In Part I of this two-part series, the authors discussed four key factors in which U.S. enforcement authorities have been particularly focused on when it comes to U.S. citizen's involvement on foreign boards.

Part two of this series focuses on the takeaway's individuals should think about when considering involvement in foreign companies.

Takeaways/Considerations

The United States remains the center of the world's financial power and much of its intellectual capital. In the global economy, it is inevitable that U.S. persons will find themselves as directors and officers of foreign companies. Nonetheless, both serving and potential directors and officers need to be aware of, and ask the right questions about, the areas outlined in Part I. For example:

• To what extent does the company interact with foreign government officials? Are key industries in which the company operates socialized or otherwise controlled by a foreign government (e.g., is the hospital system in particular country socialized)? To what extent is the company's business dependent on foreign "tenders" or other approvals by governmental officials?
• Does the company have an anti-corruption policy? Does it have sanctions compliance policy? Are these policies followed? Is there training on these policies?
• Following a merger or acquisition, is there anti-corruption/sanctions training or "on-boarding"?
• To what extent does the foreign company enter into "consulting" agreements or other arrangements with foreign nationals? How well defined is the scope of the services provided under these agreements? Put another way, what does the "consultant" actually do?
• Is the U.S. director (or any U.S. person working at the company) expected to arrange meetings between foreign colleagues and U.S. government officials? Given the circumstances, does this run the risk of making the U.S. director an "agent of a foreign principal" under FARA?
• How closely tied are the foreign entity's business operations aligned with a foreign government's political interests? The closer those ties, the more activities on behalf of the foreign entity may implicate FARA.
• To what extent does the foreign entity deal with or in countries or areas that are current targets of the U.S. sanctions regime, including, for example, Russia, Iran, China, Cuba, North Korea, and/or Venezuela?
• Does the company engage in transactions with any Specially Designated Nationals? Does the company engage in transactions with any entity that is owned more than 50% by any SDN?
• What type of diligence does the foreign company conduct on new investors? New or potential counterparties? New vendors? Is sanctions compliance part of this diligence process? Is FCPA compliance part of this diligence process?
• Are there any procedures to wall off or screen U.S. directors from transactions or other activities where there is a significant risk of implicating U.S. sanctions?
• To what extent does the foreign company seek investors in the U.S.? For example, does it ever conduct "roadshows" with U.S. investors? Are the materials used in these presentations given the same scrutiny as would be given to marketing materials for a U.S.-based company?
• Even if the company is not listed on a U.S. exchange, does the company have Automatic Depositary Receipts issued in the U.S.?
• What, if any, limits are there on the company's directors and officers insurance policies? |
  • For example, do foreign jurisdictions where the company operates require that the company buy insurance in that jurisdiction, to have a claim paid?
  • If yes, has the company purchased such local insurance policies? If the company has not purchased such policies, what are the extent of the company's operations in that foreign jurisdiction? In other words, how great is the risk of not having that insurance?
  • What limits, if any, does law in the foreign jurisdiction place on advancement of legal fees?

Service on a foreign board of directors can be rewarding and important, both for the director and for the foreign entity. At the same time, foreign entities can easily find themselves subject to the jurisdiction of U.S. regulators. But with appropriate diligence, those entities and directors can withstand any such scrutiny and maintain their competitive edge. Our team is well-equipped to assist boards and entities in confronting regulatory and enforcement issues. Please do not hesitate to contact us if we can be of assistance.

Brendan Quigley is a partner in Baker Botts' New York office. Mr. Quigley represents organizations and individuals in matters relating to government and internal investigations, white collar and regulatory defense, and complex civil litigation.

Andrew Lankler is a partner in Baker Botts' New York office. Mr. Lankler is an experienced litigator who has extensive trial experience in white collar criminal, regulatory, and complex civil matters at federal, state attorney general, and local levels.

Danny David is a partner in Baker Botts' Houston office. Mr. David is co-chair of the firm's litigation department. He has extensive experience trying across a wide range of securities and shareholder cases in Texas, Delaware, and across the United States.