Letter from the Editor
by Lindsey E. Martínez
Dear Friend of Snell & Wilmer,
Doing business abroad without careful consideration to rules and regulations, both at home and abroad, creates the potential for liability. In the same vein, businesses must know how to respond to litigation initiated against them and how to utilize specific forums to enforce their rights. In our increasingly global world, companies must simultaneously strive to ensure compliance with a myriad of laws, look to enforce their rights and protect themselves once a lawsuit is threatened or commenced.
This edition of Global Connection offers insight into pending guidelines for U.S. companies operating around the world, for domestic and international companies that find themselves subject to a grand jury investigation, and for companies faced with unfair acts in the importation and sale of products in the United States. It also provides a recap of the transborder conference: “Realizing the Economic Strength of Our 21st Century Border: Trade, Education and Jobs” held September 23-25, 2012 in Tempe, Arizona.
We hope this edition of Global Connection proves useful as you continue to seek out new opportunities at home and abroad. Please feel free to contact me if you have any questions regarding information provided in Global Connection or if you would like to be included in future international events hosted by the Firm.
Best regards,
Lindsey E. Martínez
Editor
Please Tell Me How This Ends: Determining a Client’s Status in a Grand Jury Investigation
by Craig S. Denney and Justin R. Cochran
Whenever a client in Northern Nevada has the misfortune of getting visited by federal agents and served with a grand jury subpoena, the client wants to know the answer to a basic question: What is going to happen to me? Businesses and individuals receive these subpoenas for documents and testimony.
Federal grand jury investigations are generally intimidating, long lasting and stressful ordeals. The grand jury’s “principal function is to determine whether or not there is probable cause to believe that one or more persons committed a certain federal offense,” says the U.S. Attorney’s Manual. Prosecutors with the Justice Department and U.S. Attorney’s Offices will characterize a person in one of three categories: target, subject or witness. Distinguishing between these categories is extremely important in matters of legal advice. Moreover, the person’s status will help determine viable options to make a key decision for the client on how to proceed. Counsel’s understanding of the client’s status in a federal investigation is crucial to making the right decision.
The U.S. Attorney’s Manual defines these categories:
A “target” is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. An officer or employee of an organization which is a target is not automatically considered a target even if such officer’s or employee’s conduct contributed to the commission of the crime by the target organization. The same lack of automatic target status holds true for organizations which employ, or employed, an officer or employee who is a target.
While being characterized as a target provides ample warning of a person’s exposure to being indicted, the status of a subject puts the person in the middle category. A “subject” of an investigation is a person whose conduct is within the scope of the grand jury’s investigation.
A “witness” is normally a person from whom the agents need information and assistance but has no exposure in the investigation (i.e., records custodian). Generally, if a witness receives a grand jury subpoena, it may be possible to provide documents and/or an interview that will abrogate the need for live testimony before the grand jury. The assistant U.S. attorney may even include a cover letter that tells the witness that production of the documents in advance of the grand jury date may alleviate the need to personally appear.
The federal grand jury may properly subpoena a subject or a target of the investigation and question the target about his/her involvement in the crime under investigation. However, it is extremely unusual for a prosecutor to subpoena a target to testify before the grand jury. If that happens and counsel informs the prosecutor in writing that the client will assert his/her Fifth Amendment privilege, the U.S. Attorney’s Manual suggests that the prosecutor withdraw the subpoena.
When a person is a “subject” in an investigation and called to testify before the grand jury, the prosecutor will advise the person of the following rights:
1. The grand jury is conducting an investigation of possible violations of federal criminal laws.
2. The subject may refuse to answer any question if a truthful answer to the question would tend to incriminate the person.
3. Anything the subject says may be used against him by the grand jury or in a subsequent legal proceeding.
4. If the subject has retained counsel, the grand jury will permit him/her a reasonable opportunity to step outside the grand jury room to consult with counsel if necessary. If the person is a target in the investigation and is going to provide testimony before the grand jury, then the prosecutor will supplement the preceding rights with the following target warning: “your conduct is being investigated for possible violation of federal criminal law” (or words to that effect).
The person needs to decide whether or not to cooperate in the investigation. Federal agents often attempt to conduct an interview with the person when they first contact them to serve a grand jury subpoena. If the person “lawyers up” at the outset, the agent will simply serve the subpoena. However, agents will typically show up without notice at the person’s home or business in an effort to get some statements or even a full-fledged interview before the person realizes that he/she should first discuss the matter with legal counsel.
Depending on one’s status in the investigation, it may or may not be in the person’s interest (if he/she is merely a witness) to submit to an interview in the presence of counsel or testify before the grand jury. If the person is a subject or target, then the person may need to assert the Fifth Amendment privilege to avoid self-incrimination.
If a person is a witness, then generally providing a statement (in the presence of counsel) may be acceptable so long as the person does not lie to the prosecutor or agent. (Unfortunately, the assistant U.S. attorney and agent make their own determination of whether or not the person was truthful. This can be precarious because the witness has “told the story” to the Department of Justice and now is locked in.) If the person is a target, then it would be unwise and unproductive (or even potential malpractice) to submit to an interview when criminal charges or an indictment are imminent. If the person falls in the more nebulous “subject” category, it is harder to predict. Since the federal prosecutor may be gathering facts and not know everyone’s status early in an investigation, he or she may say “your client is a subject at this point,” which leaves the door wide open for the person to become just a witness or also to become a target as the investigation runs its course.
If a person is a subject, then he or she needs to provide counsel with all information relevant to the investigation. Since grand jury proceedings are subject to secrecy, it may be difficult to gather information outside of the client. However, the subject needs to decide whether to remain silent, submit to an interview with the Department of Justice or provide testimony before the grand jury. Each has its own risks and potential consequences.
Early in the case, the prosecutor may suggest counsel bring the client in for a proffer interview. Defense attorneys dislike these interviews because proffers provide very little protection to the client since the Department of Justice essentially says it will not use the information from the interview only if the person is truthful and only if it has the information from an independent source. Of course, the Department of Justice decides unilaterally if a person lied during the interview. Consequently, the client is then facing potential prosecution if the Department of Justice does not believe the person’s statements. If the Department of Justice does believe the person’s statements, then your client gets a pass and remains merely as a witness after all. Nevertheless, the danger is that the Department of Justice gets a “free listen” to what the person says and then tries to squeeze a guilty plea. If there is a trial, then the proffer interview statements make it exceptionally difficult for a defendant’s trial testimony. Accordingly, even if the Department of Justice has insufficient evidence against the client concerning the alleged substantive offense, representations made to the grand jury or federal agents can lead to severe consequences.
For example, high-profile cases are illustrative of the dangers of grand jury investigations and proffers. Lewis Libby was under investigation for leaking classified information. Martha Stewart was under investigation for insider trading. Neither was charged for those substantive criminal offenses. Instead, they were charged with making false statements to federal agents about the substantive crimes.
Federal grand jury investigations require patience, objectivity and experienced legal advice for individuals and businesses. The success, survival or extinction of the business may depend on the outcome of the investigation. Therefore, it is crucial to be well advised if and when the agents or subpoena arrive at the door.
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ITC Section 337 Practice: Beyond Patent Infringement
By Lindsey E. Martínez
Reprinted and/or posted with permission of Daily Journal Corp. (2011).
Section 337 of the Tariff Act of 1930 protects against unfair methods of competition and unfair acts regarding the importation and sale of articles in the United States. Over the past several years, the International Trade Commission (ITC) has become an increasingly popular venue to protect U.S. intellectual property rights under Section 337, including patents, trademarks and copyrights, as evidenced by more than 700 investigations instituted since 1974. Section 337 litigation is often preferred, due in part, to the relatively quick decisions made by the ITC, where a trial is often concluded in less than a year.
In addition, Section 337 provides for in rem jurisdiction, so that all known companies can be named in a single investigation at the ITC. This is in sharp contrast to a U.S. district court case where it may be necessary to bring multiple cases in various states in order to satisfy jurisdictional requirements. Further, in these cases, the ITC itself serves the complaint to all proposed respondents by certified mail without the need for translation. This is often preferable to district court, where it may take months to serve respondents abroad and translation of the complaint may be necessary. If a respondent does not respond to the complaint within 10 days, a default can issue and their products can be automatically excluded from the United States.
Other special considerations for Section 337 actions include the requirement that the ITC consider public interest factors when deciding an investigation and the ability of the president of the United States to review the ITC’s decision where a violation is found. The president has 60 days to review the decision and approve or disapprove the remedy for policy reasons.
While no monetary damages are available under Section 337, a prevailing plaintiff may obtain two remedies: an exclusion order to prevent importation of violating goods, to be enforced by U.S. Customs at the borders, and a cease and desist order, requiring the importer to stop importing the violating goods or face substantial penalties. Section 337 specifically declares the infringement of a U.S. patent or a U.S. copyright registered under Title 17, a registered trademark, a mask work registered under Chapter 9 of Title 17, or a boat hull design protected under Chapter 13 of Title 17. There is no injury requirement in cases involving infringement of these intellectual property rights.
In addition to unfair practices based upon infringement of intellectual property rights, Section 337 also prohibits unfair methods of competition and unfair acts in the importation and sale of products in the United States, the threat or effect of which is to destroy or substantially injure a domestic industry, prevent the establishment of such an industry, or restrain or monopolize trade and commerce in the United States. Thus, in these types of investigations, threat or actual injury must be shown.
This broad language appears to implicate several other areas of law in addition to intellectual property, especially since Section 337 does not define the terms “unfair methods of competition” and “unfair acts.” This language suggests that, in addition to patent and intellectual property protection, Section 337 may also apply to unfair competition, trade secrets, antitrust, products liability, child labor, human rights and sustainable environmental practices. While some of the non-traditional Section 337 causes of action, such as antitrust, have been put into practice, others, such as child labor and unsustainable environmental practices, have not been implemented.
In relation to antitrust, this statute may prove favorable for some cases because of the speed at which a decision is rendered, as well as the fact that Section 337 may have a much broader reach than other antitrust laws because the section does not require a showing of injury to the competition. For antitrust violations, a cease and desist order may be issued by the ITC as an exclusion order may restrict competition. While Section 337 allows for an antitrust cause of action, such claims are rarely brought. Due to the sparse antitrust practice under Section 337, precedent awarding antitrust relief is equally thin. The ITC has, however, found a violation of Section 337 based on an antitrust cause of action in Certain Welded Steel Pipe & Tube, Inv. No. 337-TA-29. The decision, handed down in 1978, issued a cease and desist order. In this instance, the president exercised his veto power and overturned the ITC’s finding of a violation on public policy grounds. All other antitrust-based investigations have found no violation of antitrust laws. Therefore, while an antitrust cause of action may be brought before the ITC, the full implications of antitrust practice under Section 337 remain to be seen.
The goal of enacting Section 337 was to protect domestic labor and industry, and a number of areas of law are implicated by the “unfair acts” portion of the statute, such as unfair competition based on unfair labor practices, including child labor and human rights issues. Similarly, another area of uncharted waters tied to the “unfair acts” piece of Section 337 involves the use of unsustainable practices such as manufacturing, agriculture and fishing. While these types of cases have never before been brought under Section 337, potential hypothetical cases regarding unfair acts could involve the following:
Labor Law or Human Rights: A suit by a company whose competitor manufactures goods abroad and imports them into the United States utilizing unfair labor practices, such as child labor or labor that violates human rights norms. A cause of action could be brought under Section 337 where the competitor’s conduct violates the foreign country’s domestic laws or international law and the complainant company can show actual injury.
Environmental Law: A suit by a company who suffers injury at the hands of a competitor that manufactures a product outside of the United States, for import into the United States, but the product fails to meet U.S. environmental laws.
Unsustainable Practices: A suit by a company that suffers injury where a competitor violates a foreign nation’s own laws or international treaties, such as commercial fishing that is done in violation of international law, thereby giving the competitor an unfair advantage.
While primarily used as a tool for patent enforcement and protection, Section 337’s broad language and mandate to protect domestic labor and industry may offer a unique, fast-paced forum for settling potential claims ranging from child labor to commercial fishing.
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Conference Highlights—Realizing the Economic Strength of Our 21st Century Border: Trade, Education and Jobs
by Ray C. Jones
Hundreds of government, education and business leaders met September 23-25, 2012 in Tempe, Arizona to discuss ways to develop and enhance the already massive amount of trade that crosses the U.S.-Mexico border every year. Rather than focus on negative media reports, the attendees of the conference “Realizing the Economic Strength of Our 21st Century Border: Trade, Education and Jobs” assembled to discuss the current state of trade among the U.S.-Mexico border states and how to best further develop that important trading relationship. The conference, organized by Arizona State University’s North American Border for Transborder Studies, included among its attendees Michael Camuñez, U.S. Assistant Secretary of Commerce for Market Access & Compliance; Susana Martinez, governor of New Mexico; Laura Dogu, Deputy Chief of Mission; U.S. Embassy in Mexico; Michael Crow, president of Arizona State University; several members of the U.S. House of Representatives; several members of the U.S. Commercial Service, several members of the U.S. Department of State; the mayors of Phoenix, Mesa, San Diego, Tijuana, El Paso, Nogales; and members from the Mexican president-elect’s delegation, in addition to many other business, education and civic leaders.
Several executives from companies that already have a presence in Mexico spoke about the interconnectedness of the U.S.-Mexico trade relationship and the importance of making the border more efficient and user-friendly. Delays at border crossings cost U.S. and Mexican companies several millions of dollars each year. Crow stated that we need to defeat “purposeful ignorance” about Mexico and its status as the United States’ second largest export market and third largest trading partner. Crow indicated that U.S. trade with Mexico surpasses all of the developing “BRIC” countries (Brazil, Russia, India and China) combined.
In 2011, U.S.-Mexico goods and services trade reached a half trillion dollars. That’s “trillion, with a T.” Eighty percent of that trade originates within the border zone. Since the North American Free Trade Agreement was passed in 1994, U.S. trade with Mexico has increased five-fold. The U.S. Department of Commerce estimates that for every $45,000 in export sales, one job is created, more than double the rate of jobs created by domestic sales. Needless to say, the United States and Mexico are inextricably linked economically, geographically and, increasingly, demographically. Increasing exports to Mexico will create jobs in the United States and lower the U.S. trade deficit.
David Hester of Kyocera Mexicana, a $15 billion electronics company that has been in the Mexico market since 1959 stated, “Our region is in competition with the rest of the world. We have products crossing the border up to four times during the manufacturing process. We need an efficient border. Creating jobs on one side of the border will create jobs on the other side.” Hester said, “There is a huge trend to move manufacturing from Asia to Mexico—it has the same time zone, the same culture. Mexico’s economy is actually larger than South Korea’s.”
The border region comprising the states of California, Arizona, New Mexico and Texas and the Mexican states of Baja, Sonora, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas is, in aggregate, the world’s sixth largest economy. In just a few years, it is expected to become the world’s fourth largest economy, surpassing the U.S.-Canada border in trade and economic power. Ben Stein of Ferris Bueller’s Day Off infamy and a noted economic commentator stated that “Mexico is the new China.” John Barela of the State of New Mexico Economic Development Department estimated that by 2015, China’s manufacturing costs will surpass Mexico’s, due to increased transportation and labor costs and lower quality products coming from China.
Guillermo Gutierrez of the Mexican Council of the Maquiladora Industry indicated that in the first six months of 2012, Cuidad Juarez added 21,000 manufacturing jobs. He continued, “For every five manufacturing jobs created in Mexico, one job is created in the U.S.” Economic development in one nation will positively impact the other.
However, the border’s current infrastructure is a major hindrance to cross-border trade. David Mayagoitia, president of the Tijuana Economic Development Corporation quoted Rachel Poynter, U.S.-Mexico border coordinator at the U.S. Department of State, who said, “The border shouldn’t just be a filter for what shouldn’t cross, but a funnel for what should.” At the end of the day, the roads on both sides of the border need to match up. One obvious example where this has not occurred is at the San Isidro border crossing near San Diego/Tijuana, where the infrastructure was completed on the Mexican side of the border, but only phase one of the border was completed on the U.S. side. U.S. Congress still needs to appropriate $300 million for the construction of phases two and three on the U.S. side to complete the infrastructure. That will equate to three more years of delays before the border improvements will be functioning and reducing wait times on both sides.
Scott Smith, mayor of Mesa, Arizona, believes that necessity will eventually outweigh politics with regard to border development. He stated, “We need each other, because we are neighbors.” Smith continued, “All we focus on is illegal immigrants and drugs—the relationship is much broader than that . . . We need to focus on commerce . . . We need to put these issues in the context of the national economy to get the attention of policy makers . . . Commerce is not a sidebar—it is the meat of the issue—if we focus on commerce, the other issues will resolve themselves.”
After interacting with and listening to the major players of the U.S.-Mexico border region for three days, it was readily apparent that leaders on both sides of the U.S.-Mexico border view economic development as the single most important issue. Mexico could have the world’s seventh largest economy by 2020. As stated previously, the value of economic trade has already reached a half trillion dollars in 2011. Imagine what that number could be if the public’s perception and policy makers’ perception about Mexico and its role in the global economy changed?
Snell & Wilmer’s footprint is located directly on over half of the border region. Carlos Sugich, Richard Katz, Brett Johnson, Curt Reimann, Ray Jones and numerous other Snell & Wilmer attorneys currently represent U.S. and Mexican companies in the border region. Snell & Wilmer is nicely positioned to take advantage of the development in the border region.
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Stay Tuned: Predictions on DOJ’s Anticipated Guidance on the Foreign Corrupt Practices Act
by Brett W. Johnson
The Foreign Corrupt Practices Act (FCPA) has long been a favorite topic of the Global Connection. The FCPA, as well as various other foreign anti-corruption laws – such as the U.K. Bribery Act – and international agreements, place a high premium on compliance in often challenging multicultural business environments. As background, the FCPA establishes detailed accounting and recordkeeping standards to prevent (and punish) bribery activities. As discussed in previous articles, an FCPA offender may be punished up to $2 million and five years in jail. Simply, the United States government requires businesses and individuals to act ethically as they develop opportunities in foreign countries. The axiom “when in Rome, do as the Romans do” is not only obsolete, but potentially devastating to businesses.
Although the FCPA has existed since 1977, the Department of Justice (DOJ) and the Securities Exchange Commission (SEC), which are the two entities with jurisdiction to enforce the law’s provisions, have at times provided confusing guidance as to what would technically be an FCPA violation. Although the DOJ provides a good resource in giving “opinions” on potential actual transactions that may have FCPA implications, this is a costly and time consuming process – especially, when a deal is on the “fast track” to completion. The DOJ also has previously issued the “Lay Person’s Guide to the FCPA,” which is helpful in breaking down the FCPA provisions, but does not provide much “guidance.”
Likely as a result of the U.K. Bribery Act and the U.K.’s guidance on how to comply with the provisions of that law, the DOJ announced in November 2011 that it would publish its own guidance in regard to the FCPA. Such guidance was widely expected in October 2012, which obviously did not occur. Now, it is expected that the guidance should be coming out in early November before a major conference about the FCPA.
Although the anticipated guidance is expected to be more detailed than the “Lay Person’s Guide,” the guidance will likely still require a reader to be versed in legalese and FCPA compliance to decipher. One issue that will be clear to any reader is that DOJ is expected to reinforce its heightened enforcement of FCPA cases and reiterate its commitment to cross-border, multi-jurisdictional cooperation and investigations of bribery allegations.
Further, DOJ will likely consolidate recent court interpretations of the FCPA – some of which went against the government’s interpretation — into its guideline, including the definition of “Foreign Official” that is the recipient of the overt bribery act. This will clearly include private organizations that are owned by foreign governments – i.e., sovereign wealth funds, certain Chinese companies, healthcare companies under a nationalized health system, etc.
Unfortunately, in the constant changing global marketplace, it is becoming harder to determine who is and who is not a “Foreign Official.” But, this should not really matter since several foreign laws, including the U.K. Bribery Act, make any act of bribery – regardless as to whether it is to a governmental official or private individual – unlawful.
It is possible that DOJ may announce that it is relaxing its successor liability enforcement (i.e., punishment) so long as the acquiring company aggressively integrates the acquired company into its compliance program and voluntarily reports any violations. However, a caveat may be that the DOJ may recommend that a precursor to such relaxation is that the acquiring company must go to DOJ before the transaction is completed to seek an opinion on the due diligence performed during the acquisition and seek a reasonable time to conduct the integration and possible voluntary disclosure. Or, DOJ may state a policy as to the timing of the interim post-acquisition due diligence period to obtain the relaxed successor liability punishment. Regardless, as company acquisitions are a major area of enforcement for DOJ and SEC, due diligence in regard to all foreign transaction laws (not just the FCPA) is paramount.
Although unlikely, it would be helpful if the DOJ discussed the voluntary disclosure process and the potential benefits associated with such disclosure. A recent study revealed that there were no tangible benefits in regard to such voluntary disclosure when compared against punishments to companies and individuals who did not disclose. But, such discussion of mitigation and disclosure benefits would be more appropriately handled through the Federal Register and notice opportunities, rather than through a Guideline. Regardless, lobbying groups, including the U.S. Chamber of Commerce, will utilize any DOJ Guideline to advocate for changes in the FCPA, which would then require an updated guideline.
It is expected that DOJ will reiterate the need for a compliance program and specifically highlighting the punishment mitigation potential by having such a program, which would include a written policy, training, “standards of conduct” clauses in all agreements, accounting procedures and regular audits. As with the majority of the export control laws, there is not a “law” mandating a compliance program. It is just expected. However, it is still hoped that DOJ will include certain “best practices,” several of which are referenced above, that can lead to a true mitigation of any potential penalty.
The DOJ’s Guidelines will not drastically change the current enforcement and compliance environment regarding foreign transactions. However, it is important for companies and individuals who continue to take advantage of the global opportunity to review the Guidelines and ensure that all foreign transaction policies are updated and reiterated.
