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Test 4 Study Guide
Dr. Charles Miller
November 13, 2015 – Chapter 17 – The Regulatory Process
∙ Administrative agency – An authority of the government, other than legislature or court, created to administer a particular law through delegation of powers
o Created when a problem requires expertise and supervision
o Interstate Commerce Commission was first federal regulatory agency ∙ Pg. 470Administrative Law – Statutes that define the authority and structure of administrative agencies that then enforce the regulations they were created for. In other words, this law is the rule book for how administrative agencies can act
o Main source of these rules comes from the Adminstrative Procedures Act (APA)
o These statutes are published in the federal register, which is the official notice and comments to the general public so the government knows what they are up to.
When these statutes are made, it goes through a comment
period for revisions before the final rule is set.
Issue with setting the law: laws usually result in
companies/employees having to pay more money for that
company to comply to the law
∙ Ex: laws will be approved and added to the federal
register that requires all people in the oil industry to take
a hearing test. The oil companies would have to pay for
this in order to comply with the new law.
o Pg. 471Substantive/Legislative Rules – rules made by administrative regulations that have the same power and severity as rules set by Congress. It is federal law.
o Interpretive Rules – Exempt from the notice and comment period of the APA because they are really just statements issued by the agency describing how to interpret the rules that was made in various
o Pg. 472 Rulemaking Procedure – 1) rules are drafted by agency staf 2) reviewed internally
3) Approved by the head of the agency
4) Published in federal register
5) Written comments are accepted If you want to learn more check out who is William Jennings Bryan?
∙ Comment Period = 60-90 days
6) After reviewing comments, final rule is made
Chevron, U.S.A., Inc. v. Natural Resources Defense Council
∙ Congress passed a Clean Air Act to prevent some air pollution
∙ The current EPA rule said industries could measure their pollution by adding up the pollution from their plants into one collective measurement in a “bubble” as opposed to measuring each plant individually. NRDC claimed the EPA rule contradicted the new rule put in place by Congress, and when they took it to the agency’s court of appeals, If you want to learn more check out What are the Androgenic effects?
the bubble law was eliminated
∙ Chevron argued that the Clean Air Act was not passed with intent to afect the bubble rule and the Supreme
Court ruled in Chevron’s favor so the bubble rule was
allowed to stay, and they also argued that the agency’s court of appeals did not have the power to overturn an
∙ Case was mainly about Standard of Deference – In other words, the case decided how much power the agency’s court of appeals has to overturn certain laws.
o Pg. 473 Enforcing Rules
Agencies have the power to investigate companies to see if they are complying with agency laws. If they are NOT, they’ll have a right to issue a penalty
Exhibit 17.3 on page 477 is great graph of formal agency procedure for adjudicatory hearing
∙ 1. A complaint is filed by an agency against a suspected violator
∙ 2. The business responds to the complaint
∙ 3. The agency investigates to determine if a hearing is warranted
∙ 4. A hearing is set; an administrative law judge is
appointed to preside
o OR the complaint is dismissed
∙ 5. A hearing on the issue is conducted
∙ 6. The administrative law judge renders an opinion
∙ 7. A dissatisfied party may appeal.
Adjudicatory hearing – just the formal title for a hearing when an agency suspects a violator is breaking the rules
o Pg. 479 Judicial Review
Congress keeps the agency’s power in check and makes sure they aren’t overstepping their jurisdiction Don't forget about the age old question of WHAT FORMS DID THE FEDERAL-STATE QUESTION TAKE AFTER 1791?
o Pg. 485 Control on Agencies
Indirect Controls on Agencies that Congress has
∙ Freedom of Information Act (FOIA) – Requirement for most documents held by federal agencies to be made public.
∙ Privacy Act – Gives citizens input about what information is collected about them and how that information is used. We also discuss several other topics like What is a perished product?
∙ Government in the Sunshine Act – The public is entitled to
at least one week’s notice of the time, place, and subject
matter of agency meetings
November 16, 2015 Chapter 18 – Securities Regulation
∙ Bonds (debt instrument) – Companies issue bonds to raise money. A $10,000 bond means that a person will pay you $10,000 to get a bond, and you will pay them back with interest plus the face value ($10,000) within typically a 5, 7, or 10 year period.
o Bonda debtpaid back with interestover a termsold at a face amount
∙ Common Stock (equity instrument) – Buying stock means buying ownership interest in a company; in other words, you get part of the owner’s equity when you are paid dividends Don't forget about the age old question of What is a nominal GDP?
o Will get paid dividendsperpetual (ever-lasting)value of stock fluctuates
∙ Bonds are safer than common stock
∙ Common theme with bonds and stock: Both are securities, and you spend money to get both and don’t do anything to get a return and make a profit ∙ Pg. 492 Howey Test – Determines when an investment is considered a security by the federal government
o 1) A person invests money…
o 2) In a common enterprise…
o 3) With an expectation to make a profit...
o 4) That is generated by the eforts of someone other than the investor. ∙ Why is government involvement such as the Howey Test necessary? o Helps to prevent Ponzi schemes
o Bernie Madof – Biggest Ponzi scheme in history
He got people’s money for investments and took other investor’s money to pay of the other investors’ principals
∙ Securities Exchange Commission (SEC) – primary regulator of U.S. securities ∙ The Registration Statement - The statement required to create a new security; has two parts
o 1) Prospectus (Schedule A) – document providing legal ofering of the sale of the security
Rough draft of a prospectus is called a red herring because of the red ink marks on the front page denoting it as not the final
Goal is to draw in investors for when the registration statement is complete and approved. If you want to learn more check out What did the Confederate States of America stand for?
Prospectus must include
∙ The security issuer’s finances and business
∙ The purpose of the ofering
∙ The plans for the funds collected
∙ The risks involved in the business venture
∙ The promoter’s managerial experience and financial
∙ Financial statements certified by independent public
o 2) Regulation S-K – more detailed information than the prospectus Extra information about the financial background and
experience of the issuer
More information about the proposed business and the issuers. ∙ Pg. 496 Exemptions from Registration – Purpose for exempting some people from registering their securities? The big boys and girls have proven themselves good enough to make those decisions by themselves o Private Placement – the private creation and sale of securities to qualified institutional buyers such as IBM and MetLife rather than to the public
Rule 144A – Qualified Institutional Buyers can sell to one another and be exempt from registration if they have a portfolio of at
least $100mil in securities
o Regulation D – Exempts registration of selling securities to super rich individuals who are deemed to be smart enough to not need a
registration because of how wealthy and successful they are
o Well Known Seasoned Issuers (WKSIs) – Companies who have ofered at least $1bil of securities previously or have a public-equity market capitalization of at least $700mil
∙ Pg. 498 SEC Regulations of Securities Trading
o Companies must file a quarterly 10-Q the reports when significant financial developments occur. Purpose is to ensure disclosure of how the company is doing
o Proxies and Tender Ofers
Proxy – Permission given by a shareholder to another party to vote his shares in the manner he instructs in case he can’t be at meetings where shareholders take votes on how to operate.
Tender Ofers – When one company attempts to take over
another, it usually uses tender ofers, which is where
stockowners in the target company are ofered stock in the
acquiring company or cash in exchange for their stock.
∙ When successful, the acquiring company obtains enough
stock to control the target company.
November 18, 2015 Chapter 18 (cont)
∙ All securities that are sold must be registered by the SEC with the exception of exemptions like private placement, Regulation D, and WKSIs
∙ Reiteration of proxy and tender ofers
∙ Pg. 504 Insider Trading – Buying and selling of stock before information to public is released
o Company in Oklahoma does testing for oil and predicts that it is likely to have oil there. Once this is announced, the company’s stock price will go up, so executives of the companies start buying stock before they release the information
o SEC monitors every single purchase and sale to try and catch things like this when they notice a ton of stock is bought just before this company’s stock went way up
o Defense to insider trading – They didn’t really know the stock price was going to go up so much. They weren’t positive that there was oil there. It was just likely.
∙ Stock Options
o Ex: I work at a company where stocks currently selling for $10. Boss wants to motivate his employees, so they give the employees a chance to buy stocks at $18 up to 1,000 stocks for the next year. So this incentivizes employees to work hard to make the company successful to get that stock up above $18 so you make money.
It’s a cashless exercise because when you write a check for
these stocks, the company doesn’t actually cash this check.
They just keep it and when you decide to sell your stocks, the
company just pays you the profit you earned then rips up your
o The more people you can give stock options to, the more likely people are to work harder, so it’s encouraged.
o SEC monitors this because if a company doesn’t get their stock to above what they let their employees buy it for when a certain date comes around, some companies will hold longer and wait until stock price goes above that then still pays their employees.
o Bad thing about stock options: It gives management incentive to manipulate the stock price.
o Allen Stanford – Guy who got regulated by the Fort Worth office of SEC. Was a professional sports sponsor charged and sentenced 110 years in prison for the second largest Ponzi scheme in history. He started a financial advising firm where people gave him their money and invested it in certificates of deposit at his bank in Antigua which ofered higher interest than American banks
Guaranteeing 8.5% as compared to 2 or 3 %
One person in Antigua audits the banks, but Allen just paid him of so he would overlook all the money Allen was bringing in.
People began complaining because they weren’t getting their money back, so the SEC finds out what
November 20, 2015
∙ Pg. 507 Mutual Funds – When you put $10,000 into a company under a generic category of stocks (such as energy companies), the company will buy several diferent shares in diferent companies in that category
o Example of company that handles mutual funds is Fidelity
∙ Pg. 508 Investment Advisors Act (IAA) – Approves investment advisors to manage other peoples’ money. The SEC oversees these people to keep incompetent people or scammers out of this business
o Churning – An illegal act when an advisor trades stock excessively because he gets a % of money every time he trades regardless if it is a good or bad trade
o Scalping – When a professional buys stock for personal gain then advises their client to buy it too so the stock prices go up and benefits the professional
Chapter 19 – Consumer Protection
∙ Consumer – Purchases for personal, family, or household goods ∙ Pg. 533 Exhibit 19.1 The Major Elements of Consumer Credit Legislation o A bunch of acts beginning with the Consumer Credit Protection Act that are put in place to help the consumer be more informed about their purchases
o There’s also Texas Consumer Credit Protection
o Pg. 532 Truth-In-Lending Act – Requires creditors in consumer transactions to disclose basic information about the cost and terms of credit to the consumer borrower
What the true costs are of what you want to buy
Pg. 534 shows a good example of the full disclosure of what you’re expected to pay
∙ Pg. 522 Federal Trade Commission and Consumer Protection
o The FTC are the eyes of the government to watch unfair or deceptive acts and practices by companies
They focus on deception, which is lying to the consumer about a product
∙ Ex: misrepresentation in advertising
o QT bracelet case vs. FTC
These bracelets claimed to relieve pain, and
all these claims the company made were
bogus so they were put to a stop by the FTC
∙ You can advertise selling a Danish pastry because it’s
clearly obvious the pastry wasn’t actually made in
Denmark. So that isn’t deception
∙ Pg. 524 Defining Unfairness – Section 5 of FTC Act says unfair or deceptive acts or practices in or afecting commerce are declared unlawful. Definition of unfair is
o 1. It causes substantial harm to consumers
o 2. Consumers cannot reasonably avoid injury
o 3. The injury is harmful in its net efects
o Types of Unfairness
Telemarketing Fraud - Calling or mailing something to someone telling them they have won a big prize when in reality they just won the right to buy the big prize, or something similar.
Oil and Gas Well “Investments” – Companies were selling lottery tickets to customers to enter a lottery for oil and mineral rights on federal lands. This is illegal and unfair
Work-at-Home Opportunities – FTC v. Febre when they ofered people a chance to earn a crazy amount of money by staying at home and mailing postcards.
Invention-Promotion Scams – Companies claimed they could help people with their invention ideas, so those people paid the companies lots of money to get expert advice in licensing and
∙ FTC v. John Beck Amazing Profits case says the courts
tend to give the FTC substantial leeway in closing down
operations that can fall under the general terms of unfair
and deceptive operations.
o John Beck’s company took in monthly dues from
members to give wise great real estate advice
when it was pretty bogus info.
November 23, 2015
∙ Pg. 535 Fair Credit Billing Act – Included in TILA; You have the right to dispute a charge with your creditor within 60 days of the mischarge, and they must respond within 30 days of your dispute. They have 90 days to resolve the dispute
o It prohibits the mailing of unsolicited credit cards
o Establishes rules for reporting lost or stolen cards
∙ Pg. 536 Consumer Credit Card Act – This amended TILA by restricting certain practices by credit card companies
o Can’t raise interest rates on existing balances
o Must give cardholders 45 days’ notice before raising rates
o Restrictions on late fees, going over card limits, and late payments o Statements must be sent 21 days before statements are due ∙ Fair Credit Reporting Act – Regulates the credit bureaus
o Gives us the right to see our credit report score and how they got to that score so we can dispute any disagreements
o Fair and Accurate Credit Transactions Act (FACT) amended Fair Credit Reporting Act with goal of preventing identity theft.
∙ Pg. 538 Equal Credit Opportunity Act (ECOA) – You can’t deny someone a loan based on their gender.
o Can’t discriminate geographically either (called red lining) – When you make someone have to have a higher credit score to get a loan because they live in a diferent area than someone else.
o Tries to make the playing field even when it comes to getting a credit score and furthermore, a loan
∙ Pg. 540 Fair Debt Collection Practices Act - Creditors have a right to collect what is owed to them if they aren’t paid
o Can do through garnishing – taking a cut of that person’s paycheck o Can sell debt to a debt collection agency for a fee; they are then responsible for collecting
∙ Pg. 542 Electronic Fund Transfer Act (EFT) – Regulation E states that consumers are liable for only $50 when their account information is stolen and used online
o The financial institutions are liable for damages to consumer caused by malfunctions in technology
o Must investigate disputes in a timely manner
∙ Consumer Financial Protection Bureau – Granted power to make rules and enforce them over banks and other financial companies.
o Focused on making rules about financial scams and gimmicks o Terms of financial documents are transparent and easy to understand by consumers
o Focus on unfair practices and crack down on them to protect the consumer
o Check existing rules to make sure they don’t conflict with one another o Make sure credit rules are applied uniformly across all people ∙ Pg. 516 Food and Drug Administration (FDA)
o Food Safety – Book called The Jungle by Upton Sinclair about the Chicago meat packing industry
o FDA works closely with US Department of Agriculture (USDA), who focuses primarily on sanitation of meat, poultry, and eggs.
o Nutrition Labeling – Must have nutrition label containing lots of details about the product so the consumer knows what they are buying. o Drug Safety – prescription drugs – you must be issued a prescription for certain drugs
FDA must approve the drug first.
o FDA has the power to shut down companies for not following protocol or having bad products such as Blue Bell.
∙ Pg. 530 Wyeth v. Levine Case
o Phenergan is an FDA approved drug with an approved label o Can be used by the IV-Push method where it’s injected in the veins o Can be used by the IV-Drip method where it enters your body slowly o Person got a side efect from the drug, lost their arm, sued, and won o Just because you are approved by the FDA doesn’t mean you are protected completely from lawsuits
∙ State Deceptive Practices Laws
o Texas has the TX DTPA (Deceptive Trade Practices Act)
o Basically each state also has the power to enforce rules and business codes that protect the consumer from deceptive acts
Examples could be turning back the mileage on a car; saying the car needs erroneous repairs done; saying a product does
something it actually doesn’t
Having a going out of business sale where people will expect discounts but nothing is discounted; selling something that is diferent than what was advertised; having a less than
anticipated amount of a product at a store when they were
advertising a huge sale
o When you are deceived, there are three steps to follow
1. You must turn in a letter to the company explaining the issue
2. Upon receiving the letter, they have 60 days to respond
3. After 60 days, you can file a lawsuit and win up to 3x the
damages you sufered
o Home Sales Solicitation Act – When someone knocks on your door selling a product and you buy it when you really don’t want to and just want to get the guy to leave, this law says you have a 3 day revocation period to return it without question.
Jones v. Star City case from last test selling a refrigerator to an old social welfare couple
o Lemon Law – A lemon is a car. If you buy a car and it can’t be fixed, you have rights. If the car is still new and under its original warranty, and if you try to get it fixed 4 times within a 24 month period and the problem still exists, you can have the rights to getting a new car. Same goes with the car having an immediate safety threat that isn’t fixed within 30 days. Send a letter to the Texas Department of Publix Safety to get a new car
o Texas Time Share Act – A time share is when you pay $X for the rights to use a time share location for a certain amount of time during the year
If it’s a scam and they really sold you a bunch of BS, you have rights.
∙ If you do a deal, you have a 6 day set aside period to get
out of the deal
Silver Leaf example – Company ofering free giveaways to come and listen to their spiel, but if you called and complained
afterwards, the company denies even knowing the person who
you previously spoke with, so they aren’t liable for whatever you are pissed about.
November 25, 2015 Chapter 20 – Antitrust Law
∙ Antitrust laws deal with interpretations of antitrust statutes by the courts and enforcement policies of administrative agencies, especially by the Department of Justice and the Federal Trade Commission
∙ Pg. 548 Sherman Antitrust Act 1890 – The Interstate Commerce Clause allowed the federal government to institute this act
o Helps to prevent monopolies in an industry such as Standard Oil (Rockefeller)
o Every contract which restrains trade or commerce among states or with a foreign nation is illegal
o Attempting to monopolize an industry is illegal
∙ The Clayton Act – 1914 – More specific on preventing monopolies from forming
o It is illegal to discriminate the price of something
o Companies also can’t agree to buy and sell from each other and not the competitors. You can’t say that someone can buy your product but must also buy other products from you only when you need them opposed to going to the competitor
∙ If all this is to prevent monopolies, why do patents protect some things that may become monopolies?
o Because often times things that get patents are super expensive and it will take them a long time just to get above water, so they help prevent the company from failing by allowing patents to be 20 years.
∙ Pg. 549 Federal Trade Commission Act – FTC can enforce violations of antitrust laws. Deceptive acts discussed earlier also qualify as violations of antitrust laws
∙ Exemptions to antitrust laws
o Parker doctrine – Allows the state government to restrict competition in industries like public utilities (ex: cable TV), professional services (ex: nursing), and public transportation (ex: taxis)
Can have geographical monopolies in companies mentioned above because costs are high and it helps those companies stay in business
∙ Pg. 554 Mergers – When two or more firms come together to make one firm o Horizontal merger – when two competing firms come together to make one firm
o FTC can block any deal they want to
Ex: Three companies compete for airport business in west US: LSG, Gate, and Howard
LSG has 60% of the business, Gate has 30%, and Howard has 10%
LSG wants to merge with Howard
FTC okays it San Francisco because Howard never did business there
They okayed it in LAX because all three companies competed there, so if LSG and Howard merged, Gate would still be
They denied it in Salt Lake City because Howard and LSG were the only two companies there and merging would make it a
∙ FTC believed that LSG would jack up prices here since
there would be no competition
o Premerger Notification – Hart-Scott Rodino Antitrust Improvements Act says companies must notify FTC of a merger at least one month in advance if value of transaction is over $70mil, and they must pay a filing fee.
o Products and Geographic Markets – FTC analyzes a firm’s market share to see how much of the market they own to see if a merger would make it a big enough percentage to be considered a monopoly in all or certain geographical locations.
They can’t check this specifically in geographical locations, approving it in some places, denying it in others because it could be restraining trade, which is illegal.
∙ Ex: Company A can dominate San Francisco and LA while B has southern California and C has the rest of California.
o This is called market division, so if a business in LA
gets quotes from these three companies, B and C
will bid higher than A so A gets the business
o This isn’t necessarily good because this gives
companies to pump up prices and hurt the
o Vertical Restraints on Trade
Manufacturers sell to distributers who sell to retailers who agree to only sell the product at a certain price and not super cheap ∙ This hurts the consumer because some things could be
Fosters retail price maintenance – keeping a product at a certain price to prevent retailers from making name-brand products
∙ Dr. Miles Case – Argues that retail price maintenance is a
restriction on the goals of antitrust. This says a
manufacturer cannot fix the prices for future sales by
∙ Pg. 568 The Robinson-Patman Act – Amends Clayton act and says that price discrimination occurs when the same product is sold to diferent buyers at diferent prices, also called predatory pricing.
o Tough to distinguish when someone is setting price low to drive out competitors or just when competition is naturally bringing prices down o To prove predatory pricing and not just natural price drops: 1. The defendant must have priced the product below cost. 2. The defendant’s below-cost pricing created a genuine thought that the person had intent to monopolize the market
3. The defendant would enjoy the monopoly long enough to recover from the profit lost due to low prices in the price way. o Pg. 570 Volume Discounts – Questionable situations come up when people ofer to sell a product for cheaper when they buy more of it because it price discriminates those who want to buy a ton over those who just want a few.
∙ Pg. 571 Defenses to Antitrust Laws
o Cost Justification – When you can justify why you charged two people diferent prices
For example: cost to ship a fridge 30 miles over 300 miles… diferent cost.
OR: cheaper to deliver 5 fridges over 30 fridges
Often not successful because it is difficult to assign specific costs of production to individual products
o Meeting Competition – A firm cuts its prices because a competitor did it first, and it needed to cut in order to stay competitive.
Problem with this is that the competitor’s price cut may have been illegal, therefore your own price cut would also be illegal.
November 30, 2015 Chapter 21 – Environmental Law (he admitted not practicing this law and not knowing much about it, so I doubt he tests too much about it compared to the other chapters)
∙ Read Finances and Payday Loans article on BlackBoard
∙ Environmental Protection Administration (EPA) – The Federal administration that can enforce pollution control laws
∙ Pg. 576 Exhibit 21.1 has all sorts of acts designed to protecting the environment that the EPA can enforce
∙ Public Nuisance – When something (such as pollution) is afecting the public as a whole rather than one individual or certain group.
o Either the city or state has the right to sue the polluter
∙ Private Nuisance – Diferent from a public nuisance in the fact that it only afects a certain person or group of people’s property
o Diference between this and trespassing: trespassing occurs on another person’s property while a private nuisance ofense can be committed without stepping on someone else’s property
∙ Riparian Water Law – People who live on public water have the right to use the water in a reasonable manner, and they must let water flow downstream in usable form
o Pg. 578 Whalen v. Union Bag and Paper (1913)
A farmer was using river water for his crops. One day, Union Bag and Paper opens up and starts polluting the water upstream,
hurting Whalen’s farm.
This factory employed 500 people and Whalen wants it shut down
Can the pollution problem be fixed or should it be shut down all together? The shutdown would afect 500 families. What should the court do if Whalen is the only one being hurt by this factory? Should the court issue and injunction giving them a certain
amount of days to close down or not?
The court decides to issue an injunction and gave them one year to fix the problem because Whalen was there first. Union Bag
knew the river was there, and they should have built it better to not pollute the water in the first place.
∙ Decision in that court was the exact opposite of the same issue discussed 60 years later in Boomer v. Atlantic Cement Company
o The company was a huge nuisance for nearby homes, but the court didn’t issue an injunction because the value of the company was determined to be higher than the cost sufered by homeowners. The court only made them pay expenses for damages caused.
∙ Trial Smelter Case 1930s
o There was a Canadian plant whose pollution afected air in Washington. The US can’t do anything about it because transboundary pollution is a problem and there is no international law on it.
∙ When the EPA enforces the law, they will tend to make the fine slightly more expensive than what it would actually cost to fix the problem. This way,
companies would rather choose to fix their problem so they pollute less rather than just choosing to pay the fine and keep operating the same way. ∙ How is pollution defined, monitored, and enforced?
o Pg. 579 Clean Air Act 1970 – Gives the fed the actual authority to control air pollution. They can set the laws and enforce them. National Ambient Air Quality Standards (NAAQS) – It limits how much of a pollutant is allowed. It focuses on the health efects these pollutants have
Pg. 580 The Permit System – Says you need to get a
preconstruction permit required by the EPA before building. But there are diferent requirements to build depending on if you’re building in a clean air area or dirty air area
∙ Clean Air AKA attainment area AKA prevention of
significant deterioration (PSD) areas – companies can only
build if they cause very little pollution in order to keep
these areas’ air quality better than the national standards.
∙ Dirty Air AKA nonattainment areas – Do not meet the
NAAQS. In order to build here, the standards are stricter.
Can only have very minimal pollution.
∙ Pg. 581 Toxic Pollutants – Amends the Clean Air Act and lists 189 pollutants determined to be dangerous. Goal is to get a 90 percent reduction in emissions from these pollutants and a 75 percent reduction in cancer caused by air pollution.
∙ Pg. 583 Enforcement - People can file citizen suits to enforce the law when the government does not regarding air pollution
o China has the worst pollution in the world…Check out video on BlackBoard
∙ Pg. 583 Clean Water Act – Objective is to restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.”
o Makes it illegal to dump pollutants into navigable waters without a permit
∙ Pg. 584 Point Source Pollution – The point where we can see, measure, and give technical knowledge to water pollution
∙ Pg. 587 Nonpoint Source Pollution – Half the water pollution comes from nonpoint sources, which are runof from construction sites. Pollutions are washed by the rain into streams and seep into the groundwater.
∙ Pg. 588 Wetlands – Marsh land is important for the ecosystem, so people must get permits before constructing near wetlands.
∙ Pg. 591 Toxic Substances Control Act – Keeps track of all chemicals registered with the EPA. All new chemicals must be registered with EPA.
∙ Pg. 591 Pesticides – ‘cide’ is Latin meaning ‘to kill’; Pesticides repel and kill insects but it’s bad for the air so lots of regulations are set to control what is used
∙ Pg. 593 Resource Conservation and Recovery Act – Regulations for how to deal with toxic substances and dispose of them
o Take them to disposal cites
∙ Superfund AKA Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) – Gives the fed authority in deciding who is responsible for abandoned waste so they can pay the fine to the superfund to get it cleaned up.
∙ Pg. 599 Climate change – When greenhouse gases are released into the air o Kyoto Treaty – attempts to control certain gas emissions
December 2, 2015 Chapter 22 – The International Legal Environment of Business
∙ There are 193 foreign nation states under principles of international law o All have their own sovereignty – Ability to make their own laws ∙ Treaties – These are the main source of international law
∙ North American Free Trade Agreement (NAFTA) – An international treaty between US, Canada, and Mexico; states the laws for trading between these three countries
∙ North Atlantic Treaty Organization (NATO) – came from WWII; Agreements between US and Europe to have military readily available in case anybody within the organization is under attack
∙ When in a treaty with someone, it’s mutually beneficial because we can trade our stuf there and they can trade their stuf here
∙ Organization – The second best source of international law behind treaties o List of organizations on page 607
o Main one is the United Nations who got together and created Worldwide organizations
∙ NOT IN BOOK
o Non-governmental organizations
Things that are set up in one country but with a goal to afect the world
It is set up by individuals, not the government
Ex: Red Cross, Amnesty International, and Doctors Without
o ABC Company wants to do business in another country by opening up in that country and directly selling to consumers
Fear with this: nationalization
∙ Nationalization is when the government can control the
laws and take the property of their country whenever they
want. So if I went to open a business in Cuba, their
government has the power to take over my property and
my business at any time. Saudi Arabia and Venezuela
o Hugo Chavez in charge in Venezuela
He has nationalized cement, oil & gas, and
telecommunication companies in Venezuela.
The police will come in and kick all the
workers out and run the business
themselves. Then Venezuela ends up getting
the title to the property.
Companies like CEMEX (cement company)
wanted justice for being kicked out. They
couldn’t go to the Venezuela courts because
it was the government who kicked them out
and took over in the first place. And they
can’t go to the US courts because foreign
states receive immunity in US courts. So
CEMEX is screwed and nationalization sucks.
∙ Pg. 607 Overseas Private Investment Corporation – Provides insurance to US business who go abroad and fear nationalization
∙ ABC Company wants to reduce risk in international business o 1) Safest way is the direct sales method through exporting. They keep their business in the US and just ship the product directly to the consumer in another country
o 2) Could also reduce risk through a distributorship
Stay in the US, sell to a company in another country who then resells to the end users
It’s a sale for resale
Only risk is if the distributor can’t sell the product, he/she won’t buy more of that product later
o 3) Could issue a manufacture license
This would license the right for someone in another country to use the US company’s technology to make the same product and sell in their own country
∙ This person would normally pay the US company an
upfront free, and the US company would follow by getting
on ongoing royalty as well.
Risk to this: The abroad company may figure out how to make it on their own and will cancel the licensing agreement. Or they could claim that the technology is their own and pretend not to even recognize the US company.
∙ Solution to this: US company can get a right to audit
clause in the agreement
o 4) Could franchise the company
Sell the franchise to a person who opens and runs the same business that is in the US. US business would then get a portion of the ongoing profits
o 5) Could send your own people over to another country and have them be the wholly owned subsidiary
Would fear nationalization
o 6) Could be a joint venture company
A shared ownership with a foreign partner
US company is part owner and you have a local with maybe more knowledge for that place be the other part owner
Could still fear nationalization
o 7) When company products such as air planes are way huge and not normal for the average consumer, you could get a local sales agent to sell the product like a distributorship, but it is manufactured in the US.
Pay local sales agent a commission fee and not a salary because he could just not do his job if he is paid salary
December 4, 2015 – Chapter 22 (cont.)
∙ Read the FCPA article on BNY Mellon that he emailed us
∙ Pg. 616 Corruption – A big issue in doing business abroad; “I’ll do this for you if you do this for me.” Almost always involves paying people of with money. Stealing money from the company or bribing people.
o Transparency International – a non-governmental organization that tries to fight corruption and let the public know about all the corruption going on in the world
o Systematic Corruption – When individuals are undermining a business or government.
Boko Haram fights corruption in Nigeria. The government
claimed to spend $5 billion on something, but they actually
pocketed $2billion of that money.
Pg. 617 Exhibit 22.2 has a list of corrupt countries
PEMEX – super corrupt oil company in Mexico
Elbau Gordillo – A corrupt government person in Mexico because she controls the teacher’s union in Mexico. She won’t hire people if they don’t pay to join the teacher’s union. Then she uses that union money for herself.
o Petty Corruption – Day-to-day corruption; paying people of to get simple tasks done.
Ex: Pay of the DMV lady to get your license certified. Much like bribes. Under the table corruption usually only between two
∙ Foreign Corrupt Practices Act (FCPA) – Applies to American corporations doing business abroad
o ** It makes bribes abroad illegal with foreign officials to either gain or retain business
A bribe could be with money or with anything that has value BNY Mellon – A firm that has a multibillion dollar portfolio for foreign countries like China or Saudi Arabia
∙ Mellon gives the government officials of these countries
scholarships for their kids so they would keep their
business with Mellon. Since this has value, it’s considered
a violation under the FCPA. They got caught and were
o Since FCPA makes it illegal to do dealings with foreign officials, that brings into question, who is considered a foreign official?
No exact answer, just a thought to ponder
o Pg. 618 Accounting Requirements – Part of the FCPA that says companies must keep detailed, books, records, and accounts which
accurately reflect their transactions. Basically keep record of
everything so you can’t get away with corruption. Money can’t go missing
∙ What if I get ofered free Mavs tickets because a client can’t make the game? Is it bribery? No clear answer, but some companies say you can accept gifts up to a certain dollar amount, but you must report it on the books. ∙ UK Bribery Act – The FCPA for Britain
∙ Facilitating Payment “Grease Money” – The exception by the FCPA. Allows facilitating payments, which is pretty much the same as bribery o Ex: If I get a contract to do business in India, and I need to get my people into the country ASAP, they would need to get VISAs, which will take a long time. But I can pay the person at the front desk extra money to push the names of my people through before anyone else in line.
o Ex: Your shipment is going to another country via boat. It gets there, but there’s a long line to wait for inspecting the shipment. I could pay the inspector to have him look at my shipment first.
o It expedites the process but doesn’t skirt around the process It’s simply paying the individual of to get something done
∙ Corruption isn’t good partly because it isn’t reported to income so it isn’t taxed.
∙ La Mordita – The phrase used for cultures where people actually expect to be bribed.
o The FCPA doesn’t care if you do business at a place like this. They will still enforce their no corruption laws. A US business located at a La Mordita can still be caught, prosecuted, and punished.
∙ Other challenges to doing international business?
o Language barrier
o Learning a diferent culture such as the time and dress code o Is it okay to have small talk before business, or should you get to it straight away?
December 7, 2015
∙ The Key Terms are up on BlackBoard
∙ Pg. 620 Exchange markets and exchange rate control
o When doing business abroad, you’ll likely have to pay for things in a diferent currency, so it’s important to monitor the exchange rate. o One day, my dollar may be worth the exact same as one euro so if I wanted 300 euros, I could give them 300 dollars.
o But another day, one dollar may be worth 85% of one euro so if I wanted 300 euros, I would have to give them 353 dollars
∙ Letters of Credit – If I’m an American company selling to someone in Mexico, I would want to receive payment before I ship my goods, but the person in Mexico obviously would want to receive the goods before making a payment. Neither person trusts the other.
o The buyer will go to a bank and have the bank secure the payment. The bank will then issue a letter to the seller, and when the seller provides proof that they have shipped the goods, the bank will pay the seller.
The seller provides this proof via a Bill of Lading – This bill says that goods are on the way to the buyer and will not be taken out of the truck until it reaches the buyer.
∙ Exchange Controls – restrict the ability to change once country’s currency into another
o This allows some countries to control what goes in and out of their country
o Pg. 623 Transfer Pricing – When you have a business located in multiple countries and want to send a shipment of your goods from one of your distributors to your distributor in a diferent country.
You need to figure out how to price it because tax rates are diferent in each country.
Very confusing topic, he says. Good luck.
So if tax rates are higher in France than in the US, I may want to try and distribute most of my goods from the US so my company as a whole can make more profits
∙ Key Clauses in International Contracts
o Choice of language – which language will this contract and business be conducted in?
o Choice of Payment currency – which currency will we use as payment? o Force Majeure Clause – French for “superior or irresistible force” Says the seller is not responsible for a late shipment if things such as hurricanes or acts of war delay the shipment
∙ Pg. 624 Forum Selection and choice-of-law
o Which country’s law do you follow if there are issues in the business you are doing with a foreign business?
o This forum dictates who will resolve the dispute if one occurs and how it will be resolved (i.e. arbitration)
∙ Pg. 625 Overseas Private Investment Corporation (OPIC) – Insures investors in the US willing to invest in less-developed countries friendly to the US and insures against things like expropriation, currency inconvertibility, and damage from wars
∙ Pg. 626 International Court of Justice – Where UN nations go to solve disputes between one another
∙ Doctrine of Sovereign Immunity – says that we the people can only sue our US government for certain things that they say we can sue them for. o Ex: They say I can’t sue them if one of our military tanks runs over my foot and breaks it, but I can sue them if a mailman in his mail truck does the same thing…
∙ Foreign Sovereign Immunity – We can’t sue foreign government in American courts and the American government can’t be sued in other nations ∙ Pg. 608-609 Subsidies and Countervailing Measures – help enforce World Trade Organization rules
o Cotton example: US government pays Americans subsidies to grow and sell cotton. This makes gives the people who produce cotton in Brazil more competition because without that subsidy, there wouldn’t be nearly as many American cotton growers.
o This wasn’t fair, so the WTO allowed Brazil to use countervailing measures to even the score
This let Brazil put higher tarifs on some of the goods they export to the US, so we would have to pay them more for other goods to make up for the business they were losing to our cotton farmers due to government subsidies
∙ Pg. 610 Harmonized Tarif Schedule – Helps to define goods so the correct tarif can be put on it.
o i.e. I buy a pair of athletic shoes. What makes it an athletic shoe? Once it meets that criteria, it can pass through customs with the proper tarif ∙ Pg. 611 Bans on Certain Products – Helps control what is imported into the country
o No explosives or weapons allowed. Same with narcotics.
o Things that don’t meet safety regulations can’t be imported either, such as foreign cars that don’t meet the US pollution standards ∙ Dumping – When somebody sells lots of a good at a lower price to another country than they do in their own country to get rid of a product o Not allowed and subject to antidumping laws, which means people could be heavily taxed to make up for low price they sell that good for. ∙ How does the government help US companies go abroad? o Commerce Department’s Foreign Commercial Services Section – Helps ABC Company find a willing buyer in a market outside of the US (in an export market)
∙ Export Restrictions – Don’t allow people to export anything that would hurt the domestic industry, could cause a national threat, or conflicts with national policy
∙ Things Dr. Miller said to focus on from Chapter 22
o Page 614-615 Business Structures in Foreign Markets
o Exhibit 22.3
o Letters of Credit
o What is a bribe? Who is considered a government official?
o This list isn’t all you need to know…just a couple things he said quickly at the end of class.