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DOJ Takes Unusual Step to Submit Comments in Antidumping and Countervailing Duty Investigation on Mattresses from Vietnam, Thailand, Turkey, Serbia, Malaysia, Indonesia, and Cambodia, and China

DOJ

DOJ Takes Unusual Step to Submit Comments in Antidumping and Countervailing Duty Investigation on Mattresses from Vietnam, Thailand, Turkey, Serbia, Malaysia, Indonesia, and Cambodia, and China

Update: On April 30, 2020, the Department of Justice (DOJ) withdrew its “statement of interest” in the ongoing antidumping and countervailing duty investigations on mattresses from various countries.  In their filing, the DOJ stated that it, “hereby withdraws that Statement of Interest as not yet ripe.” Currently, the U.S. International Trade Commission (“ITC”) is still set to make its preliminary injury determination on May 15, 2020.

The Department of Justice (“DOJ”) filed comments in the U.S. International Trade Commission’s (“ITC”) investigation on whether imports of mattresses from multiple countries are causing injury to the domestic mattress industry. The petition was filed on March 31, 2020, and the Commerce Department initiated the investigations on April 22, 2020. In an unusual step, the DOJ filed a letter with the ITC questioning the appropriateness of the filing and continuation of these cases, given the fact that the current COVID-19 crisis has significantly increased demands for mattresses for both hospitals and consumers. DOJ expressed concern that the existing U.S. domestic industry may not be able to supply the burgeoning demand at hospitals amid the COVID-19 pandemic.

The petitioners in this case, which include Brooklyn Bedding, Corsicana Mattress Company, Elite Comfort Solutions, FXI, Inc., Innocor, Inc., Kolkraft Enterprises; and Leggett & Platt Incorporated have alleged antidumping and countervailing duties up to 1000% on imports of mattresses from Cambodia, China, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam. The DOJ is urging the ITC to consider “all relevant economic factors which have a bearing on the state of the [relevant] industry in the United States.” Further, the “Department urges the Commission to consider the consumer and healthcare demands caused by COVID-19 as a ‘relevant economic factor’ here because COVID-19 will likely have a significant impact on the domestic mattress industry along with many other industries.”

According to the DOJ, the COVID-19 pandemic will “likely” increase demand for mattresses as hospitals expand capacity at a pace with which the domestic industry will not be able to handle. “This demand may outpace domestic supply,” the filing said. “If demand outpaces supply, it is possible that American industry will be able to thrive, but additional supplies will be needed, at least in the short term, to fill the gap and immediate need until American manufacturers can ramp up production.”

The concern articulated by the DOJ was that the financial burdens associated with the risk of duties ranging from 48 to 1000 percent “could potentially affect the supply of mattresses needed in hospitals and other health care facilities.” While there is a chance that the “Commission’s investigation ultimately might find it appropriate to impose duties in this case, it should take the exigent circumstances of COVID-19 and its immediate aftermath into account in crafting a tailored remedy that balances current healthcare needs with the equally important need to protect American industry and workers from unfair imports.” More importantly, the DOJ urges the Commission to consider, for example, the specific and unique circumstances arising out of the pandemic because importers and other companies may, in fact, make “’ massive imports’” of mattresses not to circumvent the antidumping laws but to respond to COVID-19.”

In an even more unusual twist, the DOJ warned against a preliminary affirmative ITC finding because while in normal situations the institution of a case has a limited negative impact, in these unusual circumstances, any affirmative finding (even preliminary) could have an exacerbated effect on the market due to COVID-19.  Should the ITC make an affirmative preliminary finding, then the case would proceed on its normal course back to Commerce to make its finding on the margin of dumping and/or subsidization. Once the case continues after the ITC preliminary decision, there is no stopping until both agencies reach a final decision. The risk which was identified by DOJ is that if the ITC makes an affirmative finding, then the next step is Commerce’s preliminary determinations which would require importers to post a cash deposit on the imported goods, and while this would be ultimately refunded in the event the final determinations are negative, these are risks which would harm the U.S. economy.

During the pandemic, however, mattress exporters could simply opt to supply another market and hinder U.S. efforts to fight the coronavirus, the DOJ said. “Given the immediate and ongoing demands of COVID-19, this harm cannot as easily be undone as in other instances, by eventually, and later, refunding an aggrieved party.” “Thus, it is critical to evaluate the domestic injury here, if any, and the appropriate remedy in light of COVID-19.”

Husch Blackwell’s Trade Remedies practice is comprised of partners who have been working in this field for over 30 years, and this is the first time in our careers that we have seen the DOJ weigh in on a trade remedies investigation at its inception. Normally, the DOJ’s role is to litigate any appeals at the conclusion of the investigatory process on behalf of either the Department of Commerce or the International Trade Commission. The filing of such a letter on the record of a brand new investigation which is in its infancy is extremely unusual.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

COVID-19

The Human Factor of the Novel Coronavirus (COVID-19) and Corruption

With the explosive spread of Coronavirus (COVID-19) hospitals, healthcare providers and all citizens are finding a shortage of goods and services and employees are under increased pressure to preserve and excel in their current roles.

Unfortunately, in this time of crisis corruption is thriving and some aim to profit from others’ misfortune and push companies to the brink to maintain profits.

Around the world, countries are reporting shortages in both medicines and medical supplies due to COVID-19. All of these factors put additional strain on already fragile procurement processes and increases the risk that suppliers, knowing that government and individuals have little choice but to pay, demand higher prices.

In these challenging times having open and transparent contracting processes in place helps mitigate these risks. With nowhere to hide, corrupt actors are unable to practice price gouging and must charge governments and individuals reasonable prices.

The stockpiling of supplies such as masks, gloves, and hand sanitizers are also contributing to shortages in medical supplies. In attempts to profit from public panic, some traders have been inflating prices for ordinary consumers.

After pressure from the Department of Justice, Amazon has implemented an effort to remove tens of thousands of deals from merchants that it said attempted to price-gouge customers. The world’s largest online retailer has faced scrutiny over the health-related offers on its platform, and earlier this week, Italy launched a probe into surging prices around the internet for sanitizing gels and hygiene masks. At the same time, Italy battles the biggest outbreak in Europe.

There are lessons to be learned in health-sector Corruption elsewhere from prior epidemics such as Ebola and SARS where procurement and contracting wrongdoing led to deadly consequences. In prior epidemics, Corruption compromised containment efforts, when corrupt actors used petty bribes and other favors to avoid quarantines, roadblocks, and safe body collection procedures. Even ventilators and other medical oxygen-related equipment have been the subject of bribes and kickbacks, sometimes leading to the tragic deaths of patients. These examples demonstrate the worst case of what can happen without resilient anti-corruption policies.

In the first federal action against fraud involving the coronavirus outbreak, the DOJ obtained a temporary restraining order against a website selling a bogus vaccine.

The DOJ said Sunday, March 21st, that operators of the website “coronavirusmedicalkit.com” were engaging in an alleged wire fraud scheme to profit from the confusion and fear surrounding COVID-19.

The website claimed to offer customers access to the World Health Organization (WHO) vaccine kits in exchange for a shipping charge of $4.95. There are currently no legitimate COVID-19 vaccines, and the WHO is not distributing any such vaccine.

Besides compliance issues with third party business practices with goods and services, companies are experiencing enormous business pressure. Many companies have salespeople who cannot travel due to precautions taken, canceled flights, or, worse, quarantines. They cannot visit customers or partners, leading to slower sales. Global supply chains are disrupted, with shortages of parts and products. Company events and conferences are being canceled, resulting in fewer opportunities to build relationships with customers and market products. Customer demand for company products may be falling, and companies may be declining to make revenue projections during this time of uncertainty about the spread and effects of the coronavirus.

These disruptions can increase the pressure on salespeople to meet their sales targets. Salespeople may feel additional pressure now, when sales may be sluggish, and again when business gets back to normal, and they want to make up for the time lost. That pressure can lead some people to make the wrong choices—to engage in bribery or other misconduct—to generate business. Besides, the heightened emphasis on business priorities due to the losses from the coronavirus can push anti-corruption compliance further down on the priority list.

If/when the DOJ and SEC discover bribery or Corruption, they assuredly will not be accepting a “coronavirus defense” from companies. Compliance officers should be aware of situations like the coronavirus that could raise corruption risks and try to guard against them. Compliance officers should refer explicitly to the disruption caused by the coronavirus and emphasize that the company is committed to complying with anti-corruption laws. The communications must be to the employees who need to see them, such as salespeople who interact with customers, or “gatekeeper” functions like finance who review financial transactions.

Most importantly, senior executives and the board, if appropriate, need to make sure that the business pressures resulting from the coronavirus do not overshadow the company’s commitment to compliance and that values and ethics are maintained.

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For more information or questions, please contact Frank Orlowski at frank@ationadvisory.com or +1917-821-2147 and please visit our website at www.ationadvisory.com

export control

New DOJ Sanctions and Export Control Enforcement Policy Incentivizes Self-Disclosure

On December 13, the U.S. Department of Justice (“DOJ”) released a revised policy that expands and clarifies certain incentives for voluntary self-disclosure of potential criminal sanctions and export control violations.

The new policy (the “VSD Policy”), which is effective immediately, has important ramifications for companies and their interactions with DOJ regarding potentially willful violations of US sanctions and export control laws.

Notably, the DOJ’s policy now extends to financial institutions and establishes disclosure benefits in mergers and acquisitions for acquiring companies who discover misconduct through “thorough and timely due diligence.” The policy also establishes a presumption of a non-prosecution agreement for companies that meet certain criteria in the absence of aggravating circumstances, as well as substantial mitigation credit where a penalty is warranted.

Components of the VSD Policy

Most notably, the VSD Policy specifies that, subject to certain conditions and absent aggravating factors, there will be a presumption that a company will receive a non-prosecution agreement and will not pay a fine for self-disclosed sanctions and export control violations. In order to be subject to such a presumption, the company must (1) voluntarily self-disclose violations, (2) fully cooperate with DOJ and (3) timely and appropriately remediate any violations.1

The VSD Policy also sets out specific definitions for these criteria. For instance, in order to “voluntarily self-disclose” pursuant to the VSD policy, a disclosure must be:

-Prior to an imminent threat of disclosure or government investigation;

-Within a reasonably prompt time after a company becomes aware of the offense; and

-Include all relevant facts known to the company at the time of disclosure, including with respect to individuals substantially involved or responsible for the disclosed violations.2

Importantly, voluntary self-disclosures must be made to DOJ in order for the VSD Policy to apply. In other words, companies that make self-disclosures to regulatory agencies but not to DOJ will not be able to receive the benefits of the VSD Policy. Equally of note is that any company receiving the benefits of the VSD Policy, including one that receives a non-prosecution agreement, will not be permitted to retain any gains from the unlawful conduct and will be required to pay all disgorgement, forfeiture, and/or restitution stemming from the disclosed violations.

The VSD Policy sets forth a number of specific requirements that companies must meet in order to “fully cooperate.” In order to “fully cooperate” under the VSD Policy, a company must:

-Disclose all facts relevant to the wrongdoing on a timely basis. This includes, inter alia, relevant facts from an internal investigation and updates to those facts (as well as updates on an internal investigation), attributed to specific sources. Such facts must include those related to involvement in criminal activity by officers, employees, or agents and facts about potential criminal conduct by third parties.

-Proactively, rather than reactively, cooperate. This proactive cooperation must include the timely disclosure of relevant facts, even if the company is not asked to do so.

-Preserve, collect, and disclose relevant documents and information in a timely manner. These actions include the disclosure of overseas documents (as well as where they are located and who found them), the facilitation of third-party production of documents, and document translations where appropriate.

-De-conflict witness interviews in order to align a company’s internal investigation with an investigation by DOJ when requested and appropriate (although, the VSD Policy notes, DOJ will not affirmatively direct a company’s internal investigation); and

-Make company officers and employees possessing relevant information available for interviews by DOJ when requested, including former employees and those located overseas, and facilitate interviews of third-party witnesses when possible.3

Finally, in order to “timely and appropriately remediate” pursuant to the VSD Policy, there are several actions that a company must undertake:

-A “root cause” analysis that analyzes underlying conduct and remediates those root causes where appropriate;

-The implementation of a compliance program, which would be updated periodically. The VSD Policy acknowledges that such a program will vary depending on the organization’s size and resources, but notes that it may include information on:

-A company’s culture of compliance, including that criminal conduct will not be tolerated by the company;

-Company resources dedicated to compliance, as well as the compensation and promotion of compliance personnel and their quality and experience;

-The independence of a company’s compliance function, the auditing of the compliance program, the access of the board of directors to compliance expertise, and the reporting structure of compliance personnel; and

-Details about a company’s risk assessment, its effectiveness, and how a compliance program has been tailored based on that risk assessment;

-Discipline of employees, including those responsible for misconduct and those with oversight and supervisory authority;

-Retention of business records and the prohibition on the improper destruction of such records, including guidance and controls on personal communications; and

-Any additional steps necessary to demonstrate recognition of misconduct, the acceptance of responsibility, and measures to reduce the risk of future misconduct.4

Aggravating Factors

As noted, the presumption of a non-prosecution agreement and the absence of a fine will only be available under the VSD Policy in cases of voluntary self-disclosures where there are no aggravating factors. The VSD Policy includes a non-exhaustive list of such aggravating factors, and specifies that if such factors are substantially present, a “more stringent” resolution may result:

-Exports of items controlled for nuclear nonproliferation or missile technology reasons to a proliferator country;

-Exports of items known to be used in the construction of weapons of mass destruction;

-Exports to a Foreign Terrorist Organization or Specially Designated Global Terrorist;

-Exports of military items to a hostile foreign power;

-Repeated violations, including similar administrative or criminal violations in the past; and

-Knowing involvement of upper management in the criminal conduct.5

Even if such aggravating factors are present, the VSD Policy provides incentives for companies to voluntarily self-disclose violations, cooperate with DOJ, and timely and appropriately remediate, consistent with the definitions in the VSD Policy. In such instances, DOJ will recommend a fine that is capped at 50 percent of the amount otherwise available. In addition, if the company has implemented an effective compliance program, DOJ will not require the appointment of a monitor for the company.

Takeaways for Companies

DOJ’s new VSD Policy is a clear effort by the agency to encourage and reward timely voluntary self-disclosure by companies that identify potential willful violations of export control and sanctions laws. The VSD Policy brings DOJ’s practices closer in line with those of the Office of Foreign Assets Control and the Bureau of Industry and Security, both of which also incentivize self-disclosure by limiting penalties. DOJ’s incentives aim to encourage the private sector to implement effective compliance programs to prevent and detect violations in the first place and report them to DOJ in a timely manner if they occur. A clear goal of the VSD Policy is also to provide DOJ with the information and resources to prosecute individuals responsible for wrongdoing.

Notably, unlike previous guidance issued by DOJ, the VSD Policy does not include a carve-out for financial institutions. As a result, these entities will be able to take advantage of the VSD Policy going forward. Additionally, the VSD Policy provides incentives for self-disclosure in mergers and acquisitions. Specifically, the VSD Policy specifies that a successor entity that makes a timely voluntary self-disclosure (even as a result of post-acquisition due diligence) will be able to take advantage of the incentives set forth in the VSD Policy. Companies wishing to review or strengthen their compliance programs should consult sanctions and export control counsel in order to ensure that such programs are tailored to the criteria set forth by DOJ and reflective of the risk involved in the company’s activities.

Also worth noting is that while the VSD Policy aims to incentivize self-disclosure to the DOJ by providing certain defined benefits, those benefits are not without cost or risk. Companies with a potential sanctions or export control violation should consult experienced sanctions and export control counsel to provide guidance on the decision of whether to self-disclose, which involves a complicated balance of numerous factors.

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1 U.S. Department of Justice, Export Control and Sanctions Enforcement Policy for Business Organizations, 2, Dec. 13, 2019 (hereafter “VSD Policy”).

2 VSD Policy at 2.

3 VSD Policy at 3-4.

4 VSD Policy at 5-6.

5 VSD Policy at 6.

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Greg Deis is a partner in Mayer Brown’s Chicago office and co-chair of the firm’s White Collar Defense & Compliance practice.

Ori Lev is a partner in Mayer Brown’s Washington DC office and a member of the Financial Services Regulatory & Enforcement practice and the Consumer Financial Services group.

Tamer Soliman is a partner in Mayer Brown’s Washington DC and Dubai offices, global head of the firm’s Export Control & Sanctions practice and a member of the International Trade practice.

Margaret-Rose Sales is counsel in Mayer Brown’s Washington DC office and a member of the International Trade practice.

Mickey Leibner is an associate in the Public Policy, Regulatory & Political Law, International Trade and Cybersecurity & Data Privacy practices in Mayer Brown’s Washington DC office.

FCPA

FCPA Can Provide a Favorable Competitive Edge for Your Business

FCPA can be used as a useful business development tool when dealing with government officials and customers in international markets by conducting a valuable training awareness program or seminar.

 In 1977 FCPA Regulations were implanted in response to revelations of widespread bribery of foreign officials by U.S. companies. The US Regulation was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace. More recently, the Securities Exchange Commission has joined the Department of Justice is expanding the scope of what an FCPA violation means with vague, broad guidelines.

If one thinks US Multinationals are confused by the new regulation in nature and scope, one can only imagine the confusion of customers, vendors, government officials, and other stakeholders within over 80 International markets.

In many markets, the word “bribe” in business is not a negative reactionary term but respected and expected. In fact, in most emerging markets across Asia, Latin America, The Middle East, or Eastern Europe require this.  If some form of a gift, payment, or consideration is not part of the agreement, it is considered rude and disrespectful, and business negotiation will stall.

Emerging Markets are even finding themselves in a position where they are reluctant to do business with US Multinationals for not respecting local customs and norms and not understanding the FCPA Regulation itself due to the complexity. US Multinationals under FCPA jurisdiction are losing billions of dollars in business opportunities within these markets since their “hands are tied” when it comes to ensuring strict FCPA Compliance. All of which has led to a significant loss in revenue.

However, there is a solution with a win-win for all parties, including the SEC and DOJ.

A robust  FCPA/ Compliance and Controls Training Program delivered by US Companies to Emerging Markets customers, vendors, government officials,  and other third parties to help third party markets better understand US Regulations and has led to a measurable increase in local sales/revenue.

Locally, language adapted, simple, effectively delivered (and maybe even “fun”) training programs using case study interactive examples in a classroom setting provided to local clients/customers/government officials/vendors provides an essential need of US FCPA and Compliance and Controls Requirements.

Private and Public Sector examples show that across Emerging Markets a robust, custom-developed FCPA Training Program, in the local language with interactive case studies  successfully delivered in a hotel or meeting room including modest meals and beverages,  will lead to increased sales/revenue and cost avoidance  in the areas of  Government Tender revenue, ease of custom clearings,  and accelerated regulatory approvals of product or services.

The bottom line benefits are:

-FCPA Regulators appreciate the training and awareness of programs delivered throughout Emerging Markets avoiding subsequent fines and actions

-In-country clients/third parties and government officials enjoy learning about FCPA and how it might differ from their local country norms around bribing

-US Multi-Nationals could significantly increase revenue within emerging markets while complying with FCPA Regulations.

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If you would like to find out more, please contact Frank Orlowski, Founder Ation Advisory Group at 917-821-2147.