New York Times columnist Thomas Friedman first said “the world is flat,” and it’s getting flatter. U.S. companies are more and more reliant on a globalized business environment that is both outward- and inward-facing. On one hand, companies depend on foreign sales to boost the bottom line; on the other, companies seek to gain great returns on investment by working with manufacturers and service-providers abroad. Too often, however, a fast-paced global business model can outrun a careful consideration of the legal implications such foreign activities can have on a company. The recent press is replete with noteworthy examples of what can happen when companies don’t have enough information about their foreign business practices. With that in mind, there are several issues that in-house counsel should be aware of when it comes to international activities.
Foreign Corrupt Practices Act
Although they enacted the Foreign Corrupt Practices Act (FCPA) in 1977, the U.S. Department of Justice and Securities and Exchange Commission (SEC) have only recently prioritized use of the law as an enforcement tool. Essentially, the FCPA prohibits U.S. or foreign companies that are registered or required to file reports with the SEC from offering payments to foreign officials for the purpose of influencing them or gaining an improper business advantage. Over the past few years, a string of companies have been ensnared by FCPA investigations and have cumulatively paid billions of dollars in fines.
When it comes to limiting FCPA liability, an ounce of prevention is worth a pound of cure. For starters, in-house counsel should conduct anti-corruption due diligence before entering strategic business relationships, joint ventures or partnerships with foreign companies or agents. Companies should also set up an ongoing anti-corruption due diligence process that examines links between their overseas partners and illicit behavior or connections to foreign governments. Gathering that kind of internal information can take a company a long way toward preventing the foreign activities that have caused so many recent nightmares for U.S. companies.
Arbitration and forum-selection clauses in international agreements
As U.S. companies conduct more business overseas, they inevitably negotiate more agreements with foreign companies. These multinational contracts can create complex legal relationships and breed uncertainty with regard to conflict of laws and jurisdictional issues. One particular sticking point is the use of arbitration and forum-selection clauses, which can be used to invoke the parties’ chosen place and manner for resolving disputes that arise from an agreement. Federal courts have long recognized the validity of forum-selection and arbitration clauses in the context of international agreements, even if those clauses deny a domestic party jurisdiction in U.S. courts.
The recent decision in Liles v. Ginn-La West End highlights the impact a forum-selection clause can have in a multinational contract. There, the 11th Circuit affirmed a district court’s dismissal of suits on the grounds that forum-selection clauses establishing the Bahamas as the exclusive venue for any legal action precluded the plaintiffs from suing in the U.S., even though U.S. regulations were at issue. The appellate court noted that forum-selection and choice-of-law clauses in international contracts are “presumptively valid,” and that a party that wants to avoid such clauses bears a heavy burden. Specifically, the presumption can only be overcome by a “clear showing that the clauses are unreasonable under the circumstances.”
Those who negotiate multinational contracts must thus take care to consider the impact of forum-selection and arbitration clauses. Neglecting the consequences of those clauses could result in a loss of the jurisdictional advantages that U.S. courts may provide and force disputes to be litigated in what may be unwelcoming foreign venues.
Bilateral investment treaties
In addition, when foreign investments go awry, in-house counsel should consider potential avenues for relief under bilateral investment treaties (BITs). BITs are agreements that establish terms and conditions under which businesses located in one country can invest their capital in another country. These agreements typically offer businesses a number of guaranteed protections in the host country, including fair and equitable treatment, protection from expropriation and security under the law. BITs ordinarily allow for violations by foreign countries to be resolved through international arbitration, as opposed to having to sue a host country in its own courts.
As a result, BITs can provide a pathway to recouping investment losses in a country when the playing field has been unfairly unbalanced or business conditions change due to unforeseen political events. For example, if a company invests in creating manufacturing facilities in a country that has ratified a BIT and that country later decides to nationalize the industry, including the company’s facilities, there may be recourse for recovering money damages for the loss of those facilities.
Therefore, as U.S. companies look to invest in foreign countries—or find ways to remediate lost investments in foreign countries—knowing whether a BIT is in place, and the terms and conditions that apply, can be vital.
Conclusion: The more you know
Whether a business is trying to limit potential future liability for its foreign activities, to determine how to identify its exposure for conduct across the globe or to find ways to remediate losses in other countries, the more information its counsel has the better. This can require gathering both internal information—including knowledge about the activities of foreign business partners and agents—and external information, including an understanding of the foreign business environment in which a company’s activities are occurring. Indeed, when it comes to conducting business in a globalized world, knowledge is power.