Category: Administrative & Regulatory

California Considers Unclaimed Property Voluntary Disclosure, Interest Forgiveness Legislation

The California State Assembly is considering Assembly Bill 2280, which would launch a much-anticipated opportunity for businesses to report unclaimed property to California – interest-free – under an amnesty program.

Unclaimed property is a regulatory challenge for businesses in every industry and commonly results when company financial obligations remain unsatisfied or inactive for a legally defined period.

The unclaimed property is often owed to vendors, employees, customers, or shareholders stemming from ordinary business transactions, including:

  • accounts receivable credits
  • bank and investment accounts
  • gift cards
  • royalties
  • securities and dividends
  • uncashed payroll and vendor payments
  • virtual currencies

California has tried passing voluntary compliance legislation since its amnesty program expired several years ago, but has been unsuccessful. The sleeping giant has again awakened.

Any company with operations in California, with California-formed entities, or with customers, vendors, or employees in California should proactively evaluate its unclaimed property compliance and monitor this legislation carefully.

Every state’s law requires companies to report unclaimed property to the state annually, yet compliance rates are low nationwide. AB 2280 estimates that 1.3 million California tax-filing businesses did not correctly report unclaimed property in 2020. To close this compliance gap, California and most other states regularly audit companies to identify unreported unclaimed property. Such audits often involve detailed reviews of company accounting records for 10 or more years by third-party auditors on behalf of numerous states.

Currently, California imposes 12 percent annual interest on any past-due unclaimed property identified, which likely deters annual compliance, with companies electing to wait for the state to authorize an audit rather than pay the interest assessment. The new bill aims to fix that.

Under AB 2280, California’s Controller is authorized to establish a voluntary disclosure agreement (VDA) or voluntary compliance program for any company that:

  • is not currently under examination by California
  • is not involved in a civil or criminal action involving unclaimed property compliance
  • has not been notified of an unclaimed property interest assessment or negotiated a waiver of interest in the last five years

The proposed law would allow the state to forgive the interest if the company:

  • participates in an educational training program
  • reviews accounting records for unclaimed property for 10 years
  • makes sufficient efforts to reunite property with owners
  • timely files initial reports and remits all identified unclaimed property for the 10 years

The bill may be heard in committee March 19 and it is unclear whether this legislation will become a reality. AB 2280 is not California’s first voluntary disclosure effort. California had a temporary unclaimed property amnesty program in the early 2000s, and the State Assembly declined to advance voluntary disclosure program legislation in February 2018.

Notably, even if AB 2280 successfully becomes law, the voluntary compliance program is contingent upon the legislature appropriating funds in the Budget Act.

Beyond AB 2280, California is ramping up other efforts to drive unclaimed property compliance:

  • In the 2019 California Budget Act, the State Controller’s Office was tasked with increasing unclaimed property compliance, including through adopting an unclaimed property amnesty program; it’s unclear whether this particular bill satisfies that task or if there is more to come
  • In July 2021, California’s governor approved and signed into law Assembly Bill 466, which authorizes the Franchise Tax Board to share information with the Controller’s

Office regarding the taxpayer’s revenue and previous unclaimed property compliance (or lack thereof). This development is notable because revenue and reporting history detail is often used by states to identify companies for unclaimed property enforcement initiatives.

Voluntary compliance programs and VDAs that include an interest abatement are a common-sense incentive for voluntary compliance for states, and the advantages for companies merit thoughtful consideration.

© 2022 BARNES & THORNBURG LLP
For more articles about California legislation, visit the NLR California law section.

Federal Trade Commission Implements Annual Adjustments to Hart-Scott-Rodino Notification Thresholds

The Federal Trade Commission (“FTC”)’s adjusted notification thresholds for the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976 (“HSR Act”) for 2022 have gone into effect beginning February 23, 2022. The “size of the transaction” thresholds have increased to $101 million (from $92 million) and $403.9 million (from $368 million), and the “size of the person” thresholds have increased to $20.2 million (from $18.4 million) and $202 million (from $184 million). The new thresholds apply to transactions that close on or after February 23, 2022, while the prior “size of the transaction” and “size of the person” thresholds will apply to transactions closing before February 23, 2022.

The HSR Act requires the parties to a merger or other M&A transaction to file a notification of the transaction with the FTC and the Department of Justice (“DOJ”) if the transaction meets the “size of the transaction” test and the parties meet the “size of the person” test. These dollar thresholds are adjusted annually based on changes to the United States gross domestic product.

Notification is required if (a) the transaction is valued at more than $403.9 million, regardless of the size of the parties; or (b) a transaction is valued at more than $101 million, but not more than $403.9 million, and, generally, one party has total assets or annual net sales of at least $20.2 million and the other party has total assets or annual net sales of at least $202 million.

If notification is required, the FTC and DOJ will have 30 days from the date on which both parties file their notices to review the competitive effects of the transaction. Prior to the expiration of this 30-day review period, the FTC or DOJ may make an additional request for documents or information from either or both parties. The parties will not be permitted to close the transaction until the 30-day review period expires, or if the FTC or the DOJ has made an additional document or information request, until 30 days after the agencies confirm that the additional request has been satisfied in full. In the past, parties filing HSR Act notifications ordinarily could request an “Early Termination” of the 30-day waiting period. However, the FTC and DOJ announced, on February 4, 2021, that they were temporarily suspending the Early Termination practice during the transition to the new Biden administration. The agencies have not yet announced when they will resume the Early Termination practice.

The FTC also announced that the maximum civil penalty amount for failure to comply with the premerger notification rules of the HSR Act has increased to $46,517 per day, from $43,792 per day.

© 2022 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

Article By Craig Ismaili and John Sikora of Giordano, Halleran & Ciesla, P.C.

For more articles on trade, visit the NLR Antitrust & Trade Regulation section.

Russian Invasion of Ukraine Triggers Global Sanctions: What Businesses Need to Know

The Russian invasion of Ukraine has triggered swift international retribution. Global powers—including the European Union (EU), the United Kingdom (UK) and the United States (US)—have announced sanctions as the crisis in Europe escalates. As governments expand these sanctions, businesses dealing in Russia or with the Russian government are urged to take immediate steps to ensure compliance. This On the Subject outlines the scope and applicability of these sanctions in each major jurisdiction.

IN DEPTH

EUROPEAN UNION

Targeted Sanctions on Entities and Individuals

In addition to the sanctions against Russia already in place following its annexation of the Crimean Peninsula, cyberattacks and human rights abuses (which were extended until 31 July 2022, and will likely be extended again), the Council of the European Union imposed restrictive measures on 21 February 2022, on five additional individuals (Aleksei Yurievich Cherniak, Leonid Ivanovich Babashov, Tatiana Georgievna Lobach, Nina Sergeevna Faustova and Aleksandr Evgenevich Chmyhalov) for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. The designated persons are members of the State Duma of the Russian Federation, and they were elected to represent the illegally annexed Crimean Peninsula and the City of Sevastopol on 19 September 2021, as well as the head and deputy head of the Sevastopol electoral commission.

On 23 February 2022, following a joint press statement of the Presidents of the European Commission and Council, the European Union extended the existing sanctions framework to cover all of the 351 members of the Russian State Duma who voted for the recognition of Donetsk and Luhansk as independent entities. The European Union also extended sanctions on an additional 27 high-profile individuals and entities who have played a role in undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

The restrictive measures include asset freezes, a European Union-wide travel ban and a prohibition from making funds available to the listed individuals and entities. Pursuant to European Union asset freezes, all funds and economic resources that belong to, are owned, held or controlled by a designated person are frozen. “Ownership” is triggered by a party holding more than 50% of proprietary rights in an entity or a majority interest in that entity. Therefore, entities owned by designated individuals will also be affected by the targeted sanctions.

Economic Restrictions

The European Union also imposed various economic restrictions on the Donetsk and Luhansk regions, specifically:

  • An import ban on goods from those regions;
  • An export ban on certain goods and technologies;
  • A prohibition on tourism services; and
  • A restriction on trade investments related to certain economic sectors.

Financial Restrictions

Notably, the European Union also imposed a sectoral prohibition to finance the Russian Federation, its government and its Central Bank in the hope of limiting the financing of escalatory and aggressive policies.

Germany also put on halt the certification process for the North Stream 2 pipeline, which is meant to deliver natural gas directly from Russia to Germany. The pipeline is owned by a subsidiary of Gazprom.

Applicability of EU Sanctions

The sanctions announced on 21 February and 23 February have been published in the Official Journal of the European Union and take effect immediately. New sanctions are directly applicable in all EU Member States, with existing penalties in place at a Member State level in relation to any breaches.

EU sanctions are broad in scope and apply to any person inside or outside the territory of the European Union who is a national or is incorporated under the laws of a Member State, as well as any legal person in respect of any business done in whole or in part within the European Union. Likewise, any events taking place within the territory of the European Union, including its airspace and on board any aircraft or vessel under the jurisdiction of a Member State, would be subject to the EU sanctions.

Further Developments

In a statement on 24 February, EU President Ursula von der Leyen announced that the European Union will present a further “package of massive, targeted sanctions” aimed at strategic sectors of the Russian economy in response to Russia’s continued escalation of the conflict. The new measures will block Russia’s access to technologies and markets that are key for Russia, freeze Russian assets in the European Union and stop the access of Russian banks to European financial markets. The further measures could include Russia being removed from SWIFT (the Society for Worldwide Interbank Financial Telecommunication), which is the worldwide communication system used by banks.

The European Union may also expand the sanctions to target those who “provide support or benefit from the Russian government” as a response to Belarus support for Russia.

UNITED KINGDOM

UK Prime Minister Boris Johnson announced a “first barrage” of sanctions against Russia with the designation of five Russian banks and three high-net-worth Russian individuals. The sanctions have been imposed pursuant to the recently amended Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).

  • Designated entities: IS Bank, Rossiya Bank, PJSC Promsvyazbank, JSC Genbank and JSC Black Sea Bank Development and Reconstruction.
  • Designated individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg.

Similar to the EU sanctions, any assets held in the United Kingdom by the individuals concerned will be frozen, and the individuals will also be banned from travelling to the United Kingdom. There will also be a prohibition on all UK individuals and entities from having any dealings with the designated entities and individuals.

Further Developments

The UK government stated it will further extend targeted sanctions to the Russian politicians who voted to recognise the independence of Donetsk and Luhansk and economic restrictions currently applicable to the Crimean Peninsula to the Donetsk and Luhansk regions. On 23 February, Prime Minister Boris Johnson warned London bank chiefs to expect tougher sanctions on Russia if the crisis in Ukraine escalates.

The UK government is likely to follow the European Union lead with respect to additional and broader sanctions (i) seeking to curtail Russia’s ability to raise funds in UK markets, prohibiting a range of high-tech exports and further isolating Russian banks from the global economy; (ii) targeting the Russian financial sector and trade; and (iii) prohibiting Russia from issuing foreign debt on UK markets.

In line with previous statements from the UK government, on 24 February Prime Minister Boris Johnson announced it will take measures to exclude Russian Banks from London’s financial system “stopping them from accessing sterling and clearing payments through the UK” and limiting the amount of money the Russian nationals will be able to deposit in their UK bank accounts.

UNITED STATES

The US sanctions announced immediately after the beginning of the current crisis effectively prohibit US persons from engaging in any economic activity with the breakaway Donetsk and Luhansk “republics.” This includes investment, exports to and imports from these regions. US President Joe Biden subsequently announced a new set of sanctions aimed at cutting off Russia from western financing and targeting high-net-worth Russian individuals.

Targeted Sanctions

The United States imposed new sanctions against two banks and three individuals who are the sons of three previously sanctioned President Putin inner circle members.

  • Sanctioned entities: Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries.
  • Sanctioned individuals: Denis Aleksandrovich Bortnikov, Petr Mikhailovich Fradkov and Vladimir Sergeevich Kiriyenko.

As mentioned above, the fathers of the newly sanctioned individuals are already subject to US sanctions. These new sanctions aim to prevent the previously sanctioned individuals from transferring their assets to family members to evade sanctions. Any entities owned 50% or more by sanctioned individuals will also be sanctioned entities.

The United States has also subjected Nord Stream 2 AG, the Swiss company building the Nord Stream 2 natural gas pipeline from Russia to Germany, to sanctions.

Financial Restrictions

In addition to targeted sanctions, the United States adopted Directive 1A under Executive Order 14024. This directive expands existing sovereign debt prohibitions applying to “US financial institutions” to cover participation in the secondary market for bonds issued after 1 March 2022, by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. These restrictions previously applied only to participation in the primary market for this debt.

“US financial institutions” is defined broadly and includes all US entities and their foreign branches which engage in activities as “depository institutions, banks, savings banks, money services businesses, operators of credit card systems, trust companies, insurance companies, securities brokers and dealers, futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, dealers in precious metals, stones, or jewels, and US holding companies, US affiliates, or US subsidiaries of any of the foregoing.”

Further Developments

During his speech on 22 February, President Biden announced that more measures would be imposed in the event of Russia’s invasion of Ukraine, including additional sanctions targeting Russia’s biggest banks and export control measures. Considering President Putin’s launch of military operations in Ukraine, it is expected that the United States and its allies will announce “further consequences” for Russia on 24 February.

GLOBAL

Canada, Japan and Australia have also announced sanctions against Russia in response to the Ukraine crisis, including targeted sanctions against Russian individuals and financial institutions, and an import/export ban of goods on the Donetsk and Luhansk regions. Canada and Japan also implemented new prohibitions on dealings in Russian sovereign debt.

IMPACT ON BUSINESS 

If you or your company have dealings with Russian entities or individuals:

  • Immediately conduct a thorough review of your business agreements to ensure you have no dealings directly or indirectly with designated individuals or entities, and if there is any connection to designated people, promptly seek out legal advice;
  • Ensure you have robust sanction compliance measures to screen third parties which may be subject to sanctions; and
  • Monitor the developing situation and seek out legal advice if concerned about potential breaches.
© 2022 McDermott Will & Emery

GDPR Privacy Rules: The Other Shoe Drops

Four years after GDPR was implemented, we are seeing the pillars of the internet business destroyed. Given two new EU decisions affecting the practical management of data, all companies collecting consumer data in the EU are re-evaluating their business models and will soon be considering wholesale changes.

On one hand, the GDPR is creating the world its drafters intended – a world where personal data is less of a commodity exploited and traded by business. On the other hand, GDPR enforcement has taken the form of a wrecking ball, leading to data localization in Europe and substitution of government meddling for consumer choice.

For years we have watched the EU courts and enforcement agencies apply GDPR text to real-life cases, wondering if the legal application would be more of a nip and tuck operation on ecommerce or something more bloody and brutal. In 2022, we received our answer, and the bodies are dropping.

In January Austrian courts decided that companies can’t use Google Analytics to study their own site’s web traffic. The same conclusion was reached last week by French regulators. While Google doesn’t announce statistics about product usage, website tracker BuiltWith published that 29.3 million websites use Google Analytics, including 69.5 percent of Quantcast’s Top 10,000 sites, and that is more than ten times the next most popular option. So vast numbers of companies operating in Europe will need to change their platform analytics provider – if the Euro-crats will allow them to use site analytics at all.

But these decisions were not based on the functionality of Google Analytics, a tool that does not even capture personally identifiable information – no names, no home or office address, no phone numbers. Instead, these decisions that will harm thousands of businesses were a result of the Schrems II decision, finding fault in the transfer of this non-identifiable data to a company based in the United States. The problem here for European decision-makers is that US law enforcement may have access to this data if courts allow them. I have written before about this illogical conclusion and won’t restate the many arguments here, other than to say that EU law enforcement behaves the same way.

The effects of this decision will be felt far beyond the huge customer base of Google Analytics.  The logic of this decision effectively means that companies collecting data from EU citizens can no longer use US-based cloud services like Amazon Web Services, IBM, Google, Oracle or Microsoft. I would anticipate that huge cloud player Alibaba Cloud could suffer the same proscription if Europe’s privacy panjandrums decide that China’s privacy protection is as threatening as the US.

The Austrians held that all the sophisticated measures taken by Google to encrypt analytic data meant nothing, because if Google could decrypt it, so could the US government. By this logic, no US cloud provider – the world’s primary business data support network – could “safely” hold EU data. Which means that the Euro-crats are preparing to fine any EU company that uses a US cloud provider. Max Schrems saw this decision in stark terms, stating, “The bottom line is: Companies can’t use US cloud services in Europe anymore.”

This decision will ultimately support the Euro-crats’ goal of data localization as companies try to organize local storage/processing solutions to avoid fines. Readers of this blog have seen coverage of the EU’s tilt toward data localization (for example, here and here) and away from the open internet that European politicians once held as the ideal. The Euro-crats are taking serious steps toward forcing localized data processing and cutting US businesses out of the ecommerce business ecosystem. The Google Analytics decision is likely to be seen as a tipping point in years to come.

In a second major practical online privacy decision, earlier this month the Belgian Data Protection Authority ruled that the Interactive Advertising Bureau Europe’s Transparency and Consent Framework (TCF), a widely-used technical standard built for publishers, advertisers, and technology vendors to obtain user consent for data processing, does not comply with the GDPR. The TCF allows users to accept or reject cookie-based advertising, relieving websites of the need to create their own expensive technical solutions, and creating a consistent experience for consumers. Now the TCF is considered per-se illegal under EU privacy rules, casting thousands of businesses to search for or design their own alternatives, and removing online choices for European residents.

The Belgian privacy authority reached this conclusion by holding that the Interactive Advertising Bureau was a “controller” of all the data managed under its proposed framework. As stated by the Center for Data Innovation, this decision implies “that any good-faith effort to implement a common data protection protocol by an umbrella organization that wants to uphold GDPR makes said organization liable for the data processing that takes place under this protocol.” No industry group will want to put itself in this position, leaving businesses to their own devices and making ecommerce data collection much less consistent and much more expensive – even if that data collection is necessary to fulfill the requests of consumers.

For years companies thought that informed consumer consent would be a way to personalize messaging and keep consumer costs low online, but the EU has thrown all online consent regimes into question. EU regulators have effectively decided that people can’t make their own decisions about allowing data to be collected. If TCF – the consent system used by 80% of the European internet and a system designed specifically to meet the demands of the GDPR – is now illegal, then, for a second time in a month, all online consumer commerce is thrown into confusion. Thousands were operating websites with TCF and Google Analytics, believing they were following the letter of the law.  That confidence has been smashed.

We are finally seeing the practical effects of the GDPR beyond its simple utility for fining US tech companies.  Those effects are leading to a closed-border internet around Europe and a costlier, less customizable internet for EU citizens. The EU is clearly harming businesses around the world and making its internet a more cramped place. I have trouble seeing the logic and benefit of these decisions, but the GDPR was written to shake the system, and privacy benefits may emerge.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more articles about international privacy, visit the NLR Cybersecurity, Media & FCC section.

Reform Bill Proposal to Article 8 of The Federal Law of Cinematography in Mexico

A proposal was published in the Gazette of the Chamber of Senators on February 9, 2022, to reform Article 8 of the Federal Law of Cinematography, signed by María del Carmen Escudero Fabre together with other members of the PAN Parliamentary Group.

The intention of the proposed bill is to reform Article 8 of the Federal Law of Cinematography, which may guarantee access to audiovisual material exhibited in movie theaters for people who suffer from some degree of visual disability.

The explanatory memorandum of the proposal states that the General Law for the Inclusion of Persons with Disabilities establishes that the denial of reasonable adjustments constitutes a discriminatory act on the grounds of disability, a provision expressly prohibited in the first article of the Constitution.

It further details that it is necessary to recognize that people who suffer from disability may face difficulties when exercising their rights, such as access to health, work, education, transportation, communications, to culture, tourism, among others, being the responsibility of the State to design a normative framework that allows its access in equitable conditions.

The bill’s author comments that this would be an advancement for Mexicans with some degree of visual impairment, with the understanding that auditory stimuli can be used to compensate for visual ones and build the ideas of the spectators based on them, and that access to educational and recreational material for this group continues to be a challenge under the current legislation.

She continues that for this reason and being aware of the difficulties faced by a person with any type of disability, efforts like this can help reduce barriers found in society, highlighting the importance of adapting places, services, and information, so they are accessible to this sector of the population, ensuring their full inclusion and participation.

The bill proposes that films should be shown to the public in their original version, dubbed and subtitled in Spanish, under the terms established by the Regulations. Those classified for children and educational documentaries must be shown dubbed and always subtitled in Spanish.

This proposal may be unfeasible, since the Federal Law of Cinematography cannot govern by itself in the field corresponding to the Federal Law of Copyright. Forcing audiovisual works in certain categories to be exhibited dubbed, eliminating the possibility of being exhibited in their original language, would constitute a limitations of copyrights, which should be regulated, where appropriate, by the law of the matter, in accordance at all times, to what is established in international treaties that Mexico is a part of.

The protection of copyright and related rights comes from various international treaties considered by the court as human rights treaties, so the proposal would not only constitute a direct violation of the LFDA but of various treaties as well.

The control of conventionality is understood as the tool that allows countries to specify the obligation to guarantee human rights in the internal sphere through the verification of the conformity of national norms and practices with the American Convention on Human Rights and its Jurisprudence. Therefore, the reform to our fundamental law of June 10, 2011 on human rights, orders that the interpretation of the norms related to this subject be carried out in accordance with the Constitution of Mexico and the international treaties that the nation has signed in this matter, observing at all times the pro homine principle.

There are specific treaties that deal with limitations to Author’s Right, such as the Marrakesh Treaty, but what the Legislator intends to reform is not a specific case.

To conclude, this reform would create a direct impediment to access to culture and education, since forcing people to appreciate certain genres of audiovisual productions only in Spanish and not in their original languages, would also create direct harm to those who seek to expand their knowledge and learning of new languages and cultures.

© 2005-2022 OLIVARES Y COMPAÑIA S.C.
Article By Luis C. Schmidt with OLIVARES
For more articles on the arts, visit the NLR Entertainment, Art & Sports section.

New, Immigration-Friendly Mission Statement for USCIS

USCIS has changed its mission statement again – this time to adopt a more immigration-friendly stance.

In 2018, USCIS, under the Trump Administration, changed its mission statement to align with President Donald Trump’s focus on enforcement, strict scrutiny, and extreme vetting. The statement did not emphasize customer satisfaction, i.e., the satisfaction of petitioners, applicants, and beneficiaries. The change in emphasis was stark and did not go unnoticed. Instead, the mission statement focused on protecting and serving the American people and ensuring that benefits were not provided to those who did not qualify or those who “would do us harm ….” The 2018 statement did not speak of the United States as a “nation of migrants” and it focused on efficiency while “protecting Americans, securing the homeland, and honoring our values.”

The new 2022 USCIS mission statement reflects President Joe Biden’s belief that “new Americans fuel our economy as innovators and job creators, working in every American industry, and contributing to our arts, culture, and government.” Accordingly, he has issued executive orders directing the various immigration agencies to reduce unnecessary barriers to immigration. The 2022 mission statement also reflects President Biden’s directions and USCIS Director Ur M. Jaddou’s “vision for an inclusive and accessible agency.” Director Jaddou “is committed to ensuring that the immigration system . . . is accessible and humane . . . [serving] the public with respect and fairness, and lead with integrity to reflect America’s promise as a nation of welcome and possibility today and for generations to come.”

According to Director Jaddou, USCIS will strive to achieve the core values of treating applicants with integrity, dignity, and respect and using innovation to provide world-class service while vigilantly strengthening and enhancing security. On February 3, 2022, Director Jaddou, along with her deputies, briefed the nation on the agency’s efforts to improve service at USCIS. The leaders of the agency made clear that USCIS knows it must continue to eliminate backlogs, cut processing times, reduce unneeded Requests for Evidence and interviews, eliminate inequities in processing times across service centers and improve the contact center, among other things, to achieve its goals. Using streamlining and technological innovation, USCIS hopes to make itself much more consumer-oriented.

Article By Forrest G. Read IV of Jackson Lewis P.C.

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

Jackson Lewis P.C. © 2022

Agriculture Groups Sue FDA on Chlorpyrifos Ban

  • As previously reported, the Environmental Protection Agency (EPA) published a final rule on August 30, 2021 that revoked all tolerances for the pesticide chemical chlorpyrifos on raw agricultural commodities; the rulemaking was driven by toxicity concerns, primarily concerning exposure in children. The tolerances are set to expire on February 28, 2022, effectively banning the use of chlorpyrifos on food crops. In light of the expiration, FDA published a guidance document to assist food producers and processors that handle foods which may contain chlorpyrifos restudies.
  • In October of 2021, agriculture stakeholders submitted formal written objections and a request to stay the tolerance revocations to EPA. More than 80 stakeholders signed the document, arguing that significant harms would result from banning chlorpyrifos and urging the agency to stay implementation of the rule until objections were formally addressed by EPA.
  • Agriculture stakeholder groups are now seeking a court injunction against EPA’s ban on chlorpyrifos. On February 10, 2022, agricultural trade groups representing thousands of members filed a lawsuit against EPA before the Eight Circuit Court of Appeals, alleging that the agency ignored its own scientific findings regarding 11 high-benefit and low-risk crop uses for chlorpyrifos and that the revocation will cause irreparable damage. It remains to be seen how EPA will respond to the lawsuit.

Article By Food and Drug Law Practice Group at Keller and Heckman LLP

For more food and drug legal news, click here to visit the National Law Review.

© 2022 Keller and Heckman LLP

FBI and DHS Warn of Russian Cyberattacks Against Critical Infrastructure

U.S. officials this week warned government agencies, cybersecurity personnel, and operators of critical infrastructure that Russia might launch cyber-attacks against Ukrainian and U.S. networks at the same time it launches its military offensive against Ukraine.

The FBI and the Department of Homeland Security (DHS) warned law enforcement, military personnel, and operators of critical infrastructure to be vigilant in searching for Russian activity on their networks and to report any suspicious activity, as they are seeing an increase in Russian scanning of U.S. networks. U.S. officials are also seeing increased disinformation and misinformation generated by Russia about Ukraine.

The FBI and DHS urged timely patching of systems and reporting of any Russian activity on networks, so U.S. officials can assess the threat, assist with a response, and prevent further activity.

For more information on cyber incident reporting, click here.

Even though a war may be starting halfway across the world, Russia’s cyber capabilities are global. Russia has the capability to bring us all into its war by attacking U.S. government agencies and companies. We are all an important part of preventing attacks and assisting others from becoming a victim of Russia’s attacks. Closely watch your network for any suspicious activity and report it, no matter how small you think it is.

Article By Linn F. Freedman of Robinson & Cole LLP

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

Copyright © 2022 Robinson & Cole LLP. All rights reserved.

Ongoing Canadian Protests Shine Spotlight on Ripple Effect of Supply Chain Disruptions

Although the last two years have seen a nearly never-ending line of supply chain impacts for manufacturers, the latest disruption is also serving to shine a spotlight on the broader impact that relatively small disruptions in the supply chain can have on the global economy.  We all know that trucking is a critical component of the economy.  The U.S. estimates seventy two percent of goods in the U.S. travel by truck.  Trucking has become even more important in this era of increased deliveries and backlogs at ports and other logistics hubs.

In Canada, what began as protests by truckers regarding certain pandemic-related restrictions and mandates have snowballed into broader protests and blockages of roads, bridges, and border crossings.

Protesters have been blocking various bridges and roads in Canada in protest of certain pandemic-related restrictions and mandates.  On Tuesday, the bridge connecting Windsor, Ontario to Detroit (a critical linkage for cross-border travel) was largely blocked, with traffic stopped going into Canada and slowed to a trickle going into the United States. The blockades are now leading U.S. automakers to begin trimming shifts and pausing certain operations in their Michigan and Canadian plants. The bridge protests and automakers’ reduction in capacity continued on Thursday without an end in sight.

The ongoing protests in Canada have also served as a reminder of how seemingly local trucking disruptions in one country can cascade through the supply chain.  This is not the first time that trucking strikes and blockages have rippled through the supply chain and economy.  In 1996, a truckers’ strike in France lasted 12 days, barricading major highways and ultimately leading to concessions from the French government over certain worker benefits and hours.  The resulting agreement led to heightened tensions with Spain, Portugal, and Great Britain due to the impact felt across borders.  In 2008, truckers went on strike in Spain and blocked roads and border crossings, protesting fuel prices.  In 2018, truckers in Brazil staged a large strike and protest that lasted for 10 days, blocking roads, disrupting food and fuel distribution, canceling flights, and causing certain part shortages for automakers.

The ongoing protests in Canada have similarly expanded from Ottawa to the current blockage of border crossings, further raising their profile internationally as they begin to impact global trade.  It remains to be seen how the blockades and protests will resolve, as leaders call for de-escalation and re-opening of roads and crossings.  However, the ripple effects of what started as a localized protest will continue to be felt far beyond Canada’s borders.

Article By Lauren M. Loew of Foley & Lardner LLP

For more COVID-19 and supply chain legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Federal Cannabis Reform – Is 2022 the Year?

Hope soared with the possibility of federal cannabis reform in 2021.  And for good reason –  the induction of a new, more liberal administration, rapid state-level legalization, broad support by Americans,[1] and growing bipartisan backing led many to believe that 2021 was going to be the year where federal decriminalization of cannabis would become a reality.  But, as 2021 continued on, optimism dwindled as any advancement in federal cannabis reform was hobbled by the inability of Congress to agree on the appropriate level of reform  and the proper mechanics for passage.  Specifically, tension rose amongst the elected Democrats on whether to support incremental reform (like access to banks or removal of cannabis from the list of Schedule 1 drugs) or comprehensive legalization with provisions to address social inequities stemming from the legacy of the War on Drugs.  And so 2021 came to an end, and the cannabis industry saw yet another year of failed meaningful change on the federal level.

Still, momentum for reform has not been lost.  If anything, last year saw more bills introduced into Congress (including two new federal legalization proposals) than ever before – clearly indicating its import to our nation’s leaders.  Justice Clarence Thomas from the Supreme Court even subtly advised Congress to address legalization, noting that the Federal Government’s current “half in, half out regime” on cannabis strained the principles of federalism.

And so, as we move forward in 2022 with hope, we review the bills before Congress and their progresses to assess which of these may have some traction for passage during this upcoming year.

Secure and Fair Enforcement (“SAFE”) Banking Act of 2021[2]

Considered modest reform, the SAFE Banking Act of 2021 mainly focused on granting cannabis-related businesses access to federally-backed financial institutions.  The bill was introduced early in 2021,[3] and passed in the U.S. House of Representatives on April 20, 2021 by a vote of 321 to 101.  At the time of the House’s passage, many believed the SAFE Banking Act of 2021 would easily move its way through the Senate, due – in part – to its demonstrated bipartisan appeal with 106 Republican votes in the House.  Congressman Ed Pearlman, one of its drafters, even remarked:

After years of bringing up this issue, I’m thrilled to see overwhelming support for this bipartisan, commonsense legislation in the U.S. House once again. I feel optimistic about the path forward for the SAFE Banking Act and, more broadly, reforms to our federal cannabis laws.[4]

However, after its passage in the House, the SAFE Banking Act of 2021 languished in the Senate’s Committee on Banking, Housing and Urban Affairs.  Momentum for the bill slowed, with those opposing it campaigning for more comprehensive legalization.  In late September 2021, fervor for the SAFE Banking Act of 2021 arose again when the House passed, by voice vote, an amendment to the National Defense Authorization Act for Fiscal Year 2022 (“NDAA”) to add the SAFE Banking Act of 2021.  Many hoped that by couching the SAFE Banking Act of 2021 in the NDAA, it would make it easier to pass through the Senate.  On November 23, 2021, 4 Senators[5] penned a letter to the Senate’s Armed Services Committee urging them to retain the SAFE Banking Act of 2021 in the NDAA.  Despite these efforts, the SAFE Banking Act of 2021 was stripped from the NDAA on December 10, 2021 – stalling its progress once more.

The Marijuana Opportunity Reinvestment & Expungement (“MORE”) Act

The MORE Act is the oldest comprehensive legislative proposal.  It was passed in the House in December 2020, during a lame-duck session, but never made any headway in the Senate.[6]  On May 28, 2021, Representative Jerrold Nadler reintroduced the MORE Act into the House and much of its substance provided the legislative stepping stones for the Cannabis Administrative and Opportunity Act (“CAO”).

The MORE Act aimed to end criminalization of cannabis by removing it from the list of controlled  substances, eliminate related past criminal penalties and convictions, and provide essential criminal justice reform, social justice and economic development for those affected by the War on Drugs.  The MORE Act also would tax cannabis products starting at 5% to 8% (increasing by 1% over 5 years) to help fund social reform projects, make Small Business Administration loans and services available to cannabis-related businesses, and prohibit denial of federal public benefits (like housing) and protections under immigration law on the basis of cannabis-related conduct or conviction.

After sitting in the House Judiciary Committee, the bill was finally approved in the Committee on September 30, 2021, with 2 Republican Representatives voting yes.  This act sent the measure to the House floor for another vote before it could make its way to the Senate.

The Cannabis Administrative and Opportunity Act

Embracing the MORE Act’s goals for comprehensive reform, Senate Majority Leader Chuck Schumer (along with Senators Cory Booker  and Ron Wyden) introduced the long awaited draft of the CAO into the Senate on July 14, 2021.  Considered a historic and ambitious bill, the CAO aimed to implement a full-scale federal scheme for cannabis reform that reaches beyond just decriminalization.  It hopes to provide restorative measures “to lift up people and communities who were unfairly targeted in the War on Drugs.”[7] Specifically, the CAO seeks to do the following:

  • Decriminalize cannabis by removing it from the Controlled Substances Act and automatically expunge any arrests and convictions for non-violent federal cannabis offenses;
  • Transfer primary agency jurisdiction over cannabis to the Food and Drug Administration (“FDA”), the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), and the Bureau of Alcohol, Tobacco and Firearms (“ATF”) so that cannabis can be federally regulated similar to alcohol and tobacco;
  • Establish a Center for Cannabis Products responsible for regulating the “cannabis aspect of all products containing cannabis,” and implementing requirements related to cannabis products (g., good manufacturing practice, product standards, product labeling, product distribution and recall, etc.) within the FDA;
  • Mandate federal research and studies regarding the impact of cannabis (including any benefits and/or impairments) on the human brain and health conditions and its impact on drivers under its influence;
  • Permit movement of cannabis products through channels of interstate commerce;
  • Establish Opportunity Trust Fund Programs funded by federal cannabis tax revenue to restore and reinvest in communities greatly impacted by the War on Drugs (including funds for job training, reentry services, legal aid, and youth recreation/mentoring programs) and to help level the playing field by granting entrepreneurs of color access to the cannabis industry through small business loans;
  • Prohibit denial of federal benefits or immigration protection due to a past cannabis-related offense; and
  • Impose federal excise tax on sale of cannabis products, starting at 10% and increasing up to 25% in a span of 5 years, with certain favorable tax credit for cannabis producers with less than $20 million sales.

Though the CAO has lofty goals, it does not force states to legalize cannabis, emphasizing the integrity of state-specific cannabis law.

As a draft bill, the CAO was subject to a review period in which its authors requested public comments by September 1, 2021.  At the expiration of this review period, the drafters of the bill received numerous comments from both supporters and those criticizing the CAO as overly ambitious and a big-government approach.  In particular, many critics take issue with the bill’s tax structure, calling the imposition of an ultimate 25% federal excise tax burdensome.  Indeed, the CAO – as it stands – implements the highest tax structure for cannabis products of all the bills proposed in 2021.  Many allege that the high federal tax in addition to any state-imposed tax could promote the illicit cannabis market rather than encourage business owners to engage legally.  Additionally, the high federal tax could force states to reduce their own tax requirements, negatively affecting their own ability to fund state-run social equity and education initiatives.

For now, the public comments have been taken under advisement as the cannabis industry waits to see what the drafters decide to incorporate.  Once formally filed, the CAO will be sent to a committee for continued discussions and revisions before it can be advanced to the Senate floor for a vote.

The States Reform Act

The States Reform Act (“SRA”) is the latest comprehensive reform bill led by Republican Representative Nancy Mace and introduced in the House in November 15, 2021.  Like the MORE Act and the CAO, the SRA also seeks to decriminalize cannabis and provides retroactive expungement for non-violent federal cannabis offense, except for any person involved in a drug cartel.  However, the SRA differentiates itself by limiting federal social equity reform programs.  Instead, the SRA vests the authority  to determine what level of cannabis reform, including outright prohibition, in the individual states.  States will also retain authority to regulate the use, distribution, sale and manufacturing of cannabis, with some general federal oversight by the FDA, TTB, ATF and the Department of Agriculture.  Specifically, the SRA aims to regulate cannabis like alcohol (and alcohol alone) – another substantial difference from the CAO.  The SRA permits each state to determine the appropriate age limit for purchase of cannabis products, but incentivizes states to implement a 21+ limit by eliminating funding for highways for any state with an age limit of under 21 years of age and prohibiting advertisements directed at any person under the age of 21.  The bill also seeks to provide veterans with access to medical cannabis without fear of discrimination or denial of Veteran Affairs benefits.  The SRA also generally requires that medical cannabis be permitted for treatment of arthritis, cancer and chronic pain.  Similar to the CAO, the SRA will also allow the interstate cannabis transportation.

Notably, the SRA provides the lowest tax structure for cannabis products in comparison to other reform proposals, with the proposed imposition of a single tax rate of 3% that cannot be increased for at least 10 years.  Revenues from the tax would be used to support SBA programs for cannabis businesses, law enforcement initiatives including reentry programs, and veteran mental health programs.

Given its recency, little is known about the bill’s reception in the House and any progress that has been made.  However, the SRA does carry potential bipartisan appeal, particularly because it is sponsored by 4 Republican Representatives.  Additionally, it is anticipated that the Congressional Republicans will appreciate the SRA’s straight forward tax structure capped at a low rate for at least 10 years and its stance on states’ sovereignty regarding cannabis reform.  The real issue for the SRA is its lack of restorative justice and social equity efforts, which may be its death knell in the current Democrat-controlled House.

Implications for 2022

There are now 4 bills (3 with comprehensive legislation) circulating Capitol Hill that could provide much needed cannabis reform in 2022.  Congress will likely continue debating, revising and attempting to compromise on the terms in the MORE Act, the CAO and the SRA.  Potentially, if the 3 comprehensive bills remain on the discussion table, they will compete with one another, potentially dividing the Legislators’ support.  Congress should thus focus on forging a compromise or middle ground on these reforms to increase bipartisan support and avoid competing and inconsistent bills floating around, resulting in another year of unwanted (and unnecessary) deadlock.  Indeed, the CAO could be an example of such needed compromise – especially if the drafters seriously heed the criticisms and comments provided during the bill’s review period and consider incorporating certain bipartisan elements of the SRA, like a more stream-lined and lower rate tax structure.  With that said, the status of these cannabis reform bills, particularly the CAO and the MORE Act, face potential change should this year’s mid-term elections change the makeup of who controls the Senate, House or both.

Regardless, until Congress can iron out the kinks on comprehensive cannabis reform, the SAFE Banking Act of 2021 remains a practical law to pass in the interim.  The SAFE Banking Act of 2021 is currently the least controversial of all the cannabis-reform bills, has substantial bipartisan appeal, and will provide immediate financial resources and relief to the largely cash-based cannabis industry.  Though a small reform, it is still a necessary one that is long overdue.  The SAFE Banking Act of 2021 (and its predecessors) has already made its way through the House 6 times, proving that federal lawmakers believe it will help cannabis businessmen.  It may not resolve the issue of prohibition on cannabis, but its passage will likely be a great victory for the cannabis industry, signal federal de-stigmatization of cannabis, promote public safety by discouraging participation in the illicit cannabis market, and help cannabis-related businesses comply with tax laws.

Footnotes

[1] https://news.gallup.com/poll/356939/support-legal-marijuana-holds-record…

[2] On February 4, 2022, the SAFE Banking Act passed again in the House – this time, as an included amendment to the America COMPLETES Act.

[3] The bill is the successor to the previously introduced SAFE Banking Act of 2019.  See https://www.cannabislawblog.com/2021/09/safe-banking-act-2021/

[4] https://perlmutter.house.gov/news/documentsingle.aspx?DocumentID=5486

[5] Gary Peters, Angus King, Kevin Cramer, and Mark Kelly

[6] https://www.cannabislawblog.com/2020/12/house-representatives-passes-bil…

[7] https://www.democrats.senate.gov/imo/media/doc/CAOA%20Detailed%20Summary

 

Article By Jennifer N. Le of Sheppard, Mullin, Richter & Hampton LLP

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Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.