Legal Developments & Compliance Issues in Crowdfunding International Trade

Legal Developments & Compliance Issues in Crowdfunding International Trade

Gardere Wynne Sewell LLP Partner Michelle Schulz discusses legal developments and compliance issues in crowdfunding for international trade during Thanksgiving.

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Slide1Legal Developmentsand Compliance Issues in Crowdfunding: International Trade Michelle Schulz, Partner Gardere Wynne Sewell LLP Thanksgiving Tower, Suite 3000 Dallas, Texas  75201-4757 214.999.3000     214.999.4667 fax

Slide2Agenda‒ Overview ‒ What is an Export? ‒ Due Diligence in Crowdfunding ‒ Export Red Flags

Slide3Who Regulates Trade?“D UAL  U SE ” I TEMS Bureau of Industry & Security Export Administration Regulations (EAR) 15 CFR D EFENSE  I TEMS Directorate of Defense Trade Controls International Traffic  in Arms Regulations (ITAR) 22 CFR O THER   A GENCIES OFAC, Census Bureau, EPA U.S C USTOMS   AND B ORDER  P ROTECTION “Policemen” to Enforce Regulations 19 CFR

Slide4What is an “Export?”‒ Tangible Exports ‒ Shipments through a US port via air, ocean, truck, rail, mail, etc. ‒   Intangible Exports ‒ Electronic transfers (including email, fax and Internet downloads) ‒ Technical reports, drawings, data or source code released to foreign nationals ‒ Also includes “deemed” exports

Slide5What is an “Export?” (cont’d) ‒ Re-Exports ‒ Shipments from one foreign country to another of US-origin goods or foreign made goods containing certain US-origin parts, components or materials.

Slide6Export Due Diligence‒ Crowdfunding is uniquely international ‒ Online platform ‒ Many parties ‒ Money changing hands ‒ Who are you doing business with? ‒ What are you funding?

Slide7Export Due Diligence (cont’d) ‒ U.S. Government requires that U.S. parties know their end users and end uses ‒ Sanctions and Embargoes are broad and often apply to monetary transactions ‒ Example: Bank of Russia ‒ Company could not receive payment from that bank!

Slide8Export Due Diligence (cont’d) ‒ Sanctions and Embargoes can involve political support ‒ What are you funding? Who is receiving funds? ‒ Example: support for military group or person ‒ May be prohibited under the International Traffic in Arms Regulations (ITAR) and Office of Foreign Assets Control (OFAC) regulations

Slide9Sanctions and Embargoes can involve receiving money ‒ What are you funding? Who is receiving funds? ‒ Example: support for military group or person ‒ May be prohibited under the International Traffic in Arms Regulations (ITAR) and Office of Foreign Assets Control (OFAC) regulations Export Due Diligence  (cont’d)

Slide10Denied Party Screening ‒ Example: Large telecom company ‒ Do they know their end users? Export Due Diligence  (cont’d)

Slide11BIS Red Flags ‒ Customer or purchasing agent reluctant to offer information about end-use ‒ Product’s capabilities do not fit buyer’s line of business ‒ Customer willing to pay cash for an expensive items when terms of sale would normally call for financing ‒ Customer has little or no business background Export Due Diligence  (cont’d)

Slide12BIS Red Flags  (cont’d) ‒ Customer is unfamiliar with product’s performance characteristics but still wants product ‒ Freight forwarding firm is listed as the product’s final destination ‒ Shipping route is abnormal for the product and destination Export Due Diligence  (cont’d)

Slide13Pop Quiz!If I receive a minimal amount of funding from Kim Jong-un, I could get a monetary penalty.

Slide14Antiboycott ‒ Covered under the EAR ‒ Red Flag Countries: UAE, Iraq, Bangladesh ‒ Language appears in Letters of Credit, contracts, etc. ‒ Prohibited language may  seem harmless… Export Due Diligence  (cont’d)

Slide15What if you are not the exporter of record? ‒ You STILL have an obligation to conduct “due diligence” for products subject to export controls ‒ You and your company can be penalized for proceeding with a transaction with knowledge that a violation of the EAR is occurring or is about to occur Export Due Diligence  (cont’d)

Slide16“Knowledge” does not always mean “you knew” ‒   It also means “you should have known” ‒  Cannot “self blind” ‒  So, when should you know? Export Due Diligence  (cont’d)

Slide17Implementation‒ All departments play a role: ‒ Engineering ‒ Finance ‒ Human Resources ‒ Sales & Marketing ‒ IT ‒ Operations ‒ Supply Chain


Slide19So you’ve tackled the tariff code!‒ Key Concepts – tariff classification ‒ Duty Rates ‒ Nuts and Bolts of Tariff Classification ‒ Schedule B ‒ Binding Rulings Michelle Schulz, Partner 214-999-4181