Exporters Should Exercise Caution On Shipments To Nepal

Suppose for a moment that you are the export compliance officer for a company that sells equipment for electrical power utilities. An overseas sales representative tells you that he has a large order for transformers and transmission lines from the Nepal Electricity Authority. He asks you whether there are any problems filling this order.

As a good export compliance officer you first check to see that these items are not on the Department of Commerce's Commodity Control List and you verify that they are not. You also check the Office of Foreign Asset Controls' SDN List, the Commerce Department's Denied Party List, Unverified List, Entity List and General Order No. 3 to Part 736, and the State Department's Debarred Parties List and its various nonproliferation sanctions lists. The Nepal Electricity Authority is not on any of these lists so you approve the export.

Six month's later the charging letter from OFAC arrives alleging that the shipment to the Nepalese Electricity Authority violates OFAC's terrorist sanctions. Where did you go wrong?

In 2003, the Communist Party of Nepal ("CPN") was added to OFAC's SDN list, in large part due to the civil war raging in Nepal between the CPN and the Nepalese Government. At the end of 2006, the CPN and the Nepalese Government entered into a peace agreement whereby the CPN would become part of an interim coalition government of Nepal. The U.S., however, has not removed the CPN from the SDN list, meaning that the provision of goods, services and financial aid to the the new coalition government of Nepal, its agencies and its state-owned enterprises without an OFAC license violates OFAC's terrorism sanctions regulations. This situation is analogous to what happened when Hamas joined the Palestinian Authority.

On February 7, OFAC issued its first license to the U.S. Mission to Nepal and to the U.S. Agency for International Development to continue to provide financial assistance in Nepal. To our knowledge no general licenses or other specific licenses have been issued to permit export of goods or services to Nepal. Any exporter seeking to export goods or services to Nepal should exercise extreme caution prior to any such export to determine that any unlicensed export is not ultimately for the benefit of the Government of Nepal.

For further information on whether an export to Nepal requires an OFAC license, contact Clif Burns.

New Contracting Rule Targets Overseas Sexual Activity by Government Contractors

Companies doing business overseas now have more to worry about than whether their employees are bribing government officials. Now government contractors need to worry about whether their employees have visited a red-light district.

An interim rule proposed by the Department of Defense ("DoD") could have some unintended consequences. The rule, published on October 26, 2006 is aimed at preventing defense contractors from supporting or promoting human trafficking, or procuring commercial sex acts outside of the United States, and applies to all DoD service and construction contracts. The interim rule requires a contract clause entitled "Combating Trafficking in Persons" to be included in all DoD service and construction contracts, and requires DoD contractor's to include the clause in all of their subcontracts.

Although the intent of the rule is laudable (prohibiting forced labor or sex is a good thing), the definition of "commercial sex act" could cause concerns for defense contractors. As it is written, the rule defines "commercial sex act" as "any sex act on account of which anything of value is given to or received by any person." Furthermore, the contract clause states that "the Contractor shall not engage in or support the procurement of commercial sex acts during the performance of this contract."

The intent of the rule is clearly to combat human trafficking, including sex trafficking, and the probation on "commercial sex acts" takes a step toward doing that by prohibiting defense contractors from hiring the services of those who could be forced or coerced into engaging in "commercial sex acts." No one can deny that it is often difficult to distinguish between the prostitute who voluntarily engages in the activity and the prostitute who is somehow coerced. However, the regulation could also prohibit the lonely defense contractor who is involved in an overseas project from going on a date. If read literally, the dinner paid for before an amorous encounter could be considered something of value given to a person on account of which a sex act occurred (if the date went that far). The penalties for violating the rule are not insignificant and include termination of the offending employee and potentially termination of the entire contract.

A more limited definition of "commercial sex acts" is needed in order to prevent the behavior that the rule intended. For example, "commercial sex act" could be defined as "any sex act with a commercial sex worker on account of which anything of value is given to or received by any person." The DoD could then define commercial sex worker to include the class of persons that it intends. This more narrow definition would prevent the lonely defense contractor from inadvertently running afoul of the regulation by attempting to have a social life while on assignment overseas.

Even with a more limited definition, defense contractors need to be concerned about the overseas activities of their employees. It's not unusual for lonely people abroad to do things that they would not normally even consider at home, and although the rule requires that defense contractors train their employees, certain things are still bound to happen after a few lonely martinis in a hotel bar.

For further information on the proposed rule, contact Clif Burns or Carolyn Lindsey.

A Busy Trade Agenda Facing the New Congress

The 2007 legislative year looks to be active in the trade arena. This article takes a brief look at trade issues confronting the 110th Congress.

Trade Promotion Authority...