38 Search Results

May 26, 2020 |
Ari Lanin and Debra Wong Yang Named Among Los Angeles’ 2020 Most Influential People

Century City partner Ari Lanin and Los Angeles partner Debra Wong Yang were recognized in Los Angeles Business Journal’s LA500 list of the most influential people in Los Angeles, which “serves as a reminder that L.A. is peopled by some of the smartest, most innovative and staunchly resilient business talent anywhere in the world.”  The guide was published on May 25, 2020. Ari Lanin is Co-Chair of the firm’s Private Equity practice group.  He advises companies and private equity firms across a wide range of industries, focusing on public and private merger transactions, stock and asset sales, joint ventures and strategic partnerships, and public and private (including Rule144A) capital-raising transactions.  Lanin also advises public companies with respect to securities regulation and corporate governance matters, including periodic reporting and disclosure matters, Section 16, Rule 144, insider trading and the implementation of Rule 10b5-1(c) plans. Debra Wong Yang is Co-Chair of the Crisis Management Practice Group.  Drawing on her depth of experience and record of success, Yang focuses part of her practice on strategic counseling.  She leads critical representations, both high profile and highly confidential, involving a wide variety of industries, economic sectors, regulatory bodies, law enforcement agencies, global jurisdictions and all types of proceedings.  She also has a strong background in addressing and resolving problems across the white collar litigation spectrum, including through corporate and individual representations, internal investigations, crisis management and compliance.

April 22, 2020 |
Colorado and Georgia Plan to Relax COVID-19 Restrictions and Allow Some Businesses to Reopen

Click for PDF On April 20, 2020 the governors of Colorado and Georgia announced plans to begin easing the restrictions the states imposed in response to the outbreak of COVID-19.  Certain businesses will be permitted to reopen so long as they follow state social distancing laws and guidelines designed to limit the spread of the virus.  These precautions are intended to keep any increase in COVID-19 cases to a level that can be managed by the states’ hospital systems.  The plans of each state, as set out in a slide presentation by the governor of Colorado and an executive order issued by the governor of Georgia, are discussed below.  Colorado urges its citizens to remain at home when they can, and Georgia’s plan includes a detailed list of mandatory precautions.  In Colorado, there will be a process for local governments to issue stricter local rules based on local conditions; in Georgia such local control is expressly forbidden by the governor’s executive order.  Colorado and Georgia provide different approaches to emerging from the COVID-19 restrictions and may serve as competing models as other states consider how and when to begin lifting their own COVID-19 restrictions.

Colorado’s “Safer at Home” Plan Will Permit Some Businesses to Reopen, but Urges Personal Caution and Telecommuting

On April 20, Colorado Governor Polis announced a plan to scale back the restrictions on business activity currently in effect in the state. The plan, which we expect to be further detailed in the coming days, is designed to allow physical distancing rates — a measure of reductions in person-to-person interactions — which are now at 75%-80%, to decline to, but no further than, 60%-65%.  In combination with the other measures the plan will include, the state expects a 60%-65% social distancing rate to keep the infection rate low enough that the outbreak can be managed by the state’s medical infrastructure. According to the Governor’s April 20 presentation, Colorado’s current stay-home order will be permitted to lapse on Sunday, April 26, 2020 and will be replaced by the new rules.  The presentation makes clear that “[t]here will be a process for local governments to modify these standards based on local conditions.”  See Presentation of Jared Polis, Gov. of Colo. (Apr. 20, 2020).  Under the new plan the Governor’s Office continues to encourage the citizens of Colorado, especially members of particularly vulnerable populations, to stay home as much as possible.  The plan includes as well the following mandatory and optional provisions:

Mandatory:

  • Gatherings of more than ten are prohibited
  • The sick may not go to work
  • Offices may open to up to 50% of staff
  • Telecommuting must be maximized
  • Retail shops may open for curb-side sales. Non-critical in-store sales will be phased in
  • Dental care and elective medical services may open with strict precautions to ensure adequate personal protective equipment and the ability to meet critical care needs
  • Restaurants remain closed to dine-in business for now, but the state is considering a reduced-capacity reopening
  • Bars remain closed
  • Child care will reopen with strict precautions but university and K-12 education will remain closed
  • Real estate showings may begin but open houses will remain prohibited

Optional:

  • Face masks are encouraged
  • Large workplaces are advised to have symptom and temperature checks

Georgia’s Executive Order Allows Certain Businesses to Reopen and Requires Compliance With Detailed Precautionary Measures

Georgia’s plan to reopen its economy — which is set out in Governor Kemp’s Executive Order 04.20.20.01 — is modeled on the “Opening Up America Again” guidelines issued by the White House.  Governor Kemp has presented his plan as a “phase-one” reopening under those guidelines.  See Ga. E.O. 04.20.20.01.  The governor has emphasized that Georgia’s increased hospital capacity will help ensure that the outbreak does not overwhelm the state’s medical infrastructure, and is working to increase testing capacity.  The state’s existing shelter-in-place order will remain in effect until April 30, but certain businesses will be permitted to reopen, subject to a detailed list of mitigation measures, on Friday, April 24 and Monday, April 27. In contrast to the approach taken by Colorado — which allows localities to apply stricter regulations as appropriate — Georgia’s executive order expressly supersedes conflicting local rules.  In Georgia, municipalities generally have statutory home rule protections and counties have constitutional home rule protections that are subject to definition by statute.  See Ga. Const. art. IX, § 2, ¶ I; Ga. Code § 36-35-3.  The governor, however, has the emergency power to suspend statutes and has expressly decreed that his executive order will override the statutory home rule provisions on which local and county orders rely.  See Ga. E.O. 04.02.20.01; Ga. Code § 38-3-51(d)(1). The details of the April 27 reopening have yet to be announced, but dine-in restaurants, social clubs, and theaters are expected to be permitted to resume operations and be required to comply with the stringent precautionary rules detailed below as well as additional social distancing measures. The governor’s April 20 executive order announces those businesses permitted to reopen on April 24 and sets out the restrictions applicable to them.  The order allows these businesses to reopen for “Minimum Basic Operations,” defined to “include remaining open to the public subject to the restrictions of this Order.”  The order lists twenty protocols with which business must comply. Pursuant to the governor’s executive order, the following businesses may reopen on April 24:
  • Gyms
  • Fitness centers
  • Bowling alleys
  • Body art studios
  • Barber shops, beauty salons, beauty shops, and the schools for those trades
  • Estheticians
  • Hair designers
  • Persons licensed to practice massage therapy
Each of these businesses must comply with following mitigation measures
  • Screening and evaluating workers who exhibit signs of illness, such as a fever over 100.4 degrees Fahrenheit, cough, or shortness of breath
  • Requiring workers who exhibit signs of illness to not report to work or to seek medical attention
  • Enhancing sanitation of the workplace as appropriate
  • Requiring hand washing or sanitation by workers at appropriate places within the business location
  • Providing personal protective equipment as available and appropriate to the function and location of the worker within the business location
  • Prohibiting gatherings of workers during working hours
  • Permitting workers to take breaks and meals outside, in their office or personal workspace, or in such other areas where proper social distancing is attainable
  • Implementing teleworking for all possible workers
  • Implementing staggered shifts for all possible workers
  • Holding all meetings and conferences virtually, wherever possible
  • Delivering intangible services remotely wherever possible
  • Discouraging workers from using other workers' phones, desks, offices, or other work tools and equipment
  • Prohibiting handshaking and other unnecessary person-to­person contact in the workplace
  • Placing notices that encourage hand hygiene at the entrance to the workplace and in other workplace areas where they are likely to be seen
  • Suspending the use of Personal Identification Number ("PIN") pads, PIN entry devices, electronic signature capture, and any other credit card receipt signature requirements to the extent such suspension is permitted by agreements, with credit card companies and credit agencies
  • Enforcing social distancing of non-cohabitating persons while present on such entity's leased or owned property
  • For retailers and service providers, providing for alternative points of sale outside of buildings, including curbside pickup or delivery of products and/ or services if an alternative point of sale is permitted under Georgia law
  • Increasing physical space between workers and customers
  • Providing disinfectant and sanitation products for workers to clean their workspace, equipment, and tools
  • Increasing physical space between workers' worksites to at least six (6) feet.
Gibson Dunn is monitoring the situations in Colorado and Georgia as harbingers of what may come in other states as well.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak.  For additional information, please contact your usual contacts or any member of the Firm’s Coronavirus (COVID-19) Response Team or the following authors: Authors:  Mylan Denerstein, Lauren Elliot, Lee R. Crain, Stella Cernak, and Parker W. Knight III © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 20, 2020 |
California’s COVID-19 Executive Orders Create a Layered Patchwork of Rules That Are Sometimes Conflicting and Always Changing

Click for PDF As COVID-19 continues to spread across the U.S., Californians for weeks have received evolving guidance from the state, counties, cities, and the federal government encouraging residents to stay home and mandating the closure of certain, non-essential businesses.  California was one of the first places in the U.S. to issue a stay home order, starting a trend of a patchwork of regulations, orders, and laws on state, county, and local levels.  As the landscape of government directives  continues to shift day-by-day (or, at times, hour-by-hour), businesses must continually monitor numerous layers of government for guidance and evaluate their operations to ensure they remain in compliance with all applicable restrictions. On March 19, 2020, the State of California issued Executive Order No. N-33-20, which required all Californians to “stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors” for an indefinite duration.  The State Order refers to and incorporates federal guidance on what constitutes “critical infrastructure sectors,” as outlined by the U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA).  CISA’s guidance (updated March 28) broadly lists sixteen critical infrastructure sectors considered vital to the population’s health and well-being, and provides further detailed guidance (updated March 28) outlining “essential critical infrastructure workforce” roles. While the State Order provides some clarity to individuals and businesses seeking to comply with the appropriate orders, county and city governments have issued their own orders, sometimes creating more stringent restrictions on individuals and businesses than what is mandated in the State Order.  While each order is unique, there are commonalties between the orders.  Each order protects the operations of the healthcare industry, essential infrastructure, and the food supply chain.  Most orders explicitly encourage employers to institute work-from-home policies.  All orders mandate the closure of restaurants for dine-in services, limiting restaurants to take-out or delivery.  Nearly all orders mandate the closure of gyms and fitness centers. On March 16, 2020, the first wave of state and local orders restricting personal movement and non-essential business operations began with seven Bay Area counties and the City of Berkeley issuing “Shelter In Place” orders.  These orders, while initially in effect until April 7, have now been modified to extend to May 3. (San Francisco, San Mateo, Marin, Contra Costa, Alameda, Santa Cruz, Santa Clara, City of Berkeley.)  The County-level orders frame the restrictions differently than the statewide order, focusing on essential “businesses” at the local level, such as grocery stores, banks, and hardware stores.  Comparatively, the state order identifies sixteen critical sectors, rather than identifying specific type of business.  Despite the framing of these issues, the orders appear to be consistent in which businesses are allowed to continue operating. On March 31, 2020, the Bay Area counties issued revised orders, which supersede the prior orders.  (San Francisco, San Mateo, Marin, Contra Costa, Alameda, Santa Cruz, Santa Clara, City of Berkeley.)  The new orders tighten and clarify the restrictions on personal conduct and “essential” activities and businesses, and extend their duration to May 3.  These orders mandated that businesses “that include an Essential Business component” “alongside non-essential components must, to the extent feasible, scale down their operations to the Essential component only[.]”  The revised orders similarly mandate that all construction must stop, except for the following exceptions: (1) projects immediately necessary to the maintenance, operation, or repair of Essential Infrastructure; (2) projects associated with Healthcare Operations; (3) affordable housing that is or will be income-restricted, including multi-unit or mixed-use developments containing at least 10% income-restricted units; (4) public works projects if specifically designated as an Essential Governmental Function by the City Administrator; (5) shelters and temporary housing, but not including hotels or motels; (6) projects immediately necessary to provide critical noncommercial services to individuals experiencing homelessness, elderly persons, persons who are economically disadvantaged, and persons with special needs; (7) construction necessary to ensure that existing construction sites that must be shut down under this Order are left in a safe and secure manner, but only to the extent necessary to do so; and (8) construction or repair necessary to ensure that residences and buildings containing Essential Businesses are safe, sanitary, or habitable to the extent such construction or repair cannot reasonably be delayed. While the Bay Area counties previously determined that their March 16 Shelter in Place Orders were “complementary” to the State Order, those counties now are stating that their revised March 31 orders are more restrictive.  Executive Orders from Bay Area counties indicate that the county orders, which contain, in some respects, “more stringent restrictions[,]” must be complied with in order to “control the public health emergency as it is evolving within the County and the Bay Area.” Much like the Bay Area, Southern California adopted a patchwork of local city- and county-wide executive orders governing the crisis.  The City of Los Angeles and the County of Los Angeles both issued “Safer at Home” orders identifying similar, though not identical, “Essential Businesses” that are permitted to operate during the crisis.  For example, the City of Los Angeles prohibits any open houses or “in-person showings of housing for lease or sale[,]” while the County permits professional services related to the transfer and recording of ownership in housing, “including residential and commercial real estate and anything incidental thereto[.]”  More nuanced, the County permits the operation of businesses “that supply office or computer products needed by people who work from home[,]” while the City more broadly permits businesses “that supply or provide storage for products needed for people to work from home.” Recently, several localities in Southern California, including Los Angeles County and San Diego County, separately issued local orders requiring some businesses to post “Social Distancing Protocols” at all entrances of the facility in order to be visible by the public and by employees.  The mandated form Protocols require the business to include specific information about the measures that the business is taking to comply with the social distancing and sanitation procedures mandated by the local orders.  While the Protocols generally require similar information, the orders are inconsistent as to which businesses must post the protocols.  In Los Angeles County, all Essential Businesses must post a Protocol, while San Diego County requires only businesses that remain open to the public. To add a further layer of complication, each level of government authority has the power to enforce its orders, usually through either a fine or imprisonment.  However, each government entity has a different approach to the enforcement of the orders.  Many officials, including the California Governor Gavin Newsom, have taken the public stance that they are hoping for voluntary cooperation of businesses and residents, with the hope that formal enforcement measures are not necessary.  Governor Newsom stated that he did not expect to use law enforcement to enforce the order at this time, but that the “social pressure” is “the most powerful enforcement tool we have.” Initially, some mayors indicated that they did not intend for the widespread police enforcement of the orders.  However, in recent days, we have seen an increased level of enforcement in the Bay Area and in Southern California.  On April 3, Los Angeles prosecutors filed criminal charges against four local, non-essential businesses that “flagrantly” refused to close, including a smoke shop, a shoe store, and a discount electronics retailer.  One individual in the Los Angeles area was cited $1000 for surfing, despite repeated warnings from a police officer that the beaches were closed.  Similarly, San Francisco police chief Bill Scott said that San Francisco cited at least one person and one business for violating the City’s Shelter in Place Order, and the City Attorney recently obtained a warrant that to shut down an underground nightclub that was operating in violation of the local Order.  Other localities have already begun to enforce their ordinances more strictly.  In the City of Manhattan Beach located in Los Angeles County, the city issued 129 citations and shut down four construction projects over a single weekend for violations of the city’s social distancing ordinance.  While the current enforcement is generally focused on individuals and businesses that ignore government demands for compliance with orders, it’s not clear whether all businesses were given a warning prior to the enforcement actions.  We may continue to see a tightening on the enforcement of these orders as the virus continues to spread or as the level of compliance with the orders decreases. The current regulatory landscape in response to the COVID-19 pandemic in California is complex and continually evolving.  This trend is likely to continue into the foreseeable future.  As the pandemic continues, cities and counties will tailor their restrictions to the needs of the locality.  The COVID-19 restrictions are still new and have not been clarified through litigation, In the face of such uncertainty, businesses must proactively monitor the announcements of the State, the counties, and the cities within which they operate, seek guidance where there is ambiguity and evaluate the risks associated with the uncertainties in each order.


Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak.  For additional information, please contact your usual contacts or any member of the Firm’s Coronavirus (COVID-19) Response Team or the following authors: Authors:  Mylan Denerstein, Lauren Elliot, Victoria Weatherford and Dione Garlick © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 18, 2020 |
New York Governor v. New York City Mayor: Who Has the Last Word on New York City’s Business Shutdown?

Click for PDF During the COVID-19 emergency, what are businesses operating in New York City to do if the Mayor issues an executive order that conflicts with one from the Governor of the State?  Under applicable law and legal principles, the last word should rest with the Governor.  To be sure, businesses must comply with the valid orders of local governments, but the Governor of New York may, by executive order, suspend otherwise-valid sources of law, including orders from mayors.  This may be surprising to some, as New York’s Constitution provides local governments with protections from State-level encroachments in the form of the home rule doctrine, but these protections do not likely limit the Governor’s executive orders in response to the COVID-19 pandemic. New York’s Governor’s Broad Emergency Authority. Under New York Executive Law 29-a, a statute initially passed by the New York State Legislature in 1978, the Governor of the State of New York has immense power during certain states of emergency.  The Legislature amended Section 29-a in early March to provide the Governor with even greater authority in light of the looming threat of COVID-19.[1]  According to the legislative history, the amendment was intended to allow “the governor” to issue “any directive necessary to respond to a state disaster emergency.”[2]

Section 29-a provides that

Subject to the state constitution, the federal constitution and federal statutes and regulations, the governor may by executive order temporarily suspend any state, local law, ordinance, or orders, rules or regulations, or parts thereof, of any agency during a state disaster emergency, if compliance with such provisions would prevent, hinder, or delay action necessary to cope with the disaster or if necessary to assist or aid in coping with such disaster.[3]

The law further provides that the governor “may issue any directive during a state of disaster emergency declared in the following circumstances,” which include an “epidemic” and, as added by the recent amendment, a “disease outbreak.”[4]  The amendment also added to the statute that “[a]ny such directive” issued by the Governor “must be necessary to cope with the disaster and may provide for procedures reasonably necessary to enforce such directive.”[5]  The Governor’s power is not unlimited.  In fact, if the New York State Legislature wishes to override the Governor’s directive under Section 29-a, it “may terminate by concurrent resolution executive orders issued under [Section 29-a] at any time.”[6] Given the breadth of Section 29-a, an executive order from the Governor meant to manage the COVID-19 pandemic should fall within the scope of the Governor’s statutory authority.  After all, the statute was expressly amended for this purpose.[7]  Case law also supports this result.  Not surprisingly, to date there has been very little litigation over the Governor’s Section 29-a powers, the only case to address the statute in meaningful detail, admittedly decided nearly 20 years ago, affirmed the Governor’s exercise of emergency authority.[8]  And, just this month, a court upheld one of Governor Cuomo’s COVID-19 executive orders against a challenge that it denied criminal defendants their statutory right to a prompt preliminary hearing.[9] Only on rare occasion have courts second-guessed governmental emergency orders.  For example, last year, a court granted a preliminary injunction against an Emergency Declaration issued by the County Executive of Rockland County that shut down schools in the face of a measles outbreak.[10]  That court reasoned that the outbreak was not an “epidemic” as used within the meaning of a different emergency statute from Section 29-a.[11]  The recent amendments to Section 29-a should avoid this result, however, because they clarified that the Governor may issue orders in the face of both an “epidemic” and a “disease outbreak.”[12]  Moreover, the Rockland County court’s reasoning does not account for the factual differences between a county-wide measles outbreak and the COVID-19 pandemic—among other things, there has been a measles vaccine available for decades. In short, unless some other statute or constitutional provision served to limit his action, the Governor would be within his statutory authority to issue directives to New York businesses, or to suspend mass transit and public gatherings, including concerts, shows, games and other events.[13] Local Government’s Emergency Powers and Constitutional Home Rule. While the Mayor of New York City has authority to issue emergency orders to manage the COVID-19 pandemic, his orders are likely ineffective if they conflict with an order from the Governor made pursuant to Executive Law Section 29-a.  Still, the Mayor of New York City is empowered to issue local emergency orders to deal with an ongoing or imminent crisis.[14]  This stems from New York State Executive Law Section 24, which provides that a governmental “chief executive may promulgate local emergency orders to protect life and property or to bring [an] emergency situation under control.”[15]  The New York City Charter itself incorporates Section 24.[16]  But, as already mentioned, Section 29-a on the Governor’s emergency powers allows the Governor to “suspend any statute, local law, ordinance, or orders,”[17] which on its face includes an order from a mayor.  Thus, the Governor’s emergency powers allow him to suspend a mayor’s “order[].” In the face of the Governor’s overriding executive order,  New York City’s Mayor may argue that the State Constitution limits the State’s ability to control local affairs.  But while the State Constitution does provide protections through the provisions relating to home rule, those protections are limited, and indeed may be inapplicable altogether.

As the New York Court of Appeals has said,

Enacted to protect the autonomy of local governments, the Municipal Home Rule Clause allows the legislature to “act in relation to the property, affairs or government of any local government only by general law, or by special law only (a) on request of two-thirds of the total membership of its legislative body or on request of its chief executive officer concurred in by a majority of such membership.”[18]

For three reasons, constitutional home rule should not limit the Governor from issuing an order that conflicts with the New York City Mayor’s management of the COVID-19 pandemic. First, constitutional home rule challenges may not apply to executive orders at all.  The relevant constitutional text constrains the “Legislature” and the “law[s]” it may pass, not the Governor or any action he may take via executive order.[19]  As one case explained in rejecting a home rule challenge to a county executive’s order, “an Executive Order” functions merely as an “implementing directive” made under an already-existing law.[20]  An executive order, then, is “not a law and, therefore, claims predicated on alleged violation of the State Constitution or statute that themselves pertain to laws, are not viable.”[21]  With that in mind, a mayor who wishes to challenge an executive order made pursuant to Executive Law Section 29-a would likely have to show that Section 29-a itself violates the Constitution’s home rule provisions.  Such a challenge would almost certainly fail, as Section 29-a is not aimed at “the property, affairs or government of any local government,” which is the only limitation the home rule provision creates.[22] Second, even if an executive order from the Governor were subject to a home rule inquiry, it would likely count as a permissible “general law.”  Under the State Constitution, home rule does not apply to any state “general law,” meaning one “which in terms and in effect applies alike to all counties, all counties other than those wholly included within a city, all cities, all towns or all villages.”[23]  Courts have thus far typically deferred to the Legislature when deciding whether a statute is properly classified as a general law,[24] which has led to an extraordinarily view of what falls into that general law category.[25] Third, even if an executive order from the Governor were construed as a “special law” for home rule purposes, it may still be valid under the Substantial State Concern doctrine.  That doctrine provides that if (1) the State has a “substantial interest” in the subject matter and (2) “the enactment . . . bear[s] a reasonable relationship to the legitimate, accompanying substantial State concern,” the Legislature may act even if doing so interferes with issues of local concern.[26]  For example, in Greater New York Taxi Association v. State, the Legislature substantially expanded the number of authorized taxi medallions and modified regulations governing both yellow cabs and livery cabs in New York City specifically, despite the fact that “regulation of” taxicabs “has always been a matter of local concern.”[27]  The Court of Appeals held that the law in question was valid as it meant to further “the public health, safety and welfare of residents of the state of New York traveling to, from and within the city of New York,” which constituted “a matter of substantial state concern.”[28]

* * *

In sum, the Governor would very likely be within his authority to issue a statewide order directed to businesses during the context of the COVID-19 pandemic, and a mayor of an affected municipality likely would have no recourse to challenge such an order.  Executive Law Section 29-a expressly places extraordinary authority in the Governor to deal with an “epidemic” or “disease outbreak”—conditions no doubt satisfied by the current COVID-19 pandemic.  Of course, any order under Section 29-a would have to be, as noted, consistent with the federal and state constitutions, which could provide a basis for challenge depending on the from that a particular order might take. ____________________    [1]   See Senate Bill S7919, NY State Senate, https://www.nysenate.gov/legislation/bills/2019/s7919.    [2]   Id.    [3]   N.Y. Exec. L. § 29-a(1) (emphasis added); Senate Bill S7919, supra note 1.    [4]   N.Y. Exec. L. § 29-a(1) (emphasis added).    [5]   Id.    [6]   Exec. L. § 29-a(4).    [7]   See Senate Bill S7919, supra note 1.    [8]   See People v. Haneiph, 191 Misc.2d 738 (Sup. Ct. Kings Cty. 2002) (rejecting criminal defendant’s motion to dismiss for failing to satisfy the state Speedy Trial statute and holding that Governor Pataki’s suspension of the Speedy Trial statute after 9/11 was not unconstitutional).    [9]   See People v. Hood, 2020 WL 1672425, at *3 (N.Y. City Ct. Apr. 4, 2020) (“[T]he right to a prompt preliminary hearing is purely statutory.  As such, it is within the Governor’s power to suspend that statutory right during a state emergency disaster.”) [10]   See W.D. ex. rel. A v. County of Rockland, 63 Misc. 3d 932 (Sup. Ct. Rockland Cty. 2019). [11]   Id. at 936. [12]   See supra note 1. [13]   See Selfridge v. Carey, 522 F. Supp. 693, 696 n.4 (N.D.N.Y. 1981) (noting in dicta that Section 29-a “would appear to accord the Governor authority to ban public activities in certain circumstances”). [14]   See generally Exec. L. § 24. [15]   Id. § 24(1). [16]   See New York City Charter § 10-171. [17]   Exec. L. § 29-a(1). [18]   Greater N.Y. Taxi Ass’n v. State, 21 N.Y.3d 289, 301 (2013) (quoting N.Y. Const. art. IX, § 2(b)(2)) [19]   See N.Y. Const., art. IX, § 2(b)(2). [20]   Godfrey v. Spano, 15 Misc. 3d 809, 817-18, 836 N.Y.S.2d 813, 819 (Sup. Ct. Westchester Cty.) (citing Clark v. Cuomo, 66 N.Y.2d 185 (1985)), judgment aff’d, 13 N.Y.3d 358 (2009). [21]   Id.  See also People v. Haneiph, 191 Misc. 2d 738, 743 (Sup. Ct. Kings Cty. 2002) (affirming Governor’s order under Section 29-a while noting that an executive act is valid so “long as ‘the basic policy decisions underlying the regulations have been made and articulated by the Legislature.’” (quoting Matter of N.Y.S. Health Facilities Ass’n v. Axelrod, 77 N.Y.2d 340, 348 (1991)). [22]   See N.Y. Const., art. IX, § 2(b)(2) (emphasis added). [23]   Matter of City of Utica, 91 N.Y.2d 964, 965 (1998) (quoting N.Y. Const., art. IX, § 3(d)(1)). [24]   See Greater N.Y. Taxi Ass’n, 21 N.Y.3d at 302 (“Our review concerning what constitutes a substantial state interest is not dependent on what historically has been the domain of a given locality. Rather, our determination is dependent on the stated purpose and legislative history of the act in question.” (internal quotation marks omitted)). [25]   In one case, while a law conferred benefits only on the Museum of Modern Art in New York City, the court found it was still a “general” law because “other institutions” might “in time, meet the[] [law’s requirements] also.”  See Hotel Dorset Co. v. Tr. for Cultural Res. of City of New York, 46 N.Y.2d 358, 368-369 (1978).  Accordingly, it is likely that any executive order from the Governor meant to manage the COVID-19 pandemic could be written in terms that are general enough to render it a “general law,” even if the bulk of its effects are immediately felt in New York City.  Cf. id. [26]   See, e.g., City of New York v. Patrolmen’s Benevolent Ass’n, 89 N.Y.2d 380, 391 (1996); see also Adler v. Deegan, 251 N.Y. 467, 491 (1929) (Cardozo, J., concurring) (“[I]f the subject be in a substantial degree a matter of state concern, the Legislature may act, though intermingled with it are concerns of the locality.”); Matter of Kelley v. McGee, 57 N.Y.2d 522, 538 (1982) (“It is well established that the home rule provisions of article IX do not operate to restrict the Legislature in acting upon matters of State concern.”). [27]   See Greater N.Y. Taxi Ass’n, 21 N.Y.3d at 296-300. [28]   Id. at 303 (emphasis in original).

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team, or the following authors:

Authors:  Mylan Denerstein, Lauren Elliot, Victoria Weatherford, Lee Crain, and Michael Klurfeld © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 6, 2020 |
When Whistleblowers Call: Planning Today for Employee Complaints During and After the COVID-19 Crisis

Click for PDF The COVID-19 pandemic has caused unprecedented global economic turmoil and disruption.  There are daily reports of massive employee layoffs across all segments of the economy, and millions of people are suddenly out of work.  Federal and state governments have stepped in with numerous new, patchwork and ill-defined programs, rules and regulations to address the unemployment crisis and related effects.  This is all reminiscent of the days after 9/11 and the 2008 Great Recession.  And if what’s past is prologue, companies should expect that current and former employees will unleash an onslaught of allegations about company misconduct, both COVID-19-related and otherwise.  Indeed, government regulators and the plaintiffs’ bar are already publicizing various reporting mechanisms for disgruntled employees seeking to raise such claims. In this context, increased whistleblower complaints are inevitable.  While most companies already have policies and processes in place to address those complaints, it is no longer business as usual.  Existing programs likely do not account for a displaced and remote workforce, rapid and substantial employee layoffs and furloughs, ongoing work in an environment where health and safety are at the forefront, or any of the countless other disruptions that COVID-19 has caused to a company’s operations.  Yet with so many immediate and pressing issues to address during these challenging and unprecedented times, it is understandable that evaluating and updating a company’s whistleblower action plan may not be seen as a mission-critical task.  Inaction, however, could have detrimental effects that last long after the pandemic has been contained and the economy has begun to recover. As before COVID-19, and even more so now, it is important that companies have a robust action plan for addressing employee complaints, as well as related governmental investigations and civil litigation.  There are tried and true methods for addressing whistleblower complaints.  For companies that have not yet implemented them, now is the time to do so. But even for companies that have established a whistleblower action plan, COVID-19 may cause material changes at the company that render the plan ineffective or incomplete.  For instance, a company’s anonymous complaint hotline may no longer be operational because the third-party vendor has shuttered, or a company’s investigative process may not apply because positions referenced in the policy have been eliminated.  And the fact that compliance professionals likely are working remotely could result in delays or failures in addressing employee complaints while more pressing business issues are addressed.  Notwithstanding that the written policies and established practices do not reflect a company’s current working environment (especially in these unprecedented times), a company could still be criticized by a whistleblower, government regulator or plaintiffs’ attorney for not following its written policies or established processes to a tee.  They will no doubt argue that the COVID-19 pandemic does not justify departures from the standard protocol for handling employee complaints.  So it is important that a company’s current whistleblower action plan accurately reflect the company’s current operations. What’s Past Is Prologue:  COVID-19-Related Unemployment Inevitably Will Spawn Whistleblower Claims It may take years to know the full economic and societal impact of COVID-19, but it is already clear that in the near-term the pandemic will result in unimaginable layoffs and reductions in force.  During the two weeks ending April 2, 2020, some 10 million American workers filed unemployment claims, smashing previous records.[1]  And it appears we are just at the beginning, with experts estimating unemployment rates may reach as high as 20%, far exceeding unemployment at the height of the Great Recession.[2]  And unlike past economic downturns, which impacted certain industries more than others, this pandemic affects every segment of the U.S. economy.[3] With such rapid and unprecedented economic dislocation across the global economy, it is reasonable to assume that there will be a commensurate increase in whistleblower claims.  In part, these claims may stem from actions taken by workers under economic stress or other pressures that could give rise to reportable conduct, or because the usually effective precautions and controls fail during this challenging time.  They might also stem from newly passed laws or policies promulgated to address COVID-19-related misconduct, as happened during the Great Recession with respect to the finance industry.  And they might result from the fact that workers, confronted with the prospect of being let go and resulting economic instability, will have greater incentive than ever to report any suspicious activity, or to claim that they had done so after the fact, especially given the substantial monetary rewards that can be obtained.[4] Cracking Down:  Regulators Are Encouraging Whistleblowers to Report COVID-19-Related Violations In addition to the increase in potential personal incentives to come forward, federal and state regulators have signaled that they will prioritize enforcement investigations and actions against COVID-19-related misconduct.  This too will encourage an increase in whistleblowing.  Before the COVID-19 pandemic, various agencies already included highly lucrative whistleblower incentives as part of their enforcement mechanisms.  The False Claims Act, for example, allows individuals to sue corporations on behalf of the United States, and to retain a percentage of any penalty awarded.[5]  At the same time, such reporters are obliged to provide all of their evidence to the U.S. Department of Justice (DOJ), making enforcement yet more potent.  Given that the False Claims Act extends to Medicaid and Medicare programs, it is logical to expect that many forms of healthcare-related misconduct in the current crisis may be reported through this channel.[6] Similarly, the Sarbanes-Oxley Act of 2002 created mandatory reporting requirements for fraud and other illegal activity, and provides protections for whistleblowers who come forward.[7]  And under the Dodd-Frank Act, passed in 2010 in part as a reaction to the 2008 financial crisis, whistleblowers who report financial misconduct to the U.S. Securities and Exchange Commission (SEC) are entitled to receive substantial financial awards, provided that they (1) voluntarily (2) provide original information (3) to the SEC (4) that leads to a successful enforcement action.[8]  Dodd-Frank also strengthened anti-retaliation protections against whistleblowers.  Awards typically range from 10% to 30% of the monetary sanction the SEC collects, meaning this incentive can be extremely powerful.[9]  And the SEC, through its Office of the Whistleblower, makes it easy for employees to report tips via an interactive website that prominently highlights the fact that whistleblowers have received awards of over $300 million in recent years.[10]  Whistleblower protections exist under scores of other federal laws (such as the Occupational Safety and Health Act) and state laws as well.[11] During the current pandemic, regulators will turn to these and other channels to crack down on corporate misconduct, particularly if it is in any way related to the COVID-19 pandemic.  The DOJ, for example, has urged citizens to report COVID-19-related fraud schemes by calling or emailing the National Center for Disaster Fraud (NCDF) and, in turn, information reported to the NCDF is disseminated to relevant federal law enforcement agencies and U.S. Attorney’s Offices across the country.[12]  This program reflects a larger shift in priorities, as announced by Attorney General William Barr last month, in which “detecting, deterring, and punishing wrongdoing” seen as connected to the COVID-19 pandemic has taken center stage.[13]  The DOJ has even launched its own website (https://www.justice.gov/coronavirus) as a central repository for the general public to report anonymously any concerns about COVID-19 fraud. State and local regulators are also focusing on investigating and punishing COVID-19-related misconduct.  For example, New York State has launched the “COVID-19 ‘New York on PAUSE’ Enforcement Task Force,” which will receive and investigate claims via an online complaint intake form.[14]  And the New York Attorney General has been outspoken about investigating whistleblower claims raised by employees concerning COVID-19 health concerns in the workplace.  California’s Attorney General has made price gouging linked to shortages caused by the outbreak a top enforcement priority, encouraging citizens in his state to come forward with any information on such misconduct.[15]  Likewise, the Washington Attorney General has undertaken enforcement actions against local businesses engaged in illegally overpricing products like masks and hand sanitizers.[16] As the pandemic has rolled across the U.S. in recent weeks, whistleblowers have already started to come forward publicly.  For instance, an anonymous bus operator for Atlanta’s MARTA transit system made news for alleging that MARTA’s buses were not properly sanitized to address the virus.[17]  Likewise, a nurse in Illinois has filed a lawsuit alleging that she was fired in retaliation for raising concerns regarding inadequate provision of masks for healthcare workers.[18]  And in New Jersey, counsel for a labor union has filed charges alleging that warehouse workers and others were fired in retaliation for speaking out about poor coronavirus safety practices.[19]  As the virus spreads, these trends will surely continue. Additionally, legislation such as the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act,[20] a $2.2 trillion stimulus that provides for substantial loans and subsidies to businesses, creates the potential for misuse or perceived misuse of funds.  Because of the potential for abuse, the CARES Act contains several oversight provisions, including providing additional funding to create oversight bodies that will investigate how companies use funds made available under CARES.  Specifically, the CARES Act provides funding to existing inspector general offices in several government agencies and creates a Special Inspector General for Pandemic Recovery in the Treasury Department, a Congressional Oversight Commission, and a Pandemic Response Accountability Committee.  In addition, Speaker Nancy Pelosi has announced a bipartisan House Committee to oversee the distribution of funds under the CARES Act, stating that “[t]he panel will root out waste, fraud, and abuse and will protect against price gouging, profiteering, and political favoritism.”[21]  The additional monitoring and scrutiny that accompany CARES funding will create even more opportunities for whistleblowers to emerge. Finally, in the current 24/7 media climate, with the country appropriately focused on the crisis, COVID-19-related fraud will likely gain substantial coverage, as well as the focus of government regulators (and plaintiffs’ attorneys) looking to publicize available whistleblower mechanisms. Being Prepared:  Employers Will Need Robust Action Plans in Place to Handle Increased Whistleblower Claims The most effective way to prepare for the expected increase in whistleblower claims in the current environment is to ensure that a company has an appropriate and robust action plan in place, and sticks to that plan as whistleblower scenarios arise.[22]  While a comprehensive whistleblower action plan is complex and multi-faceted (and not “one size fits all” for every business), below are some key issues to consider when reevaluating an action plan.

  • Knowing the Law: This is a rapidly changing environment.  Companies should take stock of the various whistleblower laws and regulations that may apply within their given industry, and whether any new guidance is being issued with regard to those laws related to the COVID-19 pandemic.  In particular, be aware of whether whistleblower complaints may trigger mandatory reporting to federal or state governments under various government programs.
  • Communications and Reporting Channels: Companies should ensure that they have clear and operational internal communication and reporting channels for whistleblower complaints.  This includes ensuring that existing processes have not been compromised as a result of work-from-home protocols or layoffs.  For instance, companies should update their compliance plans to ensure that they permit telephone calls or emails to human resources, legal and compliance departments—and provide current contact information for doing so—as opposed to scheduling an in-person meeting or simply assuming that pre-pandemic systems will continue to operate normally.  Similarly, companies with compliance hotlines should make sure those hotlines remain operational.  Companies should then re-emphasize the continued availability of these reporting mechanisms to employees, particularly if they are updated to reflect remote work environments.  As always, this messaging should drive home the company’s non-retaliation policy.
  • Robust Response and Investigative Protocols: Companies should consider whether existing investigation protocols need to be updated to reflect the current atmosphere.  Most obviously, remote work may make it more difficult to follow existing guidelines with regard to confidentiality or in-person interviews.  Moreover, individuals tasked with conducting investigations may have been furloughed or otherwise affected by COVID-19.  While these processes should be updated and documented, every effort should be made to maintain confidentiality and existing protocols.  The same is true with responding to the whistleblower and determining whether existing processes for that communication need to be revised to reflect work-from-home protocols.  With the expected uptick in whistleblower claims and the disruption to a company’s internal investigative structure caused by the COVID-19 pandemic, it is possible that a company’s ability to address employee complaints could be delayed.  While some delay may be understandable, it is imperative that companies not allow whistleblower complaints to fall through the cracks or go unanswered.
  • Document Retention: Companies should evaluate their document retention policies to ensure that key paper and electronic documents are retained.  This applies both to potentially relevant business documents as well as documents related to the company’s investigation and resolution of any complaints.  For instance, to the extent employees are using personal devices to engage in company functions, consider whether there is a sufficient mechanism for key documents to be captured on the company’s systems.  Similarly, if there is a reduction in force following a complaint, make sure there are steps taken to obtain and retain information from the employees who had their employment terminated and prevent them from taking confidential corporate documents in violation of company policy (while respecting protected whistleblowing activity, including by having appropriate confidentiality carveouts—e.g., under the Defend Trade Secrets Act whistleblower provision—in any separation agreements).
  • Communications with Government Regulators: In light of the heightened government scrutiny, companies should review their existing policies to ensure proper communication with government regulators.  Where the whistleblower has already approached regulators, protocols should ensure effective and prompt communication back to the government throughout the internal investigation.  Where the complaint is entirely internal, a decision-framework should exist to assist in evaluating the potential costs and benefits of self-disclosure to government regulators.
  • Use of Outside Counsel: As always, companies should consider when it may be necessary to consult with outside counsel in response to a whistleblower claim.  With an anticipated uptick in whistleblower activity, it will be more important than ever to assess at the outset which complaints are significant enough to engage outside counsel—for example, those in which regulators or plaintiffs’ attorneys are already involved or those involving novel laws and programs relating to COVID-19—and those that can appropriately be handled internally.
_____________________ [1]              Rebecca Rainey and Nolan D. McCaskill, “‘No words for this’: 10 million workers file jobless claims in just two weeks,” Politico (Apr. 2, 2020), available at https://www.politico.com/news/2020/04/02/unemployment-claims-coronavirus-pandemic-16108. [2]              See, e.g., Ben Winck, “Nobel-winning economist Paul Krugman sees unemployment soaring to 20% in a matter of weeks,” Business Insider (Apr. 3, 2020), available at https://www.businessinsider.com/paul-krugman-says-unemployment-spikes-soar-forecast-weeks-coronavirus-layoffs-2020-4; Tommy Reggiori and Sujata Rao, “U.S. Economy to Shrink at Fastest Rate Since 1946, Unemployment to Top 15%: Morgan Stanley,” U.S. News and World Report (Apr. 3, 2020), available at https://money.usnews.com/investing/news/articles/2020-04-03/us-economy-to-shrink-at-fastest-rate-since-1946-unemployment-to-top-15-morgan-stanley. [3]              Liz Hoffman and Marcelo Prince, “The Month Coronavirus Felled American Business,” Wall Street Journal (Apr. 4, 2020), available at https://www.wsj.com/graphics/march-changed-everything/. [4]              For example, on April 3, 2020, the SEC announced an award of approximately $2 million to a whistleblower who provided information and assistance that substantially contributed to an ongoing investigation.  See Securities and Exchange Commission, “SEC Awards Approximately $2 Million to Whistleblower,” (Apr. 3, 2020), available at https://www.sec.gov/news/press-release/2020-80. [5]              31 U.S.C. §§ 3729-3733. [6]              Gibson Dunn, “Implications of COVID-19 Crisis for False Claims Act Compliance,” (Mar. 31, 2020), available at https://www.gibsondunn.com/implications-of-covid-19-crisis-for-false-claims-act-compliance/. [7]              Pub. L. No. 107-204, 107th Cong. (2002). [8]              Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 111th Cong. (2010). [9]              See, e.g., Securities and Exchange Commission, “SEC Announces Largest-Ever Whistleblower Award,” (Sep. 22, 2014), available at https://www.sec.gov/news/press-release/2014-206 (noting SEC whistleblower award of more than $30 million).  This activity does not show any signs of slowing, notwithstanding the current COVID-19 pandemic.  See supra note 4. [10]             https://www.sec.gov/whistleblower. [11]             See, e.g., N.J. Stat. Ann. §§ 2A:32C-1 et seq. (New Jersey False Claims Act); Cal. Gov’t Code §§ 12650 et seq. (California False Claims Act). [12]             Department of Justice, “Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud,” Mar. 20, 2020, available at https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [13]             William Barr, “Memorandum on COVID-19 – Department of Justice Priorities,” Department of Justice (Mar. 16, 2020), available at https://www.justice.gov/ag/page/file/1258676/download. [14]             See New York State COVID-19 “New York on PAUSE” Enforcement Task Force Violation Complaint Form, available at https://mylicense.custhelp.com/app/ask; Complaint Forms Available to Report Violations of Coronavirus Mandates, available at https://www.wktv.com/content/news/Complaint-forms-available-to-report-violations-of-NY-state-mandates-569290041.html. [15]             California Department of Justice, “Attorney General Becerra Issues Consumer Alert on Price Gouging Following Statewide Declaration of Emergency for Novel Coronavirus Cases in California Communities,” (Mar. 4, 2020), available at https://oag.ca.gov/news/press-releases/attorney-general-becerra-issues-consumer-alert-price-gouging-following-statewide. [16]             Jim Brunner, “Washington state attorney general warns 5 businesses to stop coronavirus price-gouging of sanitizer, masks on Amazon,” Seattle Times (Mar. 31, 2020), available at https://www.seattletimes.com/seattle-news/health/state-attorney-general-warns-5-businesses-to-stop-coronavirus-price-gouging-of-sanitizer-masks-on-amazon/. [17]             WAOK Radio, “Exclusive: MARTA Whistleblower Says Company Not Protecting Riders From COVID-19,” (Mar. 31, 2020), available at https://waok.radio.com/articles/radiocom/rashad-richey-marta-not-protecting-riders-from-covid-19. [18]             Sophie Sherry, “Nurse says she was fired by Northwestern Memorial Hospital after warning co-workers that face masks being used were not the safest,” Chicago Tribune (Mar. 25, 2020), available at https://www.chicagotribune.com/news/breaking/ct-nurse-northwestern-memorial-hospital-coronavirus-20200324-6smjuxbn6fgnxpaiyzzkjymorq-story.html. [19]             Federal Charges Filed By Teamsters Against Warren Buffett-Owned Furniture Firm For Mass Firing Of Coronavirus Whistleblowers, Union Supporters, Yahoo! Finance (Apr. 2, 2020), available at https://finance.yahoo.com/news/federal-charges-filed-teamsters-against-201900772.html. [20]             H.R. 748, 116th Cong. (2020). [21]             Heather Caygle, Kyle Cheny and Melanie Zanona, “Pelosi Forms New Select Committee to Oversee $2 trillion Coronavirus Relief Package,” Politico (April 2, 2020), available at https://www.politico.com/news/2020/04/02/pelosi-forms-new-select-committee-to-oversee-2-trillion-coronavirus-relief-package-161436. [22]             Jason C. Schwartz and Lisa J. Banks, “Whistleblower Law: A Practitioner’s Guide,” American Lawyer Media/Law Journal Press.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors in New York, Denver and Los Angeles. Authors:  Lee Dunst, Jessica Brown, Daniel Weiss, Daniel Rauch and Peter Baumann. © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 1, 2020 |
Small Business Administration and Department of Treasury Publish Paycheck Protection Program Loan Application Form and Instructions to Help Businesses Keep Workforce Employed

Click for PDF Yesterday, the Small Business Administration (“SBA”) and U.S. Department of the Treasury published guidance (available here and here) on the Paycheck Protection Program (the “Program” or “PPP”), including an application form and related instructions.  As described in greater detail in our previous client alert, SBA “Paycheck Protection” Loan Program Under the CARES Act, the Program―implemented by the SBA with support from the Department of Treasury―provides $349 billion to help small businesses impacted by the coronavirus keep their employees on the payroll. At four-pages in length (including instructions), the application form and its related guidance provide new information for small businesses and potential lenders, including that PPP loans will have maturities of two years and an interest rate of 0.5 percent (the CARES Act established only a maximum maturity and interest of 10 years and 4.0 percent, respectively).  Small businesses and sole proprietorships may apply as soon as April 3, 2020, and we strongly advise clients to submit their applications to an approved lender on that day.  Independent contractors and self-employed individuals can apply starting April 10, 2020.  Although the program is open until June 30, 2020, the Treasury Department encouraged businesses to apply quickly “because there is a funding cap.”[1]  Additional assistance may be available through the SBA’s Economic Injury Disaster Loan and Debt Relief Programs; the COVID-19 Economic Injury Disaster Loan Application may be submitted online. Additional Guidance for Lenders As the new guidance emphasizes, existing SBA-certified lenders will be given delegated authority to process PPP loans.  Potential new lenders may submit applications to DelegatedAuthority@sba.gov and may begin processing loans as soon as they are approved. However, only “regulated lenders” will be “approved and enrolled in the program.” Once approved and enrolled in the Program, lenders are responsible for verifying that: (1) a borrower was in operation on February 15, 2020; (2) a borrower had employees for whom the borrower paid salaries and payroll taxes; and (3) the dollar amount of average monthly payroll costs.  The guidance notes that the lender must comply with Bank Secrecy Act requirements.  Lenders may not collect any fees from the applicant but will receive a processing fee from the SBA based on the loan balance at final disbursement, ranging from 1.0 percent for loans greater than $2 million to 5.0 percent for loans $350,000 and under.  Agent fees will be paid out of lender fees.  Lenders may also sell loans in the secondary market and the SBA will not collect any fees for any guarantees sold into the secondary market. Guidance Regarding Loan Forgiveness The new guidance makes clear that lenders must make decisions on loan forgiveness within 60 days.  The new guidance states that “due to likely high subscription, at least 75 percent of the forgiven amount must have been used for payroll,” which is a limitation that does not appear in the CARES Act.  Accordingly, under this guidance, to be eligible for loan forgiveness, no more than 25 percent of loan proceeds may be used for interest on mortgage obligations, rent, or utility expenses incurred or otherwise obligated before February 15, 2020.  The guidance states that “SBA will forgive loans if all employees are kept on the payroll for eight weeks” beginning on the date of the loan origination, so long as employee and compensation levels are maintained.  As described in our client alert SBA “Paycheck Protection” Loan Program Under the CARES Act, such loan forgiveness may be reduced if employee or salary levels during the eight-week period are not maintained as compared to certain prior periods.  For changes made between February 15, 2020 and April 26, 2020, businesses have until June 30, 2020 to restore full-time employment and salary levels to avoid a loan forgiveness reduction. Application Form Summary The application form requires, in addition to certain identifying information, the following preliminary information:

  • Business type (non-profit, veteran organization, tribal business, independent contractor, or self-employed).
  • Average monthly payroll. The form notes that most applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee.
  • Number of jobs as of the application date.
  • Name, Taxpayer Identification Number (“TIN”), and address of all owners with greater than 20% percent ownership stakes.
Applicants are required to select the purpose of the loan including payroll, rent/mortgage interest, utilities and, with explanation, “other.”  All businesses and each 20 percent or greater owner must certify, among other representations, that: (1) the loan is necessary to support ongoing operations (although typical SBA requirements that potential borrowers try to obtain some or all of the loan funds from other sources are waived); and (2) the applicant will not receive another PPP loan during the period beginning February 15, 2020 and ending on December 31, 2020.  All applicants and each 20 percent or greater owner must further certify that they understand that the federal government may pursue criminal fraud charges if funds are used for purposes other than to retain workers and maintain payroll or make mortgage, lease, and utility payments, although we note that these categories are narrower than the permissible uses for loan proceeds under the CARES Act, and that this narrower list aligns more closely with the list of uses with respect to which portions of the loans may be forgiven under the CARES Act.  The Treasury Department emphasizes the point by warning that although there are no personal guarantee requirements, “if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges” (emphasis added).  The signatory of the application, as well as each 20 percent or greater owner, might be subject to criminal penalties for false statements made to obtain a loan under the Program.[2] In addition, by signing the application form, applicants make certain additional representations, including:
  • A commitment to purchasing, “[t]o the extent feasible . . . only American-made equipment and products.”
  • Compliance with Occupational Safety and Health Administration (OSHA) requirements both as of the application date and during the life of the loan.
  • Compliance with nondiscrimination requirements in any business practice, including employment practices and services to the public on the basis of protected categories. All borrowers must display the "Equal Employment Opportunity Poster" prescribed by SBA.
  • That the applicant is not engaged in any activity illegal under federal, state, or local law, and neither borrower nor any of its Associates[3] have within the past three years been (a) debarred, suspended, declared ineligible or voluntarily excluded from participation in a transaction by any Federal Agency; (b) formally proposed for debarment, with a final determination still pending; (c) indicted, convicted, or had a civil judgment rendered against it for any of the offenses listed in the regulations; or (d) delinquent on any amounts owed to the U.S. Government or its instrumentalities as of the date of execution of this certification.
The Application Form makes clear that applicants will be disqualified if:
  • Suspension and Debarment. The business, or any of its owners, are presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency.  (Question 1.)
  • Bankruptcy. The business or any of its owners are presently involved in any bankruptcy.  (Question 1.)
  • Loan Loss to the Government. The business or any of its owners (or any business owned or controlled by any of them) caused a loss to the government through a direct or guaranteed loan from SBA or any other Federal agency that is (1) currently delinquent or (2) has defaulted in the last 7 years.  (Question 2.)
  • Criminal Proceedings. Any individual or owner with 20 percent or greater ownership in the business is subject to criminal proceedings, such as indictment, criminal information, arraignment, incarceration, probation, or parole.  The application authorizes the SBA to request criminal record information about the applicant (if an individual or an Associate) from criminal justice agencies for the purposes of determining eligibility.  (Question 5.)
  • Crimes Against a Minor. Any individual or owner with 20 percent or greater ownership in the business, has within the last seven years, for any felony or misdemeanor for a crime against a minor who have: (1) been convicted; (2) pleaded guilty; (3) pleaded nolo contendere; (4) been placed on pretrial diversion; or (5) been placed on any form of parole or probation (including probation before judgment).  (Question 6.)
  • U.S. Citizenship or Residency. Any individual or owner with 20% or greater ownership in the business is not a U.S. citizen or does not have lawful permanent resident status.  (Question 7.)
* * * * *    [1]   U.S. Department of Treasure, Small Business Paycheck Protection Program Top-Line Overview, available here.    [2]   Specifically, the Application Form requires applicants and each 20 percent or greater acknowledge that “knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.”    [3]   An “Associate” of a small business, although not defined in the instructions, is defined in 13 C.F.R. § 120.10 as (i) An officer, director, owner of more than 20 percent of the equity, or key employee, of the small business; (ii) any entity in which one or more individuals referred to in paragraph (2)(i) of this definition owns or controls at least 20 percent; and (iii) any individual or entity in control of or controlled by the small business (except a Small Business Investment Company (‘‘SBIC’’) licensed by SBA).  For purposes of this definition, the time during which an Associate relationship exists commences six months before the following dates and continues as long as the certification, participation agreement, or loan is outstanding: . .  (iii) For a small business, the date of the loan application to SBA, the CDC, the Intermediary, or the Lender.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors:

Authors:  Michael D. Bopp, Roscoe Jones, Jr.*, Alisa Babitz, Courtney Brown, Alexander Orr, William Lawrence and Samantha Ostrom

* Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.

© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 27, 2020 |
SBA “Paycheck Protection” Loan Program under the CARES Act

Click for PDF On March 25, 2020, the Senate passed (96-0) the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion stimulus package providing aid for individuals, States, small businesses, and businesses impacted by the coronavirus pandemic. It is expected that the House will swiftly pass the CARES Act, which the President, in turn, will promptly sign into law. The CARES Act, through a proposal authored by Senators Susan Collins (R-ME) and Marco Rubio (R-FL), authorizes the Small Business Administration (“SBA”) to provide loan guarantees for up to $349 billion in loan commitments under the SBA’s 7(a) program, through a new “paycheck protection” program under which loans may be forgiven. This client alert discusses how the SBA provisions in the CARES Act will impact businesses.

Overview of SBA “Paycheck Protection” Loan Program

Eligibility           Size Standard Under existing law, in order to be eligible for a loan under the SBA’s 7(a) program, the recipient must be a small business concern.[1] The SBA typically uses standards that are stated in terms of number of employees or average annual receipts to determine the largest size that a business concern (including its domestic and foreign affiliates) may be to still be classified as a small business concern. Under the CARES Act, any business concern would be eligible to receive an SBA loan authorized by the CARES Act (a “covered loan”) if the business concern employs not more than the greater of (I) 500 employees[2] or (II) if applicable, the size standard in number of employees established by the SBA for the industry in which the business concern operates.           The CARES Act also includes some exceptions to this standard. These exceptions are:
  • Business Concerns with More than One Physical Location
Any business concern with not more than 500 employees per physical location and that is assigned a North American Industry Classification System (“NAICS”) code beginning with 72 (i.e., a business concern in the Accommodation and Food Services sector) at the time of disbursal is eligible to receive a covered loan.
  • Waiver of Affiliation Rules
As noted above, the SBA ordinarily counts the employees or annual receipts of a business concern’s affiliates when determining whether the business concern qualifies as a small business. Section 121.103 of Title 13 of the Code of Federal Regulations sets forth the general principles the SBA uses to determine affiliation. For example, business concerns and other persons (entities or individuals) are affiliates of each other when one controls or has the power to control the other, or a third party (or parties) controls, or has the power to control, both.[3] Control of a business concern may be established by, for example, ownership or control, or the power to control 50% or more of such party’s voting stock, or a block of such party’s voting stock that is large compared to all other outstanding blocks of voting stock.[4] Control of a business concern may also be established through, among other things, a party’s ability, under the concern’s charter, by-laws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders of the business concern. The CARES Act provides that this regulation is waived with respect to eligibility for a covered loan for:
  • any business concern with not more than 500 employees that is assigned a NAICS code beginning with 72;
  • any business concern operating as a franchise that is assigned a franchise identifier code by the SBA; and
  • any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958.
          Industries To be covered by the first exception outlined above, the business concern must be assigned a NAICS code beginning with 72.[5] Below is a list of industries with a NAICS code beginning with 72.
  • Hotels and Motels
  • Casino Hotels
  • Bed-and-Breakfast Inns
  • All Other Traveler Accommodation
  • RV Parks and Campgrounds
  • Recreational and Vacation Camps
  • Rooming and Boarding Houses, Dormitories, and Workers’ Camps
  • Food Service Contractors
  • Caterers
  • Mobile Food Services
  • Drinking Places (Alcoholic Beverages)
  • Full-Service Restaurants
  • Limited-Service Restaurants
  • Cafeterias, Grill Buffets, and Buffets
  • Snack and Non-Alcoholic Beverage Bars
          Effect of the Waiver of Affiliation Rules The CARES Act would allow certain business concerns that previously did not qualify for an SBA loan because its affiliations caused the business concern to exceed the applicable thresholds to qualify for a covered loan.  For example, assume that a business concern in a covered industry with 300 employees received financing from a private equity fund and granted the fund control rights. That business concern is currently deemed an affiliate of the fund, and of any other portfolio company controlled by the fund.  Further assume that such affiliation caused the business concern to no longer be considered a small business because when measured against the SBA’s standards, the business concern is deemed to have all the employees of the private equity fund and the fund’s other portfolio companies.  As a result of the waiver of affiliation rules in the CARES Act, the business concern would no longer be an affiliate of the private equity fund and the other portfolio companies, and the business concern may qualify for a covered loan. The proposed waiver of affiliation rules may also help some businesses that are structured so that they consist of more than one business concern.  For example, assume a corporation owns three hotels through three separate limited liability companies, and that each such subsidiary has fewer than 500 employees.  Further assume that the corporation does not qualify as a small business because it is too large when you consider the total number of its affiliates’ employees, i.e., the employees of the three subsidiaries it controls. However, if the affiliation rules are waived, each such subsidiary may apply for a covered loan. However, the proposed waiver of affiliation rules will not necessarily benefit businesses that own separate establishments through the same business concern. For example, assume the three hotels in the example above are owned directly by the corporation, and the corporation has 1,000 employees, including over 500 employees who work at its largest hotel. The corporation would be a single business concern with over 500 employees and would not be eligible to apply for a covered loan as a result of the waiver of affiliation rules.[6]           Other Eligibility Requirements Along with small business concerns, nonprofit organizations also are eligible to receive a covered loan. The CARES Act recommends that the SBA issue guidance to lenders to prioritize small business concerns and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals, women and businesses in operation for less than 2 years. A recipient of an SBA economic injury disaster relief loan made between January 31, 2020 and the date covered loans are available under the CARES Act for a purpose other than paying payroll costs and other covered loan purposes described below is still eligible for a covered loan. Loan Terms An eligible recipient may receive one covered loan. The CARES Act provides that proceeds of covered loans may be used for: payroll costs; continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. The maximum loan amount is the lesser of (1)(a) the average total monthly payments by the applicant for payroll costs[7] incurred during the one-year period before the date the loan is made[8] multiplied by (b) 2.5 and (2) $10 million. If an applicant was not in business from February 15, 2019 to June 30, 2019, the maximum loan amount is the lesser of (1)(a) the average total monthly payments by the applicant for payroll costs incurred from January 1, 2020 to February 29, 2020 multiplied by (b) 2.5 and (2) $10 million. No collateral or personal guarantee is required for a covered loan. Loan Forgiveness The loan forgiveness amount is equal to the payroll costs, mortgage interest payments, rent, and utilities (the “forgivable costs”) incurred or paid by a recipient during the covered period. For purposes of determining the loan forgiveness amount, “covered period” means the 8-week period beginning on the date of the origination of a covered loan. (the “covered period”). The loan forgiveness amount is excluded from taxable income. The amount of loan forgiveness will be reduced by multiplying (1) the forgivable costs by (2) the quotient obtained by dividing (a) the average number of full-time equivalent employees per month during the covered period by (b) at the election of the borrower, (i) the average number of full-time equivalent employees per month from February 15, 2019 to June 20, 2019 or (ii) the average number of full-time equivalent employees per month from January 1, 2020 to February 29, 2020.[9] The amount of loan forgiveness will also be reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25 percent of the total salary or wages during the most recent full quarter during which the employee was employed before the covered period.[10] There are exceptions for these reductions if, during the period beginning on February 15, 2020 and ending 30 days after enactment of the Act, there is a reduction in the number of full-time equivalent employees or salary and the reduction is eliminated no later than June 30, 2020. If a covered loan has a remaining balance after the forgiveness described above, it will have a maximum maturity of 10 years and an interest rate not exceeding 4 percent. Lenders must defer payments under the loan for at least six months and up to one year. What a Prospective Borrower Can Do Now To seek loan forgiveness, an eligible business concern must submit an application to the lender that originated the covered loan that will include:
  1. documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; and state income, payroll, and unemployment insurance filings; and
  2. documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, transcripts of accounts, or other documents.
The SBA must issue regulations within 15 days of enactment of the CARES Act without regard to notice and comment requirements. Hence, it is possible that lenders could begin taking loan applications as soon as mid-April.

SBA Economic Injury Disaster Loans

In early March of 2020, Congress passed an $8.3 billion appropriations measure to combat the effects of the coronavirus pandemic, the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020. The Act allows the SBA to provide up to $1 billion in loan subsidies for economic injury disaster loans. This funding enables the SBA to provide an estimated $7 billion in economic injury disaster loans. Additionally, the Act provides the SBA $20 million to cover the cost of administering these loans. Small businesses in all U.S. states and territories are currently eligible to apply for an economic injury disaster loan due to COVID-19. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million. Affiliation rules have not been waived in connection with determining the eligibility of participants in the Economic Injury Disaster Loan program. _______________________    [1]   The CARES Act does not propose any changes to the SBA’s definition of “business concern.” The SBA defines a “business concern” as a business entity organized for profit, with a place of business located in the U.S., which operates primarily within the U.S. or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor. A business concern may be in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative, except that where the form is a joint venture there can be no more than 49 percent participation by foreign business entities in the joint venture (13 CFR § 121.105).    [2]   In determining a concern’s number of employees the, SBA counts all individuals employed on a full-time, part-time, or other basis. The regulation setting forth how the SBA calculates the number of employees does not exclude non-U.S. employees from this calculation (13 CFR § 121.105).    [3]   13 CFR § 121.103(a).    [4]   13 CFR § 121.103(c).    [5]   NAICS codes may be self-assigned, i.e., a company can select the code that best represents its primary business activity, or the activity of a particular establishment. NAICS codes may also be assigned by an organization, such as a government agency, trade association, etc., to a company or establishment for various purposes. According to the U.S. Census Bureau, there is no central government agency that assigns, monitors or approves NAICS codes, or changes to NAICS codes. See: https://www.census.gov/eos/www/naics/faqs/faqs.html#q1.    [6]   If the hotel in our example had fewer than 500 employees at each of its three hotels, it could apply for one covered loan as a result of the proposed exception described above for business concerns with more than one physical location.    [7]   “Payroll costs” are defined to include payments for salary, wage, commission, or similar compensation; payments for cash tip or equivalent; payments for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payment required for the provisions of group health care benefits; payment of any retirement benefit; payment of state or local tax assessed on the compensation of employees; payments of any compensation or income of a sole proprietor or independent contractor that is an amount not more than $100,000 in 1 year, as prorated for the covered period. “Payroll costs” do not include the compensation of an individual employee in excess of an annual salary of $100,000, as pro-rated for the covered period; taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code; compensation of an employee whose principal place of residence is outside of the United States; and qualified sick leave wages or qualified family leave wages for which a credit is already allowed under the Families First Coronavirus Response Act. For purposes of determining the maximum loan amount, “covered period” means February 15, 2020 through June 30, 2020.    [8]   For seasonal employers, the applicable payments are the average total monthly payments for payroll during the 12-week period beginning February 15, 2019, or at the election of the recipient, March 1, 2019, and ending June 30, 2019    [9]   In the case of a seasonal employer, the denominator is the average number of full-time equivalent employees per month employed by the eligible recipient from February 15, 2019 through June 30, 2019. [10]   An employee described in this subparagraph is any employee who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
Gibson Dunn's lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm's Coronavirus (COVID-19) Response Team. Gibson Dunn lawyers regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyers with whom you usually work, any member of the firm's Public Policy Group, or the authors: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Roscoe Jones, Jr.* - Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com) Alisa Babitz – Washington, D.C. (+1 202-887-3720, ababitz@gibsondunn.com) Samantha Ostrom – Washington, D.C. (+1 202-955-8249, sostrom@gibsondunn.com) * Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP. © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 26, 2020 |
Senate Advances the CARES Act, the Largest Stimulus Package in History, to Stabilize the Economic Sector During the Coronavirus Pandemic

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Yesterday, the U.S. Senate passed (96-0) the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion stimulus package designed to mitigate the effects of the novel coronavirus (“COVID-19”). The legislation includes relief for businesses and individuals, assistance to states, and key protections for workers. It is expected that the U.S. House of Representatives will swiftly pass the CARES Act, and that the President, in turn, will promptly sign the measure. At $2.2 trillion in emergency stimulus aid, the bill is the largest emergency stimulus package in United States history.

Last week, Senate Majority Leader Mitch McConnell (R-KY) introduced a bill responding to the economic impact of COVID-19 by providing $1.6 trillion in aid for individuals, small businesses, and businesses operating in impacted industries, such as the hotel industry, as well as providing increased resources for the health care industry. Given concern among Democratic Senators that the bill failed to include enough pro-worker protections, the Senate twice failed to clear procedural hurdles and advance the bill. After the Senate bill stalled, House Democrats introduced their own $2.5 trillion COVID-19 stimulus bill. Late Tuesday evening, however, Congress and the White House announced a bipartisan deal, which is the subject of this alert. The revised CARES Act provides, among other things, economic assistance to millions of Americans and small and distressed businesses. For businesses, the legislation--
  • Extends $500 billion in loans and loan guarantees to blunt the coronavirus’ economic impact, including $454 billion to businesses, states, and cities especially impacted by the coronavirus and not receiving loans through other provisions in the Act; $50 billion to passenger airlines; and $17 billion to businesses in the national security industry; and
  • Establishes a $350 billion loan guarantee program to help small businesses keep employees on the payroll and cover necessities such as rent and utilities. If certain conditions are met, the loans are forgivable.
The bill passed after the White House reportedly agreed to: (1) $150 billion for a “state stabilization fund,” which would provide key resources to state and local governments combatting the virus and almost $130 billion for the health care system; (2) additional aid for the airline industry; and (3) additional restrictions on stock buybacks and executive compensation. In this client alert we focus on key provisions within the CARES Act, as follows:
  1. A forgivable, “paycheck protection”, Small Business Administration loan program under Title I;
  2. Provisions for direct rebates and other tax relief for individuals and employers under Title II;
  3. Increased funding and other resources for education and health care under Title III; and
  4. An economic stabilization loan program for businesses under Title IV.

Title I: Keeping American Workers Paid and Employed

The CARES Act would authorize the Small Business Administration (“SBA”) to provide loan guarantees for up to $349 billion in loan commitments under the SBA’s 7(a) program (the SBA’s primary program for providing financial assistance to small businesses), funding a new “paycheck protection” program.[1] SBA Loan Eligibility Under existing law, a small business must meet size requirements to be eligible for an SBA loan. The SBA size standards vary by industry and are generally based on the average number of employees or average annual receipts. Under the CARES Act, small businesses would continue to be eligible under these standards. However, the CARES Act expands eligibility for loans authorized by the legislation (a “covered loan”) to all businesses with no more than 500 employees. Additional exceptions further expand the reach of the CARES Act. Businesses in the accommodation and food services industries, for example, may still qualify for loans if they are assigned a North American Industry Classification System (“NAICS”) code beginning with 72 and have not more than 500 employees per physical location. A key provision in the CARES Act for many companies is a waiver of SBA affiliation rules. Employees or annual receipts of domestic and foreign affiliates, in some cases under the CARES Act, may not count when considering whether a business, including portfolio companies owned by private equity funds, satisfies the SBA’s size requirements. Under the affiliation rule, the SBA ordinarily counts the total number of employees or annual receipts of a business’s domestic and foreign affiliates when determining whether the business qualifies as a small business, and Section 121.103 of Title 13 of the Code of Federal Regulations sets forth the general principles the SBA uses to determine affiliation. The CARES Act provides that this regulation is waived with respect to eligibility for a covered loan for any business:
  • With not more than 500 employees that is assigned a NAICS code beginning with 72;
  • Operating as a franchise that is assigned a franchise identifier code by the SBA; or
  • Receiving financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958.
SBA Loan Terms An eligible business may receive one covered loan, which the recipient may use for payroll costs; continuation of group health care benefits during periods of paid sick, medical or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. Generally, the maximum loan amount is the lesser of (1) $10 million, or (2) 2.5 times the average total monthly payments by the applicant for payroll costs—only payroll costs, not the other costs the loan proceeds may cover—incurred during the one-year period before the date of the loan. The CARES Act does not require collateral or personal guarantees for a covered loan. SBA Loan Forgiveness The CARES Act allows for covered loan forgiveness under certain conditions. The loan forgiveness amount, which is excluded from taxable income, is equal to the payroll costs, mortgage interest payments, rent, and utility payments incurred or paid by a recipient during the covered period. The loan forgiveness amount is reduced if the recipient (1) reduces the average number of full-time equivalent employees per month during the covered period below the lesser of (a) the average number of full-time equivalent employees per month from February 15, 2019 to June 20, 2019 or (b) the average number of full-time equivalent employees per month from January 1, 2020 to February 29, 2020, or (2) reduces the salary or wages of any employee in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period. There is no reduction if a borrower re-hires the employees who earlier were terminated. Applications To participate in the program, an eligible business must submit an application to the lender that originated the covered loan that includes: (1) documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods, including payroll tax filings; (2) state income, payroll, and unemployment insurance filings; and (3) documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, and transcripts of accounts. More detail on how to apply and the criteria the SBA will use to determine who will receive loans is expected within 15 days of enactment, when the Administrator is required to issue guidance and regulations implementing the program. Additional Relief Through Reorganization The CARES Act modifies the provisions of the Bankruptcy Code dealing with small business reorganizations (embodied in 11 U.S.C. §1182 et seq) to allow companies with more outstanding debt (total noncontingent, liquidated, secured and unsecured debt of $7.5 million vs. $2.19 million, excluding insider and affiliate debt) to reorganize as a small business, thereby allowing additional small businesses to take advantage of truncated reorganization procedures and simpler confirmation standards.

Title II: Assistance for American Workers, Families, and Businesses

Expanded Unemployment Insurance One of the last negotiated provisions in the bill, which almost held up the bill’s passage, was the bill’s significant investment in unemployment insurance. Under Section 2104, individuals who receive unemployment insurance will be eligible for an additional $600 per week for up to four months. In addition, recognizing that many states have a one-week waiting period for unemployment compensation, if states choose to pay recipients as soon as they become unemployed, under Section 2105, the federal government will fund the cost of the first week of benefits. Further, under Section 2107, if individuals remain unemployed after state employment benefits are no longer available, the federal government will fund up to 13 weeks of unemployment benefits. Additional Relief for Individuals: Direct Rebates The CARES Act provides direct aid in the form of a refundable tax credit rebate of up to $1,200 for individuals and $2,400 for married couples. Households that earn $99,000 or less (individuals) and $198,000 or less (married couples) may be eligible for an additional $500 per child. Individuals and married couples that earn greater than $75,000 (but not more than $99,000) or $150,000 (but not more than $198,000), respectively, are eligible for a lesser amount—reduced by $5 for each additional $100 of income above $75,000 and $150,000, respectively. At the request of Democratic Senators, the final bill eliminated minimum earnings requirements. Accordingly, all taxpayers that filed tax returns in either 2018 or 2019 are eligible for a tax credit rebate, which will only be reduced for individuals and households with earnings above the respective $75,000 and $150,000 thresholds. In addition, eligibility and benefit amounts are based on 2019 income tax filings (or 2018 income tax filings if 2019 filings are unavailable). The bill requires all refunds or credits to be made on or before December 31, 2020. Increased Flexibility Under Retirement Plans Section 2202 of the CARES Act provides plan sponsors with the ability to make available to participants additional opportunities to take distributions and request loans from tax-qualified retirement plans. The CARES Act further provides relief from required loan repayments to tax-qualified retirement plans. These new provisions can be implemented immediately following the enactment of the CARES Act, so long as such tax-qualified retirement plans are amended to retroactively provide for such provisions on or before the last day of the first plan year beginning on or after January 1, 2022. Coronavirus-Related Distributions Individuals may make withdrawals from a tax-qualified retirement plan of up to $100,000 in 2020 as a “coronavirus-related distribution,” without such distributions being subject to the 10 percent additional tax that would typically apply to early distributions. Such distributions will, however, be taxable as ordinary income to the extent not repaid in the manner described below. Under the CARES Act, an employer would need to apply the $100,000 cap on such distributions to all distributions to an individual from all plans maintained by any member of the employer’s “controlled group” (in general, all 80 percent affiliates). “Coronavirus-related distributions” are broadly defined to include distributions made during the 2020 calendar year to individuals:
  • Who are diagnosed with SARS-CoV-2 or COVID-19;
  • Whose spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19; or
  • Who experiences adverse financial consequences as a result of (1) being quarantined, furloughed, or laid off or having work hours reduced because of SARS-CoV-2 or COVID-19; (2) being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or (3) closing or reducing hours of a business owned or operated by such individual due to SARS-CoV-2 or COVID-19.
Plan administrators may rely on an employee’s certification that such employee’s distribution qualifies as a coronavirus-related distribution. Individuals who receive coronavirus-related distributions will have the right to repay such distributions by making contributions to the plan from which the distribution was received over the three-year period beginning on the day after such coronavirus-related distribution was received. For any amounts that are repaid, the coronavirus-related distribution will be treated as an eligible rollover distribution (meaning that it will not be taxable to the individual), and the repayment will be treated as a transfer to the plan in a direct trustee-to-trustee transfer within 60 days of the distribution, even if the time-period for repayment extends beyond 60 days. To the extent coronavirus-related distributions are not repaid, any amount required to be included in gross income for the tax year of the distribution as a result of a coronavirus-related distribution will generally be included ratably over the three taxable years beginning with the tax year of the distribution. Loans from Qualified Retirement Plans For the 180 days following the date of the enactment of the CARES Act, for individuals who would qualify for distributions as noted above, the limit on loans from qualified retirement plans will be increased to the lesser of (1) $100,000 (from $50,000), or (2) 100 percent of the present value of the vested accrued benefit of the employee under the plan (under current law, loans cannot exceed 50 percent of such value). Additionally, for loans from a qualified retirement plan made to individuals who would qualify for coronavirus-related distributions as noted above that are outstanding on or after the date of enactment of the CARES Act:
  • Any due date for repayment that occurs during the period beginning on the date of enactment and ending on December 31, 2020 shall be delayed for one year;
  • Any subsequent repayments shall be appropriately adjusted to reflect the due date delay and any interest accruing during such delay; and
  • Any such delay shall be disregarded in satisfying the requirement that loans be repaid within five years.
Waiver of Minimum Distribution Rules Section 2203 of the CARES Act provides that minimum required distribution rules under Section 401(a)(9) of the Internal Revenue Code will not apply to certain defined contribution plans and individual retirement plans where the individual attained age 70-1/2 in 2019 and, therefore, the required beginning date is in 2020. Employee Retention Credits for Employers Facing difficult decisions about closures, employers should be aware that, under Section 2301, they may be eligible for a refundable payroll tax credit for 50 percent of “qualified wages” paid to employees during the COVID-19 crisis. This credit is available to employers whose (1) operations were fully or partially suspended because of a COVID-19-related shut-down order, or (2) gross receipts have declined by more than 50 percent when compared to the same quarter in 2019, until the business recovers to 80 percent of gross receipts relative to the same quarter. Like the tax credits created in the Families First Coronavirus Response Act (“FFCRA”), signed into law on March 18, 2020 (see Gibson Dunn's March 26, 2020 Client Alert), excess credits are refundable. The calculation of “qualified wages” depends on the number of employees (determined by taking the average number of employees in 2019), and is subject to an aggregate $10,000 cap per eligible employee for all calendar quarters, including health benefits. Modifications for Net Operating Losses The CARES Act temporarily suspends a number of the business loss limitations established by the 2017 tax reform law commonly known as the Tax Cuts and Jobs Act (“TCJA”). Under current law, net operating losses (“NOLs”) are subject to limitations based on taxable income and cannot be carried back to prior tax years. The CARES Act would modify current law to allow a taxpayer to carry back NOLs from tax years beginning in 2018, 2019, or 2020 up to five years. The NOLs cannot be carried back to offset the untaxed foreign earnings transition tax added to the Code in 2017; however, taxpayers can elect to exclude any tax years in which the foreign earnings are included into gross income from the calculation of the five-year carryback period. In addition, for taxable years beginning before January 1, 2021, the CARES Act removes a limitation on NOLs that prevents taxpayers from offsetting in excess of 80 percent of taxable income with NOLs. Real estate investment trusts (“REITs”) will not be able to carry back losses, and losses may not be carried back to any REIT year (regardless of whether the taxpayer incurring the loss is currently a REIT). The CARES Act would also modify the excess business loss limitation applicable to non-corporate taxpayers for 2018, 2019, and 2020, providing a benefit for these companies similar to that provided to corporations by the change to the NOL carryback rules. The limitations on excess farm losses under Code section 461(j) are suspended through the end of 2025. Modifications of Limitations on Business Interest Generally, the business interest allowable as a deduction is limited to 30 percent of adjusted taxable income (“ATI”), which currently is calculated in a manner similar to EBITDA, subject to certain modifications. The CARES Act would, for the 2019 and 2020 tax years, increase the limit from 30 percent to 50 percent of ATI. Further, taxpayers may elect to use their 2019 ATI in place of their 2020 ATI for purposes of determining business interest deductibility in 2020. Special provisions apply in the case of a partnership. Employer Payroll Tax Extension Certain employer payroll taxes for the period of the date of enactment until the end of the year would be deferred by the CARES Act. Fifty percent of those taxes could be deferred until December 31, 2021, and the remaining 50 percent could be deferred until December 31, 2022. Exclusion of Employer-Funded Student Debt Relief from Employee Taxable Income The CARES Act would add employer payments made prior to January 1, 2021, to an employee or lender for student loan principal and interest to the list of employee education assistance programs that an employee can exclude from his or her taxable income. The total amount of payments from employee education assistance programs that an employee can exclude from income remains capped at $5,250 per calendar year. These employee education assistance exclusions are unavailable for (1) programs that discriminate in favor of highly compensated employees or (2) programs where more than five percent of amounts paid are provided to five percent or greater owners. Additional Title II Tax Relief Excise Tax Holiday. Under the CARES Act, a federal excise tax holiday would apply to alcohol and distilled spirits in the production of hand sanitizer. $300 Charitable Deduction. The CARES Act allows an “above the line” charitable deduction of up to $300 for individuals who do not itemize. Refundable AMT Credit Modification. The corporate alternative minimum tax (“AMT”) was repealed by the TCJA. However, corporate AMT credits were made available as refundable credits over several years, ending in 2021. Section 2305 of the CARES Act accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.

Title III: Supporting America’s Health Care System in the Fight Against the Coronavirus

Title III and the related appropriations provisions of the CARES Act provides an extensive program to support the health care system in its immediate response to COVID-19. The bill also includes provisions and investments intended to improve preparation for future disease outbreaks. In addition, Title III provides relief for education institutions and students. Immediate Funding for the Healthcare System In Division B of the CARES Act, Congress has provided substantial immediate funding for hospitals and other facilities in the healthcare system, through direct appropriations and availability of payments through Medicare and other federal healthcare programs. Congress appropriated $100 billion for the Public Health and Social Services Emergency Fund to support hospitals and other health care providers “for health care related expenses [not otherwise reimbursable] or lost revenues that are attributable to coronavirus” in Division B, Title VIII of the CARES Act. The funds are available to “eligible health care providers,” which “means public entities, Medicare or Medicaid enrolled suppliers and providers, and such for-profit entities and not-for-profit entities . . . as the Secretary may specify . . . that provide diagnoses, testing, or care for individuals with possible or actual cases of COVID–19.” In terms of process, “to be eligible for a payment . . . an eligible health care provider shall submit to the Secretary of Health and Human Services an application that includes a statement justifying the need of the provider for the payment.” Congress directs the Secretary to make payments on a rolling basis and the Secretary has flexibility to make advance payments or reimbursements. Recipients of these funds must comply with documentation requirements established by the Secretary, and the Secretary must provide reports to Congress every 60 days detailing the payments made. In addition, Division B, Title VII, provides more than $1 billion for the Indian Health Services to respond to the coronavirus outbreak. Funding For Countermeasures Congress designated $80 million in emergency funding for use by the Food and Drug Administration (“FDA”) in fighting the coronavirus, including to support “the development of necessary medical countermeasures and vaccines, advanced manufacturing for medical products, [and] the monitoring of medical product supply chains” in Division B, Title I. The emergency appropriations also include extensive funding for the Centers for Disease Control and Prevention, the National Institutes of Health, and other agencies for research, health surveillance programs, and other resources to respond to the crisis in Division B, Title VII. Building on earlier COVID-19 legislation, the emergency funding also includes investments in research for diagnostics, vaccines, and treatments for the virus, and for personal protective equipment (“PPE”) and other supplies for health care professionals administering countermeasures, including $16 billion in funding for these supplies as part of the Strategic National Stockpile addressed in Title III of the CARES Act, discussed below. Supporting Health Care Providers Measures to support health care providers on the front lines include payments in the form of increased Medicare reimbursements, such as increasing Medicare payments to hospitals for treating COVID-19 patients by 20 percent (Section 3710); extending Medicare advance payments for the duration of the public health emergency (Section 3719); temporarily lifting the so-called Medicare sequester, which has the effect of increasing payments to providers by 2 percent (Section 3709); and freeing up critical emergency resources in hospitals by increasing Medicare payments for coronavirus patients after they are discharged from the hospital and by providing what would otherwise be home-based services in the hospital (Sections 3708, 3711 and 3715). The provisions encourage the use of “technologies during the emergency period, including remote patient monitoring and broadening the range of providers who can provide telehealth” (Sections 3701-3707). The measures also extend coverage for treatment and prescription benefits under certain Medicare and Medicaid programs. The bill also reauthorizes or extends certain programs aimed at the education and development of healthcare professionals, including programs focused on health care for the elderly (Section 3403) and nurses (Section 3404). Insurance Provisions Regarding insurers, the bill provides for coverage of diagnostic tests for COVID-19 at “the cash price for such service as listed by the provider on a public internet website” or a lower negotiated rate, unless the insurer has negotiated a different rate with the provider prior to the start of the current public health emergency (Sections 3201-3202). In addition to COVID-19 tests that have not been approved or authorized by the FDA, the provisions include COVID-19 tests that have not yet received emergency use authorization, tests that are authorized by a State that has notified FDA of its intent to review the diagnostic tests, and the other tests that the FDA identifies by guidance. Health plans will also be required “to cover (without cost-sharing) any qualifying coronavirus preventive service,” which is “an item, service, or immunization that is intended to prevent or mitigate” COVID-19 (Section 3203). Limitations on Liability The CARES Act provides a limitation on liability for health care professionals. In general, “a health care professional shall not be liable under Federal or State law for any harm caused by an act or omission of the professional in the provision of health care services during the public health emergency with respect to COVID-19” if “the professional is providing health care services in response to such public health emergency, as a volunteer.” (Section 3215). There are certain limitations and exceptions. Notably, the bill includes a provision preempting state laws, “unless such laws provide greater protection from liability.” The CARES Act, in Section 3103, includes an important amendment to specifically recognize liability immunity under federal and state law for National Institute for Occupational Safety and Health (“NIOSH”)-approved respiratory protective devices that the Department of Health and Human Services (“HHS”) determines to be “a priority for use during a public health emergency.” The definition of “covered countermeasure” has included “devices,” “drugs,” and “biologics,” as these terms are defined in the federal Food, Drug and Cosmetic Act (“FDCA”), and some other defined categories. Many NIOSH-approved respirators, however, are not usually regulated as medical devices by FDA because they are not intended for medical applications. The CARES Act amends the definition of “covered countermeasures” that receive liability protection to specifically include these NIOSH-approved respiratory devices. Modernizing Regulation of Over-The-Counter Drugs The CARES Act also includes comprehensive reforms to the regulation of over-the-counter (“OTC”) drugs mirroring recently-proposed legislation. These provisions include speeding up the process for OTC monograph review with a more streamlined “administrative order” process in place of full notice-and-comment rulemaking proceedings, which can be lengthy and resource-intensive (Section 3851). To incentivize companies to invest in the research and development of innovative OTC drug products, Section 3851 also provides for an 18-month period of marketing exclusivity for OTC drug products with new active ingredients or conditions of use. Another significant reform establishes an OTC drug user fee program similar to the programs for prescription drugs and medical devices (Section 3862). The proceeds from the fee program will fund the FDA’s OTC monograph oversight and approval activities—a measure intended to address the resource challenges that the FDA has faced in implementing its OTC monograph program (Section 3861). Other OTC drug reforms include amending the FDCA to make explicit that the failure to comply with an applicable monograph renders an OTC drug “misbranded” and illegal to market in the United States (Section 3852); a clarification that the OTC monograph reforms do not apply to drugs the FDA previously excluded from the OTC monograph program (Section 3853); a provision permitting sponsors of sunscreen ingredients that have pending submissions with the FDA to seek review under the new monograph review process or in accordance with the Sunscreen Innovation Act (Section 3854); and a provision requiring the FDA to report annually to Congress on its progress in evaluating the pediatric indications for OTC cough and cold medications for children under six due to the potential safety risks such drugs may pose to young children (Section 3855). Planning For Future Crises The CARES Act includes a number of provisions aimed at improving the nation’s preparedness for public health emergencies. Section 3101 commissions a study by the National Academies of Sciences, Engineering and Medicine of the medical product supply chain. The resulting report and recommendations should include the input of relevant government agencies and outside stakeholders. COVID-19 has highlighted the fact that the manufacturing and supply chains for many pharmaceutical and device products have moved largely, if not entirely, overseas. Thus, if countries block the export of these products or of the critical ingredients or components, or there is some other disruption of this overseas supply, the United States is hampered in its ability to quickly manufacture and distribute critical medical supplies. This has become particularly apparent with the shortage of PPE for healthcare workers. In response to the recognized shortfall of critical medical supplies, Section 3102 requires the Strategic National Stockpile to include “personal protective equipment, ancillary medical supplies, and other applicable supplies required for the administration of drugs, vaccines and other biological products, medical devices and diagnostic tests in the stockpile.” As discussed above, the emergency appropriations designate $16 billion in funding for the Strategic National Stockpile. Section 3111 strengthens the mandate to the FDA to expedite the approval of drug applications for life-saving drugs in response to a discontinuance or manufacturing interruption that is likely to lead to a meaningful disruption in the supply of the drug. While the FDCA has stated that the FDA “may” expedite the review of an application and an inspection to mitigate or prevent such a drug shortage, the CARES Act provides that the FDA “shall, as appropriate” do so and that FDA will “prioritize” these actions. The CARES Act includes provisions to expand and establish reporting requirements for product discontinuations and manufacturing interruptions to the supply of drugs and medical devices. The provisions expand the existing manufacturer reporting requirements for drugs, including expansions for reporting about active pharmaceutical ingredients and for drugs that are critical during a public health emergency. Manufacturers of drugs, active pharmaceutical ingredients, or medical devices used to prepare or administer the drugs must develop risk management plans to address supply risks. Notably, the provisions establish a new framework of manufacturer reporting for medical devices that are “critical to public health during a public health emergency, including devices that are life-supporting, life-sustaining, or intended for use in emergency medical care or during surgery” and for medical devices for which HHS determines that the reporting is needed for a public health emergency (Sections 3112, 3121). The FDA has not had the authority to require medical device manufacturers to notify the agency when they became aware of a circumstance that could lead to a device shortage or meaningful disruption in the device supply. The CARES Act would establish this authority over certain medical devices and permit the FDA to expedite inspections and the review of device applications that may mitigate or prevent the device shortage. Increased Flexibility Under Health Plans Section 3701 of the CARES Act provides that, for plan years beginning on or before December 31, 2021, high deductible health plans may waive the deductible for telehealth and other remote care services without jeopardizing their status as a high deductible health plan. This amendment does not require that any such telehealth or other remote health care services for which there is no deductible be related to COVID-19. Expanded Coverage Under the Family and Medical Expansion Leave Act Section 3605 of the CARES Act broadens the definition of “eligible employee” in the Family and Medical Leave Expansion Act to give credit for prior service for employees who were laid off on March 1, 2020, or later; had previously worked for the employer for at least 30 of the last 60 days; and were later rehired by the same employer. Advance Refunding of Tax Credits Under last week’s Families First Coronavirus Response Act, certain employers are entitled to tax credits for Paid Sick and Paid Family and Medical Leave. Section 3606 will amend these provisions to allow the refundable portion of these credits to be advanced, subject to regulation and guidance. Additional Relief for Education Title III Subtitle B of the CARES Act—titled COVID-19 Pandemic Education Relief Act of 2020—includes several provisions aimed at providing emergency assistance related to elementary, secondary and higher education. Postsecondary Vocational Institutions. The legislation relaxes restrictions on the use and allocation of federal funds and grants provided during a declared emergency related to COVID-19; the legislation is primarily designed to allow higher education institutions to reallocate resources toward initiatives fighting the pandemic.
  • Under Section 3503, for the years 2019-2020 and 2020-2021, the Secretary of Education will waive an institution’s obligation to match federal grants for campus-based aid programs with an equivalent amount. This will only apply to non-profit organizations. Institutions will also be permitted to allocate funds previously assigned to work-study programs to supplemental grants.
  • Similarly, under Section 3504, institutions will be permitted to award additional emergency financial aid funds to students that have been impacted by COVID-19.
  • Under Section 3505, institutions will be allowed to issue work-study payments, for example, in the form of lump sums, to students who are not able to carry out their work under work-study schemes in light of workplace closures for the period of the declared emergency.
  • In addition, under Section 3518, the Secretary of Education will have authority to waive or modify current allowable uses of funds for institutional grant programs if so requested by an institution.
  • Institutions will also be able to request waivers from the Secretary of Education for financial matching requirements in competitive grant and other Minority Serving Institution (“MSI”) grant programs in the Higher Education Act. Both of these efforts are aimed at allowing colleges to deploy institutional resources to COVID-19 efforts.
  • Under Section 3510, during a declared emergency, certain foreign institutions will be permitted to offer distance learning to U.S. students that are receiving federal funds pursuant to title IV of the Higher Education Act of 1965.
  • Under Section 3512, the Secretary of Education will be empowered to defer payments on current Historically Black Colleges and Universities (“HBCU”) Capital Financing loans for the duration of the emergency related to COVID-19.
  • Similarly, under Section 3517, the Secretary of Education will receive the authority to waive certain outcome requirements for grant programs for HBCU and other MSI for the financial year 2021.
Relief for Student Loan Recipients. The CARES Act also includes a number of provisions related to individuals who have received study-related funding from the federal government. These provisions seek to both alleviate financial burdens on students and ease requirements usually associated with the receipt of these funds.
  • Under sections 3506 and 3507, terms affected by the declared emergency are excluded from counting towards lifetime subsidized loan eligibility and lifetime Pell Grant eligibility.
  • Under Section 3508, students are not required to return monies received pursuant to Pell Grants or federal student loans for a particular period if a student withdraws from the institution of higher education as a result of a qualifying emergency. Relatedly, institutions will not be required to calculate the amount of grant or loan assistance that the institution would otherwise have had to have returned to the government.
  • Under Section 3509, any grades and attempted credits that were not completed as a result of the declared emergency will not be counted towards a student’s federal academic requirements and eligibility to continue to receive Pell Grants or federal student loans.
  • Under Section 3513, student loan payments, including the payment of principal and interest of federally-owned student loans, are deferred for six months until September 30, 2020 without any penalty to student loan borrowers. $62 million of the stimulus package will be dedicated to this effort.
  • Under Section 3514, participants in National Service Corps programs that were due to receive educational awards before their duties were suspended or placed on hold as a result of the declared emergency related to COVID-19 will still receive that educational award. Age limits and terms of service will be extended to allow such individuals to continue participating in such programs after the declared emergency ends.
  • Under Section 3519, teachers who, barring COVID-19, would have finished their year of teaching service, will receive full credit for their partial year of service toward their TEACH grant obligations or Teacher Loan Forgiveness. The CARES Act also waives the requirement that teachers have to serve consecutively to be eligible for Teacher Loan Forgiveness if a teacher’s service is not consecutive as a result of coronavirus.
In addition, under Section 3515, local workforce boards will receive more flexibility in the allocation of funds received under the Workforce Innovation and Opportunity Act and state governors will be permitted to dedicate reserved workforce funds to rapid response activities to address coronavirus. Elementary and Secondary Education. Under Section 3511, the Secretary of Education is given authority to provide waivers to state and local education agencies from certain provisions, including testing requirements and reporting obligations of academic standards, pursuant to the Elementary and Secondary Education Act of 1965, which regulates funding of primary and secondary education. Education Stabilization Fund. The CARES Act provides $30.75 billion to the Department of Education’s Education Stabilization Fund to provide emergency support to local school systems and higher education institutions to continue to provide educational services to their students and support the on-going functionality of school districts and institutions. In addition, $69 million will be made available to tribal schools, colleges and universities through the Bureau of Indian Education. Single-Employer Defined Benefit Plans Under Section 3608 of the CARES Act, any minimum required contributions due for a single-employer defined benefit plan during the 2020 calendar year will not be required to be made until January 1, 2021 (with interest accruing through that date). Additionally, plan sponsors may treat the last plan year’s adjusted funding target attainment percentage as the percentage applicable to plan years which include the 2020 calendar year for purposes of applying the funding-based limitation on shutdown benefits and other unpredictable contingent event benefits. Federal Contractor Authority The bill includes a key provision to address the many federal government contractors whose contract performance has been impacted by the closure of their work sites as a result of COVID-19 mitigation measures. Section 3610 of the bill permits agencies to modify the terms and conditions of their government contracts to continue to pay contractors who cannot perform work at their work site, and cannot telework because of the nature of their jobs, due to COVID-19. Notably, reimbursement authorization is limited to any paid leave, including sick leave, that a contractor provides to “keep its employees or subcontractors in a ready state” “at the minimum applicable contract billing rates not to exceed an average of 40 hours per week,” and “in no event beyond September 30, 2020.” In addition, any reimbursement will be reduced by any credits otherwise allowed under the Act, or under the FFCRA.

Title IV: Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy

The CARES Act provides $500 billion to the Treasury Department’s Exchange Stabilization Fund (“ESF”) to provide loans and loan guarantees for eligible businesses, states, and municipalities. Specifically, the CARES Act provides $25 billion for passenger air carriers; $4 billion for cargo air carriers; $17 billion for “businesses critical to maintaining national security”—though the legislation does not define this term; and $454 billion in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities. The Secretary of the Treasury will determine the terms and conditions of loans provided by the ESF. Accessing Funds The CARES Act further directs the Secretary of the Treasury to publish application procedures and additional requirements no later than 10 days after enactment of the legislation. The exact method for application and additional requirements for receiving funds will, therefore, remain uncertain until that date. Still, the CARES Act itself enumerates certain requirements for borrowers. Specifically, it provides that applicants will be eligible for a loan or loan guarantee only if the Secretary of the Treasury determines the following requirements are met:
  • The borrower certifies that it is a U.S.-domiciled business and it has significant operations and a majority of its employees in the United States;
  • For passenger air carriers, cargo air carriers, and businesses critical to national security, the Secretary of the Treasury determines the business has incurred, or is expected to incur, losses that jeopardize the continued operations of the business;
  • Credit is not otherwise reasonably available to the business;
  • The intended obligation by the applicant “is prudently incurred”;
  • The loan or loan guarantee is sufficiently secure or made at a rate that both reflects the risk of the loan or loan guarantee and is, if possible, no less than a comparable interest rate pre-COVID-19; and
  • The loan or loan guarantee’s duration is as short as practicable, but no longer than 5 years.
Restrictions On Borrowers The CARES Act places significant restrictions and obligations on businesses that borrow from the ESF. Specifically, from the date the loan agreement is executed until one year after the loan is no longer outstanding:
  • Borrowers are prohibited from engaging in stock buybacks, unless contractually obligated, or paying dividends until one year after the loan is no longer outstanding;
  • Borrowers must, to the extent practicable, maintain employment levels as of March 24, 2020, and retain no less than 90 percent of employees as of that date, until September 30, 2020;
  • Borrowers are prohibited from increasing the compensation of any employee whose compensation exceeds $425,000 or from offering them significant severance or termination benefits; and
  • Borrowers’ officers and employees whose total compensation exceeded $3 million in 2019 cannot receive compensation greater than $3 million, plus 50 percent of the amount over $3 million that the individual received in 2019.
Potential borrowers should carefully consider these restrictions before applying for ESF funds. Oversight Of Borrowers The CARES ACT provides the government with two significant ways to oversee borrowers’ use of ESF funds. First, the CARES Act creates a Special Inspector General For Pandemic Recovery (“Special Inspector General”) within the Department of the Treasury. The Special Inspector General is charged with overseeing and auditing the making, purchasing, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury pursuant to the legislation. To that end, the Special Inspector General is charged with keeping detailed financial records of the funds dispersed. The CARES Act requires the Special Inspector General to submit reports to “the appropriate committees of Congress” every quarter. These reports must include detailed information on loans, loan guarantees, and investments made under the legislation. Second, the CARES Act creates a Congressional Oversight Commission (“Commission”) that is charged with overseeing the implementation of the legislation. The Commission will consist of five members. The majority and minority leaders of the Senate as well as the Speaker and minority leader of the House of Representatives will each appoint a member. The chairperson of the Commission will be appointed by the Speaker of the House of Representatives and the majority leader of the Senate. The Commission must release reports every thirty days and is empowered to hold hearings, take testimony, and receive evidence. Together, these two oversight mechanisms will subject borrowers to significant—and public—scrutiny regarding their use of ESF funds. Indeed, future congressional hearings at which borrowers testify are foreseeable. When making decisions regarding the use of ESF funds, borrowers should expect these decisions to be carefully and publicly examined through a political lens. Provisions Relating to Government Contracting The CARES Act provides key emergency appropriations of interest to government contractors and businesses that supply, or may begin supplying, products and services that the support the national defense in response to the COVID-19 pandemic. The CARES Act provides an additional $1 billion for purchases under the Defense Production Act (“DPA”), and in doing so, waives for a two-year period certain restrictions on the loan authorities reflected in sections 301 and 302 of the DPA, in addition to the other requirements waived pursuant to Section 4017 of the CARES Act. While the Trump Administration has not definitely announced whether it intends to issue orders under the DPA following the President’s March 18 Executive Order on Prioritizing and Allocating Health and Medical Resources to Respond to the Spread of COVID-19, the bill indicates that Congress, at least, foresees significant usage of the DPA in the coming months. The emergency appropriations also include $80 million for, and authorizes the creation of, a new oversight committee called the Pandemic Response Accountability Committee to promote transparency and oversight of CARES ACT appropriated funds. The Pandemic Response Accountability Committee, described in section 15010, was established within the Council of the Inspectors General on Integrity and Efficiency and comprised of various agency Inspector Generals in order to “(1) prevent and detect fraud, waste, abuse, and mismanagement; and (2) mitigate major risks that cut across program and agency boundaries.” The Committee’s functions include auditing or reviewing covered funds, including a comprehensive audit and review of charges made to Federal contracts pursuant to authorities provided in the CARES Act, to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring. The Committee is also charged with referring appropriate matters to the Inspector General for the agency that disbursed the funds, conducting randomized audits to identify fraud, and reviewing whether contract competition requirements have been satisfied, among other functions. The Committee is empowered to conduct its own independent investigations, can issue subpoenas to compel testimony, and has the authorities provided under Section 6 of the Inspector General Act of 1978, including the power to subpoena documents. Within 30 days of the enactment of the CARES Act, the Committee is required to establish and maintain “a user-friendly, public-facing website to foster greater accountability and transparency in the use of covered funds and the Coronavirus response. . . .” The website is required to provide “detailed data on any federal awards that expend covered funds, including a unique trackable identification number for each project, information about the process that was used to award the covered funds, and for any covered funds over $150,000, a detailed explanation of any associated agreement, where applicable.” The creation of this Committee complements the efforts of the Justice Department and other agencies in combating fraud and other wrongdoing related to the coronavirus crisis. Additional Title IV Provisions In addition to establishing the ESF, Title IV includes provisions affecting debt, lending, financial institutions, and mortgages. It also grants government agencies additional power to temporarily guarantee debt or ease lending restrictions. Section 4008, for example, authorizes the Federal Deposit Insurance Corporation (“FDIC”) to establish a debt guarantee program to guarantee debt of solvent insured depositories and depository institution holding companies. This program (and any guarantees) must terminate no later than December 31, 2020. And Section 4011 permits the Office of the Comptroller of the Currency (“OCC”) to exempt any transaction from lending limits if the OCC finds an exemption would be “in the public interest consistent with the purposes of this section.” Other sections temporarily ease regulatory requirements on financial institutions. For instance, Section 4012 requires the “appropriate Federal banking agencies”—that is, FDIC, OCC, or the Board of Governors of the Federal Reserve System—to issue an interim final rule that (1) lowers the Community Bank Leverage Ratio (“CBLR”) to 8 percent and (2) provides a “reasonable grace period” if a community bank’s CBLR falls below this level. Similarly, Section 4013 allows financial institutions to suspend requirements under United States Generally Accepted Accounting Principles for loan modification related to the COVID-19 pandemic that would otherwise constitute a troubled debt restructuring. It also permits financial institutions to suspend determinations of loan modifications related to the COVID-19 pandemic. Additionally, a federal excise tax holiday would apply to federal taxes applicable to aviation kerosene, including at the refineries, terminals, or importation facilities. Foreclosure Provisions Sections 4022 and 4023, the relevant provisions of the CARES Act pertaining to residential and multifamily properties secured by “federally backed mortgages”, memorialized the announcements earlier this week from the Department of Housing and Urban Development as well as the Federal Housing Administration with respect to certain eviction restrictions, forbearance and foreclosure relief for owners of single-family and multi-family assets secured by federally insured mortgages. Generally, multi-family borrowers (assets designed for occupancy of 5 or more families) as distinct from other borrowers, are entitled to a shorter forbearance period and subject to certain other criteria, including temporary suspension of evictions regardless of any forbearance. Borrowers for Residential Real Property designed principally for the occupancy of 1-4 Families Section 4022(b)(1) provides, in general, that, during the “covered period” a borrower with a “Federally backed mortgage loan” experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency status, by (A) submitting a request to the borrower’s servicer and (B) affirming that the borrower is experiencing a financial hardship during the COVID-19 emergency. The duration of such forbearance granted shall be up to 180 days and shall be extended for an additional period of up to 180 daysat the request of the borrower, and during such time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full will accrue (Section 4022(b)(2) and (3)). Section 4022(c)(2) further imposes upon services of such federally backed mortgages a moratorium on foreclosure, as follows: “Except with respect to a vacant or abandoned property, a servicer of a Federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, for more for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60 day period beginning on March 18, 2020.” For purposes of Section 4022, a “Federally backed mortgage loan” includes any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1-4 families that is (A) insured by the Federal Housing Administration under title II of the National Housing Act (12 U.S.C. § 1707 et seq); (B) insured under Section 255 of the National Housing Act (12 U.S.C. § 1715z-20); (C) guaranteed under Section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. §§ 1715z-13a, 1715z-13b); (D) guaranteed or insured by the Department of Veterans Affairs; (E) guaranteed or insured by the Department of Agriculture; (F) made by the Department of Agriculture; or (G) purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. Multi Family Borrowers (5 or more families) Section 4023, by contrast, provides that, during the “covered period” a “multi-family borrower” with a “federally backed multifamily mortgage loan” that was current on its payments as of February 1, 2020 may submit an oral or written request for forbearance under Section 4023(a) to the borrower’s servicer affirming that the multifamily borrower is experiencing a financial hardship during the COVID-19 emergency. Section 4203 defines the “covered period” as the period beginning on the date of enactment of the CARES Act and ending upon the sooner of “(A) the termination date of the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. § 1601 et seq.) or (B) December 31, 2020.”  Section 4203 defines “multifamily borrower” as “a borrower of a residential mortgage loan that is secured by a lien against a property comprising 5 or more dwelling units.” For purposes of Section 4023, a “federally backed multifamily mortgage loan” includes any loan, other than temporary financing, such as a construction loan, that “(A) is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of 5 or more families, including any such secured loan the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and (B) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary of Housing and Urban Development or a housing or related program administered by any other such officer or agency, or is purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.” Upon receipt of an oral or written request from a multi-family borrower, a servicer shall (A) document the financial hardship; and (B) provide the forbearance for up to 30 days; and (C) extend the forbearance for up to 2 additional 30 day periods upon the request of borrower, provided that the borrower’s request for an extension is made during the covered period and, at least 15 days prior to the end of the forbearance period described under sub-paragraph (B). Renter Protections (Multi-Family Borrowers) A multifamily borrower receiving forbearance under Section 4023 may not, for the duration of the forbearance, do any of the following: (1) evict or initiate the eviction of a tenant from a dwelling unit located in or on the applicable property solely for nonpayment of rent or other fees or charges; (2) charge any late fees, penalties or other charges to a tenant described at clause (1) for late payment of rent; (3) require a tenant to vacate a dwelling unit located in or on the applicable property before the date that is 30 days after the date on which the borrower provides the tenant with a notice to vacate; and (4) may not issue a notice to vacate until after the expiration of the forbearance (Section 4023(d) and (e)). Section 4024 further imposes a temporary moratorium on eviction filings for a 120 day period beginning on the date of the enactment of the Act, regardless of whether such lessor is the subject of any forbearance granted under the Act. 4024(b) provides, in pertinent part, that “the lessor of a covered dwelling[2] may not “make, or cause to be made, any filing with the court of jurisdiction to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges” or take any of the other actions prohibited in the immediately preceding paragraph for the duration of the moratorium. _________________________    [1]   We will issue a more detailed description of this program, including tips for what companies interested in the program can do now, in a future client alert.    [2]   Covered Dwelling is defined as a dwelling that (A) is occupied by a tenant (i) pursuant to a residential lease or (ii) without a lease or with a lease terminable under State law; and (B) is on or in a covered property. Covered Property is, in turn, defined to mean any property that (A) participates in a covered housing program under the Violence Against Women Act, or the rural housing voucher program under the Housing Act; or (B) has a federally backed mortgage loan or federally backed multifamily mortgage loan, as these terms are defined earlier in this Alert.
Gibson Dunn's lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm's Coronavirus (COVID-19) Response Team. Gibson Dunn lawyers regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please feel free to contact the Gibson Dunn lawyers with whom you usually work, any member of the firm's Tax Group, Public Policy Group, Corporate Transactions Group, Government Contracts Group, Labor and Employment Group, Business Restructuring and Reorganization Group, FDA and Health Care Group, International Trade Group, Real Estate Group, or other groups (view practice groups), or the following authors: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) James Chenoweth – Houston (+1 346-718-6718, jchenoweth@gibsondunn.com) Catherine A. 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(+1 202-955-8296, LSullivan@gibsondunn.com) JeanAnn Tabbaa* – Washington, D.C. (+1 202-955-8690, jtabbaa@gibsondunn.com) Blair Watler* – Washington, D.C. (+1 202-955-8248, bwatler@gibsondunn.com) Please also feel free to contact any of the following practice group leaders: Tax Group: Jeffrey M. Trinklein – Co-Chair, London/New York (+44 (0)20 7071 4224 /+1 212-351-2344), jtrinklein@gibsondunn.com) David Sinak – Co-Chair, Dallas (+1 214-698-3107, dsinak@gibsondunn.com) James Chenoweth – Houston (+1 346-718-6718, jchenoweth@gibsondunn.com) Brian W. Kniesly – New York (+1 212-351-2379, bkniesly@gibsondunn.com) Eric B. Sloan – New York (+1 212-351-2340, esloan@gibsondunn.com) Edward S. Wei – New York (+1 212-351-3925, ewei@gibsondunn.com) Benjamin Rippeon – Washington, D.C. (+1 202-955-8265, brippeon@gibsondunn.com) Daniel A. Zygielbaum – Washington, D.C. (+1 202-887-3768, dzygielbaum@gibsondunn.com) Dora Arash – Los Angeles (+1 213-229-7134, darash@gibsondunn.com) Paul S. 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Paulin – Washington, D.C. (+1 202-887-3701, lpaulin@gibsondunn.com) Erin N. Rankin – Washington, D.C. (+1 202-955-8246, erankin@gibsondunn.com) Labor and Employment Group"Catherine A. Conway – Co-Chair, Labor & Employment Practice Group, Los Angeles (+1 213-229-7822, cconway@gibsondunn.com) Amanda C. Machin – Washington, D.C. (+1 202-887-3705, amachin@gibsondunn.com) Karl G. Nelson – Dallas (+1 214-698-3203, knelson@gibsondunn.com) Jason C. Schwartz – Co-Chair, Labor & Employment Practice Group, Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Greta B. Williams – Washington, D.C. (+1 202-887-3745, gbwilliams@gibsondunn.com) Business Restructuring and Reorganization Group Michael A. Rosenthal – New York (+1 212-351-3969, mrosenthal@gibsondunn.com) FDA and Health Care Group Marian J. Lee – Washington, D.C. (+1 202-887-3732, mjlee@gibsondunn.com) John D. W. Partridge – Denver (+1 303-298-5931, jpartridge@gibsondunn.com) Jonathan M. Phillips – Washington, D.C. (+1 202-887-3546, jphillips@gibsondunn.com) International Trade Group Judith Alison Lee – Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Real Estate Group Danielle A. Katzir­ – Los Angeles, CA (+ 1 213-229-7630, dkatzir@gibsondunn.com) * Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP. © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 23, 2020 |
Crisis Management & COVID-19 Response: Plan Now to Mitigate Against the Ripple Effects of COVID-19 Crisis

Click for PDF The public health crisis caused by COVID-19 has already impacted companies’ business operations, procurement lines, and staffing resources. These short-term effects will likely have long-term implications in terms of operational uncertainty, brand, and legal risk. Now is the time to refresh and revise your existing emergency contingency plan to prepare for and mitigate against these risks. Your plan will likely have included the establishment of a designated team to manage the crisis and communicate with relevant stakeholders.  This is a time to exercise leadership, to communicate with stakeholders clearly and transparently, to build trust, and to continue to take and plan for concrete actions. Below, we identify some of the key steps that companies with strong crisis management plans have taken, and considerations that all companies should keep in mind moving forward, to reduce business and legal exposure.

High Priority Items Taken to Mitigate Business and Legal Risk.

Companies are currently taking steps to protect the safety of their employees, ensure business continuity, and minimize losses caused by operational and supply chain disruption.
  1. Crisis Management Plan: Review, refresh, and implement the company’s crisis management plan.
  2. Response Team: Response teams often have representatives from each business function with a direct line to the CEO. Designated response teams should include adequate regional/time-zone coverage taking into account the geographic spread of operations. To the extent they haven’t already, companies should consider engaging outside experts, including external counsel, public relations firms, and subject matter experts, to assist and be on call as new developments unfold.
  3. Public Relations and Communications Plan: Revise and modify as needed the communications plan for employees, vendors, customers, and the public. Companies frequently designate one or more specific people with the responsibility to deliver these messages.
  4. Safety and Welfare: Employers have been responding to the crisis by taking precautions, such as instituting work-from-home policies where appropriate, to protect the health of their employees and clients. Employers should also consider whether to implement changes to their HR policies. Please refer to our client alerts on U.S. and U.K.Employment Law Considerations for Companies Responding to COVID-19 for key considerations for businesses working to reduce the risk of employment exposure and steps to take when an employee tests positive for COVID-19 or must care for someone with the disease.
  5. Finance Stress Tests and Backup Plan: Disruptions in cash flow and market volatility may contribute to covenant defaults under key lending agreements. Customers or borrowers may request accommodations, indicating that they may be distressed. Companies have been and should continue to conduct financial stress testing, modeling their financials under potential scenarios to identify events that might significantly impair liquidity. This may include evaluating current and future financial covenant compliance, the impact of a ratings downgrade, and the implications of a negative watch notice, and proactively seeking covenant relief/forbearance agreements from lenders. Companies are developing, as appropriate, contingencies designed to stabilize the organization in each scenario (e.g., seeking additional capital from external sources). Many companies are drawing on their available lines of credit to ensure liquidity. Additionally, if a company is nearing insolvency, the board should obtain a briefing on how they should take into account the interests of creditors in the exercise of the board’s fiduciary duties. Please refer to the attached presentation on fiduciary duties for financially stressed companies for more details.
  6. Contractual Obligations: Companies are currently evaluating potential supply chain disruptions, counterparty financial difficulties, and premises closures, which may affect abilities to meet contractual obligations. This involves assessing whether companies and their counterparties can continue to meet contractual obligations, adapting arrangements for procuring goods or services necessary to manage the ongoing business, and the potential application of force majeure provisions, other frustration-related contractual provisions, notification obligations, and provisions permitting suspension of performance. It also involves analyzing the implications of any suspension of performance, in particular the potential application of liquidated damages provisions and demand guarantees. These issues of course vary from one contract to another, depending on the governing law. For example, under the laws of some common law jurisdictions, force majeure provisions may be interpreted strictly and restrictively, whereas other systems may more freely permit suspension or non-performance on force majeure grounds, irrespective of whether the issue is specifically addressed in the contract.
  7. MAE/MAC Provisions: Certain companies may evaluate whether the impact of COVID-19 constitutes a material adverse effect (“MAE”) or material adverse change (“MAC”) as a basis to terminate transactions. Whether the impact of the virus will be considered an MAE/MAC will depend upon the language of the agreement and what is known at the time execution of the agreement. Disputes regarding pre-crisis MAE/MAC provisions may focus on whether (1) definitional language that typically excludes general economic or market conditions and other broad-based factors impacting the business climate or the target’s industry generally is sufficient to exclude the impact of COVID-19, (2) whether the potential impact of the virus was reasonably foreseeable, and/or (3) whether the impact of the virus is sufficiently long-lasting. Companies currently negotiating MAC/MAE provisions would be well-advised to negotiate explicit language to address the COVID-19 risk-allocation. For more information on pre- and post-crisis MAE/MAC provisions and other M&A considerations, please refer to our client alert on M&A Amid the Coronavirus (COVID-19) Crisis: A Checklist.
  8. Insurance Policies: Companies are reviewing their insurance policies to determine whether losses and expenses incurred and/or anticipated might be covered, and to identify any notification requirements that must be satisfied.
  9. Disclosure Obligations for Listed Companies: Listed companies are evaluating potential additional disclosures with respect to material risks, material disruptions or impairments to business operations or outlook, and/or material changes in plans or transactions.

Prepare Now for Ripple Effects.

1. Assess Material Risks. 

Companies should consider (1) how the public health crisis has already impacted them – such as any effects on liquidity, earnings, and continuity of services – and (2) how the crisis may continue to affect them, factoring in the uncertainty of how long the effects of the crisis will last.

2. Engagement with Government Authorities. 

Companies should have a clear plan regarding their engagement with all relevant regulators and other governmental authorities – within the U.S., at local, state and federal levels, and outside the U.S., at local, regional and national levels, as well as any relevant supranational authorities.

3. Understand the Impact of Varying Local Regulations. 

Companies should have a clear plan in place to engage with key stakeholders at the corporate level, and consider how the COVID-19 public health crisis will likely affect the need for and practicalities surrounding board and shareholder communications. Each company should consider the implications of stakeholder engagement based on the laws of the country in which it is domiciled. For example, U.S. listed companies should consider how the crisis will likely affect each of the following:

4. Engagement with Stakeholders.

Local and state governments have implemented non-uniform response measures in efforts to curb the spread of the virus, including shelter-in-place orders restricting mobility within communities. Response plans should include working with counsel to understand and interpret how varying local measures impact their business operations. For multi-jurisdictional companies, this may require tailoring response plans based on the location of their operations.

  • Financial and Public Disclosures: Companies should consider whether their disclosed risks adequately address how the COVID-19 crisis has impacted their earnings. Companies should consider the extent to which new risks – such as logistical and procurement delays and difficulties meeting production timelines or continuing provision of services due to staff being forced to work from home – necessitate revision of previous disclosures.
  • Regulation Fair Disclosure: Company executives should wisely consult with in-house and outside counsel in communicating with stakeholders regarding the current health care crisis and its impact on the company, to ensure compliance with Regulation FD by not disclosing material nonpublic information to select investors prior to any public announcement. See Final Rule: Selective Disclosure and Insider Trading, 17 C.F.R. 240, 243, 249, Release No. 33-7881 (2000), https://www.sec.gov/rules/final/33-7881.htm.
  • Earnings Guidance: Companies should consider the extent to which they want to revise forward-looking statements based on how the crisis is likely to affect revenues and plans for future operations.
  • Board Meetings: Boards should consider whether to meet (virtually, as appropriate) to assess and provide input on and monitor company management’s steps to address the crisis.
  • Annual Meetings: On March 13, 2020, the Securities and Exchange Commission (“SEC”) issued guidance for companies conducting annual meetings amid the COVID-19 crisis (https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns?auHash=zrsDVFen7QmUL6Xou7EIHYov4Y6IfrRTjW3KPSVukQs). Companies that have already mailed and filed their proxy materials may consider changing the date, time, or location of their meeting. The SEC advised that it would take the position that these companies do not need to mail additional materials or amend their proxy materials if they: “issue[] a press release,” “file[] the announcement as definitive additional soliciting material on EDGAR,” and “take[] all reasonable steps necessary to inform other intermediaries in the proxy process . . . and other relevant market participants.” Companies may also consider holding virtual meetings. These companies should review with counsel their governing documents and applicable state law to confirm such meetings are permitted. If virtual meetings are permitted, the SEC has advised that companies should notify all participants in a timely manner and provide clear directions on logistics (including how to access, participate in, and vote at the meeting). Companies that have yet to mail proxy materials should include such information there; companies that have already mailed and filed proxy materials should take the same steps outlined above for companies changing the date, time, and location of their meeting. The SEC guidance also addresses issues relating to shareholder proposal presentations at these meetings.
  • 10b5-1 Plans and Other Trading in Issuer Securities: Executives should consider whether the COVID-19 crisis and its impact on the company requires the extension of blackout periods for stock trading by personnel with material nonpublic information in light of the public health crisis, and/or whether appropriate changes should be made to the blackout periods for those directors and officers who do not have possession of material, nonpublic information but wish to show support for companies in this time of need.

5. Assess and Monitor Regulatory Developments.

Companies should consider regulators’ responses to the crisis, and assess whether their regulatory requirements are affected. In the U.S.:

Companies should consider whether they qualify for the relief announced under these orders, but not take them as indication that other regulatory agencies will offer similar relief from existing obligations. Companies should also proactively engage with regulators to communicate any anticipated inability to meet existing regulatory obligations.

6. Assess Ongoing Litigations and Investigations.

Companies need to account for the impact of COVID-19 on existing litigation and investigations, which may be affected by court closures and government agencies’ institution of work-from-home policies.

  • Litigation: Courts across the world have been restricting access, adjourning or continuing trials, and postponing hearings and arguments in light of COVID-19. Companies in litigation should anticipate that trials and other case deadlines may be delayed. Counsel on any ongoing matters should monitor court updates and proactively communicate with courts and counsel for other parties as appropriate to determine the impact on existing deadlines. Companies should also assess the risk that a litigation party may be distressed and could file for bankruptcy, and consider any proactive measures that can be taken to address this risk (including, for example, structuring settlements to mitigate bankruptcy risks).
  • Investigations: The same holds for ongoing investigations by regulators and prosecuting authorities; government office closures or work-from-home policies will likely affect existing timelines for investigations, including document productions and witness interviews. Depending on the circumstances, companies may wish to consider whether to engage with responsible government officials on these issues.  Under the right set of circumstances, proactive communication with regulators builds trust and may be helpful.

7. Down the Line: Regulatory Scrutiny, Shareholder Actions? 

The risks posed by the COVID-19 crisis necessitate that companies plan now for the long-term financial, operational, and logistical effects of the crisis. Companies’ reactions to the crisis – and whether they were adequately prepared – will likely be scrutinized by regulators and/or be the subject of future shareholder actions.

  • Upcoming Earnings Calls: March/April Quarterly Earnings calls are right around the corner. Companies will be asked how the public health crisis impacted them, and how they responded.
  • Questions to Prepare for: Were you prepared? Did you have the technological capabilities available to continue to offer services with staff working remotely? Did you act appropriately and in a timely manner when the risks – of supply-chain/procurement disruption, office closures, and need for remote working – became clear? Failing to take action to mitigate against these risks now and communicate your response plan to stakeholders may expose you to future shareholder actions.

Demonstrate Leadership.

Given the prevailing climate of uncertainty and adversity posed by the COVID-19 crisis, it will be important for those in leadership positions within major companies to demonstrate clear, calm, and measured stewardship. By having an adaptable action plan to mitigate business and legal risks, address the needs of staff and customers, and proactively communicate with government authorities and key stakeholders, companies can demonstrate their reliability in a time of crisis.
Gibson Dunn's lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm's Coronavirus (COVID-19) Response Team. Gibson Dunn lawyers regularly counsel clients on the crisis management issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the firm's Crisis Management Group or Business Restructuring and Reorganization Group, or the authors: Debra Wong Yang - Co-Chair, Crisis Management Group, Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com) Reed Brodsky - Co-Chair, Crisis Management Group, New York (+1 212-351-5334, rbrodsky@gibsondunn.com) Penny Madden - London (+44 (0) 20 7071 4226, pmadden@gibsondunn.com) Patrick Doris - London (+44 20 7071 4276, pdoris@gibsondunn.com) Robert A. Klyman - Co-Chair, Business Restructuring Group, Los Angeles (+1 213-229-7562, rklyman@gibsondunn.com) Benno Schwarz - Munich (+49 89 189 33-110, bschwarz@gibsondunn.com) Virginia S. Newman - Hong Kong (+852 2214 3729, vnewman@gibsondunn.com) Alyssa B. Kuhn - New York (+1 212-351-2653, akuhn@gibsondunn.com) Matthew G. Bouslog - Orange County, CA (+1 949-451-4030, mbouslog@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 20, 2020 |
COVID-19: The German Infectious Diseases Protection Act – What Makes You Stay at Home

Click for PDF Public life in Germany – as most recently in many places in Europe and the U.S. – is coming to a halt. Even production plants in the automotive industry employers or sources of business for every seventh German workplace have shut down this week. All this is based on the provisions of scarcely known law that has never been applied in such a broad and vigorous way. The Infectious Diseases Protection Act (Infektionsschutzgesetz, ‘IfSG’) provides the state[1] with strong executive powers to prevent diseases, pathogens etc. from spreading. Such powers have already been made use of and might further be made use of in the near future due to the Coronavirus (COVID-19). These measures now affect almost any businesses with regard to further operation, possible prohibitions of employing, and opening times. Here are the essentials you need to know about the IfSG to avoid risks and possibly predict further curtailment that may lie ahead:

1.  General obligations under the IfSG

The IfSG primarily regulates the interaction between state institutions. It is further relevant to doctors, animal doctors and companies engaging in medical businesses as well as operators of community institutions or of collective accommodation units. Above all, it stipulates reporting obligations pursuant to sec. 6-10 of the IfSG, if a suspicion of or an actual incident of a disease/pathogen arises. In addition, the IfSG attributes special tasks of collecting, analyzing and distributing information on diseases and pathogens to the Robert Koch Institute, a Federal government agency in the field of medicine. COVID-19 has recently been added to the list of pathogens by way of an urgent executive regulation (Eilverordnung) of the Federal Ministry of Health (Sec. 6(1) n. 1 and sec. 15 of the IfSG).[2]

2.  Obligations upon administrative orders

The IfSG grants certain powers to the state administration for the purpose of preventing the further spreading of a pathogen such as COVID-19. Of particular relevance is sec. 28 of the IfSG which allows for certain “protective measures”.
  • This provision particularly empowers the competent authority to prohibit or curtail events and gatherings, shut down swimming baths and other community facilities such as school and child daycares.[3] Furthermore, people may be prohibited from leaving or entering certain locations, i.e. it arguably[4] contains the legal basis of a curfew (Sec. 28(1) sentence 2 and 1 of the IfSG).
  • The provision also contains a general clause for the competent authority to take necessary protective measures to prevent an infectious disease from spreading (Sec. 28(1) sentence 1 of the IfSG).[5]
  • The law further permits ordering a quarantine (Sec. 30(1) sentence 2 of the IfSG).
  • The competent authority may order an infected person, or a person suspected to be infected, to refrain from practicing in certain professions (Sec. 31 of the IfSG). According to sec. 56(1) and (5), the employer has to pay a compensation for six weeks but will be reimbursed by the state.

3.  Risks in case of non-compliance

Non-compliance with legislative obligations of or administrative orders upon the IfSG can, depending on the particular infringement, be punished by an administrative fine, a criminal fine, or even by imprisonment. Above all, Sec. 75 of the IfSG sets out that intentional infringing upon an enforceable order pursuant to Sec. 28(1) sentence 2 of the IfSG can be punished by imprisonment up to two years (five years, if the perpetrator further spread the disease/the pathogen). In connection with sec. 30, 130 of the Act on Regulatory Offenses (Gesetz über Ordnungswidrigkeiten), a legal entity might be subjected to an administrative fine and a confiscation of the profit gained through the illegal act, if the perpetrator acted on its behalf.

4.  Case Study Bavaria and Checklist to comply with the IfSG

Generally, to avoid running risks in connection with the IfSG, we strongly advise to strictly follow the general orders that have been made under sec. 28(1). Orders can vary from each of the Federal states and are published by them.[6] By way of illustration, the following rules will now have to be put in place for the State of Bavaria:
  • Everybody is encouraged to reduce physical and social contacts with other people to an absolute minimum (save for members of your own household). A minimum distance to other people of at least 1.5 meters has to be kept wherever possible;[7]
  • People may not leave their home, unless they have a good cause (exercising their profession, medical reasons, running errands for daily life etc.);[8]
  • Nobody may visit certain places where people are taken cared of who would particularly put in danger by COVID-19.[9]
  • If you run a retail business, you have to shut down, unless your business is specifically allowed to carry on;[10]
  • If your business concerns or includes leisure activities not strictly necessary for daily life, you need to stop it, too;[11]
  • If you run a catering business, you are not permitted to operate further. If you sell take-away food or if you deliver food, you may however carry on to that extent.[12]
  • If you are engaged in the medical business such as a hospital, a community institution, or a unit of collective accommodation, special provisions apply with regard to reporting (sec. 8(1) of the IfSG).
As the general orders are of a temporary nature and further measures may likely be taken soon, you should regularly update your respective policies implementing these orders. Because the situation is developing in a dynamic way, we recommend reviewing and updating the respective orders currently on a daily basis. Here is a checklist that we would recommend running to ensure prompt, but also sustainable, compliance with a dynamically changing landscape for businesses in these days:
  • Tone from the top. Sensitize through senior management your entire organization by way of a general communication on the fact that each employee and third party engaging in business with the company must comply with the binding orders applicable from time to time.
  • Create a knowledge network. Provide a contact that will be the resource for any information of the business relating to specific orders potentially applicable to your local work force or business.
  • Keep up to date. Appoint a person to regularly (daily) check the applicable orders at all places where your business is operating.
  • Document your diligence. Collect relevant orders for your business in a central data base to keep due record. There should be one source of truth for your business that is diligently kept and regularly updated.
  • Avoid silos. Create a cross-functional group ensuring that the business leaders are aware of the local orders that are applicable in the relevant jurisdiction they cover.
  • Be efficient and nimble. Provide a template to the business in which the business can easily update communicate new orders by way of an internal policy implementing the order to their respective work force and business partners when the situation changes.
  • Create a record. Ensure that all such internal policies are centrally collected for record keeping purposes. If complaints arise later, you need to ensure you have a track record of your diligent efforts to comply with the law.
  • Communicate. Have regular calls to reinforce the message and ensure that all local businesses comply with the respective orders and can raise questions. Document the questions on these calls and follow-up with answers.
  • Share knowledge. Collect questions in a central list to see whether they raise topics of general interest or concern that require a more general approach.
  • Stay healthy and keep up your good spirits. Encourage your employees to keep up with good practices that keep them healthy and to share experiences that helped maintaining good spirits in the team and their communities. It’s a marathon, not a sprint.
This list is not exhaustive and does not aspire to cover all points, but it is a starting point for you to put an initial light organizational set-up around the day-to-day crisis management that we will be facing in the next few months. ______________________    [1]   As it also is the general rule in Germany (see Articles 30, 83 of the German Federal Constitution), the executive powers under the IfSG lie with the Federal state governments (see Sec. 54 of the IfSG), unless the law specifically assigns tasks to the Federal level. Under the IfSG, the Federal Government and the Federal Ministry of Health may enact executive regulations such as the regulation that has included COVID-19 to the list of pathogens.    [2]   Verordnung über die Ausdehnung der Meldepflicht nach § 6 Absatz 1 Satz 1 Nummer 1 und § 7 Absatz 1 Satz 1 des Infektionsschutzgesetzes auf Infektionen mit dem erstmals im Dezember 2019 in Wuhan/Volksrepublik China aufgetretenen neuartigen Coronavirus („2019-nCoV“), in force since February 1, 2020.    [3]   For example, the Bavarian state government has issued such an administrative order on March 16, 2020.    [4]   While some academics have recently raised doubt (see e.g. Thiele, Ausgangssperren wegen Corona - Im Katastrophenfall geht das, LTO online, March 20, 2020), the state administration appears to regard Sec. 28(1) sentence 1 and 2 of the IfSG as the applicable legal basis because the curfews imposed so far have been grounded on this provision.    [5]   For example, the Bavarian Ministry of Health has issued such an administrative order on March 13, 2020. Based on this order, school lessons have been cancelled.    [6]   See, by way of example, the website of the Bavarian Ministry of Health, https://www.stmgp.bayern.de/ (in German, last visited March 20, 2020).    [7]   Order n. 1 of the executive order of the Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020.    [8]   Order n. 5 of the executive order of the Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020. Effective until April 3, 2020.    [9]   N. 3 of the executive order of Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020. [10]   Pursuant to n. 4 of the executive order of the Bavarian Ministries of Health and of Family Affairs dated March 16, 2020, grocery trades, beverage markets, banks, pharmacies, drug stores, medical stores, opticians, hearing aid specialists, branches of Deutsche Post AG, pet supplies stores, building and garden supplies stores, gas stations, cleaners, and online trades are exempted. Further exceptions can be made upon application if deemed absolutely necessary to supply the population and justifiable under infectious diseases protection law. This part of the order has come into force on March 18, 2020 and is currently effective until March 30, 2020. [11]   Pursuant to n. 2 of the executive order of the Bavarian Ministries of Health and of Family Affairs dated March 16, 2020, in particular saunas, swimming baths, movie theaters, convention centers, clubs, bars, discos, gambling casinos, theaters, club rooms, brothels, museums, guided city tours, sports halls, sports fields, playgrounds, fitness centers, libraries, wellness centers, thermal baths, dancing schools, zoos, entertainment venues, further education centers, community colleges, music schools, and youth centers. This part of the order has come into force on March 17, 2020 and is currently effective until April 19, 2020. [12]   Order n. 2 of the executive order of the Bavarian government dated March 20, 2020. Such places include e.g. hospitals and retirements homes. Effective until April 3, 2020. The order includes exceptions for births, visits to children by close relatives, and imminent deaths.
Gibson Dunn's lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm's Coronavirus (COVID-19) Response Team. The following Gibson Dunn lawyers prepared this client update: Benno Schwarz and Andreas Dürr. Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work in the firm's German offices or the White Collar Defense and Investigations Group, or any of the following:

Gibson Dunn in Germany:

Corporate Compliance / White Collar Matters Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@gibsondunn.com) Litigation Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 504, fzeidler@gibsondunn.com) Markus Rieder (+49 89189 33 170, mrieder@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Ralf van Ermingen-Marbach (+49 89 18933 130, rvanermingenmarbach@gibsondunn.com) Antitrust Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 122, rroeder@gibsondunn.com) General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 170, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 503, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 502, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 170, sbeiter@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 502, apelster@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Finance, Restructuring and Insolvency Sebastian Schoon (+49 69 247 411 505, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 122, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 505, aklein@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 29, 2020 |
Debra Wong Yang Named Among Top Minority Attorneys in Los Angeles

Los Angeles Business Journal named Los Angeles partner Debra Wong Yang among its Top Minority Attorneys in Los Angeles, featuring “the most influential minority attorneys in the city of Los Angeles.” The profile was published on January 27, 2020. Debra Wong Yang is Chair of the Crisis Management Practice Group.  Drawing on her depth of experience and record of success, Yang focuses part of her practice on strategic counseling.  She leads critical representations, both high-profile and highly confidential, involving a wide variety of industries, economic sectors, regulatory bodies, law enforcement agencies, global jurisdictions and all types of proceedings.  She also has a strong background in addressing and resolving problems across the white collar litigation spectrum, including through corporate and individual representations, internal investigations, crisis management and compliance.

March 7, 2017 |
Analysis of March 6, 2017 Executive Order on Immigration

Gibson Dunn previously issued several client alerts regarding President Trump's January 27, 2017, Executive Order restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes. This client alert addresses the replacement Executive Order entitled "Protecting the Nation from Foreign Terrorist Entry into the United States," signed on March 6, 2017.[1]  It also addresses a recent announcement suspending expedited processing of H-1B visas.

I.          Overview of March 6, 2017 Replacement Executive Order

The new order is in some regards narrower than the prior order, and its scope appears to be more clearly defined.  However, there is still some ambiguity as to the process for obtaining waivers, and the order continues to provide for the possible extension or expansion of the travel ban.  The order and the accompanying official statements also include considerably more material seeking to justify the provisions than contained in the prior order.[2] The Department of Homeland Security has released detailed Q&As[3] and a fact sheet regarding the new order;[4] additional guidance from the Department of State is expected.[5] Key features of the new order include:
  • Effective Date.  The effective date of the order is deferred for 10 days; the order goes into effect at 12:01 am ET on March 16, 2017.  Sec. 14.
  • Status of Prior Order.  The new order fully rescinds and replaces the January 27 order.  Sec. 13.
  • Travel Ban For 6 Countries.  Like the prior order, the new order suspends for 90 days entry for nationals of a number of Muslim-majority countries: Iran, Libya, Somalia, Sudan, Syria, and Yemen.  Sec. 1(e).
  • Exclusions and Exceptions to Travel Ban.  The travel ban and related provisions have been narrowed and clarified in various respects:
    • Iraq.  Iraq is no longer identified among the affected countries.  The other six nations designated in the original order are still covered.  However, the order specifically calls for additional review when an Iraqi national who holds a visa applies for "admission," meaning upon arrival to the U.S.  Secs. 1(g), 4.
    • Lawful Permanent Residents.  Lawful permanent residents (green-card holders) are explicitly excluded from the order.  Sec. 3(b)(i).
    • Current Visa Holders.  Existing visas are not revoked by the order, and they can be used during the 90-day period otherwise covered by the order by the visa-holders under their existing terms, regardless of whether the visa-holder has previously been to the United States or is arriving for the first time.  Those who had a visa physically marked as cancelled as result of the January order are also entitled to admission.  Secs. 3(a), 12(c)-(d); Q&As 3, 5, 7.
    • Dual-Citizens.  Dual citizens of one of the designated nations are also explicitly excluded from the order provided that they are travelling on a passport of a country other than the six designated.  For example, a dual-citizen of Somalia and the United Kingdom would still be eligible for admission to the United States if travelling on his U.K. passport.  Sec. 3(b)(iv).
    • Refugees, Asylees, and Convention Against Torture.  Foreign nationals who are granted asylum status prior to the March 16 effective date, refugees already admitted, and those granted withholding of removal, advance parole, or protection under the Convention Against Torture are not barred from entry into the U.S. Sec. 3(b)(vi).  Note, however, that under existing law, individuals with those statuses may need certain advance permission or authorization if they wish to leave and return to the United States without jeopardizing that status.
    • Certain Diplomatic and Related Visas.  As in the January order, diplomatic and diplomatic-type visas, NATO visas, C-2 (United Nations) visas, and G-1 through G-4 visas are excluded from the order.  Sec. 3(b)(v)
  • Travel Ban Waivers.  The new order provides authority to certain Department of State and Homeland Security officials to grant waivers to the travel ban's limitations on a case-by-case basis.  The new order identifies nine scenarios in which such treatment "could be appropriate."  These include a variety of hardship scenarios which arose under the January order, such as those needing urgent medical care or those who can document that they have "provided faithful and valuable service" to the United States government (e.g. foreign translators).  Sec. 3(c).  Importantly, these are still case-by-case waivers, not automatic exemptions.  It is also not yet clear if individuals seeking waivers will be allowed to board flights to the U.S.
  • Suspension of Visa Interview Waiver Program.  As before, the Visa Interview Waiver program (often used by repeat business travelers from certain nations) is suspended.  Sec. 9.
  • Suspension of Refugee Admission Program.  As in the January order, the Refugee Admission Program is suspended for 120 days, with a cap of 50,000 entrants for the current fiscal year upon resumption.  Sec. 6.  Unlike the January order, the new order does not indefinitely halt refugee admissions from Syria or prioritize religious minorities upon resumption.  The treatment of those already granted refugee status but not yet in the United States is somewhat unclear.  The DHS Q&A says such individuals "whose travel was already formally scheduled by the Department of State … are permitted to travel to the United States and seek admission," and they are covered by the text of the carve-out in Section 3(b)(vi). See Q&A 10.  But the Q&A also says those individuals "are exempt from the Executive Order."  Q&A 27.  Admission thus may require a case-by-case waiver.
  • Possible Expansion and Extension.  Like the prior order, this order requires a global review to identify categories of individuals appropriate for further limitations.  Secs. 2(e)-(f).  Another provision requires re-alignment of any visa reciprocity programs, under which the United States offers visas of similar validity period and type (e.g. multiple-entry) on the basis of those offered to U.S. citizens.  Sec. 10.

II.        Impact on Current Litigation

There are approximately 20 active lawsuits challenging aspects of the January order.  Additional, key parts of that Order are currently subject to a preliminary injunction issued by the United States District Court for the Western District of Washington.  The Ninth Circuit declined to temporarily stay that injunction pending a fuller appeal.[6]  The Eastern District of Virginia has also issued a preliminary injunction against certain parts of the January order as it applies to Virginia residents and institutions. There are hearings and briefing deadlines scheduled in both the Washington and Ninth Circuit proceedings, as well as in many of the other cases.  Because the new order rescinds the old order, effective March 16, those challenges may become moot, and the Department of Justice has said it will be seeking dismissal.[7]  However, it is highly likely that some of the existing complaints and requests for relief will be amended to challenge the new ban.  New challenges to the newly announced Executive Order are also anticipated. It is difficult to predict how the courts will approach litigation, either substantively or procedurally.  Given that the new order does not go into effect until March 16, there will be opportunity for more substantive (although expedited) proceedings than was the case with the original order.  Gibson Dunn will continue to monitor challenges for possible impacts on the new order.

III.       Issues for Companies to Consider

As with the January order, there is no "one size fits all" approach for companies addressing employee and business issues related to the new Executive Order. Accordingly, companies should again evaluate whether they will need to develop strategies to deal with the impact of the replacement Executive Order, both internally and as it relates to potential shareholder and business relations. In the immediate term, companies should consider outreach to their employees, particularly those who are or may be affected by the Executive Order.  Companies should also consider whether plans or policies are needed for travel by executives, employees, or other stakeholders.  In many ways, the new order is clearer than the January order, but as we describe in more detail below it not clear how all aspects of the order will be implemented.  Accordingly, employers may want to consider the following:
  • Outreach to employees who may be affected.  Companies should consider proactively identifying and reaching out to all employees who may be affected.  As noted above, the Executive Order, on its face, applies to both immigrants and non-immigrants from the six covered countries.  Thus, employees traveling for business or leisure may be equally affected.  Note that different employees' immigration statuses may compel differing guidance on how to approach any issues that arise in the enforcement of the Order.
  • Outreach to employees who may have family members affected.  It is important to remember that some of your employees, even if not directly impacted by the Executive Order, will have family and loved ones who are or may be impacted.  Companies may consider providing counseling and support for employees with these concerns.
  • Communicating with employees.  Companies should consider identifying employees who frequently travel to and from the affected countries or who are visa holders from affected countries, to explain company plans with respect to the Executive Order.  Given issues that arose for travelers in connection with the implementation of the original Executive Order in January, employees from affected countries who are currently outside the United States, but have a legal right to enter, should be advised to stay in communication with individuals in the United States about their travel plans, in the event they have difficulty re-entering the country, and have a plan to obtain appropriate assistance in that event.
  • Identifying a point of contact.  Consider identifying a contact point for any employee questions or concerns regarding the Executive Order.  Furthermore, ensure that this contact is prepared to field questions from affected or potentially affected employees, to discuss visa renewal or travel to and from the affected countries, and to refer employees with specific issues to the appropriate resources.
  • Communicating with shareholders, business partners and other stakeholders.  Companies should consider whether communications with shareholders, business partners or other stakeholders regarding potential impacts on business as a result of enforcement of the Executive Order are appropriate.
  • Modifying travel and meeting obligations.  Companies should consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company's business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have board members or executives affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.  Companies involved in pending litigation that may require employee travel to the United States should consider seeking the advice of litigation counsel to determine what, if any, notice to the relevant court or parties may be advisable at this stage.
  • Reviewing non-discrimination policies.  Companies may wish to send reminders of applicable equal employment policies.  Many employers included such statements in communications regarding the original Order.  Companies may also wish to consider how their policies apply to employment and hiring decisions in light of travel restrictions.
This list addresses just some of the issues that companies will face in light of the Executive Order.  Gibson, Dunn & Crutcher's lawyers, including its employment, securities, administrative law, constitutional law, and sanctions teams, are available to assist clients with navigating these and other issues that arise with respect to enforcement of the March 6 Order.

IV.       Suspension of Expedited Processing for H-1B Visas

On March 3, U.S. Citizen and Immigration Services (USCIS) announced it will suspend "premium processing" of applications for H-1B visas.[8]  This change is effective April 3, 2017, the first date for filing FY18 applications.  The agency says that this is necessary to process back-logged petitions.  It also says that "expedited" processing is still available for applications meeting certain criteria, and subject to "the discretion of office leadership."  Applications that remain eligible for premium processing include those involving:  Severe financial loss to company or ​person​;​ Emergency situation;​ Humanitarian reasons;​ Nonprofit organization whose request is in furtherance of the cultural and social interests of the United States​;​ Department of Defense or ​national ​interest ​​situation; USCIS error; or​ compelling interest of USCIS.​[9]

*      *      *

Gibson Dunn will continue to monitor these rapidly developing issues closely.
   [1]   "Executive Order Protecting The Nation From Foreign Terrorist Entry Into The United States," Mar. 6, 2017, https://www.whitehouse.gov/the-press-office/2017/03/06/executive-order-protecting-nation-foreign-terrorist-entry-united-states.    [2]   See, e.g., Letter from Attorney General and Sec'y of Homeland Security, Mar. 6, 2017, https://www.dhs.gov/sites/default/files/publications/17_0306_S1_DHS-DOJ-POTUS-letter.pdf    [3]   U.S. Dep't of Homeland Security, "Q&A: Protecting the Nation From Foreign Terrorist Entry To The United States," Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/qa-protecting-nation-foreign-terrorist-entry-united-states.    [4]   U.S. Dep't of Homeland Security, "Fact Sheet: Protecting the Nation From Foreign Terrorist Entry To The United States," Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/fact-sheet-protecting-nation-foreign-terrorist-entry-united-states.    [5]   U.S. Dep't of State, "Executive Order on Visas," Mar. 6, 2017, https://travel.state.gov/content/travel/en/news/important-announcement.html.    [6]   http://cdn.ca9.uscourts.gov/datastore/general/2017/02/27/17-35105%20-%20Motion%20Denied.pdf; https://cdn.ca9.uscourts.gov/datastore/opinions/2017/02/09/17-35105.pdf.    [7]   http://www.politico.com/story/2017/03/trump-releases-new-travel-ban-executive-order-235720.    [8]   U.S. Citizenship and Immigration Services, "USCIS Will Temporarily Suspend Premium Processing for All H-1B Petitions," Mar. 3, 2017 https://www.uscis.gov/news/alerts/uscis-will-temporarily-suspend-premium-processing-all-h-1b-petitions.    [9]   U.S. Citizenship and Immigration Services, "Expedite Criteria," https://www.uscis.gov/forms/expedite-criteria.
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass - San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion - New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer - San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis - Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler - Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk - Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz - Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director - New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman - Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz - Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick - Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 10, 2017 |
Ninth Circuit Court of Appeals Issues Opinion Upholding Nationwide TRO of January 27 Immigration-Related Executive Order

On Monday, January 30, 2017, Gibson Dunn issued a client alert regarding President Trump's January 27 Executive Order restricting entry into the United States for individuals from certain nations, and making other immigration-related policy changes.  On February 1, Gibson Dunn issued an updated client alert, covering subsequent developments relating to the Executive Order including: (1) coverage of dual citizens; (2) provisional revocation of certain visas; and (3) reciprocal policy changes abroad. This update describes yesterday's Ninth Circuit decision in State of Washington v. Trump, which denied the Government's request to stay the nationwide temporary restraining order, as well as other recent developments relating to the various legal challenges to the Executive Order.  On February 10, the Ninth Circuit issued a sua sponte request that the parties brief whether en banc review by the Ninth Circuit is appropriate.  At the same time, news reports indicate that the Trump administration may issue a revised executive order, rather than appeal the decision.[1]  This update also provides considerations for companies and others as they continue to deal with the aftereffects of the Executive Order and the various court challenges to it.  This alert is informational only, and you should, of course, seek legal advice specific to any particular situation.

I.      Ninth Circuit Decision in State of Washington v. Trump, No. 2:17-cv-141

On February 3, in an action brought by the State of Washington and the State of Minnesota, the United States District Court for the Western District of Washington (Hon. James L. Robart) issued a nationwide temporary restraining order against enforcement of the Executive Order.  The next day the federal defendants filed an emergency motion for an immediate administrative stay and for a stay pending appeal.  The Ninth Circuit denied an immediate stay and held telephonic oral argument on Tuesday, February 7. On Thursday, February 9, the three-judge panel issued its unanimous opinion holding that, "the Government has not shown a likelihood of success on the merits of its appeal, nor has it shown that failure to enter a stay would cause irreparable injury, and we therefore deny its emergency motion for a stay."  Opinion at 3.[2]

            A.      Jurisdiction and Standing 

The Court determined it had appellate jurisdiction due to the extraordinary circumstances of the case, even though it generally does not review temporary restraining orders.  The Court rejected the Government's argument that the plaintiff States lack Article III standing, finding that, for purposes of this stage of the proceedings, the States adequately alleged that the Executive Order caused concrete harm to their state universities, faculty and students.  Opinion at 12.

            B.      Reviewability of the Executive Order

While recognizing the deference owed to the executive branch on matters of immigration and national security, the Court rejected the Government's argument that the Executive Order was not subject to judicial review, stating that such a claim "runs contrary to the fundamental structure of our constitutional democracy."  Opinion at 14.  The Court went on to cite a number of instances in which federal courts have reviewed and, in some instances invalidated, executive actions taken in the name of national security.  Opinion at 14-18.

            C.      Legal Reasoning and Opinion

In deciding whether to stay the temporary restraining order, the Court examined four factors:  (1) whether the federal government was likely to succeed on the merits; (2) whether the federal government would be irreparably harmed absent a stay; (3) whether the stay would irreparably injure the plaintiff States; and (4) what is in the public interest. As to success on the merits, the Court concluded that the federal government had not demonstrated that it was likely to succeed on the merits, at least with respect to the States' due process claims.  With respect to the due process claims, the federal government failed to show that the Executive Order provided notice and a hearing prior to restricting an individual's ability to travel.  The Court rejected the federal government's assertion that the Executive Order no longer applies to lawful permanent residents, as that clarification came from the White House counsel, who is "not known to be in the chain of command for any of the Executive Departments."  Opinion at 22.  With respect to those without legal status, the court found potential claims of due process violations existed as well.  The Court also noted that the States' religious discrimination claims raised "serious allegations and present significant constitutional questions," but reserved consideration of those claims until the merits are fully briefed.  Opinion at 26. With respect to the likelihood of irreparable harm, the Court found that the federal government failed to show that a stay was necessary to avoid unnecessary injury stating, "the Government submitted no evidence to rebut the States' argument that the district court's order merely returned the nation temporarily to the position it has occupied for many previous years."  Opinion at 26.  The Court found that the States had offered ample evidence of irreparable harm, including separating families and stranding individuals traveling abroad.  Opinion at 28.  Finally, the court found that there were competing public interests at play here such that irreparable harm alone could not justify a stay.  Opinion at 28-29. The Court also declined the federal government's proposed alternative relief, including modification or narrowing of the existing temporary restraining order either in geographic scope or as to what categories of covered individuals.  Opinion at 23-24. On the day after the Ninth Circuit issued its ruling, it issued an order that the parties submit simultaneous briefs setting forth their positions on whether en banc review by an 11-judge panel of the Ninth Circuit is appropriate.  At the same time, as stated above, recent news reports indicate that the White House may not seek to appeal the decision and will instead draft and issue a revised executive order.[3]

II.      Status of Other Legal Challenges

Since the January 27 Executive Order was issued, dozens of legal challenges have been brought in an effort to stay or invalidate the Executive Order.  Many of these suits have resulted in orders staying or limiting the Executive Order itself, including by judges in Massachusetts, Brooklyn, and Virginia.  See, e.g., Louhghalam v. Trump, No. 1:17-cv-10154-NMG (D. Mass. Feb 3, 2017); Darweesh v. Trump, 17 Civ. 480 (AMD) (E.D.N.Y. Jan. 28, 2017); Aziz v. Trump, No. 1:17-cv-116 (E.D.Va. Jan. 28, 2017).   One decision refused to offer temporary injunctive relief against the effectiveness of the Executive Order.  Louhghalam, 2017 WL 479779 (D. Mass. Feb. 3, 2017).  At least one case seeking to enjoin enforcement of the Executive Order has been stayed pending today's decision by the Ninth Circuit.  State of Hawaii v. Donald J. Trump et al., No. 1:17-cv-50 (D. Haw. February 3, 2017). Other lawsuits filed over the course of the last week have sought to challenge the Executive Order as whole, as well as its impact on specific populations.  See, e.g., Pars Equality Ctr. v. Trump, No. 1:17-cv-255 (D.D.C. Feb. 9, 2017) (suit by several Iranian-American groups seeking a broad permanent injunction and alleging that the Executive Order reflects "invidious discrimination"); Int'l Refugee Assistance Project v. Trump, No. 8:17-cv-00361 (D. Md. Feb. 7, 2017) (seeking declaration that "the entire Executive Order is unlawful and invalid").

III.      Issues for Consideration

Despite the temporary clarity provided by the Ninth Circuit's ruling, there are, as described above, multiple legal challenges still outstanding and the likelihood of further appeals of the Ninth Circuit decision issued on Thursday, February 9.  As such, companies and others should still consider the guidance provided in our earlier client alerts on this topic, until the courts or the administration provide more certainty on this issue.  For example, companies should still consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company's business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have officers, employees, contractors, or others affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.
   [1]   http://www.cnn.com/2017/02/10/politics/immigration-executive-order-white-house/index.html    [2]   In addition to the filings by the parties, 20 amicus briefs were filed by a variety of entities and individuals.  Sixteen of the briefs supported the States, and were submitted by various nonprofit organizations, several other states, labor organizations, a group of law professors, and a group of over 120 technology companies.  Three briefs filed by a variety of nonprofit organizations support the government.  These briefs are available on the Ninth Circuit's website, at https://www.ca9.uscourts.gov/content/view.php?pk_id=0000000860.    [3]   http://www.cnn.com/2017/02/10/politics/immigration-executive-order-white-house/index.html
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass - San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion - New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer - San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis - Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler - Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk - Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz - Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director - New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman - Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz - Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick - Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 1, 2017 |
Recent Developments Regarding Executive Order on Immigration

On Monday, January 30, 2017, Gibson Dunn issued a client alert regarding President Trump's January 27 Executive Order restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes. This update describes further developments relating to the Executive Order involving (1) coverage of dual citizens; (2) provisional revocation of certain visas; and (3) reciprocal policy changes abroad.  It also provides updates on the status of various legal challenges to the Executive Order.[1]  In particular, it describes a decision from earlier today that broadly prohibits enforcement of the Executive Order, on an interim basis.

I.     Coverage of Dual Citizens, Certain Special Immigrants Clarified

The Department of Homeland Security ("DHS") announced that dual citizens are not affected by the ban on entry of individuals from the seven countries covered by the Executive Order.  According to new guidance, "travelers are being treated according to the travel document they present," and will be admitted if they "apply for entry based on their citizenship from one of the countries NOT on the list" and are otherwise eligible.[2]  The Acting Commissioner of Customs & Border Protection stated that "[t]ravelers will be assessed … based on the passport they present, not any dual-national status.  So if you're a citizen of the United Kingdom, you present your United Kingdom passport and the executive order does not apply to you upon arrival."[3] However, as a practical matter, travelers who are also nationals of one of the seven covered countries may be subject to additional screening both when applying for a visa (if applicable) under their non-affected passport, or upon arrival in the United States. Relatedly, DHS announced that holders of "special immigrant visas" (which could include translators for the U.S. armed forces in Iraq), will be treated similarly to lawful permanent residents from the covered countries.  Although covered by the ban, they will generally be allowed entry under the "case-by-case" waiver provision.[4]

II.     Revocation of Existing Visas

On Tuesday, January 31, in one of the cases challenging the Executive Order, the government publicly filed a January 27 Department of State order that "provisionally revoke[d] all valid nonimmigrant and immigrant visas of nationals of Iraq, Iran, Libya, Somalia, Sudan, Syria, and Yemen."[5]  It is not currently clear to what extent this order is being enforced. Like the Executive Order, this State Department order recognizes the possibility of exceptions made on a "case-by-case" basis, but does not provide information on the process for obtaining such an exception. While application of this order remains unclear, revocation of a visa has potentially significant implications.  For example, once a nonimmigrant visa is revoked, the visa holder becomes deportable.[6]  The rule regarding immigrant visas is less clear, although there is some risk that an immigrant whose visa has been revoked could be subject to deportation.[7]  If the government seeks to deport an individual on the basis of a visa revocation, that individual has the right to judicial review prior to removal.[8] While no guidance has been issued, the order may mean that individuals who entered on a valid multi-entry visa prior to the Executive Order will not be able to enter again under the same visa, even after the 90-day ban expires.  Instead, individuals in this category will likely need to obtain a new visa, or a waiver from the revocation.  In addition, individuals in the United States under a previously issued visa may be deported.

III.     Reciprocal Action in Other Nations

At least two of the seven nations covered by the Executive Order are implementing or moving toward reciprocal bans on travel from the United States, although details of the scope of these bans, and possible exceptions, are unclear at this time.  Iran has announced a ban.[9]  Iraq's parliament has passed a non-binding recommendation to take similar action if the U.S. ban remains in effect, in line with criticism of the Executive Order from the foreign ministry there.[10]

IV.     Status of Legal Challenges

             A.        Badr Dhaifallah Ahmed Mohammed et al v. United States of America et al, 2:17-cv-00786 (C.D. Cal. January 31, 2017)

On January 31, the United States District Court for the Central District of California (Hon. André Birotte Jr.) entered an Order enjoining the President, DHS, CBP, and other defendants from enforcing the Executive Order "by removing, detaining, or blocking the entry of Plaintiffs, or any other person from" the seven countries named in the Executive Order "with a valid immigrant visa." The court further: (i) enjoined the defendants from cancelling the plaintiffs' validly obtained and issued visas; (ii) ordered the defendants, and the State Department in particular, to return "to Plaintiffs their passports containing validly issued immigrant visas so that Plaintiffs may travel to the United States on said visas,"; and (iii) ordered defendants to immediately "inform all relevant airport, airline, and other authorities at Los Angeles International Airport and International Airport in Djibouti that Plaintiffs are permitted to travel to the United States on their valid immigrant visas." Although the court's order prohibits the "blocking of entry" of anyone from the seven countries who possesses "a valid immigrant visa," regardless of whether the individual is a plaintiff in the case, it is unclear what impact this will have beyond the named plaintiffs in light of the Department of State's order provisionally revoking all such visas as discussed above.

             B.        State Government Actions

Four state governments have also sued to enjoin the Executive Order or moved to intervene in cases challenging the Order, one new class action was filed challenging the Executive Order, and two potentially significant hearings are scheduled for this Friday. Several States have gone to court to challenge the ban.  The State of Washington filed a challenge in the Western District of Washington.[11]  Similarly, Massachusetts,[12] Virginia,[13] and New York,[14] moved to join existing lawsuits pending in federal court in their states. The Northwest Immigrant Rights Project filed a class action in the Western District of Washington seeking invalidation of the Executive Order.  Abdiaziz v. Trump, No. 2:17-cv-135. Finally, two hearings are set for this Friday, February 3.  The District of Massachusetts hearing in Tootkaboni v. Trump, No. 17-cv-10154, will further consider the temporary restraining order that court entered last weekend.  The Western District of Washington will consider the state government's request for a temporary restraining order in its recently filed case, State of Washington v. Trump, No. 2:14-cv-141.

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Gibson Dunn will continue to closely monitor these rapidly developing issues.
                [1]     On January 30, shortly after the release of our earlier client alert, the Acting Attorney General announced guidance that the Justice Department would not defend the Executive Order, explaining that she is not "convinced that the Executive Order is lawful."  (http://documents.latimes.com/message-acting-attorney-general).  The White House relieved the Acting Attorney General of her duties, stating that the Acting Attorney General had "betrayed the Department of Justice by refusing to enforce a legal order designed to protect the citizens of the United States."  See White House, Statement on the Appointment of Dana Boente as Acting Attorney General, Jan. 30, 2017 (https://www.whitehouse.gov/the-press-office/2017/01/30/statement-appointment-dana-boente-acting-attorney-general).  The new Acting Attorney General promptly announced that he was rescinding his predecessor's guidance regarding the Executive Order.  See U.S. Dept. of Justice, "Acting Attorney General Boente Issues Guidance to Department on Executive Order," Jan. 30, 2017 (https://www.justice.gov/opa/pr/acting-attorney-general-boente-issues-guidance-department-executive-order).                 [2]     U.S. Customs & Border Protection, "Protecting the Nation from Foreign Terrorist Entry into the United States," Jan. 31, 2017 (https://www.cbp.gov/border-security/protecting-nation-foreign-terrorist-entry-united-states).                 [3]     U.S. Dept. of Homeland Security, "Transcript of Media Availability on Executive Order with Secretary Kelly & DHS Leadership," Jan. 31, 2017 (https://www.dhs.gov/news/2017/01/31/transcript-media-availability-executive-order-secretry-kelly-and-dhs-leadership).                 [4]     U.S. Dept. of Homeland Security, "Transcript of Media Availability on Executive Order with Secretary Kelly & DHS Leadership," Jan. 31, 2017 (https://www.dhs.gov/news/2017/01/31/transcript-media-availability-executive-order-secretry-kelly-and-dhs-leadership).                 [5]     U.S. Dept. of State, Order, Jan. 27, 2017.  This document is not currently available on a government website, but can be found at http://www.politico.com/f/?id=00000159-f6bd-d173-a959-ffff671a0001 .                 [6]     See 8 U.S.C. § 1227(a)(1)(B) ("Any alien who is present in the United States in violation of this chapter or any other law of the United States, or whose nonimmigrant visa (or other documentation authorizing admission into the United States as a nonimmigrant) has been revoked under section 1201(i) of this title, is deportable.").                 [7]     See 8 U.S.C.  § 1201(i); 22 C.F.R. § 42.82(b); see also 8 U.S.C. § 1227(4)(c)(i) ("An alien whose presence or activities in the United States the Secretary of State has reasonable ground to believe would have potentially serious adverse foreign policy consequences for the United States is deportable.").                 [8]     8 U.S.C. § 1201(i) ("There shall be no means of judicial review … of a revocation … except in the context of a removal proceeding if such revocation provides the sole ground for removal…").                 [9]     Asas Fitch, et al., "Iran Halts Visas to Americans As Iraq Keeps Doors Open," Wall Street J., Jan. 31, 2017 (https://www.wsj.com/articles/iran-stops-issuing-visas-to-americans-1485870515).                 [10]     Qassim Abdul-Zahra, "Iraqi Lawmakers Urge Ban On Americans After Trump Order," Associated Press, Jan. 30, 2017 (https://www.apnews.com/53228591339c42daa0b27c152c95b630).                 [11]     Washington State Office of the Attorney General, "AG Ferguson Seeks Halt to Trump's Immigration Executive Order," Jan. 30, 2017 (http://www.atg.wa.gov/news/news-releases/ag-ferguson-seeks-halt-trump-s-immigration-executive-order).                 [12]     Attorney General of Massachusetts, "AG Healey Announces Lawsuit Against President Trump's Executive Order on Immigration," Jan. 31, 2017 (http://www.mass.gov/ago/news-and-updates/press-releases/2017/2017-01-31-ag-lawsuit-president-eo.html).                 [13]     Attorney General of Virginia, "Virginia Brings Action Against President Trump for Unlawful and Unconstitutional Executive Order on Immigration," Jan. 31, 2017 (http://www.oag.state.va.us/media-center/news-releases/879-january-31-2017-virginia-brings-action-against-president-trump-for-unlawful-and-unconstitutional-executive-order-on-immigration).                 [14]     Attorney General of New York State, "A.G. Schneiderman Joins Lawsuit Against President Trump's Immigration Executive Order, Jan. 31, 2017 (https://ag.ny.gov/press-release/ag-schneiderman-joins-lawsuit-against-president-trumps-immigration-executive-order).
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass - San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion - New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer - San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis - Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler - Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk - Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz - Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director - New York (+1 212-351-5261,kmarquart@gibsondunn.com) Samuel A. Newman - Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz - Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick - Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 30, 2017 |
President Trump Issues Executive Order on Immigration

Click for PDF On Friday January 27, 2017, President Trump issued an Executive Order entitled "Protecting the Nation from Foreign Terrorist Entry into the United States Executive Order."  (Available here.) The Executive Order imposes, among other things, a 90-day ban on entry into the United States for any purpose by non-U.S. citizens from Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen.  The State Department has advised individuals from the affected countries seeking visas to enter the United States not to schedule or attend interviews, or pay fees for such visas, until further notice.[i]  Over the weekend, three federal courts blocked implementation of various parts of the Executive Order.  Additionally, the Administration has announced that implementation of the Executive Order will be somewhat relaxed for U.S. lawful permanent residents.  However, confusion persists at airports both here and abroad.  For example, it has been reported that some individuals have not been permitted to board U.S.-bound flights, and that upon arrival in the United States, other individuals have been subjected to inconsistent treatment, including detention by Customs and Border Protection ("CBP") officers or often lengthy screenings.  Additionally, in some cases, individuals are reportedly unable to communicate with their family members or legal counsel. Although the legal landscape is continuing to evolve, as we describe below, this Client Alert provides an overview of the Executive Order, the district court decisions enjoining portions of the Executive Order, and guidance that may assist companies and others impacted by the Executive Order.  As we understand that responding to inquiries involving the Order may be our clients' most pressing concern, we start with a brief background of the Executive Order and provide guidance companies may want to consider.  We then provide an overview of the legal landscape that exists as of Monday, January 30, 2017.  This alert is informational only, and you should, of course, seek legal advice specific to any particular situation.  Please note that we have published a supplement to this Client Alert regarding later relevant events, which is available here.

I.     Overview of the Executive Order

The Executive Order has the stated purpose of "protect[ing] the American people from terrorist attacks by foreign nationals admitted to the United States."  Among its provisions are the restriction of "immigrant and nonimmigrant" entry of non-citizens from seven countries for 90 days, suspension of all refugee admission for 120 days, and indefinite prohibition of refugees from Syria.

     A.     Individuals Covered and Not Covered by the 90-day Ban

Section 3(c) of the Executive Order "suspend[s] entry into the United States, as immigrants and nonimmigrants" for 90 days of "aliens" from Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen.  Subject to certain exceptions, this suspension applies regardless of travel origin, type of visa, or U.S. immigration status. The Executive Order provides that the "the Secretaries of State and Homeland Security may, on a case-by-case basis, and when in the national interest, issue visas or other immigration benefits to nationals of countries for which visas and benefits are otherwise blocked."  Sec. 3(g).  The Executive Order also explicitly exempts only certain categories of visas for diplomats, NATO business, United Nations business (C-2), and international organization staff (G-1, G-2, G-3, G-4)).  Sec. 3(c). The Executive Order is drafted broadly enough to cover lawful permanent residents (i.e., green-card holders), and there are reports that in the first 36 hours of implementation, the CBP officers denied re-entry to such individuals.  However, on Sunday, January 29, the Department of Homeland Security ("DHS") announced that "absent significant derogatory information indicating a serious threat to public safety and welfare, lawful permanent resident status will be a dispositive factor in our case-by-case determinations" under Section 3(g) of the Order.[ii]  Since that announcement, reports from across the country suggest that such individuals are now being admitted under this discretionary authority, after extended screening upon arrival. The Executive Order also implicates dual citizens who are not U.S. citizens.  However, exactly how such individuals will be addressed by CBP is uncertain.  There are some indications that such individuals will be treated similarly to green-card holders--subject to increased scrutiny, but generally admitted.  However, admission appears to be discretionary, and, as of now, there is no clearly announced policy.  The United Kingdom Foreign Office announced on Sunday, January 29 that the United States is not applying the ban to individuals who are dual citizens of the United Kingdom and one of the banned countries, if such individuals are travelling from the United Kingdom.[iii]  On Monday, January 30, the U.S. Embassy & Consulates in the United Kingdom made a similar announcement, confirming that "[d]ual nationals of the United Kingdom and one of [the seven covered] countries are exempt from the Executive Order when travelling on a valid United Kingdom passport and U.S. visa."[iv]  In addition, various news outlets have reported--quoting Canadian government officials--that the United States is not applying the ban to individuals who are dual citizens of Canada and one of the banned countries.[v]  U.S. officials, however, have yet to make a similar announcement. U.S. citizens are not covered by the language of the Executive Order.  As described below, however, non-U.S. citizens from countries other than the seven covered countries may still be affected by the Executive Order's suspension of the Visa Interview Waiver Program.  Suspension of this program is likely to increase the time necessary for issuance of U.S. visas.

     B.     Other Provisions

A few other provisions of the Executive Order should also be noted, as they may hinder travel to the United States by those not directly affected by the country-specific ban.
  • The Executive Order suspends the Visa Interview Waiver Program, which allows those renewing certain types of visas to skip a consular interview under certain circumstances.  See Sec. 8(a).  This program is commonly used by low-risk travelers, including many employment-based visa applicants, in order to expedite the time in which visas are obtained for travel to the United States.  Suspension of this program is likely to slow, perhaps significantly, the process of renewing a visa, as it appears to impose a requirement that all visa applicants be interviewed in person.
  • The Executive Order requires the Secretary of State to review "all non-immigrant visa reciprocity agreements."  Sec. 9.  This raises the prospect that certain visas will be scaled back in the future, such as by reducing the number of allowed visits in a period or the length of an allowed stay under a visa.
  • The Executive Order suspends the U.S. Refugee Admissions Program for 120 days (Sec. 5), and indicates certain priority for religious minorities upon its limited resumption.  This is generally understood to apply to Christian refugees from Muslim-majority nations.
Finally, it is possible that the list of affected countries will expand after the 90-day ban period.  The Executive Order directs the DHS to submit for inclusion a list of any other countries that "do not provide adequate information" regarding admission of their citizens.  Sec. 3(b).  At the end of the 90-day period, DHS or the State Department may also "submit to the President the names of any additional countries recommended for similar treatment."  Sec. 3(f).

II.     Issues for Companies to Consider

There is no "one size fits all" approach for companies addressing employee and business issues related to the Executive Order.  In the immediate term, companies should consider preparing a uniform communications plan for their employees, particularly those who are or may be affected by the Executive Order.  Companies should also consider whether plans or policies are needed for travel by executives, employees, or other stakeholders.  Although this situation is fluid and continues to develop, as further described below, we believe companies should also be mindful of whether they will need to develop strategies to deal with the impact of the Executive Order, both internally and as it relates to potential shareholder and business relations. Specific questions that companies may want to consider with respect to the Executive Order include:
  • Outreach to employees who may be affected.  Although the administrative and judicial interpretation of the Executive Order continues to evolve, meaning that the full scope of individuals who may be affected is in flux, companies should consider proactively identifying and reaching out to all employees who may be affected.  As noted above, the Executive Order, on its face, applies to both immigrants and non-immigrants from the seven covered countries.  Thus, employees traveling for business or leisure may be equally affected.  In addition, as discussed above, there have been indications that lawful permanent residents may be subject to additional questioning when entering the United States from one of the seven covered countries, even if those individuals are not subject to detention.  Note that different employees' immigration statuses may compel differing guidance on how to approach any issues that arise in the enforcement of the Order.
  • Outreach to employees who may have family members affected.  It is important to remember that for some of your employees, even if they are not directly impacted by the Executive Order, they will have family and loved ones who are directly impacted.  We have received reports of many family members detained and separated from other family members upon arrival at an airport.  We have heard reports about family members traveling abroad who are now fearful of not being able to return home to reunite with a family member.  Companies may consider providing counseling and support for your employees who are facing these concerns.
  • Communicating with employees.  Companies should consider identifying employees who frequently travel to and from the affected countries or who are visa holders from affected countries, to explain company plans with respect to the Executive Order.  In particular, employees from affected countries who are currently outside the United States, but have a legal right to re-enter, should be advised to stay in communication with individuals in the United States about their travel plans, in the event they have difficulty re-entering the country, and have a plan to obtain appropriate assistance in that event.  For employees currently in the United States but who are from the affected countries or frequently travel to the affected countries, consider whether travel abroad is necessary before the full scope of enforcement of the Executive Order is known and understood.
  • Identifying a point of contact.  Consider identifying a contact point for any employee questions or concerns regarding the Executive Order.  Furthermore, ensure that this contact is prepared to field questions from affected or potentially affected employees, to discuss visa renewal or travel to and from the affected countries, and to refer employees with specific issues to the appropriate resources.
  • Communicating with shareholders, business partners and other stakeholders.  Companies should consider whether communications with shareholders, business partners or other stakeholders regarding potential impacts on business as a result of enforcement of the Executive Order are appropriate.
  • Modifying travel and meeting obligations.  Companies should consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company's business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have board members or executives affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.  Companies involved in pending litigations that may require employee travel to the United States, should consider seeking the advice of litigation counsel to determine what, if any, notice to the relevant court or parties may be advisable at this stage.
  • Reviewing non-discrimination policies.  Companies may wish to send reminders of applicable equal employment policies.  Many employers have included such statements in communications regarding the Order.  Companies may also wish to consider how their policies apply to employment and hiring decisions in light of travel restrictions.
This list addresses just some of the issues that companies will face in light of the Executive Order.  Gibson, Dunn & Crutcher's lawyers, including its employment, securities, administrative law, constitutional law, and sanctions teams, are available to assist clients with navigating these and other issues that arise with respect to enforcement of the Order.

III.     District Court Orders Blocking Implementation of the Executive Order

As of the morning of January 30, three district courts--in New York, Massachusetts, and Virginia--have issued orders of varying general applicability temporarily (a) halting deportations resulting from the Executive Order and (b) providing certain other relief.  Other federal courts, including those in the Central District of California and the Western District of Washington have issued relief specific to individual applicants.

     A.     Nationwide Stay of Removal--Darweesh v. Trump, No. 17 Civ. 480 (AMD) (E.D.N.Y. Jan. 28, 2017).

On Saturday, January 28, two visa holders of Iraqi origin detained at JFK Airport in New York filed suit relief on behalf of themselves and others similarly situated, along with a petition for writ of habeas corpus.  They also asked the court for an emergency stay of removal of similarly situated people nationwide. Judge Ann Donnelly of the Eastern District of New York granted relief that evening, enjoining the President, DHS, CBP, and other respondents from removing (i) refugees, (ii) visa-holders, and (iii) individuals from the nations affected by the Executive Order. The court found that the petitioners--two individuals who were detained at JFK, along with all others similarly situated--"have a strong likelihood of success" with respect to their Due Process and Equal Protection challenges to the Executive Order.  The court also found that, absent the stay, there was an "imminent danger that . . . there will be substantial and irreparable injury" to those subject to the Executive Order. On Sunday, January 29, petitioners filed a motion for clarification and enforcement of the order.  The motion cited reports that similarly situated people "have been placed on planes, possibly deported, and subject to intimidation to sign removal orders after the issuance of the Court's Order."  Among other things, petitioners seek confirmation that the court's order applies to all similarly situated people nationwide. On Monday, January 30, the case was assigned to Judge Carol Bagley Amon.

     B.     Nationwide Stay of Removal and Detention --Tootkaboni v. Trump, No. 17-cv-10154 (D. Mass. Jan. 29, 2017). 

On Saturday, January 28, two lawful permanent residents of Iranian origin who were detained at Logan Airport in Boston filed a similar action for relief, and also applied for an emergency stay on a nationwide basis. Early Sunday, Judge Allison D. Burroughs and Magistrate Judge Judith Dein of the District of Massachusetts issued a temporary restraining order ("TRO") prohibiting removal and detention of those subject to the Executive Order (i.e., refugees, visa-holders, and individuals from the affected nations).  The court made the same findings as the Darweesh Court, described above.  The TRO is in effect for seven days, with the court to set a further hearing date prior to its expiration. The court also directed respondents to limit secondary screening--an airport security measure that some critics have associated with profiling--to comply with the regulations and statutes in effect prior to the Executive Order, including 8 U.S.C. § 1101(a)(13)(C), the statute providing the standards by which a lawful permanent resident may be regarded as "seeking admission" into the United States.  The court also issued instructions to CBP, apparently intended to address the issue of airlines turning away passengers on international flights destined for Logan Airport, stating that CBP "shall notify airlines that have flights arriving at Logan Airport of this Order and the fact that individuals on these flights will not be detained or returned based solely on the basis of the Executive Order."

     C.     Stay of Removal of Lawful Permanent Residents at Dulles--Mohammed Aziz v. Trump, No. 1:17-cv-116 (E.D. Va. Jan. 28, 2017)

On Saturday, January 28, two brothers of Yemeni origin detained at Dulles International Airport filed an emergency application seeking a stay of removal on behalf of themselves as lawful permanent residents and others similarly situated at that same airport, as well as seeking access to counsel. Judge Leonie M. Brinkema of the Eastern District of Virginia issued a TRO forbidding removal of any lawful permanent residents from Dulles for seven days.  The court also directed that respondents "shall permit lawyers access to all legal permanent residents being detained at Dulles International Airport." On January 30, petitioners filed a First Amended Complaint, adding new allegations that they were coerced into surrendering their green cards and then flown to Addis Ababa airport in Ethiopia.[vi]

     D.     Other Court Actions and Orders

Individuals seeking relief on an individual basis only, and not on behalf of others similarly situated, have sought habeas corpus and/or other relief in a number of other district courts with jurisdiction over relevant international airports. For instance, on Saturday, January 28, a visa holder of Iranian origin detained at LAX in Los Angeles filed suit in the Central District of California, seeking habeas corpus, declaratory, and injunctive relief.  See Vayeghan v. Kelly, No. CV 17-0702 (C.D. Cal. Jan. 28, 2016).  Before the court could consider the emergency application for a TRO, however, "he was placed on a flight to Dubai to be removed to Iran."  But Judge Dolly M. Gee issued a TRO on January 29, directing respondents to "transport Petitioner back to the United States and admit him under the terms of his previously approved visa."  The court found, among other things, "a strong likelihood of success" on the petitioner's claims under the Equal Protection Clause, Establishment Clause, and Immigration and Nationality Act, and also pointed to "the public interest in upholding constitutional rights."  The court set a hearing to show cause regarding preliminary injunctive relief for Friday, February 10. On Saturday, January 28, Judge Thomas S. Zilly of the Western District of Washington granted an emergency stay of removal with respect to two petitioners being detained at Seattle-Tacoma International Airport.  A full hearing on the stay is set for Friday, February 3.  The matter is Doe v. Trump, No. C17-126 (W.D. Wash. Jan. 28, 2017). In addition, there are at least two broad-based suits being filed today.  First the Council on American-Islamic Relations ("CAIR") has filed suit in the Eastern District of Virginia, focusing on the Executive Order's "apparent purpose and underlying motive . . . to ban people of the Islamic faith from Muslim-majority countries from entering the United States."[vii]  The case  raises challenges under the Establishment, Free Exercise, and Due Process Clauses, and seeks broad injunctive relief against most aspects of the Executive Order restricting travel to the United States.  See Sarsour v. Trump, No. 1:17-cv-00120 (E.D. Va. Jan. 30, 2017).  Second, the attorney general of Washington State has announced he will file a suit in the Western District of Washington, also seeking to have key provisions declared unconstitutional and requesting injunctive relief.[viii] Finally, we are aware of other actions being filed in the Northern District of Illinois (Chicago O'Hare International Airport); the Northern District of California (San Francisco International Airport); the Central District of California (LAX); and the Northern District of Texas (Dallas-Fort Worth International Airport).  Additionally, there are at least fifteen actions pending in the Eastern District of New York, including the Darweesh matter discussed above.

IV.     On-the-Ground Observations at Airports Nationwide

Although deportations appear to have stopped and DHS has indicated it will comply with the court orders described above, reports from airport observers indicate that confusion continues regarding the implementation of the Executive Order and compliance with these court orders.  The Administration, however, has contradicted these reports, but has acknowledged that some individuals were affected and slowed down in their travel.[ix] Attorneys at various airports around the country have reported denial of access to detainees.  Despite court orders mandating attorney access to potential clients, CBP has reportedly refused to allow some detainees to speak in person with counsel.[x]  Other lawyers have reported that CBP has been averse to inquiries for information.  In Los Angeles, for example, CBP closed its airport office, making it difficult to determine the number, identity, and legal status of potential detainees. Detainees have reported extensive examinations and confiscations of luggage and personal belongings.[xi]  Multiple reports circulated detailing investigations into detainees' social media accounts and corresponding questioning regarding personal religious beliefs and political views, particularly related to President Trump and his administration.  Some detainees stated that individuals wearing headscarves were targeted for additional vetting.  Wait times varied widely, from half a day or longer to an hour or less.  There have also been reports that some detainees have been pressured into renouncing their lawful status under threat of being banned from re-entry for up to five years.[xii] Finally, many individuals have reported undergoing more rigorous screening at the point of embarkment.  As part of that process, individuals may be denied permission to board if there is an expectation they will not be admitted to the United States upon arrival.[xiii]

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The issues described in this Client Alert are rapidly changing.  Gibson Dunn is dedicated to staying at the forefront of these issues for the benefit of our friends and clients, and will update you with significant developments.
[i] U.S. State Dept., "Urgent Notice: Executive Order on Protecting the Nation from Terrorist Attacks by Foreign Nationals," Jan. 27, 2017 (https://uy.usembassy.gov/urgent-notice-executive-order-protecting-nation-terrorist-attacks-foreign-nationals/). [ii] U.S. Dept. of Homeland Security, "DHS Statement On Compliance With Court Orders And The President's Executive Order," Jan. 29, 2017 (https://www.dhs.gov/news/2017/01/29/dhs-statement-compliance-court-orders-and-president%E2%80%99s-executive-orders). [iii] U.K. Foreign & Commonwealth Office, "Press Release, Presidential Executive Order on Inbound Migration to United States," Jan. 29, 2017 (https://www.gov.uk/government/news/presidential-executive-order-on-inbound-migration-to-us). [iv] U.S. Embassy in Norway, "Updated Guidance on Executive Order on Protecting the Nation from Terrorist Attacks by Foreign Nationals," Jan. 30, 2017 (https://no.usembassy.gov/updated-guidance-executive-order-protecting-nation-terrorist-attacks-foreign-nationals/). [v] See, e.g., Daniel Dale & Emily Mathieu, "Canadian dual citizens exempted from Trump's travel ban," Toronto Star, Jan. 28, 2017 (https://www.thestar.com/news/world/2017/01/28/passport-holders-of-7-muslim-majority-countries-cant-board-air-canada-flights-to-us.html). [vi] As of Sunday night, it is unclear how the matters in Massachusetts and Virginia, brought by lawful permanent residents, are affected by DHS's statement on January 29 that "the entry of lawful permanent residents is in the national interest." [vii] Council on American-Islamic Relations, "CAIR to Announce Constitutional Challenge to Trump's 'Muslim Ban' Executive Order," Jan. 27, 2017 (https://www.cair.com/cair_to_announce_constitutional_challenge_to_trump_s_muslim_ban_executive_order). [viii] KOMO Staff, "State attorney general to file lawsuit against Trump immigration order," KOMO News, Jan. 30, 2017 (http://komonews.com/news/local/state-attorney-general-plans-major-announcement-on-trump-immigration-plan). [ix] E.g., Berkeley Lovelace Jr, "White House spokesman Sean Spicer says immigration ban 'small price to pay' for safety," CNBC, Jan. 30, 2017 (http://www.cnbc.com/2017/01/30/white-house-spokesman-sean-spicer-immigration-ban.html). [x] See, e.g., Edward Helmore, et al., "Border agents defy courts on Trump travel ban, congressmen and lawyers say," Guardian, Jan. 29, 2017 (https://www.theguardian.com/us-news/2017/jan/29/customs-border-protection-agents-trump-muslim-country-travel-ban). [xi] See, e.g., Nadel Issa, et al., "As hundreds protest, attorneys seek info on how many are detained," Chicago Sun-Times, Jan. 29, 2017 (https://chicago.suntimes.com/2017/1/30/18478614/as-hundreds-protest-attorneys-seek-info-on-how-many-are-detained). [xii] See, e.g., Joseph Goldstein, et al., "Lives Rewritten With the Stroke of a Pen," New York Times, Jan. 29, 2017 (https://www.nytimes.com/interactive/2017/01/29/nyregion/detainees-trump-travel-ban.html?_r=0). [xiii] See, e.g., Evan Perez, et al., "Inside the confusion of the Trump executive order and travel ban," CNN, Jan. 30, 2017 (http://www.cnn.com/2017/01/28/politics/donald-trump-travel-ban/).
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass - San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion - New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer - San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis - Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler - Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk - Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz - Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director - New York (+1 212-351-5261,kmarquart@gibsondunn.com) Samuel A. Newman - Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz - Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick - Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 27, 2015 |
2014 Year-End Transnational Litigation Update

2014 was a watershed year for transnational litigation in United States courts.  Rulings by the United States Supreme Court and several United States courts of appeals dramatically reshaped the circumstances under which foreign defendants are subject to general personal jurisdiction, further developed the standards for extraterritorial application of United States laws, and provided important guidance on the scope of sovereign immunity and application of the Foreign Sovereign Immunities Act ("FSIA") to commercial disputes.  The year also saw major developments in the long-running, multifaceted global battle among Chevron Corporation, Ecuador, and United States and Ecuadorian lawyers, as well as in the litigation between Argentina and NML Capital, Ltd., and Yukos Capital and Samaraneftegaz.  In 2014, global litigants also continued to expand their use of 28 U.S.C. § 1782 ("Section 1782") to deploy expansive United States discovery tools in support of foreign disputes.  In response, federal courts have issued key rulings regarding the types of proceedings Section 1782 applies to, the effect of foreign laws protecting privacy and secrecy, and a court's power to compel production of documents stored outside the United States.  In this review, we discuss and analyze the bellwether transnational litigation actions involving these companies, as well as other developments in transnational litigation from 2014 that will be most significant to companies with cross-border operations and involved in transnational disputes.  For ease of reference, we have included hyperlinks to each Part of the alert in this Executive Summary. Part I:  Over the past year, Daimler AG v. Bauman[1] has served to redefine the circumstances under which foreign defendants are subject to general personal jurisdiction in the United States.  Part I of this alert addresses Daimler and how it has been applied. Part II:  The year saw dramatic decisions in cases of transnational attempts to defraud U.S. defendants, including Chevron Corporation's successful RICO suit against the purveyors of what the Wall Street Journal called the legal "fraud of the century."  This section also discusses Laguna v. Dole Food Co., Inc.,[2] a California Court of Appeal decision affirming dismissal of a case that had produced a multi-million dollar judgment as a sanction for the Nicaraguan-based fraud on the court perpetrated against Dole Food Co. and other United States corporations. Part III:  Whether and when United States law can be applied extraterritoriality (and what that means) continues to be the focus of significant litigation.  Part III addresses the latest development of the standards for extraterritorial application of United States laws as first articulated in Morrison v. National Australian Bank Ltd,[3] including 2014's important guidance on the scope of sovereign immunity and the FSIA's application to commercial disputes. Part IV:  2014 saw significant activity in the foreign judgment and arbitral award enforcement and defense arena. Part V:  Recent developments in transnational judgment collection are addressed in this section, including an overview of NML Capital, Ltd.'s long-running effort to collect $1.8 billion in judgments against the Republic of Argentina and the groundbreaking enforcement of important arbitral awards, including the awards arising out of the complex, decade-long Yukos Oil Company dispute. Part VI:  This section addresses developments in transnational discovery, including Section 1782.  In 2014, global litigants continued to expand their use of Section 1782 to deploy expansive United States discovery tools in support of foreign disputes.  In response, federal courts have issued key rulings regarding the types of proceedings Section 1782 applies to, the effect of foreign laws protecting privacy and secrecy, and a court's power to compel production of documents stored outside the United States.

Part I:  Daimler AG v. Bauman:  Developments in Personal Jurisdiction Over Foreign Entities

The Supreme Court's January 2014 decision in Daimler AG v. Bauman,[4] reduced the accessibility of United States courts to plaintiffs bringing actions against foreign corporations.  In Daimler, the Court unanimously held that a foreign corporation with no employees or facilities in the United States could not be subject to personal jurisdiction based on the activities of its agent, an indirect corporate subsidiary, in the forum state. In Daimler, which was argued at the Supreme Court by Gibson Dunn's Thomas H. Dupree Jr., the Court unanimously held that even if the extensive California-based conduct of an indirect subsidiary, including multiple physical facilities and a position as the leading supplier of luxury vehicles in the California market, were imputed to the foreign parent corporation (Daimler AG), they did not subject Daimler AG to general personal jurisdiction in California because that conduct was "slim" when compared to its worldwide operations, and thus was insufficient to render it "at home" in California. Plaintiffs sued Daimler AG (a German corporation) in California district court for an alleged wrong that related to an Argentine subsidiary and occurred in Argentina, arguing that jurisdiction was appropriate because Mercedes-Benz USA, another indirect corporate subsidiary, distributed Daimler AG-manufactured vehicles in California.  After the district court dismissed for lack of personal jurisdiction, the Ninth Circuit affirmed, but then reversed itself en banc.  In a 9-0 decision in which all but one justice joined the majority opinion (Justice Sotomayor concurred), the United States Supreme Court reversed:  "Exercises of personal jurisdiction so exorbitant, we hold, are barred by due process constraints on the assertion of adjudicatory authority."[5]  Instead, general jurisdiction over a defendant could exist only when that entity's "affiliations with the State are so 'continuous and systematic' as to render [it] essentially at home in the forum State."[6]  With regard to corporations, the Court identified the "paradigm" bases for general jurisdiction as "the place of incorporation and the principal place of business."[7]  The Court also considered jurisdictional principles from other countries, concluding that:  "Considerations of international rapport thus reinforce our determination that subjecting Daimler to the general jurisdiction of courts in California would not accord with the 'fair play and substantial justice' due process demands."[8] In the transnational context, Daimler's impact has been immediate in two primary ways, by (1) narrowing the circumstances under which general jurisdiction will be found over foreign corporations and (2) placing greater emphasis on the importance of addressing international comity concerns before exercising jurisdiction.

How Daimler Has Been Interpreted and Implemented

Marking a significant development in transnational litigation, multiple courts applying Daimler over the past year have found that they did not have personal jurisdiction over foreign defendants in transnational and multi-jurisdictional suits.[9] For example, the Southern District of Texas explicitly recognized that Daimler narrowed the courts' ability to exercise personal jurisdiction when it noted that while a foreign company's contacts with Texas would have previously been sufficient for general jurisdiction, Daimler's "even more stringent test" rendered them insufficient.[10] In Sonera Holding B.V. v. Cukurova Holding A.S., the Second Circuit interpreted Daimler as reaffirming "that general jurisdiction extends beyond an entity's state of incorporation and principal place of business only in the exceptional case."[11]  Sonera Holding involved a judgment enforcement suit against a Turkish holding company registered in Turkey.  The defendant did not conduct any operations or own any property in New York or the United States.  The plaintiff argued that general jurisdiction should exist nonetheless because the defendant and its affiliates had engaged in some transactions with United States businesses, among other limited activities within the United States.  The district court held that these contacts were sufficient to create personal jurisdiction.  The Second Circuit reversed and remanded the decision. After determining that New York law would control the issue of personal jurisdiction, the court held that "even a company's 'engage[ment] in a substantial, continuous, and systematic course of business' is alone insufficient to render it at home in a forum."[12]  The defendant and its affiliates' United States conduct did "not come close to making" the defendant "at home" in New York.[13]  The court also cautioned that "Daimler's gloss on due process" may lead New York courts to reevaluate the "doing business" standard for personal jurisdiction under New York law.[14] Following Daimler, courts have also generally declined to follow the Ninth Circuit's agency theory for obtaining general personal jurisdiction.[15]  Indeed, Daimler was initially brought to the Court on a challenge to the Ninth Circuit's "agency" theory of jurisdiction, whereby it imputed the forum-contacts of a subsidiary to the parent where the subsidiary conducted "important" affairs of the parent.  While the Supreme Court ruled that it was unnecessary to reach the agency question, it indicated in dicta that this theory was not valid. [16] While application of Daimler has helped deter several transnational suits with suspect United States connections, it is not a complete bar to transnational suits. Deciding a motion for reconsideration filed after the issuance of Daimler, the District of Minnesota held that it could still assert general jurisdiction over a foreign parent company on the basis of its subsidiary's location and substantial contacts to the forum.[17]  In Barriere v. Juluca, the Southern District of Florida determined that an Anguillan-based corporation was "at home" in Florida based on the maintenance of an in-state sales office, and the substantial activities of the company's agents in the state.[18]  The district court recognized that "Daimler has undoubtedly limited the application of general jurisdiction to foreign defendants," but distinguished the case at hand because, unlike in Daimler, there was "no 'absence' of a Florida connection to the injury, perpetrator, or victim."[19]  The court held that the denial of personal jurisdiction would "effectively deprive American citizens from litigating in the United States for virtually all injuries that occur at foreign resorts maintained by foreign defendants."[20] Interestingly, a second Southern District of Florida decision distinguished Barriere in a case involving a similar set of facts, finding no general jurisdiction over the foreign company.  In Aronson v. Celebrity Cruises, Inc., the court focused on the fact that, unlike in Barriere, there was no "sustained and direct contact with the state" such as an in-state office or telephone number.[21]  The court noted that the fact-specific nature of the general jurisdiction analysis "ha[d] led to some seemingly inconsistent results in this district."[22] And, because Daimler has been interpreted as principally being a case about general jurisdiction, at least one court has held that it did not prohibit finding specific personal jurisdiction based on a theory of agency.  Distinguishing Daimler on the basis that it did not address the viability of establishing specific personal jurisdiction through an agency theory, in In re Chinese-Manufactured Drywall Products Liability Litigation, the Fifth Circuit upheld the exercise of specific jurisdiction over a foreign manufacturer and its subsidiary,[23] allowing the subsidiary's contacts with the forum to be imputed to the manufacturer for the purpose of finding specific jurisdiction.[24]  Likewise, the District Court for the Northern District of California distinguished Daimler in In re Cathode Ray Tube (CRT) Antitrust Litigation, holding that the exercise of personal jurisdiction over a Chinese company manufacturing cathode ray tubes (CRTS) where there was specific personal jurisdiction was reasonable under the circumstances.[25] Back to Top

Part II:  Vindicating the Rule of Law in the Face of Transnational Fraud Targeting United States Companies

In 2014, U.S.-based multinational companies successfully litigated in United States courts to vindicate the rule of law against fraud and corruption directed at them by plaintiffs' lawyers from the U.S. and overseas.  Gibson Dunn was counsel for the companies involved in two of the most significant cases related to this issue, representing Chevron Corporation and Dole Food Company, Inc. On March 4, 2014, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York entered judgment for plaintiff Chevron in Chevron Corp. v. Donziger et al., Case No. 11-cv-0691.  The court found that the U.S. lawyer who masterminded a $9.2 billion judgment against the company in Ecuador did so "by corrupt means," and in the process violated U.S. federal laws prohibiting attempted extortion, wire fraud, money laundering, witness tampering, and obstruction of justice, as well as the Foreign Corrupt Practices Act.  The court entered judgment for Chevron and imposed equitable relief designed to ensure that "the defendants here may not be allowed to benefit from [the Ecuadorian judgment] in any way."  Calling the case "extraordinary" and "includ[ing] things that normally come only out of Hollywood," the court's 485-page opinion detailed the evidence against U.S. plaintiff's lawyer Steven Donziger and his team, finding that "[t]he wrongful actions of Donziger and his Ecuadorian legal team would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador -- and they knew it.  Indeed, one Ecuadorian legal team member, in a moment of panicky candor, admitted that if documents exposing just part of what they had done were to come to light, 'apart from destroying the proceeding, all of us, your attorneys, might go to jail.'"  The court determined that Donziger and his team even "wrote the [Ecuadorian] court's Judgment themselves and promised $500,000 to the Ecuadorian judge to rule in their favor and sign their judgment."  "If ever there were a case warranting equitable relief with respect to a judgment procured by fraud," the court concluded, "this is it." The decision follows a six-week trial and represents a major victory for Chevron in its multi-pronged response to the long-running purported environmental litigation emanating from Ecuador known as the Lago Agrio litigation.  Gibson Dunn represented Chevron in the closely watched case.  Chevron has long maintained that the proceedings in Ecuador were marred by fraud on the part of the plaintiffs' lawyers, as well as corruption and collusion between the Lago Agrio plaintiffs ("LAPs"), the Ecuadorian court, and the Ecuadorian government.  As a consequence, Chevron sued the plaintiffs' lawyers and other agents in the Southern District of New York under the federal RICO statute and other laws.  The decision vindicates Chevron's claims of fraud and corruption and sends a powerful message to U.S. and other lawyers tempted to capitalize on the weaknesses of foreign judicial systems to attempt to extract payoffs from U.S. companies.  At the same time, it forcefully supports international efforts to promote the rule of law. During the trial, Chevron presented overwhelming and virtually uncontested evidence that Donziger and his co-conspirators had procured the judgment through bribery and fraud, including forging expert reports, hiring Ecuadorian engineers to pose as "neutral" monitors to influence the Ecuadorian court, hiring consultants in the U.S. to ghostwrite the damages report of a purportedly neutral court-appointed "special master" (Richard Cabrera), and bribing the Ecuadorian judge who issued the decision (Nicolás Zambrano) to permit them to ghostwrite the decision in their favor.  Chevron's evidence of the ghostwriting included verbatim quotations from the LAPs' internal work product that appeared on dozens of pages of the judgment.  "These documents never were filed with the Lago Agrio court or made part of the official case record," the court noted, and "Defendants utterly failed to explain how or why their internal work product -- their 'fingerprints' -- show up in the Judgment." Chevron also called as a witness former Ecuadorian judge Alberto Guerra, who testified that he had long served as Judge Zambrano's paid ghostwriter, including in the case against Chevron.  Guerra produced bank deposit slips and other evidence of payments from the LAPs.  He also testified that he had served as a middle-man, conveying Judge Zambrano's bribe solicitation to the LAPs, who accepted it, and then editing their draft of the judgment, which Judge Zambrano then issued as if it were his own.  Donziger called Judge Zambrano as a witness, who denied the bribery scheme, but admitted that Judge Guerra had been his ghostwriter.  Chevron also presented evidence that when Chevron sought discovery from the LAPs' attorneys and consultants in U.S. courts, Donziger and his co-conspirators engaged in a campaign of obstruction to prevent the truth from emerging, filing false affidavits in U.S. courts and tampering with witnesses.  Chevron also presented evidence that Donziger and his co-conspirators had engaged in an improper pressure campaign against Chevron, propagating numerous falsehoods based on their fabricated evidence in the press and to various state and federal agencies in an attempt to extort a settlement from Chevron. In rendering its decision in favor of Chevron, the court noted that "[t]he transnational elements of the case make it sensitive and challenging," but concluded based on the extensive evidentiary record that Donziger was liable under RICO for operating a racketeering enterprise that committed numerous federal crimes, including:
  • Extortion.  The court found that Donziger engaged in two categories of conduct to pressure Chevron to settle the Ecuadorian lawsuit:  corrupt conduct in the Ecuadorian lawsuit itself, and the mounting of a public pressure campaign against the company based on false statements to the media, to U.S. regulatory and prosecutorial agencies, and criminal prosecutions of Chevron lawyers in Ecuador.
  • Obstruction of Justice and Witness Tampering.  The court found that Donziger committed various acts of obstruction of justice and witness tampering to prevent disclosure of the fraud in U.S. discovery proceedings, including filing a false declaration in the name of Donziger's co-conspirator and Ecuadorian counsel for the LAPs, Pablo Fajardo, in at least 17 U.S. district courts:  "Donziger's conduct with respect to the Fajardo Declaration was obstruction of justice, plain and simple."  The court also held that Donziger had engaged in witness tampering by attempting to influence the testimony of Mark Quarles, a former environmental consultant for the LAPs, in related litigation between Chevron and the Republic of Ecuador in the U.S.  The court found that "[a]lthough Donziger knew that the statements he sought to have Quarles make were false, he urged Quarles to adopt them to prevent exposure of the truth regarding Cabrera and to mislead the court.  Donziger's effort to influence Quarles's testimony constitutes witness tampering."
  • The Travel Act and Foreign Corrupt Practices Act ("FCPA").  The court held that Donziger and his co-conspirators' scheme to bribe Cabrera violated the Travel Act because Donziger used a facility of interstate or foreign commerce in furtherance of violations of the FCPA by payment of bribes to Cabrera.  The court found that "[a]ll of the circumstances -- including the fact that a court-approved payment process existed but that the LAP team secretly paid Cabrera outside of that process, used a secret account to do so, worried in emails about whether any of the money should go through Yanza's personal account even temporarily, and used code names as they did it -- indicate that the secret payments were illegal or at least improper, that the LAP team knew that, and that they attempted to conceal their payments."
  • Wire Fraud and Money Laundering.  The court found that Donziger engaged "in a number of deceitful schemes" in order to extract payment from Chevron, "each of which was furthered by use of the wires."  The court also held that the record "contains persuasive evidence" of a number of money laundering offenses, including the solicitation of funding for use in making secret payments to Cabrera.
The court also held that the evidence showing that Donziger's team had written the Ecuadorian judgment, not Judge Zambrano, was "overwhelming and unrefuted."  In support of this finding, the court noted that with respect to the overlap between the LAPs' internal work product and the judgment, "[t]here is no plausible explanation for their presence in the Judgment except that whoever wrote the Judgment copied parts of them."  The court found that Judge Zambrano, who was unable to remember even the most significant aspects of the 188-page judgment that he claimed to have authored, was "a remarkably unpersuasive witness."  In addition, the court held that former judge Guerra's testimony was credible, determining that Guerra "told the truth regarding the bribe and the essential fact as to who wrote the Judgment.  The court is convinced that the LAPs bribed Zambrano and wrote the Judgment in their favor." Defendants' appeal is pending before the Second Circuit. Also, in March of 2014 the California Court of Appeal unanimously affirmed dismissal of a case against Gibson Dunn client Dole Food Company as a "fraud on the court" perpetrated by U.S. and Nicaraguan plaintiffs' lawyers.  Captioned Rojas Laguna v. Dole Food Company, Case No. BC233497, the appeal affirmed a trial court ruling in Tellez v. Dole Food Company, Los Angeles Superior Court, Case No. BC312852, where the court found that U.S. and Nicaraguan plaintiffs' lawyers had "coached their clients to lie about working on banana farms, forged work certificates to create the appearance that their clients had worked on Dole-contracted farms, and faked lab results" as part of a scheme to obtain the judgment against Dole.  In the 25-page appellate decision, the court of appeal found no "valid ground" to disturb the trial court's ruling "that plaintiffs and their counsel committed a fraud on the court by presenting false evidence and testimony." Tellez originally went to trial in 2007 and resulted in a multi-million dollar verdict against Dole, in favor of Nicaraguan plaintiffs claiming injuries from pesticide exposure on Dole-contracted farms in the late 1970s.  The U.S. and Nicaraguan plaintiffs' lawyers handling the case pitched it as a watershed win for U.S. plaintiffs' lawyers, who brought cases in the United States and Nicaragua and obtained billions in Nicaraguan judgments.  It was meant to open the floodgates to additional verdicts and suits. The decision from the court of appeal was the culmination of years of effort by Dole to have the Tellez proceedings re-opened and dismissed for plaintiff fraud, based on a rarely used procedure known as a petition for writ of error coram vobis.  Shortly after the Tellez judgment, Dole, represented by Gibson Dunn, exposed evidence in the related case Mejia v. Dole Food Company, Los Angeles Superior Court, Case No. BC340049, showing that the Tellez claims resulted from what the court found to be a wide-reaching fraudulent scheme perpetrated by U.S. and Nicaraguan lawyers.  Based on this evidence from Mejia--which, according to the trial court, showed a "heinous conspiracy" "to defraud th[e] court, to extort money from the defendants, and to defraud the defendants"--Dole successfully petitioned the Court of Appeal and the trial court to re-open the Tellez proceedings, after final judgment and while the case was pending appeal.  This petition paved the way for a year-long evidentiary process, where, as the Court of Appeal recounted, Dole showed by clear and convincing evidence that the Tellez plaintiffs and their counsel perpetrated fraud on the court by:
  • "[i] recruiting persons who had never worked on banana farms as would be plaintiffs,
  • [ii] coaching plaintiffs to lie about their work on banana farms,
  • [iii] submitting false work certificates,
  • [iv] falsifying sterility by submitting fraudulent laboratory reports and concealing children fathered by plaintiffs, and
  • [v] interfering with witnesses and investigators by threats, intimidation, and tampering."
In affirming these findings, the Court of Appeal held that the Tellez plaintiffs "raise no sufficiency of the evidence challenge with regard to the relevant findings in this case that they too committed a fraud on the court by submitting false testimony, fraudulent declarations and work certificates, and fraudulent laboratory reports as part of the fraudulent scheme orchestrated by their attorneys."  The Court held that Dole met the legal requirements for the "drastic remedy" of relief from a final judgment based on a petition of writ of error coram vobis. Back to Top

Part III:  Morrison v. National Australia Bank:  Limiting the Extraterritorial Reach of Federal Statutes

In 2014, courts continued to apply the Supreme Court's landmark decision in Morrison v. National Australian Bank Ltd. to limit the extraterritorial application of federal statutes. Morrison involved claims brought under Section 10(b) of the Securities Exchange Act of 1934 by foreign purchasers of the stock of a foreign company on a foreign stock exchange.[26]  Under preexisting case law in the federal courts of appeals, whether Section 10(b) applied was generally considered a jurisdictional question resolved with reference to a variety of tests designed to determine whether enough conduct had occurred in the United States or significant enough effects were felt in the United States to justify applying the statute.[27]   Morrison displaced those inquiries. Morrison reaffirmed that the extraterritoriality analysis turns on the statutory text, which must be read in light of the presumption against extraterritoriality.  Thus "[w]hen a statute gives no clear indication of an extraterritorial application, it has none."[28] If a statute does not overcome the presumption against extraterritoriality with such a "clear indication," the only remaining question is whether the asserted application of the statute at issue is extraterritorial, and thus impermissible.[29]  This analysis depends on "the focus of congressional concern" behind the statute at issue.[30]  The Morrison plaintiffs had alleged that the fraud at issue in the case had taken place in Florida, but the Court ruled that this connection to the United States was insufficient to permit application of Section 10(b).  After examining the statutory text, the Court concluded that Section 10(b) only prohibits deceptive conduct "in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered," meaning that Congress' focus was "not upon the place where the deception originated, but upon purchases and sales of securities in the United States."[31]  In other words, "deception with respect to certain purchases or sales is necessary for a violation of the statute."[32]    The Court, therefore, held that Section 10(b) applies only to "the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States."[33]

        1.   Developments in the Extraterritorial Reach of the Alien Tort Statute: Kiobel v. Royal Dutch Shell Petroleum Co.

In the 2013 landmark case, Kiobel v. Royal Dutch Shell Petroleum Co., the Supreme Court held that, consistent with the presumption set forth in Morrison (that a statute without a clear indication of extraterritorial application has none), the ATS presumptively does not apply to extraterritorial activity.[34]  Twelve Nigerian nationals residing in the United States sued Dutch, British and Nigerian corporations pursuant to the ATS, alleging that the corporations aided and abetted the Nigerian Government in committing violations of the law of nations in Nigeria, including state-sponsored torture and murder.[35]  While noting that the ATS was "strictly jurisdictional" and "does not directly regulate conduct or afford relief," the Court held that the statute was nonetheless subject to the canon of statutory interpretation known as the presumption against extraterritorial application.[36]  That canon provides that "[w]hen a statute gives no clear indication of an extraterritorial application, it has none,"[37] and reflects the "presumption that United States law governs domestically but does not rule the world."[38]   The Court noted that international comity concerns "implicated in any case arising under the ATS, are all the more pressing when the question is whether a cause of action under the ATS reaches conduct within the territory of another sovereign."[39]  Finding that the ATS did not indicate extraterritorial application sufficient to overcome the presumption, the Court concluded that, "there is no indication that the ATS was passed to make the United States a uniquely hospitable forum for the enforcement of international norms,"[40] and held that violations of the ATS occurring outside the United States be shown to "touch and concern the territory of the United States . . . with sufficient force,"[41] for the claim to survive. While just a year and a half has passed since Kiobel, its effects have been immediate.   The case has been a basis for dismissing ATS actions in a number of circuit courts.  In Chowdhury v. Worldtel Bangladesh Holding, Ltd., the Second Circuit pointed to the Kiobel court's comment that "all the relevant conduct took place outside the United States," barring the plaintiffs' case for violations of the law of nations, the body of customary international law.[42]  On those grounds, the court overturned the plaintiff's favorable jury verdict as to their ATS claims because all of the relevant conduct in the case occurred in Bangladesh.[43]  The Eleventh Circuit used similar language to dismiss a claim where the plaintiffs alleged violations of the ATS, but where the conduct in question occurred in Colombia.[44]  They also pointed out that the defendant's nature as a corporation is not enough to overcome the presumption against extraterritoriality.[45]  In Mujica v. AirScan Inc., the Ninth Circuit also made clear that the defendants' status as United States corporations did not alone provide a sufficient nexus.[46]  They stated that there needed to be sufficient conduct occurring in the United States, agreeing explicitly with the Eleventh and Second Circuits on their interpretation of Kiobel.[47]  Although the cases above have had dissenting opinions taking a different opinion of extraterritoriality, the overall trend in the Circuit courts has been to deny plaintiffs' claims under the ATS unless a sufficient nexus to the United States is shown.[48] While Kiobel may have put ATS actions on life-support in certain Circuits, it is too early to call the death of extraterritorial ATS actions.  In June 2014, a unanimous panel of the United States Court of Appeals for the Fourth Circuit overturned a lower court's dismissal of an action brought by four former Iraqi detainees against defense contractor, CACI International, Inc., claiming the United States defense contractor's employees directed their torture in the Abu Ghraib prison.[49]  Writing for the panel, Judge Keenan concluded that the district court erred in finding it lacked jurisdiction because the alleged abuses occurred on foreign soil.[50]   Judge Keenan explained that the plaintiffs had alleged sufficient connection to the United States, including CACI having won permission and security clearance from the United States government to conduct the interrogations and the alleged acquiescence in the misconduct of CACI managers based in the United States, to "require a different result than that reached in Kiobel."[51]  The Court of Appeals then remanded the case to the district court that had originally dismissed the action.[52]

        2.   Developments in the Extraterritorial Reach of Section 10(b) Securities Act Claims

City of Pontiac Policemen's & Firemen's Retirement System v. UBS AG continued Morrison's trend of further restricting the extraterritorial application of the United States securities laws and signaled the continued limitation on the use of the United States securities laws exclusively to securities that are traded on United States exchanges.[53] In City of Pontiac, the Second Circuit, in an issue of first impression, addressed the application of United States securities laws to foreign securities cross-listed on United States exchanges.  The court ruled that the ban on extraterritorial application of United States securities laws applies not only to situations where foreign securities are listed on foreign exchanges, but also when such securities are cross-listed on United States exchanges.[54]  Previously, the Supreme Court had ruled in Morrison that Section 10(b) of the Exchange Act did not "'provide[] a cause of action to foreign plaintiffs suing foreign [ ] defendants for misconduct in connection with securities traded on foreign exchanges.'"[55] The trend since Morrison for courts to restrict the application of United States securities laws to securities traded exclusively on United States exchanges continued in 2014 with Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE.[56]  In Parkcentral, the Second Circuit held that a group of hedge funds that had entered into derivative transactions in the United States tied to the stock of a foreign issuer listed only on foreign exchanges could not bring a Section 10(b) suit against a foreign company for alleged fraudulent statements that it made primarily abroad relating to the foreign issuer.[57] The plaintiff hedge funds argued that the securities-based swap agreements ("Swaps") entered into in the United States, which were economically equivalent to short sales of Volkswagen AG ("VW") stock listed on foreign exchanges, constituted "domestic transactions" under Morrison, such that they could bring a Section 10(b) action in the United States against German corporation Porsche Automobile Holdings SE ("Porsche") and its executives relating to allegedly fraudulent statements that Porsche had made regarding its intentions with respect to VW stock. The Second Circuit acknowledged that the Swaps may have qualified as domestic transactions under Morrison, and it also considered its decision in Absolute Activist Value Master Fund Ltd. v. Ficeto,[58] which outlined what constituted a domestic transaction.  Nonetheless, it ruled that, "while [Morrison] unmistakably made a domestic securities transaction (or transaction in a domestically listed security) necessary to a properly domestic invocation of Section 10(b), such a transaction is not alone sufficient to state a properly domestic claim under the statute."[59]  The court reasoned that where the claims "are so predominantly foreign as to be impermissibly extraterritorial" and likely to "place § 10(b) in conflict with the regulatory laws of other nations," then, based on "the principles underlying the Supreme Court's decision in Morrison," plaintiffs may not bring a Section 10(b) claim even if it relates to a domestic transaction.[60]  The court observed that if a domestic transaction were alone sufficient to bring a Section 10(b) claim, then the United States securities laws would apply extraterritorially to "allegedly fraudulent conduct anywhere in the world" so long as a derivative transaction relating to the underlying foreign securities was entered into in the United States--even where the foreign defendants were unaware of the derivative transaction.[61]  Unwilling to accept that possibility, and noting that the allegations in Parkcentral related to predominantly foreign activity, the Second Circuit held that while the Swap transactions were consummated in the United States, that alone was insufficient under Morrison to state a Section 10(b) claim and therefore affirmed dismissal of the complaints.[62]

        3.   Developments in the Extraterritorial Reach of Commodity Exchange Act Claims

In Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014), the Second Circuit held that a private right of action under the Commodity Exchange Act ("CEA") arises only when "a plaintiff shows that one of the four transactions listed in § 22 [of the CEA] occurred within the United States."[63]  Unless a plaintiff could show that a "domestic transaction" had occurred--evidenced either by a title transfer of the security within the United States or if a buyer or seller incurred "irrevocable liability" related to the transaction within the United States --there could be no private right of action for suits premised on foreign transactions.[64]  Domestic activity undertaken to complete a foreign transaction, such as a wire transfer of funds to the United States, was "insufficient to demonstrate a domestic transaction."[65]  The court rejected the argument that Morrison only foreclosed extraterritorial application of substantive laws, not those that merely created causes of action.  Morrison, it reasoned, did not draw "any such distinction," and the Supreme Court had confirmed this conclusion in Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), which relied on Morrison to find that the Alien Tort Statute (a jurisdictional law) did not apply to extraterritorial conduct.[66]  It also noted that litigants who could not establish a "domestic transaction" could still "seek recovery through an administrative proceeding at the Commodity Futures Trading Commission."[67]

        4.   Developments in the Extraterritorial Reach of Dodd-Frank Act Claims

In Liu Meng-Lin v. Siemens AG, 763 F.3d 175 (2d Cir. 2014), the Second Circuit held that the anti-retaliation provision of the Dodd-Frank Act does not apply to extraterritorial conduct.  Liu Meng-Lin involved allegations that the plaintiff had been fired for reporting alleged improper payments by his employer in China, North Korea, and Hong Kong.  After the district court dismissed the plaintiff's complaint, the Second Circuit affirmed.  The court first concluded that the complaint only alleged extraterritorial conduct, and that the defendant's listing on the New York Stock Exchange was insufficient to overcome the presumption against extraterritorial application of United States securities laws.[68]  The court next found that the anti-retaliation provision did not suggest that Congress had intended for it to have extraterritorial application.  Nothing in the text or legislative history indicated such intent,[69] and even though other sections of the Dodd-Frank Act provided for exterritorial application, Congress's decision to omit that language from the anti-retaliation provision counseled against relying on these other sections.[70]   The court also refused to credit agency regulations that supported extraterritorial application because "it is far from clear that an agency's assertion that a statute has extraterritorial effect, unmoored from any plausible statutory basis for rebutting the presumption against extraterritoriality, should be given deference," and also because those regulations were insufficiently related to the statute's anti-retaliation provision.[71] On September 16, 2014, a federal district court in the District of Columbia found in favor of the Commodity Futures Trading Commission after a challenge was raised to its adoption of a general policy that provided for extraterritorial application of the derivatives provisions of the Commodities Enforcement Act and related regulations.[72]  The court concluded that "Congress has clearly indicated that the swaps provisions within Title VII of the Dodd-Frank Act--including any rules or regulations prescribed by the CFTC--apply extraterritorially whenever the jurisdictional nexus in 7 U.S.C. § 2(i) is satisfied."[73]  Given Liu Meng-Lin and the Supreme Court's restrictive approach toward extraterritorial application of United States laws in Morrison and beyond, challenges to the Commodity Futures Trading Commission's general policy may be forthcoming.

        5.   Developments in the Extraterritorial Reach of the Sherman Act

The Foreign Trade Antitrust Improvements Act ("FTAIA"), 15 U.S.C. § 6a, governs the application of the Sherman Act to foreign conduct.  Specifically, it provides that foreign anticompetitive conduct which does not involve United States import commerce, is subject to United States antitrust law only if that conduct: (1) had a direct, substantial, and reasonably foreseeable effect on United States domestic commerce, and (2) that effect "gives rise" to a Sherman Act claim. In 2014, three United States Courts of Appeals issued rulings on the extraterritorial reach of the United States antitrust laws and the meaning of the FTAIA.  Two of the rulings arose from the ongoing litigation concerning the TFT-LCD panel industry. First, in United States v. Hui Hsiung, the Ninth Circuit joined the Second, Third, and Seventh Circuits in holding that the FTAIA does not create a jurisdictional limit on the power of federal courts, but rather "provides substantive elements under the Sherman Act in cases involving no import trade with foreign nations."[74]  The court then held that the defendants' transactions between foreign producers and purchasers located in the United States were "import trade" and fell "outside the scope of the FTAIA."[75]  Because the convictions could be independently sustained on the basis of the clearly proven import trade, the court declined to decide whether the evidence relating to foreign sales of panels that were incorporated into finished consumer products before being imported into the United States was sufficient to establish that the foreign sales had a "direct" effect for purposes of the domestic effects exception to the FTAIA.[76] Second, in Motorola Mobility LLC v. AU Optronics Corp. ("Motorola I"), a Seventh Circuit panel ruled that the FTAIA did not extend United States antitrust law to a scenario that now arises regularly in United States antitrust matters:  the sale abroad of price-fixed products to a foreign buyer, which then integrates those price-fixed products into a finished product that is eventually sold in the United States.[77]  As the court explained, the effect on United States domestic commerce in such a situation is not "direct" under the FTAIA, but rather a situation where foreign conduct "filters through many layers and finally causes a few ripples in the United States."[78]  Nor did the foreign conduct "give rise" to a Sherman Act claim because Motorola--the company which sold finished products in the United States--"mediated" the effect of any price fixing by deciding what price to charge for those phones.[79]  But on July 1, 2014, the panel granted Motorola's request for rehearing and vacated its March 27, 2014 decision, to allow for briefing and oral argument, including amici from the DOJ, FTC, Belgium, Japan, and Korea. On rehearing in Motorola Mobility LLC v. AU Optronics Corp. ("Motorola II"), and again in writing for a unanimous panel, Judge Posner stepped back from Motorola I's finding that the effect of the alleged conduct on United States commerce was not direct, reasonable, and foreseeable.[80]  Instead, he conceded that the United States effect fell into a gray area.  He assumed for the sake of the opinion that there was a direct effect on United States commerce, but declined to decide that point.  Instead, the panel unanimously affirmed the dismissal, holding that Motorola could not meet the additional requirement that the effect on domestic United States commerce give rise to an antitrust cause of action because Motorola's foreign subsidiaries that purchased the allegedly price-fixed product outside of the United States, and not Motorola itself, were the direct purchasers, Motorola did not have a claim under the Sherman Act. The court's decision in Motorola II undertook an extensive analysis of antitrust standing and the indirect-purchaser doctrine of Illinois Brick Co. v. Illinois, which bars indirect purchasers from pursuing Sherman Act claims for damages.[81]  While the court acknowledged that some parent-subsidiary relationships may be exempt from the Illinois Brick bar, it held that foreign subsidiaries are not because they are incorporated under and subject to foreign regulation.[82]  Judge Posner noted that the disadvantage of regulation shopping through foreign incorporation is that a subsidiary's remedies are limited to those granted by its country of citizenship.[83]   Subsidiaries must "take the good with the bad,"[84] and the court held that Motorola, in attempting to avoid that consequence, was merely "asserting a right to forum shop." [85] Although the court barred Motorola from recovering civil damages, it took care to differentiate the civil remedies from the scope of the United States DOJ's authority in criminal matters.  The DOJ had asked the court to "hold that the conspiracy to fix the price of LCD panels had a direct, substantial, and reasonably foreseeable effect on United States import and domestic commerce in cellphones incorporating these panels."[86]  While the court declined to make such a finding, it addressed the government's request for "a disclaimer that a ruling against Motorola would interfere with criminal and injunctive remedies sought by the government against antitrust violations by foreign companies."[87] It emphasized that the ruling was limited to whether a United States -based parent company may sue on behalf of its subsidiaries, and did not constrain the government's future ability to seek criminal and injunctive remedies of foreign corporations, provided that it can demonstrate the requisite statutory effect on domestic commerce.[88] Third, in Lotes Co. v. Hon Hai Precision Industry Co.--which concerned a Taiwanese electronics manufacturing company's claim that the defendants, "a group of five competing electronics firms," had attempted to gain monopoly power over the entire USB connector industry--the Second Circuit addressed whether the plaintiff stated a viable claim under the Sherman Act.[89]  In concluding that the plaintiff's allegations fell short, the court affirmed the lower court's judgment dismissing the plaintiff's claims, but on alternative grounds.[90] In doing so, the court overruled its prior decision in Filetech S.A. v. France Telecom S.A.[91] and held that "the requirements of the FTAIA are substantive and nonjurisdictional in nature," but rejected the plaintiff's argument that the defendants had waived the FTAIA's requirements.[92]  Adopting the Seventh Circuit's (as opposed to the Ninth Circuit's) approach, the court also held "that foreign anticompetitive conduct can have a statutorily required 'direct, substantial, and reasonably foreseeable effect' on United States domestic or import commerce even if the effect does not follow as an immediate consequence of the defendant's conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect."[93]  The court, however, did not decide whether the plaintiff plausibly alleged "the requisite 'direct, substantial, and reasonably foreseeable effect' under the proper standard" because the court found that the plaintiff's claim did not satisfy the FTAIA's "second limitation," which requires that the "domestic effect . . . 'give[ ] rise to'" the claim.[94]  In particular, the court explained, "regardless of what effect the defendants' conduct ha[d] on United States domestic or import commerce, any such effect did not 'give[ ] rise to' the plaintiff's claim.  To the contrary, in the causal chain the plaintiff allege[d], the plaintiff's exclusion from the relevant market actually precede[d] the alleged domestic effect." [95] Although these decisions provide some guidance about the extraterritorial reach of the United States antitrust laws, Circuit Courts are not uniform in their approaches.  The Hsiung and Motorola II decisions were the subject of pending petitions for en banc review.  Motorola's en banc petition has been denied.[96]  Motorola has stated it will request Supreme Court review.  The resolution of those petitions, and possible petitions to the United States Supreme Court for writs of certiorari, will remain at the front of observers' attention in 2015. The Hsiung rehearing was also denied en banc and the opinion was superseded.[97]

        6.   Developments in the Extraterritorial Reach of RICO

The Racketeer Influenced and Corrupt Organizations Act ("RICO") 18 U.S.C. §§ 1961-1968 creates criminal and civil liability when a "pattern of racketeering"--arising from the violation of certain federal or state criminal laws--is associated with an "enterprise." In 2014, the Second Circuit held in European Community v. RJR Nabisco, Inc. that RICO applies to extraterritorial conduct to the extent that conduct violates an underlying RICO-predicate criminal statute with extraterritorial reach.[98] European Community involved allegations that the defendant "managed, and controlled a global money-laundering scheme with organized crime groups" in violation of RICO and New York law.[99]  The district court dismissed the RICO claims because it found that RICO itself did not overcome the presumption against extraterritorial application, that the "focus" of RICO was the criminal enterprise, and in the case before it, the alleged enterprise was "located and directed outside" the United States.  The Second Circuit reversed, explaining that by establishing some RICO predicate crimes that could "only occur outside the United States" or could apply to both domestic and extraterritorial conduct, "Congress manifested an unmistakable intent that certain of the federal statutes adopted as predicates for RICO liability apply to extraterritorial conduct."[100]  Relying primarily on RICO's statutory text, the Second Circuit held that:
RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate. Thus, when a RICO claim depends on violations of a predicate statute that manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to extraterritorial conduct, too, but only to the extent that the predicate would. Conversely, when a RICO claim depends on violations of a predicate statute that does not overcome Morrison's presumption against extraterritoriality, RICO will not apply extraterritorially either.[101]
It explained that, by making extraterritorial application of RICO "coextensive with extraterritorial application of the relevant predicate statutes," "unmistakable" congressional intent would be satisfied, there would be simplification of "what conduct is actionable in the United States," and certain "incongruous results" would be avoided, such as the shielding of "purely domestic conduct from liability simply because the defendant has acted in concert with a foreign enterprise."[102]  Applying its standard to the predicate statutes before it, the Second Circuit determined that the complaint at issue "allege[d] sufficient domestic conduct" for the mail fraud, wire fraud, and Travel Act allegations.[103] In Petroleos Mexicanos v. SK Engineering & Construction Co. Ltd.,[104] the Second Circuit relied on European Community to affirm dismissal of a complaint filed by Pemex alleging RICO liability based on wire fraud.  Pemex had relied exclusively on the wire fraud statute in pleading predicate acts, which European Community established as insufficient to support extraterritorial application of the RICO statute. In Reich v. Lopez,[105] a district court also considered RICO allegations based on violations of predicate offenses of the Travel Act and wire fraud. The court held that the plaintiff had alleged "sufficient domestic conduct for each of these predicate acts" to overcome extraterritoriality concerns.[106]  Specifically, the plaintiff alleged bribery of foreign officials via wire communications originating from the United States, defendants' travel to and from the United States, defendants' use of United States bank accounts, and defendants' use of wire communications in United States interstate commerce to direct the alleged bad acts.[107] Back to Top

Part IV:  Developments in Foreign Judgment Recognition and Enforcement

While United States courts are finding ways to respond to the influx of transnational suits, foreign judgment recognition and enforcement suits, which have been on the rise for the past decade, showed no sign of slowing in 2014.   Indeed, many plaintiffs appear to see recognition and enforcement suits as a vehicle for making an end run around the traditional United States trial process.[108]  Instead of engaging in pre-trial discovery and a full domestic trial on the merits, they file suits asking United States courts to domesticate foreign judgments and to treat the factual findings and evidence from the foreign proceeding as the law of the case, often based on little more than proof of the foreign judgment itself.[109]   If the foreign judgment is the product of fraud, corruption or a breakdown in the rule of law, it threatens the integrity of the United States system, as it can be difficult and time-consuming for defendants to reveal the deficiencies in foreign judgments.[110] Subject to certain requirements, United States courts are willing to entertain the recognition and enforcement of final and enforceable foreign civil judgments for a fixed sum of money, excluding judgments for fines, penalties or taxes.  Further, the United States generally adheres to the rule that the courts of one nation will not enforce the penal laws of another nation.[111]  The question of whether a certain state statute constitutes "penal law" depends on whether its purpose is to punish an offense against the public justice of the state, or to afford a private remedy to a person injured by the wrongful act.[112] In a recent decision, Plata v. Darbun Enterprises, Inc., a California state court reiterated that "the issue whether a monetary award is a penalty within the meaning of the [Recognition Act] requires a court to focus on the legislative purpose of the law underlying the foreign judgment.  A judgment is a penalty even if it awards monetary damages to a private individual if the judgment seeks to redress a public wrong and vindicate the public justice, as opposed to affording a private remedy to a person injured by the wrongful act."[113] In the same vein, in Harvardsky Prumyslovy Holding v. Kozeny, an intermediate New York appellate court held that the Czech judgment at issue was not "a fine or other penalty" and was therefore entitled to recognition in New York even though it had been issued by a criminal court in the Czech Republic.[114]  In that case, the monetary judgment was found to be remedial and therefore the judgment was considered to constitute a "judgment of a foreign state granting . . . a sum of money," thus entitled to recognition in New York.[115] In general, the guiding principle in determining whether a litigant in foreign court proceedings had sufficient notice of the proceedings so as to allow recognition and enforcement of the foreign judgment is whether a reasonable method of notification was employed and reasonable opportunity to be heard was afforded to the person affected.  In a recent decision, Gardner v. Letcher,[116] the District of Nevada pointed to the fact "that no summons was served and that the 'Summary of the Document to be Served' form was not completely filled out."  Because the Hague Convention's requirements for service were also not satisfied, the court concluded that the Swiss court did not have personal jurisdiction over the defendant.[117] In Midbrook Flowerbulbs Holland B.V. v. Holland America Bulb Farms, Inc.,[118] the Western District of Washington granted summary judgment in favor of Midbrook, which had been seeking to enforce a judgment from a Dutch court against Holland America, a Washington company.  The court granted an order recognizing the Dutch judgment pursuant to the Uniform Foreign-Country Money Judgments Recognition Act ("UFCMJRA").[119]  While the court recognized that the UFCMJRA allows courts not to recognize a foreign judgment if "[t]he specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law," the court concluded that Holland failed to demonstrate that the Dutch proceedings were not compatible with due process.[120] Back to Top

Part V:  Developments in Transnational Litigation and Judgment Collection

        1.   Argentina v. NML Litigation:  The Supreme Court's Restrictive Reading of the FSIA and Sovereign Immunity

On June 16, 2014, the United States Supreme Court delivered two rulings related to a dispute arising from Argentina's 2001 default on its external debt, Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2250 (2014), and Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2819 (2014).  In 2005 and 2010, Argentina restructured most of that debt by offering creditors new securities, with less favorable terms, in exchange for the defaulted ones.  Most bondholders accepted Argentina's offer.  Respondent, NML Capital, Ltd. ("NML"), among others, did not and sued Argentina in a United States federal district court to collect the debt, and prevailed. The most important of these Supreme Court rulings, Republic of Argentina v. NML Capital, Ltd. ("NML I"), 134 S. Ct. 2250 (2014), concerned a dispute over third-party subpoenas that NML served on two banks in 2010 to discover information about Argentina's property and financial transactions.[121]  Theodore B. Olson of Gibson Dunn argued the case before the Supreme Court on behalf of NML.  One of the banks, joined by Argentina, moved to quash the subpoena, and NML moved to compel compliance.[122]  The district court upheld the requested discovery, and the Second Circuit affirmed.[123]  Joined by the United States as amicus curiae, Argentina requested the Supreme Court to reverse the decision of the Second Circuit and to hold that the FSIA protects it from discovery into its assets held outside the United States and other assets Argentina claimed were immune from execution in United States courts.  In a 7-1 decision, the Supreme Court rejected Argentina's arguments, upheld NML's subpoenas, and held that the FSIA did not confer upon Argentina the requested protection from post-judgment discovery of information, thereby affirming the District Court and the Second Circuit.[124] Justice Scalia, writing for the majority, began by noting that "[t]he rules governing post-judgment execution proceedings are quite permissive."[125]  Foreign sovereign immunity," Justice Scalia noted, "is, and always has been, 'a matter of grace and comity on the part of the United States, and not a restriction imposed by the Constitution.'"[126]  After setting out the evolution of the application of comity, the Supreme Court emphasized that the FSIA now provides a "comprehensive" set of legal standards to govern any claim of immunity by foreign sovereign States and, as such, "any sort of immunity defense made by a foreign sovereign in an American court must stand on the Act's text. Or it must fall."[127]  According to the Court, nowhere in the FSIA's "comprehensive" framework did the legislature prohibit or limit discovery in aid of execution of a foreign sovereign's assets.[128] The Court also rejected Argentina's argument that the FSIA categorically barred discovery into assets that a foreign sovereign regards as diplomatic or military.  While the subpoenas were "bound to turn up information about property that Argentina regards as immune," the Court noted that NML "may think the same property not immune."[129]  In that situation, the foreign sovereign's "self-serving legal assertion will not automatically prevail; the District Court will have to settle the matter."[130] Regarding the potential effects of granting such a discovery order on international comity and international relations, the Court responded that "[t]hese apprehensions are better directed to that branch of government with authority to amend the Act."[131] The ruling has been referred to in seven decisions from federal courts of appeals from three Circuits, the Second, Third, and Seventh Circuits.[132] In conjunction with the ruling in NML I, the Court denied Argentina's petition for certiorari seeking review of a different Second Circuit decision that required Argentina to repay NML and other holders of defaulted bonds any time it made payments on the securities that it had issued in the 2005 and 2010 exchange offers.  See Republic of Argentina v. NML Capital, Ltd. ("NML II"), 134 S. Ct. 2819 (2014).  Since its default, Argentina had not made a single payment on NML's bonds, whereas it had continued to pay other creditors who accepted smaller exchange offers that Argentina had pressed upon them.[133]  NML sought, and the district court issued, an injunction requiring Argentina to provide equal treatment to NML's bonds.[134]  The Second Circuit affirmed this injunction, concluding that Argentina breached a provision in its bond agreement with NML that required Argentina to treat NML's bonds at least equally to the rest of its external debt.[135]  Moreover, the Second Circuit held that the injunction was consistent with the FSIA,[136] and that it served the public interest by ensuring that contracting parties meet their obligations.[137]  Argentina was supported by the governments of France, Mexico, and Brazil (but not the United States), in its petition for review of that decision, but the Supreme Court rejected it, allowing the District Court's injunctions -- which had been stayed -- to take effect.[138]

        2.   Additional Developments in the Enforcement of Judgments Against Sovereign Entities

In another case related to the Argentine bond dispute, on December 23, 2014, in Aurelius Capital Master, Ltd. v. Republic of Argentina, the Second Circuit issued a summary order upholding orders by the Southern District of New York compelling Argentina and third-party banks to comply with additional discovery demands issued by NML.[139]  The court held that, even if NML's discovery related to diplomatic or military property potentially immune from attachment under international treaties or the FSIA, Argentina's assertions of immunity did not entitle it to withhold otherwise discoverable information.[140]  The court reasoned as follows: First, the Second Circuit rejected Argentina's contention that the FSIA prohibits discovery of sovereign property that is potentially immune from attachment, noting that the United States Supreme Court had already rejected this argument in the NML I ruling summarized in the preceding section.[141] Second, the Second Circuit rejected Argentina's argument that the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations--treaties to which both the United States and Argentina are signatories--prohibited attachment of diplomatic and consular property and discovery of diplomatic and consular documents.[142]  The court held that to the extent the discovery demands reached diplomatic or consular property that was immune from attachment, Argentina should object if and when NML actually sought to execute on such property.[143]  Insofar as the discovery demands reached diplomatic or consular documents that were privileged or inviolable under the treaties, the court held that Argentina should present its objections to the District Court "in the form of assertions of privilege or inviolability."[144] Third, the Second Circuit rejected Argentina's argument that discovery into a foreign sovereign's purported military property was precluded by the FSIA, 28 U.S.C. § 1611.  Citing NML I, the court reiterated that "the potential immunity of property from attachment does not preclude discovery of that property," and noted that such discovery may in fact be "necessary for the parties to properly litigate the existence of immunity."[145] In a different 2014 case implicating the FSIA, on August 29, 2014, the D.C. Circuit delivered its ruling in Odhiambo v. Republic of Kenya.[146]  Plaintiff, an employee of a Kenyan private bank who had reported certain tax irregularities associated with accounts at his employer bank, claimed he had made the report in response to an ad by the Kenya Revenue Authority promising a reward in exchange for such information.[147]  The plaintiff claimed that Kenya had failed to pay him the promised reward.[148]  After the plaintiff was identified as an informant, he feared for his safety and Kenyan authorities assisted him in moving to the United States as a refugee.[149]  The plaintiff then sued Kenya for breach of contract in relation to the alleged underpayment of rewards.[150]  Kenya moved to dismiss on the basis of sovereign immunity. The D.C. Circuit held that the FSIA barred the suit because none of the statute's enumerated exceptions applied.  Specifically, the court found that Kenya's accession to the 1951 Convention Relating to the Status of Refugees was not sufficient for "the exacting showing required for waivers of foreign sovereign immunity."[151]  Furthermore, the court rejected, among others, plaintiff's argument that jurisdiction existed under the third clause of the "commercial activity exception," [152] which permits suit when a claim is based "upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States."[153]  The court agreed that plaintiff's claim was based on Kenya's commercial activity outside the United States, but found that it could not be found to cause a direct effect in the United States merely because Odhiambo now lived there.[154]  The court noted that in prior breach of contract cases, the point of whether an effect was "direct" had hinged on whether the United States was the place of performance of the contract.[155]  The court concluded that Kenya's alleged breach of contract only had an indirect effect in the United States as a result of Odhiambo's intervening relocation.[156]  According to the court, to allow plaintiffs to sue for breach of contract under this exception after moving to the United States would vastly expand the scope of the exception.[157]  The court therefore held that "breaching a contract that does not establish or necessarily contemplate the United States as a place of performance does not cause a direct effect in the United States."[158]

        3.   Yukos v. Samaraneftegaz:  Developments in Enforcement of Arbitral Awards

In 2007, Yukos Capital S.A.R.L. secured an award in the amount of 3,080,711,971 Russian Rubles plus fees and costs against OAO Samaraneftegaz in an arbitration conducted in New York under the ICC Rules of Arbitration.  In 2010, Gibson Dunn filed a petition on behalf of Yukos Capital to confirm the award in the Southern District of New York.  After extensive discovery into the validity of the arbitration agreement, which Samaraneftegaz asserted was invalid, the Southern District granted the petition in 2013.  The Southern District rejected Samaraneftegaz's defenses to confirmation, including:  (1) Samaraneftegaz's request that the Court dismiss the enforcement action on forum non conveniens grounds; (2) Samaraneftegaz's claim that the Southern District lacked personal jurisdiction over Samaraneftegaz; and (3) Samaraneftegaz's arguments that the award should not be enforced under the New York Convention because Samaraneftegaz lacked notice of the arbitration and the award was against public policy.[159]  Samaraneftegaz appealed.  In a later proceeding, the Southern District converted the amounts awarded in Russian rubles into United States dollars using the exchange rate as of the date the arbitration award was issued.[160]  Samaraneftegaz appealed that order as well. On November 4, 2014, the Second Circuit, in a summary opinion, affirmed the district court's decision to enforce the award and to convert the rubles award into dollars as of the date of the award.[161] The court rejected Samaraneftegaz's claim that enforcement of the award violated public policy, finding that the "district court was not required to defer to [a] Russian court's determination that enforcement would violate Russian public policy" and that Samaraneftegaz had "never made any public policy arguments to the arbitrators."  Regarding the currency conversion, the court noted that the district court had followed "prevalent practice" by having "correctly determined that the proper date of conversion is the date that enforcement action arose, which is necessarily the date of the arbitration award."[162]  Robert Weigel of Gibson Dunn argued the case on behalf of Yukos Capital. In furtherance of its enforcement strategy, Yukos Capital moved for a turnover order based on the actions that Samaraneftegaz had taken that effectively depleted its available assets.  Turnover orders are a judgment enforcement mechanism available under New York law.[163] On January 9, 2014, the Southern District of New York issued a turnover order in favor of Yukos Capital.[164]  The court enjoined Samaraneftegaz from paying dividends, making loans or any other asset transfers to its shareholders or corporate affiliates until it paid Yukos Capital or posted a bond for the full value of the award. The court also rejected Samaraneftegaz's argument that it would suffer irreparable harm from the turnover order--finding instead that Yukos Capital would suffer irreparable harm and have no adequate remedy at law in the absence of the turnover order because Samaraneftegaz had made sizeable transfers of dividends and interest free loans to its corporate affiliates, effectively depleting its available assets.  Finally, the court characterized Samaraneftegaz's efforts to re-litigate the issues that had already been decided as "strained and entirely unsubstantiated," as well as "a transparent attempt to escape paying the judgment."  Samaraneftegaz appealed the turnover order. Expressing no opinion as to the merits of the underlying issues, the Second Circuit vacated the turnover order and remanded to the district court to clarify its ruling on alternative service of the turnover motion and to explain its conclusion that no foreign law conflict exists. Back to Top

Part VI:  Developments in Transnational Discovery

Until recently, Section 1782 was rarely used as a discovery tool in aid of foreign litigation, but since 2010 it is increasingly becoming an essential tool as litigants pursue transnational lawsuits.  Section 1782 enables litigants to use the United States' broad discovery process to obtain evidence that might otherwise be unavailable within the constraints of pending foreign proceedings.  Section 1782 also does not restrain the use of such evidence if offered in a domestic action.  As a result, litigants may initially seek the discovery for use in the foreign litigation, but may ultimately use the evidence collected to bring a separate action in the United States. While there are limits to the availability of Section 1782 discovery, 2014 saw the expansion of certain of those limits.

        1.   To which foreign tribunals does Section 1782 apply?

Courts remain divided over which foreign arbitral tribunals may serve as the basis for a Section 1782 application. Since Intel, courts have universally found that investor-state arbitration--which arises from treaty obligations contained in bilateral investment treaties or multilateral investment treaties--constitutes a "tribunal" under Section 1782.[165] With respect to private commercial arbitration, however, appellate courts have not provided clear guidance on whether Section 1782 assistance is available.  The Eleventh Circuit initially seemed open to the idea and held, in In re Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., that Section 1782 applied to a private commercial arbitration because the tribunal was a "first-instance decision-maker whose judgment was subject to judicial review."[166]  However, in January 2014, the Eleventh Circuit vacated the decision--in part because it did not have a sufficiently developed record on the nature of the arbitration tribunal--and issued a new decision that did not reach the issue because two lawsuits in Ecuadorian courts had been filed, thus obviating the need for the Eleventh Circuit to go further.[167] As a result, the only appellate rulings on the issue are from the Courts of Appeals for the Fifth[168] and Second[169] Circuits, which do not recognize foreign private arbitral bodies (as opposed to investor state arbitration) as "tribunals" for Section 1782 purposes.  Notwithstanding these appellate rulings, a number of federal district courts have ruled to the contrary, and have allowed the use of Section 1782 to collect evidence for use in purely private foreign arbitrations.[170]

        2.   How do Foreign Blocking, Privacy and Secrecy Laws Impact the Application of Section 1782 to Foreign Persons?

Foreign statutes seldom provide American-style discovery, like that found in Section 1782.  While Section 1782 has some built-in protections--like the statutory requirement that prohibits compelled disclosure in violation of "any legally applicable privilege" and the Intel factors that grant courts discretion to deny "unduly intrusive or burdensome requests" and requests that attempt to "circumvent foreign proof gathering restrictions"--courts deciding Section 1782 applications have weighed the impact of foreign statutes and come out on both sides.[171] In October 2014, the Southern District of New York quashed a Section 1782 subpoena seeking documents located in Russia and Ukraine from the law firm Chadbourne & Parke LLP for use in proceedings in Amsterdam, Netherlands, in part on the ground that they were "protected under Russian and Ukrainian client confidentiality and personal data privacy laws" such that disclosure "would offend core tenets of our [United States] legal system (and those of Russia and Ukraine)."[172]

        3.   Section 1782 and Documents Located Abroad

Whether documents located outside the United States can be obtained through Section 1782 discovery from a corporation with a presence in the United States is the subject of dispute.  Where the target is "found" in the district and has "control" over the documents under the Federal Rules of Civil Procedure, courts have been wrestling inconclusively with whether Section 1782 permits discovery of documents located overseas. In 2014, several courts denied discovery applications that sought documents located overseas.  In In re Slawomir Kaczor and Tomasz Rogucki,[173] the Southern District of Ohio denied a Section 1782 application for discovery in aid of Polish proceedings because, among other things, the discovery sought was located in Poland and "courts have read into § 1782 a threshold requirement that the material sought be located in the United States."[174]  The court also noted that the legislative history of Section 1782 establishes that it "was intended to aid in obtaining oral and documentary evidence in the United States . . . and was not intended to provide discovery of evidence maintain[ed] within a foreign district."[175] Likewise, in In re Certain Funds, Accounts, and/or Investment Vehicles Managed by Affiliates of Fortress Investment Group LLC,[176] the Southern District of New York observed that "courts have read into § 1782 a threshold requirement that the material sought be located in the United States," though the court denied the discovery application on other grounds." Back to Top
   [1]   134 S. Ct. 746 (2014).    [2]   No. B233497, 2014 WL 891268 (Cal. Ct. App. Mar. 7, 2014).    [3]   561 U.S. 247 (2010).    [4]   134 S. Ct. 746 (2014).    [5]   Id. at 751.    [6]   Id. at 761 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011)) (quotation marks omitted).    [7]   Daimler, 134 S. Ct. at 749 (citing Goodyear, 131 S. Ct. at 2853-54).    [8]   Id. (citation omitted).    [9]   See, e.g., Air Tropiques, Sprl v. N. & W. Ins. Co., No. H-13-1438, 2014 WL 1323046, at *10 (S.D. Tex. Mar. 31, 2014); Brown v. CBS Corp., 19 F. Supp. 3d 390, 397-98 (D. Conn. 2014); Krishanti v. Rajaratnam, No. 2:09-cv-05395 (JLL)(JAD), 2014 WL 1669873, at *6 (D.N.J. Apr. 28, 2014); Intellectual Ventures I LLC v. Ricoh Co., Ltd., No. 13-474-SLR, 2014 WL 4748703, at *3 (D. Del. Sept. 12, 2014).   [10]   Air Tropiques, 2014 WL 1323046, at *10.   [11]   750 F.3d 221, 223 (2d Cir. 2014).   [12]   Sonera Holding, 750 F.3d at 226 (quoting Daimler, 134 S. Ct. at 761).   [13]   Sonera Holding, 750 F.3d  at 224-26.   [14]   Id. at 224 n.2.   [15]   The Ninth Circuit's agency theory focused on a showing of "special importance of the services performed by the subsidiary."  Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011).  They looked to whether the services performed by the subsidiary were of the sort that, had they not been performed, would have had to have been performed by the parent corporation's own officials.  Id.   [16]   Daimler, 134 S.Ct. at 759-60.   [17]   George v. Uponor Corp., 988 F. Supp. 2d 1056, 1079-80 (D. Minn. 2013), reconsideration denied (Apr. 14, 2014).   [18]   No. 12-23510-CIV, 2014 WL 652831, at *8-9 (S.D. Fla. Feb. 19, 2014).   [19]   Id. at *9.   [20]   Id.   [21]   No. 12-cv-20129, 2014 WL 3408582, at *6-7 (S.D. Fla. May 9, 2014).   [22]   Id. at *3.   [23]   753 F.3d 521, 528, 530 (5th Cir. 2014).   [24]   Id. at 531-32.   [25]   27 F. Supp. 3d 1002, 1006, 1015 (N.D. Cal. 2014).   [26]   See 561 U.S. at 250.   [27]   Id. at 255-62.   [28]   Id. at 255, 261.   [29]   Id. at 255.   [30]   Id. at 266.   [31]   Id.   [32]   Id. at 272 (quoting Section 10(b)).   [33]   Id. at 273.   [34]   133 S. Ct. 1659 (2013).   [35]   Id. at 1660.   [36]   Id. at 1664.   [37]   Id. at 1661.   [38]   Id. at 1664.   [39]   Id. at 1665.   [40]   Id. at 1668.   [41]   Id. at 1669.   [42]   Chowdhury v. Worldtel Bangladesh Holding, Ltd., 746 F.3d 42, 49 (2d Cir. 2014) (citing Kiobel, 133 S.Ct. at 1669).   [43]   Id.   [44]   Cardona v. Chiquita Brands Int'l, Inc., 760 F.3d 1185, 1189 (11th Cir. 2014).   [45]   Id.   [46]   771 F.3d 580, 593 (9th Cir. 2014).   [47]   Id. at 596 (agreeing with the Eleventh Circuit in Cardona and the Second Circuit in Daimler AG).   [48]   See also Ben-Haim v. Neeman, 543 F. App'x 152, 154 (3d Cir. 2013) (taking the same stance as the Second, Eleventh and Ninth Circuits).   [49]   Al Shimari v. CACI Premier Tech., Inc., 758 F.3d 516 (4th Cir. 2014).   [50]   Id. at 520.   [51]   Id. at 529.   [52]   Al Shimari v. CACI Int'l, Inc., 951 F. Supp. 2d 857 (E.D. Va. 2013).   [53]   752 F.3d 173 (2d Cir. 2014).   [54]   Id. at 188.   [55]   Id. at 179 (quoting Morrison, 561 U.S. at 250-51).   [56]   763 F.3d. 198 (2d Cir. 2014).   [57]   Id. at 215.   [58]   677 F.3d 60 (2d Cir. 2012).   [59]   Parkcentral, 763 F.3d at 215 (emphasis added).   [60]   Id. at 215-18.   [61]   Id. at 214.   [62]   Id. at 218.   [63]   764 F.3d at 272.   [64]   Id. at 272-74.   [65]   Id. at 275 (citation omitted).   [66]   Id. at 272-73.   [67]   Id. at 270, 273 (citation omitted).   [68]   Liu Meng-Lin, 763 F.3d at 179.   [69]   Id. at 180.   [70]   Id. at 180-81.   [71]   Id. at 182-83.   [72]   Sec. Indus. and Fin. Mkts. Assoc. v. U.S. Commodity Futures Trading Comm'n, No. 13-1916 (PLF), 2014 WL 4629567 (D.D.C. Sept. 16, 2014).   [73]   Id. at *42.   [74]   758 F.3d 1074, 1088 (9th Cir. 2014).   [75]   Id. at 1091.   [76]   Id. at 1093.   [77]   746 F.3d 842 (7th Cir. 2014) (Posner, J.), reh'g granted and opinion vacated (July 1, 2014).   [78]   Id. at 844 (internal quotation marks omitted).   [79]   Id. at 845.   [80]   No. 14-8003, 2015 WL 137907 (7th Cir. Jan. 12, 2015).   [81]   431 U.S. 720 (1977).   [82]   Motorola II, 2015 WL 137907 at *6.   [83]   Id. at *5.   [84]   Id. at *12 (internal quotation marks omitted).   [85]   Id. at *5.   [86]   Id. at *9 (internal quotation marks omitted).   [87]   Id. at *10.   [88]   Id. at *9-10.   [89]   753 F.3d 395, 398 (2d Cir. 2014).   [90]   Id. at 398-99.   [91]   157 F.3d 922 (2d Cir. 1998).   [92]   Lotes, 753 F.3d at 398-99, 404-09.   [93]   Id. at 398.   [94]   Id. (quoting 15 U.S.C. § 6a(2)).   [95]   Id.   [96]   Motorola Mobility LLC v. AU Optronics Corp., 773 F.3d 826 (7th Cir. 2014), reh'g en banc denied, No. 14-8003, 2015 WL 137907 (7th Cir. Jan. 12, 2015).   [97]   United States v. Hui Hsiung, No. 12-10492, 2015 WL 400550 (9th Cir. Jan. 30, 2015).   [98]   764 F.3d 129 (2d Cir. 2014).   [99]   Id. at 133. [100]   Id. [101]   Id. [102]   Id. at 139. [103]   Id. [104]   572 F. App'x 60 (2d Cir. 2014). [105]   2014 WL 4067179 (S.D.N.Y. Aug. 18, 2014). [106]   Id. at *5. [107]   Id. [108]   See Osorio v. Dole Food Co., 665 F. Supp. 2d 1307 (S.D. Fla. 2009); Bridgeway Corp. v. Citibank, 45 F. Supp. 2d 276, 288 (S.D.N.Y. 1999), aff'd, 201 F.3d 134 (2d Cir. 2000). [109]   See Restatement (Third) of Foreign Relations Law §§ 481-86 (1987); Uniform Foreign-Country Money Judgments Recognition Act, ULA FC Money JMT § 3(a) (2005). [110]   See William E. Thomson & Perlette Michèle Jura, Confronting the New Breed of Transnational Litigation: Abusive Foreign Judgments, U.S. Chamber Institute for Legal Reform (Oct. 2011). [111]   Huntington v. Attrill, 146 U.S. 657, 673-74 (1892). [112]   Id. [113]   No. D062517, 2014 WL 341667, at *5 (Cal. Ct. App. Jan. 31, 2014). [114]   117 A.D.3d 77, 79 (2014). [115]   Id. at 80. [116]   No. 2:12-CV-00488-KJD, 2014 WL 3611587, at *1 (D. Nev. July 18, 2014). [117]   Id. [118]   No. 14-5409 RJB, 2014 WL 5605058, at *1 (W.D. Wash. Nov. 4, 2014). [119]   Id. [120]   Id. at *6. [121]   NML I, 134 S. Ct. at 2253. [122]   Id. [123]   Id. [124]   When it issued the bonds, Argentina expressly waived any jurisdictional immunity it otherwise had under the FSIA. [125]   NML I, 134 S. Ct. at 2254. [126]   Id. at 2255 (citing Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486 (1983)). [127]   NML I, 134 S. Ct. at 2255-56. [128]   Id. at 2256. [129]   Id. at 2258. [130]   Id. [131]   Id. [132]   Mare Shipping Inc. v. Squire Sanders (US) LLP, 574 F. App'x 6 (2d Cir. 2014); Exp.-Imp. Bank of the Republic of China v. Grenada, 768 F.3d 75 (2d Cir. 2014); Gucci Am. v. Weixing Li, 768 F.3d 122 (2d Cir. 2014); Ohntrup v. Makina Ve Kimya Endustrisi Kurumu, 760 F.3d 290 (3d Cir. 2014); Pine Top Receivables of Ill., LLC v. Banco de Seguros del Estado, 771 F.3d 980 (7th Cir. 2014); Bormes v. United States, 759 F.3d 793 (7th Cir. 2014); Gates v. Syrian Arab Republic, 755 F.3d 568 (7th Cir. 2014). [133]   NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230, 237 (2d Cir. 2013). [134]   Id. [135]   Id. at 237, 241. [136]   Id. [137]   Id. at 248. [138]   NML II, 134 S. Ct. 2819. [139]   No. 13-4054, 2014 WL 7272279 (2d Cir. Dec. 23, 2014). [140]   Id. at *1-2. [141]   Id. at *1. [142]   Id. at *2. [143]   Id. [144]   Id. [145]   Id. [146]   764 F.3d 31 (D.C. Cir. 2014). [147]   Id. at 33. [148]   Id. [149]   Id. [150]   Id. [151]   Id. [152]   Id. [153]   28 U.S.C. § 1605(a)(2). [154]   Odhiambo, 764 F.3d at 38. [155]   Id. [156]   Id. [157]   Id. at 39. [158]   Id. at 40. [159]   Id. [160]   Yukos Capital S.A.R.L. v. OAO Samaraneftegaz, 963 F.Supp.2d 289 (S.D.N.Y. Aug. 6, 2013). [161]   Yukos Capital S.A.R.L. v. Samaraneftegaz, No. 13-3357-CV, 2014 WL 5572696 (2d Cir. Nov. 4, 2014). [162]   Id. at *3. [163]   N.Y. C.P.L.R. 5225(a). [164]   Yukos Capital S.A.R.L. v. OAO Samaraneftegaz, 2014 WL 81563 (S.D.N.Y. Jan. 9, 2014). [165]   See, e.g., In re Appl. of Mesa Power Group, LLC, 2012 WL 6060941 (D.N.J. Nov. 20, 2012); In re Appl. of Chevron Corp., 2012 WL 3636925 (S.D. Fla. June 12, 2012). [166]   685 F.3d 987, 997 (11th Cir. 2012). [167]   Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 747 F.3d 1262 (11th Cir. 2014). [168]   The Fifth Circuit, in El Paso Corp. v. La Comision Ejecutiva Hidroelecctrica Del Rio Lempa, issued an unpublished opinion that Section 1782 did not apply to a private commercial arbitration conducted pursuant to an agreement under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.  341 F. App'x 31 (5th Cir. 2009). [169]   The Second Circuit held, in a pre-Intel decision that Section 1782 did not apply to a private foreign arbitration held by the ICC International Court of Arbitration.  NBC v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999). [170]   See, e.g., In re Owl Shipping, LLC & Oriole Shipping, LLC, 2014 WL 5320192 (D.N.J. Oct. 17, 2014) (finding that the London Maritime Arbitrators Association constituted a Section 1782 tribunal). [171]   Intel, 542 U.S. at 264-65. [172]   In re Application Pursuant to 28 U.S.C. Section 1782 of Okean B.V. and Logistic Solution Intern. to Take Discovery of Chadbourne & Parke LLP, 2014 WL 5090028 (S.D.N.Y. Oct. 10, 2014). [173]   2014 WL 4181618 (S.D. Ohio Aug. 21, 2014) (quoting In re Certain Funds, Accounts, and/or Inv. Vehicles Managed by Affiliates of Fortress Inv. Grp. LLC, 2014 WL 3404955, at *2 (S.D.N.Y. July 9, 2014)). [174]   Id. at *3. [175]   Id.  [176]   In re Certain Funds, 2014 WL 3404955, at *4 (S.D.N.Y. July 9, 2014).
Gibson, Dunn & Crutcher's Transnational Litigation Practice Group lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work, or any of the following practice group co-chairs: United States: Randy M. Mastro - New York (+1 212-351-3825, rmastro@gibsondunn.com) Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Scott A. Edelman - Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com) Andrea E. Neuman - New York (+1 212-351-3883, aneuman@gibsondunn.com) William E. Thomson - Los Angeles (+1 213-229-7891, wthomson@gibsondunn.com) Perlette Michèle Jura - Los Angeles (+1 213-229-7121, pjura@gibsondunn.com) Europe: Philip Rocher - London (+44 20 7071 4202, procher@gibsondunn.com) Charlie Falconer - London (+44 20 7071 4270, cfalconer@gibsondunn.com) Patrick Doris - London (+44 20 7071 4276, pdoris@gibsondunn.com) © 2015 Gibson, Dunn & Crutcher LLP
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January 15, 2015 |
2014 Year-End Sanctions Update

2014 was marked by numerous noteworthy developments.  The crisis in Ukraine and the international community's efforts to respond have figured prominently in, if not dominated, sanctions discourse.  The Joint Plan of Action and the extension thereof provide a reminder of the ongoing debate concerning Iran's nuclear program and sanctions on Iran.  In December, President Obama announced a diplomatic thaw with Cuba, including the dismantling of major components of the U.S. sanctions regime on the country.  And, as 2014 drew to a close and the new year began, the United States announced additional economic sanctions against North Korea. This report summarizes key developments of 2014, beginning with executive and legislative responses in the United States to the Ukraine situation, followed by other U.S. sanctions developments, and then legislative, case law, and enforcement developments in the United Kingdom and in the European Union.

THE UNITED STATES

The situation in Ukraine remains precarious, with significant hurdles remaining to implement the protocol signed in Minsk on September 5, 2014.  As a result, new and more significant sanctions remain possible in the coming months.  The first part of this report is a snapshot of the status of the U.S. response to the volatile conditions in Eastern Europe.

I.    Ukraine-Related Developments

            A.    U.S. Executive Response

President Obama issued a series of executive orders that authorize imposition of sanctions in response to the escalating situation in Ukraine.  The first of the executive orders, Executive Order 13,660 "Blocking Property of Certain Persons Contributing to the Situation in Ukraine"[1] (hereinafter "First E.O."), signed March 6, 2014, broadly targeted pro-Russia, pro-separatist elements in Ukraine.  It blocks all property and interests in property in the United States of any person determined by the Secretary of the Treasury to be responsible for, or complicit in, a number of different activities.[2]  These activities include asserting governmental authority over any part or region of Ukraine without the authorization of the Government of Ukraine; and materially assisting, sponsoring, or providing financial, material, or technological support for destabilizing activities.  The First E.O. also suspends entry into the United States of persons determined to have engaged in the aforementioned activities.[3] Executive Order 13,661, "Blocking Property of Additional Persons Contributing to the Situation in Ukraine" (hereinafter "Second E.O.") was issued on March 16, 2014.[4]  The Second E.O. focuses on officials of the Government of the Russian Federation and persons operating in the arms or related sectors in the Russian Federation.[5]  It also blocks the property of any person determined to be owned or controlled by--or to have acted or purported to act for or on behalf of--a senior official of the Government of the Russian Federation or a person whose property and interests in property are blocked pursuant to the Second E.O.[6]  In addition, it blocks the property of any person determined to have materially assisted, sponsored, or provided financial, material, or technological support for--or goods or services to or in support of--a senior official of the Government of the Russian Federation or a person whose property and interests in property are blocked pursuant to the Second E.O.[7]  Entry into the United States also is suspended for those persons designated pursuant to this Executive Order.[8] The Second E.O. defines the term "Government of the Russian Federation" as "the Government of the Russian Federation, any political subdivision, agency, or instrumentality thereof, including the Central Bank of the Government of the Russian Federation, and any person owned, or controlled by, or acting for or on behalf of, the Government of the Russian Federation."[9]  It does not, however, define who is a senior official of the Government of the Russian Federation, or what constitutes the arms or a related sector.[10] Finally, the President signed Executive Order 13,662 "Blocking Property of Additional Persons Contributing to the Situation in Ukraine" on March 20, 2014 (hereinafter the "Third E.O.").[11]  The Third E.O. authorizes sanctions on any person determined by the Secretary of the Treasury to operate in particular sectors of the Russian Federation economy, such as financial services, energy, metals and mining, engineering, and defense and related materiel.[12]  The authorization represents a significant expansion of the sanctions program because the targeted sectors need not be linked to the disruption in Ukraine. On July 16, 2014, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) for the first time exercised the authority granted by the Third E.O. and issued Directives[13] that placed limited sanctions on four entities in the Russian financial services and energy sectors and identified these entities on a newly-published Sectoral Sanctions Identification List (SSI List).[14]  Directive 1 prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in (i) new debt with a maturity longer than 90 days; or (ii) new equity for SSI-listed entities in the Russian financial services sector, these entities' property, or their interests in property.  It also prohibits any such transactions which occur in the United States.  Two Russian banks were designated in Directive 1: Vnesheconombank (Bank for Development and Foreign Economic Affairs), or VEB, and Gazprombank.  Subsequently, on July 29, 2014, OFAC designated three more Russian banks on the SSI List:  Bank of Moscow, Russian Agricultural Bank, and VTB Bank OAO.[15] Directive 2 addresses the Russian energy sector and prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in new debt with a maturity longer than 90 days for SSI-listed entities, their property, or their interests in property.  Directive 2 also prohibits any such transactions which occur in the United States.  The two Russian companies so listed are Novatek and Rosneft. For the purposes of the SSI List, debt is considered to include bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper.[16]  Equity includes stocks, share issuances, depositary receipts, or any other evidence of title or ownership.[17]  The prohibitions also extend to debt issued by entities owned 50% or more by the named entities (and to equity issued by entities owned 50% or more by the banks identified in Directive 1).[18] OFAC clarified that identification of these entities on the SSI List does not prohibit (i) transactions in debt or equity that was issued prior to July 16, 2014; (ii) transactions dealing in new equity instruments for the two companies identified in Directive 2; and (iii) U.S. financial institutions from maintaining correspondent accounts and processing U.S. dollar-clearing transactions (so long as such activities do not involve dealing in the prohibited transaction types).[19]  The property and interests in property of those persons identified on the SSI List are not blocked unless those persons are also designated as SDNs.  Rather, U.S. persons must reject transactions or dealings that are prohibited under these Directives.[20] In response to Russia's continued activities in eastern Ukraine and its occupation of Crimea, on September 12, 2014, OFAC announced it was both expanding the scope of these sanctions and further adding to the number of sanctioned individuals and entities.[21]  OFAC added Directives 3 and 4 and revised the existing two Directives 1 and 2 (although the amendments to Directive 2 governing the energy sector are largely technical and non-substantive). Directive 3 restricts U.S. persons from transacting or dealing in new debt of entities operating in the Russian defense and related materiel sector which OFAC has designated on the SSI List, where such debt has a maturity of longer than 30 days.  Any such transaction occurring within the U.S. is similarly prohibited.  As with Directive 1, these sanctions effectively cut off access for designated entities to much of the U.S. capital markets, as all but short-term debt financing is prohibited.  OFAC designated a single entity, Rostec, under this Directive.[22] Directive 4 prohibits U.S. persons from providing, exporting, or reexporting, directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in the maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive, its property, or its interests in property.[23]  This Directive prohibits U.S. persons from engaging in such trade with Russian companies designated by OFAC on the SSI List, which now includes Gazprom, Gazprom Neft, Lukoil, Rosneft, and Surgutneftegas.[24]  Note that this prohibition applies to oil-related--and not gas-related--projects. Concurrent with Directive 4, OFAC also issued General License No. 2,[25] which permitted U.S. persons to wind-down their activities that would be in violation of Directive 4.  In particular, the General License clarified that "all activities prohibited by Directive 4 under Executive Order 13662 of March 20, 2014, that are ordinarily incident and necessary to the wind-down of operations, contracts or other agreements involving persons determined to be subject to Directive 4 under Executive Order 13662 and that were in effect prior to September 12, 2014, are authorized through 12:01 a.m. eastern daylight time, September 26, 2014."[26]  Note however, that the General License did not authorize any new such activities except as needed to cease operations involving projects covered by Directive 4.[27]  In addition, U.S. persons participating in transactions authorized by the General License were required to file a detailed report with OFAC.[28] OFAC also amended Directive 1 to tighten the access to capital market restrictions on SSI-listed entities in the financial services sector.  Directive 1 still prohibits transacting, financing or otherwise dealing in new equity for these entities.  But the amended Directive now prohibits such dealings in new debt with a maturity of longer than 30 days, which is a significant reduction from the previous threshold of 90 days.[29]  This new threshold applies only to debt issued on or after September 12, 2014.[30]  OFAC added Russia's largest bank, Sberbank of Russia, to the SSI List pursuant to this Directive.[31] Directive 2 remains substantively unchanged, but OFAC added two energy sector entities, Gazprom Neft and Transneft, to the SSI List, which will now restrict U.S. persons from transacting or dealing in any new debt with a maturity of longer than 90 day of these entities. OFAC released a number of "FAQs" that provided additional insight into the operation of the Directives, but also highlighted potential challenges for entities attempting to remain compliant.  For example, in August OFAC clarified that entities owned a total of 50 percent or more by one or more SDNs were similarly blocked (the "50 Percent Rule").[32]  OFAC then clarified that this guidance applies to persons identified as subject to a Directive.[33]  As a result, the prohibitions set forth in a Directive apply to entities owned 50 percent or more by one or more persons subject to the Directive whether or not the owned-entities are separately listed.  OFAC also provided definitions of key terms in the Directives, such as "shale projects," which it clarified applies to projects that have the potential to produce oil from resources located in shale formations.  As long as the projects in question are neither deepwater nor Arctic offshore projects, the prohibitions in Directive 4 do not apply to exploration or production through shale to locate or extract crude oil (or gas) in reservoirs.[34]  OFAC also provided further information on what constitutes "production"[35] and "Arctic offshore projects."[36] OFAC also issued General License No. 1A,[37] which authorizes transactions by U.S. persons involving derivative products whose value is linked to an underlying asset that constitutes new debt with a maturity of longer than 30 days or new equity issued by a person subject to Directive 1 under E.O. 13622, new debt with a maturity of longer than 90 days issued by a person subject to Directive 2, or new debt with a maturity of longer than 30 days issued by a person subject to Directive 3.  General License No. 1A supersedes and replaces General License No. 1 which provided similar authorization with respect to Directives 1 and 2 only.  In addition, OFAC issued General License No. 3,[38] which authorizes transactions involving DenizBank A.S. that would otherwise be prohibited by Directive 1. Finally, on December 19, 2014, the President issued an executive order targeting Crimea.  Specifically, Executive Order 13,865, "Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine"[39] prohibits exports to and imports from Crimea of goods, technology and services, as well as new investment in Crimea.  The E.O. authorizes blocking persons found to operating in Crimea, leading an entity in Crimea, to have been owned by or to have materially assisted, sponsored or provided support for persons blocked under the order.  General License 4[40], also issued on December 19, authorizes the export or reexport of certain agricultural commodities, medicines, medical supplies, and replacement parts for medical devices.  The General License does not authorize exports or reexports to SDNs or to military or law enforcement entities.  Further, a number of items, including castor beans, castor bean seeds, non-NSAID analgesics, opioids, and bioactive peptides, are excluded from the general license.  The General License also does not cover items that are not designated EAR99.

            B.    U.S. Legislative Response

            1.    H.R. 4152: Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014

On April 3, 2014, President Obama signed into law the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014.[41]  In addition to providing for costs of loan guarantees, recovery of assets related to Ukrainian governmental corruption, and enhanced democracy and security measures in Ukraine and the region, the bill targets two groups for sanctions.

                                    a.    Section 8

Section 8 targets individuals responsible for violence or acts undermining the peace and security of Ukraine.[42]  These individuals include (i) any person--including current and former officials of the Ukrainian government--who perpetrated or otherwise directed significant acts of violence or human rights abuses in Ukraine against persons associated with anti-government protests; (ii) any person who perpetrated or otherwise directed other significant acts intended to undermine the peace and security of Ukraine, including acts of economic extortion; (iii) any official of the Russian government or their family member or close associate determined to be responsible for or complicit in acts of significant corruption in Ukraine; or (iv) any individual determined to have materially assisted or sponsored any of the acts described above.[43]  The sanctions are mandatory; if an individual is determined to fall within one of the categories above, the bill states sanctions must be imposed.[44]  The sanctions include blocking of all transactions in the individual's property and interest in property in the United States or under United States control per the International Emergency Economic Powers Act (IEEPA), with civil and criminal penalties for blocking order violations.[45]  The asset blocking authority does not include the authority to impose sanctions on the importation of goods.[46]  If the person is an alien, sanctions also include denial or revocation of a United States visa or other documentation, as well as exclusion from the United States.[47]

                                    b.    Section 9

Section 9 targets individuals in the Russian Federation complicit in or responsible for significant corruption.[48]  These individuals include (i) any Russian government official or their family member or close associate who is determined to be responsible for or complicit in acts of significant corruption in the Russian Federation; or (ii) any individual determined to have materially assisted or sponsored an act described in the category above.[49]  The President is "authorized and encouraged" by the bill to impose sanctions if an individual falls into either category above.[50]  Similar to the section 8 sanctions, section 9 includes asset blocking of all transactions in the individual's property and interest in property in the United States or under United States control per IEEPA, with civil and criminal penalties for blocking order violations.[51]  Again, as with section 8, the asset blocking authority does not include the authority to impose sanctions on the importation of goods.[52]  If the person is an alien, sanctions also include denial or revocation of a United States visa or other documentation as well as exclusion from the United States.[53]

                                    c.    Other Provisions

The President may waive the application of sanctions if (i) the President determines that the waiver is in the national security interests of the United States; and (ii) the President submits a notice and justification of the waiver to the proper Senate and House committees on or before the date the waiver takes effect.[54] Finally, the bill also calls for an annual report until 2020 from the Secretary of Defense to specified committees of Congress regarding the current and future military power of the Russian Federation.[55]  The report must include an assessment of the security situation in regions neighboring Russia, the goals driving Russia's security strategy, and assessments of the Russian military forces, among other topics.[56] [57]

            2.    S. 2828 and H.R. 5859: The Ukraine Freedom Support Act

On December 18, 2014, President Barack Obama signed the Ukraine Freedom Support Act of 2014 (Ukraine Freedom Support Act),[58] which provides him with the authority to impose additional economic sanctions on foreign persons conducting particular transactions in certain Russian economic sectors, notably the energy and defense sectors.  The law, which originated as S.2828 in the United States Senate and H.R. 5859 in the House of Representatives and passed both with unanimous consent, further increases the economic pressure on Russia followings its annexation of Crimea in March 2014 and its continued support of separatist activities in eastern Ukraine. The law provides the President with new powers, though generally does not require that the President impose new sanctions.  Under the new legislation, the President shall impose certain penalties on Russian producers, transferors, or brokers of defense articles.  Note, however, that the President must impose sanctions on Rosoboronexport, the Russian defense firm.  In addition, the President may impose sanctions on a foreign person if the President determines that foreign person knowingly makes a significant investment in a special Russian crude oil project, and may sanction Gazprom if it withholds significant natural gas supplies from certain European countries.  Importantly, the legislation also provides the President with authority to sanction foreign financial institutions that engage in certain significant transactions involving the Russian defense or energy sectors, or on behalf of an SDN. The law also contains a number of other provisions related to providing Ukraine with military assistance and other forms of aid.             Section 4 – Sanctions Relating to the Defense and Energy Sectors The law further pressures Russia's defense and energy sectors, both by targeting specific companies and by prohibiting investment in new types of Russian economic projects.  Regarding the defense sector, the law requires the President, within 30 days, to impose three out of nine possible types of sanctions on Rosoboronexport.[59]  The law also grants discretion to the President to impose, within 45 days, three types of sanctions on any entity determined by the President to be owned or controlled by the Government of the Russian Federation--or by a national of the Russian Federation--that knowingly manufactures or sells defense articles transferred into Syria or other specified countries, or that transfers, brokers, or otherwise assists in the transfer of defense articles into Syria or other specified countries, without the consent of the internationally recognized government of that country.[60]  Relatedly, the law also authorizes the President, within 45 days, to impose sanctions on any person that the President determines knowingly assists, sponsors, or provides financial, material, or technological support for, or goods or services to or in support of, such activities by these entities after the date of enactment of the Act.[61] Addressing the energy sector, the new legislation authorizes the President, within 45 days, to impose three or more types of sanctions on a foreign person if the President determines that the foreign person knowingly makes a significant investment in a special Russian crude oil project.[62]  A special Russian crude oil project is defined as a project intended to extract crude oil from an exclusive economic zone of the Russian Federation in waters more than 500 feet deep, Russian Arctic offshore locations, or shale formations located in the Russian Federation.  A foreign person is defined as any individual or entity that is not a United States citizen, a permanent resident alien, or an entity organized under the laws of the United States or any jurisdiction with the United States.[63]  Note that this new authority provides the President with discretion to target non-U.S. persons for conducting certain transactions in the Russian energy sector.  The legislation also provides the President with authority to impose additional licensing requirements for or other restrictions on the export or reexport of items for use in the energy sector of the Russian Federation, including equipment used for tertiary oil recovery. The President can also impose sanctions on Gazprom, the Russian energy company, if he determines that it is withholding significant natural gas supplies from member countries of the North Atlantic Treaty Organization (NATO) or from countries such as Ukraine, Georgia, or Moldova.[64] The possible sanctions that the President can impose are specifically enumerated by the Act, and include:
  • Directing the Export-Import Bank of the United States not to approve the issuance of any guarantee, insurance, extension of credit, or participation in the extension of credit in connection with the export of any goods or services to a foreign person;
  • Prohibiting the head of any executive agency from entering into any contract for the procurement of any goods or services from a particular foreign person;
  • Prohibiting the exportation or provision by sale, lease or loan, grant, or other means, directly or indirectly, of any defense article or defense service to a particular foreign person and the issuance of any license or other approval to that foreign person under section 38 of the Arms Export Control Act;
  • Prohibiting the issuance of any license and suspending any license for the transfer to the foreign person of any item the export of which is controlled under the Export Administration Act;
  • Prohibiting any person from acquiring, holding, withholding, using, transferring, withdrawing, transporting, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign person has any interest, dealing in or exercising any right, power, or privilege with respect to such property, or conducting any transaction involving such property;
  • Prohibiting any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the foreign person;
  • Prohibiting any United States person from transacting in, providing financing for, or otherwise dealing in particular forms of debt or equity;
  • Excluding from the United States and revoking the visa or other documentation of particular foreign persons; or
  • Imposing on the principal executive officer or officers of the foreign person, or on individuals performing similar functions and with similar authorities, any of the sanctions described above.[65]
The legislation contains a number of exceptions and waivers, including a national security waiver that permits the President to waive certain sanctions with respect to a foreign person or a specific transaction if the President determines that the waiver is in the national security interest of the United States and submits to the appropriate congressional committees a report on the determination and the reasons for the determination.[66]  Additionally, the sanctions do not apply to the importation of goods.[67]             Section 5 – Sanctions on Foreign Financial Institutions The legislation also provides the President with the authority to impose sanctions on foreign financial institutions that engage in significant transactions involving a number of activities.  In particular, foreign financial institutions are prohibited from engaging in significant transactions with any entity determined by the President to be owned or controlled by the Government of the Russian Federation, or by nationals of the Russian Federation, that knowingly manufactures or sells defense articles transferred into Syria or other specified countries, or that transfers, brokers, or otherwise assists in the transfer of defense articles into Syria or other specified countries without the consent of the internationally recognized government of that country.[68]  Relatedly, foreign financial institutions are prohibited from engaging in any transactions involving a person who the President determines to be knowingly assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, such activities by these entities.[69] Foreign financial institutions are also prohibited from engaging in transactions involving entities that the President has determined made significant investment in a special Russian crude oil project, or with Gazprom if the President determines that Gazprom is withholding significant natural gas supplies from particular countries.[70] Finally, foreign financial institutions may be sanctioned if the President determines that they have knowingly facilitated a significant financial transaction, 180 days or more after the enactment of the Act, on behalf of any SDN that has been designated pursuant to the Ukraine crisis.[71] Under the Ukraine Freedom Support Act, the President has the authority to prohibit foreign financial institutions that violate these restrictions from opening or maintaining correspondent accounts in the United States.[72]

II.    Other U.S. Sanctions Developments

Although much of the sanctions attention has been focused on Ukraine and Russia, there have been several developments with respect to other areas of the world.

            A.    Changes in U.S. Policy Towards Cuba

On December 17, 2014, President Obama announced "the most significant changes to [U.S.] Cuba policy in more than 50 years."  According to information released by the White House[73], the United States and Cuba will move to normalize diplomatic and economic relations and the United States will implement significant changes to its sanctions policies and regulations with respect to Cuba.[74]  The United States intends to reopen its embassy in Havana and the President called for the State Department to review Cuba's designation as a State Sponsor of Terrorism.  Removing Cuba from this list would have a dramatic impact on possible further relaxation of the trade and diplomatic sanctions currently in place against the country and its nationals. While the broader U.S. embargo against Cuba remains in place and normal tourism is still prohibited, the announced policy shift will result in substantial changes to the implementation of the embargo and the ability of individuals residing in the U.S. to travel to Cuba for specified reasons, as well as for U.S. persons, individuals and businesses to engage in limited commerce with the Cuban people. Please note that the new policies will not go into effect until the applicable regulations (the Cuban Assets Control Regulations, administered by OFAC, and the Export Administration Regulations, administered by the Commerce Department's Bureau of Industry and Security) can be amended.[75] The changes to current U.S. policy fall into the following areas:

            1.    Expanding Travel by U.S. Persons to Cuba

General licenses will be made available for all authorized travelers traveling to Cuba for the following reasons: (i) family visits; (ii) official business of the U.S. government, foreign governments, and certain intergovernmental organizations; (iii) journalistic activity; (iv) professional research and professional meetings; (v) educational activities; (vi) religious activities; (vii) public performances, clinics, workshops, athletic and other competitions, and exhibitions; (viii) support for the Cuban people; (ix) humanitarian projects; (x) activities of private foundations or research or educational institutes; (xi) exportation, importation, or transmission of information or informational materials; and (xii) certain export transactions that may be considered for authorization under existing regulations and guidelines.  While general licenses currently exist for some individuals whose travel falls within some of the above listed categories, other individuals, such as those whose travel is described by categories vii, viii, ix, x, and xi currently must obtain specific licenses from OFAC.[76]  The general licenses will significantly ease travel for qualified individuals. Individuals whose travel to Cuba falls within the twelve categories authorized by the general licenses will be able to make travel arrangements through any service provider that complies with OFAC's regulations concerning travel services to Cuba.  In another significant policy change, general licenses, rather than specific licenses[77], will authorize the provision of such travel services.

            2.    Facilitating Authorized Transactions Between the United States and Cuba

In another change from current policy,[78] U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, and U.S. credit and debit cards will be permitted for use by travelers to Cuba (currently the use of U.S. credit and debit cards must be specifically authorized).[79]  The regulatory definition of the statutory term "cash in advance" will also be revised to specify that it means "cash before transfer of title," instead of the current definition which requires that payment be received by the seller prior to shipment of goods from the loading port.[80]

            3.    Updating the Application of U.S. Sanctions Towards Cuba in Countries Outside the U.S.

General licenses will authorize U.S.-owned or -controlled entities in third countries to provide services to, and engage in financial transactions with, Cuban individuals in third countries.  Other general licenses will: (i) unblock accounts held at U.S. banks belonging to Cuban nationals who have relocated outside of Cuba; (ii) permit U.S. persons to participate in third-country professional meetings and conferences related to Cuba; and (iii) allow foreign vessels to enter the United States after engaging in certain humanitarian trade with Cuba, among other measures.  Currently, such conduct by U.S. persons requires a specific license from OFAC.[81]

            4.    Expanding Commercial Sales and Exports from the United States of Certain Goods and Services

Additional items will be authorized for export to Cuba, including certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers.

            5.    Increasing Cubans' Access to Communications and Ability to Communicate Freely

To support U.S. efforts to increase the ability of the Cuban people to communicate freely and broaden their access to the Internet and other forms of telecommunications, the commercial export of certain consumer communications devices, related software, applications, hardware, and services, as well as items used for the establishment and update of communications-related systems, will be authorized.  Telecommunications providers will be also be allowed to establish and provide commercial telecommunications and internet services, including the installation and support of necessary infrastructure.  While the "freedom to communicate" has been a long-term policy goal of the U.S. government, especially with respect to the access to communications and ability to communicate freely of individuals subject to repressive governments,[82] allowing U.S. telecommunications providers to actually provide such telecommunications services and infrastructure within Cuba itself is an unprecedented change in U.S. policy towards Cuba.

            6.    Authorizing Limited Imports of Cuban Goods

Licensed U.S. travelers to Cuba will be authorized to import $400 worth of goods from Cuba, with a limit of $100 in tobacco products and alcohol, combined.  This is a change from the current regulations, which ban the import of almost all Cuban goods.[83]

            7.    Facilitating U.S. Remittances to Cuba

The level of general, non-family remittances to Cuban nationals will be raised from $500 to $2,000 per quarter, except for remittances to certain officials of the Cuban government or the Communist party, which will still be prohibited.  In addition, donative remittances for humanitarian projects, support for the Cuban people, and support for the development of private businesses in Cuba will no longer require a specific license from OFAC, nor will remittance forwarders.[84]

            B.    Other Sanctions Developments

            1.    Executive Orders

In addition to the Executive Orders issued in response to the Ukraine crisis discussed above, President Obama in 2014 also issued sanctions-related Executive Orders pertaining to South Sudan, the Central African Republic (CAR), Iraq, the Democratic Republic of the Congo (DRC) and the Democratic People's Republic of Korea (North Korea).[85]  The measures tightened restrictions against parties contributing to violence and unrest in South Sudan and the CAR, and broadened the scope of sanctionable conduct in the DRC, but eased restrictions in Iraq due to improvements in the circumstance under which sanctions were initially imposed.

                                    a.    South Sudan: Executive Order 13,664

On April 3, 2014, President Obama signed Executive Order 13,664, "Blocking Property of Certain Persons with Respect to South Sudan,"[86] declaring a national emergency to deal with the "threat to the national security and foreign policy of the United States" resulting from violence and instability in South Sudan.  The E.O. authorizes blocking of persons contributing to violence in the country, including Government and opposition forces.  Specifically, it blocked property of those persons that are responsible for, lead, or materially assist with human rights abuses, violent acts against women and children, interference with humanitarian aid or peacekeeping missions, the recruitment or use of child soldiers, and actions that threaten stability or peacekeeping.  The E.O. also prohibited donations to blocked persons, including food, clothing and medicine, placed a travel ban on blocked persons, and prohibited transactions or conspiracies that attempt to violate the E.O.  OFAC Guidance published on June 2, 2014, clarified that payments to "non-designated individuals or entities under the command and control" of blocked persons are not prohibited, but emphasized that due diligence is required to ensure that blocked persons or groups do not profit from the transactions.[87]

                                    b.    Central African Republic: Executive Order 13,667

Signed by President Obama on May 13, 2014, Executive Order 13,667, "Blocking Property of Certain Persons Contributing to the Conflict in the Central African Republic"[88] declared a national emergency based on the "breakdown of law and order, intersectarian tension, widespread violence and atrocities, and the pervasive, often forced, recruitment and use of child soldiers" in the Central African Republic.  The E.O. blocked the property of persons who engage in, lead, sponsor, or assist: activities that threaten peace, stability, the political transition process, or democratic processes and institutions; targeted violence against civilians; the use or recruitment of child soldiers; the obstruction of delivery of humanitarian aid; attacks against peacekeepers or the UN; and persons or groups that threaten the country's security through illicit trade of natural resources.  Additionally, persons who supply, sell, or receive arms or other military materials, including military training and financing are blocked (except if such activity was authorized for humanitarian or peacekeeping activities).  Additional restrictions include the prohibition of donations (including humanitarian donations) to or from blocked individuals and entities, a travel ban on blocked persons, and the prohibition of violations or conspiracies intended to violate the E.O.

                                    c.    Iraq: Executive Order 13,668

On May 27, 2014, President Obama signed Executive Order 13,668, "Ending Immunities Granted to the Development Fund for Iraq and Certain Other Iraqi Property and Interests in Property Pursuant to Executive Order 13303, as Amended."[89]  Executive Order 13,303, signed by President Bush in May of 2008, prohibited the "attachment or other judicial process" of assets of the Development Fund for Iraq or Iraqi petroleum and petroleum products, including "proceeds, obligations, or any financial instruments" related to the sale or marketing of such products.[90]  The scope of this E.O. was amended in November 2004 to include property owned or held by, or on behalf of, the Central Bank of Iraq.[91]  Citing significant alteration of the situation that precipitated the 2003 E.O., including "the Government of Iraq's progress in resolving and managing the risk associated with outstanding debts and claims arising from actions of the previous regime," E.O. 13,668 terminated immunities from the judicial process for assets of the Development Fund for Iraq, Iraqi petroleum and petroleum products, and the Central Bank of Iraq.  The E.O., however, maintained the national emergency declared in E.O. 13,303.

                                    d.    Democratic Republic of the Congo: Executive Order 13,671

On July 8, 2014, President Obama signed Executive Order 13,671, "Taking Additional Steps to Address the National Emergency With Respect to the Conflict in the Democratic Republic of the Congo," in response to "the continuation of activities that threaten the peace, security, or stability of the Democratic Republic of the Congo and the surrounding region, including operations by armed groups, widespread violence and atrocities, human rights abuses, recruitment and use of child soldiers, attacks on peacekeepers, obstruction of humanitarian operations, and exploitation of natural resources to finance persons engaged in these activities[.]"[92]  E.O. 13,671 amends E.O. 13,413 signed by President Bush on October 27, 2006,[93] to broaden the bases for designating SDNs pursuant to the E.O.s.  Added particular emphasis is placed on targeting those found to be responsible for or complicit in, or to have engaged in, directly or indirectly: actions or policies that threaten the peace, security, or stability of the Democratic Republic of the Congo or that undermine its democratic processes or institutions; the targeting of women, children, or any civilians through the commission of acts of violence, abduction, forced displacement; attacks on schools, hospitals, religious sites, or other locations where civilians seek refuge; the use or recruitment of children by armed groups or armed forces; the obstruction of the delivery or distribution of, or access to, humanitarian assistance; and attacks against United Nations missions, international security presences, or other peacekeeping operations.

                                    e.    North Korea:  Executive Order 13,687

On January 2, 2015, President Obama signed Executive Order 13,687, "Imposing Additional Sanctions with Respect to North Korea", in response to North Korea's "provocative, destabilizing, and repressive actions and policies,"[94] which, most notably, included the recent cyber-attack targeting Sony Pictures Entertainment and related threats against movie theaters and their patrons.  The targeted sanctions aim to increase financial pressures on North Korea by blocking designated persons' property and interests that are in the U.S. or come under the control of a U.S. person.  Under the sanctions, the designated persons will be denied access to the U.S. financial systems, and U.S. persons are prohibited from engaging in transactions with such designated persons. Pursuant to the E.O., the Treasury Department designated three entities and ten individuals for being agencies or officials of the North Korean government.[95]  The designated entities are the Reconnaissance General Bureau (RGB), which is North Korea's primary intelligence organization, the Korea Mining Development Trading Corporation (KOMID), North Korea's primary arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons, and the Korea Tangun Trading Corporation, which is responsible for the procurement of commodities and technologies to support North Korea's defense research and development programs.[96]

            2.    Legislation

                                    a.    Venezuela Defense of Human Rights and Civil Society Act of 2014

On December 18, 2014, President Obama signed into law the Venezuela Defense of Human Rights and Civil Society Act of 2014.[97]  The Act authorizes sanctions, including asset blocking and revocation of visas, in connection with violence perpetrated on antigovernment protesters in Venezuela.  The sanctions may be placed on foreign persons, including present and former officials of the Government of Venezuela or any persona acting on behalf of the Government of Venezuela, found to have ordered or directed serious acts of violence or serious human rights abuses in Venezuela against persons associated with antigovernment protests, to have ordered or directed the arrest of persons primarily because the exercise of freedom of expression or assembly, or to have knowingly assisted in the foregoing conduct.

            3.    Significant OFAC Regulations

                                    a.    Syria Sanctions Regulations

On May 2, 2014, OFAC amended and reissued in their entirety the Syrian Sanctions Regulations, 31 C.F.R. Part 542 (SSR).[98]  The SSR were amended to implement executive orders issued by the President in connection with the national emergency in Syria.[99]  The regulations also codify general licenses and licensing policies that previously were available only on OFAC's website.[100]

                                    b.    Burmese Sanctions Regulations

On June 30, 2014, OFAC reissued the Burmese Sanctions Regulations (BSR).[101]  The regulations originally were issued to implement Executive Order 13,047,[102] and then amended and reissued in 2005 to implement Executive Order 13,310.[103]  The regulations were amended and reissued in 2014 to implement additional executive orders issued by the President in connection with the national emergency declared on May 22, 1997.[104]  The reissued regulations also update the general licenses available under the BSR and certain statements of licensing policy.

                                    c.    South Sudan Sanctions Regulations

OFAC issued abbreviated regulations implementing Executive Order 13,664 of April 3, 2014, "Blocking Property of Certain Persons with Respect to South Sudan"[105], on July 1, 2014.[106]  The regulations, codified at 31 C.F.R. Part 558, will be supplemented with more comprehensive regulations and guidance.

                                    d.    Central African Republic Sanctions

OFAC issued regulations implementing Executive Order 13,667 of May 12, 2014, "Blocking Property of Certain Persons Contributing to the Conflict in the Central African Republic"[107], on July 7, 2014.[108]  The regulations, codified at 31 C.F.R. Part 553 and published in abbreviated form, will be supplemented with more comprehensive regulations and guidance.

                                    e.    Zimbabwe Sanctions Regulations

OFAC published the Final Rule amending the Zimbabwe Sanctions Regulations on July 10, 2014.[109]  The Final Rule is based on the interim rule with amendments to implement more recent developments.

            4.    General Licenses

                                    a.    WMD Proliferators

On February 3, 2014, OFAC issued General License No. 9[110] to the Weapons of Mass Destruction Proliferators Sanctions Regulations[111] and the Iranian Transactions and Sanctions Regulations (ITSR)[112] authorizing transactions related to the arrest, detention, and judicial sale of Motor Vessel SININ (IMO No. 9274941).  The Tanzania flagged vessel is owned by the Islamic Republic of Iran Shipping Lines (IRISL) and was added to the SDN List on September 10, 2008 as part of the U.S. sanctions on IRISL.  The vessel, captured by pirates of the coast of Somalia in 2011 and released after 182 days following payment of a ransom,[113] was arrested in China.  The license does not permit the transfer of funds or other property to blocked persons, except as authorized by paragraph (a) of the license.[114]  If the vessel is sold by judicial sale, the purchaser will need to provide OFAC with documentation showing that the basis for blocking is no longer applicable in order to have the vessel removed from OFAC's Specially Designated Nationals and Blocked Persons List.[115]

                                    b.    Iran

                                                            (i)    February 7, 2014 Publication of Iran General License D-1 General License D-1 (GL D-1)[116] replaces and supersedes General License D (GL D), incorporating significant changes.  First, GL D-1 expands the authorization in GL D to permit the exportation, reexportation, or provision, directly or indirectly, to Iran of certain personal communications software, hardware, and related services subject to the Export Administration Regulations, 15 C.F.R. Parts 730 through 774 (EAR) (rather than just the exportation or reexportation from the United States or by a U.S. person of such software, hardware, and services).[117] A new Note has been added to paragraphs (a)(2) and (a)(3) clarifying that the authorization in these paragraphs includes the export, reexport, or provision, directly or indirectly, of the authorized items by an individual leaving the United States for Iran.  GL D-1 also newly authorizes the import by an individual into the United States of certain hardware and software previously properly exported by the individual to Iran pursuant to other provisions of GL D-1 or 31 C.F.R. § 560.540.[118] GL D-1 authorizes the export or reexport, directly or indirectly from the United States or by a U.S. person of certain publicly available software and services, provided the publicly available software and services are provided at no cost.[119]  With respect to fee-based services, the general license authorizes the export and reexport, directly or indirectly, of certain fee-based services and software incident to the exchange of personal communications over the Internet from the United States to Iran.  The authorized fee-based services include such services as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.[120]  Software associated with the authorized fee-based services that is subject to the EAR may be exported or reexported or provided directly or indirectly to Iran if the software is classified EAR99 or subject to ECCN 5D992.c.[121]  Software that is not subject to the EAR because it is of foreign origin and not located within the United States similarly may be exported, reexported or provided directly or indirectly by a U.S. person wherever located, provided the software would have been designated EAR99 if located in the U.S. or meet the criteria for classification under ECCN 5D992.c. if it were subject to EAR.[122] GL D-1 includes an annex in which are listed additional software and hardware that, if subject to the EAR, may be exported, reexported or provided directly or indirectly to Iran.[123]  This authorization also applies to software or hardware listed in the annex, if it is of foreign origin and located outside the U.S. (and therefore not subject the EAR), provided that such software or hardware would be designated EAR99 if located in the U.S. or would meet the criteria for classification under the relevant ECCN specified in the annex.[124]  If the software is not subject to the EAR because it is publicly available software described in 15 C.F.R. § 734.39b)(3), as long as it is of a type described in the annex to GL D-1, such software may also be exported, reexported or provided directly or indirectly to Iran by a U.S. person.[125] GL D-1 also allows the export or reexport from the United States to Iran of consumer-grade Internet connectivity services and the provision, sale, or leasing of capacity on telecommunications transmission facilities (i.e., satellite or terrestrial network connectivity) incident to personal communications.[126]  However, this authorization does not include commercial endeavors or domain name registration services.[127] None of the aforementioned software, hardware, or services may be exported, reexported, or provided to blocked persons.[128]  Similarly, the items may not be exported, reexported, or provided to the Government of Iran, unless they are widely available to the public and free for the user.[129]  Finally, U.S. depository institutions and U.S. registered brokers or dealers in securities may transfer funds from Iran for or on behalf of a person in Iran for a transaction authorized by General License D-1 as long as the transfer is consistent with all federal regulations.[130]                                                             (ii)    March 19, 2014 Publication of Iran General License G General License G (GL-G)[131] authorizes certain academic exchange agreements with Iran.  Under the license, U.S. accredited academic institutions may enter into student academic exchange agreements with Iranian universities.[132]  Such agreements can include both undergraduate and graduate educational courses, and the provision of scholarships for Iranian students to attend U.S. academic institutions.  Additionally, U.S. persons, wherever located, can administer professional certificate examinations and university examinations to individuals located in Iran or to individuals located outside of Iran that are ordinarily resident in Iran.[133]  Similarly, U.S. students can attend classes or conduct noncommercial academic research at Iranian universities at the undergraduate level, and at the graduate level in the humanities, social sciences, law, or certain business subjects.[134] U.S. academic institutions are permitted to export services:  (i) to file and process applicants and to accept money from Iranian residents for applications and tuition; (ii) to recruit, hire, or employ in a teaching capacity Iranian residents who are regularly employed in a teaching capacity at an Iranian university, as long as those individuals are not teaching at a U.S. academic institution without an appropriate visa; and (iii) to Iranian residents to participate in online courses at the undergraduate level.[135]  Moreover, U.S. persons can export not-for-profit services to Iran that support increased access to education, educational reform projects, and combatting illiteracy.[136]  The license does not, however, authorize exporting or reexporting any goods (including software) or technology to the Government of Iran, or to Iran, unless the item is EAR99 or constitutes educational information not subject to the EAR, as set forth in 15 C.F.R. § 734.9, and the export or reexport does not otherwise required a license from the U.S. Department of Commerce.[137]  Likewise, it does not authorize the export or reexport of any service to blocked persons.[138]                                                             (iii)    April 7, 2014 Iran/TSRA general license authorizing export/reexport of replacement parts for medical devices On April 7, 2014, OFAC issued a general license[139] that authorizes the exportation and reexportation of certain replacement parts for certain medical devices to individuals and entities in Iran.  The replacement parts covered under the general license must be designated under the EAR as EAR99, or would be so designated if they were located in the U.S.  For example, a company located in the U.S. may be authorized under the general license to arrange for the export from a third country to Iran of certain medical devices if those medical devices would be designated as EAR99 if they were located in the U.S.[140]  The general license is also limited to a one-for-one export or reexport basis; only one replacement part can be exported or reexported to replace a broken or non-operational component.  The general license applies to the export or reexport of these medical devices to the Government of Iran, individuals or entities in Iran or to persons in third countries purchasing specifically for resale to the foregoing.  The general license does not authorize the exportation or reexportation of replacement parts for medical devices to military or law enforcement purchasers or imports.

                                    c.    Sudan

Effective August 11, 2014, OFAC issued General License No. 1A[141] to replace and supersede General License No. 1, dated April 5, 2013, as well as guidance explaining the changes.[142]  The definition of "U.S. academic institutions" was expanded to include third-country branch campuses, and the authorizations contained in the general license cover U.S. academic institutions' contractors.  The general license also authorizes activities needed for Sudanese nationals to apply to U.S. academic institutions and to authorized training seminars.  The authorized activities may occur before a student visa is issued, and include accepting application fees and tuition payment.  The general license also authorizes U.S. financial institutions to process the funds transfers by Sudanese nationals needed to permit participation in authorized academic and training programs.

            5.    Government Agency Guidance

                                    a.    Guidance and other Materials Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Between The P5+1 and The Islamic Republic Of Iran

On November 25, 2014, OFAC published guidance relating to the Joint Plan of Action (JPOA) reached between the P5+1 (the United States, United Kingdom, Germany, France, Russia, and China) and the Islamic Republic of Iran.[143]  The term of relief--which had already been extended once--was set to expire on November 24, 2014.  By mutual consent, on November 24, 2014, the P5+1 and Iran renewed the JPOA until June 30, 2015 ("the Second Extended JPOA Period").[144] The parties arrived at the technical understanding of the JPOA on January 12, 2014, and its implementation began on January 20, 2014.[145]  The JPOA marked the first time in nearly a decade that the Islamic Republic of Iran, in exchange for some relief from international sanctions, agreed to stop the advance of its nuclear program, reverse aspects of the program, and allow unprecedented access for international inspectors.[146] As a result of the progress achieved during the JPOA period, but mindful of outstanding differences, the JPOA was first extended, on July 21, 2014, until November 24, 2014, in order to give the parties the time to develop a "comprehensive agreement" (Extended JPOA Period).[147]  OFAC re-issued three amended documents in connection with the JPOA.  The Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, between the P5+1 and the Islamic Republic of Iran, As Extended Through November 24, 2014[148] describes the impact of the ongoing temporary sanctions relief in connection with certain specific industries and exports:  petrochemicals and crude oil, precious metals, the auto industry, civil aviation, and humanitarian support.[149]  In addition, it describes how this relief may impact financial transactions related to these fields, how these changes affect non-U.S. persons and entities, and the obligation to obtain an explicit waiver from OFAC before conducting business under these temporary provisions.  It also clarified that insurance claims may be paid after the Extended JPOA Period provided all the underlying transactions and activities were in compliance with other sanctions and the terms of the JPOA.  Further, the JPOA had authorized the release of $4.2 billion in Iranian revenue, and this extension authorized the release of an additional $2.8 billion.[150]  OFAC released FAQs that described the scope of the sanction relief.[151]  This included lists of permitted and excluded items and entities, how the changes interacted with other U.S. policies and sanctions related to Iran, the continued prohibitions against transacting with SDNs, and specifics related to the return of foreign-held Iranian revenue and humanitarian support.[152]  The third document provided further detail regarding the process of obtaining a license to transact with Iran's civil (commercial passenger) aviation industry. The JPOA was extended a second time on November 24, 2014, and on November 25, 2014, OFAC issued Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, between the P5+1 and the Islamic Republic of Iran, As Extended Through June 30, 2015.[153]  During the period from January 20, 2014 until June 30, 2015, the United States committed to continuing to provide Iran with certain sanctions relief.[154]  This relief includes a temporary suspension of certain U.S. sanctions on Iran's petrochemical exports, as well as sanctions on associated services, by non-U.S. persons not subject to the ITSR.[155]  The JPOA also provides for certain sanctions relief related to Iran's crude oil sales, including not imposing correspondent or payable-through account sanctions specified under the Iranian Financial Sanctions Regulations on certain foreign financial institutions that conduct or facilitate transactions for the export of petroleum and petroleum products (and associated insurance) to certain countries.[156]  Certain non-U.S. persons are also permitted to engage in activities related to the sale, supply, or transfer to Iran of significant goods or services used in conjunction with the automotive sector of Iran, as well as in activities related to precious metals and civil aviation.[157] In addition, OFAC released FAQs specifying that Iran will receive $4.9 billion in Restricted Funds during the period beginning on November 25, 2014 and ending on June 30, 2015,[158] as well as a Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran's Civil Aviation Industry.[159]

                                    b.    February 27, 2014 Reminder about the Removal of the .exe SDN and PLC Archives

On or about March 5, 2014, OFAC ceased issuing its Specially Designated Nationals (SDN) data files in the 32 bit-self extracting archive known as "SDALLW32.EXE".[160]  At the same time, it also ceased issuing its Palestinian Legislative Council (PLC) data files in the 31 and 16 bit self-extracting archives, "PLCDAT32.EXE" and "PLC_DAT.EXE".[161]  Instead, OFAC continues to provide and update 32 bit .zip archives, "SDALL.ZIP" and "PLC_DAT.ZIP," offering the SDN and PLC lists respectively.[162]  Through these .zip archives, the SDN and PLC lists are available in XML, CSV, @ sign fixed field delimited, and text versions.[163]  These updates may impact automated SDN and PLC download processes, and businesses should ensure that they conform their protocols to ensure they are receiving the most up-to-date information.[164]

                                    c.    April 1, 2014 Burma Guidance Relating to General License Nos. 16-19 and Executive Order 13,651

OFAC published guidance relating to U.S. sanctions against Burma on April 1, 2014.[165]  Measures largely easing financial and investment sanctions were issued beginning on July 11, 2012, and include: (i) General License No. (GL) 16, permitting the export of U.S. financial services to Burma; (ii) GL 17, permitting new U.S. investment in Burma; (iii) GL 18, authorizing the importation of goods of Burmese origin into the U.S.; (iv) GL 19, easing limitations on financial transactions with four of Burma's blocked banks (Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and Myanma Investment and Commercial Bank); and (v) Executive Order 13,651, "Prohibiting Certain Imports of Burmese Jadite and Rubies."[166] The Guidance clarified which sanctions remain in place.  U.S. individuals cannot engage in transactions with blocked persons, and may engage in only limited transactions with the banks discussed in GL 19.  Nor can U.S. persons engage in certain activities (including providing security services, exporting financial services, or making new investments) with the Burmese Ministry of Defense, state or non-state armed groups (including the military), or "entities owned 50 percent or more by any of the foregoing."[167]  Finally, jadite and rubies mined from Burma, or jewelry containing them, cannot be imported into the U.S. because of concerns about labor practices and human rights in that industry.[168] The Guidance explained several other issues related to banking, new investments, reporting requirements, and SDN.                                                             (i)    Banking U.S. persons may bank with non-blocked banks in Burma and may engage in "most" transactions with the four banks noted in GL 19.[169]  U.S. financial institutions may enter into "direct correspondent relationships" with non-blocked Burmese financial institutions and the four blocked banks listed in GL 19.[170] GL 16 does not authorize U.S. persons to open accounts with blocked banks, but it "permits transfers of funds even though they may involve transfers to or from an account of a blocked Burmese financial institution."[171]                                                             (ii)    New Investments "New investment" is defined by 31 C.F.R. § 537.331.[172] GL 17 authorizes the facilitation of new investments undertaken by U.S. persons, provided they are not pursuant to an agreement "with the Burmese Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned 50 percent or more by any of the foregoing" and do not "involve[] a transaction" with a blocked person.[173] GL 17 authorizes investment in a third-country company's activities in Burma.[174] Leasing office space used for the sale of good and services may or may not constitute a new investment, depending upon the "facts and circumstances of each particular situation."  Investors are encouraged to "err[] on the side of caution and report[] in compliance" with State Department-issued guidance.[175] GL 19 neither authorizes new investments with nor unblocks property of Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, or Myanma Investment and Commercial Bank.[176]                                                             (iii)    Reporting U.S. individuals and entities whose aggregate new investment in Burma exceeds $500,000 "over any period" must fulfill the State Department "Reporting Requirements on Responsible Investment in Burma" within 180 days after meeting the threshold and annually thereafter on July 1.[177] New investments "pursuant to an agreement, or pursuant to the exercise of rights under such an agreement" with Myanma Oil and Gas Enterprise must be reported the State Department within 60 days.[178]                                                             (iv)    Specially Designated Nationals Listing or delisting of SDNs "will be pursued as appropriate to meet changing conditions in Burma."[179] U.S. persons may sell goods or services to Burmese persons not on the SDN list, but generally may not deal with blocked persons, including SDNs, or entities "50 percent or more owned by such persons."[180]                                                             (v)    Guidance Regarding Executive Order 13,651--Prohibiting Certain Imports of Burmese Jadeite and Rubies Executive Order 13,651, signed by President Obama on August 6, 2013, reinstated prohibitions and restrictions on the importation of jadeite and rubies that were originally imposed by the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008, but which lapsed following the Burmese Freedom and Democracy Act's expiration on July 28, 2013.  The E.O. also prohibited any transaction that evades or avoids, or has the purpose of evading or avoiding, any of the prohibitions on importing such goods.[181]  Per the Guidance, financial and blocking sanctions are no longer in effect with respect to the State Peace and Development Council (SPDC) because (i) the SPDC is no longer in existence; and (ii) such sanctions were waived by E.O. 12,651.[182]

                                    d.    April 7, 2014 Frequently Asked Questions on Iran/TSRA General Licenses

On April 7, 2014, OFAC published new FAQs on a final rule amending the ITSR.[183]  The rule makes three important changes to the preexisting authorized transactions.  First, the rule expands an existing general license that authorizes the exportation and reexportation of food to individuals and entities in Iran to include agricultural commodities.[184]  Second, the rule amends certain definitions to relevant OFAC regulations.[185]  Finally, the rule adds new general licenses that authorize the exportation or reexportation of certain medicines and replacement parts for certain medical devices.[186]  The FAQs largely relate to the scope of and exceptions to general licenses.[187]  Specifically, the FAQs describe excluded Iranian persons and entities, excluded agricultural commodities, the list of medicines and medical devices supported by these changes, the application of these sanctions on non-U.S. persons and entities, the impact on certain financial brokerage services, and how to obtain a license.[188]

                                    e.    June 9, 2014 SDN Search "Sanctions List Search" searches both the Specially Designated Nationals List and the Foreign Sanctions Evaders List

OFAC upgraded its SDN Search tool, renaming it the Sanctions List Search (SLS) on June 9, 2014.[189]  The upgraded version now allows users to search for a name on both the SDN List and Foreign Sanctions Evaders List--independently or simultaneously.[190]  The core improvement is a new "fuzzy logic" algorithm that expands search results.[191]  In addition to returning "exact matches" for searched names, the SLS now returns names that may be phonetic matches or spelled with similar patterns of characters.[192]  These non-exact results come with an SLS score expressing the confidence of a match, to help users ensure their results conform to their risk and compliance needs.[193]  All results are viewable on-screen, are printable, and can be saved as a spreadsheet.[194]

                                    f.    August 13, 2014 Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked

On August 13, 2014, OFAC issued Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked (Revised Guidance) (a.k.a. the "50% Rule") updating previous guidance on the subject issued February 14, 2008.[195] The revised guidance makes an important change/clarification to OFAC's policy regarding the 50% Rule by stating that "[p]ersons whose property and interests in property are blocked pursuant to an Executive order [sic] or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest.  Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person." This reflects a change from previous, if informal, guidance from OFAC on the subject earlier this year which indicated that entities would only be considered blocked if a single blocked entity owned 50% or more of that entity. OFAC also released FAQs #398-402, which further clarified the 50% Rule.[196]  In the introductory text to the FAQs, OFAC notes that the 50% Rule also applies to entities listed on the new SSI List, but only to the same extent that SSI List entities are themselves restricted (i.e., restrictions on access to capital, but not full blocking).  FAQ #398 clarifies that the 50% Rule "speaks only to ownership and not to control.  An entity that is controlled (but not owned 50 percent or more) by one or more blocked persons is not considered automatically blocked pursuant to OFAC's 50 Percent Rule."  However, OFAC was careful to reiterate that caution should be exercised when dealing with entities in which blocked persons have significant ownership stakes less than 50% in aggregate, or over which blocked persons exercise control without majority ownership, as OFAC reserves the right to designate such entities in the future.  FAQ #401 clarifies the idea of "indirect" ownership, noting that "'[i]ndirectly,' as used in OFAC's 50 Percent Rule, refers to one or more blocked persons' ownership of shares of an entity through another entity or entities that are 50 percent or more owned in the aggregate by the blocked person(s)." Providing a series of examples, the FAQ indicates that "indirect" ownership refers only to the concept of chain of ownership through intermediaries.

                                    g.    September 23, 2014 Publication of Frequently Asked Question with Respect to Payments or the Facilitation of Payments to Iranian Civil Aviation Authorities

On September 23, 2014, OFAC released an FAQ concerning "payments or the facilitation of payments to Iranian civil aviation authorities" for overflights of or emergency aircraft landings in Iran "by aircraft owned by a non-U.S. person and registered outside the United States."[197]  The FAQ states that payments for services rendered by the Government of Iran in connection with such overflights or emergency landings are not subject to U.S. sanctions if such transactions do not involve "the U.S. financial system or persons on the Specially Designated Nationals and Blocked Persons List (SDN List) other than any political subdivision, agency, or instrumentality of the Government of Iran listed solely pursuant to Executive Order 13599 or any Iranian depository institution listed solely pursuant to Executive Order 13599."  The guidance takes care to note that "the involvement of other persons on the SDN List, including Iranian financial institutions designated pursuant to Executive Order 13224 or Executive Order 13382,"[198] in the relevant transactions would be subject to U.S. sanctions. In addition, the FAQ makes clear that such transactions are not permissible for U.S. persons and U.S.-owned or -controlled foreign entities, and that such transactions may not "transit" the U.S. financial system, although the FAQ notes an exception for "transactions [that] fall within the scope of 31 C.F.R. § 560.522 or a specific license issued by OFAC and the payments in connection with such authorized transactions are consistent with 31 C.F.R. § 560.516."[199]

                                    h.    October 10, 2014 Release of Consolidated Non-SDN Data Files and Upgrade to Sanctions List Search

OFAC announced on its website on October 10, 2014, that it would start providing in a consolidated set of data files a Consolidated Sanctions List containing all of its non-SDN sanctions lists (including the Non-SDN Palestinian Legislative Council List "NS-PLC List," the Part 561 List, the Non-SDN Iran Sanctions Act List "NS-ISA List," the Foreign Sanctions Evaders List "FSE List," and the Sectoral Sanctions Identifications List "SSI List").[200]  OFAC noted that although the Consolidated Sanctions List is separate from OFAC's SDN list, some of its records may also appear on the SDN List.[201]  OFAC created this consolidated list in an effort "to reduce the number of list-related files that must be downloaded in order to maintain an automated sanctions screening program."[202] In addition, OFAC upgraded its Sanctions List Search tool to enable users to simultaneously search for a name on either or both the SDN List and the Consolidated List.[203]  OFAC noted that in about six months, it would stop issuing independent data files for certain lists, but that it would also continue providing and updating independent human readable versions of certain lists.[204]  Further, some minor administrative changes to the non-SDN list data has occurred as a result of this list consolidation effort.[205]

                                    i.    October 17, 2014 Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organizations

On October 17, 2014, OFAC issued guidance clarifying the applicability of sanctions for nonprofit non-governmental organizations (NGOs) involved in the provision of humanitarian assistance.[206]  At the outset of its guidance, OFAC affirms its "longstanding" policy to use its licensing authority to support humanitarian relief efforts, noting that even "[w]here such transactions are not otherwise exempt or authorized pursuant to OFAC general licenses, OFAC has long had a favorable specific licensing policy supporting the provision of humanitarian assistance notwithstanding economic sanctions, especially in countries subject to comprehensive economic sanctions."[207] OFAC provides six specific points of clarification.  First, OFAC clarifies that the use of economic sanctions against regimes or groups carrying out violence against civilians is intended to complement objectives of humanitarian assistance.[208]  Next, the guidance provides that general licenses are issued by OFAC where appropriate, and prioritizes "license applications, compliance questions, and other requests" from NGOs seeking to provide humanitarian assistance."[209]  Third, it provides that as long as NGOs are not "dealing" with persons blocked by sanctions they do not need a license in order to provide humanitarian assistance in countries that are not subject to comprehensive sanctions (including Yemen, Iraq, Somalia, South Sudan, and Côte d'Ivoire).[210] OFAC also clarifies that NGOs may make payments, including "taxes" or "access payments" to armed groups whose leaders have been designated by OFAC but the group itself has not been designated.[211]  However, NGOs should ensure they conduct proper due diligence in such situations; for example, NGOs should ensure that an SDN is not profiting from such transactions.[212]  In addition, NGOs operating in areas in which designated armed entities (including those listed as Specially Designated Global Terrorists) are prevalent should be careful not to provide "financial, material, technological, or other services" to or in support of the designated entity.[213]  Even so, OFAC acknowledges that in dangerous and unstable environments some humanitarian assistance may "unwittingly end up in the hands of members of a designated group;" OFAC sanctions enforcement is not focused on such "incidental benefits."[214] Further, the guidance provides that NGOs should contact OFAC directly if they encounter a situation in which urgent humanitarian assistance is needed, but in order to provide such assistance it is necessary for the NGO to provide funds or material support directly or indirectly to an SDN group.  OFAC states in the guidance that it and the interagency will work with the NGO "on a case-by-case basis in an expeditious manner" to address such issues.[215]

            6.    Reports

                                    a.    Trade Sanctions Reform and Export Enhancement Act (TSRA) 2Q 2013[216]

Between January and March 2013, OFAC received 396 license applications requesting authorization to export agricultural commodities, medicine, and medical devices to Iran and Sudan.  OFAC issued 443 licensing determinations (230 of which were received in the same quarter).  During this quarter, OFAC issued 260 licenses, 53 license amendments, 69 "return-without-action" determinations and one denial.  Of the 260 licenses issued, 243 involved products for Iran and 17 for Sudan.

                                    b.    TSRA 3Q FY 2013[217]

Between April and June 2013, OFAC received 348 license applications requesting authorization to export agricultural commodities, medicine, and medical devices to Iran and Sudan.  OFAC issued 399 licensing determinations (217 of which were received in the same quarter).  Of the determinations, 250 licenses were issued, 72 license amendments were released, 26 were "return-without-action" determinations, and no denial letters were issued.  Of the 250 licenses, 221 involved products for Iran and 29 for Sudan.

                                    c.    TSRA 4Q FY 2013[218]

Between July and September 30, 2013, OFAC received 298 applications.  OFAC issued 324 determinations (203 of which were for applications received in the same quarter).  Of the determinations, 114 licenses were issued, 46 license amendments, and 26 "return-without-action" determinations.  OFAC issued one denial.  Of the 114 issued licenses, 92 involved products for Iran and 22 for Sudan.

                                    d.    2013 Terrorist Assets Report[219]

The Report compiles information regarding assets in the United States of designated terrorist and state sponsors of terrorism.  Regarding Specially Designated Global Terrorists,[220] Specially Designated Terrorists[221] and Foreign Terrorist Organizations,[222] as of 2013, funds totaling approximately $22 million were blocked pursuant to these terrorist sanctions programs.  The Report lists $2.3 billion in funds blocked in connection with state sponsors of terrorism, (Cuba, Iran, Sudan, and Syria), and $32 million in non-blocked funds for residents and entities of state sponsors of terrorism.[223]

                                    e.    Sixth Biennial Report of Licensing Activities Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000[224]

The Biennial Report summarized TSRA-related activities for the period from October 2010 through September 2012 (hereinafter "Reporting Period").  OFAC reported an 11.6 percent increase in the number of license applications in the Reporting Period over the period from October 2008 through September 2010 (hereinafter the "Preceding Period").  The license applications were split 91.2 percent for Iran, 8.8 percent in connection with trade to Sudan.  According to the report, the processing time for license applications increased to 93 days from 88 days during the Preceding Period.  The time to process licensing determinations[225] increased from 73 business days to 75 business days during the Reporting Period.  In explaining the current processing time, OFAC noted the review by other agencies (to screen transactions for persons that promote international terrorism, as well as chemical, biological, WMD risk and export control issues), in addition to the complexity, volume and length of the license applications.

                                    f.    TSRA 1Q FY 2014[226]

Between October 1 and December 31, 2013, OFAC received 306 license applications requesting authorization to export agricultural commodities, medicine, and medical devices to Iran and Sudan.  OFAC issued 265 licensing determinations (175 of which were received in the same quarter).  Of the determinations, 99 licenses were issued, 21 license amendments were released, 44 were "return-without-action" determinations, and one denial letter was issued.  Of the 99 licenses issued, 81 involved products for Iran and 18 for Sudan.

                                    g.    TSRA 2Q FY 2014[227]

Between January and March 2014, OFAC received 373 applications.  OFAC issued 378 licensing determinations, 232 of which were for applications received during the quarter.  OFAC issued 160 licenses, 32 amendments, 94 applications were "returned without action" and 5 applications were denied.  Of the 160 licenses issued, 137 involved Iran and 23 involved Sudan.

            7.    Select Enforcement Actions

                                    a.    Clearstream Banking S.A.[228]

Clearstream Banking S.A. allegedly violated the ITSR by maintaining an account at a U.S. financial institution in which the Central Bank of Iran (CBI) maintained a beneficial ownership interest.  From December 2007 to June 2008, Clearstream held said account in custody at a central securities depository in the United States.  The account was composed of 26 securities with a nominal value of $2.813 billion.  Due to the nature of Clearstream's account in New York, the CBI's beneficial ownership was not transparent to the U.S. financial institution.  In addition to holding the securities on the CBI's behalf, Clearstream also exported custody and related services from the United States to the CBI.  In 2007 and 2008, OFAC officials met with Clearstream to discuss ending their business with Iranian clients.  Yet, in February 2008, Clearstream took evasive action per their client's instruction, transferring the securities entitlements from the CBI's account to a European bank's newly-opened account.  This allowed CBI to continue to hold its interest in the securities through Clearstream and buried CBI's interest deeper in the custodial chain since the record ownership of the securities entitlement changed but the beneficial ownership did not. Based on the totality of the circumstances, OFAC determined that Clearstream had reason to know that the CBI was maintaining beneficial ownership of the securities.  OFAC also determined that Clearstream did not voluntarily self-disclose the apparent violations and that said violations were reckless and constituted an egregious case.  The base penalty for the matter was $5.626 billion and Clearstream agreed to remit $151,902,000 to settle potential civil liability for its actions. In reaching a settlement amount, the aggravating factors OFAC considered included Clearstream's reckless failure to perform sufficient due diligence when it transferred the securities entitlement to another financial institution's custody account with Clearstream; that several employees including at least one supervisor and senior executive had reason to know that the CBI's beneficial ownership would not change following the transfer and the significant harm Clearwater's actions caused to U.S. sanctions objectives.  The mitigating factors OFAC considered included the significant remedial actions Clearwater took, such as implementing best practices and enhancing controls to prevent recurrence of violations; the substantial cooperation Clearwater demonstrated during the investigation, including agreeing to toll the statute of limitations; the lack of prior enforcement action and the totality of the circumstances to ensure a proportional enforcement response.  A spokesperson for Clearstream specified some of the remedial actions taken, including better regulation of omnibus accounts, regular know-your-customer checks and the designation of a board member exclusively to the topic.[229] OFAC emphasized that its action highlights the particular risks faced by intermediaries, custodians and other firms operating in the international securities market.  OFAC suggested other steps that such firms could take, including making their customers aware of sanctions obligations, conducting due diligence and monitoring accounts for suspicious activities.[230]  Despite the resolution of Clearstream's civil liability, the U.S. Attorney for the Southern District of New York recently opened a grand jury investigation into Clearstream's alleged violations of Iranian sanctions laws.[231]  The investigation is part of a lawsuit brought by family members of the victims of the 1983 Beirut terrorist attack, who accuse Iran of supporting the perpetrators of the attack.[232]

                                    b.    Joint Stock Commercial "Bank of Moscow"[233]

Joint Stock Commercial "Bank of Moscow" allegedly violated Executive Order 13,382 and the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544, based on its transfer of funds on behalf of Bank Melli Iran Zao, Moscow, Russia (BMI Russia).  From January 2008 to July 2009 Bank of Moscow sent 69 fund transfers totaling $41,306,113 on behalf of BMI Moscow, which had been designated by OFAC on October 2007 pursuant to Executive Order 13,382.  The fund transfers were processed to or through the United States but the payment messages sent in connection with them used abbreviations instead of specifically referring to BMI Russia and were thus processed without intervention. OFAC determined that the Bank of Moscow did not voluntarily self-disclose the alleged violations and that the violations constituted a non-egregious case, warranting a base penalty of $14,063,000.  The Bank of Moscow agreed to remit $9,492,525 to settle potential civil liability for its actions.  In determining the settlement amount, OFAC considered aggravating factors including the Bank of Moscow's failure to exercise an appropriate degree of caution or care in avoiding the conduct that led to the alleged violations; the significant harm that its actions caused to the U.S. sanctions program objectives; its status as a large and commercially sophisticated financial institution; and its lack of an adequate compliance program at the time of the alleged violations.  Among the mitigating factors OFAC considered included the Bank of Moscow's lack of sanctions in the preceding 5 years; its remedial action to improve compliance with U.S. laws; and its cooperation with the investigation by agreeing to toll the statute of limitations.  OFAC also noted that this matter highlights the particular sanctions risk faced by foreign financial institutions that maintain accounts for persons subject to OFAC sanctions and conduct significant business through the U.S. financial system.

                                    c.    CWT B.V.[234]

CWT B.V. (CWT) allegedly violated the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515, by dealing in property in which Cuba or its nationals had an interest when it provided services related to travel to or from Cuba to 44,430 people.  The services, which occurred from August 2006 to November 2012, were provided by CWT business units outside the United States.  CWT, incorporated in the Netherlands, became subject to U.S. jurisdiction when it became majority owned by U.S. persons in 2006.  OFAC determined that CWT voluntarily self-disclosed the violations and only a small portion of the alleged violations occurred after CWT filed its self-disclosure.  The base penalty for CWT's apparent violations was $11,093,500. CWT agreed to pay $5,990,490 to settle potential civil liability for its actions.  In reaching the settlement amount, OFAC considered a number of factors including CWT's failure to exercise a minimal degree of caution or care regarding its obligations to comply with the CACR by processing transactions for more than four years before recognizing that it was subject to U.S. jurisdiction; CWT's status as a commercially sophisticated international corporation; the significant harm that CWT caused to the sanction objectives due to the large number of transactions and people it assisted and CWT's non-existent or inadequate compliance program.  The mitigating factors OFAC considered included the fact that this was CWT's first violation; CWT's substantial cooperation during the investigation including agreeing to toll the statute of limitations and providing OFAC with detailed and well organized documents; and the significant remedial action CWT took.

                                    d.    Decolar.com Inc.[235]

Decolar.com Inc. (Decolar) allegedly violated the CACR by dealing in property in which Cuba or Cuban nationals had an interest when its foreign subsidiaries assisted 17,836 persons with reservations for travel between Cuba and countries other than the United States.  The travel services were provided from March 2009 to March 2012 and were done without OFAC permission.  OFAC determined that Decolar voluntarily self-disclosed this matter, that the apparent violations occurred prior to agency notice and that the base penalty for the violations was $4,460,000. Decolar agreed to pay $2,809,800 to settle potential civil liability arising out of its actions.  In reaching a settlement agreement, OFAC considered a number of factors, including the reckless disregard for U.S. sanctions requirements that Decolar exhibited by relying on third party assertions that it did not require an OFAC license rather than conducting due diligence; the number of violations and length of time over which they occurred; senior management's awareness that its foreign subsidiaries were providing Cuba related travel services to third country nationals; Decolar's status as a sophisticated services provider and the lack of a compliance program at the time of the alleged violations.  Among the mitigating factors that OFAC considered included the fact that Cuba related transactions were a small portion of Decolar's overall business; the lack of prior enforcement action; Decolar's immediate halt of its provision of Cuba related travel services; its adoption of OFAC compliance policies; and its cooperation with the investigation, including provision of information in a clear and organized fashion.

                                    e.    Fokker Services B.V.[236]

Fokker Services B.V. (FSBV) allegedly violated the ITSR, and the Sudanese Sanctions Regulations (SSR), 31 C.F.R. Part 538, by indirectly exporting spare aircraft parts to Iran on 1,112 occasions and to Sudan on 41 occasions from November 2005 to September 2010.  FSBV indirectly exported or re-exported parts to Iranian customers that had been procured or repaired in the United States or which were of U.S. origin and subject to export license requirements independent of ITSR.  Similarly, FSBV exported or re-exported parts to Sudanese customers or end users that were either procured or repaired in the United States or were subject to additional licensing requirements. OFAC determined that FSBV had voluntarily self-disclosed this matter, and that the violations constituted an egregious case with a base penalty of $145,492,023.  FSBV agreed to pay $50,922,208 to settle its potential civil liability.  FSBV's settlement was part of a global settlement which also included the Department of Commerce's Bureau of Industry and Security (BIS), and the D.C. U.S. Attorney's Office (USAO).  FSBV will satisfy its liability with the payment of a $10.5 million civil monetary payment to OFAC and BIS, a forfeiture of an additional $10.5 million to the USAO pursuant to their deferred prosecution agreement, the acceptance of responsibility for its egregious conduct and its adherence to all other terms and conditions of the agreements with the involved agencies. In reaching a settlement amount, OFAC considered a number of factors including, FSBV's willful and reckless violation of U.S. law due to its knowledge that it was shipping U.S. origin parts to customers in Iran and Sudan; the significant harm FSBV caused to the objectives of the sanctions programs due to the volume and value of the transactions; FSBV's status as a sophisticated and experienced aerospace services provider; its lack of a formal compliance program when the incidents occurred; and its failure to institute controls to completely stop the infractions once discovered.  Among the mitigating factors OFAC considered included FSBV's lack of previous sanctions violations; FSBV's new and more effective internal controls, especially with respect to its export compliance program; and the substantial assistance FSBV provided during the investigation, including conducting an internal investigation, producing well organized records and agreeing to toll the statute of limitations.

                                    f.    BNP Paribas[237]

BNP Paribas (BNPP) and OFAC agreed to a settlement of $963 million as part of an overall $8.9 billion settlement with various federal and state agencies.  The settlement, the largest ever in OFAC history, resolved the matter that involved over 3,800 payment transactions processed from 2005 to 2012 in apparent violation of the SSR, the ITSR, the CACR and the BSR.  The settlement agreement[238] states that BNPP omitted references to or replaced the names of sanctioned parties in transactions to or through the United States.  The payments occurred in various BNPP branches and subsidiaries, but the majority of the payments were facilitated or conducted by BNPP's subsidiary in Switzerland (BNPP Suisse) and branch in France. The statutory maximum and base civil monetary penalty were $19.2 billion.  In the Settlement Agreement, OFAC noted that the conduct occurred notwithstanding advice from a U.S. law firm regarding potential exposure, and occurred also after OFAC contacted BNPP regarding BNPP Suisse's business activities with Iran and Sudan.  OFAC concluded that the violations constituted an egregious case.  OFAC also noted BNPP's cooperation and global remedial actions, which included the relocation of the group responsible for sanctions policies from France to the United States, enhanced sanctions compliance resources and compliance review procedures.

                                    g.    Epsilon Electronics, Inc.[239]

Epsilon Electronics, Inc. (Epsilon) was assessed a penalty of $4,073,000 for violating the ITSR.[240]  Epsilon issued 39 invoices for audio video equipment to a company that shipped most if not all of its goods to Iran.  Accordingly, Epsilon knew, or had reason to know, that the items would be shipped to Iran.  Further, five of the invoices were issued after Epsilon received a letter from OFAC cautioning Epsilon regarding the general prohibition on exports and reexports of U.S. goods to Iran.  OFAC determined that the five invoices represented an egregious case and the prior 34 invoices were not egregious.  OFAC noted a number of aggravating circumstances including the fact that Epsilon displayed reckless disregard for U.S. sanctions when it shipped to a company that it knew or had reason to know would ship the items to Iran; Epsilon attempted to conceal its sales to Iran by altering its Web site; the sales displayed a pattern of conduct; the value of the goods at more than $3.4 million; providing false information in response to a subpoena; and the fact that Epsilon continued shipping after it received OFAC's cautionary letter.  With respect to mitigating factors, OFAC noted that Epsilon had not received a penalty notice or Finding of Violation in the five years prior to the transactions at issue; Epsilon was a small company; and Epsilon cooperated by agreeing to toll the statute of limitations.

                                    h.    Citigroup Inc.[241]

Citigroup Inc. (Citigroup) settled alleged violations of the ITSR, the Weapons of Mass Destruction Proliferators Sanctions Regulations, the Foreign Narcotics Kingpin Sanctions Regulations, or the Global Terrorism Sanctions Regulations.  The company agreed to remit a total of $217,841 to OFAC.[242]  The bank's Malaysian trade services unit, Citigroup Trade Services Malaysia (Citi Penang), allegedly processed four export bill collection applications on behalf of Citibank N.A. that involved the shipment of good to Iran.[243]  The applications totaled $638,074.15 and were processed between April and November of 2009.[244]  Although documentation referred to Iran and IRISL, the Citi Penang operators did not review the bills of landing, certificates of origin or shipment advice.[245]  Citi Penang disclosed voluntarily the transaction to OFAC. Additionally, on February 9, 2010, January 12, 2011, March 8, 2011 and October 29, 2012, the bank allegedly processed four fund transfers totaling $133,786.73 involving entities that appeared on OFAC's SDN List.[246]  Citigroup's software did not properly identify these references to the SDN List, one of which was a variation of an SDN name.  The company, however, took remedial action and implemented a programmatic fix to address the name variation issue.[247]  In addition, three of the four fund transfers were blocked by U.S. financial institutions, reducing any potential impact of the transfers on U.S. sanctions objectives.  The base penalty amount for the potential violations was $484,091.  Citigroup's remedial actions and cooperation with OFAC were mitigating factors that significantly reduced the final settlement amount to $217,841--less than half of the base penalty amount.[248]

                                    i.    Zulutrade, Inc.

Zulutrade, Inc. (Zulutrade) agreed to pay $200,000 to avoid potential civil liability for apparently violating the ITSR, the SSR, and Executive Order 13,582, "Blocking Property of the Government of Syria and Prohibiting Certain Transactions with Respect to Syria."[249]  Beginning in 2009, the company maintained online trading accounts for over 400 persons in Iran, Sudan, and Syria.[250]  Also, $10,264.36 in fund transfers originated from the Zulutrade website.[251]  Zulutrade had failed to take any measures to screen or monitor their customer base for the purpose of complying with OFAC, and the base penalty for the violations was $844,090,000.[252]  Although the company did not self-disclose the violations, OFAC considered the violations non-egregious because of mitigating factors such as: the small size of the company, their remedial actions in response to the apparent violations, their lack of penalty notices or Findings of Violation in the five years prior to the earliest violation, and their cooperation with OFAC.[253]                                   

                                    j.    Bupa Insurance Company, Bupa Worldwide Corporation and USA Medical Services Corporation[254]

Bupa Insurance Company (BIC), Bupa Worldwide Corporation (BWW) and USA Medical Services Corporation (USAMED), (collectively "Bupa Florida"), a group of Florida corporations, agreed to remit $128,704 to avoid potential civil liability for 39 apparent violations of the Narcotics Trafficking Sanctions Regulations, the Foreign Narcotics Kingpin Sanctions Regulations, and the CACR.  The violations occurred between March of 2008 and March of 2011 when the corporations provided health insurance coverage and processed reimbursements for persons on OFAC's SDN List.[255]  Bupa Florida apparently misinterpreted the scope of OFAC regulations and did not monitor or screen health insurance policyholders, dependents, or providers against the SDN List.[256]  BWW and USAMED also provided insurance support services to BIC and other insurers for policies that were issued to, or provided coverage for individuals on the SDN List.[257]  The total transaction value for the violations was $190,672.68 and the base penalty amount was $95,337.[258]  OFAC determined that Bupa Florida voluntarily self-disclosed the apparent violations and that the violations were non-egregious.  However, there were a number of aggravating factors that led to the settlement amount including: Bupa Florida acted with reckless disregard for OFAC requirements and failed to exercise a minimal degree of caution; Bupa Florida had actual knowledge or reason to know about the policyholders being on the SDN List; and Bupa Florida did not have a compliance program in place at the time of the violations.[259]

                                    k.    ESCO Corporation[260]

ESCO Corporation (ESCO) agreed to pay $2,057,540 to avoid potential civil liability for apparent violations of the CACR.  Around November 7, 2007, the company's subsidiary purchased nickel briquettes that were made, or derived, from nickel of Cuban origin.[261]  The total transaction value for the violations was $6,188,149 and the base penalty was $3,048,208.[262]  OFAC found that aggravating factors included: ESCO acted with reckless disregard for the Cuba sanctions, ignoring red flags that the briquettes were made with Cuban nickel; ESCO caused significant harm to the Cuba sanctions program by conduction large-volume and high-value transactions with SDNs; and ESCO is a commercially sophisticated company.[263]  Mitigating factors included:  ESCO had not received a penalty notice or Finding of Violation from OFAC in the five years prior to the first violation; ESCO remedied its compliance plan and did a thorough look-back; and ESCO cooperated with OFAC, including extending a statute of limitations tolling agreement.[264]

THE EUROPEAN UNION AND THE UNITED KINGDOM

As in our previous year-end updates, the European Union (EU) and United Kingdom (UK) sections will be divided into three parts covering: i) legislative developments; ii) case law; and iii) enforcement.

I.    Regulation and Legislation

            A.    European Union

The EU has adopted new or amended existing sanctions with regard to a number of jurisdictions during 2014. While the majority of the amendments concern updates of the list of persons, entities and groups targeted by existing sanctions (i.e., Afghanistan, Belarus, Côte d'Ivoire, Egypt, Iran, North Korea, Liberia, Libya, Sudan, Tunisia, and Zimbabwe) or an extension of the expiration date (i.e., Bosnia and Herzegovina, Egypt, Guinea-Bissau, Iran, Moldova, and Myanmar), for a number of jurisdictions the developments have been of a more substantive nature, including the adoption of wholly-new sanctions regimes regarding Ukraine/Russia, Yemen, and South Sudan.  Our update will commence with Ukraine/Russia, before treating the other jurisdictions in turn.

            1.    Ukraine & Russia

The EU has repeatedly taken action over the course of 2014 in response to the escalation of the political crisis in Ukraine.  The EU first imposed sanctions on March 5, 2014, in light of its concern over reports on human rights violations, violence, intimidation, and missing persons. The EU's sanctions are most readily understood when divided into four categories:  i) sanctions against former Ukrainian officials for misappropriation of state assets; ii) the designation of individuals and entities for threatening the territorial integrity of Ukraine (largely Ukrainian separatists and their supporters); iii) economic sanctions regarding Crimea and Sevastopol; and (iv) the targeted sectoral sanctions against Russia that focus on the Russian oil industry, on restrictions against the export to Russia of dual-use or military equipment, and which limit a defined list of partially-state owned entities from accessing the EU's capital markets.                                                 a.     The misappropriation sanctions The EU sanctions first focused on freezing and recovering misappropriated Ukrainian state funds and targeted 18 persons identified as responsible for that misappropriation, including former president Viktor Yanukovych.[265]  Another four were added on April 15, 2014.  Many of these individuals are challenging their listing in the European courts, but no such cases have yet been heard.  European banks and other financial services firms were required to notify the authorities in their respective Member States if they held accounts or assets of such individuals.  It is likely that it was such reporting that led to a number of asset seizures in a number of countries as outlined in the Enforcement section below.                                                 b.     The designations of those threatening Ukrainian territorial integrity Due to the continued deterioration of the situation in the following weeks and the failure to take de-escalatory steps by Russia, the EU also imposed sanctions on Russian officials and additional Ukrainian officials.[266]  Travel bans and asset freezes were imposed against "persons responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, including actions on the future status of any part of the territory which are contrary to the Ukrainian Constitution, and persons, entities or bodies associated with them." In addition, the designation criteria for these sanctions were amended in May 2014 to also include individuals responsible for "actively supporting or implementing actions or policies which undermine the territorial, integrity, sovereignty and independence of Ukraine" and their associates, as well as entities in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law.[267] A second amendment was adopted in July 2014.  As such, travel bans and asset freezes may also be imposed against those "responsible for, actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or stability or security in Ukraine or which obstruct the work of international organisations in Ukraine" and their associates; and companies, legal entities or bodies "supporting, materially or financially, actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine."[268] The designation criteria for these travel bans and asset freezes were again extended on September 8, 2014 to include legal persons, entities, or bodies conducting transactions with the separatist groups in the Donbass region of Ukraine. The first designation of individuals and entities leading to the imposition of travel bans and asset freezes within the EU took place on March 21, 2014.[269]  Subsequent additions to the lists have taken place on April 15, 2014[270] April 28, 2014[271] July 25, 2014[272] July 30, 2014[273] September 8, 2014[274] November 17, 2014[275] and December 20, 2014.[276]  In total 132 individuals and 28 entities and companies have now been designated.  The restrictions were last renewed in early September 2014 and are in place until March 15, 2015, when they are likely to be renewed.                                                 c.    Economic sanctions regarding Crimea and Sevastopol Also, in view of Crimea's annexation by Russia, the EU restricted European investment in and trade with Crimea.  The EU has also announced that it expects international financial institutions to refrain from financing projects that explicitly or implicitly recognize Russia's illegal annexation.[277] Our alert of August 6, 2014 dealt in detail with the Crimean sanctions as they then stood.[278]  Interested readers are advised to consult that alert for greater detail which is not repeated here.  In short the EU's first step was to publish Regulation 692/2014 of June 23, 2014 (the "Crimean Regulation") which imposed a ban on imports of goods from Crimea or Sevastopol to the EU unless authorized by the Ukrainian authorities.  Then in August, the EU amended Regulation 692 to impose significant restrictions on investment, financial assistance and technical assistance or brokering services in the transport, energy, telecommunications, oil, gas, and minerals sectors.  These restrictions included a prohibition on the direct or indirect export of largely oil and gas related technology listed in an Annex to the regulation. On December 18, 2014, the EU amended the Crimean Regulation to extend the sanctions into a number of additional sectors, as well as amending the Annex to include more equipment.[279]  The provision of technical assistance, financing or financial assistance or brokering services in relation to all the listed equipment is also now prohibited.  Subject only to a very short grandfathering period of two days, the amendments also now prohibit the acquisition of real estate in Crimea or Sevastopol; the investment in any entity in Crimea or Sevastopol; the formation of a joint venture in or with any entity in Crimea or Sevastopol; and the provision of services related to tourism activities in Crimea or Sevastopol, including barring EU cruise ships from entering any of seven listed ports in Crimea, including Sevastopol, Kerch, and Yalta.  Additionally, the sanctions regarding the transport, energy, telecommunications, oil, gas, and minerals sectors have been extended to prohibit the provision of technical assistance, brokering, or construction and engineering services. We fully expect that further sanctions will be imposed regarding Crimea and Sevastopol during the course of 2015.

                                                d.    Targeted sectoral sanctions against Russia

As mentioned above, our EU Sectoral Sanctions Alert dealt in detail with the Russian sectoral sanctions as they then stood.  Additionally, export licenses have been suspended for equipment which might be used for internal repression. In addition, also in July 2014, the EU requested the European Investment Bank suspend new financing of public sector projects in Russia.[280]  The EU would reassess suspending bilateral EU-Russia cooperation programs. The next significant package of sanctions was adopted at the end of July 2014.  In particular, the new sanctions:[281] i          prohibit EU nationals and companies from (i) buying or selling bonds, equity, and other financial instruments with a maturity of over 90 days (on which see below), issued after August 1, 2014 by a defined list of major credit institutions or finance development institutions established in Russia with over 50% public ownership or control, or non-EU entities whose proprietary rights are more than 50% owned by such listed entities; and (ii) providing related services (e.g., brokering).  The initial list of such entities was Sberbank, VTB Bank, Gazprombank, Vnesheconombank, and Rosselkhozbank; ii        impose an arms embargo, also covering related items and services on the EU common military list;[282] iii      ban exports of dual-use goods and technology for military use in Russia or to Russian military end-users; and iv      ban export of energy-related equipment and technology, unless authorized by the competent authorities of the Member States.  In any event, export licenses will not be granted if the products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia. Suppliers with contracts concluded before July 30, 2014 and executed before October 28, 2014 were able to apply for an export license with the relevant Member State authorities. Before this, individual Member States had issued some guidance of their own.  For instance on August 12, 2014 the German Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA) issued guidance,[283] and two days later the UK's Export Control Organisation issued a Notice to Exporters.[284]  Despite the proximity in time, differences were apparent between the approaches adopted.  For instance, the UK approach was that if a company was exporting goods listed in Annex II to another Member State, but the company knew that the goods were destined for Russia, it was only the ultimate exporter who was required to apply for a license.  The German approach was that a transfer license would be required for the initial transfer in the same circumstances.  The two items of guidance also covered different territory.  Thus the German Guidance clarified that having a deposit with a listed Russian bank was not prohibited, while the UK Guidance offered assistance on what was meant by "Arctic" ("the area north of the Arctic Circle"), and "Deep water" (noting no definition as such, but drawing attention to the U.S. definition of "greater than 500 feet"). The EU maintained its robust approach to sanctions relating to the Ukraine situation during the latter part of 2014.  Following the cease-fire negotiated in early September, 2014, and almost immediate violations thereof, the EU adopted additional sanctions on September 8, 2014.  EU Council President Van Rompuy stated that "the EU stands ready to review the agreed sanctions" depending on the perceived willingness of Russia to comply with the ceasefire. In particular, the designation criteria for sanctions were once again extended in order to target those conducting transactions with separatist groups.  In addition, the existing ban on financial instruments (and related services) issued by major State-owned Russian banks was refined with a number of smaller changes, including a wholly-new Article 5.  Importantly, the prohibitions were now extended to cover those instruments with a maturity of greater than 30 days (previously 90 days) and extended to other entities in the defense and oil sectors (i.e., United Aircraft Corporation, Rosneft, Transneft, Gazpromneft, Ural Vagonzavod, and OPK Oboronprom).[285] One consequence of these sanctions applying to these Russian entities is that there are now two lists of sanctioned entities for the EU and UK.  All entities and persons subject to asset freezes remain included in the Consolidated List, while the Russian entities subject to restrictions on access to the EU's capital markets are not found in the Consolidated List, but are instead only listed in the separate Ukraine: list of persons subject to restrictive measures in view of Russia's actions destabilizing the situation in Ukraine.[286] Further, on December 5, 2014, the EU issued Regulation 1290/2014 amending and clarifying some of the existing sanctions.[287]  Notably for the purposes of the prohibitions regarding the Russian oil sector, "deep sea" was defined as "waters deeper than 150 metres", "arctic" was restated as "the offshore area north of the Arctic Circle", and "shale oil projects" was restated as "projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing; it does not apply to exploration and production through shale formations to locate or extract oil from non-shale reservoirs."  Moreover "Russia" was itself extended to include its Exclusive Economic Zone and its Continental Shelf. On December 16, 2014, the European Commission published non-binding guidance on the capital markets restrictions.[288]  This is in the form of 26 Q&As dealing with the parameters of the trade finance exemption contained in Art. 5(3), and questions of whether securities such as derivatives, interest rate swaps, and depositary receipts fall within or outside the prohibitions, and other issues.  The Guidance should be consulted by anyone considering the breadth of the prohibitions on accessing Europe's capital markets.  A noteworthy feature of the Guidance is the aggressive stance taken regarding circumvention.  For instance, Question 16 asks whether an EU person can place a term deposit with a sanctioned Russian entity with a maturity over 30 days.  The answer states that such term deposits are not prohibited before continuing: "However, where (term) deposits are to be used to circumvent the prohibition on new loans, such deposits would be prohibited under Article 12 [anti-circumvention] in combination with Article 5 of the Regulation."  Thus the Commission is expressing the view that a non-prohibited activity, if undertaken with the intent to evade one of the prohibitions, would constitute an offence. In response to the EU and U.S. sanctions, on August 7, 2014, Russia imposed, with immediate effect, a one-year ban on certain food imports into Russia, including the import of fruit, vegetables, meat, fish, seafood, milk, dairy products, and a wide range of processed foods from the United States, the EU, Australia, Canada, and Norway.  Following these measures, the EU was reported to be planning discussions with Latin American countries to dissuade them from supplying agricultural products to Russia.  Several countries, including Brazil and Chile, had stated that the import ban introduced by Russia could offer them a trade advantage.[289] In addition, Russia has stated it is also considering banning European airlines en route to Asia from flying over Siberia, and that it is "potentially ready" to introduce sanctions in various sectors, including the automobile industry, shipbuilding, and aircraft production. Further, on September 26, 2014, press reported that Russia barred entry into its territory for Rebecca Harms, a German MEP, despite her diplomatic status, as she had been designated as one of the EU officials who played a role in adopting the EU sanctions targeting Russia.  MEP Harms was traveling to attend a court hearing in relation to proceedings against a Ukrainian officer detained in Russia after being captured by pro-Russian Rebels in eastern Ukraine.[290] Russia has also taken steps to mitigate the effect of the EU sanctions against it.  On October 8, 2014, the Russian Parliament carried out a first reading of a draft law which would allow the government to seize foreign-owned assets in order to compensate individuals and entities targeted by western sanctions.  The draft legislation must pass through two additional readings before heading to President Putin for signature.[291] In August 2014, Ukraine itself adopted a law enabling the imposition of sanctions on foreign individuals and entities in response to threats to its national security, breaches of UN Security Council resolutions, and violations of EU regulations and decisions.  The government announced it had already identified 172 individuals and 65 entities – mainly Russian – to be considered for the sanctions for "supporting terrorism, the annexation of Crimea and having direct responsibility for crimes on Ukrainian soil."[292] In addition, Norway, while not an EU Member State but a member of the European Economic Area, on August 15, 2014, joined the EU in imposing sanctions on Russia, by introducing an arms embargo, a ban on the supply of material and technology for the oil sector and related services, sanctions regarding Crimea and Sevastopol similar to those imposed by the EU (see above), a ban on Russian state-owned banks from taking long- and mid-term loans, and asset freezes and travel bans.[293]  In October 2014, Norway announced further strengthening of the restrictions, in line with the package of sanctions adopted by the EU. In addition to Norway, the EU announced on October 15, 2014 that Ukraine itself, as well as Albania, Iceland, Liechtenstein, and Montenegro have aligned, or will do so in the near future, their national policies with the EU sanctions package adopted on September 8, 2014.[294] Notwithstanding EU Council President Van Rompuy's statement in September that "the EU stands ready to review the agreed sanctions," in light of the continued tension in Ukraine, the EU decided in early October to maintain the sanctions, after a discussion on the implementation of the cease-fire.  The EU again reviewed the sanctions on November 17, 2014, but considered that in light of the unchanged circumstances in Ukraine, the measures would be maintained.  Additional pro-Russia separatists were designated for travel bans and asset freezes.[295]

            2.    Afghanistan

In October 2014, the EU implemented amendments to the sanctions imposed by the United Nations Security Council (UNSC) targeting Afghanistan, and added 5 individuals to the list of targets.  The new designations are reasoned on grounds of the individuals' involvement as senior members of the Taliban or the Haqqini Network.[296]

            3.    Central African Republic

The EU implemented the UN arms embargo on the Central African Republic in December 2013[297] and introduced additional sanctions in the form of travel bans and asset freezes in March 2014.[298]

            4.    Democratic Republic of the Congo

In March 2014, the EU amended its sanctions regime regarding the Democratic Republic of the Congo[299] to provide for (i) an additional exception to the 2010 arms embargo, (ii) an update of the criteria for designation for travel restrictions and asset freezes, and (iii) a new exception to the ban on provision of certain services for technical assistance, financing and financial assistance related to arms and related material, for the support of or use by the African Union Regional Task Force.[300]

            5.    Côte d'Ivoire

In July 2014, the EU repealed its import ban on diamonds originating in Côte d'Ivoire.  At the same time, the EU amended the scope of and exceptions to the embargo on arms and related materials.[301]  In particular, supply of materials intended solely for the support or use by the UN operation in Côte d'Ivoire and the French supporting forces, as well as supplies transiting through Côte d'Ivoire intended for support or use by UN Peacekeeping operations are exempt from the embargo.

            6.    Republic of Guinea

In April 2014, the EU lifted the arms embargo and the embargo on equipment which might be used for internal repression which had been in force since 2010.[302]  The travel bans and asset freezes on members of the National Council for Democracy and Development (or associated persons or entities) remain in place.  While the sanctions were set to expire in October 2014, the EU renewed the sanctions on October 20, 2014 until October 27, 2015.[303]

            7.    Iran

In April 2014, the EU renewed the existing sanctions until April 13, 2015.  However, in January 2014, the EU suspended certain restrictive measures for an initial duration of six months.  The suspension, originally in force until July 20, 2014, has been prolonged twice and will be applicable until June 30, 2015.[304]  All other EU sanctions and restrictions remain in place and in force. This mitigation followed the Joint Plan of Action (JPOA) of November 24, 2014 between Iran and China, Russia, the United States, France, Germany, and the UK (supported by the High Representative of the EU for Foreign Affairs and Security Policy) ("P5+1" or "EU3+3").[305]  The JPOA sets out an approach towards reaching a long-term comprehensive solution to the Iranian nuclear issue.  In that regard, the EU temporarily suspended the import ban on petrochemical products, the prohibition on transport of Iranian crude oil, the ban on the provision of certain services where related to petrochemical products or Iranian crude oil, the ban on trade in gold and precious metals with the Iranian government, and the ban on the supply of certain vessels to Iran.  The amendments also temporarily increase the thresholds of the restrictions on transfers of funds to and from Iranian persons and provide temporary exceptions to the freezing of funds and economic resources.[306]

            8.    Iraq

In July 2014, the EU amended the basis of its financial sanctions against Iraq and clarified existing financial sanctions.  In particular, national authorities of Member States now have to power to authorize the making available of funds and economic resources in certain circumstances, including ordinary living expenses including taxes, rent and medical expenses, professional legal expenses, or bank service charges.[307]

            9.    Liberia

In March 2014, the EU amended the notification requirements concerning exceptions to the ban on provision of certain services, implemented by Council Regulation (EU) 262/2014.[308]

            10.    Libya

The EU amended, in January 2014, the "non-liability" and "no claim" clauses of its sanctions targeting Libya.  Freezing (or refusing to make available) funds or economic resources does not give rise to liability if carried out in good faith, in accordance with EU regulations, and not done negligently.  In addition, claims in connection with any contract or transaction, the performance of which has been affected by EU regulation will not be satisfied, if they are made by a Libyan person or entity, designated person/entity, or any party so connected.[309] In June 2014, the EU implemented UNSC Resolution 2146 (2014) and introduced measures targeting illicit export of crude oil from Libya by (i) requiring flag States of listed vessels to take measures preventing the loading, transport, or discharge of illicitly exported crude oil (including the authorization to inspect the vessel); (ii) prohibiting the provision of bunkering services (i.e., provision of fuel or supplies) to listed vessels; and (iii) restricting financial transactions with respect to illicitly exported crude oil aboard listed vessels.[310] In addition, in October 2014, the EU implemented UNSC Resolution 2174 (2014) and further amended its sanctions targeting Libya.[311]  The amendments are a response to the escalation of hostilities in Libya and target militia and their supporters.  In particular, the EU extended the designation criteria for the arms embargo and asset freezes/travel bans to "individuals and entities determined […] to be engaging in or providing support for other acts that threaten the peace, stability or security of Libya, or obstruct or undermine the successful completion of its political transition."

            11.    North Korea

The EU, on October 8, 2014, amended existing sanctions against North Korea.[312]  The sanctions, in force since 2006, target import and export, financial support for trade, and the finance sectors, and also include travel bans and asset freezes. In particular the amendments provide for (i) the designation for sanctions of Ocean Maritime Management Company Limited for allegedly assisting in a breach of the arms embargo against North Korea; and (ii) the removal from the list of targets of Jon Pyong-ho.

            12.    Somalia

On May 12, 2014, the EU amended the notification requirements concerning certain exceptions to the arms embargo and the ban on related services; implemented by Council Regulation (EU) No 478/2014.[313]  In addition, in October 2014 the EU implemented amendments to the UN sanctions and designated two additional individuals for reasons of their position in al-Shabaab.[314]

            13.    South Sudan

In July 2014, the EU imposed sanctions targeting "persons obstructing the political process in South Sudan, including by acts of violence or violations of ceasefire agreements, as well as persons responsible for serious violations of human rights in South Sudan."[315]  In particular, the EU introduced (i) an arms embargo; (ii) a prohibition of the provision of arms-related technical assistance and, brokering or other services; (iii) a prohibition of the provision of financing or financial assistance; and (iv) a prohibition on participating--knowingly and intentionally--in activities with the aim of circumventing the sanctions.  The measures also provide for standard exceptions for the supply of goods used in certain circumstances for which an export license may be requested from the relevant Member State authorities, such as:  human rights monitoring, materials and related services for protective use, materials and related services for institution-building programs or crisis management operations, and de-mining equipment and material.  In addition, travel bans and asset freezes were imposed on two individuals.  The sanctions are in place until July 12, 2015.

            14.    Sudan

Also in July 2014, the EU separated the relevant sanctions regarding the Sudanese conflict.[316]  As such, the previous legal instruments imposing sanctions targeting Sudan was repealed and replaced by two sets of instruments:  one targeting Sudan and one targeting South Sudan (see above).  The Sudan sanctions also consist of an arms embargo and the prohibition of related services and financing.  The measures also provide for the same standard exceptions as for the South Sudan sanctions.  In addition, travel bans and assets freezes were imposed on four individuals.

            15.    Syria

Additional exceptions to the Syria sanctions were adopted in 2013 and early 2014 in order to allow for payments for the verification mission of the Organization for the Prohibition of Chemical Weapons and the destruction of Syrian chemical weapons.[317] On the other hand, asset freezes and travel bans were imposed on 12 Cabinet ministers, in light of the continuing political deadlock in Syria following President Bashar Assad's re-election in early June 2014.  The newly targeted individuals are considered to be responsible for serious human rights violations.[318]  In addition, on July 23, 2014, sanctions were imposed on an additional three individuals and nine entities due to their "involvement in the violent repression of the civilian population or their support to the regime."[319]  Also, one individual has been re-listed following the annulment of the original listing by the European General Court.[320]  A second individual who successfully appealed his designation has not been re-listed. The EU further strengthened its sanctions targeting Syria in October 2014, and added 16 individuals and two entities to the list of targets.  The new designations are reasoned on grounds of the individuals being linked to the violent repression of the civilian population, or on grounds of providing support to the Syrian regime.[321]

            16.    Yemen

On December 19, 2014, the EU implemented the UN's sanctions regarding Yemen.  These imposed asset freezes and travel bans on the former President Ali Abdullah Saleh, as well as the military leaders Abd Al-Khlaiq Al-Huthi and Abdullah Yahya Al Hakim.[322]

            17.    Zimbabwe

Other than for Robert Mugabe and his wife, and the company Zimbabwe Defence Industries, on February 20, 2014 the EU suspended its sanctions against Zimbabwe.[323]  In addition, on November 1, 2014, the EU lifted its suspension of aid to Zimbabwe which had been in place since 2002.  The sanctions remaining in place consist of an arms embargo and travel ban/asset freeze.  The next review of the remaining sanctions is scheduled for February 2015.

            18.    Dual Use List

In addition to the country-specific changes, on December 31, 2014, the EU's complete revision of the Dual-Use List contained in Regulation 1382/2014 came into force.  This replaces the earlier version dating from 2009 and should be consulted for any equipment or technology capable of military use.[324]

            B.    United Kingdom

The coming into force in February 2014 of the Crime and Courts Act 2013 saw the introduction of Deferred Prosecution Agreements (DPAs) in the UK.[325]  DPAs are now available to prosecutors as an alternative to charging a company in relation to a defined list of offences.  Whether by oversight or by design, DPAs will only be available in relation to some sanctions and export control offences.  All the offences for which DPAs are now available are listed in Part 2 to Schedule 17 of the Act.  Included is the offence of exporting prohibited or restricted goods, but there is no equivalent for importing, nor are any offences listed in relation to breaches of the EU's financial sanctions.  The list of offences for which DPAs might be available can be amended to include any currently omitted "financial or economic crime."  We will closely monitor any changes in this area. Also in February 2014, the UK's Foreign & Commonwealth Office launched a consultation into the potential introduction of "contract sanctions," a potentially new breed of sanctions which would to prevent courts from enforcing contracts entered into with "targeted regimes," including by persons not otherwise subject to sanctions regimes applicable in that jurisdiction.[326] On July 18, 2014, HM Treasury in the UK announced a change in policy regarding the treatment of money transfers into the UK, or to a UK-based bank anywhere in the world, from or via a designated person based outside the EU.[327]  As of July 31, 2014, HM Treasury will now hold any such transfers in a suspense account which will only be released upon the successful application for a license.  The previous policy had not required the freezing of such transfers, but HM Treasury's Notice stated that this policy change was being adopted to bring the UK in line with the policies in other Member States.

            C.    Britain's offshore jurisdictions

As ever, the implementation in the UK's various offshore jurisdictions has been uneven, and in many cases it will be wise to conduct specific analysis of whether a particular EU provision has or has not been implemented in a particular jurisdiction.  In Bermuda, for instance, the only Russian sanctions in place are the designations of the 18 individuals originally sanctioned by the EU on March 6, 2014.[328]  The Isle of Man and Jersey, by contrast, have implemented all of the EU's sanctions up to and including those published in December 2014.[329]  In addition, for the British Overseas Territories of Cayman, British Virgin Islands, Anguilla, and Turks & Caicos, the implementation (done by the UK itself through Orders) has been patchy with the latest Crimean sanctions not implemented and the various extensions to the lists of designated individuals and entities last implemented on April 30, 2014 with the Ukraine (Sanctions) (Overseas Territories) No. 3 Order 2014.[330]

            D.    Malta

In response to criticisms of so many Maltese companies being included amongst those sanctioned under the EU's Iran sanctions, in August the Maltese government issued a legal notice increasing the penalties for doing business with sanctioned companies.  The maximum fine is now €116,468, with a prison term of between one and five years.[331]

II.    Main Case Law

            A.    European Union

            1.    Draft General Court Rules of Procedure Concerning Secret Hearings

Proposed draft Rules of Procedure for the General Court (the EU's lower court) were sent to the EU Council (the "Council") for approval on March 14, 2014.  Following a public consultation, revised drafts were submitted on November 10, 2014 and on December 4, 2014.  During the discussion by the Council's Working Party on Court of Justice on December 8, 2014, significant consensus was reached on the text, although the UK expressed concerns regarding Article 105.  Under this Article, EU institutions would be allowed to rely on undisclosed evidence in actions for annulment, including in sanctions cases.  However, past case law consistently held that the rights of defense and effective judicial review require that EU institutions only rely on reasons for designating a target for sanctions if those reasons (and the supporting evidence) have been disclosed to the targeted person.[332] If approved, the new Rules of Procedure would steer the General Court on a new course, allowing the General Court to take into account evidence not disclosed to the targeted person if such disclosure could harm the security of the EU or its Member States, or the conduct of their international relations.  While the General Court would take into account during its assessment the fact that a targeted person has not been fully able to exercise his rights of defense, the draft Rules of Procedure do not require a minimum disclosure of the "essence of the grounds."  This raises a quandary for the General Court, as the case law of the European Court of Human Rights would tend to suggest that disclosure of information necessary to enable a defendant to determine whether it is possible to refute the allegations against them is required under the right to a fair trial under Article 6 of the European Convention on Human Rights.  It is anticipated that this issue will be raised if and when the General Court begins to exercise any such new powers.  The text of the draft Rules of Procedure is, at the time of writing, awaiting the confirmation of the Council's Committee of Permanent Representatives before it is submitted to the Council for final approval.

            2.    Cases Relating To Sanctions Regarding Belarus

On June 12, 2014, the Court of Justice of the EU (CJEU), the EU's senior court, considered a question referred by a Lithuanian court in 2013 as to whether the Lithuanian authorities had the discretion to refuse an application for an asset freeze exemption in order to cover legal expenses incurred when appealing that asset freeze.[333] The CJEU ruled that national authorities do not have an absolute discretion when deciding on a request for a release of frozen funds (in this case, for legal expenses).  The review of applicability of an asset freeze exemption must be performed in accordance with the Charter of Fundamental Rights of the EU.  In particular, account should be taken of the fact that applicants to the European courts seeking the annulment of their designation on an EU sanctions list are not able to represent themselves and therefore must retain a lawyer or agent.[334]  In that regard, Article 47 of the Charter requires that a freeze of funds may not have the effect of depriving the persons whose funds have been frozen from effective access to justice.  The CJEU also found that national authorities may not refuse the application of an asset freeze exemption in order to pay for legal expenses on the sole ground that legal aid would be otherwise available, or that the origin or the acquisition of the funds is possibly unlawful.  This may prove to be an important precedent in the context of the sanctions regimes instituted in the months following the so-called Arab Spring regarding the misappropriation of state funds, or the similar Ukrainian sanctions regarding misappropriation. On September 23, 2014, the General Court annulled the entry of Aliaksei Mikhalchanka  in the list of targets for the EU's sanctions against Belarus.[335]  Mr. Mikhalchanka is a journalist working for the Belarusian public TV channel, who had been designated as a target for the EU's Belarus sanctions in 2011, based on his "senior and influential position" on the State TV channel.  In 2012, the Council maintained Mikhalchanka's listing based on him being the presenter of a specific TV program, which was considered an instrument of State propaganda, and which supports and justifies the repression of the democratic opposition and of civil society.  The General Court held that by changing the wording of the reasoning for the listing, the Council had infringed Mikhalchanka's rights of defence.  The Council should have informed Mikhalchanka of the new evidence it intended to use against him and afforded him the opportunity to challenge this evidence in a hearing prior to the Council's final decision.  In addition, the General Court found that the Council had made errors of assessment with regard to the grounds for the 2011 listing, and did not disclose evidence sufficient to demonstrate the influence, actual impact, or responsibility that Mikhalchanka, or the TV program he presented, could have had in violations of international electoral standards or internal repression occurring in Belarus. Separately, the General Court upheld the listing of the vice-chairman of the Central Electoral Commission Vadzim Ipatau.[336]  The General Court concluded that the Council justly considered him, due to his position, jointly responsible for violations of international standards in the presidential election of 2010.

            3.    Cases Relating To Sanctions Regarding Egypt

On February 27, 2014, the General Court for the first time ruled on the EU's sanctions imposed on Egyptian nationals.[337]  The General Court rejected the applications and ruled that the European Council had the legal power to impose the restricted measures and had done so on the appropriate legal basis.  Furthermore, the General Court held that the measures did not disproportionally restrict the fundamental rights to respect of property, freedom to conduct business and the rights of defense of the targeted persons. The EU had imposed travel bans and asset freezes on individuals who, it was alleged, had been identified as being responsible for "the misappropriation of State funds."  This was done in the immediate wake of the Arab Spring.  Ahmed Ezz and his spouses were designated in March 2011 and applied to the General Court seeking the annulment of their designation.  However, the General Court rejected the applicants' argument that a difference in the French and English language versions regarding the concept of "identified as responsible" indicated that the EU had to wait until a person was criminally convicted before being able to impose sanctions. The General Court analyzed the concept in detail and concluded that "identified as responsible" for the misappropriation of State funds covers five categories of persons, i.e., individuals (i) found guilty after judicial proceedings; (ii) found to be their accomplices by a criminal court; (iii) currently being prosecuted; (iv) currently being prosecuted as an accomplice; and (v) subject to judicial proceedings associated with individuals subject of connected criminal proceedings.  The General Court held that this also includes individuals such as the applicants who, "possibly without their knowledge, may have benefited from the proceeds of the 'misappropriation of Egyptian State funds' and on that basis are subject to protective measures, prescribed in a judicial context, intended to preserve the assets arising from such misappropriation."

            4.    Iran

On November 25, 2014, the General Court for the first time awarded damages to an applicant seeking the annulment of its designation as a target for EU sanctions.[338]  Safa Nicu Sepahan was designated in 2011 based on being a communications firm that supplied equipment for the Fordow (Qom) facility which was built without being declared to the IAEA.  The General Court agreed with Safa that the Council's reasons were factually incorrect, considering (i) it was not a communications firm; and (ii) it did not supply equipment to the facility in question.  The General Court concluded that the Council did not have sufficient evidence to have designated the company.  Unlike previous cases, in which the General Court refused to grant a claim for damages under Article 340 of the Treaty on the Functioning of the EU due to the Council's breach of EU law being insufficiently serious to warrant an award of damages or due to insufficient evidence that the applicant had suffered losses because of its inclusion on the sanctions list in question, the General Court granted Safa's damages claim in part.  The General Court agreed with the applicant's arguments that, due to the Council's error, it had suffered damage to its reputation, which affected the behavior of third parties (mainly non-EU persons) towards it.  This damage was not compensated by the mere annulment of the listing.  The Council's error in failing to confirm the facts and gather sufficient evidence to reason a listing was found to be sufficiently serious.  It should be noted that the awarded damages are rather limited.  While the applicant claimed EUR 7.66 million (approx. USD 10.17 million), including EUR 2 million (approx. USD 2.65 million) as compensation for the damage to its reputation, the General Court awarded EUR 50,000 (approx. USD 60,000).  In line with its previous approach, the General Court rejected in its entirety the applicant's claim for material damages (suffered in the form of closed bank accounts, suspension of payments, and the termination of commercial relations by European suppliers) due to insufficient evidence.  Nonetheless, if more applicants succeed in obtaining damages and as the evidential criteria for damages become identified and refined, Safa Nicu Sepahan v. Council may come to be seen as a watershed case. Several banking entities and/or bankers have been successful in seeking the annulment of their designations.  In particular, the General Court annulled the designations of two bankers employed by Melli Bank Plc (the UK subsidiary of Bank Melli Iran) on June 4, 2014.[339]  While the bank itself was unsuccessful in its own action, the General Court found that the EU Council may only designate the employees if it was proven that they provided support for, or were acting on behalf of or at the direction of an entity involved in, nuclear proliferation.  Accordingly, the Council did not sufficiently establish that the two individuals served as a link between Melli Bank (their employer) and Bank Melli Iran.  The General Court found that the possibility that Bank Melli Iran could exert pressure on the entity it owns was insufficient to establish that the targeted individual would succumb to such pressure and act at Bank Melli Iran's direction, or provide support for nuclear proliferation at its instigation.  The General Court considered this especially unlikely in light of the target's exemplary conduct in the past.  Moreover, the restrictive measures concerned the target's personal funds, not the funds of Melli Bank, which would render immaterial the question whether there was a risk that the target would misuse Melli Bank's funds at the direction of Bank Melli Iran in contravention of existing sanctions. Also on June 4, 2014, the General Court annulled the re-listing of Sina Bank.[340]  While the original designation of Sina Bank was annulled in 2012 for a lack of sufficient reasoning, the Council maintained the listing following a full review of the Iranian sanctions lists.  Sina Bank brought new actions before the General Court claiming the Council had breached its rights of defence, as the Council had not informed it of the reasons for its continued designation, nor the evidence on which this decision was based.  The General Court agreed with the bank and held that it should have been provided with any evidence that was not included in the original, unlawful listing, and should have been given the opportunity to discuss this evidence in a hearing prior to the Council's final decision. Considering that the listing of Sina Bank was annulled, the designation of Abdolnaser Hemmati, based on his position in Sina Bank, was automatically annulled.[341]  On November 7, 2014, the EU re-listed Sina Bank (and several other Banks) as a target for the EU's sanctions against Iran, based on new reasoning.[342] In addition, on July 10, 2014, the General Court annulled the designation of Moallem Insurance.[343]  Moallem Insurance had been targeted in 2012 on grounds of being the "main insurer of IRISL."  The General Court agreed with Moallem's argument that this reasoning was factually incorrect, considering its ownership structure and composition are not those of a company which is capable of being IRISL's main insurer.  Moallem also argued that the Council had produced no evidence in support of its allegations.  The evidence submitted to the General Court was either disclosed only after the application was brought or did not contain sufficient evidence to support the Council's allegations. The General Court rejected the application of National Iranian Oil (NIOC) on July 16, 2014.[344]  NIOC had been designated in 2012 as a State-owned entity "which provides financial resources to the Iranian government, whose Chairman is a minister and CEO a deputy minister."  The General Court rejected NIOC's arguments with regard to lack of legal basis, insufficient reasoning, the legality of the designation criteria, the violation of the principles of proportionality, the breach of rights of property, defense and effective judicial protection, and manifest errors of assessment. On September 18, 2014, the General Court annulled the designation of the Central Bank of Iran (CBI).[345]  The Bank had been listed in 2012 due to its "involvement in activities to circumvent sanctions."  However, the General Court found that merely repeating one of the listing criteria without further supporting evidence was not sufficient, as no indication was given as to why this criterion applied to CBI.  In particular, "the Council does not refer to any identifiable transaction, or to any particular assistance," thereby denying CBI the full enjoyment of its rights of defense. It should also be noted that while the North Drilling Company successfully sought the annulment of its designation in 2013,[346] the EU relisted the company in April 2014 based on new reasons.  The EU considers the company to provide financial support to Iran through being indirectly owned by the Mostazafan Foundation, a major Iranian para-statal entity controlled by the Government of Iran and through providing imported key equipment for the oil and gas industry, including prohibited goods.[347]  Re-listing of this kind, after the individuals and/or companies targeted had successfully brought actions before the General Court seeking to annul their designation, has occurred before.[348]

            5.    Libya

On September 24, 2014, the General Court annulled the designation of Al Kadhaf Dam as a target for the EU's sanctions imposed against Libya.[349]  The applicant was designated in 2011 on grounds of being a cousin of Colonel Gaddafi, participating in the planning of operations against Libyan rebels, and organizing an army unit.  The applicant was re-listed in April 2013 on the basis of the same reasoning.  However, the General Court concluded that the Council's relisting of the applicant occurred after the Libyan civil war and the overthrow of the Gaddafi regime.  In addition, the applicant had at the time already resigned.  As such, the General Court found that the Council failed to provide sufficient reasons for the 2013 designation.

            6.    Syria

On June 11, 2014, the General Court annulled a listing on the EU's Syria sanctions list for the first time.[350]  While the General Court has ruled on Syrian sanctions listings before, this was the first time it has annulled a Syrian designation.  The General Court concluded that the listing of Syria International Islamic Bank (SIIB), based on providing financial support to the Syrian regime and assistance to two banks in their efforts to circumvent existing sanctions, was not based on sufficient evidence of actual assistance with such transactions.  Importantly, the General Court did not consider the fact that SIIB had been sanctioned by OFAC as being at all relevant for the purposes of maintaining an EU designation. While the General Court annulled the designation, it rejected SIIB's application for approx. EUR 10 million (approx. USD 13.28 million) in damages.  The General Court found that SIIB had not proved the EU sanctions had caused it to suffer loss and damage. In addition, the General Court annulled the designations of three individuals, which had been listed in 2011 on grounds of being associates of Maher Al Assad and/or providing financial support to the Syrian regime or even being directly involved in the violent repression of the Syrian civilian population.[351]  The General Court applied the principles set out in the CJEU's Kadi judgments, and found that it was for the Council to provide sufficient evidence supporting its reasons for the listings where the claimant challenges these reasons.  The burden of proof in such a scenario is on the Council, not on the applicant; the applicants' rights of defense and right to a fair trial under Article 47 of the EU Charter of Fundamental Rights were infringed. On the other hand, the General Court rejected the application for annulment by the governor of the Syrian Central Bank (SCB), Adib Mayaleh.[352]  Mr. Mayaleh was designated in 2012 on grounds of providing financial support to the Syrian governments in his capacity as governor of the SCB.  The General Court found that the Council had sufficiently reasoned the listing and did not breach the applicant's rights of defense.  The General Court emphasized that the applicant's role as the governor of the SCB was sufficient to justify his designation since the SCB makes financial resources available to the Syrian regime.

            7.    Terrorist Organizations

On March 21, 2014, the General Court ruled that the European Commission had failed to fulfill its obligations by not remedying procedural deficiencies and substantive irregularities affecting the asset freeze imposed on Hani El Sayyed Elsebai Yusef, which resulted in a breach of his rights of defense.[353] Following his designation by the UN Sanctions Committee in 2005 on grounds of being associated with Al Qaida, Mr. Yusef was also listed by the EU on its Al Qaida sanctions list.[354]  His first action for annulment was dismissed as inadmissible in 2006.[355]  Mr. Yusef had brought separate actions in the UK against the national measures freezing his funds.  Following the CJEU's ruling in "Kadi I" in 2008,[356] the UK Supreme Court, in 2010, held that the measures in question had been adopted ultra vires.[357]  Subsequently, Mr. Yusef requested the Commission remove his listing, as he had been designated without independent or impartial assessment by the Commission, and had not been given any reasons, while the UK had concluded that the listing criteria were not satisfied in his case.  When the Commission did not reply to his letter, Mr. Yusef brought new actions at the General Court, seeking the annulment of his listing on the grounds that the Commission had persistently failed to observe the principles stated by the CJEU Kadi I and Kadi II.[358] The General Court agreed with Mr Yusef and recalled that the rights of defense in particular the right to be heard and the right to an effective judicial remedy require that EU institutions: (i) provide the target with the evidence used against and the opportunity to make known his point of view before taking a final decision; (ii) disclose to the target the summary of reasons provided by the UN Sanctions Committee, which served as the basis for (maintaining) that person's listing, and examine them impartially, in light of the target's comments and any exculpatory evidence provided; and (iii) state their reasons, identifying the individual, specific, and concrete reasons why they consider that the target must be subject to restrictive measures. The General Court concluded that Mr. Yusef was unable to rely on any of the principles or guarantees, even after the Kadi I judgment.  The Commission had designated Mr. Yusef on the sole basis of a UN Sanctions Committee press release which did not include any statement of reasons, and only received the latter's reasons several years later.  The Court held that the Commission "was clearly under an obligation to act with regard to the applicant, in order to remedy those procedural and substantive irregularities, if not immediately after the Court had delivered its judgment in Kadi I, or in response to the applicant's letter […]".  The General Court found this obligation to act was strengthened by the fact that Mr. Yusef had referred, in his letters to the Commission, to new and significant evidence which the Commission "was at least obliged to examine, in order to assess whether it amounted to a change of circumstances such as to warrant the revocation [of the listing]." In addition, on October 16, 2014, the General Court annulled the 2006 listing of the Liberation Tigers of Tamil Eelam (LTTE) on procedural grounds, while rejecting the LTTE's arguments regarding substance.[359]  The General Court confirmed that, in contrast to the applicant's arguments, EU law on the prevention of terrorism does apply in situations of "armed conflicts" in the meaning of international law.  Also, the General Court found that the Council's reliance on decisions of a third country (in this case the Indian authorities) for its designation was not contrary to the Council's Common Position of 27 December 2001 on the application of specific measures to combat terrorism, in-so-far as the Council carefully verifies beforehand that that country's legislation ensures sufficient protection of the rights of defense.  However, considering that the Council did not carry out such an assessment, the contested measures were found to be based "not on acts examined and confirmed in decisions of competent authorities, as required by Common Position 2001/931 and case-law, but on factual imputations derived from the press and the internet."  The General Court annulled the designation. The General Court stressed that its assessment of and conclusion regarding the procedural requirements does not imply any substantive assessment of the question of the classification of the LTTE as a terrorist group.

            B.    United Kingdom

In February 2014, it was reported in the press that Bank Mellat, Iran's largest private bank is suing the British government for almost £2 billion (approx. USD 3.13 billion) in damages following the Supreme Court's quashing of sanctions imposed on the bank in connection with allegations that it had links to the Iranian nuclear program.[360] Bank Mellat also continues with its ongoing efforts to have restrictions imposed on it under now-defunct UK legislation set aside.  In November 2014, in Bank Mellat v HM Treasury [2014] EWHC 3631 (Admin), the UK High Court held that the essence of allegations justifying designation of a person in a sanctions regime must be disclosed to that person, even where national security concerns prevent full disclosure.  In June 2013, the UK's Supreme Court held the relevant legislation was unlawful.  The question in this case focused on the level of disclosure required to enable the Bank to challenge the reasons given for its designation.  HM Government argued that the principles under the fair trial case law of the European Court of Human Rights, to the effect that sufficient disclosed must be made to enable the a person to defend itself, do not apply to asset-freezing cases.  The Court rejected that argument due in part to the highly damaging nature of the orders on the claimant bank's ability to function. In July 2014, in the case of R (on the application of Sarkandi & Ors) v Secretary of State for Foreign & Commonwealth Affairs [2014] EWHC 2359 (Admin)[361], the English High court granted an application by HM Government for a closed hearing in an administrative challenge against a sanctions listing.  The claimants had been designated under the EU's sanctions regime at the instigation of the UK Foreign & Commonwealth Office.  The entities had successfully challenged their designations in the EU General Court, and subsequently sought to challenge the Secretary of State for the Foreign Office's decision to propose designation, seeking damages.  The Government sought an order under Section 6 of the Justice & Security Act 2013 that the case be heard in a "closed material procedure" which allows for the Government to rely on sensitive material that is not shown to the claimants.  In granting the application, Bean J rejected the argument that the sensitive material was irrelevant because it could not be relied on to justify the listing proposal. On December 9, 2014, a UK court rejected an attempt by Russian Oil company Rosneft to prevent laws in the UK[362] criminalizing breaches of EU sanctions against Russia from coming into force, on the basis that the offences in question infringed the requirements of legal certainty under Article 7 of the European Convention on Human Rights and legal clarity under the common law.[363]  Rosneft had complained of the use of allegedly vague terms in the underlying the EU Regulation such as "deep water" and "arctic."  In the Divisional Court, Beatson LJ and Simon J held that Rosneft had not shown that the relevant provisions were invalid, since the laws would have clear application in some cases, and there was no risk to Rosneft of serious irreparable harm.  It may not be entirely coincidental that, as discussed above, the EU clarified some of these very terms by way of amendments to the respective regulations just a few days before the judgment was handed down. In May 2014, the Administrative Court in London handed down its decision in R (on the application of Privacy International) v The Commissioner for HM Revenue & Customs [2014] EWHC 1475 (Admin).[364]  Privacy International is an NGO campaigning against governmental surveillance activities.  It had been a complainant to HMRC regarding exports by the company Gamma International Limited of surveillance equipment to Bahrain and Ethiopia allegedly in breach of the UK's Export Control Order.  After a period of inaction, Privacy International sought the disclosure of information from HMRC regarding the status of its investigation.  HMRC refused to provide any such information, or to disclose (one way or another) whether it was going to charge Gamma International.  Privacy International sought judicial review (the UK's primary device for challenging an administrative decision in court) of the decision to refuse to disclose information, and invited the court to order HMRC to issue guidance on when it will, or will not, publish decisions not to prosecute.  Although the court declined to order the issuance of such guidance, Privacy International's challenge against the decision not to disclose information was successful.  It remains to be seen what the ultimate outcome of Privacy International's efforts will be.

III.    Enforcement

            A.    Austria

In July a court in Vienna seized €5m worth of real estate owned by Oleksii Azarov, who had been designated under the Ukrainian misappropriation sanctions.  This followed an investigation by the Austrian Bundesamt für Verfassungsschutz und Terrorismusbekämpfung (Federal Agency for State Protection and Counterterrorism).[365]  The case is of particular interest because the land in question was not legally owned by Mr. Azarov.  Rather the land was held through a Liechtenstein entity called LADA Holding Anstalt, in which Mr. Azarov had a beneficial interest.  In determining that the land in question was an asset of Mr. Azarov's for the purposes of the EU sanctions, the Austrian court not only pierced the corporate structure but also looked to beneficial rather than legal ownership.  Following a similar decision by the Cypriot Supreme Court in 2013 (reported in our 2013 Year-End Sanctions Update), it is a further illustration of the broad interpretation adopted by European courts to the question of what constitutes a person's "assets" when construing the EU's asset freezes. In mid-December, it was reported that EU authorities were investigating Raiffeisen Bank International regarding a possible breach of the EU's Russian capital markets sanctions.  Raiffeisen's Moscow subsidiary (ZAO Raiffeisenbank) had advised Vneshneconombank regarding a 10 billion ruble bond sale.  It was reported that the investigation was focused on whether the Austrian parent bank and/or its staff were involved in the transaction in any way, or whether the ZAO Raiffesisenbank had entered into the transaction entirely independently of its parent.[366]

            B.    Germany

On February 18, 2014, German federal prosecutors arrested a 62-year old German-Iranian individual on allegations of exporting to Iran goods that could be used in a weapons program.  It was reported that the products included vacuum pumps, valves, and other such industrial products that could be used for civil or military purposes.  The allegations concern the illegal export of goods of German or other EU Member State origin, to Iran between 2011 and 2013.  Such exports violate the EU sanctions in force, which include an arms embargo and an embargo on equipment which could be used for internal repression.  The illegal export was reported to have generated approximately EUR 230,000 of profits.  According to German prosecutors, the goods were exported to an Iranian organization responsible for a military residual propellant weapons program and which has been subject to the embargo since 2007 and thus "[i]t is […] forbidden to make economic resources - and goods of any kind - available to this company".[367] In June 2014, a trial commenced in Frankfurt of two individuals charged with exporting over sixty engines capable of being used in military drones to Iran.  The exports were alleged to have occurred between 2008 and 2009 in breach of the EU's sanctions.[368]  One of the individuals did not attend court for the commencement of the trial and will be tried separately.  The trial of the second individual is ongoing with hearings next scheduled for mid to late January 2015.[369]

            C.    Italy

In a move reminiscent of the Austrian seizure of property discussed above, on September 23, 2014, press reported that the Italian Guardia di Finanza had seized several properties valued at approximately €30m belonging to Arkady Rotenberg, a close friend of Russian President Putin who was designated under sanctions by the EU in July 2014.  A villa in Sardinia was owned directly by Mr. Rotenberg but other properties, including a hotel in Rome, were held through the Italian company Aurora 31, itself owned by two Cypriot companies, Olpon Investment Limited, and Logotax Developments Limited.[370]  This is a further example of the broad approach to ownership being taken by the European authorities.

            D.    Spain

In February 2014, ONA Electroerosíon S.A. settled with Spanish prosecutors regarding charges of exporting seven shipments of turbine equipment valued at €1.2m to Iran in breach of sanctions.  The shipments went via a front company in Turkey.  ONA Electroerosíon had first been raided in 2012, and had first come to the attention of the authorities in 2009 when it applied for, and had been refused, a license to export the same equipment directly to Iran.  The settlement included payment of an undisclosed fine.[371]  Under Spanish law the fines can be up to six times the value of the exported equipment.[372] On April 7, 2014, Spanish police arrested three Spanish individuals and one Iranian individual on suspicion of operating a network trying to export metal-molding machinery (of UK origin) to Iran.  Such exports violate EU sanctions imposed against Iran (see above).  Police officers stated that while the machinery in question could be used for civilian purposes, it could also be used for the production of parts of missiles or gas centrifuges used to enrich uranium.  The sanctions in force restrict the export of such dual-use technology.[373]

            E.    Switzerland

On July 1, 2014, the Swiss Financial Market Supervisor (FINMA) sanctioned BNP Paribas's Swiss branch, BNP Paribas (Suisse) SA, and banned it for two years from engaging with any person designated by the EU or the United States as a target for sanctions.  The measures were taken based on evidence that BNP Paribas (Suisse) SA had assisted in the breach of U.S. sanctions imposed on Sudan by "seriously violat[ing] its duty to identify, limit and monitor the risks involved in making transactions with business partners in countries under U.S. sanctions."[374]  FINMA's investigation is not linked to the U.S. SEC's investigation and resulting fine of USD 8.9 billion for BNP's violation of U.S. sanctions on Cuba, Iran, Myanmar, and Sudan. A FINMA spokesman confirmed to the press that Swiss authorities do not usually enforce foreign governments' legislation and would generally not step in to oblige companies to adhere to embargoes and sanctions imposed by anyone besides Bern. BNP Suisse had handled transactions of Sudanese customers, and used third-party banks to mask their activities.  BNP Suisse also provided significant credits destined for Sudanese oil trading, in breach of existing sanctions imposed by (among others) the U.S. against Sudan.[375] While FINMA stressed that Swiss law demands that banks at all times "assure proper business conduct and risk management," and BNP Suisse had clearly failed in that respect as it had "exposed itself to unduly high legal and reputational risks and violated requirements for adequate organisation under Swiss supervisory law." With regard to Ukraine and Russia, while Switzerland has not adopted sanctions itself, it ensures that individuals and entities targeted by EU and U.S. sanctions do not bypass those sanctions by using financial structures in Switzerland.  To this end, Switzerland put in place a "black list."[376]  The Swiss black list bans listed individuals and entities from transferring assets into Switzerland or engaging in new business relationships with Swiss financial institutions.  Financial institutions which had existing relationship with a targeted individual or entity must report any transactions involving those targets. The measures were extended in November 2014 and provide that the Swiss State Secretariat for Economic Affairs (SECO):  (i) may refuse export permits for certain military and dual-use goods; (ii) must be notified of the provision of financial or technical services related to military or dual use goods to listed entities, or the provision of certain services related to the oil industry; and (iii) must authorize, trade in new financial instruments, as well as the granting of loans with a maturity exceeding 30 days.[377]

            F.    United Kingdom

In March 2014, the company Delta Pacific Valves Limited (previously called Delta Pacific Manufacturing Limited), and one of its director Gary Summerskill, were each convicted of sanctions breaches in the Central London Criminal Court following an investigation by HM Revenue and Customs (HMRC).  In an effort to evade detection the deliveries had been routed through Hong Kong and Azerbaijan.  Mr. Summerskill was jailed for 30 months, with a conditional sentence of an additional 15 months if he fails to satisfy a Confiscation Order of £68,000 within 6 months.  Mr. Summerskill had pleaded guilty at his trial, meaning his sentence is likely to have reflected some level of discount.  The company, which had exported to Iran some £3.4 million worth of alloy valves capable of being used in weapons manufacture, was fined £225,000 and was also the subject of a Confiscation Order requiring it to repay its entire profits from the deliveries of £1,072,000.[378] In April 2014, the Criminal Division of the Court of Appeal upheld a seven year custodial sentence and seven year director disqualification order in Gary Hyde v R [2014] EWCA Crim 713.[379]  Gary Hyde had been convicted in 2012 in relation to the shipment of weapons from China to Nigeria in breach of export control bans.  The Court of Appeal concluded (at paragraph 28) that: "the overall sentence was undoubtedly severe but a deterrent sentence was inevitable and we are not prepared to conclude that the custodial term imposed is either wrong in principle or manifestly excessive."  Mr. Hyde had not appealed against a Confiscation Order for £782,142, representing his whole profit from the transactions. In April 2014, the Serious Fraud Office announced that it was opening a money laundering investigation "arising from suspicions of corruption in Ukraine,"[380] and added that it had obtained a Restraint Order over approximately £23m in assets in the UK.  This investigation is likely to have arisen from financial institutions reporting assets held by those individuals listed under the Ukrainian Misappropriation sanctions. In May 2014, it was reported that the UK's National Crime Agency and HMRC were investigating Reed Business Information Limited in relation to allegations that a number of designated Iranian banks continued to be sold access to business information products and databases after they had been so designated.[381]  No further information has been published, and the current status of the investigation is uncertain. In November 2014, the UK's Financial Conduct Authority (FCA) published a Thematic Review on How small banks manage money laundering and sanctions risk.  This was a follow on from its 2011 review of the handling of AML risk by small banks, now expanded to cover sanctions.[382]  As part of the review the FCA visited 21 small banks operating in the UK.  The FCA concluded that particularly serious failures were identified at six of these banks, with the FCA commencing enforcement investigations in relation to two of the banks.  It is unclear from the Thematic Review whether these investigations relate to AML or sanctions failures, or both.  The FCA drew attention to some notable failings as regards sanctions and sanctions screening including: the failure to keep abreast of changes to sanctions designations; the use of manual screening as opposed to "fuzzy" searches; discrepancies between the screening done when taking on new customers and those carried out on existing customers; the failure to screen all payment types against sanctions lists; and inadequate knowledge and expertise regarding sanctions and the identification of sanctions risks.  The FCA included three examples of good practice:
  • the use of either "four eye" checks on any sanctions alerts, or the periodic conduct of quality assurance on concluded sanctions alerts;
  • the periodic use of fuzzy searching of existing customers against relevant sanctions lists; and
  • those handling sanctions alerts having access to a bank's customer due diligence files.

LOOKING FORWARD

            A.    Prospects for a Comprehensive Iran Nuclear Deal

On November 24, 2014, the P5+1 extended the nuclear negotiations with Iran under the Joint Plan of Action for another seven months.[383]  The negotiations aim to reach a deal to limit Iran's nuclear activities and suspend certain nuclear-related U.S, EU, and UN sanctions on the country.  This was the second time the parties have extended the negotiating period, and both sides are continuing to work towards a comprehensive agreement that would further limit Iran's nuclear activities and significantly unwind U.S., EU, and UN sanctions.  The seven month extension has been divided in two periods; the parties face a March 1, 2015 deadline for reaching a political agreement, and a June 30, 2015 deadline for reaching a final agreement, including all of the details regarding implementation.[384]  While the interim agreement permits some previously prohibited transactions, the vast majority of sanctions on Iran remain in place. In exchange for a number of Iranian steps to curtail its uranium enrichment activities, limit its development of the Arak reactor, and allow for international inspections, the United States and the European Union have taken a number of sanctions-relaxing measures, including pausing efforts to further reduce Iran's crude oil sales; enable the repatriation of an agreed amount of oil revenue held abroad; suspend sanctions on Iran's petrochemical exports; suspend sanctions on gold and precious metals, as well as on Iran's auto industry; and establish a financial channel to facilitate humanitarian trade for Iran's domestic needs using Iranian oil revenues held abroad.  Under the second extension, Iran will continue to receive approximately $700 million monthly held in previously blocked foreign accounts.[385]  The United States and European Union also agreed to refrain from imposing new nuclear-related United Nations Security Council, European Union, and United States sanctions. While senior Administration officials remain bullish on the prospects of striking a deal with Iran, the recently elected Congress has expressed misgivings about any prospective deal that does not sufficiently limit Iran's ability to produce nuclear weapons.[386]  Republican and Democratic Congressmen are threatening to pass additional legislation that would sanction Iran, actions which could potentially scuttle the negotiations or any nascent deal; the new Congress may further complicate striking a deal with Iran.  OFAC has repeatedly shown a willingness to aggressively enforce sanctions regulations still in place, and its aggressive posture has added to tensions in the negotiations that further draw into question the likelihood of reaching an agreement. While there has been significant interest in re-entering the market if sanctions on Iran are partially lifted, we recommend proceeding with caution, both now and in the event that a deal is reached.  Businesses should pay careful attention to what is and is not permitted under U.S. law; the interim agreement does not ease the majority of sanctions on Iran and companies eager to engage with the country may be surprised to learn that OFAC is aggressively enforcing the vast sanctions regime covering that country. If an agreement is reached, it will likely only lift some nuclear-related sanctions; a number of other sanctions regulations will remain in place.  Our clients and friends should likewise exercise caution in re-entering Iranian markets, as such new business could easily result in inadvertently conducting prohibited transactions.

            B.    Prospects of Future Sanctions on Russia

The United States and the European Union continue to exert economic pressure on Russia following its annexation of Crimea and continued support of separatists in eastern Ukraine.  The new sanctions levied against Russia--which target its financial and energy industries--are sophisticated and designed to narrowly impact key Russian economic sectors and persons.  However, the impact of these sanctions has been much more widely felt throughout the country; the ruble has dropped almost 50% in value since the beginning of 2014, and capital continues to flow out of the country.  Despite this economic pain, thus far Russian President Vladimir Putin has continued supporting separatist forces in eastern Ukraine and continues to control Crimea. Looking ahead, the United States is likely to impose additional sanctions on Russia.  In mid-December, 2014, President Obama signed the Ukraine Freedom Support Act into law, which provides the President with the authority to, inter alia, penalize foreign companies for conducting certain transactions in Russia's energy sector.[387]  These CISADA-like sanctions provide the President with the power to target foreign companies across the world, and represent a significant expansion of the reach of the Russia sanctions program.  Our clients and friends should be aware that, even if they do not conduct business in the United States, they may be subject to OFAC penalties. Moving forward, companies should be cautious about conducting activities in Russia for at least two reasons.  First, as has become evident, OFAC is still determining the precise contours of the Russia sanctions.  For example, OFAC is still defining key terms as questions arise about them.  Transactions which may appear to be currently acceptable under the regulations could become prohibited based on OFAC's subsequent interpretations.  The timing of such a determination would be unlikely to insulate a company from liability if it engaged in those transactions prior to OFAC's interpretation.  Second, while U.S. and EU regulators have not pursued enforcement actions for sanctions violations yet, we expect that they will aggressively do so in the near term.  Any companies found to be in violation of the regulations will likely face stiff penalties and reputational damage.

            C.    Prospects for Further Normalization of Relations with Cuba

The announced changes in U.S. policy towards Cuba were greeted positively in many quarters, with expressions of hope for more contact with Cuba as well as a repositioning of the U.S. status in Latin America, where the U.S. embargo on Cuba has been a sore point.[388]  However, approval was far from universal, particularly with Members of Congress who would have to take legislative action to end the embargo.  Comments in response to the policy announcement[389] suggest significant conflict within the 114th Congress, with important voices expressing hostility towards the Obama Administration's efforts.  Further, in addition to refusing to take legislative action needed to lift the embargo, Congress has the ability to prevent appropriations needed to fund an embassy in Cuba or confirm an ambassador.  This time of divided government, with the start of the new Congress and an Administration in its final two years, holds the promise of energetic exchanges regarding the future of the U.S. relationship with Cuba.
     [1]   Exec. Order No. 13,660, 79 Fed. Reg. 13,493 (Mar. 10, 2014).    [2]   Id.    [3]   Id. at 13,494.    [4]   Exec. Order No. 13,661, 79 Fed. Reg. 15,535 (Mar. 19, 2014).    [5]   Id.    [6]   Id.    [7]   Id.    [8]   Id.    [9]   Id. at 15,536.   [10]   Id.   [11]   Exec. Order No. 13,662, 79 Fed. Reg. 16,167 (Mar. 24, 2014). For a more in-depth discussion of this Executive Order, see Client Alert, Gibson, Dunn & Crutcher LLP, President Obama Signs Third Executive Order Blocking Property of Additional Persons Contributing to the Situation in Ukraine and Targeting Certain Russian Economic Sectors (Mar. 25, 2014), https://www.gibsondunn.com/wp-content/uploads/documents/publications/President-Obama-Signs-Third-Executive-Order-Blocking-Property-of-Additional-Persons-Contributing-to-Situation-in-Ukraine.pdf.   [12]   Exec. Order No. 13,662, 79 Fed. Reg. 16,167, 16,169 (Mar. 24, 2014).   [13]   Office of Foreign Assets Control, Ukraine-related Sanctions; Publication of Executive Order 13662, Sectoral Sanctions Identifications List (July 16, 2014), available at http://www.treasury.gov/resource-center/sanctions/ofac-enforcement/pages/20140716.aspx; Office of Foreign Assets Control, Directives 1 and 2 Pursuant to EO 13662 (July 16, 2014), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/eo_13662_directives.pdf.   [14]   Office of Foreign Assets Control, Sectoral Sanctions Identifications List (July 16, 2014), available at http://www.treasury.gov/ofac/downloads/ssi/ssi.pdf (hereinafter "SSI List).   [15]   Office of Foreign Assets Control, Announcement of Additional Treasury Sanctions on Russian Financial Defense Technology Entity (July 29, 2014), available at http://www.treasury.gov/press-center/press-releases/Pages/jl2590.aspx.   [16]   Office of Foreign Assets Control, Frequently Asked Questions and Answers, Question 371, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#371 (last updated Sept. 12, 2014) (hereinafter "OFAC FAQ").   [17]   Id.   [18]   OFAC FAQ, Question 373, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#373 (last updated Sept. 12, 2014).   [19]   Id., Question 371, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#371 (last updated Sept. 12, 2014).   [20]   Id., Question 370, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#370 (last updated Sept. 12, 2014).   [21]   Office of Foreign Assets Control, Announcement of Expanded Treasury Sanctions within the Russian Financial Services, Energy and Defense or Related Materiel Sectors (Sept. 12, 2014), available at http://www.treasury.gov/press-center/press-releases/Pages/jl2629.aspx.   [22]   Note that sanctions were previously imposed against the CEO of Rostec, Sergey Chemezov, on April 28, 2014.   [23]   SSI List at 9-10.   [24]   Id.   [25]   Office of Foreign Assets Control, General License No. 2: Authorizing Certain Activities Prohibited by Directive 4 under Executive Order 13662 Necessary to Wind Down Operations (Sept. 12, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl2.pdf.   [26]   Id.   [27]   Id.   [28]   Id.   [29]   SSI List at 1.   [30]   OFAC FAQ, Question 416, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#416 (last updated Sept. 12, 2014).   [31]   With this latest round of sanctions, U.S. persons are prohibited from purchasing or otherwise dealing in any new debt from a total of six large Russian banks: Sberbank, VTB Bank, Gazprombank, VEB, Russian Agricultural Bank and Bank of Moscow.   [32]   OFAC Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked (Aug. 13, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/licensing_guidance.pdf.   [33]   OFAC FAQ, Question 373, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#373,  (last updated Sept. 12, 2014).   [34]   Id., Question 418, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#418 (last updated Nov. 18, 2014).   [35]   Id., Question 420, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#420 (last updated Dec. 11, 2014).   [36]   Id., Question 421, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answers2.aspx#421 (last updated Dec. 11, 2014).   [37]   Office of Foreign Assets Control, General License No. 1A: Authorizing Certain Transactions Related to Derivatives Prohibited by Directives 1, 2, and 3 under Executive Order 13662 (Sept. 12, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl1a.pdf.   [38]   Office of Foreign Assets Control, General License No. 3: Authorizing Transactions Involving Certain Entities Otherwise Prohibited by Directive 1 under Executive Order 13662 (Oct. 6, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl3.pdf.   [39]   Exec. Order No. 13,865, 79 Fed. Reg. 77,357 (Dec. 24, 2014).   [40]   Office of Foreign Assets Control, General License No. 4: Authorizing the Exportation or Reexportation of Agricultural Commodities, Medicine, Medical Supplies, and Replacement Parts (Dec. 19, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl4.pdf.   [41]   Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, Pub. L. No. 113-95, 128 Stat. 1088, 1093-97, codified at 22 U.S.C. §§ 8907-09 (Pub. L. No. 113-95).   [42]   Id. § 8.   [43]   Id. § 8(a).   [44]   Id. ("The President shall impose the sanctions . . . . (emphasis added)).   [45]   Id. § 8(b)(1)(A); id. § 8(b)(2) (citing 50 U.S.C. § 1705 (2012)).   [46]   Pub. L. No. 113-95 § 8(b)(3); id. § 9(b)(3). Both sections define a "good" under the Export Administration Act of 1979 as "any article, natural or manmade substance, material, supply or manufactured product, including inspection and test equipment, and excluding technical data." 50 U.S.C. App. § 2415(3) (2012).   [47]   Pub. L. No. 113-95 § 8(b)(1)(B).   [48]   Id. § 9.   [49]   Id. § 9(a).   [50]   Id.   [51]   Id. § 9(b)(1)(A); id. § 9(b)(2) (citing 50 U.S.C. § 1705 (2012)).   [52]   Pub. L. No. 113-95 § 8(b)(3); id. § 9(b)(3). Both sections define a "good" under the Export Administration Act of 1979 as "any article, natural or manmade substance, material, supply or manufactured product, including inspection and test equipment, and excluding technical data." 50 U.S.C. App. § 2415(3) (2012).   [53]   Pub. L. No. 113-95 § 9(b)(1)(B).   [54]   Id. § 8(c); id. § 9(c).   [55]   Id. § 10(a).   [56]   Id. § 10(b).   [57]   S. 2124, the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, 113th Cong. (2014), originally introduced by Senator Robert Menéndez (D-NJ) would have imposed nearly identical sanctions as the final form of its House counterpart. However, the Menéndez bill also included provisions that would have altered the United States' obligation to the IMF. When Speaker Boehner refused to bring it to a vote in the House because of the IMF provisions, the Senate voted as a compromise to pass H.R. 4152, adding amendments that incorporated the Menéndez sanctions. See Ramsey Cox, Reid Sets Up Ukraine Vote for Thursday, The Hill, Mar. 25, 2014, available at http://thehill.com/blogs/floor-action/senate/201730-reid-sets-up-ukraine-vote-for-thursday. Thus, the Menéndez bill sanctions were largely signed into law in H.R. 4152, even though a motion to proceed to consideration of the Menéndez bill was withdrawn in the Senate.   [58]   Presidential Statement on Signing the Ukraine Freedom Support Act, 2014 Daily Comp. Pres. Doc. 1 (Dec. 18,  2014), available at http://www.gpo.gov/fdsys/pkg/DCPD-201400941/pdf/DCPD-201400941.pdf.   [59]   Ukraine Freedom Support Act of 2014, Pub. L. No. 113-272, 128 Stat. 2952 (2014).   [60]   Ukraine Freedom Support Act at § 4(a)(2)(A). Note that the specified countries are Ukraine, Georgia, Moldova, or any other country designated by the President as a country of significant concern, such as Poland, Lithuania, Latvia, Estonia, and the Central Asia republics. See id. at § 4(a)(3).   [61]   Id. at § 4(a)(2)(B).   [62]   Id. at § 4(b)(1).   [63]   Id. at § 2(6).   [64]   Id. at § 4(b)(3).   [65]   Id. at § 4(c).   [66]   Id. at § 4(d)(2), § 4(e).   [67]   Id. at § 4(d)(1).   [68]   Id. at § 5(a).   [69]   Id.   [70]   Id.   [71]   Id. at § 5(b).   [72]   Id. at § 5(c).   [73]   Press Release, The White House, Fact Sheet: Charting a New Course on Cuba (Dec. 17, 2014), http://www.whitehouse.gov/the-press-office/2014/12/17/fact-sheet-charting-new-course-cuba.   [74]   Id.   [75]   Office of Foreign Assets Control, Publication of New Cuba-Related FAQ (Dec. 17, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20141217_33.aspx.   [76]   Office of Foreign Assets Control, Comprehensive Guidelines for License Applications to Engage in Travel-Related Transactions Involving Cuba (May 10, 2012), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_tr_app.pdf, at 31-43.   [77]   Office of Foreign Assets Control, Summary of Travel, Carrier, and Remittance Forwarding Service Provider Program (Circular 2012) (July 2012), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/circ2012.pdf.   [78]   31 C.F.R. § 515.572(a)(3).   [79]   31 C.F.R. § 515.560(e)(1).   [80]   31 C.F.R. § 515.533(a)(2)(i)(A).   [81]   31 C.F.R. § 515.201 (financial transactions with Cubans in third countries); 31 C.F.R. § 515.505(b) (bank accounts); 31 C.F.R. § 515.564(a) (2) and (b) (conferences); 31 C.F.R. § 515.207 (vessels);   [82]   Remarks by Secretary of State Clinton on Internet Freedom (Jan. 21, 2010), U.S. Department of State, http://www.state.gov/secretary/20092013clinton/rm/2010/01/135519.htm.   [83]   31 C.F.R. §§ 515.204 and 515.560(c)(3).   [84]   See current restrictions on remittances at 31 C.F.R. § 515.570(b), 515.570(g) and 515.572.   [85]   Excluding those related to Ukraine.   [86]   Exec. Order No. 13,664, 79 Fed. Reg. 19,283 (Apr. 7, 2014).   [87]   OFAC FAQ, Question 368, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#368 (last updated June 2, 2014).   [88]   Exec. Order No. 13,677, 79 Fed. Reg. 28,387 (May 15, 2014).   [89]   Exec. Order No. 13,668, 79 Fed. Reg. 31,019 (May 29, 2014).   [90]   Exec. Order No. 13,303, 3 C.F.R. 227 (2004). The Development Fund for Iraq was established in May 2003 by the Administrator of the Coalition Provision Authority, who had responsibility "for the temporary governance of Iraq and all accounts held for the fund or for the Central Bank of Iraq in the name of the fund." Id. at 229.   [91]   Exec. Order No. 13,364, 3 C.F.R. 236 (2005).   [92]   Exec. Order No. 13,671, 79 Fed. Reg. 39,949 (July 10, 2014).   [93]   Exec. Order No. 13,413, 71 Fed. Reg. 64,105 (Oct. 31, 2006).   [94]   Exec. Order No. 13,687, 80 Fed. Reg. 819 (Jan. 6, 2015).   [95]   Press Release, Treasury Imposes Sanctions Against the Government of the Democratic People's Republic of Korea (Jan. 2, 2015), http://www.treasury.gov/press-center/press-releases/Pages/jl9733.aspx.   [96]   Id.   [97]   Venezuela Defense of Human Rights and Civil Society Act of 2014, Pub. L. No. 113-278, 128 Stat. ____. ("Pub. L. No. 113-278").   [98]   Syrian Sanctions Regulations, Final Rule, 79 Fed. Reg. 25,414 (May 2, 2014).   [99]   Exec. Order No. 13,399, 3 C.F.R. 218 (2007); Exec. Order No. 13,460, 3 C.F.R. 181 (2009); Exec. Order No. 13,572, 3 C.F.R. 236 (2012);  Exec. Order No. 13,573, 3 C.F.R. 241 (2012); Exec. Order No. 13,582, 3 C.F.R. 264 (2012); and Exec. Order No. 13,606, 3 C.F.R. 243 (2013). [100]   See 31 C.F.R. §§ 542.508-509; 31 C.F.R. §§542.520-526; 31 C.F.R. §§542.527-529. [101]    Burmese Sanctions Regulations, Final Rule, 79 Fed. Reg. 37,106 (June 20, 2014). [102]   Exec. Order No. 13,047, 3 C.F.R. 202 (1998). [103]   Exec. Order No. 13,310, 3 C.F.R. 241 (2004). [104]    Exec. Order No. 13,448, 3 C.F.R. 304 (2008); Exec. Order No. 13,464, 3 C.F.R. 189 (2009); Exec. Order No. 13,619, 3 C.F.R. 279 (2013); Exec. Order No. 13,651, 3 C.F.R. 324 (2014). [105]    Exec. Order No. 13,664, 79 Fed. Reg. 19,283 (Apr. 7, 2014). [106]    South Sudan Sanctions Regulations, Final Rule, 79 Fed. Reg. 37,190 (July 1, 2014). [107]    Exec. Order No. 13,667, 79 Fed. Reg. 28,387 (May 15, 2014). [108]    Central African Republic Sanctions Regulations, Final Rule, 79 Fed. Reg. 38,248 (July 7, 2014). [109]    Zimbabwe Sanctions Regulations, Final Rule, 79 Fed. Reg. 39,312 (July 10, 2014).     [110]        Office of Foreign Assets Control, General License No. 9: Specified Transactions Involving Certain Blocked Property Authorized (Feb. 3, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/wmd_gl9.pdf (hereinafter "WMD General License No. 9"). [111]   31 C.F.R. Part 544. [112]   31 C.F.R. Part 560. [113]   MV SININ released from Pirate Control, EU NAVFOR (Aug. 15, 2011), http://eunavfor.eu/mv-sinin-released-from-pirate-contol/. [114]   WMD General License No. 9 at paragraph (b). [115]   Id., Note to General License No. 9. [116]   Office of Foreign Assets Control, General License D-1: General License with Respect to Certain Services, Software, and Hardware Incident to Personal Communications (Feb. 7, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_gld1.pdf. [117]   Id. at paragraphs (a)(2)(i) & (a)(3). [118]   Id. at paragraph (a)(5). [119]   Id. at paragraph (a)(6). [120]   Id. at paragraphs (a)(1) and (a)(2). [121]   Id. at paragraph (a)(2)(i). [122]   Id. at paragraph (a)(2)(ii). [123]   Id. at paragraph (a)(3)(i). [124]   Id. at paragraph (a)(3)(ii). [125]   Id. at paragraph (a)(3)(iii). [126]   Id. at paragraph (a)(4). [127]   Id. at paragraph (b)(4). [128]   Id. at paragraph (b)(2). [129]   Id. at paragraphs (a)(6) and (b)(1). [130]   Id. at paragraph (c). [131]   Office of Foreign Assets Control, General License G: Certain Academic Exchanges and the Exportation or Importation of Certain Educational Services Authorized (Mar. 19, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_glg.pdf. [132]   Id. at paragraph (a). [133]   Id. at paragraph (b)(4). [134]   Id. at paragraph (b)(2). [135]   Id. at paragraph (b)(1). [136]   Id. at paragraph (b)(3). [137]   Id. at paragraph (c)(1). [138]   Id. at paragraph (c)(2). [139]   31 C.F.R. § 560.530(a)(4) (amended by Iranian Transactions and Sanctions Regulations, Final Rule, 79 Fed. Reg. 18,990,18,994 (Apr. 7, 2014)). [140]   See OFAC's List of Medical Supplies, available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_gl_med_supplies.pdf (last visited Jan. 7, 2015). [141]   Office of Foreign Assets Control, General License No. 1A: Certain Academic and Processional Exchanges Authorized (Aug. 7, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/sudan_gl1a.pdf. [142]   OFAC FAQ, Question 397, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#397 (last updated Aug. 11, 2014). [143]     Office of Foreign Assets Control, Implementation of the Joint Plan of Action Reached On November 24, 2013 Between The P5+1 and The Islamic Republic of Iran (Jan. 20, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140120.aspx. [144]   U.S. Dep't of the Treasury and U.S. Dep't of State, Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, Between the P5+1 and the Islamic Republic of Iran, as Extended Through June 30, 2015 (Nov. 25, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/guidance_ext_11252004.pdf(hereinafter "Second Extended JPOA Period Guidance"). [145]   Id. [146]   Id. [147]   Press Statement, Secretary of State John Kerry, Extension of Iran Nuclear Talks (July 18, 2014), http://www.state.gov/secretary/remarks/2014/07/229491.htm. [148]   U.S. Dep't of the Treasury and U.S. Dep't of State, Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, between the P5+1 and the Islamic Republic of Iran, As Extended Through November 24, 2014 (July 21, 2014), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_guidance_ext.pdf. [149]   Id. [150]   Id. [151]   Office of Foreign Assets Control, Frequently Asked Questions Relating to the Extension of Temporary Sanctions Relief to Implement the Joint Plan of Action between the P5 + 1 and the Islamic Republic of Iran (July 21, 2014), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_faqs_ext.pdf [152]   Id. [153]   See Second Extended JPOA Period Guidance. [154]   Id. [155]   Id. [156]   Id. [157]   Id. [158]   Office of Foreign Assets Control, Frequently Asked Questions Relating to the Extension of Temporary Sanctions Relief through June 30, 2015, to Implement the Joint Plan of Action between the P5 + 1 and the Islamic Republic of Iran (Nov. 25, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_ext_faq_11252014.pdf (hereinafter "Second Extended JPOA Period FAQ"). [159]   Office of Foreign Assets Control, Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran's Civil Aviation Industry (Nov. 25, 2014), http://www.treasury.gov/resource-center/sanctions/Programs/Documents/2nd_amended_jpoa_lic.pdf. [160]   Office of Foreign Assets Control, Reminder about the Removal of the .exe SDN and PLC Archives (Feb. 27, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/exenotice.aspx. [161]   Id. [162]   Id. [163]   Id. [164]   Id. [165]   OFAC FAQ, Questions Related to Burma Sanctions, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx#burma (last updated Apr. 1, 2014). [166]   Id., Question 268, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#268 (last updated Apr. 1, 2014). [167]   Id., Question 269, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#269 (last updated Apr. 1, 2014). [168]   Id., Question 268, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#268 (last updated Apr. 1, 2014). [169]   Id., Question 359, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#359 (last updated Apr. 1, 2014). [170]   Id., Question 270, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#270 (last updated Apr. 1, 2014). [171]   Id., Question 271, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#271 (last updated Apr. 1, 2014). [172]   Id., Question 280, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#280 (last updated Apr. 1, 2014). [173]   Id., Question 278, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#278 (last updated Apr. 1, 2014). [174]   Id., Question 279, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#279 (last updated Apr. 1, 2014). [175]   Id., Question 283, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#283 (last updated Apr. 1, 2014). [176]   Id., Question 272, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#272 (last updated Apr. 1, 2014), and Question 273, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#273(last updated Apr. 1, 2014). [177]   Id., Question 280, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#280 (last updated Apr. 1, 2014). [178]   Id. [179]   Id., Question 286, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#286 (last updated Apr. 1, 2014). [180]   Id., Question 360, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#360 (last updated Apr. 1, 2014). [181]   Gibson, Dunn & Crutcher LLP, 2013 Year-End Sanctions Update (Feb. 6, 2014), https://www.gibsondunn.comhttps://www.gibsondunn.com/2013-year-end-sanctions-update/. [182]   OFAC FAQ, Question 277, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#277 (last updated Apr. 1, 2014). [183]   Office of Foreign Assets Control, Frequently Asked Questions on Iran/TSRA General Licenses (Apr. 7, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140407.aspx. [184]   31 C.F.R. § 560.530(a)(2) (amended by Iranian Transactions and Sanctions Regulations, Final Rule, 79 Fed. Reg. 18,990,18,993 (Apr. 7, 2014)). [185]   See 79 Fed. Reg. 18,990, 18,990 (Apr. 7, 2014). [186]   31 C.F.R. § 560.530(a)(3)-(4) (amended by Iranian Transactions and Sanctions Regulations, Final Rule, 79 Fed. Reg. 18,990,18,994 (Apr. 7, 2014)). [187]   OFAC FAQ, Questions regarding the general licenses (GL) for agricultural commodities, medicine, and medical devices in the Iranian Transactions and Sanctions Regulations, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx#iran_med (last updated Apr. 7, 2014). [188]   Id. [189]   Office of Foreign Assets Control, Upgrade to the SDN Search Tool (June 9, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140609.aspx (Upgrade to the SDN Search Tool"). [190]   Id. [191]   Office of Foreign Assets Control, Sanctions List Search Tool, http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/fuzzy_logic.aspx (last updated Dec. 1, 2014). [192]   Id. [193]   Id. [194]   See Upgrade to the SDN Search Tool. [195]   Office of Foreign Assets Control, Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked (Aug. 13, 2014), http://www.treasury.gov/resource-center/sanctions/Documents/licensing_guidance.pdf. [196]   OFAC FAQ, Questions Related to Entities Owned by Persons Whose Property and Interests in Property are Blocked, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx#50_percent (last updated Aug. 13, 2014). [197]   OFAC FAQ, Question Relating to the Payments or the Facilitation of Payments to Iranian Civil Aviation Authorities for Overflights of Iran or Emergency Landing in Iran, http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#417 (last updated Nov. 4, 2014) [198]   Id. [199]   Id. [200]   Office of Foreign Assets Control, Release of Consolidated Non-SDN Data Files and Upgrade to Sanctions List Search (Oct. 10, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/consolidated.aspx. OFAC also explained that "[i]n order to differentiate records that appear on the ISA list from those that do not appear on the SDN list, OFAC recently renamed the stand-alone ISA list. It is now called the Non-SDN ISA list or NS-ISA List." Id. [201]   Id. [202]   Id. [203]   Id. [204]   Id. [205]   Id. [206]   Office of Foreign Assets Control, Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organizations (Oct. 17, 2014), http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/20141017_humanitarian.pdf. The guidance clarifies that it "applies to registered 501(c)(3) (tax exempt status), not-for-profit non-governmental organizations." Id. at 1 n.1. [207]   Id. at 1. [208]   Id. [209]   Id. [210]   Id. [211]   Id. at 2. [212]   Id. [213]   Id. [214]   Id. [215]   Id. [216]   Office of Foreign Assets Control, Report of Licensing Activities Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000, January - March 2013 (Jan. 24, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/2quarter2013.pdf. [217]   Office of Foreign Assets Control, Report of Licensing Activities Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000, April – June 2013 (Jan. 24, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/3quarter2013.pdf [218]   Office of Foreign Assets Control, Report of Licensing Activities Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000, July – September 2013 (Mar. 13, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/4quarter2013.pdf [219]   Office of Foreign Assets Control,Terrorist Assets Report Calendar Year 2013 (June 25, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/tar2013.pdf. [220]   See Exec. Order No. 13,224, 3 C.F.R. 786 (2002). [221]   See Exec. Order No. 12,947, 3 C.F.R. 356 (1996), as amended by Exec. Order No. 13,099, 3 C.F.R. 208 (1999). [222]   See Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. No. 104-132, 110 Stat. 1247-1258. [223]   See Export Administration Act § 6(j), 50 U.S.C. App. § 2405(j); Arms Export Control Act § 40(d), 22 U.S.C. § 2780(d); Foreign Assistance Act § 620A, 22 U.S.C. § 2371. [224]   Office of Foreign Assets Control, Biennial Report of Licensing Activities Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 (June 27, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/6thbiennial_tsra.pdf  (hereinafter "2014 Biennial Report"). [225]   "Licensing determination" means any action –intermediate or final--taken in connection with a license application. The licensing determination may be a license, an amendment to a license, "return-without-action", a denial letter or any other communication in connection with the license application. See 2014 Biennial Report at 1,n.1. [226]   Office of Foreign Assets Control, Report of Licensing Activities Pursuant to The Trade Sanctions Report and Export Enhancement Act of 2000, October – December 2013 (Oct. 23, 2014), available at http://www.treasury.gov/resource-center/sanctions/Documents/1quarter2014.pdf. [227]   Office of Foreign Assets Control Report of Licensing Activities Pursuant to the Trade Sanctions Report and Export Enhancement Act of 2000, January – March 2014 (Dec. 2, 2014),  available at http://www.treasury.gov/resource-center/sanctions/Documents/2quarter2014.pdf. [228]   Office of Foreign Assets Control, Enforcement Information for January 23, 2014 (Jan. 23, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140123_clearstream.pdf. [229]   Samuel Rubenfeld, Treasury: Clearstream 'Buried' Beneficial Ownership of Iranian Securities, Risk & Compliance Journal, Wall St. J. Blog (Jan. 23, 2014, 3:00 PM), http://blogs.wsj.com/riskandcompliance/2014/01/23/treasury-clearstream-buried-beneficial-ownership-of-iranian-securities/. [230]   Id. [231]   Joseph Ax, U.S. Grand Jury Probing Deutsche Borse Unit's Ties to Iran Bank, Reuters, Apr. 1, 2014, available at http://www.reuters.com/article/2014/04/01/us-usa-iran-court-idUSBREA301V220140401. [232]   Id. [233]   Office of Foreign Assets Control, Enforcement Information for January 27, 2014 (Jan. 27, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140127_moscow.pdf. [234]   Office of Foreign Assets Control, Enforcement Information for April 18, 2014 (Apr. 18, 2014), available at  http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140418_cwt.pdf. [235]   Office of Foreign Assets Control, Enforcement Information for May 6, 2014 (May 6, 2014), available at  http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/05062014_Decolar.pdf. [236]   Office of Foreign Assets Control, Enforcement Information for June 5, 2014 (June 5, 2014), available at  http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140605_fokker.pdf. [237]   Office of Foreign Assets Control, Enforcement Information for June 30, 2014 (June 30, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp.pdf. [238]   Settlement Agreement between the U.S. Department of Treasury's Office of Foreign Assets Control and BNP Parabas, SA (June 30, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp_settlement.pdf0 [239]   Office of Foreign Assets Control, Enforcement Information for July 25, 2014 (July 25, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140725_epsilon.pdf [240]   Office of Foreign Assets Control, Penalty Notice to Epsilon Electronics Inc. (July 21, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140721_epsilon_penalty.pdf [241]   Office of Foreign Assets Control, Enforcement Information for September 3, 2014 (Sept. 3, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140903_citigroup.pdf. [242]   Id. [243]   Id. [244]   Id. [245]   Id. [246]   Id. [247]   Id. [248]   Id. [249]   Office of Foreign Assets Control, Enforcement Information for September 9, 2014 (Sept. 9, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140909_zulutrade.pdf. [250]   Id. [251]   Id. [252]   Id. [253]   Id. [254]   Office of Foreign Assets Control, Enforcement Information for October 10, 2014 (Oct. 10, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20141029_bupa.pdf. [255]   Id. [256]   Id. [257]   Id. [258]   Id. [259]   Id. [260]   Office of Foreign Assets Control, Enforcement Information for November 13, 2014 (Nov. 13, 2014), available at http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20141113_esco.pdf. [261]   Id. [262]   Id. [263]   Id. [264]   Id. [265]   Council Regulation 208/2014, Concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine, 2014 O.J. (L 66) 1; and Council Decision 2014/119/CFSP concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine, 2014 O.J. (L 66) 26. [266]   Council Regulation 269/2014, Concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 78) 6; and Council Decision 2014/145/CFSP, Concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 78) 16. [267]   Council Regulation 476/2014, Amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 137) 1; and Council Decision 2014/265/CFSP amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 137) 9. [268]   Council Regulation 783/2014, Amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 214) 2; and Council Decision 2014/475/CFSP amending Decision 2014/145/CFSP, Concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 214) 28. [269]   Council Implementing Regulation 284/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 86) 27; and Council Implementing Decision 2014/151/CFSP, Implementing Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 86) 30. [270]   Council Implementing Regulation 381/2014, Implementing Regulation (EU) No 208/2014 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine, 2014 O.J. (L 111) 33; and Council Implementing Decision 2014/216/CFSP, Concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine, 2014 O.J. (L 111) 91. [271]   Council Implementing Regulation 433/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 126) 48; and Council Implementing Decision 2014/238/CFSP, Implementing Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 126) 55. [272]   Council Regulation 811/2014, Amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 221) 11; Council Implementing Regulation 810/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 221) 1; and Council Decision 2014/499/CFSP, Amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 221) 15. [273]   Council Implementing Regulation 826/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 226) 16; and Council Decision 2014/508/CFSP, Amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 226) 23. [274]   Council Implementing Regulation 961/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 271) 8; and Council Decision 2014/658/CFSP, Amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 271) 47. [275]   Council Implementing Regulation 1270/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 344) 5; and Council Decision 2014/855/CFSP, Amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 344) 22. [276]   Council Regulation 1351/2014, Amending Regulation (EU) No 692/2014 concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol, 2014 O.J. (L 365) 46; and Council Decision 2014/933, Amending Decision 2014/386/CFSP concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol, 2014 O.J. (L 365) 152. [277]   Conclusions of the Special meeting of the European Council, Jul. 16, 2014, available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/143992.pdf. [278]   Gibson, Dunn & Crutcher LLP, Bear Bating – EU Sectoral Sanctions Against Russia (Aug. 6, 2014), https://www.gibsondunn.com/bear-baiting-eu-sectoral-sanctions-against-russia/ (hereinafter "EU Sectoral Sanctions Alert"). [279]   Council Regulation 1351/2014, Amending Regulation (EU) No 692/2014 concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol, 2014 O.J. (L 365) 46. [280]   Supra, footnote 4. [281]   Council Regulation 833/2014, Concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, 2014 O.J. (L 229) 1; and Council Decision 2014/512/CFSP, Concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, 2014 O.J. (L 229) 13. [282]   This arms embargo is not included in the relevant Regulation, but is included in the Decision. As such it is only binding on the Member States as regarding the issuing of export licenses. [283]   Bundesamt für Wirtschft und Ausfuhrkontrolle, Merkblatt zum Aussenwirtschaftverkehr mit der Russischen Föderation, Aug. 12, 2014, available at http://www.ausfuhrkontrolle.info/ausfuhrkontrolle/de/arbeitshilfen/merkblaetter/merkblatt_russland.pdf. [284]   Department for Business Innovation & Skills, New EU Sanctions against Russia. Frequently Asked Questions, Aug. 14, 2014, available at http://blogs.bis.gov.uk/exportcontrol/files/2014/08/Russia-Sanctions-FAQ-August-2014.docx. [285]   Council Regulation 960/2014, Amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, 2014 O.J. (L 271) 3; and Council Decision 2014/659/CFSP, Amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, 2014 O.J. (L 271) 54. [286]   HM Treasury, Ukraine: list of persons subject to restrictive measures in view of Russia's actions destabilizing the situation in Ukraine, available at https://www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets/ukraine-list-of-persons-subject-to-restrictive-measures-in-view-of-russias-actions-destabilising-the-situation-in-ukraine. [287]   Council Regulation 1290/2014, Amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, and amending Regulation (EU) No. 960/2014 amending Regulation (EU) No 833/2014, 2014 O.J. (L 349) 20. [288]   European Commission, Commission Guidance note on the implementation of certain provision of Regulation (EU) No 833/2014, Dec. 12, 2014, available at http://europa.eu/newsroom/files/pdf/c_2014_9950_en.pdf. [289]   Christian Oliver, EU plans Russia sanctions talks with Latin American countries, Financial Times, Aug. 11, 2014, available at http://www.ft.com/cms/s/0/4730c97a-216a-11e4-a958-00144feabdc0.html#axzz3L0jpxZ3d. [290]   Gabriele Baczynska & Andrew Roche, German EU lawmaker says Russia barred her from entering, Reuters, Sept. 26, 2014, available at http://www.reuters.com/article/2014/09/26/us-ukraine-crisis-russia-eu-idUSKCN0HL1QE20140926. [291]   Kathrin Hille, Russia moves to compensate sanctioned oligarchs, Financial Times, Oct. 8, 2014, available at http://www.ft.com/intl/cms/s/0/b374be24-4f01-11e4-9c88-00144feab7de.html#axzz3L0jpxZ3d; the draft law is available at http://asozd2.duma.gov.ru/main.nsf/(SpravkaNew)?OpenAgent&RN=607554-6&02, in Russian. [292]   Gleb Garanich, Ukraine may block all transit from Russia in sanctions row – PM, Reuters Aug. 8, 2014, available at http://rt.com/business/178988-russia-ukraine-gas-transit/. [293]   Press Release, Norwegian Ministry of Foreign Affairs, (Aug. 15, 2014), available at http://www.regjeringen.no/en/dep/ud/press/news/2014/Restrictive-measures-against-Russia-.html?id=765896. [294]   Press Release ST 14387/14, European Union, Declaration by High Representative, Catherine Ashton, Concerning the alignment of certain third countries with Council Decision 2014/658/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (Oct. 15, 2014), available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/cfsp/145122.pdf. [295]   Press Release, European Union, Conclusions Foreign Affairs Council meeting on Ukraine (Nov. 17, 2014), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/145789.pdf.; and Council Implementing Regulation 1270/2014, Implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 344) 5; and Council Decision 2014/855/CFSP, Concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, 2014 O.J. (L 344) 22. [296]   Council Implementing Regulation 1057/2014, Concerning restrictive measures directed against certain individuals, groups, undertakings and entities in view of the situation in Afghanistan, 2014 O.J. (L 293) 1. [297]   Council Decision 2013/798/CFSP, Concerning restrictive measures against the Central African Republic, 2014 O.J. (L 352) 51. See also S.C. Res 2127, U.N. Doc. S/RES/2127 (Dec. 5, 2013). [298]   Council Regulation 224/2014, Concerning restrictive measures against the Central African Republic, 2014 O.J. (L70) 1; Council Decision 2014/125/CFSP, 2014 O.J. (L 70) 22); and S.C. Res 2134, U.N. Doc. S/RES/2134 (Jan. 28, 2014). [299]   Also see S.C. Res. 2136, U.N. Doc S/RES/2136 (Jan. 30, 2014). [300]   Council Regulation 270/2014, Amending Regulation (EC) No 889/2005 imposing certain restrictive measures in respect of the Democratic Republic of Congo, 2014 O.J. (L 79) 34; Council Decision 2014/147/CFSP amending Decision 2010/788/CFSP concerning restrictive measures against the Democratic Republic of the Congo, 2014 O.J. (L 79) 42; and Council Regulation 271/2014  amending Regulation (EC) No 1183/2005 imposing certain specific restrictive measures directed against persons acting in violation of the arms embargo with regard to the Democratic Republic of the Congo, 2014 O.J. (L 79) 35. [301]   Implementing S.C. Res. 2153, U.N. Doc. S/RES/2153 (April 29, 2014); see Council Decision 2014/460/CFSP of 14 July 2014 renewing the restrictive measures against Côte d'Ivoire. [302]   Council Decision 2014/213/CFSP, Amending Decision 2010/638/CFSP concerning restrictive measures against the Republic of Guinea, 2014 O.J. (L 111) 83. [303]   Council Decision 2014/728/CFSP, Amending Decision 2010/638/CFSP concerning restrictive measures against the Republic of Guinea, 2014 O.J. (L 301) 21. [304]   Council Decisions 2014/480/CFSP, Amending Decision 2010/413/CFSP concerning restrictive measures against Iran, 2014 O.J. (L 215) 4; and Council Decision 2014/829/CFSP, Amending Decision 2010/413/CFSP concerning restrictive measures against Iran, 2014 O.J. (L 338) 1. [305]   Council Regulation 2014/42/EU, Amending Regulation (EU) No 267/2012 concerning restrictive measures against Iran, 2014 O.J. (L 15) 18; and Council Decision 2014/21/CFSP, Amending Council Decision 2010/413/CFSP concerning restrictive measures against Iran, 2014 O.J. (L 15) 22. [306]   For more detail, see Gibson, Dunn & Crutcher LLP, 2013 Year-End Sanctions Update (Feb. 6, 2014), https://www.gibsondunn.comhttps://www.gibsondunn.com/2013-year-end-sanctions-update/#_ftn181. [307]   Council Regulation 791/2014, Amending Regulation (EC) No 1210/2003 concerning certain specific restrictions on economic and financial relations with Iraq, 2014 O.J. (L 217) 5; and Council Decision 2014/484/CFSP, Amending Common Position 2003/495/CFSP on Iraq, 2014 O.J. (L 217) 38. [308]   Council Decision 2014/141/CFSP, Amending Common Position 2008/109/CFSP concerning restrictive measures imposed against Liberia, 2014 O.J. (L 76) 45. [309]   Council Regulation 45/2014, Amending Regulation (EU) No 204/2011 concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L 16) 1. [310]   Council Regulation 690/2014, Amending Regulation (EU) No 204/2011 concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L 183) 3; and Council Decision 2014/380/CFSP amending Decision 2011/137/CFSP concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L183) 52. [311]   Council Regulation 1102/2014, Amending Regulation (EU) No 204/2011 concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L 301) 1; Council Implementing Regulation 1103/2014, Implementing Article 16(1) of Regulation (EU) No 204/2011 concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L 301) 3; and Council Decision 2014/727/CFSP, Amending Decision 2011/137/CFSP concerning restrictive measures in view of the situation in Libya, 2014 O.J. (L 301) 30. [312]   Commission Implementing Regulation 1059/2014, Amending Council Regulation (EC) No 329/2007 concerning restrictive measures against the Democratic People's Republic of Korea, 2014 O.J. (L 293) 15; and Council Decision 2014/700/CFSP amending Decision 2013/183/CFSP, Concerning restrictive measures against the Democratic People's Republic of Korea, 2014 O.J. (L 293) 34. [313]   Council Decision 2014/270/CFSP, Amending Council Decision 2010/231/CFSP concerning restrictive measures against Somalia, 2014 O.J. (L 138) 106. [314]   Council Implementing Regulation 1104/2014, Implementing Article 12(1) of Regulation (EU) No 356/2010 imposing certain specific restrictive measures directed against certain natural or legal persons, entities or bodies, in view of the situation in Somalia, 2014 O.J. (L 301) 5; and Council Implementing Decision 2014/729/CFSP, Implementing Decision 2010/231/CFSP concerning restrictive measures against Somalia, 2014 O.J. (L 301) 34. [315]   Council Regulation 748/2014, Concerning restrictive measures in respect of the situation in South Sudan, 2014 O.J. (L 203) 13; and Council Decision 2014/449/CFSP, Concerning restrictive measures in view of the situation in South Sudan, 2014 O.J. (L 203) 100. [316]   Council Regulation 747/2014, Concerning restrictive measures in view of the situation in Sudan and repealing Regulations (EC) No 131/2004 and (EC) No 1184/2005, 2014 O.J. (L 203) 1; and Council Decision 2014/450/CFSP, Concerning restrictive measures in view of the situation in Sudan and repealing Decision 2011/423/CFSP, 2014 O.J. (L203) 106. [317]   Council Regulation 124/2014, Amending Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria, 2014 O.J. (L 40) 8; and Council Decision 2014/74/CFSP, Amending Decision 2013/255/CFSP concerning restrictive measures against Syria, 2014 O.J. (L 40) 63. [318]   Council Implementing Decision 2014/387/CFSP, Implementing Decision 2013/255/CFSP concerning restrictive measures against Syria, 2014 O.J. (L 183) 72. [319]   Council Implementing Regulation 793/2014, Implementing Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria, 2014 O.J. (L 217) 10; and Council Implementing Decision 2014/488/CFSP, Implementing Decision 2013/255/CFSP concerning restrictive measures against Syria, 2014 O.J. (L 217) 49. [320]   Council Implementing Decision 2014/678/CFSP, Implementing Decision 2013/255/CFSP concerning restrictive measures against Syria, 2014 O.J. (L 283) 59. [321]   Council Implementing Regulation 1105/2014, Implementing Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria, 2014 O.J. (L 301) 7; and Council Implementing Decision 2014/730/CFSP implementing Decision 2013/255/CFSP, Concerning restrictive measures against Syria, 2014 O.J. (L 301) 36. [322]   Council Regulation 1352/2014, Concerning restrictive measures in view of the situation in Yemen, 2014 (O.J.) (L 365) 60. [323]   Council Regulation 153/2014, Amending Regulation (EC) No 314/2004 concerning certain restrictive measures in respect of Zimbabwe and repealing Regulation (EU) No 298/2013, 2014 O.J. (L 50) 1; and Council Decision 2014/98/CFSP, Amending Decision 2011/101/CFSP concerning restrictive measures against Zimbabwe, 2014 O.J. (L 50) 20. [324]   Commission Delegated Regulation 1382/2014, Amending Council Regulation (EC) No 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items, 2014 O.J. (L 371) 1. [325]   For background, see Gibson, Dunn & Crutcher LLP, 2013 Year-End Update on Corporate Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs), (Jan. 7, 2014), https://www.gibsondunn.com/2013-year-end-update-on-corporate-non-prosecution-agreements-npas-and-deferred-prosecution-agreements-dpas/; 2014 Mid-Year Update on Corporate Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs), (Jul. 8, 2014). https://www.gibsondunn.com/2014-mid-year-update-on-corporate-non-prosecution-agreements-npas-and-deferred-prosecution-agreements-dpas/. [326]   Consultation Document, Foreign & Commonwealth Office, Contract Sanctions: A Consultation (Feb. 22, 2014), available at https://www.dropbox.com/s/hxudbtorzqybdpf/Contract%20sanctions%20consultation%20document%5B1%5D.pdf. [327]   HM Treasury Notice, Financial Sanctions: Revision of treatment of certain transactions, Jul. 18, 2014. [328]   International Sanctions (Ukraine) Amendment Regulations 2014 (BR 2014). [329]   For the Isle of Man this is helpfully set out in Sanctions Notice 41. European Union Sanctions Ukraine/Russia, Dec. 22, 2014, available at http://www.gov.im/media/1064229/sanctions-notice-41-ukraine-russia-22-12-14.pdf, for Jersey see the EU Legislation (Sanctions – Ukraine)(Amendment)(Jersey) Order 2014, available at http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%5chtm%5cROFiles%5cR%26OYear2014%2fR%26O-216-2014.htm. [330]   Ukraine (Sanctions) (Overseas Territories) No. 3 Order 2014, S.I. 2014/1098, available at http://www.legislation.gov.uk/uksi/2014/1098/pdfs/uksi_20141098_en.pdf. [331]   L.N. 277 of 2014 National Interest (Enabling Powers) Act (Cap. 365) Enforcement of European Union Sanctions (Islamic Republic of Iran) Regulations, 2014, available at http://mfsa.com.mt/pages/readfile.aspx?f=/files/International%20Affairs/Sanctions%202014/L.N.%20277.2014%20iran.pdf. [332]   Case C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, 2008 ECJ EUR-Lex LEXIS 6351 (Sept. 3, 2008). [333]   Case C‑314/13, Užsienio reikalų ministerija and others v Vladimir Peftiev and others, 2014, ECJ EUR-Lex LEXIS not yet reported (Jun. 12, 2014). [334]   Statute of the Court of Justice of the European Union, art. 19, Aug. 11, 2012, 2012 O.J. (L 228) 1. [335]   Cases T-196/11 and T-542/12, Aliaksei Mikhalchanka v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Sept. 23, 2014). [336]   Case T-646/11, Ipatau v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Sept. 23, 2014). [337]   Case T‑256/11, Ahmed Abdelaziz Ezz and others v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Feb. 27, 2014). [338]   Case T-384/11, Safa Nicu Sepahan v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Nov. 25, 2014). [339]   Case T-66/12, Sedghi and Azizi v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Jun. 4, 2014). [340]   Case T‑67/12, Sina Bank v Council, 2014, ECJ EUR-Lex LEXIS not yet reported (Jun. 4, 2014). [341]   Case T‑68/12, Abdolnaser Hemmati v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Jun. 4, 2014). [342]   Council Decision 2014/776/CFSP, Amending Decision 2010/413/CFSP concerning restrictive measures against Iran, 2014 O.J. (L 325) 19. [343]   Case T-182/13, Moallem Insurance Co v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Jul. 10, 2014). [344]   Case T-578/12, NIOC v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Jul. 16, 2014). [345]   Case T-262/12, Central Bank of Iran v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Sept. 18, 2014). [346]   Case T-552/12, North Drilling Co v Council, 2013 ECJ EUR-Lex LEXIS not yet reported (Nov. 12, 2013). [347]   Council Decision 2014/222/CFSP, Amending Decision 2010/413/CFSP concerning restrictive measures against Iran, 2014 O.J. (L 119) 65; and Council Implementing Regulation (EU) No 397/2014, Implementing Regulation (EU) No 267/2012 concerning restrictive measures against Iran, 2014 O.J. (L 119) 1. [348]   Council Decision 2013/661/CFSP, Amending Decision 2010/413/CFSP concerning restrictive measures against Iran, 2013 O.J. (L 306) 18; and Council Implementing Regulation 1154/2013, Implementing Regulation (EU) No 267/2012 concerning restrictive measures against Iran, 2013 O.J. (L306) 3: re-listing of Persia International Bank Plc, Export Development Bank of Iran, Iran Insurance Company, Post Bank Iran, Bank Refah Kargaran, Good Luck Shipping LLC, and Iranian Offshore Engineering & Construction Co. [349]   Case T-348/13, Ahmed Mohammed Al Kadhaf Dam v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Sept. 24, 2014). [350]   Case T-293/12, Syria International Islamic Bank v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Jun. 11, 2014). [351]   Cases T-653/11, 654/11 and 43/12, Jaber and others v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Nov. 13, 2014). [352]   Cases T-307/12 and 408/13, Adib Mayeleh v Council of the EU, 2014 ECJ EUR-Lex LEXIS not yet reported (Nov. 5, 2014). [353]   Case T-306/10, Hani El Sayyed Elsebai Yusef v Commission, 2014 ECJ EUR-Lex LEXIS not yet reported (Mar. 21, 2014). [354]   Commission Regulation 1629/2005, Amending for the 54th time Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban, and repealing Council Regulation (EC) No 467/2001, 2005 O.J. (L 260) 9. [355]   Case T-2/06, Yusef v Council, 2006 ECJ EUR-Lex LEXIS not yet reported (May 31, 2006). [356]   Case C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, 2008 ECJ EUR-Lex LEXIS 6351 (Sept. 3, 2008). [357]   Her Majesty's Treasury v Mohammed Jabar Ahmed and others [2010] UKSC 2 & 5. [358]   Case C-584/10, Commission and others v Yassin Abdullah Kadi, 2013 ECJ EUR-Lex LEXIS not yet reported (Jul. 18, 2013). [359]   Cases T-208/11 and 508/11, LTTE v Council, 2014 ECJ EUR-Lex LEXIS not yet reported (Oct. 16, 2014). [360]   Clare Hutchison, Iranian bank sues UK government for $4 billion over sanctions, Reuters, Feb. 17, 2014, available at http://www.reuters.com/article/2014/02/17/us-britain-bankmellat-idUSBREA1G0KC20140217. [361]   R (on the application of Sarkandi & Ors) v Secretary of State for Foreign & Commonwealth Affairs [2014] EWHC 2359 (Admin). [362]   The Export Control (Russia, Crimea and Sevastopol Sanctions) (Amendment) Order 2014, S.I. 2014/2932, available at http://www.legislation.gov.uk/uksi/2014/2932/pdfs/uksi_20142932_en.pdf. [363]   R (on the application of OJSC Rosneft Oil Company) v HM Treasury, Secretary of State for Business, Innovation and Skills and the Financial Conduct Authority [2014] EWHC 4002 (Admin). [364]   R (on the application of Privacy International) v The Commissioner for HM Revenue & Customs [2014] EWHC 1475 (Admin). [365]   Ukraine in Brief. Tuesday, July 8, Ukranews, http://ukranews.com/news/128393.---.ru [366]   Jason Corcoran, Boris Groendahl and Alan Katz, Raiffeisen Draws Sanctions Scrutiny for Russia Bond Sale, Bloomberg News, Dec. 10, 2014,  available at http://www.businessweek.com/news/2014-12-10/raiffeisen-draws-sanctions-scrutiny-for-russia-bond-sale. [367]   Press release, Der Generalbundesanwalt, Festnahme wegen mutmasslicher Verstösse gegen das Aussenwirtschaftsgesetz (Feb. 19, 2014),  http://www.generalbundesanwalt.de/de/showpress.php?themenid=16&newsid=493. [368]   Emma Anderson, Germany tries Iranians charged with smuggling drone engines as jet ski parts, Reuters, Jun. 16, 2014, available at http://www.reuters.com/article/2014/06/16/us-iran-germany-trial-idUSKBN0ER1PH20140616. [369]   Terminierung im Strafverfahren gegen Iman J.L., Dec. 10, 2014, available at http://www.olg-frankfurt.justiz.hessen.de/irj/OLG_Frankfurt_am_Main_Internet?uid=1cd20043-bbd1-8531-f012-f312b417c0cf. [370]   Nick Squires & Tom Parfitt, Italy seizes £24m of real estate belonging to Vladimir Putin's judo partner, The Telegraph, Sept. 23, 2014, available at http://www.telegraph.co.uk/news/worldnews/vladimir-putin/11116161/Italy-seizes-24m-of-real-estate-belonging-to-Vladimir-Putins-judo-partner.html, and Italian media reported about the police hunt for the assets of Russians, CES News, Sep. 26, 2014, available at http://cesnews.ru/2014/09/26/italian-media-reported-about-the-police-hunt-for-the-assets-of-russians/. [371]   ONA acepta una multa por exporter maquinaria a Irán, Diario Vasco, Feb. 22, 2014, available at http://www.diariovasco.com/v/20140222/economia/acepta-multa-exportar-maquinaria-20140222.html. [372]   Spanish Company Charged with Exporting turbine manufacturing machines with nuclear applications to Iran, Iran Watch, Jun. 5, 2014, available at http://www.iranwatch.org/our-publications/international-enforcement-actions/spanish-company-charged-exporting-turbine-manufacturing-machines-nuclear-applications-iran. [373]   Press Release, Spanish Civil Guard, Desarticulada una red que pretendía enviar a Irán equipos industriales susceptibles de ser empleados para fabricar misiles, Apr. 7, 2014, available at http://www.guardiacivil.es/es/prensa/noticias/4860.html. [374]   Press Release, Swiss Financial Market Supervisory Authority, Inadequate risk management of U.S. sanctions: FINMA closes proceedings against BNP Paribas (Suisse) (Jul. 1, 2014), available at http://www.finma.ch/e/aktuell/Pages/mm-abschluss-verfahren-bnp-paribas-suisse-20140701.aspx. [375]   Id. [376]   Press Release, Swiss State Secretariat for Economic Affairs Modification, Concerning the measures to prevent the circumvention of international sanctions in connection with the situation in Ukraine (Aug. 4, 2014), available at http://www.seco.admin.ch/themen/00513/00620/00622/05405/index.html?lang=de. [377]   Press Release, Swiss State Secretariat for Economic Affairs Modification, Ukraine: Further measures to prevent circumvention of sanctions (Nov. 12, 2014), available at https://www.news.admin.ch/message/index.html?lang=en&msg-id=55198. [378]   Press Release, HM Revenue & Customs, Illegal exporter ordered to repay criminal profit, Nov. 21, 2014, available at http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/illegal-exporter-ordered-to-repay-criminal-profit-1087729. [379]   Gary Hyde v R [2014] EWCA Crim 713, available at http://www.bailii.org/ew/cases/EWCA/Crim/2014/713.html. [380]   Press Release, Serious Fraud Office, Money Laundering Investigation Opened, Apr. 28, 2014, available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2014/money-laundering-investigation-opened.aspx. [381]   Cynthia O'Murchu and Melissa Hancock, Reed Business Information faces scrutiny over sanctions, Fin. Times, May 1, 2014, available at http://www.ft.com/cms/s/0/a2107ba4-c659-11e3-ba0e-00144feabdc0.html#axzz3O3y8ojcA. [382]   Financial Conduct Authority, TR14/16 – How small banks manage money laundering and sanctions risk: update, Nov. 14, 2014, available at http://www.fca.org.uk/your-fca/documents/thematic-reviews/tr14-16. [383]   OFAC Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, Between the P5+1 and the Islamic Republic of Iran, as Extended Through June 30, 2015, available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/guidance_ext_11252004.pdf. [384]   David Sanger & Michael Gordon, U.S. and Allies Extend Iran Nuclear Talks by 7 Months, N.Y. Times, Nov. 24, 2014, at A14. Available at http://www.nytimes.com/2014/11/25/world/middleeast/iran-nuclear-talks.html. [385]   See Second Extended JPOA Period FAQ at 1. [386]   See, e.g., Patricia Zengerle, Iran Extension Prompts Calls for More Sanctions in U.S. Congress, Reuters, Nov. 24, 2014, http://www.reuters.com/article/2014/11/24/us-iran-nuclear-usa-congress-idUSKCN0J81S820141124. [387]   See Section I.B.2. for a description of the major provisions of this legislation. For a more in-depth discussion of the Ukraine Freedom Support Act, see Client Alert, Gibson, Dunn & Crutcher LLP, President Obama Signs the Ukraine Freedom Support Act into Law, Authorizing New Sanctions on Russian Entities and Foreign Companies Conducting Business in Russia (Dec. 22, 2014), https://www.gibsondunn.com/president-obama-signs-the-ukraine-freedom-support-act-into-law-authorizing-new-sanctions-on-russian-entities-and-foreign-companies-conducting-business-in-russia/. [388]   See http://www.nytimes.com/2014/12/19/world/americas/a-brave-move-by-obama-removes-a-wedge-in-relations-with-latin-america.html?_r=0. [389]   See http://www.washingtonpost.com/blogs/post-politics/wp/2014/12/17/cuba-deal-reaction-sharply-split-on-capitol-hill/.
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following lawyers in the firm's International Trade Group: United States: Judith Alison Lee - Co-Chair, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Ronald Kirk - Co-Chair, Dallas (214-698-3295, rkirk@gibsondunn.com) Jose W. Fernandez - New York (+1 212-351-2376, jfernandez@gibsondunn.com) Marcellus A. McRae - Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com) Daniel P. Chung - Washington, D.C. (+1 202-887-3729, dchung@gibsondunn.com) Andrea Farr - Washington, D.C. (+1 202-955-8680, afarr@gibsondunn.com) Stephenie Gosnell Handler - Washington, D.C. (+1 202-887-3517, shandler@gibsondunn.com) Eric Lorber* - Washington, D.C. (+1 202-887-3758, elorber@gibsondunn.com) Lindsay M. Paulin - Washington, D.C. (+1 202-887-3701, lpaulin@gibsondunn.com) Michael Willes - Los Angeles (+1 213-229-7094, mwilles@gibsondunn.com) David A. Wolber - New York (+1 212-351-2384, dwolber@gibsondunn.com) Annie Yan - Washington, D.C. (+1 202-887-3547, ayan@gibsondunn.com) Europe: Peter Alexiadis - Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com) Attila Borsos - Brussels (+32 2 554 72 10, aborsos@gibsondunn.com) Patrick Doris - London (+44 (0)207 071 4276, pdoris@gibsondunn.com) Penny Madden - London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Mark Handley - London (+44 (0)207 071 4277, mhandley@gibsondunn.com) *  Ms. Gosnell Handler and Mr. Lorber are not yet admitted to practice in the District of Columbia, and currently practice under the supervision of the Principals of the Firm. © 2015 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 27, 2014 |
Webcast – World Bank Sanctions and Enforcement: Why You Need to Be Prepared

​Featuring a senior staff member from The World Bank's Integrity Vice Presidency and leading anti-corruption and enforcement practitioners


Join leading anti-corruption and enforcement practitioners from Gibson Dunn and PricewaterhouseCoopers for an engaging discussion with a senior staff member from the World Bank's Office of Integrity Vice Presidency about the World Bank's expanding role in combatting global fraud and corruption and sanctioning companies that engage in wrongdoing. Topics discussed include:
  • The growing role of the World Bank in policing fraud, corruption, and other sanctionable conduct
  • How the World Bank defines sanctionable practices, how the Bank investigates allegations of misconduct, the breadth of the World Bank's jurisdiction over contractors, and how the Bank's sanctions process works
  • Understanding the different types of sanctions and the consequences of being sanctioned by the World Bank, including cross-debarment by other multilateral development banks
  • The Bank's use of negotiated agreements to resolve allegations of misconduct
  • The Bank's expectations for your corporate compliance program
  • The intersection of the FCPA and World Bank sanctions
  • The perspective of the World Bank's Integrity Vice Presidency on what companies can do to mitigate the risk of being sanctioned
View Slides [PDF]
https://player.vimeo.com/video/176386027
MODERATOR: F. Joseph Warin—Co-Chair of Gibson Dunn's White Collar Defense and Investigations practice and former Assistant United States Attorney in Washington, D.C. Mr. Warin was named 2014 Investigations Lawyer of the Year by Who's Who Legal, and has been ranked as a leading FCPA, white collar criminal defense, securities compliance and enforcement attorney by 2013 Chambers USA: America's Leading Lawyers for Business, 2006 - 2013 Best Lawyers in America, and a White Collar Law MVP by Law360. Mr. Warin's areas of expertise include white collar crime and securities enforcement, including Foreign Corrupt Practices Act investigations, World Bank investigations, False Claims Act cases, special committee representations, compliance counseling, and complex civil litigation. He has counseled numerous companies regarding World Bank investigations, and is currently serving as World Bank post-settlement counsel to several companies. Panelists: Mamta Kaushal—Advisor to the Director of Operations, The World Bank's Office of the Integrity Vice Presidency (INT). On the Director's behalf, Ms. Kaushal oversees INT's process of settling cases with companies that seek alternate resolution to matters that would otherwise go through the Bank's full sanctions proceedings process. Ms. Kaushal also manages INT's referral process, through which the Bank engages with national authorities on cases of potential or mutual interest. In addition, Ms. Kaushal handles various policy and investigative issues on the Director's behalf as they arise, both within the World Bank Group and with external partners. Prior to this position, Ms. Kaushal worked as a Senior Litigation Specialist within INT's Special Litigation Unit, providing legal guidance to investigative teams during investigations, preparing pleadings for cases presented in World Bank sanctions proceedings and arguing cases before the World Bank's Sanctions Board. Michael S. Diamant—Partner in Gibson Dunn's Washington, D.C. office with expertise in internal investigations and corporate compliance, and broad white collar defense experience representing corporations and corporate executives facing criminal and regulatory charges. Mr. Diamant was named one of the "world's leading investigations lawyers under the age of 40" in 2014 by Global Investigations Review. He has substantive expertise with the U.S. Foreign Corrupt Practices Act ("FCPA"), and extensive World Bank enforcement experience, working on behalf of clients under investigation by the World Bank Integrity Vice Presidency and assisting companies already subject to World Bank sanctions. Recent engagements have included negotiating resolutions with the World Bank and aiding clients in myriad post-settlement interactions with the Bank. In addition to the World Bank Group matters, Mr. Diamant has worked on behalf of clients to deal with the enforcement functions of other multilateral development banks. Glenn T. Ware—Principal, International Anti-corruption, Corporate Intelligence and Strategic Threat Management with PricewaterhouseCoopers in Washington D.C. Mr. Ware is PwC's foremost anti-corruption, governance and corporate intelligence expert and leads these practice areas for the firm. His clients include Fortune 100 companies, current and former heads of state and Nobel peace prize winners as well as international and nongovernmental organizations. He was previously with the World Bank as Chief Investigative Counselor. His practice focuses on anti-corruption and governance matters, corporate intelligence investigations, World Bank Sanctions, and managing the diverse threat spectrum confronting multinational actors in emerging markets.

April 29, 2014 |
European Parliament Adopts Broad New Compliance and Sustainability Reporting Requirements

On April 15, 2014, the European Parliament adopted the Directive on Disclosure of Non-Financial and Diversity Information by Certain Large Companies and Groups (the "Directive").[1] Pursuant to the Directive, covered companies will need to disclose information on their policies, risks, and results regarding sustainability issues, including environmental matters, social and employee-related concerns, respect for human rights, anti-corruption and bribery issues, and diversity on their boards of directors. The Directive is not self-executing, but will need to be implemented into national laws by the member states in order to become effective. It also requires prior approval by the European Union's member states in the European Council.

       I.            Which Companies Are Covered?

The new rules will apply (i) to companies with more than 500 employees and exceeding either a balance sheet total of EUR 20 million or a net turnover of EUR 40 million, (ii) to parent companies required to consolidate (pursuant to European Union rules) companies that together have more than 500 employees and exceed either a balance sheet total of EUR 20 million or a net turnover of EUR 40 million, and (iii) to companies whose securities are admitted to trading on a regulated market. In doing so, it will affect approx. 6,000 companies and groups across the European Union. Because the Directive requires the disclosure to be as provided by the local legislations of European Union member states, the rules do not require the information to be included in the annual report that a US company would file in the US (for instance, with the SEC).

    II.            What Information Needs to Be Disclosed and How?

The Directive does not mandate detailed reports but requires companies to disclose in concise fashion information regarding the development, performance, position, and impact of relevant activity in specific areas. In particular, affected companies will be:

  • required to report on environmental, social- and employee-related, human rights, and anti-corruption and bribery matters;
  • required to describe their business model, outcomes and risks of the policies on the above topics, and the diversity policy with regard to management and supervisory bodies; and
  • encouraged to rely on recognized frameworks such as the Global Reporting Initiative's (GRI) Sustainability Reporting Guidelines, the United Nations Global Compact (UNGC), the United Nations Guiding Principles on Business and Human Rights (UNGP), the Organisation for Economic Co-operation and Development's (OECD) Guidelines for Multinational Enterprises, the International Organization for Standardization's ISO 26000 Standard for Social Responsibility and the International Labour Organization's (ILO) Tripartite Declaration.

Disclosures may be provided at group level, rather than by each individual affiliate within a group. Companies may disclose the required information in the way that they consider most useful, for instance in their annual reports or in a separate report.

 III.            What Are the Goals and Background of the Directive?

In general, the stated objective of the Directive is to require reporting that aims to enhance corporate governance and corporate social responsibility. It seeks to improve European companies' transparency and performance on sustainability matters -- e.g., environmental and social matters. According to the European Commission, companies that publish information on their financial and non-financial performances take a longer-term perspective in their decision-making, often have lower financing costs, attract and retain talented employees, and ultimately are more successful.

Current legislation, in particular directive 2013/34/EU of June 26, 2013, on the Annual Financial Statements, Consolidated Financial Statements and Related Reports of Certain Types of Undertakings[2], already addresses the disclosure of non-financial information. However, the requirements are applied in different ways in different member states, and thus the Directive seeks to foster enhanced disclosure with greater uniformity in application of the requirements.

 IV.            When Will the Directive Become Effective, and What Additional Rules Are Expected to Follow?

To become effective, the Directive must be adopted jointly by the European Parliament and by the member states in the European Council. Following the adoption by the European Parliament on April 15, 2014, the European Council is expected to adopt the Directive formally within the coming weeks. The member states will then need to implement the Directive into their national laws.

The Directive provides for the European Commission to develop guidelines, after it becomes effective, to facilitate the disclosure of non-financial information by companies, taking into account current best practice, international developments, and related initiatives by the European Union.

    V.            Current Legal Situation in Selected European Countries Regarding Corporate Social Responsibility Reporting

          1)      France

In France, currently boards of publicly traded French limited liability companies (sociétés anonymes and sociétés en commandite par actions) already must disclose information at the shareholders' annual meeting, regarding the following social and environmental activities:

  • employee-related matters, such as information procedures regarding the social dialogue with employees, including consultations and negotiations, training programs, diversity, safety, and health; and
  • environmental matters, such as the sustainable use of natural resources and effectiveness in preventing pollution and climate change.[3]

These disclosure requirements also apply to non-publicly traded companies with, cumulatively, annual revenues exceeding EUR 100 million and with more than 500 employees.[4]

An independent committee of the board must review the report before its issuance and note whether it contains all required information.

The French government must report on the implementation of the disclosure requirements to the French Parliament every three years. The report must indicate the actions necessary to develop and encourage French companies' social and environmental responsibility in France and internationally.

          2)      Germany

In Germany, currently there are few corporate reporting requirements with respect to non-financial information. For instance, certain private and employee pension schemes must disclose whether they incorporate ethical, ecological, and social consideration in their investment policies.[5] Furthermore, large German companies[6] are required to report on non-financial areas, such as employee and environmental matters that materially affect the company.[7]

Additionally, the German Sustainability Code serves as a vehicle to facilitate voluntary reporting on corporate social responsibility activities by collecting in a database the efforts of German companies to achieve sustainability.[8] Companies of any size and legal form are encouraged to disclose information on their environmental, social, and corporate governance performance and to furnish a respective declaration of conformity. The German Sustainability Code is based on international principles such as UNGC, the OECD Guidelines for Multinational Enterprises, the ISO 26000 Standard for Social Responsibility and the reporting standards of the Global Reporting Initiative and the European Federation of Financial Analysts Societies (EFFAS).

In practice, many large German companies voluntarily comply with the reporting standard of the German Sustainability Code and publish corporate social responsibility reports together with their annual reports. Furthermore, the German Corporate Governance Code presents essential statutory regulations for the management and supervision of German listed companies and contains internationally and nationally recognized standards for good and responsible governance. Although the code does not refer directly to corporate social responsibility, it aims to make the German corporate governance system transparent and understandable and to promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German stock corporations.[9]           3)      UK

The UK Government views corporate social responsibility as the voluntary actions that businesses can take, over and above compliance with minimum legal requirements, to address both their own competitive interests and the interests of wider society.

The relevant body of law and regulation in the UK sets out certain reporting obligations which apply to quoted companies and premium listed companies.

Although no part of the UK Corporate Governance Code specifically addresses corporate social responsibility, the Corporate Governance Code touches on the need for the board to "set the company's values and standards and ensure that its obligations to its shareholders and others are understood and met".[10] Furthermore, the Turnbull Guidance annexed to the Corporate Governance Code makes clear that enterprise risk assessment should extend to "health, safety and environmental, reputation, and business probity issues".

UK corporate legislation touches on corporate social responsibility in other ways as well. The Companies Act 2006 requires all directors to consider the impact of the company's operations on the community and the environment when fulfilling their duty to promote the success of the company.[11]  The Companies Act 2006 also requires that quoted companies produce a business review as part of their directors' report that includes information about environmental matters, employees and social and community issues, including information about any policies of the company regarding those matters and the effectiveness of those policies.[12]

Furthermore the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, which came into force on October 1, 2013, introduces an obligation for the directors of a company to prepare a standalone strategic report for each financial year. This report must include a fair review of the company's business and to the extent necessary for an understanding of the development, performance or position of the company's business, an analysis using key performance indicators including information relating to environmental and employee matters. Quoted companies also must make certain disclosures regarding greenhouse gas emissions in the directors' report—but only to the extent that it is practical for the company to obtain the requisite information.

Additionally, a significant number of investor representative groups have updated their guidelines to make specific and detailed reference to corporate social responsibility matters.


   [3]   Law n° 2001-420 on New Economic Regulations of March 25, 2001 as amended by the law n° 2010-788 of July 12, 2010 on the National Commitment for the Environment; Decree n° 2012-557 of April 24, 2012 on Social and Environnemental Transparency Obligations of Companies
   [4]   Article L. 225-102-1 of the French Commercial Code
   [5]   Section 115 para. 4 of the German Insurance Supervision Act    [6]   In principle, a German company is defined as large two of the following three criteria apply: (i) annual revenues exceeding EUR 38.5 million, (ii) balance sheet total exceeding EUR 19.25 million, (iii) more than 250 employees, Section 267 para. 3 of the German Commercial Code    [7]   Section 264 in connection with Section 289 para. 3 of the German Commercial Code    [8]   http://www.deutscher-nachhaltigkeitskodex.de/en/home.html    [9]   See Foreword to the German Corporate Governance Code (as amended on May 13, 2013)   [10]   See Supporting Principles to A.1 in the UK Corporate Governance Code   [11]   Section 172 of the Companies Act 2006   [12]   Section 417 of the Companies Act 2006
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following: United States: F. Joseph Warin - Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) Michael S. Diamant - Washington, D.C. (+1 202-887-3604, mdiamant@gibsondunn.com) Michael J. Scanlon - Washington, D.C. (+1 202-887-3668, mscanlon@gibsondunn.com) Europe: Jeff Roberts - London (+44 20 7071 4291, jroberts@gibsondunn.com) Benno Schwarz - Munich (+49 89 189 33-110, bschwarz@gibsondunn.com) Mark Zimmer - Munich (+49 89 189 33-130, mzimmer@gibsondunn.com) Bernard Grinspan - Paris (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Benoît Fleury - Paris (+33 1 56 43 13 00, bfleury@gibsondunn.com) © 2014 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.