Tag: business

Looking Ahead: New California Employment Laws for 2024

In the past few months, California Governor Newsom has signed numerous new employment laws affecting California employers of all sizes. Below is a summary of some of the laws going into effect in 2024.

Workplace Violence Prevention Safety Plan

California will become the first state to demand employers to create an “effective” workplace violence prevention plan, train employees, and prepare/maintain records regarding workplace violence, starting July 1, 2024. SB 553 covers virtually all employers. “Workplace violence” is defined as “any act of violence or threat of violence that occurs in a place of employment that results in, or has a high likelihood of resulting in, injury, psychological trauma, or stress, regardless of whether the employee sustains an injury.”

Not only must employers prepare a written prevention plan that is accessible to employees, they are also required to keep a “log” of every “workplace violence incident” and implement requisite training when the plan is first established. Moving forward, employers will need to provide training on an annual basis. Additionally, certain training records must be maintained for one to five years, depending on the type of record. For more information on the new law, please review Sheppard’s recent blog post on this topic here.

Paid Sick Leave Expansion

SB 616 amends California’s Healthy Workplaces, Healthy Families Act of 2014 to raise the amount of paid sick time employees can obtain each year from three to five days (or 40 hours) for full-time employees. The law also expands the annual accrual limit from six days (or 48 hours) to 10 days (or 80 hours).

Employers using the “front-loading” method of allowing paid sick leave must now supply five days (40 hours) at the beginning of the year. Employers using a different accrual process must now guarantee an employee has at least 40 hours of accrued sick leave by the 200th calendar day of employment, in addition to the requirement that employees have at least three days (24 hours) by the 120th day of employment. Employees must be allowed to use at least five days (40 hours) each year. For additional information, please review Sheppard’s recent blog post on this topic here.

Minimum Wage Increases

On January 1, 2024, the statewide minimum wage will increase to $16 per hour. The minimum exempt salary for California employees will rise from $64,480 to $66,560. In addition to the increase in the state minimum wage, many localities have their own minimum wage requirements that are higher than the state’s minimum wage.

Notably, the minimum wage increase for specific industry employers, such as healthcare facilities, begins June 1, 2024. The new minimum wage for healthcare facilities will range from $18 to $23 per hour, depending on the size and location of the facility. Fast food workers will also see a similar increase, to $20 per hour, beginning April 1, 2024.

No Automatic Stay During Appeals of Motions to Compel Arbitration Decisions

SB 365 amends the California Code of Civil Procedure with the intention of not automatically staying trial court proceedings when a party appeals an order denying a motion to compel arbitration. This law allows courts to use their discretion as to whether to stay proceedings while an appeal is heard. The law will likely be contested in court, on the basis that it is preempted by the Federal Arbitration Act (“FAA”). For additional information, please review Sheppard’s recent blog post on this topic here.

Prosecution for California Labor Code Violations

AB 594 empowers local prosecutors to pursue a civil or criminal action for violations of the California labor code that arise within their jurisdiction. The law also states that any agreement between the employer and employee that attempts to “limit representative actions or to mandate private arbitration” will not be enforceable.

Rebuttable Presumption of Retaliation

SB 497, known colloquially as the “Equal Pay and Anti-Retaliation Act, amends the California Labor Code to create a rebuttable presumption of retaliation if an employee is disciplined or terminated within 90 days of engaging in certain protected activity. Employers also are responsible for a civil penalty of up to $10,000 per employee for each violation, to be awarded to the employee who faced retaliation. For more information on the new law, please review Sheppard’s recent blog post on this topic here.

Reproductive Loss Leave

SB 848 requires employers to offer a leave of up to five days following a “reproductive loss event,” which is “the day or, for a multiple-day event, the final day of a failed adoption, failed surrogacy, miscarriage, stillbirth, or an unsuccessful assisted reproduction.” The leave is restricted to 20 days within a 12-month period, and employees must be allowed to take their leave non-consecutively. Leave may be unpaid, but employees must be permitted use sick leave or other paid time off if they so choose. Information provided to the employer by the employee relating to the leave must remain confidential and cannot be disclosed, unless required by law. SB 848 also forbids retaliation for an employee’s use of this leave.

Noncompete Agreements

SB 699, which becomes operative January 1, 2024, clarifies that existing law prohibits noncompetition covenants regardless of where or when the agreement was signed, even if the covenant was signed outside of the state. An employer will now commit a civil violation for entering into or enforcing a void noncompete. Employees will also now have a private cause of action against their employer.

In a similar vein, AB 1076 requires employers to contact all current or former employees who were employed after January 1, 2022, and had (or have) contracts containing a noncompete clause, informing them that the noncompete clause is void. The notice must be completed by February 14, 2024, and is required to be in writing and delivered to both the last known physical address and email address of the employee. If an employer fails to send this notice, it constitutes a violation of California’s Unfair Competition Law. For additional information, please review Sheppard’s recent blog post here.

Emergency or Disaster Declaration Information

Effective January 1, 2024, AB 636 expands the information required in employers’ wage theft notices. This new law requires these notices include information regarding “[t]he existence of a federal or state emergency or disaster declaration applicable to the county or counties where the employee is to be employed” that affect employees’ health and safety during their employment. While the California Labor Commissioner’s office is preparing a notice template by March 1, 2024, employers should bring their notices up-to-date in the interim.

Cannabis Use

AB 2188 amends the California Fair Employment and Housing Act (“FEHA”) to prohibit an employer from discriminating against an employee or applicant because of the employee’s or applicant’s cannabis use off the job and away from work. Notably, this new law does not permit an employee to possess, be impaired by, or use cannabis while working, meaning employers may continue to enforce any policies they have prohibiting employees from possessing, being impaired by, or using cannabis while on the job. For additional information on the protections around employees’ cannabis use, please review Sheppard’s blog post here.

Takeaways

These new employment laws are extensive. Employers should evaluate and revise relevant policies and practices, including employee handbooks and employment agreements containing restrictive covenants, to ensure compliance. Employers should also start preparing workplace violence prevention plans to be in compliance by July 1, 2024.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.
For more news on 2024 California Employment Laws, visit the NLR Labor & Employment section.

All I Want for Christmas is Effective Sports Governance

At the start of this year, following his appointment as Chair of the UK’s Department for Culture, Media, and Sport (“DCMS”), Damian Green MP put sports governance firmly on the agenda.

This commitment came after the publication of the Whyte Review in June 2022 (the “Review“), which was an independent report into allegations of mistreatment in the sport of gymnastics led by Anne Whyte KC.

Sport England’s CEO Tim Hollingsworth and UK Sport’s CEO Sally Munday, the two individuals who commissioned the report, provided a joint statement following the Review, which included a commitment to “not rest until [we] have a sporting system that fully champions and enables participant and athlete wellbeing”.

Sports governance is a multi-faceted issue; systematic failings cannot be solved overnight. Effective and comprehensive investigations are needed to uncover the existing issues before remediation can take place.

As such, this blog will lay out five top tips for ensuring that all goes to plan when conducting a sports investigation.

Tip 1: Have Policies In Place

Terms and conditions, policies and procedures are rarely updated and often overlooked. However, when issues arise, it is these terms and conditions, policies and procedures that are an immediate source of authority for standards of behaviour; they are your “dos” and “don’ts”.

Therefore, first and foremost, it is essential to have robust, fair and proportionate policies and procedures in place to guide the investigative process.

During a recent sport investigation it quickly became apparent that the sport had no definition of “bullying” even though that was the accusation levelled at an athlete. Some of the practical issues with this included uncertainty as to:

  1. whether an imbalance of power was a necessary ingredient of bullying;
  2. whether intent was a requirement of bullying; and
  3. what amounted to a “course of conduct”.

In the end, those investigating the allegations relied on a combination of the athlete code of conduct, analogous previous investigations, and the governing bodies’ social media guidance to piece together a definition.

This investigation into bullying is not an isolated incident and most of the recent complaints raised with Sport Integrity (UK Sport’s confidential reporting line and independent investigation service) relate to bullying, so to not have a universal definition of “bullying” was and is particularly troublesome.

Since this investigation, we have worked with National Governing Bodies (“NGBs”) to devise a uniform definition of “bullying”. Of course, some NGBs will require bespoke definitions to reflect the nature of their sport, but a reference point (and, over time, a precedent bank) will help both individuals and NGBs.

We would caution that, in an attempt ‘do the right thing’, sporting governing bodies can sometimes overcommit, leading to policies that are too onerous. An example includes allowing an automatic right to appeal if the complainant is not satisfied with the outcome, rather than requiring them to establish a basis for appeal. It comes from a good intention but can often be costly and time consuming.

Tip 2: Identifying the Right People to Handle the Investigation

A key issue to consider at the start of an investigation is not only (i) who is going to undertake the investigation; but also (ii) who will advise the governing body in respect of the investigation report.

In determining issue (i), thought must be given to whether the investigator has appropriate experience and whether they are, of course, truly independent.

But once the investigation has ended, the commissioning governing body does not just put the report into the top drawer, the recommendations within the report will need to be actioned. But often those recommendations may have legal consequences such as employment issues, data protection considerations, and defamations risks, to name but a few. We believe it is advisable for a governing body to instruct an external law firm from the outset so that they are able to receive independent advice while remaining separate from the investigation.

Tip 3: Nail the Terms of Reference

The terms of reference (“ToR”) set out the parameters of an investigation and provide something of a roadmap. Investigations often uncover facts or events which were not in contemplation at the outset, and so it is crucial that the ToR provides for such eventualities.

For an international rugby referee, it is standard practice to consider the “what if” situations. What if there is a thunderstorm? What if the crossbar falls down? What if the ball is stolen by a streaker? Referees want to be as prepared as possible when people turn to them for an answer – the same is true in an investigative setting.

Essential features of the ToR include:

  1. what will be investigated and what won’t;
  2. what happens if you discover something that isn’t covered;
  3. how do you amend the ToR; and
  4. who will provide what material and when.

Some less obvious matters for inclusion:

  1. how many times do you email someone before concluding that they have refused to comply;
  2. what are acceptable methods of contact;
  3. who is allowed to attend the meeting with the individual being interviewed;
  4. will you produce transcripts of meetings; and
  5. who will see the report.

Doing the legwork beforehand saves time, stress, and distress down the track.

Tip 4: Specialist Support to the Investigating Team

During one of our sporting investigations, it became clear that athletes in that particular sport liked technical jargon even more than lawyers. To ensure that key information is not hidden in opaque terminology, we have found it useful to involve people with relevant experience who can put factual sporting matters in layman’s terms.

Contact sports is a good example of this. Physical intimidation during training sessions seems at odds with most places of work, but when athletes are competing for a single spot at the Olympic Games, this can be part and parcel of their world.

Interviewing ex-athletes as part of the initial stages of an investigation not only allow us to understand the jargon, but also to understand the realities of the sport, the difference between male and female athletes, and when aggression transgresses into bullying.

Tip 5: Involve Data Privacy Experts

Data Privacy is a fast-moving area of law which requires careful consideration in the context of sports investigations. The approach to data is two-fold: how and what can I collect, and with who and how can I share it.

You must have a clearly identified purpose and an appropriate lawful basis for processing personal data, or be able to show that your processing fits within one of the narrowly defined statutory exceptions. Be aware that sharing personal data is a form of “processing”, so ensure that you have a clear purpose and lawful basis for sharing, and that the recipient (for example an expert) has a clearly stated purpose and lawful basis for receiving that data.

From a UK perspective, you (or someone with the relevant expertise) will need to be familiar with the relevant provisions of the UK General Data Protection Regulation 2018 and the Data Privacy Act 2018 to ensure compliance. Reference should also be made to any policies which may set out how employee data may be processed. In the first instance, you will need to ensure that you have a lawful basis for collecting and processing data. Additional care should be taken when you are processing criminal offences data – as is often the case in investigations – or any “special category” data revealing factors such as racial or ethnic origin, political opinions, religious or philosophical beliefs, health, sex life or sexual orientation.

Data Protection Impact Assessments (DPIA) and Legitimate Interests Assessments (LIA) are now a reality of sporting investigations that should not be overlooked. Helpfully, in relation to “special category” and criminal offence data, UK data protection laws make express provision for processing where it is necessary to protect the integrity of a sport or a sporting event against dishonesty, malpractice or other seriously improper conduct, or failure by a person participating in the sport or event in any capacity to comply with standards of behaviour set by a body or association with responsibility for that sport or event. However, in each case it is essential that you involve experts to check that the factual situation justifies reliance on those provisions.

Summary

Sports organisations would be well served to address the issues highlighted above, particularly as their feet are often held to the fire by governments, sponsors, participants, and the general public on whether they have done enough to identify or remedy high profile matters.

This article was co-authored by Molly Mckenna.

© Copyright 2023 Squire Patton Boggs (US) LLP
For more news on Effective Sports Governance in the UK, visit the NLR Entertainment, Art & Sports section.

10 Resolutions to Elevate Your Personal Brand in the New Year

Personal branding has become more than just a buzzword – it’s a crucial element of career success. As we embark on a new year, it’s essential to recognize the power of a well-crafted personal brand. It’s not just about making a mark in your industry; it’s about creating a distinct identity that resonates with your professional ethos and vision.

Every individual inherently has a personal brand. It’s an amalgamation of your skills, experiences and the impressions you leave on others.

Even without conscious effort, your interactions, online presence and professional accomplishments contribute to how you are perceived. This unintentional brand can impact your career and opportunities positively or negatively. Actively shaping your personal brand allows you to control this narrative, ensuring it aligns with your career goals and reflects your professional identity. Neglecting it means letting others define it for you, which might not always match your aspirations or values.

Building your personal brand can feel overwhelming, but with a strategic and thoughtful approach, this process can unlock doors to new opportunities and personal growth, allowing you to shape and share your unique professional story with the world.

This blog post will guide you through easy and effective strategies to build and enhance your personal brand, which will help set you apart from your peers and competitors.

  1. Define Your Unique Brand: Delve deep to articulate your core strengths, values and the distinctive qualities that set you apart in your industry. Reflect on your career highlights and how they shape your professional narrative. For what do you want to be known? Be clear.
  2. Ensure Consistent Messaging: Audit all your professional platforms to ensure they convey a unified story about who you are and what you offer. This includes everything from your LinkedIn bio to your website/website bio.
  3. Be Active on Social Media: Plan a content calendar to regularly share insights, engage with industry conversations and connect with thought leaders. Being active also means responding to comments and messages to foster connections.
  4. Create and Share Valuable Content: Consider starting a blog or a podcast, or contribute as a guest writer to industry publications. Share your experiences, case studies or lessons learned to provide real value to your audience.
  5. Network Actively: Attend industry events, webinars and workshops. Be proactive in reaching out for informational interviews or mentorship opportunities.
  6. Commit to Personal Development: Identify key areas for growth and seek out resources like online courses, books, podcasts or coaching. Staying updated with the latest industry trends is also crucial.
  7. Seek and Adapt to Feedback: Regularly seek feedback from peers, mentors or through professional assessments. Use this feedback to refine your brand and address any gaps.
  8. Maintain Professional Visual Branding: Invest in a professional headshot and ensure your visual branding (like color scheme, fonts, etc.) is professional and consistent across all platforms.
  9. Get Involved in Your Community: Align with causes or organizations that resonate with your personal values. Share these experiences on your platforms to show your commitment beyond work.
  10. Monitor Your Online Presence: Use free tools like Google Alerts to keep track of your digital footprint. Ensure that your online presence is positive and accurately reflects your personal brand.

To begin crafting your personal brand, start by reflecting on your unique skills, experiences and what differentiates you professionally. Set aside time each week to engage with your network, create content that showcases your expertise, and participate in relevant online discussions. Regularly update your professional profiles and assess the alignment of your online presence with your brand. This proactive and consistent effort will gradually build a strong, authentic personal brand.

These resolutions are more than just annual goals; they are commitments to ongoing personal and professional growth. Remember that visibility is each of our responsibility. By following these steps, you can significantly enhance your personal brand, making it a powerful tool in your career advancement.

Copyright © 2023, Stefanie M. Marrone. All Rights Reserved.
For more news on Building Your Personal Brand, visit the NLR Law Office Management section.

2023 Foreign Direct Investment Year End Update: Continued Expansion of FDI Regulations

As previously reported, regulations and restrictions on Foreign Direct Investment (“FDI”) have expanded quickly in the United States and in many of its trading partner countries around the world. FDI has been further complicated in the U.S. by the passage of individual State laws – often focused the acquisition of “agricultural land,” and in Europe by the passage of screening regimes by the individual Member States of the European Union (E.U.).

In 2023, fifteen U.S. States enacted some form of FDI restrictions on real estate. Some States elected to incorporate U.S. Federal regulations regarding who is prohibited from acquiring certain real estate, while other States have focused on broadly protecting agricultural lands. State laws also vary from those that prevent foreign ownership, to those that only require reporting foreign ownership.

Thus far Alabama, Arkansas, Florida, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin have passed laws related to FDI in real estate.

Alabama, Arkansas, Florida, Illinois, Iowa, Kansas, Maine, Missouri, Ohio and Texas all currently require foreign investors to disclose acquisitions of certain real estate, much like the U.S. Federal Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). Arkansas, Illinois, Maine, and Wisconsin, actually allow acquirers to fulfill their reporting requirements by simply submitting a copy of applicable federal AFIDA reports. Texas currently only limits Direct Foreign Investment in certain “critical infrastructure.”

Ohio, Pennsylvania, South Carolina, South Dakota, and Wisconsin limit foreign investment in real estate based on the number of acres; while Iowa, Minnesota, Missouri, Nebraska, North Dakota, and Oklahoma ban foreign ownership of certain land completely.

The Alabama Property Protection Act (“APPA”), which went into effect in 2023, is one of the most expansive of the U.S. State laws, and which also incorporates U.S. Federal law. The APPA restricts FDI by a “foreign principal” in real estate related to agriculture, critical infrastructure, or proximate to military installations.

The APPA broadly covers acquiring “title” or a “controlling interest.” The APPA also broadly defines “foreign principal” as a political party and its members, a government, and any government official of China, Iran, North Korea, and Russia, as well as countries or governments that are subject to any sanction list of the U.S. Office of Foreign Assets Control (“OFAC”). The APPA defines “agricultural and forest property” as “real property used for raising, harvesting, and selling crops or for the feeding, breeding, management, raising, sale of, or the production of livestock, or for the growing and sale of timber and forest products”; and it defines covered “critical infrastructure” as a chemical manufacturing facility, refinery, electric production facility, water treatment facility, LNG terminal, telecommunications switching facility, gas processing plant, seaport, airport, aerospace and spaceport infrastructure. The APPA also covers land that is located within 10 miles of a “military installation” (of at least 10 contiguous acres) or “critical infrastructure.”

Notably, APPA does not specifically address whether leases are considered a “controlling interest,” nor does it specify enforcement procedures.

U.S. Federal Real Estate FDI

Businesses involved in the U.S. defense industrial base have been historically protected from FDI by the Committee on Foreign Investment in the United States (“CFIUS”). The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded those historic protections to include certain Critical Technologies, Critical Infrastructure, and Sensitive Data – collectively referred to as covered “TID.”

FIRRMA specifically expanded CFIUS to address national security concerns arising from FDI impacting critical infrastructure and sensitive government installations. Part 802 of FIRRMA established CFIUS jurisdiction and review for certain covered real estate, including real estate in proximity to specified airports, maritime ports, military installations, and other critical infrastructure. Later in 2022, Executive Order 14083 further expanded CFIUS coverage for certain agricultural related real estate.

Covered installations are listed by name and location in appendixes to the CFIUS regulations. Early this year, CFIUS added eight additional government installations to the 100-mile “extended range” proximity coverage of Part 802. The update necessarily captured substantially more covered real estate. Unlike covered Section 1758 technologies that can trigger a mandatory CFIUS filing, CFIUS jurisdiction for covered real estate currently remains only a voluntary filing. Regardless, early diligence remains critical to any transaction in the United States that may result in foreign ownership or control of real estate.

U.S. Trading Partners FDI Regimes

The U.S. is not alone in regulating FDI, or the acquisition of real estate by foreign investors. Canada, United Kingdom and the European Union have legislative frameworks governing foreign investment in business sectors, technology, and real estate. Almost all European Union Member States have some similar form of FDI screening.

Key U.S. trading partners that have adopted FDI regimes include, Australia, Austria, Belgium, China, Germany, France, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Poland, Singapore, Spain, and Sweden. What foreign parties, economic sectors, or technologies are covered vary from country to country. They also vary as to the notification and approval requirements.

The UK National Security and Investment Act (NSI Act) came into effect on 4 January 2022, giving the UK government powers to intervene in transactions where assets or entities are acquired in a manner which may give rise to a national security risk. There were over 800 notifications under the NSI during the previous 12-month reporting period. In November 2023 the Deputy Prime Minister Oliver Dowden published a call for evidence on the legislation which aims to narrow and refine the scope of powers to be more ‘business friendly’, given that very few notified transactions have not been cleared within 30 working days. We will revisit developments on this in 2024.

The UK has continued to implement other reforms to improve transparency of foreign ownership of UK property. Part of the UK Economic Crime (Transparency and Enforcement) Act 2022 requires the register of overseas entities. The register is maintained by Companies House and requires overseas entities which own land in the UK to disclose details of their beneficial owners. Failure to comply with the new legislation will impact any registration of ownership details at the UK Land Registry (and thus the relevant legal and equitable ownership rights in any relevant property) and officers of any entity in breach will also be liable to criminal proceedings.

Recommendations

Whether a buyer or a seller, all transactions involving FDI should include an analysis of the citizenship of the interested parties, the nature of the business, land and products, and the applicability of laws and regulations that can impact the parties, timing, or transaction.

Copyright © 2023 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Foreign Direct Investment Updates, visit the NLR Global law section.

CFTCs Increased Reach over Environmental Commodities

During 2023 the Commodity Futures Trading Commission (CFTC) engaged in several regulatory actions aimed at further clarifying its jurisdictional reach over environmental commodity markets generally and the voluntary carbon credit (VCC) markets in particular. First, on June 20, 2023, the CFTC issued an alert seeking whistleblower tips relating to carbon market misconduct. CFTC noted that many VCCs serve as the underlying commodity for futures contracts that are listed on CFTC designated contract markets (DCMs) over which the CFTC has full enforcement authority as well as the regulatory oversight. Importantly, the CFTC also noted that it has anti-fraud and anti-manipulation enforcement authority over the related spot markets for VCCs as well as carbon allowances and other environmental commodities products that are linked to futures contracts.1

Second, on July 19, 2023 the CFTC held its second convening where several market participants expressed the view that reliability, integrity and resilience of VCCs will be significantly improved with greater regulatory involvement.2

Third, in response to a growing demand to become more actively involved in environmental commodity markets on December 4, 2023, the CFTC issued proposed Guidance Regarding the Listing of Voluntary Carbon Credits Derivatives and Request for Comment (VCC Guidance).3 The VCC Guidance “outlines factors for a DCM to consider in connection with product design and listing [of futures contracts on VCCs] to advance the standardization of such products in a manner that promotes transparency and liquidity.”

The VCC Guidance is remarkable because: (i) it is non-binding (i.e., it is only guidance, not a regulation – stating that DCMs “should consider”); (ii) it notes several times that “for the avoidance of doubt, this proposal is not intended to modify or supersede the Appendix C Guidance” [to Part 38 of CFTC regulations];4 (iii) it addresses the already existing regulatory requirements for DCOs (i.e., Core Principle 3 – the requirement that all listed futures are not readily susceptible to manipulation);5 (iv) it attempts to reach over spot physically-settled VCC markets over which the CFTC does not have the regulatory jurisdiction and can only exercise its limited enforcement anti-fraud and anti-manipulation jurisdiction; (v) it requires DCMs to “consider” a number of VCC characteristics that are clearly outside of DCM’s control and probably competency, which include transparency, additionality, permanency and risk of reversal, robust quantification, governance and tracking mechanisms, and measures to prevent double-counting of VCCs; (vi) it requires DCMs to submit to the CFTC “explanation and analysis of the contract” it intends to list; (vii) it requires DCMs to actively monitor VCC contracts to ensure that they continue to meet these standards; and (viii) notes that the same standards should apply to swap execution facilities (SEFs) that may list swaps on VCCs. Finally, this VCC Guidance is followed by a number of questions and an open comment period ending on February 16, 2024.

The VCC Guidance is an important step forward to promoting transparency and integrity of VCC markets within the jurisdictional constraints of the CFTC. Even though the VCC Guidance does not (and cannot) impose any additional compliance requirements on DCMs and SEFs short of promulgating a rulemaking in compliance with the Administrative Procedure Act, it is clear that DCM’s compliance burden with respect to listed VCC contracts before the VCC Guidance was issued are clearly different than after the VCC Guidance would become effective. Further, unlike other physically-deliverable commodities that serve as underliers to futures contracts on DCMs, VCCs traded in spot and forward markets are treated differently and will probably be in the same category as virtual currencies.

https://icvcm.org/

1 https://www.cftc.gov/PressRoom/PressReleases/8723-23

2 https://www.cftc.gov/PressRoom/Events/opaeventvoluntarycarbonmarkets071923

3 https://www.cftc.gov/PressRoom/PressReleases/8829-23

4 https://www.ecfr.gov/current/title-17/chapter-I/part-38/appendix-Appendix%20C%20to%20Part%2038

5 https://www.law.cornell.edu/uscode/text/7/7

© Copyright 2023 Cadwalader, Wickersham & Taft LLP
For more news on CFTC Environmental Oversight, visit the NLR Financial Institutions & Banking section.

How to Harness the Power of Email Marketing in Law Firm Business Development

In an era where email remains a dominant communication tool, with billions of users and even more emails sent daily, law firms of all sizes can harness the power of email marketing for business development.

The return on investment is significant – $42 for every $1 spent – but this success hinges on the quality and relevance of the content shared.

For your email marketing program to be successful, you must provide your audiences with thoughtfully curated, value-added content. This is particularly crucial for smaller to mid-sized firms that might not have the same resources or volume of content as larger firms. By focusing on niche segmentation, these firms can use content marketing to effectively compete with larger entities.

The integration of emarketing systems with your CRM is vital. These systems not only facilitate efficient distribution of content but also provide invaluable data on content performance and audience engagement. Such insights are pivotal for making informed business development decisions.

Some smaller and mid-sized firms are already excelling, using tools like JD Supra to distribute their content and gain media attention. This strategy has allowed them to grow their audience and stand toe-to-toe with larger firms.

For email content, law firms should focus on sharing information that showcases their expertise and aligns with their clients’ interests. This can include legal updates, insights into regulatory changes, case studies and thought leadership articles. Practical advice, tips and guidance on current legal issues relevant to their client base are also valuable.

In addition, firms can share firm news, such as notable case wins, new hires or community involvement, to personalize their communication and strengthen relationships with their audience. The content should be informative, engaging, and, most importantly, relevant to the recipients to ensure it resonates and fosters stronger connections.

The message is clear: with strategic content and email marketing, backed by robust CRM and emarketing systems, any law firm can make a significant impact in today’s competitive landscape.

Key Takeaways

  • High ROI on Email Marketing: For every dollar spent, there’s an average return of $42, making email marketing highly effective for business development.
  • Content is Crucial: The success of email marketing depends on providing relevant and valuable content to your audience.
  • Impactful for Smaller Firms: Smaller to mid-sized law firms can leverage content marketing to compete with larger firms by targeting niche segments.
  • Integration with CRM: Utilizing emarketing systems integrated with CRM enhances content distribution and provides valuable engagement data.
  • Data-Driven Decisions: Analytics from emarketing systems help in making informed business development strategies based on content performance and audience engagement.
  • Leveling the Playing Field: Smaller firms can grow their audience and compete effectively by distributing content through platforms like JD Supra and gaining media attention.
© Copyright 2023 CLIENTSFirst Consulting
For more news on Email Marketing for Law Firms, visit the NLR Law Office Management section.

Despite Record Year, SEC Must Improve Whistleblower Program to Align with White House Anti-Corruption Initiative

SEC Chair Gary Gensler announced on October 25th that in the 2023 fiscal year, the Commission received a record number of 18,000 whistleblower tips.

The SEC Whistleblower Program has grown rapidly and effectively since its inception in 2010 – the 2022 Fiscal Year set a record of 12,300 whistleblower tips. This was a near doubling of the 2020 tips, which set a record of 6,911.

The SEC transnational whistleblower program responds to individuals who voluntarily report original information about potential misconduct. If tips lead to a successful enforcement action, the whistleblowers are entitled to 10-30% of the recovered funds. The programs have created clear anti-retaliation protections and strong financial incentives for reporting securities and commodities fraud.

The U.S. Strategy on Countering Corruption is a White House initiative from December of 2021 that establishes the fight against corruption as a core tenant of national security interests. It outlines strategic pillars and objectives within each. The recommendations on improving the SEC’s whistleblower provisions as outlined below have the same goal of creating stronger processes to combat corruption.

Since the SEC Whistleblower Program was created in 2010, whistleblowers have played a crucial role in the SEC’s enforcement efforts. Overall, since the whistleblower program was established in 2010, “[e]enforcement actions brought using information from meritorious whistleblowers have resulted in orders for more than $6.3 billion in total monetary sanctions, including more than $4.0 billion in disgorgement of ill-gotten gains and interest, of which more than $1.5 billion has been, or is scheduled to be, returned to harmed investors,” according to the 2022 annual report.

This $6.3 billion recovered via sanctions is money that is put back into the pockets of investors and everyday Americans.

The SEC does not credit related enforcement actions to award notifications and sanctions in order to maintain the anonymity and confidentiality of whistleblowers, award notifications don’t tie to underlying enforcement action. The $6.3 billion does not include DOJ enforcement actions, which combined would show a much larger number.

Non-U.S. citizens who blow the whistle on potential securities frauds committed by publicly traded companies outside the United States are eligible to receive awards, as well as those whistleblowers who report violations of the Foreign Corrupt Practices Act. This anti-corruption legislation prohibits the payment of anything of value to foreign government officials in order to obtain a business advantage.

Whistleblowers from over 130 countries have used the SEC Whistleblower Program to report fraud in their workplace.

Despite the massive growth of tips received, many whistleblowers’ cases are dismissed by the SEC due to insubstantial filing errors and strict time parameters on forms, or reported to the news media, other U.S. government agencies, or international government workers in roles that are public abroad but private in the U.S.

Considering these narrow qualifications and to ensure that the process for qualifying as a whistleblower aligns with U.S. anti-corruption priorities, the National Whistleblower Center recommends that the program be improved by expanding the definition of voluntary, further the provisions of identity protection and rewards. These recommendations align with the White House drafted United States Strategy on Countering Corruption.

Whistleblowers identified in case investigations should be automatically eligible for rewards, rather than mandated to meet technical form requirements.

The SEC should maintain their “Three Conditions” qualifications standards and expand the definition of “voluntary.” The current language disqualifies whistleblowers who report fraud to the media, other government agencies, foreign law enforcement, or a U.S. embassy before the SEC, considering them “involuntary.” These restrictions dissuade potential whistleblowers from engaging with the program and thus interfere with federal anti-corruption objectives. The agency must ensure that whistleblowers who file complaints internally before coming to the SEC maintain award eligibility.

The SEC should not incentivize or require whistleblowers to report internally before filing claims with the agency, as this exposes them to retaliation. If a whistleblower was removed from their position, they could no longer provide the Commission with the most updated information, which would harm the investigation.

By establishing a consistent inter-agency protocol concerning whistleblowers who have participated in the crime they report, the SEC can further protect the confidentiality and anonymity of whistleblowers in all ongoing federal investigations surrounding their disclosures.

Whistleblowers must receive the full force of related action provisions and rewards if the company or agency they report is simultaneously being investigated by another branch of government.

SEC regulations should contain strict deadlines for paying awards. These regulations should be premised on the fact that the SEC and Justice Department investigators and prosecutors will know the identity and contributions of all whistleblowers who would qualify for a reward in a particular case.

In the IRS (Internal Revenue Service) Whistleblower Program, procedures require that their investigators file whether or not there was a whistleblower involved in the case at the time the case file is closed. Agents thus know who the whistleblowers are, and the agency can process a claim quickly. The integration of affidavits and statements from front-line investigators into the decision-making process accelerates the reward payout.

Wait times for awards received are another disincentivizing factor for blowing the whistle. The SEC should establish and abide by a strict deadline for paying awards to ensure that whistleblowers are compensated fully and promptly. Rewards should not have a cap limit.

Such changes reinforce the White House Strategy’s objective to “bolster the ability of civil society, media, and private sector actors to safely detect and expose corruption,” “curb illicit finance,” and “enhance enforcement efforts” in the name of “modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption.”

Enhancing the program ensures that whistleblowers whose information successfully leads to enforcement action on money laundering crimes are rewarded, no matter how they provide the information.

Such provisions will demonstrate to international whistleblowers that the risk of blowing the whistle on fraud is worth taking and the United States will support them through the process.

This article was authored by Sophie Luskin.

Copyright Kohn, Kohn & Colapinto, LLP 2023. All Rights Reserved.
For more news on the SEC Whistleblower Program, visit the NLR Securities & SEC section.

FDA Announces Draft Supplemental Guidance on Menu Labeling

  • Today FDA announced an update to its Menu Labeling Supplemental Guidance which addresses implementation of menu nutrition labeling requirements. The menu labeling rules only apply to standard menu items offered by “covered establishments,” which are defined as restaurants and similar retail food establishments with 20 or more locations doing business under the same name and offering for sale substantially the same menu items, as well as restaurants and similar retail establishments that register to voluntarily subject themselves to the menu labeling requirements. (21 CFR 101.11).
  • The menu labeling regulations require disclosure of calories on menu and menu boards, and require that other nutrition information (e.g., fat, sugar, protein) be available in written form on the premises and provided to the customer upon request. Notably, the menu labeling regulations do not require disclosure of “added sugars” as is now required on packaged foods.
  • The draft update includes two new Q&As which (1) clarify that nutrition information can be provided on third party platforms (TPPs) through which food is ordered and delivered and (2) that added sugars may voluntarily be declared.
  • Although FDA accepts comments on any guidance at any time, comments on the draft new Q&As are due by February 12, 2024, to ensure they are considered before FDA begins work on final versions.
© 2023 Keller and Heckman LLP
For more news on FDA Menu Labeling Regulations, visit the NLR Biotech, Food, Drug section.

New York Further Limits Scope of Non-Disclosure Agreements in Employment Discrimination Cases

On November 17, 2023, New York Governor Hochul signed a bill into law making significant changes to New York’s law on nondisclosure agreements.  The amendments went into effect immediately and apply to agreements entered into on or after the effective date.  There are three key changes that further restrict the use of NDA provisions in certain employment settlement agreements. On the whole, these changes are good for New York employees who have experienced harassment, discrimination, or retaliation in the workplace.

New York’s Non-Disclosure Agreement Laws
First, to provide some background on New York’s Non-Disclosure law: in 2018, in the midst of the #MeToo movement, the New York legislature passed into law budget bill S. 7507–C, which provided for the addition of an entirely new section into the New York General Obligations Law, Section 5-336.  Section 5-366, one of the original #MeToo statutes, was intended to limit the use of confidentiality agreements that prevent victims of sexual harassment from disclosing the harassing conduct in a way that might prevent future harassment.

Originally, Section 5-336 provided that no employer could include a non-disclosure condition in a “settlement, agreement or other resolution of any claim” involving sexual harassment, unless the “condition of confidentiality is the complainant’s preference” and the complainant was provided twenty-one days to consider the condition plus seven days to revoke the agreement after signing it.  In other words, a non-disclosure could only be included in an employment settlement involving claims of sexual harassment if the term was the complainant’s choice, and if the parties complied with the twenty-one day consideration time period, plus the seven-day revocation period.  Bill S. 7507-C also added a new section to New York’s civil practice law, NY CPLR § 5003-b, which applied the same restrictions to non-disclosure agreements included in stipulations, decrees, or settlement agreements for filed claims or causes of action.

In 2019, New York amended the statute with bill A. 8421 to ensure that the law’s non-disclosure restrictions apply to any prohibited discrimination: the 2018 law only applied to claims invol+ving sexual harassment.  The 2019 amendments also required that any such non-disclosure condition must be provided in writing in plain English (and, if applicable, the primary language of the complainant) before the twenty-one day consideration time period could start.

In addition, the 2019 amendments clarified that any such nondisclosure condition is void if it restricts the complainant from participating in several activities, including testifying or complying with a subpoena conducted by the appropriate local, state, or federal agency, or filing or disclosing facts required to receive unemployment insurance or other public benefits to which the complainant is entitled.

Finally, the 2019 amendments expanded the law’s applicability to a “contract or other agreement” between an employer and an employee or potential employee that “prevents the disclosure of factual information related to any future claim of discrimination” unless such provision notifies the employee or potential employee that the provision does not prohibit them from speaking with law enforcement, the Equal Employment Opportunity Commission, the state division on human rights, a local commission on human rights, or an attorney retained by the employee or potential employee.  While not as expansive as the 2018 and 2019 restrictions to nondisclosure conditions included as a part of post-claim settlement agreements, the 2019 amendment importantly extended some boundaries to employment contracts to restrict employers from limiting employees and prospective employees from later speaking out about claims of discrimination under the enumerated circumstances.

Gaps in New York’s Non-Disclosure Agreement Laws Pre-2023
As discussed above, originally, Section 5-336 prohibited employers from requiring a nondisclosure provision in a release agreement involving claims of discrimination, unless confidentiality was the employee’s preference and the employee was given twenty-one days to consider the agreement and then seven days to revoke it.  In practice, this meant that, even if the employee preferred the inclusion of a nondisclosure agreement in the release agreement, the agreement could not go into effect (and the employee could not receive any settlement payment) at least until after the passage of twenty-eight days.  This lengthy delay had little, if any, effect on employees’ desire (or lack thereof) to include a nondisclosure provision in the agreement, and only resulted in considerable delay in finalizing settlements.

Furthermore, originally, employers were permitted to include penalizing liquidated damages and clawback provisions in nondisclosure agreements.  These sometimes required the employee to pay back the entire settlement payment plus exorbitant liquidated damages in the case of breach.  These extreme provisions sometimes spooked employees from settling, fearful that a vindictive employer might accuse them of breach to embroil them in an expensive lawsuit about whether a breach had occurred.

Finally, originally, Section 5-336 applied only to claims involving “discrimination,” but did not specify whether it also applied to claims involving retaliation for reporting discrimination, or for claims involving discriminatory harassment.  This meant that some employees who had experienced discriminatory harassment in the workplace, or who had reported discrimination and were retaliated against for doing so, could be forced into signing nondisclosure agreements without any of the restrictions provided by Section 5-336.

The Key Changes to New York’s Non-Disclosure Agreement Law
Responsive to these shortcomings, New York bill S4516, signed into law and effective immediately on November 17, 2023, amends Section 5-336 of the New York General Obligations Law in three ways.

First, and most prominently, employers settling claims of unlawful discrimination, including discriminatory harassment, or retaliation, may not include a term or condition that requires the employee to:

  1. Pay liquidated damages if they violate the nondisclosure or nondisparagement clause;
  2. Forfeit all or part of the consideration (payment) for the agreement if they violate the nondisclosure or nondisparagement clause; or
  3. Make an affirmative statement, assertion, or disclaimer that the employee was not subject to unlawful discrimination, harassment, or retaliation.

It is not entirely clear whether Section 5-336, as amended, applies to asserted claims that are being resolved by agreement as well as to standard separation agreements where no claim has been asserted.  The newly added Section 5-336(3) states that “no release of any claim” shall be enforceable if the above unlawful provisions are included.  The broad “no release of any claim” language suggests that the legislature intended this section to apply to all release agreements, including standard separation agreements or any agreement before claims have been asserted, such as the employment contracts discussed above.  However, some paragraphs in the statute, including Section 5-336(3), are limited to agreements “resolving such claim[s],” which may indicate that the amended section applies only to agreements resolving asserted claims and not to pre-claim release agreements.  Until a court clarifies whether the requirement applies only to agreements resolving asserted claims, parties might elect to remove these terms from pre-claim release agreements to ensure compliance with the new law.

Note that the 2023 amendments expand Section 5-336 to address the gap mentioned above: now, nondisclosure conditions in settlements resolving claims of discrimination, discriminatory harassment, or retaliation, are all restricted by the same measures.

The second key change added by the recent amendments effective November 17, 2023, is that the previously mandatory twenty-one-day consideration period is now waivable (“the complainant shall have up to twenty-one days to consider [a confidentiality provision]”) pre-litigation.  However, the twenty-one-day consideration period is still mandatory if the discrimination claim has been filed in court, pursuant to N.Y. CPLR § 5003-B.  Furthermore, the amendments do not change the seven-day revocation period.  Therefore, while an employee may choose to waive the twenty-one-day period for a nondisclosure provision in a pre-litigation settlement agreement, the seven-day revocation period is still mandatory.  Hopefully, this will ease up tensions at the end of settlement negotiations and permit employees and employers to resolve their disputes quickly.

Third, in addition to the above key changes, the recent amendments state that Section 5-336 now applies to independent contractors, in addition to employees and potential employees.  As of October 2019, the New York State Human Rights Law (NYSHRL) protects both employees and nonemployees, such as contractors, subcontractors, temporary workers, “gig” workers, and other non-employee persons providing services pursuant to a contract, from discrimination, discriminatory harassment, and retaliation.  With the 2023 amendments to Section 5-336, now independent contractors already protected from discrimination by the NYSHRL can take advantage of the same protections from nondisclosure agreements as employees.

Impact of the Amendment and Implications for Employees
These amendments are sure to have a considerable impact on employees’ settlement negotiations with employers.  New York employers are still able to pursue claims for breach of nondisclosure or nondisparagement clauses, but they are no longer able to set an agreed-upon liquidated damages amount or clawback the consideration provided.  This change therefore places more power in the hands of employees.  However, employers may feel more vulnerable to breach following these amendments, and offer lower settlement amounts because they are less willing to settle absent a liquidated damages or clawback provision.  However, if one goal of amending the law is to equalize the parties’ bargaining power, these amendments are one step towards that goal because they reinforce the principle that employers should not be able to, and now cannot, pressure employees into draconian liquidated damages and clawback provisions.

Importantly, these amendments also forbid the inclusion of an affirmative disclaimer that the employee was not subject to unlawful discrimination, harassment, or retaliation.  While in practice, these disclaimers seem to be of limited practical value, employers have historically pushed for their inclusion in settlements involving these claims.  It is therefore good news for employees that these disclaimers are now unlawful.

Failure to abide by the new law may render nondisclosure provisions with these objectionable terms unenforceable.  Employees and their counsel should carefully review their New York separation, severance, and settlement agreements to ensure compliance with the amended Section 5-336.

Katz Banks Kumin LLP Copyright ©
For more news on New York NDAs in Employment Cases, visit the NLR Labor & Employment sections.

The Corporate Transparency Act December 2023 Update

The Corporate Transparency Act (“CTA” or the “Act”) comes into effect on January 1, 2024. Enacted by Congress as part of the Anti-Money Laundering Act of 2020, the CTA requires certain entities, domestic and foreign, to report beneficial ownership to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

The CTA’s reporting obligations will apply to “Reporting Companies” (discussed below) currently in existence, and to those formed after January 1, 2024. However, while FinCEN estimates that the CTA will affect over 32 million entities, it will largely impact only smaller and unregulated companies. For example, companies that meet the CTA’s definition of a “large operating company,” are publicly traded or regulated, or are a subsidiary of certain exempt entities are not required to submit beneficial ownership information to FinCEN. Accordingly, while all companies should take note of the CTA and the significant change in the law for corporate reporting obligations, an equally vast number of entities will likely find themselves exempt from these requirements.

With the CTA’s effective date fast approaching, companies should consider its potential impact to their compliance obligations and, if appropriate, implement appropriate policies and procedures for handling reporting.

WHAT DOES THE CTA REQUIRE?

The CTA will require Reporting Companies to file reports electronically with FinCEN identifying their beneficial owners, in addition to certain other information. For Reporting Companies formed prior to 2024, these reports require information about the Reporting Company and its beneficial owners. Reporting Companies formed prior to 2024 will have until January 1, 2025, to file an initial report.

For Reporting Companies formed on or after January 1, 2024, reports will require information about the Reporting Company and its beneficial owners, as well as its company applicants (i.e., individuals involved in the company’s formation filing). Reporting Companies formed after January 1, 2024, will have 30 days from formation to file their initial reports, although FinCEN recently issued a final rule extending this reporting period to 90 days for companies created or registered in 2024.

WHO MUST REPORT?

Reporting Companies are defined as legal entities that are formed through a filing in a state secretary of state’s office or similar office under the law of a state or Indian tribe. Reporting Companies can be domestic or foreign and include, but are not limited to, corporations, limited liability companies, certain partnerships and certain trusts. A foreign Reporting Company is an entity formed under foreign law that registers to do business in any state or Indian tribe. Certain entities outside of the CTA’s scope include sole proprietorships, most general partnerships, common law trusts, unincorporated
associations, and foreign entities not registered to do business in a state or tribal jurisdiction. These entities are likely to have no reporting obligations under the CTA.

EXEMPT ENTITIES

The CTA provides 23 exemptions for Reporting Companies that would otherwise be required to report beneficial ownership information under the Act. These exemptions are predominantly for large or heavily regulated companies, including:

  • securities reporting issuers, banks, credit unions, depository institution holding companies, money services businesses, brokers-dealers, securities exchange or clearing agencies, pooled investment vehicles, regulated investment companies and investment advisors, insurance companies and state-licensed insurance providers, and accounting firms;
  • “large operating companies” who have more than 20 full-time employees in the U.S., an operating presence at a physical office within the United States, and more than $5 million in gross receipts or sales on their previous years’ U.S. tax returns;
  • U.S. publicly traded companies;
  • governmental authorities and tax-exempt entities; and
  • inactive entities who have been in existence prior to January 1, 2020, are not engaged in active business, are not owned in any manner by a foreign person, have not had a change in ownership within the last 12 months, have not sent or received any amount greater than $1,000 within the last 12 months, and have no assets or ownership interests in any entity in the United States or abroad.

The CTA also exempts subsidiaries of certain exempt entities if those exempt entities own or control the subsidiary.

WHAT MUST BE REPORTED?

Reporting Companies are required to report to FinCEN:

  • basic company information, including full legal name, trade names, business address, state of incorporation or business registration, and employer identification number;
  • information of Beneficial Owners, including full legal name, date of birth, residential street address, unique ID number from individual’s identification document and issuing jurisdiction of acceptable ID document (e.g., driver’s
    license, passport, state-issued ID, etc.), and image of ID document from which unique ID number was obtained;
  • information of Company Applicants, including full legal name, date of birth, business address, unique ID number from individual’s identification document and issuing jurisdiction of acceptable ID document, and image of ID document from which unique ID number was obtained. A “Company Applicant” is defined as the individual who directly files a document with the state secretary of state’s office to create the entity or register it to do business in the state, and the individual who is primarily responsible for directing or controlling the filing.

There is no cap on the number of beneficial owners a Reporting Company is required to report. In contrast, a Reporting Company cannot have more than two reportable company applicants. Additionally, the CTA only requires Reporting Companies formed on or after January 1, 2024, to report company applicants in their initial reports. There is no requirement to report company applicants for entities formed prior to January 1, 2024.

WHO IS A BENEFICIAL OWNER?

A beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over a Reporting Company or owns or controls at least 25% of the ownership interests of such Reporting Company.

An individual may exert substantial control by (i) serving as a senior officer (e.g., company’s president, CEO, COO, CFO or general counsel, or any officer who performs a similar function), (ii) having authority to appoint or remove certain officers or a majority of directors (or similar governing body) of the Reporting Company or (iii) having “substantial influence” over important matters at the company, regardless of their title or role.

Ownership interests in a company generally refer to any arrangement that establishes ownership rights in the Reporting Company, such as stock, capital or profit interests, convertible interests, options to buy or sell any of the above-named interests, or contracts, relationships or other understandings. Option interests must be treated as exercised for purposes of the analysis. Additionally, a beneficial owner may own or control such interest directly or indirectly, jointly with another person or through an agent, custodian, trust or intermediary entity.

The CTA identifies five instances where an individual who would otherwise be a beneficial owner under the Act qualifies for an exception. In these cases, the Reporting Company does not have to report the individual’s information to FinCEN. These exceptions are as follows:

  • a minor child;
  • a nominee, intermediary, custodian or agent;
  • an employee (excluding senior officers);
  • an inheritor, whose only interest in the company is a future interest through a right of inheritance; and
  • a creditor.

HOW TO REPORT

No filings are due prior to the Act’s effective date. While FinCEN has published draft forms for filing by a Reporting Company for comment, they are not yet finalized. FinCEN is also in the process of setting up the beneficial owner reporting infrastructure, the Beneficial Ownership Secure System (“BOSS”), which has not yet been finalized.

If beneficial owners or company applicants do not want to provide their personal data to a Reporting Company, individuals have the option of applying directly to FinCEN for a “FinCEN identifier” (a “FinCEN ID”). The individual will need to provide directly to FinCEN all of the same data that he or she would need to submit to the Reporting Company, but then would only need to provide his or her FinCEN ID to the Reporting Company for inclusion on its reporting.

Individuals who receive FinCEN IDs have the burden of keeping their data updated with FinCEN, whereas a Reporting Company has the burden of keeping the individual’s data current if the individual reports such data directly to the Reporting Company.

WHEN TO REPORT

For non-exempt Reporting Companies in existence as of January 1, 2024, they will have until January 1, 2025, to make their initial beneficial ownership report.

For non-exempt Reporting Companies formed on or after January 1, 2024, they will need to file their first beneficial ownership report within 30 calendar days after the date of formation. On November 29, 2023, FinCEN issued a final rule extending this deadline to 90 days for companies formed or registered in 2024. The time of formation is the earlier of (i) a company receiving actual notice of its registration from the state secretary of state or (ii) a company receiving notice of its registration becoming publicly available.

In addition to filing initial reports, Reporting Companies are also obligated to make reports within 30 days of a change to any data that FinCEN requires to be reported for the company and its beneficial owners.

PENALTIES FOR NONCOMPLIANCE

Congress included steep penalties for non-compliance with the CTA’s reporting requirements. Specifically, the CTA provides that willfully reporting or attempting to report false or fraudulent beneficial ownership, or willfully failing to make updates, shall be punishable with a civil penalty up to $500 per day while such violation continues, with a possible criminal fine up to $10,000 and up to two years in prison. If a reporting violation is found to be “willful,” the CTA provides that responsible parties can include individuals that cause the failure, or are senior officers of the Reporting Company at the
time of the failure. The CTA also enhances criminal penalties when a Reporting Company’s failure to file is combined with other illegal activity.

Additionally, it is also unlawful to knowingly disclose or knowingly use beneficial ownership information obtained by the person for an unauthorized purposes. Violations are punishable with a mandatory civil penalty of $500 per day while the violation continues, plus a possible criminal fine of up to $250,000, five years in prison, or both.

HOW YOU CAN PREPARE

The CTA will alter the ways entities organize and govern themselves and it will impose substantial and continuing reporting obligations. In the weeks leading up to the CTA’s implementation, entities should be developing internal policies and procedures to assess their reporting obligations, identify beneficial owners, and identify company applicants on a go-forward basis.

Reporting Companies may wish to consider adopting a CTA compliance policy. Such a policy can educate managers and senior officers on obligations under the CTA, address procedures for reporting to FinCEN and monitoring changes to a company’s reporting status and beneficial ownership, and address the application of the CTA to potential future affiliates of the Reporting Company.

Reporting Companies may also wish to consider how the CTA may implicate its constituent documents and evaluate amending existing operating agreements to incorporate provisions addressing compliance with the CTA. Similarly, some entities may wish to consider their organizational structures and corporate governance in light of the obligation to collect and report personally identifiable information. Additionally, Reporting Companies should consider how the CTA will impact future material transactions, such as mergers and acquisitions.

© 2023 Vedder Price
by: Joel R. Thielen of Vedder Price
For more news on Corporate Transparency Act Updates, visit the NLR Financial Institutions & Banking section.