Category: Trade

Beware OFAC in a Time of Sanctions

On Monday, April 25, 2022, the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) announced a settlement with Toll Holdings Limited (“Toll”), an Australian freight forwarding and logistics company, with respect to Toll’s originations and/or receipt “of payments through the U.S. financial system involving sanctioned jurisdictions and persons.” Toll, which is not an American entity, and is neither owned by Americans nor located in the U.S. or any of its territories, was involved in almost 3000 transactions where payments were made in connection with sea, air, and rail shipments to, from, or through North Korea, Iran, or Syria, AND/OR involving the property of a person on OFAC’s Specially Designated Nationals and Blocked Persons List. OFAC did not have direct jurisdiction over Toll, BUT because the payments for Toll’s freight forwarding and logistics services flowed through U.S. financial institutions, Toll “caused the U.S. financial institutions to be engaged in prohibited activities with … sanctioned persons or jurisdictions.”

Each OFAC violation can be the basis of civil sanctions. Here the 2853 violation would have supported the imposition of civil sanctions totaling over $826 million. Toll was “happy” to settle OFAC’s enforcement action for $6 million. OFAC found that the Toll violations were “non-egregious,” in part due to the rapid growth of Toll after 2007 through acquisitions of smaller freight forwarding companies. OFAC noted that by 2017 Toll had almost 600 invoicing, data, payment, and other systems spread across its various units. OFAC also noted that Toll did not have adequate compliance procedures and procedures in place and did not attend to those issues until an unnamed bank threatened to cease doing business with Toll because Toll was using its U.S. dollar account to transact business with sanctioned jurisdictions and/or persons. OFAC took note of Toll’s voluntary self-disclosure, well-organized internal investigation, and extensive remedial measures.

OFAC traces its origins to the War of 1812, when the then Secretary of the Treasury imposed sanctions on the United Kingdom in retaliation for the impressment of American sailors. The Treasury Department has had a special office dealing with foreign assets since 1940 (and the outbreak of World War II), with statutory authority found in the Trading With The Enemy Act of 1917 (as World War I raged), and a series of federal laws involving embargoes and economic sanctions. OFAC received its current name as part of a Treasury Department order on October 15, 1962 (contemporaneous with the Cuban missile crisis).

The Toll settlement reflects the growing use by OFAC of public enforcement against foreign businesses for “causing” violations by involving U.S. payment systems. The use of U.S. dollars in any part of a transaction will typically involve the U.S. financial system, directly or indirectly – that subjects the entirety of the transaction to U.S regulatory jurisdiction, including that of OFAC. The Toll settlement evidences OFAC’s increasing willingness to exercise its expansive jurisdiction over foreign businesses, even those involving primarily extraterritorial transactions — for example, the increase in OFAC sanctions of foreign businesses seen as facilitating the Russian invasion of Ukraine.

Foreign businesses must give serious and continuing attention to having substantial policies and procedures in place to insure compliance with U.S. sanctions and, thereby, to avoid OFAC enforcement actions. Companies can start by reviewing OFAC’s Framework for Compliance Commitments and implementing the recommendations there. In addition, all parties to a transaction should be screened against sanction lists (OFAC’s, and also those of the U.K. and E.U.). Companies should consider adopting preventive measures, not only to deter violations, but also to demonstrate a vigorous compliance program.  Similarly, these issues MUST be considered as part of any merger or acquisition (as the Toll experience suggests).Finally, all counterparties, including financial intermediaries, should be evaluated for potential sanction list issues. Otherwise, a foreign business may have to “pay the Toll” for its shortcomings.

Experienced American business lawyers may prove helpful in designing and/or evaluating the compliance programs of non-U.S. companies.

Article By Peter D. Hutcheon of Norris McLaughlin P.A.

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

©2022 Norris McLaughlin P.A., All Rights Reserved

Intellectual Property: Understand It to Protect What You Own, Drive Value to Your Business and Positively Impact Your Bottom Line

Intellectual Property (or “IP”) is commonly defined as a group of legal rights that provide protection over things people and businesses create or invent. It might sound straightforward, but there is a lot of confusion over what can actually be protected and what cannot.

Who needs to be concerned with IP Protection?

We’ve all heard the phrase, “hindsight is 20/20”. That’s especially true when it comes to IP protection. So often people and businesses do not realize a new creation or innovation should be protected until it is too late. If you are creating or developing within your space, you need to have an IP strategy to avoid any unintentional disclosure missteps. And, when you are creating, be careful to:

  • Make records. They should be accurate, dated, and corroborated.
  • Research the competitive landscape early and identify both opportunities for protection and risks of infringement.
  • Use a non-disclosure agreement or contract before collaborating with another business or other people, such as consultants.

What are some of the biggest IP challenges business owners and employers need to overcome?

The goal for your IP strategy needs to be: Identify, Protect, Monetize.  The question business owners need to answer is how they can most effectively achieve this. The first step is understanding the applicable types of IP that are protectible and the steps needed to secure protection  of each.

Intellectual Property Type The Value

Trade Secret

 No registration fees or costs. Goes into effect upon creation and can last forever. Protection available at the state and federal levels.

Non-Disclosure Agreement/Contract (or “NDA”)

 Very affordable and flexible but, it only binds the contracting parties. An NDA should be used with your employees and other businesses you deal with concerning sensitive business information.

 

Copyright

 

 Free and automatic upon creation, register for significant added value. Protection available only at the federal level and registration is required to enforce protection.

Trademark/Service

 Commercial differentiation, quality identifier and price enhancement. Low cost and can last forever but must police others’ misuse.

How can an IP strategy affect your bottom line?

It’s important to understand there is no “one-size fits all” approach to IP. The correct IP strategy must be tailored to your unique business. While some businesses may be overspending on a scattered approach to protecting IP, other businesses may not be investing enough and potential losing out on what could have been an important revenue stream.

© 2022 Davis|Kuelthau, s.c. All Rights Reserved
For more articles about IP Law, visit the NLR Intellectual Property section.

Full Ninth Circuit Removes Unwarranted Hurdles to Class Certification in Big Tuna Antitrust Case

Court delivers a necessary course correction in the law of class certification.

There was reason for optimism in August 2021, when the Ninth Circuit Court of Appeals granted rehearing en banc of a 2-1 decision that would have made it more difficult for antitrust claimants to secure class certification. The three-judge panel in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774 (9th Cir. 2021) had determined that Federal Rule of Civil Procedure 23(b)(3) required a district court to find that no more than a de minimis number of class members are uninjured before a class may be certified. Having announced this de minimis rule in its opinion, the court then took the unusual step of inviting the parties to argue whether the full court should rehear the issue en banc.

As we wrote last year when en banc rehearing was granted, with its de minimis rule, “the panel really jumped the median strip.” We argued that the rule conflated the question of whether issues common to the class predominate over issues unique to individual class members with the question of how the class is defined and that the Ninth Circuit’s new and unrealistic de minimis requirement erected an unnecessary procedural hurdle to class certification. Other commentators and amici argued that requiring proof that all but a de minimis number of class members are injured requires a determination on the merits, impermissible at the class certification stage.

In welcome news for claimants and attorneys who bring antitrust class actions, the Ninth Circuit sitting en banc decided against the de minimis rule, for all of the foregoing reasons, in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, No. 19-56514, 2022 U.S. App. LEXIS 9455 (9th Cir. Apr. 8, 2022).

In a thorough review of the requirements for class certification under Rule 23, the Ninth Circuit held that the movant’s burden is to prove the prerequisites of Rule 23 by a preponderance of the evidence, bringing the Ninth Circuit in line with the law in the First, Second, Third, Fifth, and Seventh Circuits. As for the predominance requirement of a Rule 23(b)(3) class, the court cited In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008) as amended (Jan. 16, 2009), to hold that, when assessing whether a plaintiff has proven that a common question related to a central issue in the claim predominates, a district court is limited to resolving whether the evidence establishes that a common question is capable of class-wide resolution, not whether the evidence in fact establishes that plaintiffs would win at trial.”

In rejecting the de minimis rule, the court began with the notion that class-wide proof is not required for all issues. Thus, the need for individualized assessment of a class member’s damages does not preclude a court from certifying a class. It contradicts this notion to require proof of injury of not more than a de minimis number of class members.

The presence of uninjured class members, the court held, does not defeat predominance. Predominance is defeated only where the class members cannot rely on the same body of common evidence to establish the common issue.

The presence of a large number of uninjured class members, however, could require a district court to consider whether the class definition is “fatally overbroad.” The remedy in that case, the court said, is to “redefine the overbroad class to include only those members who can rely on the same body of common evidence to establish the common issue.” “[T]he problem of a potentially ‘over-inclusive’ class,” the court said, “can and often should be solved by refining the class definition rather than by flatly denying class certification on that basis” (citation and internal quotation omitted).

With that, the Ninth Circuit reversed the three-judge panel and affirmed the certification of the classes by U.S. District Judge Janis L. Sammartino of California’s Southern District*, holding that the district court did not abuse its discretion in concluding that the methodology employed—statistical regression analysis and other expert evidence—”was capable of showing that a price-fixing conspiracy caused class-wide antitrust impact.”  [*Judge Sammartino subsequently recused herself and the case was reassigned to Chief Judge Dana Sabraw.]

The 9-2 decision was written by Circuit Judge Sandra S. Ikuta. In a dissenting opinion, Circuit Judge Kenneth K. Lee said as much as a third of the class members were unharmed. This is a “victory to plaintiffs” who will now be able to settle the action without having to prove their case trial, he said.

The suit was brought by direct purchasers of tuna products, indirect purchasers of bulk-sized tuna products, and individual end purchasers against the owners of Bumble Bee Foods LLC (currently in Chapter 11), StarKist Co., and Chicken of the Sea—which sell more than 80 percent of the packaged tuna in the United States. The industry has also been investigated by the Department of Justice in recent years, resulting in criminal guilty pleas by industry executives for participating in a price-fixing conspiracy.

Nothing in Rule 23 suggests that the presence of more than a de minimis number of uninjured class members affects whether questions affecting only individual class members predominate.

The now vacated de minimis rule conflates impact with damages and the predominance inquiry with potential overbreadth in the class definition. The Ninth Circuit’s en banc decision is a model of clear thinking and a welcome course correction in the law of class certification.

Article By Dan Mogin and Jonathan Rubin of MoginRubin

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

© MoginRubin LLP

Vehicle Sales Continue Their Depression

Anyone want to buy a vehicle? A better question might be: anyone got a vehicle for sale? Whether because of supply side issues, demand side issues, other issues, or all of the above, the fact remains that the first quarter of 2022 was not a good quarter for vehicle sales.  Just ask the manufactures who saw double digit drops in new light-vehicle sales: 23% for Honda; 20% for GM; 17% for Ford; 15% for Toyota; and 14% for Stellantis. While the numbers sound like doom and gloom, the manufacturers were not dour. Honda was quite positive about its numbers, noting that demand was strong and they just could not make enough vehicles to sell more, “we’re riding a bit of a roller coaster due to fluctuating parts supply issues, but strong March sales for Honda and Acura speak to the fact that demand remains strong and our retail deliveries are based primarily on what we can supply to our dealers.”

Some other interesting tidbits from sales data:

As a result, LMC Automotive and Cox Automotive each reduced their full-year U.S. light-vehicle sales forecast to 15.3 million units, citing a slower pace to recovery from market constraints. LMC referred to inventory levels as “critically low.”  Cox led its report by noting that not only are inventories low, but prices are high and sales incentives have vanished (note – this is how that entire supply/demand thing works).  Cox laid it all at the feet of supply: “Auto sales will basically be stuck at the current level until more supply arrives.”

Globally, the pandemic is not over. This continues to have the potential to drastically impact global vehicle volumes, especially in China. Global vehicle production could lose up to 1.5 million units this year if China’s COVID-Zero policy is maintained, according to estimates from Fitch Solutions quoted in Bloomberg. Most recently, phased lockdowns in Shanghai in response to COVID-19 outbreaks disrupted production for several major automakers and suppliers.

Add to that, the ongoing microchip shortage (for which no end appears in sight) is causing production downtime at various plants: Jeep production at Stellantis’ Mack Assembly plant in Detroit and Belvidere Assembly plant in Illinois; Chevrolet Silverado 1500 and GMC Sierra 1500 production at GM’s Fort Wayne Assembly plant; and Mustang production at Ford’s Flat Rock Assembly plant. Let’s not forget the war in Ukraine, leading to German automakers potentially losing up to 150,000 units of production in March due to supply disruptions.

Oddly, the industry feels both healthy (revenue, profits, margins, etc.) and stressed with an unceratin future (see above) all at the same time.  Also oddly, but strangely not so oddly, nothing about this situation feels new.  Is this the new normal?

Article By Jeffrey A. Soble of Foley & Lardner LLP

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

© 2022 Foley & Lardner LLP

SCOTUS Cert Recap: Copyright Act’s Fair Use Defense, ‘Dormant’ Commerce Clause, And Independent And Adequate State Ground Doctrine

On March 28, the Supreme Court agreed to consider the following three questions:

Is a work of art that copies from a prior work but that conveys a different meaning than the prior work necessarily “transformative” for the purpose of the Copyright Act’s fair use defense?

Does California’s Proposition 12 – which requires all pork sold in California to come from pigs housed in compliance with the state’s animal-confinement rules, even pigs raised entirely in other states – violate the Constitution’s Commerce Clause?

Is Arizona Rule of Criminal Procedure 32.1(g), which requires a state prisoner seeking post-conviction relief to identify a “significant change in the law” that would probably have produced a different result in the prisoner’s case, an adequate and independent state-law ground to support a state-court judgment denying post-conviction relief?

 

On March 28, the U.S. Supreme Court added three cases to its docket for next term: one about when a work of art “transforms” a prior work for the purpose of the Copyright Act’s fair use defense, another involving a “dormant” Commerce Clause challenge to a California law that prohibits selling any pork in the state unless the pork comes from pigs housed in compliance with California’s animal-confinement rules, and a third concerning whether the independent and adequate state ground doctrine bars the Court from reviewing an Arizona state-court decision denying a request for post-conviction relief.

The copyright and Commerce Clause cases – which drew four and five cert-stage amicus briefs, respectively – will capture significant attention from businesses and civil litigators and could each produce landmark decisions in their respective areas of law. The case concerning the independent and adequate state ground doctrine will be of greater interest to those who practice in the post-conviction area – where such issues arise with some frequency – but all lawyers who practice before the Supreme Court should watch that case carefully as well, as the doctrine applies to all state-court decisions whatever the subject matter.

When Works Are ‘Transformative’ Under the Copyright Act’s Fair Use Defense

In Andy Warhol Foundation for the Visual Arts v. Goldsmith, the Court will return to a question it confronted last year in Google v. Oracle: When does copying a portion of a copyrighted work constitute protected “fair use” under the Copyright Act?

The notion of “fair use” in the copyright context initially developed as a common-law doctrine to allow borrowing in some situations in order to further the Copyright Act’s general purpose of fostering creativity and innovation. Congress codified that doctrine in 1976, and the Copyright Act now expressly recognizes fair use as a defense and lists four non-exclusive factors courts should consider in determining whether a use is “fair”: 1) the purpose and character of the use, 2) the nature of the copyrighted work, 3) the amount used in relation to the copyrighted work as a whole, and 4) the effect of the use upon the potential market for the copyrighted work.

As the Court explained in Google, the first of these factors – the purpose and character of the use – asks “whether the copier’s use adds something new … altering the copyrighted work with new expression, meaning or message,” and the Court has “used the word ‘transformative’ to describe a copying use that adds something new and important.” This case offers the Court an opportunity to provide further detail on what it means for a work of art to be “transformative” in this sense. It concerns a series of silkscreen prints and pencil illustrations created by Andy Warhol – whose foundation is the petitioner here – based on a 1981 portrait photograph of Prince taken by the respondent, Lynn Goldsmith. The foundation argues that the works are necessarily transformative because they convey a new meaning: namely, that they portray Prince as an “iconic” figure rather than the “vulnerable human being” depicted in Goldsmith’s photograph.

In its decision below, however, the Second Circuit rejected the notion that imbuing a work with a new meaning is necessarily “transformative.” It observed that such a rule would seem to expand fair use to make copyright licensing unnecessary in the “paradigmatically derivative” context of film adaptations – since many movies transform the message of the underlying literary work – and it noted that ascertaining the meaning of artistic works is a subjective endeavor to which judges are typically unsuited. Instead, it held that Warhol’s work is not transformative on the ground that it is “both recognizably deriving from, and retaining the essential elements of, its source material.”

The Supreme Court is now set to review this decision and thereby give litigants and lower courts further guidance on what makes a work that borrows from another sufficiently “transformative.” Copyright practitioners around the country will be closely following what the Court says.

Commerce Clause Limits on States’ Authority to Regulate Commerce

In National Pork Producers Council v. Ross, the Court will consider a challenge to California’s Proposition 12, a law that sets minimum size requirements for pig pens – and that extends those requirements to farmers across the country by making compliance with them a condition of selling pork in California.

The challengers contend that the out-of-state application of these pen-size rules violates the Commerce Clause. They note that, while the Commerce Clause is expressly framed as a grant of authority to Congress, the Supreme Court has long read the Commerce Clause to also implicitly limit states’ regulatory authority. This doctrine, often called the “dormant” Commerce Clause, has a handful of different components, and two are at issue in this case.

The first, known as the extraterritoriality doctrine, has been invoked in a number of Supreme Court decisions but is most prominently associated with the 1980s decisions Brown-Foreman Distillers Corp. v. New York State Liquor Authority and Healy v. Beer Institute. The challengers here argue that under these decisions, a state law per se violates the Commerce Clause if its practical effect is to control conduct beyond the state’s boundaries, and they contend Proposition 12 does so by effectively requiring out-of-state farmers to follow California’s pen-size rules on pain of exclusion from the California market. And California responds that Proposition 12 merely regulates in-state sales, and that any indirect, upstream effects it has on farmers is insufficient to run afoul of the extraterritoriality doctrine.

The second issue concerns the balancing test the Supreme Court articulated in Pike v. Bruce Church, which bars state laws that impose a burden on interstate commerce that “is clearly excessive in relation to the putative local benefits.” Here the parties dispute the significance of Proposition 12’s economic effects and the strength of the interests underlying the law – issues that could become complicated by the motion-to-dismiss posture of the case.

The Court has now agreed to address both of these issues, and whatever the Court decides, its decision will carry implications for the validity of state commercial regulations in a wide variety of industries across the country.

The Scope of the Independent and Adequate State Ground Doctrine

In Cruz v. Arizona, the Court will take up a criminal-law case that presents a recurring issue that arises in both criminal and civil cases alike: When does a state-court decision rest on an independent and adequate state ground such that the U.S. Supreme Court lacks jurisdiction to review the decision?

The case arises from the Supreme Court’s 1994 decision in Simmons v. South Carolina, which held that where a capital defendant’s “future dangerousness is at issue, and state law prohibits the defendant’s release on parole, due process requires that the sentencing jury be informed that the defendant is parole ineligible.” The Arizona Supreme Court later concluded that Simmons was inapplicable in Arizona – on the theory that Arizona law did not universally prohibit capital defendants’ release on parole – but the U.S. Supreme Court overturned that conclusion in Lynch v. Arizona.

Shortly thereafter, Cruz – a capital defendant whose trial and sentencing occurred after Simmons but before Lynch – filed a petition for post-conviction relief in Arizona state court. Because this was not Cruz’s first petition, he sought relief under Arizona Rule of Criminal Procedure 32.1(g), which at the time provided that relief would be available even for successive petitions where there “has been a significant change in the law that if determined to apply to defendant’s case would probably overturn the defendant’s conviction or sentence.”

Cruz argued that Lynch constituted a significant change in the law and that it applied retroactively to render his sentence unlawful. And after the Arizona Supreme Court rejected his claim, he filed a cert. petition arguing that federal law requires applying Lynch retroactively in state post-conviction proceedings. Arizona, meanwhile, countered that the Court would lack jurisdiction under the independent and adequate state ground doctrine: The Arizona Supreme Court’s decision, the state argued, simply concluded that Cruz failed to meet the state-law requirements of Rule 32.1(g).

While the U.S. Supreme Court granted Cruz’s cert. petition, it has limited its consideration to only the question concerning the independent and adequate state ground doctrine. And because its answer to that question could affect jurisdictional rulings in all manner of cases, the case will be of interest to anyone who practices before the Court.

Article By Kian Hudson of Barnes & Thornburg LLP

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

© 2022 BARNES & THORNBURG LLP

Sugar Association Files Supplemental Petition Urging Regulatory Changes for Artificially Sweetened Foods

  • This week the Sugar Association submitted a Supplemental petition (“Supplement”) to FDA to further support the Association’s June 2020 petition Misleading Labeling Sweeteners and Request for Enforcement Action (“Petition”).  As noted in a previous post, the Association’s petition asks FDA to promulgate regulations requiring additional labeling disclosures for artificially sweetened products, which it believes are necessary to avoid consumer deception. Other than acknowledging accepting the petition for filing on Nov. 30, 2020, (see Regulations.gov), the agency has not responded.
  • The Supplement provides new data and information that the Association believes supports its original Petition, alleging that misleading labeling is “getting more prolific in the absence of FDA action.”  According to the Association, the number of new food product launches containing non-sugar sweeteners has increased by 832% since 2000, with 300% growth in just the last five years.  To further support its position, the Association references consumer research that it commissioned, suggesting that consumers think it is important to know if their foods contain sugar alternatives.
  • The Association is urging FDA to mandate significant additional disclosures on labels of artificially sweetened food products, including the following requirements to —
    • Clearly identify the presence of alternative sweeteners in the ingredient list;
    • Indicate the type and quantity of alternative sweeteners, in milligrams per serving, on the front of package of food and beverage products consumed by children;
    • Disclose the sweetener used on the front of package for products making a sugar content claim, such as “Sweetened with [name of Sweetener(s)]” beneath the claim;
    • Disclose gastrointestinal effects of various sweeteners at minimum thresholds of  effect;
    • Require that no/low/reduced sugars claims be accompanied by the disclosure “not lower in calories” unless such products have 25% fewer calories than the comparison food.

Article By The Food and Drug Law Practice Group at Keller and Heckman LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Keller and Heckman LLP

Chip Shortage? Now it’s a Ship(ping Container) Shortage

The never-ending impacts on the auto supply chain continue. We have written extensively on the shortages of chips and other parts, as well as the varied causes for these shortages.  Automakers are currently feeling the disruptions of the crisis in Ukraine and sanctions against Russia on their supply chains.  This post deals with yet another challenge—a shortage of shipping containers and cargo vessels.

The global backlog on shipping transportation has been well documented.  An industry article last year, “Where are all of the containers?” concluded the domino effect of a shortage of container manufacturing before the pandemic was compounded with the pandemic related delays. Containers were stuck in inland ports, warehouse locations, or gobbled up by the highest bidder.

In November, the Washington Post reported that major retailers like Ikea were reprioritizing the products they were shipping via containers to focus on “lightweight” and “pliable” products to fit more in each container. This prioritization does not bode well for vehicles, which take up far more space than other consumer products. The Post report also noted approximately 3 million containers were stuck at various locations due to a lack of labor to transport them. Vox followed shortly after, claiming containers were “wrecking” the supply chain.

The situation has not improved. The New York Times analyzed the global shipping industry and concluded that the shipping constraints were unlikely to improve in 2022.  Just this week, a massive cargo vessel carrying up to 4,000 vehicles (and 1,500 rare cars) caught fire and sank, reportedly destroying up to $400 million of vehicles.  Fortunately, the crew was safely rescued, but manufacturers and car buyers alike who had long awaited the scarce space on a container ship saw their new vehicles – rare Bentleys, Porsches, and Lamborghinis – go up in flames.  VW was apparently hit particularly hard, with a large portion of the vehicles on board slated for new VW car owners.

What will happen next? At least one container company cited trends toward increased shipping container manufacturing and regionalization of manufacturing and sourcing as potential avenues for relief. As more and more supply chain partners look to decrease the distance parts and supplies have to travel, and as labor markets start to normalize, the industry is hoping the competition for shipping containers will begin to ease.

© 2022 Foley & Lardner LLP

Article By Lauren M. Loew of Foley & Lardner LLP

For more articles on the chip and ship shortage,  visit the NLR Utilities & Transport section

Federal Trade Commission Implements Annual Adjustments to Hart-Scott-Rodino Notification Thresholds

The Federal Trade Commission (“FTC”)’s adjusted notification thresholds for the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976 (“HSR Act”) for 2022 have gone into effect beginning February 23, 2022. The “size of the transaction” thresholds have increased to $101 million (from $92 million) and $403.9 million (from $368 million), and the “size of the person” thresholds have increased to $20.2 million (from $18.4 million) and $202 million (from $184 million). The new thresholds apply to transactions that close on or after February 23, 2022, while the prior “size of the transaction” and “size of the person” thresholds will apply to transactions closing before February 23, 2022.

The HSR Act requires the parties to a merger or other M&A transaction to file a notification of the transaction with the FTC and the Department of Justice (“DOJ”) if the transaction meets the “size of the transaction” test and the parties meet the “size of the person” test. These dollar thresholds are adjusted annually based on changes to the United States gross domestic product.

Notification is required if (a) the transaction is valued at more than $403.9 million, regardless of the size of the parties; or (b) a transaction is valued at more than $101 million, but not more than $403.9 million, and, generally, one party has total assets or annual net sales of at least $20.2 million and the other party has total assets or annual net sales of at least $202 million.

If notification is required, the FTC and DOJ will have 30 days from the date on which both parties file their notices to review the competitive effects of the transaction. Prior to the expiration of this 30-day review period, the FTC or DOJ may make an additional request for documents or information from either or both parties. The parties will not be permitted to close the transaction until the 30-day review period expires, or if the FTC or the DOJ has made an additional document or information request, until 30 days after the agencies confirm that the additional request has been satisfied in full. In the past, parties filing HSR Act notifications ordinarily could request an “Early Termination” of the 30-day waiting period. However, the FTC and DOJ announced, on February 4, 2021, that they were temporarily suspending the Early Termination practice during the transition to the new Biden administration. The agencies have not yet announced when they will resume the Early Termination practice.

The FTC also announced that the maximum civil penalty amount for failure to comply with the premerger notification rules of the HSR Act has increased to $46,517 per day, from $43,792 per day.

© 2022 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

Article By Craig Ismaili and John Sikora of Giordano, Halleran & Ciesla, P.C.

For more articles on trade, visit the NLR Antitrust & Trade Regulation section.

Russian Invasion of Ukraine Triggers Global Sanctions: What Businesses Need to Know

The Russian invasion of Ukraine has triggered swift international retribution. Global powers—including the European Union (EU), the United Kingdom (UK) and the United States (US)—have announced sanctions as the crisis in Europe escalates. As governments expand these sanctions, businesses dealing in Russia or with the Russian government are urged to take immediate steps to ensure compliance. This On the Subject outlines the scope and applicability of these sanctions in each major jurisdiction.

IN DEPTH

EUROPEAN UNION

Targeted Sanctions on Entities and Individuals

In addition to the sanctions against Russia already in place following its annexation of the Crimean Peninsula, cyberattacks and human rights abuses (which were extended until 31 July 2022, and will likely be extended again), the Council of the European Union imposed restrictive measures on 21 February 2022, on five additional individuals (Aleksei Yurievich Cherniak, Leonid Ivanovich Babashov, Tatiana Georgievna Lobach, Nina Sergeevna Faustova and Aleksandr Evgenevich Chmyhalov) for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. The designated persons are members of the State Duma of the Russian Federation, and they were elected to represent the illegally annexed Crimean Peninsula and the City of Sevastopol on 19 September 2021, as well as the head and deputy head of the Sevastopol electoral commission.

On 23 February 2022, following a joint press statement of the Presidents of the European Commission and Council, the European Union extended the existing sanctions framework to cover all of the 351 members of the Russian State Duma who voted for the recognition of Donetsk and Luhansk as independent entities. The European Union also extended sanctions on an additional 27 high-profile individuals and entities who have played a role in undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

The restrictive measures include asset freezes, a European Union-wide travel ban and a prohibition from making funds available to the listed individuals and entities. Pursuant to European Union asset freezes, all funds and economic resources that belong to, are owned, held or controlled by a designated person are frozen. “Ownership” is triggered by a party holding more than 50% of proprietary rights in an entity or a majority interest in that entity. Therefore, entities owned by designated individuals will also be affected by the targeted sanctions.

Economic Restrictions

The European Union also imposed various economic restrictions on the Donetsk and Luhansk regions, specifically:

  • An import ban on goods from those regions;
  • An export ban on certain goods and technologies;
  • A prohibition on tourism services; and
  • A restriction on trade investments related to certain economic sectors.

Financial Restrictions

Notably, the European Union also imposed a sectoral prohibition to finance the Russian Federation, its government and its Central Bank in the hope of limiting the financing of escalatory and aggressive policies.

Germany also put on halt the certification process for the North Stream 2 pipeline, which is meant to deliver natural gas directly from Russia to Germany. The pipeline is owned by a subsidiary of Gazprom.

Applicability of EU Sanctions

The sanctions announced on 21 February and 23 February have been published in the Official Journal of the European Union and take effect immediately. New sanctions are directly applicable in all EU Member States, with existing penalties in place at a Member State level in relation to any breaches.

EU sanctions are broad in scope and apply to any person inside or outside the territory of the European Union who is a national or is incorporated under the laws of a Member State, as well as any legal person in respect of any business done in whole or in part within the European Union. Likewise, any events taking place within the territory of the European Union, including its airspace and on board any aircraft or vessel under the jurisdiction of a Member State, would be subject to the EU sanctions.

Further Developments

In a statement on 24 February, EU President Ursula von der Leyen announced that the European Union will present a further “package of massive, targeted sanctions” aimed at strategic sectors of the Russian economy in response to Russia’s continued escalation of the conflict. The new measures will block Russia’s access to technologies and markets that are key for Russia, freeze Russian assets in the European Union and stop the access of Russian banks to European financial markets. The further measures could include Russia being removed from SWIFT (the Society for Worldwide Interbank Financial Telecommunication), which is the worldwide communication system used by banks.

The European Union may also expand the sanctions to target those who “provide support or benefit from the Russian government” as a response to Belarus support for Russia.

UNITED KINGDOM

UK Prime Minister Boris Johnson announced a “first barrage” of sanctions against Russia with the designation of five Russian banks and three high-net-worth Russian individuals. The sanctions have been imposed pursuant to the recently amended Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).

  • Designated entities: IS Bank, Rossiya Bank, PJSC Promsvyazbank, JSC Genbank and JSC Black Sea Bank Development and Reconstruction.
  • Designated individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg.

Similar to the EU sanctions, any assets held in the United Kingdom by the individuals concerned will be frozen, and the individuals will also be banned from travelling to the United Kingdom. There will also be a prohibition on all UK individuals and entities from having any dealings with the designated entities and individuals.

Further Developments

The UK government stated it will further extend targeted sanctions to the Russian politicians who voted to recognise the independence of Donetsk and Luhansk and economic restrictions currently applicable to the Crimean Peninsula to the Donetsk and Luhansk regions. On 23 February, Prime Minister Boris Johnson warned London bank chiefs to expect tougher sanctions on Russia if the crisis in Ukraine escalates.

The UK government is likely to follow the European Union lead with respect to additional and broader sanctions (i) seeking to curtail Russia’s ability to raise funds in UK markets, prohibiting a range of high-tech exports and further isolating Russian banks from the global economy; (ii) targeting the Russian financial sector and trade; and (iii) prohibiting Russia from issuing foreign debt on UK markets.

In line with previous statements from the UK government, on 24 February Prime Minister Boris Johnson announced it will take measures to exclude Russian Banks from London’s financial system “stopping them from accessing sterling and clearing payments through the UK” and limiting the amount of money the Russian nationals will be able to deposit in their UK bank accounts.

UNITED STATES

The US sanctions announced immediately after the beginning of the current crisis effectively prohibit US persons from engaging in any economic activity with the breakaway Donetsk and Luhansk “republics.” This includes investment, exports to and imports from these regions. US President Joe Biden subsequently announced a new set of sanctions aimed at cutting off Russia from western financing and targeting high-net-worth Russian individuals.

Targeted Sanctions

The United States imposed new sanctions against two banks and three individuals who are the sons of three previously sanctioned President Putin inner circle members.

  • Sanctioned entities: Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries.
  • Sanctioned individuals: Denis Aleksandrovich Bortnikov, Petr Mikhailovich Fradkov and Vladimir Sergeevich Kiriyenko.

As mentioned above, the fathers of the newly sanctioned individuals are already subject to US sanctions. These new sanctions aim to prevent the previously sanctioned individuals from transferring their assets to family members to evade sanctions. Any entities owned 50% or more by sanctioned individuals will also be sanctioned entities.

The United States has also subjected Nord Stream 2 AG, the Swiss company building the Nord Stream 2 natural gas pipeline from Russia to Germany, to sanctions.

Financial Restrictions

In addition to targeted sanctions, the United States adopted Directive 1A under Executive Order 14024. This directive expands existing sovereign debt prohibitions applying to “US financial institutions” to cover participation in the secondary market for bonds issued after 1 March 2022, by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. These restrictions previously applied only to participation in the primary market for this debt.

“US financial institutions” is defined broadly and includes all US entities and their foreign branches which engage in activities as “depository institutions, banks, savings banks, money services businesses, operators of credit card systems, trust companies, insurance companies, securities brokers and dealers, futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, dealers in precious metals, stones, or jewels, and US holding companies, US affiliates, or US subsidiaries of any of the foregoing.”

Further Developments

During his speech on 22 February, President Biden announced that more measures would be imposed in the event of Russia’s invasion of Ukraine, including additional sanctions targeting Russia’s biggest banks and export control measures. Considering President Putin’s launch of military operations in Ukraine, it is expected that the United States and its allies will announce “further consequences” for Russia on 24 February.

GLOBAL

Canada, Japan and Australia have also announced sanctions against Russia in response to the Ukraine crisis, including targeted sanctions against Russian individuals and financial institutions, and an import/export ban of goods on the Donetsk and Luhansk regions. Canada and Japan also implemented new prohibitions on dealings in Russian sovereign debt.

IMPACT ON BUSINESS 

If you or your company have dealings with Russian entities or individuals:

  • Immediately conduct a thorough review of your business agreements to ensure you have no dealings directly or indirectly with designated individuals or entities, and if there is any connection to designated people, promptly seek out legal advice;
  • Ensure you have robust sanction compliance measures to screen third parties which may be subject to sanctions; and
  • Monitor the developing situation and seek out legal advice if concerned about potential breaches.
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