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 Staying Out
of Trouble
By
Giovanna Cinelli
The
government is cracking down on export law
enforcement. Here’s how to ensure you’re in
the clear.
In
today’s globalized business climate, virtually every
company participates in some kind of international
activity, whether that means export, technology
licensing, outsourcing or hiring foreign nationals.
All of these activities fall under the purview of
U.S. export laws.
As an executive, you need to pay
careful attention to whether your company is
complying with those laws, for two simple reasons:
First, conviction for a violation can cripple a
business or even lead to criminal prosecution of
individuals. Second, the U.S. government is rapidly
stepping up enforcement to adapt to the security
challenges of a post-9/11 world.
In fact, your business may be
violating the law for reasons you haven’t
considered. This is especially true if your products
are used—or can be used—for military or security
purposes. The key question you should ask: Which
government agency is responsible for regulating
export of your products?
The Commerce Department regulates
most commercial products through its Export
Administration Regulations. This includes “dual use”
items that have both commercial and military
applications, but it also includes commercial items
without an obvious military use.
The State Department maintains a much
more restrictive export regime designed to control
dissemination of defense technologies and products.
The department’s U.S. Munitions List goes far beyond
guns and explosives. It includes, for example,
simulation software that can have a military use;
sensor technology for detecting escaped toxins; and
various kinds of lasers, cameras, viruses and
biologic agents.
As companies seek out the lucrative
and expanding defense and security market, whether
the customer is the U.S. government, public
facilities or even homes, their products are more
likely to intersect with this list. And when that
happens, the State Department’s stricter export
controls come into play.
The penalties for evading State
oversight can be severe. Recently I represented
Multigen Paradigm Inc., which produced simulation
software that could be used for gaming, urban
planning or military purposes. Administratively
charged with exporting the software to companies
owned by the Chinese government, Multigen was fined
$2 million—a big blow to the firm. The fine was
reduced, but under a consent agreement, Multigen
submitted to oversight of its compliance program and
licensing activities.
The Multigen case came as a surprise
to Computer Associates, which had purchased the
company a few years earlier. The Department of
State, as had the Department of Commerce, began
enforcing a strict liability policy a few years
before—a policy that holds a purchaser responsible
for an acquired company’s export violations, even if
the violations predated the purchase.
The enforcement trend continues
strong, as Boeing, Goodrich and L-3 Communications
recently discovered through consent agreements each
company signed with State. In each case, State found
that none of the companies had adequately determined
that their products were controlled on the U.S.
Munitions List and had therefore exported without
licenses. In L-3’s case, the company was fined
because it had purchased certain businesses from
Goodrich that had improperly classified their
microchip as State-controlled.
The lesson for acquiring firms is
clear: Examining a target firm’s export compliance
is an important part of due diligence, as you will
be held strictly liable for any export violations.
Long Arm of the
(Export) Law
Export laws exert control over
business activities far outside what is
traditionally considered “export.” For example, if
you are hiring or outsourcing work to foreign
nationals, you will usually need export
authorization. If you are involved in a litigation
or arbitration that involves controlled technology
or data, you will likely need export licenses to
take depositions, exchange documents or deal with
foreign experts.
Is the government serious about
enforcing these controls? It certainly appears to
be. Overall, the government prosecutes up to 200
criminal export cases a year, targeting everyone
from arms runners to company presidents. The
conviction rate is over 90 percent.
The stepped-up enforcement began in
1998 and has accelerated again in the last three
years. Both State and Commerce have beefed up their
enforcement staffs.
So how do you steer clear of the
government’s wrath? Here are three things that
companies can do for a start:
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Understand your products and
operations. If your products have potential
military or security uses, are they covered
under the correct export regime? If you have
international facilities (or work with them), do
you control access to potentially sensitive
information?
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Understand your client base.
If you’re selling to (or being funded by)
agencies such as Department of Homeland
Security, it’s a sign your product might be
presumed defense-related under the law.
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Know the heritage of your
products or technology. Products that were
developed as defense applications, such as
satellites or encryption, may still be
controlled by State, even if the current use is
commercial.
As uses for a new product evolve, new
export controls may come into play. Commerce
provides a useful guide to the basics of export
controls at
www.bis.doc.gov. The State Department’s
Directorate of Defense Trade Controls, at
www.pmdtc.org, describes how State can help you
determine which agency controls your product.
CT
Hiring Foreign
Professionals
By Denise Vanison &
Shaoul Aslan
Increased security restrictions—and an unwieldy
process—are causing some companies to hesitate when
hiring foreign professionals—even when that
professional is the best candidate for the job. That
hesitation may not be necessary.
A
business is only as good as the people who work for
it. Unfortunately, many companies now hesitate when
it comes to hiring the right candidate if that
person requires employment authorization to work in
the United States. The increased security
restrictions that were put in place after September
11 have made companies wary of bringing people into
the U.S. as the immigration process has become more
unwieldy than ever before.
But the new laws should not be a
deterrent to American companies. Even though it is
now a more complicated process, it is still quite
feasible to hire foreign workers. And it makes
sense. In this global marketplace, it is essential
to get the most talented employees possible.
Companies interested in hiring
foreign professionals should understand that all of
the debate going on in the media about immigration
and illegal aliens does not apply to companies that
are dealing with legitimate employment of foreign
workers.
Keep in mind that immigration law is
very complex, yet many people are under the
impression that filling out a few papers and handing
them in is all that is necessary to get a visa or a
green card. In fact, many of the most expensive
immigration cases are those that require attorneys
to fix the many errors that were made before they
entered the case. In some cases, because the types
of visas were not properly understood, an incorrect
visa was applied for and all the paperwork had to be
restarted for a different visa—which cost the
company both time and money. In others, confusion
over the appropriate wage rate required by the
government, as well as violations of other
employment requirements, has led some companies to
be fined by the federal government and prohibited
from hiring additional foreign workers for a
predetermined period of time.
A company’s first step is to
determine if the person they have in mind will make
a good candidate for a visa. To better understand
how to make that determination, it is helpful to
understand the visas that are most commonly used in
these cases by U.S. employers.
Although a variety of visas are
available for foreign workers, the two most commonly
used are the H-1B and the L-1. The H-1B is a
non-immigrant status that allows a U.S. company to
employ a foreign individual for up to six years. The
individual cannot apply for the H-1B; the employer
must submit a petition for the prospective employee.
The H-1B is for people who work in
specialty occupations. Essentially, they are for
foreign professionals who have college degrees, or
the equivalent of a college degree, and are being
hired by a U.S. employer to work in a job that
requires that particular degree. Commonly, these
individuals are IT people, engineers, scientists,
mathematicians or business people.
However, there are a couple of
drawbacks to H-1B visas. First, only a limited
number of H-1B visas can be issued each fiscal year.
Prospective employers can only begin to apply for
the visas on April 1. This year, the most commonly
used H-1Bs were gone by May 28. Second, employers
are required to pay the prevailing wage for the
position as determined by the Department of Labor.
The L-1 is normally considered
superior by hiring companies. Unlike the H-1B, there
is no limit on the number of L-1 visas issued, and
the wage is not determined by the government. The
L-1 allows companies operating in the U.S. and
abroad to transfer foreign employees to U.S.
operations for up to seven years. The employee must
have worked for a subsidiary, parent, affiliate or
branch office for at least one year out of the
previous three. This visa is primarily used for
executives and managers and others in specialized
knowledge positions.
The government issues two different
versions of the L-1 visa. The L-1A status, which is
for managers and executives, is valid for up to
seven years. The L-1B, which is for those hired with
specialized knowledge, is valid up to five years as
these employees are usually coming over to work on a
specific project due to their specialized knowledge.
For both L-1 and H-1B visas, approval
can be received in approximately 15 days. If the
prospective employee is abroad, the approved
documents are sent to the employee in his or her
home country, at which time the worker makes an
appointment to get the visa stamped into his or her
passport at the American consulate. It should be
noted that some consulates, due to heavy workloads,
are not able to immediately issue the visa. It could
take a month or more before the consulate can
interview each applicant and issue the visa.
Additionally, for candidates from
some Middle Eastern and other Muslim countries, the
wait can take months and months because of the
additional security checks required for nationals of
those countries. Further, if the candidate has a
name that is similar to someone on government watch
lists, the wait could take even longer.
Granted, hiring foreign workers
sounds very complex, and it is. But by taking the
proper steps, it is very possible, and it will only
help American companies stay strong and vibrant into
the future. This is not to say that foreign workers
are the answer to every vacancy. But when they are,
hiring them is quite feasible. CT
 Making
Sure Everyone Wins
By John Miller
In
many cases, a partnership may be the only way to
finance the kinds of projects that the government
used to pay for.
A global
investment consortium recently agreed to pay the
city of Chicago $1.8 billion to repair and run the
7.8-mile Skyway for 99 years. A large real estate
developer, working with the Army, raised $430
million to design and build 2,000 homes at Fort
Belvoir, Virginia, and manage them for 50 years. A
Major League Soccer owner, in a $65 million joint
venture with county, city and school authorities in
Frisco, Texas, created a state-of-the-art complex
for professional and youth soccer.
These three projects, vastly different in scope and
purpose, represent a dramatic change in the way the
nation’s business is getting done. Public-private
partnerships are emerging as a dynamic, efficient
approach to financing, fixing and operating aging
infrastructure and community assets. For public
entities—from tiny municipalities to the federal
government—partnerships provide cash and sorely
needed improvements in roads, housing and other
civic bedrocks. And public officials increasingly
recognize that efficient and effective
infrastructure is critical to sustainable economic
growth. For investors and businesses of all sorts,
these deals offer tremendous opportunities
stretching into the future.
A growing list of sectors, including construction,
energy, wastewater treatment, education, health
care, defense, technology and recreation, rely on
public-private partnerships. But the mechanism can
be applied almost limitlessly. For example,
investors might work with a city to replace a
hulking, dilapidated parking structure with an
underground garage; the city awards a long-term
lease to build and run the garage; and the private
developer uses the projected income to finance
reconstruction and properly maintain and operate the
facility. The same idea can be used outside
government. A university, for instance, might award
the rights to renovate and maintain a college
dormitory.
Such partnerships differ markedly from traditional
contracting. A company isn’t selling a single
product; a city isn’t buying a short-term service.
The two sides form an ongoing relationship to
benefit not only each of them but also the public.
Deals require rigorous planning and painstaking
negotiation among diverse groups unaccustomed to
working together—often with the media hovering.
Complex? You bet—but well worth the effort. In many
cases, a partnership is the only way to finance the
kinds of projects that governments used to pay for.
And as the nonprofit Affordable Housing Institute
says, a public-private partnership “does the job
better than anything else.’’
Perhaps nothing illustrates the promise better than
highway construction. The nation’s roadways are
getting old and more difficult to repair. Traffic
volume has soared, compounding the strain. The
pipeline of federal and state grants, which paid for
road construction in the past, is no longer
sufficient. As the need for better highways grows,
and traditional funding sources shrink,
public-private partnerships have jumped in with
innovative solutions.
 In
the Chicago Skyway deal, the city received a cash
windfall—its bond rating promptly shot up—and shed
the obligation to repair and operate the road. The
consortium, a Spanish construction firm and an
Australian bank, agreed to upgrade and maintain the
road and toll technology in exchange for receiving
toll revenues for the next century. Indiana struck a
similar agreement with the same consortium, leasing
its 50-year-old, 157-mile Toll Road for 75 years and
$3.8 billion.
These two highway deals are the largest to date, and
it comes as no surprise that they attracted foreign
financiers. Europe and Australia have a longer track
record for public-private collaboration than the
U.S. But the pace of domestic deals is sure to
accelerate, thanks to federal legislation enacted in
August 2005. Known as SAFETEA-LU (Safe, Accountable,
Flexible, Efficient Transportation Equity Act: a
Legacy for Users), the law guarantees $244.1 billion
for highways and public transportation, the largest
investment in U.S. history. The bill makes it easier
for private players to enter the transportation
space by providing broader access to loans and bonds
and allowing more flexibility to use toll revenues
to secure financing.
Opportunities like this have altered the competitive
landscape in transportation and far beyond. From
architects and builders to coal-plant operators and
broadband firms, few businesses today can operate in
isolation. They must form teams that are attractive
to a public partner. They must understand
public-sector goals, bidding processes that change
by the day, and the myriad rules of federal, state
and local jurisdictions. Finally, business groups
must become knowledgeable about the debt and equity
markets poised to pump billions of dollars into the
public-private space.
Partnerships also present challenges to the public
side. Officials must determine the right price and
lease term for an asset that’s part of the cherished
fiber of a community. They must choose business
partners with scrupulous care and diligence.
Finally, the deal must satisfy needs that aren’t
easily reconciled: the investors’ requirement for
profit, the government’s desire for top-quality
infrastructure and the public’s demand for
accountability, not to mention safe roads, decent
housing and great soccer fields. The beauty of these
partnerships isn’t only that they do the job better
than anything else. The most successful deals also
guarantee that everyone wins. CT
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