Doing business in the United States
Doing business in the United States 2021
I.Openness of U.S. markets to foreign investment
II.Direct or indirect market entry and choice of entity
III. Commercial contracting
IV.Labor and employment law considerations
VI.Intellectual property laws
VII. Export control and economic sanction laws
VIII. U.S. antitrust laws
IX.Anti-money laundering laws
X.Foreign Corrupt Practices Act
Doing business in the United States 2021
The U.S. is one of the easiest jurisdictions in the world in which to do business.1 Regulatory barriers are
generally low, establishing a branch or business entity is quick and easy, labor and employment laws are much more employer-friendly than in most other developed economies, and the legal system is well-developed and transparent. However, there are certain barriers to entry and challenges to doing business that should be taken into account before investing or establishing operations in the U.S.
This publication provides an overview of trade control issues that could limit a non-U.S. person's ability to enter the U.S. market or conduct its business once it has established U.S. operations, as well as corporate, commercial, labor and employment, immigration, intellectual property, export control, antitrust, antimoney laundering, anticorruption, liability, bankruptcy and other laws and practices important to foreign investors. This publication is not intended to be a comprehensive guide, but to provide an overview of some of the important issues that investors should consider and discuss with counsel.
I. Openness of U.S. markets to foreign investment
Doing business in the United States 2021
4 Hogan Lovells
Openness of U.S. markets to foreign investment
Investors can generally acquire or establish businesses in the U.S. without partnering with a local company or individual. However, in the interest of national security,2 the U.S. government imposes some limitations on
investments by non-U.S. persons.
U.S. federal law affords the President broad powers to block or restrict certain types of foreign investment in the U.S., particularly investments that impact national security. These powers can include the ability to impose conditions -- so-called mitigation measures -- on a transaction, to block a non-U.S. person from investing in or acquiring a U.S. business, or to force the divestiture of a non-U.S. person's investment in or acquisition of a U.S. business. The Committee on Foreign Investment in the United States (CFIUS), a U.S. government interagency committee, has longstanding power to review any transaction that "could result in control of a U.S. business by a foreign person."3 Parties to a transaction can voluntarily submit a filing to CFIUS or CFIUS can self-initiate a review of any such transaction at any time -- there is no statute of limitations -- and can impose conditions on it or recommend that the President block the transaction or require divestiture.
A 2018 change in U.S. federal law expanded CFIUS's jurisdiction and created a mandatory filing requirement for certain types of foreign investments. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA),4
enacted in August 2018, broadened CFIUS's power to review non-controlling foreign investments in certain foreign acquisitions of real estate. On 13 February 2020, the final regulations enacting FIRRMA promulgated by the U.S. Department of the Treasury went into effect. These regulations codified CFIUS's power to review non-controlling investments in companies that deal in critical technologies, perform certain functions with respect to critical infrastructure, and collect or maintain sensitive personal data of U.S. citizens.
Further, the regulations confer jurisdiction to CFIUS to review foreign purchases, leases, or concessions of real estate in close proximity to certain ports or specified sensitive facilities (e.g. U.S. military installations). In particular, CFIUS's jurisdiction applies to real estate transactions that afford a foreign investor certain property rights such as the right to access, exclude others from, improve or develop, or attach structures to the relevant real estate premises.
Under the CFIUS final regulations, parties are legally required to submit a filing to CFIUS under two circumstances, described on the next pages. To satisfy this requirement, parties may submit a mandatory declaration (a short-form filing) or a traditional notice for any covered transaction. Failure to file a required filing is punishable by a fine of up to the value of the covered transaction.
Factors considered by CFIUS in determining the effects of a foreign investment on national security include:
Whether the transaction involves "critical infrastructure" or "critical technologies."
Whether the U.S. business collects or maintains sensitive personal data of U.S. citizens.
Whether the target directly or indirectly supports U.S. government agencies.
Whether the target has classified U.S. government contracts or subcontracts.
Whether the target falls within an industrial sector that is considered sensitive from a national security perspective.
Whether the target is located in proximity to any U.S. national security assets (e.g., a U.S. military training facility).
Whether the acquirer has foreign government ownership.
The foreign buyer's plans for the U.S. business (e.g., plans to shut down or move U.S. facilities abroad).
Doing business in the United States 2021
First, the regulations mandate that parties submit a filing to CFIUS for investments that afford foreign investors certain rights (e.g., access to material nonpublic technical information, board rights, substantive decision-making rights) in U.S. businesses that (i) produce, design, test, manufacture, fabricate, or develop critical technologies and (ii) utilize such technologies in or specifically design such technologies for any one of 27 specified industries.
Second, the regulations mandate that parties submit a filing to CFIUS for certain investments made by a foreign investor if the foreign investor will acquire a 25% or greater voting interest in a U.S. business and a foreign government holds a 49% or greater voting interest in the foreign investor. Such foreign government-backed investments must be in U.S. businesses that (i) produce, design, test, manufacture, fabricate, or develop critical technologies, (ii) perform certain functions with respect to statutorily specified critical infrastructure, or (iii) collect or maintain sensitive personal data of U.S. citizens, the parties to the transaction have a legal obligation to submit a filing to CFIUS.
FIRRMA's implementing regulations also exclude certain non-controlling foreign investments by "excepted investors" from CFIUS's expanded jurisdiction if certain criteria are met. Many of the criteria relate to the foreign investor's nexus to certain "excepted foreign states." To date, CFIUS has identified Australia, the United Kingdom, and Canada as such "excepted foreign states."
Parties that have a legal obligation to submit a filing to CFIUS may elect to make such a filing through the submission of a mandatory declaration. The mandatory declaration must be filed 30 days before completion of the transaction, and CFIUS then conducts a 30-day review of the transaction. In response to the mandatory declaration, CFIUS may (i) ask the parties to file a notice, (ii)inform the parties that CFIUS cannot complete its work based on the declaration and inform the parties that they may submit a notice, (iii) initiate a unilateral review, or (iv) notify the parties that CFIUS has concluded its work with respect to the transaction (i.e., clear the transaction)5. Parties required to make a filing may also elect to submit a notice instead of a declaration.
Outside of the context of the two mandatory filing requirements detailed above, submissions to CFIUS are not required. However, because CFIUS has jurisdiction to review all transactions in which a foreign investor could control a U.S. business--as well as other noncontrolling investments as described above--and because there are potentially serious consequences of an adverse determination or a prolonged review, when an investment raises potential national security issues, parties often opt to submit a joint voluntary notice to CFIUS to seek approval of the transaction. Parties may also now submit a voluntary declaration, i.e., a shortform filing, for all transactions subject to CFIUS's jurisdiction.
Certain sectors, including semiconductors,6 6
telecommunications, defense and aerospace, information technology, cybersecurity, and energy remain of keen interest for CFIUS due to the national security sensitivity of the underlying businesses. Other sectors, such as the financial, insurance, and consumer sectors, receive scrutiny because they hold sensitive personal data of U.S. citizens. The significance of certain sectors is also underscored by their inclusion among the 27 industries specified for mandatory filings if U.S. businesses in such industries deal in critical technologies. These industries include petrochemicals, biotechnology, nanotechnology, and batteries. While CFIUS scrutiny of investments by Chinese companies has garnered the most press attention in recent years,7 investments by any non-U.S.
person, regardless of nationality, are potentially subject to CFIUS's review.
A CFIUS review might have multiple stages, as described below:
Draft notice: CFIUS prefers that parties submit a draft notice at least one week before they intend to submit the formal notice, and in practice, it is advisable to submit a draft notice at least two to three weeks in advance of the submission of the formal notice. Submitting a draft notice gives CFIUS additional time to review the transaction, and this review is conducted "off the clock" (without the time constraints of the formal review process). Submission of a draft notice is not required.
Initial 45 -day review: CFIUS reviews formally begin with CFIUS acceptance of a complete notice, which begins a review period, extended under FIRRMA to 45 days from 30 days. If, at the end of the 45-day review, CFIUS is able to resolve all national security issues, CFIUS will notify the parties that it has cleared the transaction within the 45-day period.
45-day investigation: If CFIUS is unable to resolve any relevant national security issues within the initial 45-day review period, it will undertake a secondstage investigation, which is scheduled to last up to an additional 45 days. Post-FIRRMA, CFIUS also may extend the investigation by a further 15 days in "extraordinary circumstances."
An investigation is generally mandated if the transaction would result in (i)(a) control of the acquired U.S. entity by a foreign government or (b) control by a foreign person of "critical infrastructure" and (ii) CFIUS determines that "the transaction could impair the national security and such impairment has not been mitigated." In 2018, approximately 70% of transactions submitted for voluntary review proceeded to this stage. If, during this stage, CFIUS agrees that all national security issues have been resolved, including as a result of the imposition of mitigation measures agreed to between CFIUS and the parties, it will terminate the proceeding and clear the transaction.
15-day presidential review: If CFIUS's national security concerns have not been resolved for all CFIUS member agencies by the end of a 45-day investigation period, the transaction generally is referred to the President. During the ensuing 15-day period, the President may decide to approve, restrict or block the transaction. The President's decisions are not subject to judicial review.
Voluntary declaration review: Parties to transactions subject to CFIUS's jurisdiction have the option to submit a voluntary declaration even in cases in which the parties do not have a legal obligation to make a filing. Similar to a mandatory declaration, in response to a voluntary declaration, CFIUS may (i) ask the parties to file a notice, (ii) inform the parties that CFIUS cannot complete its work based on the declaration and inform the parties that they may submit a notice, (iii) initiate a unilateral review, or (iv) notify the parties that CFIUS has concluded its work with respect to the transaction (i.e., clear the transaction).
Due to the breadth of CFIUS's jurisdiction and the potential serious consequences of the President blocking a transaction, parties to a transaction involving foreign investment in the U.S. should seek outside counsel's advice to (i) determine whether their transaction is subject to CFIUS's mandatory filing provisions, (ii) determine whether their transaction is otherwise subject to CFIUS's review, (iii) assess the potential national security issues arising out of the transaction, (iv) assist with the drafting and submission of a notice to CFIUS, if the parties choose to submit one, and (v) develop a political and public relations strategy, as necessary, if the transaction is likely to face heightened attention.
II. Direct or indirect market entry and choice of entity
An important structural consideration for a non-U.S. entity wishing to do business in the U.S. is whether to do business directly or to form a U.S. entity.
Doing business in the United States 2021
Direct or indirect market entry and choice of entity
Forming a U.S. subsidiary entity, rather than doing business directly in the U.S., can provide limited liability protection and protection from the jurisdiction of U.S. courts.8 Tax considerations are also important. If a company chooses to conduct business activities in the U.S. directly through a branch or through a fiscally transparent entity and is considered by virtue of these activities to be engaged in a U.S. trade or business, it will be (i) subject to U.S. tax jurisdiction, (ii) subject to U.S. federal and state income tax, (iii) required to pay a U.S. "branch profits" tax, and (iv) required to file U.S. tax returns. Non-U.S. clients typically do not want their principal non-U.S. business organizations to be considered engaged in a U.S. trade or business and frequently opt instead to form corporate entities, which are treated as opaque for tax purposes, rather than operating through branches or through fiscally transparent entities.
Even if a company decides to do business in the U.S. through a distribution or agency arrangement, it must consider whether its products are subject to licensing approval requirements and what U.S. regulations might apply to it. Although U.S. laws are not as protective of distributors and agents as are the laws of many civil law jurisdictions, some states require, among other things, advance notice of termination. Additionally, care must be taken so that the foreign entity does not become subject to franchise laws. A company distributing into the U.S. should also consider appropriate intellectual property protections.
Jurisdiction of formation
Once the decision to form a subsidiary has been made, an investor must choose the jurisdiction of formation of the subsidiary. The legal framework governing the formation, structure and governance of a U.S. business association is determined by state statutes and common law. With no federal legal framework governing U.S. entities, there is no uniform U.S. corporate law. Rather, the laws of any of the 50 states or the District of Columbia may apply, depending on where the entity is formed.
There is no requirement that an entity establish operations or maintain its principal place of business in the state of formation. Therefore, one of the first decisions in the formation process is where to organize. Delaware has long been the most popular state of formation for a variety of reasons, including the state's flexible and modern corporations statute, the sophisticated judiciary system and extensive case law (which provides a predictability unmatched by other states), the efficiency with which the Delaware Secretary of State's Division of Corporations accepts and processes filings, and the fact that almost all U.S. lawyers study Delaware corporations law. Most of the Fortune 500, and 89% of new companies that go public in the U.S., are formed in Delaware.9
Although Delaware is the most common choice for state of formation, it is not necessarily the best choice, particularly for private business entities that do not have operations in Delaware. A business organization must qualify to do business in each state in which it does business, and qualification typically costs several hundred dollars a year and requires an annual filing. This expense and administrative burden can be avoided if the entity is formed in the jurisdiction in which it has operations. In principle, the state of formation of the new entity will not generally affect the U.S. federal or state income tax consequences of its activities in the U.S. It is important to consult with counsel regarding the pros and cons of formation in a particular jurisdiction.
Publicly available information
Relative to non-U.S. jurisdictions, U.S. state laws offer a high degree of confidentiality regarding ownership, governance, and financial results of privately held entities. Although a publicly owned U.S. company is subject to federal securities disclosure laws and must
file quarterly financial statements and disclose extensive information about its business and governance, a review of the public records of a private company will typically reveal no more than the name of the corporation, a general statement of purposes, and the number of authorized shares.10 Any bylaws, governance or voting agreements, and minutes of meetings of the owners or directors, are private, as are the stockholders' ledger (or similar ownership records) and the annual financial statements. Even the identities of directors and officers generally remain private and can be verified only through review of a company's private books and records or certification by an officer of the company or an opinion of the company's outside counsel. Although a company's Certificate of Incorporation11 also requires disclosure of the registered agent, incorporator, and principal address in the jurisdiction of incorporation, there are commercial services that act as registered agents and provide an address for service of process and outside lawyers typically act as incorporators.
Doing business in the United States 2021
Principal business structures
The principal types of entities available in the U.S. are the corporation, limited liability company, partnership, limited partnership, limited liability partnership, and limited liability limited partnership.
Comparison of corporation and LLC
11 12 13
Filing a Certificate of Incorporation with the Secretary of State.
Liability of owners
Stockholders are generally not liable for the obligations of the corporation. The most common exception to this principle is piercing the corporate veil/alter ego.12
Generally no limit on number of stockholders or classes of stock, but there must be at least one stockholder. Stockholders may be entities or natural persons and need not be domiciled in the U.S.13
Stockholders appoint directors, who act collectively to exercise overall management responsibility and appoint officers. Officers have responsibility for management of day-to-day activities. Directors and officers must be natural persons and need not be U.S. citizens or residents.
Form of capital contributions Capitalization requirements
Relative cost to form and maintain
Stockholders may contribute assets or services to the corporation in exchange for stock.
No minimum capital requirement, but courts will consider undercapitalization as a factor in determining whether to pierce the corporate veil and hold stockholders liable for the corporation's liabilities. Multiple classes of stock permitted.
A corporation (and an LLC that elects to be taxed as a corporation) is taxed on its earnings at the corporate level, and the stockholders are further taxed upon payment of any dividends or distribution (i.e., double taxation). The controlling stockholder(s) can control the timing and amount of distributions.
Lowest cost of formation assuming no special features.
Limited liability company (LLC)
Filing a Certificate of Formation with the Secretary of State.
Members are generally not liable for the obligations of the business. The most common exception to this is piercing the corporate veil/alter ego.
No limit on number of members or classes of membership interests, but there must be at least one member. Members may be entities or natural persons and need not be domiciled in the U.S.
Operating Agreement sets forth how the business is to be managed. An LLC might or might not have directors and officers. Operating Agreement might provide for management by (1) one or more members, (2) a board of directors, or (3) officers. Directors and officers are typically natural persons, but need not be U.S. citizens or residents. Managers may be entities or natural persons and need not be U.S. citizens or residents or domiciled in the U.S.
Members may contribute assets or services to the LLC in exchange for membership interests.
No minimum capital requirement, but courts will consider undercapitalization as a factor in determining whether to pierce the corporate veil and hold members liable for the LLC's liabilities. Multiple classes of membership interests permitted.
An LLC is not federally taxed (unless it elects to be taxed as a corporation). The profits and losses are passed through to the members. No double taxation for U.S. members, but a foreign corporation member may owe branch profits tax in addition to corporate income tax.14
Slightly more expensive to form than a corporation. Costs depend on complexity of structure.
A corporation is a legal entity that exists separate from its stockholders. It is an entity frequently used by foreign investors.
The minimum number of owners, or "stockholders," of a corporation is one. This permits a parent entity to wholly own a subsidiary by being the sole, 100% owner of the subsidiary entity. A stockholder may be a natural or juridical person and, if a natural person, need not be a U.S. citizen or resident.
Unlike in many foreign jurisdictions, there is no minimum capital requirement for a corporation in the U.S. The Certificate of Incorporation must indicate the number of shares of each class of stock that the corporation is authorized to issue, but there is no minimum value requirement (par value) for shares of stock in a Delaware corporation.15 The capitalization
of a corporation depends upon the actual issuance of these authorized shares to the stockholder(s) and the consideration paid for these shares. Capital contributions may be made in the form of cash or non-cash consideration. It is important that a corporation have sufficient capital to reasonably run its business. Failure to capitalize a business in a manner that is adequate, given the nature of its business and the attendant risks, can be a factor in a court's decision to find that an entity is an alter ego of another entity or pierce the corporate veil, and in so doing, impose direct liability on stockholders.16
A corporation may have different classes of stock, each of which may have different voting and economic rights. The stockholders' primary responsibility is election of the directors, although they also have rights to vote on fundamental matters such as dissolution, a sale of the company, or amendments of the charter. Management and control of a corporation is primarily through a board of directors. The number of directors and procedures for nomination, election, voting requirements, and other aspects of board governance are set forth in the corporation's bylaws, a document that is not required to be filed with the Secretary of State. It is permissible under Delaware law to have a single director, which is not uncommon for wholly-owned subsidiary corporations. Directors must be natural persons of at least 18 years of age, but need not be residents of the U.S. or the state
of organization.17 Under Delaware law the officers, and 17
not the directors, of a corporation manage day-to-day activities and are authorized to enter into agreements and otherwise take action on behalf of the corporation. The directors act as a body and appoint officers, who hold the titles and duties as stated in the bylaws or in a resolution of the board of directors and as may be necessary to enable the corporation to sign legal instruments and stock certificates. The same natural person may hold any number of offices unless the certificate of incorporation or bylaws otherwise provide.18
Corporations are legal entities separate from their members. They can sue and be sued, and can enter into contracts. Stockholders are liable only to the extent of their respective investments in the corporation, and not for the corporation's obligations beyond that amount. It is important to ensure that a subsidiary complies with certain formalities. Subsidiaries that fail to comply with basic corporate formalities can be subject to claims seeking to "pierce the corporate veil," or otherwise hold the subsidiary's parent liable for the obligations of the subsidiary.19
If a parent corporation conducts business in the U.S. only through a U.S. corporate subsidiary (i.e., the parent itself does not establish an office or other business presence within the U.S.), the parent will not generally be subject to corporate net income tax in the U.S. and will not generally be required to file U.S. tax returns.
A U.S. corporation must apply for an Employer Identification Number (EIN) and is generally subject to regular U.S. corporate income tax at a rate of 21% (reduced from 35% under the 2017 U.S. tax reform legislation). Historically, U.S. entities were subject to taxation on all of their worldwide net income (a foreign tax credit was sometimes available for income taxes paid to other jurisdictions on non-U.S. source income). Under the 2017 U.S. tax reform legislation, there was a move towards a partial territory-based tax system combined with new anti-base erosion provisions.20
A U.S. corporation is required to file annual tax returns and make estimated tax payments. In addition, the gross amount of any dividends paid by a U.S. corporate subsidiary to the non-U.S. stockholder (as well as interest or royalty payments to any foreign person) is subject to a U.S. withholding tax of 30%.
Doing business in the United States 2021
Therefore, for U.S. federal income tax purposes, the combined effective tax rate of U.S. profits repatriated to a non-U.S. parent by a U.S. corporation, as of the date of this publication, could be as high as 44.7%, although the 30% withholding tax rate may be reduced or eliminated under a double tax treaty between the U.S. and the nonU.S. stockholder's jurisdiction of tax residence (provided that any applicable conditions, including a limitation on benefits provisions, are satisfied).
Provided that a U.S. corporation does not hold a significant amount of U.S. real property,21 the parent
will not be subject to U.S. tax on any capital gains it realizes if it sells its shares in the U.S. corporation. A U.S. corporation may also be subject to state or local taxes depending on the tax rules applicable in the states or localities where it is considered to have a business nexus. A corporation that is at least 25% owned by a foreign entity must report all transactions with foreign related parties to the Internal Revenue Service (IRS). Intercompany prices for transfers of goods, intangible assets, services and loans are required to meet the arms' length standard.22
The U.S. does not impose indirect taxes such as sales tax, value added tax (VAT) or goods and services tax (GST) at the federal level, although these taxes may be imposed at the state and local levels.
As noted above, a non-U.S. company will generally choose to do business in the U.S. through a wholly-owned U.S. corporate subsidiary rather than directly through a branch or through a fiscally transparent entity.
f ) Naming requirements
The name of a corporation must contain the word "association," "company," "corporation," "club," "foundation," "fund," "incorporated," "institute," "society," "union," "syndicate," or "limited," (or abbreviations thereof, with or without punctuation), or words (or abbreviations thereof, with or without punctuation) of like import of foreign countries or jurisdictions (provided they are written in the roman alphabet).
In addition, the name of a company must be distinguishable from that of any other entity already registered in the state of formation (or approval of the owner of the already-registered name must be provided). When forming an entity, a critical first step in that process is a determination of whether the same or similar name of the entity is already being used in that jurisdiction. If so, the formation application can be rejected on that basis.23
g) Formation mechanics
For a corporation, the basic formation steps are as follows:
Incorporation (1-5 days): Under Delaware law, a corporation is incorporated once the Certificate of Incorporation is filed with the Division of Corporations in the Delaware Secretary of State's office. The Secretary of State must approve the incorporation, including the name selected for the new entity. This process takes no more than 3-5 business days and, for an additional fee, the timing can be completed in as little as an hour.
Action of incorporator or stockholder(s): After confirmation of incorporation is received, the incorporator or the stockholder(s) (through an Action by Written Consent) approves and adopts the Certificate of Incorporation, establishes the number of initial directors, and designates the persons to serve as initial directors until the first meeting of the stockholder(s) is held or until successors are elected. If this action is taken by an incorporator, the incorporator then resigns as incorporator of the company.
Board of Directors organizational meeting: Subsequently (and this can occur immediately following Action by Written Consent by the incorporator or the stockholder(s)), the Board of Directors holds an organizational meeting, or executes a unanimous written consent in lieu of a meeting, to ratify the actions taken by the incorporator or the stockholder(s), to adopt the bylaws, to elect officers, and to adopt other organizational resolutions related to formation of the company.
The documentation associated with formation of a wholly-owned corporation is: (i) Certificate of Incorporation (as noted, this may be called different things in different states); (ii) Bylaws; (iii) an Action by Written Consent of Sole Incorporator or Stockholder(s); (iv) a Unanimous Written Consent of the Board of Directors in lieu of an Organizational Meeting; (v) a subscription agreement for the shares representing 100% of all issued shares; and (vi) a share certificate representing these shares.
2. Limited liability companies
Limited liability companies are hybrid entities that afford the limited liability protection of a corporation, a flexible
management structure and the option of being treated as a fiscally transparent entity for tax purposes.
For a limited liability company or "LLC," the minimum number of owners, or "members," is one. A member may be an entity or a natural person and if a natural person, need not be a citizen or resident of the U.S.
There is no minimal capital requirement for an LLC. Requirements for initial or subsequent capital contributions to an LLC are governed by the LLC Agreement. As with a corporation, the actual capitalization of the LLC is determined by the amounts actually contributed (in cash or in kind) by the members. It is important that a subsidiary LLC have sufficient capital to reasonably run its business. Failure to capitalize a business in a manner that is adequate, given the nature of its business and the attendant risks, can be a factor in a court's decision to find that an entity is an alter ego of another entity or pierces the corporate veil, and in so doing, impose direct liability on members.
LLCs allow greater flexibility than corporations with respect to structure and operation. As is the case with shares of corporations, membership interests may be split into different classes (such as common and preferred) with different rights and preferences. An LLC may be operated as either a "member-managed" or a "manager-managed" LLC. In a member-managed LLC, each member of the LLC has the authority to bind the company and to act on its behalf. In a manager-managed LLC, the members appoint a person(s) to act on behalf of the company. The manager of an LLC, which may be an entity or a natural person, has control over day-today operations and generally has the authority to bind the company, although the LLC Agreement can limit the scope of this authority and reserve certain decisions to the members. Subject to certain minimum requirements of applicable state law, all aspects of control, authority and management of an LLC may be governed by and set forth in the LLC Agreement. The LLC Agreement does not have to be filed or registered with the state of organization, and it can be amended by the member(s), as set forth in the LLC Agreement.
Doing business in the United States 2021
As with corporations, LLCs are legal entities separate from their members. A member is liable only to the extent of its investment in the LLC and not for the LLC's obligations beyond that amount. As with a corporation, however, failure to observe organizational formalities and other requirements may lead to claims seeking to "pierce the veil" of an LLC or otherwise hold members liable for the obligations of the LLC.
LLCs offer greater flexibility than corporations with regard to taxation because the members can choose whether an LLC will be taxed as a fiscally transparent entity or as an opaque entity. By electing to be taxed as a partnership (if it has more than one member) or as a disregarded entity (if it has a sole member), an LLC is transparent for tax purposes and can avoid double taxation for its U.S. members. However, a foreign parent of such an LLC would be considered to be engaged in the U.S. trade or business of the LLC and, as a consequence, would be subject to U.S. corporate income tax, U.S. tax return filing obligations, and the 30% branch profits tax, subject to an applicable tax treaty. State or local tax and tax return filing obligations may also apply. Under an applicable double tax treaty between the U.S. and the foreign parent's jurisdiction of tax residence, the foreign parent might be exempt from the corporate income tax if its U.S. business activities do not give rise to a "permanent establishment" or, if it does have a U.S.
permanent establishment, the 30% branch profits tax rate might be reduced or eliminated. A U.S. LLC that is wholly owned by a foreign person is treated as a domestic corporation for purposes of the reporting and recordkeeping requirements that otherwise apply to 25% foreign-owned U.S. corporations and must obtain a U.S. EIN to complete these filing obligations.
As explained, a foreign parent is generally subject to double taxation on its business activities in the U.S., whether it establishes a corporate entity (corporate income tax and dividend withholding tax) or a transparent entity (corporate income tax and branch profits tax). As noted previously, non-U.S. clients typically do not want their principal non-U.S. business organizations to be directly subject to U.S. taxation or to U.S. tax return filing obligations and instead opt to conduct their U.S. business activities through a U.S. corporate subsidiary. On the other hand, it is conceivable that, for non-U.S. tax planning purposes, a parent might want to utilize a U.S. entity that could be regarded as fiscally transparent (e.g., a partnership) under nonU.S. tax law if it expected its U.S. operations to produce losses for the next several years. A foreign parent's choice between operating in the U.S. as a branch or transparent entity or as a corporate subsidiary should be considered on a case-by-case basis based on the applicable facts.
f ) Naming requirements
The name of a limited liability company must contain the words "limited liability company," "L.L.C.," or "LLC" at the end of the company name. In addition, the name of the company must be distinguishable from any other entity already registered in the state of formation (or approval of the owner of the already-registered name must be provided).
Formation of an LLC requires the following steps:
Formation (1-5 days): As with a corporation, the LLC is formed when the Secretary of State of the state of formation accepts the filing of the Certificate of Formation. For an additional fee, the registration can be completed in as little as an hour.
Adoption of LLC agreement: Once the LLC is formed, the member(s) adopt a written LLC Agreement.
This document may range in complexity from fairly simple, for a wholly-owned, single-member LLC, to extremely complex, for an LLC with multiple members, a complicated ownership structure or other specialized requirements. Creating a wholly owned single-member LLC requires a simpler form of LLC Agreement, which can be prepared in a day or two, to be executed by the member(s) concurrently with, or shortly after, formation of the LLC.
Formation of an LLC only requires the drafting of two documents a Certificate of Formation and an LLC Agreement and the filing of the Certificate of Formation.
Partnerships are associations of persons or entities that may carry on a business purpose or other purpose, depending on the type of partnership. In the absence of an election to be taxed at the partnership level, partnerships are treated as non-taxable entities, and income and losses "pass through" the partnership to the partners, who are subject to taxation for their respective shares of the partnership's income.24 Up to four types of partnerships are available in the U.S., depending on the state: general partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships.
a) General partnerships
A general partnership (GP) is an association of two or more persons to carry on a business for profit, regardless of whether they intend to form a partnership. The
partnership is governed by the terms of its partnership agreement (if one exists) and state law. In a GP, all of the partners are jointly and severally liable for the partnership's obligations. The GP form is not often used intentionally in the U.S. because it does not offer any limited liability protection to its partners. The general partners may delegate management and may (but need not) designate officers to manage day-to-day operations.
A limited partnership (LP) is an association of two or more persons or entities where at least one of those persons or entities is a general partner. The LP may conduct any lawful business for profit or not for profit. An LP is formed by the general partners' execution and filing of a Certificate of Limited Partnership with the Secretary of State. The general partner(s) of an LP have unlimited liability for the obligations of the partnership.
The LP may also include limited partners, whose liability is limited to their respective investments in the partnership. Limited partners should not participate in the management of the partnership's business, or else they may lose their limited liability status. Only general partners are permitted to manage an LP's affairs. Often, an LP will have a corporation serve as the general partner. Individuals can serve as the limited partners.
If the individuals are officers of the corporation serving as general partner, they may manage the LP's affairs through their roles as officers of the general partner without losing their status as limited partners.
c) Limited liability partnerships
Some states, including Delaware, allow for the creation of limited liability partnerships (LLPs). LLPs are general partnerships in which none of the partners are personally liable for the partnership's obligations. An LLP is formed by stating in the partnership agreement that the partnership is an LLP and by filing a statement of qualification with the Secretary of State. LLPs are most often used by professional services providers, such as law firms and accounting firms. State LLP statutes are not uniform, and several states may impose specific requirements on LLPs.
d)Limited liability limited partnerships
A few states, including Delaware, allow for the creation of limited liability limited partnerships (LLLPs). LLLPs are limited partnerships in which the general partner also has limited liability. LLLPs are formed by filing a Statement of Qualification with the Secretary of State of the relevant state and by either allowing for LLLP status in the partnership agreement or by obtaining approval from all general partners and limited partners.
4. Post-formation actions
Once the entity is formed, it should apply for an EIN from the IRS, to be used for tax reporting purposes. The EIN may be obtained by filing a Form SS-4 with the IRS. This can be done by fax, generally resulting in an EIN within a couple of weeks, or by phone or online (only for a U.S. entity if the person applying has a valid Taxpayer Identification Number), resulting in an immediate assignment of an EIN. The EIN is required for the company to hire employees but may also be used for establishing bank accounts or for other identification requirements.
Note that even if the entity is a single-member LLC that is disregarded for tax purposes, if it has employees it must still obtain an EIN and will be responsible for collecting, reporting, and paying employment tax obligations. As noted above, a disregarded LLC that is wholly owned by a foreign person must also obtain an EIN and comply with certain information reporting and record-keeping requirements.
Other issues and steps to consider after the entity is formed include the following:
Obtaining any necessary licenses and permits to do business (including qualification to do business in the state where the main office is located if it is not the state of formation).
Setting up bank accounts.
Determining and funding initial working capital requirements.
Identifying a location for the main office and leasing office space.
Obtaining insurance policies, including umbrella liability insurance, property and casualty insurance, and directors and officers insurance.
A word about execution formalities
The requirements for valid execution of legal documents in the U.S. are relatively minimal. Documents to which a legal entity is a party must be duly authorized (either specifically or through a delegation of authority to an officer or other representative) by the appropriate governing body (i.e., the board of directors or the board of managers) and must be validly executed by a person authorized to sign the document on behalf of the entity. Documents may be executed in counterparts, and facsimile signatures are sufficient even for some governmental filings. There are no laws or conventions regarding the color ink used to execute documents or initialing each page of a document.25 Notarization is rarely required;
when it is, it is a simple and ministerial process performed by administrative staff, not attorneys. Unlike notaries in civil law jurisdictions, U.S. notaries are usually not lawyers and only verify that they have viewed documents or identification or witnessed the execution of documents. They do not pass upon the validity of documents or transactions under applicable law. Although documents can be notarized quickly and inexpensively, the process for obtaining an apostille varies from state to state and can take several days.
III. Commercial contracting
The U.S. is a litigious jurisdiction, and companies entering into commercial agreements in the U.S. should be aware that it is not unusual for disputes arising from commercial contracts to be litigated. Because the U.S. is a common law jurisdiction, these disputes will almost always be decided based upon case law, rather than a statutory framework. Litigation can be time consuming and expensive. Therefore, it is important that particular care be taken in the drafting, negotiation, and management of any U.S. commercial contracts.
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Formation of a commercial contract
The essential elements of a legally enforceable contract in the U.S. are (i) an offer, (ii) acceptance of an offer, and (iii) consideration.26 An offer
occurs when a reasonable expectation is created that the offeror will enter into a contract in accordance with the offered terms. Acceptance occurs when the offeree indicates to the offeror that it accepts the offered terms. Whether the consideration exchanged in connection with a commercial contract is of sufficient value is a subjective question, and there is no minimum value threshold for what constitutes sufficient consideration. U.S. courts will generally not question the adequacy of consideration, provided that some consideration is given.27
In addition to the elements of offer, acceptance, and consideration, a court will generally look at whether the parties intended to be bound and whether the terms of the contract are sufficiently definite.28 Whether the
parties to a contract intended to be bound (e.g., whether there was valid offer and acceptance) is a fact-intensive and objective test in which overt manifestations of assent, not subjective intent, control.29 The existence of a
signed writing will strongly suggest that the parties intended to be bound, but evidence to the contrary (i.e., signing documents labeled "draft" or containing blanks) may cut against that conclusion.30 Whether the terms of a contract
are "sufficiently definite" is determined by whether "the court can based upon the agreement's terms and applying proper rules of construction and principles of equity ascertain what the parties have agreed to."31
The "four corners" doctrine
With few exceptions, U.S. commercial contracts will be interpreted and enforced solely in accordance with their terms. This means that if a contractual dispute arises and is litigated in a U.S. court, the court generally will not look beyond the "four corners" of the contract to determine its meaning. Evidence of prior oral or written agreements that contradict or modify the terms of a binding written agreement generally will have no bearing on the interpretation or meaning of that agreement, nor will evidence of contemporaneous oral or written agreements (unless the contemporaneous written agreement is clearly incorporated by reference).
Exceptions to the "four corners" doctrine
There are certain exceptions to the "four corners" doctrine. These exceptions include:
1)The Uniform Commercial Code and U.N.
Convention for the International Sale of Goods
Although, as stated above, the U.S. is a common law jurisdiction with no general statutory overlay, most U.S. states have adopted the Uniform Commercial Code (UCC) or a variation thereof, which provides a uniform set of implied terms that are used to fill gaps and interpret contracts for the sale of goods or services. UCC terms are not mandatory, and parties may agree to terms that are contrary to or different from the UCC's terms or agree to "opt out" of the UCC altogether.
The U.S. is a contracting state under the U.N. Convention for the International Sale of Goods (CISG) and, if not excluded, CISG terms will be implied in a contract between a U.S. party and a party from another contracting state.
2)Principles of equity
All U.S. commercial contracts are constrained by certain equitable principles. Application of these principles may, in certain circumstances, result in a U.S. court refusing to enforce certain contract terms or alternatively enforcing a promise between parties even if no written contract exists between them. The following, while not exclusive, are examples of equitable principles that apply to U.S. commercial contracts:
Unconscionability. A U.S. courts may refuse to enforce a contract if it finds the contract or certain of its terms to be unconscionable. Unconscionability may be found if, at the time of contracting, there was such a disparity in bargaining power between the parties that the more powerful party was able to force unfavorable terms on the weaker party, or if the contract terms are overly harsh or unfairly one sided. This principle often arises in the context of commercial contracts.
Promissory estoppel/Detrimental reliance. Even if no enforceable contract exists, a promise between parties may be enforced if it was reasonable for the promisee to take action in reliance on that promise, and the promisee actually took action in reliance on the promise to its own detriment.
Good faith and fair dealing. In the U.S., commercial contracts include an implied covenant of good faith and fair dealing. As between merchants, good faith is defined under the UCC as "honesty in fact and the observance of reasonable commercial standards of fair dealing in trade."32
Public policy. U.S. courts will refuse to enforce any contract or contract term which is contrary to established public policy such that enforcement of such contract or its terms would be offensive to society. Contracts that would be invalid due to public policy might include contracts which are illegal or immoral, such as contracts that exculpate a party even for gross negligence or intentional harm.
A commercial contract may not be enforced exclusively in accordance with its terms in the event that a contracting party declares bankruptcy. In the event of a bankruptcy, the bankrupt party may be absolved, in full or in part, of its obligations under the commercial contract. For further information on bankruptcy proceedings in the U.S., see Section XII of this publication.
4)Other statutory terms
State statutes and, particularly in the consumer arena, federal regulations also govern some contractual matters, although the U.S. statutory overlay is much more limited than in other common law jurisdictions.
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Choice of law and venue in commercial contracts
Parties to a U.S. commercial contract are generally permitted to choose the law that will govern the contract and the venue in which any disputes arising from the contract will be heard. There is no requirement that the laws of a particular state govern a commercial contract nor is there any requirement that disputes be resolved in a specific location. The only limitation on the parties' choice of law and venue selections is that the transaction must generally bear some nexus to the chosen state. Whether an adequate nexus exists is a fact-specific analysis, but the organization of one contracting party or the presence of its headquarters in a state will generally be sufficient.
New York provides an exception to the nexus rule by allowing contracting parties to choose New York law as the governing law of a commercial contract regardless of whether the underlying transaction bears a reasonable relation to New York, so long as the obligation or consideration contemplated by the transaction is at least US$1,000,000.33 As a practical matter, New York is an
attractive venue for commercial contract disputes because of its well-developed case law, a reasonably short docket, and a judicial bench that is experienced with commercial matters.
If a dispute arises from a U.S. commercial contract and a claim is brought against a non-U.S. company in a U.S. court, the court must establish personal jurisdiction over the non-U.S. company in order to hear the case. Personal jurisdiction is the authority of a U.S. court to hear a case against a defendant based on the extent and nature of the defendant's contacts with the jurisdiction in which the court is located. Personal jurisdiction can be found in a variety of ways and may be difficult to avoid if entering into a U.S. commercial contract. For more information about jurisdiction of U.S. courts over non-U.S. entities, see Section XI of this publication.
IV. Labor and employment law considerations
U.S. labor and employment laws are generally much more employer-friendly than the laws of other jurisdictions. In the U.S., most employees do not have written employment agreements, pensions are rare, and employees are usually not entitled to severance upon the termination of employment.
Labor and employment law considerations
Establishing the employment relationship
With few exceptions, employment relationships in the U.S. are governed by the laws of the state in which the employee works. Employment relationships may be created by express or implied contract or without any contract at all.
The traditional U.S. rule is that, in the absence of an employment contract or collective bargaining agreement,34 employment is "at-will." This means that
employment is terminable at the option of either party at any time. As such, a U.S. employer may generally discharge an employee without notice, for good cause or no cause, and an employee may quit at any time without notice or cause. Various state laws and court decisions have eroded the "at-will" doctrine to some extent most notably, under the public policy exception and theories of "implied contract" but the doctrine is a fundamental principle of employment laws in most states.35 Employment-related litigation is less prevalent in the United States than in many other jurisdictions.
Federal law imposes limited notice requirements on employers making large-scale terminations. Under the Worker Adjustment and Retraining Notification Act (the WARN Act),36 an employer making a mass layoff of
employees or closing a plant may be required to provide 60 days' prior notice of termination or else provide pay and benefits for 60 days when no notice is given. "Mass layoff" and "plant closing" are defined terms under the WARN Act, and not every plant closing or group layoff falls under these definitions. The WARN Act applies only to employers with 100 or more employees. State equivalents of the WARN Act, referred to as "Mini-WARNs," may impose different, sometimes more stringent, obligations, or they may apply more broadly to cover smaller employers not covered by the federal WARN Act.
Equal employment opportunity laws
Federal, state, and local anti-discrimination laws provide U.S. employees protection from discriminatory hiring, employment, and termination practices. A number of federal statutes govern equal employment opportunity in the private sector, some of which are described below.37 Note that many states have analogues to these statutes which may have different requirements, impose different remedies, or apply to a broader number of employees than federal law.
Title VII of the Civil Rights Act of 1964 (Title VII) makes it unlawful for a covered employer to discriminate with respect to any condition of employment because of an employee's race, color, sex (which includes gender identity and sexual orientation), religion, or national origin.38 The statute
covers employers with 15 or more employees. Foreign companies with offices and employees in the U.S. are also covered by Title VII.
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Before a private action against an employer for discrimination may be brought under Title VII, an employee, applicant, or former employee must first file a charge of discrimination with the Equal Employment Opportunity Commission (EEOC). The EEOC investigation will generally involve the employer responding to a lengthy set of written questions, a request for documents, and sometimes fact-finding conferences and interviews. Whether or not the EEOC finds probable cause, once the EEOC investigation has been completed, the EEOC may sue on the employee's behalf or the employee may bring a private cause of action.39 A successful plaintiff in a Title VII action may be
entitled to reinstatement; back pay; damages for future pecuniary loss (front pay), emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and other non-pecuniary loss, punitive damages, and attorneys' fees.
Following increased public attention on the issue in the summer of 2020, many employers in the U.S. have taken actions intended to increase the diversity of their workplaces. While some actions intended to increase diversity are generally lawful (e.g., broadly advertising positions to diverse audiences), other actions can violate U.S. antidiscrimination laws (e.g., establishing hiring or promotion quotas, or using race, sex, or another protected characteristic as the basis for employment decisions) even if these decisions favor a minority group over a majority group.
1. Sexual harassment under Title VII
Sexual harassment is a form of sex discrimination under Title VII. Broadly defined by the EEOC, sexual harassment is any "unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature." Actionable forms of sexual harassment are:
a) Quid pro quo
This Latin term means "this for that" or "something for something." In the employment context, quid pro quo sexual harassment occurs when, for example, employment benefits are made contingent upon submitting to sexual advances or an employee faces employment detriments for failing to so submit.
b) Hostile work environment
This form of sexual harassment occurs when repeated, unwarranted, and unwelcome sexual advances create a hostile or offensive work environment for an employee.
For example, repeated lewd remarks, pinching and grabbing, the passing around of sexually explicit pictures or cartoons, or other similar sexually-oriented behavior may create a hostile work environment.
It is more likely that an employer can be held liable for sexual harassment if it has actual knowledge of the unlawful harassment, or if, considering all the facts of the case, the victim in question had no reasonably available avenue for making his or her complaint known to appropriate management officials. U.S. employers typically take care to establish strong policies against sexual harassment and implement procedures specifically designed to promptly and effectively resolve sexual harassment claims.
A majority of states, and many municipalities (especially large cities such as New York City) have also passed general employment anti-discrimination laws. In many cases, state and municipal anti-discrimination laws are more rigorous and broad than federal law and may prohibit discrimination on the basis of additional characteristics.40 In any case, according to principles of
federalism, federal law represents the minimum level of protections, and states cannot reduce protections below what is provided for under federal law.
c) Sexual harassment and #MeToo
Since 2017, the #MeToo movement has, through a combination of victims' voices and media coverage, increased public focus on the issue of sexual misconduct in the workplace. In response to #MeToo, several states have passed legislation addressing sexual harassment training, mandatory arbitration and non-disclosure agreements in harassment cases, and related issues.41
Some employers have responded to the movement by re-examining their anti-harassment policies, employee training techniques, complaint procedures, and workplace culture overall.
Evaluation of employment policies, organizational structure, and reporting lines has become a central part of corporate risk assessment. From a transactional standpoint, some acquirers demand so-called "#MeToo" or "Weinstein" representations from would-be sellers.42
2. Affirmative action
Federal and state contractors and subcontractors may be required to develop affirmative action plans, pursuant to requirements imposed by the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP), which typically require regular assessment
of the workforce to determine whether potential disparities exist on the basis of characteristics such as race, gender, and disability status. In some instances, affirmative action may be imposed as a judicial remedy for past discrimination or may be voluntary if certain requirements have been met.
In late 2020, President Trump issued an executive order prohibiting federal contractors and subcontractors from providing certain types of diversity training to their workforces. However, this order was recently enjoined by a federal court, and it is likely that the incoming administration will withdraw the order in early 2021.
3. The Age Discrimination in Employment
The ADEA is a federal law that prohibits employers with 20 or more employees from discriminating on the basis of age against employees and applicants who are 40 years of age or older. Although the ADEA applies to the terms and conditions of employment, some conditions are exempted from its provisions.43 An employee may
waive certain rights under the ADEA, but the waiver must be knowing and voluntary and it is important that an employer obtain legal advice to ensure that a waiver is valid. Other rights, such as the right to revoke a termination agreement within seven days of execution of the agreement, are not waivable.
4. The Pregnancy Discrimination Act (PDA)
The PDA, a federal law, requires that women affected by pregnancy, childbirth, or related medical conditions be treated the same for all employment-related purposes as non-pregnant disabled workers. In essence, the law requires that pregnant women receive the same treatment with regard to medical benefits, leaves of absence, and reinstatement after leaves as other employees.44
5. The Equal Pay Act (EPA)
The EPA is another federal law which prohibits wage discrimination on the basis of sex against employees performing equal work in the same establishment under similar working conditions. "Equal work" means work that is substantially equal, but not necessarily identical. Under the EPA, different wages may be paid for otherwise equal work if based on a legitimately established seniority system, a merit system, an incentive system which compensates employees according to the quantity or quality of production, or a differential based on any additional factors other than sex.
6. The Americans with Disabilities Act (ADA)
The ADA is a federal statute that applies to employers with 15 or more employees. It protects qualified individuals with a disability. A disability is defined as (i) a physical or mental impairment that substantially limits one or more of the major life activities of an individual, (ii) a record of such impairment, or (iii) being regarded as having such an impairment.45 A qualified individual is
"one who, with or without reasonable accommodation, can perform the essential functions of a job that he or she holds or desires." The "essential functions" of a job refer to "the desired results that are achieved by performing the duties of the position."
If an individual is a qualified individual with a disability, he or she is not only protected from discrimination on the basis of that disability, but an employer is required to offer such individual reasonable accommodation to perform the essential functions of that individual's position, unless such accommodations would cause an undue hardship for the employer.
Wages, safety, labor, and leave laws
U.S. labor and employment law also covers employee wages and hours under the Fair Labor Standards Act (FLSA), workplace safety under the Occupational Safety and Health Act (OSHA) and state-based workers' compensation statutes, labor relations under the National Labor Relations Act (NLRA) and the Railway Labor Act (RLA), and medical leave under the Family and Medical Leave Act (FMLA).46
1. Wage and hour laws
The FLSA does the following:
Regulates the wages and hours of work for covered employees;
Imposes limitations on the work and hours of employees under the age of 18;
Establishes a federal minimum wage rate of US$7.25 per hour;
Establishes a federal minimum wage rate for workers under 20 years of age of US$4.25 per hour during the first 90 consecutive calendar days of employment with an employer;
Requires that overtime compensation at a rate of not less than one and one-half times the regular hourly wage be paid to employees who work in excess of 40 hours per workweek;
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Prohibits child labor;
Bars employers from discriminating against employees with respect to wages on the basis of sex;
Establishes break time requirements for nursing mothers; and
Requires covered employers to make and retain records and reports on the number of hours worked by employees.47
Some employees are "exempt" from the overtime requirements of the FLSA. Whether an employee may be classified as exempt depends on a number of factors, including the employee's actual job duties (and not merely their title or job description). The most widely applicable exemptions are for management, professional, outside sales, and high-level administrative and information technology employees, who must meet technical "duties tests" to be considered exempt. Employees must also be paid above a certain salary threshold in order to be exempt.
Actions for unpaid minimum wages, overtime compensation, or liquidated damages may be brought by an employee in either federal or state court, or the Secretary of Labor may initiate enforcement proceedings against an employer on behalf of employees.
Many states and municipalities set higher minimum wage rates and may cover employers exempted by federal law. Many jurisdictions have also enacted laws increasing the minimum wage, with several jurisdictions setting their minimum wages at US$15 per hour.
State laws may also regulate overtime pay and impose further restrictions with regard to work and hour limitations for employees under the age of 18.
Class action lawsuits for failure to comply with state and federal overtime laws are common and can be costly for employers.
2. Occupational safety and health laws
The Occupational Safety and Health Act (Act) empowers the Secretary of Labor to promulgate specific health and safety standards for employers. The Secretary has delegated this authority to the Occupational Safety and Health Administration (OSHA). In addition to promulgating rules, OSHA enforces compliance with the Act through on-site inspections and the issuance of citations for discovered violations.
The Act imposes a "general duty" on any employer who is engaged in a business affecting commerce to provide a workplace free from recognized safety hazards and diseases (including COVID-19). Federal and state governments, as well as employers with 10 or fewer employees, are exempted from certain requirements. The Act also imposes detailed recordkeeping and reporting requirements on employers, including when an employee is injured, is infected, or dies in the workplace.
U.S. employers face various rules and guidance regarding COVID-19 and the workplace. As a general matter, the federal government (OSHA and the U.S. Centers for Disease Control and Prevention (CDC)) have issued only guidance, and states and localities have enacted laws or regulations that include binding requirements. The guidance and requirements cover topics such as: facial coverings, social distancing, maximum occupancy requirements, quarantine procedures, reporting infections in the workplace, temperature checks and screening, and contact tracing. Employers who fail to comply can be subject to enforcement actions, and the failure to comply can also serve as the factual basis for a lawsuit by a private plaintiff.
Significantly, in attempting to comply with COVID-19 safety requirements, employers must continue to comply with antidiscrimination and privacy requirements, such as the Americans with Disabilities Act, which generally limits an employer's ability to ask an employee medicalrelated questions and to share an employee's medical information with others.
3. Workers' compensation laws
Workers' compensation statutes are a creation of state law and create a no-fault system to provide employees injured within the course and scope of employment with speedy and efficient systems to obtain medical treatment and compensation for lost wages. In exchange for funding state-administered benefits for injured employees, employers receive immunity from additional suits under the statutory exclusivity provisions. This may be a significant benefit to employers, in light of the large judgments that may be awarded by courts. In some states, workers' compensation will be the exclusive means by which employees can recover for COVID-19related illness and death.
4. The National Labor Relations Act (NLRA)
The NLRA is the principal federal law governing the relationship of most employers, employees, and unions. The NLRA prohibits employers from engaging in unfair labor practices (e.g., interfering with employees' right to organize) and protects employees engaged in protected concerted activity (e.g., working together to bring workrelated grievances), even in non-unionized workplaces. Employee bargaining representatives can be certified only under the specific rules of the NLRA. Bargaining committees such as works councils are not used in the U.S. The National Labor Relations Board is the federal agency responsible for the administration and enforcement of the NLRA.
5. The Family and Medical Leave Act (FMLA)
The federal FMLA48 provides temporary family and 47
medical leave to "eligible employees"49 under the 48
following circumstances: (i) birth, adoption, or foster care placement of a child; (ii) caring for a spouse50, child,
or parent with a "serious health condition" or who is called to active military duty; or (iii) the employee's own "serious health condition."
Eligible employees under the FMLA are entitled to up to a total of 12 weeks of unpaid leave during any 12-month period. Additionally, up to 26 weeks of leave is permitted to care for a spouse, child or parent who suffers a serious illness or injury in the course of military service.
The FMLA also requires that the employee's medical benefits be continued during the period of leave. However, the FMLA does not require that the leave be paid. Instead, the employer's policies regarding paid time off and disability pay apply. Upon returning to work, the employee must be restored to the same or equivalent position, with the same pay and benefits as the employee had before the leave was taken.51 The FMLA does not
apply to employers with fewer than 50 employees, but state and municipal laws may apply to smaller employers or provide greater leave benefits, including paid sick leave and parental leave in some jurisdictions.
An employee is not required to specifically request leave under the FMLA. Instead, the statute places the burden on employers to inform employees that certain types of requests may qualify as FMLA leave. Also, employers are required to make, keep, and preserve records certifying their compliance with the FMLA.
Failure to educate employees of their rights or to keep accurate records regarding requests may constitute a violation of the law and subject an employer to civil penalties.
Employees who are improperly denied FMLA leave may be entitled to damages such as wages, salary, employment benefits, or other compensation denied or lost due to the violation of the statute. Other forms of relief are also available. The FMLA does not supplant an employer's sick leave and personal leave policies. Instead, its purpose is to help employees balance the conflicting demands for the workplace and their personal lives because of less common and more time-consuming events.
Although employees may generally bring hiring, employment, or termination disputes in federal or state court, arbitration clauses in agreements between an employer and its employees are typically enforceable under U.S. law. Such arbitration clauses, when combined with class action waivers, may preclude employees from bringing or participating in class action lawsuits.52
Recent United States Supreme Court decisions have strengthened the ability of employers to enforce such waivers.53 Recently, some employers have faced public
criticism for the inclusion of mandatory arbitration clauses in employment agreements. However, such criticism is not yet widespread and the legal landscape still largely favors the enforceability of arbitration clauses.
V. Immigration laws
Employers face liability for failure to comply with U.S. immigration laws, and should be aware of the conditions under which a foreign worker may travel or remain in the U.S. to perform remunerated or non-remunerated business activities.
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The Departments of State and Homeland Security oversee immigration matters in the United States. Employers seeking to hire foreign workers should be aware of the various types of visas that are available for workers.54 Two common types of visas for entrepreneurial ventures and other businesses are those qualifying as (i) non-immigrant visas and (ii) employment-based immigrant visas. Non-immigrant visas cover workers who have a permanent residence outside of the U.S. but desire to come to the U.S. on a temporary basis for work, study, business, or other reasons. Employment-based immigrant visas are available to a limited number of qualified applicants seeking to permanently reside in the U.S. The lists provided below are not exhaustive; employers should consult with immigration attorneys to determine their best solutions.
Non-immigrant visa categories
1. B-1 Visitor visa
B-1 visitor visas are non-immigrant visas for persons seeking to enter the U.S. temporarily for legitimate activities related to business or tourism for a period of six months or less. However, a B-1 visa is generally not a work visa that allows employment in the U.S. A holder of a B-1 visa may engage in related business activities such as attending tradeshows and conferences, visiting and negotiating contracts with clients and suppliers, consulting with business associates and attending board meetings, or settling an estate. Citizens of some countries may enter the U.S., for the same activities discussed above, for a period of 90 days or less without a visa through the Visa Wavier Program with an approved online Electronic System for Travel Authorization (ESTA) registration.55
Pursuant to a series of Presidential Proclamations during the early stages of the COVID-19 pandemic, President Trump imposed a temporary suspension of entry to the U.S. of visitors seeking entry with B-1 visas/ESTA registration (and most other visa types) if they have been in one of the listed countries within 14 days from the date of desired entry to the U.S. The list included China, Brazil, the UK, and EU-member countries, including those in the so-called Schengen area. Effectively, a direct entry to the U.S. from those listed countries was temporarily halted. Persons seeking entry from the listed countries had to either (a) obtain an approved "national interest" exception (NIE) from a U.S. consulate or (b) spend 14 days in a third country that is not on the list (e.g., Mexico) before seeking entry to the U. S. Consulates have been approving NIE requests for visitors coming to the U.S. for activities in the food and life sciences industries, as well as other types of businesses to the extent a nexus can be establish to show the importance/impact on the U.S. economy. U.S. citizens and U.S. permanent residents (and spouses of U.S. citizens and U.S. residents, even if the spouse is not a citizen or a permanent resident) have been exempted from these restrictions on entry.
There are other limited exemptions in the relevant Proclamations, so non-U.S. individuals seeking to enter the U.S. should consult with an immigration attorney to assess whether they might qualify for an exemption before pursuing an NIE or seeking to spend 14 days in a third country.
2. L-1 Intracompany Transferee visa
The L-1 visa is for the temporary transfer of foreign workers in a managerial, executive, or specialized knowledge capacity to the U.S. to continue employment with an office of the same employer or the same employer's parent, branch, subsidiary, or affiliate. There are two types of L-1 visa categories: (i) the L-1A Intracompany Transferee as executive or manager; and (ii) the L-1B Intracompany Transferee in specialized knowledge capacity. The L-1A visa enables a U.S. employer to transfer an executive or a manger from its foreign affiliated offices; or enables a foreign company to send an executive or manager to establish a U.S. office. Participants may stay for an initial maximum of three years (for a "new office" L-1 visa, the initial maximum is one year), but may request for extensions of stay in increments of up to an additional two years, for a total stay of seven years in L-1A status and five years in L-1B status.
To qualify, a U.S. employer must (i) have a qualifying relationship56 with a foreign company and (ii) be doing business, presently or in the future, as an employer in the U.S. and in at least one other country, directly or through a qualifying organization, for the duration of the beneficiary's stay. The business must be viable but does not have to be engaged in international trade. In addition, the employee is required to (i) have been working for a qualifying organization abroad for one continuous year within the three years immediately preceding the employee's admission, and (ii) be seeking to enter the U.S. to provide services in a managerial or executive or specialized knowledge capacity to the same employer or one of its qualifying U.S. organizations.
3. H-1B Specialty Occupation visa
The H-1B visa is for individuals with college or advanced degrees or with professional experience that is equivalent to a four-year college degree who wish to work in a "specialty occupation." The maximum validity of an H-1B visa is generally three years, although the person's stay may be extended not beyond a total of six years (subject to two limited exceptions involving those pursuing
U.S. permanent residency (green card) when certain conditions are met). The visa has an annual numerical cap for each fiscal year, a quota that is frequently reached early in the filing period resulting in a random drawing (lottery) of cases that will be selected for processing. As such, there is no guarantee that an employer will be able to obtain this visa for the desired employee. Unlike the L-1 visa, the H-1B visa has a wage obligation that requires the U.S. employer to pay the higher of the "actual wage" or the "prevailing wage" for the designated position.
The proposed position must meet one of the following criteria to qualify: (i) a bachelor's or higher degree in a given specialty field is normally the minimum entry requirement for the position; (ii) the degree requirement for the job is common to the industry, or the job is so complex or distinctive that it can be performed only by an individual with a degree; (iii) the employer normally requires a degree in a specific field for the position; or (iv) the nature of the specific duties is so specialized and complex that the knowledge required to perform the duties usually is associated with the attainment of a bachelor's or higher degree. In addition, the foreign employee must meet any one of the following requirements: (i) completed a U.S. bachelor's or higher degree required by the specific specialty occupation; (ii) hold a foreign degree that is the equivalent to a fouryear U.S. bachelor's or higher degree in the specialty occupation; (iii) hold an unrestricted state license, registration, or certification which authorizes the applicant to fully practice and be engaged in the state of intended employment (if such licensing or certification is required for the role); or (iv) have education, training, or progressively responsible experience in the specialty that is equivalent to the completion of such a degree, and have recognition of expertise in the specialty through progressively responsible positions directly related to the specialty.
4. Current developments regarding H-1B Program
Starting from 1 March 2020, the U.S. Department of Homeland Security (DHS) requires petitioners to first electronically register with U.S. Citizenship and Immigration Services (USCIS) during a designated registration period (1 March to 20 March) and provide basic information so that the random drawing "lottery" selection can be made before the employers have to file their H-1B petitions (both those subject to the regular cap and those eligible for the advanced degree cap). USCIS would select from among the registrations timely
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received a sufficient number projected as needed to meet the applicable H1B allocations under the quota. Employers will then have the opportunity to submit the full H-1B petition for substantive adjudication, but only for cases selected through the lottery. DHS also proposes to change the process by which USCIS counts H1B registrations, by first selecting registrations submitted on behalf of all beneficiaries, including those eligible for the advanced degree exemption. USCIS would then select from the remaining registrations a sufficient number projected as needed to reach the advanced degree exemption. Changing the order in which USCIS counts these separate allocations would likely increase the number of beneficiaries with a master's or higher degree from a U.S. institution of higher education to be selected for further processing under the H1B allocations.
Drastic changes to H-1B regulations related to the criteria for establishing a "specialty occupation" and the Department of Labor's methodology for calculating prevailing wage information for purposes of the government's (OES) wage survey, both of which were introduced in the fall of 2020, have been halted by federal courts and those changes have not come into effect, or have been reversed at the time of this publication.
5. Canadian and Mexican TN visa
Through the North American Free Trade Agreement (NAFTA), and its successor, the U.S.-Mexico-Canada Agreement (USMCA), eligible professional57 Canadian
and Mexican citizens may seek temporary entry to the U.S. to engage in prearranged business activities for U.S. or foreign employers as a nonimmigrant for a period of up to three years.58 Mexican citizens have to apply for a
TN visa at a U.S. embassy or consulate. Unlike Mexican citizens, Canadian citizens who qualify for a TN visa status need not apply at a U.S. embassy or consulate but apply for admission directly at a designated U.S. port of entry.
Employment based immigrants visas
Every year, the U.S. issues approximately 140,000 employment-based immigrants visas, which allow the holders to receive green cards once in the U.S., based on five employment-based preferences. This section will discuss the first three preferences, as they generally receive the highest rates of issuance.59
1. Employment First Preference (EB-1):
a) Persons with extraordinary ability in the sciences, arts, education, business, or athletics:
Applicants in this category must have extensive documentation showing sustained national or international acclaim and recognition as being among the select few considered to be at the top of their field. Such applicants are not required to have specific job offers, so long as they are entering the U.S. to continue work in the fields in which they have extraordinary ability. During 2019, quota-related delays have developed in this category as well, resulting in processing delays.
b)Multinational managers or executives who have been employed for at least one of the three preceding years by the overseas affiliate, parent, subsidiary or branch of the U.S. employer:
This category is similar to L-1A non-immigrant visas described above, but it is only reserved for executives/ managers (not for specialized knowledge employees). The applicant's employment outside of the U.S. must have been in a managerial or executive capacity, and the applicant must be coming to work in a managerial or executive capacity.
2. Employment Second Preference (EB-2):
Professionals holding advanced degrees and persons
of exceptional ability
This category may be impacted by quota-related delays for certain nationalities due to high demand and per country limits imposed by the statute (currently, nationals of China and India are subject to delays in this EB-2 category). Applicants must be one of the following: (i) a professional holding an advanced degree; (ii) a professional with a baccalaureate degree and at least five years progressive experience in the profession; or (iii) a person with exceptional ability in the sciences, arts, or business.
This category generally requires the U.S. employer to recruit (test the labor market) then seek a certification from the U.S. Department of Labor that no U.S. worker who is minimally qualified for the advertised job is willing, able, and available for the position for which a foreign national is being sponsored.
3. Employment Third Preference (EB-3): Skilled workers,
professionals, and unskilled workers
Similar to EB-2, this category also requires U.S. employers to recruit (test the labor market) then seek certification about unavailability of minimally qualified U.S. workers. Applicants must be one of the following: (i) a skilled worker whose job requires a minimum of two years training or work experience that is not temporary or seasonal; (ii) a professional whose job requires at least a baccalaureate degree from a U.S. university or college or its foreign equivalent; or (iii) an unskilled worker capable of filling positions that require less than two years training or experience that are not temporary or seasonal. Due to annual quotas and lower priority for allocation of immigrant visas in this category compared to EB-1 and EB-2, there are typically longer quota-related delays impacting those being sponsored in this category (currently, such delays for Indian nationals exceed nine years and for Chinese nationals exceed three years).
Foreign workers who reside in the U.S. for an extended period or who obtain permanent residency status become U.S. tax residents. These employees and their employers should consult with a U.S. tax advisor regarding their respective U.S. tax payment and compliance obligations, including for U.S. Social Security, Medicare, Federal Insurance Contribution Act (FICA) taxes, under these circumstances.
VI. Intellectual property laws
The U.S. is considered one of the jurisdictions that is most protective of intellectual property.60
Copyrights and patents are governed by federal laws, while trademarks are governed by federal, state, and common law. Trade secrets are governed by state law.
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Intellectual property laws
Copyrights protect works of authorship (e.g., text, photographs, audio, video, graphics, computer programming in source code and object code form) from, among other things, unauthorized copying.
Unlike patent protection, copyright affords no protection for ideas, concepts, or inventions. It protects only the expression of the ideas, concepts, and inventions.
Copyright rights exist upon "fixation," not registration; however, registration is beneficial because it provides the possibility of statutory damages and attorneys' fees and is required to pursue enforcement actions in federal court.
The author of a copyrightable work owns the copyright, unless and until the author assigns the rights in writing.
The employer is considered the author of works its employees create, but only if creation was within the scope of the employee's job responsibilities.
Contractors are authors and owners of works they create, unless a written agreement says otherwise. Even if the parties have used a written agreement carefully identifying a contractor's work as work-made-forhire, any resulting copyrights will still be owned by the contractor unless the work falls within one of the nine relatively narrow statutory categories. Thus, all such agreements also should include a catch-all present assignment provision.
Duration of copyright protection for new works authored by an individual is the author's life plus 70 years; for new works authored by a company, the duration is the shorter of 95 years from first publication or 120 years from creation. The duration of protection for older works varies.
Use of a copyright notice is advised but not required, whether or not the work is registered. An example of such notice includes: [year of publication]. [Name of copyright owner]. All rights reserved.
Fair use is a defense to copyright infringement that allows some use of another's works without permission. The test weighs four factors, including the reason for and manner of the use, the type and portion of the work copied, and the impact, if any, on the value of the work copied. Fair use is a highly fact-specific analysis.
Patents protect novel, useful and non-obvious designs, processes, procedures, or business methods.
The U.S. Patent and Trademark Office (USPTO) issues "utility" patents (useful process, machine, manufacture, or composition of matter), "design" patents (ornamental design of a functional item), and "plant" patents (for certain types of asexually reproduced varieties of plants).
Utility and plant patents grant a 20-year monopoly (from the effective filing date of the application) to prevent others from making, using, offering to sell, selling, or importing the invention in the U.S. Design patents grant a 15-year monopoly (from the date of grant), 14 years for those filed before 13 May 2015.
The patent application process makes inventions public once a patent is issued or published. This is the quid pro quo for the monopoly the public gets full disclosure of the inventor's best ideas about how to make and use the invention.
Exclusionary right: Having a patent on an invention does not necessarily mean you can make, use, or sell your invention only that you may prevent others from doing so. Note also that your invention may rely on another's patent and therefore requires a license to be commercialized.
To obtain a U.S. patent, you must submit a patent application or a provisional patent application to the USPTO not later than one year after you have publicly used, described, or commercialized your invention. Therefore, it is important to keep track of one-year bar dates from first articles, presentations, website postings, disclosures not protected by a Non-Disclosure Agreement (NDA), offers for sale, and/or sales.
The patent process can take three years or more and may cost from eight to twenty-five thousand dollars or more. After the patent issues, maintenance fees must be paid on an ongoing basis to prevent the patent from expiring prematurely. This investment of time, effort, and resources secures what is perhaps the strongest type of intellectual property protection available.
The patent claims define the invention, and thus the scope of protection afforded under the patent. Claim language must be sufficiently definite to persons of skill in the art so that they can determine whether a given product/process would infringe. Claims also must define an invention that does not merely reflect the prior art, or obvious modifications of the prior art.
The rest of a patent application supports the claims. The patent specification must teach one of skill in the art how to make and use the invention and the best way of performing the invention. The specification also must describe the invention sufficiently to show that the inventor was in possession of the full scope of the invention.
Patents cannot claim laws of nature, natural phenomena, or abstract ideas.
Generally, applications for a U.S. patent are filed in the name of the inventor even if the company owns the invention. Typically, pursuant to the inventor's employment obligations, the inventor is obligated contractually to assign ownership of the invention to the company.
Use proper notice: Use "Patent No. [#,###,###]" or "Patent Pending" on the products and/or in materials carrying or describing the subject of the invention. Such marking can assist in obtaining damages if the patent is enforced against others.
The benefits of a patent portfolio include excluding competitors from best product features or most efficient processes; generating revenue by way of royalty payments; and obtaining bargaining chips to exchange with other companies for use of their patents.
Patent owners can seek to enforce their patent rights and prevent others from making, using, selling, or importing patent-infringing goods through the U.S. district courts or the U.S. International Trade Commission. District courts may award monetary damages or an injunction against an infringer's commercialization; the ITC can award no monetary damages, although it can exclude infringing products from entering the U.S.
In the U.S., patent litigation is expensive and trials are generally very long. A study by the American Intellectual Property Law Association estimated that the median cost of patent litigation, depending on the damages claimed, is between US$1,500,00 and US$4,000,000.61 Parties wait an average of two and
half years to reach trial.62 59
Trademarks and service marks (marks) are words, symbols, sounds, scents, and other indicia of origin that create a link between a good or service and the source of that good or service.
Unlike other jurisdictions, in the U.S. trademark rights are created by use of the mark in commerce in connection with the goods and/or services sold under a given mark, not by registration; however, federal registration with the USPTO provides additional rights and remedies for a mark.
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Trademark rights give their owner exclusive rights to use a mark for a particular product or service, so that the public will not be confused as to the source of a product or service.
Marks may be registered with the USPTO or with various U.S. states. Rights in a mark are limited geographically, but federal registration can expand the geographic scope of rights of the trademark owner.
Use proper notice with the trademark:
---- Before a federal registration issues, use the TM symbol (or the SM symbol for a service mark) to the right of the mark. This notice is not required, but provides potential infringers with notice that the term is used as a mark.
---- Use the symbol whenever a federally registered trademark or service mark is used in commerce in connection with the goods or services for which it has been registered.
Never use a mark in a descriptive or generic sense. Repeated use of a mark in a descriptive or generic manner may make the mark interchangeable for the product name (generic) and result in loss of trademark rights or the exclusive right to use the mark.
---- Never use the mark as a noun. Rather, use it alone or as an adjective.
---- Avoid using testimonials of others when they include use of a mark as a noun.
---- What to avoid: "E-CENTIVES are on-line awards..."
---- Proper usage: "E-CENTIVES on-line awards are available only from e-centives..."
A trade secret is any information that gives a company a competitive advantage, that is unknown to others and that the company has taken reasonable steps to keep secret. Unlike patents and copyrights, which are only protected by federal law, trade secrets are protected by federal and state law, so levels of protection may differ from state to state.
Trade secrets protect against misappropriation of trade secrets; but they do not necessarily give the owner an exclusive monopoly if others independently develop or lawfully reverse engineer the same trade secrets.
A trade secret is (1) information (2) which derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public and (3) which has been the subject of reasonable measures to keep the information secret. So long as the above elements are met, there are no subject matter constraints imposed on trade secret protection. Both technical and non-technical information can be protected. Trade secrets may be information that would otherwise satisfy patentability criteria, but that a company instead chooses to keep secret, or trade secrets may be confidential information that is not sufficiently inventive to satisfy patentability criteria (for example, pricing and customer information).
To ensure adequate protection, a company should:
Identify what important information it possesses that qualifies as a trade secret.
Determine what steps should be taken to protect it.
Use nondisclosure agreements and/or other contractual obligations, and establish employee polices that require the recipient of information to keep that information secret. Everyone to whom confidential information is disclosed (e.g., employees, independent contractors, prospective investors, and others) should (a) acknowledge that the information they will receive is owned by the company and confidential and (b) promise not to disclose the information or to use the information for any purpose other than the purpose(s) for which it was disclosed.
Restrict and/or control access to confidential information. Consider implementing firewall and/ or password protection for the company's computer system or particular subsystems, controlling access to the company's business facilities or particular units or departments, numbering copies of confidential documents, and using a log to identify all recipients of those documents and the current location of each copy.
Use confidentiality notices and legends such as a "CONFIDENTIAL INFORMATION" stamp.
Train employees to follow the implemented trade secret protection policies.
Implement procedures for new hires (including acknowledgement of obligation not to bring another's trade secrets to the company) and departing employees (including acknowledgement of continuing confidentiality obligations and prompt steps to monitor and prevent the taking of any trade secrets.)
Implement policies for disposal and/or return of confidential information once no longer needed by an employee or third party.
VII. Export control and economic sanction laws
U.S. trade control laws include the (i) export controls implemented by the Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR); (ii) export controls implemented by the State Department's Directorate of Defense Trade Controls (DDTC) under the International Traffic in Arms Regulations (ITAR); and (iii) economic sanctions implemented by the Treasury Department's Office of Foreign Assets Control (OFAC) under the Foreign Assets Control Regulations. These laws often overlap and should be carefully considered before the decision is taken to enter into the U.S. market.
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Export control and economic sanction laws
Export Administration Regulations (EAR)
1. Scope of the EAR
The EAR control the export, re-export (i.e., exports from a destination outside the U.S. to a third country), and transfer of commercial, "dual use" and certain defense-related hardware, software and technology (i.e., information necessary for the development, production, or use of a product and identified in a technology sub-category on the Commerce Control List (CCL), which can take the form of technical data, or technical assistance). Dual use items are items that can be used for both civil and military applications.
The EAR apply to:
All U.S.-origin items, regardless of their location.
All non-U.S.-origin items located in the U.S.
Certain items manufactured outside the U.S. that contain greater than de minimis controlled U.S.-origin content.63
Certain items manufactured outside the U.S. that are derived from and direct products of U.S.-origin technology or software.64
The EAR (as well as the ITAR) also control transfers of technology to nonU.S. persons, wherever located. For example, the transfer of controlled technology from a U.S. entity to a Chinese national employee of the entity, or one of its affiliates, is "deemed" an export to China even when the relevant individual is located within the geographical territory of the U.S.
Not all items that are subject to the EAR require a license for export or re-export. Licensing requirements depend on various factors, including: (i) how the item is classified; (ii) the destination country; (iii) the end-user; and (iv) the end-use.
2. Licensing requirements classification and destination controls
The EAR contain a list of controlled items called the Commerce Control List (CCL).65 Items are divided into 10 categories and further subdivided
into groups. Each group contains detailed entries describing the technical functions or characteristics of the commodities, software and technology that are controlled. Items that match the described functions or characteristics in an entry are assigned a corresponding Export Control Classification Number (ECCN). Depending on an item's ECCN and related reason for control, a license may be required to export or re-export the item to certain countries. If an item is subject to the EAR and not specifically described in any ECCN, then the item is classified under the "basket category" referred to as EAR99. Generally, no license is required for the export of EAR99 items, except to certain sanctioned countries and restricted parties.
It is anticipated that the Commerce Department will be issuing new export control restrictions on "emerging and foundational" technologies throughout 2021. While the exact nature and extent of these new controls is not known at this time, it is likely that they will impact items and technology related to sectors such as biotechnology, artificial intelligence, microprocessors, additive manufacturing, robotics, and other areas. These new controls could result in items that were previously subject to only a very low level of control being controlled for export to most countries. The scope of these new rules is also likely to have a significant impact on the scope of transactions of interest to CFIUS.
3. Licensing requirements embargoed destination
In addition to the classification and destination controls, the U.S. government maintains trade embargoes against various countries. As of the date of this publication, the EAR generally prohibit (subject to very limited exceptions) exports and re-exports to Cuba, Iran, North Korea, Crimea (region of Ukraine/Russia), and Syria. These requirements are in addition to and concurrent with the economic sanctions imposed by OFAC described below.
4. Licensing requirements restricted parties
Under the EAR, a license may be required for transactions involving a prohibited or restricted end-user or end-use. The U.S. government maintains sanctions against certain individuals, entities, and organizations that have violated U.S. export control laws, have participated in proliferation activities, or have been determined to be terrorists, terrorist organizations affiliated with certain sanctioned governments and for other reasons. Companies subject to U.S. law should establish procedures to screen contractual partners in transactions against the following restricted party lists:
BIS's Entity List;
BIS's Unverified List;
BIS's Denied Persons List;
DDTC's Debarred Parties List;
State Department's Nonproliferation Sanctions Lists;
OFAC's Specially Designated Nationals (SDN) List;
OFAC's Foreign Sanctions Evaders List; and
OFAC's Sectoral Sanctions Identification List.
These lists are implemented by different government agencies, which update the lists frequently and without advance notice.66 Throughout 2020, the U.S. Government
used these lists as a significant foreign policy tool by adding a large number of major corporations and other institutions, particularly those in China, to the Entity List and SDN List.
While the policy of each agency differs, OFAC treats any entity that is directly or indirectly owned 50% or more (individually or in the aggregate) by a restricted party, even when that entity is not specifically identified on the relevant restricted party list, as a restricted party. Companies should also confirm that contractual counterparties are not controlled by a restricted party even when the 50% ownership threshold is not satisfied. While more limited restrictions apply to some of these lists, a license is generally required to export or re-export items to persons on the lists, directly or indirectly. In most instances, license applications are subject to a policy of denial.
A license is also required for a transaction if it involves restricted end-uses, which include, for example, the proliferation of nuclear, chemical, and biological weapons or related missile systems. Pursuant to these restrictions, a license may be required to transfer even unsophisticated items classified as EAR99 for use in these (and other) restricted end-uses. Special restrictions also apply to exports or re-exports of certain items to China, Russia, and Venezuela for military end-use or military end-users.67
International Traffic In Arms Regulations (ITAR)
1. Scope of the ITAR
The ITAR regulate the export, re-export, transfer, temporary import, and brokering of defense articles, as well as technical data and defense services classified on the U.S. Munitions List (USML).68 U.S. persons
engaged in manufacturing, exporting, or brokering defense articles or defense services are required to register with DDTC. Moreover, with limited exceptions, the ITAR require exporters to obtain prior written authorization from DDTC before exporting or re-exporting defense articles (including technical data) or defense services.
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The ITAR apply to:
Exports, re-exports, and temporary imports of U.S.origin defense articles, which include goods, software, and technical data that are enumerated on the USML.69
Exports of defense-related services to foreign persons located in the U.S. or abroad, including: (i) furnishing assistance (including training) to foreign persons, whether in the U.S. or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing, or use of defense articles; (ii) the furnishing to foreign persons of any technical data controlled under the ITAR, whether in the U.S. or abroad; or (iii) military training of foreign units and forces.
Brokering activities in connection with transactions between third parties involving defense articles and defense services, regardless of their country of origin.
2. ITAR registration
Registration under the ITAR requires the completion of an electronic registration using the cloud-based Defense Export Control and Compliance System (DECCS), an electronic payment of a registration fee and payment confirmation, documentation issued or endorsed by a government authority enabling the registrant to engage in business in the U.S., and a complete organizational chart.70 The registration statement must be signed
by a "Senior Officer" empowered by the registrant to do so. The ITAR registration does not constitute an authorization to export any items or services subject to the ITAR, but it is a pre-condition of applying for export authorizations or use of the ITAR license exemptions.71
Once DDTC has reviewed and approved a company's ITAR registration, it will issue a unique registration code to that company. Registrations are valid for one year and must be renewed on an annual basis as long as the company continues to manufacture, export, or broker defense articles or defense services.
Certain changes to the information provided to DDTC as part of the ITAR registration submission must be updated within five days of the relevant change.
In particular, Section 122.4(a) of the ITAR requires the submission of a notice to DDTC within five days after a change in any of the following information contained on an ITAR registration:
Registrant's legal organization structure.
Ownership or control.
The establishment, acquisition, or divestment of a U.S. or foreign subsidiary or other affiliate who is engaged in manufacturing or exporting defense articles or defense services.
Board of directors, senior officers, partners, or owners.
Changes to any other information contained in an ITAR registration can be notified to DDTC as part of the annual registration renewal process.
Significantly, an entity registered under the ITAR must notify DDTC at least 60 days in advance of "any intended sale or transfer to a foreign person of ownership or control of the registrant or any entity thereof." The practical result of this requirement is that a detailed filing to DDTC is required at least 60 days prior to the closing date of the sale of an interest in an ITAR registrant to any foreign company, including a U.S. company that ultimately is owned or controlled by a foreign company. So-called "60-Day Notices" require detailed information about both the buyer and seller, including a description of the transaction, copies of the ITAR compliance policies, procedures, and training, before and after organizational charts, names of the officers of the buyer and its parent companies, and other information. Careful coordination between the buyer and seller is required to confirm that all necessary information is submitted to DDTC either in a joint filing or in a separate but coordinated filing by the buyer and seller. This filing requirement should also be considered when assessing whether to submit a CFIUS notice given that the State Department is a member of CFIUS.
3. Proscribed countries
The U.S. government maintains arms embargoes against certain foreign countries (Proscribed Countries). The prohibitions applicable to each of these countries vary somewhat in scope and severity. Among other restrictions, Section 126.1 of the ITAR generally prohibits sales, and mere proposals to sell, defense articles and defense services, defined above, to the Proscribed Countries without prior authorization from DDTC.72
DDTC generally maintains a policy of denying licenses and other approvals for exports and re-exports of defense
articles and defense services to the Proscribed Countries. DDTC may grant exceptions to this general policy if the proposed transaction is otherwise in the foreign policy or national security interests of the U.S. License exemptions under the ITAR are not available for transactions involving Proscribed Countries.
In addition to the broad prohibition of the sale or mere proposal to sell defense articles and defense services to Proscribed Countries, the ITAR include a mandatory notification requirement in relation to certain types of activities involving these countries. Specifically, Section 126.1(e)(2) of the ITAR provides that "any person who knows or has reason to know of a proposed, final, or actual sale, export, transfer, re-export, or retransfer of articles, services, or data . . . must immediately inform" the Office of Defense Trade Controls Compliance within DDTC. Failure to provide such notification is a violation of the ITAR. The implication of this requirement is that potential violations of the ITAR involving Proscribed Countries must be reported to DDTC, while DDTC strongly encourages voluntary disclosures in relation to potential violations involving other countries.
Foreign Assets Control regulations
For foreign policy and national security reasons, OFAC imposes economic sanctions against various countries, entities, individuals, and organizations. The sanctions can be either territory-based or targeted to specific individuals, entities, or government organizations. These sanctions prohibit certain dealings with targeted countries and persons and may require a blocking or "freezing" of assets in which the targeted country or person has an interest.
All "U.S. Persons" are required to comply with the sanctions. For purposes of these sanctions programs, "U.S. Persons" in most cases means (i) U.S. citizens; (ii) U.S. permanent residents; (iii) entities incorporated in the U.S. and their foreign branch offices; and (iv) persons physically located in the U.S. In the case of the U.S. economic sanctions against Cuba and Iran, foreign incorporated entities owned or controlled by U.S. Persons (i.e., foreign subsidiaries of U.S. companies) are also directly subject to these sanctions programs. Even wholly non-U.S. entities must also be aware of and confirm compliance with U.S. economic sanctions programs.
For example, these sanctions programs can be triggered if a transaction including a sanctioned country involves: (i) review or approval by individual U.S. Persons (e.g., as senior executive or board member); (ii) goods subject to U.S. law; or (iii) U.S. dollar-denominated transactions. In addition, the U.S. government implements "secondary" sanctions, which specifically are intended to broaden the reach of U.S. sanctions programs to impact foreign persons acting in certain sectors. Separately, entities traded on a U.S. stock exchange must be aware of the Securities and Exchange Commission's (SEC) reporting requirements for transactions involving certain sanctioned countries and restricted parties. When reviewing transactions with potential sanctioned countries, companies should consider whether it made commitments in loan, credit, or other commercial agreements that further limit its ability to do business relating to such sanctioned countries.
As of the date of this publication, territorial sanctions are implemented only against Cuba, Iran, North Korea, Crimea (region of Ukraine/Russia), and Syria. Virtually all direct or indirect transactions involving these countries are prohibited. Significant restrictions are also currently imposed against Venezuela, including the entire Government of Venezuela and entities owned or controlled by the Government of Venezuela. More limited sanctions are implemented against Belarus, Burundi, Central African Republic, Democratic Republic of Congo, Lebanon, Liberia, Libya, Mali, Nicaragua, Russia, Somalia, Ukraine, Yemen, and Zimbabwe. Transactions with these countries are not widely prohibited. Rather, the sanctions programs are targeted at specific individuals, entities, organizations, and industries within these countries. As described above, OFAC also implements certain restricted party lists, including the SDN List, Foreign Sanctions Evaders List, and Sectoral Sanctions Identification List.
Foreign direct investment reports required
by the Bureau of Economic Analysis
Every foreign investment in a U.S. business that results in a foreign person or entity owning 10% or more of the voting securities of a U.S. business enterprise, or an equivalent interest of an unincorporated U.S. business enterprise, including a branch office or real estate (improved or unimproved) (a "U.S. Affiliate"), is subject to reporting requirements under the International Investment and Trade in Services Survey Act.73
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The reporting requirements include filing a new foreign direct investment (FDI) survey, quarterly surveys, annual surveys, and five-year benchmark surveys with the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. Persons subject to the reporting requirements of the FDI survey (Form BE-13) and the benchmark survey (Form BE-12) (conducted every five years) are required to file whether or not they have been notified by BEA. Persons not notified by BEA of their filing obligation under the quarterly (BE-605) and annual (BE-15) FDI surveys are not required to file.
The information included in BEA filings is confidential and may be used by BEA only for analytical or statistical purposes. U.S. Affiliates that fail to comply with mandatory BEA reporting requirements could be subject to civil penalties of up to US$44,539 or, in some cases, criminal penalties.
The key FDI survey is Form BE-13, which collects survey data on the initial acquisition, establishment, or expansion of U.S. businesses by foreign investors. The obligation to submit Form BE-13 applies to the U.S. business in which the investment is made (the "U.S. Affiliate"), not to the foreign investor. The filing must include information on some of its U.S. Affiliate's subsidiaries. The U.S. Affiliate must file Form BE-13 within 45 days of the effective date of the reportable transaction.
The new FDI transaction is to be reported on the applicable BE-13 form listed below:
Form BE-13A report for a U.S. business enterprise when a foreign entity acquires a voting interest (directly, or indirectly through an existing U.S. Affiliate) in that enterprise, segment, or operating unit, and (i) the total cost of acquisition is greater than US$3 million; and (ii) by this acquisition, at least 10% of the voting interest in the acquired entity is now held (directly or indirectly) by the foreign entity.
Form BE-13B report for a U.S. business enterprise when a foreign entity, or an existing U.S. Affiliate of a foreign entity, establishes a new legal entity in the U.S. and (i) the projected total cost to establish the new legal entity is greater than US$3 million and (ii) the foreign entity owns 10% or more of the new business enterprise's voting interest (directly or indirectly).
Form BE-13D report for an existing U.S. Affiliate of a foreign parent that (i) expands its operations to include a new facility where business is conducted and (ii) the projected total cost of the expansion is greater than US$3 million.
Form BE-13E report for a U.S. business enterprise that previously filed a BE-13B or BE-13D indicating that the established or expanded entity is still under construction. This form will collect updated cost information and will be collected annually until construction is complete.
Form BE-13 Claim for Exemption report for a U.S. business enterprise that (i) was contacted by BEA but does not meet the requirements for filing forms BE-13A, BE-13B, or BE-13D or (ii) whether or not contacted by BEA, met all requirements for filing on Forms BE-13A, BE-13B, or BE-13D except for the US$3 million reporting threshold.
Many BEA FDI surveys are difficult to interpret, so familiarity with BEA's interpretations and informal guidance is often critical to ensure that a company's fillings are accurate.
Penalties for failure to comply with trade control laws
The U.S. trade control law regime with respect to export controls and economic sanctions is strict, providing for successor liability and the potential for significant penalties. The U.S. government imposes criminal penalties of up to US$1 million per violation or 20 years in prison (or both) for certain willful or intentional violations. Maximum civil penalties may include a fine of not more than US$307,922 or twice the value of the transaction, whichever is greater, loss of export privileges, seizure or forfeiture of goods, debarment from government procurement, and mandatory remedial compliance actions. In addition, enforcement actions resulting in the imposition of penalties are a matter of public record, and the effects of negative publicity should be considered.
It is important to note that this type of liability may be avoided. BIS, DDTC, and OFAC expect companies to implement risk-based compliance programs to confirm compliance with applicable trade control laws.
The agencies publish guidance to assist companies in developing written policies and procedures, which ultimately should be customized to a company's business operations and risk areas. Implementation of effective policies and procedures would also be considered a strong mitigating factor in the event of a compliance exception. Therefore, companies seeking to invest in or enter the U.S. market should consider implementing programs to mitigate risk.
Import and other trade laws
1. Trade policy and trade remedies
The U.S. was a founding member of the General Agreement on Tariffs and Trade (GATT), which established global fair trading rules, and has been a member of its successor, the World Trade Organization (WTO), since its inception in 1995. Accordingly, the U.S. must abide by the global trading rules established under the WTO, including rules for the tariff classification and valuation of imported goods.
The U.S. currently has several bilateral and multilateral free trade agreements (FTAs), which provide for dutyfree treatment for imports into the U.S. that meet specific origin rules.74 The U.S. is also a party to several
international sectoral agreements and conventions affecting trade and tariffs, has tariff preference programs which provide for duty-free treatment of goods imported from developing countries, and is taking part in negotiations of the Trade in Services Agreement (TiSA), a proposed international trade treaty aimed at liberalizing the worldwide trade of services such as banking, healthcare, and transportation. Additionally, the U.S. is a party to the WTO General Agreement on Trade in Services 1994 (GATS), a treaty of the WTO that extends the multilateral trading system to service sector.
2. Current trade environment
For many decades, the U.S. was a leader in the push for trade liberalization and the development of global trading rules. The presidency of Donald J. Trump ushered in an era of aggressive trade policy, unilaterallydriven and largely protectionist in aim.
Through the exercise of certain presidential trade regulatory authorities, the Trump administration embarked on a series of actions to dismantle or significantly revise several significant multilateral trade agreements, starting with the U.S. withdrawal from the Trans-Pacific Partnership (TPP) in 2017 and the re-negotiation of NAFTA under the threat of U.S.
withdrawal, which concluded with the U.S., Mexico, and Canada entering into the USMCA, which went into effect in 2020.
The administration also imposed duties on washing machines and solar products and imposed tariffs on steel, aluminum, and on almost half of all U.S. imports from China.75 Several countries retaliated and imposed
duties on U.S. exports and others negotiated removal of the aluminum and steel duties. China and the U.S. agreed at the end of 2019 to a reduction in some of the U.S. tariffs on Chinese imports and postponement of additional tariffs in a so-called "Phase 1" trade accord, yet a large amount of imports from China remain subject to additional duties and the accord is subject to China meeting certain requirements involving increased purchases of U.S. goods. The Trump administration also imposed tariffs on wine, spirits, food, and luxury goods from Europe in an escalating dispute concerning automobiles and automotive parts, digital taxes, and alleged unfair trade in aircraft.
Additionally, as a response to the Covid-19 pandemic, the Trump administration also banned certain exports of Personal Protective Equipment (PPE), with limited exceptions, and moved to enhance Buy American local sourcing requirements for certain pharmaceutical sales to U.S. government agencies.
While incoming President Joseph Biden has said that he will not make any "immediate moves" to list tariffs on products from China and it is likely that the incoming administration's primary focus will be on domestic issues related to the COVID-19 pandemic and related economic issues, there is some expectation that a Biden administration will bring more predictability to international trade and a less confrontational approach to trade issues with its trade partners.
3. Import process
When a shipment reaches the U.S., the importer of record (i.e., the owner, purchaser, or licensed customs broker76
designated by the owner, purchaser, or consignee) will file entry documents for the goods with Customs and Border Protection (CBP or Customs) at the port of entry. Imported goods are not legally entered until after the shipment has arrived within the port of entry, delivery of the merchandise has been authorized by Customs, and estimated duties have been paid. It is the importer of record's responsibility to arrange for examination and release of the goods by Customs.
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An importer of record must use "reasonable care" due diligence in making entry77 --including in providing the
correct tariff classification, customs value, country of origin, and tariff preference program eligibility for the goods at the time of importation. Goods may be entered for consumption (this is a general entry for products to be sold in the U.S.), entered for warehouse at the port of arrival, or they may be transported in-bond to another port of entry and entered there under the same conditions as at the port of arrival.
a) Evidence of right to make entry
Goods may only be entered by their owner, purchaser, or a licensed customs broker. When the goods are consigned "to order," the bill of lading, properly endorsed by the consignor, may serve as evidence of the right to make entry. In most instances, entry is made by a person or firm certified by the carrier bringing the goods to the port of entry.
The entry of goods into the U.S. must be accompanied by evidence that a bond has been posted with Customs to cover any potential duties, taxes, and charges that may accrue. Bonds may be secured through a resident U.S. surety company, and may be posted in the form of U.S. currency or certain U.S. government obligations. If a customs broker is employed for the purpose of making entry, they may permit the use of their bond to provide the required coverage.
c) Entry summary documentation
Following presentation of the entry, the shipment may be examined, or examination may be waived by Customs. The shipment is then released if no legal or regulatory violations have occurred. Entry summary documentation is filed and estimated duties are deposited within 10 working days of the entry of the merchandise at a designated customhouse.
d)Entries made by U.S. importers
Merchandise arriving in the U.S. by commercial carrier must be entered by the owner, purchaser, his or her authorized regular employee, or by the licensed customs broker designated by the owner, purchaser, or consignee. Every entry must be supported by one of the forms of evidence of the right to make entry. When a customs broker makes entry, a Customs power of attorney is made in the name of the customs broker. This power of attorney is given by the person or firm for whom the customs broker is acting as agent. The authority of an employee to make entry for his or her employer is also best established by a Customs power of attorney.
e) Entries made by non-U.S. importers
Entry of goods may be made by a nonresident individual or partnership, or by a foreign corporation, through a U.S. agent or representative of the exporter, a member of the partnership, or an officer of the corporation. The surety on any Customs bond required from a nonresident individual or organization must be incorporated in the United States. In addition, a foreign corporation in whose name merchandise is entered must have a resident agent in the state where the port of entry is located who is authorized to accept service of process on the foreign corporation's behalf. A licensed customs broker named in a Customs power of attorney may make entry on behalf of the exporter or his representative.
f ) Country of origin marking and other requirements and restrictions
With limited exceptions, every article of foreign origin imported into the U.S. must be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.78
Certain goods are also subject to specific product safety standards, labeling, or certification requirements or hazardous substance regulations. Finally, merchandise produced wholly or in part by means of the use of convict labor, forced labor, or indentured labor is prohibited from importation.
Within 15 calendar days of the date that a shipment arrives at a U.S. port of entry, entry documents must be filed at a location specified by the Customs port director.
These documents are:
Entry Manifest (CBP Form 7533) or Application and Special Permit for Immediate Delivery (CBP Form 3461) or other form of merchandise release required by the port director;
evidence of right to make entry;
commercial invoice or a pro forma invoice when the commercial invoice cannot be produced;
packing lists, if appropriate;
other documents necessary to determine merchandise admissibility; and
if a trade preference is being claimed, such as dutyfree treatment under a Free Trade Agreement, importers must ensure they meet any specific documentation requirements to comply with the particular trade preference program. For example, for imports under the USMCA importers should ensure they have a Certificate of Origin for the items for which the duty preference is being claimed.
VIII. U.S. antitrust laws
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U.S. antitrust laws
Companies doing business in the Unites States are subject to both federal and state antitrust laws and regulations which seek to promote competition and protect consumers. These laws differ from the competition laws in other jurisdictions--some conduct that is permitted elsewhere may run afoul of the antitrust laws in the U.S., while other types of conduct proscribed in other jurisdictions may be permitted in the U.S. Although most state antitrust laws follow the federal laws, there are some differences, and companies must be careful to structure their conduct so as not to violate state or federal laws.
In addition, companies seeking to invest in the U.S. or in U.S. businesses may need to obtain approval from the U.S. antitrust enforcement agencies before they may close the proposed transaction. In the U.S., pre-merger notification reports are required to be filed for transactions that are above certain dollar thresholds, revised annually, unless a statutory exemption applies. This is contrary to pre-merger notification requirements in other jurisdictions that focus on the parties' market shares or whether an acquiring person will be obtaining control of the other entity.
Although this section will provide an overview of U.S. antitrust laws, companies should consult experienced antitrust counsel before engaging in conduct that may have antitrust implications or when considering a transaction with a U.S. nexus.
The Sherman Act is the primary federal antitrust statute and regulates a wide variety of potentially anticompetitive conduct. Section 1 of the Sherman Act proscribes agreements in restraint of trade, while Section 2 addresses monopolization and attempted monopolization. A violation of the Sherman Act can lead to both civil and criminal liability. Although both the United States Department of Justice (DOJ) and the Federal Trade Commission (FTC), the two U.S. federal antitrust agencies, can pursue civil actions for violations of federal antitrust laws, only the DOJ can obtain criminal sanctions, which it generally pursues only for the most egregious conduct.
In addition, the Clayton Act gives private plaintiffs a cause of action for violations of the antitrust laws, including the Sherman Act, and most U.S. states have their own antitrust laws, often mirroring federal antitrust laws, enabling them to pursue civil and criminal liability for conduct within their borders.
1. Section 1
Section 1 of the Sherman Act prohibits "[e]very contract, combination . . ." or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations."79 Although the text of Section
1 broadly prohibits all restraints of trade, courts have interpreted the statute as prohibiting only conduct that is "unreasonable." Some restraints are deemed so harmful to competition that they are considered "per se" illegal, meaning that the act or conduct is condemned without further inquiry into the particular harm that will result. Evidence of procompetitive justifications or effects is irrelevant. All other forms of alleged anticompetitive conduct are subject to a "rule of reason" analysis. Under this analysis, a plaintiff typically must prove anticompetitive harm, and the defendant may counter with evidence of procompetitive justifications or effects of the conduct. The court then balances the alleged harm and procompetitive justifications to determine whether the conduct violates the antitrust laws.
Agreements between firms that violate Section 1 are categorized as either horizontal or vertical. Horizontal agreements are agreements between direct competitors and generally are subject to greater scrutiny than vertical agreements. Horizontal agreements include agreements between competitors to fix prices, agreements to allocate customers or geographic markets among firms, and agreements to rig a bidding process. These agreements are all considered per se violations and could potentially lead to criminal penalties.
Agreements between firms not to hire or compete for each other's employees, referred to as no-poach agreements, and agreements between firms about employee compensation levels, known as wage-fixing agreements, are also horizontal agreements. No-poach agreements have recently become an enforcement priority for U.S. antitrust agencies. The DOJ has made clear that it will bring criminal charges against firms who enter into naked no-poach and wage-fixing agreements, and has recently brought a series of high-profile civil nopoach lawsuits against firms in various industries.80
Vertical agreements are agreements between firms that occupy different levels of distribution--e.g., a supplier and a distributor. Vertical agreements are usually not considered per se illegal and, therefore, are typically subject to a rule of reason analysis. Unlike agreements between horizontal competitors, vertical agreements often have procompetitive effects, and "[p]er se rules of illegality are appropriate only when they relate to conduct that is manifestly anticompetitive."81 As the
United States Supreme Court has summarized, modern case law recognizes the "differences in economic effect between vertical and horizontal agreements."82
Vertical agreements include intrabrand restraints and interbrand restraints. Intrabrand restraints are agreements that restrict a firm's downstream distribution of products. The antitrust laws are less concerned with intrabrand restraints because they more narrowly concern a firm's management of its own business and products, and courts consistently recognize how such restraints can promote interbrand competition between firms. Interbrand restrictions, on the other hand, may directly impact the ability of a company's competitors to compete or access inputs needed to compete.
In addition, vertical restraints are categorized as price or non-price restraints. Historically, price restraints have engendered greater concern under the antitrust laws than non-price restraints, although the distinction is less pronounced today. For example, under federal law, an agreement between a manufacturer and a distributor regarding the resale price of a product to consumers (resale price maintenance or RPM) will be scrutinized under the rule of reason but is not per se unlawful as courts recognize that RPM can promote interbrand competition by reducing intrabrand competition, thereby encouraging retailers to invest in service offerings, promotional efforts, etc. Under certain state laws, however, RPM is still considered per se unlawful, so even this type of restraint can carry risks. A common example of a non-price restraint is a manufacturer-imposed restriction on the geographic markets in which particular distributors can sell a manufacturer's product; such restraints are evaluated under the rule of reason and are
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unlikely to be found unlawful because, by constraining intrabrand competition, they foster interbrand competition.
On the other hand, where the vertical restraint constrains interbrand competition or are exclusionary in nature, the restraint may be more likely to be deemed anticompetitive. For example, in some cases, tying arrangements--an agreement that a producer will only sell a desired (tying) product to a customer if the customer also purchases another (tied) product--may be unlawful if a plaintiff can demonstrate harm to competition (i.e., it excludes others from being able to compete) that is not rebutted by a legitimate business justification. Another commonly challenged vertical interbrand restraint is exclusive dealing--a purchaser agrees to purchase all of a certain good or service from one seller--which can also have an exclusionary effect on competition but is not automatically unlawful in the U.S. because of potential procompetitive justifications.
2. Section 2
Section 2 of the Sherman Act prohibits monopolization, attempts to monopolize, and "combin[ations] or conspir[acies] with any other person or persons . . ."83
to monopolize. "Market power" and "monopoly power" are important concepts when evaluating conduct under Section 2, as certain conduct can be lawful or unlawful depending on whether a firm has market or monopoly power. There is no bright line in the U.S. as to what constitutes such power but market power can be found when shares are generally greater than 30% and monopoly power can be found when shares are generally greater than 60-70%. Under Section 2, a plaintiff must show that the defendant possesses monopoly power, while under Section 1, it is sufficient to show that a defendant possesses market power. Conduct that may not violate Section 1 might still violate Section 2 because a monopolist is often held to a higher standard.
When relying on market share as proof of monopoly power, plaintiffs often will also look for evidence of high barriers to entry into the market or any unique structural or regulatory characteristics of the market. Whether through direct or indirect evidence, establishing that a firm has, or likely will have, monopoly power in a given market is a necessary element of a Section 2 claim; thus, defining a relevant product and geographic market is often heavily litigated in Section 2 cases, often requiring testimony from economic experts.
Under U.S. law, being a monopolist is not itself illegal; rather, Section 2 has been interpreted by courts to prohibit certain conduct that creates or maintains a monopoly, or otherwise leverages a firm's monopoly position for economic gain. Conduct that could form the basis of a Section 2 claim includes the examples of vertical agreements discussed above, such as a tying arrangement where a company wants to exploit its monopoly over the tying product to monopolize the market for the tied product. A firm with monopoly power might also violate Section 2 if it refuses to deal with certain customers or suppliers. Such conduct by a firm with monopoly power may be found to violate Section 2 if the company unilaterally terminated a voluntary course of dealing and was willing to give up short-term profits for an anticompetitive end.84
However, the conduct may be deemed lawful if the alleged monopolist has a legitimate business justification for the refusal to deal, such as eliminating free riding or protecting product quality. Another form of Section 2 violation is predatory pricing--pricing below costs in order to grow share and eliminate rivals in the short term. Because low prices benefit consumers, however, courts are often skeptical of predatory pricing claims. A plaintiff must show that the defendant's prices are below cost and that the firm is likely to recover any near-term losses by eventually raising prices after it has obtained monopoly power.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act)85 requires parties to notify certain
transactions, including joint ventures, mergers and acquisitions of assets, voting securities (those with rights to vote for directors), or controlling interests in partnerships/LLCs, with the FTC and DOJ prior to consummation. The types of transactions caught by the HSR Act includes exclusive licensing arrangements, mergers, stock purchase agreements, tender offers, open market acquisitions, stock-based compensation awards to officers or directors, and certain redemptions, conversions, option exercises, and private placements.
Unlike in other jurisdictions, no change of control is required for the Act to potentially apply. If a transaction is notifiable, the parties are subject to a 30-day initial waiting period, which can be extended by an investigation into substantive issues through the issuance of what is known as a "Second Request" before closing.
Whether an HSR notification is required depends principally on two threshold tests--the size of transaction test and the size of person test, values which change on an annual basis. The size of transaction threshold test is satisfied if the acquisition is valued in excess of US$94 million in 2020 under HSR valuation rules.86
In 2020, the size of person threshold test only applies if the HSR value of the transaction is between US$94 million and US$376 million. Generally, the size of person threshold test would be satisfied if the Ultimate Patent Entity (UPE) of one party has at least US$188 million in annual net sales or total assets and the UPE of the other party has at least US$18.8 million in 2020 (as adjusted annually) in annual net sales or total assets. If the transaction has an HSR value in excess of US$376 million, the transaction is reportable unless a specific statutory exemption applies.87 These values will be
adjusted in early 2021 for this year.
A filing fee must also be paid upon filing. Unless the parties agree otherwise, the acquiring person is responsible for paying the filing fee. The amount of the filing fee varies depending upon the HSR value of the transaction--the larger the transaction, the higher the filing fee, which currently ranges from US$45,000 to US$280,000.
As noted above, the HSR Act reaches more than mergers and acquisitions of control. Companies are often surprised to learn that the HSR Act's notification obligation extends to the receipt of stock-based compensation awards (including grants of Restricted Stock Units (RSUs) and the exercise of stock options), redemptions and buybacks of voting securities,88 back-
end acquisitions (e.g., when a shareholder receives equity or assets above the HSR thresholds as consideration for selling its shares in a transaction), and IP licenses to patents or trademarks. Given the specific valuation and aggregation rules, it is important to consult experienced HSR counsel to determine whether a particular situation is HSR-reportable.
Even if a transaction meets the relevant thresholds, certain exemptions may apply to render an otherwise reportable transaction non-reportable. For example, acquisitions of 10% or less of an issuer that are made "solely for the purpose of investment" are exempt, as are acquisitions of 15% or less by specified types of institutional investors. Intraperson acquisitions--i.e., those in which the acquired and acquiring entities are controlled by the same person--also are exempt. These include asset transfers between wholly owned subsidiaries or a company's redemption of its own shares. A number of other exemptions exist, all of which require analysis of the specific facts presented. Experienced HSR counsel can guide you through this process to determine if an exemption applies in a particular context.
Clayton Act, Section 8
Section 8 of the Clayton Act prohibits "interlocking directorates," meaning it prohibits any person from simultaneously serving as an officer or on the board of directors of competing corporations.
This issue does not arise all that often, but Section 8 violations are per se illegal, so companies must proactively take steps to avoid creating an interlock. Interlocks occasionally are inadvertently created when companies make minority investments in competing firms or enter new product markets, which introduces new competitors against whom they previously did not compete.
The two U.S. federal antitrust agencies have recently signaled a renewed focus on enforcement of Section 8. The Assistant Attorney General for the DOJ's antitrust division recently spoke publicly about the possibility of applying Section 8 to non-corporate entities such as LLCs,89 and the FTC issued a public reminder about
Section 8 in mid-2019.90 87
IX. Anti-money laundering laws
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Investments in the U.S. also subject the investor to the provisions of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (the Patriot Act).91
Anti-money laundering laws
The Patriot Act significantly expanded U.S. law enforcement's authority to detect and prosecute terrorism and terrorist financing. Among other things, the Patriot Act amended the Bank Secrecy Act of 1970 (the BSA) to authorize and empower the Secretary of the Treasury to enact regulations that require any "financial institution" (as defined by the BSA) to (i) file certain reports, including suspicious activity reports (SARs) and currency transaction reports (CTRs); (ii) implement anti-money laundering programs; and (iii) maintain certain financial records, among other anti-money laundering (AML) requirements.92 Under the authority granted to the Secretary of the Treasury, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN) has enacted regulations implementing such requirements for certain types of "financial institutions."93
Under the BSA, "financial institution" is broadly defined.94 The regulations 90
promulgated under the BSA95 require many, but not all "financial institutions" 91
to follow AML requirements. Therefore, the regulations should be carefully analyzed with counsel before making any investment to determine whether the provisions of the Patriot Act have been satisfied and whether the enhanced AML requirements that apply to certain types of "financial institutions" will be triggered.
Beginning on 11 May 2018, certain covered financial institutions federally regulated banks and credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities are required to maintain procedures reasonably designed to obtain, verify, and record the identities of beneficial owners of legal entity customers.96 Covered financial institutions must also use appropriate risk-based procedures for ongoing customer due diligence to understand the nature and purpose of customer relationships; to conduct ongoing monitoring to identify and report suspicious transactions; and, on a risk basis, to maintain and update customer information.97
Pursuant to a recent legislative change a 1 January 2021 Congressional override of President Trump's veto of a larger legislative package covering defense funding appropriations and other measures Congress passed significant reforms to the BSA and the U.S. government's anti-money laundering regime. Among other things, the legislation requires all non-exempt companies to report their true beneficial owners to FinCEN at the time of incorporation; existing nonexempt entities must disclose such information within two years after FinCEN promulgates governing regulations. Civil and penalties apply to false and incomplete reports.
Non-financial trades and businesses are also required to file certain transactional reports with the government. For instance, persons involved in a trade or business must file a FinCEN Form 8300 for receipt of more than US$10,000 in cash in a single transaction or in related transactions.98 And persons must file a Form 105 Report of International Transportation of Currency or Monetary Instruments for transporting, mailing, or shipping more than US$10,000 in currency, traveler's checks, and certain other monetary instruments into or out of the United States.99
Both individuals and entities (financial institutions and otherwise) are subject to the criminal anti-money laundering statutes in Title 18, United States Code. Generally speaking, those statutes prohibit not only actively committing money laundering (for instance, by concealing the origin, source, or control of illicit proceeds; by using illicit proceeds to commit further illegal activity; or engaging in transactions involving illicit proceeds through a financial institution), but facilitating and conspiring to do so.100 Companies involved in international trade should also be particularly sensitive to trade-based money laundering issues.101
Recently, the Financial Action Task Force (FATF), an intergovernmental organization to develop international standards to combat money laundering and the financing of terrorism, issued a report on trade-based money laundering issues,102 describing various risks, typologies, and measures to address trade-based money laundering.
There have been a number of developments to antimoney laundering regulations due to the COVID-19 pandemic. The U.S. Department of Treasury issued the 2020 National Illicit Finance Strategy (Strategy)103 that outlines current U.S. priorities regarding antimoney laundering policies and the applicability of those policies to various industry sectors and developments, including "digital assets" (cryptocurrencies, securities, commodities, and derivatives).104
In providing guidance to financial institutions, FinCEN identified four types of illicit behavior that are prevalent during the pandemic: imposter scams, investment scams, product scams, and insider trading.105 FinCEN has periodically provided guidance to financial institutions regarding best practices for BSA compliance during the pandemic.106 And as financial institutions and markets evolve, FinCEN and the other financial regulators as well as criminal law enforcement authorities have proposed various changes to the rules addressing money laundering and other illicit finance issues. Given the changing conditions, it is best to consult counsel to ensure compliance with the most recent anti-money laundering requirements.
X. Foreign Corrupt Practices Act
The reach of the Foreign Corrupt Practices Act (FCPA) is extremely long. The involvement of a U.S. national (even if acting outside of the U.S.) or the transmission of emails routed through the U.S. can be sufficient.
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Foreign Corrupt Practices Act
The FCPA107 makes it a crime to offer, promise, or give anything of value 92
to a foreign official with the purpose of obtaining or retaining business for, or with, or directing business to any person, or otherwise influencing such foreign official.108 A "foreign official" includes any officer, employee,
or person acting in in an official capacity for or on behalf of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization.109
The person making or authorizing the payment must have a corrupt intent. Additionally, the payment must be intended to induce the foreign official to misuse his or her official position by wrongfully directing business to that person making or authorizing such payment or to any other person.110 The FCPA does not require a corrupt act to succeed in its purpose, as the offer or promise of a corrupt payment can constitute a violation of the statute.111
Persons subject to the FCPA include: (i) "domestic concerns;" (ii) "issuers;" and (iii) foreign nationals or businesses who take an act in furtherance of a bribery in the U.S.112 A "domestic concern" is any (a) individual who is a citizen, national, or resident of the U.S., (b) corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or (c) sole proprietorship that has its principal place of business in the U.S., or that is organized under the laws of a state of the U.S., or a territory, possession, or commonwealth of the U.S.113 This would include a U.S. subsidiary of a foreign entity. An "issuer" is a corporation or other entity (including a foreign entity) that (a) has issued securities that have been registered in the U.S. or (b) is required to file periodic reports with the SEC.114
Issuers and domestic concerns are liable if they engage in a corrupt act within the territory of the U.S. or use the U.S. postal system or other means or instrumentalities of interstate commerce, including telephone calls, facsimile transmissions, wire transfers and interstate or international travel to commit such act.115 In addition, a domestic company may be held liable for a corrupt payment authorized by employees or agents operating entirely outside the U.S., using money from foreign bank accounts, and without any involvement by personnel located within the U.S. Companies should additionally ensure that any third parties they engage with do not violate the FCPA. The DOJ has taken the position that the fact that a bribe was paid by a related third party does not eliminate the potential for liability.116
Furthermore, U.S. citizens and residents employed by or acting on behalf of U.S. or foreign entities may be held liable for the acts of such U.S. or foreign entities when such citizens or residents authorized, directed, or controlled the activity in question. Although having operations in the U.S. is not a prerequisite to FCPA liability, entry into the U.S. market increases the chances of a non-U.S. company becoming subject to FCPA liability. Thus, a non-U.S. company establishing a U.S. entity should create and implement a FCPA compliance program.
The penalties imposed for violations of the FCPA can be substantial. Under the anti-bribery provisions, corporations and other business entities are subject to a criminal fine of up to US$2 million or twice the benefit that the defendant sought to obtain by making the corrupt payment.117 Officers, directors, employees, and agents of business entities are subject to a criminal fine of up to US$250,000, or twice the benefit that the defendant sought to obtain by making the corrupt payment, and imprisonment for up to five years.118 Fines imposed on individuals may not be paid by their employer or principal.119
In addition, the U.S. Attorney General or the SEC may bring a civil action for injunctive relief or impose a fine of up to US$10,000 against any business entity, as well as any officer, director, stockholder, employee, or agent of a business entity that violated the antibribery provisions of the FCPA.120 An additional fine may be imposed by a court in an SEC enforcement action. This fine shall not exceed the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation, or (ii) a specified dollar limitation, as determined by the court.121 The specified dollar limitations are based on the egregiousness of the violation, ranging from US$5,000 to US$100,000 for individuals and US$50,000 to US$500,000 for business entities.
For willful violations of the accounting provisions, also referred to as the books and records and internal control provisions, penalties can include a fine not to exceed US$25 million for entities.122 For individuals, penalties can include a prison sentence of up to 20 years and/or a fine up to US$5 million.123
The DOJ has continued its focus on charging individuals along with corporate entities. In 2019, the DOJ charged more individuals in a single year than ever before. In addition, other countries have stepped up their enforcement efforts against companies, with global settlements involving Airbus (US$3.9 billion) and Goldman Sachs (US$2.9 billion) breaking records.
In addition, it is important to be aware of the risk of successor liability under the FCPA. The DOJ and SEC take the position that a company subject to the FCPA may be held criminally liable for the unlawful conduct of an acquired company, regardless of the method of acquisition.124 Unlike the UK Bribery Act, the FCPA does not provide a compliance or adequate procedures defense.
In the U.S. government's view, an acquiring company may be liable for unlawful acts under the FCPA even if the acts took place pre-acquisition and were unknown to the acquiring company.125 The FCPA does not specifically address successor liability, and no judicial opinions have tested the government's position. But the government has suggested that companies may avoid liability by (1) demonstrating proper pre-acquisition due diligence, (2) providing voluntary disclosure or self-reporting of any uncovered violations to the government, and (3) taking immediate remedial measures to redress any violations.126 Despite this guidance, the government continues to take a case-by-case approach in deciding whether to seek to impose successor liability under the FCPA.
Successor liability is not clearly defined under federal law in the U.S. Rather, successor liability has typically been an issue of state law that varies from state to state. Courts therefore look to state law to assess whether successor liability will be imposed, taking into account a complex analysis of factors including the structure of the transaction. In July 2020, the DOJ and SEC issued the second edition of its FCPA Resource Guide, which includes further guidance on successor liability. The FCPA Resource Guide127 clarified that the government
often will not take action against acquiring companies that voluntarily disclose and remediate problematic conduct and cooperate with the government. In such cases, the government is likely to take action only against the predecessor company.128
The DOJ's FCPA Corporate Enforcement Policy is aimed at providing benefits to companies based on their corporate behavior once they learn of FCPA misconduct. This past year, the DOJ announced refinements to its policy that further incentivized early disclosure.
In order to prevent FCPA violations and obtain mitigation if violations do occur, companies should implement anti-corruption programs. In June 2020, the DOJ updated previous guidance on the "Evaluation of Corporate Compliance Programs."129 It organizes its guidance around three questions. First, is the program well-designed? Second, is the program being implemented effectively? And third, does the program work in practice? Though the guidance is aimed at prosecutors, it provides a roadmap for companies seeking to implement best practices.
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Non-U.S. companies entering the U.S. market should be aware that they are entering a litigious environment. Companies that sell products or enter into commercial agreements in the U.S. face a relatively high risk of private legal action. In the U.S., the cost of filing a lawsuit is low. Contingent fee arrangements (particularly in the consumer arena) can shift the cost of bringing an unsuccessful suit from the plaintiffs to the law firms that represent them. Although there are rules against the filing of frivolous lawsuits, there is no "loser pays" rule established by law and, even when the cost of litigation is governed by contract, it is more common that each party pays its own legal expenses. Pre-litigation discovery is much more involved than in most jurisdictions, with burdensome document production requests and questioning of witnesses by the opposing party. Except for contractual disputes in which the parties have waived the right to a jury trial, juries, not judges, are the finders of fact. The cost of defense is high and, depending on the jurisdiction, cases can go on for years. U.S. judgments, particularly for products liability, can be very high.
For a foreign company to be subject to liability in the U.S., it must first be subject to "personal jurisdiction" in the forum in which it has been sued. "Personal jurisdiction" refers generally to the power of a U.S. court over a particular defendant and can take the form of general jurisdiction or specific jurisdiction.
1. General jurisdiction
General jurisdiction exists when a defendant's contacts with a particular state are so systematic and continuous that jurisdiction will lie regardless of whether the cause of action arises from those contacts.130 Such a state is,
in essence, where the defendant is "at home."131 The burden for establishing general jurisdiction is high.132 A state cannot exercise general jurisdiction
over a foreign company just because the company's products traveled through the stream of commerce and wound up in the forum state.133 Instead,
barring an exceptional case, general jurisdiction will usually be found only where a corporation is incorporated or has its principal place of business.134
General jurisdiction over a parent corporation will generally not be found in a state simply because the corporation's wholly-owned subsidiary is incorporated in that state.135 However, it is advisable to consult with counsel
about actions that can be taken to minimize the risk that a parent company will be subject to the jurisdiction of U.S. courts.
2. Specific jurisdiction
Specific jurisdiction exists when a defendant "purposefully avails itself of the privilege of conducting activities within the forum [s]tate" and the injuries at issue in a lawsuit "aris[e] out of or [are] related to the defendant's contacts with the forum."136 In deciding
whether or not to exercise specific jurisdiction, a court will first determine whether the plaintiff's cause of action arose out of or resulted from an out-of-state defendant's contacts with the forum state or activities directed towards the forum state.137 If so, the court will
then ask whether the defendant purposefully directed its activities related to the plaintiff's claims toward the forum state and intentionally took advantage of the ability to conduct business in the state, thus invoking the benefits and protections of that state's laws.138 In
products liability cases where an in-state plaintiff is injured in the forum state by an out-of-state defendant's product, "a defendant's placing goods into the stream of commerce with the expectation that they will be purchased by consumers within the forum [s]tate may indicate purposeful availment."139 Importantly, however,
a foreign company that markets a product only to the U.S. generally, but does not purposefully direct its product to an individual state, should not be subject to specific jurisdiction in that state.140 A foreign company's
mere awareness that its products could wind up in the forum state does not suffice for specific jurisdiction. Rather, "something more, such as special-state-related design, advertising, advice, marketing, or anything else" is required for a finding of purposeful availment.141
Moreover, a defendant's contacts that are unrelated to the particular plaintiff's claim (e.g., the sale of products in the forum to someone other than the plaintiff) do not provide a basis for the exercise of specific jurisdiction.142
Piercing the corporate veil and agency theories of jurisdiction
As a general matter, the "jurisdictional contacts of a subsidiary corporation are not imputed to its parent corporation."143 Thus, in order for a U.S. court to have
jurisdiction over a non-U.S. parent, the court must have general or specific jurisdiction over the non-U.S. parent, not the U.S. subsidiary. However, courts may "pierce the corporate veil" and exercise personal jurisdiction over parent corporations based on their subsidiaries' contacts with U.S. jurisdictions under two theories that are theoretically distinct but, as a practical matter, overlap:
74 Hogan Lovells
(i) the piercing the corporate veil or alter ego theory144108 and (ii) the agency theory.
Although the precise rules vary across U.S. jurisdictions, under either theory, "a separate legal existence will not be recognized when a corporation is so organized and controlled and its business conducted in such a manner as to make it merely an instrumentality of another,"145 or when it is the "alter ego of the
person owning and controlling it." Factors that can lead to piercing the corporate veil or a finding that a subsidiary is a mere alter ego include: (i) the failure to observe corporate formalities; (ii) the naming of identical directors and officers for the two entities; (iii) insufficient capitalization; (iv) the parent's treatment of the subsidiary's assets and employees as if they were the parent's; and (v) conduct by the subsidiary that is misleading or tantamount to fraud.
Under the agency theory, even when the corporate formalities are observed, a subsidiary's jurisdictional acts relating to the plaintiff's claim may be attributed to its corporate parent for purposes of specific jurisdiction146
when (i) the subsidiary acts as the parent's agent and (ii) the parent exercises sufficient control over the subsidiary.147 Some courts have held, for example, that a
subsidiary acts as the parent's agent for the purposes of this theory if the subsidiary's "only purpose is to conduct the business of the parent."148 The amount of parental
control over the subsidiary required under the agency theory is not as great as the control required under the piercing or alter-ego theory.
Under either theory, "[c]ontrol that is consistent with investor status that is, monitoring the subsidiary's performance, supervising the subsidiary's finance and capital budget decisions, and articulating general policies does not rise to the level necessary to impute the subsidiary's jurisdictional contacts to the parent."149113 U.S. courts are reluctant to pierce the corporate veil or find the existence of agency relationships, but fighting such a claim can be costly and time consuming.
Although a non-U.S. company establishing operations in the U.S. cannot completely eliminate the risk of litigation, there are certain steps it can take to limit the exposure of upstream subsidiaries and the parent corporation. First, it can form a U.S. entity. As discussed in Section II of this publication, corporations, limited liability companies, and certain partnerships provide limited liability, meaning that the owners can lose the value of their investments, but are not otherwise at risk for the liabilities of the entity. The U.S. subsidiary should have different officers and directors than the parent company (although there can be some overlap), great care should be taken to maintain the financial and managerial separateness of the entities, and the U.S. subsidiary should have adequate capital to fund its anticipated operations and expected obligations. Although some oversight of a U.S. subsidiary by a parent corporation is not problematic, the parent company should seek advice in structuring its relationship with, and control over, the U.S. subsidiary in a way that does not materially increase the risk of the parent becoming subject to U.S. jurisdiction and liability.
There are two main types of bankruptcy for businesses in the U.S.: bankruptcy under Chapter 11 and bankruptcy under Chapter 7.
Doing business in the United States 2021
Chapter 11 bankruptcy
A Chapter 11 bankruptcy is unique in that the company has the opportunity to reorganize its balance sheet by either (a) selling all of its assets in a "soft-landing" liquidation, or (b) reorganizing and continuing to operate post-confirmation with a new equity and debt structure. A Chapter 11 bankruptcy begins with the filing of a petition, which can be voluntary (i.e., filed by the debtor) or involuntary (i.e., filed by creditors, though rare because there can be consequential damages if initiated inappropriately). Upon filing this petition, all lawsuits and collection activities against the debtor and its property are stayed under what is called the "automatic stay." The debtor keeps possession and control of its assets and continues to operate its business as a "debtor-in-possession."
After filing a Chapter 11 bankruptcy petition, the debtor has 120 days, during which it has an exclusive right, to file a plan (this period may be, and frequently is, extended by the court up to 270 days, but no more). For a plan to be confirmed, it must meet several requirements, including (i) being proposed in good faith and not by any means forbidden by law and (ii) being, in general, accepted by two-thirds in amount and half in number of the creditors in each class under the plan. If the plan is confirmed, all debts that arose before the petition date are discharged pursuant to the terms of the plan. The debtor is then required to make plan payments and is bound by the provisions of the plan.
A Chapter 11 bankruptcy case is an involved process because the debtor is required to disclose detailed financial information and must get approval from the bankruptcy court for all actions outside of the ordinary course. Having cash available, either in the form of cash collateral or through debtor-in-possession borrowing is essential to filing a Chapter 11 bankruptcy because lending cannot be forced against the existing pre-bankruptcy lenders.
The Small Business Reorganization Act (SBRA) recently added Subchapter V to Chapter 11 of the Bankruptcy Code and aims to minimize the time and costs involved with a Chapter 11 bankruptcy, especially for small-business debtors. The SBRA applies to debtors with 50% or more of their debt arising from business or commercial activities and no more than US$2,725,625 in total noncontingent, liquidated debts.150 The ceiling for liquidated debts has been increased to US$7,500,000 under the CARES Act through March 27, 2021. Key features of the SBRA include (i) the appointment of a Subchapter V trustee to the case as needed, (ii) no appointed committee of creditors unless ordered for cause, and (iii) the elimination of the debtor's disclosure statement.151
Chapter 7 bankruptcy
A Chapter 7 bankruptcy results in liquidation but, unlike in a Chapter 11 bankruptcy, a trustee is appointed to operate the debtor rather than the debtor remaining in control. Because a company can liquidate in a more organized fashion under a Chapter 11 bankruptcy, a Chapter 7 bankruptcy is normally a last resort for a company. Chapter 7 bankruptcy is typically only invoked where there is no cash left to operate the business and no borrowing is available.
A growing alternative found under state law, but not federal, is an assignment for the benefit of creditors. It works a lot like a Chapter 7 bankruptcy in that it provides for the transfer of assets, but through an assignment of title to assets directly to creditors rather than through a trustee. This method is most commonly found in the instance where the assets are primarily virtual ones, such as intellectual property, as opposed to hard assets such as real estate or equipment, because of the cash needed to maintain or physically transfer assets.
XIII. Other considerations
This guide does not provide a comprehensive summary of U.S. laws and regulations affecting investment in the U.S. A non-U.S. person should also consider the following prior to investing or commencing operations in the U.S.: (i) laws and regulations applicable to the particular industry sector in which the investment will be made or operations will be commenced in; (ii) U.S. antidumping and countervailing duty laws; and (iii) state and local laws.
States and municipalities often offer economic development incentives such as tax increment financing, job training and job creation grants, public financing for infrastructure improvements, corporate income tax credits, investment tax credits, real estate tax abatements, and utility tax exemptions.
Laws and regulations affecting non-U.S. persons seeking to invest in the U.S. are continuously changing, and this guide is updated annually. This guide does not consider all factors that should be taken into account in making an investment decision. You should consult with legal counsel before making any investment or commencing operations in the U.S.
These materials do not constitute and should not be relied upon as legal advice.
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1 DOING BUSINESS: ECONOMY RANKINGS, World Bank Group, https://www.doingbusiness.org/en/rankings (last visited 15 July 2020) (ranking the U.S. as 6th out of 190 for "ease of doing business").
2 See 721 of the Defense Production Act of 1950 (the DPA). In particular, the President has power to block a transaction if "(A) there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens to impair national security; and (B) provisions of law, other than . . . [the DPA] . . . and the International Emergency Economic Powers Act . . . do not, in the judgment of the President, provide adequate and appropriate authority for the President to protect the national security in the matter before the President." 50 U.S.C. 4565 (d) (4) (emphasis added).
3 The term "control" is broadly defined to mean the power, directly or indirectly, whether or not actually exercised, through the ownership of "a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity." 31 C.F.R. 800.204(a).
4 The Foreign Investment Risk Review Modernization Act of 2018, Subtitle A of Title XVII of Public Law 115-232 (Aug. 13, 2018).
5 Parties may elect to file a voluntary notice as an alternative to the mandatory declaration.
6 In September 2017, President Trump blocked the sale of Lattice Semiconductor Corporation to China-backed purchasers. In March 2018, President Trump blocked the same of chip maker Qualcomm to Broadcom. See https://f.datasrvr.com/ fr1/818/11321/CFIUS_Trump_Alert.pdf.
7 Chinese acquirers accounted for the largest number of deals reviewed by CFIUS between 2017 and 2019, according to CFIUS's annual report that covers activity for 2019. The report is available at https://home.treasury.gov/system/files/206/CFIUS-Public-Annual-Report-CY-2019.pdf.
8 Limited liability means that the entity, and not its owners, is legally responsible for the activities and omissions of the entity, and the owners are only at risk to the extent that they can lose the value of their investments in the entity. See Section XI of this publication.
9 A Message from the Secretary of State Jeffrey W. Bullock, https://corp.delaware.gov/ stats/ (last visited 16 July 2020).
10 Note that the State of New York and the District of Columbia have each enacted statutes requiring disclosure of the ownership of LLCs formed or operating in those jurisdictions. If anonymity of corporate ownership or other corporate governance matters is necessary, local law advice should be sought. See e.g., D.C. CODE 29-102.11 (2020).
11 The formation documents of various entities have different names in different states. Delaware entities are formed by filing a Certificate (e.g. Certificate of Incorporation or Certificate of Formation). In some other states, the formation document is called "Articles of Incorporation" or "Articles of Organization." A Certificate of Incorporation or the Articles of Incorporation is also referred to as a "charter" or "charter document." This publication uses terms applicable to Delaware entities and assumes formation in Delaware.
12 Courts in the U.S. have considered several factors in deciding whether to pierce the veil, or find that an entity is an alter ego of another, including the stockholder's failure to observe corporate formalities, the intermingling of the corporation's and the stockholder's assets, undercapitalization of the corporation, use of the corporation as a cover for stockholder's personal dealings, and fraud. See Section XI of this publication.
13 Special rules apply to ownership of "S corporations." An S corporation is a corporation that has elected, only for income tax purposes, to be treated as a pass-through entity. An S corporation may have no more than 100 stockholders, all of which must be individuals or qualified trusts or estates, and none of which may be non-resident aliens. Because of the limitations on the types of persons or entities that may be stockholders of an S corporation, an S corporation is generally not a good option for non-U.S investors. For this reason, S corporations are not discussed further in this publication.
14 Most state laws are consistent with federal law, but local law advice should be sought.
15 Par value is largely a historical concept but in Delaware determines franchise taxes, which are annual taxes paid to the State of Delaware by entities incorporated in the state.
16 See Section XI of this publication.
17 Note that California recently passed Senate Bill 826, which amends the California Corporations Code to require all publicly traded companies that identify California as the state in which its principal executive offices are located on its annual report on Form 10-K filed with the Securities and Exchange Commission to have at least one female director on its board of directors by the end of 2019. By the end of 2021, the minimum number of female directors required to sit on a company's board will correspond with the number of board seats that exist such that if a board has five directors, at least two directors must be female and if a board has six or more directors, at least three directors must be female. See California Corporations Code 301.3. These requirements will also apply to publicly-held foreign corporations to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated. See California Corporations Code 2115.5. Any corporation that is subject to these requirements and fails to comply by the specified deadlines will be assessed a fine by the California Secretary of State. Consideration should always be given to whether naming too many directors from a single non-U.S. jurisdiction will subject the entity to taxation in such jurisdiction. It is also important to consider that composition of the board of directors is a factor in the determination of whether they pierce the veil or find that an entity is an alter ego of its parent entity. See Section XI of this publication.
18 Delaware General Corporation Law 142(a), DEL. CODE tit. 8, 142(a) (2018). Although a single individual may hold all offices, it is advisable to name at least two individuals as officers to avoid difficulties (e.g. if the only officer becomes unavailable and because banks, landlords, and certain other entities often require an attestation by a second officer). Unlike in civil law jurisdictions, officers typically sign legal instruments and the use of powers of attorney in domestic transactions is rare.
19 See Section XI of this publication.
20 A goal of the 2017 tax reform legislation was to enact new rules that curb the erosion of the U.S. tax base by discouraging U.S. taxpayers from holding intangible assets offshore and shifting the resulting income to foreign jurisdictions. These new rules include (i) the global intangible low-taxed income (GILTI) provision, which requires current taxation to a 10% or greater U.S. shareholder of certain income of a controlled foreign corporation above a 10% return on specified assets, (2) the base erosion and anti-abuse tax (BEAT), which effectively imposes a minimum tax on certain U.S. corporate taxpayers by limiting the deductibility of certain payments to a foreign related party, and (3) the foreign derived intangible income (FDII) provision, which reduces the effective corporate tax rate to 13.125% on certain income earned by a U.S. corporate taxpayer from foreign sales and services.
21 Generally, if U.S. real estate represents 50% or more of the fair market value of the entire U.S. subsidiary's assets, the corporation will be deemed to hold a significant amount of U.S. real property.
22 The arm's length standard is used by the U.S. Internal Revenue Service and the tax authorities of numerous other jurisdictions to price intercompany transactions involving related parties and allocate the income and expenses among the participants to properly reflect income. In general, under the arm's length standard, the results of a related party transaction must be consistent with the results that would have been realized if unrelated taxpayers had engaged in a comparable transaction under comparable circumstances.
23 Note that forming an entity in a particular state is not the same as performing due diligence on the availability of a trademark in the U.S., as discussed in Section VI of this publication. The state of formation determines whether the name an entity has requested is distinguishable from one that is already registered in that state only. Similarly, formation of an entity and use of a name provides a minimal level of protection of the name insofar as it puts a trade name into usage, but, as described below, it does not provide any comprehensive or nationwide intellectual property protection for the name, as (for example) filing a trademark registration with the U.S. Patent and Trademark Office does.
24 Partnerships may elect to be treated as corporations for tax purposes. This is called a "check the box" election. In the absence of such an election, partnerships may not control the timing of U.S. source income in the way that corporations do and income earned by the partnership automatically passes through to the partners, whether or not any cash is distributed. The same treatment applies to limited liability companies, which are discussed above.
25 Traditionally the use of a corporate seal to stamp on a document or printing of the word "seal" on a document served to authenticate the document. Even today, affixing of a seal or printing the word "seal" can serve to extend the statute of limitations applicable to a document. The use of seals is now relatively rare.
26 Oral contracts can be binding, but certain contracts must be written to be legally enforceable. These include contracts relating to (i) agreements that cannot be completed within one year in accordance with their terms, (ii) the transfer of real estate, (iii) the sale of goods worth US$500 or more (with certain exceptions), and (iv) suretyship. See generally U.C.C. 2-201 (AM. LAW INST. 2012). Most states have adopted provisions similar to those of the U.C.C., but given variation among some states, it is best to seek local advice.
27 However, neither compensation for a benefit that has already been received nor a promise to perform a pre-existing legal obligation constitutes sufficient legal consideration. This section deals only with commercial contracts, not employment contracts and agreements, which are considered in Section IV of this publication.
28 Eagle Force Holdings, LLC v. Campbell, 187 A.3d 1209 (Del. 2018) (citing Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010)).
30 Draft U.S. commercial contracts or contracts that remain subject to review will often include a header at the top of each page of the contract indicating that the document is in draft form or is for discussion purposes only.
31 Eagle Force Holdings, LLC, 187 A.3d 1209 (citing Restatement (Second) of Contracts 33(2)).
32 U.C.C. 1-304, 2-103(1)(b) (2012).
33 N.Y. Gen. Oblig. Law 5-1402 (2020).
34 In the U.S., express employment contracts are typically granted only to executives and key employees; they are uncommon for non-executive employees. Union membership is very low in the U.S., with only 6.2% of private sector employees participating in unions. Economic News Release, U.S. Department of Labor, Bureau of Labor Statistics https:// www.bls.gov/news.release/pdf/union2.pdf. Within the private sector, the highest rates of union participation are found in the utilities, transportation and warehousing, and construction industries. Id.
35 The public policy exception varies by state, but generally covers situations in which an employee is terminated for refusing to perform prohibited acts, reporting a violation of law, engaging in acts that are in the public interest or exercising a statutory right. Under the theory of "implied contract," courts may infer that contractual duties exist, even in the absence of a written contract, based on the parties' overall conduct. Such impliedin-fact employment agreements usually arise from oral representations regarding job security, employee handbooks or manuals, implied covenants of good faith and fair dealing between the employer and employee, and quasi-contractual theories such as promissory estoppel.
36 29 U.S.C. 2102.
37 Title VII of the Civil Rights Act of 1964 ("Title VII")(prohibits discrimination based upon race, color, sex, religion, and national origin); the Age Discrimination in Employment Act of 1967 (protects individuals who are age 40 and older); Title I and Title V of the Americans with Disabilities Act of 1990 (prohibits employment discrimination against qualified individuals with disabilities in the private sector and in state and local governments); the Civil Rights Act of 1991 (provides monetary damages where there has been intentional employment discrimination).
39 If the EEOC issues a "cause" determination, the agency has the right to bring the lawsuit on behalf of the individual. The latter scenario is unusual and typically is reserved for cases involving systemic discrimination within a workplace.
40 These characteristics might include personal appearance, political affiliation, family responsibility and other grounds.
41 For example, both Maryland and New York enacted anti-sexual harassment laws in 2018. See https://www.hlemploymentblog.com/2018/06/marylands-new-sexual-harassment-law/ and https://www.hlemploymentblog.com/2018/05/new-york-increases-efforts-end-sexual-harassment/.
42 Movie producer Harvey Weinstein was the subject of a New York Times story that brought the #MeToo movement to the forefront of public consciousness.
43 Such conditions include: (i) when age is a bona fide occupational qualification; (ii) the action is based on reasonable factors other than age; (iii) the employer is observing the terms of either a bona fide seniority system or age-related entry requirements under a bona fide apprenticeship program; or (iv) the employer is disciplining an employee for good cause.
44 An action based on the PDA must adhere to the Title VII framework, and successful plaintiffs are entitled to all of the remedies discussed earlier in this section.
45 The ADA explicitly excludes several conditions from the definition of disability including compulsive gambling, kleptomania, pyromania, or illegal drug use. However, a person who is enrolled in or who has successfully completed a drug treatment program may be protected by the ADA.
46 See 29 U.S.C. 201219 (FLSA); 29 U.S.C. 151169 (NLRA); 29 U.S.C. 26012654 (FMLA).
47 Other federal laws that establish wage and hour standards are the Davis-Bacon Act, the Walsh-Healey Act, and the Service Contract Act, but these apply only to employers who have contracts with the federal government or the District of Columbia.
48 29 U.S.C. 26012654.
49 An "eligible employee" is defined as "an employee who has worked at least 1,250 hours in the 12 months preceding a leave request".
50 In recent years, the law has become clear that eligible employees in legal same-sex marriages may take FMLA leave to care for their spouses or family members.
51 29 U.S.C. 2614(a). The top 10% of salaried employees are exempted from the restoration requirement when reinstatement would cause "substantial economic injury" to the employer's business.
53See Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018).
54 The Immigration Reform and Control Act of 1986, 8 U.S.C. 1101, imposes significant monetary penalties upon any employer who knowingly hires illegal aliens.
55 Participating countries in the Visa Waiver Program can be found at https://travel.state. gov/content/travel/en/us-visas/tourism-visit/visa-waiver-program.html. The ESTA website can be found at https://esta.cbp.dhs.gov/esta/.
56 See 8 C.F.R. 214.2(l)(1)(ii)(G)(1).
57 Eligible professionals include, but are not limited to, accountants, engineers, lawyers, pharmacists, scientists, and teachers. The NAFTA list of professions can be found in 8 CFR 214.6.
58 Canadian and Mexican citizens may seek to extend the initial period while in the U.S. or depart the U.S. before the expiry of the initial period and seek TN renewal by applying in person at the border/pre-flight clearance (for Canadian citizens) or at the U.S. embassy or consulate for a new TN visa (for Mexican citizens).
60 According to the International Property Rights Index, the U.S. scored in the top 15 countries for protection of intellectual properties and was ranked the first among countries in 2019. https://atr-ipri2017.s3.amazonaws.com/uploads/IPRI_2019_ES_Report.pdf.
61 Malathi Nayak, Costs Soar for Trade Secrets, Pharma Patent Suits, Survey Finds, BLOOMBERG LAW (Sept. 10, 2019), https://news.bloomberglaw.com/ip-law/costs-soar-for-tradesecrets-pharma-patent-suits-survey-finds.
62 2018 PwC Patent Litigation Study, available at https://www.pwc.com/us/en/forensic-services/publications/assets/2018-pwc-patent-litigation-study.pdf.
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63 In general, the EAR do not control items produced outside the U.S. that have less than de minimis U.S. content, if the items are not located in the U.S. For exports or re-exports to Iran, North Korea, Sudan and Syria, the applicable de minimis threshold is 10%. For all other destinations, the generally applicable de minimis threshold is 25%. 15 C.F.R. 734.4. However, special de minimis rules apply to "9x515 series" and "600 series" items and the applicable de minimis level for such items can vary between zero, 10% and 25% depending on the country of destination. There also are special de minimis rules for encryption items. The rules for calculating de minimis levels are especially complex, and a de minimis analysis is time consuming. Furthermore, in certain circumstances, the calculations must first be submitted to the U.S. government for review before the exporter or re-exporter may rely on the de minimis rule. Accordingly, counsel should be consulted when determining whether a de minimis rule exception applies.
64 15 C.F.R. 734.3 (a)(4).
65 Set forth in Supplement No. 1 to 15 C.F.R 774.
66 Updated lists may be found at https://www.export.gov/article?id=Consolidated-Screening-List.
67 15 C.F.R. 744.21.
68 As set forth in 22 C.F.R. 121.
69 See 22 C.F.R. Part 121.
70 We also typically include a cover letter with the registration (particularly for first time registrants) describing the reason the company is registering and any unusual corporate structure issues that DDTC should be aware of as it reviews the registration materials.
71 Additional information on which entities and individuals are required to register is available at https://www.pmddtc.state.gov/?id=ddtc_kb_article_page&sys_id= 7110b98edbb8d30044f9ff621f96192d.
72 The following is the list of Proscribed Countries, as of the date of this publication: Afghanistan, Belarus, Burma (Myanmar), Central African Republic, China, Cuba, Cyprus, Democratic Republic of Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela, and Zimbabwe.
73 Foreign investments in residential real estate held exclusively for personal use and notfor-profit-making purposes do not trigger a BE-13 filing requirement.
74 The U.S. has FTAs with Australia, Bahrain, Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, Singapore, and South Korea. See https://ustr.gov/trade-agreements/free-trade-agreements.
75 The Trump Administration has taken other executive actions to impose (a) safeguard duties (Under 201 of the Trade Act of 1974, as amended) on imports of washing machines and solar products; (b) significant tariffs on imported steel (25%) and aluminum (10%) under the national security provisions of 232 (of the Trade Expansion Act of 1962, as amended); and (c) 10% and 25% tariffs on about half of all Chinese imports under 301 (of the Trade Act of 1974, as amended), to punish China for alleged unreasonable trade policies toward U.S. business interests; including policies in the area of intellectual property and investment.
76 Customs brokers are private individuals or firms licensed by Customs to prepare and file the necessary customs entries, arrange for the payment of duties found due, take steps to effect the release of the goods in Customs custody, and otherwise represent their principals in customs matters. The fees charged for these services may vary according to the customs broker and the extent of services performed.
77 Title VI of the North American Free Trade Agreement Implementation Act, Pub. L. 103182, 107 Stat. 2057 (also known as the Customs Modernization or "Mod" Act), provides a clear requirement that importers exercise "reasonable care" due diligence in importing products into the U.S. 484 of the Tariff Act of 1930, as amended (19 U.S.C. 1484), requires an importer of record to use "reasonable care" to enter, classify and determine the value of imported merchandise and to provide any other information necessary to enable CBP to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met.
78 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304). See also Part 134, Customs Regulations (19 C.F.R. Part 134).
79 15 U.S.C. 1.
80 No-Poach Approach, Department of Justice (Sept. 30, 2019), available at https://www. justice.gov/atr/division-operations/division-update-spring-2019/no-poach-approach. See also Antitrust Guidance for Human Resource Professionals, Department of Justice (Oct. 2016), available at https://www.justice.gov/atr/file/903511/download.
81 Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49-50 (1977).
82 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 888 (2007).
83 15 U.S.C. 2.
84See Novell v. Microsoft, 731 F.3d 1064, 1074-75 (10th Cir. 2013).
85 15 U.S.C. 18(a).
86 Note that in addition to special HSR valuation rules which vary depending on whether the transaction involves the acquisition of assets, voting securities, or partnership/LLC interests, there are also special aggregation rules that must be considered in valuing a transaction.
87 The exemptions are found in 16 C.F.R. 802.2 and in the HSR Act, 15 U.S.C. 18a(c).
88 Under the HSR Act, "voting securities" are those with present rights to vote for directors (or obtain such a right upon conversion).
89 Assistant Attorney General Makan Delrahim Delivers Remarks at Fordham University School of Law, Department of Justice (May 1, 2019), available at https://www.justice.gov/opa/ speech/assistant-attorney-general-makan-delrahim-delivers-remarks-fordham-university-school-law.
90 Michael E. Blaisdell, Interlocking Mindfulness, Federal Trade Commission (June 26, 2019), available at https://www.ftc.gov/news-events/blogs/competition-matters/2019/06/interlocking-mindfulness?utm_source=govdelivery.
91 Pub. L. No. 107-56 (2001).
92 Pub. L. No 107-56, 115 Stat. 322 (2001). In a recent press release, FinCEN has expressed that it will allow "reasonable delays" for reporting requirements due to COVID-19, but ask that the affected institution(s) communicate with FinCEN regarding the delay.
93 See 31 C.F.R. Chapter X.
94 The following is a partial list of "financial institutions" included in the definition of "financial institution" under the BSA: (i) an insured bank, commercial bank or trust company or private banker; (ii) an agency or branch of a foreign bank in the U.S.; (iii) any credit union or thrift institution; (iv) a broker or dealer in securities or commodities; (v) an investment banker or investment company; (vi) a currency exchange or an issuer, redeemer or cashier of travelers' checks, money orders or similar instruments; (vii) an operator of a credit card system; (viii) an insurance company; (ix) a dealer in precious metals, stones or jewels; (x) a travel agency; (xi) a licensed sender of money or any other person who engages as a business in a transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system; (xii) a business engaged in vehicle sales, including automobile, airplane and boat sales; (xii) persons involved in real estate closings and settlements; (xiv) certain casinos and gaming establishments; (xv) any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to or a substitute for any activity in which any financial institution is authorized to engage; and (xvi) any other business designated by the Secretary of the Treasury whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters. See 31 U.S.C. 5312 (a)(2) (2018).
97 See id.
100 See e.g., 18 U.S.C. 1956 (2018).
101 For a list of jurisdictions with anti-money laundering and combating terrorism "deficiencies," see https://www.fincen.gov/sites/default/files/advisory/2020-03-25/
102 Financial Action Task Force, Trade-Based Money Laundering: Trends and Develop ments, December 2020, available at http://www.fatf-gafi.org/media/fatf/content/
103 See https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.
104 See id.
105 See https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-fincen-encourages-financial-institutions.
106 See https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial.
107 15 U.S.C. 78dd-1, et seq.
108 See 18 U.S.C. 78dd 1(a) (2018). In addition, the FCPA's accounting provisions impose requirements on companies that are required to file reports with the SEC or that have securities registered with the SEC to maintain accurate and fair books and records that reflect their transactions and to develop and maintain adequate internal accounting controls. See 18 U.S.C. 78m (2018).
109 Criminal Division of the U.S. Department of Justice & Enforcement Division of the U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act 19 (2nd ed. 2020) available at https://www.justice.gov/criminal-fraud/ file/1292051/download.
110 See id. at 13.
112 See 18 U.S.C. 78dd 1-3 (2018).
113 See 18 U.S.C. 78dd 1(h) (2018).
114 Unlike the FCPA's anti-bribery provisions, its accounting provisions do not apply to "domestic concerns" that are not "issuers." See 15 U.S.C. 78m(b)(2).
115 See e.g., 18 U.S.C. 78dd 1(a) (2018).
116 See A Resource Guide to the U.S. Foreign Corrupt Practices Act at 22, available at https://www.justice.gov/criminal-fraud/file/1292051/download.
117 18 U.S.C. 78ff(c) (2018).
121 See generally https://www.sec.gov/spotlight/foreign-corrupt-practices-act.shtml.
122 18 U.S.C. 78ff(a) (2018).
124 See A Resource Guide to the U.S. Foreign Corrupt Practices Act at 29, available at https://www.justice.gov/criminal-fraud/file/1292051/download.
125 See id.
126 See id. at 29-30.
127 See id.
128 See id.
129 See https://www.justice.gov./criminal-fraud/page/file/937501/download.
130 For general jurisdiction to lie, the foreign defendant's "affiliations with the State [must be] so continuous and systematic as to render [it] essentially at home in the forum State." Daimler AG v. Bauman, 571 U.S. 117, 139 (2014) (citation and quotation marks omitted).
132 Tamburo v. Dworkin, 601 F.3d 693, 701 (7th Cir. 2010).
133 Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2856-57 (2011).
134 Under the framework in Webb-Benjamin, a Pennsylvania court may consider a foreign company's registration to do business within Pennsylvania as "consent" to be subjected to general jurisdiction, and, therefore, could continue to assert jurisdiction over defendants in actions unrelated to Pennsylvania. See Webb-Benjamin, 192 A.3d 1133, 1137-38 (Pa. Super. Ct. 2018).
135 See Daimler, 134 S. Ct. at 760.
136 J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873, 881 (2011) (citations omitted); Tamburo, 601 F.3d at 702.
137 Wright, Miller, Kane, & Marcus, 4A Federal Practice and Procedure 1069.
139 Nicastro, 131 S. Ct. at 2788 (quotation marks omitted).
140 See id. at 885 886. 2792 (889) (Breyer, J., concurring).
141 Id. at 2792 (889).
142 See Bristol-Myers Squibb Co. v. Superior Court, 137 S.Ct. 1773, 1781 (2017).
143 Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.2d 773, 778 (7th Cir. 2003).
144 Piercing the corporate veil and alter ego are legally distinct theories, but courts often fail to distinguish between the two and apply the same factors.
145 Forest Hill Corp. v. Latter & Blum, 29 So.2d 298, 302 (Ala. 1947) (internal quotation marks and citation omitted).
146 See Daimler, 517 U.S. at 135, n.13 (rejecting use of a broad agency theory to establish general jurisdiction, but noting that agency relationships may still be relevant to an analysis of specific jurisdiction).
147 Whether a parent is liable for the acts of a subsidiary under an alter ego or agency theory is typically an issue of state law and varies from state-to-state. Thus, some jurisdictions will treat the requirements for alter ego and agency relationships differently than others.
148 Central States v. Feiner Express World Corp., 230 F.3d 934, 940 (7th Cir. 2000).
149 City of Greenville v. Syngenta Crop Protection, 830 F. Supp. 2d 550, 555-56 (S.D. Ill. 2011).
150 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) temporarily increases the eligible debt threshold from US$2,725,625 to US$7,500,000 for new cases filed between 28 March 2020, and 27 March 2021.
151 See 11 U.S.C. 11811195 (2020).
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