Category: Uncategorized

Effective September 11, 2018, adjudicators for U.S. Citizenship and Immigration Services (USCIS) will have the authority to deny any application or petition that is incomplete or lacks sufficient evidence without first issuing a request for evidence (RFE) or notice of intent to deny (NOID). The new guidelines are a reversal of the current policy, which requires that an RFE be issued unless there is “no possibility” that the deficiency can be remedied. Depending on the vigor with which it is enforced, this policy shift may eliminate the opportunity for petitioners and applicants to correct simple errors, like missing documents, or to beef-up documentation in support of an applicant’s eligibility, before the case is denied.

USCIS provided the following examples of cases that may be denied after September 11, 2018:

• A waiver application that is submitted without enough supporting evidence
• A filing submitted without the required forms, such as an application for adjustment of status that is filed without the requisite affidavit of support

Key Takeaway

According to USCIS, the new guidelines are not intended to penalize individuals for “innocent mistakes or misunderstandings” of the requirements but rather to discourage people from submitting “frivolous or substantially incomplete filings,” which it calls “placeholder” applications. The policy language suggests that adjudicators have some discretion to determine when to deny an application or issue an RFE, but it is not yet clear how often they will exercise that discretion or whether they will err on the side of denials.

The potential for increased denials by USCIS is especially concerning given the recent implementation of another USCIS policy that requires adjudicators to issue notices to appear (NTAs), thus commencing removal proceedings, for individuals they deem unlawfully present after their immigration applications have been denied. It is not yet known how either policy will play out in practice, though it seems likely that the two policies will work together to compound the negative consequences of an application denial by placing applicants at a greater risk of removal.

Given the increased consequences of a denial, every petition or application sent to USCIS should be checked and double checked to ensure accuracy, eligibility, and that sufficient documentation has been provided to support the immigration benefit requested. Employers may want to verify that all of their sponsored positions and sponsored employees meet the requirements for their visa categories. They may also want to consider what level of involvement they will have if one of their sponsored employees is placed in removal proceedings.

Tariffs are not the only weapon of retaliation countries may wield in a trade war.  Governments can pressure trade adversaries at the bargaining table by opening other fronts, such as limiting foreign investment, halting drug enforcement cooperation, or, of particular concern to the corporate world, scrutinizing companies doing business within their jurisdictions.  What does this mean?

Enforcement actions in the anti-corruption arena may increase as the United States, China, the European Union, Canada, Mexico, and others attempt to win the economic showdown.  Companies, particularly those doing business abroad, should ensure their domestic and foreign operations will survive regulatory scrutiny by reviewing compliance programs and conducting internal investigations into potential issues.

The Workplace Enforcement Front

U.S. and foreign regulators, such as China’s Ministry of Justice or the United Kingdom’s Serious Fraud Office, may initiate investigations into companies operating within their jurisdictions.  According to an article in the Wall Street Journal, “investigations into workplace safety and labor issues, tax payments and compliance with business codes” are a real fear of companies in the current trade landscape.

The Anti-Corruption Front

Yet anti-corruption may be an even greater focus.  In 2017, the United States characterized “sanctions, anti-money laundering and anti-corruption measures, and enforcement actions” as “economic tools” that “can be important parts of broader strategies to deter, coerce and constrain adversaries.”  While referring to a national security strategy, this policy statement reveals the administration’s view of alternative, effective trade war weapons.

Trade wars increase the utility of enforcement actions by pressuring trade adversaries.  The longer trade wars last, the more likely governments are to implement non-trade tools.  For example, anti-corruption scrutiny in China is already an important concern for foreign companies given China’s increase in foreign investment and recent anti-corruption efforts.  If China does not scale tariffsat the pace of the United States, it may turn to enforcement actions as an effective alternative.  China has said it will “fight to the end … with all necessary measures.”

A Call for Compliance

Accordingly, companies in all countries should closely examine both domestic operations and foreign subsidiaries to ensure compliance with domestic and international laws.  Compliance officers should be supported with the necessary staff and budget.  Compliance policies and procedures should be reviewed and revised as necessary.  External resources, such as auditors or even an investigative team, should be engaged where appropriate to ensure the company will withstand scrutiny.  With such steps, companies can tune up their compliance efforts and avoid becoming casualties of trade wars.

In an unprecedented election process with the participation of more than 63 percent of the eligible voters, Andres Manuel Lopez-Obrador, better known by his initials, AMLO, won the Mexican presidency with an astonishing 53 percent of the votes. His party, the National Regeneration Movement, also won a majority of seats in the Senate and the House of Representatives, as well as a majority of the eight governorships up for election.

Prior to founding the National Regeneration Movement in 2014, Lopez-Obrador, a 64-year old political scientist from the National Autonomous University of Mexico, chaired the Democratic Revolution Party (PRD) – a left wing political party – from 1996 to 1999, and served as mayor of Mexico City from 2000 to 2006.

Mexico has a lengthy presidential transition period; however, while it may be too soon to determine the manner in which Lopez-Obrador will govern and exercise his presidential authority, this client alert intends to provide an overview of his background, his campaign proposals and his team. Additional client alerts addressing specific subject matter that may impact investments and businesses in Mexico, such as energy, infrastructure, public safety and security, anti-bribery and trade, will follow.

Lopez-Obrador is the first socialist president democratically elected in Mexico. His 18-year campaign platform (he has run for president in the past three elections) has ranged from an open conflict against the establishment to a more moderate approach to certain topics, such as energy reform and economic policies. He has continuously supported a strong fight against corruption and a strong application of the rule of law.

In the first few days following the election, Lopez-Obrador met with Mexican President Enrique Peña-Nieto, representatives of industry and commerce, and others, including the U.S. secretaries of State, Treasury and Homeland Security, as well as with Jared Kushner, White House senior advisor and son-in-law of President Trump. AMLO has also supported the autonomy of the Mexican Central Bank and the application of current macroeconomic policies, which have resulted in a 20-year long stable economic environment in the country. These statements, along with his anticorruption and government reduction promises, have resulted in moderate support from businesses and industries, as well as from other groups originally adverse to Lopez-Obrador’s candidacy.

His campaign proposals can be summarized in eight major topics:

1. Policy and Government: (i) having a government that promotes political, economic and social development for the country; (ii) government austerity complementing a fierce fight against corruption; (iii) open and efficient government; (iv) government downsizing.

2. Education and Science: (i) review Peña-Nieto´s educational structural reform; (ii) generalize public education at all levels; (iii) guarantee college acceptance for young students; (iv) organize a comprehensive educational plan with parents, teachers and specialized educators.

3. Economy and Development: (i) zero debt; (ii) reduce income tax to 20 percent in border areas; (iii) support the autonomy of the Central Bank; (iv) reorient public expenditures; (v) avoid increasing or creating new taxes.

4. Security: (i) create a Ministry of Public Safety at the federal level; (ii) professionalize public prosecutors and investigators; (iii) establish a central police command with 32 state offices, one for each state in the country.

5. Health: (i) strengthen the public health system; (ii) provide for free medicine and healthcare services for people without social security services; (iii) develop and implement public policies for the national production and acquisition of medicine, mainly active ingredients and biotechnologies.

6. Sustainability: (i) establish a general water law as a human right; (ii) develop a national plan to adapt to climate change; (iii) provide for a sustainable use of biodiversity; (iv) develop sources of renewable energy; (v) support underprivileged populations maintaining their natural heritage.

7. Foreign Affairs: (i) maintain a multilateral foreign policy with a new dialog with North America to foster cooperation for development; (ii) work with the international community to prevent the use of tax havens; (iii) comprehensive development in areas with high immigration indexes; (iv) enter into an alliance with the United States, Canada, and Central America to promote employment.

8. Social Development: (i) state social policy addressing attending poverty through income supplements and continue with the development of skills; (ii) address vulnerable youth; (iii) incorporate sports and exercise into the population; (iv) provide scholarships for youngsters who are neither studying nor working.

The team and likely cabinet members during Lopez Obrador’s presidency will be mostly scientists and college professors specializing in their corresponding fields, which in turn will fit the ministries that they may hold. These individuals come from a wide range of backgrounds and are supported by a wide range of groups. This combination may result in a cabinet that is well supported by various influential groups in the country.

Some of the high-profile individuals are:

Alfonso Romo, a well-regarded wealthy businessman with interests in the biotechnology sector, who may be Lopez-Obrador´s chief of staff.

Olga Sanchez-Cordero, a former Supreme Court justice and highly regarded attorney who is expected to head the Ministry of Interior.

Alfonso Durazo, who will likely head the Ministry of Public Safety, has a longstanding career in the Mexican government, holding various positions in past administrations.

Carlos Urzua, who may head the Ministry of Finance, is a research professor at the Colegio de Mexico – a Mexican think tank – and was the Secretary of Finance when Lopez-Obrador was mayor of Mexico City.

Graciela Marquez will probably head the Ministry of Economy. She is a research professor and has academic experience in universities such as the University of Chicago and Harvard.

Esteban Moctezuma has also held high-level positions in prior administrations and is expected to head the Ministry of Education.

Miguel Angel Torruco is a well-regarded expert in tourism policies. He was the Secretary of Tourism for Mexico City (2012-2017) and is expected to head the federal Ministry of Tourism.

Marcelo Ebrard will head the Ministry of Foreign Affairs. A longstanding politician, former undersecretary of Foreign Affairs (1993-1994), and mayor of Mexico City (2006-2012), he has been close to AMLO for a long time.

Having a majority of seats in the Senate and the House of Representatives, Lopez-Obrador will have only the Mexican Supreme Court, the media and the general public/citizens as a balance to his exercise of authority. We will have to see how long his administration swings the pendulum and how much support/acceptance he will continue to gain or not during his administration. One thing for sure is that he now carries the substantial and diverse expectations of over 50 percent of the Mexican voters who gave him an unprecedented vote of confidence.

The next relevant dates related to this process will be:

1. September 1, 2018: Newly elected legislature is sworn in.

2. September 6, 2018: (As expected) Elections Tribunal validates the presidential election.

3. December 1, 2018: President-elect takes office.

4. December 15, 2018: 2019 budget is presented to Congress.

5. December 31, 2018: 2019 budget is approved by Congress.

6. February 1, 2019: President presents to the Senate the Public Safety National Strategy.

7. February 28, 2019: President sends the National Development Plan to the House of Representative for approval.

Within this process, the approvals of both the 2019 budget and the National Development Plan will be instrumental to the new administration, as they will be indicative of the manner in which the new administration intends to reorient the budget and its plans for its term.

As mentioned above, additional client alerts addressing specific subject matter that may impact investments and businesses in Mexico, such as energy, infrastructure, public safety and security, anti-bribery and trade, will follow.

Within one week, the CFTC issued two awards to whistleblowers, one in the amount of $30M and another in the amount of $70,000.  Although the orders are fairly sparse, they provide some important clues as to how the CFTC determines the amount of a CFTC whistleblower award (the percentage of the monetary sanctions collected in the covered judicial or administrative action that the CFTC awards the whistleblower).

CFTC Has Broad Discretion to Increase Award Percentage

The Order determining the awardthat the CFTC issued to a foreign national on July 16, 2018 reveals that the CFTC has broad discretion to increase an award and a whistleblower can obtain the maximum 30% award even if the whistleblower does not meet all of the positive criteria for increasing an award.  Those criteria for increasing an award (from the minimum 10% to the maximum 30%) include:

• Significance of the information provided by the whistleblower, e., whether the reliability and completeness of the information provided by the whistleblower resulted in the conservation of CFTC resources and the degree to which the information provided by the whistleblower supported one or more successful claims brought by the CFTC.
• Assistance provided by the whistleblower and their attorney, including (i) whether the whistleblower and their legal representative provided ongoing, extensive, and timely cooperation and assistance; (ii) the timeliness of the whistleblower’s initial report; (iii) the efforts undertaken by the whistleblower to remediate the harm caused by the violation; and (iv) any unique hardships experienced by the whistleblower as a result of reporting the violations.
• Law enforcement interest, e., the degree to which an award enhances the CFTC’s ability to enforce the commodity laws.
• Participation in internal compliance systems, e.,the extent to which the whistleblower participated in internal compliance systems, such as reporting the possible securities violations internally before, or at the same time as, reporting them to the SEC and assisting in an internal investigation or inquiry.

The July 16 Order notes that the whistleblower voluntarily provided significant original information and assistance to the CFTC and significantly contributed to the CFTC’s action by helping CFTC staff successfully settle the action and thereby avoid a costly trial.  Significantly, the Order clarified that the CFTC has broad discretion to pay a high award percentage even where the whistleblower does not satisfy all the criteria warranting the maximum award payment:

The Rules do not specify how much any factor in Rule 165.9(b) or (c) should increase or decrease the award percentage. Not satisfying any one of the positive factors does not mean that the award percentage must be less than 30%, and the converse is true. Not having any one of the negative factors does not mean the award percentage must be greater than 10%. These principles serve to prevent a vital whistleblower from being penalized for not satisfying the positive factors. For example, a whistleblower who provides the Commission with significant information and substantial assistance such as testifying at trial and producing smoking gun documents could receive 30% even if the whistleblower did not participate in any internal compliance systems.

By eschewing a rigid application of the award criteria, the CFTC incentivizes persons with knowledge of misconduct to come forward and share their information with the CFTC knowing that they can potentially obtain the maximum award percentage for providing timely, specific and credible information that leads to a successful enforcement action.

Minimal Participation in a Commodities Fraud Scheme Does Not Disqualify a Whistleblower from Recovering an Award

One of the whistleblowers who received an award this week was involved in the Commodity Exchange Act (CEA) violations at issue in the covered action, but the whistleblower’s participation in the scheme did not disqualify the whistleblower from receiving an award for two reasons:

1. There was no evidence indicating that the whistleblower acted with scienter, as the whistleblower “was a junior-level employee in a foreign nation given instruction by his/her employer.”
2. The whistleblower did not financially benefit from the violations.

In assessing the amount of a whistleblower award, the CFTC can decrease an award if the whistleblower was culpable in the violation.  In particular, the CFTC assesses the following facts concerning culpability:

(i) The whistleblower’s role in the CEA violations;

(ii) The whistleblower’s education, training, experience, and position of responsibility at the time the violations occurred;

(iii) Whether the whistleblower acted with scienter, both generally and in relation to others who participated in the violations;

(iv) Whether the whistleblower financially benefitted from the violations;

(v) Whether the whistleblower is a recidivist;

(vi) The egregiousness of any wrongdoing committed by the whistleblower; and

(vii) Whether the whistleblower knowingly interfered with the Commission’s investigation of the violations or related enforcement actions.

17 C.F.R. § 165.9(c)(1).  Although monetary sanctions awarded against a whistleblower will be excluded from the amount of collected proceeds from which an award is paid, minimal participation in the conduct giving rise to a CFTC enforcement action is not a bar to eligibility for a whistleblower award.

The recent increase in CFTC whistleblower awards will likely spur additional whistleblowers to come forward to assist the CFTC in rooting out commodities fraud. In fact, James McDonald, Director of the Division of Enforcement, stated that he “expects the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”

If you or your companies or clients are holding appreciated property of any kind, whether in the form of investments like stock, bonds, or a passive investment in a pass-through entity, or in the form of vacant land or a commercial or residential building, or other capital assets, there is a new opportunity to sell the property and defer and reduce the capital gain, while investing in a new business or property that could potentially be sold tax-free.

The Federal tax reform bill enacted earlier this year contains a new tax incentive aimed at directing capital and investment into America’s distressed areas. The new program is called the Opportunity Zone program.

The Opportunity Zone program affords any taxpayer who has or will have capital gains from the sale or disposition of any property, the ability to defer and reduce the gain from the sale if the gain is reinvested in a Qualified Opportunity Fundwithin 180 days of the sale. The deferral lasts until the earlier of the following two dates: the date on which the Qualified Opportunity Fund investment is sold; or December 31, 2026. Importantly, this deferral mechanism can be used to transform short-term gains, which would be taxed as ordinary income, into long-term capital gains taxed at preferential rates.

In addition to deferring the gain from the sale of property, the Opportunity Zone program also provides a reduction of the gain if the Qualified Opportunity Fund investment is held by the investor for a minimum of 5 years. If the investor holds the Qualified Opportunity Fund investment for at least 5 years, its original deferred gain is reduced by 10 percent. If the Qualified Opportunity Fund investment is held for at least 7 years, the original deferred gain is reduced by 15 percent. (The reductions to gain are accomplished by increasing the basis of the Qualified Opportunity Fund investment which begins at zero and is used for computing both the original gain that is deferred and recognized, as well as the new gain on the sale of the Qualified Opportunity Fund investment.)

Accordingly, taxpayers investing in Qualified Opportunity Funds can defer and potentially reduce capital gains from the sale of any property or assets by rolling those original capital gains into a Qualified Opportunity Fund.

Finally, there is one last, but very significant tax benefit for investing capital gains in a Qualified Opportunity Fund. If a taxpayer holds the Qualified Opportunity Fund investment for at least 10 years, the taxpayer’s basis in the Qualified Opportunity Fund investment is increased to fair market value. The result is no recognition of gain from the sale of a Qualified Opportunity Fund investment held for at least 10 years.

At this point you may be thinking this is too good to be true. You may also be wondering what in the world a Qualified Opportunity Fund is and whether you could even form or identify one for investment to take advantage of this new tax benefit.

First, in order to take advantage of this program, the sale of any property giving rise to the gain to be invested in a Qualified Opportunity Fund must take place on or before December 31, 2026. Furthermore, a Qualified Opportunity Fund can be any corporation or partnership organized for the purpose of investing in Qualified Opportunity Zone Property, which is defined to include: stock or partnership interests in businesses based in an Opportunity Zone and acquired after Dec. 31, 2017; or tangible property and buildings used in a trade or business of the Qualified Opportunity Fund if acquired after Dec. 31, 2017 and the original use of the property is in the Opportunity Zone or it has been substantially improved. Substantial improvement is defined to mean if during any 30-month period following acquisition, the additions to basis via improvements made to the property equal the adjusted basis of property at the beginning of the 30-month period.

According to recent Internal Revenue Service (“IRS”) guidance, the creation of a Qualified Opportunity Fund is expected to be via a self-certification processthrough a form expected to be available later this summer. Additionally, funds may be created by any taxpayer for single or multiple investments.

A Qualified Opportunity Fund must maintain at least 90 percent of its assets in Qualified Opportunity Zone Property, which may include stock, partnership interests, business property and buildings, as discussed above. The IRS is expected to issue regulations which would afford a Qualified Opportunity Fund the ability to sell or transfer Qualified Opportunity Zone Property if the proceeds are reinvested in other Qualified Opportunity Zone Property without triggering a taxable event. In addition, an asset test is employed at the end of the first 6 month-period and at the end of the taxable year to ensure the fund meets the 90 percent limitation. If a fund fails the asset test without reasonable cause, penalties may be imposed.

Now that you have an understanding of what a Qualified Opportunity Fund is and how to properly invest in one to secure the tax benefits outlined above, the next and final piece for understanding the new program is identifying where the Opportunity Zones are based across the country.

• Click here for a list of opportunity zones.
• Click here for an interactive map for identifying the zones.
  (After you click the link taking you to the interactive map, click the layers tab on the right and unselect the entry for “2011-2015 LIC Census Tracts.” Then if you use the map’s zooming tool, the Opportunity Zones are shaded in each state.)

The Opportunity Zone program has the potential to unlock billions in gains and capital for investment in the zones. It has often been described as a “Super 1031” with a tax reduction bonus and ability to avoid any tax on the appreciation of a real estate project or business based in the zone. Don’t miss out on the opportunity to take advantage of this amazing opportunity.

The federal government’s view of medical marijuana is evolving as the U.S. Food and Drug Administration (“FDA” or “Agency”), on June 25, 2018, approved Epidiolex, the first drug containing cannabidiol (“CBD”) ^[1], a marijuana derivative, and the U.S. Congress considers several bills aimed at relaxing regulatory standards for medical marijuana. In a press release regarding this recent approval, FDA Commissioner Scott Gottlieb reiterated the Agency’s commitment to “careful scientific research and development,” noting that the “approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies.” Before Epidiolex can be made available to patients, CBD must be rescheduled by the U.S. Drug Enforcement Administration (“DEA”) from its current Schedule I classification under the Controlled Substances Act (“CSA”).

This alert provides an overview of the roles of FDA and other federal agencies in regulating the research, development and marketing of medical marijuana, along with a discussion on DEA’s rescheduling process for controlled substances and its past actions related to marijuana. This alert also provides information on key proposed congressional legislation focused on relaxing medical marijuana regulations and considerations for stakeholders in light of this shifting regulatory landscape.

FDA’s Regulation of Marijuana in Development and Marketing

FDA takes the position that the drug approval process, which it regulates, is the most appropriate manner to determine whether a product derived from marijuana or its derivatives is safe and effective and has an acceptable medical use. Utilizing this pathway, on June 25, 2018, the Agency approved GW Pharmaceuticals’ Epidiolex, a CBD oral solution for the treatment of seizures in two rare forms of epilepsy, Dravet syndrome and Lennox-Gastaut syndrome. The drug is approved for such uses in patients 2 years of age and older. Epidiolex will be marketed in the United States by GW Pharmaceuticals’ U.S. subsidiary Greenwich Biosciences and is the first FDA-approved drug that contains a drug substance derived from marijuana. ^[2] FDA’s recent approval decision aligns with the FDA Peripheral and Central Nervous System Drugs Advisory Committee’s unanimous vote (13–0) in favor of the benefit-risk profile of Epidiolex issued on April 19, 2018. Research and development programs for products containing or derived from marijuana are ongoing for a variety of other diseases and conditions, including pain, substance use disorder, and graft-versus-host disease.

FDA’s approval of Epidiolex does not, however, change the Agency’s laws and regulations prohibiting the use of marijuana and its derivatives, including products containing CBD and tetrahydrocannabinols (THC), in food, dietary supplements and over-the-counter (“OTC”) drug products, such as oil drops, capsules, teas, and topical lotions and creams. Consistent with its previous actions, FDA’s enforcement priorities in this area will focus on marketing of unapproved drugs where firms have made health claims for products containing or derived from marijuana.

DEA Scheduling of Marijuana

Currently, marijuana and its derivatives, including CBD, are classified as Schedule I substances by DEA. ^[3] In accordance with the CSA, DEA classifies substances into five categories based on medical use, potential for abuse, and safety or dependence liability. As a Schedule I drug, marijuana is considered to have a high potential for abuse, have no currently accepted medical use in treatment in the United States, and lack an accepted safety for use under medical supervision. Under federal law, manufacturing and distributing marijuana is illegal and punishable by fines and/or imprisonment.

Before Epidiolex can be made available to patients, DEA will have to reschedule CBD from its current Schedule I classification. As part of this process, FDA will provide a scientific and medical evaluation, through the Secretary of Health and Human Services (“HHS”), and a rescheduling recommendation to DEA. DEA is required to make a rescheduling determination within 90 days. ^[4]

Federal Agencies and Medical Research Involving Marijuana

Numerous federal agencies currently regulate the clinical research of marijuana and its derivatives. Researchers must submit an Investigational New Drug (“IND”) application to FDA’s Office of New Drugs within the Center for Drug Evaluation and Research (“CDER”) in order to conduct research on marijuana. DEA oversees registration and licensure requirements for researchers and research sites. The National Institute on Drug Abuse (“NIDA”), which is part of the National Institutes of Health (“NIH”), oversees the cultivation of marijuana for medical research and supplies such product to researchers.

For many years, FDA and DEA have been in favor of expanding legitimate research into the medical use of marijuana and its derivatives. In 2003, FDA formed a Botanical Review Team to provide scientific and quality control advice to researchers developing drugs derived from plants, such as marijuana. In December 2016, this team published revised guidance on clinical studies involving botanical drugs and recommendations for quality controls for lot-to-lot consistency. ^[5] Further, in December 2016, DEA announced a new policy to increase the number of entities under the CSA permitted to grow marijuana for legitimate research purposes. ^[6] Prior to this policy, DEA relied on a single grower, the University of Mississippi, to produce marijuana for research purposes. The policy allows registrants to grow marijuana not only to supply federally funded and academic researchers, but also the private sector for medical product development. Since then, DEA has received at least 25 applications from entities seeking to grow marijuana for research purposes.

Congressional Bills on Medical Marijuana

There are currently several bills pending in the U.S. Congress that would impact the regulation of medical marijuana. H.R. 2020, authored by freshman Representative Matt Gaetz (R-FL), would direct DEA to transfer marijuana from Schedule I to Schedule III of the CSA. Representative Bob Goodlatte (R-VA), who chairs the House Judiciary Committee, is one of the bill’s co-sponsors. Rep. Goodlatte has long blocked marijuana-related legislation from advancing, so his co-sponsorship signals a shift in Congress.

Another bill seeking to amend the CSA is H.R. 3391, the Medical Marijuana Research Act of 2017, which would establish a new, separate registration process to facilitate research of marijuana for medical purposes. If passed, DEA would register practitioners to conduct medical marijuana research and manufacturers and distributors to supply marijuana for research. Interestingly, this bill is sponsored by Representative Andy Harris (R-MD), who has previously taken actions against marijuana legalization. Rep. Harris indicates that by sponsoring the bill, he expects such research to demonstrate that marijuana is not medically useful.

H.R. 2920/S. 1764, the Compassionate Access, Research Expansion, and Respect States Act of 2017 (“CARERS Act of 2017”), addresses enforcement of the CSA in states in which medical marijuana is legal. The bill would amend the CSA to provide that the administrative, civil, and criminal penalties do not apply to a person who produces, possesses, distributes, dispenses, administers, tests, recommends, or delivers medical marijuana in compliance with state law. This bill was first introduced last session and was re-introduced this session after Attorney General Jeff Sessions sought greater latitude in prosecuting medical marijuana cases. ^[7]

Moreover, Senators Cory Gardner (R-CO) and Elizabeth Warren (D-MA) recently introduced the Strengthening the Tenth Amendment Through Entrusting States (“STATES”) Act (S. 3032), which would amend the CSA so that it would not apply to persons or entities acting in compliance with state laws that allow for the manufacture, production, possession, distribution, and delivery of marijuana for recreational and medical purposes. Representatives David Joyce (R-OH) and Earl Blumenauer (D-OR) introduced a companion bill (H.R. 6043) in the House. Notably, President Trump has signaled that he would support the STATES Act, which is viewed as a compromise with Senator Gardner, who has held up several Department of Justice (“DOJ”) nominees since Attorney General Sessions announced that he would rescind the Obama Administration hand-off approach to enforcing federal marijuana laws.

Conclusion

The federal regulatory landscape for marijuana will shift depending on DEA’s rescheduling determination related to FDA’s recent drug approval of Epidiolex. This approval, however, does not change FDA’s prohibition on the use of marijuana and its derivatives in food, dietary supplements and OTC drug products. ^[8]

Further, while FDA has acknowledged that some states have legalized medical marijuana, it has continuously emphasized to states the importance of clinical research regarding the safety and effectiveness of products containing marijuana and its derivatives. Federal agencies have also supported efforts to enhance the generation of valid scientific data regarding marijuana’s safety and efficacy for medical use. Such research should demonstrate that products containing marijuana or its derivatives can be delivered in reliable dosages through reproducible delivery routes. Additionally, the regulation of medical marijuana may be relaxed based on pending congressional legislation.

Accordingly, opportunities exist for stakeholders, including growers, manufacturers and researchers, interested in advancing the development of medical marijuana. The K&L Gates FDA and Public Policy and Law practices will continue to monitor and provide updates on future developments in this area.

The authors thank Summer Associate Victoria K. Hamscho for her assistance in preparing this article.

_{[1] CBD is a chemical component of the Cannabis sativa plant, also known as marijuana.}

_{[2] While, to date, FDA has not approved an NDA for a drug product containing or derived from botanical marijuana, FDA has approved two drug products, Marinol and Syndros, containing dronabinol, a synthetic form of the marijuana derivative delta-9-tetrahydrocannabinol (“THC”) as the active ingredient. Marinol is classified as Schedule III, and Syndros is classified as Schedule II. Both Marinol and Syndros are indicated in adults for the treatment of anorexia associated with weight loss in patients with AIDS and nausea and vomiting associated with cancer chemotherapy in patients. In addition, FDA has approved Cesamet, a Schedule II drug that contains a synthetically-derived active ingredient with a chemical structure similar to THC.}

_{[3] THC and marijuana extract are also classified as Schedule I drugs.}

_{[4] DEA has denied all past requests to reschedule marijuana. As recently as 2016, after receiving two requests for rescheduling and subsequently requesting from HHS a medical evaluation and scheduling recommendation, DEA concurred with HHS’ recommendation not to reschedule marijuana. While DEA has acknowledged that medical research in this area has progressed over the past years, it takes the position that available evidence has not been sufficient to demonstrate that marijuana and its derivatives have an accepted medical use. Denial of petition to initiate proceedings to reschedule marijuana, 81 Fed. Reg. 53,687 (Aug. 12, 2016); Denial of petition to initiate proceedings to reschedule marijuana, 81 Fed. Reg. 53,767 (Aug. 12, 2016).}

_{[5] Botanical Drug Development, Guidance for Industry, https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM458484.pdf.} 

_{[6] Applications To Become Registered Under the Controlled Substances Act To Manufacture Marijuana To Supply Researchers in the United States, 81 Fed. Reg. 53,846 (Aug. 12, 2016).}

_{[7] In January 2018, Attorney General Sessions rescinded the Department of Justice’s (“DOJ’s”) previous hands-off approach, adopted under the Obama Administration, of enforcing federal marijuana laws in those states where marijuana is legal for medical or recreational use, and Session directed all U.S. Attorneys to enforce federal law when pursuing marijuana-related prosecution. https://www.justice.gov/opa/press-release/file/1022196/download.}

_{[8] See, e.g., FDA Warning Letter to That’s Natural (Oct. 31, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm583197.htm.}  

The Amsterdam Court of Appeal has approved a €1.3 billion collective settlement of claims asserted on behalf of shareholders of the former Fortis (now Ageas). The July 13, 2018 decision again shows that the Dutch Act on Collective Settlement of Mass Claims (the “WCAM”) can be used to resolve transnational disputes regardless of whether those claims could be litigated adversarially on a classwide basis in the Netherlands or elsewhere.

Background

The proposed settlement arose from shareholder litigation filed against Fortis in Belgium, the Netherlands, and elsewhere following the 2007/2008 financial collapse. In the past, global securities problems of this type had often been resolved in U.S. courts under the federal securities laws. However, in 2010, the U.S. Supreme Court held in Morrison v. National Australia Bank that the federal securities laws apply only to misstatements or omissions made in connection with the purchase or sale of (i) securities listed on a U.S. exchange or (ii) any other securities in U.S. transactions. Thus, persons who had purchased securities of Fortis (a Belgian/Dutch issuer) in non-U.S. transactions could not pursue their claims under the U.S. securities laws.

In 2005, the Netherlands enacted the WCAM, which authorizes classwide settlement of claims on an opt-out basis – unlike most other non-U.S. procedural rules, which, if they allow classwide resolutions at all, generally do so only on an opt-in basis. The settling parties enter into a settlement agreement and file a petition asking the Amsterdam Court of Appeal (which has exclusive jurisdiction over WCAM proceedings) to approve the proposed settlement and declare it binding on the class members, who are viewed as defendants in the petition proceeding. The signer(s) of the settlement on behalf of the class members must be one or more foundations (potentially including an ad-hoc or special-purpose vehicle created to enter into the settlement), rather than one of the allegedly injured class members.

The WCAM procedure is somewhat analogous to what U.S. lawyers know as a settlement class action, but with at least two key differences: (i) the WCAM cannot be used to litigate claims on a classwide basis, but only to settle them, and (ii) class members do not need to decide whether to opt out until after objections have been filed and the court has approved settlement.

The WCAM assumed a truly international scope in two global securities settlements: one involving Royal Dutch Shell (an Anglo/Dutch company) in 2009, and another involving the former Converium Holding AG and its parent (both Swiss companies) in 2012. Both settlements involved significant numbers of non-Dutch shareholders. In the Converium case, for example, only about 3% of the shares at issue were owned by Dutch residents. But the Amsterdam Court of Appeal (in different panels of three judges) approved both settlements and upheld jurisdiction over the global classes.

The Amsterdam Court of Appeal has invoked several bases to assert jurisdiction over transnational classes:

• For Dutch class members, jurisdiction exists under article 4 of the European Union’s Brussels I Regulation, which provides that domiciliaries of a Member State can be sued in the courts of that state.
• For domiciliaries of other EU countries, two jurisdictional bases exist:
  • Brussels I Regulation article 8(1) says that, in multi-defendant cases, domiciliaries of a Member State can be sued in a state where at least one defendant is domiciled if “[t]he claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.” This provision means that, as long as any class members (who are viewed as defendants here) are Dutch, the non-Dutch EU class members may also be sued in the Netherlands because all class members are subject to the same declaratory proceeding to bind them to the settlement and to limit the alleged wrongdoer’s liability.
  • Brussels I Regulation article 7(1)(a) says that, for matters relating to a contract, a domiciliary of a Member State may be sued in another Member State if that other state is the place where the contract will be performed. A WCAM contract can be and usually is structured to be performed in the Netherlands.
• For domiciliaries of Lugano Convention countries, the Lugano Convention has provisions similar to those of the Brussels I Regulation.
• For domiciliaries of other countries, article 6 of the Brussels I Regulation says that the Member State’s law (i.e., Dutch law) applies. Article 107 of the Dutch Code of Civil Procedure allows jurisdiction over codefendants if sufficient connectivity exists between or among the claims – so article 107 is similar to article 8(1) of the Brussels I Regulation.
  • Jurisdiction also exists over non-EU/EVEX class members for two other reasons: one or more petitioners (such as the foundation that is a party to the settlement) are domiciled in the Netherlands, and the matter is sufficiently connected to the Dutch legal order.

The Ageas Settlement

The Ageas settlement was proposed on behalf of persons who had purchased or held Fortis shares between February 2007 and October 2008. The settlement divided the class of eligible shareholders into Active Claimants and Non-Active Claimants. In the original proposal, Active Claimants – who had initiated (or had joined organizations that had initiated) timely proceedings against Ageas – were to receive a larger portion of the settlement amount than would Non-Active Claimants, who had not taken those steps.

The Amsterdam Court of Appeal disapproved of this allocation in a June 2017 decision. One of the judges on the panel (Judge Van Achterberg) had also sat on the panels that had ruled on the Shell and Converium settlements. The court did not reject differential treatment among class members based on substantivedifferences in their claims, but it held that differences in compensation could not depend solely on whether a class member was active or inactive in pursuing litigation. However, the court did not object to incentive awards for lead or active claimants as long as those awards are related to the claimants’ reasonable costs and expenses.

Determining the reasonableness of those costs, however, can be difficult. In Europe, unlike in the United States, multi-party or collective actions often are not financially viable unless allegedly injured persons step forward and register their claims (i.e., opt in) – a process that requires significant administrative investments. The court wanted to be informed about the costs and expenses incurred by the representative organizations and their success fees in order to determine whether the group members’ interests were being adequately protected.

A complicating factor was that the representative organizations propounding the Fortis settlement on behalf of the class had different governance structures and business models. The group included (i) ad-hoc foundations established solely to effectuate the proposed settlement (FortisEffect, SICAF), (ii) a pre-existing investor association that cross-finances its cases, not all of which are damages actions (the Dutch investor association known as VEB), and (iii) a commercial organization (Deminor). The ad-hoc foundations and Deminor apparently are externally financed by commercial litigation funders. VEB received some negative press coverage for negotiating a success fee of €25 million – an amount not directly related to its activities in this particular case – while portraying itself as a non-profit entity. VEB has been pivotal in the WCAM global settlements to date and has suggested to the Amsterdam court that no such settlement would be possible without VEB’s blessing.

The parties then amended the settlement to try to address the court’s concerns. Ageas increased the settlement amount by €100 million (from €1.204 billion to €1.3 billion), and the parties agreed to give Active and Non-Active Claimants the same base amounts of compensation, with Active Claimants being entitled to additional compensation of 25% to cover their costs. However, the parties did not amend the representative organizations’ fees.

On February 5, 2018, the Court of Appeal issued a second interim ruling, ordering the representative organizations to improve their submissions about their business models. The court held further hearings in March to discuss those additional submissions and the legal position of the shareholders.

The Court’s Final Decision

The court approved the proposed Fortis settlement on July 13, 2018, with one exception: VEB members who are Active Members will not get the additional 25% compensation, and the settlement agreement was not declared binding as to VEB itself. VEB’s members were “active” solely by virtue of their membership in VEB. But according to its articles of association, VEB is supposed to represent all Dutch shareholders, not just its own members (who pay membership fees), and certainly not just its members who purchased Fortis shares. The court saw a conflict in VEB’s negotiating an additional 25% only for its own members while purporting to represent all investors, including “non-active” ones. The court believed that giving VEB’s members an additional 25% would effectively be promoting membership in VEB.

Some highlights of the court’s ruling include the following:

• In the past, parties to WCAM settlements had been able to keep fee discussions private by addressing fees in separate documents. The Court of Appeal has now warned that fees must always be part of the court’s review of a proposed WCAM settlement, regardless of whether the parties have expressly included fee provisions in the settlement documents.
• The court was satisfied in this particular case with the level of information (or lack thereof) provided by some of the representative organizations concerning the identity of the external funders and the terms of the financing agreements, but the court warned thhttps://www.corporatedefensedisputes.com/wp-admin/users.phpat, in future cases, it might require fuller disclosure of that information.
• Until now, the general view had been that only non-profit organizations (ad hoc or pre-existing) could act as petitioners for the class in a WCAM proceeding. But we now know that this assumption might not always be true. Deminor, one of the petitioners, is a commercial organization. However, the court was not faced with a situation where the only petitioner acting for the class was a commercial entity. The other petitioners for the class included two ad-hoc non-profit foundations and VEB. The safer practice might be to include at least one non-profit organization as a petitioner.
• Until now, people had wondered whether a global securities settlement could be concluded under the WCAM without VEB’s blessing and participation. The court’s critical comments about VEB could reduce VEB’s role in future WCAM settlements – although the court did approve VEB’s €25 million fee.
• The settlement provides a recovery not only to investors who purchased Fortis shares during the relevant period, but also to those who held shares during that time – although the holders will receive a lower percentage of recovery than will the purchasers. The court appeared to be skeptical about the speculative nature of holders’ claims, but was willing to approve the allocation of settlement funds to holders inasmuch as the percentage of recovery was low. This decision marks the first time the court has addressed holders’ claims, although the ruling was not issued in an adversarial proceeding and thus does not mean that the court would sustain such claims in future litigation.

Class members will now be given notice of the settlement and a chance to opt out of it.

Implications

The Amsterdam court’s decision confirms that the WCAM remains a viable way to settle – on a transnational, opt-out basis – potential securities and other claims that might not be litigable or resolvable on a classwide basis in many countries. The WCAM has received much scrutiny from commentators over the past decade, but the Dutch legislature and the Amsterdam Court of Appeal have continued to uphold its use.

The potential availability of a Dutch forum has become more important as the United States has retreated from serving as an international dispute-resolution jurisdiction. We will see whether other litigants turn to the WCAM in coming years to resolve transnational problems that cannot be settled or litigated in U.S. courts.

*Special thank you to Ianika Tzankova from the University of Tilburg for her contributions to the blog post.*

A new U.S. Citizenship and Immigration Services (USCIS) policy published on July 5, 2018 instructs USCIS officers to issue a notice to appear (NTA) to any individual who is “not lawfully present” in the United States at the time his or her immigration benefit is denied. An NTA is a document issued to a foreign national when the government determines that the foreign national is removable from the United States. The issuance of an NTA marks the commencement of removal proceedings (commonly referred to as deportation proceedings) and requires the foreign national to appear before an immigration judge.

The new policy, which is already in effect, is expected to impact a broad range of immigration cases. For example:

• A person with an H-1B visa will be issued an NTA and placed in removal proceedings if his or her application for an H-1B extension is denied and his or her underlying H-1B visa expired while waiting for USCIS to review their application.

• A person with a student visa will be issued an NTA and placed in removal proceedings if, while adjudicating the student’s request for an immigration benefit such as an extension or change of status, USCIS determines the student has fallen out of status under his or her student visa and is thus unlawfully present.

This new mandate updates the 2011 policy that established the initial guidelines that USCIS used for issuing NTAs and brings the policy into closer alignment with President Trump’s executive order dated January 25, 2017, by placing a greater emphasis on the enforcement of federal immigration laws. Under the earlier version, USCIS was seen as the more service oriented branch of the U.S. Department of Homeland Security, leaving U.S. Immigration and Customs Enforcement (ICE) and U.S. Customs and Border Protection to handle a majority of the immigration enforcement efforts. In many instances, USCIS was only responsible for referring questionable cases to ICE, which would then make the ultimate determination as to whether or not to issue an NTA. The new guidelines, however, not only require USCIS officers to issue NTAs directly, they virtually eliminate the officer’s discretion to do otherwise.

Key Takeaways

The new guidelines are likely to result in the initiation of scores of new deportation proceedings, potentially affecting even those who have lived and worked in the United States legally for years. It is unclear how the already overburdened immigration courts will absorb the influx of new cases when, as of May 2018, the courts were reporting a backlog of approximately 700,000 cases and a nationwide shortage of immigration judges. At a minimum, processing times are expected to lengthen.

Individuals subject to an NTA should be aware that they must appear before the immigration judge at the date and time specified in the NTA. Those tempted to self-deport and return to their home country before their court dates may be removed in absentia by an immigration judge. Such a removal will, in turn, limit the foreign national’s ability to seek relief from removal and will significantly impact his or her access to immigration benefits in the future.