Tag: PPE

OSHA Issues Final Rule on Personal Protective Equipment for Construction Workers, but It Could Start Back at Square One

On December 11, 2024, the Occupational Safety and Health Administration (OSHA) issued a statement that it had finalized a rule amending 29 C.F.R. 1926.95(c) to require construction employers to make personal protective equipment (PPE) available that “properly fits” their employees.

Quick Hits

  • On December 11, 2024, OSHA finalized a rule requiring construction employers to provide properly fitting PPE, effective January 13, 2025, though it faces potential rollback due to political opposition.
  • The new OSHA rule aims to address PPE fit issues, particularly for smaller workers and women, but lacks clear guidance on defining “properly fitting” PPE, causing industry concern.
  • Despite OSHA’s assertion that the term “properly fits” is sufficiently clear, industry feedback highlights the need for more detailed regulatory text and clarification on compliance.

The regulation was published in the Federal Register on December 12, 2024. The added language to the construction standard mirrors the current PPE fit requirements found in the general industry and shipyard standards. In OSHA’s notice of proposed rulemaking (NPRM) issued on July 20, 2023, the agency set a comment period on the proposal through September 18, 2023. During that period, comments from industry skeptics and supporters alike mirrored those previously seen.

OSHA reiterated its primary claim that PPE that does not properly fit is an issue for “smaller construction workers,” particularly women, and that implementation of the standard could increase productivity and expand the market for differently sized PPE. Many supporters of the regulatory change submitted comments reflecting that female employees praised the change and bemoaning instances of working with improperly fitting PPE. The preamble highlighted instances in which female employees had created improvised PPE when their PPE did not properly fit.

The industry’s comments acknowledged the essential nature of PPE for all employees while also continuing to express concern about the lack of clarity and guidance on how this rule would be actually implemented by employers. The core of the industry’s concern remained that the rule creates a requirement that an employee’s PPE must “fit properly” but it does not provide an explanation for how “properly fitting” PPE will be defined. Many comments highlighted this hole would create a significant opportunity for employees to complain about whether the provided PPE “properly fit” them if the PPE was simply uncomfortable. There is also no guidance on what factors employers or OSHA’s investigators should consider when evaluating whether PPE properly fits and employee and is therefore compliant with the standard.

OSHA previously dismissed this issue, stating that “employers in general industry have had no issue understanding the phrase ‘properly fits’ with regard to PPE.” The preamble reflects that several commentors requested more detailed regulatory text and clarification of responsibilities and some included recommendations. The American Industrial Hygiene Association (AIHA) recommended an operational definition for compliance, while the National Institute for Occupational Safety and Health (NIOSH) agreed with OSHA but noted the term was not universally understood. Other comments highlighted the need to consider how the body changes during pregnancy in the determination of whether PPE “properly fits” but did not suggest a specific definition for the phrase.

Ultimately, OSHA came to the same conclusion as before that the phrase “‘properly fits’ provides employers with enough information that they can select PPE for their workers that will adequately protect them from the hazards of the worksite without creating additional hazards.” OSHA pointed to the minimal confusion in other sectors and few citations for improperly fitting PPE as a suggestion that most employers can comply with the standard using the phrase “properly fits” without a definition.

We previously warned that this lack of clarity would mean that employers would still have to determine whether the range of sizes they offer would comply with the requirement for properly fitting PPE. One question to resolve is whether the “universal fit” of the PPE would assist with compliance. OSHA did note in a footnote in the preamble that one comment included an objection to the term “universal fit” arguing that “[n]o PPE is universal fit, even the most adjustable PPE may not fit workers on the extremes of anthropometric data.”. In light of this comment, OSHA acknowledged that:

[A]t the tail ends of the distribution of human variation, some adjustable PPE will not fit. For the purposes of this analysis, however, OSHA maintains that some items of PPE that come in standard, adjustable sizes will fit nearly all individuals working in the construction industry and so maintains this designation for a limited number of items in this analysis.

While this does mean employers can use the “universal fit” as a blanket mode of compliance with the standard, OSHA’s comment indicates that use of “universal fit” should allow compliance with “nearly all individuals working in the construction industry[.]”

Ultimately, while this rule remains a likely rollback priority for the second Trump administration, employers should still be mindful of the January 13, 2025, effective date.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more on OSHA, visit the NLR Health Law Managed Care section

Workplace Safety Concerns for Florida Employers in Anticipation of Hurricane Helene

Tropical Storm Helene is projected to hit Florida’s Gulf Coast as a major hurricane later this week, and evacuations are already underway in parts of the state. Employers are likely to face inevitable workplace safety risks with the storm and recovery.

Quick Hits

  • Tropical Storm Helene is expected to make landfall in Florida as a major hurricane as early as September 26, 2024.
  • Governor Ron DeSantis has declared a state of emergency for sixty-one counties across the state.
  • Employers may want to consider their obligations to protect workers and maintain a safe workplace and begin preparations for the hurricane response.

After developing over the Caribbean, Tropical Storm Helene is expected to “rapidly intensify” into a “major hurricane” as it moves over the Gulf of Mexico before making landfall on Florida as early as Thursday, September 26, according to the National Hurricane Center.

On Monday, September 23, Governor Ron DeSantis declared a state of emergency for forty-one counties in Florida. A day later, on September 24, the governor issued a new executive order expanding the emergency order to most of Florida’s sixty-seven counties.

By the time the the storm the storm makes landfall, it is expected to have intensified into at least a Category 3 hurricane, which can bring winds of up to 130 mph and can cause storm surges greater than ten feet. The storm is projected to affect the entire Gulf Coast of Florida as it moves up through the Florida panhandle and into the Southeastern United States.

In total, sixty-one Florida counties are under a state of emergency: Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, Walton, and Washington counties.

Workplace Safety Compliance

The Occupational Safety and Health (OSH) Act and Occupational Health and Safety Administration (OSHA) standards require employers to take certain actions to ensure a safe and healthy workplace and make preparations for potential risks, including with regard to events like hurricanes and other natural disasters. Here are some key requirements:

  • General Duty Clause: The OSH Act requires that employers provide a workplace free from recognized hazards that could cause death or serious harm, including preparing for and responding to hurricanes and their related hazards. Employers are further required to protect employees from anticipated hazards associated with the response and recovery efforts employees are expected to perform.
  • Emergency Action Plans (EAPs): Under OSHA standards, many employers must develop and implement EAPs, covering evacuation procedures, emergency contact information, and roles for employees during emergencies, such as hurricanes.
  • Training: Employers are also required to provide training with employees on emergency procedures, including evacuation and shelter-in-place protocols, to ensure they know what to do during a hurricane.
  • Hazard Communication: Employers must inform employees about potential hazards, such as chemical spills or structural damage, that could occur during or after a hurricane.
  • Personal Protective Equipment (PPE): Employers may need to provide necessary PPE for employees involved in clean-up and recovery efforts following the hurricane.
  • Post-Event Safety: Employers may be required to conduct hazard assessments and ensure the workplace is safe before employees return to work after a hurricane.

Next Steps

Given the risks of the hurricane, employers may want to start preparing, if they have not already done so, to ensure the safety of their workplaces and their employees, including communicating emergency plans, and, in some cases, closing or evacuating workplaces entirely.

OSHA has provided more information and resources for employers on preparing for and responding to hurricanes on its website here.

Further, in addition to workplace safety concerns, employers have additional legal obligations or considerations with natural disasters that they may want to incorporate into their disaster management and response plans.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.\
For more news on Florida Workplace Safety, visit the NLR Environmental Energy Resources and Labor Employment sections.

COVID-19: FTC Acts Fast, Lambasts Missing Masks

Section 5 of the Federal Trade Commission Act (15 U.S.C. Section 45(a)) provides worthwhile remedies for the types of unfair competition that intellectual property practitioners find quite familiar, and practitioners should give them due consideration.  Selling COVID-19 masks you don’t have provides a good example.

In a case filed in early July (FTC press release) the FTC took a Staten Island business to task, along with its owner, for claiming that masks, respirators and other “PPE’s” (personal protection equipment) was “in stock” and “would ship the next day” (Complaint).  The website “supergooddeals.com” continues to lead off with its signature slogan, “Pay Today, Ships Tomorrow” (https://supergooddeals.com/; also accessed by the author on July 31, 2020).

Apparently starting in March 2021, supergooddeals.com began selling PPE.  According to the FTC complaint, the website claimed that the desired masks were “IN STOCK” (complaint paragraphs 19 and 20).  The FTC complaint gives no indication as to whether or not the “in stock” claim was accurate, but instead pleads the examples of several consumers who never received masks, and numerous complaints to which supergooddeals.com never responded.

The FTC complaint also implies that to the extent that some orders may have been shipped, they were shipped on terms that were far less favorable than supergooddeals.com advertised, and when shipments never arrived (or perhaps were never sent) supergooddeals.com failed to give buyers the opportunity to change their mind, or offer a refund or any modification in price terms (e.g. Complaint paragraphs 29-31).

Supergooddeals.com also apparently attempted to conceal their failures (worse verbs could be applied) by producing shipment labels carrying the promised shipping date, but for packages that either would never ship, or shipped much later than the labelled date.  Supergooddeals.com apparently didn’t realize that when a business creates its own USPS shipping labels, “An electronic record is generated on the ship date indicating that your package has been mailed and the Postal Service is expecting to see your package that day.” Click-N-Ship Field Information Kit

(For those of us that may merely be tardy, the same USPS webpage suggests mailing the package on the next business day.  Checking for a friend.)

The FTC also asserted MITOR (“Mail, Internet, or Telephone Order Merchandise,” 16 CFR Part 435) which defines the terms in the name, defines unfair and deceptive practices in context, requires certain activities, and lists some exceptions (including, for reasons known only on K Street, “orders of seeds and growing plants”).

So, the alleged infractions include:

  • Advertising a delivery date that you know you cannot meet,
  • Advertising items that you don’t have in stock
  • Producing a false mailing label in an attempt to prove the shipping date, and
  • Failing to cancel orders when requested or provide prompt refunds

The Federal Trade Commission Act has worthwhile remedies for such activities, and as the Complaint indicates (paragraphs 58 and 59) the FTC plans to seek them against supergooddeals.com.

So, the people get their money back from supergooddeals.com and all’s well that ends well. Right?

Not exactly.  The FTC Act offers no private right of action in these circumstances.  The Fair Debt Collection Practices Act (FDCPA) 15 USC Section 1692(d) which is generally under the Federal Trade Commission, provides private remedies in the consumer debt arena, but a private party otherwise has no right to the remedies sought against supergooddeals.com under the FTC Act.

At this point, however, the intellectual property (“IP”) practitioner may have an extra arrow up his or her sleeve:  Section 43(a) of the Lanham Act (15 USC 1125(a)) if—IF—the parties can be defined as competitors in the section 43(a) sense.

FTC § 5(a)

Lanham Act § 43(a)

Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.

(1)Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

Anchor(A)

is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

Anchor(B)

in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

The Lanham Act applies to false representations (etc.) about goods and services in interstate commerce, but plaintiffs attempting to stretch section 43 (a) too far have been turned down e.g., Radiance Found., Inc. v. NAACP, 786 F.3d 316 (4th Cir., 2015) (The Radiance Foundation, an African American influenced pro-life organization, criticized the NAACP over the NAACP position on abortion.  The NAACP issued a cease and desist letter and the Radiance Foundation filed a declaratory judgment complaint arguing that neither trademark infringement nor dilution had occurred.  The NAACP counterclaimed under (inter alia) section 43(a).  The Fourth Circuit held that for a number of reasons, including the lack of competing goods or services in the section 43(a) sense, the NAACP did not have a trademark remedy in these circumstances.)

Supergooddeals.com certainly dealt (and continues to deal) in “goods” in the sense of section 43(a).  Nevertheless, the “hundreds of” consumers listed in (e.g.) paragraph 26 of the FTC complaint don’t have a section 43(a) remedy against supergooddeals.com because such customers are not “competitors” of supergooddeals.com in the sense required by section 43(a).  Stated more formally, for individual defrauded customers, the answer to, “whether a legislatively conferred cause of action encompasses a particular plaintiff’s claim” is “no.” (Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 132 (2014). (“A consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act—a conclusion reached by every Circuit to consider the question.”)

Does Pat Peoples have any Silver Lining here?  Well, yes. In addition to a possible contractual remedy, most states have some form of general “unfair competition is illegal” statute as well as consumer protection remedies.

For the time being, however, these defrauded consumers have Uncle Sam on their side, and when “Uncle” sues he usually gets the job done.

 

Copyright 2020 Summa PLLC All Rights Reserved

ARTICLE BY Philip Summa and Summa PLLC.
For more FTC PPE Actions see the National Law Review Coronavirus News section.

To Provide an N95 Mask or Not to…That is the Question Plaguing Some Employers (US)

One of the biggest questions plaguing employers during the COVID-19 pandemic is whether or not to provide employees with respirators—the holy grail of all PPE at this time. On March 11, 2020, the White House issued a Presidential Memorandum, entitled “Making General Use Respirators Available,” which mandated all necessary efforts by the government and public at large to make respiratory devices available for use by healthcare workers during the COVID-19 pandemic to mitigate against further transmission of the virus. In response, OSHA has issued several forms of temporary enforcement guidance for the Respiratory Protection standard, as well as its April 13, 2020 Interim Enforcement Response Plan for Coronavirus Disease 2019 (COVID-19), and both the healthcare and general industries have scrambled to comply with this exacting standard in the face of extensive shortages.

As we recently discussed here, OSHA issued two enforcement guidance memos on April 3, 2020, regarding issues surrounding the use of respiratory equipment. The first memorandum discusses the use of respiratory protection and the N95 mask shortage due to COVID-19, specifically outlining enforcement discretion to permit the extended use and reuse of respirators, as well as the use of respirators that are past their manufacturer’s recommended shelf life—when following the directions set forth in the memorandum (i.e., attempting to obtain other NIOSH-approved respirators and using all other feasible engineering controls) and when used as recommended by the CDC. The reasoning behind the memorandum is the sad fact that the pandemic has limited the availability for N95 filtering facepiece respirators to only workers in the healthcare and emergency response fields (and even then there are not enough respirators to go around). The second memorandum provides similar guidance on the use of respiratory protection equipment certified under the standards of other countries or jurisdictions during the COVID-19 pandemic, if the methods set forth in the first memoranda are unavailable. Both memoranda explicitly explain their application to both (1) healthcare personnel exposed to actual and potential COVID-19 patients, as well as (2) workers exposed to other respiratory hazards due to the shortage of respirators resulting from the COVID-19 pandemic response.

On April 8, 2020, OSHA issued further guidance and announced the expansion of temporary guidance provided in a March 14, 2020 memorandum regarding supply shortages of N95 masks or other filtering facepiece respirators (FFRs) due to the COVID-19 pandemic. The memorandum expands application of mandatory fit-testing requirements in the March 14 memorandum beyond healthcare to all workplaces covered by OSHA—where there is required use of respirators—and explains that “OSHA field offices will exercise enforcement discretion concerning the annual fit-testing requirements, as long as employers have made good-faith efforts to comply with the requirements of the Respiratory Protection standard and to follow the steps outlined in the March 14, 2020 memorandum.”

Notably, all three memoranda outline some version of this statement: “Due to the impact on workplace conditions caused by limited supplies of N95 FFRs, all employers should reassess their engineering controls, work practices, and administrative controls to identify any changes they can make to decrease the need for N95 respirators. Employers should, for example, consider whether it is possible to increase the use of wet methods or portable local exhaust systems or to move operations outdoors. In some instances, an employer may also consider taking steps to temporarily suspend certain non-essential operations.” OSHA also clarified that “[a]ll employers whose employees are required to use or are permitted voluntary use of respiratory protection must continue to manage their respiratory protection programs (RPPs) in accordance with the OSHA respirator standard, and should pay close attention to shortages of N95s during the COVID-19 pandemic. Paragraph (d)(1)(iii) in section 1910.134 requires such employers to identify and evaluate respiratory hazards in the workplace, and paragraph (c)(1) requires employers to develop and implement written RPPs with worksite-specific procedures and to update their written programs as necessary to reflect changes in workplace conditions that affect respirator use.” OSHA confirmed this fact in its April 13, 2020 Interim Enforcement Response Plan, where it again focused on healthcare and emergency response job tasks with “high” and “very high” occupational exposure risk to COVID-19.

So who should be provided respirators in the first place then? OSHA has not yet put forth any guidance saying that it will require (or even recommend, consistent with CDC guidance for the general public) NIOSH-approved respiratory protection in the typical working environment, except for employees working within 6 feet of patients “known to be, or suspected of being, infected with SARS-CoV-2 and those performing aerosol-generating procedures.” The agency has also clarified that the use of PPE, including respiratory protection, should not take the place of other prevention strategies.

However, whether respiratory protection is required is still a case-by-case analysis, the outcome of which will be dependent on each employer’s internal hazard assessment and the risk category within which the employer’s workers fall (as described in OSHA’s guidance). Only for high risk and very high risk positions does OSHA recommend the use of respiratory protection, including NIOSH-approved N95 devices, as well as face shields or goggles—in accordance with CDC guidance for hospital preparedness. For medium risk workplaces, the guidance notes that situations requiring employers to use respirators are rare. And for lower risk workplaces, OSHA does not even recommend additional PPE, let along respirators. Instead, the agency directs that “[w]orkers should continue to use the PPE, if any, that they would ordinarily use for other job tasks.” Therefore, employers falling into the latter two categories that want to provide respiratory protection may be stuck between a rock and a hard place until supply levels increase and agency guidance expands.

That said, OSHA recognizes the difficulties at hand and has clarified that its inspectors will be given specific enforcement discretion when enforcing the Respiratory Protection standard during the COVID-19 outbreak. In exercising this discretion, inspectors are instructed to refer to OSHA’s guidance outlined herein, to continue to check for additional or modified guidance, and to always assess “whether the employer is making a good-faith effort to provide and ensure workers use the most appropriate respiratory protection available for exposures to SARS-CoV-2.” Per OSHA’s Interim Enforcement Response Plan, assessing good-faith efforts will be accomplished by the following:

  • Implementing the hierarchy of controls in an effort first to eliminate workplace hazards, then using engineering controls, administrative controls, and safe work practices to prevent worker exposures to respiratory hazards;
  • Prioritizing efforts to acquire and use equipment according to OSHA’s guidance memorandum above;
  • Performing a user seal check each time an employee dons a respirator, regardless of whether it is a NIOSH-certified device or not, and do not use a respirator on which they cannot perform a successful user seal check; and
  • Training workers to understand proper usage, maintenance, sanitation, and storage of respirators and other PPE.

In other words, it is hard to get respirators in the first place, even for healthcare and emergency workers falling into the high and very high risk categories. So, employers must implement comprehensive backup plans involving the use of engineering controls, administrative controls, safe work practices, and other appropriate PPE. However, if respirators are available for your workers, and they need and are provided respirators for their particular position, they must be used in the context of a comprehensive respiratory protection program that meets the requirements of OSHA’s Respiratory Protection standard (29 CFR 1910.134), at least to the greatest extent possible, including the requirements for medical exams, fit testing, and training.

© Copyright 2020 Squire Patton Boggs (US) LLP

For more on respirator availability & usage, see the National Law Review Coronavirus News section.

FCPA Landmines Beneath the Surface of the COVID-19 Crisis

COVID-19 took the world by surprise and continues to spread across the globe in more than 210 countries and counting.  The outbreak in the United States escalated rapidly, with over 585,000 confirmed cases as of April 14, 2020.  The federal government and a number of hard-hit states were caught off guard, and soon learned that their inventories of personal protective equipment (“PPE”) and other life-saving equipment such as test kits and ventilators were insufficient to keep pace with the pandemic.  The demand for equipment to fight COVID-19 skyrocketed and government and commercial entities have shifted into high gear to respond.  Whether motivated by humanitarian concern or commercial enterprise, many state and local governments, companies and individuals are now looking abroad to procure critical supplies on an expedited basis.  At the same time, many foreign industrial manufacturers are positioning themselves for the high demand of exports by adapting their facilities to produce PPE.  For example, Chinese electric car maker BYD announced on March 13, 2020 it is now the largest face mask factory in the world—less than one month after converting its facilities in response to the pandemic.  In the midst of these exigent circumstances, the global supply chain landscape is replete with Foreign Corrupt Practices Act landmines—and well-intentioned companies hoping to partner with foreign PPE manufacturers could become a casualty if they don’t watch their step.

Anticipated FCPA Enforcement in the Wake of the COVID-19 Pandemic

The Foreign Corrupt Practices Act of 1977 (“FCPA”) makes it unlawful for any commercial enterprise, or individual representing one, to offer, promise to pay, or direct or authorize another individual to pay money or anything of value to a foreign government official for the purpose of expanding or maintaining their commercial interests.  15 U.S.C. §§ 78dd-1, et seq.  The FCPA also requires publicly traded companies “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”  Id.  The statute has a criminal and civil bite; the DOJ is responsible for all criminal enforcement of the FCPA and civil enforcement of its bribery provisions, and the SEC is responsible for civil enforcement of the FCPA’s “books and records” provisions if securities are involved.  The DOJ and SEC rarely enforced the FCPA in its first three decades of existence.  These agencies, however, have aggressively interpreted and enforced the law since the turn of the century.  From 2000 to 2019, the DOJ brought 235 enforcement actions and the SEC brought 168 enforcement actions, together involving over $11 billion in monetary resolutions.  In 2019, the U.S. Government collected more in a single year through DOJ and SEC actions against companies in FCPA cases than ever before.  There are several FCPA-related considerations for companies to keep in mind as they navigate business during the COVID-19 pandemic.

Indeed, U.S. companies would be wise to assume the government will persist in its aggressive “a bribe is a bribe” approach to the FCPA, even in the midst of a worldwide health crisis.  First, corruption tends to thrive in times of crisis.  Weaknesses in governmental systems become exposed, and those with nefarious intent, or just too much aggressiveness, seize on the opportunity to exploit the panic, fear and suffering that accompanies disasters.  Increased corruption, in turn, often results in increased enforcement.  The financial crisis of 2008, for example, increased FCPA enforcement.  As companies faced pressure to obtain business and even maintain operational status during the crisis, their focus on FCPA compliance decreased.  The global economy came to a halt, and many companies decided to quickly merge and consolidate.  The speed of these consolidations resulted in the discovery by some acquiring companies of questionable payments and accounting practices both pre- and post-merger, resulting in increased FCPA compliance risks.  The DOJ and SEC were alerted and brought more FCPA enforcement actions and imposed higher civil fines from 2008 to 2011 than ever before.

Second, although the current administration has not directly addressed whether and to what extent it will pursue FCPA enforcement actions as a result of the COVID-19 pandemic, the DOJ and SEC have announced their intent to prioritize coronavirus-related fraud schemes.  For example, on March 20, 2020, the DOJ issued a press release announcing that Attorney General William P. Barr “is urging the public to report suspected fraud schemes related to COVID-19” and directing all U.S. Attorneys to prioritize investigating and prosecuting such schemes.  Four days later, the DOJ established the COVID-19 Hoarding and Price Gouging Task Force “to address COVID-19-related market manipulation, hoarding, and price gouging.”  Given the global supply chain pressure points and implications of the COVID-19 crisis, it would not be a stretch for the administration to extend its prioritization of such COVID-19-related fraud cases to include COVID-19-related global anti-corruption and bribery cases.

Third, the federal government is in the process of rolling out over two trillion dollars in aid and recovery funding in response to the coronavirus pandemic, and it likely will be eager to replenish its resources after such an unprecedented relief package.  The FCPA historically has generated significant revenue for the U.S. Government, and all criminal fines, civil penalties and disgorged profits resulting from FCPA violations go directly into the U.S. Treasury.  When the COVID-19 crisis curve drops in the U.S., the DOJ, SEC, and federal prosecutors could turn to the FCPA to assist the U.S. Government in bouncing back from the financial impact of the pandemic.

Finally, the current administration and others have been critical of China’s response to the COVID-19 crisis; Secretary of State Mike Pompeo, for example, remarked in a March 5, 2020 press conference that “there was information [from China] that could have been made available more quickly and data that could have been provided and shared among health professionals across the world.”  Further, on March 12, 2020, Chinese Foreign Ministry spokesman Zhao Lijian suggested, via Twitter, that the U.S. has not been transparent and that the U.S. Army may have brought the epidemic to Wuhan, China.  In the wake of a potential diplomatic fallout between the U.S. and China, the administration may be particularly vigilant of and aggressive toward U.S.-China deals implicating the FCPA.

Potential FCPA Landmines

American companies that import goods or supplies from abroad frequently rely on customs agents and third-party brokers to assist them in maneuvering the often complex customs process.  The use of such agents, however, may expose companies to FCPA compliance risks.  Numerous FCPA enforcement actions brought by the DOJ and the SEC have focused on improper payments made by third-party agents to government officials to secure customs clearance or additional business.

For example, on September 26, 2019, the SEC announced that a Wisconsin-based digital and print marketing provider agreed to pay nearly $10 million to settle charges that it violated the FCPA by engaging in multiple bribery schemes in Peru and China.  The SEC Order found that from 2010 to 2015 the company’s China-based subsidiary used sham sales agents to make and promise improper payments to employees of private and governmental customers to secure business.  Similarly, on February 28, 2020, an American communication technology provider settled FCPA charges with the SEC and DOJ for $8.8 million for using resellers and distributors in China to bribe government officials.

As companies face intense pressure to quickly obtain goods and clear them through the customs process to mitigate the healthcare and economic consequences posed by COVID-19, the risk of FCPA violations runs high.  For example, a customs official could refuse to allow the export of PPE without a bribe, and a company employee may be desperate enough to decide that the payment is worth making to preserve his or her employment at a time when company revenues are declining, non-performing employees are subject to lay-offs and furloughs, and sales expectations and revenues remain high.  Further, a company venturing into uncharted terrain by seeking to purchase high-demand and scarce products abroad to compensate for losses in traditional lines of business might face increased risks of bribery and corruption primarily due to inexperience.  Indeed, the pressure to maintain business or get back to “business as usual” may lead some employees to get dangerously close to or even cross ethical boundaries by committing bribery or other similar misconduct.

Best Practices

Companies seeking to procure goods and supplies abroad during the COVID-19 pandemic should consider the following best practices to avoid falling out of compliance with the FCPA:

  1. Maintain a Strong Compliance Presence

Company management should reinforce and reiterate the company’s commitment to its anti-corruption and anti-fraud compliance programs. Many companies are taking proactive steps to ensure the safety and well-being of their employees, cope with new “Work From Home” policies, and brace for the financial impact of the pandemic.  While a heightened focus on these critical areas right now is understandable, it is important now more than ever for companies and their compliance officers to remind employees, especially those responsible for facilitating the acquisition and importation of goods and supplies from abroad, of the company’s commitment to ethical business practices.

  1. Emphasize Reporting Procedures for Suspected FCPA Violations

Company management should conduct anti-corruption training for employees to ensure they are capable of recognizing unethical and potentially illegal conduct, and their responsibilities for reporting it according to company policies and procedures.  Compliance departments should test their reporting procedures to ensure employees are at ease in reporting any suspected FCPA violations through multiple avenues, and compliance officers should similarly test their ability to respond appropriately to reasonable suspicions of illegal activity.

  1. Increase Screenings and Transaction Review

Finally, company management should consider increasing due diligence efforts and taking a “deeper dive” when it comes to interacting with new suppliers, agents, and distributors. For example, companies should pay particular attention to whether the individual being reviewed is related to any public officials in their country of residence, has a history of employment or business dealings with the government, and whether they previously have been the subject of any corruption complaints, investigations or negative news events.  Further, companies that have instituted quantity, financial, or country of origin thresholds for reviews of transactions, expenses, and other aspects of company business for corruption risk, should consider adjusting such thresholds to include a broader and more conservative review process, at least until the COVID-19 pandemic and related equipment and supply demands substantially decrease.

Like all Blogs, this one is for information purposes only. It is not legal advice and does not form an attorney client relationship. As you are aware, things are changing quickly and there is no clear-cut authority or bright line rules in this area. This Blog does not reflect an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand. This Blog does not address the potential impacts of the numerous other local, state, and federal orders that have been issued in response to the COVID-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay, and other issues.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.

For more on COVID-19 & Global Trade, see the National Law Review Coronavirus News section.