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Popcorn and Compliance-Darth Vader, A New Hope and Risk

FCPA Compliance & Ethics -

In honor of David Prowse, the original actor portraying Darth Vader, I am running a podcast series this week on the intersection of compliance and Star Wars. Today, we consider Episode IV, A New Hope and risk. One of the plotlines is that the Galactic Empire has created a Death Star with enough firepower to [...]

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The Ethics Expert – Episode 040–Karen Pendergraft

FCPA Compliance & Ethics -

On this episode of The Ethics Experts, Nick welcomes Karen Pendergraft to discuss compliance in US and global healthcare clinical trials. Check out more episodes, and don’t forget to subscribe on your favorite podcast platform! For more information on ComplianceLine, click here.

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Citigroup Fined $400 Million by Banking Regulators for Risk and Compliance Control Deficiencies

Corruption, Crime & Compliance Blog -

Banking regulators, the Office of Comptroller of the Currency and the Federal Reserve, recently collected a $400 million civil penalty against Citigroup for long-standing deficiencies in its enterprise risk management, compliance controls and overall banking practices. The Consent Order is Here.

The aggressive enforcement action was the result of Citigroup’s continuing deficiencies in its operations, risk oversight and management practices.  The OCC cited Citigroup for its continuing problems and “longstanding failure to establish effective risk management.”

Citigroup has been undergoing significant changes – a new CEO was announced this year, Jane Fraser is replacing Michael Corbat.  Earlier this year, a Citigroup baker accidentally transferred $900 million to a group of lenders tied to Revlon.  A Citi employee who was manually adjusting creditors’ share of a Revlon loan selected the incorrect option, allowing the loan to be paid in full rather than the intended monthly interest payment.

Citigroup has been cited for a number of governance and control deficiencies, including violations of anti-money laundering controls relating to tracking of illicit funds, and a number of governance and regulatory violations.

In the consent order, the OCC cited the following deficiencies: (1) failure to establish effective front-line units and independent risk management (12 C.F.R. Part 30, Appx D); (2) failure to establish an effective risk governance framework (12 C.F.R .Part 30, Appendix D); (3) failure of the Bank’s enterprise-wide risk management policies, standards, and frameworks to adequately identify, measure, monitor, and control risks; and (4) failure of compensation and performance management programs to incentivize effective risk management.

The order also identified deficiencies, noncompliance with 12 C.F.R. Part 30, Appendix D, or unsafe or unsound practices with respect to Citigroup’s data quality and data governance, including risk data aggregation and management and regulatory reporting.  

The OCC’s consent order includes a broad set of requirements to remediate its overall risk management and internal controls, and specifically prohibits from acquiring any new entities unless approved by banking regulators.  The OCC and Federal Reserve intend to exercise close oversight of Citigroup’s remediation efforts and can order additional changes.

The OCC determined that the Board and senior management oversight was inadequate to ensure timely appropriate action to correct the serious and longstanding deficiencies and unsafe or unsound practices in the areas of risk management, internal controls, and data governance.

The order states that this conduct contributed to other past violations and noncompliance, for which the OCC has assessed civil money penalties in 2019. The order further states that the Bank has begun taking corrective action and has committed to taking all necessary and appropriate steps to remedy the identified deficiencies. 

In its order, the OCC demanded “the thorough redesign” of Citi’s “data architecture, re-engineering of processes, and modernization of system applications and information technology infrastructure that … maximize[s] straight-through processing and minimize[s] manual inputting and adjustments” — perhaps a direct reference to the Revlon matter.

Earlier this year, Citigroup announced it would invest $1 billion in improvements to address its enterprise data and risk management systems.  In September, the CFTC imposed a $4.5 million fine against Citigroup for deletion of audio recording files, including trader recordings that were subpoenaed as part of a federal probe.  Last year, the Bank of England fined Citigroup $56 million for inaccurate reporting about its capital and liquidity levels.

The Federal Reserve ordered Citigroup to submit a detailed plan to address deficiencies in the implementation and execution of “areas of risk management and internal controls, including for data quality management and regulatory reporting, compliance risk management, capital planning and liquidity risk management.”  Citigroup’s plan must ensure that the board: (1) holds senior management accountable for executing effective and sustainable remediation plans; (2) improves and maintains effective and independent enterprise-wide risk management and makes sure that internal audit findings are effectively remediated; (3) earns incentive compensation that’s consistent with risk management objectives and measurement standards; (4) ensures proper oversight of senior management’s execution of the matters identified in the Fed’s order; and (5) conducts a gap analysis of its enterprise-wide risk management framework and internal controls systems to determine the enhancements that are necessary to meet the risk management requirements.

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FCPA Compliance Report- Eric Young on the Fed and DFS Components of the Goldman Sachs Corruption Enforcement

FCPA Compliance & Ethics -

In this episode, I am joined by Eric Young, recently retired long-time compliance professional. We explore an under-looked aspect of the Goldman Sachs FCPA enforcement action; the independent enforcement actions by the Federal Reserve Bank and state of New York’s Department of Financial Services. Some of the highlights include: Why was the Fed involved in [...]

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Fintech Pressure on Internal Audit

Corporate Compliance Insights -

Banks have long outsourced certain audits, but banking-fintech relationships are new ground. Brandi Reynolds discusses a persistent problem in bank internal audit departments and offers a path forward. Co-sourcing or outsourcing certain internal audits is nothing new to bank internal audit departments. In the 1980s, IT/MIS (management information systems) functions started growing in sophistication, and […] The post Fintech Pressure on Internal Audit appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

Daily Compliance News: November 30, 2020-the $100bn listing edition

FCPA Compliance & Ethics -

NOVEMBER 30, 2020 BY TOM FOX In today’s edition of Daily Compliance News: Tesla looks to go public with a $100bn opening. (WSJ) Post-Brexit logistics hell coming to UK? (WSJ) The evolution of internal audit? (WSJ) Coke reducing product portfolio. (WSJ)

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UK Government publishes Notice reminding relevant exporters to sign up for the EU dual-use OGEL

Global Compliance News -

On 16 October 2020, the Export Control Joint Unit (ECJU) published Notice to Exporters 2020/14 to remind relevant exporters to sign up for the EU dual-use open general export licence (OGEL) before the end of the Brexit Transition Period.

This OGEL will be required to export dual-use items from the UK to any EU Member State and the Channel Islands from 1 January 2021. It is not required to export dual-use items to the EU during the Transition Period itself.

This reminder notice follows the publication of Notice to exporters 2020/03 on 29 January 2020, which contains information about how exporters can register for the OGEL. Exporters should check if they need to sign up for the OGEL and then register on SPIRE.  Note that there are terms and conditions to use and exporters will be audited on its use. From 1 January 2021, controlled goods exported from the UK to the EU without this licence may be intercepted by HM Revenue & Customs and may amount to an offence.

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Darth Vader Week: Part I, Leadership Lessons

FCPA Compliance & Ethics -

This week we honor perhaps the greatest screen villain ever; Darth Vader. The actor who played the original incarnation of Darth Vader ever died this weekend. I refer of course to David Prowse, who was THE Darth Vader in the original three Star Wars movies (now monikered Episodes IV-VI). Prowse was a 6 ft. 7 [...]

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UK: LIBOR Transition Hub

Global Compliance News -

In July of 2017, Andrew Bailey, the chief executive of the UK Financial Conduct Authority (FCA), announced in a speech that after 2021 the FCA would no longer use its power to compel panel banks to submit rate information used to determine the London Interbank Offered Rate (LIBOR). Mr. Bailey encouraged the market to develop robust alternative reference rates to replace LIBOR.

LIBOR has long been the dominant rate for determining interest payments on adjustable-rate financial products and, although progress is being made, transition from LIBOR (and other interbank offered rates (IBORs)) remains a fundamental issue confronting financial markets. Understanding and planning for the impact on your business is key to a smooth transition. Baker McKenzie is pleased to provide expert guidance on this issue below. Please do get in touch if you’d like to learn more.

Insight | Legal Alert In The Know: From one into many – Replacement rates for LIBOR Welcome to the October edition of In The Know, Baker McKenzie’s Leveraged Finance newsletter that takes a look at global market trends in various jurisdictions and areas of law relating to … Insight ISDA 2020 IBOR Fallbacks Protocol and ISDA 2020 IBOR Fallbacks Supplement A summary of the protocol and supplement, its implications and next steps for those exposed to IBOR. Insight | Legal Alert LIBOR’s Long Goodbye LIBOR transition remains a fundamental issue confronting financial markets and planning for the impact on your business is key to a smooth transition. How Hard Will It be to Hardwire? The ARRC’s Updated Recommended Fallback Language for Syndicated Loans ARRC recently published updated fallback provisions for when LIBOR is discontinued. Insight | Legal Alert LIBOR – When the Going gets Tough, the Tough Legacy Contracts get Going Taskforce has set out the key considerations on tough legacy contracts and recommendations for market participants. Europe: LIBOR – Redefining the Transition Timeline Progress on the reform of LIBOR has not stopped during the COVID-19 pandemic. Insight | Legal Alert LIBOR Transition: ISDA Announces Preliminary Results of Pre-cessation Fallback Consultation for LIBOR Derivatives Consultation results indicate including fallback triggers as standard language in amendment. Insight | Legal Alert LIBOR Transition: What Now for Corporate Borrowers? You are a corporate treasurer of a company with debt maturing now or over the next few years, and the company may need to increase its leverage during that period to finance new projects. Insight | Handbook LIBOR: What You Need to Know To date, 2019 has seen significant developments in connection with LIBOR transition. Read in detail about the latest guidance and key considerations for your business in this report. Insight | Thought Leadership LIBOR: What You Need to Know at the Beginning of 2019 Report highlights how LIBOR transition remains a fundamental issue confronting financial markets.

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Episode 171 — Promoting an Ethical Culture: Interview of Jeffrey Tilton

Corruption, Crime & Compliance Blog -

The Justice Department and regulatory agencies have emphasized the importance of corporate culture and ethics.  As companies approach this important issue, it is important to examine a variety of strategies to ensure that a corporate culture adheres to ethical standards.

Jeffrey Tilton, CFE, a leader in the compliance field, has an interesting perspective on this issue.  In this Episode, Michael Volkov discusses the issue of culture and ethics. 

The Episode is available HERE.

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International: The European Union’s Upcoming Policy and Regulatory Initiatives in the Energy Sector

Global Compliance News -

In brief

On 16 September 2020, as part of her State of the European Union address to the European Parliament, President von der Leyen announced her intention to increase the 2030 target for greenhouse gas (GHG) emission reduction from 40% to at least 55%.

Achieving this will be an enormous challenge that will require massive investments in renewable energy, clean and innovative technologies as well as energy efficiency — a dimension of climate change mitigation where we haven’t seen much progress until today. Nonetheless, this challenge is widely acknowledged as achievable.

Combined with the European Recovery Plan, the investment in capital into the European economy, and particularly into the energy sector, will be unprecedented. The next three to five years therefore represent a once in a lifetime opportunity for businesses to position themselves in the changing European energy sector. There are, however, challenges and threats. Achieving this target will also require the overhaul of many of the financial and regulatory frameworks applicable to energy markets, actors and consumers. Businesses that do not carefully and pre-emptively anticipate and adapt to these changes will be left behind.

The EU Green Deal Strategy, as explained by the president and whose plan was recently published, covers the entire economy and plans a whole set of new initiatives and legislation in the next 18 months (see below), transforming the energy landscape, increasing the economy’s circularity through recycling and re-use, aligning financial and fiscal systems and incentives on climate change mitigation and environmental objectives. The Energy Sector Integration Strategy represents the Commission’s foundational framework for transforming the energy system.

The Energy Sector Integration Strategy aspires to integrate all the different energy sectors into a unified and well-functioning internal energy market. By integrating the different sectors, the Commission aims to optimise the energy system: increasing energy efficiency, striving towards more circularity and continuing to decarbonise energy, particularly in the gas sector. In practice, this mainly entails the electrification of most energy-consuming sectors — all for which electrification is technically and economically feasible — and the reliance on new decarbonised gases, especially clean hydrogen, for all others (e.g., energy-intensive industry and transport sector), with an exponential growth in renewable energy and major reforms in infrastructure and traditional market structures.

All companies should plan for this transition and take advantage of the opportunity that the European Recovery Plan and other EU and national funds offer by shaping the future of the European energy system. In this note, we provide an overview of the opportunities and challenges and a guide to these changes.


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When That Problematic Board Member Just Won’t Leave

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Michael W. Peregrine, McDermott Will & Emery LLP, on Sunday, November 29, 2020 Editor's Note: Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on his article, previously published in Forbes.

Sometimes a corporate director who’s the main source of a company’s reputational problems is the last one to recognize it.

That’s why, in order to protect the company from unwanted controversy and reputational harm, boards benefit from discreet tools to remove problematic officers and directors before their terms are up, and without going through a formal removal process. These self-executing tools are intended to resolve concerns without making a bad situation worse for the company, the board, and the implicated director.

Image problems arise from two circumstances that can pop up during a director’s term; the first class, circumstances of the director’s own doing; and the second class circumstances over which the director may not have had any direct responsibility. Once under public discussion, both types risk reputational harm to the company, interference or disruptions to the work of the board, and doubt (fair or unfair) on the fitness of the implicated director to serve.


IPOs Surge While Market Tightens, But Opportunities Remain

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by John J. Mahon and Eleazer Klein, Schulte Roth & Zabel LLP, on Sunday, November 29, 2020 Editor's Note: John J. Mahon and Eleazer Klein are partners at Schulte Roth & Zabel LLP. This post is based on their SRZ memorandum.

Special purpose acquisition companies (“SPACs”) grabbed the investment spotlight this year and remain among the most active investment classes in the market. While the SPAC model has evolved over the better part of the past two decades, SPACs have recently enjoyed an unprecedented surge in popularity as a result of a number of high-profile SPAC launches and subsequent business combinations. In this year alone, as of Oct. 9, 2020, there have been 138 SPAC initial public offerings (“IPOs”) yielding $53.6 billion in gross proceeds—a record haul for new SPAC launches. [1] To put these numbers in proper perspective, from 2004 to 2018, approximately $49.1 billion was raised across 332 SPAC IPOs in the United States. [2]


Both the aggregate IPO proceeds raised, as well as the average SPAC IPO size, have jumped considerably in 2020. Not surprisingly, that type of success breeds imitation, and interest in prospective new SPAC IPOs remains relatively high. However, based on feedback we have received, demand for new SPAC IPOs appears to have tightened in recent weeks, potentially as a result of the large amount of IPO proceeds already raised in 2020. Accordingly, prospective sponsors may face increasing pressure to differentiate their proposed SPACs from other recent or proposed offerings. In contrast, we expect that potential SPAC investors may see increasingly attractive investment opportunities as the SPAC IPO market further tightens and sponsors become more flexible on terms. To that end, we have already seen movement towards incentivizing larger IPO investors through various economic incentives, including through access to sponsor-level economics.


EU: Commission launches public consultation on sustainable corporate governance

Global Compliance News -

In brief

The European Commission has launched a public consultation seeking views on sustainable corporate governance. Responses to the consultation will help shape the European Commission’s legislative proposals next year regarding mandatory human rights and environmental supply chain due diligence requirements and enhanced directors’ duties and sustainable corporate governance.

In more detail

On Monday 26 October 2020, the European Commission launched its widely anticipated public consultation on its Sustainable Corporate Governance Initiative, which asks how the EU can help businesses further embed sustainability into the corporate governance framework. The launch of the consultation follows the announcement in April 2020 by Dider Reynders, the European Commissioner for Justice, that the Commission would introduce new EU legislation to foster long-term sustainable and responsible corporate behaviour as part of the Commission’s strategy to achieve carbon neutrality under the European Green Deal (please see here for our commentary on this).

The consultation, which is available here, contains 26 questions on the need for EU intervention on sustainable corporate governance and on the scope and structure of any such intervention. The questions fall largely into two categories that correspond to two studies conducted by the European Commission – one on due diligence requirements through the supply chain and the other on directors’ duties and sustainable corporate governance.

  • The study on due diligence requirements through the supply chain indicated that businesses and other stakeholders are largely in favour of mandatory and enforceable EU human rights and environmental due diligence laws. Questions in the consultation focus on the scope, application and enforcement of any such due diligence requirement.
  • The questions on directors’ duties focus on whether and how directors should balance the interests of various stakeholders in exercising their duty of care and whether these stakeholders, which may include employees, civil society organisations etc., should play a role in enforcing directors’ duties.

The consultation also seeks views on other methods of integrating sustainability into corporate strategy by, for example, seeking to improve sustainability expertise on boards, altering the remuneration of directors, and strengthening the engagement of stakeholders.

The consultation closes on 8 February 2021 and the responses will supplement the findings from the two studies and help to shape the Commission’s legislative proposals, which we expect later in 2021.

Given the timing of the new EU legislation, post-Brexit UK will not be subject to it.  It is likely however, that the UK will face pressure to pass domestic legislation similar to the proposed EU law given the broader trend toward mandatory reporting and standards on environmental, social and governance concerns.

We will continue to monitor and provide further commentary on the EC’s consultation and legislation. If you have any questions, please do not hesitate to contact us.

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Singapore: High Court sets out how potentially privileged materials seized by investigative authorities should be dealt with

Global Compliance News -

In brief

In the Singapore High Court decision of Ravi s/o Madasamy v Attorney-General [2020] SGHC 221, the High Court considered the issue of whether legal professional privilege (“LPP”) may be asserted over materials lawfully seized pursuant to the police’s power of seizure in connection with its investigation. Significantly, the High Court comprehensively considered, for the first time, the process by which the police or the Attorney-General’s Chambers (“AGC”) should deal with such seized materials where those materials are subject to claims of LPP. The High Court surveyed the prevailing practice in other jurisdictions and arrived at its decision that a separate AGC privilege team should carry out an initial review of any claims of privilege, and provided guidance on the proper procedure for handling legally privileged material that has been seized.


As there are no statutory provisions or legal precedents in the local context which provides any guidance on how a claim of legal privilege over documents lawfully seized by the police should be handled before the present judgment, this is a welcomed decision. There is now guidance on the roles and duties of all relevant stakeholders (the investigation and prosecutorial authorities, and lawyers) on the process for asserting LPP and dealing with legally privileged documents seized during investigation are now in the process.

In more depth Background

This case was brought in the context of an application for leave to commence judicial review. The plaintiff, Mr Ravi s/o Madaswamy, an advocate and solicitor of Singapore who applied to the court for leave to commence judicial review so that he may be granted a prohibiting order to prohibit the Attorney-General (“AG”) and the police from reviewing the contents of electronic devices that were seized from the plaintiff’s law firm. The electronic devices were seized in the course of an investigation against the plaintiff, but the plaintiff claimed that the seized items were confidential to his client and protected by LPP. In applying for leave to commence judicial review, the plaintiff asked the court to prohibit the AGC and the police from reviewing the seized items before the court made a determination on whether the seized items were protected by LPP.

Main issues before the High Court

In deciding whether to grant leave, the High Court held that the actions of the police and the AGC were susceptible to judicial review, but to determine if the plaintiff had the requisite standing and whether there was any prima facie case of reasonable suspicion that the plaintiff might succeed in obtaining the prohibiting order, the Court had to consider, inter alia:

  1. if there was a prima facie case of reasonable suspicion that the seized items contained identified material that was protected by LPP belonging to the plaintiff’s clients; and
  2. if the answer to the above is yes, whether there was a prima facie case of reasonable suspicion that the plaintiff would succeed in obtaining a prohibiting order pending the ruling by a Court of the “lawfulness, nature and extent” of the alleged LPP.
Was there a prima facie case of reasonable suspicion that the plaintiff would succeed in the main application, i.e. that the plaintiff should be granted a prohibiting order against the police and the AG?

The Court held that the text of sections 128 and 131 of the Evidence Act (Cap. 97) do not state that legally privileged material cannot be seized and reviewed by the police under section 35 of the Criminal Procedure Code (Cap. 68) (“CPC”), which gives the police powers to seize property in certain circumstances. The CPC also does not contain any provision which prohibits seizure and review of legally privileged material, in contrast to the position in the UK. The Court proceeded to observe that the prohibiting order sought by the plaintiff only sought to prohibit the AG and the police from reviewing the contents of the seized items until the Court decides on the existence and scope of the alleged LPP over the seized items. Hence, the plaintiff has to first establish a prima facie case of reasonable suspicion that there was material in the seized items that was legally privileged.

Was there a prima facie case of reasonable suspicion that the contents of the seized items were privileged?

The Court held that the plaintiff did not establish this. In reaching its decision, the Court explained the stages which should generally take place when documents are seized by the investigating authorities from an advocate and solicitor:

  • The immediate question to be dealt with is whether there is any claim that the seized material contains allegedly legally privileged material of the lawyer’s clients.
  • If so, the investigating or prosecutorial authorities will have to determine whether they accept or dispute the claim of LPP. If they dispute the claim of privilege, they should inform the lawyer and/or his client as soon as possible.
  • If the affected client is nonetheless prepared to allow the authorities to use the material in their investigations or prosecution, then no issue arises.
  • However, if the affected client insists that the material in question is legally privileged, and he does not waive such privilege, the client will have to decide whether he wishes to commence legal proceedings to prohibit the authorities from using the material that has been identified and is the subject of dispute over the question of legal privilege.

The Court emphasised that it was the lawyer’s duty to his client at the very first stage of the process after seizure of the material to specifically identify the allegedly privileged material to the authorities – the plaintiff by failing to do so has no basis to even begin the proceedings.

Was there a prima facie case of reasonable suspicion that the police and the AG should be prohibited from reviewing the contents of the seized items?

Although not strictly necessary given that the Court was able to dispose of the plaintiff’s application based on its decision on the earlier point, it proceeded to consider whether it was for the court or an AGC “privilege team”, as argued by the respondent, to conduct the review of seized materials for privilege.

After reviewing the practices of other jurisdictions – the US, England and Wales, Australia and New Zealand, and taking into consideration the different contexts that applied in those jurisdictions – the Court held that the AGC, rather than the court, should be the party to conduct a review of seized materials for LPP, if the lawyer and/or his clients’ claim to LPP was not accepted by the AGC at face value, or if there was a reasonable basis to think that legally privileged material would be encountered in a review of seized material even if there was no specific claim of legal privilege. This review should be conducted by a team of AGC officers who are not, and will not be, involved in the underlying investigation. This has the benefit of efficiency and cost-effectiveness, ensuring that the court would not be inundated with copious amounts of seized material which it would have to sieve through to examine the claim of privilege.

The Court also inserted additional safeguards in order to assuage potential concerns of perceived unfairness or injustice as the prosecuting authority and the body entrusted to perform the review of the seized materials both come from the AGC. The Court set out four different possible situations under which a claim of privilege could be raised over materials lawfully seized by the police from a relevant person:

  1. where the relevant person is a lawyer involved in criminal defence work, such as the present case;
  2. where the relevant person is a lawyer not involved in criminal defence work;
  3. where the relevant person is not a lawyer but is or was involved in other criminal investigations; and
  4. where the relevant person is not a lawyer but claims that some of the seized material includes documents protected by LPP because these documents involve civil lawsuits that the relevant person was involved.

In situations (a) and (c), once the relevant person has specifically highlighted to the investigating authority or the AGC that the seized materials contain privileged documents relating to criminal cases, the AGC privilege team should not be made up of officers from the AGC’s Crime Division (or any other team handling prosecutorial work).

In situations (b) and (d), this restriction against prosecutors being part of the AGC privilege team does not apply.

In all four situations, if the relevant person claims that some of the seized material includes documents protected by LPP because they involve civil lawsuits that the relevant person is or was involved in, whether in his own personal capacity or as counsel for a client, and which the AGC is or was a party to, then the AGC privilege team should not be made up of officers from the AGC’s Civil Division (or any other equivalent team who is involved in the conduct of the government’s civil lawsuits).

These safeguards will ensure that sufficiently independent officers of the AGC are tasked with the review of the claims of privilege by the relevant person.

The proper procedure for handling legally privileged material that has been seized

After holding that the review of seized materials to examine any claim of privilege should be done by the AGC privilege team, the High Court reiterated the process by which legally privileged material that has been seized should be dealt with, providing guidance to the AGC, investigating authorities and lawyers alike (see paragraphs 83 to 91 of the judgment). The Court added that if the holder of the privilege subsequently applies to the Court to challenge the AGC privilege team’s determination that certain documents are not privileged, the documents in dispute should not be handed to the investigation or prosecutorial team until after the challenge has been determined by the Court.

Further, if the relevant person or his lawyer refuses to cooperate with the AGC privilege team at the first stage by identifying the specific documents that he claims are privileged, the AGC privilege team may proceed to review the entirety of the contents of the seized materials to determine if privilege exists over any of the seized materials. However, under no circumstances should a prosecutor or investigating officer who is involved in the underlying investigation conduct the privilege review.

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Global EMI Webinar Series

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Learn more about the latest developing trends and hot topics in the energy, mining and infrastructure industry.

Opportunities and Challenges in New Markets for Offshore Wind
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Global offshore wind capacity reached 29GW in 2019, a tenfold increase since 2010. While Europe has been the focus of the offshore market, competing without subsidies and floating into deeper waters, offshore wind is rapidly expanding to new markets as technology costs decrease and profit margins for onshore projects become squeezed by tenders and fluctuating power prices. In this webinar, our practitioners discuss the risks and opportunities faced by offshore wind and the development potential in new markets.

Antitrust Compliance in the EMI Sector
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This webinar covers the most important compliance and enforcement trends that affect the energy, mining and infrastructure sector.

Distressed M&A and Restructuring & Insolvency
In partnership with the Association of International Petroleum Negotiators (AIPN), we held webinars in relation to:

  • Distressed Oil & Gas Acquisitions: A Look at the US – As Oil & Gas sector companies continue to mitigate a complex market reality and investors begin to explore potential acquisitions, this webinar focuses on how to maximize value in acquisitions when dealing with distressed targets and parties. Access webinar
  • Eastern & Southern African Oil & Gas Markets: Financing the Recovery – Oil & Gas companies are on the search for banking and financial support in the East & Southern African Oil & Gas sector as they try to alleviate market challenges, this webinar aims to explore the role of Private Equity and other lenders in supporting economic recovery with solutions to finance and support recovery and ensure future sector growth. Access webinar
  • Looking Past COVID-19: An Asian View of the LNG Industry – LNG companies are exploring their options in this complex market. This webinar centers on a forward-looking view of the LNG industry, touching on the market situation and project developments in Asia and the need to maximize value and minimize risk in a post-COVID-19 world. Access webinar

The Rise of Hydrogen: Policy, Practice and Projects
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The transition of the global energy sector from fossil-based fuels to zero carbon has been at the top of the agenda for many governments and market players around the globe for the past few years. In this webinar, the discussion touched upon the role of hydrogen in the context of energy transition; government support of “green” hydrogen industry; and opportunities for first movers into the new decarbonized hydrogen market. It also includes case studies of hydrogen projects we’ve been involved in.

Corporate Sourcing of Renewable Energy
In partnership with the Global Wind Energy Council (GWEC), Global Solar Council (GSC) and RE100, we have organized a webinar series on how corporate sourcing of renewable energy in emerging wind and solar markets is transforming energy systems around the world, focusing on the following high-impact markets:

Tips for Oil & Gas Transactions in the Current Global Market
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With the oil and gas industry currently in a challenging state, this webinar explores insights into current global oil and gas transactions. We take a look at getting deals done in the current global market environment; approaches toward pricing, valuations and post-closing adjustments; force majeure considerations specific to oil and gas contracts; capex and financing implications for the industry; and an update on clean energy development, acquisitions and divestitures.

COVID-19 Effects on Large Project Transactions
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In this webinar, our industry-focused practitioners explored navigating the COVID-19 implications for major projects by providing practical tips on what we were seeing in the global markets. The discussion includes commercial and finance documentation considerations for existing and new projects; enhanced due diligence and other considerations for M&A transactions; and supply chain issues.

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European Union: New EU rules on mandatory disclosure of cross-border tax arrangements by EU intermediaries

Global Compliance News -

On 25 May 2018, the Council of the European Union (EU) adopted a directive on the mandatory disclosure and exchange of cross-border tax arrangements. This is the sixth update of the Directive on Administrative Cooperation, therefore referred to as ‘DAC6’ and the disclosure regime is now live.

Under the new rules, intermediaries such as lawyers, tax advisors, and accountants that design, promote or implement certain ‘arrangements’, or that provide advice in relation to such arrangements, are required to report them to tax authorities.

Key Takeaways
  • These new rules on mandatory disclosure have implications both for us, as your intermediary, and for you, as our client.
  • Although the policy objective is to address aggressive tax avoidance, the broad scope of definitions in the Directive means reportable arrangements may include arrangements that do not have a main benefit of obtaining a tax advantage.
  • The reporting obligation lies with the EU intermediary, but shifts to the taxpayer in specific cases.
What is covered by mandatory disclosure under DAC6 (or ‘the Directive’)?

Intermediaries based in the EU or the UK will be obliged to submit information on reportable cross-border arrangements with their national tax authorities.

Under the Directive a ‘reportable cross-border arrangement’ refers to any cross-border (involving either two EU member states or one EU member state and a third state) tax planning arrangement which bears one or more of the hallmarks listed in the Directive and concerns at least one EU Member State.

The UK has committed to applying the reporting regime even after leaving the EU, but it is currently unclear how the interaction between the UK and the EU will be in this context, and therefore whether dual reporting can be avoided going forward.

Baker McKenzie is not making any assumption on any future interactions between the UK and the EU at this stage, but it is readying itself to respond and is proactively looking to minimize the impact to clients. For ease of description wherever the EU is referred to in the rest of the text, the UK is included.

The hallmarks are broadly scoped and represent certain typical features of tax planning arrangements that, according to the Directive, potentially indicate tax avoidance or abuse of covered taxes (e.g., income taxes).

Certain arrangements (e.g., those that fall within the specific transfer pricing hallmarks) will need to be reported even if they do not satisfy the ‘main benefit’ (of obtaining a tax advantage) test. These include arrangements that involve hard-to-value intangibles or an intra-group cross-border transfer of functions, assets or risks.

Figure 1 – List of Hallmarks indicating which ones are used in combination with the main benefit test.

How is an ‘Intermediary’ defined?

Under the Directive an ‘intermediary’ refers to any person that designs, markets, organizes, makes available for implementation or manages the implementation of a reportable cross-border arrangement.

Additionally, it also means any person that, having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows, or could be reasonably expected to know, that they have undertaken to provide aid, assistance or advice with respect to a reportable cross-border arrangement.

In practice, intermediaries include lawyers, accountants, tax and financial advisors, banks and consultants. It can also include lawyers who are admitted in an EU jurisdiction but are working outside of the EU.

If the intermediary is not located in the EU or is bound by professional privilege or secrecy rules, the obligation to report shifts from the intermediary to the relevant taxpayer.

Information with regard to reported arrangements will be automatically exchanged by the competent authority of each EU Member State every three months through the use of a secure central directory on administrative cooperation in the field of direct taxation.

The information exchange will contain details such as the identification of intermediaries and relevant taxpayers, details on the relevant hallmarks and applicable domestic tax law provisions, details on the first step of implementation, details on the value of the reportable cross-border arrangement and identification of Member States that are affected or likely to be affected/concerned by the reportable arrangement.

Reporting Obligations Flowchart

Non-compliance (by intermediaries or taxpayers) with reporting requirements will attract penalties established by the national legislation of the respective EU Member State. The Directive prescribes that these penalties must be “effective, proportionate and dissuasive”. The Directive also states that the fact that a tax authority does not react to a reportable cross-border arrangement does not imply any acceptance of the validity or tax treatment of that arrangement.

When do the new rules on Mandatory Disclosure begin to apply?

The new rules applied from 1 July 2020. However, the Directive has a retroactive component and the reporting obligation applies to transactions implemented between 25 June 2018 and 30 June 2020 (so-called “look-back period” or “first reporting period”).

The initial intention was to report arrangements (the first step of which was) implemented in the ‘lookback’ period by 31 August 2020, and for any reportable arrangement designed or implemented since 1 July 2020 to be reported within 30 days from the relevant triggering event.

However, at the end of June 2020, the EU announced an optional delay to the reporting of six months. Most countries within the EU adopted the new time line, but three did not:

  • Germany and Finland did not adopt any delay and therefore for Intermediaries in these countries the original timeline stands.
  • Austria adopted an ‘administrative’ delay of three months. Therefore, the timeline here is to report arrangements implemented in the lookback period by 31 October 2020 and the 30-day reporting cycle for matters designed or implemented since 1 July 2020 starts on 1 October 2020

For all other EU jurisdictions: Intermediaries and relevant taxpayers are obliged to file information for the first time by 28 February 2021 with respect to reportable transactions implemented in the ‘look-back period’ (i.e., between 25 June 2018 and 30 June 2020). This means that records of any potentially reportable arrangements that have occurred from 25 June 2018 onwards should be kept. The 30-day reporting cycle for arrangements designed or implemented since 1 July 2020 starts on 1 January 2021. Subsequently, the first ‘regular’ information exchange between EU Member States will have to take place by 30 April 2021.


What does mandatory disclosure under DAC6 mean for you as our client?

When you instruct an intermediary in the EU in an engagement that involves a ‘reportable cross-border arrangement’, that intermediary will in principle be required to report the arrangement to its national tax authority.

If the intermediary is legally qualified and professional privilege applies (which was determined by each the Member States separately so different rules apply in different jurisdictions), or if you instruct only an intermediary situated outside of the EU, the reporting obligation will shift to you and you will be responsible for complying with the reporting obligations.

The important point to understand is that if you are involved in a reportable cross-border arrangement then a report will need to be filed under the mandatory disclosure regime by either an intermediary or relevant taxpayer. Instructing an EU intermediary does not create a reporting obligation.

What does mandatory disclosure under DAC6 mean for us, Baker McKenzie as your intermediary?

When you instruct Baker McKenzie in an engagement that involves a ‘reportable cross-border arrangement’, we will comply with our reporting obligations. If professional privilege applies (as described above), we will inform you of the obligation to report the arrangement.

When you engage multiple intermediaries, the reporting obligation lies with all intermediaries involved in the same arrangement, however an intermediary can be exempt from reporting to the extent that it has proof that an adequate and complete report of the arrangement has been filed by another intermediary.

Whenever we are an intermediary under the terms of the regulation, we will assess each individual arrangement and inform you on our or your (potential) reporting obligations. Each time we will outline the scope of the relevant reporting obligations to you and, where applicable, support you in complying with your reporting obligations.

If you have any questions

This description of DAC6 is by necessity short and by no means covers all the issues. In addition, guidance and practice of DAC6 is changing as tax authorities refine their thinking and indeed in some cases finalize their legislation. We are closely monitoring the implementation of the rules and development of guidance.

The post European Union: New EU rules on mandatory disclosure of cross-border tax arrangements by EU intermediaries appeared first on Global Compliance News.

In Global First, the United Kingdom Moves Toward Mandatory Climate-Related Disclosures by 2025

Program on Compliance and Enforcement, New York University School of Law -

by Mark S. Bergman, Ariel J. Deckelbaum, Brad S. Karp, Elizabeth M. Sacksteder, Scott P. Grader, Frances F. Mi, William J. O’Brien, David G. Curran, and Sofia D. Martos

On November 9, 2020, a UK taskforce chaired by HM Treasury and made up of UK regulators and government officials (the “Taskforce”) published the Interim Report of the UK’s Joint Government-Regulator TCFD Taskforce (the “Interim Report”), along with a roadmap to achieving its recommendations (the “Roadmap”).[1] The Interim Report concluded that the United Kingdom should move towards mandatory TCFD-aligned disclosures across all sectors of the UK economy over the next five years. The Roadmap presents a five-year timeline of planned or potential regulatory actions or legislative measures across seven categories of organizations: listed commercial companies; UK-registered large private companies; banks and building societies; insurance companies; asset managers; life insurers and regulated pension schemes; and occupational pension schemes. The UK Government expects a significant portion of mandatory requirements to be in place by 2023.

The Context

As the financial impacts of climate change have become a growing concern for governments and regulators around the world, new initiatives have emphasized a systematic approach to climate-related disclosures to ensure that complete, comparable and decision-useful information is available across the economy. One of the most significant initiatives in this regard was the Financial Stability Board’s establishment in 2015 of the TCFD to “develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders and insurance underwriters in understanding material risks.” The TCFD published its final recommendations for climate-related disclosures in 2017 (for an overview of the TCFD, see our prior alert here). The UK Government was one of the first countries to formally endorse the TCFD recommendations, and has taken a number of steps since to advance TCFD-aligned disclosures in the United Kingdom. For example, in April 2019, the Bank of England’s Prudential Regulation Authority (the “PRA”) issued a Supervisory Statement, “Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change,”[2] in which the PRA made clear that it expected banks and insurers to reflect the “distinctive elements of the financial risks from climate change” in their disclosures.[3] A few months later, the UK Government announced that as part of its Green Finance Strategy, all listed issuers and large asset owners would be required to make disclosures in line with the TCFD’s recommendations by 2022.[4] In March 2020, the Financial Conduct Authority (“FCA”) published proposals requiring premium-listed companies to make new climate-related disclosures on a comply-or-explain basis,[5] which it recently announced will be introduced from January 1, 2021.[6]

Notwithstanding PRA and FCA pronouncements, the Taskforce has concluded in its Interim Report that many organizations have not made sufficient progress towards the adoption of the TCFD’s recommendations, and that the most progress has been made in sectors where regulatory action has already been taken (such as by banks and insurers).[7] Moreover, the Taskforce suggested that the COVID-19 pandemic has highlighted the need to “prepare the UK economy to meet tomorrow’s challenges” and foster a recovery that will reduce risk and increase the UK’s resilience to the threat posed by climate change.” For these reasons, the Taskforce determined that the UK Government’s current voluntary approach to climate-related financial disclosures may be insufficient, and that it should move towards a mandatory regime.

A Roadmap Towards Mandatory Climate-Related Disclosures

After making the case for mandatory TCFD-aligned disclosures, the Taskforce’s Interim Report presents the Roadmap to achieve this goal. The Roadmap sets forth a timeline proposing regulatory and legislative measures that would implement ESG disclosure requirements over the next five years across the seven categories of organizations discussed above. In addition to this overarching timeline (as illustrated below), the Roadmap includes seven other, more detailed timelines for each particular organizational category. These seven timelines indicate how and when regulatory/legislative and supervisory measures will be phased in within that sector, and include the proposed timing for additional consultations that may lead to further legislative and regulatory measures.

In addition to the phased implementation indicated by the Roadmap’s timelines, the Taskforce recommends proportionate implementation: that each sectoral regulator (such as the FCA or PRA) consider thresholds for the implementation of disclosures within each category of organizations, since the benefits of mandatory disclosures increase with an organization’s size, and the costs of mandatory disclosures are greater for smaller organizations.

The Taskforce will continue to monitor the progress of its cross-sectoral implementation strategy and will provide an update on progress in 2022 as part of the Green Finance Strategy’s planned formal review.[8]

Timeline of Planned or Potential Regulatory Actions or Legislative Measures by Sector 2021 2022 2023 2024–2025 Occupational pension schemes (>£5bn)(a)

Banks, building societies and insurance companies(b)

Commercial companies with a premium listing(c) Occupational pension schemes (>£1bn)(a)

Largest UK-authorized asset managers, life insurers and regulated pension providers(d)

UK-registered companies(e)

Wider scope of listed companies(f) Other UK-authorized asset managers, life insurers and regulated pension providers(d) Other occupational pension schemes (subject to review)(a)

Potential further refinements across categories, including in response to evolving best practice         (a)  Regulated by the UK Department for Works & Pensions and The Pensions Regulator.

(b)  Regulated by the PRA.

(c)  Regulated by the FCA. Premium-listed companies are companies whose shares are admitted to the premium segment of the Official List of the FCA and trade on the Main Board of the London Stock Exchange. Proposed modifications to the UK Companies Act 2006 may apply to certain UK-registered listed companies.

(d)  Regulated by the FCA.

(e)  Regulated by the UK Department for Business, Energy & Industrial Strategy. These are companies organized in the UK and subject to the UK Companies Act 2006. This category is expected to cover large private companies as well as listed companies.

(f)   Regulated by the FCA. Scope to be determined, but likely to include companies with a standard listing. Disclosures for listed open-/closed-ended investment companies will be considered together with the disclosure requirements for asset managers. Ensuring International Comparability of Disclosures

The Taskforce noted that while the TCFD has helped establish a framework for disclosures, it is not a standard setting body. The Taskforce stated that in order to “achieve a high level of comparability across jurisdictions, consistent disclosures are required,” and noted further that “if arrived at sufficiently quickly, this would optimally be achieved through international standards for climate-related and other sustainability disclosures.” For this reason, the Taskforce “strongly supports” the International Financial Reporting Standards (IFRS) Foundation’s proposal to create a new, global Sustainability Standards Board,[9] as well as a complementary initiative by five voluntary standard-setting bodies (for more on this initiative, see our recent client alert here).

Looking Ahead

The announcement by HM Treasury of the United Kingdom’s move towards mandatory disclosures came in the same week that the U.S. Federal Reserve (i) applied to join the Network of Central Banks and Supervisors for Greening the Financial System and (ii) examined climate change risks in its twice-yearly financial stability report for the first time (for more on these developments, see our recent client alert here). Attention to the financial impacts of climate change may be reaching a tipping point in 2020, in which more stringent regulation can be expected going forward. Moreover, given President-elect Biden’s position on climate change,[10] US disclosure requirements on climate change risks could also shift in 2021 (for more on the current U.S. regulatory framework for ESG disclosures, see our prior client alert here). Companies around the world, and particularly those with international footprints across multiple jurisdictions, should closely monitor regulatory developments with respect to climate change disclosures, familiarize themselves with the TCFD recommendations and the IFRS Foundation’s proposal, and develop a strategy for potential shifts from voluntary climate-related disclosure regimes to mandatory ones.


[1] The Taskforce was was established as part of the UK’s 2019 “Green Finance Strategy.” HM Treasury, “Interim Report of the UK’s Joint Government-Regulator TCFD Taskforce” (November 2020), available here; HM Treasury, “A Roadmap towards mandatory climate-related disclosures” (November 2020), available here (421 KB).

[2] Bank of England Prudential Regulation Authority, “Supervisory Statement 3/19 (SS3/19): Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change” (April 2019), available here (881 KB).

[3] Id.

[4] HM Treasury, “Interim Report.”

[5] Financial Conduct Authority, Press Release, “FCA announces proposals to improve climate-related disclosures by listed companies” (March 6, 2020), available here. The proposed rule required commercial companies with a UK premium listing to “state whether they comply with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) and to explain any non-compliance.” Financial Conduct Authority, “CP20/3: Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations” (March 6, 2020), available here.

[6] Financial Conduct Authority, Speech by Nikhil Rathi, “Green Horizon Summit: Rising to the Climate Challenge” (November 9, 2020), available here.

[7] Id.

[8] HM Government, “Green Finance Strategy: Transforming Finance for a Greener Future” (July 2019), available here.

[9] The IFRS Foundation published a “Consultation Paper on Sustainability Reporting” in September 2020 (with comments to be received by December 31, 2020), available here (12,568 KB). The consultation paper notes that “demand is growing for international coordination of an agreed set of sustainability-reporting standards. International standardisation assists in providing a level playing field for companies that prepare reports and international comparability for investors.” On November 10, the UK government and UK financial regulators welcomed publication of the consultation paper.

[10] President-elect Biden has pledged to both rejoin the Paris climate accord on his first day in office and to advance a $2 trillion green stimulus package to help reduce emissions.

Mark S. BergmanAriel J. Deckelbaum, and Elizabeth M. Sacksteder are partners, Brad S. Karp is chairman, Scott P. Grader, Frances F. Mi, and William J. O’Brien are counsel, David G. Curran is Chief Sustainability and Environmental, Social, and Governance Officer, and Sofia D. Martos is an associate, at Paul, Weiss, Rifkind, Wharton & Garrison LLP.

United States: The Employer Rapport: Quick Chats for the US Workplace

Global Compliance News -

Welcome to Baker McKenzie’s new Labor and Employment video chat series for US employers. Our lawyers will provide quick, practical tips on today’s most pressing issues for US employers navigating the new normal. The videos complement our blog, The Employer Report, which provides written legal updates and practical insights about the latest labor and employment issues affecting US multinationals, at both the domestic and global level.

Please click below to watch the video chats and be sure to let us know if there are additional topics you’d like us to address.

If you’re looking for guidance related to the pandemic, please check out the below Reopening Playbook video chat series. It covers practical topics like masks in the workplace, expense reimbursement requirements, employee testing and screening and much more.

Reopening Playbook Video Chat Series

Quarantine Requirements for When Your Employees Travel to Hotspots (30 July 2020)
Speakers: Elizabeth EbersolePaul EvansRobin Samuel

ICMYI Part 2: Employee Testing & Screening Update — What Can and Can’t Employers Do (23 July 2020)
Contacts: Susan EandiPaul EvansEmily Harbison

Don’t Get Schooled by Employee Childcare Issues: What You Need to Know about Leave Laws as Schools Struggle with Reopening (16 July 2020)
Speakers: Emily HarbisonMichael Brewer and Robin Samuel

ICYMI: Employee Testing & Screening Update — What Can and Can’t Employers Do (9 July 2020)
Speakers: Susan EandiEmily HarbisonRobin Samuel

Employment Lessons from the Early State Reopeners (23 June 2020)
Speakers: Emily HarbisonPaul EvansWilliam Dugan

Employment Litigation Predictions in a COVID-19 World: An Insider’s View from the Plaintiff’s Bar (12 June 2020)
Speakers: Michael BrewerBillie Wenter

Employee Expense Reimbursement: Requirements and Trends in a WFH Environment (12 June 2020)
Speakers: Michael BrewerSusan EandiEmily Harbison

Employers: Protect Your Company IP While Employees Work Remotely (12 June 2020)
Speakers: Bradford NewmanJoseph DengBillie WenterRobin Samuel

How to Think About Moving to Permanently Remote Work (5 June 2020)
Speakers: Susan EandiChristopher GuldbergBetsy MorganGrant Uhler

An Employer Primer on Workshare Programs (5 June 2020)
Speakers: Paul EvansRobin SamuelBillie Wenter

EEOC Guidance: To Keep Employees Home or Not (5 June 2020)
Speakers: Michael BrewerEmily HarbisonMichael Leggieri

Trend Watch: The First Wave of COVID-Related Employment Litigation: What’s on the Minds of Employers and Litigators during COVID-19? (29 May 2020)
Speakers: Michael Brewer, Paul EvansJeffrey SturgeonBillie Wenter

Planning Internships in the Summer of COVID-19 (29 May 2020)
Speakers: Anne BatterEmily Harbison, Benjamin Ho

Masks Unmasked — What Employers Need to Know About Face Coverings (15 May 2020)
Speakers: Michael BrewerJoseph DengSusan Eandi

Best Practices for Navigating the Initial Lifting of Shelter-in-Place Orders (15 May 2020)
Speakers: Michael Leggieri, Teresa MichaudBillie Wenter

Unique COVID-Related Wage & Hour Issues Employers Need to Know (15 May 2020)
Speakers: Paul EvansEmily HarbisonJeffrey Sturgeon

Best Practices for Employers with the Rush to Remote Working (15 May 2020)
Speakers: William DuganEmily HarbisonBrian Hengesbaugh

Practical Tips for Conducting RIFS During these Challenging Times (15 May 2020)
Speakers: Susan EandiBenjamin HoChris GuldbergArthur Rooney

US Immigration Considerations During the Pandemic (7 May 2020)
Speakers: Melissa AllchinWilliam DuganBetsy Morgan

Data Privacy Issues Related to COVID-19 Health Questionnaires and Testing (7 May 2020)
Speakers: Amy de La LamaJoseph DengRobin Samuel

Prediction: COVID-Related Employment Litigation Trends (7 May 2020)
Speakers: Michael BrewerMark GoodmanTeresa Michaud

Importance of Paying Attention to Pay Equity During COVID-19 (7 May 2020)
Speakers: Susan EandiPaul EvansEmily Harbison

Key Benefits Questions Around the CARES Act (7 May 2020)
Speakers: Chris GuldbergBenjamin Ho

The post United States: The Employer Rapport: Quick Chats for the US Workplace appeared first on Global Compliance News.

United States: Government Imposes Sanctions on the Iranian Financial Sector under Executive Order 13902 and Designates 18 Iranian Banks

Global Compliance News -

On October 8, 2020, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) identified the Iranian financial sector as subject to Executive Order (“EO”) 13902 and, based on such identification, designated 18 Iranian banks.  Our previous blog post on EO 13902 is available here.  OFAC also issued a general license and Iran-related Frequently Asked Questions, as further described below.

The action represents a significant escalation of the sanctions targeting Iran’s financial sector, yet many humanitarian transactions and activities will continue to be authorized.  The primary concern will be for those non-US parties operating wholly outside US jurisdiction where (i) newly sanctioned Iranian financial institutions or the Iranian financial sector are involved, and (ii) the transaction would not be authorized under the Iranian Transactions and Sanctions Regulations (“ITSR”) if engaged in by a US Person.

Identification of Iran’s Financial Sector and SDN Designations

EO 13902 authorizes the imposition of secondary sanctions against persons operating in Iran’s construction, mining, manufacturing, or textiles sectors, or any other sector of the Iranian economy identified by the Secretary of the Treasury, in consultation with the Secretary of State.  Following the identification of Iran’s financial sector under EO 13902, sanctions may now be imposed on (i) persons operating in Iran’s financial sector; (ii) persons who have knowingly engaged in a “significant transaction” for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with Iran’s financial sector; and (iii) persons who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, any person designated under EO 13902 for operating in Iran’s financial sector.  Correspondent account or payable-through account restrictions may also be imposed on foreign financial institutions that have knowingly conducted or facilitated “significant financial transactions” in connection with the Iranian financial sector or persons designated under EO 13902.

Concurrent with the announcement, OFAC designated as Specially Designated Nationals (“SDNs”) 17 Iranian banks pursuant to EO 13902, for operating in Iran’s financial sector or for being owned or controlled by Iranian banks, and one bank under EO 13382, a counter-proliferation authority.  A list of the newly designated banks is available here.  Following the 45-day wind down period described below, “significant transactions” with these SDNs may result in the imposition of secondary sanctions against non-US persons engaging in the targeted activities.

GL L and FAQs

  • General License L “Authorizing Certain Transactions Involving Iranian Financial Institutions Blocked Pursuant to Executive Order 13902” (“GL L”) authorizes US Persons to engage in transactions involving Iranian financial institutions designated pursuant to EO 13902 in connection with transactions that are authorized, exempt, or otherwise not prohibited under the ITSR.  FAQs 842843844845846, and 847 (the “Financial Sector FAQs”) were issued by OFAC to clarify the scope and extent of sanctions and the applicability of GL L.
  • US Persons operating under existing ITSR general licenses, specific licenses or exemptions may continue to do so despite the involvement of the newly designated financial institutions.  Humanitarian-related activities, including sales of agricultural commodities, medicine and medical devices, are examples of transactions that may proceed in accordance with the terms of their ITSR authorizations, even if they involve financial institutions designated under EO 13902.  In addition, FAQ 843 clarifies that US Persons relying on humanitarian-related ITSR general or specific licenses do not need to seek additional authorization to continue engaging in the same activities.
  • For non-US persons, the Financial Sector FAQs also clarify that OFAC will not generally view their transactions or activities to be sanctionable if they could be permissibly undertaken by US Persons, e.g., humanitarian activities, including sales of agricultural commodities, medicine or medical devices consistent with the terms of ITSR general licenses.
  • Importantly, FAQ 845 provides a 45-day wind down period for non-US persons to conclude previously non-sanctionable activities involving the Iranian financial sector or the newly designated Iranian banks, ending on November 22, 2020.  OFAC anticipates releasing additional guidance regarding “non-significant” activities involving the Iranian financial sector and designated Iranian financial institutions that will not be sanctionable after the end of the wind-down period.

The post United States: Government Imposes Sanctions on the Iranian Financial Sector under Executive Order 13902 and Designates 18 Iranian Banks appeared first on Global Compliance News.


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