ILMA Compoundings December 2016 - 22

INTERNATIONAL INSIGHT

Personal Liability Affirmed in Import Transactions
The most volatile part of the combined approach has been
believed to center on the import-related personal liability. It
seemed to many that extending this risk to W-2 employees in
the import operational processes would be seen by subsequent
administrative and judicial bodies as conscience-shocking.
The thought of imposing fines and penalties on employees
in tangential departments that are not directly involved with
the import process seemed even more far-fetched. Courts
and administrative bodies have long indicated a disdain for
this, and in other matters where personal consequences have
been available they typically have refrained from imposing the
consequences, except in particularly egregious circumstances.
Again, not anymore. At least a dozen new cases have resulted in
fines and penalties against individual employees of defendant
corporations. As noteworthy is the fact that this has occurred
in less than a two-year period. It is difficult to imagine that this
result would have happened apart from the policy shift imposed
through Yates' directive to the DOJ (the Yates Memo).
This result, and the threat of its proliferation, comes at a great
price. As is more fully discussed below, the corporate defendant
pays in many ways. Seldom is the fine or penalty assessed against
an individual alone. Even lower-ranking employees who defy
company policy and instructions are often viewed by judicial
or administrative bodies as being the responsibility of their
employer to some extent. The adjudicators' lingering question
in those instances is, "Why did the employer not deal with earlier
behavior in a more decisive way?" Only when the employee can
be shown to have an otherwise unblemished conduct record will
the employer escape responsibility.

Export and Other Activity
The imposition of fines and penalties on individuals, including
officers and employees, is not new to apparent infractions
involving export sanctions and controls, bribery and other
activity that does not specifically arise from a U.S. import
transaction. But the combined impact of these new standards
has been felt there as well. Companies are slower to respond
during investigation, due in large part to individuals being
represented by counsel early in the process. Counsel for
employees and officers tends to object frequently to
government requests for information and to the company's
intended disclosures. Naturally, the corporate target of the
investigation often shows allegiance to employees and officers
that conflicts with the company's own interests and those of its
shareholders (or similar ownership group).

Cases in these categories typically take longer to reach the
fines and penalty stage, and they are slower to reach that
point now. That fact does not bode well for good results. One
reason is that the longer and more complicated process greatly
increases the cost. Individuals hiring attorneys multiplies the
production of documents and increases the company's own
legal representation costs. More objections occur, and more
administrative or judicial hearings are required. Plus, defense
strategies will rely on some level of reasonable cooperation and
coordination.
Another reason for the cost increase to the company flows
from the fact that companies often agree to subsidize or
entirely absorb the legal fees and costs borne by their officers
and other employees. The practice of limited subsidy is nearly
universal, except where the employee is clearly alone in being
at fault. Complete subsidy is growing, with the same limited
exception. To better appreciate the reason for this, consider this
dilemma: An employee with more limited financial wherewithal
who followed the company's instructions will be quicker to
"cooperate" with the government. The less the company
subsidizes that employee's expenses in the matter, the faster
and more ardently the employee will attempt to throw the
company or a higher-ranking employee (officer) under the
proverbial bus. Defense cost subsidy will not ultimately prevent
that aspect of self-preservation, but these investigations can
become an endurance contest. The successful company is the
one whose strategy can delay the fines and penalty stage (and
keep co-defendants patient and appropriately cooperative) long
enough to produce a settlement that ends the contest. Defense
cost subsidy is one of several tools that companies are using to
increase the desired outcome.
The length of this process suggests that it remains too early
to see evidence of outcomes in these areas that have been
influenced by the new emphasis on individual liability. Many
export-related infractions take several years for the government
agencies to investigate before they approach the exporter
or related parties. Given the added complexity of multiple
defendants associated with targeted companies, our wait will
continue. But the details, when and to the extent published, will
likely mirror what we already see with import activity.

Eggenschwiler is an international trade attorney and director
of global trade for Redstone Group LLC. He may be reached at
614-923-7472 or jeggenschwiler@redstonegrp.com.

Vol. 66 No. 12 * 22 * December 2016 Compoundings
ILMA Compoundings December 2016

Table of Contents for the Digital Edition of ILMA Compoundings December 2016
