In-House Counsel Summit Export & Import Considerations and Successor Liability April 4, 2013

© 2013 Braumiller Schulz LLP Any copying or distribution is prohibited.

Adrienne Braumiller, PartnerMichelle Schulz, Partnerwww.BraumillerSchulz.com

In-House Counsel Summit

Export & Import Considerations and Successor Liability

April 4, 2013

http://www.braumillerschulz.com/


Agenda

Definition and IntroductionHypothetical transaction #1Export controlsBasic compliance issuesSuccessor liability in an export situationDue diligence and disclosureHypothetical transaction #2Customs & import controlsBasic compliance issuesSuccessor liability in an import situationDue diligence and disclosureTakeaways

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Definition and Introduction

Successor liability means the potential liability of the acquiring company for violations committed by the acquired company.

•Typically triggered via a merger or acquisition.– Certain exceptions where an asset sale could generate the same successor

liability as a merger or acquisition. i.e., a de facto merger or a continuation of the business.

•Not codified in customs and export laws.

•Authority extrapolated from federal court or common law, and from rules of constitutional construction.

Liability includes: -Audits -Investigations -Disclosures -Liquidated damages

-Penalties -Additional duties, taxes, fees.

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Introduction Continued

Seminal Cases:•Export:

– Sigma-Aldrich, 2002– Hughes Electronics/Hughes Aircraft and Boeing, 2003

•Import: – Shields Rubber Co., 1989– Ataka America, 1993

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Hypothetical Transaction #1

Giant Corporation (Giant) is in the process of acquiring Little Corporation (Little).

Little sells in the domestic market and for export.

Little’s products and technology are subject to US export controls.

After acquisition, Little will be merged into Giant as an operating division.

Does Giant have any concerns?

What should Giant do to mitigate those concerns?

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Export Controls

More than 20 different US Government agencies have regulations controlling exports.

The primary agencies are the Directorate of Defense Trade Controls (DDTC) of the Department of State and the Bureau of Industry & Security (BIS) in the Department of Commerce.

DDTC administers the International Traffic in Arms Regulations (ITAR) in 22 CFR 120-130 governing export of defense articles and technical data.

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Export Controls (cont’d)

BIS administers the Export Administration Regulations (EAR) in 15 CFR 730-774, governing export of commercial and dual-use articles and technology.

Both agencies have a strict policy of enforcement.

Both agencies also have procedures for voluntary disclosures.

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Basic Compliance Issues

Some situations that can result in export compliance liability. For example:

•Failure to obtain and use appropriate export licenses,•Failure to properly declare export transactions,•Incorrect license jurisdiction,•Deemed exports – foreign national employees, visitors, contractors, and

•Failure to maintain records

And of course, intentional or fraudulent conduct.

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Successor Liability In An Export Situation

The basic rule: By acquiring the company, you are acquiring their export compliance liabilities.

• If the acquired company is found to have export compliance liabilities, the acquiring company will be held responsible for them.

•This can occur after the acquisition is complete.

•This rule has been upheld in the courts.

The basic strategy: Check everything out prior to acquisition and voluntarily disclose any compliance issues.

Sometimes disclosure does not occur until after closing.

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Due Diligence and Disclosure

Examples of due diligence that should be performed:

•Export policies, procedures and internal structure•Review past 5 years of export records and licenses•Obtain a report from Census containing export data•Export violations, disclosures penalties•Export compliance training given and received

Anything discovered needs to be disclosed.

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Hypothetical Transaction #2

Acme Corporation (Acme) is acquiring ABC Company (ABC), a US importer and distributor.

ABC has been importing for several years and takes advantage of free trade agreements.

After acquisition, ABC’s business and assets will be incorporated into Acme and ABC itself will be dissolved.

Does Acme have any concerns?

What should Acme do to mitigate those concerns?

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Customs & Import Controls

US Customs & Border Protection (CBP) enforces the Tariff Act of 1930 (Title 19 USC), the Customs Regulations (19 CFR), and the Harmonized Tariff Schedule of the US.

CBP has broad authority to examine goods, review transactions, conduct audits, and investigate violations.

CBP can also assess penalties and liquidated damages for violation.

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Basic Compliance Issues

Some import and Customs compliance issues:

•Undeclared assists,•Tariff classification errors,•Use of free trade agreements,•Dumping and countervailing duties,•Use of duty free exemptions, and•Recordkeeping errors.

And of course, deliberate or fraudulent activity.

13


Successor Liability In An Import Situation

If the acquiring company maintains the acquired company as a separately incorporated subsidiary - the liability remains with the subsidiary.

If the acquired company is merged into the acquiring company and is dissolved as a separate corporation the liability is typically dissolved but there are exceptions.

There are many other things that may need to be done or fixed – but that is another discussion.

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Due Diligence and Disclosure

Import and Customs compliance things to check in an acquisition:

•Compliance policies and procedures,•ITRAC report covering 5 years of imports,•Use of free trade agreements and duty free exemptions,•Last 5 years of import records – if they exist,•Tariff classification database,•Purchasing records for assists and separate payments, and•Products subject to dumping and countervailing duty.

File a prior disclosure for any issues discovered.

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Takeaways

This is a subject frequently overlooked in an acquisition but may be dangerous.

The regulating agencies may be vigilant in enforcement, but also have generous prior disclosure procedures.

Find and fix the problems before the acquisition is final.

Due diligence and voluntary disclosures will help to prevent successor liability issues .

Get expert assistance if you don’t have it in-house.

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Contact Information

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Adrienne BraumillerPartner

Michelle SchulzPartner

Braumiller Schulz LLPInternational Trade Law

5220 Spring Valley Rd Suite 200Dallas, TX 75254

214-348-9306

[email protected]@BraumillerSchulz.com

www.BraumillerSchulz.com

In-House Counsel Summit Export & Import Considerations and Successor Liability April 4, 2013

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Transcript of In-House Counsel Summit Export & Import Considerations and Successor Liability April 4, 2013