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Inside REACH
The FCPA Effect
Foreign Corrupt Practices Act compliance
is neither new nor unique to the chemical
industry. However, the global production
and growing emerging market activities
of chemical companies are increasingly
affected by FCPA disclosure rules. One
industry-leading company recently agreed
to a $225,000 FCPA settlement for selfreporting
payments in India to encourage
completion of a new product’s regulatory
review before the growing season. Also, as
the industry consolidates through mergers
and acquisitions, transactional due diligence
uncovers offshore practices that may be
questionable but do not technically violate
the law—raising issues of what disclosure
is necessary.
Diggs notes that FCPA compliance reflects
“the extent to which companies like ours
are allowed to operate more fully in emerging
markets where local or state-owned companies
previously dominated.” As these countries
integrate into the global economy (for
example, through World Trade Organization
membership), they increasingly follow
accepted global business practices—“not by
adopting the FCPA in its totality,” he says,
“but by adapting to its basic tenets.”
Buller believes that managing such FCPA
issues during this integration should
emphasize frequent and thorough communications
with offshore managers concerning
their compliance responsibilities. “Personal
general counsel visits, plant by plant and
sales office by sales office, are the best way
to get the word out, particularly in emerging
markets where these concepts may still
be new,” she says. Technology should be an
important addition to personal contact,
particularly the use of computerized testing
(in local languages) to demonstrate
compliance knowledge and create a record
of instruction. Such actions are the most
effective at preventing a problem from
occurring. They also demonstrate an active
compliance program that can help mitigate
sanctions if disclosure of proscribed or
questionable practices is necessary.
Security Matters
On the issue of security, Diggs sees the
industry taking leadership in ensuring more
Registration, Evaluation, Authorization
and Restriction of Chemicals (REACH)
was adopted in December 2006 and took
effect June 1, 2007. It has been called
the most important European Union
legislation in 20 years. Businesses that
manufacture or import more than one
ton of a chemical annually will be
required to register such chemicals.
Substances of “very high concern”—
chemicals that cause cancer, infertility,
genetic mutations or birth defects,
and those which are persistent and
accumulate in the environment—may
be used only if they have authorization
from the new European Chemicals
Agency. Authorization will be granted
only after extensive testing and a
registration process that includes regular
assessment and review. Estimates are
that as many as 30,000 chemicals must
be registered over the next 11 years, with
perhaps from 2,500 to as many as
10,000 chemicals in the “very high
concern” category.
secure production and transportation of
chemical products that are critical to the
U.S. economy. At the same time, he adds, it
is important to avoid an impression that the
industry dominates the evolution of security
standards to the exclusion of stakeholders in
government and society. “Improved security
will require a collaborative effort on the part
of all constituencies,” Diggs asserts. “If the
process is handled cost-effectively, both the
industry and our country will benefit.”
New federal Homeland Security regulations
cover the production and transportation of
Franz Pfluegl/iStockphoto
chemicals, but Buller says that many state
officials do not consider the regulations to
be strong enough. “A number of states, such
as New Jersey, may be moving to create
their own security requirements, although
these are still being developed,” she notes.
As both federal and state security standards
evolve, Buller believes that industry best
practices can play a model role in shaping
the regulatory environment. On issues such
as transportation of chemicals by pipeline,
truck and rail, the industry has been out
front in establishing safeguards—reflecting
concerns over legal liability and disrupted
production as well as homeland security.
Because REACH, FCPA and homeland
security concerns continue to evolve,
chemical industry companies must develop
flexible compliance strategies that can be
modified as regulatory provisions change.
However, it is imperative to move ahead
with compliance efforts today. Waiting
until all rules are finalized will likely put
any company too far behind the curve in
fulfilling its legal obligations.
James C. Diggs is senior vice president,
secretary and general counsel of PPG Industries.
He is Peer Review Rated. James may be reached
at diggs@ppg.com.
Carolyn J. Buller is a partner and chair of the
Global Chemicals Practice at Squire, Sanders &
Dempsey L.L.P. She is Peer Review Rated.
Carolyn may be reached at cbuller@ssd.com.
Among the strongest global law firms, Squire,
Sanders & Dempsey L.L.P. combines sound
legal counsel with effective, visionary
leadership to resolve legal challenges. With
approximately 800 lawyers in 30 offices
worldwide, Squire Sanders offers one of the
most global legal service platforms answering
business, advocacy, regulatory and capital
market requirements.
JULY 2007
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