Those engaged in international business must be aware of prohibited activities, because severe criminal penalties are possible. For example, paying bribes to get things done is not permitted. The Foreign Corrupt Practices Act (FCPA) prohibits the payment of bribes by U.S. companies and the employees of those companies. Violation of this law is a criminal offense. It does, however, permit grease payments, or facilitating payments, if such payments are permitted by the local government where the payments occurred. Since it is extremely rare to find a jurisdiction that legally permits grease payments (even in countries where corruption is rampant, it’s probably still illegal), the grease payments exception provides false comfort to those who undertake to use it. U.S. citizens and companies must refrain from doing business with prohibited people or entities. The U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) maintains a list of Specially Designated Nationals and Blocked Persons, which is a list of persons, businesses, and entities with which U.S. citizens are forbidden from conducting business. Similarly, U.S. citizens are not permitted to engage in trade or business dealings with those in countries in which a U.S. embargo or U.S. imposed economic sanctions exists. Check out Note 13.42 "Hyperlink: Prohibited Parties" for these lists.
Hyperlink: Prohibited Parties
Specially Designated Nationals and Blocked Persons List
http://www.treas.gov/offices/enforcement/ofac/sdn
Economic Sanctions
http://www.treas.gov/offices/enforcement/ofac/programs/index.shtml
U.S. citizens are also blocked from conducting transactions with terrorists or terrorist organizations. 1 Conducting transactions with prohibited persons, entities, or businesses can result in serious criminal violations, which carry financial penalties and long prison sentences.
Finally, while the United States maintains economic boycotts against several countries, under U.S. antiboycott laws it is illegal for U.S. persons and companies to comply with any unsanctioned foreign boycott. The most important unsanctioned foreign boycott is the long-standing Arab League boycott of Israel. If a U.S. person or company receives a request to comply with the boycott of Israel (such as a request from a buyer in Saudi Arabia not to ship goods via Israel, or not to ship on an Israeli flag ship, or even to state whether the seller has any operations in Israel or to state the religious affiliations of each employee in the company), then the U.S. person or company must refuse to comply with the request and report it to the appropriate U.S. government agency within a specified period of time.
KEY TAKEAWAYS
International business opportunities are lucrative, and the global marketplace provides vast opportunities for growth. However, U.S. companies that engage in international business are subject to trade regulations, must be cognizant of the challenges inherent when forming international contracts, and are prohibited from engaging in certain activities.
EXERCISES
- Look at the clothing labels of the clothes you are wearing. Was anything that you are wearing produced in the United States? Besides garment appeal, what types of considerations might consumers weigh when deciding to buy apparel?
- What are the benefits and drawbacks of import controls for domestic industries? Do you favor stronger controls? More lax controls? Why?
- Several U.S. sanctions programs are limited to U.S. companies only. The decades-old sanctions program against Cuba, for example, has meant that Asian and European companies can do as much business as they wish in Cuba. How effective do you think a sanctions program like this can be? Who are the winners, and who are the losers?
- Wal-Mart, as a U.S. company, does not do any business in Cuba and does not purchase from any Cuban suppliers. Wal-Mart Canada, a Canadian company, found out several years ago that a supplier outsourced the manufacture of pajamas to Cuba, and that these Cuban-made pajamas were being sold in Wal-Mart’s Canadian stores. The U.S. parent company ordered the Canadian subsidiary to pull the product, but the Canadian subsidiary reported that doing so would violate Canadian law, which prohibits Canadian companies from complying with the U.S. boycott of Cuba. What should Wal-Mart U.S. do? What should Wal-Mart Canada do?
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