US federal government agencies charged with implementing President Biden’s February 24, 2021 Executive Order 14017 (“America’s Supply Chains” or “Supply Chain EO”) continue to assess supply chain risks and vulnerabilities by issuing public requests for comment.  Among other things, the Supply Chain EO directs the heads of several federal agencies to conduct a one-year review to examine supply chains for potential vulnerabilities in a number of sectors.  (This is in addition to the 100-day reviews that resulted in a report issued in June with findings and policy recommendations for four critical supply chains.)  The reviews will identify the material and manufacturing inputs of each supply chain, assess their vulnerability to disruption, and develop policy recommendations for ensuring their resilience.  See some of our key blog posts on the Supply Chain EO for more background.  Recent developments from the US Department of Commerce and the US Department of Transportation (“DOT”) highlight just some federal agencies’ efforts to implement the Supply Chain EO’s directives:

  • Department of Commerce: On September 20, 2021, the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a public notice requesting comments from the public to assist the Secretary of Commerce and the Secretary of Homeland Security to prepare a report for the President evaluating risks in the ICT supply chain.  For the purpose of this report, BIS has defined the scope of the ICT industrial base to include: hardware that enables terrestrial distribution; broadcast/wireless transport; satellite support; data storage such as data centers and cloud technologies; end user devices such as routers, antennae, and receivers; mobile devices; and other “critical” software (as defined by the National Institute of Standards and Technology pursuant to Executive Order 14028).  The deadline to submit public comments to BIS is November 4, 2021.
  • Department of Transportation: On September 16, 2021, DOT issued a public notice inviting comments pursuant to the Supply Chain EO and the President’s Supply Chain Disruptions Task Force, which is co-chaired by the Secretaries of Transportation, Agriculture, and Commerce, to address key supply chain challenges and to identify constraints in the transportation sector.  Specifically, DOT seeks information identifying the following: major infrastructure or operational bottlenecks across freight and logistics supply chains; current and future shortages in essential cargo-handling equipment (e.g. chassis, shipping containers, etc.); warehouse capacity and availability; major risks within the freight and logistics sector; the effect of climate change on transportation and logistics infrastructures; technology and cybersecurity issues; sector-specific workforce and labor issues; current barriers impeding supply chain performance; domestic production of the sector’s critical assets; issues involving technology and data sharing; and other policy or regulatory suggestions.  DOT’s deadline to receive public comments is October 18, 2021.

Key Takeaways

In addition to BIS and DOT, a number of other federal agencies, including the Department of Energy and the Department of Agriculture, have issued requests for comments under the Supply Chain EO.  As federal agencies continue to ramp up their efforts to implement the Supply Chain EO, companies whose operations are involved in these supply chains should consider submitting comments in an attempt to ensure that their perspectives are considered as the agencies identify vulnerabilities and develop recommendations for changes to US supply chain policy.  Supply chain reviews under the Supply Chain EO are highly likely to bring about policy and regulatory changes related to compliance standards directly bearing on trade, environmental, human rights, and labor practices, among others.

The post United States: Federal Agencies Issue Requests for Public Comments to Assess Strength of Supply Chains Following “America’s Supply Chains” Executive Order appeared first on Global Compliance News.

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In recent weeks, the US Government has imposed a series of additional sanctions against Russia consisting of additional measures focused on the energy pipeline sector, as well as further measures in response to the alleged poisoning of Alexy Navalny. This latest escalation of sanctions against Russia builds upon the April 2021 sanctions imposed pursuant to Executive Order 14024, “Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation.”  Please see our previous blog regarding Executive Order 14024 here

Russian Pipeline Projects Sanctions

On August 20, 2021, President Biden signed Executive Order 14039 “Blocking Property with Respect to Certain Russian Energy Export Pipelines” (“August 20 EO“), adding further sanctions against Russia under the Protecting Europe’s Energy Security Act of 2019, as amended (“PEESA”).  Concurrently, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) blocked additional Russian parties and issued General License 1A to authorize certain transactions otherwise prohibited under the August 20 EO or PEESA, issued a new FAQ 921, and updated FAQ 894

As a recap, PEESA, among other things, requires the imposition of sanctions with respect to the provision of vessels engaged in specified activities for the construction of certain Russian energy export pipelines, including the Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either project, and on foreign persons that engage in certain activities in support of such projects. The August 20 EO blocks property of persons identified by the Secretary of State, in consultation with the Secretary of the Treasury, in a report to the Congress pursuant to PEESA.  The latest report lists one Russian vessel and two Russian persons involved in the Nord Stream 2 pipeline, and they are now sanctioned under PEESA.  The only exception is for those parties covered by national security waivers under PEESA Section 7503(f), i.e., the other PEESA exceptions for the import of goods, for repairs or maintenance, or crew safety and security, etc. do not apply.   

OFAC also designated these and certain additional parties as Specially Designated Nationals (“SDNs”). This brings to a total of 2 vessels sanctioned only under PEESA and subject to menu-based sanctions (with an exception for imports into the United States) and a total of 21 persons/vessels subject to full SDN blocking under the August 20 EO. Please see the OFAC press release for the full list of vessels and other parties, including the Federal State Budgetary Institution Marine Rescue Service (“MRS”), added to the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”) under the August 20 EO. 

All property and interests in property of persons designated pursuant to the August 20 EO that are or come within the United States or the possession or control of US persons are blocked, and US persons are generally prohibited from engaging in transactions with them.  Additionally, entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more blocked persons are also blocked.See FAQ 921 for further information regarding the August 20 EO.

GL 1A, which replaces and supersedes the previous General License 1, generally authorizes certain transactions that are otherwise prohibited under the August 20 EO or PEESA.  More specifically, GL 1A allows US persons to engage with the MRS, or any entity owned 50 percent or more by MRS, that are not related to the construction of Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either pipeline project.  GL 1A does not authorize any transactions or activities with any vessels identified on the SDN List as blocked property of MRS, including vessels identified as blocked property of any entity in which MRS owns, directly or indirectly, a 50 percent or greater interest.  Updated FAQ 894 offers further clarification on the scope of GL 1A.

New Russian Chemical Weapons Programs Sanctions

Also on August 20, 2021, OFAC imposed additional sanctions on nine Russian individuals and two Russian entities allegedly involved in the poisoning of Aleksey Navalny or in Russia’s chemical weapons program pursuant to Executive Order 13382 of June 28, 2005, a counter-proliferation authority. 

In parallel, the US State Department separately sanctioned two Russian Ministry of Defense scientific laboratories determined to have engaged in chemical weapons research and testing activities pursuant to Executive Order 14024 of April 15, 2021, for operating in the defense and related material sector of Russia.  Both of these scientific laboratories were already sanctioned by the State Department pursuant to Executive Order 13382.

In addition, the State Department issued a second round of sanctions against Russia over its alleged use of a Novichok nerve agent against its own nationals in August 2020. These sanctions were required under the US Chemical and Biological Control and Warfare Elimination Act of 1991 (“CBW Act”) absent a determination that Russia had met certain conditions under the CBW Act since the earlier round announced in March 2021. The new sanctions include:

  1. Additional export restrictions on nuclear and missile-related goods and technology pursuant to the Export Control Reform Act of 2018. The previous round of CBW Act sanctions imposed in March 2021 only restricted exports to Russia of items controlled for National Security (NS) reasons. While the State Department’s release focuses on “nuclear and missile-related” items, the associated Federal Register notice suggests a broader scope by reference to prohibiting exports to Russia under Section 6 of ECRA of “all other goods and technology (excluding food and other agricultural commodities and products).” However, consistent with the focus on “nuclear and missile-related” items, this is in fact subject to several waivers continued from the March 2021 round of sanctions (including continued License Exceptions GOV, ENC, BAG, TMP and AVS eligibility, deemed export licensing, etc.) and does not impose new licensing requirements, but only sets forth new licensing policies.
  2. Restrictions on permanent imports of certain Russian firearms.  New and pending permit applications for the permanent importation of firearms and ammunition manufactured or located in Russia will be subject to a policy of denial.
  3. Prohibition on US bank ruble loans or credit to the Russian Government. US banks are to be prohibited from making any loan or providing credit to the Government of the Russian Federation, except for purposes of purchasing food or other agricultural commodities or products. A waiver limits this ban to participation in new ruble denominated bonds/loans. (This is also separate from OFAC Directive 1 issued in April 2021 under EO 14024 generally prohibiting US financial institutions from (1) participating in the primary market for ruble or non-ruble denominated bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, and (2) lending ruble or non-ruble denominated funds to these three entities. )   

The sanctions were formally imposed on September 7, 2021 and will be in place for a minimum of one year.  For more information regarding these new restrictions under the CBW Act, please see the State Department’s fact sheet here.  For more details regarding the CBW Act, including its restrictions and waivers, please see our most recent blogs on the CBW Act here and here.

The authors acknowledge the assistance of Ryan Orange on this blog post.

The post US Issues Additional Sanctions Targeting Russian Pipeline Projects and Under the Chemical Weapons Programs appeared first on Global Compliance News.

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In brief

Please join us for a new weekly video series, hosted by Baker McKenzie’s North America Government Enforcement partners Tom Firestone and Jerome Tomas.

This weekly briefing is available on demand and will cover hot topics and current enforcement actions related to white collar crime and criminal investigations in the US and abroad to arm you with the information you need to start your business week.

As one of the largest global law firms, we will call upon our exceptionally deep and broad bench of white collar experts throughout the world and particularly in the commercial hubs of Europe, Asia, Africa and Latin America to join our weekly discussion series.

These briefings will cover:

  • High-profile DOJ case updates and implications
  • SEC enforcement developments 
  • CFTC enforcement developments
  • Other white collar defense industry developments 

Date: 20 September 2021

This week’s discussion will cover the following: 

  • Details Behind The SEC Whistleblower Award That Pushed the Program Over $1 Billion in Whistleblower Payouts
  • SEC v. DAYAKAR R. MALLU – Tipper-Tippee Insider Trading Case – SEC Investigation Tactics and Trends
  • Indictment of lawyer by Trump-appointed Special Counsel for lying to the FBI in Russia investigation.

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Date: 14 September 2021

This week’s discussion will cover the Elizabeth Holmes Theranos trial. 

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Date: 30 August 2021

This week’s discussion will cover the following: 

  • Organized crime charges in new elder abuse case
  • Novel SEC Insider Trading Action — Shadow Trading — SEC v. Matthew Panuwa
  • Quick blurb on 18 year old and under crackdown on video game playing in China
  • SEC v. MANISH LACHWANI – The SEC’s Enforcement Focus on Unicorns

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Date: 23 August 2021 

This week’s discussion will cover the following: 

  • Special Inspector General for Afghanistan Reconstruction (SIGAR) Report on Lessons of Corruption in Afghanistan
  • Novel SEC Insider Trading Action — Shadow Trading — SEC v. Matthew Panuwa

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9 August 2021

This week’s discussion will cover the following: 

  • SEC brings charges unregistered crypto exchange: In the Matter of Poloniex, LLC
  • The need to keep your auditor at arm’s length — SEC brings auditor independence case for audit bid-related misconduct against accounting firm, it’s partners and the Chief Accounting Officer of public company: In the Matter of Ernst & Young LLP, et al. and In the Matter of William G. Stiehl
  • Accusations against Governor Cuomo: Key Legal Issues
  • New Belarus Sanctions

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3 August 2021

This week’s discussion will cover the following: 

  • New DOJ opinion on Trump tax returns
  • New DOJ policy on subpoenas to new organizations
  • New DOJ memorandum on White House communications
  • SEC Chair Gensler’s Public Statement on Disclosures Required by Chinese Companies Listed In US

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26 July 2021

This week’s discussion will cover the following:

  • The Importance of Having Up-To-Date Automated Accounting Procedures, Effective Manual Accounting Procedures, and Trained Accounting Staff:  The SEC’s Latest Accounting Case Against Tandy Leather Factory Inc. and its former chief executive officer Shannon Greene.
  • Indictment of Trump Advisor Thomas Barrack
  • Biden Executive Order on Promoting Competition

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13 July 2021

This week’s discussion will cover the following:

  • Manhattan DA’s Indictment of the Trump Organization and Allen Weisselberg
  • New SEC Enforcement Director – New Jersey Attorney General Gurbir Grewal
  • SEC and federal criminal charges filed arising out of alleged fraudulent scheme to sell “insider trading tips” on the Dark Web- SEC v. Apostolos Trovias

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29 June 2021

This week’s discussion will cover the following: 

  • SEC Cybersecurity Enforcement Sweep:  The SEC Clarifies, Sort Of
  • Latest, and Interesting, Comments By SEC Commissioner on ESG
  • Combating Global Corruption Act of 2021
  • Global Magnitsky Reauthorization Act
  • New Belarus Sanctions 

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22 June 2021

This week’s discussion will cover the following: 

  • New Charges in 1MDB Case
  • FARA Reform Proposals
  • Possible New Russia Sanctions  
  • Cyber SEC Enforcement: Latest SEC Disclosure Controls and Procedures Enforcement Case
  • A New SEC Cyber Enforcement Sweep

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9 June 2021

This week’s discussion will cover the following: 

  • Potential SEC ESG Disclosure Rulemaking and Materiality:  Commissioners Allison Herren Lee and Elad Roisman Continue to Volley
  • White House strategy statement on corruption and national security
  • Belarus sanctions
  • Bulgaria sanctions
  • Executive Order on Western Balkans

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25 May 2021

This week’s discussion will cover the following: 

  • Insight on Gary Gensler’s SEC Enforcement Agenda: SEC Chair’s Remarks at 2021 FINRA Annual Conference
  • Discussion of Treasury’s Plan to Increase IRS Enforcement and Narrow the Tax Gap
  • Update on Nord Stream 2 Sanctions 

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18 May 2021

This week’s discussion will cover the following:

  • Russian Response to US Sanctions and Designation of US as an “Unfriendly” Country  
  • Trial of Mayor of Fall River, Massachusetts for Extorting Marijuana Businesses  
  • The Challenges of Fitting Modern Practices into Old Laws: SEC Commissioner Hester Peirce’s Statement Regarding an Index Fund SEC Settlement  
  • SEC’s Continued Slow Embrace of Crypto Assets: Division of Investment Management’s Statement on ETF Holdings of Crypto Assets and Potential Enforcement Implications  to Assets and Potential Enforcement Implications  

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10 May 2021

This week’s discussion will cover the following:

  • Crypto developments:  SEC Chair Gensler’s Testimony, Dogecoin and Saturday Night Live
  • The “Swiss George Floyd Case”  (for more information about this case, please see this documentary featuring Simon Ntah here

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3 May 2021

This week’s discussion will cover the following:

  • First Voluntary Self-Disclosure of Sanctions and Export Violations Leads to Settlement between Software Company and DOJ
  • The Sudden Resignation of SEC Enforcement Director Alex Oh:  What is Next For SEC Enforcement?

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26 April 2021

This week’s discussion will cover the following:

  • New SEC Enforcement Director Alex Oh: What It May Mean For SEC Enforcement
  • DOJ Pattern and Practice Investigation of Minneapolis Police Department

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19 April 2021

This week’s discussion will cover the following:

  • First guilty plea in Capitol attack cases: What it means for future prosecutions
  • New Russia sanctions: What they do and don’t do, and what could be next
  • Comments by Acting Director of the SEC’s Division of Corporation Finance, “SPACs, IPOs and Liability Risk under the Securities Laws”: What it means for SEC enforcement

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12 April 2021

This week’s discussion will cover the following:

  • Criminal Antitrust Prosecutions of No Poaching and Wage Fixing Agreements: Perspective of a Leading Antitrust Lawyer.
  • Enforcement perspectives arising out of the SEC’s April 9, 2021 “Risk Alert” relating to ESG products and services offered by investment advisers, registered investment companies and private funds.
  • DOJ Priorities under the Biden Administration: What the Budget Tells Us.

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30 March 2021

This week’s discussion will cover the following:

  • SEC Enforcement Sweep Looks Into SPAC IPOs
  • New Legal Issues in the Capitol Riot Cases

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15 March 2021

This week’s discussion will cover the following:

  • DOJ/SEC FCPA priorities
  • Oath Keepers conspiracy case
  • New Russian law to protect officials against corruption charges
  • Does SEC Commissioner Crenshaw’s speech about increased corporate penalties foreshadow a possible retraction of the SEC’s 2006 Statement Concerning Financial Penalties and what we can expect from corporate securities enforcement over the next 4 years?

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8 March 2021

This week’s discussion will cover the following:

  • This week, Jerome is joined by his partners Amy Greer and Jen Klass and they will dig deep into the enforcement issues presented by the SEC’s “Enforcement Task Force Focused on Climate and ESG Issues” 

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1 March 2021

This week’s discussion will cover the following:

  • The SEC’s Plan to Dig Into Public Company Climate Change Disclosures: A White Collar Enforcement Perspective
  • Key Takeaways from Merrick Garland Confirmation Hearing
  • Update on Capitol Riot Cases
  • Secretary Blinken Statement on Anticorruption Champions 

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22 February 2021

This week’s discussion will cover the following:

  • Potential prosecution of former President Trump for incitement of the Capitol attack
  • The SEC’s latest message following the “The Market Events”: trading suspension in In the Matter of SpectraScience, Inc. 
  • New Transparency International Corruption Report
  • The SEC’s ICO enforcement initiative lives on: SEC v. Coinseed, Inc., et al. (S.D.N.Y. 17 February 2021)

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15 February 2021

This week’s discussion will cover the following:

  • Update on Capitol riot cases
  • The legal definition  of “incitement of insurrection” 
  • Discussion of the reported DOJ and SEC investigations into the retail traders in last month’s market events
  • A reminder on the scope of the US insider trading laws, courtesy of SEC v. Mark Ahn (D. Mass) (also a parallel criminal case was filed)

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8 February 2021

This week’s discussion will cover the following:

  • An update on the Capitol Riots
  • Consideration of new sanctions on Russia
  • An update on stock market events, including the FINRA notice on broker-dealer “game-style” trading apps 

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1 February 2021

This week’s discussion will cover the following:

  • Analysis of the Reddit/WallStreetBets-driven stock surges, with a special appearance by Jerome’s 15 year old son, Sam, who has been following the events on Reddit and Discord  
  • Discussion of the Hoskins appeal and the future of the FCPA’s “Agency” theory
  • Update on the Capitol raid prosecutions

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18 January 2021

This week’s discussion will cover the following:

  • New SEC Enforcement Statute of Limitations and Disgorgement Provisions Contained in the NDAA
  • New AML Whistleblower Bounty Provision in the NDAA
  • Criminal charges against Capitol rioters
  • Julian Assange extradition case

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4 January 2021

This week’s discussion will cover the following:

  • What criminal statutes might apply to the attack on the Capitol?
    • 18 USC 2383 – Rebellion or Insurrection
    • 18 USC 2384 – Seditious Conspiracy
    • 18 USC 1752 – Restricted Building or Grounds
  • What, if any, criminal statutes might apply to President Trump’s call last week with Georgia Secretary of State?
  • The 25th Amendment — A brief history of the amendment, what the amendment provides for and how it might apply in light of these events.

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14 December 2020

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07 December 2020

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23 November 2020

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16 November 2020

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9 November 2020

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26 October 2020

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19 October 2020

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5 October 2020

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29 September 2020

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8 September 2020

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24 August 2020

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17 August 2020

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10 August 2020

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3 August 2020

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27 July 2020

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20 July 2020

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13 July 2020

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6 July 2020

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29 June 2020

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22 June 2020

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17 June 2020

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9 June 2020

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26 May 2020 

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The post United States: This Week in Government Enforcement (Video Chat) appeared first on Global Compliance News.

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Senior Biden administration officials are backing congressional efforts to enact new cyber incident reporting requirements for critical infrastructure operators and other companies, as well as other efforts to further entrench the Cybersecurity and Infrastructure Security Agency at the center of the civilian executive branch’s digital security apparatus.

During a Senate Homeland Security and Governmental Affairs Committee hearing today, CISA Director Jen Easterly and National Cyber Director Chris Inglis offered support for incident reporting legislation put forth by Chairman Gary Peters (D-Mich.) and Ranking Member Rob Portman (R-Ohio). The bill would require critical infrastructure operators to report significant cyber incidents on their networks to CISA.

Easterly said incident reporting is “absolutely critical” and called CISA’s “superpower” its ability to share cyber threat information across agencies and critical infrastructure sectors.

“What we could do with this information is not only render assistance to the victim and help them remediate and recover from the attack, but we can use that information, we can analyze it, and then we could share it broadly, to see whether in fact evidence of such intrusions were found across the sector, or across other sectors or across the federal civilian executive branch,” she said.

The Peters-Portman bill would also give CISA subpoena authority in the event a company refuses to comply with the reporting requirements. But Easterly said a subpoena “is not an agile enough mechanism to allow us to get the information that we need to share it as rapidly as possible to prevent other potential victims from threat actors.”

Instead, Easterly said lawmakers should look at using fines to enforce compliance.

“I just came from four and a half years in the financial services sector, where fines are a mechanism that enable compliance and enforcement,” she said.

White House National Cyber Director Chris Inglis also backed the idea of fines, but said there should additionally be incentives for reporting incidents to the government.

“We of course don’t want to impose an unfair burden on the victims,” Inglis said. “But this information is essential for the welfare of the whole. There should be rewards for good behavior. If you’ve performed well and thoughtfully in this, the benefit should be obvious, which is that we can provide better services both in response and preventing this in the future.”

In addition to Peters and Portman’s legislation, members of the Senate Intelligence Committee have introduced a cyber incident reporting bill that would mandate a tighter 24-hour window for reporting incidents. The Peters-Portman bill would establish a 72-hour reporting timelines as a minimum.

The bill endorsed by members of the intelligence committee would also cover a broader range of both incidents and reporting entities, including critical infrastructure, federal contractors, agencies, and cybersecurity service providers.

Meanwhile, House Homeland Security Cybersecurity Subcommittee Chairwoman Yvette Clarke (D-N.Y.) has successfully attached an incident reporting bill to the defense authorization bill. Clarke’s legislation is similar to the Peters-Portman bill in that it only applies to critical infrastructure operators and offers a 72-hour timeline as a starting point.

Lawmakers are also eyeing potential updates to the Federal Information Security Modernization Act of 2014. The FISMA reforms are aimed at sorting out roles and responsibilities for cybersecurity across the federal government.

Easterly said she hopes lawmakers will formally establish CISA as the “operational lead for federal cybersecurity” as part of FISMA reform legislation. She also advocated for making agencies “accountable” for investing in cybersecurity, as well as moving beyond “box checking” compliance to what she described as “true operational risk management.”

“I think instantiating all of that in FISMA reform will be incredibly important and helpful for our role,” Easterly added.

President Joe Biden may also issue a directive to clarify the role of the National Cyber Director and other cyber officials across government, according to Inglis, whose office is only a few months old.

“We’re actually taking our time, not because we’re complacent in any way, shape, or form, but taking our time to actually let experience, a modest amount of experience, drive our efforts to then clarify in writing what we believe is the right and proper way to describe that [organizational] chart in action,” he said.

Meanwhile, agencies are continuing to implement Biden’s May executive order on cybersecurity. CISA and the Office of Management and Budget have already released a federal definition for “critical software,” as well as new requirements for storing and sharing data, according to Chris DeRusha, federal chief information security officer at OMB.

OMB and the Department of Homeland Security have also developed recommendations for “new contract clauses that will enhance how the federal government and industry work together to address cyber threats,” according to DeRusha’s written testimony.

“These clauses will streamline the sharing of threat intelligence and notification of incidents,” he added.

During the hearing, DeRusha said OMB is additionally preparing new guidance for agencies on supply chain risk management.

Agencies are also likely to request new funding from Congress to implement the new cyber mandates. After Congress flushed the Technology Modernization Fund with $1 billion as part of the American Rescue Plan, agencies submitted more than 100 project proposals worth a collective $2.3 billion, with 75% of the proposals focused specifically on cybersecurity, according to DeRusha.

“We are focused and made a lot of progress already on baseline hygiene measures,” DeRusha said regarding the executive order. “We’ve also set in place a multi-year strategy and plan. And what we’re going to need from Congress is… some new resources to implement this plan.”

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On July 19, 2021, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) published a final rule (“Final Rule”) adding six Russian organizations to the Entity List.  These designations are related to Executive Order 14024, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian” (“EO 14024”) that was signed by President Biden in April 2021.  EO 14024 authorizes the imposition of sanctions in response to Russian efforts that threaten US national security, including against a wide range of parties involved in the technology and defense sectors of the Russian economy.  A license from BIS will be required to export, reexport, or transfer to or through these parties any items (i.e., goods, software, technology) subject to the Export Administration Regulations (“EAR”), subject to a policy of denial. 

According to the Final Rule, these Russian parties were added to the Entity List for acting contrary to US national security.  The Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) placed these six entities on its Specially Designated Nationals and Blocked Persons List earlier this year.  See our prior blog post on these developments here.  The fact that BIS designated Russian parties to the Entity List that were recently designated as Specially Designated Nationals may indicate a return to the Obama-era policy of BIS routinely adding to the Entity List parties that have been designated as SDNs.

The Final Rule also updates the entry in the Entity List for the Federal Security Service (“FSS”) to reflect the carve-out for activities now authorized under Cyber General License 1B (“GL 1B”).  GL 1B was updated by OFAC in March 2021 when additional US sanctions were imposed on the Federal Security Service (“BIS).  A BIS license is required for all items subject to the EAR intended for the FSS, apart from transactions authorized by GL 1B. 

The authors gratefully acknowledge the assistance of Ryan Orange in the preparation of this blog post.

The post United States: BIS Designates Six Russian Organizations to the Entity List Already Designated as Specially Designated Nationals appeared first on Global Compliance News.

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Concern regarding IP theft and other forms of unfair trade practices have been of paramount importance in the past five years in the United States – and have indeed been the justification for imposing significant and long-lasting trade barriers.  The Biden Administration affirmed its commitment to using a wide range of remedies to address such trade practices through a set of reports on the 100-day interagency reviews conducted pursuant to Executive Order 14017 “America’s Supply Chains” (the “Reports”).  As we addressed in previous blog posts, the Reports, published on June 8, 2021, emphasize four key areas of focus: pharmaceuticals, semi-conductors, large capacity battery manufacturing and use, and critical minerals and materials. The Reports represent an interagency effort to shore up the US supply chain in these sectors.  

As part of this effort, the Administration announced that it will establish a “trade strike force” to address unfair foreign trade practices, such as subsidies, that may erode the resilience of critical supply chains.  This trade strike force will be led by the US Trade Representative (“USTR”) and will propose unilateral and multilateral enforcement actions against unfair foreign trade practices that negatively impact domestic production and US market access.  It appears that the strike force will target China.

Outstanding questions exist, including what form these new enforcement measures will take and whether there will been any attempt to dismantle the mounting trade barriers.  Before the COVID-19 pandemic, the US-China trade war and other US measures brought in decades-old trade tools to address perceived unfair foreign practices or protect US national interests.  During the pandemic, a plethora of new global measures were introduced on an emergency basis, including those affecting medical products or domestic subsidies provided to a range of industries.  In addition, supply chain bottlenecks arose in the absence of government intervention (e.g., shipping container shortages, port delays, production shortages due to effects of lockdowns). 

The trade strike force appears to have the authority to identify specific violations that have contributed to supply disruptions and to address those with trade remedies.  USTR has several powerful options, including import volume restrictions, increased tariffs, and other border measures.  Already the Commerce Department is evaluating whether to initiate a “Section 232” investigation into neodymium magnet imports through its authority to consider national security concerns and recommend action.  The Section 232 duties imposed on steel and aluminum in 2018 under the previous administration continue to have widespread effects on critical infrastructure projects, downstream domestic manufacturing, and exports.  Additional duties imposed for national security reasons can be wide-reaching and highly disruptive to supply chains.    

In addition to national security concerns (and resulting border measures), the Biden Administration has emphasized its commitment to safeguard American innovation and has urged China to do more to protect the IP rights of US companies.  US concerns of foreign IP practices formed a cornerstone of the US-China trade war and served as a bass for the imposition of tariffs ranging from 7.5 percent to 25 percent on nearly all imports from China.  Further, USTR maintains a “Priority Watchlist” with respect to countries’ IP protections and this list includes others besides China, namely, Argentina, Chile, India, Indonesia, Russia, Saudi Arabia, Ukraine and Venezuela.  These countries are key suppliers in the four sectors that are the focus of the Reports.  USTR will now consider whether to elevate its concerns through the trade strike force, where it appears to have broad discretion to propose action.   The Reports serve as a warning that the Administration intends to continue to use trade remedies tools to incentivize action from US trade partners and attempt to protect domestic production.  Such restrictions affect importers and consumers and do not always have the intended consequence.  Engagement with the interagency process is critical to ensuring that interests are taken into account and that remedies are properly tailored to achieve the stated goals.

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The post United States: Biden Administration Supply Chain Reports Deeper Dive #4: Unfair Trade Practices and the Trade Strike Force appeared first on Global Compliance News.

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Yesterday, as part of its annual Virtual Trade Week series, US Customs and Border Protection (“CBP”) issued a list of Frequently Asked Questions on forced labor (“the FAQs”).  The FAQs consist of responses to ten questions focused on current issues and latest developments in forced labor enforcement.  As mentioned in the FAQs, in FY2020 (October 1, 2019 – September 30, 2020), CBP set a record by issuing 13 Withhold Release Orders (“WROs”), detaining over $55 million worth of goods, and issuing its first finding in nearly 25 years.  According to the FAQs, CBP is also currently enforcing 50 active WROs and eight active forced labor findings. 

Below are some of the key takeaways from the FAQs:

  1. CBP has reiterated that it remains committed to ongoing forced labor enforcement efforts, which CBP says are designed to “persuade companies to modify their business practices.”  In addition, CBP has restated the joint commitment of the US, Canada and Mexico to addressing forced labor matters, and noted ongoing “discussions of forced labor enforcement” with partner countries in Europe and Asia.
  2. CBP encourages importers to implement “social compliance programs” that can identify, mitigate, and remediate forced labor. Remediating forced labor in supply chains is important; however, CBP will not allow the importation of goods suspected of being mined, produced, or manufactured with forced labor in the course of remediation.
  3. While companies are not required to make a voluntary disclosure (also known as “prior disclosure”) if forced labor is discovered in their supply chains, a valid prior disclosure will be taken into account by CBP, and any material false statements, acts, or omissions in connection with importations can result in penalties.
  4. Foreign companies seeking to be excluded from a WRO’s scope can submit to CBP specific information regarding their production process, including: (i) evidence refuting each identified indicator of forced labor (see, for example, the International Labour Organization’s indicators of forced labor here); (ii) evidence that policies, procedures, and controls are in place to ensure that forced labor conditions are remediated; (iii) evidence of implementation and subsequent verification by an unannounced and independent third-party auditor; and (iv) supply chain maps that specify locations of manufacturers, factories, farms, and processing centers.
  5. Currently, CBP is not seeking to petition Congress for an expansion of statutory authority for the enforcement of forced labor of goods imported into the United States.
  6. Although CBP has investigated and issued WROs against goods found on the US Department of Labor’s List of Goods Produced by Child Labor or Forced Labor, its investigations are not limited to the goods on this list.  CBP also uses information from other sources, such as nongovernmental and civil society organizations, open-source information, witness testimony, trade data, and records of importers to validate allegations of forced labor.
  7. CBP encourages companies to “prioritize” suppliers that have negotiated a “collective agreement” with unions, noting that “freedom of association is considered fundamental to ending forced labor.”
  8. CBP will only modify a WRO or finding if all forced labor indicators identified by the agency are remediated and forced labor is no longer occurring.
  9. CBP emphasizes its belief that there is “ample evidence-based research” showing that social audits are “ineffective” as currently administered in identifying and reducing forced labor.  Instead, CBP recommends that companies focus on “worker-driven solutions,” citing as examples the Fair Food Program and Bangladesh Accord.

The FAQs make clear that CBP remains committed to combatting forced labor, expects companies to implement compliance programs that identify and remediate forced labor in supply chains, and is working with other U.S. agencies and countries around the world to beef up enforcement efforts.  Forced labor enforcement on the rise, and given the continued pressures from civil society, shareholders, and consumers, that trend is unlikely to change.  To avoid potential civil and criminal liability, as well as adverse press, companies should implement risk-based responsible sourcing programs that prohibit suppliers from utilizing forced labor and other related human rights abuses and implement practical mechanisms to verify their compliance.

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In brief

On 1 July 2021, the Supreme Court issued its decision in the consolidated case Americans for Prosperity Foundation v. Bonta, No. 19-251 (US 1 July 2021). The Supreme Court reversed the judgment of the Ninth Circuit Court of Appeals and struck down a California donor-disclosure law as facially unconstitutional by a six to three majority.


Contents

In More Detail

  1. Background on Schedule B

2. Other US Tax News and Developments


In More Detail

The California law required nonprofits operating or soliciting contributions in California to disclose information about all of its donors who contribute more than USD 5,000 in a particular tax year or more than 2% of the organizations total contributions to the state Attorney General’s Office (generally, through submission of their Schedule Bs from their Internal Revenue Service (IRS) Form 990s). Failure to comply with the requirement could result in suspension of a nonprofit’s ability to solicit donations from Californians and corporate fines. The Americans for Prosperity ruling will have wider repercussions as similar donor disclosure laws in other jurisdictions are litigated, and may have a broader impact on reporting and disclosure requirements more generally as Justice Sotomayor noted in her dissent.

Background on Schedule B

In May 2020, the IRS issued final regulations that nixed the requirement that organizations exempt under Code Section 501(c), except for section 501(c)(3) charities and section 547 political organizations, include names and addresses of donors who contributed USD 5,000 or more on Schedule B. Although section 501(c)(3) organizations still must file Schedule B with the IRS if their donors meet the disclosure thresholds, federal law prohibits the IRS from disclosing donor information to the public or to other federal agencies, except in limited circumstances.

Lower Court decisions

In 2010, the California Department of Justice increased its efforts to enforce charities’ Schedule B reporting obligations. The plaintiffs, two charities that were tax-exempt under section 501(c)(3), were amongst the organizations who received deficiency letters. When both organizations resisted disclosing their donors’ identities to the California Attorney General’s Office, the Attorney General threatened to suspend their registrations and fine their officers and directors. Both organizations responded to such threats by filing suit in the Central District of California.

In both cases, the District Court granted preliminary injunctive relief prohibiting the California Attorney General (“Attorney General”) from collecting the organizations’ Schedule B information. The Ninth Circuit vacated and remanded. On remand, the District Court permanently enjoined the Attorney General from collecting Schedule B and held that disclosure of Schedule B information was not narrowly tailored to California’s interest in investigating charitable misconduct citing testimony from California officials stating Schedule B information was rarely used to audit or investigate charities. The Ninth Circuit again vacated the District Court’s injunctions and remanded for entry of judgment in favor of the California Attorney General. Americans for Prosperity Foundation appealed the Ninth Circuit ruling to the US Supreme Court, which granted their petition on 8 January 2021.

The Americans for Prosperity ruling

The US Supreme Court reviewed the law under (at a minimum) the “exacting scrutiny” standard, which requires a “substantial relation between the disclosure requirement and a sufficiently important governmental interest.” Chief Justice Roberts indicated that while there is no doubt California has an important interest in preventing wrongdoing by nonprofit organizations, there is an inherent mismatch between the interest the Attorney General seeks to promote and the implemented disclosure regime. Further, Roberts noted the fact that California did not begin rigorously enforcing the disclosure obligation until 2010 and stated that California’s interest in up-front collection is more a matter of administrative ease than investigating fraud.

Roberts also rejected the state’s argument that the disclosure requirement did not broadly discourage donations because California’s Schedule B requirement is confidential. Roberts stated that assurances of confidentiality may reduce the burden of disclosure but they do not eliminate it, and indicates in a footnote that “[h]ere the States’ assurances of confidentiality are not worth much.” Roberts points to the evidence introduced by both plaintiffs demonstrating that they and their supporters have been subject to threats. He indicates that such risks are heightened given the technology available today.

Justice Sotomayor’s dissent cautions that the court’s “analysis marks reporting and disclosure requirements with a bull’s eye.”

Take note

On 2 August 2021, about a month after the Supreme Court ruling, the New York Attorney General announced that, effective immediately, charities are no longer required to disclose donor information in their annual filings. Further, the Attorney General indicated that any outstanding notices of deficiency related to missing or incomplete Schedule Bs are no longer operative as to such deficiency.

At this time New Jersey has not changed its requirement to include Schedule B with its nonprofit filings; however, given the similarities between the New Jersey and California laws, challenges are expected.

Under the exacting scrutiny standard, a donor disclosure requirement could be upheld if the requirement is more tailored than the California law and shows substantial relation to combating charity or donor fraud. Nonprofit organizations and donors should keep an eye on changes to donor disclosure laws in other states.

Other US Tax News and Developments

United States: Treasury and the IRS extend continuity safe harbor for renewable energy projects

United States: A question of fact – Illinois tax tribunal denies summary judgment motion in unitary business case

United States: New QOZ amendments area mixed bag, giving both clarification and ambiguity

United States: Supreme Court denies review of New Hampshire’s lawsuit against Massachusetts

United States: To Trust or Not to Trust — Florida’s new statutes pave the way for expansion of individual’s succession planning opportunities

United States: Senators introduce bill aimed at radically altering the tax consequences of carried interest

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In brief

As a result of COVID-19, construction on a number of renewable energy projects has been repeatedly delayed, potentially jeopardizing valuable tax benefits under the investment credit provisions. Such provisions require taxpayers to make continuous progress toward completion of the project once construction has begun (“Continuity Requirement”).


In depth

On 29 June 2021, Treasury and the Internal Revenue Service (IRS) issued Notice 2021-41, which extended a safe harbor for the Continuity Requirement (“Continuity Safe Harbor”) for renewable energy projects and clarified the methods that taxpayers may use to satisfy the Continuity Requirement under Code sections 45 and 48. In response to delays caused by COVID-19, the IRS previously issued Notice 2020-41, which originally extended the Continuity Safe Harbor to five years for projects beginning construction in 2016 or 2017. Given the ongoing effects of COVID-19, Treasury and the IRS further extended the Safe Harbor in Notice 2021-41, providing a six-year safe harbor for projects beginning construction in 2016 to 2019 and a five-year safe harbor for projects beginning construction in 2020.

Statutory background

Section 45 (the production tax credit or PTC) and Section 48 (the investment tax credit or ITC) allow taxpayers to claim tax credits on eligible projects that begin construction by specific dates. With respect to both the PTC and the ITC, taxpayers must satisfy a “beginning of construction requirement.” Under this requirement, taxpayers generally must begin construction on “qualified facilities” before 1 January 2022 to claim the PTC. Similarly, construction of “energy property” must begin before 1 January 2024 for a taxpayer to claim the ITC. These deadlines reflect the recent extension in the Taxpayer Certainty and Disaster Relief Act, which Congress enacted in the Consolidated Appropriations Act of 2021. The PTC is available for a 10-year period beginning with the tax year the qualified facility is “placed in service.” The ITC is available for a specified percentage of the energy property’s cost basis, up to 30%.

Physical Work Test and the Five Percent Safe Harbor

Due to yearly phase downs of the PTC and ITC, the amount of credit that a taxpayer can obtain depends on the year construction of a qualified facility or energy property began. Under existing IRS guidance, taxpayers can show that construction began based on the date when: (1) physical work of a significant nature has begun (“Physical Work Test”), or (2) at least 5% of the project’s costs have been incurred (“Five Percent Safe Harbor Test”). For purposes of both tests, the taxpayer must satisfy the Continuity Requirement. The Continuity Requirement requires taxpayers to show either a “continuous program of construction,” for purposes of the Physical Work Test, or “continuous efforts to advance [the project] toward completion,” for purposes of the Five Percent Safe Harbor Test. See Notice 2021-41 at 3-4.

The Continuity Safe Harbor

In several notices, the IRS has provided a Continuity Safe Harbor, which deems a project to have satisfied the Continuity Requirement if the project is “placed in service” no later than four years after construction began. See Notice 2018-59; Notice 2017-04; Notice 2016-31; Notice 2015-25; Notice 2013-60.

In response to the COVID-19 pandemic, the IRS extended the Continuity Safe Harbor on 27 May 2020 in Notice 2020-41. Notice 2020-41 stated that the Continuity Safe Harbor is satisfied if a taxpayer places the qualified facility or energy property in service within five years after the calendar year during which construction began for projects that began construction in 2016 or 2017.

Notice 2021-41 further extends the Continuity Safe Harbor as a result of the ongoing effects of the COVID-19 pandemic. For qualified facilities or energy property on which the taxpayer began construction in 2016, 2017, 2018, or 2019, the Continuity Safe Harbor is satisfied if the taxpayer places the qualified facility or energy property in service within six years after the calendar year during which construction began. For qualified facilities or energy property on which the taxpayer began construction in 2020, the taxpayer must place the qualified facility or energy property in service within five years after the calendar year during which construction began.

Finally, Notice 2021-41 clarifies the methods that taxpayers may use to satisfy the Continuity Requirement. In particular, the notice allows any qualified facility or energy property to which the Continuity Safe Harbor does not apply to satisfy the Continuity Requirement if the taxpayer meets either the “continuous program of construction” test that is applicable to the Physical Work Test or the “continuous efforts” test that is applicable to the Five Percent Safe Harbor Test. Use of either standard provides welcome relief to taxpayers who have been forced to delay construction due to the effects of COVID-19. Although both tests are inherently facts-and-circumstances analyses, taxpayers should have an easier time demonstrating that they have made sufficient progress on construction, particularly for taxpayers who would otherwise rely on the Physical Work Test, but can now show that they are making continuous efforts on the project.

Conclusion

Notice 2021-41 provides much-needed relief to taxpayers still experiencing disruptions due to COVID-19. Given the Biden Administration’s push for carbon neutrality and the Administration’s and Congress’s increased focus on incentivizing renewable energy projects, it is not surprising that the IRS has chosen to further protect taxpayers’ ability to claim valuable tax benefits for renewable energy projects.

Other US Tax News and Developments

United States: A question of fact – Illinois tax tribunal denies summary judgment motion in unitary business case

United States: New QOZ amendments area mixed bag, giving both clarification and ambiguity

United States: Supreme Court denies review of New Hampshire’s lawsuit against Massachusetts

United States: More privacy for nonprofit donors

United States: To Trust or Not to Trust — Florida’s new statutes pave the way for expansion of individual’s succession planning opportunities

United States: Senators introduce bill aimed at radically altering the tax consequences of carried interest

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In brief

Please join us for a new weekly video series, hosted by Baker McKenzie’s North America Government Enforcement partners Tom Firestone and Jerome Tomas.

This weekly briefing is available on demand and will cover hot topics and current enforcement actions related to white collar crime and criminal investigations in the US and abroad to arm you with the information you need to start your business week.

As one of the largest global law firms, we will call upon our exceptionally deep and broad bench of white collar experts throughout the world and particularly in the commercial hubs of Europe, Asia, Africa and Latin America to join our weekly discussion series.

These briefings will cover:

  • High-profile DOJ case updates and implications
  • SEC enforcement developments 
  • CFTC enforcement developments
  • Other white collar defense industry developments 

Date: 30 August 2021

This week’s discussion will cover the following: 

  • Organized crime charges in new elder abuse case
  • Novel SEC Insider Trading Action — Shadow Trading — SEC v. Matthew Panuwa
  • Quick blurb on 18 year old and under crackdown on video game playing in China
  • SEC v. MANISH LACHWANI – The SEC’s Enforcement Focus on Unicorns

Video link

Podcast link

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