For the last year or so there have been a number of articles and CLE programs targeting the FCPA compliance "market" and pointing out to in-house counsel of international corporations and other international practitioners the dangers of recent U.S. Department of Justice (DOJ) enforcement activities. I personally attended an FCPA workshop organized by the Houston Bar Association in February and watched another unrelated FCPA program in June, both of which contained extensive discussions of recent FCPA enforcement trends. I realize that much of this hype is motivated by the presenters' business development efforts and is (usually) underwritten by large transactional law firms seeking to get their name out to the in-house crowd. However, I also came across some recent FCPA enforcement statistics and it appears that the DOJ is indeed up to something as far as increased FCPA investigations, prosecutions, monitoring and fines. A few clear trends appear:
1. The DOJ has increased its investigation activities regarding potential FCPA violations. The number of investigations practically doubled from 2005 through 2007. Foreign companies seem to have been hit particularly hard. The number of US companies under investigation is still higher, but the ratio is changing with a substantially higher number of foreign companies being investigated as well.
2. There were several large scale consolidated investigations in the last several years. E.g., in 2007 the DOJ opened an investigation against several oil companies' customs payments in Nigeria.
3. The number of cases prosecuted has pretty much doubled. There is a clear trend of increased number of FCPA prosecutions against individual executives, sales personnel, etc. The total penalties imposed by the DOJ in FCPA-related cases have increased as a result.
4. A lot of FCPA investigations these days seem to be conducted in tandem with similar investigations in other countries. The German company Siemens stands out as having been investigated in numerous jurisdictions for FCPA-type violations.
5. There is a trend of appointing FCPA monitoring consultants. It appears that the default term for such monitoring is up to three (3) years.
6. Lastly, as a result of the increased enforcement and the increased advertisement of FCPA issues among the international legal practitioners, the DOJ has seen a lot more self-reporting of FCPA violations. There are at least three cases where potential FCPA issues were uncovered during M&A due diligence and were voluntarily reported to the DOJ.
In light of the tougher FCPA enforcement environment, international companies may find it practical to apply for a DOJ opinion/release letter in advance of adopting some potentially questionable practice. They could also benefit if they pay better attention to potential FCPA issues during due diligence investigations of M&A targets and self-report the cases where wrongful conduct has been uncovered.
Wednesday, August 20, 2008
Monday, August 18, 2008
Updated UK Rules on Short Positions in Certain Derivatives
In June of this year, the UK Financial Services Authority (FSA) amended its Code of Market Conduct to require holders to disclose short positions of 0.25% or more of an issuer’s share capital where the issuer’s securities are listed on an exchange (except AIM) and where the issuer is undertaking a rights issue. In addition, in July, the FSA released the result of a study on current disclosure of derivative holdings, concluding that certain derivative long positions must be reported at a 3% holding. Final rules are expected early in 2009.
A few highlights on the UK rules:
-- 3% holdings in voting rights must be disclosed;
-- transactions in securities, where the issuer is under a takeover offer, by any person who holds gross long derivatives on 1% of those securities must be disclosed;
-- open net short positions of 0.25% or more of a listed company (excluding AIM-listed companies) which is undertaking a rights issue must be disclosed.
A few highlights on the UK rules:
-- 3% holdings in voting rights must be disclosed;
-- transactions in securities, where the issuer is under a takeover offer, by any person who holds gross long derivatives on 1% of those securities must be disclosed;
-- open net short positions of 0.25% or more of a listed company (excluding AIM-listed companies) which is undertaking a rights issue must be disclosed.
Labels: introduction
AIM,
Code of Market Conduct,
derivatives,
FSA,
law,
lawyer,
securities,
short positions,
UK
Thursday, August 14, 2008
New SEC Interpretive Release on Website Disclosure
On August 1, 2008 the U.S. Securities and Exchange Commission released intepretive guidance regarding website disclosures by public companies. Among others, the new release attempts to deal with some of the issues concerning applicability of Regulation FD, some securities fraud and liability issues, enhance the way public companies can communicate with investors via features such as RSS feeds, blogs and discussion forums. However, in well-established SEC tradition, the interpretation leaves numerous matters into a sort of securities law gray area. For example, it is unclear how the selective disclosure requirements of Regulation FD will be enforced, or how the proxy solicitation rules would apply in the context of online disclosure. If anything, the interpretation leaves room for even further interpretation and clarification and I seriously doubt that it will open the gates to diversified online public disclosure by U.S. issuers. If anything, I expect public companies to continue to operate within their current websites' status quo.
If you crave some dense reading into the more obscure SEC disclosure and Exchange Act compliance rules, you may visit:
http://www.sec.gov/rules/interp/2008/34-58288.pdf
If you crave some dense reading into the more obscure SEC disclosure and Exchange Act compliance rules, you may visit:
http://www.sec.gov/rules/interp/2008/34-58288.pdf
Labels: introduction
disclosure,
guidance,
interpretive,
law,
lawyer,
online,
Regulation FD,
release,
SEC,
Securities Exchange Act,
website
Monday, August 11, 2008
Republic of Georgia's National Bank Stops Credit Operations and Credit Card Services
Georgy Kalandadze, customer relations director of the National Bank of the Republic of Georgia, announced today a temporary stop order on all credit operations and credit card services by the National Bank of Georgia. Pursuant to the order, all commercial banks in the country should likewise halt all credit operations, including credit card services till the end ot the current week. The announcement states that there are no liquidity problems with any commercial bank in the Republic of Georgia. In the even ot such problems the National Bank of Georgia is prepared to open up its foreign exchange reserves.
Saturday, August 9, 2008
New Chinese Anti-Monopoly Law Is In Effect from August 1, 2008
The new Chinese Anti-Monopoly Law came into effect on August 1, 2008. The law provides a basic framework for building a nationwide competition and anti-monopoly regime in China. It was adopted with some input from U.S. and E.U. business organizations and has been welcomed as a positive development. Some commentators express concern about the lack of clarity on the law's enforcement mechanism.
Friday, August 8, 2008
New Limits on International Securities Offerings by Russian Issuers
The Russian securities regulatory body (a/k/a FSFR, Russian: Федеральная служба по финансовым рынкам) issued an executive order on June 5th, 2008 updating the existing restrictions for Russian issuers regarding placement of equity securities outside of Russia. The rules also apply to offerings of depositary receipts. They are effective as of July 24, 2008.
Per the updated rules, any Russian issuer can have no more than 30% of its equity securities offered on non-Russian markets. More importantly, certain industries are deemed "strategic" and issuers operating in such industries are subject to even stricter limitations. Companies that develop natural resources of national significance (which would presumably include all oil & natural gas producers) can have no more than 5% of their authorized capital offered overseas. Issuers in other strategic industries are subject to a higher, but nonetheless restrictive limitation of 25%. The definition of "strategic" given by FSFR is rather expansive and could be interpreted to cover a number of less important businesses.
Time will show how the FSFR will approach the enforcement of its new rules.
For the complete text of the amended rules (in Russian), search under “Положение о порядке выдачи ФСФР разрешения на размещение и (или) обращение эмиссионных ценных бумаг российских эмитентов за пределами Российской Федерации” .
Per the updated rules, any Russian issuer can have no more than 30% of its equity securities offered on non-Russian markets. More importantly, certain industries are deemed "strategic" and issuers operating in such industries are subject to even stricter limitations. Companies that develop natural resources of national significance (which would presumably include all oil & natural gas producers) can have no more than 5% of their authorized capital offered overseas. Issuers in other strategic industries are subject to a higher, but nonetheless restrictive limitation of 25%. The definition of "strategic" given by FSFR is rather expansive and could be interpreted to cover a number of less important businesses.
Time will show how the FSFR will approach the enforcement of its new rules.
For the complete text of the amended rules (in Russian), search under “Положение о порядке выдачи ФСФР разрешения на размещение и (или) обращение эмиссионных ценных бумаг российских эмитентов за пределами Российской Федерации” .
Labels: introduction
equity,
FFMS,
FSFR,
issuer,
overseas,
placement,
Russia,
securities,
Федеральная служба по финансовым рынкам
Tuesday, August 5, 2008
New Tax on U.S. Citizens Who Relinquish Their Citizenship or Green Card Holders Who Terminate Their U.S. Residency
Pursuant to the Heroes Earnings Assistance and Relief Tax Act of 2008, which was signed into law a few weeks ago, certain U.S. citizens who relinquish their U.S. citizenship and green-card holders who terminate their U.S. residency will be liable for payment of U.S. income taxes on all of their net unrealized gain in the value of their property as if such property had been sold for its fair market value on the day before the relinquishment of citizenship or termination of residency. In other words, they would be deemed to have sold their property on the day of relinquishing their citizenship/residency and will owe tax on any resulting, albeit fictional, net gains. The Heroes Earnings Assistance and Relief Tax Act (a/k/a "the HEART Act") is likely to affect mostly high-net-worth individuals. The net deemed gain on which tax is due will be recognized to the extent it exceeds USD 600,000 (and such amount will be increased by an inflation adjustment for tax years after 2008). The tax will apply to practically all property interests held by the individual on the date of relinquishment, with some very limited exceptions. In addition, the HEART Act imposes estate or gift tax on bequests and gifts made by certain former U.S. citizens in favor of U.S. persons.
Labels: introduction
bequest,
estate tax,
gain,
green card,
Heart Act,
U.S. citizen,
U.S. permanent resident,
U.S. tax
Sunday, August 3, 2008
Enforeceability of Choice of Law, Choice of Forum, and Non-Compete Provisions in International (Ex-Pat) Employment and Consulting Agreements
It is a common tendency for employers dealing with foreign or ex-pat employees to insert a choice of law, choice of forum or restrictive provisions (e.g. non-solicitation and non-compete provisions) in the employee's contract that are governed by the law of a jurisdiction different from the place of employment. In a typical situation, the employer would choose to implicate the laws of its home jurisdiction - e.g. a California-headquartered company would choose California state law to govern any employment-related disputes and would choose California courts as the venue for any dispute resolution. This is done for practical reasons such as the employer's in-house counsel being most familiar with the labor rules in his home jurisdiction and choosing to apply them as a matter of convenience. In other situations, the laws of a jurisdiction known for being employer-friendly or litigation-friendly could be chosen. An easy example that comes to mind is New York law, New York being known as a business and employer-friendly venue with a very developed legal precedent and enforcement base. Likewise, the employment contract could contain an arbitration provision that contains choice of law and choice of venue elements and its own dispute-resolution procedure. The presence of such arbitration provision does not change the enforceability analysis below.
In all these situations, the question that arises is whether such choice of law, choice of forum and restrictive (non-compete) provisions are enforceable. In other words, is it possible, as a practical matter, for the employer to bypass the laws of the place of employment and choose some other law to apply to the employment relationship? The short answer is "No", meaning that in almost every situation the laws of the the country where the work is performed will apply on most subtantive matters related to the employment relationship. For reasons of public policy, most countries choose to make a lot of their labor rules "mandatory". Such rules would cover matters like minimum compensation, workplace safety, overtime, vacation, public holidays, discrimination protection, employee benefits and certain tax matters. In practically every jurisdiction that I have researched, such rules cannot be contracted around. That leaves only 'second tier' employment matters subject to the choice of law provisions of the contract, e.g. additional benefits, pension, equity and other long-term compensation. This is not to say that such 'second tier' matters are unimportant. On the contrary, many ex-pat employees are highly compensated professionals and it is hardly unusual for their employment contracts to contain a host of additional employment benefits and sophisticated compensation packages.
Since the choice of law provisions would be unenforceable on most substantive employment issues, then the question becomes whether there's any benefit to the employer for including such provisions in the contract at all? And the answer is "Yes". The first benefit is that such choice of law provision may end up applying to some of the second tier issues. Secondly, the employee may not be familiar with the host-country protective rules, and assume that the choice of law provision of his contract controls and thus convince him not to attempt to sue the employer in a local host-country court. Thirdly, in jurisdictions that are extra keen on upholding the freedom of contract doctrine, the employer would have a good argument regarding the intent of the parties at the time of entering into the agreement, which may afford the employer a more favorable interpretation on some contractual issues.
Here are some noteworthy recent judicial decisions that illustrate my points:
1. In two separate, well publicized UK decisions from 2007 (Duarte v. Black & Decker and Samengo-Turner v. Marsh & McLennan) the UK court refused to apply the US choice of law and non-compete clause of the employment contract. In one of the cases the law of choice was New York, in the other it was Maryland law. The facts in each case involved some peculiarities, but in the end both UK courts ruled that UK and not US-state public policy controls how the provisions of the employment contract are enforced on UK soil.
2. European Union countries have adopted a choice-of-law treaty which is usually referred to as the "Rome Convention". According to some interpretations, the Rome Convention allows an expat choice-of-law clause to overcome the application of host-country law. There have been articles making that argument by French and German practitioners. However, a careful look at the Rome Convention (article 6(1)) actually confirms the generally accepted view that "in a contract of employment, a choice-of-law ... shall not have the result of depriving the employee of the protection afforded to him by mandatory rules of law." Applying this, the French appeals courts in Grenoble and Paris have disregarded choice of law clauses calling for Texas and German law and invoked the Rome Convention to impose the French employment code on expats working locally.
3. Practically all countries from the former communist block in Eastern Europe have labor-friendly legislation that was originally styled after the Russian Federation's labor code. A lot of these rules survive to this day, even after many of these countries have become part of the European Union. Generally, US expats in the European Union and in Eastern Europe and Russia would find local law significantly more favorable to them than anything contained in their employment contracts. Hence the incentive to sue in local courts, which could invoke the Rome Convention or some other non-contractual choice of law rule.
Some practical considerations:
One possible approach in drafting contracts for foreign or ex-pat employees is to leave out the choice-of-law clause — but to confirm with local counsel the extent to which any restrictions imposed by the employment contract would be enforeceable under local law.
Another approach is to insert a choice of law provision and count on voluntary compliance by the employee. As a practical matter, many Western ex-pats are highly skeptical (often for good reason) of the laws and the justice system of the local jurisdiction and would not even consider filing suit locally even if the local laws would afford them greater protection than the employment agreement. Such preconceptions can be exploited by the employer in convincing the ex-pat to subject himself to personal jurisdiction in accordance with the contract's choice of law provision.
Overall, as a rule of thumb, I would always put in doubt the enforceability of the choice of law and choice of forum provisions and any restrictive covenants such as non-compete, where the law chosen is different from the law of the jurisdiction where the work is performed. If an employer is serious about enforcing such provisions, then such employer should seek the advice of local counsel. From the employee's standpoint, chances are that the employee would be better off implicating local law in any dispute with his employer, because such local law is very likely to offer better protection than the terms of the employment agreement.
In all these situations, the question that arises is whether such choice of law, choice of forum and restrictive (non-compete) provisions are enforceable. In other words, is it possible, as a practical matter, for the employer to bypass the laws of the place of employment and choose some other law to apply to the employment relationship? The short answer is "No", meaning that in almost every situation the laws of the the country where the work is performed will apply on most subtantive matters related to the employment relationship. For reasons of public policy, most countries choose to make a lot of their labor rules "mandatory". Such rules would cover matters like minimum compensation, workplace safety, overtime, vacation, public holidays, discrimination protection, employee benefits and certain tax matters. In practically every jurisdiction that I have researched, such rules cannot be contracted around. That leaves only 'second tier' employment matters subject to the choice of law provisions of the contract, e.g. additional benefits, pension, equity and other long-term compensation. This is not to say that such 'second tier' matters are unimportant. On the contrary, many ex-pat employees are highly compensated professionals and it is hardly unusual for their employment contracts to contain a host of additional employment benefits and sophisticated compensation packages.
Since the choice of law provisions would be unenforceable on most substantive employment issues, then the question becomes whether there's any benefit to the employer for including such provisions in the contract at all? And the answer is "Yes". The first benefit is that such choice of law provision may end up applying to some of the second tier issues. Secondly, the employee may not be familiar with the host-country protective rules, and assume that the choice of law provision of his contract controls and thus convince him not to attempt to sue the employer in a local host-country court. Thirdly, in jurisdictions that are extra keen on upholding the freedom of contract doctrine, the employer would have a good argument regarding the intent of the parties at the time of entering into the agreement, which may afford the employer a more favorable interpretation on some contractual issues.
Here are some noteworthy recent judicial decisions that illustrate my points:
1. In two separate, well publicized UK decisions from 2007 (Duarte v. Black & Decker and Samengo-Turner v. Marsh & McLennan) the UK court refused to apply the US choice of law and non-compete clause of the employment contract. In one of the cases the law of choice was New York, in the other it was Maryland law. The facts in each case involved some peculiarities, but in the end both UK courts ruled that UK and not US-state public policy controls how the provisions of the employment contract are enforced on UK soil.
2. European Union countries have adopted a choice-of-law treaty which is usually referred to as the "Rome Convention". According to some interpretations, the Rome Convention allows an expat choice-of-law clause to overcome the application of host-country law. There have been articles making that argument by French and German practitioners. However, a careful look at the Rome Convention (article 6(1)) actually confirms the generally accepted view that "in a contract of employment, a choice-of-law ... shall not have the result of depriving the employee of the protection afforded to him by mandatory rules of law." Applying this, the French appeals courts in Grenoble and Paris have disregarded choice of law clauses calling for Texas and German law and invoked the Rome Convention to impose the French employment code on expats working locally.
3. Practically all countries from the former communist block in Eastern Europe have labor-friendly legislation that was originally styled after the Russian Federation's labor code. A lot of these rules survive to this day, even after many of these countries have become part of the European Union. Generally, US expats in the European Union and in Eastern Europe and Russia would find local law significantly more favorable to them than anything contained in their employment contracts. Hence the incentive to sue in local courts, which could invoke the Rome Convention or some other non-contractual choice of law rule.
Some practical considerations:
One possible approach in drafting contracts for foreign or ex-pat employees is to leave out the choice-of-law clause — but to confirm with local counsel the extent to which any restrictions imposed by the employment contract would be enforeceable under local law.
Another approach is to insert a choice of law provision and count on voluntary compliance by the employee. As a practical matter, many Western ex-pats are highly skeptical (often for good reason) of the laws and the justice system of the local jurisdiction and would not even consider filing suit locally even if the local laws would afford them greater protection than the employment agreement. Such preconceptions can be exploited by the employer in convincing the ex-pat to subject himself to personal jurisdiction in accordance with the contract's choice of law provision.
Overall, as a rule of thumb, I would always put in doubt the enforceability of the choice of law and choice of forum provisions and any restrictive covenants such as non-compete, where the law chosen is different from the law of the jurisdiction where the work is performed. If an employer is serious about enforcing such provisions, then such employer should seek the advice of local counsel. From the employee's standpoint, chances are that the employee would be better off implicating local law in any dispute with his employer, because such local law is very likely to offer better protection than the terms of the employment agreement.
Labels: introduction
arbitration,
benefits,
choice of forum,
choice of law,
confidentiality,
employment,
enforceability,
ex-pat,
foreign,
non-compete,
non-solicitation,
venue
Saturday, August 2, 2008
SEC Proposed Revisions to Cross-Border Tender Offer and Business Combination Rules
The U.S. Securities and Exchange Commission has recently proposed revisions to the rules governing cross-border tender offers, business combinations and rights offerings involving foreign private issuers. The purpose of the proposed rules is to codify existing no-action letter relief and to reduce the regulatory conflict between the U.S. and non-U.S. securities regimes governing cross-border transactions. The full text of the proposed rules is available at:
http://sec.gov/rules/proposed/2008/33-8917.pdf
http://sec.gov/rules/proposed/2008/33-8917.pdf
Labels: introduction
14D,
14E,
14e-5,
ADR,
business combinations,
cross-border,
SEC,
securities,
tender offer
Friday, August 1, 2008
Introduction
This site is an early-stage exercise in legal blogging. Its purpose is to serve as a kind of professional diary, where I will post and discuss issues that I have encountered in my daily practice as an international lawyer.
This site is not intended to provide legal advice or to serve as some kind of legal resource.
This site is not intended to provide legal advice or to serve as some kind of legal resource.
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