US 6 Legal and regulatory framework
6.1 Are there any other FDI-specific laws that foreign investors must be aware of? Foreign investors should be aware of foreign trade control compliance issues, the Foreign Corrupt Practices Act of 1977 (FCPA), and US anti-money laundering laws. The foreign trade control compliance programmes are governed by, among others, the US Treasury Department’s Office of Foreign Assets Control (OFAC), the International Traffic in Arms Regulations (ITAR), and the Export Administrative Regulations (EAR). OFAC governs and limits the import and export of products to specific countries and parties based on US national policy and security reasons. ITAR controls the export or transfer of any article or service specifically designed for military or defence application. EAR governs products, technologies, and software that have both military and commercial applications. These programmes provide for civil penalties, and, in certain cases, criminal penalties.
The FCPA is an anti-corruption and bribery statute that, like the programmes addressed above, provides for both criminal and civil provisions. The statute applies to all US companies and persons, as well as to any foreign national in the US.
The US anti-money laundering laws are incorporated in, among others, the Bank Secrecy Act of 1970 and the USA Patriot Act, and are intended to deter the use of secret foreign bank accounts and prevent terrorist financing. The USA Patriot Act requires banks and other financial institutions to establish anti-money laundering programmes to identify their customers. Complying with these know your customer programmes can be burdensome on foreign investors. Failure to comply, however, may result in civil and criminal penalties, forfeiture of funds, and incarceration.
6.2 What challenges, if any, do investors find in getting certainty around local law and regulations? The programmes and laws governing foreign trade control and the FCPA are nuanced, do not necessarily implicate all foreign investors (the type of product, business, and investor are all important factors to consider when diligencing a potential transaction), and there is no single point of contact for a foreign investor to engage. In addition, some of the laws are vastly different from local laws in the foreign jurisdiction, and foreign investors may lack the experience to implement compliance protocols. As such, great care and attention should be devoted to learning the US regulatory framework and developing compliance protocols.
7 Dispute resolution
7.1 How efficient are local courts’ enforcement and dispute resolution proceedings, and are there any procedural idiosyncrasies foreign investors must be aware of? The US is comprised of fifty-one separate jurisdictions, each with its own judicial system and set of laws and procedures. The US also has a separate system of federal laws and courts with its own unique set of procedures. The efficiency of enforcement and dispute resolution proceedings, therefore, can vary widely by region and judicial system.
There are several general features of the US judicial system of which foreign investors should be aware. First, unlike the loser pays systems in many other countries, in the US, the parties generally bear their own attorneys’ fees absent an agreement or statutory provision. US courts allow broad discovery practices, meaning that litigants are often required to turn over large amounts of information. Finally, US courts allow for trial by jury, class actions, and punitive damages, all of which can lead to large verdicts.
7.2 Do the courts of the FDI jurisdiction respect foreign judgments and are arbitration awards enforceable in the jurisdiction? The US has neither enacted a statute nor is party to any treaty mandating the recognition of foreign judgments. Rather, recognition of foreign judgments varies state to state. Many states have adopted some form of the Uniform Foreign-Country Money Judgments Recognition Act, which provides that judgments that are final, conclusive, and enforceable where rendered may be recognised in the US, but also provides bases for non- recognition, such as where the foreign court did not employ due process or lacked jurisdiction to hear the dispute. Depending on the state, an investor may need to file a new action in the US seeking to have its foreign judgment recognised.
In the case of arbitration awards, on the other hand, the US has enacted the Federal Arbitration Act, which implements the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on International Commercial Arbitration (UN Arbitration Convention). Under the Federal Arbitration Act, US courts generally are required to enforce foreign arbitration awards that fall under either of those conventions.
7.3 Are judgments and arbitration awards from the FDI jurisdiction generally enforceable in other jurisdictions? A number of countries will not enforce US judgments. This is, in part, because there is no multilateral treaty in place, but also because some countries perceive the US’s system of jury verdicts and unrestricted punitive damages as contrary to their public policy. An investor can attempt to enforce a judgment within the US, however, by going after any US-based assets. Countries that are party to the UN Arbitration Convention should recognise US arbitration awards.
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IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014
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