer and head of corporate audit/internal audit.
  • Minutes of meetings of the audit committee of the Target Company's Board of Directors.
  • Records relating to any investigation, penalty or other enforcement action taken against the Target Company or any of its subsidiaries or affiliates, or any of their respective employees or agents.
  • Records relating to disciplinary action that the Target Company has taken against any employees or agents for violations of the FCPA and other anti-bribery laws.
  • Copies of correspondence with any government authorities (whether in the U.S. or other countries) pertaining to compliance with the FCPA or other anti-bribery laws, including any requests for information and warning letters.
  • Current Organizational Documents.
    • Documents and records sufficient to identify any government official, including any employee of a state-owned enterprise, that is an owner or director of an entity owned, in whole or in part, by the Target Company.
    • List of the Target Company's consultants, agents, resellers, distributors and other similar third-party representatives.
    • List of entities or joint ventures in which the Target Company has an interest.
    • List of customers in which a government, government entity, or government official holds any ownership interest.
    • Organizational charts, personnel lists and delegations of authority (including powers of attorney on behalf of the corporation) sufficient to show the relative position, authority and responsibility of each officer and senior employee within the Target Company.
  • Policies and Training Documents.
    • The Target Company's policies relating to ethics and anticorruption compliance (including FCPA, OECD and other relevant laws), business practices, the hiring of agents and consultants, and corresponding Company training materials.
    • The Target Company's financial policies relating to authorization levels for expenditures of Company funds.
    • Documents related to reports, complaints, internal or external investigations, and lawsuits dealing with alleged violations of the Target Company's anti-corruption policies or governing laws. This includes internal hotline or whistleblower reports or complaints.
    • Records relating to the enforcement of the Company's anti-bribery policies, procedures and directives. This includes all documents related to discipline, demotion and termination of employees or third-parties for violation of the policies, procedures and directives.
  • Identification of Government Business and Government Relationships.
    • Information regarding sales to government entities or state-owned enterprises sufficient to identify: (l) important government or state-owned customers; (2) nature of business with those customers; (3) approximate volume of business with those customers. This request should also identify any commissions paid to third parties in connection with these government sales.
    • Information regarding significant regulators of non-U.S. entities. For large non-U.S. businesses:  (1) access to recent statutory audits and tax assessments; (2) access to files regarding customs/duties payments for material operations; (3) access to files regarding other licensing, permitting or similar regulatory approvals.