CHAPTER 7

Conducting Commercial Activity Lawfully and with Integrity

This Code addresses some of the key areas of law that govern our commercial activity; however, the Code is not intended to address all the laws that may apply to our activities, nor does it necessarily provide complete guidance for those areas of law covered. You should always ensure you understand the law and business requirements that apply to your role.

"Our goal is to help move toward a society where everyone has the opportunity to realize their potential. What this requires is a society based on equal rights and mutual benefit, where people succeed by helping others improve their lives."

—Charles Koch

Anti-corruption and Commercial Bribery

Most countries where we conduct business have enacted strict anti-corruption laws and regulations and international anti-corruption conventions. It is company policy to fully comply with the United States Foreign Corrupt Practices Act, United Kingdom Bribery Act, Brazilian Clean Companies Act, and all other applicable anti-corruption laws. These laws generally forbid soliciting, accepting, offering, providing or approving to provide anything of value to anyone, either government officials or business associates or their immediate family members for the purpose of improperly obtaining or retaining business, or gaining any improper advantage or influencing a person to perform their duties improperly or to reward any such conduct.

These laws apply to the company and its employees but, in certain circumstances, we can also be held responsible for the actions of our agents and representatives.

Facilitation Payments

Facilitation payments are prohibited except under emergency circumstances. Emergency circumstances only exist when there is a reasonable belief that there is imminent jeopardy of serious bodily harm and no other prudent alternative is available, or a necessary means to secure governmental services in response to a safety or security emergency. In addition, facilitation payments are often illegal under applicable local law and can carry significant legal risk.

Never:

Offer, promise, make or approve any unauthorized payment (cash or otherwise) to a foreign government official.
Induce a government official to do something illegal.
Establish an unrecorded fund for any purpose.
Issue a payment without accurate documentation.
Make a false entry in company finance or accounting records.
Induce someone else to violate these rules or look the other way when there might be a violation.
Do business with an agent, partner, distributor consultant or other representative who may deal with foreign government officials or employees of state-owned enterprises on behalf of the company without proper vetting and documentation before appointment. You must ensure they understand our company’s expectation to behave ethically and in compliance with these laws.

If you learn of a payment made or requested that might be in violation of any country’s anti-corruption laws, immediately report your concerns to one of the many options available to you.

Additional requirements may be applicable as described in the section of this Code on Gifts, Gratuities and Entertainment.

worker in hard hat and safety goggles smiling at camera

FAQs

I have been interviewing candidates for an open role in China. A manager at the plant is recommending I hire a certain individual. They have indicated to me that this individual would provide additional value to the company because the individual is the adult child of a high-ranking Chinese government official. Should I be concerned?

Yes. The hiring of this individual could be seen as a form of bribery and in violation of anti-bribery laws, which forbid offering or giving anything of value, directly or indirectly, to a foreign government official for the purpose of obtaining or retaining business, or for any improper purpose. You must immediately report your concern to one of the many options available to you.

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I was told that I could hire a consultant to assist us in obtaining a contract with a foreign government-owned company. He requested a U.S. $40,000 retainer and said that he would use the money to “help get the job done.” Since we don’t really know where the money is going, do we have to worry about it?

Absolutely. Our company requires us to take steps to help ensure that this money is not used as a bribe or any other improper purpose. You must seek the advice of Legal.

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Suppose we have a shipment stuck in customs abroad and our customs broker suggests that we just pay a local customs official U.S. $250 to expedite the process. Can we make this payment?

No, the payment is very likely to be unlawful under the local country law and U.S. laws. You must inform Legal when any such payments are suggested and prior to responding or taking any action in response.

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Antitrust and Competition Laws

Our fundamental principle-based framework strongly supports free markets. We believe free competition in the marketplace benefits all of us as consumers. Antitrust and competition laws exist to protect free and fair competition. We succeed by the economic means because we successfully compete in the marketplace — we provide customers with outstanding value for their money.

Antitrust laws also cover agreements that may restrict labor practices. You must not agree to not hire employees from other organizations unless that agreement is with a service provider under a contract that has been reviewed by Legal.

In general, it is illegal for competing companies to form agreements that unreasonably restrain trade. Therefore, employees must never agree with competitors:

To fix prices or other terms of sale or of purchase.
To allocate or divide customers or markets.
To limit products or services.
On competing bids or solicitation of contracts.
To boycott a customer or supplier.

An action does not always have to be written or even spoken to be considered an agreement for antitrust purposes. In some cases, non-verbal actions, such as saying nothing when inappropriate items are discussed between competitors, can be misconstrued as an agreement.

Other types of conduct that may be illegal in some cases, and require prior review by Legal, are:

Total requirements contracts.
Agreements to set wages, benefits or salaries.
Exclusive dealing arrangements.
Tying or bundling together different products and services.
Charging similarly situated customers different prices for the same products at similar times and for similar volumes.
Non-competition and non-solicitation agreements.
Directly soliciting wage information from competing employers.

Never discuss with competitors such things as prices, sales or other discounts, who will serve what markets or any other commercial matter on which the parties compete. In circumstances where contact with competitors does occur, such as trade associations, limit discussions to permissible subjects. Before attending any meeting where competitors will be present, be sure to know the antitrust rules well. Always be prepared to state your objection and walk away from meetings and discussions if an inappropriate discussion occurs.

Antitrust and competition laws are vigorously enforced. You must contact Legal immediately if you believe any employee has had inappropriate contact with a competitor, or a competitor has made a proposal that is inappropriate under competition laws.

FAQs

In developing our marketing strategy, it helps to have as much information as we can get on what our competitors are doing. Is it acceptable simply to call our competitors and ask for their price lists or information about their production costs?

No. You should get “competitive information” from the marketplace, such as customers, suppliers and public sources, not from competitors. Any “benchmarking” studies where information will be collected from or given to a horizontal competitor, including a competing employer, must be approved by Legal. This is true whether the study is conducted internally or through a third-party.

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Our competitors are often either our customers or our suppliers. What discussions with competitors are proper in a buyer-seller context?

Genuine buyer-seller discussions are appropriate. For example, you may provide a competitor who is a potential customer for a product with information about that product. Take care to limit discussions with a competitor to the products or services you are buying or selling. If possible, limit who participates in the discussion, for example company sales representatives should not be a part of most purchasing discussions. You should not talk about resale prices, margins or which one of you will sell to particular customers. It is a good idea to check with Legal before dealing with any customers or suppliers who are also competitors. Also, consult with Legal before sharing information about or from your customer or supplier with another Koch company that competes with that customer or supplier.

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A competitor tells me that “we’re killing each other by trying to take away each other’s long-standing customers with low prices.” She suggests that both firms will be better off if they stick to their own customers. I think that she may be right. How should I respond?

You must not enter into agreements or understandings with competitors to allocate customers, territories or product lines. Such agreements, like price-fixing agreements, can result in criminal prosecution. Even suggestions to competitors to fix prices or allocate customers may result in a criminal investigation. Any offer to participate in such an agreement must be immediately and clearly rejected. Immediately contact Legal to report the competitor’s request.

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Next week I am attending a trade association meeting where competitors may be present. If the talk turns to the state of the market and where people expect prices to go, is it acceptable to participate in the discussion?

You should not participate in or remain at a trade association meeting of competitors at which current or future pricing, supply or capacity are discussed. Clearly voice your objection to such discussions, leave the meeting if the discussion continues despite your objection, and report the incident to Legal. There might be instances at larger trade shows where independent third-parties, such as consultants or industry analysts, may permissibly make such presentations, provided they are speaking for themselves and not on behalf of any competitive producer. Your Koch company may have requirements, such as training or pre-approval, prior to attending a trade association meeting. Contact your compliance and ethics resource or Legal if you are unsure what your Koch company’s requirements are.

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How about if the association, of which we are a member, wants to collect historical information from members; can we participate?

There are permissible ways for associations to collect historical data. Contact Legal for guidance before providing any company commercial data to an association.

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My neighbor owns a small business in the same town in which I’m a plant manager. He commented last night at a neighborhood party that the price of entry-level workers in our town is out of control. He asked me if we’d agree to start our people at the same rate. Can we do that?

No. Just as you cannot agree to fix sale prices, you also cannot agree to set prices on goods or services we purchase with those who purchase similar goods or services. Wages, salaries or benefits are all considered parts of the overall purchase price for labor services.

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I have received an email from an industry trade publication asking me to submit historical sales data for my facility. Is it acceptable for me to provide the information?

Any current, future or historical competitive information such as pricing, revenues, costs, capacity, sales or downtime must be approved by Legal in advance. No release of information about future pricing or output will be approved as this may reduce competition if other producers have access to our future plans in the market.

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Business Inducements

Sales-related commissions, rebates, discounts, credits and allowances are customary business inducements, but careful attention is needed to avoid illegal or unethical payments and to ensure compliance with various currency exchange controls and tax regulations. Such business inducement payments must be reasonable in value, competitively justified, properly documented and made to the business entity to whom the original sales agreement or invoice was made or issued. They must not be made to individual officers, employees or agents of the business entity, or to a related business entity, and they should only be made in the country of the entity’s place of business.

Similarly, commission payments related to company purchases of goods and services should only be made to the seller or provider in the country of their place of business, or in the country in which the product was delivered or service rendered.

Marketing and Advertising

Many of the legal jurisdictions in which our company operates have enacted laws and regulations that apply to marketing, advertising and other promotional materials, and methods to use these materials for promoting the sale of goods and services. We refer to these collectively as “promotional activities.” These laws generally pertain to the truth and accuracy of representations to the public about products and services the company offers. They may also cover practices for comparative claims to competitor products or services, deceptive practices, standards of decency, and requirements to protect the privacy of individuals or personal data. The laws and regulatory practices cover a wide range of representations in any format — written, printed, visual, audio or electronic.

You must ensure that promotional activities are managed in compliance with applicable laws and that promotional activities do not contain:

False or misleading statements or exaggerations, either visual or verbal.
Inaccurate testimonials that do not reflect the real opinion of the individuals involved.
Comparisons that unfairly disparage a competitive product or service.
Material that could be considered offensive to the potential audience.

You must also ensure performance claims or other product claims in promotional activities are approved by appropriately substantiating and documenting the claims prior to being released outside the company. As always, our company’s intellectual property must be protected and the intellectual property rights of others respected.

Anti-money Laundering Laws

Money laundering is the process by which the proceeds of illegal activities are moved through legitimate businesses and world banking systems to disguise their illegal source. Anti-money laundering internal controls are required to ensure that financial transactions are from a legitimate source and not involved in unlawful activities.

The objective of our anti-money laundering internal controls is to ensure that payments received by the company originate from our customers’ bank accounts or from the bank accounts of the parties related to the transaction and are not otherwise suspicious.

Transactions that appear out of the ordinary, such as payments from unknown sources or to unnamed accounts, cash payments, unusual terms for payment, requests for payments to an unconnected account in a different name or country, urgent unexplained last minute change requests, or using a bank account outside of the company’s place of registration are all warning signs that should be resolved before accepting funds.

We must verify the source of funds and screen the identified source to ensure the transaction is legitimate. This can include obtaining background information, particularly with respect to the source of income, expected level of activity and the reason for the activity.

Customs Laws

Customs laws require the company to determine the correct classification, value and country of origin of all of its imports. These laws apply to intra-company transfers as well as third-party transactions. As an importer, we must be able to demonstrate by a documented, auditable trail that the company exercised reasonable care in ensuring that its imports comply with all applicable laws. This requires, at a minimum, the reporting of accurate and complete information regarding any imported item, its tariff classification, country of origin and customs value. Regulatory obligations may differ based on the facts and circumstances of each transaction. Virtually all countries in which we do business share these requirements.

Export Controls and Trade Sanctions

Many countries, including the U.S., have export controls and trade sanctions that restrict economic activities with specific countries, individuals and entities, and limit the export or re-export of specific items and technologies. This may be for national security, non-proliferation, drug enforcement and general foreign policy reasons. Regulatory obligations may differ based on the facts and circumstances of each transaction. Certain U.S. laws prohibit or limit U.S. persons and companies, including their foreign subsidiaries in some cases, from conducting business with sanctioned countries, individuals and entities.

All counterparties to transactions must be screened to ensure compliance with these laws.

Commodity and Derivatives Transactions

Commodity and derivatives transactions are defined as the purchase or sale of physical commodities or commodity derivatives, including futures, swaps and options. Such transactions are increasingly subject to comprehensive local regulations, even in the case of certain physical forwards. A single transaction involving counterparties or activities in certain jurisdictions may subject the company to regulation there. Pre-transaction due diligence is therefore key to ongoing compliance.

Reporting prices to anyone external for commodity or derivatives transactions is governed both by commodity and antitrust laws, as well as company standards. You may not report prices to any external party unless you have received the appropriate training or guidance and have been given specific authority to do so.

Anti-boycott Laws

Our company conducts business in many countries. Some of these countries participate in an international boycott of another country, which the U.S. does not support. In those situations, most prominently regarding the Arab League boycott of Israel, the U.S. prohibits U.S. persons from participation in such boycotts and imposes tax penalties on U.S. persons whose foreign subsidiaries participate in such boycotts.

These laws and regulations are extremely complex and technical in nature and require that employees review all commercial documents to ensure that they do not contain any request to participate in a boycott not sanctioned by the U.S. government, especially one involving the State of Israel or Israeli nationals. Commercial documents, such as letters of credit, vessel charters, purchase orders and general terms and conditions could contain prohibited boycott requests. The company may have an obligation to report boycott requests to the U.S. government. All employees must immediately inform Legal of any requests received to engage in improper boycotting activity.

FAQs

May I provide a certificate of origin, required by my customer in the United Arab Emirates, confirming that none of the components in our products to be supplied are of Israeli origin?

This may be a violation of U.S. anti-boycott law if you provide such confirmation, called a “negative certification.” Such a request must be reported to the U.S. government. Anti-boycott laws are very complex. You must consult Legal if you receive such a request.

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