Us Laws And Foreign Companies: Who's In Charge?

Foreign companies operating in the US or US companies doing business abroad must comply with local laws and regulations. US laws that govern activities abroad include the Foreign Corrupt Practices Act (FCPA), which prohibits bribery and corruption, and the Export Administration Act (EAA), which controls exports and boycotts. US companies must also adhere to local financial regulations, including taxes, and customs and shipping laws. Privacy laws, such as the EU's GDPR and US state laws, can also apply to foreign companies. Understanding the legal landscape is crucial for businesses to avoid penalties and ensure compliance when expanding into new markets.

Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (FCPA) was enacted in 1977 to prevent bribery and corrupt practices by US companies and individuals in foreign countries. The FCPA makes it unlawful for US persons or companies to offer, pay, promise to pay, or authorise any payment of money or anything of value to foreign officials or political parties/candidates for the purpose of obtaining or retaining business. This includes indirect attempts to influence foreign officials through third-party agents, consultants, distributors, or joint-venture partners.

The FCPA's anti-bribery provisions apply to all US persons and certain foreign issuers of securities. It also covers foreign firms and individuals who engage in corrupt practices within the US territory. The FCPA defines a US person or company as any officer, director, employee, agent, or stockholder acting on behalf of a company. A foreign official is not just a government employee but also includes employees of state-owned or controlled entities such as hospitals, laboratories, and businesses.

The FCPA's accounting provisions require publicly listed companies to maintain accurate books and records and implement adequate internal accounting controls. Companies must also ensure that their transactions are executed with proper management authorisation and that assets are accessed and accounted for transparently. Individuals and businesses are prohibited from falsifying records or failing to implement the required internal controls.

Violations of the FCPA can result in serious criminal penalties, including significant fines, civil penalties, and even imprisonment. The FCPA is jointly enforced by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), with the SEC taking the lead in civil enforcement actions and the DOJ handling criminal prosecutions.

Antiboycott Compliance

The United States has a policy of opposing restrictive trade practices or boycotts imposed by foreign countries against nations friendly to the US. The antiboycott laws were adopted to encourage and, in some cases, require US companies to refuse to participate in foreign boycotts that the US does not sanction. The antiboycott provisions are implemented through the Export Administration Act of 1979 (EAA) and a 1977 amendment to the Tax Reform Act of 1976. The EAA is enforced by the US Department of Commerce, while the Tax Reform Act falls under the purview of the Department of the Treasury.

The antiboycott regulations prohibit US companies from complying with aspects of foreign boycotts that the US does not support. The rules encompass six primary prohibitions:

• Refusal to do business with another country or entity, or agreeing to do so.
• Furnishing information about business relationships with boycotted countries or blacklisted persons, or agreeing to do so.
• Discrimination against US citizens based on race, religion, sex, or national origin, or agreeing to discriminate.
• Furnishing information about the race, religion, sex, or national origin of a US citizen, or agreeing to do so.
• Furnishing information concerning associations with fraternal and charitable organizations, or agreeing to do so.
• Implementing letters of credit containing prohibited conditions.

The antiboycott rules also include specific reporting and record-keeping requirements. If a US company receives a request that falls under any of the six prohibitions, they must exercise caution and seek guidance from the relevant authorities. The Export Administration Regulations (EAR) prohibit US persons from taking actions with the intent to comply with, further, or support an unsanctioned foreign boycott.

Penalties for violations of the antiboycott provisions can be significant, including criminal and administrative sanctions. Criminal penalties may include fines of up to $50,000 or five times the value of the exports involved (whichever is greater), as well as imprisonment of up to five years. Administrative penalties can include denial of export privileges, fines of up to $11,000 per violation, and exclusion from practice.

Export Control Regulations

The US imposes export controls to protect national security interests and promote foreign policy objectives. These controls are administered by the US Department of Commerce's Bureau of Industry and Security (BIS) and are governed by the Export Administration Regulations (EAR). The EAR regulates the export, re-export, and transfer of items with commercial uses that may also have applications in conventional arms, weapons of mass destruction, terrorist activities, human rights abuses, and less sensitive military items.

The EAR requires exporters to obtain a license for certain items based on factors such as the item's Export Control Classification Number, destination country, end user, and intended use. The process of obtaining a license can be detailed and time-consuming, with applications requiring a summary of the item, its intended use, and the identities of individuals and entities who will have custody of it. The time taken to receive a license can be up to 90 days, and in some cases, exporters may need to apply for multiple licenses from separate departments.

The US government has established a Single Licensing Agency (SLA) to streamline the licensing process, aiming for more transparency, predictability, and timeliness. The SLA acts as a "one-stop shop" for businesses seeking export licenses.

The EAR also includes a "Know Your Customer" guidance, which provides a list of "red flags" or warning signs to help exporters identify potential violations. These red flags include customers or agents who are reluctant to provide end-use or user information, willing to pay cash for high-value shipments, or who appear unfamiliar with the product or its use.

Violations of export control laws can result in severe penalties, including civil and criminal fines, imprisonment, and debarment from government contracts.

Privacy laws

At the federal level, the Federal Trade Commission (FTC) has broad jurisdiction over commercial entities to prevent "deceptive trade practices", which may include data privacy issues. The FTC can act against companies that:

• Fail to create, implement and maintain reasonable data security breach measures
• Violate consumer data privacy rights by collecting, processing, or sharing consumer information without their consent
• Publish and establish inaccurate or confusing privacy and security policies to consumers on websites and apps
• Collect, process, transfer, or share personal information in a way that is not disclosed in the privacy policy

There is no comprehensive federal privacy decree in the US, and privacy laws vary by state. However, it is important to note that foreign businesses may be subject to US privacy laws if they collect, process, or share the personal information of US residents. For example, if a foreign company does business in California and collects the personal information of California residents while the consumers are in California, it is subject to the California Consumer Privacy Act (CCPA).

• The Children's Online Privacy Protection Act (COPPA) prohibits unfair or deceptive acts related to the collection, use, or disclosure of personal information from children under the age of 13.
• The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, requires financial institutions to disclose their information-sharing practices to their customers to safeguard sensitive customer data.
• The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that defines national standards to protect sensitive patient health information from being disclosed without the patient's consent or knowledge.
• The Fair Credit Reporting Act (FCRA) covers information in credit reports and limits who is allowed to see them.
• The Family Educational Rights and Privacy Act (FERPA) details who can request student education records and gives parents, eligible students, and schools the right to inspect these records.
• The California Consumer Privacy Act (CCPA) provides California consumers with more control over the personal information that businesses collect about them, including the right to know about the personal information a business collects and the right to opt out of the sale of their personal information.
• The Virginia Consumer Data Protection Act (VCDPA) gives consumers the rights to access, correct, delete, and obtain a copy of their personal data, as well as opt out of having their personal data used for targeted advertising and sold.
• The Colorado Privacy Act (ColoPA) applies to organizations conducting business in Colorado or providing goods and services targeted at Colorado residents. It requires organizations to disclose their data collection and sharing practices to consumers.

Local financial regulations

• Tax Laws: US tax laws are complex and can significantly impact a company's profitability. Foreign companies must comply with federal, state, and local tax regulations, including income taxes and other taxes such as franchise taxes. They also need to be aware of tax treaties and double taxation agreements between the US and their home country.
• Employment Laws: US employment laws, such as Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act, apply to foreign companies operating in the US. These laws protect employees' rights and ensure equal opportunities in the workplace.
• Environmental Laws: Foreign companies must adhere to environmental regulations regarding the handling and disposal of hazardous materials. This includes obtaining the necessary permits and ensuring proper training for employees handling such materials.
• Regulatory Compliance: Foreign companies must comply with industry-specific regulations, such as those for the auto repair industry, food and beverage industry, and healthcare industry. This includes obtaining the necessary licenses, permits, and certifications to operate legally.
• Reporting Requirements: Foreign companies operating in the US may have ongoing reporting obligations to federal and state authorities. This includes filing annual reports, biennial statements, and other financial disclosures to maintain transparency and accountability.
• Foreign Bank Account Reporting: The movement of funds exceeding $10,000 into or out of the US must be reported to the relevant authorities, such as US Customs and Border Protection or the US Treasury. This is a critical requirement to prevent money laundering and ensure the transparency of financial transactions.
• Anti-Corruption Laws: The Foreign Corrupt Practices Act (FCPA) prohibits foreign companies from bribing or offering anything of value to US officials to gain an unfair business advantage. This includes government officials, candidates for office, and political parties. Compliance with the FCPA is crucial to avoid legal repercussions.
• Export and Import Regulations: Foreign companies must comply with US regulations regarding the import and export of goods and services. This includes restrictions on certain technologies, embargoes on specific countries, and licensing requirements for certain items.

Frequently asked questions