Checking the Scorecard - Revising the Model Forms: Hot Points Driving Change Thursday, April 29, :15 p.m. 4:15 p.m.

Transcription

1 2010 ANNUAL SPRING INVESTMENT FORUM American College of Investment Counsel Chicago, IL Checking the Scorecard - Revising the Model Forms: Hot Points Driving Change Thursday, April 29, :15 p.m. 4:15 p.m. Clint L. Woods AEGON USA Investment Management, LLC (Moderator) Dewey B. Crawford Foley & Lardner LLP Scott Alan Falk Bingham McCutchen LLP Simeon M. Kriesberg Mayer Brown LLP Lenny Mazlish CIGNA Corporation

2 : International Trade Compliance Defects in Model Loan Agreements American College of Investment Counsel Spring Forum April 29, 2010 Simeon M. Kriesberg Mayer Brown LLP, Washington, DC (202) Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. The Mayer Brown Practices are known as Mayer Brown JSM in Asia. Introduction a. Lenders are Living on Borrowed Time Due to Defects in Standard Loan Documents b. Focus on Four International Trade Compliance Laws i. U.S. Foreign Corrupt Practices Act ii. iii. iv. U.S. Export Control Laws USA PATRIOT Act U.S. Embargo Laws c. Critique of Standard Provisions in Model Form #2 for Note Purchase Agreements d. Caveat: Overview Only; Not Legal Advice 1 1

3 U.S. FCPA: Who is Covered? a. Any entity whose securities are traded or registered in the United States b. Controlled in fact foreign subsidiaries or joint ventures of such entity c. Directors, officers, employees, and agents of such entity and any shareholders acting on behalf of such entity d. In addition, for antibribery provisions, i. Any entity organized under U.S. law or based in the United States ii. iii. Any citizen or resident of the United States Any foreign person who commits subject act in the United States 2 U.S. FCPA: What is Prohibited? a. Accounting Provisions i. Books and Records Must Accurately and Fairly Reflect Transactions and Dispositions of Assets ii. System of Internal Controls Must Suffice to Provide Reasonable Assurances that Transactions are Executed in Accordance with Management Authorizations 3 2

4 U.S. FCPA: What Is Prohibited? b. Antibribery Provisions i. Offering or Giving Anything of Value ii. iii. iv. Indirectly or Directly To Foreign Government Official, Foreign Political Party or Party Official, Foreign Political Candidate, or Official of Public International Organization For Purposes of (i) Influencing Any Act or Decision of Such Recipient in an Official Capacity, (ii) Inducing Recipient to Do or Omit to Do an Act in Violation of Lawful Duty, or (iii) Securing Any Improper Advantage v. All in Order to Obtain, Retain, or Direct Business for or to Any Person 4 U.S. FCPA: What Knowledge is Required? a. Awareness or Firm Belief that Prohibited Conduct is Substantially Certain to Occur b. Conscious Disregard or Deliberate Ignorance of Pertinent Circumstances Not Excused c. Expectation of Effective Corporate Compliance Program d. Knowledge More Relevant to Mitigation Than to Violation 5 3

5 U.S. FCPA: What are the Penalties? a. Maximum Civil Fines on Individuals of Greater of $100,000 or Gross Gain; on Entities of Greater of $500,000 or Gross Gain b. Maximum Criminal Fines on Entities of Greater of $2 Million $25 Million or Twice the Gross Gain c. Maximum Criminal Fines on Individuals of Greater of $250,000 $2 Million or Twice the Gross Gain d. Criminal Sentences for Individuals of Up to 5 20 Years e. No Reimbursement of Individuals Fines f. Other Penalties Include Disgorgement of Profits, Debarment from Government Contracts, Denial of Export Licenses, and Reputational Damage 6 U.S. Export Control Laws: Who is Covered? a. U.S. Manufacturers and Exporters of Goods and Technology b. Non U.S. Manufacturers and Exporters that Re Export U.S. Origin Goods or Technology c. Non U.S. Manufacturers and Exporters of Goods Made Abroad with U.S. Goods or Technology Valued at Over Ten Percent of Value of Finished Goods 7 4

6 U.S. Export Control Laws: What is Prohibited? a. Unlicensed Exports of Controlled U.S. Origin Goods and Technology, including Deemed Exports b. Unlicensed Re exports of Controlled U.S. Origin Goods and Technology c. Unlicensed Exports of Foreign Goods Made with Controlled U.S. Origin Goods or Technology Exceeding Ten Percent of Value of Finished Goods d. Separate Regulatory Regime for Military Exports Extends to Manufacturers and Brokers as well as Exporters 8 U.S. Export Control Laws: What Knowledge is Required? a. By Regulation, Actual Knowledge is Required b. In Practice, Constructive Knowledge Suffices: No Blinders Are Acceptable c. Expectation of Effective Corporate Compliance Program d. Knowledge More Relevant to Mitigation Than to Violation 9 5

7 U.S. Export Control Laws: What are the Penalties? a. Civil Fines of Up to $250,000 or Twice the Value of the Transaction for Entities or Individuals b. Criminal Fines of Up to $1 Million for Entities or Individuals, and Sentences of Up to 20 Years for Individuals c. Denial of Export Privileges d. Reputational Damage 10 USA PATRIOT Act: Who is Covered? a. Banks b. Broker Dealers c. Insurance Companies d. Registered and Unregistered Investment Companies e. Loan and Finance Companies f. Persons Involved in Real Estate Closings g. Other Financial Institutions 11 6

8 USA PATRIOT Act: What is Prohibited? a. Failure to Maintain Specified Anti Money Laundering Program b. Failure to Maintain Specified Customer Identity Verification Program c. Failure to Exercise Due Diligence with Respect to Correspondent Accounts, Private Accounts, Payable Through Accounts d. Failure to File Suspicious Activity Reports e. Failure to Take Special Measures against Primary Money Laundering Concerns 12 USA PATRIOT Act: What Knowledge is Required? a. Actual or Constructive Knowledge b. Expectation of Effective Corporate Compliance Program c. Knowledge More Relevant to Mitigation Than to Violation 13 7

9 USA PATRIOT Act: What are the Penalties? a. Civil or Criminal Fines of at Least Two Times the Value of Transaction, Up to $1 Million b. More Vigorous Oversight by Federal Banking Regulators c. Reputational Damage 14 U.S. Embargo Laws: Who is Covered? a. Individuals Who Are Citizens of, Residents of, or Located in the United States b. Entities That are Incorporated Under U.S. Law c. Entities That are Located in the United States d. For Cuba Embargo, Foreign Subsidiaries of U.S. Entities 15 8

10 U.S. Embargo Laws: What is Prohibited? a. Virtually All Transactions with Certain Embargoed Countries b. Many Transactions with Other Embargoed Countries c. Virtually All Transactions with Specially Designated Nationals (SDNs) d. Facilitation of Foreign Transactions with Embargoed Countries or SDNs 16 U.S. Embargo Laws: What Knowledge is Required? a. Virtually Strict Liability for Major Corporate Entities b. Expectation of Effective Corporate Compliance Program c. Knowledge More Relevant to Mitigation Than to Violation 17 9

11 U.S. Embargo Laws: What are the Penalties? a. Civil Fines of Up to $55,000 to $325,000 b. Criminal Fines for Entities of Up to $250,000 to $1 Million per Violation c. Criminal Fines for Individuals of Up to $250,000 to $1 Million, and Sentences of Up to Years per Violation d. Sometimes Penalties are Compounded by Use of Other Statutes, Such as Bank Secrecy Act e. Reputational Damage 18 Critique of Standard Loan Provisions a. Rep/Warranty re General Compliance with Laws Section 5.6 The execution, delivery and performance by the Company of this Agreement and the Notes will not... violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary

12 Critique of Standard Loan Provisions b. Rep/Warranty re International Trade Compliance i. Section 5.16(a). Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 20 Critique of Standard Loan Provisions b. Rep/Warranty re International Trade Compliance ii. Section 5.16(b). Neither the Company nor any Subsidiary (i) is a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti Terrorism Order or (ii) engages in any dealings or transactions with any such Person. The Company and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act

13 Critique of Standard Loan Provisions b. Rep/Warranty re International Trade Compliance iii. Section 5.16(c). No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company. 22 Critique of Standard Loan Provisions c. Covenant re General Compliance with Laws Section the Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation,... the USA Patriot Act... to the extent necessary to ensure that non compliance with such laws, ordinances or governmental rules or regulations... could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect

14 Critique of Standard Loan Provisions d. Covenant re International Trade Compliance Section The Company will not and will not permit any Subsidiary to (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti Terrorism Order or (b) engage in any dealings or transactions with any such Person. 24 Conclusion a. Be Alert to International Trade Compliance Issues in Loan Transactions b. Carefully Review Provisions in Loan Agreements that Purport to Address Those Issues c. Institute Effective Trade Compliance Programs to Stop Living on Borrowed Time 25 13