Last week, the Wall Street Journal reported that Weatherford International had set aside $253 million to resolve sanctions and bribery investigations by the U.S. Department of Justice, with $100 million of the settlement devoted to resolving the sanctions investigation. If your company wasn’t paying attention to trade control compliance before this story broke, there are now 253 million reasons to make it a priority.
Unlike the fairly straightforward U.S. Foreign Corrupt Practices Act, U.S. trade control laws are complex, with regulatory enforcement potential coming from agencies ranging from the DOJ to the U.S. Department of Commerce, Bureau of Industry and Department of Homeland Security. Even the Securities and Exchange Commission occasionally has jumped into the fray, cautioning companies a couple of years ago that failure to disclose sanctions-related conduct could subject the company to liability under the U.S. securities laws.
Recent enforcement cases have spanned a number of industries, with the most high-profile cases focused on financial institutions. Former U.S. trade control prosecutors, such as Steven Pelak and Jonathan Poling, have been hot commodities for domestic and international law firms. Top logistics company CEVA recently appointed Andrew Corley, a trade control whiz who was involved in a number of noteworthy cases, as its Director of Trade. The DOJ’s National Security Division—Counterespionage Section has responsibility for criminal trade control prosecutions, and the cases are viewed as a national security priority. While the DOJ has had imperfect results in court with its FCPA docket, most jurors have no trouble understanding why supporting the country’s enemies is un-American and a worthy DOJ enforcement priority.
Trade control compliance is complicated. Companies have to focus on parties they deal with, access to technology, classification of products they sell, and import issues with laws that may differ by country. Domestically, the U.S. Department of Commerce (perhaps one of the most advanced agencies in terms of education of regulated entities) publishes detailed guidance on its website for the key components of a trade control compliance manual and audit program. And Commerce offers one of the best buys in terms of conferences with their Bureau of Industry and Security seminars.
But not all companies have made trade compliance a priority. We looked through our database of Fortune 500 companies Codes of Conduct to see which companies are focusing on trade control in their Codes, wondering if this would tell us something about U.S. companies’ focus on trade compliance. With impacting factors such as globalization and technology, it would seem that trade control would make the short list of topics covered in a company’s Code.
Here’s what we found:
- Nearly half of the Fortune 500 companies do not address export controls or trade sanctions in their Codes of Conduct (221 of 500).
- The industries most focused on trade in their Codes are oil and gas and chemical/pharmaceutical companies.
- Other industries (which would seem to have trade control risks or that have been the subject of recent enforcement efforts) such as banking and retail/wholesale companies do not mention trade control in their Codes at all.
- Companies that address trade control generally do so with a blanket statement touting the company’s commitment to following the import and export laws of all countries where the company is conducting business.
- Some companies specifically emphasize the importance of trade compliance in order to protect U.S. national security and further U.S. foreign interests.
Real estate in a Code of Conduct is scarce; companies cannot address every risk. And for many Fortune 500 companies, trade compliance is not a significant risk. But for some industries, such as banking, the omission is surprising—and one that likely will not go unnoticed by regulators in the event of a trade control compliance failure.
Ryan McConnell and Michelle Jee are lawyers at McConnell Sovany—a boutique law firm focused on plaintiffs’ litigation, compliance consulting and criminal defense. McConnell also teaches criminal procedure, criminal trial practice and corporate compliance at the University of Houston Law Center. The pair are assisting the University of Houston’s Business and Tax Journal in continuing to build on a database of Fortune 500 companies Codes of Conduct that will go online in January 2014—covering data from 2010-2013. In addition to the online database, the University of Houston will use this dataset at its annual Ethics and Compliance Conference to be held on June 13, 2014. For information about the database or conference, you can email McConnell at [email protected].
