Category: Global

EU Policy Update – February 2016 re: Dutch Presidency and Brexit, Digital Single Market Policy, Energy and Environment

Dutch Presidency and Brexit

In January, the Netherlands took over the Presidency of the Council of the European Union from Luxembourg.  In line with the political intentions of the Juncker Commission to be ‘big on the big issues but small on the small issues’, the Netherlands promises to focus on the essentials during its Presidency.  In particular, the Dutch Presidency would like to focus on migration and international security.  Another priority is to strengthen the free movement of services and the free movement of workers, where the Presidency would like to strengthen the protection of workers posted abroad.

Additionally, on February 2, the President of the European Council, Donald Tusk, presented his proposals for a ‘new settlement of the United Kingdom within the European Union’.  If accepted, they would allow David Cameron to campaign in the ‘Brexit’ referendum on the continuing membership of the UK in the bloc.  The Heads of State and Government will discuss and adopt the text in a meeting on February 18.  For Covington’s analysis of the proposals presented and the referendum, please see here.

Digital Single Market Policy

The formal adoption of the EU Network and Information Security (NIS) Directive is a step closer following a vote on January 14 by the European Parliament’s internal market and consumer protection (IMCO) committee.  The committee confirmed that the minimum harmonisation requirements under the Directive do not apply to digital service providers.  This means that Member States will not be able to impose any further security or notification requirements on digital service providers beyond those contained in the Directive, when transposing it into national law.  The NIS Directive will now be put forward for a plenary vote in the European Parliament.  Once it is published in the Official Journal of the European Union and enters into force later this year, Member States will have 21 months to transpose it into national law.  Member States will then have a further 6 months to apply criteria laid down in the Directive to identify specific operators of essential services covered by national rules.  These processes are likely to be complicated, and companies that may fall within scope should participate in consultations and monitor developments across the EU over the coming months.

On January 19, the European Parliament adopted a resolution on the Digital Single Market Strategy of the European Commission.  The parliamentarians called for ambitious and targeted actions to complete Europe’s digital single market.  Among other things, the MEPs support the end of geo-blocking practices across Europe, the setting of a single set of contract rules and consumer rights for online sales and for digital content, and the modernization of the copyright framework.

On February 2, the European Commission and U.S. Government reached a political agreement on the new framework for transatlantic data flows.  The new framework – the EU-U.S. Privacy Shield – succeeds the EU-U.S. Safe Harbor framework. The EU’s College of Commissioners has also mandated Vice-President Ansip, in charge of the Digital Single Market, and Commissioner Jourová, Commissioner for Justice, Consumers and Gender Equality, to prepare the necessary steps to put in place the new arrangement.  For Covington’s full analysis of the announcement of the EU-U.S. Privacy Shield, please see here.

Energy and Environment Policy

The European Commission published a proposal to update the approval requirements and market surveillance of new passenger cars and their respective systems and components.  The Commission’s proposal aims at strengthening the credibility and enforcement of the applicable safety and environmental requirements for cars, following the controversy regarding Volkswagen last year.

In a significant departure from past EU legislation, the proposal would empower the Commission to impose administrative fines on economic operators who are found not to have complied with the approval requirements, of up to €30,000 per non-compliant vehicle.

The Commission’s proposal focuses on three elements.  First, the European Commission proposes to reinforce the credibility of the type-approval assessment of new vehicles by ensuring that the technical services testing the new vehicles are fully independent from car manufacturers.  For this purpose, the proposal would enhance the financial independence of such technical services and require Member States to create a national fee structure to cover the costs of type-approval testing and market surveillance activities for vehicles.  Moreover, in order to prevent the use of ‘defeat devices’, as in the Volkswagen controversy, the proposal would grant approval authorities and technical services access to the software and algorithms of the vehicles tested.

Second, the proposal includes measures to strengthen the market surveillance of vehicles after they are type-approved and in circulation.  Member State authorities and the Commission would be able to conduct tests and inspections on cars available on the market and would be empowered to adopt restrictive measures in case of non-compliance of vehicles.  Among other proposed measures, the Commission would establish and chair a forum to coordinate the network of national authorities responsible for type-approval and market surveillance.  Member States would also be able to inspect and take measures against vehicles type-approved in a different EU Member State.

Third, the Commission proposes measures to ensure that non-compliant manufacturers are penalized in case of non-compliance.  Member States would be required to adopt penalties for non-compliant economic operators, including car manufacturers, importers and distributors, as well as technical services.  This may be complemented by administrative fines, imposed by the Commission, of up to €30,000 per non-compliant vehicle, as referred to above.

Finally, the European Commission hopes to ensure a more uniform application of the legislation in the EU by proposing a Regulation as opposed to the current Framework Directive 2007/46/EC.  If adopted, the Regulation would be directly applicable in national law with no requirement of transposition.

The Commission proposal is available here; it has been sent to the Council and European Parliament for consideration.

The European Commission is expected to propose a revision of the Fertilizers Regulation (EC) 2003/2003 in March 2016.  This revision comes in parallel to the Circular Economy Package announced in December 2015, which aims to create a single market for the reuse of materials and resources.

Under the current EU Regulation 2003/2003, manufacturers and importers of fertilizers may choose to comply with the laws of the Member States where they market their products, or to get their products approved and CE-labeled under the Regulation.  However, Regulation 2003/2003 only regulates a limited number of categories of fertilizer products.

According to Commission officials, the proposal aims to create a level playing field between existing, mostly inorganic categories of fertilizers, and innovative fertilizers, which often contain nutrients or organic matter recovered and recycled from biowaste or other secondary raw materials.  Therefore, the proposal will make the approval process more flexible for new categories of CE-labeled fertilizers.

The draft legislative text is structured in four parts: (i) a list of materials that could be used for the production of CE-marketed fertilizing products under the conditions included in the annexes of the proposal; (ii) a list of product function categories for fertilizers, rules for blends of different product categories, and respective safety and quality requirements for each category included in the annexes; (iii) an annex with the labelling requirements by product function; and (iv) a section with the different conformity assessment procedures.  Fertilizers that follow the harmonized EN standards will be presumed to conform with the requirements of the regulation.

Moreover, the proposal would continue to allow Member States to regulate national fertilizing products.  Products that are not in compliance with the EU Fertilizers Regulation and do not carry the CE label would be able to marketed in a particular Member State if they comply with its national legislation.

Importantly, the revised Fertilizers Regulation is also likely to include an EU-wide limit on the presence of cadmium in fertilizers.  In November 2015, the Scientific Committee on Health and Environmental Risks published an opinion concluding that new scientific information available justifies an update of the 2002 opinion on Member State Assessments of Risk to health and the Environment from Cadmium – see here.

The draft proposal is currently in inter-service consultation among the different Directorates General of the European Commission.  Fertilizer manufacturers wishing to voice their opinion regarding the future Regulation on fertilizers should reach out now to the different services of the Commission.

Internal Market and Financial Services Policies

On January 15, the European Commission launched a public consultation on non-binding guidance for reporting non-financial information by certain large companies, following Article 2 of Directive 2014/95/EU – see here.  Directive 2014/95/EU aims at improving the transparency of certain large companies related to Environmental matters, social and employee matters, human rights, and anticorruption and bribery matters.  The feedback gathered during the consultation will be used to prepare the guidelines and facilitate the disclosure of non-financial information by undertakings.  The public consultation will run until April 15, 2016.

On January 28, the European Commission presented its so-called Anti-tax Avoidance Package – see here.  The initiative includes: (i) a new communication on tax avoidance in the EU; (ii) a proposal for an Anti-Tax Avoidance Directive; (iii) a proposal for a Directive implementing the G20/OECD Country by Country Reporting (CbC Reporting); (iv) a Recommendation to the Member States on Tax Treaties, and (v) a Communication on an External Strategy regarding tax avoidance.

The Anti-Tax Avoidance Directive includes six measures, which aim at limiting the abuse of six well-established practices used to avoid taxes in various jurisdictions in Europe.  These include the mismatch in legal characterisation of financial instruments or legal entities between Member States, excessive inter-group interest charges, and a general anti-abuse rule against arrangements the essential purpose of which is to obtain a tax advantage.

The legislative proposal on CbC Reporting aims to strengthen the existing mandatory and automatic exchange of information between the Member States in the field of taxation.  The proposal also requires the parent entity of a multinational group to report to the competent authorities the aggregated information on the revenue, profit (or loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash equivalents, in respect of each jurisdiction in which the group operates.

Finally, because tax avoidance has a strong global dimension, the EU will also cooperate better with third countries on tax issues. The Commission therefore proposes to adopt a common EU system to screen, list and put pressure on third countries that refuse to adopt policies to limit tax avoidance. In addition, before the end of 2016, the Commission and Member States will consider whether to put in place sanctions to incentivize third countries to improve their tax systems.

Life Sciences and Healthcare Policies

At the beginning of February 2016, the Dutch presidency will resume trilogues on the legislative proposals regarding the medical devices Regulation (“MD proposal”) and the in vitro diagnostic medical devices Regulation  (“IVD proposal”).  The European Commission presented this pair of proposals in September 2012, and recently called upon the Council of Ministers and the European Parliament to reach an agreement in the first half of 2016.  The Dutch delegation therefore intends to ramp up the number of trilogues between the institutions to five political meetings and 10 to 15 technical meetings during its presidency.  Nonetheless, important differences remain between the negotiators on the reprocessing of single use devices, liability insurance for manufactures, and the classification of devices in the framework of the IVD proposal.  It is understood that the Dutch presidency hopes to achieve an agreement by the Employment, Social Policy, Health and Consumer Affairs Council of June 17, 2016.

Trade Policy and Sanctions

On January 1, the Deep and Comprehensive Free Trade Area (“DCFTA”) between the EU and Ukraine became operational.  According to the Commission, the implementation of the DCFTA will improve the Gross Domestic Product of Ukraine by circa 6% and increase economic welfare for Ukrainians by 12% over the medium term.

On January 13, the European Commission held an initial orientation debate on Market Economy Status for China in anti-dumping proceedings.  Under the current WTO rules, the EU can calculate potential anti-dumping duties on the basis of data from another market economy country rather than the domestic prices used in China, because there is a presumption that market economy conditions do not prevail in China.  However, this provision, included under Article 15(a)(ii) of China’s Protocol of Accession to the WTO, will expire on December 12, 2016.  The Commission is therefore considering its options for changing the methods used to calculate dumping margins in respect of China.  It is important for the Commission to start the process on time, because any change in the anti-dumping rules are likely to require legislation to be adopted by the Council and the European Parliament.  Given the delicate nature of such negotiations, the process is expected to take a year.

January 16, 2016, saw the Implementation Day of the Joint Comprehensive Plan of Action (“JCPOA”) – the historic deal reached among China, France, Germany, Russia, the UK, the U.S., the EU and Iran to ensure the exclusively peaceful nature of Iran’s nuclear program.  As part of that agreement, the Council of the EU lifted all nuclear-related economic and financial EU sanctions on Iran.  It did so by bringing into force the EU legislative package adopted on October 18, 2015, following the verification by the International Atomic Energy Agency (“IAEA”) that Iran had complied with the requirements laid down in the JCPOA.  As of January 16, many sectors and activities have been reactivated, including, among others: financial, banking and insurance measures; oil, gas and petrochemical; shipping and transport; gold and other metals; software; and the un-freezing of the assets of certain persons and entities.  Note that proliferation-related sanctions, including arms and missile technology sanctions, will remain in place until 2023 (subject to various conditions).  For the Council press release, see here.  For more details, see the Council Information Note here.

Article By Sebastian F.A. Vos of Covington & Burling LLP
© 2016 Covington & Burling LLP

Foreign Correspondent Banking – The Good, The Bad and The Ugly

Foreign correspondent accounts have long been used by financial institutions to facilitate cross-border transactions. However, as a result of its susceptibility to money laundering and terrorist financing, this practice is encountering heightened concern among U.S. banking regulators. In this rigorous environment, it is increasingly important for financial institutions to take positive actions designed both to safeguard their operations against illicit transactions and, in the event their correspondent business comes under regulatory scrutiny, to establish a defensible position.

What is a foreign correspondent account?

A “correspondent account” is statutorily defined as “an account established to receive deposits from, make payments on behalf of a foreign financial institution, or handle other financial transactions related to such institution.”1 Laying the foundation for its Anti-Money Laundering (AML) guidance on foreign correspondent accounts, the Federal Financial Institutions Examination Council (FFIEC) adds some detail explaining, “An ‘account’ means any formal banking or business relationship established to provide regular services, dealings, and other financial transactions. It includes a demand deposit, savings deposit, or other transaction or asset account and a credit account or other extension of credit.”2 Moving from that neutral view, the FFIEC later takes a more positive tone, stating, “Foreign financial institutions maintain accounts at U.S. banks to gain access to the U.S. financial system and to take advantage of services and products that may not be available in the foreign financial institution’s jurisdiction. These services may be performed more economically or efficiently by the U.S. bank or may be necessary for other reasons, such as the facilitation of international trade.”3

The Good: Benefits of foreign correspondent banking

The concept of foreign correspondent banking is an accepted practice that can be very beneficial to financial institutions and their customers. Correspondent banks essentially act as a domestic bank’s agent abroad in order to service transactions originating in foreign countries. Championing a positive view, the Bank for International Settlements observes, “Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers, supporting international trade and financial inclusion”.4

The Bad: Challenges of foreign correspondent banking

Notwithstanding the benefits related to foreign correspondent banking, this practice also presents significant challenges, with regulatory burden featured prominently. Extensive rules governing foreign correspondent accounts implement the provisions found in USA PATRIOT Act sections 312 (imposing due diligence and enhanced due diligence requirements on U.S. financial institutions maintaining foreign correspondent accounts), 313 (preventing foreign shell banks from having access to the U.S. financial system) and 319(b) (authorizing federal law enforcement to investigate any foreign bank maintaining a U.S. correspondent account). The decline in correspondent banking relationships has much to do with the challenge of regulatory compliance, as recently noted by the American Bankers Association, “[O]ne key factor leading to the decline in correspondent/respondent banking relationships is the heightened regulatory burden on banks related to anti-money laundering and counter terrorism compliance.”5

The Ugly: Foreign correspondent banking as a means to launder money and finance terrorism

The regulatory strictures are not without good reason. There have been instances of foreign correspondent accounts being used to launder money and to potentially finance terrorism. Even in the early rush to implement the USA PATRIOT Act, the OCC, though taking a balanced view, expressed its concern, stating, “Although [correspondent] accounts were developed and are used primarily for legitimate purposes, international correspondent bank accounts may pose increased risk of illicit activities.”6 In recent years, the U.S. government has sent a strong message to financial institutions that fail to create a process to prevent criminal behavior. Financial institutions that disregard their obligations under the Bank Secrecy Act or operate without effective anti-money laundering programs have been the subject of enforcement actions resulting in hefty penalties. In 2012, a Virginia-based bank that allowed itself to be used to launder drug money flowing out of Mexico agreed to pay a record $1.92 billion to U.S. authorities, including hundreds of millions of dollars in civil money penalties to the Office of the Comptroller of the Currency, the Federal Reserve, and the Treasury Department.7 In 2015, a German-based bank and its U.S. branch accused of violating laws barring transactions with Iran, Sudan, Cuba and Myanmar, as well as abetting a multi-billion dollar securities fraud, agreed to pay $1.45 billion in fines.8 In both of these high-profile cases, government authorities cited Bank Secrecy Act violations including: (1) failure to have an effective AML program, (2) failure to conduct adequate due diligence or to obtain “know your customer” information with respect to foreign correspondent bank accounts, and (3) failure to detect and adequately report evidence of money laundering and other illicit activity. Mirroring the U.S. actions, the international Financial Action Task Force has sounded this stern warning in addressing the cross-border financial activities of Iran and North Korea: “Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices … .”9

The Solution: How financial institutions can best protect themselves from a harmful correspondent banking relationship

In order to meet its obligations to measure, monitor and control risks, a financial institution should consider the following actions:

1. Ensure BSA/AML policies and procedures are reviewed at least annually and adjusted to address any new risks related to correspondent banking activities.

2. Perform an annual risk assessment to determine the adequacy of its BSA/AML/OFAC program, especially as it relates to correspondent banking.

3. Conduct due diligence on counterparties to understand the nature and extent of the various aspects of the correspondent’s business, including, but not limited to, ownership, products, services, customers, locations, etc. Due diligence should be ongoing based upon the nature and scope of the correspondent activities and should include periodic validation of the counterparties and their activities by the correspondent bank.

4. Ensure that adequate expertise and resources are available to establish a BSA/AML/OFAC program capable of effectively and timely monitoring the volume and nature of activities processed through the correspondent account.

5. Ensure that the correspondent bank, and not the initiating bank, administers the systems used to process correspondent banking transactions, thus allowing the correspondent bank to independently identify exceptions, generate reports and analyze data to support its BSA/AML/OFAC program.

6. Perform monitoring of processed correspondent banking transactions in a timely manner, preferably through the use of an automated system that can effectively aggregate transactions and create “alerts” in order to identify potentially suspicious transactions.

7. Ensure that the correspondent bank establishes an enhanced due diligence (EDD) protocol that will be followed for investigative purposes when transactions trigger a BSA/AML alert in the monitoring system.

Steven Szaroleta and Walter Donaldson are co-authors of this article.

Article By Frank A Mayer, III, Richard M. Berman, Jonathan L. Levin & Molly K. Lampe of Dinsmore & Shohl LLP
Steven Szaroleta and Walter Donaldson are co-authors of this article.
© 2016 Dinsmore & Shohl LLP. All rights reserved.

1 31 U.S. Code § 5318A(e)(1)(B)
2 https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_027.htm
3 http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_047.htm
4 http://www.bis.org/cpmi/publ/d136.pdf
5 http://www.aba.com/Advocacy/commentletters/Documents/cl-BIS-CorrespondentBanking2015Dec.pdf
6 http://www.occ.gov/topics/bank-operations/financial-crime/money-laundering/money-laundering-2002.pdf
7 http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121211
8 http://www.justice.gov/opa/pr/commerzbank-ag-admits-sanctions-and-bank-secrecy-violations-agrees-forfeit-563-million-and
9 http://www.fatf-gafi.org/documents/documents/public-statement-october-2015.html#DPRK

USCBP Expected to Extend Global Entry Eligibility to All German Citizens

IUSCBP Expected to Extend Global Entry Eligibility to All German Citizensn a notice expected to be published in the Federal Register on Tuesday, February 16th, with an effective date the same day, US Customs and Border Protections (USCBP) announced that it is extending Global Entry eligibility to all citizens of Germany.

In 2013, USCBP launched a pilot program for German citizens to enroll in Global Entry. Eligibility for Global Entry for German citizens was limited to certain citizens who participated in ABG Plus, Germany’s former trusted traveler program. Individuals who qualified and received Global Entry authorization under the pilot program will not have to reapply.

Application Process

Newly eligible citizens of Germany will first need to visit an EasyPASS enrollment center in Germany and complete the risk assessment by the German Federal Police. Once approved, the German Federal Police will notify USCBP and the applicant will be able to apply for Global Entry via the GOES website.

Germany Registered Traveler Reciprocity

US Citizens may apply for EasyPASS at an EasyPASS enrollment center in Germany. There is currently no fee to apply for this program. You do not need to be registered in Global Entry in order to qualify for EasyPASS.

©1994-2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
  • See more at: http://www.natlawreview.com/article/uscbp-expected-to-extend-global-entry-eligibility-to-all-german-citizens#sthash.8hVrniyu.dpuf

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

US Treasury and Commerce Departments Announce New Changes to Cuba Regulations

On January 25, 2016, the US Treasury Department’s Office of Foreign Assets Control (OFAC) and the US Commerce Department’s Bureau of Industry and Security (BIS) announced new changes to existing US sanctions on Cuba, including OFAC’s Cuban Assets Control Regulations (CACR) and BIS’s Export Administration Regulations (EAR). These changes expand allowable financing for certain authorized exports, allow more flexibility in a number of sectors to export to Cuba, permit air carriers to serve customers in Cuba and further liberalize travel rules. These new regulatory changes may constitute the most that President Obama can do to liberalize trade and travel with Cuba in the absence of congressional legislation to lift the embargo in whole or in part.

Authorized Export Transactions

Amendments to the CACR and EAR to increase support for the Cuban people and facilitate authorized exports include the following:

  • The CACR have been amended to remove financing restrictions for most types of authorized non-agricultural exports. (OFAC is required by statute to maintain the existing limitations on payment and financing terms for the export and reexport of agricultural commodities and agricultural items). Permissible payment and financing terms for authorized non-agricultural exports and reexports now include payment of cash in advance, sales on open account, and financing by third-country financial institutions or US financial institutions.

  • OFAC expanded an existing general license to authorize certain additional travel-related transactions directly related to market research, commercial marketing, sales or contract negotiation, accompanied delivery, installation, leasing, or servicing in Cuba of items consistent with the export or reexport licensing policy of the Department of Commerce, provided that the traveler’s schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule.

  • BIS now will generally approve license applications for exports and reexports of telecommunications items that would improve communications to, from, and among the Cuban people; certain agricultural items not eligible for a license exception, including insecticides, pesticides, and herbicides; and items necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation.

  • BIS ended its policy of denial and now will consider on a case-by-case basis license applications for exports and reexports of items to meet the needs of the Cuban people, including exports and reexports for such purposes made to state-owned enterprises and agencies and organizations of the Cuban government that provide goods and services to the Cuban people. Exports and reexports eligible for this licensing policy include items for: agricultural production; artistic endeavors (including the creation of public content, historic and cultural works and preservation); education; food processing; disaster preparedness, relief and response; public health and sanitation; residential construction and renovation; public transportation; and the construction of infrastructure that directly benefits the Cuban people (e.g., facilities for treating public water supplies and supplying energy to the general public).

Travel

OFAC has expanded several existing allowable travel categories to facilitate travel to Cuba, including the following:

  • OFAC will authorize travel-related and other transactions directly incident to professional media or artistic productions of information or informational materials for exportation, importation, or transmission, including the filming or production of media programs (such as movies and television programs), music recordings, and the creation of artworks in Cuba by persons that are regularly employed in or have demonstrated professional experience in a field relevant to such professional media or artistic productions.

  • OFAC is expanding the general license for travel-related and other transactions to organize professional meetings or conferences in Cuba. The existing general license authorized only attendance at such meetings or conferences.

  • OFAC is authorizing by general license travel-related and other transactions to organize amateur and semi-professional international sports federation competitions and public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions in Cuba.  OFAC is also removing requirements that US profits from certain events must be donated to certain organizations and that certain events be run at least in part by US travelers.

Conclusion

These changes to the regulations offer important changes and will allow for additional market opportunities for US businesses looking to enter the Cuba market. Still, the embargo is in place, and US companies should proceed with caution to ensure full compliance with all existing US and Cuban laws.

Article By Benjamin O. Kostrzewa, David J. Levine & Raymond Paretzky of McDermott Will & Emery

© 2016 McDermott Will & Emery

UN Secretary-General Election

After ten years in office, Ban Ki-moon, the UN Secretary General (UNSG),  will retire from the UN at the end of 2016. The race for his successor is already underway. Last December, the Presidents of the Security Council (UNSC) and of the UN General Assembly (UNGA) sent out a joint letter soliciting candidates from member countries.

The UN consists of 193 member states, traditionally divided into geographical groups, such as African, Latin American, etc. Certain important positions, including that of the UNSG, rotate among these groups, although this happens by custom and precedent rather than by some written rule of the UN Charter. After the Middle Eastern group (Boutros Boutros-Ghali), the African group (Kofi Annan) and the Asian group (the incumbent), the rotation system would have the Eastern European group take up the office of the Secretary General for the next four years (with the possibility of reelection).

Several candidates have already been put forward in response to the letter of the two presidents. Croatia has nominated Vesna Pusić, until recently the country’s first deputy prime minister and minister for foreign affairs. Alas, her government collapsed soon after her nomination was submitted and it is unclear whether she still enjoys her country’s support.

The former Yugoslav Republic of Macedonia has nominated its former foreign minister and a former UNGA President, Srgjan Kerim. And Montenegro has nominated Igor Lukšić, its current foreign minister.

The letter of the two presidents invites candidates to come forward by the end of July, though it doesn’t actually specify when the nomination process would close. A number of other candidates will emerge, and several are waiting in the wings. The ex-Yugoslav contingent is complemented by Danilo Türk from Slovenia, a former UN Assistant Secretary-General and a former President of his country, who declared his candidacy some two years ago, as well as by Vuk Jeremić, the former Serbian Foreign Minister who is reputed to have made quite a mess of his job as President of the UN General Assembly (2012-13).

Bulgaria is the home of no fewer than two potential candidates: Irina Bokova, the Director-General of UNESCO, and Kristalina Georgieva, a second-term European Commissioner and currently a Vice-President of the Commission. Bokova used to be favored by her government – but her government, too, has since changed and the new Bulgarian government, with a right-of-center orientation, prefers Georgieva.

Nowhere is it stated that a country could not put forward two candidates (however strange that would be). This sheds some light on the situation in Slovakia which also features two potential candidates: Miroslav Lajčák and Ján Kubiš. Lajčák is currently the country’s Deputy Prime Minister and Foreign Minister. Kubiš is a veteran of a number of international organizations. He has served as the Secretary General of the Organization for Security and Cooperation in Europe (OSCE), as EU’s special envoy for Central Asia, as Slovak Foreign Minister, etc. Currently, he serves as Ban Ki-moon’s Special Representative in Afghanistan.

This plethora of candidates and possible candidates may thin out as months pass – while others may throw their hat in. Consider that none of the past eight Secretaries-General has been a female. Is it a woman’s turn now? As much sympathy as the idea evokes, there is no rule to force it. Kristalina Georgieva, however, is considered by many as the ideal candidate, gender considerations aside.

In a novel approach, candidates will be asked to make presentations during open hearings that the current UNGA President intends to hold. Following Art. 97 of the UN Charter, their merits will then be considered by the Security Council which will recommend its favorite to the General Assembly. It has not been specified when this is supposed to happen but late fall is the likely time. This is based on the assumption that the US would want the decision made before its own elections. Also, Russia will want to take care of the matter during its October chairmanship of the Security Council.

Even though the UNSC only makes a recommendation, its views are critical. Its recommendation has always been followed. Moreover, the UNSC customarily submits only a single recommendation – no options left for the 193 nations. This follows from a 1946 resolution of the UNGA according to which submitting a single recommendation is “desirable”. And in the Security Council, it will be its five permanent members (the “P5”) who will carry the day.

Some skeptical but wise voices argue that the whole selection may boil down to a bargain between the US and Russia. In the past, the US has not expressed its views before actual decision time.  It might be inclined toward a female candidate and Kristalina Georgieva could be viewed favorably.

On the other hand, the Russians often oppose any European Union diplomat, for any position. This logic would make them oppose just about anyone mentioned above, except for some of the West Balkan candidates – after all, it was a powerful Russian lobbying campaign which hoisted Vuk Jeremić of Serbia into the GA Presidency a couple of years ago. Additionally, the Russians might support someone who studied in Moscow, in their Diplomatic Institute (MGIMO), including the two Slovak diplomats or Irina Bokova. They have their files.

So – the race for the next UN Secretary General is in flux and nothing will be decided very soon. Before the end of the year, however, one of the fairly obscure Eastern European names mentioned above may turn into an important international actor.

Article By Karel Kovanda of Covington & Burling LLP

© 2016 Covington & Burling LLP

January 2016 Visa Bulletin Update

The Department of State’s (DOS) January 2016 Visa Bulletin showed minor movements in the employment-based visa categories. The most significant movement was in the Indian EB-2 category which advanced by another 8 months, to Feb. 1, 2008 (the December 2015 bulletin showed a 10 month jump). There was also movement in the Dates for Filing in the employment-based categories, except in both of the “All Chargeability Areas” and “Mexico” EB-3 and Other Workers categories, which moved from Sept. 1, 2015, to Jan. 1, 2016.

The January Visa Bulletin also advised about the upcoming, scheduled expiration of the immigrant investor pilot program (EB-5 Visas) on Dec. 11, 2015, unless Congress acts to extend these programs. The Visa Bulletin states that no I5 visas may be issued overseas, or final action taken on adjustment of status cases, after Dec. 11, 2015. The cut-off date for this category has been listed as “unavailable” for January. Congress is currently considering an extension of the I5 visa category, but there is no certainty when such legislative action may occur. If there is legislative action that extends this category for FY-2016, the cut-off dates would immediately become “current” for January, for all countries except China-mainland born I5.

Final Action Dates for Employment-Based Preference Cases

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Dates for Filing of Employment-Based Visa Applications

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Article By Patricia A. Elmas of Greenberg Traurig, LLP

©2015 Greenberg Traurig, LLP. All rights reserved.

UK Holiday Pay Inactivity – Inertia or Strategy?

We were in the hallowed legal portals of Farringdon’s Bleeding Heart Restaurant last week for a client dinner on the still vexed issue of holiday pay. “Hallowed legal portals”, because so far as I know, no other restaurant has been cited so frequently in the employment law reports as just the only place to go for a decent spot of covenant-busting and a little post-prandial breach of fiduciary duties.  They also do a very good coffee.

We had to open with an acknowledgement – that despite the absolute nature of my recollection, Peter O’Toole had not said in the film Lawrence of Arabia that “doing nothing was generally best”. Apparently it was Anthony Quayle.  Pressing on despite this setback, our dinner guests considered with the kind contribution of a senior member of the Engineering Employers Federation’s Employment Policy Team whether doing nothing could really remain a sensible holiday pay position at this stage, a full year after the EAT’s decision in Bear Scotland.

Despite the breadth of sectors represented, including retail, financial services, recruitment and advertising, there was a remarkable commonality of view. While it was of course sensible to be providing behind the scenes for some possible accrued holiday pay liability, none of our guest organisations had yet sought any negotiation or reached any agreement with staff representatives (unionised or not) about the inclusion of overtime or commissions in holiday pay calculations.   Despite this inaction, only one of our attendees had had a Tribunal claim on the point.  This is a function perhaps of the relatively limited quantum of most holiday pay claims per individual, a sum which will often be less than the Tribunal fees incurred in making the claim in the first place.

We floated the proposition that an employee’s entitlement to an allowance for commission or overtime in his holiday pay should depend upon his being able to show (at least on a balance of probabilities) that he would have earned that extra money had he not been on leave, i.e. that he had suffered some actual loss. Most of our attendees seemed willing to take that loss as a given based on recent average overtime or commissions rates. Where such extra earnings are pretty regular and pretty consistent, that might well be a sensible approach.  However, the financial services attendee, being from a sector which pays fewer but larger supplementary sums above salary, could see some mileage in this argument.  If such a lumpy payment fell within the reference period for the holiday pay calculation, it could seriously distort the figure and turn it into a number wholly unconnected with what the employee would actually have earned had he not been on leave.  None of the cases or commentaries have yet mentioned this possibility (apart from the most throw-away line in the Acas Guidance http://www.acas.org.uk/holidaypay). Nonetheless, it will surely gain new legs as an idea if and when the Government confronts the reality of drafting legislation to define a “normal pay” formula which works equally well over the myriad different shapes and sizes of supplementary payment arrangements in the UK market.

Might some clarity on this be derived from Mr Cameron’s impending begging session in Europe? His original podium-thumping was about procuring material changes to the Working Time Directive as applicable to the UK, but his formal overture was watered down to a gripe about lessening employer red tape.  The collective view around our table was that the EU will listen politely to Mr C and give him nothing.  The more cynical among our guests (that is to say, all of them) considered that he would then introduce some “clarificatory” amendments to the Working Time Regulations which would make little or no actual impact on employers but could be presented to a puzzled electorate as an indication of the merits of his tough stance in Europe.

I asked our guests at the outset of the dinner what they wanted from it. Almost exclusively it was reassurance that they were not alone or acting foolishly in doing nothing about holiday pay at this stage.  In cases where there are no unions, no pressing reputational issues and no easy means of determining what supplement to holiday pay would be appropriate anyway, it was reassurance which we were happy to give.

Article By David Whincup of Squire Patton Boggs (US) LLP

© Copyright 2015 Squire Patton Boggs (US) LLP

Russia’s New Advanced Development Territories Law: Far East Focus

An initiative to spur investment in this underdeveloped region.

Amid the ongoing loud noise surrounding the situation in Ukraine (and in Syria) and the related sanctions and counter-sanctions, a new Russian development initiative seems to have slipped under the radar. But it is worthy of note—particularly for potential investors in Russia’s Far East. This has all the more potential importance in the context of Russia’s recent pronounced political and economic pivot toward Asia. The Law on Advanced Development Territories (the ADT Law, or the Law), enacted in December 2014 and entered into force in spring 2015 (and the related simultaneously adopted acts that make corresponding amendments to the Tax Code and some 20 other laws) set out the “rules of the road” for these ADTs.

Russian President Vladimir Putin and other top officials at the Eastern Economic Forum in Vladivostok in September spotlighted this ADT program prominently. A number of new projects were announced at that forum or earlier, and most recently at an international forum in Harbin, China.

In a separate related development, in July, a so-called “Free Port of Vladivostok” was established within Vladivostok city and a few neighboring municipalities – which provides benefits and incentives to investors similar to the ADT Law, and with an enhanced exemption regime for customs clearance and immigration. The fiscal benefits of the Vladivostok free port come into force in January 2016, but a major Korean conglomerate is reported to be eyeing this opportunity.

Background

The ADT regime is somewhat similar to Russia’s existing Special Economic Zones (SEZ), which came into being under the 2005 Law on SEZs and some earlier regulations. These programs have had only mixed success. But the central focus of the new ADT regime is different: while SEZs have been aimed primarily at spearheading various industries (such as innovative technologies, ports, or recreational complexes), the ADTs are to address the general unevenness in development across Russia’s vast territory by incentivizing investment in more depressed areas—starting with the underpopulated and relatively neglected Far East.

As initially drafted, the ADT Law was to be confined to the Far Eastern Federal District alone. This geographical limit no longer applies so generally under the Law as enacted. But for the first three years, under special transitional provisions, it will apply only in the Far East and in certain sole-core-employer cities “where the social and economic situation is particularly drastic.”

The Law further directs the government to appoint a special authorized body (AB) charged with various ADT supervisory and planning functions. So far only the new Ministry of Eastern Development (established in 2012) has been appointed as such an AB—for the Far Eastern Federal District. For all practical purposes the Law will apply essentially in the Far East, at least initially. The Ministry has already adopted various implementing regulations envisaged under the Law. Further, Deputy Prime Minister Yury Trutnev, who is also the president’s plenipotentiary in the Far Eastern Federal District, has pledged strong support for the ADT program alongside other measures for development of Russia’s Far East.

As of September, the government has already approved the establishment of nine ADTs, including Komsomolsk (in the Khabarovsky Krai), Khabarovsk (covering several districts within Khabarovsk City and elsewhere), Nadezhdinskaya (in the Primorsky Krai), and some others in Kamchatka, Yakutia, and Amurskaya Oblast. The first specific ADT projects announced at the Vladivostok Forum and on other occasions (taking into account the most recent Harbin EXPO) include the following:

  • Construction of a bitumen plant by a Chinese-owned Singapore company together with Russia’s Independent Petroleum Co. (NNK) in the Khabarovsk ADT
  • An Australian coal company’s proposed investment into the transport infrastructure of the Beringovsky ADT in Chukotka
  • Recreational infrastructure facilities (including a golf club) to be financed and constructed by a Japanese company in Vladivostok
  • A proposed major agricultural enterprise investment by Russian interests at Mikhailovsky ADT in Primorsky Krai (the precise location is not yet identified)
  • German investors’ readiness to provide some 20 billion rubles to the Kamchatka ADT
  • A planned 50 billion rubles investment for infrastructure development in the Primorsky ADT
  • A coal-loading terminal to be constructed by Sakhatrans in Khabarovsky Krai (estimated investment of 30 billion rubles)
  • A truck-building plant (and dealership and service centers) project to be undertaken together by Chinese Sinotruk and the Far-Eastern Road and Construction Company in the Komsomolsk ADT

Government Decree

Under the Law, an ADT is created by a government decree for a term of 70 years. Such decrees are based on a proposal by the Authorized Body. This proposal, in turn, is supposed to be based on preliminary agreements with one or more prospective investors into the planned ADT. A special federal government commission will also play a role in ADT selection and formation.

The relevant government decree will set out the main ADT parameters, including its territorial limits (no overlap with an SEZ is allowed), types of commercial activities eligible for benefits to ADT residents (in contrast to SEZs, there are no economic sector limits for such activities are established in the Law), minimum investment and technology requirements, and a few other aspects. These decrees presumably will take into account the preliminary agreements with prospective investors mentioned above.

Tripartite Agreement

After the base government decree is adopted, the AB (again, for practical purposes, this is the Ministry of Eastern Development for now) and the relevant regional and municipal authorities are to enter into a tri-partite agreement to regulate various obligations and procedures for the ADT in question. This includes the regional and municipal authorities’ obligations on transferring of land plots and facilities into ownership by or lease to the management company (see immediately below on this point) or granting the management company the authority to manage such land plots and facilities, financing and operation of the infrastructure facilities, the conditions for granting property and land tax holidays to ADT residents (see more on tax and other exemptions below), and other aspects.

Management Company

An important player in an ADT’s actual functioning is its management company (MC). Under the Law, an MC is a 100% federally owned joint stock company that is designated as such by the government. An MC will have a broad range of powers, authority, and functions for its ADT(s). For example, an MC will (itself or by delegation to a subsidiary) do the following:

  • Act as an infrastructure construction customer (in Russian, zastroischik)
  • Ensure or organize the functioning of the ADT infrastructure
  • Take ownership or lease of federally or municipally owned land plots, buildings, and various infrastructure facilities (on certain conditions)
  • Facilitate connection into the utilities networks for ADT residents and service providers
  • Draft proposals for relevant amendments to municipal and other zoning plans
  • Organize the construction of roads and installation of infrastructure facilities
  • Provide various services to ADT residents

The government has already appointed a joint stock company Korporatiya Razvitiya Dalnego Vostoka (in English, Far East Development Corp.) as such an MC—again, with respect to the whole Far East District.

ADT “Residents”

To become an ADT resident, a commercial company (or individual entrepreneur) needs to file an application with the MC that includes a business plan and proposal for the types of activities to be performed and the level of investments and then enter into an activities performance agreement with the MC reflecting the investment obligations as well as the MC’s obligations. The Ministry of Eastern Development in its capacity as AB has already approved a template of such agreement following the ADT Law guidelines. Per the Law, once an ADT is established and running, there are limits to the grounds for an MC to reject an application and refuse to enter into a contract with a potential resident. The main (and quite general) recognized ground is inconsistency between the applicant’s proposal and the ADT’s particular parameters. It remains to be seen how the activity agreements will be negotiated in practice, as more experience is gathered for substantial new proposed investments.

ADT residents will be incentivized by an array of fiscal and administrative measures, including the following:

  • Exemption from or reduction of taxes on corporate profit, mineral extraction, and property and land
  • Customs free zone (if approved by the decree enacting the ADT)
  • Reduction of Social Security payments
  • A system of special protections and guarantees regarding state supervision (only “joint inspections” by various authorities, to be conducted per a schedule approved by the AB, etc.)
  • Exemption from foreign employee quota (if approved by the ADT’s supervisory council)
  • Reduction of educational and medical care administrative burdens (including admission of foreign-trained doctors and use of best foreign educational methods)

Some of these incentives are fairly similar to those applied to SEZs, including tax and customs holidays and state-inspection limitations.

Conclusion

The new ADT Law appears to open real new investment opportunities, primarily in the Far East. Yet one should be mindful of various restrictions in using this Law’s benefits—including that the potential resident has to be registered within the ADT territory and, if it is a commercial company, it may not have branches or other subdivisions outside of the ADT  (sister companies are permitted). More preconditions apply to the associated tax benefits under the revised Tax Code. Time will tell how effective the ADT Law will be in attracting much-needed new investment to Russia’s Far East.

Article By Jonathan H. Hines & Alexander V. Marchenko of Morgan, Lewis & Bockius LLP
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Are UK-to-US employee data transfers sunk by ECJ’s torpedoing of Safe Harbor regime?

So there it is – in a tremendous boost for transatlantic relations, the European Court of Justice has decided that America is not to be trusted with the personal data of EU residents.  That is not exactly the way the decision is phrased, of course, which (so far as relevant to UK HR) is more like this:

Under the Eighth Principle of the UK’s Data Protection Act (and all or most of its EU cousins) the personal data of your employees can be transferred outside the EU only where the recipient country ensures an adequate level of protection for the rights and freedoms of data subject.

Until now an EU employer has been able to rely in this respect on a US company’s registration with the Safe Harbor (sic) scheme, a series of commitments designed to replicate the safeguards of EU law for that data.  As of this week, however, that reliance has been deemed misplaced – the ability and tendency of the US security agencies to access personal data held by US employers has been found to compromise those commitments beyond immediate repair.  In addition, one of the EU “model clauses” which can legitimise international data transfers requires the US recipient to confirm that it is aware of no legislation which could compel it to disclose that personal data to third parties without the employee’s consent.  New US laws enacted to boost homeland security mean that this can simply no longer be said.  Therefore Safe Harbor has been comprehensively blown up and can no longer be used as automatic air-cover for employee data transfers to the US.

This creates two immediate questions for HR in the UK.  First, what exposure do we have for past data transfers to the US on a basis which is now shown to be illegitimate?  Second, what do we do about such transfers starting now?

  • Don’t panic! To make any meaningful challenge out of this issue, the UK employee would need to show some loss or damage arising out of that transfer.  In other words, even if the data has been used in the US as the basis for a negative decision about him (dismissal or demotion or no bonus), the employee would need to show that that decision would have been more favourable to him if it had been taken by the same people based on the same data but physically within the EU.  Clearly a pretty tough gig.

Second, all this case does is remove the presumption that Safe Harbor registrants are safe destinations – it does not prove that they are not, either now or historically.  The question of adequacy of protection is assessed by reference to all the circumstances of the case, including the nature of the personal data sent, why it is sent to the US and what relevant codes of conduct and legislative protections exist there.

Last, Schedule 4 of the DPA disapplies the Eighth Principle where the data subject (the employee) has given his consent to the international transfer, or where the transfer is necessary for the entering or performance of the employment contract between the employee and the UK employer.  It will rarely be the case that neither of these exceptions applies.

If you have not previously had complaints from your UK employees that their personal data has been misused/lost/damaged in the US, nothing in this decision makes that particularly likely now.

  • Still don’t panic.

  • However, do be aware that this case is likely to lead to stricter precautions being required to ensure that what is sent to the US is genuinely only the bare minimum.

  • On its face, Schedule 4 should allow most reasonable international transfers of employee data anyway, pretty much regardless of what level of protection is offered in the destination country. However, there is a strong body of opinion, especially in Continental Europe, that reliance on this provision alone is unsafe and that it is still appropriate for the EU employer to take specific steps (most usually, some form of data export agreement with its US parent) to satisfy itself that a reasonable level of protection for that data exists. It may also wish to be seen to reconsider how far those HR decisions need to be made in the US at all, and whether EU employee data could be kept on an EU-based server if that is not currently the case.

  • To the extent that employment contracts do not already include it, amend them to include an express consent to the transfer of relevant personal data to the US (but do note another possible avenue of attack much mulled-over in Europe, i.e. that consent in an employment contract is not freely given because the job hangs upon it). Last, be seen to prune the UK employee data you do hold in the US back to what is strictly necessary and get rid of stuff which is no longer (if it ever was) relevant to the performance of the employment contract.

Article By David Whincup of Squire Patton Boggs (US) LLP

© Copyright 2015 Squire Patton Boggs (US) LLP