This is the latest in a series of columns by O’Melveny & Myers attorneys, focusing on key legal issues specific to a variety of U.S. industries.
One of the challenges for compliance professionals under the U.S. Sentencing Guidelines for Organizations is the expectation that their organization will “evaluate periodically the effectiveness of the organization’s compliance program.” (U.S. Sentencing Guidelines Manual § 8B2.1(b)(5)(B).) The process of periodic evaluation can be costly, and an effective reevaluation process requires careful judgment, planning, and resources. The Department of Justice and other enforcement agencies, however, view skeptically compliance programs that have remained unchanged for many years, particularly where the company has grown, leading to a corresponding increase in the company’s compliance risks.
For companies operating internationally, the reevaluation process can be particularly complex, as process changes across varying business cultures are more challenging to implement. While internal company changes—such as the expansion into new markets or a recent acquisition—make such reevaluations critically important, external changes in the form of increasing legal requirements or changed government expectations can also compel a reevaluation of existing compliance measures.
Discussed below are three examples of recent external legal regime changes that are relevant to U.S. companies with international operations: export controls, economic sanctions, and the Foreign Corrupt Practices Act (FCPA). All three of these areas also have been the subject of increased enforcement in recent years, making an organization’s ability to adapt to new compliance obligations all the more imperative.
Export Controls
U.S. export control laws can have a far-reaching impact on international business. All U.S. companies that export or re-export goods, software and technology originating in the U.S. must pay attention to these laws, which can limit opportunities in some markets and also impose burdensome and complicated requirements on the export process. Moreover, in the post-September 11 world, criminal and civil enforcement of these laws has increased significantly, as have the maximum penalties that might be imposed under these laws (as well as economic sanctions laws discussed below). Significant changes to the U.S. export control legal regime are in the works. The Obama administration’s “Export Control Reform” (ECR) initiative was launched in 2010, and some of the regulatory changes will go into effect as soon as October 2013.
These changes will have a dramatic impact on many U.S. companies, particularly those in the high-tech and defense sectors that export items subject to both the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). Implementing changes to a company’s export control compliance program consistent with the new regulatory regime will, in many cases, require a full-scale review of company product lines in order to assess changes in product classification on the ITAR’s Munitions List and the EAR’s Commerce Control List. While ECR is intended to ease U.S. exporters’ regulatory burden, these changes could in some cases increase that burden; at a minimum, exporters will need to revamp their processes for obtaining export licenses.
These regulatory developments are potentially significant, and a company’s compliance response should be correspondingly robust. To effectively adapt its compliance program to take into account changes on this scale, the compliance department may need to deploy a cross-functional team and develop an implementation plan that carefully tracks the government’s implementation plan.
