The Libyan rebels have it easy. All they have to do is overthrow a megalomaniacal dictator who has mustard gas.
But in-house lawyers? Now, they have it tough.
(I write these columns several days before they appear on-line. If Qaddafi is still in power as of Monday, March 7, then read this column as providing advice for the future. If, on the other hand, Qaddafi’s already out of power, then view this as a remarkably quick historical case study.)
On February 25, President Obama signed an Executive Order prohibiting certain transactions relating to Libya. (Here’s a link to that order.) Australia, Canada, and the United Nations Security Council promptly imposed sanctions of their own. Other countries will surely follow suit.
The rules governing trade with Libya will evolve in the United States as, among other things, the Treasury Department’s Office of Foreign Assets Control identifies entities linked to the targeted regime or that engage in targeted behaviors. The rules will also change in the rest of the world, as other countries create and implement sanctions regimes. Large multinational companies will be doing business in countries that will impose differing economic sanctions on Libya.
What will smart outside lawyers do?
They’ll monitor this situation closely, assemble multinational teams of lawyers who can answer questions that arise in any country, and dispense sage advice. The advice will often be accurate and precise: “Don’t do business with any person or entity that has materially assisted the commission of human rights abuses related to political repression in Libya.” With luck, as the guidelines become a tad more specific, the legal advice will follow in turn.
But think about the poor in-house lawyer. Even when the rules become clear, it will be awfully tough to heed them. A big company may have 100,000 employees working in 100 or more countries around the world. You can’t exactly send out an e-mail asking, “Yo! Any of you guys do any work in Libya?” (Well, I suppose you can. But that’s only a short-term fix.)
So the outside lawyer recites what the rules say, and the poor in-house schlub has to figure out how to operationalize the rules. Do we have service contracts with any Libyan companies? (Those contracts may have been legal yesterday and become illegal today.) To whom do we sell products in Libya? In the insurance space, have we placed any insurance policies that cover Libyan risks? If someone makes a claim on one of those policies tomorrow, what, if any, claims handling is permitted? And what about reinsurance contracts? Are there any insurance policies covering Libyan risks for which we’ve placed reinsurance that must now be treated delicately?
It’s not exactly like you can answer those questions by making a couple of phone calls.
Once you identify your company’s relationship with Libyan entities, you must then draft and implement policies to avoid missteps. Is there a way to cause the Finance Department not to pay bills to certain Libyan companies or that relate to Libyan issues? And how do you update those policies, country by country and day by day, to stay current?
The mergers and acquisitions team may not have it any easier. If you’re thinking of buying a company that does business on a global scale, you must now conduct due diligence to determine whether the target does any prohibited business. If no one’s been tracking the Libyan business, how do you unearth it in due diligence?
Finally, after the rules are in place, unsophisticated outside advisors will continue to punt the tough issues to inside counsel. (Please don’t take what I’m writing here as implicit criticism of the outside compliance advice that my company receives. We’re lucky to work with some of the very best.)
Eventually, the sanctions rules may well specify new categories of people or entities with whom you can’t do business. But the rules will be amorphous. They may, for example, provide that you can’t do business with a “government-owned entity.” (In fact, the rules governing Libya may already say that. I’m not exactly a compliance jock. You want legal advice? Consult your lawyer.) Outside counsel will say, “Don’t do business with government-owned entities.” And inside counsel will be stuck with the hard job — advising the business folks whether or not they can do a deal with a company that is, say, only 30 percent owned by the Libyan government, but over which the government has management control.
Or the U.S. rules will ultimately say that U.S. companies can’t “facilitate” forbidden transactions, but the Swedish rules will be more forgiving. Will our U.S. employees be allowed to hand off business to our colleagues in Stockholm who can take over the deal? Or is that forbidden? When our customers are about to be left in the lurch because we can no longer assist them, is it legal to place those customers in the hands of competent third parties (in other countries) who could help?
The best outside lawyers will distinguish themselves in two ways. First, they will help inside lawyers to operationalize policies. Counsel will tell us that Company A did this to operationalize a new compliance policy, and Company B did this, and we might try an amalgam of those approaches, coupled with a few new tweaks, to comply with the new sanctions regime.
Second, sophisticated counsel will not shy away from the tough issues. Don’t tell us that we can’t do business with “government-owned entities” or “facilitate” forbidden transactions and then leave us to our own devices. Rather, use your specialized knowledge, substantial resources, and the luxury of time to think through the hard issues and provide compelling (and reassuring) advice. And don’t shy away from putting your neck on the line. The in-house lawyer ultimately puts his or her neck on the line by making the tough judgment call. Come along with us for the beheading; we love the companionship.
Mark Herrmann is the Vice President and Chief Counsel – Litigation at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law.
You can reach him by email at [email protected].