Tag: Puerto Rico

Investigation Spurs Launch of Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force

The U.S. Department of Justice (DOJ) recently announced the launch of a new Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force. The DOJ’s announcement, on May 11, 2023, coincided with its announcement of the grand jury indictments of two individuals in Puerto Rico who are accused of committing environmental crimes between 2020 and 2022.

As noted by the DOJ, its formation of the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force also comes one year after the Department’s formation of an Office of Environmental Justice within its Environment and Natural Resources Division. This suggests that the DOJ is engaging in a long-term strategy to combat environmental crime, with particular emphasis on combating environmental crime in Puerto Rico and the USVI.

For companies and individuals doing business in Puerto Rico and the USVI, this is cause for concern. Even compliance won’t necessarily prevent an investigation; and, in the event of an investigation, insufficient documentation of compliance can present risks regardless of the underlying facts at hand. As a result, companies and individuals doing business on the islands need to prioritize environmental compliance (and adequately documenting their compliance), and they need to have strategies in place to deal effectively with the DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force if necessary.

Puerto Rico and the U.S. Virgin Islands. By announcing the formation of its new task force on the same date that it announced two grand jury indictments, it is also sending a clear message that it will not hesitate to pursue criminal charges when warranted.

The DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force: An Overview

To be prepared to deal with the DOJ’s Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force, companies and individuals doing business on the islands need to have a clear understanding of the task force’s composition and law enforcement priorities. Here is an overview of what we know so far:

Federal Agencies with Personnel on the DOJ’s Task Force

While the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force falls under the DOJ’s law enforcement umbrella, it includes personnel from several federal agencies. Each of these agencies is likely to have its own set of enforcement priorities—setting the stage for wide-ranging investigations in Puerto Rico and the USVI.

As identified by the DOJ, the federal agencies with personnel on the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force include:

  • Army Criminal Investigation Division (Army CID)
  • Army Corps of Engineers
  • Department of Agriculture Office of Inspector General (DOA OIG)
  • Department of Commerce Office of Inspector General (DOC OIG)
  • Department of Homeland Security Homeland Security Investigations (DHS HSI)
  • Department of Transportation Office of Inspector General (DOT OIG)
  • Environmental Protection Agency Criminal Investigation Division (EPA CID)
  • Environmental Protection Agency Office of Inspector General (EPA OIG)
  • Federal Bureau of Investigation (FBI)
  • Food and Drug Administration Office of Criminal Investigations (FDA OCI)
  • Housing and Urban Development Office of Inspector General (HUD OIG)
  • IRS Criminal Investigation (IRS CI)
  • National Oceanic and Atmospheric Administration Office of Law Enforcement (NOAA OLE)
  • U.S. Coast Guard – Sector San Juan (USCG San Juan)
  • U.S. Coast Guard Investigative Service (USCG IS)
  • U.S. Fish and Wildlife Service (FWS)

The DOJ’s press release announcing the formation of the task force also notes that its personnel will work closely with local authorities on both islands. This includes the Puerto Rico Department of Natural Resources, Puerto Rico Department of Justice, U.S. Virgin Islands Department of Planning and Natural Resources, and U.S. Virgin Islands Attorney General’s Office.

The Task Force’s Enforcement Priorities in Puerto Rico and the USVI

The DOJ’s press release also identifies several areas of enforcement that are priorities for the Puerto Rico and U.S. Virgin Islands (USVI) Environmental Crimes Task Force. As of the date of its launch, the task force’s priorities will include:

  • Air and water quality violations involving agriculture, construction, transportation, and other industries
  • Fraud, waste, and abuse affecting government programs (including, but not limited to, EPA programs)
  • Harm to wetlands, navigable waters, and wildlife (including harm caused by pesticide misuse)
  • Hazardous material spills and transportation violations
  • Marine environmental violations and harm to federal marine resources
  • Public corruption involving environmental compliance and risks
  • Violations involving medications, foods, cosmetics, and other biological products
  • Violations involving workplace and housing conditions affecting residents working in the islands’ protected environments

As you can see, not all of these violations are strictly related to environmental compliance. This reflects the task force’s composition as well as the DOJ’s general disposition to investigate and prosecute all crimes, regardless of the impetus for a particular inquiry. Environmental crime investigations in Puerto Rico and the USVI will present risks for conspiracy, money laundering, tax evasion, wire fraud, and other federal criminal charges as well—and targeted companies and individuals could potentially face these charges even if they are ultimately cleared of any alleged environmental law violations.

Oberheiden P.C. © 2023
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Employers Helping Employees—Are Disaster Relief Payments and Loans Exempt From Puerto Rico Income Tax?

With the havoc wrought by Hurricane Maria in Puerto Rico, employers are exploring options to provide emergency relief to those employees who have encountered financial hardship to meet their necessities and repair their homes in the wake of the disaster. Occasionally, aid from employers to employees comes in the form of disaster-relief monetary payments and interest-free loans. In light of the state of emergency in Puerto Rico declared by local authorities, on October 4, 2017, the Puerto Rico Department of Treasury released Administrative Determination No. 17-21 (AD 17-21), which provides necessary and well-timed guidance on the taxation of this type of assistance.

Qualified Disaster Assistance Payments

Disaster assistance payments, which meet the requirements of AD 17-21, are not includable in an employee’s taxable income and, thus, are exempt from Puerto Rico income tax. Under AD 17-21, any payment made by an employer to an employee, or directly to a provider of goods and/or services, will be considered “qualified” and not treated as taxable compensation provided that:

  1. payments are made in lieu of wages lost by the employee while he or she is not able to work due to the disaster;
  2. payments are made to (a) cover necessary and reasonable expenditures of the employee or the employee’s relatives for food, medications, gas, lodging, medical expenses, the care of children or dependents, power generators, funeral services, and/or the repair of destruction to the employee’s principal residence incurred as a result of Hurricane Maria, as long as the payment is made directly to the provider of goods and/or services; (b) to the employee himself or herself and to mitigate damages or losses resulting from Hurricane Maria, subject to a monthly cap of 1,000; and/or (c) for other purposes, as recognized by AD 17-21;
  3. payments are received by the employee (or the provider of goods and/or services, as appropriate) at any time between September 21, 2017, and December 31, 2017; and
  4. payments are in no way attributable or related to the level of the employee’s position or salary. 

Employers that make qualified disaster assistance payments must report such payments no later than January 31, 2018, by submitting a sworn statement to the Puerto Rico treasury stating the names and social security numbers of the employees who received qualified payments and the total amount of the payments.  Qualified disaster assistance payments made in compliance with AD 17-21 are tax-deductible for the employer.

Interest-Free Loans

Interest-free loans of up to $20,000 (either individually or in the aggregate) granted by an employer to an employee, from September 21, 2017, through June 30, 2018, to cover necessary and reasonable expenses of the employee or the employee’s family and expenditures for the construction or repair of the employee’s principal residence due to damage from Hurricane Maria are exempt from Puerto Rico income tax.

Employers may grant interest-free loans to employees in addition to qualified disaster assistance payments.

This post was written by Enrique A. Del Cueto-Perez & Ryan J. Correia of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved., © 2017
For more Labor & Employment legal analysis, go to The National Law Review

Puerto Rico Legislation May Require Changes to Retirement Plans

Puerto Rico retirement plansPuerto Rico enacted new legislation in February that will require changes to tax-qualified retirement plans covering Puerto Rico employees, including both Puerto Rico-only and dual-qualified (US and Puerto Rico) retirement plans. Act No. 9-2017 revises a number of Puerto Rico qualified retirement plan rules including contribution limits, rules related to nondiscrimination testing and employer deductions for retirement plan contributions. Questions remain about how and when to implement these changes, but the 2017 Act became effective immediate upon enactment, so plan sponsors should be prepared for the possibility of mid-year 2017 changes to their retirement plans.

In February, Puerto Rico enacted new legislation that will require changes to tax-qualified retirement plans covering Puerto Rico employees, including both Puerto Rico-only and dual-qualified (US and Puerto Rico) retirement plans. Act No. 9-2017 (the 2017 Act) revises a number of Puerto Rico qualified retirement plan rules including contribution limits, rules related to nondiscrimination testing and employer deductions for retirement plan contributions. Questions remain about how and when to implement these changes, but the 2017 Act became effective immediate upon enactment, so plan sponsors should be prepared for the possibility of mid-year 2017 changes to their retirement plans.

Retirement Plan Changes

Following are some of the significant amendments the 2017 Act makes to the requirements applicable to tax-qualified retirement plans under the Puerto Rico Internal Revenue Code of 2011 (the PR Code):

  • Contribution Limits for Defined Contribution Plans. The PR Code previously provided for an annual contribution limit tied to Section 415 of the US Internal Revenue Code of 1986, as amended (the US Code), which limits a participant’s annual allocations, including both employee and employer contributions, to the lesser of the annual limit for the year published by the IRS under U.S. Code section 415(c) ($54,000 for 2017) or 100 percent of the participant’s annual compensation. The 2017 Act replaces this limit with a new formula limiting total annual allocations (other than rollover contributions) on behalf of a participant to the lesser of $75,000 (which does not appear to have a cost of living adjustment), or 25 percent of Net Income (“Net Income” is not defined, so it is not clear what types of income are included).

  • Definition of Highly Compensated Employees. Prior to the 2017 Act, the PR Code’s definition of highly compensated employees included officers, shareholders holding more than 5 percent of the voting shares or total value of all classes of employer stock as well as employees with compensation from the employer in excess of $110,000 (or, for dual-qualified plans, the dollar amount under US Code Section 414(q)(1)(b)). The 2017 Act (1) removes officers from the definition of highly compensated employee, (2) expands the 5 percent ownership rule to include ownership of the capital or interest in the gains of an employer that is not a corporation, and (3) revises the compensation threshold to $150,000 (which does not appear to be subject to a cost of living adjustment). The new definition of highly compensated employees applies to both Puerto Rico-only and dual-qualified retirement plans, which means that dual-qualified plans are no longer permitted to use the applicable dollar threshold under US Code Section 414.

  • Small Employer ADP Safe Harbor. The 2017 Act implements a new type of average deferral percentage (ADP) safe harbor, which exempts eligible plans from the requirement to satisfy the usual ADP nondiscrimination rules. Certain employers whose businesses generate less than $10 million per year in gross income, and who sponsor defined contribution retirement plans with fewer than 100 participants, may be exempt from ADP nondiscrimination testing if the plan sponsor provides all eligible participating employees with a contribution equal to at least 3 percent of their compensation. It is not clear how “businesses” or “gross income” are defined for purposes of evaluating eligibility for the safe harbor; more guidance is needed before plan sponsors should implement this safe harbor arrangement.

  • Employer Deductions for Retirement Plan Contributions: Prior to the 2017 Act, the PR Code provided that the maximum deduction for employer contributions to a defined contribution plan could not exceed 25 percent of the compensation paid or accrued to all employees under the plan during the applicable tax year (similar to the rules under US Code Section 404(a)). The 2017 Act retains this 25 percent limit, but also provides that, notwithstanding such limit, all contributions that do not exceed the amended annual contribution limit (described above) are deductible.

The 2017 Act also adds a new chapter to the Puerto Rico Trust Act titled “Retirement Plan Trusts,” which clarifies the rules regarding beneficiaries under retirement plans. Plans qualified in Puerto Rico that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), must provide that the beneficiary of a married participant is the participant’s spouse, and the participant can only designate a non-spouse beneficiary with spousal consent (which is similar to the rules applicable to US qualified retirement plans). In addition, the 2017 Act clarifies that all assets belonging to a retirement plan trust will be exempt from the estate and inheritance provisions of the Puerto Rico Civil Code, and their disposition will be determined under the terms of the documents governing the retirement plan trust. This is a helpful clarification for plan sponsors who previously were concerned about reconciling the ERISA rules with the Puerto Rico Civil Code rules.

Next Steps for Plan Sponsors

The 2017 Act states that its intent is to increase the flexibility of retirement plans and make their establishment and administration less onerous on plan sponsors. For now, however, the 2017 Act raises a number of questions and adds potential complications for plan sponsors to administer their plans. Specifically:

  • It is not clear how and when the new rules will apply. Since the 2017 Act became effective when it was signed on February 8, 2017, do plan sponsors need to ensure they comply with the new contribution limits in 2017? If so, how do plan sponsors determine what constitutes an employee’s “Net Income”? In addition, do plan sponsors need to amend their plans in 2017 to reflect the revised definitions of highly compensated employees and new annual contribution limits? More guidance is needed to understand how the contribution limit will be measured and how the nondiscrimination rules incorporating the new highly compensated employee definition will apply.

  • Will eligible plan sponsors want to use the new ADP safe harbor? Unlike the US Code, the PR Code did not previously provide a safe harbor exempting eligible plans from ADP nondiscrimination rules. More guidance is needed to determine how “businesses” or “gross income” are defined for purposes of evaluating eligibility for the safe harbor.

We expect to see guidance and further clarification on these issues from the Puerto Rico Treasury Department. For now, plan sponsors should wait for additional guidance. However, since the 2017 Act is effective immediately, plan sponsors should be prepared to consider action in 2017, both with respect to plan administration and the adoption of plan amendments. Further, since the changes to be implemented make significant changes to the rules impacting Puerto Rico employees, plan sponsors should expect that the amendments will be qualification amendments, which will likely require plan sponsors to seek updated qualification letters from the Puerto Rico Treasury.

ARTICLE BY Nancy S. Gerrie, Jeffrey M. Holdvogt & Maggie McTigue of McDermott Will & Emery

© 2017 McDermott Will & Emery

Puerto Rico Enacts Equal Pay Law, Prohibits Employers from Inquiring about Past Salary History

Puerto Rico Equal PayAlmost two months after signing sweeping employment law reform, Governor Ricardo Rosselló has signed Puerto Rico Act No. 16 of March 8, 2017, known as the “Puerto Rico Equal Pay Act.” Act 16 is effective immediately.

Although modeled after the federal Equal Pay Act, Act 16 goes further, limiting instances in which employers can inquire into an applicant’s salary history, among other key provisions.

Pay Discrimination Prohibition. Like the federal Equal Pay Act, Act 16 establishes a general prohibition of pay discrimination based on sex among employees in jobs that require equal skill, effort, and responsibility, and that are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.

Past Salary History Inquiries Prohibited. Act 16 prohibits employers from inquiring into an applicant’s past salary history, unless the applicant volunteered such information or a salary was already negotiated with the applicant and set forth in an offer letter, in which case an employer can inquire or confirm salary history.

Pay Transparency. Act 16 forbids employers from prohibiting discussions about salaries among employees or applicants, with certain exceptions for managers or human resources personnel. It also contains an anti-retaliation provision protecting employees who disclose their own salary or discuss salaries with other employees, object to any conduct prohibited by the law, present a claim or complaint, or participate in an investigation under Act 16.

Remedies and “Self-Evaluation Mitigation.” Available remedies for victims of pay discrimination include back pay and an equal amount as a penalty. Double compensatory damages also are available as remedies. The additional back pay penalty can be waived if the employer demonstrates that, in the year prior to the presentation of a salary claim, the employer voluntarily undertook a “self-evaluation” of its compensation practices and made reasonable efforts to eliminate pay disparities based on sex. The self-evaluation or mitigating measures cannot be used as evidence of violation of the law for events that take place within six months after the self-evaluation’s completion or within one year of the self-evaluation if the employer has commenced reasonable and good faith mitigating measures. The Puerto Rico Secretary of Labor is tasked with preparing and distributing uniform guidelines for employer self-evaluations.

The Department of Labor is authorized to prepare interpretive regulations and must commence a statistical study into pay inequality among men and women. The federal EPA and its regulations will be used as reference in interpreting Act 16.

The penalty provisions of Act 16 will not be effective until March 8, 2018, to permit employers to take any mitigating measures.

ARTICLE BY Maralyssa Álvarez-Sánchez & Juan Felipe Santos of Jackson Lewis P.C.

Jackson Lewis P.C. © 2017

Puerto Rico Supreme Court: Former Exec Cannot Sue Individual Board Members for Breach of Employment Contract

A former employee cannot sue individual members of a corporation’s board of directors for breach of an employment contract and negligence in execution of fiduciary duties, where: 1) the individual board members are not parties to the employment contract; and 2) the employee and his relatives are not shareholders with standing to sue board members for alleged breach of fiduciary duty, the Puerto Rico Supreme Court has held. Randolfo Rivera San Feliz et al v. Junta de Directores de Firstbank Corporate et al., 2015 TSPR 61, 196 DPR ___ (2015).

Plaintiff Randolfo Rivera was a former executive of a banking entity in Puerto Rico. The terms of his employment were established in a contract with the bank. The contract provided that any decision regarding the contract, including termination of employment, had to be approved by at least two-thirds of all the members of the bank’s board of directors. The contract also contained a clause requiring arbitration of any controversy regarding the interpretation of the employment contract.

The bank terminated Rivera’s contract in June of 2010. He filed a lawsuit against the bank in Puerto Rico Superior Court, alleging unjust dismissal and breach of contract under the law of Puerto Rico. While this litigation was pending, Rivera filed a separate lawsuit against each member of the board of directors, requesting damages for breach of contract and alleged negligence in the execution of their fiduciary duties. He asserted the board members wrongfully allowed his termination in violation of his employment contract. Rivera’s partner, children, and siblings were included as co-plaintiffs in the second lawsuit, each alleging emotional and economic damages arising out of the employment termination.

The initial lawsuit between Rivera and the bank was dismissed by the court for lack of jurisdiction in light of the employment contract’s arbitration provision.

The second lawsuit, against the board of directors, also was dismissed at the pleadings stage. The court held Rivera and his family may not sue individual members of the board of directors for violation of their fiduciary duty, because such a claim was available only to shareholders of a corporation through a derivative action and neither Rivera nor his relatives were shareholders. Rivera and his relatives appealed the dismissal of this lawsuit and the case eventually came before the Puerto Rico Supreme Court.

Puerto Rico’s highest court upheld dismissal of the action because a non-shareholder does not have standing to sue individual directors of a corporation for an alleged violation of their fiduciary duty. The Supreme Court reiterated that a breach of fiduciary duty claim requires an existing relationship between plaintiffs and defendants, such as the one that exists between shareholders and a corporation’s board of directors. The Court also held that the board of directors could not be liable for breach of contract because it was the corporation, and not the individual members of the board, that was a party to the contract.

Associate Justice Annabelle Rodriguez-Rodriguez dissented. She noted that the employment contract at issue had a clause that was undisputed which provided for arbitration of all controversies related to interpretation of the contract. Since the second lawsuit was based on alleged breach of fiduciary duty arising out of the termination of the contract, she would have dismissed for lack of jurisdiction in light of the arbitration clause and abstained from analyzing the nature of the claims for purposes of a standing issue.

In light of Puerto Rico law governing employee terminations, employers should tread carefully when drafting employment contracts that contain specific reasons for termination, as well as notification requirements.

ARTICLE BY Maralyssa Álvarez-Sánchez of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015