In brief

On 15 April 2020, the US Departments of State, Homeland Security, and the Treasury (Treasury), and the Federal Bureau of Investigation issued an advisory warning about the cyber threat posed by North Korea, calling particular attention to banks and other financial institutions (Advisory).


The Advisory (i) highlights North Korea’s malicious cyber activities across the globe, (ii) identifies and recommends measures to counter the cyber threat, including cybersecurity best practices, and (iii) summarizes potential enforcement actions by the US Government against parties engaging in prohibited or sanctionable conduct related to North Korea’s cyber-related activities. In doing so, the Advisory sets forth the US Government’s expectation for the industry, in particular for banks and other financial institutions, to maintain robust internal controls against cyber financial crimes and cybersecurity attacks. The Advisory reminds that a failure to institute measures against North Korean cyber financial crimes and becoming exposed to malicious cyber-attacks by North Korea could result in not only financial loss but also enforcement action by the US Government.

North Korea’s malicious cyber activities across the globe

The Advisory states that North Korea’s malicious cyber activities have been a key revenue generator for the regime, from the theft of fiat currency at conventional financial institutions to cyber intrusions targeting cryptocurrency exchanges. The August 2019 UN Security Council 1718 Committee Panel of Experts report estimates that North Korea has attempted to steal as much as $2 billion, of which $571 million is attributed to cryptocurrency theft. The financial sector has been a key target of North Korea’s malicious cyber activities.

To date, the US Government has publicly attributed several cyber incidents to North Korea including the WannaCry 2.0 ransomware, which led to the US Department of Justice (DOJ) indictment and the Treasury’s sanctions against North Korean computer programmer Park Jin Hyok, and the April 2018 digital currency exchange hack, which also led to a DOJ indictment and the Treasury’s sanctions against individuals supporting the Lazarus Group.

Measures to counter the North Korea cyber threat

The Advisory urges governments, industry, civil society, and individuals to “to take all relevant actions 
 to protect themselves from and counter the [North Korean] cyber threat,” including for example:

  • Raise awareness of the North Korea cyber threat by highlighting the gravity, scope, and variety of malicious activities carried out by North Korea.
  • Share technical information on the cyber threat with governments and the private sector. Under the provisions of the Cybersecurity Information Sharing Act of 2015, non-federal entities may share cyber threat indicators and defensive measures related to North Korea’s malicious cyber activities with federal and non-federal entities.
  • Implement and promote cybersecurity best practices by enhancing cybersecurity infrastructure, specifically for financial institutions.  Such steps may include, sharing threat information through government and/or industry channels, segmenting networks to minimize risks, maintaining regular backup copies of data, undertaking awareness training on common social engineering tactics, implementing policies governing information sharing and network access, and developing cyber incident response plans. Annex I of the Advisory includes extensive resources, including technical alerts and malware analysis reports, to enable network defenders to identify and reduce exposure to malicious cyber activities.
  • Notify law enforcement if an organization suspects it has been the victim of a cyber-malicious activity.  For information on data security breach notification requirements more generally, please refer to our Global Data Privacy & Security Handbook found here.
  • Strengthen anti-money laundering, countering the financing of terrorism, and counter-proliferation financing compliance.  For financial institutions, these obligations include developing and maintaining effective anti-money laundering programs that cover illicit finance involving digital assets.

Possible US Government’s enforcement

The Advisory outlines possible US Government’s enforcement action against those engaging in or supporting North Korea’s cyber-related activities, including for example:

  • The US Department of Treasury’s Office of Foreign Assets Control has the authority to impose sanctions on any person determined to have, among other things:
    • Engaged in significant activities undermining cybersecurity on behalf of the Government of North Korea or the Workers’ Party of Korea;
    • operated in the IT industry in North Korea
    • engaged in certain other malicious cyber-enabled activities
  • engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology

Additionally, foreign financial institutions that knowingly conduct or facilitate significant trade with North Korea, or knowingly conduct or facilitate a significant transaction on behalf of certain designated person(s), may, among other potential restrictions, lose the ability to maintain a correspondent or payable-through account in the United States.

  • The DOJ may criminally prosecute persons who willfully violate certain sanctions laws or the Bank Secrecy Act, which requires financial institutions to, among other things, maintain effective anti-money laundering programs and file certain reports with Financial Crimes Enforcement Network.  Persons violating the BSA may face up to five years imprisonment, a fine of up to $250,000, and potential forfeiture of property involved in the violations.

The post USA: Government issues advisory on cyber threat posed by North Korea appeared first on Global Compliance News.

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In brief

The Baker McKenzie State and Local Tax (SALT) Subpractice Group presented “False Claims Act and SALT”, the eleventh in a series of short webinars to keep members of the SALT community abreast of recent developments in these less than certain times on 3 June 2020.


Contents

This webinar discusses the use of state false claims acts to enforce the tax law, including a review of relevant case law and legislation. Recorded webinar password: 9x%!*#4+

View the recorded webinar.

Download the material.

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In brief

Based on public statements, including a recent speech discussing the operation of the Division of Enforcement’s COVID-19 Steering Committee (Enforcement speech), it is clear that the SEC Enforcement Staff (the Staff) is already thinking ahead to the types of enforcement investigations and actions that may follow the COVID-19 Crisis. In doing so, the Staff likely will draw on its experience following the 2008 global financial crisis (2008 Crisis) to identify potential patterns of misconduct that occur during periods of extraordinary market volatility and financial stress. Below we discuss the various areas that the SEC Enforcement Division is currently focused on, as well as our analysis of the enforcement actions arising out of the 2008 Crisis, with a particular focus on the asset management industry.


Contents

As discussed below, a key lesson from the 2008 Crisis is that public companies and asset managers, even in the midst of tackling the immediate problems of a crisis, should develop the situational awareness to identify conduct or deficiencies that may be subject to hindsight scrutiny by the SEC. And when issues are identified, firms should take reasonable steps to document their processes and analyses, augment or amend their policies and/or disclosures and make necessary adjustments to their business and plans to protect clients and/or investors, so when the SEC comes knocking after this crisis, they can demonstrate their good faith judgment and efforts.

Enforcement actions arising from the 2008 Crisis may inform COVID-19 cases

When we reviewed prior enforcement actions from the 2008 Crisis, we found they generally shared one or more of the following themes:

  • Failure to adequately disclose “bad news” in the face of red flags, including a variety of valuation and liquidity issues
  • Crisis, as a form of real life stress test, with the result that certain products or investments are exposed as riskier than represented (either at sale or in subsequent reporting or disclosures) or certain financial operations or controls are proven to be deficient
  • Actual “bad acts” taken in response to the crisis, such as insider trading, market abuse, risky trading strategies, and mismanagement of redemption requests

With these themes in mind, we expect that SEC enforcement investigations coming out of the COVID-19 Crisis will cover: (i) public companies with operations or finances impaired by the crisis; (ii) investment vehicles with underlying assets affected by the current crisis; and (iii) investment advisers and broker-dealers with business operations impacted by this crisis, or whose sales practices will be reviewed with the benefit of hindsight in the wake of market impacts from the crisis. These categories are not mutually exclusive, and some of the enforcement risks discussed below may apply to varying degrees for all market participants.

Download full publication

*Originally published on Investment Adviser Association1

The post United States: SEC enforcement and COVID-19 – How Lessons from the financial crisis apply today appeared first on Global Compliance News.

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In brief

Companies must be diligent to ensure that any facility restart is being implemented in compliance with applicable environmental requirements.  While there has been some guidance at the federal and state level providing enforcement discretion for non-compliance and identifying circumstances where noncompliance will not be punished, compliance with permits and environmental regulations is expected even when circumstances have made it difficult because of COVID-19.  Further, those policies have been criticized and challenged by environmental NGOs and some states, and companies should exercise caution when relying on them.


Contents

As we reported previously, on March 26, 2020, EPA issued its temporary COVID-19 enforcement discretion policy, which states that EPA will exercise enforcement discretion for certain civil violations, especially those related to routine compliance monitoring and reporting, that are caused by COVID-19 and the consequences of the pandemic, such as staff shortages or turnaround time by laboratories used to analyze samples..  A number of states have likewise adopted their own measures to assist companies in addressing environmental compliance challenges brought on by the pandemic.

EPA’s COVID-19 enforcement policy has been roundly criticized by environmental groups and other critics as an “open license to pollute” and “a ‘don’t ask, don’t tell’ policy for polluters.”  On April 1, 2020, several environmental groups including the Natural Resources Defense Council filed a petition for emergency rulemaking, requesting that EPA publish an interim final rule that would require any regulated entity who failed to conduct required monitoring or reporting in reliance of the enforcement policy to promptly notify the public. Subsequently, on April 16, 2020, these same environmental groups filed suit, arguing that the failure of EPA to address their petition for an interim emergency rule was a violation of the APA.

On May 12, 2020, California and eight other states also filed suit, arguing that EPA’s enforcement discretion policy is unenforceable as EPA failed to follow proper administrative procedures in adopting what amounts to a federal regulation.  In its complaint, the states identify a number of particular environmental statutes and compliance obligations that pose particular risks for public health and safety and the environment, including stack testing, leak detection and repair, and continuous emission monitoring systems required under the Clean Air Act, compliance monitoring for wastewater discharges under the Clean Water Act, and reportable releases under the Comprehensive Environmental Response, Compensation, and Liability Act.

What You Need to Know Now:

As companies seek to restart their operations, we expect that state environmental agencies and environmental groups will be closely monitoring adherence to applicable environmental permit and regulatory standards.  We recommend that companies take the following steps to address potential environmental compliance concerns as they prepare for reopening or ramping up their operations:

  • Assess your ability to comply fully with existing regulatory and permit requirements, including monitoring and reporting.  While the federal policy instructs operators to take action in the event compliance is not reasonably practicable, including minimizing the effects and duration of the noncompliance and documenting all actions taken, some state environmental agency policies, such as California, require that operators notify the regulatory agencies “before falling out of compliance.” Assessing in advance whether there will be concerns with falling out of compliance may give you additional flexibility to reach out to state and federal regulatory agencies to determine whether enforcement on such noncompliance should be expected.
  • Be mindful of those aspects of operations that will not be covered by the state or federal enforcement discretion policy. In particular, the federal EPA enforcement discretion policy emphasizes the importance of public water systems continuing normal operations and maintenance, including sampling, and excludes accidental releases or criminal violations from enforcement discretion. Environmental agencies in other states, such as Ohio or West Virginia, have issued statements indicating that they expect operators in their state to continue to comply with all rules, regulations, and permitting requirements–thus offering no stance on discretionary enforcement of any particular category of environmental noncompliance–but to contact the appropriate regulatory agency if compliance obligations are practicable due to COVID-19.
  • Consider whether there are particular polices that apply to your industry.  For example, as a result of the decline in oil prices, regulatory authorities in states such as Texas are considering policies to relax or extend certain regulatory requirements, such as extending certain filing deadlines for venting and flaring events and increasing the grace period allotted before an operator must begin plugging and abandonment activities at nonproducing wells, in order to allow oil and gas operators time to weather the combined COVID-19 and oil price shocks.
  • Document mitigation efforts, the steps taken to return to compliance, and especially how COVID-19 was the cause of the noncompliance. The EPA’s enforcement policy hinges on the ability of the operators to demonstrate that the noncompliance was a result of the COVID-19 pandemic, which may cause worker shortages through travel and social distancing restrictions, workers who can no longer come in as a result of illness, or changes to operations at laboratories or subcontractors that may affect the ability of a facility to comply with all federal environmental permits, regulations, and statutes. Thus, not all violations or incidents of noncompliance that occur during the pandemic will be given discretion, only those for which the operator can tie back to operational challenges caused by COVID-19.

In Summary:

For facilities that relied on EPA’s policy during any extended slowdown of shutdown in their operations, it is critical that they both review the adequacy of the documentation of their inability to comply with applicable environmental requirements and implement a documented plan to return to compliance in connection with their restart of operations.  This is especially important for those facilities subject to the heightened risks identified by environmental groups and states in the legal challenges to EPA’s policy

Baker McKenzie’s Environmental Group has been advising companies on the environmental challenges confronted during the COVID-19 crisis.  We remain available to assist in developing company and site specific solutions to these issues as the need might arise.

The post United States: Reopening safely – Guidelines for relying on EPA and state polices providing relief from environmental compliance during COVID-19 appeared first on Global Compliance News.

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In brief

As companies begin to reopen, employers must plan now for the complex issues presented by mobile employees. During this 20-minute moderated discussion focused on North America, our Global Immigration & Mobility lawyers from the US, Canada and Mexico explore the current landscape and anticipated challenges employers will face with employee travel and immigration processes.


Contents

Click here to listen to the video chat on demand.

Upcoming Global Immigration & Mobility video chats will cover The Reopening Playbook for employers in Asia Pacific and EMEA. Stay tuned!

Related Baker McKenzie resources:

If you have any questions for any of our speakers, please reach out to them through the email addresses below.

The post COVID-19 – The Reopening Playbook – Video Chat: The next normal in Canada, Mexico and US appeared first on Global Compliance News.

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In brief

On 28 April 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) published two new final rules and a proposed rule in the Federal Register amending the Export Administration Regulations (EAR) to tighten restrictions on exports of technology to China, Russia, and Venezuela.


Contents

According to Commerce Secretary Wilbur Ross, these actions are intended to combat efforts by entities in China, Russia, and Venezuela to use certain US technologies obtained through civilian supply chains or under civilian-use pretenses to develop weapons, military aircraft, and surveillance technology contrary to US national security interests.

As a result of these rules, a universe of transactions involving widely commercially available US technologies that require BIS licenses could dramatically increase, particularly for China — with the licensing policy of the presumption of denial making such licenses difficult to obtain. These rules are part of a broader wave of recent regulatory measures aimed to strengthen the US Government’s restrictions on, as well as visibility into, technology transfers to China and other countries of concern to protect US national security and foreign policy interests.

As described further below, the rules:

  1. amend the EAR to expand license requirements on exports, reexports, and transfers (in-country) of items intended for military end-use or military end-users in China, Russia, or Venezuela;
  2. propose to modify License Exception Additional Permissive Reexports (APR) to remove provisions authorizing certain reexports of national security-controlled items; and
  3. remove License Exception Civil End Users (CIV) for national security-controlled items on the Commerce Control List (CCL) to countries of national security concern.

Expansion of Military End Use/User Controls for China, Russia, and Venezuela

The Commerce Department is broadening the US Government’s visibility into and ability to deny or condition exports, reexports, and transfers (in-country) involving certain items on the CCL destined to military end users or military end uses in China, Russia, or Venezuela. The final rule, which becomes effective on June 29, 2020, provides for the following changes to the EAR:

  • Military end user-based licensing requirements for China

The licensing requirements for China are strengthened to include exports/reexports of designated items to military end users in China unless License Exception GOV applies. The existing licensing requirements for military end users only apply to Russia and Venezuela. The EAR’s definition of “military end user” is not changing and continues to apply broadly to “national armed services (army, navy, marine, air force, or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support ‘military end uses’.” (Emphasis added.) The expansion of the license requirements to exports/reexports destined to “military end users” in China will, however, significantly increase compliance burdens on companies supplying designated items to China. In particular, given China’s integration of its civilian industries with the military sector, vetting Chinese entities for purposes of ensuring compliance with the end user-based license requirements is likely to pose considerable challenges.

Further, given the breath of the definition of “military end user,” along with the just expanded definition of “military end-use” (see below), a universe of transactions triggering license requirements could significantly increase. Supplying designated items to Chinese companies that engage in any (even de minimis) degree of business in support of military end-uses, could trigger licensing requirements. For example, Chinese semiconductor foundries could constitute “military end users” if even a small volume of semiconductor wafers they produce is used for integrated circuits for incorporation into defense articles. The consequence would be that US semiconductor tool manufacturers would have to obtain licenses to sell and supply semiconductor tools classified under ECCN 3B991 to such foundries. Similarly, Chinese aircraft maintenance organizations that furnish maintenance services for both commercial and military aircraft could constitute “military end users, ” resulting in a license requirement for US suppliers of aircraft parts classified under ECCN 9A991, even if those parts could only be used for a commercial aircraft.

In sum, should the US Government adopt a broad interpretation of these terms, US companies supplying non-sensitive, broadly available items to Chinese companies for civilian applications (e.g., items classified under ECCNs 3A991, 3B991, 5A992, or 9A991) may need BIS licenses, which would be difficult to obtain given the licensing policy of denial (see below). This could have a detrimental impact on a broad swath of US industry, in particular in the semiconductor, telecommunications, and aircraft sectors. BIS has indicated that it will be issuing guidance to industry to help clarify the expanded licensing requirements for China.

  • Expanded definition of “military end use”

The definition of “military end use” has been changed from covering items for the “use,” “development,” or “production” of military items (as those terms are defined in the EAR) to also include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production” of military items. By expanding the definition to include items that support or contribute and by making a single element of the definition of “use” trigger the license requirement, the reach of the military end use-based restrictions could be extremely broad, possibly covering any peripheral item that could in any way be linked to a military item.

  • Broader list of items covered by military end use/user licensing requirements

The list of items subject to the military end use and military end user license requirements in Supplement No. 2 to part 744 is being expanded to include the following Export Control Classification Numbers (“ECCNs”) in the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, and propulsion: 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996, and 9B990. Notably, these changes roll out military end use/end user controls to items that are commercially widely available and are not inherently sensitive but rather could be important building blocks or components for products and technologies that China, Russia, and Venezuela may be developing to strengthen their military capabilities. As such, the expansion is significant and will require the suppliers of the designated items to go through a rigorous vetting process to determine whether the items destined to China, Russia, of Venezuela are being sourced for a military end user or a military end use.

  • Electronic Export Information (EEI) filing requirements for exports to China, Russia, or Venezuela

Filings of EEI relating to exports of items controlled on the Commerce Control List to China, Russia, or Venezuela will be required regardless of the value of the shipment unless the shipment is eligible for license exception GOV. Further, such filings must identify the ECCN of the items to be exported regardless of the reason for control. Currently, some shipments under $2,500 are exempt from AES filing requirements, and an ECCN does not need to be indicated when the only reason for control is Anti-Terrorism (AT).

These changes will trigger the need for the filing of EEI for a larger universe of exports and will give the US Government a broad window into exports of items to China, Russia, and Venezuela, including increased visibility into the categories of technologies being supplied to China. The EEI records are available to a number of US Government agencies and have historically been an effective tool in the enforcement of US export controls.

  • Presumption of denial licensing policy for military end-use/end user exports to China, Russia, or Venezuela

License applications for the export, reexport, and (in-country) transfers of items, which are subject to the military end-use and end-user controls, to military end users or for military end uses in China, Russia, or Venezuela will be subject to a presumption of denial. Accordingly, while no export ban is in place per se for such transactions, obtaining a license will become difficult.

  • License requirements for items described in a y. paragraph of a 9×515 or “600 series” ECCN to China, Russia, or Venezuela relocated to the relevant ECCNs

Currently, the licensing requirements for such items are described as part of the military end use/end user controls in § 744.21 but will be relocated to the relevant ECCNs and assigned a reason for control of Regional Stability (RS). This is not a substantive change but rather one intended to help companies comply with these requirements.

Modification of License Exception APR

BIS proposes to eliminate the application of License Exception APR to reexports of national security-controlled items to countries in Country Group D:1, which covers countries of national security concern, including China, Russia, and Venezuela. Under the proposed rule, such reexports would become subject to licensing requirements under the EAR, in addition to local licensing requirements, to ensure consistent review of reexports of national security-controlled items. The public comment period for this proposed rule ends on June 29, 2020.

Removal of License Exception CIV

BIS is removing License Exception CIV, which authorizes exports, reexports, and transfers (in-country) of certain national security-controlled items to most civil end users for civil end uses in Country Group D:1. The final rule will become effective on June 29, 2020, and will result in exports of national security-controlled items to Country Group D:1 countries becoming subject to BIS license requirements, thus giving the US Government more visibility into transactions of national security interest. License Exception CIV is one of the more commonly used exceptions to export licensing requirements and BIS has acknowledged that its outright removal may have a disproportionate effect on deemed exports, i.e., releases of national security-controlled technology to foreign nationals in the United States. In this regard, BIS has indicated that it would welcome industry feedback to help frame this issue going forward, notwithstanding that the removal of License Exception CIV was published as a final rule.

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In brief

Employers considering COVID-19-related layoffs and RIFs right now should add one more item to their checklist of considerations: the possibility of inadvertently triggering a “partial termination” of their tax-qualified retirement plan.

Where plan participant numbers decrease substantially, the plan may incur what’s known as a “partial termination”. This is significant because, once triggered, the IRS requires the benefits of all “affected employees” be fully vested.  Failure to provide such vesting could put the plan’s  tax-qualified status at risk.

IRS presumption

Pursuant to IRS guidance, if the participant “turnover rate” is at least 20%, there is a rebuttable presumption that a partial termination of the plan has occurred. The turnover rate is determined as follows:

Turnover rate = Number of participating employees who had an “employer-initiated” termination during the applicable period


Total of all participating employees at the start of applicable period + employees who became participants during the applicable period
  • In general, the “applicable period” is the plan year, but it could be longer if there are a series of related terminations.  Relevant court cases have used a facts and circumstance analysis to determine whether consecutive plan years should be considered a single “applicable period.”  For example, if there is a series of layoffs related to a  downturn spanning several years.
  • All participating employees during the applicable period are taken into account.
  • An employee termination is “employer-initiated” even if caused by an event outside of the employer’s control (e.g., severance due to current economic conditions).
  • Decreasing the numerator
    • Employees whose employment terminated on account of death, disability, or retirement on or after normal retirement age are disregarded for purposes of the numerator.
    • Employees who voluntarily severed employment are also disregarded for purposes of the numerator.  (Note: The voluntary nature of the termination should be supported through information such as personnel files, employee statements, and other corporate records).
    • Employees who are transferred outside the sponsor controlled group are disregarded for purposes of the numerator if those employees continue to be covered by a plan that is a continuation of the plan under which they were previously covered (i.e., a sale of a portion of a business where there is also a spin-off of a portion of the seller plan).

A Facts and Circumstances Analysis

Once the turnover rate has been determined, all other facts and circumstances must be reviewed.  Facts and circumstances indicating that the turnover rate for an applicable period is routine for the employer would support a finding that there is no partial termination for that applicable period. For this purpose, information as to the turnover rate in other periods and the extent to which terminated employees were actually replaced, whether the new employees performed the same functions, had the same job classification or title, and received comparable compensation are relevant to determining whether the turnover is routine for the employer.

As noted, IRS requirements provide that upon a partial termination, the accounts of all “affected employees” must be fully vested. The IRS guidance does not specify who is included in the term “affected employees,” or how that  group should be determined.  At minimum, this is viewed as all employees with an employer-initiated termination during the applicable period.  Conservatively, some employers will include employees that had a voluntary termination during the applicable period.

For employers considering a reduction in force, conducting a partial termination analysis can avoid cumbersome and possibly costly remediation (e.g. finding former participants and making additional distributions from the plan) if a partial termination is later found to have occurred. As such, we recommend monitoring the turnover rate and including benefits counsel during the planning process.

For assistance with a partial termination analysis, contact your Baker McKenzie employment & compensation attorney.

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In brief

The COVID-19 pandemic has caused an unprecedented shock to the global economy, prompting, among other things, competition law enforcers to reassess how they approach competitor collaborations. In particular, many regulatory agencies have implemented policies aimed at assisting businesses in their efforts to mitigate supply chain disruptions and other effects while ensuring that essential goods and services are available to those who need them. Baker McKenzie has previously reported on these developments globally and in specific jurisdictions such as the European Union and the United States, in our Baker McKenzie Coronavirus Resource Center.


In April, the Canadian Competition Bureau (Bureau) followed suit and issued a position statement on competitor collaborations during the COVID-19 pandemic. While the non-binding statement does not affect the legislative framework for competitor collaboration under the Competition Act (Act), it may provide some businesses with greater flexibility to explore legitimate collaborations to ensure the supply of essential goods in a way that may not have been possible prior to the pandemic.

Current Competitor Collaboration Framework

Under the Act, the Bureau may assess an agreement or collaboration arrangement between competitors either criminally or civilly.

The criminal conspiracy provisions set out in section 45 of the Act contain a per se prohibition against so-called “naked restraints” on competition, specifically agreements between actual or potential competitors to fix prices, allocate markets and customers, or restrict output or supply that have no legitimate purpose or rationale. There is a very limited ancillary restraints defence that may be available where the conduct at issue is ancillary to a broader or separate agreement and directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement. Conduct that falls under this defence may still be assessed under the civil provisions described below.

Violation of the criminal provisions can carry hefty fines of up to CAD 25 million, imprisonment for up to 14 years, or both. In addition, section 36 of the Act provides for a right of private action for the recovery of damages as a result of conduct that is or is alleged to be contrary to the criminal conspiracy provisions. This section is commonly used to commence competition class actions.

Any type of competitor collaboration not considered a criminal section 45 violation is assessed under section 90.1 of the Act and can be prohibited only if it results or is likely to result in a substantial prevention or lessening of competition in a relevant market. Section 90.1 is a civil provision and the only remedy is a civil order prohibiting the agreement or arrangement.

The Bureau’s COVID-19 Response

On April 8, 2020, the Bureau issued a position statement on competitor collaborations, stating that “where there is a clear imperative for companies to be collaborating in the short-term to respond to the crisis, [and] where those collaborations are undertaken and executed in good faith and do not go further than what is needed, [the Bureau] will generally refrain from exercising scrutiny”.

While providing some flexibility on its face, the position statement underscores that competition law enforcement remains vital during the crisis and that the Bureau will exercise a “zero tolerance” policy towards any attempts to abuse this increased flexibility as cover for unlawful or anticompetitive conduct that may violate the Act.

While most firms will look to counsel to guide their assessment, the Bureau has also established a team to assist businesses with the evaluation of proposed pandemic-driven collaborations, with the aim of facilitating rapid decisions to enable business to support the crisis response.  The Bureau indicates it will strive to provide informal opinions within 7-10 business days, provided it receives sufficient disclosure regarding the parties to be involved and the nature of the intended collaboration.

Implications of the Position Statement

While the position statement is important symbolically because it shows that the Bureau is joining other regulators who have issued similar statements regarding their approach to competitor collaborations during the COVID-19 pandemic, it does not modify the current Canadian legislative framework. In addition, the two examples included in the position statement of conduct the Bureau is prepared to be flexible on (namely the formation of collaborative buying groups and the sharing of supply chain resources such as distribution facilities to ensure access to the necessities of life for all Canadians) would likely constitute acceptable civil reviewable practices, subject only to civil review rather than per se criminal prohibition, even in the absence of the pandemic. Although the Bureau has elsewhere publicly stated that it would also be prepared to show flexibility toward naked competition restraints (those ordinarily subject to criminal prohibition) where the goal is to “ensure the supply of products and services that are critical to Canadians” – such as restricting sales of PPE to ensure it is provided to frontline workers, or allocating supply of life-saving medications to certain markets – it is not clear how the Bureau would treat restraints where the fact pattern is not so obvious (for example, in the context of food distribution).

As a result, before entering into any arrangements with competitors, and despite the issuance of the position statement, businesses should note the following:

  • The current civil and criminal framework under the Act continues to apply to agreements and arrangements between competitors. Most competitor collaborations will not be affected by the position statement and businesses should first consider the Act and existing guidance, including the Bureau’s Competitor Collaboration Guidelines, in determining whether their specific collaboration is likely to be permitted.
  • While the position statement clearly applies to “the supply of products and services that are critical to Canadians” such as PPE and COVID-19 related medications, it is not clear whether it would necessarily apply to other goods that are not typically deemed “essential”. Instead, these cases will likely be considered on a case-by-case basis and be highly dependent on the particular industry.
  • The flexibility provided by the Bureau is limited in both scope and duration. Therefore, it is unlikely that the position statement will apply to businesses that aim to enter into competitor collaborations primarily to mitigate the long-term financial difficulty caused by the pandemic or to ensure the viability of their business or industry, in the absence of the other objectives discussed in the position statement.
  • Unlike other jurisdictions, such as the UK or South Africa, where competition authorities have granted exemptions to certain businesses from the application of competition legislation, the position statement does not exempt any businesses from the application of the Act and also does not insulate them from the possibility of a private or class action based on an alleged breach of the Act’s criminal provisions.

Analyzing a proposed competitor collaboration is complex and for global companies looking to undertake collaborations across multiple jurisdictions, nuances and implications in each jurisdiction must be carefully considered. Businesses should enter into these collaborations cautiously and should consult counsel in each relevant jurisdiction to consider the viability of a given collaboration and whether competition law safeguards are advisable to mitigate risk.

Baker McKenzie has put together a global Beyond COVID-19 Resource Centre and Canada COVID-19 Resource Centre with key insights to assist our clients understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

The post Canada: Competitor collaborations during the COVID-19 pandemic: Almost business as usual appeared first on Global Compliance News.

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In brief

On 7 April 2020, the Federal Emergency Management Agency filed a temporary final rule (Rule) in the Public Inspection issue of the Federal Register to establish export restrictions on certain types of personal protective equipment products (PPE Products) used in the response to the COVID-19 pandemic. The Rule became effective immediately upon filing in the Public Inspection issue and will remain in effect for 120 days from its publication, i.e., until 8 August 2020.


On 7 April 2020, the Federal Emergency Management Agency (FEMA) filed a temporary final rule (Rule) in the Public Inspection issue of the Federal Register to establish export restrictions on certain types of personal protective equipment products (PPE Products) used in the response to the COVID-19 pandemic. The Rule implemented the order via Presidential Memorandum (Order) dated 3 April 2020, in which the President directed the US Department of Homeland Security, of which FEMA is a part, to take action under the Defense Production Act (DPA) to prevent diversion of the needed materials overseas.

Is the Rule effective now?

Yes. Although the rule was not be published in the Federal Register until 10 April, it became effective immediately upon filing in the Public Inspection issue. The Rule will remain in effect for 120 days from its publication, i.e., until 8 August 2020.

Which PPE Products are subject to the Rule?

The PPE Products covered by the Rule are the same as those addressed in the Order. They are 5 of the 15 categories of materials that had been identified as “scarce or threatened materials” by the US Department of Health and Human Services (HHS) in a notice issued on 25 March 2020. Specifically, the PPE Products are:

  • N-95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates.
  • Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level per 42 CFR § 84.181.
  • Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges.
  • PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials.
  • PPE gloves or surgical gloves, including those defined at 21 CFR § 880.6250 (exam gloves) and § 878.4460 (surgical gloves) and such gloves intended for the same purposes.

As noted in our previous blog post, the Order (and thus the Rule) does not include the other materials that HHS has identified as “scarce or threatened materials,” which could be targeted in future actions. That includes, among other things, drug products with the active ingredient chloroquine or hydroxychloroquine HC1; ventilators and related materials; certain sterilization services; certain sanitizing and disinfecting products; and medical gowns or apparel.

Is the export of the PPE Products now prohibited?

Not necessarily, but all shipments of the PPE Products will be temporarily detained by US Customs and Border Protection so that FEMA can determine whether to: (1) return the shipment for domestic use (i.e., prohibit the export); (2) issue a rated order under the DPA (i.e., FEMA would place an order to purchase the products itself, and the seller would be required to prioritize FEMA’s order); or (3) allow the export of part or all of the shipment.

In reaching a determination about a particular shipment, the Rule states that FEMA will consider the totality of the circumstances, including the following factors:

  1. the need to ensure that scarce or threatened items are appropriately allocated for domestic use
  2. minimization of disruption to the supply chain, both domestically and abroad
  3. the circumstances surrounding the distribution of the materials and any potential hoarding or price-gouging concerns
  4. the quantity and quality of the materials
  5. humanitarian considerations
  6. international relations and diplomatic considerations

Who must comply with the Rule?

Anyone involved in an export of PPE Products from the United States must comply with the Rule. This includes manufacturers, brokers, distributors, exporters, and shippers.

Is there grandfathering of preexisting contracts?

There is a narrow exemption for shipments by or on behalf of US manufacturers with continuous export agreements with customers in other countries since at least 1 January 2020. However, this exemption only applies to US manufacturers with a track record of distributing at least 80% of their supply of the PPE Products, on a per item basis, in the United States during the 12 months. The Rule notes that FEMA may develop additional guidance about this exemption, encouraging manufacturers to contact FEMA with specific information about their status under the exemption.

What are the penalties for violations?

Section 103 of the DPA provides for monetary penalties of up to USD 10,000 and/or imprisonment for no more than one year. In addition, under 18 U.S.C. § 554, anyone who fraudulently or knowingly exports anything from the United States contrary to US law, or who facilitates such a transaction, can face fines and/or up to 10 years’ imprisonment.

The US Government may issue further guidance about these DPA developments in the coming days. Baker McKenzie is actively monitoring any further guidance or development on these issues.

The post USA: FEMA implements export restrictions on certain PPE products with immediate effect appeared first on Global Compliance News.

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The Organisation for Economic Co-operation and Development (OECD) is racing toward meeting an ambitious target by the end of the year that could radically change the way all multinational enterprises (MNEs) are taxed. The target—a final report—was set forth in January 2019 under the cover of addressing the digital economy.

However, the two fundamental “pillars” of this project are far broader than that. As the OECD’s base erosion and profit shifting (BEPS) project concluded that it is impossible to ring-fence the digital economy, the OECD is now setting the foundation of the new international tax system that reaches far beyond the digital economy with a global anti-base erosion (GloBE) framework, known as Pillar Two. So, what will happen at the end of this sprint to the finish? It may be meaningful to look at the current state of Pillar Two, and the developments under Pillar One, before looking at our future international tax system.

Because much of the attention in 2020 has focused on Pillar One, the pillar that initially addresses digital taxes, many MNEs have taken the view that this 2020 workstream is irrelevant to their business. This view may seem understandable if one’s business is not primarily digital or consumer-facing. However, it misses a critical point: that key elements of both Pillar One and the global minimum tax framework/GloBE will affect all MNEs, and further input will be key to whatever consensus-based solution will be produced for Pillar Two.

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* Originally published in the Tax Executive Magazine

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