Extraterritorial application of US and UK/EU law - A threat also for Swiss companies?

Logistics, Transport, Trade Compliance

I. Background

Swiss export-oriented companies are facing an increase in regulatory challenges. They have to comply with local and target market regulations, but may also face a potential relevancy of US and EU law. This even though the US or EU may not be directly involved in the companies activities.

The reason for this is the extraterritorial character of certain US and EU regulations. Swiss companies may not realize they are operating under US and EU jurisdiction albeit the fact that there may only a very limited connection to US or EU.

An extraterritorial application of US and EU regulations can be seen especially in the area of anti-corruption as well as trade regulations. In both areas the fines for violations can be significant. Enforcement agencies have targeted companies and individuals all over the world.

II. US and UK Anti-Corruption Regulations

A. Extraterritorial Application of the US Foreign Corrupt Practices Act (FCPA)

The US has established a quite powerful Anti Corruption Regulation following the OCED guidelines (OECD Anti-Bribery Convention). The FCPA addresses the accounting transparency requirements under the Securities Exchange act and the bribe of officials.

Example: The US Department of Justice (DOJ) fined Alstom Network Schweiz AG as well as other Alstom companies for corruption in several countries. In this case a Swiss company have been fined for violations of US law in a third country. The extraterritorial enforcement is usually based on the fact that (a) US resources have been used (US Dollars, US financial sys-tem, mail/email) or (b) US persons or companies have been involved.

Following this logic several non-US companies around the globe have been fined for infringements of the US FCPA. A few weeks ago the Dutch communication company VimpelCom has been fined 795mUSD for the bribe of officials in Uzbekistan.

B. Extraterritorial application of the UK Bribery Act (UKBA)

The UK is the most active EU Member State in regards to combatting corruption. The UKBA has an even wider scope com-pared to the US FCPA. The UKBA does not only target the bribe of officials but any kind of bribe.

Also the UKBA has an extraterritorial character. The necessary ties to the UK are already established with having a single UK customer relation or any business activity in UK. Due to the fact that the UKBA is a rather new regulation not many cases have become public so far. However, it has to be assumed that the UK Serious Fraud Office (SFO) is working on significant cases with international reach.

C. Responsibility for activities of employees and business partners

According to the FCPA as well as the UKBA, companies are not only responsible for the illegal practices of their employees but also for those of their partners and agents. It is important to mention that “we did not know” is no excuse.

III. Trade Regulation

A. US (Re-)Export Controls

The US export control regime and especially the so called secondary sanctions have a defined extraterritorial character. Companies that do business with US sanctioned companies or embargoed countries are targeted by US enforcement agencies with significant fines. The US re-export regulations should always be considered by Swiss companies.

Example: Prominent cases of US enforcement actions are the 8.9 bUSD fine for BNP Paribas for circumvention of US Embargoes as well as the 1.7mUSD fine for UBS for financial transactions with individuals sanctioned by the US authorities.

The secondary sanctions are relevant in case transactions are made in US Dollars or US products, technologies or software are involved. Also the sale of products with a single US component may fall under US jurisdiction. The US re-export regulation defines an export as also being a transfer of know-how between two different nationalities (“deemed export”).

A transaction that falls under the US re-export regulation is not per-se illegal but Swiss companies should analyse if a US export license may be required for the trade and export of products, software or know-how.

B. EU Export Control Regulation

Also the EU Export Control Regulations have certain extraterritorial elements. However, the application is limited to EU citizens and EU companies active abroad. Swiss companies need to consider these only in case employees have an EU pass-port. EU citizens in Switzerland should be aware of a potential personal liability if being involved in transactions that may be in breach of EU sanctions/embargoes.

IV. What now?

Every Swiss Company should establish an effective and efficient Internal Compliance Program (ICP) to ensure compliance with any relevant regulation including those with extraterritorial reach like the US and EU regulations. The responsibility to implement such an ICP resides with the board. In the Switzerland the Code of Obligations article 716a as well as the Swiss Code clause 21 asks the board to implement sufficient controls to ensure that the company acts in line with all regulations. Board members should ensure that a risk assessment of the regulatory environment becomes part of the companies risk management.

The consideration of extraterritorial regulations increases the complexity of the regulatory environment in which Swiss companies operate. However, the investments in an effective ICP dealing with this complexity will not only reduce the risk of significant fines but can even more ensure brand integrity. An ICP can also help to streamline and optimize internal organization and process landscape with positive impact on quality, product safety and production.

V. The MME Compliance Team can support you

The MME Compliance AG supports customers in the analysis of the regulatory environment and the implementation of an effective and efficient compliance program.

* Peter Henschel

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