Category: Antitrust & Trade Regulation

Improved US – Cuba Relations Create Potential FCPA Risks for US Companies Looking to do Business There

The normalization of relations between the United States and Cuba offers potential lucrative business opportunities for companies that are prepared to meet Cuba’s unique corruption risks. On December 17, 2014, President Barack Obama and Cuban President Raul Castro announced the restoration of full diplomatic relations between the United States and Cuba; an act which President Obama stated was aimed at ending “an outdated approach that for decades has failed to advance our interests” and that would instead begin to “normalize relations between our two countries.” In furtherance of that goal, on January 16, 2015, the U.S. Government eased travel restrictions between the U.S. and Cuba and, perhaps more importantly, reduced certain obstacles that prevented American companies from doing business on the island. For example, U.S. businesses will be allowed to provide financing to Cuban small businesses and sell communications devices, software, and hardware services among other things. Indeed, American companies in the aviation, telecommunications, or financial industries stand to gain a substantial foothold in a burgeoning new – and potentially lucrative – Cuban market.

Before diving in head first, however, American companies must recognize and prepare for the significant Foreign Corrupt Practices Act (“FCPA”) risks inherent in doing business in Cuba. But first, a quick refresher on the FCPA. Generally speaking, the FCPA prohibits bribing foreign officials for the purpose of obtaining or retaining business. The term “foreign official” is broadly defined and includes, among other things: (i) officers or employees of a foreign government or any department, agency, or instrumentality thereof; or (ii) anyone acting in an official capacity for or on behalf of said foreign government or any department, agency, or instrumentality thereof.

Doing business in Cuba presents a host of unique FCPA risks, three of which are particularly worth highlighting. First, while the Cuban government has taken steps to permit its citizens to open small businesses, the vast majority of Cuba’s economy remains government-owned and controlled. Former economist for the International Monetary Fund, Ernesto Hernandez-Cata, estimated that the Cuban government, directly and through state-owned businesses, accounts for more than 75% of Cuba’s total economic activity.  Essentially, the state is involved in virtually all of the island’s major businesses, including services typically run by the private sector in the U.S. In other words, American companies will almost certainly deal with foreign officials when doing business in Cuba.

Second, Cuban government officials are notoriously undercompensated. On average, government officials earn between $20 and $40 per month while, in some cases, being tasked with administering Cuba’s multi-million dollar business ventures. Unsurprisingly, low wages and extensive state involvement in business matters have incentivized some Cuban officials to solicit bribes (and, occasionally, have tempted foreign companies to offer them). For example, in September 2014, Cy Tokmakjian, Claudio Vetere, and Marco Puche, executives at Tokmakjian Group, a Concord, Ontario, Canada-based company,  were convicted of using bribery and other means to avoid paying taxes. They received sentences of 15, 12, and 8 years respectively as part of President Raul Castro’s crack down on graft and other forms of corruption. Tokmakjian, Vetere, and Puche may not be subject to the FCPA, but similar payments by American companies in Cuba would likely expose the companies and employees to FCPA liability.

Third, and finally, Cuba suffers from a widespread lack of transparency. The 2015 Transparency International Corruption Perceptions Index ranked Cuba 56th out of 168 countries surveyed, tied with Ghana.  American companies may find themselves in the dark with respect to Cuban regulations and procurement practices. As a result, companies may not be aware of inconsistent and/or improper application of Cuban regulations. Worse still, American companies may be unaware of the true purposes for certain payments. For example, a company may be informed that a particular payment is required to obtain a specific license but find out that the money was directed to a foreign official.

Note that the FCPA does have a knowledge requirement; however, knowledge may be demonstrated by establishing awareness of a high probability of impropriety, unless the person actually believed that there was nothing improper in that instance. See 15 U.S.C. § 78dd-1(f)(2). The “high probability” standard was intended to ensure that the FCPA’s “knowledge” requirement included instances of “conscious disregard” and “willful blindness.” H.R. Rep. No. 100-576, at 919 (1988) (citing United States v. Bright, 517 F.2d 584 (2d Cir. 1975)); see also United States v. Kozeny, No. 09-cr-4704, 2011 WL 6184494 (2d Cir. Dec. 14, 2011). Furthermore, the vast majority of FCPA cases settle before trial which means that there is little case law that speaks specifically to the FCPA’s scienter requirement. As a result, the DOJ and SEC have broad discretion to attempt to settle cases based on facts that may be out of tune with a strict interpretation of the FCPA’s scienter requirement.

At a minimum, reducing FCPA risks in any foreign country requires that companies take a few basic, but important, steps: conduct a risk assessment of the country, the industry, and the market; use the assessment to prepare a potent anti-bribery policy aimed at both prevention and remediation; implement the policy and disseminate it to all employees; adequately train employees and company agents; and modify the policy when necessary to ensure adequate protection in a changing market.

More specifically, doing business in Cuba – a market with which few American companies are deeply familiar – requires a thorough risk assessment. The quality of the analysis can mean the difference between a deficient anti-bribery policy and one that adequately shields the company from risk exposure. Accordingly, American companies should seek the advice of counsel before, during, and after the assessment. Counsel with experience in dealing with FCPA issues will be well-equipped to make sure the risk analysis is efficient, comprehensive, and targeted. This information will prove invaluable when designing an anti-bribery policy. Furthermore, experienced counsel can assist in implementing the policy, modifying the policy to ensure ongoing effectiveness, and representing the company should any FCPA-related issues arise.

Article By Philip J. Bezanson, Glen A. Kopp & Jeffery B. Vaden of Bracewell LLP
© 2016 Bracewell LLP

Trade Secrets Bill with Controversial Civil Seizure Provision Passes Senate

Recently, Congress and the courts in the United States have been active in reining in what many have seen as patent system that has run amuck. In the process, they have placed a number of limits on patent holders’ ability to effectively and successfully enforce patents. But as opportunities to enforce intellectual property through patent suits have been narrowed, another IP door appears to be opening.

For several years, Congress has been working on legislation that would, in effect, federalize what until now has been a state-by-state system of trade secret law. The current version, the Defend Trade Secrets Act of 2016 (S. 1890) (“DTSA”), was approved by the Senate on April 4, 2016 with bipartisan support.

The DTSA would operate to expand the existing Economic Espionage Act by, among other things, adopting much of the framework of the Uniform Trade Secrets Act (“UTSA”) and permitting private parties to bring civil trade secret misappropriation actions. UTSA-derived provisions are already in effect in 48 of the 50 states. Thus, while there are some differences between the DTSA and the UTSA, it is unclear whether the DTSA would represent a meaningful departure from existing trade secrets law, at least substantively. There are differing views.

The DTSA’s Civil Seizure Provision

What would almost certainly represent a significant new development is the DTSA’s civil seizure procedure, which is not contemplated under the UTSA. Under the proposed law, upon application by a party asserting theft of trade secrets, a federal court would have the authority to order law enforcement officials to enter land and seize property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Most strikingly, the bill envisions an ex parteprocess under which seizures would be authorized and executed without any notice to the relevant property owner(s), including third parties—a process that naturally raises due process and Fourth Amendment concerns.

Supporters of the bill point to analogous ex parte seizure provisions contained in the Lanham Act1 (authorizing ex parteseizures of counterfeit goods) and the Copyright Act2 (authorizing ex parte impoundments of documents and things related to copyright infringement)—provisions that have survived constitutional scrutiny.

Moreover, Rule 64 of the Federal Rules of Civil Procedure authorizes prejudgment seizures of property under applicable state law (e.g., writs of replevin or sequestration remedies), and ex parte seizures under such state law provisions have likewise been upheld under many circumstances. Courts have also justified ex parte seizures under the All Writs Act.3 Thus, there is precedent for these types of procedures.

It is also worth noting that ex parte seizure procedures are used in intellectual property cases in numerous jurisdictions outside of the United States. For example, in the United Kingdom, so-called “Anton Piller” orders have been utilized for many years to secure documents and things on an ex parte basis, in exceptional circumstances.

Significant Controversy

Nevertheless, the prospect of ex parte seizures in the trade secrets context has generated significant controversy in the United States. One major source of concern is the fact-intensive nature and overall complexity of trade secrets disputes. What exactly is the information at issue and does it qualify as a trade secret? How, if at all, has it been maintained in secrecy? Does the target of the seizure really have the information in his or her possession, and if so, how was the information obtained? Was reverse engineering involved? And so on.

Even on a preliminary basis, the complex factual issues involved in trade secret disputes may not lend themselves to fair resolution through expedited and non-adversarial ex parte procedures. Indeed, it does not take much imagination to conceive how, in the wrong hands, one-sided ex parte seizure proceedings might be used for improper purposes.

For example, in one Lanham Act counterfeit goods case, the plaintiff’s attorney “ran roughshod over the applicable statutes and rules,” submitting an inaccurate and misleading affidavit and convincing the lower court to authorize a private investigator to conduct the seizure and hand the seized property to the attorney.4 In another, the district court described a scheme in which the plaintiffs obtained seizure orders in a succession of counterfeiting cases, only to dismiss each case approximately one year after seizing the goods, without having ever established that the goods were, in fact, counterfeit.5

Rigorous Procedural Safeguards

In an effort to eliminate potential mischief, and to ensure that the new DTSA scheme passes constitutional muster, the bill’s sponsors have included a number of key procedural safeguards:

  • Ex parte seizures would be reserved for “extraordinary circumstances” only;

  • A seizure order would only issue upon the plaintiff’s filing of an affidavit or verified complaint that sets forth “specific facts” establishing, among other things: (1) immediate and irreparable injury if seizure is not ordered; (2) a likelihood of success on the merits of the trade secret claim; (3) the balance of harms favors the applicant; (4) the identity and location of the material to be seized, with reasonable particularity; and (5) more ordinary procedures (such as a TRO motion under Rule 65) would be ineffective because the seizure target would evade the order or destroy the evidence;

  • The applicant would be required to post a bond sufficient to cover damages should the seizure turn out to be wrongful or excessive;

  • Any seizure order would “provide for the narrowest seizure of property necessary” and would be executed by law enforcement officials;

  • The court would be required to provide specific guidance to the officials executing the seizure that “clearly delineates” the scope of their authority and details how the seizure must be conducted;

  • The court would also be required to schedule an adversarial hearing for the earliest possible time after the seizure was executed, at which hearing the applicant would bear the burden of proof of establishing that the seizure order was proper; and

  • The bill provides for a civil action for damages based on a wrongful or excessive seizure.

Taken together, these safeguards are significant and may reduce the likelihood of erroneous seizure orders and/or abuse of the system. In fact, it is possible that the obstacles to securing a seizure order would be so significant that, as a practical matter, they would eliminate the seizure remedy as an alternative in all but the most egregious scenarios. That appears to be an intended result.

In any event, having navigated the Senate, the DTSA will now pass to the House of Representatives for further consideration. A companion bill to S. 1890, H.R. 3326, was introduced in July 2015 and has enjoyed broad bipartisan support. In an era of partisan rancor, the DTSA may yet be one instance—the ex parte seizure provision notwithstanding—in which legislators find ways to work together across the aisle to achieve results.

1See 15 U.S.C. § 1116(d).
2See 17 U.S.C. § 503(a).
328 U.S.C. § 1651.
4Warner Brothers v. Dae Rim Trading, Inc., 877 F.2d 1120 (2d Cir. 1989).
5NASCAR v. Doe, 584 F. Supp. 2d 824 (W.D.N.C. 2008).

Increased Sanctions on North Korea Focus on China and Russia

Last week, President Obama significantly increased sanctions on North Korea through Executive Order 13722, which implements the North Korea Sanctions and Policy Enhancement Act of 2016 (H.R. 757). The Executive Order’s prohibitions and blocking provisions, and designation criteria are substantially more expansive than that Act. Concurrently with the issuance of the Executive Order, OFAC announced the designations of 17 North Korean government officials and organizations, 15 entities, two individuals, and identified 40 blocked vessels under various sanctions authorities.

While neither Congress nor the President imposed secondary sanctions per se, China and Russia should  interpret the Executive Order as a clear warning about their economic ties with North Korea. In the Iran sanctions program, secondary sanctions require that a foreign financial institution “knowingly facilitate or conduct a significant financial transaction” for a particular individual or entity. This evidentiary standard greatly limited the use of those sanctions authorities. The new sanctions against North Korea are clearly aimed at foreign business interests, but unlike secondary sanctions, this new authority does not have an evidentiary impediment to its implementation.

Transportation, Mining, Energy, and Financial Services

Subsection 2(a)(i) of the Executive Order authorizes the Secretary of the Treasury to identify industries in the North Korean economy, the participants of which may be designated solely based on their operating within that industry. The Secretary of the Treasury determined that entities within the transportation, mining, energy, and financial services industries are subject to designation. The Treasury Department’s Office of Foreign Assets Control (OFAC) then designated Ilsim International Bank and Korea United Development Bank for operating in the financial services industry.

OFAC’s authority to derivatively designate any bank that provides services to any identified North Korean bank creates de facto secondary sanctions. Executive Order 13722 authorizes OFAC to designate any individual or entity that provides services to any identified Korean bank. Therefore, any financial institution that provides an identified North Korean bank with an account, serves as an intermediary, confirms or advises a letter of credit, or provides any other service can be designated. The most likely targets of these derivative actions are Russian and Chinese financial institutions.

North Korean Slave Labor and Coal

The Executive Order authorizes OFAC to designate businesses that “have engaged in, facilitated, or been responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea.” According to open source reporting, North Korea has between 50,000 and 100,000 “state-sponsored slaves” predominantly located in China and Russia. The North Korean regime earns between $1.2 and $2.3 billion annually in foreign currency through these slave laborers. Apart from the appalling human rights violations, this practice finances the North Korean nuclear and missile development programs.

In addition to companies that utilize North Korean slave labor, entities that deal in metal, graphite, coal, or software to or from North Korea are now subject to designation, “where any revenue or goods received may benefit the Government of North Korea.” United Nations Security Council Resolution 2270 of March 2, 2016 address the sale of coal and iron from North Korea, but in a very limited manner. Unlike the United States sanctions program, the prohibitions do not apply to transactions  “exclusively for livelihood purposes and unrelated to generating revenue for the DPRK’s nuclear or ballistic missile programs.” As a result of these substantial limitations, any application of the sanctions on coal and iron are likely to be enforced unilaterally by the United States.

Chinese companies are clearly the most susceptible to this designation criteria. According to the press release announcing the Executive Order and designations, “coal generates over $1 billion in revenue per year for North Korea.” Open source reporting also indicates that in 2015, North Korea supplied China with 19.63 metric tons of coal.

Return to a Comprehensive Sanctions Program

In addition to the designation criteria highlighted above, Executive Order 13722 also transitions U.S. sanctions against North Korea back into a comprehensive sanctions program. All property and interests in property of the North Korean government are now blocked, and the Department of Commerce licensing requirements are now supplemented with a prohibition on the exportation of goods and services.

OFAC released a series of 9 General Licenses to address issues that commonly arise from comprehensive programs. These include authorization of certain legal services, certain services in support of nongovernmental organizations,  transactions related to intellectual property, and noncommercial personal remittances.

Article By Jeremy P. Paner of Holland & Hart LLP.
Copyright Holland & Hart LLP 1995-2016.

The Future of Business Relations in Cuba – Commentary from a Seasoned Customs Attorney

cuba_800_11429Since the December 2014 reopening of diplomatic relations, access to Cuba has been greatly widened, with new changes to regulations taking place as recently as late January.  These developments signal opportunities for legal service providers to assist clients who are seeking advice on business development opportunities in Cuba. However, effective advising requires a thorough understanding of the history of the U.S. embargo on Cuba and the changes in the laws themselves.

Peter Quinter, Chair of the Customs and International Trade Law Group at GrayRobinson P.A., offers a unique perspective regarding U.S. and Cuban relations as a former attorney in the Office of Chief Counsel for U.S. Customs in Miami. As a South Florida resident surrounded by the stories about the 1959 Cuban Revolution and Fidel Castro, Peter was fascinated with the unique relationship between the two countries. As an attorney with U.S. Customs, he was also responsible for enforcing the U.S. embargo of Cuba. I recently had the opportunity to discuss his perspective on the progress of reopening relations with Cuba following his participation in a panel discussion at the recent Marketing Partner Forum.1

Since the imposition of the U.S. embargo on Cuba 55 years ago, Cuba’s economy has remained relatively stagnant in growth. I was initially focused on the idea that only the U.S. refused to trade with Cuba, and that despite access to everywhere else in the world, their economy did not grow. Mr. Quinter corrected my assumption, stating “[t]here were multiple embargoes, but they disappeared long ago. Only the U.S. retains the embargo, and it was U.S. policy to punish any country doing business with Cuba.”  In fact, the UN General Assembly has nearly unanimously voted to condemn the embargo every year since 1992. The U.S. only garnered support from one other nation –Israel– in the most recent vote on the embargo in October 2015.

Despite the standing embargo, the U.S. is now poised to begin contributing to the significant growth of the Cuban economy. Although most U.S. companies are still prohibited from doing business in Cuba, the relaxed rules and opening of embassies in D.C. and Havana have allowed a few major companies to start doing business in Cuba including Verizon, Netflix, and AirBNB. Mr. Quinter believes many industries have the opportunity to rapidly develop in Cuba due to the expansion of diplomatic relations: “Logistics, warehousing, hospitality, aviation, travel agents, sports, education..to name a few.” These developments signal new opportunities for U.S. law firms to advise companies in their up-and-coming dealings in Cuba.

Like business dealings in any country, it is imperative to understand and work within the laws of Cuba’s socialist government. Mr. Quinter’s extensive experience in advising clients on OFAC regulations and policies (Office of Foreign Assets Control) for 26 years makes him uniquely positioned to comment on the current state of U.S. law firm involvement in this rapidly evolving area. During the presentation, he stated that few firms are approaching this opportunity in the appropriate manner. In our follow up discussion, he called attention to this error: “Suddenly, numerous law firms are ‘experts’ in this, and are attempting to be business brokers, instead of legal advisors.”

As a legal advisor, Mr. Quinter elaborated that law firms’ focus should remain on advising U.S. persons and companies about the relevant legal requirements that allow these entities to travel to, trade with, or invest in Cuba. A major part of this practice is determining whether a license is required to do any of these things, and if so, obtaining the license from the U.S. Treasury for the client. Once the appropriate license is obtained, then the firm will need to assist the client in working with the Cuban government.

Law firms can add value to their practice by beginning to form new partnerships now so they can be better equipped to help their clients establish businesses down the line. Mr. Quinter advises that traveling to Cuba, experiencing the culture, and introducing themselves to the community is an excellent way for law firms to equip themselves to guide clients who are looking to do business in Cuba. In May 2015, Mr. Quinter, as Chair of the Florida Bar’s International Law Section, led the largest lawyer delegation ever to visit Cuba. While the group was in Cuba, they met with lawyers, journalists, and dissidents to get a better lay of the land and to help move toward opening up business relationships. Mr. Quinter has since returned to Cuba in October 2015 on behalf of a client meeting with government officials.

The upcoming 2016 presidential elections could greatly impact the progress being made in Cuba. Several presidential hopefuls have made their sentiments toward the embargo known: Republican candidate Marco Rubio staunchly for the embargo, and Democratic candidate Hillary Clinton ardently against it. However, Mr. Quinter posited, “What has happened to date is legally reversible, but realistically not.” He believes the embargo will eventually meet its end: “As more investment in and trade with and authorized travel by Americans occur to Cuba, even the few people who support the U.S. embargo (Cubans call it a ‘blockade’) will realize the embargo is counterproductive, and a leftover from the Cold War of the 1950’s and 1960’s.”

At the moment, Mr. Quinter acknowledges that in the short term, OFAC regulations continue to make it difficult to do business in Cuba. However, he is hopeful for the future: “In 10 years, we will look back and wonder why the U.S. did not terminate the U.S. embargo of Cuba decades ago, and we will recognize the leadership of President Obama in having the courage and vision to starting the process.” In fact, President Obama has recently announced that he will be the first sitting U.S. president to visit Cuba in over the 85 years. This is a signal of the U.S.’s overall sentiment toward Cuba, but only time will tell how U.S.-Cuban relations are progressing.

Article By Nicole Cudiamat Minnis of The National Law Review / The National Law Forum LLC

Copyright ©2016 National Law Forum, LLC

 

1 Mr. Quinter was a part of a panel at the Legal Executives Institute 23rd Annual Marketing Partner Forum, held January 20-22nd in Orlando. He was joined by Eddy Arriola, Chairman of the Board & Chief Executive Officer, Apollo Bank for the presentation, “From Swords to Plowshares: Cuba, Legal Business Development and Industrial (R)evolution (Breakout)”.

The Day of North Korea Sanctions: the UN Imposes the Toughest North Korea Sanctions Yet While OFAC and State Designate More North Korean Entities

After weeks of negotiations and a Putin-backed delay, the UN Security Council unanimously adopted resolution 2270 on March 2, 2016, imposing new sanctions against North Korea. According to U.S. Secretary of State John Kerry, the resolution imposes the strongest set of UN sanctions in over two decades. This article provides a summary of the new UN North Korea sanctions followed by an overview of the most recent developments in North Korea sanctions under US law.

New UN North Korea Sanctions

The new sanctions require:

  • An asset freeze on all funds and other economic resources owned or controlled by the North Korean government or the Worker’s Party of Korea, if associated with its nuclear or ballistic missile program or other prohibited activities
  • A ban on the opening and operation of North Korean banks abroad
  • A ban on foreign financial institutions opening new offices in North Korea under all circumstances, unless first approved by the Sanctions Committee, and a requirement for UN Member States to order the closing of existing branches if there is credible information indicating the associated financial services are contributing to North Korea’s illicit activities
  • Designation of 16 new individuals and 12 entities (including North Korea’s Ministry of Atomic Energy and the Reconnaissance Energy Bureau)
  • A ban all public and private financial trade support to North Korea if there are reasonable grounds to believe there is a link to proliferation
  • Sectoral sanctions on North Korean trade in natural resources banning the export of all gold, titanium ore, vanadium ore and rare earth metals and banning the supply of all types of aviation fuel, including rocket fuel
  • A ban on the export of coal, iron, and iron ore used for North Korea’s nuclear or ballistic missile programs
  • Inspection of all cargo going to and from North Korea, not just those suspected of containing prohibited items
  • Expanding the arms embargo to include small arms and light weapons
  • A ban leasing or chartering vessels or airplanes, providing crew services to North Korea, and registering vessels
  • Expanding the list of luxury goods (prohibited for export to North Korea) to include luxury watches, aquatic recreational vehicles, snowmobiles worth more than $2,000, lead crystal items and recreational sports equipment
  • A sweeping ban on the transfer of any item if a UN Member State has reason to believe the item can contribute to the development and capabilities of the North Korean armed forces, except for food and medicine

China, a permanent member of the Security Council, joined the unanimous vote despite prior reluctance to strengthen UN sanctions against North Korea. It remains yet to be seen how China will enforce the sanctions.

U.S. North Korea Sanctions

Separately, the United States took action earlier against North Korea. We speculate that this action helped align the UNSC members toward the unanimous vote on UNSCR 2270. On February 18, 2016, President Barack Obama signed into law the North Korea Sanctions and Policy Enhancement Act of 2016. The bill had easily passed through both Houses of Congress on the heels of the most recent nuclear test and rocket launch by North Korea.

Then on March 2, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) named two entities and 10 individuals to its list of Specially Designated Nationals and Blocked Persons. On the same day, the State Department designated three entities and two individuals for activities related to weapons of mass destruction (WMD).

Over the next few months, OFAC is expected to issue new North Korea regulations to implement other provisions of the new statute.

The Act

The new statute provides for both mandatory and discretionary designations. These sanctions are directed at activities by U.S. Persons, which includes any United States citizen, permanent resident alien, any entity organized under the laws of the United States or any jurisdiction within the United States (foreign branches of U.S. companies, that means you too), and any person in the United States.

In addition, any transaction by any non-U.S. persons supporting any of the designated entities or prohibited activities must be carefully scrutinized, especially if the transactions involve the U.S. financial system in any way.

Mandatory Designations

The Act requires the designation and freezing of all assets subject to U.S. jurisdiction of any person that engages in any of the following activities relating to North Korea:

  • Nuclear and ballistic missile proliferation
  • Dealings in North Korean metals and products tied to WMD activities, the Korean Workers’ Party, armed forces, intelligence, or the operation of political prison camps
  • “Significant financial transactions” related to weapons of mass destruction
  • Undermining cybersecurity
  • Internal repression
  • Forced labor
  • Censorship
  • Human rights violations

In addition, the Act requires the President to decide on the designation of North Korea as a Primary Money Laundering Concern in the coming months.

As a result, companies must ensure that no company activity supports the activities of entities designated under the above act provisions. Compliance programs, including those related to anti-money laundering, should be reevaluated as the sanctions are not simple reiterations of previous measures. These mandatory designations will make it all the more necessary that companies maintain reasonable and proportionate due diligence and screening procedures to prevent facilitating the enumerated activities.

Discretionary Designations

Before we reach the current regulation regime, we will leave you with the remaining provisions of the Act that have not yet been implemented. While no one holds the OFAC crystal ball, these provisions may rear their head and are worth considering in advance of promulgation.

1. Blocking sanctions

The Act explicitly codified the blocking of assets of the Government of North Korea, the Workers’ Party of Korea, and North Korean Specially Designated Nationals (SDNs). While this sanction is essentially already in effect under the various executive orders, the explicit restrictions would prohibit the use of the U.S. financial system in connection with any transaction with the Government of North Korea, the Workers’ Party of Korea, or SDNs of North Korea.

2. UN Security Council resolutions

The Act also authorizes designation as an SDN of any person who supports a person designated pursuant to an applicable UN Security Council resolution. The potential implications of this Act provision deserve attention as the recent resolution imposed the toughest set of sanctions yet.

3. Bribery

If you thought the FCPA was the sole concern out of U.S. soil relating to bribery of foreign officials, think again. The Act also authorizes designation of any person who knowingly contributes to bribery of a North Korean official, or to misappropriation, theft, or embezzlement of public funds by, or for the benefit of, a North Korean official.

4. Sanctions grab bag

The Act also authorizes the President to prohibit any person already designated under the above three categories from transactions in foreign exchange or credit or payments subject to U.S. jurisdiction, procurement, and/or travel by the designated person’s officers and shareholders.

Refresher: Pre-Existing OFAC Regulations

The new Act builds upon the pre-existing U.S. sanctions against North Korea. For further background, see Trading Up: Newly Implemented North Korea and Libya Sanctions.

Blocking sanctions

The regulations provide for the continued the blocking of property and interests in property of certain persons with respect to North Korea that had been blocked pursuant to the Trading with the Enemy Act (TWEA) as of June 2000.Further, the regulations block property and interests in property of persons listed in the Annex to E.O. 13551 and of individuals and entities determined by Treasury in consultation with the State Department to have engaged in activities related to:

  • The import, export, or reexport of arms or related materiel from North Korea

  • The import, export, or reexport of luxury goods to North Korea

  • Money laundering, counterfeiting of goods or currency, bulk cash smuggling, narcotics trafficking, or other illicit economic activity supporting the Government of North Korea or its senior officials

  • Providing support for or goods or services of any of the above-listed activities or any person whose property and interests in property are blocked pursuant to E.O. 13551

  • Owning, controlling, or acting on behalf of any person whose property and interests in property are blocked pursuant to E.O. 13551

Vessels

The regulations prohibit U.S. persons from registering, owning, leasing, operating, insuring or otherwise providing support to North Korean vessels.

Imports to North Korea

Lastly in terms of prohibitions, the regulations prohibit imports of goods, services, and technology (including those used as components of finished products of, or substantially transformed in, a third country) from North Korea without an OFAC licenses or applicable exemption.

Authorizations

The preexisting regulations also provided authorization for the provision of certain legal services, emergency medical services, and entries in certain accounts for normal service charges by U.S. financial institutions.

The Takeaway

Interactions with North Korea are an increasingly dangerous minefield of sanctions. The new North Korea sanctions add to an already restrictive program. As a result, we recommend additional review and specialized controls as the new sanctions reach new heights (or depths, depending your level of preparation).

Article By Lisa C. Mays, J. Scott Maberry & Reid Whitten of Sheppard, Mullin, Richter & Hampton LLP

Copyright © 2016, Sheppard Mullin Richter & Hampton LLP.

Antitrust Law Post Antonin Scalia

gavel scales of justice blueWith the untimely passing of Supreme Court Justice Antonin Scalia, perhaps the best known and most controversial Justice on the Court, commentators, including this one, have been called upon to assess his legacy – both immediate and long term – in various areas of the law.

Justice Scalia was not known primarily as an antitrust judge and scholar. Indeed, in his confirmation hearing for the Court, he joked about what he saw as the incoherent nature of much of antitrust analysis. What he was best known for, of course, is his method of analysis of statutes and the Constitution: a literal textualism with respect to statutes and a reliance on “originalism” with respect to the Constitution.

Probably his most influential antitrust opinion was the 2004 decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko LLP which limited antitrust plaintiffs’ ability to hold a company with monopoly power liable for failing to cooperate with rivals.

Taking a literalist view of the Sherman Act, Justice Scalia wrote that there was a good reason why Section 2 claims required a showing of anti-competitive conduct, not just a monopoly.

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system,” he wrote. “The opportunity to charge monopoly prices — at least for a short period — is what attracts ‘business acumen’ in the first place; it induces risk-taking that produces innovation and economic growth.

Thus, Justice Scalia fashioned a majority in holding that the competitive conduct of a monopolist that had earned its hegemony was not inherently suspect. This has come to be a dominant view generally in the antitrust field, but critics have argued that the decision entrenches power and judicial liberals who might succeed Justice Scalia could take a more restrictive, less literal view of the law.

In 1991, Justice Scalia led a majority in Columbia v. Omni Outdoor Advertising Inc., a case in which a competitor had claimed that an advertising rival and a municipality had conspired in passing an ordinance favoring the incumbent. In ruling against the plaintiff, Justice Scalia wrote that there was no “conspiracy exception” to Parker v. Brown, the 1943 Supreme Court case that established antitrust immunity for anti-competitive restraints imposed by state governments. On the other hand, in the recent North Carolina Dentists litigation with the FTC, Justice Scalia joined a majority that held the state action exemption did not apply to certain guild behavior where there was no active supervision by the state – again, a literalist approach.

Justice Scalia was influential in limiting class actions, enforcing arbitration agreements and requiring strict rules of pleading plausible causes of action. Cases like the antitrust actions in AT&T v. Concepcion and American Express v. Italian Colors, backing enforcement of arbitration agreements that blocked class treatment of claims, and the now often-cited cases of Twombley and Iqbal with respect to pleading currently rule the entry gate for large-case litigation, particularly antitrust.

For all of his conservative rulings, Justice Scalia was not a results-oriented judge determined to put antitrust plaintiffs in their place, I think that he would have argued that he was strictly neutral on the merits and didn’t care whether business prevailed or whether the class action plaintiffs prevailed. Whether, the conservative majority that adopted his methods will continue to hold, or whether some of these methods will be superseded by a more-elastic interpretive mode of judging will be at the forefront of the confirmation hearing of the next Justice.

Article By Stuart M. Gerson of Epstein Becker & Green, P.C.

©2016 Epstein Becker & Green, P.C. All rights reserved.

U.S. President Announces Upcoming Trips to Cuba, Argentina, Vietnam and Laos

Congress Returns to Washington, Faces a Busy Week of Oversight Hearings, Including Testimony from the Secretaries of State and Defense

Early last week, President Barack Obama hosted the Association of Southeast Asian Nations (ASEAN) Leaders in California and announced he will travel in May to Vietnam and Laos.  Back in Washington on Wednesday, the President announced another trip in March to Cuba and Argentina.  Congress was in recess last week, in observance of the Presidents’ Day holiday.  Both chambers will reconvene in Washington this week, and a number of congressional hearings are scheduled to examine various Department and Agencies budgets, with Obama Administration officials testifying.

Secretary of State Heads to Capitol Hill

Secretary of State John Kerry is scheduled to testify before select Senate and House committees next week, where he will likely field questions from Members of Congress on Iran’s violations of U.N. Security Resolutions restricting intercontinental ballistic missile tests and the implementation of the Joint Comprehensive Plan of Action.  He is also expected to field questions related to other U.S. sanction programs, such as those related to Ukraine and North Korea.

  • On Tuesday, 23 February, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “Review of the Fiscal Year (FY) 2017 State Department Budget Request.”

  • On Wednesday, 24 February, the House Appropriations Subcommittee on State-Foreign Operations is scheduled to hold a hearing titled, “Budget Hearing – Department of State and Foreign Assistance.”

  • On Wednesday, 24 February, the Senate Appropriations Subcommittee on State-Foreign Operations is scheduled to hold a hearing titled, “Hearing to review the Fiscal Year 2017 budget request and funding justification for the U.S. Department of State.”

  • On Thursday, 25 February, the House Foreign Affairs Committee is scheduled to hold a hearing titled, “Strengthening U.S. Leadership in a Turbulent World: The FY 2017 Foreign Affairs Budget.”

U.S.-ASEAN Summit

The ASEAN Leaders released a joint statement at the conclusion of the two-day Summit.  Before returning to Washington on Tuesday, President Obama held a press briefing, recapping some of the topics discussed at the Summit.  He announced his intention to travel to Vietnam and Laos in May and two new initiatives for the region:  (1) U.S.-ASEAN Connect, a network of hubs across the region to better coordinate economic engagement and to connect entrepreneurs, investors and businesses with each other; and (2) a new competition – an innovation challenge to encourage students across ASEAN to develop new solutions to boost agriculture.

Presidential Trip to Cuba and Argentina on the Horizon

In March, President Obama is scheduled to hold a bilateral meeting with Cuban President Raul Castro to build on the progress toward normalization of relations.  Preisident Obama also plans to engage with members of civil society, entrepreneurs and Cubans.  This historic visit will be the first by a sitting U.S. President in nearly 90 years.  After his trip to Cuba, the President will travel to Argentina to meet with the new President, Mauricio Macri, to discuss President Macri’s reform agenda.

Zika Virus – House Appropriators Favor Repurposing of Ebola Funds

In a letter to the Office of Management and Budget Director Shaun Donovan, top House Republican appropriators urged the Obama Administration last Thursday to release unobligated Ebola funds to meet immediate needs related to the Zika Virus.  Secretary of Homeland Security Jeh Johnson announced on Thursday that enhanced screening of travelers for Ebola has come to an end.

  • On Wednesday, 27 February, the Senate Health, Education, Labor & Pensions Committee is scheduled to hold a hearing titled, “Zika Virus: Addressing the Growing Public Health Threat.”

Syria

Secretary Kerry announced last week that the United States and Russia reached a “provisional agreement” for a ceasefire in Syria.  However, the Syrian regime and Russia continued their bombing campaign in northern Syria.  ISIL also carried out a series of bomb attacks in Syria that killed nearly 130 people on Sunday.

Russia/Ukraine – Reforms in Ukraine Praised

Vice President Joe Biden welcomed the passage by the Rada last week of anti-corruption legislation sought by the International Monetary Fund (IMF) and EU, and he commended Ukraine President Poroshenko and the Government of Ukraine for the hard work that went into ensuring passage.  He further commended President Poroshenko’s decision to replace Prosecutor General Shokin, saying this paves the way for needed reform of the prosecutorial service.

Vice President Biden condemned the increasing violence in eastern Ukraine and “the continued failure by combined Russian-separatist forces to allow the OSCE full access to the areas under their de facto control.”  He reiterated full implementation of the Minsk agreements, by all sides, remains the best way forward for resolving the conflict.

  • On Wednesday, 24 February, the House Appropriations Subcommittee on Defense is scheduled to hold a closed hearing titled, “United States European Command.”

North Korea Sanctions Bill – Signed into Law

President Obama signed into law the new North Korea sanctions bill (H.R. 757) last week.  Senator Bob Corker (R-Tennessee), Chairman of the Senate Foreign Relations Committee, welcomed the President’s action, noting the legislation “provides a robust set of tools for the U.S. to deter North Korea’s illicit behavior in a more effective manner and promote human rights for the North Korean people.”

TPP – Congressman Levin Says “No”

Michigan Representative Sander Levin, who is the top ranking Democratic on the House Ways and Means Committee, formally announced his opposition last Thursday to the TPP deal, saying:  “[T]he TPP as negotiated is short of an acceptable outcome, and I do not support it.”  He cited shortcomings on:  (1) worker rights, (2) automotive rules of origin, (3) currency manipulation, and (4) investor-state dispute settlement.  Congressman Levin’s opposition to the deal is expected to make it more difficult for the White House to secure congressional approval of TPP before President Obama leaves office.

TTIP Developments

The 12th round of the Transatlantic Trade and Investment Partnership (TTIP) will be held this week in Brussels.  U.S. TTIP Chief Negotiator Dan Mullaney will participate in a joint U.S.-EU press conference at the conclusion of the discussions on Friday.

Cybersecurity Updates

Last Thursday, the Department of Homeland Security published a Federal Registernotice, announcing the availability of interim guidance documents in accordance with the Cybersecurity Information Sharing Act (CISA) of 2015.  CISA authorizes the voluntary sharing and receiving of cyber threat indicators and defensive measures for cybersecurity purposes, consistent with certain protections, including privacy and civil liberty protections.  The CISA guidance documents may be found online here.

Last Wednesday, President Obama appointed former National Security Advisor Tom Donilon and former IBM CEO Sam Palmisano as the Chair and Vice Chair, respectively, of the new Commission on Enhancing National Cybersecurity, established under an Executive Order executed on 9 February.

Mexico High-Level Summit Ahead

Vice President Biden, accompanied by Secretary of Commerce Penny Pritzker, will travel to Mexico City for the third annual U.S.-Mexico High-Level Economic Dialogue on Wednesday and Thursday to discuss issues related to borders, regulatory cooperation, energy, workforce development, partnership for regional and global leadership, and stakeholder engagement.

Congressional Hearings This Week

  • On Tuesday, 23 February:

    • The Senate Armed Services Committee is scheduled to hold a hearing titled, “Senate Armed Services Committee.”

    • The Senate Armed Services Subcommittee on Personnel is scheduled to hold a hearing titled, “Defense Health Care Reform.”

    • The Senate Armed Services Subcommittee on Strategic Forces is scheduled to hold a hearing titled, “Department of Energy Atomic Energy Defense Activities and Programs.”

  • On Wednesday, 24 February:

    • Three House Foreign Affairs Subcommittees are scheduled to hold a joint hearing titled, “Establishing Accountability at the World Intellectual Property Organization: Illicit Technology Transfers, Whistleblowing, and Reform.”

    • The House Ways and Means Committee is scheduled to hold a hearing titled, “The Global Tax Environment in 2016 and Implications for International Tax Reform.”

    • The House Armed Services Committee is scheduled to hold a hearing titled, “The Challenge of Conventional and Hybrid Warfare in the Asia-Pacific Region: The Changing the Nature of the Security Environment and its Effect on Military Planning.”

    • The House Foreign Affairs Committee is scheduled to hold a markup on three legislative measures.

    • The Senate Appropriations Subcommittee on Defense is scheduled to hold a hearing titled, “Hearing to review the Fiscal Year 2017 budget request and funding justification for the U.S. Army.”

    • The House Foreign Affairs Subcommittee on Terrorism is scheduled to hold a hearing titled, “Boko Haram: The Islamist Insurgency in West Africa.”

    • The House Armed Services Subcommittee on Emerging Threats and Capabilities is scheduled to hold a hearing titled, “Department of Defense Fiscal Year 2017 Science and Technology Programs: Defense Innovation to Create the Future Military Force.”

    • The Senate Armed Services Subcommittee on Emerging Threats is scheduled to hold a closed hearing titled, “Iran’s Intelligence and Unconventional Military Capabilities.”

    • The House Armed Services Subcommittee on Strategic Forces is scheduled to hold a hearing titled, “U.S. Strategic Forces Posture.”

    • The House Armed Services Subcommittee on Military Personnel is scheduled to hold a hearing titled, “Defense Health Agency: Budgeting and Structure.”

    • The Senate Armed Services Committee is scheduled to hold a confirmation hearing for: (1) Brad Carson, to be Under Secretary Of Defense for Personnel and Readiness; (2) Jennifer O’Connor, to be General Counsel of the Department Of Defense; and (3) Todd Weiler, to be Assistant Secretary of Defense for Manpower and Reserve Affairs.

  • On Thursday, 25 February:

    • The House Armed Services Committee is scheduled to hold a hearing titled, “Full Spectrum Security Challenges in Europe and their Effects on Deterrence and Defense.”

    • The House Appropriations Subcommittee on Defense is scheduled to hold a hearing titled, “Budget Hearing – Department of Defense.”   Secretary of Defense Ashton Carter is scheduled to testify.

    • The House Armed Services Subcommittee on Seapower and Projection Forces is scheduled to hold a hearing titled, “Department of the Navy 2017 Budget Request and Seapower and Projection Forces.”

  • On Friday, 26 February:

    • The House Armed Services Subcommittee on Readiness is scheduled to hold a hearing titled, “Department of the Army 2017 Budget Request and Readiness Posture.”

    • The House Armed Services Subcommittee on Military Personnel is scheduled to hold a hearing titled, “Ensuring Medical Readiness in the Future.”

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 22-26 February: 12th Round of TTIP Negotiations in Brussels

  • 10 March:  President Obama hosts Canadian Prime Minister Justin Trudeau

  • 21-22 March: President Obama travels to Cuba

  • 23-24 March: President Obama travels to Argentina

  • 31 March – 1 April: Nuclear Security Summit in Washington

  • Late April: President Obama attends the Hannover Messe in Germany

  • [TBA] May: President Obama travels to Vietnam and Laos

  • 8-9 July: NATO Summit in Warsaw, Poland

What Cuba Wants From Investors

American investors have made their way into Cuba. What Cuba Wants From Investors Just this week, the U.S. Treasury Department has approved the first significant U.S. business investment in Cuba since 1959: the Oggun tractor factory. This plant represents a $5 million to $10 million investment by an American company in Cuba.

​Both countries seem serious about moving their recently-resurrected commercial relationship forward. The U.S. and Cuba have entered into an agreement to resume commercial flights between the two countries the same week Cuba’s Minister of Foreign Trade and Investments, along with other officials from the Ministry of Foreign Affairs, Cuba’s Central Bank, and the Cuban Chamber of Commerce, have come to meet with the U.S. Secretary of Commerce to discuss how the two countries could further bilateral commercial relations.

While the focus of politicians’ rhetoric and scholars’ analysis has been on either what Americans are allowed to do, or on what Americans should want to do in Cuba, attention should be paid to what Cuba wants from its investors.

Cuba Wants Investors

First, there can be no doubt that Cuba wants investors.

In September 2013, Cuba created a Special Development Zone at Mariel (Zona Especial de Desarrollo Mariel). This $900 million port was formed in November 2013, 30 miles west of Havana, with the express purpose of attracting foreign investment. Many Americans are already familiar with Mariel, but remember it for the 1980 mass boatlift that carried thousands of Cuban refugees to America’s shores.  Instead of being a point of departure, Mariel is now a destination for foreign capital.

A few months after the creation of the Special Development Zone, Cuba’s National Assembly unanimously passed the Foreign Investment Act (Law 118) on March 29, 2014.  Law 118 promises foreign investors tax breaks and legal protections for their investments.

These far-reaching overtures to potential foreign investors were not made, however, without certain conditions.

Cuba Wants Investments in Particular Sectors

The Foreign Investment Act delineates, among other things, which investment vehicles are permissible, how investment shares may be transferred, who may be hired to work on the investment projects, and how disputes may be resolved.

Cuba has also specified in what it wants foreigners to invest. Last year, Cuba published a Portfolio of Opportunities for Foreign Investment detailing 326 projects in twelve sectors ripe for foreign investment:

  1. Tourism – 94 Projects

  2. Oil – 86 Projects

  3. Agriculture and Food – 40 Projects

  4. Renewable Energy – 22 Projects

  5. Industrial – 21 Projects

  6. Mining – 15 Projects

  7. Transportation – 15 Projects

  8. Construction – 14 Projects

  9. Biotechnology and Medicine – 9 Projects

  10. Business – 4 Projects

  11. Health – 3 Projects

  12. Audiovisual – 3 Projects

The highest number of projects was, not surprisingly, in the tourism sector. Cuba’s official policy on tourism investment is to direct foreign capital towards building or reconstructing new hotels and corresponding infrastructures. The President of Cuba’s Chamber of Commerce has noted the need to increase hotel capacities and standards in Havana and other heritage cities. So far, 74 hotel marketing and administration contracts have been signed, and these include almost 20 contracts with foreign firms.

Interestingly, Cuba has expressed a desire to attract foreign chains to its coasts, and is reportedly working on establishing agreements with renowned international chains across 58 facilities. Cuba is also promoting real estate development, including golf courses, marinas, and theme parks. Cuba has predicted that it will be one of the Caribbean’s top golfing destinations, and has already created two joint ventures, with British and Chinese investors, responsible for hotel construction. These projects are said to be worth over $400 million.

Furthering its efforts to attract investment in its tourism sector, Cuba is hosting its 36th International Tourism Fair (FITCUBA 2016) this year, which will be dedicated to Cuba’s culture and will feature Canada as the guest of honor.  Canada represents one of the highest sources of visitors to Cuba each year.

Notably, the Beacon Council, Miami-Dade County’s official economic development partnership, has identified seven target industries Miami’s business leaders should focus on:

  • Aviation

  • Banking and Finance

  • Creative Design

  • Hospitality and Tourism

  • Information Technology

  • Life Sciences and Healthcare

  • Trade and Logistics

The overlap between Cuba’s and Miami’s lists of target industries, along with Miami’s geographical proximity to Cuba and supply of Spanish-speaking professionals make the city an obvious key player in the development of Cuba’s business sector.

There are certain sectors, however, in which Cuba will not allow private ownership.

Cuba Does Not Want Investments in Particular Sectors

Notably, last December, Cuba’s official newspaper, the Granma, published an article titled, “Open Also Your Mind to Foreign Investment,” encouraging the Cuban people to embrace foreign investment. Cuban officials have reiterated that these changes in economic policy will not threaten the country’s socialist regime. Cuba’s policies expressly prohibit investment in sectors that may threaten Cuba’s political landscape.

For example, the Foreign Investment Act makes it illegal for a foreigner to invest in education services for Cubans and in the armed forces. Cuba’s Constitution also states that Cuba’s press, radio, television, film industry, and other mass media can never be privately owned.

These carve-outs are consistent with the Cuban government’s assurances to its people: Cuba is importing only capitalists’ capital, not their ideologies.

While it has been said that profit is apolitical, investors should not ignore the political contours of Cuba’s budding foreign investment regulations, as these may impact their investment opportunities.

ARTICLE BY Jose M Ferrer & Yasmin Fernandez-Acuña of Bilzin Sumberg Baena Price & Axelrod LLP
© 2016 Bilzin Sumberg Baena Price & Axelrod LLP

Cuba: Further Easing of the U.S. Sanctions

Following up on the historic changes in 2014 and 2015 to the five-decade U.S. trade embargo on Cuba, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have announced new amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), effective January 27, 2016.

What U.S. Companies Need to Know About the Easing of Restrictions

  1. Payment Terms for Authorized Exports to Cuba No Longer Restricted
    OFAC restrictions have been lifted on payment and financing terms for authorized exports and reexports to Cuba, except for agricultural commodities and items. U.S. banks will be authorized to provide financing by third-country or U.S. financial institutions (e.g., letters of credit, payment of cash in advance, sales on an open account). Payment for agricultural exports will still be limited to cash in advance or financing by third-country banks only. “Authorized exports and reexports” include those authorized under a BIS license exception (e.g., products and materials exported to private sector entrepreneurs under License Exception “SCP” – Support for the Cuban People), as well as export transactions permitted by BIS under a specific license.

  2. Most Cuban Embargo Restrictions Remain in Place
    Although the amendments to the CACR and EAR signify further relaxing of Cuba sanctions, the U.S. embargo on Cuba remains largely in place; most transactions between the U.S. and Cuba continue to be prohibited.

    In addition, a general policy of denial will still apply to exports and reexports of items for use by state-owned enterprises, agencies, or other organizations of the Cuban government that primarily generate revenue for the state. Additionally, applications to export or reexport items destined to the Cuban military, police, intelligence and security services remain subject to a general policy of denial.

  3. More Favorable Licensing Policies for Certain Exports and Reexports
    The following transactions still require a license application, but the chances of approval for such licenses have improved:

Exports to Cuban Government Agencies Meeting the Needs of the People: BIS is now considering, on a “case-by-case” basis, license applications for exports and reexports to Cuban state-owned enterprises and government agencies that provide services and goods to meet the needs of the Cuban people. Previously, such license applications were subject to a policy of denial. The new case-by-case policy applies to items for construction of facilities for public water treatment, electricity or other energy; sports and recreation; agricultural production; food processing; disaster preparedness, relief and response; public health and sanitation; residential construction and renovation; public transportation; wholesale and retail distribution for domestic consumption by the Cuban people; and artistic endeavors.

  • New Policy of Approval for Certain Exports and Reexports: License applications for the following exports and reexports are now subject to a “general policy of approval,” an upgrade from “case-by-case” consideration:

  • Environmental protection items: U.S. and international air quality, water, or coastline

  • Telecommunications items: To improve communications to, from, and among the Cuban people.

  • Civil aviation and commercial aircraft safety items: Those necessary to ensure the safety of civil aviation and safe operation of commercial aircraft engaged in international air transportation, including the export or reexport of civil aircraft leased to state-owned enterprises.

  • Agricultural items: Such as insecticides, pesticides, and herbicides, as well as other agricultural commodities (e.g., tractors and other farm equipment) not eligible for License Exception AGR

  • Commodities and software: To human rights organizations or to individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba; also to U.S. news bureaus in Cuba whose primary purpose is the gathering and dissemination of news to the general public.

4. Travel Authorized for Additional Purposes Including Film Making 
U.S. persons are still prohibited from traveling to Cuba for tourism, but OFAC now permits travel to Cuba for additional purposes as highlighted below.

  • Travel related to information and informational materials now includes travel for the filming of movies and TV programs, music recordings, and artwork creation.

  • Organization of professional meetings, public performances, clinics, workshops, and athletic and other competitions and exhibitions in Cuba, in addition to the previously authorized attendance at such events.

5. Air Carrier Services Expanded to Permit Code-Sharing and Leasing
U.S. companies can now enter into blocked space, code-sharing, and leasing arrangements to facilitate the provision of carrier services by air, in connection with travel or transportation between the U.S. and Cuba, including such arrangements with a Cuban national.

Article By Global Services of Barnes & Thornburg LLP

© 2016 BARNES & THORNBURG LLP

Automated Retail: Stores without Staff, but Not Without Issues

For many, air travel is required for business while for others it is used for pleasure. As millions of people are hustling through airports to make their flights, some may have taken a moment to stop to shop at one of the many staffless stores that are opening in airports. These staffless stores, which are often referred to as automated retail, sell goods that range from electronics such as headphones and chargers to cosmetics and clothing.

The staffless store phenomena is not limited to just airports as there is an increasing trend towards using these retail outlets in shopping centers throughout the country. We wrote on this new trend back in August of 2014 when the focus was on brick and mortar stores without staff, such as fitness centers and mattress stores. The 2016 version of staffless stores are a hybrid of the traditional kiosks/carts and a vending machine. They are typically similar in size to a vending machine but are situated in locations comparable to that of a traditional kiosk or inside of department stores. While branded in a manner similar to a kiosk, these automated outlets allow the retailer to avoid the cost of staffing the location.

The staffless store offers landlords and tenants a number of positive opportunities. For example, by offering tenants a lower cost way of penetrating a new market and giving landlords a way to increase revenues through the use of spaces that cannot be utilized effectively with traditional kiosks or carts. It can also introduce new retailers that otherwise would not be willing to incur the operating expense of having employees. Establishing the retailer in the Center initially through the use of an automated retail operation could also lead to later expansion opportunities with that retailer.

A landlord and tenant will often document the relationship for a staffless store by using a traditional kiosk or specialty lease form. However, there are a number of items that the parties should review when documenting the relationship. Some of those items include:

  • Many kiosk leases include operational and staff requirements so any language requiring a certain number of staff at the location or staff attire needs to be addressed.

  • Kiosk or cart leases often require that the kiosk/cart be adequately stocked with merchandise. While this requirement may still be applicable, the retailer needs to confirm that it has an adequate inventory monitoring process or software to ensure that the automated retail machine does not run out of product.

  • The exchange/refund policy may need to be modified to address the fact that retailer personnel will not be present to make any exchange of product.

  • The use of Center gift cards to pay for goods should be addressed in the Lease and by the automated retailer.

  • Confirming that the insurance requirements for the tenant are appropriate given that there will not be staff located at the leased premises. The indemnification provisions should also be carefully reviewed for accuracy given the facts of a given situation.

Article By Chris A. Jenny & William R. West of von Briesen & Roper, S.C.

©2016 von Briesen & Roper, s.c