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CRA Limited (now known as Rio Tinto) Corporate Counsel, Rohan George Skea, was one of the key lawyers on CRA’s Australian legal defense team, comprising Sir Roderick Carnegie, Executive Chairman of CRA, other CRA in-house counsel, Australian lawyers, Arthur Robinson & Co, and CRA’s US Counsel, Robert Osgood of Sullivan & Cromwell in New York, involved in the application of the Australian Government’s international antitrust “blocking” and “claw-back” legislation. The blocking and claw-back statutes were enacted by Prime Minister Malcolm Fraser’s Australian Government in response to the USD7.5 billion antitrust treble damages claim launched in 1976 by Westinghouse Electric Corporation (“Westinghouse”) against 29 foreign and US domestic uranium producers. Westinghouse alleged those producers were co-conspirators in an international cartel controlling the supply and price of uranium.
The CRA defense team, including Rohan George Skea, worked together with the Australian Government, the Australian Attorney-General’s Department and other agencies in relation to the application and implementation of policy and legislative responses of the Australian Government in relation to the attempts by US Courts, with the support of the United States Government, to extraterritorially apply United States antitrust laws to the alleged activities of CRA, Rio Tinto (UK) and other Australian and foreign corporations.
The Westinghouse Uranium Antitrust case was for nearly 10 years the most significant foreign relations problem between the United States Government and the Governments of the United Kingdom, Australia, Canada and South Africa.
Westinghouse alleged that the Uranium Producers’ Cartel comprised the major suppliers of uranium. The companies allegedly involved represented some of the world’s largest resource companies, together with the world’s major uranium suppliers. The alleged members, being defendants in the case, were, Rio Algom Limited, Rio Algom Corporation, Rio Tinto Zinc Corporation Limited, RTZ Services Limited, Rio Tinto Zinc Corporation, Conzinc Rio Tinto of Australia Limited (“CRA”), Mary Kathleen Uranium Limited, Pancontinental Mining Limited, Queensland Mines Limited, Nuclear Fuels Corporation, Anglo-American Corporation of South Africa Limited, Engelhard Minerals and Chemicals Corporation, Denison Mines Limited, Denison Mines (U.S.) Incorporated, Noranda Mines Limited, Gulf Oil Corporation, Gulf Minerals Canada Limited, Kerr-McGee Corporation, the Anaconda Company, Getty Oil Company, Utah International Inc., Phelps Dodge Corporation, Western Nuclear, Inc., Homestake Mining Company, Federal Resources Corporation, Pioneer Nuclear, Inc., Atlas Corporation, Reserve Oil and Minerals Corporation, United Nuclear Corporation, and Atlas Alloys, Inc. Because of the strategic and defense interests of the nations involved in the uranium supply industry , the commercial dispute between Westinghouse and the alleged members of the Uranium Producers’ Cartel inevitably and quickly became elevated into a serious clash between the governments of the companies involved .The case also escalated into a bitter and hard fought legal fight between the United States and the claimed extraterritorial application of its domestic antitrust laws, and the sovereign rights of each of the other governments involved to make and enforce laws within their respective territorial jurisdictions.
The international legal controversy at the core of the jurisdictional dispute was not new, as the clash between the claimed extraterritorial application of US antitrust laws and the international legal principles of comity has had a long jurisprudential history. The Westinghouse fight, while conducted within the polite “language” of international diplomacy, represented a serious rupture in the otherwise long-standing cooperation on international legal issues among allies and friendly governments, and caused inquiry and policy soul searching on all sides of the debate long after the Westinghouse case was settled in 1982. The settlement decision was facilitated by the election of Ronald Reagan as President in late 1980. President Reagan needed the producers on board to gain privileged access into the Japanese market. It has been asserted that access to the Japanese market was also a long-standing goal of the Australian Government.
Following the Westinghouse settlement, CRA developed close links with the Reagan Administration in relation to its proposed major foreign investment initiatives in respect to special steel production in the United States. These initiatives were quickly launched by CRA following the settlement with Westinghouse. Mr Skea was a one of the key executives in CRA’s US business development team and was deeply involved in the confidential discussions in Washington and California with the Reagan Administration’s White House executive team. Those discussions involved the negotiation of Federal and California State tax relief and the government support package to support CRA’s proposed massive investment in leading edge US steel technologies and manufacture at the mothballed Kaiser Steel plant at Fontana in California.
In addition, CRA’s negotiating team, led by Ira Davidson (former executive vice-president of Kaiser Aluminum and Chemical Corporation) and Rohan Skea, developed extensive US political connections and support to secure CRA’s entry into main stream steel manufacture in the United States by regular contact and meetings in Washington with key Senators and Congressman on Senate and Congressional Committees dealing with foreign investment, taxation, industry and labor relations, and with the California Governor’s office (under Governor Jerry Brown and later under Governor George Deukmejian) and State legislature representatives.
Davidson and Skea, received powerful support in building US political and business links from CRA’s US lawyers, O’Melveny & Myers, who were engaged in relation to CRA’s US steel technology and manufacturing investment. Rohan Skea worked closely with the O’Melveny & Myers legal team led by Chairman, Warren Christopher and senior partner, Charles Bakaly Jr. In particular, Warren Christopher’s Washington connections were impeccable. Christopher had been the Deputy Secretary of State under President Jimmy Carter and was widely acknowledged as the person responsible for successfully negotiating the release of 52 U.S. diplomats who were held hostage in Iran for 444 days from November 4, 1979 to January 20, 1981, after a group of Islamist student radicals loyal to Ayatollah Ruhollah Khomeini took over the American embassy in Tehran. It has been suggested by some former hostages that one of those student radicals was Mahmud Ahmadinejad, now the President of the Islamic Republic of Iran, and who is currently locked in a serious international controversy with President George W Bush and
International Atomic Energy Agency director Mohamed ElBaradei over Iran’s uranium enrichment program and the threat of an Iranian nuclear weapon . President Ahmadinejad has denied his involvement in the taking of the hostages. The student radicals, named Muslim Student Followers of the Imam’s Line, demanded the return and trial of Mohammad Reza Pahlavi, the Shah of Iran, who had been permitted to enter the US for medical treatment following intervention on the Shah’s behalf by influential figures including former United States Secretary of State Henry Kissinger and Council on Foreign Relations chairman David Rockefeller, The hostages’ ordeal transfixed the world and reached a climax when after initial failed attempts to negotiate a release, President Carter ordered the United States military to attempt a rescue operation, Operation Eagle Claw, on April 24, 1980, which resulted in an aborted mission, the crash of two aircraft and the deaths of eight American military men. Following Christopher’s lengthy and skilled negotiations the crisis ended with the signing of the Algiers Accords in Algeria on January 19, 1981. The hostages were formally released into United States custody the following day, just minutes after the new American president Ronald Reagan was sworn in. Christopher also spearheaded the Sino-American relations with the People’s Republic of China, helped to win ratification of the Panama Canal treaties, and headed the first interagency group on human rights. President Jimmy Carter awarded him the Presidential Medal of Freedom, the nation’s highest civilian award, on January 16, 1981. In addition, Christopher went on to be appointed by President Bill Clinton as the 63rd Secretary of State on January 20, 1993, and served until 1997. Christopher negotiated an end to the bloody war in Bosnia and Herzegovina and Serbia, through the Dayton Peace Agreement. He also negotiated a peaceful resolution to the military takeover in Haiti, and restored the democratically elected president Jean-Bertrand Aristide.
In the space of several years, CRA, assisted by the efforts of its US business development team, led by Davidson and Skea, and Warren Christopher’s team from O’Melveny & Myers, turned CRA’s reputation around from an alleged antitrust violator, as claimed by Westinghouse, and being unable to transact business in the United States because of proceedings in the Westinghouse case, to a significant and welcome foreign investor with powerful links in the political elite in the US ranging from the Reagan White House Administration, to both sides of politics in the US Senate and Congress, through to the California Governor’s mansion. As a direct result of these high level and confidential activities, CRA negotiated access to generous Federal and State tax and other incentives supporting its proposed US investments. At the height of the Westinghouse battle, when CRA executives could not travel to the US for fear of arrest and imprisonment, such a privileged and influential position in the US was barely imaginable.
While the Westinghouse case was settled, the issues revolving around international comity and the extraterritorial application of United States antitrust and trade laws, and the enforcement of antitrust judgments in foreign countries, are far from settled and the potential for serious controversy remains between the United States and the governments of foreign countries over these issues. In the period since 1982, the United States Government, and governments of various other countries, have been steadily introducing legislation which has the potential to underscore a major fall out between Western governments over the extraterritorial application of United States antitrust and trade laws.
The Westinghouse case procedures triggered the first legislative responses in Australia to the extraterritorial application of United States antitrust laws in the form of blocking legislation. The Westinghouse Uranium Antitrust case was itself a response by Westinghouse to various suits launched against it by US energy utilities for breach by Westinghouse of uranium supply contracts entered into by Westinghouse as part of its sales of US nuclear power plants. Westinghouse’s defense to those suits was the commercial impossibility or impracticability of its obligations under the uranium supply agreements due to the alleged price and supply fixing arrangements among the members of the Uranium Producers’ Cartel . Westinghouse alleged the conspiratorial activities of the members of the Uranium Producers’ Cartel had restricted the supply of world uranium, and had so increased the price of that uranium, that Westinghouse was unable to supply the uranium without suffering a massive loss. The cost to American consumers if those increases were passed on was estimated in the billions of dollars. The Uranium Antitrust Case centered on the alleged actions of the members of the cartel in limiting and allocating the production and sale of uranium outside the US.
The Westinghouse case proceeded under the Sherman Act which applies to anti-competitive activities in trade or commerce within the United States and with foreign nations. Unlike other countries competition laws, the extraterritorial application of US antitrust laws is potentially very wide. The US approach is that where there are direct, substantial and foreseeable “effects” upon the US market, and that it is “reasonable” to exercise jurisdiction, the party concerned is subject to US antitrust laws. For that purpose, it does not matter where that party is incorporated or where the offending conduct took place.
An important feature of US antitrust laws is that enforcement can be initiated by Government agencies and by private parties .Public enforcement can be by criminal or civil proceedings by either the US Attorney-General , or the Federal Trade Commission . However, in private proceedings the plaintiff is entitled to seek treble damages for the damages or losses incurred as a consequence of the alleged antitrust behavior of defendants. In addition, plaintiffs are entitled to injunctive relief for any threatened damage likely to be caused by a defendant’s anti-competitive conduct. The combination of the threat of treble damages, and extensive injunctive relief available to US plaintiffs under US laws has proven a powerful weapon against domestic and foreign anti-competitive conduct.
In the face of massive losses in its breach of contract disputes with the US nuclear energy utilities, Westinghouse commenced a treble damages suit against the members of the Uranium Producers’ Cartel and applied for various forms of injunctive relief. In addition, the US Justice Department initiated an official investigation into the activities of the alleged cartel, and empanelled a Grand Jury to determine whether criminal sanctions applied. Both Westinghouse and the Justice Department made document discovery and witness deposition requests against all the defendants in the cartel. These interlocutory requests, if enforced, had the potential to apply to millions of documents in the possession of the defendant corporations and would have involved corporations and individual witnesses becoming subject to in personam jurisdiction in the US. As part of the process of enforcing its right to discovery of documents and taking of evidence, Westinghouse issued letters rogatory to the Supreme Court of New South Wales seeking the Court to enforce its discovery and deposition requests. Similar letters rogatory were addressed to the Supreme Court of Ontario and the High Court of Justice in England.
A number of defendants, including the Australian defendants, refused to appear in the US courts to defend the proceedings. The defaulting defendants comprised four Australian companies: Conzinc Rio Tinto of Australia Ltd (“CRA”), Mary Kathleen Uranium Ltd, Pancontinental Mining Ltd and Queensland Mines Ltd; two British companies: Rio Tinto Corp. Ltd. (“RTZ”) and RTZ Services Ltd.; two South African companies: Nuclear Fuels Corporation of South Africa and Anglo American Corporation of South Africa Ltd.; and one Canadian corporation, Rio Algom Ltd. In effect, the RTZ Group, comprising RTZ, RTZ Services, CRA, Mary Kathleen and Rio Algom, refused to appear in US Courts and acknowledge the extraterritorial jurisdiction of US antitrust laws.
In addition, the defaulting Australian defendants banned their executives from traveling to the US, refused the document discovery requests, and refused to submit themselves or their executives to in personam jurisdiction. Accordingly, the battle lines were drawn between Westinghouse and the defendants who had defaulted in appearance and the issues were quickly elevated to an international judicial and policy stand-off between the United States, Australia, the United Kingdom, Canada and South Africa.
The international stand-off produced both civil and governmental responses. Westinghouse swiftly retaliated against the defaulters and successfully obtained interlocutory orders in the US against the defaulting defendants which severely constrained the ability of those companies to conduct business in the US and with US companies. These orders placed the flow of funds into and out of the US based entities, and the disposal of assets, under the control of US courts. Some of the defaulting defendants continued to flagrantly ignore those orders and attempted to transfer funds out of the US resulting in further orders being successfully sought by Westinghouse. These orders were very stringent. For example, Westinghouse successfully enjoined RTZ subsidiary, Rio Algom Corporation, from making deposits in bank accounts outside the United States; from making any transfers out of the United States without twenty days’ prior notice to the Court; requiring Rio Algom to deposit the revenues of its Utah mining operation in United States banks; and enjoining the officers, directors and employees of Rio Algom Limited from making withdrawals from bank accounts of Rio Algom Corporation.
The foreign governmental responses were equally swift, and were devastating to Westinghouse’s ability to conduct its case and, ultimately, prevented the enforcement of the interlocutory proceedings in several key countries and threatened to prevent enforcement of any final judgment in those countries.
Australia reacted quickly to the initial Westinghouse proceedings, and the issue of letters rogatory seeking document discovery and evidence from the four Australian defendants, and enacted the Foreign Proceedings (Prohibition of Certain Evidence) Act 1976 (Cth) (“FPA”). The FPA prohibited the production of documents or the giving of evidence in foreign proceedings where a foreign court had failed to comply with international law or comity, or where it was considered necessary to protect national interests. The Orders made under the FPA thwarted Westinghouse’s attempts to gain production of
documents in Australia or the giving of evidence by executives of the four Australian defendants . However, the passage of the FPA and the Orders were controversial and resulted in an unsuccessful High Court challenge. Although the FPA was a significant step, it was not sufficient to stop Westinghouse. Westinghouse obtained default judgments and injunctions against the defaulting defendants. To block the enforcement of those judgments and injunctions the Australian Government quickly enacted the Foreign Antitrust Judgments (Restriction of Enforcement) Act 1979 (Cth) (“FAJA”). The FAJA empowered the Australian Attorney-General to order certain foreign antitrust judgments to be unenforceable in Australia if the Attorney-General was satisfied that the foreign court had exercised jurisdiction in a manner inconsistent with international law or comity, or if the judgment may be detrimental, or adversely affect, Australian trade or commerce, or if it was in the Australian national interest.
In addition, the FAJA enabled the Attorney-General to declare, in the case of judgments involving a specified sum of money that, for the purposes of enforcement, the amount of a judgment could be reduced to a specified amount. This meant that the Attorney-General could allow an antitrust judgment to be enforceable but exclude the treble damages element from enforcement.
The Australian Attorney-General subsequently made an Order under the FAJA declaring that the judgment on the issues of liability given in favor of Westinghouse against the nine defaulting defendants, together with the interlocutory injunctions in favor of Westinghouse, would not be recognized or enforceable in Australia.
The Australian Government sought to justify its “blocking” policy and legislation on several grounds. As a matter of national interest, the extraterritorial application of US antitrust laws directly conflicted with Australia’s policy for the development and marketing of Australian sourced uranium. It also conflicted with international marketing arrangements supported by the Australian and other non-US governments for the orderly marketing and sale of uranium. However, the support of the Australian and other foreign governments did not amount to “sovereign compulsion” under US law which meant that the defense of “foreign sovereign compulsion” was unavailable to the foreign defendants. Further, even if that defense did apply it would not necessarily prevent the application of in persona jurisdiction. All of the nine defaulting defendants were determined to avoid coming within US jurisdiction.
The Australian Government was also seriously concerned with the potentially devastating consequences for the Australian economy if the USD7.5 billion damages claim was enforced against the Australian defendants. This was a real and legitimate issue. The Australian defendants were all major resource companies and directly and indirectly had a profoundly significant place in the Australian economy. Further, the Australian Government was also concerned that US courts had not given sufficient weight in the balancing of interests required under international comity before the extraterritorial application of US antitrust laws was ordered.
The Australian and other foreign blocking and claw-back legislation forced Westinghouse and all the defendants to entertain a compromise and commercial settlement. The settlement details were not left to the commercial parties but involved the closest support, guidance and approval of the foreign governments at the highest levels. The confidential discussions among the parties to the case, and the side discussions, consultations and ultimate approvals sought and obtained from the foreign governments were tortuous, lengthy and at times stretched relationships to breaking point. Neither side was a willing participant in the settlement, but pragmatism prevailed. Nonetheless, Westinghouse obtained a workable outcome, but vastly short of its claim. On the other hand, the defendants, were required to pay Westinghouse a not insignificant sum, rumored to be USD100 million, and some of the defendants agreed to supply Westinghouse uranium on favorable terms. Additionally, the defendants were relieved of costly inhibitions to trading in the US and with US corporations. As for the foreign governments, the sobering lesson was that international government “sponsored” collusion against the interests of US corporations and consumers, which did not extend to OPEC style governmental “Acts of State” and thereby gaining immunity from prosecution , was ultimately unsuccessful and threatened their very relationships with the US across all levels.
Australia recognized the dangers of any future conflict between the Australian national interest and the extraterritorial application of US antitrust laws and resorted post-Westinghouse to diplomatic initiatives to address some of the disputed jurisdictional dispute issues.
Australia commenced a process of negotiation with the US and after several years concluded the Agreement between the Government of Australia and the Government of the United States of America Relating to Cooperation on Antitrust Matters. The Antitrust Cooperation Agreement instituted a notification procedure between Australia and the United States with the intention being to avoid conflicts between the two countries and their “..laws, policies and national interests and for the purpose to give due regard to each other’s sovereignty and to considerations of comity”.
Under the Antitrust Cooperation Agreement each country has notification rights. Australia may notify the US of Australian governmental policies that may have antitrust implications in the US. The US is to notify Australia if the Department of Justice or the Federal Trade Commission “…Undertake[s] an antitrust investigation that may have implications for Australian laws, policies or national interests” . In addition, following notification, either country may request consultation if the other country’s antitrust policies adversely affect the requesting country.
However, notification and consultation does not necessarily mean or guarantee a resolution of any future conflict. To date, the record of intergovernmental agreement on extraterritorial antitrust issues is not encouraging. Further, the problem of private extraterritorial enforcement of US antitrust laws,being the very problem at the core of the Westinghouse case, remains without a firm resolution, even with the advent of the Antitrust Cooperation Agreement.
The Antitrust Cooperation Agreement has a number of important limitations. Article 6 of that Agreement provides that the Australian Government may request the US Government to participate in private antitrust proceedings where the proceedings relate to conduct, or conduct pursuant to a policy of the Government of Australia, that has been the subject of notification and consultation between the Governments under the Agreement. In those cases, the US Government is required to report to the court on the substance and outcome of the inter-governmental consultations.
While this approach is an improvement on the situation that applied during the Westinghouse proceedings, it is by no means a resolution of the jurisdictional issues which plagued that case and caused the strained relations between Australia, other foreign governments, and the United States. The Antitrust Cooperation Agreement is quite limited in the case of private prosecution of US antitrust laws. The Agreement simply excludes private prosecutions which have not involved conduct that has been the subject of inter-governmental consultations. In simple terms, this means the Agreement will not apply to a repetition of the very circumstances which gave rise to the Westinghouse case. The Uranium Producers’ Cartel was formed in secret with the support and encouragement of respective foreign governments, and with deliberate non-disclosure to the US Government, in order to achieve certain commercial and strategic advantages. Whether the strategy was ever directed specifically at Westinghouse or against US commercial interests has been the subject of much speculation .That it had that effect is undeniable. It is unlikely that such a conspiracy, if ever repeated, would be disclosed under the Antitrust Cooperation Agreement as any such disclosure would be antithetical to the nature and object of such a conspiracy. Accordingly, the effect of the Westinghouse case and the Antitrust Cooperation Agreement is that there is little incentive for the Australian or any other foreign government to engage in or encourage similar cartel behavior in the future. To that extent, the Westinghouse case and the Antitrust Cooperation Agreement has, for practical purposes, put a stop to any such blatant cartel behavior or, at the very least, ought to cause any party contemplating such behavior to give serious consideration to alternatives given the consequences which will likely follow .In addition, the Agreement effectively only applies to conduct that has been encouraged or mandated by Australian Government policy. This means the Agreement excludes parties whose conduct does not fall within that imprecise ambit. The precise boundary of that ambit may not always be clear as was demonstrated in the Westinghouse case .
Australia continued to develop its legislative response to the Westinghouse case and the threat of future private extraterritorial enforcement of US antitrust laws by repealing the FPA and FAJA and enacting the Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth) (“FPEJA”). The stated purpose of the FPEJA was to “. Consolidate and expand Australian laws which protect Australian trading interests and policies against extraterritorial enforcement of foreign laws”. The introduction of this law was not without Parliamentary controversy and concern at Ministerial level that the enactment may provoke an adverse response from the US Government. However, the Government remained seriously concerned at the threat to its exercise of sovereignty and to its trade policies of private extraterritorial antitrust prosecutions. In simple terms, the Australian Government recognized that international consultations with the US Government would not stop a determined US plaintiff seeking extraterritorial application of US antitrust laws within Australia and, more importantly, the economic chaos which could occur through the enforcement of injunctions or asset seizures pursuant to such actions. Given that the large majority of US antitrust cases have been initiated by private parties, the threat was real and was not resolvable by reliance on the limited provisions of the Antitrust Cooperation Agreement .Under the FPEJA the Australian Government responded to the threat of private extraterritorial prosecution of US antitrust laws by adopting a five pronged approach comprising:
Prohibition of Giving Evidence
The FPEJA adopted the same provisions dealing with the prohibition of giving evidence to foreign courts as were contained in the FPA.
Blocking Foreign Antitrust Judgments
The FPEJA also adopted similar provisions to those in the FAJA relating to blocking foreign antitrust judgments.
Non-Compliance with Foreign Orders
The FEPJA empowered the Attorney-General to prohibit a person from complying with (non-monetary) foreign judgments requiring an act to be performed in Australia if this act would be contrary to the national interest. The Australian Government’s intention was that the provisions could be used to combat divestiture and “cease and desist” orders made under US antitrust laws.
Claw-back
The new and controversial development was the enactment of antitrust specific defensive measures which incorporated claw-back rights. These provisions, which were modeled on equivalent provisions contained in UK legislation introduced by Prime Minister, Margaret Thatcher, conferred a right of action on an Australian defendant in foreign antitrust proceedings where the Attorney-General has made an order that a judgment against the defendant should not be enforceable in Australia (in whole or in part).The FPEJA took the UK approach to blocking legislation and expanded the scope of the provisions. Under the FPEJA an Australian defendant can institute an action in Australia for recovery from a foreign plaintiff of an amount equal to the judgment sum granted in the foreign antitrust proceedings, together with a limited right to recover reasonable costs and expenses incurred by it in defending private antitrust proceedings.
Reciprocal Enforcement Arrangements
The FPEJA empowers the Australian Government to enter into reciprocal enforcement arrangements with other countries that have similar claw-back provisions. This was included because the UK had made provision for such a system in its blocking legislation and had expressed an interest in reciprocity to address the position of multinational defendants, such as CRA and Rio Tinto, who had substantial assets at risk in both the UK and Australia. Australia and the UK signed an agreement relating to the reciprocal recognition and enforcement of judgments in 1994.
Blocking Foreign Commercial Orders and Decisions
The antitrust focus of the FPEJA was expanded so as to empower the Attorney-General, where considered desirable for the protection of the national interest, to make orders blocking actions or decisions of foreign governments under laws relating to trade or commerce that impose an obligation upon an Australian person or company that has to be performed in Australia.
To ensure compliance with the FPEJA the Australian Government imposed a range of sanctions. The Act provides that contravention of an order made under the FPEJA is an offence punishable by a fine not exceeding AU$50 000 or imprisonment for a period of up to 12 months for a natural person and a fine not exceeding AU$250 000 for a corporation.
Since the Westinghouse case the focus of the extraterritorial application of US antitrust and trade laws has diffused and shifted to include the various responses by the EU and Canada to the Helms-Burton Act and the D’Amato Act in relation to trade with Cuba, Iran and Libya. The threat of Westinghouse type private US antitrust actions affecting Australian corporations and interests has receded and there have been no protective or blocking orders made by the Attorney-General under the FPEJA.
However, the introduction of the Helms-Burton Act and D’Amato Act raised again the issue of extraterritorial application of US laws and the clash with Australia’s national interest. In brief, both Acts employ a variety of methods, including secondary boycott sanctions, to affect US foreign policy with respect to Cuba, Iran and Libya. These US extraterritorial trade controls have the potential to cause new clashes with Australia. The provisions in these laws represent a new and different approach by the US to use secondary boycott sanctions, private treble damages suits and exclusion from the US as a means for pursuing US foreign policy objectives.
Australia, unlike Canada and the EU, has not responded to these potential threats with any modification of the FPEJA. Canada introduced amendments to its antitrust blocking legislation to respond to the new ways in which US extraterritorial legislation was being used, and similar action was taken by the EU.
The Australian Government’s decision not to respond legislatively to the Helms-Burton Act and the D’Amato Act appears to reflect a cautious approach in managing its judicial relationship with the United States and acknowledges the limited interaction of Australian interests with Cuba, Libya and Iran. This was notwithstanding that the US foreign policy underpinning the Helms-Burton Act was in direct conflict with the Australian Government’s foreign policy with respect to Cuba; a policy which allows Australians to trade with Cuba and encourages a multilateral international approach to Cuban reform. Australia has also stated that it has “urged the US to step away from extra-territorial measures and to adopt a cooperative approach to shared foreign policy interests rather than going it alone”. The Australian Government, while sharing US concerns over the pace and depth of economic and political reform in Cuba, nonetheless was of the view that engagement rather than isolation was more likely to be successful in bringing about positive change in Cuba.
The D’Amato Act was designed to further US foreign policy with respect to Iran and Libya by imposing sanctions on persons who invest in the Iranian or Libyan oil or gas industries, or sell specified goods, services or technology to Libya. The US classified Iran and Libya as sponsors of terrorism and acquirers of weapons of mass destruction (WMD), and considered that the two nations ‘endanger the national security and foreign policy interests of the United States’ and its allies .
The US position recognized that the economies of Iran and Libya are primarily supported by income from their oil and gas industries. Consequently, blocking foreign investment in the oil and gas sectors was likely to have a major impact on the countries’ economies and, in turn, upon their governments’ revenue and ability to fund terrorist activities.
The specific policy objectives of the United States Government in relation to Iran were to deny Iran the ability to support acts of international terrorism and to fund the development, acquisition and supply of WMD. The Libyan sanctions were designed to press Libya to comply with its obligations under several United Nations Security Council Resolutions to end all support for acts of international terrorism and to impede efforts to develop or acquire WMD .The US has maintained economic sanctions, in various forms, against Iran and Libya for several decades as a means of exerting pressure to cease their involvement in terrorist activities. The US has also used primary boycott sanctions prohibiting domestic trade and investment with Iran and Libya as a means of pursuing its foreign policy objectives.
In addition, the UN has also introduced economic sanctions against Libya in an effort to curb terrorist activities. The D’Amato Act was the first secondary boycott measure adopted by the US against Iran and Libya.
From Australia’s perspective, the D’Amato Act was more of an issue than the Helms-Burton Act in terms of its adverse impact upon Australia, as Australia has more investment in Iran than Cuba.
Unfortunately, the FPEJA was primarily designed to combat the effects of the enforcement of US extraterritorial antitrust legislation, and does not adequately respond to the Helms-Burton Act or D’Amato Act sanctions .On the other hand, the EU and Canada perceived the threat and adopted blocking legislation specifically targeting the effects of these new US extraterritorial trade sanctions.
The EU supported the US policy objectives involved in the Helms-Burton Act and D’Amato Act but strongly criticized the method adopted by the US. The EU responded to the US unilateral economic sanctions against Cuba, Iran and Libya by introducing comprehensive legislative blocking measures and initiating World Trade Organization (“WTO”) proceedings challenging the legality of the Helms-Burton Act.
The EU blocking legislation, Protecting Against the Effects of the Extra-Territorial Application of Legislation Adopted by a Third Country (‘EU Regulation’) , was directed at the Helms-Burton Act, the Cuban Democracy Act, the Cuban Assets Control Regulations and the D’Amato Act. The EU Regulation was modeled on, but is more comprehensive than, the UK PTIA. It includes prohibitions on the recognition and enforcement of foreign judgments or administrative decisions giving direct or indirect effect to the sanctions covered by the EU Regulation; claw-back provisions; recovery of any damages, including legal costs, caused by the application of the sanctions; and forbids compliance by EU persons with the requirements of the listed instruments, whether it be direct or indirect (through a subsidiary) or by active or deliberate omission. On the other hand, the EU Regulation pragmatically provides that where non-compliance would seriously damage the interests of the affected person or those of the EU, the person may be authorised to comply fully or partially with the US sanctions. The EU Regulation also prevents compliance with foreign orders requesting documents or evidence. Finally, the EU Regulation requires EU persons, including directors, managers and other persons with management responsibilities, to report within 30 days to the EU Commission instances in which their economic and/or financial interests are directly or indirectly affected by the sanctions covered by the EU Regulation.
Canada introduced blocking legislation specifically aimed at reducing the impact of US extraterritorial trade laws. Canada passed sanction specific amendments to the Foreign Extraterritorial Measures Act (‘FEMA’) . FEMA was introduced in response to the Westinghouse case and was modeled upon the UK PTIA blocking legislation. While FEMA incorporated powers to deal with US boycott legislation, even though it was originally designed to block US antitrust litigation, the Canadian Government considered that FEMA should be amended in order to respond to the US secondary boycott legislation and acted swiftly in introducing the amendments.
The powers of the Canadian Attorney-General under FEMA are triggered where he or she considers that the foreign judgment or measures significantly affect Canadian trading interests or infringe Canadian sovereignty. The Act includes various powers and provisions including: the power to prohibit Canadian records and/or information being produced or disclosed to a foreign tribunal, including prohibition on the giving of evidence by a Canadian citizen or resident in foreign proceedings; the power to issue orders forbidding the enforcement of foreign antitrust judgments in Canada and foreign trade laws that the Attorney-General considers, with the concurrence of the Canadian Minister of Foreign Affairs, violate international law and comity (the only foreign trade law listed in the FEMA schedule to date is the Helms-Burton Act); claw-back powers which also apply to judgments made under the Helms-Burton Act; a right for a Canadian defendant in foreign proceedings, brought under an instrument listed in the FEMA schedule, to sue in a Canadian court to recover the judgment sum, expenses and consequential loss or damage suffered by reason of the enforcement of the foreign judgment; and the Act permits the Attorney-General, with the concurrence of the Minister of Foreign Affairs, to make orders blocking the application of foreign measures taken by a foreign state or foreign tribunal that adversely affect, or are likely to adversely affect, Canadian interests or infringe upon Canada’s sovereignty.
The latter provisions authorize the Attorney-General to make orders requiring Canadian citizens or residents to give notice to the Attorney-General of any directive, instruction, intimation of policy or other communication relating to such measures from a person who is in a position to direct or influence the policies of the person in Canada. The terms are sufficiently broad to cover directives issued by a foreign parent company to a Canadian subsidiary to abide by the laws applicable in the country where the foreign parent corporation operates .The Act also empowers the Attorney-General to prohibit compliance by Canadian nationals with foreign measures or directives, issued by persons in a position to direct or influence the policies of the Canadian person, that are adverse to Canadian trade interests.
The Foreign Extraterritorial Measures (United States) Order (1996) (“1996 FEMA Order”) contains notification and non-compliance obligations targeting the US Cuban legislative embargo measures. With respect to the notification obligation, the 1996 FEMA Order requires Canadian corporations and their directors and officers to “forthwith give notice” to the Attorney-General of any policies or communications they receive relating to an extraterritorial measure of the US. The term “extraterritorial measure” is broadly defined so as to cover the Helms-Burton Act and any other instruments designed to enforce the US embargo against Cuba.
The Canadian Act also incorporates a range of penalties for non-compliance including criminal sanctions. Section 7 authorizes the Canadian Government to prosecute violations of FEMA orders either by indictment or by summary conviction. The maximum fine for a corporation for indictable offences is CAN$1.5 million and for an individual CAN$150,000. In relation to summary offences, the maximum fine for a corporation is CAN$150,000 and CAN$15,000 for an individual and/or a maximum of two years imprisonment. Prior to the 1997 amendments, the penalties were considerably less. The penalties were increased to balance the US penalties for contravention of certain extraterritorial measures. For instance, breaches of the US Cuban embargo regulations are punishable by fines of up to US$1 million.
The Australian Government has not followed the lead of the EU or Canada. The bruising lessons learned in the “power politics” of the Westinghouse litigation brought home in stark relief the asymmetrical nature of the US/Australian political and economic relationship. Australia could ill afford another serious rift in the political, economic and judicial dimensions of that relationship, particularly where the genesis of the Westinghouse case rupture was the ill-conceived and naïve involvement of the Australian Government in supporting activities of companies involved in the alleged the Uranium Producers’ Cartel. While the case was settled, and Australia/US relations were restored, the lessons were learned when Australia felt the full force of US reaction to foreign economic conspiracies aimed squarely at US corporations and the US market .
The United States has made its position consistently clear on this issue, particularly during the height of the Westinghouse case. US Attorney-General, Griffin Bell Jr. enunciated the US Justice Department’s two primary objectives of U.S. policy in the application of US antitrust laws to foreign jurisdictions. First, to prevent national boundaries from providing a haven from which Americans may flout laws designed to protect US domestic competition; and secondly, to prevent arrangements made abroad, such as foreign cartels, from depriving U.S. consumers of the benefits of competition among importers and between domestic and foreign sources of supply. Although clear, this view is not universally embraced, particularly where the U.S. is unique in its asserted right to apply US criminal laws to activities beyond its territorial boundaries. Further, the US view has provoked protest from many countries including Britain, Australia and Canada.
However, while the private and public prosecution of international cartels has been patchy , when the US is involved, it is unlikely a future Australian government, or corporations, would ever involve themselves in similar such actions again.
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Note: John Connor, “Global Antitrust Prosecutions of Modern International Cartels”, Dept. of Agricultural Economics, Purdue University, Ind., Staff Paper #04-15, Nov. 2004; Simon Evenett, Margaret Levenstein and Valerie Suslow, “International Cartel Enforcement: Lessons from the 1990s” (2001) 24 World Economy 1221
