Cecily Zamora
US companies operating overseas must navigate a complex web of legal obligations, adhering to both local laws and certain US laws that apply extraterritorially. This dual legal environment can create challenges and risks for US companies, particularly when US and local laws conflict. For instance, US companies must observe local financial regulations, including tax laws, and may have to pay substantial fees for equipment and materials brought into a foreign country. Local employment laws may also differ significantly from those in the US, requiring US companies to provide additional benefits or leave for local employees. US laws that may apply to companies operating abroad include prohibitions on bribery of foreign officials, anti-boycott laws, and export controls. US laws can also extend to the use of US bank accounts or emails, as seen in the case of Airbus SE, which was prosecuted by the DOJ for corrupt schemes in multiple countries due to emails sent from US locations and the use of US bank accounts. Understanding and complying with the laws of the host country and relevant US laws are crucial to avoiding financial and criminal penalties.
| Characteristics | Values |
|---|---|
| US laws that govern activities in foreign countries | Prohibiting payments or gifts to foreign officials to obtain an improper advantage or preferential treatment |
| Prohibiting discrimination based on race, religion, sex, national origin, or nationality | |
| Anti-boycott laws and reporting requirements | |
| Economic and trade sanctions administered by OFAC | |
| Export controls and jurisdiction under EAR | |
| US jurisdiction over foreign companies under FCPA | |
| Exclusion of products from entry into the US due to intellectual property rights violations or unfair practices | |
| Reporting requirements for cash and financial accounts over $10,000 | |
| Compliance with local laws and regulations, including financial and tax regulations | |
| Compliance with local employment laws and practices, including leave policies and additional benefits | |
| Restrictions on certain activities or bringing certain items into a foreign country | |
| US laws prohibiting corruption and bribery |
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What You'll Learn
US laws governing activities in foreign countries
In addition to the laws of the host country, US laws govern the conduct of activities in foreign countries. These laws are significant and must be considered when conducting an activity abroad. For instance, US laws prohibit directly or indirectly paying or offering to pay money or anything of value to a foreign official to obtain an improper advantage in securing or retaining business. US laws also prohibit inducing a foreign official through an offer, payment, promise, or gift to misuse their official position to obtain preferential legislation or favourable regulation.
The US Department of Commerce Export Administration Regulations (EAR) and the US Department of State International Traffic in Arms Regulations (ITAR) control the export of research-related materials and information. These regulations restrict the dissemination of goods, services, information, software, and technology that may affect your activities abroad. US export control regulations can extend to equipment, materials, or software brought overseas or shared with others in the US.
The US Foreign Corrupt Practices Act (FCPA) prohibits unlawful gifts and payments to foreign governments or political officials to influence decisions. Depending on the country, government officials may include faculty and staff of universities. US laws also prohibit knowingly providing "material support or resources" to any foreign organizations that engage in or threaten to engage in terrorist activity that threatens US security or its citizens.
The US Department of Treasury Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions to protect against threats to national security, foreign policy, or the economy. Sanctions may be comprehensive embargoes, prohibiting most activities with the embargoed country, or targeted sanctions banning specific activities with or within a given country. OFAC also prohibits certain transactions or dealings with persons or entities designated as "Specially Designated Nationals" (SDNs).
US laws also govern the import and export of currency in your destination country. While there is no restriction on the amount of currency or monetary instruments that can be exported or imported, amounts over $10,000 must be reported to US Customs and Border Protection. Structuring cash transactions or transporting currency to avoid reporting requirements is prohibited under US law.
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US sanctions and embargoes
Sanctions and embargoes are political trade barriers designed to change a country's behaviour and actions. They are often used as tools of foreign policy to exert pressure on a country or group to change its behaviour or comply with certain demands. Since 1998, the US has established economic sanctions on more than 20 countries.
Sanctions typically involve the imposition of economic or political restrictions, such as trade restrictions, asset freezes, or travel bans. They are imposed for a variety of reasons, including human rights violations, non-compliance with international law, or the pursuit of nuclear weapons. Sanctions may be comprehensive, prohibiting most activities with the embargoed country, or targeted, banning specific activities with or within a given country. For example, an embargo may be imposed on a country that has engaged in aggressive behaviour toward its neighbours.
Embargoes, on the other hand, involve a complete prohibition on trade or other economic activity with a particular country or group. The US embargo against Cuba, for example, has been in place for decades and has contributed to malnutrition, poor water access, and lack of access to medicine and medical supplies.
The US Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions to protect against threats to national security, foreign policy, or the economy. OFAC also prohibits certain transactions or dealings with persons or entities designated as "Specially Designated Nationals" (SDNs). In 2019, UniCredit Group entered into a $1.3 billion deferred prosecution agreement with US authorities, including OFAC, due to its branches in Germany, Austria, and Italy facilitating transactions on behalf of sanctioned entities by processing payments through the US financial system.
The US Department of Justice (DOJ) also plays a role in enforcing sanctions and has asserted jurisdiction over companies without a physical presence in the US but that have violated US laws. For instance, Airbus SE self-disclosed its engagement in corrupt schemes in multiple countries and the DOJ prosecuted the company because its employees sent emails related to these schemes from within the US and provided foreign officials with trips to US-based resorts.
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US export controls
The United States imposes export controls to protect national security interests and promote foreign policy objectives. The US Department of Commerce's Bureau of Industry and Security (BIS) administers US laws, regulations, and policies governing the export and re-export of commodities, software, and technology (collectively referred to as "items") under the Export Administration Regulations (EAR). The BIS works closely with US embassies, foreign governments, industries, and trade associations to ensure exports from the US are secure.
The EAR does not regulate all transactions involving US goods, services, and technologies. Other US government agencies regulate more specialized exports. For example, the US Department of State's Directorate of Defense Trade Controls has authority over defense articles and services. A list of agencies involved in export control can be found on the BIS website.
Exporters may request a written advisory opinion from the BIS about the application of the EAR to a specific situation. The BIS's Export Enforcement (EE) is responsible for enforcing the EAR and conducts site visits, known as End-Use Checks (EUCs), to verify the bona fides of recipients of items subject to the EAR. EUCs are conducted as part of the BIS's licensing process and its compliance program.
The EAR, ITAR, and trade sanction regulations are all part of US export control laws and regulations. The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions to protect against threats to national security, foreign policy, or the economy. These sanctions may be comprehensive embargoes or targeted sanctions that ban specific activities with or within a given country.
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US anti-boycott laws
The OAC is responsible for administering and enforcing the Anti-Boycott Act of 2018, which is part of the Export Control Reform Act of 2018 (ECRA). These laws discourage and, in some cases, prohibit US companies from taking actions that support a boycott by a foreign country against a nation friendly with the US (an unsanctioned foreign boycott). For example, US companies are prohibited from agreeing to refuse to do business with a boycotted country or blacklisted persons for boycott-related reasons.
US companies are required to report their receipt of requests to engage in boycott-related activities or to otherwise support an unsanctioned foreign boycott to the OAC. This includes reporting any boycott-related requests for information designed to verify compliance with an unsanctioned foreign boycott. The applicable regulations are outlined in 15 C.F.R. § 760, and violations can result in significant fines, administrative sanctions, and even imprisonment.
In addition to the OAC, the US Department of Justice (DOJ) and the Office of Foreign Assets Control (OFAC) also play roles in enforcing US laws and regulations on companies operating abroad. The DOJ broadly interprets and enforces laws related to foreign corruption and bribery, while the OFAC administers and enforces economic and trade sanctions to protect national security, foreign policy, and economic interests.
US export control laws and economic sanctions programs are vigorously enforced, and companies without a physical presence in the US can still find themselves subject to US laws and regulations if they have any connection to the US financial system or engage in prohibited transactions with sanctioned entities.
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US laws on bribery and corruption
US laws, such as economic and trade sanctions administered and enforced by the OFAC, can be applied to US companies operating abroad. In addition, some US laws govern the conduct of activities in foreign countries, including the prohibition of bribery and corruption.
The US has several laws and regulations in place to prevent bribery and corruption, both domestically and abroad. Here is an overview of the key legislation:
- Public Law 87-849: This law came into force on January 21, 1963, to strengthen criminal laws related to bribery, graft, and conflicts of interest. It allows the President or an agency head to void transactions made in violation of conflict of interest or bribery laws and recover any amounts expended.
- 18 U.S. Code § 201: This statute, entitled "Bribery of public officials and witnesses," comprises two distinct offenses. The first offense prohibits the giving or accepting of anything of value to or by a public official with the "'intent to influence' an official act". The second offense concerns "gratuities," which are loosely connected to official acts and are given as "thanks" or to "curry favor." A conviction for bribery under this statute carries a maximum sentence of 15 years in prison, while a gratuity conviction has a maximum sentence of 2 years.
- Foreign Corrupt Practices Act (FCPA): Enacted in 1977, the FCPA prohibits the offering, promising, or authorizing of payments of money or anything of value to foreign officials to influence any act or decision or to secure an improper advantage in business. It also includes accounting provisions and applies to US companies operating abroad.
- Anti-Corruption Regulations: In addition to the FCPA, other federal, state, and local government regulations limit how hospitality expenditures may be provided to and accepted by public officials. For example, members of Congress are subject to the Rules of the House of Representatives and the Standing Rules of the Senate, which govern their travel and receipt of gifts.
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Frequently asked questions
Countries can enforce their laws on US companies operating within their borders by imposing sanctions, fines, and administrative penalties. For instance, the US International Trade Commission (ITC) may exclude products from entering the US if the company's business practices violate Section 337 of the Tariff Act of 1930, which concerns intellectual property rights.
In March 2017, the Chinese telecommunications company ZTE entered into an $872 million agreement with the US, despite not having a physical presence in the country, due to its processing of payments through the US financial system. In another instance, Airbus self-disclosed its engagement in corrupt schemes in multiple countries and entered into a deferred prosecution agreement with the US Department of Justice (DOJ), agreeing to pay $527 million to settle FCPA and other US law violations.
US laws can govern the conduct of US companies in foreign countries. For example, the US government prohibits US organizations from participating in boycotts of other countries, particularly Israel, and discriminating on the basis of race, religion, sex, national origin, or nationality. US export control regulations may also apply to equipment, materials, or software brought overseas or shared with others in the US.
US companies that violate the laws of foreign countries may face significant fines, administrative sanctions, and even imprisonment. For example, violations of anti-boycott laws or reporting requirements can result in penalties. Additionally, the US government enforces economic sanctions and embargoes on specific countries, prohibiting certain transactions with designated individuals or entities.
