Category: Administrative & Regulatory

At a Glance: White House 100-Day Supply Chain Report

In February 2021, President Biden issued Executive Order 14017, “Executive Order on America’s Supply Chains” (discussed here), requiring (among other things) a report within 100-days requiring key government agencies to assess vulnerabilities and consider potential improvements to supply chains in four critical industries – (i) semiconductor manufacturing; (ii) high capacity batteries; (iii) rare earth elements; and (iv) pharmaceuticals.

On June 8, 2021, the White House released its 100-day Supply Chain Review Report and accompanying fact sheet. This article does not attempt to relay all of the information from the 250-page Report (the Report’s Executive Summary alone is 6 pages). Instead, we have attempted to summarize some of the Report’s most salient points and suggest how the risks, challenges, and recommendations discussed in the Report may impact companies that do business in these four critical industries.

Summary of the 100-day Supply Chain Review

As a reminder, the Executive Order asked for a quick-turn report within 100 days discussing four “critical” industries and the associated supply chain. Specific government agencies were assigned to lead the quick-turn review as follows:

Industry/Supply Chain Issues Responsible Agency
Semiconductor manufacturing Department of Commerce
High-capacity batteries (including those for electric vehicles) Department of Energy
Rare earth elements Department of Defense
Pharmaceuticals Department of Health and Human Services

Our summary, below, focuses on what we see as the key risk areas and challenges, as well as certain of the resulting recommendations identified by each reviewing agency.

I. Semiconductor Manufacturing and Advanced Packaging (Department of Commerce)

Key Risks and Challenges

  1. Fragile supply chains. Semiconductor supply chains are immense, and require vast inputs and resources to function properly. Because the industry is highly specialized and geographically concentrated (in Asia), a natural or human-made disaster has the potential to cause a massive disruption in the industry.
  2. Malicious supply chain disruptions. As microchips become more complex and outsourced, the risk of malicious interference or disruptions increases dramatically. In particular, this includes insertions of malicious vulnerabilities (e.g., “back doors” that can allow malicious actors to target a system using the chip). Counterfeiting and re-use of compromised semiconductors presents an additional risk, including revenue loss and early or catastrophic failure of end systems.
  3. Dependence on China. U.S. equipment companies are nearly entirely dependent on foreign suppliers, with purchases from China accounting for an increasingly large percentage of the market. Semiconductor companies would be significantly impacted by trade restrictions, embargos, or conflicts involving China. In short, the need to rely so heavily on a non-U.S. ally for an essential component of nearly every modern technology product puts the U.S. at significant risk.

Key Recommendations

  1. Fully fund the “Creating Helpful Incentives for Production of Semiconductors (CHIPS) for America” program. The 2021 National Defense Authorization Act, Pub. L. No. 116-283 §§ 9901-9908, incentivizes domestic investment in semiconductor production. The Department of Commerce recommends these programs be fully funded to incentivize semiconductor manufacturing and research and development (R&D) to promote long-term U.S. leadership in the industry.
  1. Strengthen the domestic semiconductor manufacturing ecosystem. This recommendation suggests legislative action, incentives, and investment to “support key upstream—including semiconductor manufacturing equipment, materials, and gases—and downstream industries to offset high operational costs in the United States.” Specifically, the government may leverage programs like the International Trade Administration’s “SelectUSA” program and the Department of Commerce National Institute of Standards and Technology (NIST) Manufacturing USA Institute, both of which have been requested in President Biden’s 2022 Budget.
  1. Support manufacturers, particularly small and medium-size businesses. To enhance innovation, the Department of Commerce recommends the U.S. Government invest R&D resources in small and medium-sized business, as well as disadvantaged firms along the supply chain. This kind of diversification will reap benefits both in terms of innovation and also jobs.
  1. Protect U.S. technological advantage. To address national security and foreign policy concerns, the Department of Commerce recommends that export control policies align with policy actions related to the supply chain. Additionally, the Department of Commerce recommends that reviews by the Committee on Foreign Investment in the U.S. (CFIUS) consider the national security concerns related specifically to the semiconductor supply chain before approving foreign investment in U.S. companies.

II. Large Capacity Batteries And Electric Vehicles (EVs) (Department of Energy)

Key Risks and Challenges

  1. Weak domestic production/foreign dependence. Global production of the minerals that are essential to producing high-capacity batteries – including lithium, cobalt, nickel, and graphite – each are primarily dependent on a single nation, China. Additionally, the business of refining these minerals is dominated by China and Russia. Dependence on potential adversaries is a huge supply chain risk, as these countries can use market control to restrict access to necessary materials to build long-lasting batteries.
  2. Geopolitical issues. This includes a host of different issues including restriction of access to resources by China; substandard materials being offered to U.S. makers of the battery cells; and human rights violations (including forced labor) or other types of corruption in countries in the supply chain.
  3. Market/economic shocks. As demand increases, and supply struggles to keep pace, it is likely that battery prices may spike in the future. Additionally, any tax or penalties on products whose production and delivery require large CO2 emissions could lead to secondary market related disruptions. If such policies become widespread, the price of Chinese products, in particular, could rise sharply, placing U.S. EV manufacturers at a severe disadvantage.

Key Recommendations

  1. Stimulate demand for end products using domestically manufactured high-capacity batteries. This recommendation focuses on supporting U.S.-based demand in two sectors: (1) transportation and (2) utilities. For transportation, the Department of Energy recommends: (a) transitioning the entire federal government vehicle fleets, as well as other school and transit buses, to EVs; (b) providing rebates and tax credits for consumers (with a “Buy America” preference for U.S. content); and (c) supporting the EV charging infrastructure across the country. Likewise, for utilities, the Department of Energy recommends: (i) accelerating federal procurement of battery storage; (ii) expanding tax credits to include stationary storage as a stand-alone resource; and (iii) reforming power transmission regulations to support renewable power and stationary energy storage.
  2. Strengthen responsibly-sourced supplies for key advanced battery minerals. The Department of Energy recommends: (a) that the U.S. invest in targeted, mineral-specific strategies, including supporting sustainable domestic extraction of lithium; (b) recovering nickel and cobalt from recycled or unconventional sources; and (c) working with global allies to expand global production and increase access to supplies.
  3. Promote sustainable domestic battery materials, battery cell, and battery pack production. This recommendation centers around financial support and investment from the U.S. government in the form of grant programs, tax credits, and federal procurement contracts. It specifically mentions leveraging the Department of Energy’s Advanced Technology Vehicle Management Loan program and reviving and expanding Section 1603 of the American Recovery and Reinvestment Tax Act (ARRTA) program to support small manufacturers in the batteries, battery cells, and related material processing supply chain.

III. Critical Minerals and Materials (Department of Defense)

Key Risks and Challenges

  1. Concentration of supply. Strategic and critical minerals are any materials that are needed to supply the military, industrial, and essential civilian needs of the United States during a national emergency, and that are not found or produced in the U.S. in sufficient quantities to meet such need. These materials can be found in nearly every electronic device, and they support high value-added manufacturing and high-wage jobs, in sectors such as automotive and aerospace. Similar to the materials needed for high-capacity batteries, a significant portion of global production for strategic and critical minerals is concentrated in only one or a few countries (predominantly China). The lack of diversity in suppliers creates a single point of disruption for a large portion of the global supply. In some instances, the concentration of supply is so extreme that production is limited to a single source (often China).
  2. Price shocks. The markets for critical minerals are often small and the production efforts are complex, which leads to a relatively inelastic supply. Such markets are particularly susceptible to massive price spikes and volatility.
  3. Human rights and related issues. Production and trade of critical minerals often involve a host of concerns, including forced and child labor, violence related to conflict minerals, profiteering by non-state actors, environmental pollution, organized crime, and corruption.

Key Recommendations

  1. Expanding sustainable domestic production and processing capacity. The Department of Defense recommends the U.S. Government work with key stakeholders from the private sector, labor, and nongovernmental organizations (NGOs) to develop sustainability metrics for critical materials. Additionally, the Department of Defense recommends the U.S. government adopt a sustainability requirement (g., a “sustainably produced” standard) for its purchasing, and develop a related Federal Acquisition Regulation (FAR) rule to establish a preference or requirement for the selection of products with higher sustainably-produced content.
  2. Deploy the Defense Production Act (DPA) and other programs to incentivize production. The Department of Defense recommends that multiple agencies use the DPA and other existing authorities and funding to incentivize production across the critical materials supply chain, including downstream, high value-added manufacturing such as new magnet capabilities and advanced electric motor designs. The Department of Defense recommends using similar programs to support R&D efforts, such as those focused on rare earth magnet recycling capabilities.
  3. Convene industry stakeholders to expand production. This recommendation also is related to the DPA, which authorizes the U.S. government to convene industry groups (with protection from civil and criminal anti-trust law) to coordinate business activities and form plans of action that satisfy a national need. The Department of Defense suggests convening such a group to identify opportunities to expand sustainable domestic production, and explore opportunities to create consortia or public-private partnerships for sustainable domestic processing of key strategic and critical materials.

IV. Pharmaceuticals and Active Pharmaceutical Ingredients (API) (Department of Health and Human Services)

Key Risks and Challenges

  1. Foreign dependence/lack of domestic manufacturing. As with the other supply chain areas, dependence on foreign nations has been cited as a key vulnerability for the U.S. pharmaceutical supply chain. The need to acquire pharmaceutical products at the lowest cost possible has led to a consolidation of production in foreign, low-cost countries (such as India). This potentially allows foreign governments to leverage such dependency by interrupting U.S. access to these supply chains.
  2. Limited resilience. Because of the cost and complexity of pharmaceutical manufacturing, the supply chain is particularly susceptible to disruptions. For example, shifting from an unreliable third-party source and expanding manufacturing can take significant time and require costly investment and time to obtain regulatory approvals.
  3. Limited redundancy. Most production of the active pharmaceutical ingredients occurs outside of the U.S., and sometimes from a single source. As such, the supply chain is particularly vulnerable to changes in natural disasters or other disruptions that could occur in one country, but affect the entire supply chain. Additionally, there are a limited number of drug manufacturers per unique drug, such that the markets are highly concentrated, which can lead to increased costs.

Key Recommendations

  1. Improve supply chain transparency and incentivize resilience. The Department of Health and Human Services recommends that any new policies seek to provide increased transparency related to the sources of drug manufacturing and the quality of the facilities that make them. This will incentivize purchasers to rely on more resilient suppliers with higher quality production and a more robust supply chain.
  2. Increase the economic sustainability of U.S. and allied drug manufacturing and distribution. The U.S. market is often undercut by cheaper options, particularly from India and China. To increase domestic capacity for production of key drugs, the U.S. should focus on: (a) increasing the economic sustainability of U.S. and allied drug manufacturing; (b) increasing government and private sector flexibility in contracting and sourcing of finished drugs and raw materials; and (c) studying whether the current market for finished drugs supports a diversification of supply instead of relying on one or two suppliers through preferred contractual arrangements.
  3. Boost domestic production and foster international cooperation. The Department of Health and Human Services recommends boosting domestic production with a mix of: (a) targeted investments and financial incentives (including through use of the DPA); (b) R&D to create new manufacturing technologies; (c) greater supply chain transparency; and (d) improved data collection to better understand the economics and supply chain realities.
  4. Build emergency capacity. In addition to bolstering domestic production and creating additional supply chains with U.S. allies, the Department of Health and Human Services recommends crating a virtual stockpile of active pharmaceutical ingredients and other critical materials necessary to produce critical drugs during times of crisis.

Conclusion

What does all of this likely mean for you and U.S. industry? Well, it’s hard to say, especially given that this is a quick-turn 100-day report. But here’s our initial “in a nutshell” takeaway of what we expect to see:

  • More business in these four industries/sectors (especially in the U.S.). The recommendations suggest there likely will be increased domestic investment by the Government (including tax credits and tax incentives). Overall, there seems to be recognition that domestic options may be more expensive, but that the higher price is worth the cost.
  • Higher costs for foreign sourcing. The Government will be looking to increase the costs associated with foreign sourcing, making those foreign sources more expensive and thereby more competitive with the more costly domestic alternatives.
  • Restrictions on Chinese imports. In particular, the Government will continue to move away from sourcing products/components/materials from China – “China” is the great buzzword in this Report, being mentioned 458 times!
  • More “Buy America” requirements.
  • More regulations.
  • Implementation of the new bi-partisan infrastructure bill (announced last week), complete with its focus on public transportation options, may give us near-term insights into how some of these policies will play out over the longer term (including the push for more domestic jobs).

We thank Sheppard Mullin Summer Associate Jake Walker for his contributions to this article.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.
For more articles on supply chain, visit the NLR Corporate & Business Organizations section.

Carlos Rios, A U.S. Citizen, Sues ICE for Wrongful Detention, Seeks $500,000 in Damages

On November 17, 2019, Carlos Rios was arrested by the Washington State Patrol in Pierce County, Washington, allegedly for driving his motorcycle under the influence. Rios was imprisoned in Pierce County Jail, and his belongings were confiscated. Upon his release two days later, he was taken into custody by two U.S. Immigration and Customs Enforcement (ICE) officers. Rios repeatedly told the officers that he was a U.S. citizen, but his protests went unheard.

Now, Rios, a welder at the Port of Everett, is suing ICE for unlawful arrest, false imprisonment, intentional infliction of emotional distress, and negligence. Rios is also seeking compensatory damages totaling $500,000. He is represented in his lawsuit by the Northwest Immigrant Rights Project (NWIRP).

Rios was born in Mexico, entered the U.S. in the 1980s, and has lived here ever since. He became a naturalized citizen in 2000. “I cannot understand why I was detained and why no one listened to me,” he said in a news release issued by the NWIRP.

The Arrest by ICE

Rios said he kept telling the officers who handcuffed him outside the prison that he was a U.S. citizen. No one listened to him, and instead, put him in a van to be transported to the Northwest Detention Center in Tacoma, where he stayed for a week. Ironically, Rios was carrying a passport in his plastic bag but was never given the opportunity to show it to the officers.

His lawsuit says that he was kept in an isolated cell allocated to people who are at risk of self-harm. He slept on the floor. The officers also told him that if he caused trouble, then even his clothes would be confiscated.

Pierce County Prison Notified ICE of Rios’s Release

The officials of the Pierce County Jail had notified ICE that Rios was to be released. However, because county prison officials did not hold him for any additional period, they avoided violating any state laws. Six months ago, Washington State passed a “Keep Washington Working Act,” which prohibits cooperation between the state and immigration officials.

Rios faces the consequences of his disappearance. He claims that he lost his job and that his absence strained his marriage. Rios is seeking $500,000 in compensation for his humiliation and distress.

Wrongful Detention by ICE

U.S. Army veteran and Belize native, Rennison Castillo, was taken to the Tacoma facility, where he was detained for seven-and-a-half months. He was detained despite having repeatedly claimed that he is a naturalized citizen of the United States. In 2010, the U.S Army veteran received a $400,000 settlement and an apology from the Department of Justice. It was around that time that NWIRP investigated and compiled a list of 16 U.S. citizens who were subject to such wrongful detention in Tacoma.

Following many claims of wrongful detention, ICE instituted new policies requiring officers to immediately investigate claims of citizenship and to instantly alert supervisors. ICE has also been warned against conducting discriminatory stops based on the people’s looks and the language they were speaking. The NWRIP has won two $35,000 settlements from the federal government for similar issues.

©2021 Norris McLaughlin P.A., All Rights Reserved
For more articles on ICE, visit the NLR Immigration section.

Canada to Ease Travel Restrictions for Fully Vaccinated Individuals

The Government of Canada has announced the first phase of its plan to ease border restrictions for travelers entering Canada. Under the new policy, travelers whose vaccination status meets the criteria of “fully vaccinated” will be exempt from quarantine restrictions, mandatory hotel stays pending test results, and day-eight testing, provided all conditions are met.

Effective July 5, 2021, at 11:59 p.m. EDT, fully vaccinated individuals will not be required to quarantine or take a COVID-19 test on the eighth day of their quarantine period. In addition, fully vaccinated travelers arriving by air will not be required to stay at a government-authorized hotel. A fully vaccinated traveler must provide documentation verifying that he or she has received, “at least 14 days prior to entering Canada,” the full series of a vaccine or a combination of vaccines that are accepted by the government of Canada. It is important to note that fully vaccinated travelers are not automatically exempt from Canada’s travel restrictions, as a representative of the Canadian government will make the final determination “at the border based on the information presented at the time of entry.”

Regardless of one’s vaccination status, the following entry requirements remain in effect for all travelers entering Canada:

  • Pre- and on-arrival testing will apply for all travelers, whether arriving by air or land, to ensure that all travelers are asymptomatic.
  • Each traveler “must have a suitable quarantine plan” in case a border officer determines that the traveler does not meet all conditions necessary to qualify for an exemption.
  • Travelers must electronically submit documentation of their vaccination status or COVID-19 test results through ArriveCAN prior to arrival in Canada.

Travelers who are not fully vaccinated must continue to adhere to current requirements for testing and quarantine. Unvaccinated travelers arriving in Canada by air must also have a reservation for a three-night stay at a hotel authorized by the government to await their arrival test results.

The Canada-U.S. border currently remains closed to nonessential travel. Canada’s Quarantine Act likewise remains in effect, and local provinces and territories may continue to impose additional travel restrictions.

© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles on Canada border restrictions, visit the NLR Global news section.

Cannabis Legalization and Racial Justice

Earlier this year, New York passed legislation legalizing the adult use of cannabis. New Yorkers can now legally possess three ounces for any use, and can smoke marijuana in any publically-designed area where tobacco smoking is allowed, although home cultivation is still not permitted. Importantly, certain convictions – possessing up to 16 ounces or selling up to 25 grams of marijuana – will be automatically expunged from criminal records.

Not only does this law expand existing medical marijuana programs and create a licensing system for producers and distributors, but it also acts as an important step toward addressing the racial disparities in drug-related arrests. During the 1970s and 1980s, the so-called “War on Drugs” stigmatized drug use as a criminal and moral issue rather than as a public health issue.

The criminalization of drug use led to disproportionate arrest rates of low-income people of color. Higher arrest and incarceration rates do not reflect increased drug use in these communities, but rather the increased presence of law enforcement in urban areas, low-income communities, and communities of color. In every state, Black people are more likely to be arrested for marijuana possession, and in some states, Black people are nearly ten times more likely to be arrested than White people. In states where marijuana has been legalized or decriminalized, arrests of racial minorities have declined markedly.

The criminalization of drug use has had lasting ramifications for many lives and communities. As noted by the Drug Policy Alliance, many people have been denied food stamps and public assistance, evicted from public housing, and lost custody of children. With the new legislation, once a marijuana conviction is expunged, it will not show up on a background check and cannot be used against an applicant in seeking employment, housing, or student loans.

The legalization of marijuana is an important step forward but much more needs to done such as providing greater resources to integrate the formerly incarcerated into society and expanding the definition of public safety beyond just the criminal law to include equal access to health care, education, employment, and housing.

© 2021 Proskauer Rose LLP.

My Mother Wants to Invest in My Startup: Raising Funds With Non-Accredited Investors

Emerging companies are filled with potential, and the entrepreneurs running them have countless great ideas that may one day change the world. These owners typically fund their startup companies with money from their own pockets at first. But eventually, as the company grows, the company needs more capital to fuel that growth. This is when entrepreneurs often turn to outside sources for funds. It may seem innocuous to ask family and friends to contribute to your growing, high-potential business. Of course, they want to support you and the work you are doing.

But don’t be too quick to accept money from your biggest fans. The securities laws in the United States regulate capital raising, and entrepreneurs need to know how to raise funds within the boundaries of the securities laws before taking money from anyone, including family and friends, so as to avoid potential issues after taking that much-needed capital.

Under United States securities laws, and the securities laws of each individual state (or “blue sky” laws), offers and sales of securities have to be either registered or exempt from registration. Generally, registered offerings are too cost prohibitive for startup companies. This means a startup needs to issue securities pursuant to an exemption from registration. The most widely available and used exemptions depend entirely or mostly on limiting the offering to only “accredited” investors, but not every entrepreneur has a rich aunt or uncle in the family who qualifies as an accredited investor. Some exemptions permit offering to non-accredited investors, but depend on those investors still being  “sophisticated.” An investor can qualify as a non-accredited but “sophisticated” investor if the investor, either alone or with a “purchaser representative,” (as defined by the SEC) has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment. While your mother and best friend and second cousin may be very smart and may even run their own businesses, they may lack the sophistication the SEC requires to satisfy exemption requirements. Determining whether to include non-accredited investors, whether sophisticated or not, in the offering at the outset is important because it will affect which exemptions from registration are available for the offering and on what basis.

A brief description of some of the more typical exemptions that contemplate inclusion of non-accredited investors in the offering is below. Depending on which exemption is used, the cost and time it takes to get to the offering may vary dramatically.

Regulation Crowdfunding

Regulation Crowdfunding came about via the Jumpstart Our Business Startups Act of 2012, more commonly referred to as the “JOBS Act.” Regulation Crowdfunding is similar to the popular platform Kickstarter except, instead of giving out a t-shirt to investors, the entity raising capital can give out equity. A capital raise through Regulation Crowdfunding must meet the following requirements, among others:

  1. all transactions must take place through a registered broker-dealer or an online, SEC-registered funding platform;
  2. the company can raise a maximum aggregate amount of $5 million in a 12-month period;
  3. non-accredited investors may invest in the offering, but the amounts in which they can invest are limited; and
  4. the company must disclose certain information by filing a Form C with the SEC.

Generally, securities issued through Regulation Crowdfunding may not be resold for at least one year. An offering under Regulation Crowdfunding is not subject to state securities regulations.

Although non-accredited investors can invest in a Regulation Crowdfunding offering, the amount of securities that can be sold to a non-accredited investor is limited:

  • If the investor’s annual income or net worth is less than $107,000, the investor can invest the greater of $2,200 or 5 percent of the greater of the investor’s annual income or net worth.
  • If the investor’s annual income or net worth is equal to or greater than $107,000, the investor can invest 10 percent of the greater of the investor’s annual income or net worth, not to exceed an amount invested of $107,000.

Accredited investors may invest an unlimited amount in an offering under Regulation Crowdfunding (subject to the maximum amount a company can raise each year).

While the ability to raise a respectable amount of capital from any investor may seem appealing, there are some negatives to consider when thinking of conducting an offering pursuant to Regulation Crowdfunding. First, the Form C that is required to be filed at the outset of the offering requires the company to disclose a significant amount of information. A higher information requirement almost always leads to higher legal and other advisor costs. Second, the company must make annual filings, which include either audited financial statements or financial statements certified by the company’s principal executive officer. Finally, the company has no control over who actually invests. When it comes time to sell the company, the lack of relationship with a potentially large portion of investors may lead to challenges. And if the company is not as successful as planned, these investors could be prime plaintiffs in a securities action.

Regulation D

Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) sets forth safe harbors providing for exemption from registration under Section 4(a)(2) of the Securities Act. Some of these safe harbors are available even if offering to non-accredited investors, including Rule 504 and Rule 506(b) of Regulation D.

Rule 504

Under Rule 504, a company can offer to sell up to $10,000,000 of securities in a 12-month period. A company utilizing this exemption may not be a reporting company, an investment company, or a blank check company. The company may use general solicitation so long as certain state securities disclosure conditions are met, and securities generally may be sold to non-accredited investors, depending on state law. Because Rule 504 does not pre-empt state law, a company issuing securities pursuant to Rule 504 must comply with state securities laws, in addition to the federal securities laws, which requires the issuer to qualify or register the offering in every state in which the company plans to offer the securities, or requires the issuance to be subject to an exemption. Compliance with state securities laws is time-consuming and costly, especially if the company is issuing securities in multiple states.

Rule 506(b)

Under Rule 506(b), a company can raise an unlimited amount of capital and can sell securities to an unlimited number of accredited investors. A company also can sell securities to up to 35 non-accredited but sophisticated investors. However, selling to non-accredited investors, no matter how sophisticated they are, requires the company to provide substantially more disclosure, including financial statements, to such non-accredited investors. A higher information requirement almost always leads to higher legal and other advisor costs. The company also must make itself available to answer questions from non-accredited investors. Rule 506(b) also prohibits the use of general solicitation in an offering.

Regulation A

Another product of the JOBS Act, the amended version of Regulation A (referred to herein as simply “Regulation A”) is sometimes referred to as a “mini public offering.” Companies may sell securities to investors under two tiers, each of which has different requirements. Under either tier, the company must file with the SEC an offering statement on Form 1-A, which must be qualified by the SEC before the company may take any funds from investors. Before the SEC qualifies the offering, the SEC will review and provide comments to the company’s Form 1-A, and the company will have to amend the Form 1-A based on the SEC’s comments to the SEC’s satisfaction.

Tier 1

  • A company can raise up to $20 million in a 12-month period.
  • The company must include in its disclosure documents financial statements that have been reviewed by an independent accounting firm.
  • There is no individual investment limit.
  • The company must file a Form 1-Z exit report.

Tier 2

  • A company can raise up to $75 million in a 12-month period.
  • The company must include in its disclosure documents financial statements that have been audited by an independent accounting firm.
  • Investors in a Tier 2 Regulation A offering that are not accredited investors are subject to an investment limit equal to 10 percent of the greater of the investor’s annual income or net worth if the investor is a natural person or 10 percent of the greater of the investor’s annual revenue or net assets if the investor is not a natural person.
  • The company is required to file with the SEC annual reports on Form 1-K, with audited financial statements, semiannual reports on Form 1-SA, current reports on Form 1-U, and an exit report on Form 1-Z.

A company selling securities under Regulation A may use general solicitation, though any general solicitation before the Form 1-A has been filed must comply with the requirements for “test the waters” communications. An offering conducted under Tier 1 is subject to state blue sky laws, but an offering under Tier 2 is not. Securities sold in reliance on Regulation A are not restricted securities, meaning they generally can be freely resold, subject to applicable state blue sky laws. As mentioned above, complying with state blue sky laws is time-consuming and costly.

Other registration exemptions may be available in specific situations that allow offering to non-accredited investors, but the above are the most readily available. As the process and requirements for qualifying for any of these exemptions makes clear, raising money from your mother is not as simple as accepting a check. Always have a plan on how and to whom you are offering securities before you start taking money. Meeting the requirements of an exemption that allows offering securities to a non-accredited investor is typically time-consuming, complicated, and costly because of the disclosure requirements.

© 2021 Varnum LLP
For more articles on startups, visit the NLRSecurities & SEC section.

International Travel After the US Travel Ban is Lifted – What Visa Holders Can Expect

At some point this year, we expect that the United States will lift the travel ban that includes all of the Schengen countries, the United Kingdom, China, and others.  While there have been many rumors about when this will happen, the US government remains silent.

When the United States lifts the travel ban, US visa holders in the United States will have many questions about whether they can travel abroad, when they can return, and what impediments they may face.  The following FAQs address these questions.  We will update them as needed.

1. When the United States lifts the travel ban, will I still need a National Interest Exception?

Answer:  No.  If the travel ban is completely lifted and no other restrictions are put in its place, travel will return to pre-pandemic “normal.”  In other words, you will not require any special advance permission to fly directly to the United States from countries that were previously under the travel ban.  You will also not need to show that you are exempt because you have an immediate relative (spouse or child) who is a US citizen.

2. When the United States lifts the travel ban, will I need a Covid vaccination to return after international travel?

Answer:  Possibly. The travel ban may be lifted in phases, allowing first for travel of vaccinated individuals.

3. When the United States lifts the travel ban, will I need a negative Covid test to return after international travel?

Answer:  Possibly. That will be up to the CDC. As of early June 2021, a negative Covid test is required for all US-bound air passengers 2 years of age or older, regardless of where they are flying from. If the CDC decides to change this rule, it will be announced on the CDC website.

4. When the United States lifts the travel ban, can I leave the United States and travel to my home country to see my family and friends?

Answer:  As a US visa holder, you are always free to leave. The issue is when you can return, which may depend on whether you require a US visa in your passport that only US consulates can issue.  (See below.)

5. Will I need a US visa in my passport in order to return to the United States to resume my current nonimmigrant visa status?

Answer:  Except for Canadian passport holders (other than E visa holders), every employment-based nonimmigrant visa holder must have a valid, unexpired visa in their passport that matches their work-authorized status, as indicated on their USCIS approval notice (Forms I-797 or I-129S) in order to return to the United States.  Family members holding dependent status must also have valid, unexpired visas in their passports to return to the United States.

6. My current visa is unexpired and is in the same category as my approval notice.  Will I need a new visa to return to the United States after travel abroad?

Answer: As long as you return with your unexpired, valid visa and your approval notice before either expire, US Customs should admit you in the same visa status through the end date listed on the approval notice.  For example, if you have in your passport an unexpired H‑1B visa that references a prior employer’s name and your most recent H-1B approval notice is for a new employer with a longer expiration date than listed on the visa, the two documents together will allow a US Customs officer to admit you in H-1B status. The visa and the approval notice must be in the same visa classification, however.

7. My current visa has expired, but I have an approval notice extending my status in the same visa classification.  Do I need a new visa to return to the United States?

Answer:  Yes, you will need to use the new approval notice to obtain a new visa at a US consulate abroad.  Your family members will need new dependent visas as well.

8. The visa I used to enter the United States is in a different visa classification than the approval notice my employer obtained for me, which changed my visa classification.  Do I need a new visa in order to return to the United States?

Answer:  If the USCIS changed your status after you arrived in the United States, you will need a new visa in your passport in the same visa classification listed on the new approval notice.  For example, if you entered using an F‑1 student visa, and then a US company filed an H-1B change of status petition for you and approved by USCIS, you will need an H-1B visa in your passport to return following travel abroad.  Your family members will need new dependent visas as well.

9. I heard that if the USCIS extended my status and/or changed my status to a new visa classification, I can travel to Canada or Mexico and back without getting a new visa in my passport.  Is this true?

Answer: Yes, it is true, but only if you are visiting either of those countries for 30 days or less, you do not apply for a US visa while there, and you do not travel to another country in between departing from and returning to the United States.  This process is the “automatic revalidation of visa at port of entry”.  You should consult with an attorney before using this provision of law to make sure that it is still available when you plan to return and that you have the necessary documentation to return after your short trip.

10. I heard that scheduling visa appointments at US consulates has been very difficult during the pandemic and while the travel ban has been in place.  Once the United States lifts the travel ban, will it be easier to schedule visa appointments abroad?

Answer: Possibly, but probably not immediately. We expect lingering backlogs in visa appointments. While we do expect that US consulates will return to pre-COVID appointment scheduling, we do not expect it to happen very quickly.  When the United States lifts the travel ban, the consulates may not be operating at full staff.  Even those that will be fully staffed will not likely return immediately to pre-COVID scheduling, as there is still a risk of COVID transmission in many countries.  As the vaccine rollout becomes more widespread, US consulates are likely to make more appointments available.  For countries with rising COVID cases, appointments will remain hard to secure.  At this time, most US consulates are only scheduling emergency appointments, and those scheduling regular appointments are doing so for late 2021 and early- to mid-2022.

11. I have a visa appointment scheduled for early 2022.  If the consulate opens up more appointments, will my appointment be moved to an earlier date?

Answer:  It may depend on the specific consulate whether it will automatically move appointments to earlier dates, or whether it falls on the applicant to reschedule.  It is advisable to check the consulate’s website often to see if earlier appointments become available.  This may require checking daily.

12. What are the chances that I can secure an emergency appointment to obtain my visa?

ANSWER:  Low. At this time, US consulates are inundated with emergency appointment requests, most of which are denied.  Unless the emergency rises to a life-or-death situation, you can assume that you will not get one.  However, there is no harm in making the request.

13. Can I apply for a US visa at a US consulate in a country other than my home country?

ANSWER: Probably not. Because visa appointments are difficult to schedule, most US consulates are not entertaining visa applications from third-country nationals and are only granting visa appointments to local citizens or long-term residents.

14. Can I renew my visa while I am in the United States?

ANSWER:  Unfortunately no. The ability to apply to the State Department for “visa revalidation” ended after the tragic events of 9/11/2001.  Therefore, you must apply at a US consulate abroad.  There are rumors that the US may reinstate visa revalidation in the United States at some point to relieve the backlogs at US consulates, but we do not know if or when this could become a reality.

15. I have an unexpired B-1/B-2 visitor’s visa in my passport.  Can I use it to return to the United States to continue my employment?

ANSWER: No. You cannot use a B-1/B-2 visa (or any other nonimmigrant visa not related to your work-authorized approval notice) to enter the United States for employment.  Doing so would be visa and immigration fraud, and your US employer would be at risk for employing you when not authorized to do so.  You also should not use it to enter the United States intending to have your employer re-sponsor you for a work-authorized change of status, as you cannot enter as a visitor with the intention of changing status after arrival.

16. I have an unexpired ESTA (Visa Waiver) registration (or can obtain the registration). Can I use it to return to the United States to continue my employment?

ANSWER:   No. You cannot use ESTA to enter the United States for employment.  Doing so would be visa and immigration fraud, and your US employer would be at risk for employing you when not authorized to do so.  You also cannot apply to extend your ESTA visit or to change to a new status while you are in the United States.

17. Can I ask for Congressional assistance to schedule a visa appointment?

ANSWER: You can certainly reach out to your member of Congress for such assistance; however, it is unlikely that you will be successful, as Congressional offices are inundated with such requests.  If you have compelling facts, it may help, but unless you have a life-or-death situation, Congressional assistance is not likely to help.

18. If I depart the United States and cannot get a new visa, can I work from abroad until I can obtain the new visa to return to the United States?

ANSWER:  It depends on your company’s policies. Your employer may not allow you to perform your US position from abroad, as it may raise tax or other legal issues.  This is something you should discuss with your manager, human resources, and/or your global mobility department before making plans to depart.

Copyright © 2021, Hunton Andrews Kurth LLP. All Rights Reserved.
ARTICLE BY Ian P. Band of Hunton Andrews Kurth
For more articles on international travel, visit the NLR Immigration section.

Summer Is Here: International Vacation Travel During a Pandemic

International travel during the COVID-19 pandemic has been challenging, but conditions are finally improving. Many Americans are now vaccinated against COVID-19. The latest CDC reporting indicates 50.9% of the U.S. population has received at least one vaccine dose and more than 41% of the U.S. population has been fully vaccinated.

Many international destinations are planning for an uptick in tourism – including Europe. Unfortunately, there remains no consistency in the rules in effect across the pond. With Europe opening, many have been hoping since May that the United States will reciprocate and eliminate at least some of the COVID-19 international travel restrictions.

The EU Commission’s overall recommendation is that tourists from countries with low infection rates be allowed to enter if they are fully vaccinated with an EU-approved vaccine. This is reflected in some recent developments from European countries. For example:

  • Denmark has opened to EU/Schengen countries and plans to open to international tourists later in June.
  • France plans to use a “traffic light” system to determine which countries’ residents can visit and what restrictions will apply.
  • Malta is open fully to vaccinated travelers.
  • The UK plans to use a “traffic light” system that will determine “green-listed” countries, who will need to quarantine, and what testing will be required.
  • Portugal is open to EU/Schengen countries and the UK.
  • Italy is open to those from the UK, the EU, and Israel who are fully vaccinated.
  • The Netherlands is open to 15 low-risk countries.
  • Greece has been open to the EU, the United States, the UK, and Israel if the travelers are fully vaccinated or have a negative COVID-19 test.

In the meantime, the CDC has lowered travel restrictions for more than 100 countries. Further, especially due to upcoming international travel requirements, the United States is considering offering voluntary documentation that would allow U.S. residents to prove vaccination status. However, these vaccine “passports” have been controversial and a spokesperson from DHS noted that there will be “no federal vaccination database or a federal requirement for Americans to provide they’ve been vaccinated . . . . ” The status of these “passports” promises to be an evolving area, considering the privacy concerns that have been raised, such as in New York.

For now, everything is country by country and airline by airline – and everything is subject to change (make sure your airline tickets and hotel reservations are refundable!).

Those planning to travel need to make sure to check with the appropriate consulates before starting to plan.

Jackson Lewis P.C. © 2021
ARTICLE BY Kristopher W. Peters of Jackson Lewis P.C.
For more articles on international vacations, visit the NLR Immigration section.

 

California Revokes Controversial Masking Rules

On June 3, 2021, California’s Occupational Safety and Health Standards Board (“OSHSB”) approved some controversial revisions to its Emergency Temporary Standards (“ETS”) related to COVID-19.  Among other highly-contested provisions, the updated ETS would have required even fully-vaccinated individuals to don masks indoors unless everyone in a room was fully-vaccinated.  However, before the much-maligned revised ETS could take effect, the OSHSB did an immediate about-face.

On June 9, 2021, the OSHSB convened a special meeting to consider how the new ETS aligned with guidance from the Centers for Disease Control and Prevention and the California Department of Public Health.  At the meeting, which lasted several hours, dozens of representatives from the business community and public at large assailed the updated ETS for being out-of-touch with federal and state public health guidance.  Ultimately, the OSHSB was persuaded and voted unanimously to withdraw the revised ETS before they even went into effect.

Instead, the OSHSB will consider further revisions to the ETS, which some members of the OSHSB have indicated will more closely align with new guidelines from the California Department of Public Health (effective June 15th), which no longer require fully-vaccinated individuals to wear masks in most settings.

The OSHSB could take up this issue again as early as its next meeting, on June 17, 2021.  Stay tuned for more updates.

© 2021 Proskauer Rose LLP.
ARTICLE BY Anthony J Oncidi, Philippe A. Lebel and Michelle L. Lappen of Proskauer Rose LLP

 

 

OSHA Issues COVID-19 Rules for Healthcare Employers Only

On June 10, 2021, Marty Walsh, Labor Secretary and acting assistant Secretary of Labor for Jim Frederick of Occupational Safety and Health Administration, announced the “emergency temporary standard,” or ETS, that identifies what employers must do to protect health care workers from COVID-19. The ETS is specifically tailored to employees in hospitals, nursing homes, and assisted living facilities; emergency responders; home healthcare workers; and employees in ambulatory care facilities where there are or may be COVID patients.

Some requirements under the ETS for health care employers are

  • to maintain social distancing protocols;
  • screen patients for COVID-19 symptoms;
  • screen employees for COVID-19 symptoms before each workday;
  • provide training to employees on their rights under the ETS;
  • install cleanable or disposable barriers for work stations;
  • ensure that employer-owned HVAC systems have a Minimum Efficiency Reporting Value of 13 or higher (if the system allows it), and
  • give employees time off to receive and recover from the COVID-19 vaccination.

Additionally, health care employers must develop and implement a COVID-19 plan (which must be in writing if there are more than 10 employees). The plan must identify a safety coordinator who is tasked with ensuring compliance, and it must identify policies and procedures to minimize the risk of transmission of COVID-19 to employees. However, there is a carve-out for certain workplaces where all employees are fully vaccinated and people who may have the virus are not allowed inside.

Notably, the ETS applies specifically to employers of health care workers. According to Walsh in his announcement, “OSHA has determined that a healthcare-specific safety requirement will make the biggest impact,” as those are the workers that are in contact with the virus on a day-to-day basis. Along with the ETS, OSHA issued voluntary guidelines to non-healthcare employers, such as meatpacking industries and high-volume retail facilities. OSHA also issued a flow-chart that helps employers identify whether the ETS applies to their workplace. The flow chart, and information regarding the ETS, can be found here.

The effective date of the ETS has not yet been determined. Generally, it will take effect the day it is published in the Federal Register, but that date has not been announced. Once it takes effect, applicable employers must comply with most of the ETS provisions within 14 days, and with provisions involving physical barriers, ventilation, and training, employers must comply within 30 days.

©2021 Roetzel & Andress

 

ARTICLE BY Amanda M. Connelly of Roetzel & Andress LPA
For more on OSHA rules, visit the NLRLabor & Employment section.

Canada Easing COVID-19 Border Restrictions: How to Prepare & Adapt to Changing Travel Rules

Canada announced it is expecting to ease COVID-19 quarantine restrictions for Canadians entering the country in early July. Under the new rules, fully vaccinated Canadians arriving by air won’t have to quarantine in a government-designated hotel and will be allowed to quarantine at home for the required 14 days.

“The first step … is to allow fully vaccinated individuals currently permitted to enter Canada to do so without the requirement to stay in government-authorized accommodation,” said Canadian Health Minister Patty Hajdu said in a press conference. “We do want to be cautious and careful on these next steps to be sure that we are not putting that recovery in jeopardy.”

The U.S.-Canada border closed to travelers on March 20, 2020. Currently, the Canadian border is only open to essential travel, and the Canadian government hasn’t released a plan yet for restarting non-essential travel for international travelers.

The Biden Administration announced on June 8 it is forming expert working groups with Canada as well as the United Kingdom (UK), Mexico and the European Union (EU) to determine how to lift border restrictions. However, White House Press Secretary Jen Psaki said in a press conference June 8 that she didn’t have a prediction for when the U.S.-Canada border would open for non-essential travel.

Even though restrictions are beginning to lift, travel is going to look different than it did before the coronavirus pandemic within North America and beyond.

What to Expect for Travel to Canada & Beyond

Canadian Prime Minister Justin Trudeau said all visitors traveling to Canada will have to be fully vaccinated, and is working on a phased approach to reopening the borders to non-essential travel.  Additionally, Ms. Hadju said the government supports the idea of requiring travelers to have COVID-19 vaccine passports to enter Canada.

Mr. Trudeau said that the Canadian border restrictions will remain until at least 75 percent of Canadians are vaccinated. Under increasing pressure to allow travel between the US and Canada, Mr. Trudeau said in a press conference on May 31 that he wouldn’t be pressured to open the borders without taking the necessary precautions in order to avoid another wave of infections that could slow the economic recovery already taking place.

“We’re on the right path, but we’ll make our decisions based on the interests of Canadians and not based on what other countries want,” he said.

The slow and cautious approach to reopening the U.S.-Canada border drew criticism from both politicians and organizations. Last month, U.S. Senate Majority Leader Charles E. Schumer called on the Department of Homeland Security (DHS) to implement a four part plan to reopen the Canadian border, which includes expanding the definition of “essential travelers” to include vaccinated individuals who have family or property across the border.

Dan Richards, travel crisis expert, CEO of Global Rescue and member of the U.S. Travel and Tourism Advisory Board said in an interview with the National Law Review that while the argument of protecting Canada and the U.S. from spikes in infections is one made in good faith, it needs to be weighed with the economic impact of keeping borders closed, especially if vaccination rates are high and infection rates are low.

“When you look at the Canadian challenge, its population is a tiny fraction of the population in the United States and they’re one of our biggest trading partners. Closing that border is a big deal,” Mr. Richards said. “If the public health systems in the two countries that have a border between them are capable of dealing with the level of infection that is occurring, then the borders should be open…Any friction in the travel process for people crossing borders should be removed.”

Mr. Richards said that while there is a possibility smaller pockets of COVID-19 infections could occur, the likelihood of another large scale wave of infections is slim.

“Trudeau is not entirely off the mark when he says there could be another wave, but the reality is that there’s almost no likelihood that could occur,” he said. “By and large, the average is dropping like a stone in the United States, and we’re starting to see that happening as well in Canada.”

The US and Canada’s cautious approach to reopening to international visitors contrast with countries like Spain, which opened their borders to fully vaccinated international travelers on June 7. More broadly, the European Union (EU) agreed to take steps to open up to fully vaccinated tourists, but did not give a timeframe for when that would happen.

Some countries like the United Kingdom (UK) are open to travelers who can produce a negative COVID-19 test upon arrival. But, international travelers to the UK are required to be quarantined for 10 days after their arrival and must take two COVID-19 tests.

“Europeans got off to a slow start, but now they’re now vaccinating close to 4 million people a day,” Mr. Richards said. “They’re only a month or so away from looking at dropping all their restrictions as well.”

How Might Travelers and Businesses Adapt to Easing Travel Restrictions?

With the news that some countries like Canada may ease border restrictions soon, travelers and businesses are beginning to adapt to the change.

“We’re going to see people combine business and leisure travel in ways that haven’t been done before,” Mr. Richards said. Specifically, people may choose to travel and work remotely for longer periods and then come back to the physical office for shorter periods.

“There is value to being in the same room with your colleagues and certainly with your clients,” Mr. Richards said. “But I think the days traveling long distances for one meeting with one person are going to be greatly diminished in the future.”

For businesses with employees traveling during the pandemic, there are steps to take to ensure the travel is done safely. Mr. Richards said it is the employer’s responsibility to monitor and alert employees if they are traveling to areas where there may be COVID-19 outbreaks.

“Businesses are more concerned right now about the duty of care that they have to their employees that are traveling than ever before,” he said. “If you send someone somewhere and they get sick or have an adverse event happen to them, it is your responsibility to provide a reasonable level of support as an employer under the law.”

How Will Travel Change Post-COVID-19?

While the travel and tourism industry took a hit during the COVID-19 pandemic, there is room for a robust rebound as the pandemic shows signs of slowing. However, when non-essential travel is possible again, it may look different than it did before the pandemic.

“It’s going to be tough to get a seat on an airline,“ Mr. Richards said. “I unfortunately think that getting on an airplane to go where you want to go is going to be challenging in the near term and more expensive than anybody expected.”

While rising fuel prices and airlines having fewer planes in use contribute to higher prices, Mr. Richards said the leisure travel segment is going to see an increased level of activity as people are eager to leave their homes and take trips.  Additionally, technologies such as COVID-19 PCR tests that can detect virus particles in travelers’ breath can help prevent the next pandemic and its impact on travel.

“If COVID showed us anything, it’s that work can be done from almost anywhere in many industries and people are going to take advantage of that,” Mr. Richards said. “The days where you had to be tethered to an office weekly are going to go away for some industries.”

Copyright ©2021 National Law Forum, LLC
ARTICLE BY Rachel Popa of The National Law Review / The National Law Forum LLC
For more articles on Canadian border restrictions, visit the NLR Global news section.