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France’s Financial Markets Authority Considers its Options for Regulating Initial Coin Offerings

On 26 October 2017, France’s Financial Markets Authority, the “Autorité des Marchés Financiers” (“AMF”), published a discussion paper focusing on initial coin offerings (“ICOs”) that highlights the (many) dangers that arise from these unregulated transactions and discusses the regulation options that it currently foresees.[1]

The discussion paper is comprised of a short factual assessment and summary legal analysis (based on French law) of ICOs and the nature of tokens, which the AMF states may not generally be considered to be financial securities, and aims to gather and consolidate stakeholders’ views on the regulation options considered by the AMF. Even if the discussion paper focuses on France, the AMF takes into account the global and borderless nature of ICO operations.

Often described as the “Wild West” of finance, ICOs or “token sales” are an emerging, disintermediated, but unregulated means of raising capital, generally based on cryptocurrencies and the blockchain technology.

bitcoin, farming, computer

Unlike initial public offerings, or “IPOs”, which represent the traditional venture capital model and involve the issuance of financial equity securities on regulated markets in order to raise capital in fiat currency, ICOs typically involve the issuance of digital tokens[2] on a public blockchain-based platform. The price for tokens is determined at the discretion of the ICO-initiating entity, and must be paid in cryptocurrencies (e.g. Bitcoin, Ether) or, more rarely, fiat currency. Most tokens neither offer equity in the entity that initiated the ICO, nor confer corporate rights similar to that of traditional financial securities.

1. A NEED FOR REGULATION?

Because of the ever-increasing number of ICOs and the skyrocketing amounts raised therewith,[3] the heavily-regulated traditional financial sector is beginning to pay attention to ICOs. They may view ICOs as an effective and unregulated way to raise funds, but also see them as unfair competition. Similarly, the AMF and other local regulatory bodies[4], including the U.S. Securities Exchange Commission (the “SEC”)[5], are closely examining and seeking to regulate ICOs in order to protect investors. This interest from the financial sector and governmental authorities shows that ICOs might well be the most viable and efficient way to raise funds.

The AMF discussion paper is clear: the question is not “should ICOs be regulated?” but rather “how should ICOs be regulated?”. On this premise, the AMF describes ICOs as “risky transactions,” emphasizes the risks of investing in transactions that lack “specific regulation,” and calls for regulation.

The AMF cites the lack of investors’ information, the risk of fraud and money laundering, the volatile character of cryptocurrencies, and the risk of capital loss to emphasize the need for regulation of such operations.

More generally, the lack of control of investors and supervising authorities alike over the financials, business strategy, and operations of the ICO-initiating entities is also a strong argument in favor of regulation.

However, ICOs are still a fairly recent practice and involve a variety of different circumstances (e.g.,different tokens and projects, etc.). As a result, it will be difficult for governmental authorities to understand and further regulate ICOs. If stringent regulation is imposed too early or too strictly on this sector, then innovation and further potentially major developments relating to ICOs may be curbed and favor other innovation-driven jurisdictions (e.g.,Singapore).

2. LEGAL ASSESSMENT OF ICOS UNDER FRENCH LAW

The AMF proceeded with a legal assessment of ICOs under currently applicable French law:

On the one hand, the AMF examined the nature of tokens, which could be subject to the French Monetary and Financial Code if they were deemed to be financial securities[6]. The AMF concluded that tokens may not generally be considered financial securities and, consequently, cannot be subject to current French law. The same conclusion applies to the “crowdfunding” under French law, but ICO operations do not involve “crowdfunding” according to the AMF.

On the other hand, the AMF assessed whether ICO-initiating entities could be subject to French law. The AMF found that most ICOs are initiated by entities that are not corporate bodies or entities governed by the French Monetary and Financial Code or subject to financial markets regulation (e.g. Undertakings for Collective Investment in Transferable Securities (“UCITS”), Alternative Investment Funds (“AIFs”)). The AMF does state that some ICO-initiating entities could, under specific conditions, nevertheless qualify as “intermediaries in miscellaneous assets”, but it is not definitive about such assessment.

3. POTENTIAL REGULATION OPTIONS

In light of the above factual and legal assessments, the AMF lays out three possible ways to regulate ICOs in its discussion paper.

3.1 Best Practices
The first option would be a regulatory status quo, i.e. the AMF will not impose any mandatory regulation for ICOs that may not otherwise be regulated by French law and allow the marketplace to self-regulate, but will suggest that ICO-initiating entities follow certain voluntary “best practices.”

The “best practices” could include providing potential investors with a “white paper” similar to existing prospectuses that provides them with standardized information on contemplated ICOs (e.g., identity of the ICO-initiating entity, thorough description of the project, some assessment of financial risk, economic and accounting use of the funds to be collected via the ICO, etc.), a promise to act transparently and use only secure technical resources, record transactions information, and to implement control procedures. Another “best practice” could include narrowing the pool of potential investors based on the level of risk associated with the ICO.

The main issue with this option is the constantly-changing nature of the ICOs’ ecosystem. Currently, there is no established or central “marketplace” and it would be difficult to have all stakeholders establish and abide by self-regulation rules.

The AMF believes that this option might be “insufficient or improperly suited to protect investors” since it would be non-binding. Therefore, it seems uncertain whether this option is a viable one.

3.2 Extend Existing Regulatory Framework To Encompass ICOs
The second option would involve amending the existing (and recently updated) E.U. framework pertaining to information prospectuses for public offerings of financial securities by listed companies[7] to enable the AMF to review and approve ICOs’ procedures just as it does for traditional offerings of securities. In addition, the AMF could be granted the power to adjust review procedures.

The main issue with this option is that imposing the formal and heavy procedures designed for listed companies on entities that normally do not have the financial capability, knowledge, or procedures to create prospectuses will not attract ICO-initiating entities to Europe. In addition, ICOs attract tech-savvy investors who are interested in the underlying project and may not, unlike more traditional investors, be used to long and formal prospectuses.

3.3 Ad Hoc Regulation
The third option would be the design and the implementation of an ad hoc regulation, tailored to “multi-faceted” ICOs or, at least, to the greatest possible number of ICOs. The AMF identifies two options here: either (A) a mandatory authorization regime that would apply to any ICO available to the public within the French territory and would require that the ICO-initiating entity seek prior authorization from the AMF or face “banishment” of the ICO from France, or (B) an optional authorization regime similar to an “AMF-labelled ICO” that would allow ICO-initiating entities to choose to willingly submit to the authorization process or provide a mandatory disclaimer stating that the ICO is not “AMF-approved”.

This option seems to be the AMF’s favorite, as it would, according to ICO initiators cited by the AMF, create a “quality label” that would attract ICOs to France.

The main issue with this option would be that ICOs may be presented by entities that do not have any legal identity under French law, such as projects led by decentralized communities on the blockchain, which could render any petition for approval before the AMF difficult or impossible.

In any event, any decision to impose regulation must be carefully thought out and designed by E.U. supervisory authorities in order to preserve and/or enhance the attractiveness of France and Europe to ICOs.

In this respect, the AMF discussion paper is a first and open step toward a more balanced and insight-driven regulatory framework that should receive praise from the sector’s stakeholders. Stakeholders should not pass this unique opportunity to raise their voices.

Comments on the discussion paper must be sent to the AMF by 22 December 2017 at the following address: directiondelacommunication@amf-france.org.

Notes:

[1] http://www.amf-france.org/en_US/Publications/Consultations-publiques/Archives?docId=workspace%3A%2F%2FSpacesStore%2Fa2b267b3-2d94-4c24-acad-7fe3351dfc8a

[2] A token is a digital unit of account that can be traded on digital platforms, mainly using blockchain technology.

[3] During 2017 only, five out of the ten most high-profile ICOs in the world took place in the EU, for a total of nearly EUR 600 millions. Among those operations, Tezos raised EUR 232.millions in fourteen days in July 2017.

[4] The European Securities and Markets Authority, UK and Germany finance supervisory authorities.

[5] The SEC considers that tokens may be securities under the U.S. Securities Exchange Act of 1934 (the “Securities Act”)- https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings. On July 25, 2017, the SEC issued a Report of Investigation under Section 21(a) of the Securities Act describing an SEC investigation of The DAO, a virtual organization, and its use of distributed ledger or blockchain technology to facilitate the offer and sale of DAO Tokens to raise capital. The SEC applied existing U.S. federal securities laws to this new paradigm and determined that DAO Tokens were securities.

[6] Article L.211-1 of the French Monetary and Financial Code.

[7] Regulation (EU) 2017/1129 of 14 June 2017

Copyright 2017 K & L Gates

This post was written by Claude-Étienne Armingaud, Emilie Oberlis, Alexandre Balducci, Sidney Lichtenstein, and Alban Michou-Tognelli of K&L Gates.

Check out the National Law Review Financial page for more information.

NIST Releases Updated Draft of Cybersecurity Framework

On December 5, 2017, the National Institute of Standards and Technology (“NIST”) announced the publication of a second draft of a proposed update to the Framework for Improving Critical Infrastructure Cybersecurity (“Cybersecurity Framework”), Version 1.1, Draft 2. NIST has also published an updated draft Roadmap to the Cybersecurity Framework, which “details public and private sector efforts related to and supportive of [the] Framework.”

Updates to the Cybersecurity Framework

The second draft of Version 1.1 is largely consistent with Version 1.0. Indeed, the second draft was explicitly designed to maintain compatibility with Version 1.0 so that current users of the Cybersecurity Framework are able to implement the Version 1.1 “with minimal or no disruption.” Nevertheless, there are notable changes between the second draft of Version 1.1 and Version 1.0, which include:

Increased emphasis that the Cybersecurity Framework is intended for broad application across all industry sectors and types of organizations. Although the Cybersecurity Framework was originally developed to improve cybersecurity risk management in critical infrastructure sectors, the revisions note that the Cybersecurity Framework “can be used by organizations in any sector or community” and is intended to be useful to companies, government agencies, and nonprofits, “regardless of their focus or size.” As with Version 1.0, users of the Cybersecurity Framework Version 1.1 are “encouraged to customize the Framework to maximize individual organizational value.” This update is consistent with previous updatesto NIST’s other publications, which indicate that NIST is attempting to broaden the focus and encourage use of its cybersecurity guidelines by state, local, and tribal governments, as well as private sector organizations.

An explicit acknowledgement of a broader range of cybersecurity threats. As with Version 1.0, NIST intended the Cybersecurity Framework to be technology-neutral. This revision explicitly notes that the Cybersecurity Framework can be used by all organizations, “whether their cybersecurity focus is primarily on information technology (“IT”), cyber-physical systems (“CPS”) or connected devices more generally, including the Internet of Things (“IoT”). This change is also consistent with previous updates to NIST’s other publications, which have recently been amended to recognize that cybersecurity risk impacts many different types of systems.

Augmented focus on cybersecurity management of the supply chain. The revised draft expanded section 3.3 to emphasize the importance of assessing the cybersecurity risks up and down supply chains. NIST explains that cyber supply chain risk management (“SCRM”) should address both “the cybersecurity effect an organization has on external parties and the cybersecurity effect external parties have on an organization.” The revised draft incorporates these activities into the Cybersecurity Framework Implementation Tiers, which generally categorize organizations based on the maturity of their cybersecurity programs and awareness. For example, organizations in Tier 1, with the least mature or “partial” awareness, are “generally unaware” of the cyber supply chain risks of products and services, while organizations in Tier 4 use “real-time or near real-time information to understand and consistently act upon” cyber supply chain risks and communicate proactively “to develop and maintain strong supply chain relationships.” The revised draft emphasizes that all organizations should consider cyber SCRM when managing cybersecurity risks.

Increased emphasis on cybersecurity measures and metrics. NIST added a new section 4.0 to the Cybersecurity Framework that highlights the benefits of self-assessing cybersecurity risk based on meaningful measurement criteria, and emphasizes “the correlation of business results to cybersecurity risk management.” According to the draft, “metrics” can “facilitate decision making and improve performance and accountability.” For example, an organization can have standards for system availability and this measurement can be used at a metric for developing appropriate safeguards to evaluate delivery of services under the Framework’s Protect Function. This revision is consistent with the recently-released NIST Special Publication 800-171A, discussed in a previous blog post, which explains the types of cybersecurity assessments that can be used to evaluate compliance with the security controls of NIST Special Publication 800-171.

Future Developments to the Cybersecurity Framework

NIST is soliciting public comments on the draft Cybersecurity Framework and Roadmap no later than Friday, January 19, 2018. Comments can be emailed to cyberframework@nist.gov.

NIST intends to publish a final Cybersecurity Framework Version 1.1 in early calendar year 2018.

 

© 2017 Covington & Burling LLP
This post was written by Susan B. Cassidy and Moriah Daugherty of Covington & Burling LLP.
 

Exploiters of Overseas Workers Receives Record Fine of Over AUD 500,000

With the regulator actively pursuing rogue employers and the Courts willing to impose higher penalties, it is clear that a spot light has been cast on identifying and exposing non-compliance with the Fair Work Act (FW Act).

As we outlined in our recent legal insight in September 2017, penalties for serious exploitative conduct of vulnerable workers increased significantly under the recent Fair Work Amendment (Protecting Vulnerable Workers) Act 2017. Just this week we have seen the Fair Work Ombudsman (FWO) commence legal action against a Caltex franchisee in Sydney for allegedly falsifying records of the wage rates it paid to overseas workers. The FWO has now secured a record penalty of AUD510,840 against a husband and wife cleaning business for underpaying three Taiwanese domestic cleaning workers on working holiday visas. The order was made in the Federal Circuit Court by Judge Toni Lucev who reprimanded the couple for their “deliberate and repeated” exploitation of vulnerable workers.

The couple’s company, Commercial and Residential Cleaning Group Pty Ltd was fined AUD361,200 and the husband and wife were given individual fines of AUD72,240 and AUD77,400 respectively. The penalties were for 15 contraventions of the FW Act, predominately around failure to pay the employees their full and proper entitlements (and in the case of one employee, any payment at all). They also failed to keep accurate records, provide pay slips and failure to comply with a notice to produce during the FWO investigation.

Over their respective periods of employment of between three days and three months, the three employees were underpaid a combined total of AUD11,511.66. Judge Lucev said that while the underpayments were not large per se, they represented a “not insignificant amount for employees reliant on the minimum entitlement provisions of the Cleaning Award and the FW Act”. Evidence was given by the employees of financial stress, with one employee claiming she had to borrow money from a friend and only ate one meal a day to be able to pay her rent.

High Penalties for Directors

The record penalties awarded were found to be warranted due to the:

  • range of contraventions

  • vulnerability of the employees

  • prior compliance history of the directors.

Judge Lucev repeatedly referred to the 2013 case where the same couple and another cleaning company were fined $343,860 for exploiting local and overseas workers in Perth.
In the current judgement, Judge Lucev found that “it is open to infer that the [directors’] actions towards the employees formed part of a deliberate business strategy to engage vulnerable employees, refuse to pay them during their first few weeks of employment, refuse to pay them their full entitlements when they fell due […] and then refuse to pay outstanding wages owed to the employees on the termination of the employment relationship.” Due to the couple’s prior similar conduct, their behaviour was indicative of a “systemic” exploitation of vulnerable workers.

Size and Financial Circumstances of Employers Didn’t Affect the Penalty

While the court accepted the cleaning company was a small business and the directors’ indicated that they did not have any assets to pay the claims made by the employees (noting the compensation and penalties from the 2013 case remained unpaid), Judge Lucev found that in considering the size of the penalty, capacity to pay was of less relevance than consideration of objective general deterrence.

Judge Lucev was disinclined to reduce penalties available to him given the directors’ lack of cooperation during the FWO’s 14 month investigation, their lack of contrition and no evidence of corrective action by the directors’, stating the penalty “ought to be fixed at a level which ensures [it] cannot be regarded simply as [the] usual cost of doing business”.

Fair Work Amendment (Protecting Vulnerable Workers) Act 2017

The employees involved in this case were all Taiwanese nationals on working holiday visas in Australia, with limited experience in, and knowledge of, the Australian workplace relations regime. Being workers from non English speaking backgrounds, they had limited choice of employment options and limited understanding of their options when they were being underpaid.

Whilst these workers were ‘vulnerable workers’, employers of less vulnerable workers can still be exposed to significant penalties for underpayment claims and/or other non-compliance allegations, whether that be related to Award conditions or pay slip requirements.

Copyright 2017 K & L Gates
This post was written by Christa Lenard and Nyomi Gunasekera of K&L Gates
Learn more at the National Law Review‘s Global Page.

SEC Approves NYSE Proposed Rule Change Requiring a Delay in Release of End-Of-Day Material News

On December 4, 2017, the U.S. Securities and Exchange Commission (“SEC”) approved the New York Stock Exchange’s (the “NYSE”) proposed rule change to amend Section 202.06 of the NYSE Listed Company Manual to prohibit listed companies from releasing material news after the NYSE’s official closing time until the earlier of the publication of such company’s official closing price on the NYSE or five minutes after the official closing time. The new rule means that NYSE listed companies may not release end-of-day material news until 4:05 P.M. EST on most trading days or until the publication of such company’s official closing price, whichever comes first. The one exception to the new rule is that the delay does not apply when a company is publicly disclosing material information following a non-intentional disclosure in order to comply with Regulation FD. Regulation FD mandates that publicly traded companies disclose material nonpublic information to all investors at the same time.

© 2017 Jones Walker LLP
This post was written by Alexandra Clark Layfield of Jones Walker LLP.
Learn more at the National Law Review‘s Finance Page.

Cross Border M&A: The Impact of Brexit, the Trump Administration, and China’s Crackdown on Capital Flight

As noted in the previous issue of International News, globalism has been replaced with nationalism in key jurisdictions, putting the globalised world order in question.  As a result of Brexit, the Trump Administration’s protectionist policies, and China’s aggressive crackdown on capital flight, there are now greater uncertainties in the global transactions market.  In fact, H1 2017 saw 12.2 per cent fewer deals than during the same period in the previous year.

The situation, however, is not quite what it seems.  Despite this downturn, transaction value during H1 2017 actually grew by 27.8 per cent compared to the same period last year.globe world flags smaller TOP.jpg

PROTECTIONISM AND THE TRUMP ADMINISTRATION

The Trump Administration’s policies to date have mainly targeted two of the three pillars of globalisation: the free flow of 1) goods and services (trade); and  2) people (immigration).

Given the Administration’s scrapping of the Trans-Pacific Partnership, stepping back from the Transatlantic Trade and Investment Partnership, and renegotiating the North American Free Trade Agreement, one would expect the third pillar of globalisation, the free flow of capital, to be next in the crosshairs.  This is especially true given the high profile examples where this nationalist posture has held up cross-border deals, such as Ant Financial’s (China) takeover of MoneyGram (US).

Although this example suggests a negative outlook for cross-border M&A in the United States, international deal making is not doomed.

First, nationalist policies like trade protectionism and anti-immigration reform do not necessarily restrict crossborder deal flow.  In fact, the opposite may be true as a World Bank study found that when trade protectionism increases, so does international investment.

Second, having domestic companies become more prominent internationally, through cross-border acquisitions, could be complementary to the Trump Administration’s nationalism.

 The free flow of capital is likely to remain firm  in US M&A markets. 

Third, the Trump Administration’s probusiness agenda has created an optimistic outlook that is partially echoed in an alltime high stock market and the US dollar rallies, making US targets more expensive than their foreign counterparts.  US buyers are therefore finding foreign targets more appealing, driving additional cross-border M&A (see the section on Germany below).

Indeed, outbound M&A deals from the United States topped US$ 114.1 billion in Q1 2017, more than a 100 per cent increase compared with Q1 2016.

Although changes to corporate tax rates, cash repatriation, and other cross-border adjustment taxes could significantly impact cross-border deal flow, cross-border M&A is unlikely to be hampered by the Trump Administration, as the free flow of capital should remain firm in US M&A markets.

GERMANY REAPS THE BENEFITS

H1 2017 saw Germany become the second most targeted country for acquisitions in Europe after the United Kingdom, both in terms of deal value and count. This is reflected by Germany’s 170 per cent rise in value of inbound activity when compared with the same period in 2016: €22.2 billion to €59.8 billion, a Mergermarket record for the country.

Inbound activity in Germany was boosted by several mega deals, including the €40.5 billion merger between US- based Praxair and the Germany-based technological group Linde, which accounted for 63.1 per cent of Germany’s total deal value. Even if this mega-merger is discounted, the inbound activity from American dealmakers still improved significantly, growing from €3 billion and 43 deals last year to €7.2 billion and  51 deals, an increase of 135.6 per cent.

These gains come despite the significant loss of Chinese investment and Germany’s introduction in July 2017 of additional protectionist regulations to limit foreign companies looking to acquire businesses in key sectors and technologies. The fact that Germany, currently one of the biggest beneficiaries of the reduction in globalisation, was willing to implement measures to curb foreign investment shows the extent of the paradigm shift that has taken place. Given the importance and quality of German manufacturing and industrial sectors, however, Chinese interest is likely to return, even if investors have to be more cautious when selecting potential targets.

Despite outbound activity dropping significantly in terms of value, the actual deal count stayed fairly level, indicating that German investors are still looking for opportunities abroad. This drop in value could be attributed to the weak Euro, which may have deterred German dealmakers from pursuing larger transactions outside the Eurozone.

With the return of solid economic growth, low interest rates, growing investor confidence, and a strengthening Euro, German outbound  acquisitions are likely to increase and could make up for the thus far lacklustre deal value seen in 2017. Furthermore, as a result of Trump’s threats of protectionist legislation and the growing desire for products “Made in America”, German companies could look to strategically acquire US-based operations. Doing so would allow them to shift their production for the American market across the Atlantic in order to fulfil this criterion.

THE UNITED KINGDOM’S TRAJECTORY TOWARDS GREATER PROTECTIONISM

The over 10 per cent decline in the value of sterling in the immediate aftermath of the Brexit vote and the unparalleled

availability of cheap acquisition finance was expected by many commentators to lead to a wave of opportunistic takeover bids for underpriced UK targets. There is, however, little evidence that the devaluation of sterling had any effect as there has been a decline across the board, most dramatically in mid-market deals. It seems that company decision makers and M&A professionals are waiting for greater clarity before making M&A investment decisions.

It is, however, worth noting that the United Kingdom still remains the most targeted country for acquisitions in Europe, even if Germany is closing in. To deter the more egregious asset stripping of key parts of the economy, Prime Minister Theresa May has made her intentions clear: “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as [certain industries are] to Britain”

Such statements should, however, be seen in the context of the trajectory of UK Government policy over the last 10 years. Kraft’s takeover of UK confectioner Cadbury in 2010 led to significant changes to the Takeover Code, whose rules had previously favoured the rights of acquirers over those of UK targets. Additional changes requiring heightened disclosure of a buyer’s intentions for a target company were announced by the Takeover Panel in September this year, which will further put pressure on the buy-side in UK takeovers. Undoubtedly, these changes have led a reduction in public takeover activity in the UK market, with acquirers much less likely to engage in speculative activity.

 Chinese interest is likely to return, even if investors have to be more cautious. 

In October 2017, the UK Government released proposals to further increase its powers to intervene in proposed UK investments by foreign buyers on grounds of national security, broadening the scope beyond the traditional defense industries. The shift in policy is not party political as all the  principal political parties in the United Kingdom are aligned with this evolving policy of greater state intervention and protection.

As far as Brexit is concerned, what is certain is that over the long term, regulations applying to large swathes of the UK economy will change as UK regulation gradually diverges from EU regulation. This will be most pronounced in the financial services, energy, life sciences and agricultural/ food sectors, where EU regulation is most concentrated. This flexibility away from EU regulation and the evolving regulatory environment is expected to lead to greater opportunities for cross border M&A in those sectors that benefit, and consolidation in those that will not.

Following Brexit, it is also expected that UK policy makers will develop domestic competition policy to protect or nurture sectors of strategic importance to the UK economy. This may lead to industries holding protected status, which will have both positive and negative implications for M&A activity. On a practical level, the United Kingdom is currently submerged within EU-wide merger thresholds and notifications are made to the EU Commission, with reference to the UK local competition authority voluntary.

Post-Brexit that is likely to change, with transactions involving a UK component subject to UK review. This may impact timetables, although the United Kingdom traditionally has an efficient competition review process.

THE FUTURE’S BRIGHT

The United Kingdom is fundamentally shifting away from globalisation towards a more nationalistic system.  The Trump Administration has the clear ambition of curtailing free trade and immigration.  And China is committed to limiting capital flight.  These all sound like doors slamming shut, but windows are actually opening due to the high value of cross-border deals, the Trump Administration’s overall pro-business agenda, a dramatically increased interest in Germany, and the forthcoming changes to the UK regulatory landscape.  The cross-border M&A market will continue to be strong for those who see opportunities behind the headlines.

© 2017 McDermott Will & Emery

This post was written by Nicholas Azis, Christian von Sydow, Jacob A. Kuipers of McDermott Will & Emery

Read more global legal updates.

Travel Ban 3.0 May Take Effect (For Now), U.S. Supreme Court Rules

The latest version of the Trump Administration’s travel ban may take effect pending decisions expected shortly from the Courts of Appeals for the Fourth and Ninth Circuits, the U.S. Supreme Court has ruled.

The third iteration of the travel ban (Travel Ban 3.0), implemented in late-September, restricts travel to the U.S. for individuals from Chad, Iran, Libya, Somalia, Syria, and Yemen.  Travel Ban 3.0 also limits travel for individuals from the non-majority Muslim countries of North Korea and Venezuela.

Travel Ban 3.0 was targeted to cover specific categories of visa travelers. Two federal court judges had issued injunctions limiting implementation of the revised travel ban. They indicated that individuals would still be eligible for visas if they had a “bona fide” relationship to someone in the United States, including grandparents, nieces, nephews, cousins, and brothers- and sisters-in-law, or to an entity in the United States, such as an employer or a university.

supreme court, immigration ban, fall, tree, building, sign, politics, usa, trump

By a 7-2 decision, with Justices Ruth Bader Ginsburg and Sonia Sotomayor dissenting, a majority of the Supreme Court overruled the lower court injunctions, allowing the travel ban to be implemented in full. The Court noted that the Ninth Circuit and the Fourth Circuit courts are both hearing oral arguments on the substantive legality of the travel ban within a week, and the Court expects decisions will be issued “with appropriate dispatch.” A decision on the underlying merits is expected to be appealed to the Supreme Court, potentially to be decided this term.

Attorney General Jeff Sessions stated that the Court’s ruling allowing the President’s proclamation to go into effect was “a substantial victory for the safety and security of the American people.”

Omar Jadwat of the ACLU, which represents some of those challenging the ban, stated: “It’s unfortunate that the full ban can move forward for now, but this order does not address the merits of our claims. . . . We will be arguing Friday in the Fourth Circuit that the ban should ultimately be struck down.”

 

Jackson Lewis P.C. © 2017

This post was written by Michael H. Neifach of Jackson Lewis P.C.

Read more immigration legal updates.

The Agricultural Guestworker Act Gaining Ground

In October, the Agricultural Guestworker Act of 2017 (House Resolution 4092), introduced by U.S. Rep. John Goodlatte (R-Va.), was passed by the House Judiciary Committee and sent to the full House. Michigan’s lone representative on the committee, Rep. John Conyers (D), voted against it.

John Kran, national lobbyist with Michigan Farm Bureau, commented that “any farmer who’s dealt with this issue will tell you that the availability of domestic workers continues to decrease. This bill not only deals with the seasonal workforce, but the need for year-round ag workers.” The need for such legislation is clear, at least to farmers. Currently, the only way farmers can have the peace of mind about a legal workforce is to go through the H-2A program, which is so notorious for burdensome paperwork, long lead times and woefully complicated processes that Michigan Farm Bureau established the Great Lakes Agricultural Labor Services (GLALS) to help farmers successfully navigate the process.

Goodlatte’s legislation would create a new H program, called H-2C, under which a new guest-worker program would be established, allowing farmers to hire workers for up to 18 months for seasonal labor and 36 months for year-round labor, such as are needed on dairy farms, other livestock operations, and food processing, including meat packing. “Michigan dairies have a huge need for the longer visa, and poultry and hog operations have trouble finding people too,” Kran said. “The bill isn’t perfect, but it’s a good place to start.” Among the things Farm Bureau would like to see changed in the bill is a mandatory limit on the number of workers allowed in. The bill proposes that the number be capped at 450,000 per year, with an ‘escalator’ for additional need.

 

© 2017 Varnum LLP
This post was written by Aaron M. Phelps of Varnum LLP.
Read more Immigration legal updates.

Restitution for the Corporate Victim

Corporations and businesses of all varieties risk falling victim to crimes committed by their employees and becoming ensnared in criminal investigations of their vendors and business partners. When wrongdoers are convicted federally, the Mandatory Victims Restitution Act (MVRA) requires that they make restitution for losses directly caused by their criminal conduct. In addition to direct losses, entities often incur additional losses when cooperating with and responding to a government investigation.

The MVRA provides for the recovery of these ancillary losses, but there is more to the process than simply submitting an invoice to the government to qualify for restitution. Indeed, recent cases make clear that there are limits to how far courts will go in making victims whole. To ensure maximum recovery for their clients, counsel should know of the limitations and how to present a successful claim.

Corporations as a “Victim”

Of course, to qualify as a victim entitled to restitution under the MVRA, a corporation must be “directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered.” Qualifying offenses include: (i) crimes of violence; (ii) offenses against property, including any offense committed by fraud or deceit; and (iii) offenses related to tampering with consumer products.

Republished with permission from the Connecticut Law Tribune.  Originally published here.

Read other articles in the series:

Fourth Amendment Exception Allows Customs to Search Personal Devices.

Exploring the Boundaries of the Fifth Amendment.

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Equifax Breach Affects 143M: If GDPR Were in Effect, What Would Be the Impact?

The security breach announced by Equifax Inc. on September 7, 2017, grabbed headlines around the world as Equifax revealed that personal data of roughly 143 million consumers in the United States and certain UK and Canadian residents had been compromised. By exploiting a website application vulnerability, hackers gained access to certain information such as names, Social Security numbers, birth dates, addresses, and in some instances, driver’s license numbers and credit card numbers. While this latest breach will force consumers to remain vigilant about monitoring unauthorized use of personal information and cause companies to revisit security practices and protocols, had this event occurred under the Global Data Protection Regulation (GDPR) (set to take effect May 25, 2018), the implications would be significant. This security event should serve as a sobering wake up call to multinational organizations and any other organization collecting, processing, storing, or transmitting personal data of EU citizens of the protocols they must have in place to respond to security breaches under GDPR requirements.

Data Breach Notification Obligations

Notification obligations for security breaches that affect U.S. residents are governed by a patchwork set of state laws. The timing of the notification varies from state to state with some requiring that notification be made in the “most expeditious time possible,” while others set forth a specific timeframe such as within 30, 45, or 60 days. The United States does not currently have a federal law setting forth notification requirements, although one was proposed by the government in 2015 setting a 30-day deadline, but the law never received any support.

While the majority of the affected individuals appear to be U.S. residents, Equifax stated that some Canadian and UK residents were also affected. Given Equifax’s statement, the notification obligations under GDPR would apply, even post-Brexit, as evidenced by a recent statement of intent maintaining that the United Kingdom will adopt the GDPR once it leaves the EU. Under the GDPR, in the event of a personal data breach, data controllers must notify the supervisory authority “without undue delay and, where feasible, not later than 72 hours after having become aware of it.” If notification is not made within 72 hours, the controller must provide a “reasoned justification” for the delay. A notification to the authority must at least: 1) describe the nature of the personal data breach, including the number and categories of data subject and personal data records affected, 2) provide the data protection officer’s contact information, 3) describe the likely consequences of the personal data breach, and 4) describe how the controller proposes to address the breach, including any mitigation efforts. If it is not possible to provide the information at the same time, the information may be provided in phases “without undue further delay.”

According to Equifax’s notification to individuals, it learned of the event on July 29, 2017. If GDPR were in effect, notification would have been required much earlier than September 7, 2017. Non-compliance with the notification requirements could lead to an administrative fine of up to 10 million Euros or up to two percent of the total worldwide annual turnover.

Preparing for Breach Obligations Under GDPR

With a security breach of this magnitude, it is easy to imagine the difficulties organizations will face in mobilizing an incident response plan in time to meet the 72-hour notice under GDPR. However, there are still nearly eight months until GDPR goes into effect on May 25, 2018. Now is a good time for organizations to implement, test, retest, and validate the policies and procedures they have in place for incident response and ensure that employees are aware of their roles and responsibilities in the event of a breach. Organizations should consider all of the following in crafting a GDPR incident response readiness plan:

plan, GDPR, incident response

This post was written by Julia K. Kadish and Aaron K. Tantleff of Foley & Lardner LLP © 2017
For more legal analysis got to The National Law Review

US Launches Investigation into China’s Technology Transfer & IP Practices

United States Trade Representative (“USTR”) Robert E. Lighthizer launched an investigation under Section 301 of the Trade Act of 1974 (“Section 301”) into acts, policies, and practices of the Chinese government as they relate to “technology transfer, intellectual property [IP], and innovation.” The August 18 announcement of the investigation came just days after President Donald Trump signed a memorandum directing the USTR to consider whether to launch an investigation of China’s IP laws and practices that “may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.”

While Section 301 was a frequently used tool between the 1970s and 1990s (including when Ambassador Lighthizer was Deputy USTR during the 198os), the number of such investigations declined significantly after the World Trade Organization (WTO) dispute settlement system was established. Use of Section 301, however, is consistent with this Administration’s apparent willingness to use a broader range of trade tools to more aggressively combat potential unfair trade practices.

Section 301 allows—and, in certain circumstances, requires—the USTR to investigate and take unilateral retaliatory action in response to certain trade-related harms. The USTR must take appropriate action if the rights or benefits of the United States under any trade agreement are denied, violated, or otherwise harmed, or if its international legal rights are infringed in a way that burdens or restricts U.S. commerce. The USTR may take action at his or her discretion if an act, policy, or practice is unreasonable or discriminatory and burdens or restricts U.S. commerce. Among other things, a Section 301 action may be taken if a foreign country denies adequate and effective intellectual property protection or fair and equitable market opportunities, even if its behavior is consistent with its obligations under the World Trade Organization’s (“WTO”) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

The Federal Register notice launching the investigation highlights concerns that the Chinese government uses the transfer of foreign technology and intellectual property to advance its industrial policy goals. The USTR investigation will first examine acts, policies, and practices of the Chinese government that fall into the following four categories:

  1. The use of “a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies;”

  2. Acts, policies, and practices that “reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China;”

  3. Direction and/or unfair facilitation of “systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans;” and

  4. Conduct or support of “unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information” (as well as the harm they may cause to U.S. companies and the competitive advantages they may bring to Chinese companies).

Beyond the categories enumerated above, which are focused on technology/IP transfer and cyber-theft, the USTR notice also invites submissions of “information on other acts, policies and practices of China relating to technology transfer, intellectual property, and innovation described in the President’s Memorandum,” leaving open the possibility for the investigation to widen. The announced scope of the investigation highlights the discretionary factors to be considered under the statute, indicating that USTR is not focused solely on actual violations of China’s obligations under international trade law.

Consistent with the statute, the notice provides that USTR has 12 months to make a determination as to whether action is warranted. If it is determined that action is warranted, USTR may consider a broad range of retaliatory tools, including the withdrawal of trade concessions, the imposition of duties or other import duties, and “all other appropriate and feasible action within the power of the President that the President may direct the Trade Representative to take…to enforce such rights or to obtain the elimination of such act, policy, or practice…[with actions that may be taken being] within the power of the President with respect to trade in any goods or services, or with respect to any other area of pertinent relations with the foreign country.” Retaliatory actions may be targeted at industries other than those directly linked to the identified harm. USTR also has the discretion to come to an agreement with the foreign country’s government to eliminate or obtain compensation for the identified harm. As required by law, USTR has requested formal consultations with the Chinese government regarding the issues under investigation.

The behavior targeted by this Section 301 investigation reflects concerns of the international business community in China. For instance, 43 percent of companies responding to AmCham China’s annual Business Climate Survey in 2017 reported that reducing the need to engage in technology transfer would have at least a somewhat significant impact on increasing their investment levels in China. These companies may find this investigation to be an opportunity to advance their specific concerns. Meanwhile, Chinese companies that may be at risk for retaliatory action under Section 301, and U.S. companies potentially vulnerable to counter-retaliation by Chinese authorities, should carefully monitor the situation.

The Chinese government has expressed its concerns about the investigation. Suggesting that the United States is sending the wrong signal to the international community, a statement from the Ministry of Commerce asserts, “The United States’ disregard of World Trade Organization rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective.” While launching an investigation of China’s unfair trade practices is not, in and of itself, inconsistent with U.S. WTO obligations, imposition of some—though not all—of the retaliatory measures authorized under U.S. law could potentially violate WTO rules. China’s statements indicate that should the U.S. investigation lead to unilateral retaliatory action, China will respond in various ways, including by considering a challenge to such measures at the WTO.

The USTR notice calls for written comments by interested persons to be submitted by September 28. The interagency Section 301 Committee, which is chaired by the USTR, is scheduled to hold a hearing in Washington, D.C., on October 10. Requests to appear at the hearing are also due on September 28.

Zhijing Yu  contributed to the preparation of this article.

 This post was written by Ashwin Kaja, Gina M. Vetere and Timothy P. Stratford of  Covington & Burling LLP © 2017
For more legal analysis go to The National Law Review