Global Regulatory Enforcement Law Blog : Global Regulatory Enforcement Lawyers & Attorneys: Reed Smith Law Firm: Government Contracts & Compliance

This post was written by Stephen P. Murphy.

Manufacturers and importers of children’s products in the United States were emboldened to think that the third party testing burden imposed by the Consumer Product Safety Improvement Act of 2008 (“CPSIA”) would be reduced by HR 2715, signed into law by the President on August 12, 2011. The new law eliminates certain CPSIA requirements and requires the Consumer Product Safety Commission (“CPSC”) to solicit public comment on a variety of issues related to lessening Congress’ burden of third party testing of children’s products required by the CPSIA. The CPSC then must review the comments and issue new testing requirements if the CPSC determines that reduction of the burden is viable.

On September 21, 2011, the CPSC issued its “Request for Comments.” While the request automatically mirrors the issues stated in HR 2715, it goes much further in a decidedly negative direction. The CPSC requests commentators to define language used in the statute, such as “substantially similar,” “identical in all material respects,” “substantial number of different components,” “substantial number,” “reasonably make use” and “evidence of conformity.” An excellent example of the CPSC’s attitude toward the goal of reducing the burden of third party testing is found in its first comment request section. Rather than focusing on the topic Congress dictated, the CPSC requests additional information such as whether the same testing methods the CPSC requires should be required by the other government agency, whether the other agency’s testing laboratory must comply with all of the accreditation criteria required by the CPSC, and whether the other agency’s testing laboratory utilizes the same test methods and frequency as the CPSC’s testing laboratory. The CPSC takes a similar tack by adding equally onerous criteria to the other issues specified by Congress.

In enacting HR 2715, the Congress acted to alleviate a number of administrative burdens imposed by the CPSIA. Section Two of the Act sent a clear signal to the CPSC that it was to solicit suggestions from a broad spectrum of importers and manufacturers on how to reduce third party testing burdens. By requiring these additional criteria not mandated by Congress, the CPSC has met the letter of the law but also defeated the purpose of the law. It did so by placing such a greatly inflated burden on potential commentators that few if any will actually respond. The ultimate result of this effort will likely be no change to the onerous third party testing requirement of the CPSIA.

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This post was written by Christopher G. Cwalina.

Privacy policies have been reviled for their incomprehensibility; regulators are calling for clearer disclosures, and, increasingly, statutes require that privacy notices be written in plain language. In this program, our seasoned panelists—including a plain-language expert—will use real-world examples to help you craft a clear and consumer-friendly privacy notice that also satisfies legal requirements. Find out how to turn legalese into easy reading using common words; short, declarative sentences, and an emphasis on action and choice.

In addition, the FTC has said that under well-settled case law and policy, companies must provide prominent disclosures and obtain opt-in consent before using consumer data in a materially different manner than claimed when the data was collected, posted, or otherwise obtained. What constitutes using data in a materially different manner than originally claimed can be difficult to ascertain. Companies are regularly and on an ongoing basis developing new products and services involving new data uses. The line between an existing and already disclosed use of data and the start of a materially different use that needs to be independently disclosed is not always clear and privacy professionals are left to make this decision. Hear directly from an Assistant Director from the FTC's Division of Privacy and Identity Protection on this point.

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This post was written by Cynthia O'Donoghue and Katalina Chin.

On 7 September 2011 the Executive in Costa Rica published Law No. 8968 on the Protection of the Person concerning the Treatment of Personal Data. Along with Uruguay, Mexico, Colombia, Peru, Chile and Argentina, it is now the seventh country in Central and Latin America to enact data protection laws. Following the European model for the protection of personal data, the new Costa Rican law incorporates a consent requirement for the processing of personal data, establishes a new supervisory authority to be known as Prodhab which will have sanctioning powers and also sets up a registration process for public or private entities processing personal data. This alert is of potential interest to all corporations doing business in Costa Rica.

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This post was written by Christopher L. Rissetto and Bob Helland.

Those of us who follow the Hill are beginning to feel like Bill Murray's character in Groundhog Day: waking to news of another potential shutdown, we wonder if we will spend the next 13 months until November 2012 in a state of permanent impending doom. Most remember the partisan bickering over spending levels that almost closed the federal government earlier this year. Last week the House failed to pass a continuing resolution that would have temporarily funded the federal government at $1.043 trillion, in order to provide additional time for Congress to pass the 12 spending bills needed to fund the federal government for the entire year. Many Republicans balked because they wanted lower amounts agreed to in an earlier budget resolution passed by the House. Most House Democrats on the other hand, opposed the bill because some of the funds for disaster relief efforts were offset by cuts to a government program that supports the production of energy-efficient cars.

While Republican leaders promise there won’t be a shutdown, the threat of one throughout the year has had continuing implications for federal contractors and employees. Under the Anti-Deficiency Act, agencies may not obligate the government to spend money exceeding amounts lawfully appropriated to date. Lorraine Campos and Joelle Laszlo provide six strong recommendations to government contractors in "Preparing for a Federal Government Shutdown". Since the end of the Federal Fiscal Year is September 30th, one thing we can say here is that Federal contractors and grantees would be well-served to submit, and have received by the government, payment requests by that date. Of course, if the government hasn't also paid by that date, you can expect a delay as the funds technically expire and confusion reigns.

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This post was written by Mark S. Melodia, Paul J. Jaskot, and Frederick Lah.

On September 15, Barnes & Noble ("B&N") acquired several of Borders’ intellectual property assets, including a database of customer information, as part of Borders' bankruptcy auction.  The sale of those assets hit a potential roadblock on Thursday, though, when a New York bankruptcy judge refused to approve the transaction, saying that he needed more time to think about the potential privacy concerns. This decision came on the heels of a Report issued by a court-appointed ombudsman who recommended certain privacy restrictions to be taken with respect to the customer information.

The Report recommended, among other restrictions, that B&N obtain the affirmative consent of affected consumers before transferring the personal data and that it treat consumer information pursuant to Borders' privacy policy in effect at the time of its collection. Borders' first privacy policy, published in 2006, provided that it will "only disclose [customer] email address or other personal information to third parties if you expressly consent to such disclosure." (emphasis in original text)

The Report also cited to letters the ombudsman received from 25 State Attorney Generals and the FTC expressing concern over the transfer of personal information in connection with the sale. The FTC's letter recommended than any transfer of personal information take place only with the consent of Borders' customers or with significant restrictions on the transfer and use of the information. Those recommended restrictions included: (i) Borders agreeing not to sell the customer information as a standalone asset; (ii) the buyer's line of business be substantially similar to that of the old owner; (iii) the buyer expressly agreeing to be bound by the terms of Borders' privacy policy; and (iii) the buyer agreeing to obtain affirmative consent from consumers for any material changes to the policy. The FTC further stated that any transfer of customer information could contravene Borders' express promise not to disclose such information and could constitute a deceptive or unfair practice.

B&N responded to the Report by filing a statement with the bankruptcy court. In the statement, B&N denied knowing that the ombudsman was planning to make recommendations or that he had corresponded with the FTC and the Attorney Generals. B&N characterized the Report's restrictions as "overreaching and unnecessary" and said that implementation of the restrictions "would materially reduce the value of the customer list." While B&N did agreed with some of the restrictions, it rejected others, particularly that Borders obtain opt-in consent for the transfer of personal data and that B&N treat consumer information pursuant to the Borders' privacy policy in effect at the time of its collection. According to B&N, it would be completely unrealistic to expect customers to affirmatively respond to a request from Borders since Borders "has gone out of business." Further, to treat consumer data pursuant to Borders' privacy policies at the time of its collection would be, according to B&N, "administratively difficult, if not impossible, and would likely have the perverse effect of harming consumers through confusion and lack of a straightforward method for them to understand how their information is being used." B&N said the transaction is "at risk."

This is certainly not the first time that would-be buyers of information-based assets have faced FTC or judicial scrutiny and concerns about the privacy implications of such a transfer. For example, last year, a former publisher of a magazine and dating website for gay youth had declared bankruptcy, which resulted in the dispute over ownership of various business assets, including the subscriber database. The FTC warned that any transfer or use of the database could potentially result in a violation of the FTC Act. The New Jersey Bankruptcy Court eventually ordered the buyer to destroy the subscriber database.

Similarly, in 2000, the FTC brought an action against Toysmart, in which the Commission sued an online toy retailer which had filed for bankruptcy and sought to auction the personal information it collected from customers. The Commission eventually entered into a settlement with Toysmart allowing the transfer so long as the buyer adhered to certain restrictions, many of which were similar to the ones recommended in the FTC's letter to Borders.

In today’s information age, consumer information is essential to business efficiency and can be a very valuable asset for those companies who are forced to liquidate their assets to mitigate debt (as evidenced by the $13.9 million dollar price tag B&N agreed to pay for the IP assets). While databases containing consumer information can be valuable, transferring such databases can be a risky process, subject to judicial and regulatory scrutiny. This case teaches us that companies looking to perform these transfers need to be mindful of the privacy implications involved in the process. Reed Smith can help companies that are contemplating such transactions, whether in a bankruptcy proceeding or a negotiated transaction, with evaluating the transferability of those assets and identifying and analyzing associated risks — before the government or another third party does.

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This post was written by Fionnuala Lynch and Rosanne M. Kay.

Earlier this month, Richard Alderman, Director of the SFO, was speaking at an international symposium on economic crime in Cambridge and made an interesting point which has been picked up by many UK newspapers.

He referred to the fact that 20 years ago, it was possible for UK companies to get deductions for tax purposes in respect of bribes. Clearly this is no longer the case and, now that the new Bribery Act is in force, may lead to potential prosecutions.

Mr. Alderman was however suggesting that companies should have information to ensure that they are not claiming tax deductions in respect of bribes and the SFO has therefore started to require companies to disclose relevant parts of their tax calculations in the hope that these might provide evidence of bribes and the fact that companies are identifying them.

The SFO is seeking to persuade companies to self-report their own breaches of the Act.

There are several potential situations where companies’ tax calculations may reveal unlawful practices under the Bribery Act:

• Where companies offer or hold offshore accounts – Various tax authorities worldwide are trying to unravel the secrecy surrounding offshore banking. This process involves the exchange of information between worldwide tax authorities on the tax affairs of multinational companies and offshore account holders. This could result in previously undetected bribes coming to light.
• The Act’s impact upon existing disclosure requirements – Section 6 of the Bribery Act (the foreign public official offence), in contrast with Sections 1 and 2, does not require any intention to procure “improper” conduct from the official. The briber need only intend to “influence” the official to act to the briber’s business advantage. The British Bankers’ Association (BBA) has, in the past, expressed concerns that what would normally be considered legitimate promotional expenditure, could now be caught by the Act. This uncertainty over what constitutes an offence under Section 6, may result in banks and financial institutions making more frequent Suspicious Activity Reports (SARs) to the Serious Organised Crime Agency (SOCA). The institutions’ tax calculations are likely to be disclosed and inspected as part of this process, which may expose bribes.
• More stringent monitoring roles for companies relating to bribes – Companies should use internal monitoring to look into all policies and procedures that may shed light on potential bribes. In particular, financial monitoring may well include ensuring that books and records relating to tax are properly kept and will pick up irregularities which indicate that bribes are being paid.

Despite the hype, the likelihood that companies’ tax calculations will reveal bribes seems remote. In particular, it seems unlikely that those preparing tax calculations will be made aware that bribes have been paid. For example, payment of a bribe is usually supported by an invoice for consulting services.

Mr. Alderman was previously the Director of National Teams and Special Civil Investigations in HMRC, where he conducted specialised tax investigations. In his speech, Mr. Alderman explained that, if a tax deduction was sought in the context of a bribe where the expense had not been identified properly, this would create another ‘books and records’ offence and a separate line of prosecution for HMRC, rather than the SFO.
 

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This post was written by Christopher L. Rissetto, and Robert Helland.

Earlier this month, President Obama proposed a $447 billion package of tax cuts and new spending to help the economy. In a joint session to Congress, the President laid out the terms of his proposal, which includes over $100 million for upgrading highways; mass transit; rail, both freight and intercity; aviation; schools; and local neighborhoods - both by direct expenditure as well as through financing. Since then, the President has hit the road to build support.

Coming at a time when Congress is considering at least $1.2 -$1.5 trillion in cuts to the federal debt, it would seem that any proposal for additional infrastructure spending would seem – at the risk of understatement - difficult to pass. However, unemployment continues to remains high. In addition, there is a pent up demand at the state and local level for funds, given Congress’ failure to date to re-authorize the multi-year transportation program known as SAFETEA-LU and the fact that the nation’s infrastructure continues to earn low grades from groups such as the American Society of Civil Engineers. As a result, it is worthwhile to take a look at the President’s infrastructure proposal to see which elements might have a chance in Congress.

Over $100 billion for infrastructure investment. The President proposes to spend

•  $50 billion for highways, transit, rail and aviation projects;
• • $25 billion for school infrastructure, including such projects as greening and efficiency upgrades and new science and computer labs;
• $15 billion for rehabilitating vacant and foreclosed homes and businesses;
• $5 billion for modernizing community colleges, including tribal colleges.
• $10 billion to create a “National Infrastructure Bank”. The President also wants $10 billion for the establishment of a National Infrastructure Bank to “invest in a broad range of projects of national and regional significance” (www.whitehouse.gov).

The President proposes, Congress disposes. As we noted, new infrastructure spending - during a time when the focus is on the nation’s debt - may seem a stretch. And politics plays a factor – no surprise here – when Congress considers any legislation. However, there has been some movement in Congress on the need to spend more, especially on transportation projects, which have a dedicated source of funding in the fuel tax. For example, both Congressman John Mica (R-FL-7) and Senator Boxer (D-CA), chairs of the respective congressional committees, have offered separate proposals to re-authorize SAFETEA-LU, which derives most of its funding from the 18.4 cent tax paid at the pump. In addition, Congress is currently considering a 6 month “clean” extension of SAFETEA-LU – independent of re-authorization efforts – that would continue to fund highway and mass transit programs at current level. H.R. 2887, the Surface and Air Transportation Programs Extension Act of 2011, passed this week in the House of Representatives by voice vote and is expected to face a similar vote in the Senate.

But if the appetite for more infrastructure spending is limited, there are a number of financing proposals in Congress similar to the President’s call for an infrastructure bank, including: S. 652, the Build Act, sponsored by Senator Kerry (D-MA); and S. 1300, the Lincoln Legacy Infrastructure Development Act, sponsored by Senator Mark Kirk (R-IL). Each would provide $100 million in seed money for grants and low interest loans for transportation projects. In fact, the Kerry bill was the basis for the President’s proposal.

While we know that House Transportation and Infrastructure Chairman Mica has expressed his opposition to the President’s Infrastructure Bank proposal, the actions of these other members of Congress and the President show that, in a challenging economic environment, infrastructure financing remains an option for policy makers looking to promote economic activity in general as well as create jobs.
 

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• Did you hear that the U.S. sanctioned a company that doesn't exist? Of course you did, it was kind of a big deal. But in case you didn't and wanted to sound current in your legal circles.
• Some people like to claim that higher education is a racket. Turns out some if it is.
• A Short List of job growth ideas by someone who might actually know something: a small business owner.
• Dilemma: You just ordered a pizza and the Noid guaranteed it would be there in 30 minutes, when suddenly you realize you have no reports on the cost effectiveness of government contractors. Been there … been there. This ought to get you through.
• Since the Solyndra investment was such a big hit, here's a summary of 9 stimulus studies.  Armchair politicians prepare for battle.
• Blogs are allowed to self promote, right?
• Speaking of taxes, whenever I have to cut the government a check, I always dream of pulling a Lebowski: rather than paying the tax man, I think of spending my money on a rug that really ties the room together. It seems as though a bunch of government contractors have a little Dude in them, with outstanding payments of 209 Million.
• In Fake Legal news: Its OK to Laugh

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On September 15, 2011, the Federal Trade Commission announced proposed changes to the Children’s Online Privacy Protection Act Rule (the "COPPA Rule") and is seeking public comment on proposed amendments to the COPPA Rule, which gives parents control over what personal information websites may collect from children under 13. The FTC’s purpose was to modernize the COPPA Rule in order to take into account technological changes. Written comments must be received on or before November 28, 2011. To read more on the topic please see the full client alert here.

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We've written before on the new sanctions regimes introduced by the EU, UN and the U.S (link to past blog). This is an update on sanctions imposed against Libya and Syria. Attached to this briefing is an updated table of sanctions targets. To view the entire alert please click here.
 

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This post was written by Mark S. Melodia and David Z. Smith.

On August 29, 2011, a Google shareholder filed a derivative action against the company’s directors stemming from Google allegedly allowing and supporting Canadian and other foreign pharmacies to advertise and ship prescription drugs to American consumers through Google’s AdWords advertising program in violation of U.S. law. The lawsuit comes on the heels of the announcement days earlier of a $500 million settlement between Google and the U.S. Department of Justice over an investigation of those same advertising practices. Google’s AdWords program displays sponsored advertisements in response to specific searches entered into Google’s search function. AdWords not only allows advertisers to target certain search terms, but to geo-target the searchers, so that certain advertisements will only appear for search terms entered by individuals within a certain geographic location. Plaintiff thus alleges that the directors breached their fiduciary duties and wasted corporate assets by, among other things, failing to ensure that Google had proper internal controls that would have prevented Canadian pharmacies from geo-targeting U.S. citizens with advertisements for prescription drugs.

This lawsuit is the latest in a growing line of derivative and securities fraud complaints based on alleged lack of internal controls over data security and privacy. In past cases, companies such as Heartland Payment, ChoicePoint, TJX, and more recently, Sony, have all been sued for allegedly failing to develop and maintain an adequate security environment, thereby allowing consumers’ private information to be exposed and forcing the companies to expend scarce corporate resources to prevent litigation losses or further reputational hits. The Google case shows that companies not only face the risk of derivative or securities fraud actions over the failure to protect consumers’ data, but may also be forced to defend any failures to control how their systems are used (or possibly misused) by a third-party to target consumers they should not be allowed to target. With the increasing sensitivity over on-line data security and privacy, and growing public awareness of web/search advertising functionalities such as AdWords or sites that allow third-party communication and geo-location check-ins (like social media sites), these lawsuits are likely to become more frequent. Such cases also deliver a fresh reminder to senior management of how strong privacy compliance programs and practices have come to be regarded as a critical component of good corporate governance and behavior.

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This post was written by Rosanne M. Kay.

The first person to be charged under the new Bribery Act will be a magistrates court clerk who allegedly accepted £500 for fixing a motoring offence.

The Crown Prosecution Service (“CPS”) has decided to prosecute Munir Yakub Patel who faces a charge under Section 2 of the Bribery Act for allegedly requesting and receiving a bribe intending to improperly perform his functions. Mr Patel is due to appear before Southwark Crown Court on 14 October 2011. According to press reports, he is currently being held in custody.

Proceedings for offences under the Bribery Act require the consent of either the Director of Public Prosecutions or the Director of the Serious Fraud Office (“SFO”). The SFO is the lead agency in England and Wales for investigating and prosecuting cases of overseas corruptions whereas the CPS prosecutes bribery offences investigated by the police committed either overseas or in England and Wales (although it is anticipated that the CPS will focus more on domestic cases).

Whilst this may only be a small case which will not touch on key concerns relating to jurisdiction and hospitality, it marks the start of jurisprudence on the Bribery Act. It will also put the SFO under increased pressure to start its own action under the Bribery Act.

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