Country of Origin and Trade Sanctions

Transcription

1 Country of Origin and Trade Sanctions Mini Summit XXIII: Global Compliance Update 14 th Annual Pharmaceutical Regulatory and Compliance Congress Best Practices Forum 29 October 2013 Washington, DC

2 Information in this presentation represents the presenter s opinions and recommendations and thus, may or may not be aligned with his or her company s views 1

3 COUNTRY OF ORIGIN 2

4 Substantial Transformation The country of origin is that in which ingredients are substantially transformed into: a new and different article of commerce with a name, character, or use distinct from that of the ingredients from which it was transformed. Generally: API Source Country: Single API, simple manufacturing Manufacturing Country: Single API, complex manufacturing Multiple API, regardless of manufacturing complexity This rule is the same as applied for product marking, tariff, and customs entry purposes Different standards apply for other purposes (e.g., BAA, FDA place of final manufacture ) 3

5 Trade Agreements Act (TAA) Allows the purchase of goods from: The U.S. Designated Countries Designated Countries Countries that are members of the World Trade Organization (WTO), Government Procurement Agreement (GPA), or have a bilateral Free Trade Agreement (FTA) with the U.S. Includes: Armenia, Canada, EU, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein, Norway, Singapore, Switzerland, Chinese Taipei, Australia, Chile, Mexico, Morocco Non-Designated Countries Notable non-designated countries include China, India, and Brazil. Purchase of goods from Non-Designated Countries is prohibited, unless the agency waives the TAA based on specified waiver grounds Does not prohibit a company from offering non-designated country products 4

6 U.S. Government Contracts Pharmaceutical companies are required to offer certain products to the U.S. government through Federal Supply Schedule (FSS) Contracts All Innovator products marketed in the U.S. and authorized generics Sales price is set, but not volumes Under FSS Contracts, products listed must have a Country of Origin (COO) of: The United States or A Designated Country If COO is not a Designated Country, the COO must be disclosed in the contract proposal The U.S. government procurement can Remove the product from the contract Grant a waiver COO for pharmaceuticals is generally determined as follows (non-preferential rules) Single Active Pharmaceutical Ingredient (API) Country where API was manufactured Multiple API Country where drug product is manufactured 5

7 Single API - Scenario 1 API Produced In Italy Drug Product Produced In Ireland Origin Determination: Made In Italy 6

8 Single API - Scenario 2 API Produced In Italy Drug Product Produced In Ireland Tabletted in Puerto Rico Origin Determination: Made In Italy 7

9 Single API / Multi-Sourcing API 1 Produced In Italy API 1 Produced In Japan Blended In Ireland Tabletted in Puerto Rico Origin Determination: Made In Italy or Japan 8

10 Multiple API API 1 Produced In Italy API 2 Produced In Japan Blended In Ireland Tabletted in Puerto Rico Origin Determination: Made In Ireland 9

11 Potential Fines and Penalties Customs Violations Inaccurate COO declaration upon importation to the U.S. Civil Penalties Fraud, Gross Negligence and Negligence Range from 20 percent of import value (or 2x duty) for negligence up to 100 percent of import value for fraud Reduced penalties for a valid Prior Disclosure of the alleged violation(s) CBP could conduct an audit Criminal Penalties One option: Fines, imprisonment for not more than two years, or both The government has other options for additional fines and terms of imprisonment Inaccurate COO marking on labels for goods imported into, or sold in the U.S. Civil CBP may assess a duty equal to 10% of the article s imported value Not considered a penalty This duty cannot be mitigated by a Prior Disclosure Criminal First Offense: Up to $100,000, imprisonment for not more than 1 year, or both Second Offense +: Up to $250,000, imprisonment for not more than 1 year, or both 10

12 Potential Fines and Penalties False Claims Act Violations Civil Penalties Treble damages, plus penalties Double damages, more likely if a case is settled rather than litigated Damage claims based on sales dollars of non-compliant products Debarment from government contracting Adverse publicity, damage to reputation Debarment from government contracting Criminal Penalties Typically flow from other charges, such as false statements 11

13 TRADE SANCTIONS 12

14 General Considerations RISKS 13

15 General Considerations UN Sanctions EU Sanctions US Sanctions 14

16 EU Sanctions: Jurisdictional Issues The EU regulations are binding on: 28 EU Member States every person that has the citizenship of a Member State every entity, group or institution incorporated under the laws of a Member State every entity, group or institution with regard to their operations within the European Union 15

17 EU Sanctions: More Than 30 Countries WTO China Cote d Ivoire Democratic Republic of Congo Egypt Haiti Moldova Montenegro Myanmar (Burma) Republic Of Guinea (Conakry) Tunisia USA (United States of America) Zimbabwe NON-WTO Afghanistan Belarus Bosnia and Herzegovina Eritrea Iran Iraq Lebanon Liberia Libya North Korea Serbia Somalia South Sudan Sudan Syria Al Qaeda Terrorist Groups (Foreign Terrorist Organisations) 16

18 Economic Sanctions Who Must Comply? A Comparison U.S. E.U. Citizens/Nationals (wherever located) Including green card holders Persons in territory Entities incorporated/doing business in territory Overseas branches of incorporated entities Overseas subsidiaries of incorporated entities Goods originating in territory Transactions through territory Cuba and Iran only 17

19 Economic Sanctions Current Sanctions Programs U.N., E.U., and U.S. Program U.N. E.U. U.S. 1 Afghanistan 2 Belarus 3 Burma/Myanmar * ** 4 Cote D Ivoire 5 Cuba*** 6 DRC (Congo) 7 Egypt 8 Eritrea 9 Former Yugoslavia/Balkans 10 Guinea 11 Guinea-Bissau 12 Iran **** 13 Iraq 14 Lebanon * Suspended except for arm embargo ** General licenses authorize most activity except with Restricted Parties / military junta / security services *** Blocking measures apply **** General licenses or exemptions authorize certain shipments of medicine and agricultural commodities 18

20 Economic Sanctions Current Sanctions Programs U.N., E.U., and U.S. Program U.N. E.U. U.S. 15 Liberia 16 Libya 17 North Korea 18 Somalia 19 Sudan **** 20 Syria ***** 21 Tunisia 22 Zimbabwe 23 Counter-Terrorist/Terrorist Financing 24 Al-Qaeda and Taliban 25 Counter-Narcotics Trafficking sanctions 26 Non-proliferation 27 Rough Diamond Trade Controls 28 Transnational Criminal Organisations **** General licenses or exemptions authorize certain shipments of medicine and agricultural commodities ***** Different license requirements for U.S. versus non-u.s. origin commodities 19

21 Economic Sanctions Most countries have one or two agencies dealing with economic sanctions Application to cross-border financial business can be complex and challenging: Country sanction programs versus targeted sanctions Differing sanctioned persons lists Differing sanctions mechanisms Blocking statutes Responsibility for administration of E.U. sanctions, including licensing, rests with the competent authority in each Member State Within each Member State, different authorities can be responsible for licensing different activities For instance, in the UK, the HM Treasury is responsible for financial sanctions and BIS is responsible for trade and export control-related issues In some cases, licenses can be granted 20

22 Compliance Programs Cross-border Compliance Need for a coordinated, consistent approach to the management of compliance. Global companies cannot focus solely on U.S. regulations Overlapping Exports Imports Sanctions AML Anti-bribery Periodic and effective risk assessments to take account of different requirements in E.U. and U.S., and cross-jurisdictional issues Organization-wide Training, Education and Awareness Ensuring compliance functions remain up to date with global developments. 21

23 Compliance Programs Establish, maintain, and regularly review policies and procedures Set corporate standards Get commitment from management Establish a team Decide on a centralized versus decentralized model Can be a mix of lawyers and compliance professionals Create a reporting chain and escalation plan Provide appropriate initial and follow-up training To the team To management and other key stakeholders Have regular meetings With the core team With the key stakeholders Keep your program up-to-date Policies and procedures Key referential or guidance documents Be proactive about assessing exposures prior to actual implementation by authorities 22

24 Compliance Programs Monitor legislation and provide regulatory updates to the team and stakeholders Responding to changes is essential Each regulatory change may require a different approach Libya was different from Syria, which is different from Iran, which is different from Belarus Have an incident response plan Determine how to deal with government filings and inquiries Interact with government regulators and maintain a regular connection, before there is an issue Conduct risk assessments Including testing of controls Communicate with your peers and industry groups

25 Penalty Structure Trade Sanction Violations OFAC Civil penalties Depends on the country (up to $65,000 per violation or same as the EAR) Strict liability Criminal penalties up to $1 million or 20 years, or both, for each violation Willful violations committed with knowledge of the law EAR Civil penalties greater of $250,000 or twice the value of the export Strict liability Criminal penalties up to $1 million or 20 years, or both Willful violations committed with knowledge of the law

26 Questions? Joshua Holzer Chief Counsel for Global Trade Pfizer Inc. 25