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Lowenstein Sandler LLP

Doreen M. Edelman

Doreen M. Edelman

Partner
Chair, Global Trade & Policy

Lowenstein Sandler LLP
D.C., U.S.A.

tel: 202.753.3808
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Profile

Doreen founded and chairs the firm’s Global Trade & Policy practice, a unique team that combines global trade and policy expertise with cross-border M&A, technology, immigration, government contracts, white collar investigations, and business counseling practices to help clients with ongoing strategies to minimize global business risks, increase compliance, and represent them before regulatory agencies and the U.S. Department of Justice.

She regularly advises clients on the risks associated with export controls, customs matters, and U.S. sanctions in cross-border M&A and investment transactions and on the compliance requirements pertaining to technology, software, defense articles and services, and commercial goods. She has deep knowledge of the Committee on Foreign Investment in the United States (CFIUS) and the new requirements under the Foreign Investment Risk Review Modernization Act (FIRRMA). Regarding export controls, she advises companies on the Bureau of Industry and Security (BIS) and the Directorate of Defense Controls (DDTC) export control regulations, prepares compliance programs, and undertakes deal diligence on these requirements.  Regarding the Treasury Department’s Office of Foreign Assets Control (OFAC) requirements, she counsels on the legal requirements for compliance with U.S. sanctions as well as secondary sanctions for third-country entities, represents companies with disclosures to OFAC, conducts internal investigations, and ensures clients understand how to comply with OFAC’s Specially Designated Nationals list and the ever-evolving sanctioned-countries programs limiting business transactions with, for example, Iran, Cuba, North Korea, Russia/Crimea and Venezuela.

Doreen also helps her clients do business around the globe by preparing business agreements and distribution contracts for foreign sales. She advises on U.S. anti-boycott requirements, the Foreign Corrupt Practices Act (FCPA) and global anticorruption requirements, and Foreign Agents Registration Act (FARA) issues for Washington, D.C., representations. She has represented high-profile international clients and countries such as the Sultanate of Oman, where she secured passage of the U.S.-Oman FTA.

Prior to joining Lowenstein Sandler, Doreen served as co-chair of the Global Business practice at an AmLaw 100 firm in Washington, D.C. She has published many trade-related articles, created a trade matters blog, and been quoted on CNN and Bloomberg and in The Wall Street JournalThe Hill, and other publications as a trade policy expert.

Bar Admissions

    District of Columbia
    Florida
    Maryland
    The Court of Appeals of Maryland
    Florida Supreme Court
    U.S. Court of International Trade
    U.S. District Court for the District of Maryland
    U.S. Court of Appeals for the District of Columbia Circuit

Education

George Washington University Law School (J.D. 1987), with honors
George Washington University (B.A. 1984), with distinction
Areas of Practice
Professional Career

Significant Accomplishments

Speaking Engagements

Lowenstein Sandler is a sponsor of the A.C.E.S. Compliance Summit. Partners Doreen M. Edelman and Zarema A. Jaramillo will serve as moderators on two separate panels throughout the conference.

April 16, 2019

11 a.m.: Policy in Action-The Modernization of the Committee on Foreign Investment in the United States (CFIUS): Dissecting the Foreign Investment Risk Review Modernization Act (FIRRMA) and the Implications on Compliance Operations

On August 13, 2018, President Trump signed FIRRMA into law, the first reform of the screening process for CFIUS in over a decade. A lively panel of industry experts will shed light onto the key provisions of FIRRMA and explore the targets and significance of the initial pilot program.

Moderator: Doreen M. Edelman, Partner, Chair, Global Trade & Policy, Lowenstein Sandler. 

Panelists:

  • Tyrone Brown, Deputy Chief, Foreign Investment Review Staff, U.S. Department of Justice
  • Tatiana Olivia Sullivan, Associate Director, CFIUS Operations & Regulatory Affairs, Office of the Under
    Secretary of Defense A&S Industrial Policy

2:00 p.m.: The Export Control Reform Act (ECRA) of 2018 and How It and Other Recent Events Will Affect Your Compliance Program

Industry leaders dissect ECRA and what it means for U.S Export Controls and trade compliance operations. The panelists will discuss the significant impact of the ECRA on “emerging” and “foundational” technologies that are “essential to the national security of the United States,” the transfer of technology to foreign persons, increased restrictions on export licensing, and increased civil and criminal penalties.

Lowenstein Sandler's Spring Alumni CLE Day will feature three CLE programs on timely legal issues and provide you with an opportunity to reconnect and network with LS attorneys and alumni over lunch.

Program Agenda

Registration and Breakfast
8:30-9 a.m.            

Welcome Remarks
9–9:15 a.m.  

Paid Family, Medical, and Sick Leave Compliance & Best Practices

9:15–10:15 a.m.
Presented by Julie Levinson Werner & Lauren M. Hollender

This program is a discussion of both the New York and New Jersey paid sick leave laws and paid family leave laws.  The program will address the significant impact of recent legislation on employee time off and paid benefits.  Panelists will provide policy and practice tips for employers.  

The Ethics of Client Pitches and Client Secondments
10:30–11:45 a.m.m
Presented by David M. Wissert & Sarah Scott

This CLE will explore the ethical issues that arise when pitching for work from prospective clients by taking an in-depth look at the recent decision in Skybell Technologies, Inc. v. Ring, Inc. and the court’s interpretation of Rule of Professional Conduct 1.18, which addresses the duties owed to prospective clients. The CLE also will explore the ethical requirements for client secondments to avoid the imputation of conflicts of interests between the firm and the client.

Everything You Didn’t Know You Need to Know About U.S. Trade Laws
12-1 p.m.
Presented by Doreen M. Edelman & Andrew Bisbas

Topics will include rapidly changing trade rules impacting clients day to day business including investment fund and merger and acquisition activities, real estate investments and even bankruptcy workouts.  Specifically, we will cover the following regulatory regimes: import regulations and Customs procedures; export regulations, prohibitions, and licensing requirements; changes in CFIUS and FIRRMA filings; U.S. sanctions and embargoes; and foreign investment filing requirements.

Networking Lunch
1-2 p.m.

The program is being held at Lowenstein Sandler, One Lowenstein Drive Roseland, NJ 07068

U.S. trade policy and tariffs, in particular, have become a hot topic for credit providers. This program will cover the Trump administration trade actions and Congressional legislation that have affected credit decisions. That includes a discussion of tariffs, targeted sanctions programs, the impact of the United States-Mexico-Canada (USMCA) Free Trade Agreement (NAFTA 2.0), the changes to the Committee on Foreign Investment in the United States (CFIUS), and new export controls on emerging technologies. These actions have increased attention on supply chain management, country of origin issues, foreign ownership, and scrutiny of potential deal partners as they may lead to problematic foreign ownership or control over U.S. emerging technologies or economic sanctions violations. Ultimately, these issues affect everything from component purchases to future investment opportunities. Moreover, increased enforcement is affecting audit plans, leading to more external reviews and creating a better understanding of how these issues affect management decisions.

Topics that will be addressed during the program:

  • How to navigate legitimately through and around tariffs, including identifying tariff exclusions, and developing a strategy for and identifying the risks of passing tariff costs onto customers
  • What to be paying attention to as an importer or exporter in 2019
  • Impact of tariffs on customers in or approaching financial distress
  • How to identify if your products are controlled technologies

 Speakers:

  • Doreen M. Edelman, Partner; Chair, Global Trade & Policy, Lowenstein Sandler LLP
  • Bruce S. Nathan, Partner, Bankruptcy, Financial Reorganization & Creditors' Rights, Lowenstein Sandler LLP

Webinar access:

Instructions to join the webinar will be sent to the main registrant's email address the day before. Please log in at least 15 minutes prior to the webinar commencing to ensure ample time for technical assistance if needed.

Join Lowenstein partners Doreen M. Edelman and Bruce S. Nathan at the NCCA September Quarterly Meeting as they speak on a panel titled "Reducing Trade and Compliance Risks in a Volatile 2019."

Panelists:

Location: Omni Charlotte Hotel, 132 E Trade St, Charlotte, NC 28202

Stay current with rapidly changing trade rules impacting how companies are doing business internationally. Please join TerraLex firms Baker Donelson, Lowenstein Sandler, McMillan, Nixon Peabody, and SKW Schwarz for a webinar on September 25, 2019.

Discussion will include updates on:

  • US customs matters
  • CFIUS and FIRRMA
  • USMCA ratification and implementation status in Canada
  • European sanctions and customs issues
  • US export controls and OFAC sanctions
  • Canada/US s. 232 steel and retaliatory tariffs lifted and resulting agreement
  • Canadian trade remedy and safeguard developments

Panelists:

  • Doreen M. Edelman, Lowenstein Sandler
  • Alan Enslen, Baker Donelson
  • Jonathan O'Hara, McMillan LLP
  • Alexandra Lopez-Casero, Nixon Peabody
  • Sven Pohl, SKW Schwarz Rechtsanwaelte

Time: Noon-1:30 p.m.

Lowenstein's Zarema A. Jaramillo introduces opening keynote speaker Attorney General Loretta Lynch, former U.S. Attorney General, and Lynda A. Bennett and Doreen M. Edelman are panel moderators at the Women, Influence & Power in Law Conference.

Thursday, October 17, 2019

9:15 a.m.: Opening Keynote: A Conversation with Attorney General Loretta Lynch

Introduction of Keynote Speaker: Zarema A. Jaramillo, Partner, Lowenstein Sandler LLP

Keynote Speaker: Attorney General Loretta Lynch, former U.S. Attorney General

Attorney General Loretta Lynch shares her journey to become the first female African American Attorney General and how businesses can navigate and thrive in a changing global workforce.

1:30-2:30 p.m.: IoT Liability Issues

Moderator: Lynda A. Bennett, Partner, Lowenstein Sandler LLP

Panelists:

  • Carolyn McNerney, Senior Counsel, LG Electronics USA
  • Tamara Snowdon, Esq. CIPP/US, Senior Vice President, Cyber Practice, Marsh JLT Specialty, Marsh USA Inc.
  • Patti Sunar, Assistant General Counsel, Litigation, Verizon

The connectivity allowed by the Internet of Things (IoT) may make our personal and professional lives much easier, but for liability attorneys, it raises some red flags. Plus, with a lack of guidance from federal regulators like the FTC and the FCC, there are often more questions than answers. If a data breach occurs at a business, who is liable? Does liability fall on the business, the manufacturer of the device, or the creator of the software? More cases like this are beginning to arise, and this session will examine liability concerns in the age of connectivity. Topics include:

  • Understanding the differences for the legal department between IoT and other recent tech advancements
  • Review Current guidelines around IoT liability and potential legislation
  • Strategies for protecting your organization

Friday, October 18, 2019

11:20 AM - 12:20 PM: Tariffs, Trade Wars & the Global Supply Chain

Moderator: Doreen M. Edelman, Partner, Lowenstein Sandler LLP

Panelists:

  • Karen Killeen, Vice President and Deputy General Counsel, BASF Corporation
  • Jennifer Morales, Senior Counsel – Litigation, GE Aviation

The recent rise in tariffs affecting global trade is having a huge impact on both local and international businesses–not to mention, there’s been discussion of a renegotiation of NAFTA and proposal of pulling out of the WTO. Other countries have begun to retaliate on the high tariffs imposed by the United States with counter-tariffs on American goods, thus creating a “trade war.” Many local corporations are being affected as the cost continues to rise, which also impacts the cost to the consumer. So what are the options for companies to keep the costs down? Aside from asking for exemptions on certain tariffs, what can GCs and in-house counsel do at this time? And what are the legal implications of these new sanctions for companies with overseas operations? This session will explore how trade wars are impacting the decisions that GCs must make for their businesses, and we will also discuss potential solutions for organizations with global operations.

Washington Marriott Wardman Park
, 2660 Woodley Rd NW, Washington, D.C.



Professional Associations

American Bar Association
  • Business Law Section
  • Section of International Law
American Society of International LawDistrict of Columbia Bar Association, International SectionFlorida State Bar Association, International SectionMaryland State Bar Association, International SectionMember Ex Officio, Board of Directors, and General Counsel, American-Turkish Council and American Friends of Turkey (2004-2018)Board Member, TerraLex (2018)


Professional Activities and Experience

Accolades
  • LexisNexis AV Preeminent - Doreen Edelman
  • Super Lawyers - Doreen Edelman

Articles

What the Changes to CFIUS Mean for Foreign Investment
Lowenstein Sandler LLP, July 2019

CFIUS is a U.S. federal interagency committee (“Committee”). The Committee reviews and approves foreign direct investment in U.S.-based businesses. Investment is restricted if it impairs national security. Under the new Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), what the Committee considers to be “national security” has recently changed to include emerging and critical technologies and sensitive personal data...

Additional Articles

President Trump has formally notified Congress that renegotiation of the North American Free Trade Agreement (NAFTA) will commence this fall. While this fulfills one of Trump’s major campaign promises, it does come with risks. Let's say, for a moment, that the United States gets a bad deal or ultimately walks away from the agreement altogether — then what? One thing is for sure: China would be thrilled.

NAFTA was negotiated in large part to create an integrated North American economy that could compete with China. Recognizing the flood of cheap goods coming from Asia, policymakers on both sides of the aisle understood the need in the early 1990s to take decisive action. The answer was a trade agreement between Canada, Mexico, and the United States that would harness the strengths of all three economies to make U.S. goods more competitive.

U.S. persons remain prohibited from doing business in or with Iran despite implementation of the Iranian nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA). The JCPOA negotiations involved China, France, Russia, the United Kingdom, the United States, Germany, the European Union, and Iran. They were completed in 2015. Under the JCPOA, the United States withdrew some of its nuclear-related secondary sanctions in exchange for Iran's compliance. However, the primary prohibitions and restrictions of the Iran sanctions program that affect U.S. persons and entities remain in place today.

The Iran sanctions program dates from right after the Iranian Revolution and the U.S. hostage crisis. President Clinton expanded the sanctions in 1995 when he issued a comprehensive ban on U.S. trade and investment in Iran under the International Emergency Economic Powers Act (IEEPA). Since that time numerous executive orders, laws, and regulations have come into effect that have strengthened economic and trade sanctions on Iran.

Leaders of all three North American Free Trade Agreement (NAFTA) member countries have now acknowledged the benefits that might be gained by renegotiating the 1994 regional free trade agreement. And, despite criticism of NAFTA as it currently exists, President Trump recently recognized the virtues of regional trade, declaring in a recent meeting with Canadian Prime Minister Justin Trudeau that both countries will “coordinate closely to protect jobs in our hemisphere and keep wealth on our continent.”

Of course, Mexico, with which the United States has a $63 billion trade deficit, not Canada, has been the main target of President Trump's criticism. Yet, Mexico, too, is open to renegotiating. Mexican President Enrique Peña Nieto has already commenced a 90-day period of consultation with the private sector that would precede expected renegotiation.

U.S. sanctions on North Korea have been in effect for decades and as a result, most American business leaders today have had to pay little or no attention to their impact or implications. In 2008, the North Korea sanctions program intensified and grew.

Now, the Trump administration appears to be further expanding prohibitions by specifically targeting Chinese firms. These conditions, called “secondary sanctions,” mean U.S. businesses could experience the economic effects of our strained relationship with North Korea for the first time.

The current discussion about free trade agreements too often forgets the tremendous benefits that free trade agreements offer U.S. exporters. Last September, the U.S. Department of Commerce reported that U.S. exports to current free trade agreement partners grew 22 percent from 2009 to 2015. The Commerce Department further reported that these exports supported more than 3 million American jobs and that U.S. exports, in total, support more than 11.5 million American jobs.

A key premise of President Trump's economic policy is to increase the total number of U.S. exports. This makes sense given that the growth of the U.S. economy in the last century was due to the dominance of U.S. manufacturers after World War II. However, what is sometimes misunderstood is that U.S. free trade agreements are also part of our growth, and have actually strengthened our nation’s economy—not weakened it.

The United States is the largest recipient of foreign direct investment in the world. Over the last several years, foreign direct investment in the U.S. manufacturing sector has increased.  As this investment has increased, however, many members in Congress have become concerned about foreign acquisitions of U.S. manufacturers that are perceived to be essential to U.S. national and economic security. These lawmakers have called for an increase in the scrutiny of these cross-border investment projects by the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that is authorized to review, investigate and block any transaction or investment that could result in the control of any U.S. businesses or assets by a foreign person that may raise national security concerns or involve critical infrastructure. Also, while the Trump administration has stated that it welcomes foreign investment into the U.S. manufacturing sector, its heightened interest in national security and strong interest in promoting its "America First" agenda have led to even louder calls for increased CFIUS review. 

Every day we hear more and more about the changing landscape of American–Iranian politics, and, if you read the newspapers, it looks like some U.S. businesses are beginning to benefit. It’s a good potential market. There are approximately 80 million consumers, a young population and an interest in U.S. goods and investment in the United States. But, what is really allowed and what does that mean for Iranian EB-5 investors? Is unencumbered Iranian investment in the U.S. the new reality?

The short answer is, no. It’s not that simple. But there are opportunities, and EB-5 investment is possible if you do your homework and stay compliant with the rules.

EB-5 Investment Procedures
An Iranian investor looking to obtain a U.S. EB-5 Visa through investment in a regional center must go through a variety of procedures in order to utilize the EB-5 program. First, potential investors need to determine whether their EB-5 funds transfer falls within the Department of Treasury’s Office of Foreign Assets Control’s (“OFAC”) General License. They may need an opinion letter from legal counsel providing financial institutions evidence that the transfer does not violate the sanctions program. Restricted party screenings must also be completed to ensure the individuals and entities involved in the investment are not U.S. government prohibited parties. Such parties are restricted from doing business in the United States or with a U.S. Person (this includes U.S. businesses).

While the United States' Foreign Corruption Practices Act (FCPA) prohibits U.S. entities from paying bribes to foreign officials abroad, China's Anti-Unfair Competition Law and Criminal Law together cover bribery of both public and private individuals by foreign or domestic actors in China.

At a time when both countries' governments are prioritizing the fight against corruption, one cannot ignore the many potential bribery-related pitfalls presented by the numerous trans-Pacific exchanges that drive the EB-5 process. The first step in addressing the issue is understanding one's role in the EB-5 industry and the unique compliance challenges it presents.  Additionally, a comprehensive anti-corruption compliance program to mitigate such risks can help ensure that you are protected from costly government fines, possible prison sentences, and sleepless nights. 

The behavior of the agents, brokers, issuers, and investors you work with will make or break your EB-5 business. As with all investments, you can protect yourself by understanding what risks are associated with doing business with each entity involved. This article explains the corruption risks and government concerns and provides six proactive steps you can take to minimize such risks in your EB-5 business.

On March 16, the Treasury Department’s Office of Foreign Assets Control (OFAC) published a final rule that further facilitates travel to Cuba, authorizes additional types of financial transactions and allows companies to have a greater business presence on the island. The latest changes represent yet another small step towards normalization, building upon four past rounds of regulatory amendments that began over a year ago.

While the president cannot unilaterally abolish the Cuban Assets Control Regulations (CACR) sanctions regime absent congressional action, over the past 16 months he has used his authority to normalize economic and political relations between the two countries as much as possible through executive action. The latest amendments were announced days before President Obama’s historic trip to Cuba – the first time a sitting U.S. president visited the island in 88 years. Despite the administration’s inability to remove all sanctions without Congressional approval, it made the president’s intentions to push the envelope as much as possible clear prior to his trip, saying that the visit will be aimed at rendering the normalization process “irreversible.”

An exhibition game between Major League Baseball’s Tampa Bay Rays and the Cuban national team, and a Rolling Stones concert in Havana were two events that suggest many Cubans and Americans support the president’s goal of reconciliation.

U.S. foreign policy is moving fast these days, especially when it comes to sanctions and the aviation industry. While U.S. aviation and leasing has not been given a complete go-ahead, steady changes are continuing to open aviation markets in both Iran and Cuba. Everyone should pay attention to the details, because most aircraft have at least some small amount of U.S. content, falling under U.S. rules.

Commercial Aviation Sales and Leasing in Iran

On Jan. 16, 2016, it was confirmed that Iran implemented key nuclear-related measures described in the Joint Comprehensive Plan of Action (JCPOA). This confirmation triggered Implementation Day, the day that the U.S. and other parties agreed to lift nuclear related-sanctions against Iran. These lifted sanctions generally relate to secondary sanctions or those imposed by the U.S. government against non-U.S. persons.

Although U.S. parties are still prohibited from entering into most activities with Iran, there are exceptions for the U.S. civil aviation industry. These changes include the adoption of a Favorable Licensing Policy for commercial airline transactions. Specific licenses may be issued on a case-by-case basis and may authorize various activities such as export, re-export, sale, lease, or transfer of commercial passenger aircraft, spare parts and components, and the provision of certain associated services. Conditions may apply, so always carefully read any license you obtain and consult export counsel.

This year, new protections put in place by the U.S. government to limit the sharing of critical technologies with foreign individuals will affect a large number of startups as well as related investments, mergers, and acquisitions. And since the law applies to all foreign individuals, whether abroad or in the U.S., companies with investors, partners, or customers who are based in the U.S. but are not U.S. citizens could feel significant impact.

In today’s trade policy environment, it seems as if there is a new business risk every day. One day, it is sanctions on Chinese entities for doing business in North Korea; the next day, it is the activities of Russian oligarchs. Then companies are hit with four waves of increased import duties on steel, aluminum, and most raw materials and finished products from China. Even if firms are not importing on their own, US manufacturers are receiving “the letter” stating that they must pay additional fees on parts and other inputs. Sometimes the affected products simply involve imported packaging or aluminum can made in America from imported raw material. With so much change and uncertainty, how do investors identify and evaluate these and other trade-related risks that may impact their portfolio companies?

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The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) doesn’t care whether a company means to violate the law or is unaware of U.S. sanctions. The regulatory organization’s role is to dole out significant penalties and even jail time for violations and it’s turning its sights on the tech world.

Many startups reason that since they aren’t technically financial institutions or operating off of open source code, they aren’t subject to stifling and irritating regulations.

However, when it comes to U.S. sanctions, these companies are wrong, and that ignorance can lead to significant consequences. Recent headline-making OFAC cases such as Chinese telecom giant ZTE being fined $1.2 billion or the high-drama Canadian arrest of Huawei CFO Meng Wanzhou have underscored the impact of violating U.S. sanctions laws.

In August 2018, Congress expanded the authority of the Committee on Foreign Investment in the United States (CFIUS) to review, block or unwind certain transactions involving foreign investment without “control” of key US assets, businesses or technologies. Following the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA), CFIUS acting on authorities granted in FIRRMA issued new regulations under which certain transactions involving “critical technologies” impact the new pilot program industries that targets 27 industries.

Unlike the pre-FIRRMA CFIUS submissions that were technically voluntary, the new pilot program submissions are now required. (See 31 CFR Part 801.) Failure to submit a now required CFIUS Pilot Program submission can carry a maximum civil penalty equal to the value of the underlying transaction. The pilot program went into effect on November 10, 2018.

For transactions covered by the pilot program, which currently covers 27 critical industries, parties must submit a mandatory declaration if a transaction would give a non-US person control over the business or when a foreign person does not even gain “control” but merely makes a particular investment.

Pain Points and Requirements

The core new “pain point” is the now possible mandatory CFIUS Pilot Program (PP) filing, unlike the earlier filings which were “voluntary.” Broadly and with certain exceptions, the PP sets forth a 2-part test to assess if a mandatory filing applies to a transaction.

  1. The transaction must involve a Pilot Program US business even if a foreign person does not acquire “control” but would afford the foreign person access to “any material nonpublic tech info” possessed by the PP US business or membership on a board/governing body of the PP US business or any involvement (other than thru voting of shares) in substantive decision making of the PP US business about the use, development, acquisition or release of “critical technology” or the transaction could result in foreign “control” of the PP US business.
  2. The US business that is the recipient of the foreign investment must be one that produces, designs, tests, manufactures, fabricates or develops a “critical technology” that is (i) utilized in connection with the US business activity in a PP industry or (ii) designed by the US business specifically for use in one or more PP industries.

Shortly after the pilot program went into effect, the DOC’s Bureau of Industry and Security (BIS) issued a proposed rule to add 14 technology categories to list of emerging technologies, which could also be subject to the mandatory CFIUS declarations and would also impose new export license requirements by amending or adding additional Export Control Classification Numbers (ECCN) which are an alphanumeric designation (e.g., 1A984 or 4A001) used in the Commerce Control List (CCL) to identify items for export control purposes. Companies or individuals that wish to export items, technology or software on the CCL may be required to obtain an export license depending on the item being exported as informed by the correct ECCN properly determined and the country to which the item is being exported. Among these 14 additional technology categories were robotics, quantum computing, and artificial intelligence (AI).

It’s important to note that even if your organization is not seemingly related to one of the 27 specific industries, under other recent US Commerce Department action, your company may still be subject to the mandatory export license requirements. The DOC recently added discrete microwave transistors, continuity of operation software, post-quantum cryptography, underwater transducers, and air-launch platforms to the list of emerging technologies and designated these items with ECCNs than can trigger DOC export license requirements, outside the CFIUS purview.

The Issues with AI

The Trump Administration is keenly interested in controlling foreign access to AI. Artificial intelligence is increasingly viewed as critical to protecting US security interests because of its possible implications for military and national defense or other security policy. The AI field, which is focused on the capability of a machine to imitate intelligent human behavior, is rising rapidly with the advent of technologies such as driverless cars and autonomous weapons.

Machine learning, a collection of algorithms that can learn from and make predictions based on recorded data, makes up a large part of what drives AI. The accuracy of a machine learning model depends on the quality of that data. Within the IP sector, the number of machine learning related patents is growing because software-based methods and systems are generally patentable.

The data used to train machine learning models may be classified as “technical data” or information under export regulations. The International Traffic in Arms Regulations [ITAR] and the Export Administration Regulations [EAR] generally define export-controlled technical data or technology as information for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of as relates to certain items as specific in the applicable control. There are various exclusions from export regulations of technical data or technology and may include:

  • Public domain or publicly available information
  • Education information, including that commonly taught in schools and universities
  • Fundamental research

Technical data or technology that falls into one of these three categories generally does not require a license to export, reexport, transfer, release or disclose to a foreign person. It is critical to know that any such export, release or disclosure in the United States to a foreign person, such as your employee, contractor or agent will be deemed by the US Government as an export to that foreign person’s country of nationality or birth in certain cases. These are commonly called “deemed exports.” Such export control license requirements are completely outside the scope of CFIUS’ purview.

Takeaways for AI Companies

The export controls DOC has proposed could end up hindering American AI technology development because the open availability and freewheeling exchange of information among employees and contractors of AI training data is so essential to researchers making strides in the field. As more AI may become subject to new and stricter export controls, the need to consider to obtain an export license to carry on with “routine” AI work will be critical. However, DOC also stated that it will not expand its jurisdiction over what it considers “fundamental research.”

The current policies assume that differentiating between commercial and military AI applications is easy, when in reality is there is plenty of overlap between the spaces. For example, iPhone users can unlock their phones with facial recognition technology. That same technology could be used to target weapons. As the regulations continue to roll out for identifying and imposing export controls on new ECCNs to AI and other emerging technologies essential to US national security, it will be important for lawmakers to consider how the AI export controls will be implemented so as not to hinder innovation.

Companies must be aware that while an export is generally considered to be materials, information, and technology that leaves the US, a deemed export is something that may be occurring frequently under the company’s nose. If deemed exports of newly controlled AI is not properly licensed for release or disclosure to foreign persons, export control violations will likely occur which may carry severe penalties. Items and technology that are controlled either by the EAR or ITAR will also be considered as critical technology by CFIUS for both voluntary and mandatory CFIUS purposes.

Companies looking to get ahead of the potential deemed export control implications, or seeking investment from foreign investors, should determine the ECCN of their AI, software, and other technology items. While there is still uncertainty in what will be implemented for CFIUS review, knowing these classifications will make it easier to understand what export licenses may be required in the future.

Reprinted with permission from the August 8, 2019, edition of Legaltech News.

© 2019 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited. ALMReprints.com – 877.257.3382 - [email protected].

If there is one takeaway from the Committee on Foreign Investment in the United States' new rules — which broaden the committee's jurisdiction to review foreign investments that might threaten national security interests — it is that, without some level of inquiry, you can no longer be sure which investments will come under scrutiny.

Take the recent sale at a bankruptcy auction of a specialty chemical distribution company — a sale that, on its face, wouldn't seem to raise any red flags. For one, it did not manufacture anything; it simply distributed hard-to-find chemical ingredients for use in manufacturing products. And at first glance, there did not seem to be any foreign buyers involved.

But as due diligence proceeded with the company's trade policy counsel, they discovered that some of the company's crop protection products had a dual use — as components of rocket fuel. Plus, one of the potential buyers was owned in part by a foreign person — not Russian or Chinese, but Canadian. The company needed that buyer because the stalking-horse bidder in the bankruptcy auction sale had no other competition, and maintaining competition is essential to maximizing value.

For private equity firms, this should serve as a wake-up call to get educated on CFIUS right now. 2018 saw 265 private equity deals in the U.S. backed by foreign investors (up from 253 in 2017), and confusion still reigns around what exactly the new rules entail. In fact, CFIUS has already unraveled several completed transactions. The reason this case should raise the alarm is that it involved chemical ingredients and Canada — it did not involve China or even more ubiquitous, sensitive personal data.

The bottom line is that to keep investors and their deals in compliance, private equity firms need to take serious steps to prepare for potential CFIUS issues — before the ink is dry — even if they think a given transaction cannot possibly pose compliance risk.

Here are three key principles to which private equity firms should commit:

Know your potential buyer's ownership structure — so you can plan ahead. Sounds simple, right? But as many in the CFIUS and private equity businesses know, navigating the various levels of a buyer's organization can be challenging. Under the new rules, however, it is critical that you know exactly where foreign investment comes into play so you can ascertain the amount of control or access those investors will have — Will they really be a limited partner and/or influence finances? Will they be privy to sensitive data? — as well as information about the actual investor — is he or she a dual citizen? Where does he or she permanently reside?

For example, a deal in progress right now involves a dual U.S.-Israeli citizen who will be part of the platform company's board of directors. This checked the box for further CFIUS analysis.

Involve CFIUS counsel early on in the process. As we noted earlier, there is a series of unknowns under the current pilot program — around interpretation, enforcement and the rules themselves. Talking with a group of companies that had to file mandatory CFIUS declarations, we found that the committee approved only a third of them, while telling more than half that a decision could not be rendered within the review period, and instructing them to either file the long-form declaration or proceed at their own risk.

This makes it crucial for trade policy experts to work hand in hand with a transactional team right from the start to identify anything that might be a CFIUS issue down the line. They will help examine companies' products and technology as well as the foreign players involved in those companies. Trade policy counsel can also sensitize transactional teams to potential CFIUS triggers. If a foreign enemy got hold of that dual-use chemical product/rocket-fuel ingredient, for instance, could it threaten our food supply or enable the foreign power to make weapons for use against the U.S. or its allies?

Get creative with your deal structuring. You are not allowed to evade CFIUS, but that does not mean you cannot structure intelligently. This might include mitigating foreign investors' involvement ahead of time as well as provisional "what-ifs" that help pre-empt and guard against CFIUS issues should anything occur down the line. In one aviation-related transaction, for example, the deal went through with a delayed transfer of certain components (to be dealt with after CFIUS approval was given or rejected).

Despite the current confusion, these principles and practices simply have to become routine, just as with pre-merger filings and the Hart-Scott-Rodino Antitrust Improvements Act of 1976. If private equity firms take the time to educate themselves on these issues, they will reduce transactional completion risk, as well as potentially expand the universe of buyers able to bid on their assets (or, conversely, avoid bidding for a company that they cannot buy due to CFIUS limitations).

Expanding that universe of buyers is exactly what ended up happening in the chemical distribution company's sale. Once they sorted out the Canadian bidder's CFIUS issues, the buyer could participate; as a result, the bid increased from the initial $360 million to $422 million during the course of the auction.

This may only be one example. But it does demonstrate just how much preparation, education and due diligence around CFIUS can really pay off.

President Trump’s Executive Order No. 13884 significantly expanded U.S. economic sanctions against the Government of Venezuela.

The EO took effect Aug. 5, and authorizes two types of sanctions: primary sanctions and secondary sanctions. Primary sanctions apply to transactions with a nexus to the U.S., such as those involving U.S. entities, goods, or services.

Secondary sanctions can target a person or company involved in a Venezuelan transaction even if there is no U.S. nexus. The imposition of secondary sanctions can block an entity from doing business in the U.S. and can even affect its ability to transact abroad.

Primary Sanctions

All property and interests in property of the government of Venezuela are now fully blocked. The EO provides that no “United States Person” can have any dealings, unless otherwise exempted, with the government of Venezuela. A “United States Person” is a U.S. citizen, permanent resident alien, entity organized under the laws of the U.S. or any jurisdiction within the U.S. (including foreign branches), or any person located in the U.S.

The “Government of Venezuela” is defined to include any political subdivision, agency, or instrumentality of the government of Venezuela, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA). It also includes any entity owned or controlled, directly or indirectly, by the Venezuelan government or any person who has acted or purported to act directly or indirectly on the government’s behalf. This includes members of the Maduro regime.

While this definition of the government of Venezuela does not include all private persons and companies within Venezuela, it may implicate commercial business in Venezuela that either have some government ownership, government control, or are directly or indirectly acting on the Venezuelan’s government’s behalf.

This means that those doing business in Venezuela must vet their business partners carefully to identify any government ownership or other government nexus. 

Secondary Sanctions

The EO allows the U.S. government to block all the property of any individual or company worldwide if it is found to have materially assisted, sponsored, or provided support to the government of Venezuela or any party listed under the EO as a specially designated nationals and blocked person (SDN). This sanctioned activity is deemed to include the provision of goods and services or other financial, material, or technological support.

These secondary sanctions now place any person or company anywhere in the world in jeopardy of being locked out of the U.S. economy if they facilitate or provide support to the government of Venezuela as defined above. Some potentially affected actors might include insurance companies, brokers, freight forwarders, distributors, sales agents, service providers, or financial institutions.

Accordingly, any company doing business in Venezuela needs to understand how these new requirements will affect its business. It will likely have to choose carefully if it can do business with Venezuela or possibly risk losing the ability to do business in the U.S. This is a major decision and must be analyzed correctly so that the company itself is not targeted by the U.S. for a violation of the secondary sanctions, and added to the SDN List.

Note that there are exemptions related to food, clothing, and medicine. In addition, OFAC has authorized general licenses for personal remittances, international organizations, receipt and transmission of telecommunications and mail and packages, services, software or technology incident to exchange of certain communications over the Internet and humanitarian projects, democracy building, educations and environmental protection in Venezuela. 

Proceed With Caution

Before your company proceeds with a Venezuela-related transaction, you should ensure it:

  1. Conducts due diligence inquiries, such as screening and background checks, regarding all parties to the transaction to insure that no party to a proposed transaction could arguably fall within the definition of “Government of Venezuela” as defined above.
  2. Keeps complete written records for five years of your due diligence inquiries and applicable general license exemptions.
  3. Maintains a memo for five years explaining why you have concluded the transaction does not involve a party that could arguably fall within the definition of “Government of Venezuela” as defined above.
  4. Ensures that you notify your financial institution as to why the proposed transaction does not violate U.S. sanctions so that it won’t be rejected. 
  5. Reviews the U.S. Export Administration Regulations (EAR) for additional restrictions on U.S. and non-U.S. persons exporting or re-exporting items subject to U.S. export control jurisdiction to Venezuela.
  6. Notifies OFAC within 10 business days if your company blocks or rejects a transaction due to any sanctions program, including Venezuela. Failure to file with OFAC a required report may itself constitute a violation.

U.S. regulators are making one thing crystal clear to companies—or at least to companies that are paying attention: There are no longer any excuses for not having an effective and comprehensive compliance policy and program.

The government’s stance is sweeping, and it showed up in three recent moves. All of them signal how important it is for companies to adopt and implement broad policies and programs that are detailed and comprehensive enough to incorporate compliance with:

  • U.S. antitrust laws
  • Department of Treasury Office of Foreign Assets Control (OFAC) sanctions policies
  • the U.S. Foreign Corrupt Practices Act (FCPA)

 

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The Office of Foreign Assets Control (OFAC) introduced an interim rule that expands mandatory reporting requirements for all U.S. persons. The rule requires all U.S. persons to file reports with OFAC when a transaction is rejected because the transaction would have resulted in an OFAC violation. The interim rule will remain in effect until OFAC considers the comments received and issues a final rule.

The reporting requirement expands OFAC’s jurisdiction in two key ways.

First, proactive reporting requirements are extended to U.S. persons selling goods and services. Second, the reporting requirement applies to all rejected transactions based on sanctions compliance, not just incidents of rejected fund transfers.


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