Trends In International Litigation : International Business Lawyer & Attorney : Ed Joffe : Joffe & Joffe Law Firm : Miami, Florida Global Customs & Trade Issues

Purchasers of marine products may have claims have antitrust violations. Earlier this year two subsidiaries of the Swedish company Trelleborg AB, one based in Virginia and the other in France, agreed to plead guilty and pay a total of $11 million in criminal fines for their participation in separate conspiracies affecting the sales of marine products sold in the United States and elsewhere.
A two-count felony charge was filed in U.S. District Court in Norfolk, Va., against Virginia Harbor Services Inc., formerly known as Trelleborg Engineered Products Inc. (VHS/TEPI), a manufacturer of foam-filled marine fenders, buoys and plastic marine pilings headquartered in Clearbrook, Va.
According to the charges, VHS/TEPI participated in a conspiracy between December 2002 and August 2005 to allocate customers and rig bids for contracts to sell foam-filled marine fenders and buoys, and also participated in a separate conspiracy between December 2002 and May 2003 to allocate customers and rig bids for contracts to sell plastic marine pilings. Under the terms of the plea agreement, which is subject to court approval, VHS/TEPI has agreed to pay a $7.5 million criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation.

Foam-filled marine fenders are used as a cushion between ships and either fixed structures, such as docks or piers, or floating structures, such as other ships. Foam-filled buoys are used in a variety of applications, including as channel markers and navigational aids. Plastic marine pilings are substitutes for traditional wood timber pilings and are often used in port and pier construction projects in conjunction with foam-filled fenders.
 

In addition, a one-count felony charge was filed earlier this year against Trelleborg Industrie S.A.S. (TISAS), a manufacturer of marine hose headquartered in Clermont-Ferrand, France. TISAS is charged with participating in a conspiracy from at least as early as 1999 and continuing until as late as May 2, 2007, to allocate market shares, fix prices and rig bids for contracts to sell marine hose to purchasers in the United States and elsewhere. Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. Under the terms of the plea agreement, TISAS agreed to pay a $3.5 million criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation.
“Price fixing and bid rigging are serious crimes that drain resources from the Department of Defense and the American taxpayer. The Defense Criminal Investigative Service takes very seriously all violations of U.S. antitrust laws that affect products and services procured for our soldiers, sailors, airmen and Marines. DCIS aggressively investigates those who seek to cheat the DOD and the public by conspiring to suppress competition,” said Sharon Woods, Director, DCIS. 
 

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An important warning to those businesses servicing  the U.S. offshore oil and gas industry.  Operating Income derived from activities in the Outer Continental Shelf (OCS) is generally taxable and Keith M. Jones, the IRS’s Industry Director, Natural Resources and Construction has directed his field staff toward activities of foreign taxpayers engaged in activities related to the exploration for, or exploitation of, natural resources on OCS.

Jones noted that in recent years, an increased number of foreign vessels have applied to enter and work in the OCS. The IRS has determined that a significant number of foreign vessels permitted to work in the OCS do not comply with U.S. filing requirements. These include contractors that perform services on the OCS (such as seismographic testing, drilling, repair and salvage work); vessel operators that transport supplies and personnel between U.S. ports and locations on the OCS; and owners and/or operators of foreign-registered vessels that bareboat or time charter to persons that are engaged in activities related to the exploration for, or exploitation of, natural resources on the OCS. All of these operations may be subject to US tax liability.
Section 638(1) provides that the OCS is geographically within the United States for purposes of applying Chapter 1 of the Code, which includes all the rules for sourcing income. Thus, foreign contractors that provide services on the OCS are generally considered to perform those services in the United States and derive U.S. source income. They are also engaged in a U.S. trade or business for purposes of section 864 and therefore are subject to tax on a net basis at graduated rates.
 

The Offshore Marine Service Association (OMSA)  in the US says it "applauds" the Internal Revenue Service’s recently posted directive to field officers establishing an issue management team in the wake of an IRS analysis indicating that a significant number of foreign vessels permitted to work in the US offshore oil and gas industry are not complying with US filing requirements.
OMSA President Ken Wells said: “This is a bad time for anyone to be seen as a tax cheat in America, let alone a foreign corporation. There have been a lot of news stories recently about shortfalls in tax revenues because of the recession. It is more important than ever for the IRS to close in on foreign companies that have been sidestepping their U.S. tax obligations.”  
OMSA represents the owners and operators of US flag offshore service vessels and the shipyards and other businesses that support that industry.

 

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An international week of action targeting the on line sale of counterfeit and illicit medicines has resulted in a series of arrests and the seizure of thousands of potentially harmful medical products.In response to an ever-increasing number of websites supply dangerous and illegal medicines, Operation Pangea II involving 24 countries was co-ordinated by INTERPOL and the World Health Organization’s (WHO) International Medical Products Anti-Counterfeiting Task force (IMPACT) to highlight the dangers of buying medicines on line.National medicines regulators, police and customs worked closely together on the global operation from 16-20 November, focusing on the three principle components used by an illegal website to conduct their trade - the Internet Service Provider (ISP), payment systems and the delivery service. During the operation, Internet monitoring revealed 751 websites engaged in illegal activity, including offering controlled or prescription only drugs, 72 of which have now been taken down. In addition, more than 16,000 packages were inspected by regulators and customs, 995 packages were seized and nearly 167,000 illicit and counterfeit pills – including antibiotics, steroids and slimming pills, confiscated. A total of 22 individuals are currently under investigation for a range of offenses including illegally selling and supplying unlicensed or prescription-only medicines.

“Our primary goal in Operation Pangea II is to protect the public by removing counterfeit and illicit medicines from the market, by shutting down those engaged in illegal sales on the web and by criminally prosecuting those potentially putting the lives of innocent consumers at risk by selling counterfeit or illicit medicines,” said INTERPOL Secretary General Ronald K. Noble.

Operation Pangea II increased participating countries over last year’s operation from 8 to 24 and added police and customs agencies to complement the work of the drug regulatory agencies. In addition, this year’s effort devoted an entire week to the operation as opposed to the one day of action in 2008.

“As the very positive results of this global effort are made public, INTERPOL and its member countries will prove again that the Internet is not an anonymous safe haven for those who use it for criminal purposes. We also hope that by raising public awareness about the dangers of illegal Internet pharmacies, consumers will exercise greater care when purchasing medicines on the Internet,” added Secretary General Noble.

“Our thanks go to the police, customs and regulatory officials in the 24 participating countries as well as to our partner international organizations such as the World Health Organization’s (WHO) IMPACT, the World Customs Organization and Universal Postal Union whose tireless efforts and dedication have made Operation Pangea II such a success,” concluded the head of INTERPOL.

The operation was also run with significant support from the Permanent Forum on International Pharmaceutical Crime (PFIPC) the World Customs Organization, the UK’s Medicines and Health Care products Regulatory Agency (MHRA), the US Food and Drug Administration (FDA) and Immigration and Customs Enforcement (ICE), the Royal Canadian Mounted Police and Health Canada.

Countries involved in Operation Pangea II were - Australia, Austria, Belgium, Canada, Czech Republic, Denmark, France, Germany, Ireland, Israel, Italy, Liechtenstein, Netherlands, New Zealand, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, UK and the USA.

Illegally sold drugs seized in France.
 

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Even foreign companies are vulnerable to the tentacles of The Foreign Corrupt Practices Act (FCPA). After three years of satisfying obligations under a deferred prosecution agreement, the charges against Statoil ASA for violating the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA) have been dismissed with prejudice. Statoil is an international oil company headquartered in Norway and listed on the New York Stock Exchange.

On Oct. 13, 2006, the Department of Justice filed a criminal information charging that in 2001 and 2002, Statoil sought to expand its business internationally and focused specifically on Iran as a country in which to secure oil and gas development rights. At the time, Iran was awarding contracts for the development of the South Pars field, one of the world’s largest natural gas fields. In 2001, Statoil developed contacts with and began negotiating with an Iranian government official who could influence the award of oil and gas contracts in Iran. Statoil then entered into a "consulting contract" with an offshore intermediary company. The purpose of that "consulting contract" – which called for the payment of more than $15 million over 11 years – was to induce the Iranian official to use his influence to help Statoil obtain a contract to develop portions of the South Pars field, and to open doors to future Iranian oil and gas projects. Two bribe payments totaling more than $5 million were made by wire transfer, and Statoil was awarded a South Pars development contract that was expected to yield millions of dollars in profit. The criminal information charged that Statoil violated the FCPA by making the corrupt payments, and also committed securities fraud by falsifying its books and records in characterizing the bribe payments as "consulting fees."

According to the deferred prosecution agreement, Statoil acknowledged making the corrupt payments, agreed to pay a $10.5 million penalty, and agreed to the appointment of an independent compliance consultant for a three-year period to review and periodically report on the company’s compliance with the deferred prosecution agreement and to conduct a comprehensive review of the controls, policies and procedures of Statoil related to compliance with the FCPA. Under the terms of the deferred prosecution agreement, the criminal information was to remain pending until it was either dismissed or prosecuted in order to allow Statoil to demonstrate its good conduct.
The Department of Justice has received the final report of the compliance consultant,  F. Joseph Warin of Gibson, Dunn & Crutcher) and determined that Statoil has fully complied with all of its obligations under the deferred prosecution agreement, including the obligation to adopt the compliance-related recommendations of the compliance consultant. Accordingly, on Nov. 18, 2009, the Department filed a motion with the court to dismiss with prejudice the criminal information against Statoil. U.S. District Judge Richard J. Holwell granted that motion and has dismissed the charges.

This case was handled by Deputy Chief Mark F. Mendelsohn of the Fraud Section as well as Assistant U.S. Attorney Ray Lohier and former Assistant U.S. Attorney Deborah Landis of the Southern District of New York. Fraud Section Trial Attorney Joseph Capone also provided assistance on this case.
 

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Trademark owners must carefully adhere to any license agreements with Chinese companies.  Kathrin Hille, Taipei correspondent for the Financial Times reported from Beijing that on November 18, a Chinese court ruled that Microsoft infringed a Chinese software maker's intellectual property rights.   Microsoft’s use of two Chinese fonts developed by Zhongyi Electronic, a Beijing-based software company, was not covered by a license agreement between the two, the Beijing No 1 Intermediary People's Court said in a verdict. Once the ruling takes effect, Microsoft must stop selling all PC operating systems that use the fonts including the Chinese language editions of the second edition of Windows 98, Windows 2000, Windows XP and Windows Server 2003.

Hille reported that  Zhongyi said the verdict had highlighted that every Chinese-language Windows operating system included Chinese intellectual property rights because the Chinese character database and Chinese language input system were developed by locals. "It can be said that the support from the Chinese character database and the input system are a pillar for the windfall profits Microsoft is extracting from China. Microsoft, which has always presented itself as a forceful protector of intellectual property rights and blamed the Chinese people for 'piracy', has actually been infringing Chinese intellectual property rights," Zhongyi said.

  Aaron Back of  Dow Jones Newswires  reported that Microsoft spokeswoman Joanna Li didn't directly comment on whether the company had halted sales of the operating systems in China, but said, "we do not expect the ruling to impact product sales."   Microsoft plans to appeal it.  "We believe our license agreements with the plaintiff cover our use of the fonts," Microsoft said in the statement.

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New complications in the hoizon for technology firms in Europe.   As posted on November 13, 2009 by Patricio Robles of econsultancy.com, new legislation in the EU will restrict the use of cookies.  It reads:

Third parties may wish to store information on the equipment of a user, or gain access to information already stored, for a number of purposes, ranging from the legitimate (such as certain types of cookies) to those involving unwarranted intrusion into the private sphere (such as spyware or viruses). It is therefore of paramount importance that users be provided with clear and comprehensive information when engaging in any activity which could result in such storage or gaining of access. The methods of providing information and offering the right to refuse should be as user-friendly as possible. Exceptions to the obligation to provide information and offer the right to refuse should be limited to those situations where the technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user. Where it is technically possible and effective, in accordance with the relevant provisions of Directive 95/46/EC, the user's consent to processing may be expressed by using the appropriate settings of a browser or other application. The enforcement of these requirements should be made more effective by way of enhanced powers granted to the relevant national authorities. [Emphasis added]

As Robles argues, “ this essentially requires that users be notified every time a cookie is to be placed on their machine unless that cookie "is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested". The big question, of course, is how you define "strictly necessary". Whatever isn't "strictly necessary" would require that the user somehow be informed that a cookie is going to be placed on his machine, and essentially consent to having it placed. From online advertising to the implementation of personalization functionality, this directive has the potential to wreak havoc.
Stuan Robertson , editor of OUT-LAW.COM and a technology attorney with the UK law firm, Pinsent Masons, explains that the current law – a provision of the Privacy and Electronic Communications Directive, says that sites using cookies must give visitors "clear and comprehensive information" about the purpose of the cookies. It also says that a site must offer visitors "the right to refuse" the use of cookies. There is an exception for cookies that are "strictly necessary" to provide a service "explicitly requested" by the user. Consequently, no cookie notices are required to serve a cookie that helps a shopper get from a product page to a checkout; but notices are required for cookies that are used in traffic analysis or advertising.When the original law was passed in 2002, the main question was how and when these notices must be given. What does a "right to refuse" require of a website? The UK's data protection regulator took the view that a notice in an easy-to-find privacy policy will suffice. That approach, it seems, prevailed across the EU and, to our knowledge, there has never been any action against cookie transgressors.
 

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I wanted to pass on some thoughts of Thomas L. Friedman, an OpEd Columnist with the New York Times. Last summer, while attending a talk by Michelle Rhee, the chancellor of public schools of Washington, DC, Friedman met Todd Martin, a former global executive with PepsiCo and Kraft Europe and now an international investor. Martin opined that the topic about which Rhee was to speak— our struggling public schools — was actually a critical, albeit unspoken reason for the Great Recession.
“Our education failure is the largest contributing factor to the decline of the American worker’s global competitiveness, particularly at the middle and bottom ranges,” argued Martin. “This loss of competitiveness has weakened the American worker’s production of wealth, precisely when technology brought global competition much closer to home. So over a decade, American workers have maintained their standard of living by borrowing and overconsuming vis-à-vis their real income. When the Great Recession wiped out all the credit and asset bubbles that made that overconsumption possible, it left too many American workers not only deeper in debt than ever, but out of a job and lacking the skills to compete globally.” This problem will be reversed only when the decline in worker competitiveness reverses — when we create enough new jobs and educated workers that are worth, say, $40-an-hour compared with the global alternatives. If we don’t, there’s no telling how “jobless” this recovery will be.
 

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The Foreign Corrupt Practices Act (FCPA) is alive and well.   A former consultant for Willbros International Inc. (WII), a subsidiary of Houston-based Willbros Group Inc. (Willbros), pleaded guilty today to engaging in a conspiracy to pay more than $6 million in bribes to government officials of the Federal Republic of Nigeria and officials from a Nigerian political party, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and Assistant Director Joseph Persichini Jr., of the FBI’s Washington Field Office.

Paul G. Novak, 43, pleaded guilty before U.S. District Judge Simeon T. Lake III in Houston to one count of conspiracy to violate the  and one substantive count of violating the FCPA. Sentencing has been scheduled for Feb. 19, 2010.

"The use of intermediaries to pay bribes will not escape prosecution under the FCPA," said Assistant Attorney General Lanny A. Breuer. "The Department will continue to hold accountable all the players in an FCPA scheme – from the companies and their executives who hatch the scheme, to the consultant they retain to carry it out."

"The FBI is committed to investigating and weeding out corruption that inhibits honest business practices around the globe," said Assistant Director Persichini.

 In his plea, Novak admitted that from approximately late-2003 to March 2005, he conspired with others to make a series of corrupt payments totaling more than $6 million to various Nigerian government officials and officials from a Nigerian political party to assist Willbros in obtaining and retaining the Eastern Gas Gathering System (EGGS) Project, which was valued at approximately $387 million. The EGGS project was a natural gas pipeline system in the Niger Delta designed to relieve existing pipeline capacity constraints.

According to information contained in plea documents, Novak, along with alleged co-conspirators Kenneth Tillery, Jason Steph, Jim Bob Brown, three employees from a German construction company based in Mannheim, Germany agreed to make the corrupt payments to, among others, government officials from the Nigerian National Petroleum Corporation (NNPC), the National Petroleum Investment Management Services (NAPIMS), a senior official in the executive branch of the federal government of Nigeria, members of a Nigerian political party and officials from the Shell Petroleum Development Company of Nigeria Ltd. (SPDC). According to court documents, the bribes were paid to assist in obtaining and retaining the EGGS project and additional optional scopes of work.

According to information contained in plea documents, to secure the funds for those corrupt payments, Steph and others caused Willbros West Africa Inc. (WWA), a subsidiary of Willbros, to enter into so-called "consultancy agreements" with two consulting companies Novak represented in exchange for purportedly legitimate consultancy services. In reality, those consulting companies were used to facilitate the payment of bribes. Specifically, the consulting companies would invoice WWA for purported consulting services and would receive payment from WII’s bank account in Houston to the consulting companies’ bank accounts in Lebanon. Novak would then use money from the Lebanese bank accounts to pay bribes to the various Nigerian officials.

This case is being prosecuted by Assistant Chief Hank Bond Walther and Trial Attorney Laura N. Perkins of the Criminal Division’s Fraud Section and investigated by the FBI’s Washington Field Office.
 

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Importers and transportation professionals should be aware of the recent settlement of the litigation over the Port of Long Beach’s Concession Plan. This past week U.S. District Court Judge Christina Snyder approved the compromise negotiated between the Port and American Trucking Association (ATA). Earlier this year preliminary rulings by the U.S. District Court and a federal appellate court in California indicated that some provisions in the port concession plans, and possibly the concession requirements in their entirety, most likely violate the Federal Aviation Administration Authorization Act.

The April 28 preliminary injunction against the Port’s Concession Agreements will remain in effect until the newly negotiated Registration and Agreement process is implemented. The Port and ATA emphasized that the new registration apparatus, which includes an agreement by carriers to provide the Port necessary operating information, will allow the Port to strictly oversee and enforce motor carrier’s compliance with federal, state, and port safety, security, and environmental regulations. Motor carriers will agree to replace old, polluting trucks with vehicles that comply with the federal Environmental Protection Agency's 2007 model emission standards.  Bill Mongelluzzo of the Journal of Commerce has reported controversy over the deal. The National Retail Federation, which represents many of the retailers that ship through Southern California, said Long Beach recognized that the concession requirements did not contribute to clean air but rather added unnecessary costs for importers shipping through the port. "A compliant truck emits the same emissions regardless of who is driving the truck," said Jonathan Gold, vice president for supply chain and customs policy at NRF.

Environmental interests, meanwhile, criticized Long Beach for failing to stick with the Port of Los Angeles in attempting to preserve the concession requirements in the ports' clean-truck programs. Los Angeles's concession program had many of the same requirements as the Long Beach agreement, with the added requirement that motor carriers hire drivers as direct employees. This requirement, supported by the Teamsters, would make it easier for the Teamsters to organize harbor truck drivers and was subject to litigation filed by ATA. Despite this settlement, the Port of Los Angeles is continuing with its litigation.

The Natural Resources Defense Council criticized Long Beach for settling the lawsuit with ATA. "Rather than clean up the trucks that serve its port, Long Beach ran away from a fight with an industry that has opposed clean-air regulation locally and nationally and is content to sit on the sidelines while the Port of Los Angeles pays to clean up the trucks that serve both ports," said David Pettit, senior attorney and director of NRDC's Southern California clean-air program.
There are good arguments made by both sides of the equation – the interests of small trucking operations and environmental interests. In this tough economic environment a compromise was in the best interests of all parties and I encourage the Port of Los Angeles to follow its neighbors lead and bring an end to its costly litigation.
 

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