Category: Administrative & Regulatory

Life and Death of Technology: 2022

Everything has a life cycle.

Bacteria, insects, people, civilizations, galaxies – all are born, live and pass into eternity eventually. So it goes with technologies. Some, like wheels and levers, simply evolve in an impressive millennia-long cycle. Others, like jet packs, never seem to find the popularity we expect. And many, like 8-track tapes, shine brightly (or not so brightly) for a moment and fade into obscurity.

I like to dedicate a column to this topic each year to remind us how fleeting the spotlight can be. Obsolescence is built into all of our tech, just as limited existence is the essential nature of people.

For example, classic Blackberry devices will finally die this year. Remember the “Crackberry?” – a device so addictive and omnipresent that President Obama refused to part with his Blackberry despite the security risk. Blackberry had 80 Million users in 2012. Not so much anymore.

If you still have a Blackberry phone and it is not using Android software, the company will stop supporting your product today. CNN reports that “BlackBerry (BB) has been mostly out of the phone business since 2016, but over the years it continued to license its brand to phone manufacturers.” A 5G Blackberry Android-driven device from OnwardMotion is listed as “arriving in 2021,” so we shall see if it ever arrives. The original has passed away.

When Google/Alphabet hyped its “Moonshot” factory, one of the most publicized efforts was called Loon. The Loon project involved floating giant balloons above the earth to beam internet to areas where connectivity was most difficult to achieve. Loon was started in 2012, launched its first public tests in 2013, and in 2020 began commercial deployment in Africa through Telkom Kenya. Last year Alphabet shut the doors on Loon, unable to find a sustainable and cost-effective business model. Alphabet also closed its business called Makani, which provided wind power from giant kites. This is a bad year for business models dependent on floating objects in the air.

In 2012, Indian executives launched Hike as an Indian answer to Facebook’s WhatsApp, and Hike was valued at $1.4 billion by 2016 with nearly 70 million users. Unfortunately, where Chinese technologists successfully operate WeChat as a local WhatsApp alternative, Hike disappeared from circulation with no formal explanation. WhatsApp has now solidified its near monopoly in India.

Apple killed its original Homepod this year, unable to compete with Amazon Echo and Google nest, although you can still buy a Homepod mini. LG stopped making mobile phones this year. Microsoft killed Windows 10X and Minecraft Earth. Microsoft also killed Skype for business last year. I remember a Microsoft partner saying that when Microsoft wants to enter a new market, it chooses an ally, eliminates all the other blips on their radar screen until only the ally is left, and then kills that blip too. Skype may be a good example of this strategy as it has been pushed aside to make space for Microsoft Teams, soon to be dominating the world of corporate remote video calls (if not dominant there already).

All-in-all this is not a significant list considering the upheavals in the world over the past two years. Aside from Blackberry, which keeps limping on as a brand despite the death of its original proprietary operating system, no epoch-defining technology slid from this mortal coil in 2021. So where do we go from here?

The Metaverse was famously introduced into our lives last year. Will we see the first commercial glimpses of it in 2022? Mark Zuckerberg telegraphed his intended business direction when Facebook bought Oculus Rift, producer of immersive three-dimensional world-building technology. Zuckerberg clearly hoped to drive his herd into a more addictive, all-encompassing space as soon as possible. But now, with Facebook’s flagship products serving an aging and decreasing population, with regulators/Congress prepared to slap down any attempt to buy sexy social media rivals that appeal to younger audiences, and with a dismal company track record of developing its own social media successor products, opening the Metaverse becomes a dire urgency for Facebook. I expect we will see some access portals to this new world in the coming year.

The Washington Post suggests that both Apple and Google may offer their own metaverse access portals this year. It will be interesting if these companies try to isolate their own technology in to separate sandboxes, or if they make a play for interoperability that will allow small companies to create content that can be played on every device. The Post speculates that a workplace metaverse may emerge soon: “As for the rest of us, our first steps into the metaverse will probably be for our jobs. The pandemic is pushing companies toward virtual reality for onboarding, training and meetings. As consumer tech catches up, though, the metaverse will seep out of the workplace and into our everyday lives — but don’t get too excited.” There is likely much road to be laid between here and there.

Apple’s AirTags have been around for a while, but their applications are increasing.  Some of these applications are problematic. For example, car theft and stalking have been made much simpler with a tiny effective tracking device. The New York Times reports “In recent months, people have posted on TikTok, Reddit and Twitter about finding AirTags on their cars and in their belongings. There is growing concern that the devices may be abetting a new form of stalking, which privacy groups predicted could happen when Apple introduced the devices in April.” The tags are dropped in purses and bags, stuck on cars, and placed in clothing pockets of third parties. Apple has tried to address these issues by notifying iPhone holders of an unknown tracking device nearby. So, for better or worse, 2022 could be the year of Tile and AirTags.

Better drones, household robots, and a new generation of virtual reality glasses could all make an impact on our technology lives in the upcoming year. Robot technology keeps improving, but until they develop a light touch with opposable thumbs, I don’t expect household usage to explode. This also may be the year of the Smart Mirror that can raise your beauty and fashion game while you check out the results. The Capstone Smart Mirror will also look up directions while you get dressed for your date, tell you how late you are, and psych you up with your favorite music.

Apparently every year is the year of crypto and blockchain if you listen to the hype masters – and those who have financial interest in bringing more money to the technology. They have started running very expensive sports ads to drive more gullible investors into this essentially unregulated market. NFTs may turn out to become more than just speculative investments (like nearly every crypto trend), but I won’t hold my breath for it to happen.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.

 

Article By Theodore F. Claypoole  of Womble Bond Dickinson (US) LLP

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

Michigan SALT Workaround Update: Accrual Taxpayers

As a follow up to our tax advisory issued December 23, 2021, pertaining to Michigan’s new SALT workaround (Michigan Tops the Growing List of States with a SALT Cap Workaround for Pass-Through Entities), we are providing this update to alert accrual-basis taxpayers regarding the Michigan SALT workaround and the deductibility of taxes under section 164.

Section 164(a) of the Internal Revenue Code provides a deduction for state and local income taxes “paid or accrued”. Under normal accrual method accounting rules, taxes may be deducted if both of the following apply:

  1. The all events test has been met (i.e. all events have occurred that fix the fact of liability, and the liability can be determined with reasonable accuracy); and
  2. Economic performance has occurred.

With respect to taxes, economic performance generally occurs when taxes are paid. However, there is an exception to this for recurring items that meet four requirements:

  1. The all-events test is met.
  2. Economic performance occurs by the earlier of:
    • 8½ months after the close of the year, or
    • The date you file a timely tax return (including extensions) for the year.
  3. The item is recurring in nature and the taxpayer consistently treats similar items as incurred in the tax year in which the all-events test is met, and
  4. Either:
    • The item is not material, or
    • Accruing the item in the year in which the all-events test is met results in a better match against income from accruing the item in the year of economic performance.

Thus, under normal instances, if payment of tax is made by an accrual-basis taxpayer with a timely filed tax return in the following year and the rest of the elements above are met, state income taxes can be deducted on an entity’s federal return. Applying the normal accrual rules to the Michigan SALT cap workaround without additional authority, a partnership/S corporation that makes an election to be taxed at the passthrough entity level but does not pay such taxes until it files a timely return may still deduct Michigan income taxes if the elements above are met.

There is substantial concern, however, that the IRS may challenge this deduction based on authority issued. In Notice 2020-75, the IRS provided a limited blessing of certain SALT workarounds but focuses on where “specified income tax payments” are made. The notice does not specifically address accrual taxpayers, or whether accrual accounting rules would still apply to such taxes allowing payment in the following year. There are also concerns that the IRS may view passthrough entity taxes paid by accrual taxpayers as not satisfying the accrual accounting rules because of the elective nature of the tax.

Given the lack of certainty in this area, the conservative position for accrual-basis taxpayers should be to pay the passthrough entity tax by December 31, 2021. Payments can be made today on the Michigan Treasury Online system, which also triggers the election for the passthrough entity tax. From communications with the State of Michigan, we expect additional guidance to be issued in January of 2022 for the Michigan SALT workaround, including the release of the election form.

© 2022 Varnum LLP

Article By Steven G. Cappellino and Eric M. Nemeth of Varnum LLP

For more articles on SALT, visit the NLR Tax section.

Not So Fast! How Poor Planning Can Doom Your Chapter 11 Filing

A Texas bankruptcy court’s decision earlier this year to dismiss the National Rifle Association’s (“NRA”) chapter 11 bankruptcy case as a bad faith filing illustrates the perils of a poorly planned chapter 11 filing, and highlights the need, even in crisis situations, to establish solid objectives and develop a sound strategy prior to seeking relief under the Bankruptcy Code. In re Nat’l Rifle Ass’n of Am., 628 B.R. 262 (Bankr. N.D. Tex. 2021). Unique facts and circumstances notwithstanding, In re Nat’l Rifle Ass’n of Am. provides textbook examples of things you should not do when filing a corporate chapter 11 case.

In its opinion, the Northern District of Texas Bankruptcy Court highlighted recent events in the history of the NRA prior to the bankruptcy filing, including: (1) the New York Attorney General (“NYAG”) opening investigations into the NRA in 2017; (2) the New York Department of Financial Services urging insurers and financial institutions in April 2018, to evaluate whether their relationships with the NRA were harmful to their corporate reputations and jeopardized public safety; (3) multiple whistleblowers notifying the NRA Audit Committee in July 2018 about alleged misconduct by NRA management, including conflicts of interest of senior management and board members and improper reimbursement of living expenses for certain employees; and (4) the NYAG filing a complaint against the NRA in New York state court on August 6, 2020 seeking dissolution of the NRA (the “NYAG Action”).

Approximately 3 months after the NYAG Action, on November 23, 2020, the NRA retained counsel to advise them on bankruptcy and restructuring options. The very next day, the entity “Sea Girt, LLC” was formed, as “a transition vehicle to facilitate the NRA’s relocation to Texas.” Id at 267. At a board meeting on January 7, 2021, the NRA board approved the employment agreement of the NRA’s Executive Vice President Wayne LaPierre, which included language allowing Mr. LaPierre to “exercise corporate authority in furtherance of the mission and interests of the NRA, including without limitation to reorganize or restructure the affairs of the Association for the purposes of cost-minimization, regulatory compliance or otherwise.” Id. at 267-68. There was no discussion of bankruptcy or reorganization at the board meeting, and the board was never informed that the employment agreement authorized Mr. LaPierre to unilaterally file a bankruptcy petition for the NRA. A few days after the board meeting, on Jan. 15, 2021, the NRA and Sea Girt, LLC filed voluntary petitions for relief under Chapter 11.

Approximately one month into the bankruptcy case, multiple parties, including the NYAG, filed dispositive motions seeking various relief that the bankruptcy court categorized as generally falling into three buckets: (1) dismissal; (2) appointment of a chapter 11 trustee; or (3) appointment of an examiner. Id. at 270. In adjudicating the motions, the bankruptcy court adopted the Fifth Circuit’s flexible view that the term “cause” in Section 1112(b)(4) could include “a finding that the debtor’s filing for relief is not in good faith.” Id at 270.

The Court’s good faith analysis largely focused on the NRA’s reasons for filing bankruptcy. After evaluating the relevant arguments and evidence, the Court concluded that the real purpose for the bankruptcy filing was to avoid dissolution in the NYAG Action. The Court noted that although there was “some evidence that the NRA want[ed] to streamline litigation and control litigation costs,…” that did not appear to be “the real purpose” behind the bankruptcy filing. Id. at 278. On the contrary, there was testimony that the NRA could afford to pay its legal fees and there had not been any analysis done of the comparative cost of litigation outside of bankruptcy versus the cost of litigation within the bankruptcy case. While the question of “[w]hether the NRA’s desire to leave New York and reincorporate in Texas was a true reason for filing bankruptcy [was] a closer call,” the Court was not persuaded that the conditions faced by the NRA predating the NYAG Action were an existential threat and reason to file bankruptcy in order to move to Texas. Id. at 278. Testimony of the CFO, that “he was not aware of any reasons to file for bankruptcy” was also not supportive of the argument that the bankruptcy was filed for financial reasons. Id. at 279. In the Court’s view, the other reasons that the NRA gave for filing bankruptcy, such as “preserving the NRA as a going concern” could all be grouped under the general reason of avoiding the dissolution in the NYAG Action. Id. at 279.

For its subsequent analysis of whether avoiding the dissolution in the NYAG Action was a valid purpose, the Court conducted the 2-pronged inquiry used by the Third Circuit, namely: “(1) whether the petition serves a valid bankruptcy purpose and (2) whether the petition is filed merely to obtain a tactical litigation advantage.” Id. at 280. The Court reasoned that a lawsuit seeking a monetary judgment, which could be financially ruinous for a debtor, was different from a state enforcement action specifically seeking dissolution under that state’s laws that must satisfy certain requirements. The Court found the NRA case to be a bad faith filing because its purpose was (1) “to deprive the New York AG of the remedy of dissolution, which is a distinct litigation advantage” and “[to deprive] the state of New York of the ability to regulate not-for-profit corporations in accordance with its laws.” Id. at 281.

In considering whether appointment of a trustee or examiner was in the best interest of creditors, the Court noted “cringeworthy” facts such as the evidence of the NRA’s past misconduct, including deficiencies in financial disclosures by senior management. Id. at 283. Even more concerning to the Court was the “surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA,” where he had excluded key people such as the CFO and the general counsel from the decision-making process. Id. at 284. The determination of whether or not to appoint a trustee or examiner was further complicated because the NRA’s mission was, “at times, political and polarizing” and because “[t]he NRA does not sell goods or services” it would be difficult to find the appropriate fiduciary to serve as trustee or examiner. Id. at 284. Touting progress the NRA had made in recent years resulting in more disclosure and self-reporting, the Court concluded that, “[o]utside of bankruptcy, the NRA can pay its creditors, continue to fulfill its mission, continue to improve its governance and internal controls, contest dissolution in the NYAG Enforcement Action, and pursue the legal steps necessary to leave New York.” Id. at 284-85.

In re Nat’l Rifle Ass’n of Am. vividly demonstrates the danger of hastily filing a chapter 11 case, and then formulating a narrative post-petition as to the reasons for the filing that are not supported by evidence. Profoundly damaging to the NRA’s position was the inconsistency between the NRA’s arguments in bankruptcy court and the NRA’s own publicly announced reasons for filing bankruptcy, including a posting on its NRA website which stated, “This action is necessitated primarily by one thing: the unhinged and political attack against the NRA by the New York Attorney General.” The Court also expressed frustration at the lack of clarity caused by conflicting testimony of witnesses about the purpose of the bankruptcy filing. When the CFO testifies there is no financial reason to file bankruptcy, how do you argue that the bankruptcy was filed to reorganize the debtor? Also detrimental to the NRA’s position were corporate governance failings where there was no vote or even any discussion by the Board about bankruptcy and restructuring options, and it was clear that the decision to file chapter 11 was made by one person. This case shows that, given the significant costs attendant to an imprudent bankruptcy filing that is later dismissed, it is essential to establish clear objectives, articulate a coherent strategy, and practice good corporate governance prior to filing a chapter 11 case.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

Article By Zana Scarlett of Nelson Mullins

For more articles on Chapter 11, visit the NLR Bankruptcy & Restructuring section.

COVID-19 Update: The CDC Issues New Isolation Guidance

On December 27, 2021, the CDC shortened its recommended isolation and quarantine periods for those infected with, or exposed to, COVID-19. Because the CDC’s Isolation Guidance is incorporated by reference into OSHA’s vaccination or test rule, larger employers should revise their policies to reflect these new guidelines in advance of the January 10th deadline for compliance. Here is a summary of the new isolation/quarantine periods:

Employees Who Have Tested Positive and are Asymptomatic

  • Isolate at home for five days.
  • Mask for five days after isolation period.

Employees Who Have Tested Positive and Have Symptoms

  • Isolate at home for five days and, if symptoms resolve during that time, the employee can leave isolation.
  • If the employee has a fever, the employee must remain isolated until the fever resolves.
  • Mask for five days after isolation period.

Employees Who Are Exposed to COVID-19 and Have Received Booster

  • No required isolation or quarantine.
  • Wear mask for 10 days.
  • Best practice: Test, if possible, five days after exposure.

Employees Who Are Exposed to COVID-19 and Completed Vaccination (Pfizer or Moderna) Within the Last Six Months or Received J&J Vaccine Within the Last Two Months 

  • No required isolation or quarantine.
  • Wear mask for 10 days.
  • Best practice: Test, if possible, five days after exposure.

Employees Who Are Exposed To COVID-19 and Are Unvaccinated or Completed Vaccination (Pfizer or Moderna) More Than Six Months Ago or Received J&J Vaccine More Than Two Months Ago

  • Stay home for five days.
  • Mask for five days after quarantine
  • If employee cannot quarantine, mask for 10 days
  • Best practice: Test, if possible, five days after exposure.
©2021 Roetzel & Andress

Article By Morris L. Hawk of Roetzel & Andress LPA

For more articles on COVID-19, visit the NLR Coronavirus News section.

EPA’s Stormwater General Permit is Safe. Does it Matter?

A Colorado-based NGO has dropped its 9th Circuit lawsuit challenging EPA’s Multi-Sector General Permit for stormwater discharges associated with industrial facilities.

On one hand, this is a victory for EPA which apparently offered nothing to settle the case before the NGO threw up its hands.

On the other hand, the General Permit is only applicable in Massachusetts, New Hampshire and New Mexico, the three states that have not been delegated the authority to issue such a permit (as well as tribal lands and other lands not subject to state jurisdiction).

Why did the NGO bring this suit to begin with?  Did it hope that the Biden Administration EPA would, when push came to shove, do something dramatically different than the Trump Administration EPA?

Whatever the reason, the NGO has apparently concluded that the current law and permit give it plenty of grounds to bring suits over stormwater discharges in the 9th Circuit and elsewhere.  There are already several such imaginative suits pending on the west coast.

Are the regulators in Massachusetts less able to issue and enforce stormwater permits than than their colleagues in 47 other states?  The answer is of course not.  They are completely able and more able than most.  And they already have authority under state laws and regulations that are broader in their reach than the federal law.

But the Massachusetts legislature has stood in the way, apparently because it doesn’t want to bear the costs of regulating in this area borne by 47 other states.  Uncertainty and the threat, if not the actuality, of litigation has been the unfortunate result of this dereliction for the regulated community, including the municipalities in which we live.

We deserve better.

“The Center for Biological Diversity (CBD) is dropping its legal challenge to EPA’s industrial stormwater general permit that sought stricter regulation of plastics pollution after settlement discussions were unfruitful, according to an attorney familiar with the litigation.“

Article By Jeffrey R. Porter of Mintz

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

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Patch Up – Log4j and How to Avoid a Cybercrime Christmas

A vulnerability so dangerous that Cybersecurity and Infrastructure (CISA) Director Jen Easterly called it “one of the most serious [she’s] seen in [her] entire career, if not the most serious” arrived just in time for the holidays. On December 10, 2021, CISA and the director of cybersecurity at the National Security Agency (NSA) began alerting the public of a critical vulnerability within the Apache Log4j Java logging framework. Civilian government agencies have been instructed to mitigate against the vulnerability by Christmas Eve, and companies should follow suit.

The Log4j vulnerability allows threat actors to remotely execute code both on-premises and within cloud-based application servers, thereby obtaining control of the impacted servers. CISA expects the vulnerability to affect hundreds of millions of devices. This is a widespread critical vulnerability and companies should quickly assess whether, and to what extent, they or their service providers are using Log4j.

Immediate Recommendations

  • Immediately upgrade all versions of Apache Log4j to 2.15.0.
  • Ask your service providers whether their products or environment use Log4j, and if so, whether they have patched to the latest version. Helpfully, CISA sponsors a community-sourced GitHub repository with a list of software related to the vulnerability as a reference guide.
  • Confirm your security operations are monitoring internet-facing systems for indicators of compromise.
  • Review your incident response plan and ensure all response team information is up to date.
  • If your company is involved in an acquisition, discuss the security steps taken within the target company to address the Log4j vulnerability.

The versatility of this vulnerability has already attracted the attention of malicious nation-state actors. For example, government-affiliated cybercriminals in Iran and China have a “wish list” (no holiday pun intended) of entities that they are aggressively targeting with the Log4j vulnerability. Due to this malicious nation-state activity, if your company experiences a ransomware attack related to the Log4j vulnerability, it is particularly important to pay attention to potential sanctions-related issues.

Companies with additional questions about the Log4j vulnerability and its potential impact on technical threats and potential regulatory scrutiny or commercial liability are encouraged to contact counsel.

Article By Philip J. Bezanson, Brittney E. Justice, Claire E. Cahoon, and Seth D. DuCharme of Bracewell LLP

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

© 2021 Bracewell LLP

Current Pandemic-Related Regulations for Business Travel to the United States, Germany, and the EU

Recently, due to the availability of COVID-19 vaccines, many countries decided to lift their entry restrictions or change them in such a way that travelers who had recovered from COVID-19 infections or been vaccinated were allowed entry. Here is an overview of some of the current entry requirements for international travel.

Entry Into the United States

Since November 8, 2021, individuals have been allowed to enter the United States again from Europe. For 20 months, an entry ban had been in place in the United States for travelers from Brazil, China, India, Iran, Ireland, the Schengen Area (26 countries), South Africa, and the United Kingdom. A proclamation issued by President Joe Biden on October 25, 2021—“A Proclamation on Advancing the Safe Resumption of Global Travel During the COVID-⁠19 Pandemic”—ended these entry restrictions and the need for national interest exceptions (NIE) to the restrictions. Travelers from most countries (a recent U.S. ban on travel from eight African countries took effect on November 29, 2021) may enter the United States if they are fully vaccinated and present negative coronavirus test results (via RT-PCR tests or antigen tests) that are no more than three days old at the time of departure.

Travelers must prove to their airlines that they have been fully vaccinated with internationally recognized vaccines prior to their departures. Currently, the United States recognizes vaccines the Pfizer-BioNTech, Oxford-AstraZeneca, Oxford-AstraZeneca/Covishield, Covaxin, Moderna, Johnson & Johnson/Janssen, BIBP/Sinopharm, and Sinovacvaccines. A traveler’s last vaccination must have taken place at least 14 days before the planned date of travel. The United States accepts the EU Digital COVID Certificate as proof of vaccination.

Exempt groups include persons on diplomatic or governmental foreign travel, children under 18 years of age, and persons who cannot be vaccinated with a COVID-19 vaccine for documented medical reasons. Persons exempt from the October 25, 2021, proclamation’s requirements may enter the United States without being fully vaccinated, but they must quarantine for seven days upon arrival and test for COVID-19 infection three to five days after entry.

Regardless of the COVID-19–related entry requirements, all travelers still need an Electronic System for Travel Authorization (ESTA) entry permit issued by U.S. Customs and Border Protection (CBP). CBP advises travelers to apply online for ESTA authorization at least 72 hours in advance of departure.

Requirements for Entry Into the European Union

The European Union (EU) has a common approach to travel from third countries to EU member states. Entry requirements are constantly being adapted to the pandemic situation as international travel gradually opens up. Currently, in principle, any person from a third country who has been fully vaccinated with a vaccine approved by the European Medicines Agency (EMA) (BioNTech-Pfizer, Moderna, AstraZeneca, and Janssen-Cilag) may enter the European Union. The last vaccination must have taken place at least 14 days before the planned entry.

EU citizens and residents as well as their family members are allowed to enter EU member states without being fully vaccinated. Further exceptions apply to persons for whom absolutely necessary reasons for entry exist. “Absolutely necessary reasons” may exist, among other things, for highly qualified employees from third countries if their labor is necessary from an economic point of view and their work cannot be postponed or carried out abroad.

The EU also maintains a list of countries where the epidemiological situation has improved sufficiently (the so-called “EU White List”), so that entry from these countries is possible regardless of an individual’s vaccination status. This list is constantly updated according to the epidemiological situation. The United States is not currently on the EU White List, so entry from the United States is only possible for fully vaccinated persons.

Each EU member state may set its own additional entry requirements. The EU’s “Re-open EU,” a clearinghouse of information regarding EU member states’ pandemic-related measures, offers an overview of the quarantine and testing requirements of the individual countries.

Requirements for Entry Into Germany

All travelers to Germany from third countries that are not on the EU White List and are not EU citizens or residents must be fully vaccinated. In exceptional cases, entry is possible if it is absolutely necessary.

In addition, all travelers aged 12 or older must provide proof of vaccination. Before crossing the border, proof of vaccination or convalescence, or a test result showing negative for infection (e.g., an antigen test that is no more than 48 hours old or an RT-PCR test that is no more than 72 hours old), must be presented for inspection by the carrier or at the request of the Federal Police.

For previous stays in high-risk or virus-variant areas, digital travel registration is also mandatory. The Robert Koch Institute provides a current list of all high-risk and virus-variant areas.

Nonvaccinated or recovered travelers entering from high-risk areas must also present a negative test upon entry and enter domestic quarantine for 10 days. The domestic quarantine can be ended prematurely if another negative test result is presented five days after entry.

At present, travel from a virus-variant area is not possible, as a travel ban is in force for countries where virus mutations are widespread. Entry is possible only in a few exceptional cases (for example, for German nationals and persons with residence and an existing right of abode in Germany, as well as their immediate family members). Irrespective of vaccination or convalescent status, these travelers are obliged to register their entries digitally, present negative test results upon entry, and go into quarantine for 14 days. Only vaccinated and recovered persons may shorten their quarantine periods by presenting further negative test results five days after entry.

Employer Inquiries Into Employees’ Vaccination and Recovery Status

These extensive regulations raise a question as to whether an employer may inquire into an employee’s vaccination status, or whether the employee has recovered from a COVID-19 infection in connection with an upcoming business trip.

The vaccination and/or convalescence status of an employee, under 9 (1) of the EU’s General Data Protection Regulation (GDPR), is considered health data and thus protected personal information according to Art. An employer may request and process this information only if there is a legal basis for doing so. If a business trip requires proof of an employee’s vaccination against COVID-19 (e.g., due to entry restrictions), an employer may request and process this information from the employee in individual cases. However, employers may only request the information in the context of specific business trips and are prohibited from retaining the information for any other purposes.”

The COVID-19–related entry regulations of many countries may largely determine the feasibility of a contemplated business trip, as the prospect for international business travel will likely depend on the vaccination status of the employees involved. This situation may result in a legitimate interest on the part of the employer to inquire into employee vaccination status because the employer would otherwise be unable to find out whether a particular employee met the entry requirements of the destination country. Only by inquiring into vaccination status can the employer ensure that the employee is not turned away at the border—i.e., that the employee can fulfill the duty to provide the contractually agreed upon work within the scope of the business trip.

Whether an employer’s query regarding an employee’s vaccination status is legitimate is therefore a case- and fact-specific inquiry, which depends above all on the entry regulations of the destination country. If the destination country requires complete vaccination for entry, it may be permissible from a data protection perspective to ask about an employee’s vaccination status.

Article By Cynthia Lange of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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

© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

CFPB Solicits Whistleblowers to Strengthen Enforcement of Consumer Financial Protection Laws

In its revamped whistleblower webpage, the CFPB is enlisting the help of whistleblowers to provide tips about the following issues:

  • Any discrimination related to consumer financial products or services or small businesses
  • Any use of artificial intelligence/machine learning models that is based on flawed or incomplete data sets, that uses proxies for race, gender, or other group characteristics, or that impacts particular groups or classes of people more than others;
  • Misleading or deceptive advertising of consumer financial products or services, including mortgages
  • Failure to collect, maintain, and report accurate mortgage loan application and origination data
  • Failure to provide or use accurate consumer reporting information
  • Failure to review mortgage borrowers’ loss mitigation applications in a timely manner
  • Any unfair, deceptive, or abusive act or practice with respect to any consumer financial product or service.

The CFPB has also announced that it seeks tips to help it combat the role of Artificial Intelligence in enabling intentional and unintentional discrimination in decision-making systems.  For example, a recent study of algorithmic mortgage underwriting revealed that Black and Hispanic families have been more likely to be denied a mortgage compared to similarly situated white families.

Proposed CFPB Whistleblower Reward Program

Currently, there is no whistleblower reward program at the CFPB and sanctions collected in CFPB enforcement actions do not qualify for SEC related action whistleblower awards.  In light of the success of the SEC’s Whistleblower Program as an effective tool to protect investors and strengthen capital markets, the CFPB requested that Congress establish a rewards program to strengthen the CFPB’s enforcement of consumer financial protection laws.

In September 2021, Senator Catherine Cortez Masto introduced the Financial Compensation for Consumer Financial Protection Bureau Whistleblowers Act (S. 2775), which would establish a whistleblowers rewards program at the CFPB similar to the SEC Whistleblower Program.  It would authorize the CFPB to reward whistleblowers between 10% to 30% of collected monetary sanctions in a successful enforcement action where the penalty exceeds $1 million.  And in cases involving monetary penalties of less than $1 million, the CFPB would be able to award any single whistleblower 10% of the amount collected or $50,000, whichever is greater.

The Financial Compensation for CFPB Whistleblowers Act is cosponsored by Chairman of the Senate Banking, Housing, and Urban Affairs Committee Senator Sherrod Brown and Senators Dick Durbin, Elizabeth Warren, Jeff Merkley, Richard Blumenthal, and Tina Smith. In the House, Representative Al Green introduced a companion bill (H.R. 5484).

A whistleblower reward program at the CFPB could significantly augment enforcement of consumer financial protection laws, including laws barring unfair, deceptive, or abusive acts and practices.  The CFPB has authority over a broad array of consumer financial products and services, including mortgages, deposit taking, credit cards, loan servicing, check guaranteeing, collection of consumer report data, debt collection associated with consumer financial products and services, real estate settlement, money transmitting, and financial data processing.  In addition, the CFPB is the primary consumer compliance supervisory, enforcement, and rulemaking authority over depository institutions with more than $10 billion in assets.

Hopefully, Congress will act swiftly to enact the Financial Compensation for CFPB Whistleblowers Act.

Protection for CFPB Whistleblowers

Although Congress did not establish a whistleblower reward program when it created the CFPB, it included a strong whistleblower protection provision in the Consumer Financial Protection Act of 2010 (CFPA).  The anti-retaliation provision of the Consumer Financial Protection Act provides a cause of action for corporate whistleblowers who suffer retaliation for raising concerns about potential violations of rules or regulations of the CFPC.

Workers Protected by the CFPA Anti-Retaliation Law

The term “covered employee” means “any individual performing tasks related to the offering or provision of a consumer financial product or service.”  The CFPA defines a “consumer financial product or service” to include “a wide variety of financial products or services offered or provided for use by consumers primarily for personal, family, or household purposes, and certain financial products or services that are delivered, offered, or provided in connection with a consumer financial product or service . . . Examples of these include . .. residential mortgage origination, lending, brokerage and servicing, and related products and services such as mortgage loan modification and foreclosure relief; student loans; payday loans; and other financial services such as debt collection, credit reporting, credit cards and related activities, money transmitting, check cashing and related activities, prepaid cards, and debt relief services.”

Scope of Protected Whistleblowing About Consumer Financial Protection Violations

The CFPA protects disclosures made to an employer, to the CFPB or any State, local, or Federal, government authority or law enforcement agency concerning any act or omission that the employee reasonably believes to be a violation of any CFPB regulation or any other consumer financial protection law that the Bureau enforces. This includes several federal laws regulating “unfair, deceptive, or abusive practices . . . related to the provision of consumer financial products or services.”

Some of the matters the CFPB regulates include:

  • kickbacks paid to mortgage issuers or insurers;
  • deceptive advertising;
  • discriminatory lending practices, including a violation of the Equal Credit Opportunity Act (“ECOA”);
  • excessive fees;
  • any false, deceptive, or misleading representation or means in connection with the collection of any debt; and
  • debt collection activities that violate the Fair Debt Collection Practices Act (FDCPA).

Some of the consumer financial protection laws that the CFPB enforces include:

  • Real Estate Settlement Procedures Act;
  • Home Mortgage Disclosure Act;
  • Equal Credit Opportunity Act;
  • Truth in Lending Act;
  • Truth in Savings Act;
  • Fair Credit Billing Act;
  • Fair Credit Reporting Act;
  • Electronic Fund Transfer Act;
  • Consumer Leasing Act;
  • Fair Debt Collection Practices Act;
  • Home Owners Protection Act; and
  • Secure and Fair Enforcement for Mortgage Licensing Act

Reasonable Belief Standard in Banking Whistleblower Retaliation Cases

The CFPA whistleblower protection law employs a reasonable belief standard.  As long as the plaintiff’s belief is reasonable, the whistleblower is protected, even if the whistleblower makes a mistake of law or fact about the underlying violation of a law or regulation under the CFPB’s jurisdiction.

Prohibited Retaliation

The CFPA anti-retaliation law proscribes a broad range of adverse employment actions, including terminating, “intimidating, threatening, restraining, coercing, blacklisting or disciplining, any covered employee or any authorized representative of covered employees” because of the employee’s protected whistleblowing.

Proving CFPA Whistleblower Retaliation

To prevail in a CFPA whistleblower retaliation claim, the whistleblower need only prove that his or her protected conduct was a contributing factor in the adverse employment action, i.e., that the protected activity, alone or in combination with other factors, affected in some way the outcome of the employer’s decision.

Where the employer takes the adverse employment action “shortly after” learning about the protected activity, courts may infer a causal connection between the two.  Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009).

Filing a CFPA Financial Whistleblower Retaliation Claim

CFPA complaints are filed with OSHA, and the statute of limitations is 180 days from the date when the alleged violation occurs, which is the date on which the retaliatory decision has been both made and communicated to the whistleblower.

The complaint need not be in any particular form and can be filed orally with OSHA. A CFPA complaint need not meet the stringent pleading requirements that apply in federal court, and instead the administrative complaint “simply alerts OSHA to the existence of the alleged retaliation and the complainant’s desire that OSHA investigate the complaint.” If the complaint alleges each element of a CFPA whistleblower retaliation claim and the employer does not show by clear and convincing that it would have taken the same action in the absence of the alleged protected activity, OSHA will conduct an investigation.

OSHA investigates CFPA complaints to determine whether there is reasonable cause to believe that protected activity was a contributing factor in the alleged adverse action.  If OSHA finds a violation, it can order reinstatement of the whistleblower and other relief.

Article By Jason Zuckerman of Zuckerman Law

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

© 2021 Zuckerman Law

Biden Administration Issues New Government-Wide Anti-Corruption Strategy

On Dec. 7, 2021, the White House published a government-wide policy document entitled “United States Strategy on Countering Corruption” (“Strategy”). The Strategy implements President Biden’s National Security Memorandum from earlier in 2021, which declared international corruption a threat to U.S. national security.

The Strategy is notable for several reasons:

First, the Strategy focuses not just on the “supply side” of foreign bribery and corruption—that is, companies acting in violation of the Foreign Corrupt Practices Act (FCPA)—but also on the “demand side” of the equation, namely corrupt foreign officials and those who assist them. It promises to pair vigorous enforcement of the FCPA with efforts to hold corrupt leaders themselves accountable, via U.S. money laundering laws, economic sanctions, and visa restrictions.

Second, the Strategy specifically calls out the role of illicit finance in facilitating and perpetuating foreign corruption, promising “aggressive enforcement” against those who facilitate the laundering of corrupt proceeds through the U.S. economy. Professional gatekeepers such as lawyers, accountants, and trust and company service providers are specifically identified as targets of future scrutiny. The Strategy also promises to institute legislative and regulatory changes to address anti-money laundering (AML) vulnerabilities in the U.S. financial system. These promised changes include:

  • Finalizing beneficial ownership regulations, and building a national database of beneficial owners, as mandated by the Anti-Money Laundering Act of 2020.

  • Promulgating regulations designed to reveal when real estate is used to hide ill-gotten gains. Contemporaneously with the White House’s issuance of the Strategy, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM), inviting public comment on its plan to apply additional scrutiny to all-cash real estate transactions.

  • Prescribing minimum reporting standards for investment advisors and other types of equity funds, which are currently not subject to same AML program requirements as other financial institutions.

Third, the Strategy calls for a coordinated, government-wide response to corruption, and it contemplates a role not only for law enforcement and regulatory agencies but also for agencies such as the Department of State and Department of Commerce, which is to establish its own new anti-corruption task force. It remains to be seen if the increased scope of anti-corruption efforts called for by the Strategy will result in new or additional penalties for persons and entities perceived as corrupt or as facilitating corruption, but the Strategy may place an additional premium on corporate anti-corruption compliance.

Individuals and entities operating in sectors traditionally associated with corruption and/or AML risk should consider taking the following steps in response to the Strategy. These considerations apply not only to U.S. persons and businesses but also to anyone who may fall within the broad purview of the FCPA, U.S. money laundering statutes, and other laws with extraterritorial reach:

  • Increase due diligence for any pending or future transactions in jurisdictions where potentially corrupt actors or their designees play a role in awarding government contracts. Ensure any payments are the result of arms-length transactions based on legitimate financial arrangements.

  • Professional gatekeepers should become familiar with the particular risks associated with the industries in which they operate. While AMLA made it clear that lawyers, accountants, and real estate professionals will come under increased scrutiny based on the risk profile of their clients, the Strategy increases the likelihood that law enforcement will devote additional resources in this sometimes-overlooked area.

  • Given the increased role the State Department will continue to play in the anticorruption space based on the National Defense Authorization Act and the Strategy, companies doing business in or with countries vital to U.S. foreign policy goals should remember that in addition to the individual leaders of these countries, government institutions and lower-level officials could create risk and will be closely watched. Though the U.S. government often talks about specific government officials, the Strategy appears to take a broader approach.

  • Businesses should continue to examine and reexamine third-party risk with an emphasis on preventing potential problems before they occur. Additional resources and increased cooperation between and among government agencies may lead to additional investigations and enforcement actions, so compliance programs should be updated where necessary.

Article By Kyle R. Freeny and Benjamin G. Greenberg of Greenberg Traurig, LLP

For more white collar crime and consumer rights legal news, click here to visit the National Law Review.

©2021 Greenberg Traurig, LLP. All rights reserved.

Federal Judge Blocks Contractor Vaccine Mandate Nationwide

On December 7, 2021, a federal judge issued a nationwide preliminary injunction halting enforcement of the federal contractor and subcontractor vaccine mandate requirements issued by the Safer Federal Workforce Task Force in response to President Biden’s Executive Order 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors.  The mandate requires covered contractor employees to be fully vaccinated by January 18, 2022.  On November 30, a federal judge in Kentucky blocked enforcement of the mandate in Kentucky, Ohio, and Tennessee.  We blogged about that decision here.

Judge R. Stan Baker’s decision came in a case originally filed by Georgia, Alabama, Idaho, Kansas, South Carolina, Utah, and West Virginia, the governors of several of those states, and various state agencies, including the Board of Regents of the University System of Georgia.  Later, the Associate Builders and Contractors, Inc. (“ABC”), a trade organization, and one of its chapters in Georgia filed a Motion to Intervene along with their own Motion for Preliminary Injunction.  Judge Baker denied the Motion to Intervene as to the local chapter, but granted the Motion to Intervene as to ABC.  As discussed below, the Judge then found that the inclusion of this additional plaintiff warranted issuing a nationwide injunction (as opposed to the Kentucky judge’s more limited Order).

As in the Kentucky case, Judge Baker found the Plaintiffs would likely be able to show that the mandate exceeds the President’s powers under the Federal Property and Administrative Services Act.  He declined to issue a decision as to whether the mandate likely violated the constitutional non-delegation doctrine or infringed on rights reserved to the states under the Tenth Amendment.

As to why the Court here issued a nationwide injunction, Judge Baker cited the inclusion of ABC, contending that the trade association had members “all over the country” and were awarded “57% of federal contracts exceeding $25 million during fiscal years 2009-2020.”  His injunction does not appear to apply to other aspects of the contractor COVID-19 requirements issued by the Task Force, including those related to masking and social distancing.

It is unclear whether the federal government will seek to have the injunction lifted, and whether such an effort will be successful.  But, effective immediately, covered contractors in any state or territory of the United States of America are no longer mandated to require their covered workers to be vaccinated.

© 2021 Proskauer Rose LLP.

Article By Guy Brenner and Jacob P. Tucker of Proskauer Rose LLP

For more articles on vaccines, visit the NLR Coronavirus News section.