Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

IRS: Interest Paid to Nonresident Aliens to Be Reported

The National Law Review recently published an article regarding a Recent IRS Decision About Nonresident Aliens and Interest Payments written by Rebecca Leon, Richard S. Zarin and the Investment Management Practice of Morgan, Lewis & Bockius LLP:

Information regarding nonresident alien deposits in the United States could be provided to foreign governments as of January 2013, raising concern among non-U.S. residents holding deposits in the United States.

As part of the U.S. Department of the Treasury’s (Treasury’s) efforts to prevent tax evasion, on April 19 the Internal Revenue Service (IRS) issued final regulations (the New Rules) requiring the U.S. offices of financial institutions (such as commercial banks, savings institutions, credit unions, securities brokerages, and insurance companies) to report to the IRS deposit interest payments made to nonresident alien individuals.^[1]The New Rules are effective as of April 19, 2012, but only apply to interest payments made on or after January 1, 2013.^[2] The measure was taken by the IRS, in part, to enable the United States, through reciprocity, to obtain information on interest paid to U.S. taxpayers abroad, which, according to the IRS, often goes unreported.^[3]

The information collected by the IRS under the New Rules may be shared with countries that have an existing tax convention, agreement, or bilateral treaty with the United States regarding the exchange of tax information (collectively, information exchange agreements). In connection with the New Rules, the IRS has issued a list of the countries with which the United States has information exchange agreements:^[4]

Antigua & Barbuda

Aruba

Australia

Austria

Azerbaijan

Bangladesh

Barbados

Belgium

Bermuda

British Virgin Islands

Bulgaria

Canada

China

Costa Rica

Cyprus

Czech Republic

Denmark

Dominica

Dominican Republic

Egypt

Estonia

Finland

France

Germany

Gibraltar

Greece

Grenada

Guernsey

Guyana

Honduras

Hungary

Iceland

India

Indonesia

Ireland

Isle of Man

Israel

Italy

Jamaica

Japan

Jersey

Kazakhstan

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Marshall Islands

Mexico

Monaco

Morocco

Netherlands

Netherlands island territories: Bonaire, Curacao, Saba, St. Eustatius and St. Maarten (Dutch part)

New Zealand

Norway

Pakistan

Panama

Peru

Philippines

Poland

Portugal

Romania

Russian Federation

Slovak Rep.

Slovenia

South Africa

South Korea

Spain

Sri Lanka

Sweden

Switzerland

Thailand

Trinidad and Tobago

Tunisia

Turkey

Ukraine

United Kingdom

Venezuela

In most cases, the IRS has some discretion in determining whether sharing information conforms to the applicable information exchange agreement. Canada is the only country that will receive the information automatically, without the need for a specific request. At this time, little guidance has been provided by U.S. tax officials regarding circumstances under which it will deny a request for information under the New Rules. It has been reported that U.S. officials have indicated a reluctance to share information with certain countries (e.g., Venezuela), but no such country-specific exclusions have been set forth.^[5]

While the New Rules will facilitate the IRS’s collection of information regarding nonresident aliens’ accounts in the United States, information exchange agreements usually carve out some protections for the dissemination of tax-related information. The information generally (i) will be provided only upon request of the recipient country (except in the case of Canada); (ii) must be protected by the confidentiality and secrecy laws of the recipient country; and (iii) may only be provided to authorities of the recipient country involved in the assessment, collection, and enforcement of taxes (and used for those purposes).^[6]

In addition, specific restrictions with respect to the exchange of tax information may apply under information exchange agreements between the United States and other countries. For example, with respect to Article 27 (Exchange of Information) of the U.S.-Venezuela Treaty to Prevent Double Taxation and Fiscal Evasion (the Convention), the technical explanation issued by the IRS on January 1, 2000, sets forth the following:

[T]he obligations undertaken in paragraph 1 [of Article 27 of the Convention] to exchange information do not require a Contracting State to carry out administrative measures that are at variance with the laws or administrative practice of either State. Nor is a Contracting State required to supply information not obtainable under the laws or administrative practice of either State, or to disclose trade secrets or other information, the disclosure of which would be contrary to public policy. Thus, a requesting State may be denied information from the other State if the information would be obtained pursuant to procedures or measures that are broader than those available in the requesting State.^[7]

In this example, the laws of Venezuela could be instrumental in denying a request made by Venezuelan authorities under the Convention. Further, the Guidance on Reporting explains that the IRS is not compelled to exchange information, including information collected pursuant to the Revised Regulations, if there is concern regarding the use of the information or if other factors exist that would make exchange inappropriate.^[8] It is unclear to what extent this language may be used to deny requests from countries where U.S. authorities believe that shared information may not be adequately protected by foreign authorities.

Concerns with and Implications of the New Rules

In letters to Congress and the IRS, the American Bankers Association (ABA) expressed concerns about the impact of the New Rules.^[9] Specifically, the ABA is concerned that the New Rules leave too much uncertainty with respect to the protection and confidentiality of sensitive financial information by recipient countries, and that as a consequence, foreign investors will move their money to offshore accounts in order to avoid having their information shared with foreign authorities. There could be a sizeable impact in states like Florida and Texas, which have historically received a steady flow of deposits from Latin American investors. Wealthy individuals in some countries, including Mexico and Venezuela, often hold deposits in the United States, not to evade local taxes, but to protect their financial information and to avoid kidnappings for ransom, which have become commonplace in some areas. The ABA fears that billions in deposits may be removed from U.S. offices of financial institutions and that some regional banks may be particularly hard hit.^[10] More transparency in delineating between countries with which the IRS intends to regularly and consistently share information collected under the New Rules, and those with which it will not, could potentially avoid the transfer of U.S. deposits to offshore jurisdictions. It’s unclear when and if the IRS will address these concerns.

_{[1]. The New Rules were implemented through revisions to U.S. Treasury Regulations sections 1.6049-4(b)(5) and 1.6049-8 [hereinafter Revised Regulations], and were accompanied by a preamble to the Revised Regulations titled Guidance on Reporting Interest Paid to Nonresident Aliens, 77 Fed. Reg. 23,391 (April 19, 2012) (to be codified at 26 C.F.R. pts. 1 and 31) [hereinafter Guidance on Reporting].}

_{[2]. On July 26, 2012, the House of Representatives passed a bill that included an amendment that could delay the January 1, 2013, operating date for the New Rules. The amendment (H. Amdt. 1469), offered by Representative Bill Posey (R-Fla), was added to the Red Tape Reduction and Small Business Job Creation Act, H.R. 4078, availablehere. The bill would prevent federal agencies from imposing new major regulations until the average of monthly unemployment rates for any quarter beginning after the date of enactment of the law is less than or equal to 6%, and it classifies the final New Rules as a significant regulatory action.}

_{[3]. As previously reported by Morgan Lewis, the Treasury released proposed regulations on February 8, 2012 implementing the Foreign Account Tax Compliance Act (FATCA). In general, FATCA seeks to prevent tax evasion by identifying U.S. taxpayers who hold accounts with non-U.S. financial institutions, such as banks, offshore investment funds, and other entities. FATCA reporting is generally only applicable with respect to U.S. taxpayers. This includes reporting on nonresident U.S. taxpayers. Our LawFlashes discussing FATCA are available here.}

_{[4]. See Rev. Proc. 2012-24.}

_{[5]. Kevin Wack, Banks Push Back on New Tax Rules for Foreign Accounts, American Banker, May 2, 2012, at 12.}

_{[6]. Guidance on Reporting, supra note 1.}

_{[7]. Department of the Treasury Technical Explanation, Tax Convention with Venezuela, Art. 27, Exchange of Information, p. 2, available here.}

_{[8]. Guidance on Reporting, supra note 1.}

_{[9]. Letter from Francisca Mordi, Vice Pres., Am. Bankers Ass’n, to the Internal Revenue Serv. (Apr. 2, 2011), available here; Letter from Frank Keating, President and CEO, Am. Bankers Ass’n, to the Hon. Mario Diaz-Balart, Vice Chairman of the House Appropriations Fin. Servs. Subcomm., U.S. House of Representatives (March 28, 2012), availablehere; Transcript of Internal Revenue Serv. Hearing on Guidance (REG-146097-09) on Reporting Interest Paid to Nonresident Aliens (May 18, 2011), available here.}

_{[10]. Jared Janes, Foreign Deposits Could Leave Valley Banks under New IRS Regulation, The Monitor, April 28, 2012, available here.}

Chief Litigation Officer Summit – September 13-15, 2012

The National Law Review is pleased to bring you information about the upcoming Chief Litigation Officer Summit:

The Chief Litigation Officer Summit will highlight the current challenges and opportunities through visionary conference sessions and keynote presentations delivered by your most esteemed peers and thought leaders from America’s leading corporations. The one-on-one meetings with leading service providers will offer vast expertise in the area of litigation. All this, seamlessly integrated with informal networking opportunities over three days, will provide a unique interactive forum. Do not miss this opportunity to network, establish new connections, exchange ideas and gain knowledge.

Derivatives Use by Public Companies – A Primer and Review of Key Issues

The Public Companies Group of Schiff Hardin LLP recently had an article regarding Derivatives published in The National Law Review:

Over the last several decades, the use of derivatives as a tool to mitigate and control risk has expanded significantly. Despite well-publicized abuses involving derivatives, the efficacy of derivatives as a means of managing economic and other forms of risk remains widely accepted. The evolving mix of users of derivatives in the last ten years has also impacted the derivatives landscape. Traditionally, commercial hedgers such as processors, mills and large corporations used derivatives to manage risks; today, while commercial hedgers remain active,much of the increase in volume in derivatives is attributable to non-traditional end-users, such as public companies, which have been active users of derivatives, most notably interest rate and foreign currency hedging instruments.

This article provides a brief primer on the various uses of derivatives, including the use of derivatives by public companies to manage risks. It also addresses a number of questions arising out of the Dodd-Frank Act, which provides a new level of regulation over derivatives.

1. What is a Derivative?

Put simply, a derivative is a contract whose value is based upon (or derived from) the value of something else. Virtually every derivative, from the most complex to the most mundane, falls within this definition. The “something else,” which is often referred to as the “underlying” or the “commodity,” can be a security (e.g., a share of company stock or a U.S. Treasury note), a commodity (e.g., gold, soybeans or cattle), an index (e.g., the S&P 500 index), a reference rate (e.g., LIBOR), or virtually anything else to which a value can be assigned and validated. As long as the value of the contract is based on or “derived” from the value of something else, the contract is a derivative.

2. Types of Derivatives

Conceptually, derivatives take many different forms. At the highest and broadest level, there are two types of derivatives: (1) exchange-traded derivatives, and (2) over-the-counter, or “OTC,” derivatives, which are not traded an exchange.

Exchange-traded derivatives include futures, options on futures, security futures and listed equity options. OTC derivatives are privately negotiated contracts conducted almost entirely between institutions on a principal-to-principal basis and designed to permit customers to adjust individual risk positions with greater precision. OTC derivatives include swaps, options, forwards and hybrids of these instruments.

3. Dodd-Frank Act

In July 2010, President Obama signed into law the Dodd-Frank Act. Title VII of the Dodd-Frank Act imposes a new regulatory regime on OTC derivativesand the market for those derivatives. The primary regulators are the Commodity Futures Trading Commission (“CFTC”) for “swaps” and the SEC for “security-based swaps.” Subject to certain exceptions, ^[1] the term “swap” is broadly defined to include most types of products now known as OTC derivatives, including interest rate, currency, credit default and energy swaps. “Security-based swap” is a much narrower category of transactions based on a single security or loan or a “narrow-based security index” (as defined under the Commodity Exchange Act or “CEA”).

The CFTC’s general directive from Congress under the Dodd-Frank Act is to cause as many swaps as possible to be cleared by central clearing entities in order to reduce “systemic risk” to the financial markets, and to have as many swaps as possible traded on CFTC-regulated exchanges, or on or through other CFTC-regulated entities, in order to increase transparency in the markets. The Dodd-Frank Act thus makes it unlawful for a person to enter into a swap without complying with the Commodity Exchange Act and the rules published by the CFTC.

Fortunately, most public company users of derivatives can make use of an exemption under the Dodd-Frank Act. Under Title VII, an “end user” generally means a company that is not a “financial entity” and that uses derivatives to hedge or mitigate commercial risk. The concept is intended to include industrial corporations and other non-financial enterprises that use swaps on interest rates, foreign currencies, energy, commodities and other derivatives, as appropriate to their businesses, to hedge their business risks. A so-called “end-user exemption” from the clearing and exchange trading requirements is generally available to counterparties that (1) are not financial entities, (2) are hedging their own commercial risks and (3) notify the CFTC or SEC, as applicable, how they generally meet their financial obligations associated with entering into uncleared swaps. A public company that relies on the exemption is also required to obtain the approval of its board of directors or other governing body.

4. Use of Derivatives by Public Companies

As end-users, public companies often use derivatives to manage various risks associated with running a large enterprise, including interest rate, foreign currency and commodity risk. According to a recent study, 29 of the 30 companies that comprise the Dow Jones Industrial Average (DJIA) use derivatives. Similarly, a study has found that two-thirds of companies with sales of more than $2 billion use OTC derivatives and more than half of all companies that have sales between $500 million and $2 billion are “very active” in derivatives markets.

Further, the International Swaps and Derivatives Association conducted a survey on the use of derivatives by Fortune Global 500 companies and found that 94% of these companies use derivatives to manage business and macroeconomic risks. According to the survey, the most widely used instruments were foreign exchange and interest rate derivatives. Many industries reported participation at rates greater than 90%, including financial companies (98%), basic materials companies (97%), technology companies (95%), and health care, industrial goods and utilities (92%).

Public companies typically use derivatives to manage interest rate risk and foreign currency risk and to minimize accounting earnings volatility and the present value of their tax liabilities. A company, for instance, may use derivatives to offset increases in the price of commodities it uses in manufacturing or its other operations. Further, large public companies borrow and lend substantial amounts in credit markets. In doing so, they are exposed to significant interest rate risk — they face substantial risk that the fair values or cash flows of interest sensitive assets or liabilities will change if interest rates increase or decrease. These companies also have significant international operations. As a result, they are also exposed to exchange rate risk — the risk that changes in foreign currency exchange rates will negatively impact the profitability of their international businesses. To reduce these risks, companies enter into interest rate and foreign currency swaps, forwards and futures as a hedge against potential exposures.

As a result of the Dodd-Frank Act’s regulation of derivatives, a number of questions arise that public companies must consider (and revisit often as the regulatory landscape changes):

What are the implications of having our swaps — which were previously unregulated — executed on a regulated exchange or facility and cleared through a regulated clearinghouse?
How do we assure compliance with Section 723(b) of the Dodd-Frank Act, which provides that a public company may not enter into non-cleared swaps unless an “appropriate committee of the issuer’s board or governing body has reviewed and approved its decision to enter into swaps that are subject to such exemptions” and other aspects of the end-user exemption? A similar requirement for “approval by an appropriate committee” is included for security-based swaps under the SEC’s jurisdiction.
Are we able to continue to effect bilateral, uncleared swap transactions in the same manner as we have historically done? What alternatives are there to hedge risk?
How will our relationship with our banks change as a result of these evolving regulatory requirements?
To what extent are our transactions in swaps subject to CFTC or SEC jurisdiction and oversight? How does that change over time as new regulations and rules are imposed and the regulatory regime evolves?
How do these rules impact our inter-affiliate transactions?
What type of derivatives risk management infrastructure and compliance monitoring protocol should we have in place?

5. Conclusion

In light of the Dodd-Frank Act and various rulemakings of the CFTC and SEC since its passage, the derivatives markets are undergoing an unprecedented regulatory and structural evolution that will present public company end-users of derivatives with both compliance and disclosure challenges, as well as new opportunities. Public companies should continually assess their use of derivatives and the potential implications under the Dodd-Frank Act as this regulatory regime continues to evolve.

_{1 Among the excepted categories are options on securities subject to the Securities Act of 1933 and the Securities Exchange Act of 1934, contracts for the sale of commodities for future delivery and certain physically settled forward contracts.}

Criminal Tax Fraud and Tax Controversy 2012 – December 6-7, 2012

The National Law Review is pleased to bring you information about the upcoming ABA Criminal Tax Fraud Conference:

When

December 06 – 07, 2012

Where

Wynn Las Vegas
3131 Las Vegas Blvd S
Las Vegas, NV, 89109-1967
United States of America

As in past years, these institutes will offer the most knowledgeable panelists from the government, the judiciary and the private bar. Attendees will include attorneys and accountants who are just beginning to practice in tax controversy and tax fraud defense, as well as those who are highly experienced practitioners. The break-out sessions will encourage an open discussion of hot topics. The program will provides valuable updates on new developments and strategies, along with the opportunity to meet colleagues, renew acquaintances and exchange ideas.

Michigan Zaps Zappers – Cash Business Owners Beware!

The National Law Review recently featured an article by Paul L.B. McKenney of Varnum LLP regarding Cash Business Owners in Michigan:

The proverbial “second set of books” cat and mouse game with taxing authorities now reflects the fact that most point-of-sale, or POS, bookkeeping is done electronically. Michigan recently joined numerous other jurisdictions by enacting tax enforcement spawned legislation making the sale, purchase, installation, transfer or mere possession of any “zapper” software subject to a felony. Zappers are also known as automated sales suppression devices. Michigan’s statute contains a mandatory minimum of one year incarceration and severe monetary sanctions. See MCLA § 750.411w. The statute defines a zapper as a software program, however accessed or possessed, that “falsifies the electronics records of electronic cash registers and other point-of-sale systems, including, but not limited to transaction data and transaction reports.” MCLA § 750.411w(4)(a). In essence it creates a second set of books, albeit electronic. While the sole purpose of zappers is tax evasion, the prosecution does not have to prove intent, merely use, sale or possession. The zapper software is typically run off a USB thumb drive rather than residing on the computer’s hard drive to avoid leaving evidence of its use. However, as noted below, there is a readily identifiable electronic trail. Zappers have been quietly marketed by freelancing IT types and certain cash register sales people.

A not uncommon example illustrates what a zapper does. Assume a restaurant or other cash receipts business grosses $250,000 per month and is highly profitable. A zapper software “entrepreneur” visits the restaurant early in the month and is told precisely what recorded cash bank deposits are as well as credit card charges totals by day. Alternately, the peddler may sell a USB drive and also provide needed technical support. Assume reported sales total $200,000 and there is $50,000 of unreported cash, or “skim.” The zapper software will quickly and accurately modify the sales records a) by transaction b) by day c) to the penny resulting in the credit card charges and cash deposits equaling what is reported on the books. Thus a traditional audit will find that everything appears to be in order, at least until someone finds evidence of the zapper.

Zappers represent significant lost sales tax and other tax dollars to states. For example, three years ago California estimated zappers at restaurants cost that state $2,800,000,000 in receipts and the corresponding New York estimate was $1,700,000,000. See “State governments target tax-cheating software,” Bloomberg Businessweek, April 3, 2012. In an era of record state fiscal problems, this is real money.

The recent Michigan legislation is effective as of August 29, 2012. It is patterned after another enforcement problem the Michigan Department of Treasury encountered and overcame, false cigarette tax stamps. The Michigan Treasury was hemorrhaging cash because of cigarettes that were brought in from out of state and counterfeit Michigan stamps were purchased on a flourishing underground market. The Department of Treasury urged the legislature to adopt legislation that the mere possession of cigarettes with counterfeit stamps required a minimum prison term. Legislation followed, the minimum mandatory jail time virtually ended the fake stamp problem overnight and Treasury receipts from cigarette taxes swelled.

Economic Sanctions Too

The zapper legislation has teeth. In addition to the one-year minimum mandatory term, there is a fine of up to $100,000. However, from a monetary perspective, there is another more costly provision with which requires disgorgement of “all profits associated with the sale or use of …” a zapper. In the above example, if the skim is $50,000 a month, then $600,000 a year is subject to forfeiture. The offending party is also responsible for all Michigan sales, withholding and other taxes, penalties and interest. These other levies include the corporate income tax and individual income tax. Typically cash businesses that use zappers, such as restaurants and retailers selling small dollar amount items, also pay employees all or some of their wages in cash “under the table” and/or purchase food or inventory.

Zapper programs originated in Europe and migrated first to Quebec in North America. They came from jurisdictions where there were value added taxes. The Internal Revenue Service has taken certain steps to target businesses that might employ zappers, and the State of Michigan has taken notice. It should be pointed out that Michigan’s vigorous criminal and civil penalty regime is separate and distinct from the Internal Revenue Service, which is also free to pursue the same individual and business. There is an exchange of information agreement between the Internal Revenue Service and the Michigan Department of Treasury.

Zapper’s Electronic Fingerprints and Enforcement

Those selling zappers to business owners tout that it leaves no electronic fingerprints, and thus is invisible to the IRS and other law enforcement agencies. That dog don’t hunt. The reality is that zappers leave telltale electronic fingerprints, and the IRS and other agencies have sophisticated criminal techies who can readily check a computer system and flag evidence of a zapper.

How have the IRS and Michigan uncovered businesses running zappers? A secret ceases to be secret when two or more people know about it. When the owner, the manager of a restaurant or store, the zapper software peddler and others, such as the controller or bookkeeper, key employees at the restaurant, at least one or more people at each location, etc. know about the zapper, only one needs to talk. Somebody may have reason to talk, such as a problem with the DEA, IRS, FBI or other law enforcement agency and will readily give up the business owner in exchange for no prosecution or a reduction in charges or sentencing. For example, a metro Detroit freelance IT salesman peddling zappers to bars and restaurants was discovered when a party with law enforcement issues named him. That salesman, in exchange for an extremely lenient sentence, in turn identified and cooperated with Federal law enforcement in prosecuting numerous customers for tax evasion. Some of his customers went to jail. The IRS and other federal and state agencies are seasoned veterans of how to play that game most effectively.

Reality

Those who raid businesses with search warrants typically take away computers, hard drives, USB thumb drives, and other hardware for inspection by highly sophisticated technicians. What does a cash business owner face if his or her business is raided by the State Police or other tax or law enforcement personnel and evidence that a zapper has been applied to the electronic books is uncovered? A plethora of problems. A short, non-inclusive list includes:

The new Michigan legislation and its mandatory jail time and economic sanctions;
Michigan criminal sanctions for various false returns as well as associated civil tax liabilities, fraud penalties and other penalties and interest;
IRS criminal issues including, a five year evasion felony per year and a three year max for false statements on a tax return,
Myriad IRS civil liabilities for income tax and payroll taxes and associated penalties as well as interest, compounded daily, and
If there is fraud, then there is no civil statute of limitations in tax. The IRS and Michigan can and do go back many, many years.

In a well-publicized local zapper case, the owner of the LaShish chain of thirteen suburban Detroit restaurants and his wife were found by the IRS with zapper software that underreported over $16,000,000 in skimmed revenues. The owner was indicted on tax and other charges, is currently a fugitive living in Lebanon, his wife went to jail, and the government seized and sold the formerly prosperous restaurants.

Passive Business Owners & Entities With Multiple Locations

Owners are not the only ones who might want to skim, and use a zapper to hide it. A absentee owner as well as owners of multiple locations have two problems if managers or key employees use zappers to hide embezzlement. In addition to being the victim of the skim, the larcenous employee will tell the IRS and Michigan Treasury that the owner must have done it, and the owner has criminal and civil exposure. Such owners can protect themselves by unannounced electronic audits to determine if any zappers have been used. A telltale sign is that servers, per managers, need to be replaced with unusual frequency. That can well be an attempt to hide evidence of electronic tampering..

What To Tell Clients

Smaller business clients that have zappers are not going to boast about it to their counsel. You might pass along a proverbial word to the wise to cash business owners. This new zapper law is out there, it has teeth, and those who ignore it do so at their peril to both personal liberty and treasure. Also, as noted just above, beware of skimming employees.

Negotiating Business Acquisitions Conference – November 1-2, 2012

The National Law Review is pleased to bring you information regarding the upcoming ABA Conference on Business Acquisition Negotiations:

When

November 01 – 02, 2012

Where

Wynn Las Vegas
3131 Las Vegas Blvd S
Las Vegas, NV, 89109-1967
United States of America

FTC Proposes New Rules on Children’s Online Privacy Issues

Michelle Cohen of Ifrah Law recently had an article regarding Children’s Online Privacy published in The National Law Review:

On August 1, 2012, the Federal Trade Commission announced that is issuing a Supplemental Notice of Proposed Rulemaking to modify certain of its rules under the Children’s Online Privacy Protection Act (COPPA). Industry has been waiting on FTC action regarding COPPA, as the agency previously undertook a COPPA rulemaking in September 2011 and proposed modifying certain COPPA rules to account for changes in technology, particularly mobile technology.

The FTC received over 350 comments during that time. After reviewing those comments, the FTC has decided to propose certain additional changes to its COPPA rule definitions.

In summary, COPPA gives parents control over the information websites can collect from their kids. It applies to websites designed for children under 13 – or those that have reason to know they are collecting information from a child. It requires a specific privacy notice and that consent be obtained from parents in many circumstances before children’s information may be collected and/or used.

The FTC has proposed several changes that are of interest. Some are meant to “tighten” the COPPA rule, others are meant to provide some additional flexibility to operators.

The proposed change would make clear that an operator that chooses to integrate the services of third parties that collect personal information from visitors (like ad networks or plug-ins) would itself be considered a covered “operator” under the Rule.
The FTC is also proposing to allow websites with mixed audiences (e.g., parents and over 13) to age-screen visitors to provide COPPA’s protections only to those under 13. However, kid-directed sites or services that knowingly target under-13s as their primary audience or whose overall content is likely to attract kids under that age could not use that method.
Also, the FTC has proposed modifying the definition of what constitutes “personal information” relating to children to make it clear that a persistent identifier falls within that definition if it can be used to recognize a user over time or across different sites or services. The FTC is considering whether activities like site maintenance and analysis, use of persistent identifiers for authenticating users, maintaining user preferences, serving contextual ads, and protecting against fraud and theft should not be considered the collection of “personal information” as long what’s collected is not used or disclosed to contact a specific individual, including through the use of behaviorally-targeted advertising.

Comments on the FTC’s proposed rule changes are due by September 10, 2012.

Rainmaker Retreat: Law Firm Marketing Boot Camp

The National Law Review is pleased to bring you information about the upcoming Law Firm Marketing Boot Camp:

WHY SHOULD YOU ATTEND?

Have you ever gone to a seminar that left you feeling motivated, but you walked out with little more than a good feeling? Or taken a workshop that was great on style, but short on substance?

Ever been to an event that was nothing more than a “pitch fest” that left a bad taste in your mouth? We know exactly how you feel. We have all been to those kinds of events and we hate all those things too. Let me tell you right up front this is not a “pitch fest” where speaker after speaker gets up only trying to sell you something.

We have designed this 2 day intensive workshop to be content rich, loaded with practical content.

We are so confident you will love the Rainmaker Retreat that we offer a 100% unconditional money-back guarantee! At the end of the first day of the Rainmaker Retreat if you don’t believe you have already received your money’s worth, simply tell one of the staff, return your 70-page workbook and the CD set you received and we will issue you a 100% refund.

We understand making the decision to attend an intensive 2-day workshop is a tough decision. Not only do you have to take a day off work (all Rainmaker Retreats are offered only on a Friday-Saturday), but in many cases you have to travel to the event. As a business owner you want to be sure this is a worthwhile investment of your time and money.

WHO SHOULD ATTEND?

Partners at Small Law Firms (less than 25 attorneys) Solo Practitioners and Of Counsel attorneys who are committed to growing their firm. Benefits you will receive:

Solo practitioners who need to find more clients fast on a shoe-string budget. In addition to all the above benefits, solo attorneys will receive these massive benefits:

Law Firm Business Managers and Internal Legal Marketing Staff who are either responsible for marketing the law firm or manage the team who handles the law firm’s marketing. In addition to all the above benefits, Law Firm Business Managers and Internal Legal Marketing Staff will also receive these benefits:

Of Counsel Attorneys who are paid on an “eat what you kill” basis. In addition to all the above benefits, Of Counsel attorneys will also receive these benefits:

Associates who are either looking to grow their book of new clients in the next 6-12 months or want to launch their own private practice. In addition to all the above benefits, Associates will also receive these benefits:

How to be Prepared: When an Employee’s Misconduct Leads to Termination

The National Law Review recently published an article regarding Employee Misconduct written by Preston Clark Worley of McBrayer, McGinnis, Leslie and Kirkland, PLLC:

Terminating an employee can be one of the most difficult tasks for a business owner or human resource manager. It is however the responsibility of both positions and a necessary part of doing business. Termination is difficult under most circumstances because of the personal information an employer may know about an employee. After an employee becomes part of the workforce supervisors often discover personal information, such as an employee’s financial hardships or family difficulties, which makes difficult decisions uncomfortable.

Besides the emotional stress of terminating an employee, there are also legal concerns. Every employer should have steps in place that protect the company against wrongful termination or discrimination lawsuits.

The most important factor when terminating an employee is documentation. You cannot document enough. Employee documentation should describe in detail, all actions and behaviors that lead to all disciplinary actions and ultimately the termination of the employee. Every incident report and reprimand should be documented, clearly outlining the actions taken. (To read more about documentation of misconduct visit http://mcbrayeremploymentlaw.com/2012/08/03/how-to-be-prepared-when-an-employees-misconduct-leads-to-termination/)

Of course, we more easily think to document the incidents and reprimands of an employee, but it is also important for a company to document all trainings, meetings and attempts to assist or improve the employee’s behaviors. It is best to review with the employee all performance expectations and conduct policies, before the employee starts to work and again after any incident of misconduct. Each time and employee is reminded of the expectations and conduct policies; the communications should be documented by the employer and signed by the employee.

If this practice is followed, prior to termination, an employee will have received several reprimands and incident reports that relate to poor performance or policy violations. Even though you have documented this all in the employee’s file, and they have read and signed each document, one more step should solidify the documentation necessary to ensure a proper termination of a difficult employee. Draft a final warning letter, outlining each time the employee has had a problem, and the steps the company has taken to resolve the issue. This letter is similar to a termination letter, in that it spells out exactly what repercussions the employee will suffer (i.e.; termination) if the behavior is not corrected.

If the company has a well-documented employee file, the likelihood of encountering trouble from terminating an employee are greatly minimized.

Retail Law Conference 2012

The National Law Review is pleased to bring you information about the upcoming Retail Law Conference:

at the Westin Galleria in Dallas, Texas

November 7-9, 2012

This event is the perfect opportunity to discuss the latest issues affecting the retail industry while obtaining important continuing legal education (CLE) credits.

Open to retail and consumer product general counsel, senior legal executives and in-house attorneys and their teams, the exceptional dialogue presented at this conference will help your organization navigate the current legal landscape of the industry.

Author: National Law Forum

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