Category: Administrative & Regulatory

Implications of the Use of the Defense Production Act in the U.S. Supply Chain

What owners, operators and investors need to know before accepting funds under the DPA

There has been an expansion of regulations related to Foreign Direct Investment (FDI) in both the United States and abroad. Current economic and geopolitical tensions are driving further expansion of FDI in the U.S. and elsewhere.

Whether by intent or coincidence, the Foreign Investment Risk Review Modernization Act (FIRRMA) regulations that took effect February 13, 2020, included provisions that expanded the Committee on Foreign Investment in the U.S. (CFIUS) and FIRRMA based upon the invocation of the Defense Production Act (DPA) – such as with President Biden’s recent Executive Order evoking the DPA to help alleviate the U.S. shortage of baby formula.

As background, the U.S. regulation of foreign investment in the U.S. began in 1975 with the creation of CFIUS. The 2007 Foreign Investment and National Security Act refined CFIUS and broadened the definition of national security. Historically, CFIUS was limited to technology, industries and infrastructure directly involving national security. It was also a voluntary filing. Foreign investors began structuring investments to avoid national security reviews. As a result, FIRRMA, a CFIUS reform act, was signed into law in August 2018. FIRRMA’s regulations took effect in February 2020.

It is not surprising that there are national security implications to U.S. food production and supply, particularly based upon various shortages in the near past and projections of further shortages in the future. What is surprising is that the 2020 FIRRMA regulations provided for the application of CFIUS to food production (and medical supplies) based upon Executive Orders that bring such under the DPA.

The Impact of Presidential DPA Executive Orders

The 2020 FIRMMA regulations included an exhaustive list of “critical infrastructure” that fall within CFIUS’s jurisdiction. Appendix A to the regulations details “Covered Investment Critical Infrastructure and Functions Related to Covered Investment Critical Infrastructure” and includes the following language:

“manufacture any industrial resource other than commercially available off-the-shelf items …. or operate any industrial resource that is a facility, in each case, that has been funded, in whole or in part, by […] (a) Defense Production Act of 1950 Title III program …..”

Title III of the DPA “allows the President to provide economic incentives to secure domestic industrial capabilities essential to meet national defense and homeland security requirements.” This was arguably invoked by President Trump’s COVID-19 related DPA Executive Orders regarding medical supplies (such as PPEs, tests and ventilators, etc.) and now President Biden’s Executive Order related to baby formula (and other food production).

Based on the intent of FIRRMA to close gaps in prior CFIUS coverage, the FIRRMA definition of “covered transactions” includes the following language:

“(d) Any other transaction, transfer, agreement, or arrangement, the structure of which is designed or intended to evade or circumvent the application of section 721.”

Taken together, the foregoing provision potentially gives CFIUS jurisdiction to review non-U.S. investments in U.S. companies covered by DPA Executive Orders that are outside of traditional M&A structures. This means that even non-controlling foreign investments in U.S. companies (such as food or medical producers) who receive DPA funding are subject to CFIUS review. More significantly, such U.S. companies can be subject to CFIUS review for a period of 60 months following the receipt of any DPA funding.

As a result of DPA-related FDI implications, owners, operators, and investors should carefully assess the implications of accepting funding under the DPA and the resulting restrictions on non-U.S. investors in businesses and industries not historically within the jurisdiction of CFIUS.

Article By David Vance Lucas of Bradley Arant Boult Cummings LLP

For more administrative and regulatory legal news, click here to visit the National Law Review.

© 2022 Bradley Arant Boult Cummings LLP

EEOC and the DOJ Issue Guidance for Employers Using AI Tools to Assess Job Applicants and Employees

Employers are more frequently relying on the use of Artificial Intelligence (“AI”) tools to automate employment decision-making, such as software that can review resumes and “chatbots” that interview and screen job applicants. We have previously blogged about the legal risks attendant to the use of such technologies, including here and here.

On May 12, 2022, the Equal Employment Opportunity Commission (“EEOC”) issued long-awaited guidance on the use of such AI tools (the “Guidance”), examining how employers can seek to prevent AI-related disability discrimination. More specifically, the Guidance identifies a number of ways in which employment-related use of AI can, even unintentionally, violate the Americans with Disabilities Act (“ADA”), including if:

  • (i) “[t]he employer does not provide a ‘reasonable accommodation’ that is necessary for a job applicant or employee to be rated fairly and accurately by” the AI;
  • (ii) “[t]he employer relies on an algorithmic decision-making tool that intentionally or unintentionally ‘screens out’ an individual with a disability, even though that individual is able to do the job with a reasonable accommodation”; or
  • (iii) “[t]he employer adopts an [AI] tool for use with its job applicants or employees that violates the ADA’s restrictions on disability-related inquiries and medical examinations.”

The Guidance further states that “[i]n many cases” employers are liable under the ADA for use of AI even if the tools are designed and administered by a separate vendor, noting that “employers may be held responsible for the actions of their agents . . . if the employer has given them authority to act on [its] behalf.”

The Guidance also identifies various best practices for employers, including:

  • Announcing generally that employees and applicants subject to an AI tool may request reasonable accommodations and providing instructions as to how to ask for accommodations.
  • Providing information about the AI tool, how it works, and what it is used for to the employees and applicants subjected to it. For example, an employer that uses keystroke-monitoring software may choose to disclose this software as part of new employees’ onboarding and explain that it is intended to measure employee productivity.
  • If the software was developed by a third party, asking the vendor whether: (i) the AI software was developed to accommodate people with disabilities, and if so, how; (ii) there are alternative formats available for disabled individuals; and (iii) the AI software asks questions likely to elicit medical or disability-related information.
  • If an employer is developing its own software, engaging experts to analyze the algorithm for potential biases at different steps of the development process, such as a psychologist if the tool is intended to test cognitive traits.
  • Only using AI tools that measure, directly, traits that are actually necessary for performing the job’s duties.
  • Additionally, it is always a best practice to train staff, especially supervisors and managers, how to recognize requests for reasonable accommodations and to respond promptly and effectively to those requests. If the AI tool is used by a third party on the employer’s behalf, that third party’s staff should also be trained to recognize requests for reasonable accommodation and forward them promptly to the employer.

Finally, also on May 12th, the U.S. Department of Justice (“DOJ”) released its own guidance on AI tools’ potential for inadvertent disability discrimination in the employment context. The DOJ guidance is largely in accord with the EEOC Guidance.

Employers utilizing AI tools should carefully audit them to ensure that this technology is not creating discriminatory outcomes.  Likewise, employers must remain closely apprised of any new developments from the EEOC and local, state, and federal legislatures and agencies as the trend toward regulation continues.

Article By Joseph C O’Keefe and Edward C. Young of Proskauer Rose LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.

IRS Announces New Director of Whistleblower Office

On May 12, the U.S. Internal Revenue Service (IRS) announced that John W. Hinman will serve as the Director of the IRS Whistleblower Office. Hinman will oversee the agency’s highly successful whistleblower award program. Since 2007, the IRS has awarded whistleblowers over $1 billion based on the collection of over $6 billion in back taxes, interest, penalties, and criminal fines and sanctions.

“We hope that as the director Mr. Hinman will have an open door policy for whistleblowers and their advocates,” said leading whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “We look forward to working with the new director to ensure that the incredibly important tax whistleblower program properly deters fraudsters and incentivizes whistleblowers to step forward. We hope that processes are put into place that speed-up the final determinations in reward cases,” added Kohn, who also serves as the Board of Directors of the National Whistleblower Center.

The IRS Whistleblower Program has been an immense success since it was established in 2006. For example, the program incentivized the whistleblowing of Bradley Birkenfeld, the UBS banker turned whistleblower whose disclosures helped lead to the dismantling of the Swiss banking system as it existed. However, the program has recently been plagued by a number of issues, including massive delays in the issuance of whistleblower awards. According to the IRS Whistleblower Office’s most recent annual report to Congress, the IRS currently takes 10.79 years to process a whistleblower case, leading to a backlog of over 23,000 cases.

Prior to his new appointment, Hinman served as Director of Field Operations for Transfer Pricing Practice in the IRS’s LB&I Division. According to the IRS, in this position, he “oversaw field operations of the Transfer Pricing Practice economists, revenue agents, and tax law specialists who focus on complex transfer pricing issues of multinational business enterprises.” Hinman will take over as Director of the IRS Whistleblower Office from Lee D. Martin, who left the agency on April 9 to serve as the Director of the Directorate of Whistleblower Protection Programs at the Occupational Safety and Health Administration (OSHA).

Geoff Schweller also contributed to this article.

Copyright Kohn, Kohn & Colapinto, LLP 2022. All Rights Reserved.
For more articles about whistleblowers, visit the NLR White Collar Crime & Consumer Rights section.

Environmental Enforcement, Suspension and Debarment With Robert Wagman, Jason Hutt and Kevin Collins [PODCAST]

On this episode of the Bracewell Environmental Law Monitor, host Daniel Pope talks with Kevin Collins, Jason Hutt and Robert Wagman about current trends and environmental and federal enforcement.

Kevin Collins is a partner in our Austin office.  He is a former Assistant U.S. Attorney from the Eastern District of Texas, and he helps manage the problems that arise during government investigations.

Jason Hutt is a partner in our DC office and chair of the firm’s environmental department.  He advises and defends clients on the complex environmental and energy issues of our day.

Robert Wagman is a partner in our DC office and heads up the government contracts practice.  He does a lot of government enforcement work.

What are you seeing generally these days from DOJ in the criminal enforcement context? What is the EPA doing on the civil side?

There’s been a resurgence and activity at DOJ. I think they feel invigorated under the new administration. The stats support that feeling. The United States attorney’s offices across the country are up about 10 percent in their charges. They’ve charged roughly 5,500 individuals for white-collar related crimes. Environment Natural Resources Division, in particular, at DOJ has already indicted 11 companies and 34 individuals. Many of those individuals are senior executives. Budget wise, they’re asking for a lot more money. So, there’s definitely interest in going after bad actors, particularly individuals at companies to a certain extent.

We’re still enforcing the same environmental laws, but the leniency factor or the posture factor is different. Part of the settlement expectations is increasingly a focus on protection of the community in which a facility or a violator operates. We are seeing increased expectations related to fence line monitoring demands and reparations or mitigation under a resolution that involves making things right, but in the community where the violation occurs or where the environmental damage associated with that violation occurs. Those are pieces that are seen as a posture shift in the government.

One of the terms that has come up a few times on this podcast already is the term suspension and debarment.  Can you give us your quickest suspension and debarment for dummies course so that we can all be on the same page?

A lot of companies don’t realize suspension debarment will impact them. It’s not just for government contractors. A lot of times it’ll apply to both procurement actions and what’s called non-procurement actions. The term that’s used in the regulations is cover transactions, which is essentially anything that’s not exempted out. When government money is involved, chances are it’s a covered transaction. This comes up a lot with federal leases. If you are a federal lessee, or if you are an oil field services company servicing federal lessees, suspension debarment can have a tremendous impact on your business. A lot of times this is companies, individuals. They don’t think about suspension and debarment and the administrative remedy that could be associated with it. So, in broad strokes, suspension and debarment means you’re excluded from doing business with the federal government for some period of time, usually three years. But it can vary. It usually follows criminal or civil enforcement, but it doesn’t have to follow civil or criminal enforcement. It can come from any referrals.

What are some areas where suspension and debarment issues might be a higher risk than others?

Environmental because of the statutory debarment provisions. It’s much more likely to hit the radar of the suspension and debarment official than other types of enforcement activities. If you are doing a lot of business with the government, you’re more likely to end up on somebody’s radar. Again, every agency has their own suspension and debarment official, so you could be facing debarment. It’s not just an EPA thing or not just one particular agency. Any agency in theory could debar you. If you end up being debarred, it applies company-wide.

There’s also a statutory debarment under several of the environmental statutes, but also there’s an ability to find yourself in the criminal culpability realm based upon mere negligence. That’s very different than most of these other statutes that we’re talking about. It’s the coupling those two things that gives rise to this being a heightened risk in the environmental world. In particular, when you have an incident or an accident, the notion of negligence is almost in the minds of enforcement folks because there was some significant amount of environmental damage or loss of human life that in their minds, and perhaps appropriately, that shouldn’t happen.

What best practices can companies implement into their accountability systems to make sure they’re looking at these kinds of issues and where their exposures are?

There really is no substitute for good corporate governance — all the types of things that say this is a trustworthy company the government can feel comfortable doing business with. It’s going to help in your criminal enforcement, your civil enforcement and everything else that you’re doing.

© 2022 Bracewell LLP
For more articles about climate change regulations, visit the NLR Environmental & Energy section.

Antitrust Enforcers’ “Second Listening” Forum On Merger Reform Highlights Issues In The Healthcare Industry

In March of this year the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) jointly announced a series of “listening forums” that would help gather real world input from participants in key industry segments on possible reforms to the antitrust regulations pertaining to mergers and acquisitions.1 Co-led by DOJ Deputy Assistant Attorney General (“DAAG”) Doha Mekke and FTC Chairperson Lina Khan, the second of the four announced forums, focusing on healthcare, was held on April 14, 2022. 2  In addition to DAAG Mekki and Chairperson Khan, the program included eight panelists that provided perspectives from nurses, doctors, patients, pharmacists and small businesses. 3

DAAG Mekki started off the discussion by reaffirming the antitrust enforcement agencies’ collective commitment that “healthcare markets remain competitive” because it “is essential to our livelihood or the livelihood of the nation.” Mekki referenced ongoing work by the agencies in the healthcare field, including recent DOJ enforcement actions. 4

The healthcare panelists highlighted several ongoing issues in the industry, such as the adverse impact of care due to post-merger hospital staff downsizing that was tied to merger-specific efficiencies, reduced options to tertiary care, higher healthcare costs for patients, and unfair competition in the pharmaceutical and small business markets, and other impacts in the research and labor markets.

Chairperson Khan indicated that the comments resonated with the concerns that the FTC had in the hospital, pharmacy benefits management, and pharmacy industries. Ms. Khan also suggested a renewed interest in examining the potential anticompetitive effects of vertical integration in addition to horizontal mergers and acquisitions, which is consistent with the FTC’s position when it indicated that it wanted to revisit this issue while withdrawing the Vertical Merger Guidelines in 2021. Khan also reaffirmed the importance of examining anticompetitive effects in the labor market. All of these issues, according to Khan, are important in assessing how the antitrust laws can be used to improve the quality of healthcare for patients.

The forum ended with some of the more than two hundred public comments, most of which echoed similar concerns raised by the panelists in addition to concerns such as disparities in hospital-physician group contracting situations and racial disparities in access to healthcare as a result of healthcare system mergers.

Once again, all signs point toward an unprecedented time in antitrust enforcement in the healthcare industry. Accordingly, it is important that healthcare companies revisit, revise, and implement best practices with regard to their respective antitrust compliance programs. A proactive, as opposed to a reactive, approach would provide companies the best risk management strategy. It is also important to engage antitrust counsel early in potential transactions to assess how the antitrust agencies may view the deal.

The DOJ and FTC Listening Forums continue with Media and Entertainment, which was held on April 27, 2022, and the final one on Technology, which will be held on May 12, 2022. Click here to download the alert. 

FOOTNOTES

1    “Forums to focus on markets commonly impacted by mergers: food and agriculture, health care, media and entertainment, and technology,” March 17, 2022, available at: https://www.ftc.gov/news-events/news/press-releases/2022/03/ftc-justice-department-launch-listening-forums-firsthand-effects-mergers-acquisitions

2   See “Antitrust Enforcers’ First ‘Listening Forum’ On Merger Reform Highlights Ongoing Concerns in the Food and Agriculture Industry” May 9, 2022, available at: https://www.polsinelli.com/intelligence/antitrust-forum-highlights-concerns-in-food-and-ag

3 Full transcript of forum available at: https://www.ftc.gov/system/files/ftc_gov/pdf/FTC-DOJ-Listening-Forum-%20Health-Care-Transcript.pdf. It should be noted that Assistant Attorney General Jonathan Kanter did make an appearance at the end of the session, reiterating the importance of this forum.

4    See “DOJ Faces Two Strikeouts in First Health Care Wage-Fixing and ‘No Poach’ Prosecutions,” April 20, 2022, available at: https://www.polsinelli.com/intelligence/doj-faces-two-strikeouts-in-first-health-care

© Polsinelli PC, Polsinelli LLP in California
Article By Arindam Kar with Polsinelli PC.
For more articles about antitrust law, visit the NLR Antitrust law section.

Calling All Whistleblowers: Department of Justice Launches Office of Environmental Justice

Last week, the United States Attorney General announced the creation of the Office of Environmental Justice (OEJ) within the Department of Justice. The OEJ will manage DOJ’s environmental justice projects and “serve as the central hub for our efforts to advance our comprehensive environmental justice enforcement strategy” and address the “harm caused by environmental crime, pollution, and climate change.”

In his speech, Attorney General Merrick B. Garland remarked that OEJ will “prioritize the cases that will have the greatest impact on the communities most overburdened by environmental harm” in partnership with the Civil Rights Division, Office for Access to Justice, Office of Tribal Justice, and United States Attorneys’ Offices.
Whistleblowers take note: violations of environmental laws (Clean Air Act, Clean Water Act) can be a basis for a False Claims Act case.

In 2019, the DOJ settled a case against a domestic producer of Omega-3 fish oil supplements, fishmeal, and fish solubles for livestock and aquaculture feed. The producer allegedly falsely certified compliance with federal environmental laws on a loan application. Under the terms of the settlement, the fish oil producer paid $1 million. A former employee blew the whistle on their employer’s fishy business and was rewarded $200,000 as part of a qui tam lawsuit.

False certification of environmental law compliance harms taxpayers, workers, residents, and the environment for generations. The Assistant Attorney General of the DOJ’s Civil Division said about the case, “Companies will face appropriate consequences if they misrepresent their eligibility to participate in federal programs and divert resources from those who should receive federal support.” It’s up to employees of manufacturers, contractors, construction companies, power plants, and others who receive government funds to report environmentally hazardous misconduct, so that, as the U.S. Attorney said, “Businessmen and companies that lie to get their hands on taxpayer money will be held accountable for their actions.”

Article By Eva Gunasekera and Renée Brooker of Tycko & Zavareei LLP

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

© 2022 by Tycko & Zavareei LLP

EPA Proposes TSCA Reporting and Recordkeeping Requirements for Asbestos

On May 6, 2022, the U.S. Environmental Protection Agency (EPA) proposed reporting and recordkeeping requirements for asbestos under Section 8(a) of the Toxic Substances Control Act (TSCA). 87 Fed. Reg. 27060. EPA proposes to require certain persons that manufactured (including imported) or processed asbestos and asbestos-containing articles (including as an impurity) in the four years prior to the date of publication of the final rule to report electronically certain exposure-related information. The proposed rule would result in a one-time reporting obligation. EPA “emphasizes that this proposed requirement would include asbestos that is a component of a mixture.” According to the notice, the information sought includes quantities of asbestos (including asbestos that is a component of a mixture) and asbestos-containing articles that were manufactured (including imported) or processed, types of use, and employee data. EPA and other federal agencies will use reported information in considering potential future actions, including risk evaluation and risk management activities. EPA requests public comment on all aspects of the proposed rule and also has identified items of particular interest for public input. Comments are due July 5, 2022.

Action EPA Is Taking

EPA proposes to require asbestos manufacturers (including importers) and processors to report to EPA certain information known to or reasonably ascertainable by those entities. EPA states that for this action, the term “asbestos” includes various forms of asbestos, including Libby Amphibole asbestos. The following is a brief list of the primary data requirements being proposed:

  • Asbestos Domestic Manufacturers (Asbestos Mine and Mill): The provisions in the proposed rule would require asbestos domestic manufacturers to provide the quantity manufactured per asbestos type, use, and employee exposure information to EPA. This would include situations in which asbestos is being mined or milled as an intentional or non-intentional impurity, such as in vermiculite and talc.
  • Asbestos Importers: The provisions in the proposed rule would require importers of asbestos to provide the quantity imported per asbestos type, use, and employee exposure information. This includes importers of mixtures containing asbestos, articles containing asbestos components, and impurities (in articles, bulk materials, or mixtures, such as in talc and vermiculite).
  • Asbestos Processors: The provisions of the proposed rule would require processors of asbestos (including processors of mixtures or articles) to provide the quantity processed per asbestos type, use, and employee exposure information. This includes both primary processors and secondary processors of asbestos. This would include situations in which asbestos is appearing as an intentional or non-intentional impurity, such as in vermiculite and talc.

Chemical Substances that Would Be Reportable under the Rule

EPA proposes to require the reporting of information on specific asbestos forms, or if specific information is not known or reasonably ascertainable, reporting on “asbestos” as it is more generally listed on the TSCA Inventory. EPA also proposes to require the reporting of information related to asbestos as it is manufactured (including imported) or processed in bulk, as a component of a mixture, in an article, or as an impurity in bulk materials or products.

Asbestos Forms

EPA proposes to obtain manufacturing (including importing) and processing information associated with the following different asbestos forms, and therefore is proposing to require that reporting be completed for each of the forms, to the extent that the information is known or reasonably ascertainable. If the specific asbestos type is unknown, a submitter would provide information under the general asbestos form (Chemical Abstracts Service Registry Number (CAS RN) 1332-21-4).

Asbestos — CAS RN 1332-21-4 Amosite — CAS RN 2172-73-5
Chrysotile — CAS RN 132207-32-0 Anthophyllite — CAS RN 77536-67-5
Crocidolite — CAS RN 12001-28-4 Tremolite — CAS RN 77536-68-6
Actinolite — CAS RN 77536-66-4 Libby Amphibole Asbestos — CAS RN not applicable (mainly consisting of tremolite [CAS RN 77536-68-6], winchite [CAS RN 12425-92-2], and richterite [CAS RN 17068-76-7])

Asbestos as an Impurity

EPA states that “impurity” means a chemical substance that is unintentionally present with another chemical substance, citing 40 C.F.R. Section 704.3. According to EPA, asbestos may occur naturally as an impurity in other products such as talc, vermiculite, and potentially other substances. These products are distributed and used in commerce in the United States. If all other reporting conditions are met, these products would be subject to reporting under this rule. EPA proposes to collect data on asbestos as an impurity because EPA may lack data on the extent to which asbestos as an impurity occurs in products under TSCA jurisdiction that are currently being manufactured (including imported) or processed. EPA notes that data on asbestos as an impurity could better inform the Part 2 asbestos risk evaluation where EPA will determine and then evaluate the relevant conditions of use of asbestos in talc.

Articles Containing Asbestos

The rule would require reporting on articles containing asbestos (including as an impurity). EPA notes that an “article” is defined in 40 C.F.R. Section 704.3 as “a manufactured item (1) which is formed to a specific shape or design during manufacture, (2) which has end-use function(s) dependent in whole or in part upon its shape or design during end use, and (3) which has either no change of chemical composition during its end use or only those changes of composition which have no commercial purpose separate from that of the article, and that result from a chemical reaction that occurs upon end use of other chemical substances, mixtures, or articles; except that fluids and particles are not considered articles regardless of shape or design.” EPA proposes to collect more data on imported articles containing asbestos. According to EPA, these data could inform Part 2 of the TSCA Risk Evaluation for Asbestos where EPA will determine and then evaluate the relevant conditions of use of such articles containing asbestos. Articles included in Part 1 of the TSCA Risk Evaluation for Asbestos included brake blocks for use in the oil industry, rubber sheets for gaskets used to create a chemical-containment seal in the production of titanium dioxide, certain other types of preformed gaskets, and some vehicle friction products (Ref. 18); EPA states that it “is interested in identifying if there are other articles or if there is information about specific forms of asbestos in these articles.”

Asbestos that Is a Component of a Mixture

EPA states that under TSCA Section 3(10), the term “mixture” means “any combination of two or more chemical substances if the combination does not occur in nature and is not, in whole or in part, the result of a chemical reaction; except that such term does include any combination which occurs, in whole or in part, as a result of a chemical reaction if none of the chemical substances comprising the combination is a new chemical substance and if the combination could have been manufactured (including imported) for commercial purposes without a chemical reaction at the time the chemical substances comprising the combination were combined.” EPA proposes to collect data on asbestos in circumstances where it is a component of a mixture to inform Part 2 of the TSCA Risk Evaluation for Asbestos. In the Part 2 Evaluation, EPA will determine the relevant conditions of use of asbestos in talc; EPA will use the results to evaluate asbestos exposures and associated risks.

Reporting Requirements for Small Businesses

EPA notes that although TSCA Section 8(a)(1) provides an exemption for small manufacturers (including importers) and processors, TSCA Section 8(a)(3) enables EPA to require small manufacturers (including importers) and processors to report pursuant to TSCA Section 8(a) with respect to a chemical substance that is the subject of a rule proposed or promulgated under TSCA Section 4, 5(b)(4), or 6, an order in effect under TSCA Section 4 or 5(e), a consent agreement under TSCA Section 4, or relief that has been granted under a civil action under TSCA Section 5 or 7. According to EPA, six of the asbestos types subject to the proposed rule (chrysotile, crocidolite, amosite, anthophyllite, tremolite, and actinolite) are subject to a TSCA Section 6 rule under the Asbestos Ban and Phaseout rule of 1989, and therefore EPA is proposing that these forms of asbestos are not eligible for a small manufacturer (including importer) or processor exemption. EPA states that Libby Amphibole asbestos is not subject to an applicable proposed or promulgated rule, order, or consent agreement, and is not the subject of relief that has been granted under a civil action under TSCA Section 5 or 7. Therefore, EPA proposes that Libby Amphibole asbestos continue to be eligible for such an exemption.

EPA’s experience with the TSCA Risk Evaluation for Asbestos Part 1: Chrysotile Asbestos indicates that small businesses are associated with certain identified conditions of use associated with asbestos. Because EPA has much less information on the activities of small businesses, it is concerned that certain conditions of use for which it lacks detailed information may be conducted largely or entirely by small businesses. EPA states that it believes that exempting all small businesses from reporting may exclude most or all of the reporting for some conditions of use, severely hindering EPA’s risk evaluation or risk management activities. As a result, EPA is proposing that small businesses — small manufacturers (including importers) and processors of asbestos and asbestos mixtures (other than Libby Amphibole asbestos) — will need to maintain records and report under this action.

At the time of the proposed rule, Libby Amphibole asbestos is not the subject of any of the activities described in TSCA Section 8(a)(3) and therefore manufacturers (including importers) and processors of that substance may be eligible for a small business exemption.

The Proposed Reporting Standard

EPA proposes to use the reporting standard used for certain other TSCA Section 8(a) reporting requirements, including Chemical Data Reporting (CDR). EPA states that this standard requires that manufacturers (including importers) and processors report information to the extent that the information is known to or reasonably ascertainable by the manufacturer (including importer) or processor. “Known to or reasonably ascertainable by” includes “all information in a person’s possession or control, plus all information that a reasonable person similarly situated might be expected to possess, control, or know.” According to EPA, this reporting standard requires reporting entities to evaluate their current level of knowledge of their manufactured products (including imports) or processed products, as well as evaluate whether there is additional information that a reasonable person, similarly situated, would be expected to know, possess, or control. This standard carries with it an exercise of due diligence, and EPA notes that the information-gathering activities that may be necessary for manufacturers (including importers) and processors to achieve this reporting standard may vary from case-to-case.

Under this standard, submitters conduct a reasonable inquiry within the full scope of their organization (not just the information known to managerial or supervisory employees). This may also entail inquiries outside the organization to fill gaps in the submitter’s knowledge. According to EPA, examples of the types of information that are considered to be in a manufacturer’s (including importer’s) or processor’s possession or control, or that a reasonable person similarly situated might be expected to possess, control, or know include: files maintained by the manufacturer (including importer) or processor such as marketing studies, sales reports, or customer surveys; information contained in standard references showing use information or concentrations of chemical substances in mixtures, such as a safety data sheet (SDS) or a supplier notification; and information from CAS or from Dun & Bradstreet (D-U-N-S). It may also include knowledge gained through discussions, conferences, and technical publications.

EPA states that it “acknowledges that it is possible that a manufacturer (including importer) or processor, particularly an importer of articles containing asbestos (including as an impurity), may not have knowledge that they have imported asbestos and thus not report under this rule, even after they have conducted their due diligence under this reporting standard as described previously.” According to EPA, such an importer should document its activities to support any claims it might need to make related to due diligence. In the event that a manufacturer (including importer) or processor does not have actual data (e.g., measurements or monitoring data) to report to EPA, the manufacturer (including importer) or processor would be required to make “reasonable estimates” of such information. “Reasonable estimates” may rely, for example, on approaches such as mass balance calculations, emissions factors, or best engineering judgment.

Timing of Reporting

The proposed rule would result in a one-time reporting obligation. EPA proposes reporting for persons who have manufactured (including imported) or processed asbestos at any time during the four complete calendar years prior to the effective date of the final rule. EPA anticipates that the four calendar years would be 2019 to 2022. EPA states that these entities would report during a three-month submission period that EPA proposes would begin six months following the effective date of the final rule. Therefore, according to EPA, manufacturers (including importers) and processors would have up to nine months following the effective date of the final rule to collect and submit all required information to EPA.

EPA states that it believes that providing six months between the effective date of the rule and the start of the submission period allows sufficient time for both EPA to prepare the final reporting tool and for submitters to familiarize themselves with the rule and compile the required information. Since this TSCA Section 8(a) reporting rule would result in the collection of similar information to that collected under CDR, EPA anticipates some submitters would be familiar with the types of information requested and how to report. EPA “believes that three months would be adequate time for submissions, in addition to the six-month period between the effective date and the start of the submission period.” EPA requests public comment on the submission period start date and duration, as well as alternative compliance timelines for small businesses.

Reporting of Information

EPA proposes different reporting requirements based on a two-part knowledge-based reporting approach to obtain as complete a picture as possible of the manufacturing (including importing), processing, and use of asbestos. EPA notes that because asbestos can be included in small quantities in some products, it expects that using a threshold concentration for reporting would eliminate much of the information that may be useful to support EPA’s TSCA risk evaluation and risk management efforts. Therefore, EPA proposes that reporting would be required whenever the presence of asbestos is known or reasonably ascertainable. EPA states that it is also aware that there may be circumstances under which a manufacturer (including importer) or processor is unable to provide a reliable quantity of the asbestos in their products because the percentage of asbestos in their products is not known or reasonably ascertainable by them. For those situations, EPA proposes a short form (Form A) for attestation purposes. For other situations, submitters that can determine or estimate the quantity would provide more detailed information in the full form (Form B). EPA anticipates that most submitters would know or be able to estimate the quantity of the asbestos and would complete the full form.

Request for Comments

EPA requests comment on the content of the proposed rule and the Economic Analysis prepared in support of it. In addition, EPA provides a list of issues on which it is specifically requesting public comment. EPA encourages all interested persons to submit comments on these issues, and to identify any other relevant issues as well. EPA requests that commenters making specific recommendations include supporting documentation where appropriate. The list of issues EPA has identified include:

  • EPA solicits comment on the total number of manufactures (including importers) and processors that will be impacted by the promulgation of the rule, and on the related burden and costs for reporting. In addition, due to the lack of information on the extent to which asbestos occurs as an impurity, EPA states that it was unable to determine the number of potential manufacturers (including importers) or processors of asbestos as an impurity that would report under this rule. EPA requests comment on the number of manufacturers (including importers) and processors that may be subject to the proposed rule due to the presence of impurities in their products, and on the related burden and cost for reporting.
  • Because there is no existing small processers definition that would be applicable under TSCA Section 8(a), EPA requests comment on how best to provide guidance for small processors of Libby Amphibole asbestos.
  • EPA seeks comment on what additional guidance, if any, might be useful for helping entities, including small businesses, understand the reporting standard, as well as how the reporting standard would apply to impurities. EPA requests public comment on the submission start date and duration, including for small businesses.
  • EPA requests comment on whether there should be a threshold for reporting using Form B and, if so, whether the threshold should be concentration-based (e.g., a certain percentage) or annual volume-based. In addition, EPA requests comment on whether any submitter under the threshold should alternatively report using Form A. According to EPA, having a threshold for Form B may decrease burden on certain submitters while still allowing EPA to obtain information on all bulk materials, mixtures, and articles with known asbestos content. The substances subject to the rule can occur naturally as impurities in other products that may be handled in very large volumes, such as talc, vermiculite, and potentially other substances. EPA notes that a de minimis concentration could reduce the compliance determination and reporting burdens. Comments suggesting threshold levels should include the justification for that particular level.
  • EPA requests comment on whether there should be other end product types listed in Table 4 in proposed 40 C.F.R. Section 704.180(e)(4)(iv)(B). In addition, EPA is interested in whether the units of measure listed with the product types are appropriate.
  • EPA identifies additional data elements related to employee data, wastewater discharge and waste disposal, air emissions data, and customer sites data considered for this proposed rule and solicits public comment on whether any of the additional data elements should be included in the action. While EPA believes the proposed data elements provide sufficient information for use by EPA and other federal agencies in potential actions involving asbestos, EPA seeks comment on whether any additional data elements should be included in this action.
  • EPA seeks comment on what additional guidance, if any, might be useful.

Commentary

As EPA did in its proposed per- and polyfluoroalkyl substances (PFAS) Section 8(a) reporting rule, EPA is narrowing the exemptions available. In this case, EPA is voiding the article exemption (40 C.F.R. § 711.10(b)), the impurity exemption (40 C.F.R. § 711.10(c) by reference to 40 C.F.R. § 720.30(h)(1)), and the naturally occurring substance exemption (40 C.F.R. § 711.6(a)(3)) to CDR reporting. As proposed, the research and development (R&D) exemption would be available. As EPA argues, the existing Section 6 rule on asbestos already voids the small business exemption (40 C.F.R. § 711.9).

While seeking information on asbestos that may be present in articles or may be present as an impurity, EPA must recognize that seeking the information retrospectively will likely yield little different information than if EPA were to seek the information prospectively.

EPA oddly asserts that this rule will garner information that has not been reported previously under CDR, especially from entities that have not had to report, and that reporters will be familiar with the CDR reporting tool. Bergeson & Campbell, P.C. (B&C®) expects that there will be many potential reporters, at least hundreds, if not thousands, that have never had to report because the products they manufacture, import, or process have been exempt, because of either the article or the impurity exemption. These new reporters will not be familiar with the CDR reporting tool or the CDR policies and guidance. Stakeholders, including individual companies, trade associations, and other non-governmental organizations (NGO), and EPA will address these issues to ensure non-traditional reporters are engaged. Guidance from EPA will be critically important: What is EPA’s expectation of the level of due diligence to document that an importer (of an article or a substance) has met its obligation to determine if asbestos is present in a product or article and document that reporting is not required or if reporting is required that a particular data element is not known or reasonably ascertainable?

Stakeholders are strongly urged to comment on whether a de minimis threshold (either as a quantity or a percentage, or both) is appropriate, either for neat asbestos, asbestos as part of a mixture, or asbestos as part of an article. For example, if a company imports 100 grams of asbestos, should that be a reportable event? Or if an importer knows that asbestos is not present above 100 parts per million in, for example, talc, but does not know if asbestos is or is not present below that threshold, should that import be reported? Similarly, what extent of knowledge is expected for imported articles? Suppliers may not be willing to certify that no asbestos is present at any level, especially in complex goods. Should an importer that receives that response report the presence/absence of asbestos as not known or reasonably ascertainable or not report at all?

We do not question that EPA has a legitimate need for information related to manufacturing, import, or processing of asbestos and asbestos-containing products and articles. We hope that stakeholders comment on the balance between the burden that EPA imposes under the proposal on potential reporters and the likelihood of such burden garnering meaningful information that will actually contribute to EPA’s risk evaluation and risk management. We hear stakeholders state that “EPA needs to know what is in products.” While true, it is reasonable to take the position that potential reporters “should have known” what was in products when there was no requirement to develop and document such knowledge until EPA proposed this rule. Now EPA asks for such potential reporters to go back in time and see what information might have been available, and offers the option to report that the information was not known or reasonably ascertainable without acknowledging that the significant burden is not filling out the form, it is researching the information that might have to be included in the form. Imagine if EPA imposed this burden on individuals — that each individual would have to search records of each product purchased online in a four-year period to see if there was any information provided by the supplier whether asbestos was present or not and, if present, at what level. The search would likely turn up little that is meaningful, so there would be little to report, but it is the search that would be the greatest burden.

©2022 Bergeson & Campbell, P.C.
Article by the Government Regulation practice group with Bergeson & Campbell P.C.
For more articles about the EPA, visit the NLR Environmental & Energy.

ARPA-E: Biden’s Proposed FY 2023 Budget Boosts Investment in Clean Energy Technologies

On March 28, 2022, the Biden-Harris Administration sent the President’s Budget for Fiscal Year (FY) 2023 to the United States Congress (“Congress”). The President’s proposed $5.8 trillion budget for FY 2023 allocates billions of dollars toward combating climate change and boosting clean energy development. Biden’s budget requests $48.2 billion for the Department of Energy (“DOE”), with $700 million of those funds allocated to the DOE’s Advanced Research Projects Agency-Energy program (“ARPA-E”).[1] With these increased funds, the Biden administration plans for ARPA-E to expand its scope beyond energy technology–focused projects to include climate adaptation and resilience innovations.[2]

What Is ARPA-E?

ARPA-E is a United States federal government agency under the purview of the Department of Energy that funds and promotes the research and development of advanced energy technologies. ARPA-E was recommended to Congress in the 2005 National Academies report Rising Above the Gathering Storm: Energizing and Employing America for a Bright Economic Future, which published recommendations for federal government actions to maintain and expand U.S. competitiveness.[3] In 2007, ARPA-E was officially created after Congress implemented a number of the report’s recommendations by enacting the America COMPETES Act.[4] The 2007 Act was superseded by the America COMPETES Reauthorization Act of 2010, which incorporated much of the original language of the 2007 Act but made some modifications to ARPA-E structure.[5] In 2009, ARPA-E officially commenced operations after receiving its first appropriated funds through the American Recovery and Reinvestment Act of 2009 —$400 million to fund the establishment of ARPA-E.[6]

ARPA-E’s mission is statutorily defined as overcoming “the long-term and high-risk technology barriers in the development of energy technologies.”[7] This involves the development of energy technologies that will achieve various goals, including the reduction of fossil fuel imports, the reduction of energy-related emissions, improvements in energy efficiency, and increased resilience and security of energy infrastructure.[8] The statute directs ARPA-E to pursue these objectives through particular means:

  1. Identifying and promoting revolutionary advances in fundamental and applied sciences;
  2. Translating scientific discoveries and cutting-edge inventions into technological innovations; and
  3. Accelerating transformational technological advances in areas industry is unlikely to undertake because of technical and financial uncertainty.[9]

The Impact of ARPA-E

Since 2009, ARPA-E has provided approximately $3 billion in R&D funding for over 1,294 potentially transformational energy technology projects.[10] Publishing annual reports to analyze and catalog its influence, the agency tracks commercial impact with key early indicators, including private-sector follow-on funding, new company formation, partnership with other government agencies, publications, inventions, and patents.[11]

Many ARPA-E project teams have continued to advance their technologies: 129 new companies have been formed, 285 licenses have been issued, 268 teams have partnered with another government agency, and 185 teams have together raised over $9.87 billion in private-sector follow-on funding.[12] In addition, ARPA-E projects fostered technological innovation and advanced scientific knowledge, as evidenced by the 5,497 peer-reviewed journal articles and 829 patents issued by the U.S. Patent and Trademark Office that sprung from the ARPA-E program.[13] ARPA-E recently announced that it is starting to count exits through public listings, mergers, and acquisitions. As of January 2022, ARPA-E has 20 exits with a total reported value of $21.6 billion.[14]

How Does Biden’s FY 2023 Budget Affect ARPA-E?

Biden has requested a 56% increase for ARPA-E, to $700 million.[15] The budget also proposes expansions of ARPA-E’s purview to more fully address innovation gaps around adaptation, mitigation, and resilience to the impacts of climate change.[16] This investment in research and development of high-potential and high-impact technologies aims to help remove technological barriers to advance energy and environmental missions.[17]

The request provides that ARPA-E shall also expand its scope “to invest in climate-related innovations necessary to achieve net zero climate-inducing emissions by 2050.”[18] Given the increasing bipartisan support for alternative energy funding and ARPA-E’s continuing and rising commercial impact, it is likely that ARPA-E’s funding and support of the research and development of early-stage energy technologies will continue to pave the way for the commercialization of advanced energy technologies.

Endnotes

  1. https://www.law360.com/articles/1478133/biden-budget-provides-billions-for-clean-energy
  2. https://www.energy.gov/articles/statement-energy-secretary-granholm-president-bidens-doe-fiscal-year-2023-budget
  3. https://doi.org/10.17226/24778
  4. Id. at 22
  5. Id.
  6. Id.
  7. 42 U.S.C. § 16538(b)
  8. 42 U.S.C. § 16538(c)(1)(A)
  9. 42 U.S.C. § 16538(c)(2)
  10. https://arpa-e.energy.gov/about/our-impact
  11. Id.
  12. Id.
  13. Id.
  14. Id.
  15. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again
  16. https://www.whitehouse.gov/wp-content/uploads/2022/03/budget_fy2023.pdf
  17. Id.
  18. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again

Article By Kaoru C. Suzuki of Mintz

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

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Banking Regulators Publish Proposed Rule to Update Community Reinvestment Act Regulations

On May 5, 2022, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively the agencies) issued a joint notice of proposed rulemaking (the Proposed CRA Rule) that proposes changes to the way the agencies evaluate a bank’s performance under the Community Reinvestment Act (CRA). The team at Bradley is conducting an in-depth review of the Proposed CRA Rule and expects to release a detailed blog post on the significant number of proposed changes to the CRA regulations in the coming days. Below are highlights of a few of the changes the agencies seek to make through the Proposed CRA Rule.

If implemented as written, the Proposed CRA Rule would:

  • Update the CRA evaluation framework, with performance standards tailored to a bank’s size and business model
  • Create four new performance tests to evaluate large bank CRA performance: the Retail Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test
  • Establish specific performance tests for small and intermediate-sized banks
  • Update the requirements for the delineation of assessment areas
  • Create updated record-keeping, data collection, reporting, and disclosure requirements for large banks

These highlights are only a partial selection of the changes proposed by the agencies. Stay tuned for a more expansive description of the details of the Proposed CRA Rule.

The agencies are accepting comments on the Proposed CRA Rule through August 5, 2022. If your organization is considering submitting a public comment on the proposed changes to the CRA regulations, we suggest that you begin reviewing the Proposed CRA Rule soon.

© 2022 Bradley Arant Boult Cummings LLP
For more articles about banking regulations, visit the NLR Financial, Securities & Banking section.