In house counsel summit successor liability export import considerations september 12 2013
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In-House Counsel Summit Successor Liability: Export & Import Considerations September 12, 2013 PowerPoint PPT Presentation

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In-House Counsel Summit Successor Liability: Export & Import Considerations September 12, 2013 . Ashley McCauley, Attorney C USTOMS AND B ORDER P ROTECTION “Policemen” to Enforce Regulations 19 CFR. Export Controls. D EFENSE I TEMS

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In-House Counsel Summit Successor Liability: Export & Import Considerations September 12, 2013

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In house counsel summit successor liability export import considerations september 12 2013

In-House Counsel SummitSuccessor Liability:Export & Import ConsiderationsSeptember 12, 2013

  • Ashley McCauley, Attorney


Export controls


  • “Policemen” to Enforce Regulations

  • 19 CFR

Export Controls


  • Directorate of Defense Trade Controls

  • International Traffic in Arms Regulations

  • (ITAR)

  • 22 CFR


  • Bureau of Industry & Security

  • Export Administration Regulations

  • (EAR)

  • 15 CFR


  • OFAC, Census Bureau

Export controls cont d

Export Controls (cont’d)

  • BIS, DDTC, OFAC, and other agencies regulate the export, reexport, and transfer of:

    • U.S. origin commodities, software, technology, and services

    • Certain foreign-origin commodities, software, technology, and services

    • Even purely foreign activities of U.S. subsidiaries or affiliates abroad

  • All agencies have a strict policy of enforcement.

  • Most agencies also have procedures for voluntary disclosures.

Basic compliance i ssues

Basic Compliance Issues

  • Some situations that can result in export compliance liability. For example:

    • Failure to obtain and use appropriate export licenses

    • Failure to properly declare export transactions

    • Incorrect license jurisdiction

    • Deemed exports – foreign national employees, visitors, contractors

    • Failure to maintain records

  • And of course, intentional or fraudulent conduct.

Successor liability i n an e xport s ituation

Successor Liability In An Export Situation

  • The basic rule: By acquiring the company, you are acquiring its export compliance liabilities.

    • If the acquired company is found to have export compliance liabilities, the acquiring company will be held responsible for them.

    • This can occur after the acquisition is complete.

    • This rule has been upheld in the courts.

  • The basic strategy: Conduct full due diligence prior to acquisition and voluntarily disclose any compliance issues.

  • Sometimes disclosure does not occur until after closing.



  • Successor liability means the potential liability of the acquiring company for violations committed by the acquired company.

    • Typically triggered via a merger or acquisition.

      • Certain exceptions where an asset sale could generate the same successor liability as a merger or acquisition.

        • i.e., a de facto merger or a continuation of the business.

    • Not codified in customs and export laws.

    • Authority extrapolated from federal court or common law, and from rules of constitutional construction.

  • Liability includes:

    -Audits -Investigations -Disclosures -Liquidated damages

    -Penalties -Additional duties, taxes, fees.

Seminal export cases

Seminal Export Cases

  • Export:

    • Sigma-Aldrich, 2002

    • Hughes Electronics/Hughes Aircraft and Boeing, 2003

Hypothetical transaction 1

Hypothetical Transaction #1

  • Giant Corporation (Giant) is in the process of acquiring Little Corporation (Little).

  • Little sells in the domestic market and for export.

  • Little’s products and technology are subject to US export controls.

  • After acquisition, Little will be merged into Giant as an operating division.

  • Does Giant have any concerns?

  • What should Giant do to mitigate those concerns?

Due diligence and disclosure

Due Diligence and Disclosure

  • Examples of due diligence that should be performed:

    • Export policies, procedures and internal structure

    • Review past 5 years of export records and licenses

    • Obtain a report from Census containing export data

    • Export violations, disclosures penalties

    • Export compliance training given and received

  • Anything discovered needs to be disclosed.

Customs import controls

Customs & Import Controls

  • US Customs & Border Protection (CBP) enforces the Tariff Act of 1930 (Title 19 USC), the Customs Regulations (19 CFR), and the Harmonized Tariff Schedule of the US.

  • CBP has broad authority to examine goods, review transactions, conduct audits, and investigate violations.

  • CBP can also assess penalties and liquidated damages for violations.

Basic compliance issues

Basic Compliance Issues

  • Some import and Customs compliance issues:

    • Undeclared assists,

    • Tariff classification errors,

    • Use of free trade agreements,

    • Dumping and countervailing duties,

    • Use of duty free exemptions, and

    • Recordkeeping errors.

  • And of course, deliberate or fraudulent activity.

Seminal import cases

Seminal Import Cases

  • Import:

    • Shields Rubber Co., 1989

    • Ataka America, 1993

Hypothetical transaction 2

Hypothetical Transaction #2

  • Acme Corporation (Acme) is acquiring ABC Company (ABC), a US importer and distributor.

  • ABC has been importing for several years and takes advantage of free trade agreements.

  • After acquisition, ABC’s business and assets will be incorporated into Acme and ABC itself will be dissolved.

  • Does Acme have any concerns?

  • What should Acme do to mitigate those concerns?

Successor liability in an import situation

Successor Liability In An Import Situation

  • If the acquiring company maintains the acquired company as a separately incorporated subsidiary, the liability remains with the subsidiary.

  • If the acquired company is merged into the acquiring company and is dissolved as a separate corporation, the liability is typically dissolved - but there are exceptions.

  • There are many other things that may need to be done or fixed – but that is another discussion.

Latest update

Latest Update

  • Decision of the US Court of International Trade (USCIT) in United States v. Adaptive Microsystems LLC, Slip Op. 13-50, Apr. 10, 2013

  • Adaptive Microsystems’ predecessor company had alleged Customs violations.

  • Adaptive Microsystems went into receivership, then was acquired.

    • New company also named Adaptive Microsystems.

    • A corporate officer of new company was also officer of predecessor company.

    • A substantial number of employees were transferred to new company.

Latest update cont d

Latest Update (cont’d)

  • A Wisconsin court had authorized the acquisition and said that the new company would not assume any of the predecessor’s liabilities.

  • The USCIT did not agree with the Wisconsin court.

    • The USCIT cited Wisconsin law on continuation of liability and that the Court may not have been aware of the Customs liability.

    • The USCIT cited the continuation of officer and employees, the use of a very similar name, and Adaptive Microsystems’ own representations that it was the same company.

Latest update cont

Latest Update (cont.)

  • Based on this, the new Adaptive Microsystems was responsible for the liabilities of the predecessor company.

  • This ruling may be subject to appeal to the Court of Appeals for the Federal Circuit, so may be subject to change.

Due diligence and disclosure1

Due Diligence and Disclosure

  • Import and Customs compliance issues to review in an acquisition:

    • Compliance policies and procedures,

    • ITRAC report covering 5 years of imports,

    • Use of free trade agreements and duty free exemptions,

    • Last 5 years of import records – if they exist,

    • Tariff classification database,

    • Purchasing records for assists and separate payments, and

    • Products subject to dumping and countervailing duty.

  • File a prior disclosure for any issues discovered.

Why it matters penalties

Why It Matters: Penalties

  • EAR

    • Civil penalties up to $250,000 per violation

    • Criminal penalties up to $1,000,000

  • ITAR

    • Civil penalties up to $500,000 per violation

  • Other penalties:

    • Imprisonment, loss of export privileges, seizure of goods, damage to reputation



  • This is a subject frequently overlooked in an acquisition but may be dangerous.

  • The regulating agencies may be vigilant in enforcement, but also have generous prior disclosure procedures.

  • Find and fix the problems before the acquisition is final.

  • Due diligence and voluntary disclosures will help to prevent successor liability issues.

  • Get expert assistance if you don’t have it in-house.

Contact information

Contact Information

Ashley McCauley


Braumiller Schulz PLLC

International Trade Law

5220 Spring Valley Rd Suite 200

Dallas, TX 75254


[email protected]

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