Category: Administrative & Regulatory

Forced Labor Sanctions in the Solar Industry – What You Need to Know

U.S. Customs and Border Protection (“CBP”) issued a Withhold Release Order (“WRO”) against Hoshine Silicon Industry Co. Ltd. , a company located in China’s Xinjiang Uyghur Autonomous Region (“XUAR”). The WRO has instructed personnel at all U.S. ports of entry to immediately begin to detain shipments containing silica-based products made by Hoshine and its subsidiaries. The WRO applies not only to silica-based products made by Hoshine and its subsidiaries but also to materials and goods derived from or produced using those silica-based products. CBP’s investigations into allegations of forced labor have produced six WROs this fiscal year.

CBP’s move comes the day after the Department of Commerce placed Hoshine and four other companies operating out of the XUAR on its Entity List. The Department imposed a license requirement for all items subject to the Export Administration Regulations (EAR) and a license review policy of case-by-case review for certain Export Control Classification Numbers (ECCNs) and certain items designated as EAR99. The administration made clear at the G7 summit that it would take action to ensure global supply chains are free from the use of forced labor. We noted in March that the Biden administration would use all of the tools at its disposal to combat forced labor, and we continue to expect the pace and scope of enforcement to increase.

Companies in the solar industry should take increasing care to ensure compliance programs are up to date, that new (and current) suppliers are carefully vetted, and supply chain audits are completed to their satisfaction. The State Department has recently noted that the employees of at least one supply chain auditor located in China were detained and interrogated for several days, and that supply chain audit companies are beginning to fear for their employees’ safety. If these allegations are credible, companies sourcing materials from China will need to reevaluate the effectiveness of their compliance programs and diligence procedures and, if they are dissatisfied with the results of their supply chain audits, consider sourcing from elsewhere.

Companies doing business with Hoshine – particularly those who have shipments en-route to U.S. ports – should review their contracts for force majeure and other compliance provisions. Companies should also review their commercial project contracts to determine the impact of supply chain delays and determine compliance with relevant notice provisions. Companies importing silicon of any kind should evaluate whether they have sufficient tracing information to ensure compliance with the WRO. CBP will be on the lookout for potential transshipment attempts by Chinese companies, to try to evade the WRO. If your company acts as an importer of record, it will be held responsible for any such attempt, underscoring the importance of full-spectrum supply chain due diligence for the solar industry.

© 2021 Foley & Lardner LLP
For more articles on the solar industry, visit the NLR Environmental, Energy & Resources section.

District of Columbia Increases Minimum Wage to $15.20, and Tipped Minimum Wage to $5.05, Effective July 1, 2021

As we previously reported, starting in 2016 the District of Columbia by statute gradually increased its minimum wage to $15.00 per hour, and its tipped minimum to $5.00, effective July 1, 2020. However, included in the statute were provisions for subsequent increases of both these rates based on the annual average increase in the Consumer Price Index for All Urban consumers in the Washington Metropolitan Statistical Area. See D.C. Code §32-1003(a)(6) and (f)(2).  The D.C. Department of Employment Services (DOES) recently announced that pursuant to these provisions, effective July 1, 2021 the minimum wage for all employees will increase to $15.20 per hour, and the tipped minimum to $5.05. The same rate applied to the Living Wage Act covering various government contractors.

D.C. employers should make sure that their payroll systems are adjusted to reflect these new rates. They should also post the updated DOES poster available here.

©2021 Epstein Becker & Green, P.C. All rights reserved.
For more articles on minimum wage, visit the NLR Labor & Employment section.

“C.T.A.,” NOT “Chicago”

In the late 1960s when I was in law school, rock bands began to name themselves after public utilities and transportation entities, such as “Pacific Gas & Electric” with its gospel-tinged sound and even more famously the instrumental powerhouse (forgive the pun) the “Chicago Transit Authority.” In both cases, those choices were not well-received by the entities after which they were named. In the face of threatened legal action, “Pacific Gas & Electric” became “PG & E,” ironically foreshadowing what that utility now calls itself. Similarly, the “Chicago Transit Authority” became “Chicago.” Nonetheless, for American capital markets, “C.T.A.” became even more important than “Chicago.” Indeed, the C.T.A. became the “information grid” of those capital markets.

By the late 1970s, all stock exchanges registered with the U.S. Securities and Exchange Commission (“SEC”) were required to send a record of their trades AND quotes to a central consolidator, the Consolidated Tape System (“CTS”) in the case of trades and the Consolidated Quotation System (“CQS”) in the case of quotes. Both the CTS and the CQS are operated and governed by the Consolidated Tape Association (“CTA”), established by the SEC in 1974 under the authority of the Securities Exchange Act of 1934, as amended.

The Consolidated Tape System

The name “Consolidated Tape” comes from the ticker tape created by Edward Calahan in 1867. It was improved by Thomas Edison and patented in 1871. By the end of the 19th Century, most stockbrokers had offices near the New York Stock Exchange (“NYSE”) at 11 Wall Street in the south end of Manhattan Island, just up from The Battery. The brokers received a steady supply of the ticker tape reports of transactions on the NYSE. Messengers (called “pad shovers”) delivered these reports of trades by running (quite literally) between the Exchange’s trading floor and the brokers’ offices, where a shorter distance meant more up-to-date quotes. The ticker tapes were the common “confetti” for “ticker tape parades” of politicians and champion athletic teams on lower Broadway.

Mechanical ticker tapes gave way to electronic ones in the 1960s, but the “confetti” use continued through the celebration of the unexpected World Series victory of the New York Metropolitans in 1969 (I was in a third base box seat at Shea Stadium for the fifth and final game and watched the ensuing ticker tape parade a few days later).

Capital Markets

By 1976, there was a consolidated tape reporting transactions at each of the participating stock exchanges. Each entry on the tape displays the stock symbol for the issuer, the number of shares traded, the price per share, a triangle pointing up or down (showing whether the trade price is above or below the previous day’s closing price, a number showing how much higher or lower the trade price was from the last closing price and the exchange where the trade occurred). By 1978, the CQS was operational, providing the quotations for stock traded on an exchange (identifying the exchange) as well as stock traded by members of the Financial Institution Regulatory Authority, Inc. (“FINRA”) on the third market. By 1979, both NASDAQ and the Cincinnati Stock Exchange had become CQS participants.

These developments arose in the course of the capital markets working their way out from the close call of the market collapse in the late 1960s – early 1970s in dealing with what had been a marketplace of paper certificates and manual record keeping. See my April 29, 2021, blog post, “Tightening the Reins: SEC Approves Proposed Rule Change to Clearing Agency Investment Policy,” for some of the history of this period and the development of Clearing Agencies to respond to the need to automate and otherwise modernize the capital markets. These American market developments stand in stark contrast to the disarray extant in Europe, where there is no “consolidated” system of trading information. See my November 5, 2020, blog post, “The European Stock Markets: Still at Sixes and Sevens,” and especially the inability to trade the stock of Danone SA when one exchange shut down.

SEC Notice of Participants

In 2020, came increases to the membership of the CTA. The members, called Participants, were, as of June 29, 2020, the following:

  • Cboe BYX Exchange, Inc.
  • Cboe BZX Exchange, Inc.
  • Cboe EDGA Exchange, Inc.
  • Cboe EDGX Exchange, Inc.
  • Cboe Exchange, Inc.
  • FINRA
  • The Investors’ Exchange LLC
  • Long-Term Stock Exchange, Inc.
  • MEMX LLC (formally admitted in the Summer of 2020)
  • Nasdaq BX, Inc.
  • Nasdaq ISE, LLC
  • Nasdaq PHLX, Inc.
  • The Nasdaq Stock Market LLC
  • New York Stock Exchange LLC
  • NYSE American LLC
  • NYSE Arca, Inc.
  • NYSE Chicago, Inc.
  • NYSE National, Inc.

On July 29, 2020, the SEC issued a Notice that the Participants proposed to amend the CTA Plans to include MEMX LLC as a Participant. MEMX (standing for The Members Exchange) is an interesting new capital market development, a technology-driven stock exchange founded by its members in early 2019 seeking to create a lower-cost exchange for the benefit of its members. Those members were:

  • BofA Securities
  • Charles Schwab  Corporation
  • Citadel LLC
  • E-Trade
  • Fidelity Investments
  • Morgan Stanley
  • TD Ameritrade
  • UBS
  • Virtu Financial

Nine other firms invested in the MEMX: Blackrock, Citigroup, J.P. Morgan, Goldman Sachs, Wells Fargo, and Jane Street.

One might note that Citadel LLC and Virtu Financial are the two leading wholesale trading houses in the U.S. and have been the subjects of intense Congressional and regulatory scrutiny because they together handle some 70+% of stock trades and provide great amounts of payment for order flow, all of which figured prominently in the GameStop and other so-called “meme” stock trading excesses in the first half of 2021.

In October 2020, the CTA membership was amended again to add MIAX PEARL, LLC. MIAX PEARL is owned by Miami Holdings Inc., a financial services firm that owns and operates a number of trading bodies, including the Minnesota Grain Exchange. MIAX PEARL is focused primarily on option trading.

Trading and Reporting

Beginning in January 2020, the CTA entertained a series of proposed adjustments to its operations to address how accurately to report the effect of a regulatory halt to trading and then the reestablishment of trading in that security culminating on May 28, 2021, of approval by the SEC of the 36th Amendment to the CT Plan and the 27th Amendment to the CQ Plan. Finally, 2020 saw the CTA engaged in lengthy and complex discussions and revisions both to improve the transparency of Participant actions AND to enhance the disclosure of conflicts of interest, as detailed knowledge of trading and quotation information can potentially give Participants inappropriate insight into trading strategy and market anomalies. The revisions proposed in an SEC Notice of January 8, 2020, included required disclosures by professional advisers to the Participants, such as auditors and attorneys.

In connection with the January 8 Notice, the SEC posed 14 specific requests for comments. Those proposals, with some modifications by the SEC in response to comments submitted, were approved by the SEC on May 6, 2020, and deserve careful reading by Participants, their advisors, and others interested in the functioning of the U.S. capital markets and the flow of information about their operations. The SEC, in its May 6 action, emphasizes that “responses to the required disclosures must be sufficiently detailed to disclose all material facts to identify applicable conflicts of interest.” Further, the May 6 action requires Participants to identify situations where service providers are constrained from making full disclosure due to “potentially conflicting laws or professional standards” and to discuss “the basis for its inability to provide a complete response,” specifically citing concerns for attorney-client privilege.

Protecting Investors

The May 6 SEC action concludes with a reference to a Congressional finding that:

“It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to ensure the prompt, accurate, reliable and fair collection, processing, distribution, and publication of information with respect to quotations and transactions in…securities and the fairness and usefulness of the form and content of such information. The conflicts of interest Amendments, as modified by the Commission, further these goals…”

©2021 Norris McLaughlin P.A., All Rights Reserved
For more articles on SEC, visit the NLR Securities & SEC section.

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.