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Australia: ASIC Reveals 2023 Enforcement Priorities

The Australian Securities and Investments Commission (ASIC) has revealed its key enforcement priorities for 2023. This year, ASIC has signalled an expanded focus on enforcement activity targeting:

sustainable finance practices and disclosure of climate risks;
financial scams;
cyber and operational resilience; and
investor harms involving crypto-assets.

In its release, ASIC has emphasised that the regulator’s prioritisation of monitoring in these areas intends to “address misconduct, market integrity threats and consumer harms in sectors including financial services, retail and crypto-assets.”

The warning coincides with this month’s release of ASIC’s enforcement and regulatory report that highlights the major uptick in enforcement and regulatory actions taken by ASIC during the last half of 2022, including:

173 criminal charges being laid and $76.3 million in civil penalties imposed;
heightened action against money laundering risks;
the issuance of 22 design and distribution obligations (DDO) stop orders to prevent consumers and investors being targeted by products inappropriate to their objectives, financial situation and needs; and
the regulator’s first action for greenwashing and consequential issuance of infringement notices for misleading sustainability-related statements.

Another priority of ASIC for the coming year is to increase its transparency to industry and streamline its interactions with the entities it regulates. For the first time, ASIC has released a regulatory developments timetable setting out projected timeframes for ASIC regulatory work, such as the publication of draft or final guidance, and the anticipated making of a legislative instrument. ASIC’s release of these key enforcement priorities and regulatory developments timetable gives us a clear indication of ASIC’s intention to continue its heightened level of surveillance and enforcement action into 2023.

Article By Matthew J. Watts and Rebecca Mangos of K&L Gates

For more securities legal news, click here to visit the National Law Review.

Beware OFAC in a Time of Sanctions

On Monday, April 25, 2022, the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) announced a settlement with Toll Holdings Limited (“Toll”), an Australian freight forwarding and logistics company, with respect to Toll’s originations and/or receipt “of payments through the U.S. financial system involving sanctioned jurisdictions and persons.” Toll, which is not an American entity, and is neither owned by Americans nor located in the U.S. or any of its territories, was involved in almost 3000 transactions where payments were made in connection with sea, air, and rail shipments to, from, or through North Korea, Iran, or Syria, AND/OR involving the property of a person on OFAC’s Specially Designated Nationals and Blocked Persons List. OFAC did not have direct jurisdiction over Toll, BUT because the payments for Toll’s freight forwarding and logistics services flowed through U.S. financial institutions, Toll “caused the U.S. financial institutions to be engaged in prohibited activities with … sanctioned persons or jurisdictions.”

Each OFAC violation can be the basis of civil sanctions. Here the 2853 violation would have supported the imposition of civil sanctions totaling over $826 million. Toll was “happy” to settle OFAC’s enforcement action for $6 million. OFAC found that the Toll violations were “non-egregious,” in part due to the rapid growth of Toll after 2007 through acquisitions of smaller freight forwarding companies. OFAC noted that by 2017 Toll had almost 600 invoicing, data, payment, and other systems spread across its various units. OFAC also noted that Toll did not have adequate compliance procedures and procedures in place and did not attend to those issues until an unnamed bank threatened to cease doing business with Toll because Toll was using its U.S. dollar account to transact business with sanctioned jurisdictions and/or persons. OFAC took note of Toll’s voluntary self-disclosure, well-organized internal investigation, and extensive remedial measures.

OFAC traces its origins to the War of 1812, when the then Secretary of the Treasury imposed sanctions on the United Kingdom in retaliation for the impressment of American sailors. The Treasury Department has had a special office dealing with foreign assets since 1940 (and the outbreak of World War II), with statutory authority found in the Trading With The Enemy Act of 1917 (as World War I raged), and a series of federal laws involving embargoes and economic sanctions. OFAC received its current name as part of a Treasury Department order on October 15, 1962 (contemporaneous with the Cuban missile crisis).

The Toll settlement reflects the growing use by OFAC of public enforcement against foreign businesses for “causing” violations by involving U.S. payment systems. The use of U.S. dollars in any part of a transaction will typically involve the U.S. financial system, directly or indirectly – that subjects the entirety of the transaction to U.S regulatory jurisdiction, including that of OFAC. The Toll settlement evidences OFAC’s increasing willingness to exercise its expansive jurisdiction over foreign businesses, even those involving primarily extraterritorial transactions — for example, the increase in OFAC sanctions of foreign businesses seen as facilitating the Russian invasion of Ukraine.

Foreign businesses must give serious and continuing attention to having substantial policies and procedures in place to insure compliance with U.S. sanctions and, thereby, to avoid OFAC enforcement actions. Companies can start by reviewing OFAC’s Framework for Compliance Commitments and implementing the recommendations there. In addition, all parties to a transaction should be screened against sanction lists (OFAC’s, and also those of the U.K. and E.U.). Companies should consider adopting preventive measures, not only to deter violations, but also to demonstrate a vigorous compliance program. Similarly, these issues MUST be considered as part of any merger or acquisition (as the Toll experience suggests).Finally, all counterparties, including financial intermediaries, should be evaluated for potential sanction list issues. Otherwise, a foreign business may have to “pay the Toll” for its shortcomings.

Experienced American business lawyers may prove helpful in designing and/or evaluating the compliance programs of non-U.S. companies.

Article By Peter D. Hutcheon of Norris McLaughlin P.A.

For more financial legal news, click here to visit the National Law Review.

Game Changing Reform to NSW Environment Protection Laws

The NSW Government has introduced the Environment Legislation Amendment Bill 2021 (NSW) (Bill) which proposes wide ranging reforms to NSW environmental laws to enable the NSW Environment Protection Authority (EPA) to “crack down” on environmental offenders.

The Bill makes good on Minister Matt Kean’s commitment to ensure that “the book [is] thrown at anyone who has done the wrong thing”. While the EPA has made it clear that the reforms are “aimed solely at those who deliberately choose to circumvent the law”, the amendments proposed by the Bill will materially increase environmental liabilities for all NSW operators.

This article outlines the key reforms proposed by the Bill which will amend a raft of environmental legislation, including the Protection of the Environment Operations Act 1997 (NSW) (POEO Act) and Contaminated Land Management Act 1997 (NSW) (CLM Act) and include:

the creation of new environmental offences;
increasing the penalties for a number of existing offences;
increasing the powers of the EPA and other environment regulators to hold to account those perceived to be responsible for pollution or contamination and to enforce environment protection licence conditions;
enabling the EPA to recover profits arising from the commission of environmental offences and the cost of remediating contaminated land from related bodies corporate and directors and managers of offending corporations; and
making it easier for the EPA to prove certain environmental offences.

The Bill is expected to be debated by Parliament in early 2022 and, if passed, will result in the largest overhaul of NSW environmental laws in over five years.

KEY REFORMS

	Description	Analysis
Greater Liability for Directors, Managers and Related Bodies Corporate	New power for the EPA and other environment regulators to issue clean-up notices and prevention notices to: current and former directors and persons concerned in management; and related bodies corporate, of companies responsible pollution or contamination, if the company does not comply with notices issued to it. Making it an offence for a: director or person concerned in management; related body corporate; or director or person concerned in management of a related body corporate, to receive or accrue a monetary benefit as a result of certain proven environmental offences by a company. New and expanded powers for the EPA and other prosecutors to obtain monetary benefit orders requiring: directors or persons concerned in management; related bodies corporate; and directors or persons concerned in management of related bodies corporate, to repay monetary benefits accrued as a result of certain proven environmental offences by a company.	If passed, the Bill will significantly increase potential liability of those concerned in the management of companies (including related bodies corporate) who commit environmental offences or fail to comply with environment protection notices in NSW. Managers, directors and related bodies corporate could be put on the hook: to clean up pollution or contamination caused by a company; to carry out works required by a prevention notice to ensure that activities of the corporation are carried on in future in an environmentally satisfactory manner; and to repay “monetary benefits” received as a result of any proven offence. The proposed measures are not entirely unique to NSW. Queensland passed “chain of responsibility” environment legislation in 2016 and put it to use in the long-running Linc Energy matter. However, the proposal for directors and related bodies corporate to be automatically liable for an offence if they profit from a proven offence of a corporation under environment protection legislation is likely to be the source of significant concern. This is especially the case as the Bill does not propose any defences. This means that a director or person concerned in management could potentially be liable even if they have taken all due diligence to prevent the commission of the offence by the company, although the EPA is unlikely to commence a prosecution in such circumstances.
New EPA Powers to Regulate Contaminated Land	New powers for the EPA to issue clean-up notices and prevention notices as soon as the EPA is notified of contamination of land, even before the EPA has determined that the land is “significantly contaminated”. New power for the EPA to require financial assurances to ensure compliance with under ongoing maintenance orders, restrictions and public positive covenants.	The new reforms demonstrate the importance on engaging with the EPA at an early stage and on an ongoing basis in relation to contaminated land. If passed, the Bill would enable the EPA to take strong and proactive action without agreement even before it determines that the land is “significantly contaminated” and warrants contamination.
New Offence of Giving False or Misleading Information to the EPA	The Bill includes a new general offence of giving information to the EPA that is false or misleading in a material respect. A defence applies where the person took all reasonable steps to ensure the information was not false or misleading in a material respect. Greater penalties apply where the false or misleading information is provided knowingly. Directors and other persons involved in the management of the corporation will be liable for any offence committed by the company under the new provision if they ought reasonably to know that the offence would be committed and failed to take all reasonable steps to prevent the provision of false and misleading information.	This new false and misleading information offence is significant because it applies regardless of whether the information was provided: voluntarily; or in circumstances where the information was known to be false or misleading. The new offence is an apparent response to the decision in Environment Protection Authority v Eastern Creek Operations Pty Limited [2020] NSWLEC 182, where the defendant successfully resisted an EPA prosecution which alleged that the provision of false or misleading information by establishing that the notice in response to which the information was provided was legally invalid. The new offence would create material new risks for entities regulated by the EPA, and highlights the need to take great care in taking “all reasonable steps” to ensure that information provided to the EPA is not false or misleading.
Higher Maximum Penalties for Some Environmental Offences	Substantial increases to some maximum penalties for offences under environment protection legislation, including the CLM Act, to more than double the current maximum penalties.	The Second Reading Speech states that maximum penalties have been increased so that “they reflect the true cost of the crime”
Increased Liability for Suspected “Contributors” to Pollution	New power for the EPA and other environmental regulators to issue a clean-up notice to persons who is “reasonably suspected of contributing”, to any extent, to a pollution incident. New powers for public authorities to recover costs and expenses of taking clean-up action from persons the authority “reasonably suspects contributed” to the pollution incident, in addition to occupiers and persons the authority reasonably suspects caused the pollution incident. New right for person issued a clean-up notice to recover costs from others who caused or contributed to pollution incidents as a debt.	These new provisions are likely to be of significant concern, as they enable the EPA to issue clean-up notices requiring alleged contributors to pollution incidents to clean-up all of the pollution, at its cost. This has the potential to lead to the unintended result that: suspected contributors could be made liable for clean-up costs far exceeding their actual contribution; and the EPA may seek to regulate the potential contributor with the “deepest pockets” – rather than the person most directly responsible. While the Bill includes a right for a contributor to recover costs from others who caused or contributed to the pollution incident as a debt, this offers very limited protection to suspected contributors issued a clean-up notice, particularly if the person responsible or other persons responsible have limited financial capacity.
Expanded Environmental Licensing Powers	The Bill includes a new power for the EPA to require restrictions on the use of land or pubic positive covenants to enforcing environment protection licence conditions (including conditions imposed on the suspension, revocation or surrender of the licence). In line with this, the Bill also includes new provisions to enable a person other than the holder, or former holder, of a licence, to apply to vary the conditions of the suspension, revocation or surrender of the licence. New ability for the EPA to deny environment protection licences to corporations where current or former directors of the corporation, related bodies corporate or for current or former directors of related bodies corporate have contravened relevant legislation.	The proposed power to impose restrictions on use and public positive covenants to enforce licence conditions is material as, currently, licence condition only bind the holder of the environment protection licence. The changes proposed will enable the EPA to legally enforce conditions against land owners or occupiers, even if the activity regulated by the environment protection licence was conducted by a former land owner or tenant. The EPA will now be able to take a deeper look at the overall environmental compliance history of an entity in licensing decisions, meaning that it will be even more important for corporations, directors and managers to maintain a strong environmental compliance history.
Consistent Court Powers including for Cost Recovery	Additional powers for public authorities including the EPA or other persons to recover costs, expenses and compensation from offenders in the Land and Environment Court. Additional powers for the Land and Environment Court to make specific kinds of orders where environment offences are proven.	The Bill proposes to have more consistent provisions across environment protection legislation in terms of the orders a court can make in relation to offenders, and the cost recovery that the EPA can seek from the Court.
New Offence to Delay Authorised Officers	The Bill contains a new offence of delaying, obstructing, assaulting, threatening or intimidating an authorised officer in the exercise of the officer’s powers, in addition to the existing offence of wilfully delaying or obstructing an authorised office.	This is an apparent response to the McClelland and Turnbull matters which involved the assault or delay of environment protection officers. The new offence is significant because the EPA would not be required to prove that the relevant delay or obstruction was willful, and so a person could be held liable for unintentional delays or obstructions.
Expanded Prohibition Notice Powers	Expanded power for the Minister to issue prohibition notices to occupiers of a class of premises or to a class of persons. Expanded power to issue prohibition notices to directors, former directors or related bodies corporate of a corporation who has not complied with a prohibition notice.	Currently, the Minister can only issue prohibition notices requiring occupiers or persons to cease carrying on an activity. The Bill proposes to enable the Minister to prohibit occupiers of a class of premises or a class of persons from carrying on an activity. This would enable the Minister to shut down all of the premises of so-called “rogue operators”, if recommended to do so by the EPA. While it is likely to be rarely (if ever) used, the expanded power could potentially be relied on by the Minister where a pattern of non-compliance is identified across a specific industry or across multiple premises of one organisation.
Administrative Reforms to EPA	The Bill also proposes a range of administrative The most notable reform is to considerably reduce the Minister’s control of the EPA so that the EPA is no longer subject to the control or direction of the Minister, and that the Minister only has a limited power to issue directions of a general nature to the EPA.	The EPA is generally regarded as an “independent” regulator, and the proposed reform formally reduces Ministerial control of the EPA thereby increasing its independence. The Bill also includes some additional measures regarding board appointments to achieve greater diversity of collective skills, including expertise in human health and Aboriginal cultural values.

PUBLIC CONSULTATION ON POEO ACT REGULATIONS

In addition to the reforms contemplated by the Bill, the EPA is currently consulting on the following regulations under the POEO Act:

Protection of the Environment Operations (Clean Air) Regulation 2021 (NSW); and
Protection of the Environment Operations (General) Regulation 2021 (NSW).

Each of these regulations:

were remade with only minor amendments earlier this year, to avoid automatic repeal under the Subordinate Legislation Act 1989 (NSW); and
will be substantively amended in 2022. The EPA has committed to carrying out consultation on the proposed changes in 2022.

IMPLICATIONS

The reforms contained in the Bill demonstrate how important it is for all businesses which operate in NSW, and their related bodies corporate, directors and managers to:

take environmental compliance very seriously; and
work effectively with the EPA to address any pollution and contamination issues.

Article by Kirstie Richards and Luke Salem with K&L Gates.

For more articles on climate change initiatives, visit the NLR Environmental & Energy section.

An Emoji is Worth 1,000 Words

In modern communication emojis have become ubiquitous. So much so that last year Vermont introduced legislation to allow emojis to be used on vanity license plates. In fact, emoji license plates have been available in Queensland, Australia since 2019.

Emojis, first introduced in 1999, are a way to communicate tone in written communication. The “smile” emoji can take what might be interpreted as harsh criticism and change it to sarcasm or a joke. Often single emoji in a message or email can communicate an idea more effectively than a paragraph of text. Because they are an integral part of today’s communications, they are also an important part of the discovery process.

There is more and more caselaw, civil and criminal, that involves emojis—from 2018 to 2019 the number of cases nearly doubled and there are no signs of that trend slowing. Despite the increase in litigation related to emojis the technology to interpret them in discovery is lagging. Anyone who’s ever collected text messages is familiar with the dreaded “�” indicating an emoji was used but, was not rendered in the discovery production process.

There are certainly situations where that missing emoji is essentially meaningless, but then there is the nightmare scenario. In this situation you have Anne sending an email to her co-worker Frank; they both work in the HR department.

The presence of the eggplant emoji dramatically changes the tone of the email from one that is fairly innocuous to one that is not. If the emoji doesn’t render, crucial evidence is lost. Further, if one side has a version with the emoji and the other doesn’t it can lead to an unfortunate “gotcha” moment.

Emojis have taken on secondary and even tertiary meanings and the meanings can change in the time it takes a Tweet to go viral. It’s crucial to understand these meanings and understand the timing of their evolution. For example, in September of 2019 the Anti-Defamation league added the “okay” symbol to its hate list as it’s become a symbol for white supremacy groups.

There is no definitive lexicon for emoji use and there are many challenges to beginning to create one. Context matters. The same emoji can be texted by the same person to different people and mean something completely different. Legal professionals need to be mindful of this. Often context will only be found in further discovery—interrogatories, depositions, etc., but only if you know what questions to ask.

Complicating things even more is the reality that e-discovery technology has not fully caught up to emoji use. In 2019 Relativity, a leader in e-discovery technology, introduced the Relativity Short Message Format (RSMF) as a unified message format that processes and renders short message data like, Slack, SMS, iMessage, Bloomberg, and Skype with their attachments. In this format you can search for specific emojis, but there are still issues. The RSMF format renders ~1,000 different emojis. At last count Slack alone has 26-million different emoji.

So, what should we do? As legal professionals we must be diligent and ensure that all the data we collect is processed properly so we can take full advantage of the tools available. We also must recognize the constantly evolving world around us so we can fully understand the necessary context and recognize when we need to dig deeper.

ARTICLE BY Gretchen E. Moore of Strassburger McKenna Gutnick & Gefsky

For more articles on emojis, visit the NLRCommunications, Media & Internet section.

The Naked Truth About Trademark Cancellation: Only Harm, No Proprietary Interest Required

The US Court of Appeals for the Federal Circuit determined that a contracting party that contractually abandoned any proprietary interest in a mark may still bring a cancellation action if it can “demonstrate a real interest in the proceeding and a reasonable belief of damage.” Australian Therapeutic Supplies Pty. Ltd. v. Naked TM, LLC, Case No. 19-1567 (Fed. Cir. July 24, 2020) (Reyna, J.) (Wallach, J., dissenting).

Australian sold condoms with the marks NAKED and NAKED CONDOMS, first in Australia in early 2000, then in the United States in 2003. Two years later, Australian learned that Naked TM’s predecessor had registered a trademark NAKED for condoms in September 2003. Australian and Naked TM communicated by email regarding use of the mark for a few years. Naked TM contended that the parties reached an agreement; Australian disagreed and said no final terms were agreed upon. Australian filed a petition to cancel the NAKED trademark registration. Ultimately, and after trial, the Trademark Trial and Appeal Board (TTAB) concluded that Australian lacked standing because it had reached an informal agreement that Naked TM reasonably believed was an abandonment of any right to contest Naked TM’s registration of NAKED. Thus, the TTAB found that Australian lacked a real interest in the proceeding because it lacked a proprietary interest in the challenged mark. Australian appealed.

The Federal Circuit reversed. First, the Court clarified that the proper inquiry was a matter of proving an element of the cause of action under 15 USC § 1064 rather than standing. The Court explained that, contrary to the TTAB’s conclusion, “[n]either § 1064 nor [its] precedent requires that a petitioner have a proprietary right in its own mark in order to demonstrate a cause of action before the Board.” Assuming without deciding that the TTAB correctly determined that Australian had contracted away its rights, the Court found that fact irrelevant. Ultimately, even though an agreement might be a bar to showing actual damages, a petitioner need only show a belief that it has been harmed to bring a petition under § 1064.

The Federal Circuit found that Australian had a reasonable belief in its own damage and a real interest in the proceedings based on a history of two prior applications to register the mark, both of which the US Patent and Trademark Office rejected on the basis that they would have created confusion with Naked TM’s mark. The Court rejected Naked TM’s argument that Australian’s abandonment of those applications demonstrated there was no harm, instead concluding that Australian’s abandonment of its applications did not create an abandonment of its rights in the unregistered mark. Moreover, as a prophylactic rationale, the Court explained that Australian’s sales of products that might be found to have infringed the challenged registration also create a real interest and reasonable belief in harm.

Judge Wallach dissented. Although he agreed that the TTAB erred by imposing a proprietary-interest requirement to bring suit under § 1064, he disagreed that Australian properly demonstrated an alternative, legitimate interest—i.e., a belief of damage with a reasonable basis in fact. Judge Wallach would have given dispositive weight to the agreement between Australian and Naked TM in which Australian supposedly gave up any right to contest Naked TM’s rights in the mark NAKED.

Practice Note: Ultimately, although the majority and dissent disagreed about how to apply the law to the facts, Australian Therapeutic Supplies stands as a firm reminder that something less than a proprietary interest is required in order to challenge a trademark registration. How much less is a fact-specific inquiry.

ARTICLE BY Paul Devinsky and Amol Parikh at McDermott Will & Emery.

For more on trademark cancellation, see the National Law Review Intellectual Property law section.

Not Just For Jilted Ex-Lovers: The Criminalisation of the Non-Consensual Distribution of Intimate Images in Western Australia

This week marked the conclusion of the first prosecution under the Criminal Law Amendment (Intimate Images) Act 2018 (WA). Mitchell Joseph Brindley, 24 years old, pleaded guilty to posting ten intimate images of the woman he dated. The images were taken with the woman’s consent whilst they were in a relationship. When it ended, Mr Brindley created fake Instagram accounts under her name and posted the images without her consent.

Non-consensual intimate image dissemination is colloquially known as ‘revenge porn’. A study in 2017 found that 20% of Australians between the ages of 16-49 years had a picture or video of themselves shared without their consent.

A global movement has emerged to counter the surge of ‘revenge porn’.

All Australian states and territories (except Tasmania) have implemented intimate image legislation. The WA Act amends the WA Criminal Code by creating a new offence relating to the non-consensual distribution of intimate images, empowering courts to make an order requiring a person to remove the images, and ensuring that existing threat offences apply.

Mr Brindley was this week given a 12-month intensive supervision order. The Magistrate found that the case fell in the least severe of the four categories of image-based abuse, being relationship retribution. More severe cases involve “sextortion”, “voyeurism” and “sexploitation”. The Magistrate said that if Mr Brindley’s crime had been motivated by sexual gratification or to obtain money, he would have received a jail term.

In April, videos emerged of NRL players engaging in sexual acts with women. Although the case involving player Tyrone May is ongoing, it will be interesting to see the outcome of any sentence, particularly if a jail term is sought.

Article by Cathryn Palfrey of K&L Gates.

For related news, please see the National Law Review Communications, Media & Internet page.

The Road Ahead for 2017 – Restructuring & Insolvency in Australia

It is anticipated that, by the middle of the year, Australia will see the most significant reform to the corporate and personal insolvency environment in two decades. The reforms, which appear likely to be supported by all sides of government, are designed to promote business preservation and allow greater flexibility in order to ‘turnaround’ distressed companies.

In 2014 the process of reform began with the Australian Productivity Commission’s release of an Issues Paper and subsequent Report on Business Set-Up, Transfer and Closure. In December 2015 the draft Insolvency Law Reform Bill (the Bill) was released.

The perception among the business community is that the existing insolvency landscape stifled entrepreneurship and forced distressed companies into insolvency at the expense of restructuring. While some commentators lament the missed opportunity to go further and adopt more comprehensive reforms, consensus is that the new legislation will resolve some of the market’s biggest concerns and will encourage a turnaround culture. It is also likely to generate increased interest in the domestic distressed debt market.

Key elements of the Insolvency Law Reform Act 2016 include:

Reduction of the bankruptcy period from three to one year
Introduction of a ‘safe harbour’ defence for directors. Directors will avoid personal liability for insolvent trading if they appoint an adviser to assist with business turnaround.
Unenforceability of certain ipso facto clauses. The proposed new laws will prevent a party from terminating a contract based solely on an insolvency event. Certain contracts such as prescribed financial contracts may be excluded from this restriction.

One of the Productivity Commission’s more controversial recommendations (and which did not make it into the draft Bill) is the introduction of a duty of receivers “to not cause unnecessary harm to the interests of creditors as a whole.” This and other more substantive reforms will be subject to further consultation as the Government has committed to another review. The passage of the Bill will meanwhile continue to shine a spotlight on the more substantive reforms proposed.

In addition to the commencement of the Insolvency Law Reform Act 2016, certain class action proceedings in the Federal Court of Australia are likely to intensify in 2017 in the lead up to a hearing on common issues in 2018. Squire Patton Boggs advises the applicants and most group members in seven class action proceedings that have arisen out of the rating of several structured financial products by Standard & Poor’s (S&P) and Fitch Ratings (Fitch). These follow a successful settlement reached in similar proceedings against S&P, following a landmark win in the main proceedings and a further appeal to the Full Federal Court.

The majority of the claims in these proceedings arose following the global financial crisis and the collapse of underlying reference entities including Fanny Mae and/or the swap counterparty Lehman Brothers Australia (in liquidation) (LBA). As a large number of Australian organisations held these products, a number of insolvencies resulted from their collapse in value and/or wipe out and Squire Patton Boggs has acted for creditors of LBA in the insolvency proceedings that ensued to recover money for creditors with these claims.

The products that are the subject of these proceedings include a constant proportion portfolio insurance (CPPI) and synthetic collateralised debt obligations (SCDOs) which were assigned credit ratings by S&P or Fitch. The applicants allege that the ratings agencies were negligent and engaged in misleading and deceptive conduct in assigning high ratings to these products. They contend that had the products not received such high ratings, they would not have invested. S&P and Fitch deny these allegations.

These proceedings have had and will continue to have widespread domestic and international significance due to the number of structured financial products that were sold around the world and were rated by the large ratings agencies using similar methodology. Actions against S&P have been filed in other jurisdictions, including by European institutional investors in Amsterdam, setting a global trend that is likely to continue into 2017. This trend involves ensuring the accountability of credit rating agencies in their assignment of ratings to complex financial products, especially in areas where regulators have as yet failed to achieve similar outcomes. As a result, the continuing progress of these class actions in 2017 is likely to produce lasting implications, in particular further consideration as to the regulation of credit rating agencies.

Continue watching this blog throughout the year to come for updates about these and other topics from our offices across Australia, EU and Europe, UK and US.

ARTICLE BY Amanda Banton of Squire Patton Boggs (US) LLP

Australian Federal Government Implements Changes to 457 Visa

Following the publication of the independent review into the Temporary Skilled (Subclass 457) visa program, the federal government announced on 18 March 2015 its intention to implement a number of the proposed changes to ‘increase flexibility and reduce restrictions on 457 programme users while maintaining integrity in the programme’.

Despite growing suspicions that this would be another ‘broken promise’, the government has now implemented the following changes from 18 April 2015.

English language

An applicant can now satisfy the English language requirement by obtaining an average score of five across all components of the International English Language Testing System (IELTS), rather than a score of five in each component (reading, writing, speaking and listening). The number of English language tests has also been increased to include the following in addition to IELTS:

Occupational English Test (OET)
Test of English as a Foreign Language internet-based test (TOEFL iBT)
Pearson Test of English (PTE) Academic test
Cambridge English: Advanced (CAE) test

Exemptions to the English language requirement will also be granted when an applicant can provide evidence of five cumulative (rather than consecutive) years of study in English at the secondary or tertiary level.

Standard Business Sponsorship term

The term of a standard business sponsorship has been extended from 3 years to 5 years.

Start-up businesses will also benefit from an increase in the term of their standard business sponsorship from 12 months to 18 months, giving start-up businesses a greater grace period to establish lawful operations in Australia. 457 visas granted to employees of start-up businesses will also now be granted for 18 rather than 12 months.

Market salary exemption threshold

Employers will no longer be required to demonstrate that highly paid 457 applicants will be paid in line with the Australian market in cases where the visa holder will be paid in excess of $180,000 (down from the existing threshold of $250,000). This brings the threshold in line with the marginal tax rate. The Temporary Skilled Migration Income Threshold (TSMIT) has also been frozen at $53,900.

MARN 1460940

ARTICLE BY

Jillian R. Howard

Adriana Bedon

Squire Patton Boggs (US) LLP

Employment Law Worldview

China and Australia Conclude Landmark Free Trade Agreement Negotiations

Summary

On November 17, 2014, China and Australia completed their negotiations for a China-Australia Free Trade Agreement (“ChAFTA”)by signing a Declaration of Intent which contained the essential elements of the free trade deal and commits both countries to draft the legal text of the agreement for signature at a later date. This agreement ends almost a decade of free trade negotiations between China and Australia. The ChAFTA is significant because it will initially lower and ultimately eliminate tariffs on a wide range of exports between the two countries boosting bilateral trade between the world’s second largest economy and a significant U.S. free trade partner in Asia.

“Best Ever” Trade Deal with China

Australian Prime Minister, Tony Abbott, described ChAFTA as the best ever between China and a Western country. ChAFTA builds on Australia’s trade deals with Korea and Japan which account for Australia’s three largest export markets. In the short term, ChAFTA will consolidate Australia’s competitive position in the resources and energy market by phasing-in zero tariffs on products including iron ore, coal, gold, and crude petroleum oils which comprise 4 of the top 5 leading exports (by value) from Australia to China.

ChAFTA will also reduce and eliminate tariffs on a wide range of Australia-produced agricultural products, foodstuffs and wine as Australia attempts to transition in the longer term to what commentators have described as a “mining to dining” export economy.

China has also offered Australia its best ever services commitments in an FTA (other than China’s agreements with Hong Kong and Macau) which includes new or significantly increased market access for Australian banks, insurers, securities and futures companies, law firms and professional service suppliers, education service exporters, as well as health, aged care, construction, manufacturing and telecommunication services businesses in China.

Importantly, ChAFTA will contain an Investor Dispute Settlement Mechanism (IDSM) which generally contain administrative, judicial and/or arbitral protections that enable companies to invest in China with greater confidence because an IDSM permits compensation claims against alleged government regulation that negatively impacts investments.

Promoting Chinese Exports and Investment in Australia

ChAFTA will promote further Chinese investment in Australia by, for example, raising the Foreign Investment Review Board (FIRB) screening threshold for private companies from China in non-sensitive areas from AS$248 million to AS$1,078 million. However, FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value.

ChAFTA will also increase China’s exports to Australia, in particular, of telecom equipment and parts, computers, clothing, domestic furniture and children’s goods which comprise China’s top 5 exported products to Australia.

Potential Effect on U.S. Trade

The potential impact of ChAFTA on U.S. trade cannot be determined at this stage. In general, recent economic studies suggest that the effect of “hub-and-spoke” free trade agreements where one country, in this case, Australia, acts as a “hub” by establishing two different bilateral FTAs with countries that retain their trade barriers on each other’s goods, i.e. U.S. and China, is of positive and significant effect on bilateral trade among all three countries. However, these economic studies do not incorporate the rules of origin (“ROO”) which are an essential part of FTAs because they define the conditions under which the importing country will view a product as originating in an FTA partner.

Without the full text of the ROO for ChAFTA, it is not possible to indicate the potential for more Australian manufacturing using U.S.-origin components that would otherwise attract high duty if exported directly to China but may not if incorporated into goods in Australia. However, based on the proposed tariff-reduction on imported Chinese telecom equipment and parts, and computers, ChAFTA does suggest the potential for increased manufacturing in Australia for the U.S. market using Chinese components that could not otherwise be imported directly into the U.S. without paying significant duty.

Under the ROO of the U.S.-Australia FTA, Chinese-origin components would need to satisfy any applicable tariff-shift and/or meet any applicable regional value content. Alternatively, those Chinese-origin components that did not satisfy an applicable tariff-shift could not comprise more than the de minimislevel of 10% of the adjusted value of the good.

Finally, ChAFTA offers the potential for U.S. investors to structure their investments in China using an Australian entity by taking into account the final text of ChAFTA’s IDSM because there is currently no investor protection offered by a bilateral investment treaty between the U.S. and China.

ARTICLE BY

Neil Ray

Jiamu Sun

Sheppard, Mullin, Richter & Hampton LLP

Are iWills The Way of the Future?

Smartphones sure make lives a lot easier (and, arguably, busier). With a few taps of a screen, individuals can do everything from checking the weather to buying stock to engaging in FaceTime across the world. One individual in Australia recently came up with another innovative use for his smartphone. He used it to prepare his Last Will and Testament shortly before taking his own life.

Karter Yu typed his Will on the Notes application installed on his iPhone, titling the document his “Last Will and Testament.” When challenged, the Supreme Court of Queensland, Australia declared the electronic document to be in fact the Will of Mr. Yu, the decedent. Consequently, the document was admitted to probate. The court specifically noted that the document contained the decedent’s signature and was automatically time and date stamped by the phone.

While the Australian case presents a unique example of how technology is transforming the world of estate planning, it is not recommended that individuals use the same “do-it-yourself” digital approach. First, electronic communications can easily be lost or outdated as technology rapidly advances. Such communications may also fail to meet the traditional requirements of testamentary formalities (which vary from one jurisdiction to another) and may raise red flags about the document’s validity or authenticity. For instance, how can a court be sure that the true author was the decedent and not someone simply using his iPhone? Was the document composed under duress? Was it meant to invalidate a previous Will? Under the current statutes and laws of Kentucky, such “writing” would not qualify as a person’s Living Will and Testament.

However, as we move further into the digital age, courts will likely be required to re-examine what type of instrument may qualify as a Will. For now, though, estate planning is best done on paper with the aid of an estate planning attorney. Instead of trying to use your iPhone to write a Will, use it to call an estate planning attorney who can work with you to ensure your estate planning needs are met in accordance with your wishes and within the applicable law.

ARTICLE BY

Terri R. Stallard

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Tag: Australia

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