J.P. Laub, Author at Gibson Dunn

Executive Summary

On Monday, December 6, 2021, the Biden-Harris Administration released the United States Strategy on Countering Corruption (the “Strategy”),[1] the first of its kind. The Strategy culminates a months-long process set in motion when President Biden declared that the U.S. Government’s efforts against corruption represent a “core United States national security interest.” As the Administration explained in a June 3, 2021 National Security Study Memorandum, “corruption threatens United States national security, economic equity, global anti-poverty and development efforts, and democracy itself.”

The Strategy seeks to broaden and energize the Government’s anti-corruption efforts by focusing on a range of policy and enforcement strategies coordinated across executive branch agencies. While many of the goals and programs described in the Strategy have been discussed for years by U.S. Government officials, the Strategy signals that the White House is elevating the priority of anti-corruption policy and enforcement efforts above those seen in recent years. Ultimately, while the Strategy is an important affirmation of an anti-corruption agenda for the Administration, time will be needed to assess its impact on reducing corruption globally, its stated goal. From an enforcement perspective, the Administration’s significant emphasis on combating corruption strongly points toward increased action, which echoes recent U.S. Department of Justice (“DOJ”) pronouncements pledging a renewed focus on corporate criminal enforcement. For the private sector, these developments emphasize the importance of implementing and monitoring corporate anti-corruption compliance programs.

The Strategy announced this week identifies five “pillars” on which the Administration intends to build its evolving anti-corruption efforts:

Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption;
Curbing illicit finance;
Holding corrupt actors accountable;
Preserving and strengthening the multilateral anti-corruption architecture; and
Improving diplomatic engagement and leveraging foreign assistance to advance policy goals.

As detailed below, the Strategy has the potential to impact, among other programs, (1) DOJ’s enforcement activities, (2) the U.S. Government’s overarching anti-money laundering regime, and (3) the Administration’s anti-corruption work abroad—both on its own and through multilateral initiatives in conjunction with the European Union and other foreign governments.

Background: The United States Strategy on Countering Corruption

The Strategy outlines in broad terms the Administration’s plan for the U.S. Government to tackle corruption—including through increased coordination among federal agencies, foreign governments, multinational entities, and non-governmental organizations; increased funding for established U.S. anti-corruption enforcement activities; the integration of enhanced anti-corruption practices into various federal programs; and the creation of new, targeted initiatives. The Strategy highlights deficiencies in the U.S. Government’s current approach, such as the inability of officials to timely access information regarding beneficial ownership of shell companies and insufficient information-gathering regarding U.S. real estate transactions, as well as successful practices that the Administration will continue and expand. The Strategy includes both initiatives that can and will be executed through federal agencies and plans that the Administration aspires to implement but that depend on congressional legislation or agreement with foreign governments.

The Strategy comprises five overarching parts, or pillars, each divided into two to five strategic objectives.

Pillar One – Modernizing, Coordinating, and Resourcing U.S. Government Efforts to Better Fight Corruption. In addition to improving data collection and information sharing among federal agencies, this pillar outlines new initiatives within federal agencies, such as new anti-corruption teams in the Treasury and Commerce Departments and a new beneficial ownership data system for use by law enforcement as part of the Administration’s support of Financial Crimes Enforcement Network (“FinCEN”) authorities. This Pillar also reveals the Administration’s plans to integrate anti-corruption practices into its other priorities, as by placing new conditions on foreign aid to fight the COVID-19 pandemic and to counter climate change.

Pillar Two – Curbing Illicit Finance. This pillar describes initiatives to improve the U.S. anti-money laundering regime, including its coordination with U.S. allies and other partners. For example, because billions of dollars in criminal proceeds are reported to be laundered through the U.S. real estate market, the Strategy announces that the Treasury will issue reporting requirements for “those with valuable information regarding real estate transactions.” In a similar vein, the Treasury will consider reviving a 2015 proposed rulemaking that would prescribe minimum standards for anti-money laundering programs and reporting requirements for certain investment advisors. Federal agencies also are ordered to consider ways to increase policing of professionals and service providers, such as lawyers, accountants, and trust and company service providers (“TCSPs”), who have frequently been alleged to play key roles in facilitating money laundering.

Pillar Three – Holding Corrupt Actors Accountable. This pillar lays out the White House’s vision for scaling up efforts to enforce anti-money laundering and other criminal and civil anti-corruption laws. The Strategy places a renewed focus on efforts to counter kleptocracy, such as the Treasury’s pilot Kleptocracy Assets Recovery Rewards program, which would make payments to individuals who provide information that leads to the recovery of stolen assets linked to foreign government corruption held at U.S. financial institutions. This pillar surveys the Administration’s plan to continue targeting the tools used by corrupt actors to scrutinize “the demand side of bribery”—by using diplomatic and foreign assistance programming to enforce and enact legislation in countries where bribery is prevalent. This plan also includes the launch of a new Democracies Against Safe Havens initiative to coordinate international efforts to eradicate safe havens for illicit funds. Further, this pillar previews that, following the priorities for anti-money laundering and counter-terrorism financing policies FinCEN issued in June 2021, FinCEN plans to regulate how financial institutions should incorporate anti-corruption measures into their risk-based anti-money laundering programs.

Pillar Four – Preserving and Strengthening the Multilateral Anti-Corruption Architecture. As this pillar describes, the Administration plans to work with allies and partners to more effectively implement multilateral treaties and frameworks for combatting corruption. Domestically, this pillar also lays out initiatives to improve the resilience of security and defense institutions. For example, the Department of Defense will elevate and prioritize funds for institutional capacity-building activities, aligned with NATO’s Building Integrity program. In particular, the U.S. Government and other donor countries will collaborate with international financial institutions and multilateral trust funds to strengthen anti-corruption efforts in their programs and allocation systems.

Pillar Five – Improving Diplomatic Engagement and Leveraging Foreign Assistance Resources to Advance Policy Goals. The final pillar outlines the Administration’s objectives for making anti-corruption efforts a key component of its foreign policy. For example, it will launch initiatives to reduce transnational corruption, such as a new Anti-Corruption Solutions through Emerging Technology program, which will engage government, civil society, and private sector actors to collaborate on tracking, developing, improving, and applying new and existing technological anti-corruption solutions. To further develop ways to respond quickly to emerging areas of risk, the U.S. Government also will launch two new response funds: (1) the Anti-Corruption Response Fund implemented by USAID to support, test, and pilot anti-corruption programming; and (2) the Global Anti-Corruption Rapid Response Fund implemented by DOJ and the State Department to enable expert advisors to consult with and assist foreign anti-corruption counterparts.

DOJ Anti-Corruption Enforcement

The Strategy emphasizes that “aggressive enforcement action” is crucial to root out widespread corruption. The Strategy plans to expand criminal and civil law enforcement activities under the Foreign Corrupt Practices Act (“FCPA”) and other statutes, to increase coordination across the U.S. Government (and with foreign government partners and private actors), and to develop and implement new tools to broaden U.S. regulators’ reach. Responsibility for implementing these core components of the Strategy will naturally fall on DOJ, the SEC and other enforcement authorities.

Increased Enforcement: Given the Strategy’s focus on “vigorous enforcement,” the coming years likely will see a renewed DOJ focus on complex investigations into foreign bribery, misuse of cryptocurrency, and money laundering, among other areas. The uptick in investigations may arise through cross-referral of corruption matters between U.S. Government agencies and from other countries—as the Strategy calls on the U.S. Government to rely on greater cross-border cooperation in detecting, tracking, and investigating corruption schemes. The Strategy also contemplates greater cooperation with partner countries through joint investigations and coordinated prosecutions.

Increased Public-Private Coordination: In addition to prioritizing cooperation within the U.S. Government and with partner countries, the Strategy elevates the importance of coordination across various public and private institutions—with the goal of deepening and broadening anti-corruption enforcement capabilities and impact. As an example, the Strategy outlines enhanced collaboration among the U.S. Government and foreign policy partners to identify industries, financial channels, geographic areas, and governmental institutions and officials for increased scrutiny.

The Strategy focuses on expanding successful asset recovery programs that rely on individual whistleblowers. For example, the Strategy highlights DOJ’s existing “Kleptocracy Asset Recovery Initiative,” which since 2010 has facilitated the recovery of more than $1.7 billion in corruption proceeds by targeting the associates of corrupt foreign regimes. Building on this work, the Strategy introduces a new pilot Kleptocracy Asset Recovery Rewards Program, funded pursuant to the FY21 National Defense Authorization Act, that will create concrete financial incentives for reporting proceeds of foreign bribery. Treasury will run the pilot program and “provide payments to individuals for information leading to the identification and recovery of stolen assets linked to foreign government corruption held at U.S. financial institutions.”

Development of New Anti-Corruption Tools: The Strategy recognizes the need for new tools to broaden the reach of anti-corruption enforcement activities. In particular, the Strategy emphasizes the Administration’s commitment to working with allies and partners on “enacting legislation criminalizing the demand side of bribery” and enforcing such laws here and abroad—in the “countries where the bribery occurs.” Among the legislative fixes under consideration is an amendment to the FCPA to expand its application to foreign persons and government officials directly involved in bribery schemes—a perennial proposal that may finally find greater traction among lawmakers.

Enhancements to the U.S. Anti-Money Laundering Regime

In the name of combating corruption, the White House is signaling strongly through the Strategy that it intends to push forward several long-standing recommendations for enhancing the U.S. anti-money laundering regime. These recommendations focus on financial gatekeepers, corporate transparency, and industry-specific initiatives.

Gatekeepers—Overview: The Strategy’s most controversial area of AML enhancements is the potential extension of mandatory compliance and reporting requirements to non-financial institution professional service providers. These include lawyers, accountants, trust and company service providers, incorporators, registered agents, and nominees, who are “gatekeepers” to the U.S. and international financial system.

The lack of mandatory AML requirements for gatekeepers has long been an area of discussion and past and current proposed legislation, but has faced objections from self-regulating professions, especially the legal profession, on the basis that regulations would not deter lawyers who knowingly facilitate money laundering and that reporting requirements would undermine traditional expectations of client confidentiality. Because the extension of mandatory AML requirements to gatekeeper professions would require legislative amendment to the Bank Secrecy Act (“BSA”), the Strategy explains that the White House will work with Congress as necessary to try to secure additional authorities.

Corporate Transparency: The Strategy highlights that FinCEN will continue efforts already underway to establish a beneficial ownership database as required by the Corporate Transparency Act. Doing so not only would meet the congressional mandate, but also answer the call of law enforcement, prosecutors, and the Financial Action Task Force to allow timely access to adequate, accurate, and current beneficial ownership information to federal agencies and financial institutions. Gibson Dunn published a detailed summary of the 2020 AML Act here and further analysis of the Corporate Transparency Act here.

Real Estate: The Strategy announces that FinCEN will move forward with applying permanent AML regulations to the real estate industry. In conjunction with the Strategy, FinCEN published an advance notice of proposed rulemaking on December 8, 2021 requesting public comment on effective methods to collect and report information relevant to preventing money laundering through real estate purchases in the United States.

Investment Advisors: The Strategy reveals the Biden Administration’s intent to re-examine a proposed rule, originally published in 2015, to require registered investment advisors to implement Bank Secrecy Act/anti-money laundering programs and to report suspicious activity. Imposing AML requirements on registered investment advisors, which work closely with private equity funds and hedge funds, would address a gap in the U.S. AML regime identified by the FATF and bring the United States closer to the legal regimes of other financial-center jurisdictions. Gibson Dunn published a client alert discussing the 2015 proposed rule in detail.

Antiquities and Art Dealers: The Strategy notes FinCEN’s recent actions with respect to dealers in arts and antiquities. FinCEN will submit a report to Congress later this year, as required by the 2020 AML Act, on facilitation of money laundering, terrorism finance, and other illicit financial dealings through trade in works of art. Further, FinCEN solicited public comment in September 2021 on an advance notice of proposed rulemaking as the first step to implementing the recent amendment to the BSA to extend the definition of financial institution to include dealers in antiquities.

In sum, most of the proposals in the Strategy have been the subject of debate and proposed rulemaking for several years, but have languished due to a lack of clear administration priorities or resources (or both). The Strategy renews efforts in this area, which may result in substantial expansions to the U.S. AML regime.

Anti-Corruption and National Security

The Strategy was published on the eve of the Summit for Democracy, an effort to bolster cooperation among like-minded democracies. This Summit was timed to coincide with International Anti-Corruption Day (December 9) and International Human Rights Day (December 10). More than 100 countries were invited to the Summit, but China and Russia were not among the invitees.

In the lead-up to the Summit, U.S. officials clarified that they consider corruption a threat to democracy. Treasury Secretary Janet Yellen and USAID Administrator (and former UN Ambassador) Samantha Power wrote in a joint editorial in the Washington Post that corruption has made democratic decline possible: “Autocrats use public wealth to maintain their grip on power, while in democracies, corruption rots free societies from within.”

To address the transnational nature of corrupt financial flows, the Strategy highlights action taken by the Office of Foreign Assets Control (“OFAC”) to freeze the assets of foreign officials who have engaged in major schemes to embezzle public funds and corrupt public procurement. OFAC has imposed asset-freezing sanctions and visa restrictions on more than 200 foreign officials since Executive Order 13818, which was issued on December 20, 2017, implementing the Global Magnitsky Act.

The Strategy highlights the United States’ intent to increase multilateral cooperation in levying economic sanctions and visa restrictions to curtail corruption. The Strategy also notes the close cooperation between the United States and the United Kingdom on the United Kingdom’s Global Anti-Corruption Sanctions. On December 2, 2021, Australia’s Parliament adopted the Autonomous Sanctions Amendment, granting sanctions authority similar to the U.S. Global Magnitsky Act by unanimous vote.

Recent European Union Anti-Corruption and AML Actions

The Biden Administration prioritized talks with the EU regarding the joint fight against corruption from the very beginning during its first months in office. As part of the EU-U.S. summit on June 15, 2021, the parties—in a joint statement—stated that the EU resolves to “lead by example at home” by implementing “concrete actions to […] fight corruption.”

The Treaty on the Functioning of the EU recognizes corruption as a “euro-crime,” among the particularly serious crimes with a cross-border dimension for which minimum rules on the definition of criminal offences and sanctions may be established (TFEU Art. 83.1). With the adoption of the Stockholm Program in 2010, the European Commission (in close cooperation with the Council of Europe Group of States against Corruption) has been given a political mandate to measure efforts in the fight against corruption and develop a comprehensive EU anti-corruption policy. The European Commission has, however, not made meaningful progress since then. Currently, the anti-corruption laws of the 27 member states—including their extraterritorial reach—vary across the EU, and the EU has not yet adopted any harmonization measures to change this.

Cross-Border Enforcement: Over the past decade, we have seen increasing cooperation among U.S. enforcement agencies and their counterparts in Europe and worldwide. We expect this to continue and grow in the years to come. One of the most evident examples of this trend is an investigation that led to parallel settlements between a European company and the authorities in the United States, France, and the United Kingdom in January 2020. As part of the global settlement, the company agreed to pay combined penalties of more than $3.9 billion to resolve foreign bribery charges, making this settlement the largest anti-corruption settlement to date.

New Anti-Money Laundering Regulations: During the past few years, the EU has significantly increased its fight against money laundering. Most notably, the EU member states had to implement into their national laws the changes introduced by Directive (EU) 2018/843 on preventing the use of the financial system for money laundering or terrorist financing (the Fifth Anti-Money Laundering Directive) by January 10, 2020. As a result, many economic players were subjected to new or enhanced AML requirements—including private financial institutions, cryptocurrency traders, real estate agencies, and notaries. The Directive is intended to bring more transparency to the ultimate beneficial owners of legal entities, including foreign associations, and expands the number of individuals entitled to inspect transparency registers. It also increases reporting obligations of so-called “obliged persons.” Further, the Directive sets stricter standards with respect to customer due diligence requirements (i.e., know-your-customer requirements).

Continuing this trend, on July 20, 2021, the European Commission presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering the financing of terrorism (“AML/CFT”) rules. The package consists of four legislative proposals: a regulation establishing a new EU AML/CFT authority; a regulation on AML/CFT containing directly applicable rules, including in the areas of customer due diligence and beneficial ownership; a sixth directive on AML/CFT; and a revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).

Conclusion

The Strategy may well reflect an inflection point in the anti-corruption enforcement landscape under the Biden Administration, particularly when viewed in conjunction with Deputy Attorney General Lisa Monaco’s pronouncements in October 2021 on corporate criminal enforcement. These Administration initiatives and public statements are an important reminder of the value of actively reviewing corporate anti-corruption compliance programs, both to prevent violations and to obtain mitigation in a self-disclosure or enforcement context. In terms of its focus, specificity of effort, and call for cross-government coordination, the Strategy may reflect real change in the coming years of the Administration. The commitment to increased coordination between U.S. agencies as well as with foreign law counterparts, the focus on the demand side along with the supply side of bribery, and the use of anti-money laundering tools to combat corrupt financial flows, point toward a heightened enforcement environment in the near term. Companies, senior executives, and industry participants should expect an intensifying regulatory and enforcement anti-corruption landscape in the United States and abroad.

___________________________

[1] The White House, United States Strategy on Countering Corruption (Dec. 6, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf.

The following Gibson Dunn lawyers assisted in preparing this client update: Patrick F. Stokes, Stephanie L. Brooker, Adam M. Smith, John D. W. Partridge, Richard W. Grime, Michael S. Diamant, M. Kendall Day, Kelly S. Austin, Courtney M. Brown, David P. Burns, John W.F. Chesley, Benno Schwarz, Linda Noonan, Brendan Stewart, Samantha Sewall, Andreas Dürr, Victoria Granda, Katharina E. Humphrey, Nealofar S. Panjshiri, and Lindsay Bernsen Wardlaw.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. We have more than 110 attorneys with anti-corruption and FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices. Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C.
F. Joseph Warin (+1 202-887-3609, [email protected])
Richard W. Grime (+1 202-955-8219, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
Judith A. Lee (+1 202-887-3591, [email protected])
David Debold (+1 202-955-8551, [email protected])
Michael S. Diamant (+1 202-887-3604, [email protected])
John W.F. Chesley (+1 202-887-3788, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
Stephanie Brooker (+1 202-887-3502, [email protected])
David P. Burns (+1 202-887-3786, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Adam M. Smith (+1 202-887-3547, [email protected])
Oleh Vretsona (+1 202-887-3779, [email protected])
Christopher W.H. Sullivan (+1 202-887-3625, [email protected])
Courtney M. Brown (+1 202-955-8685, [email protected])
Jason H. Smith (+1 202-887-3576, [email protected])
Ella Alves Capone (+1 202-887-3511, [email protected])
Pedro G. Soto (+1 202-955-8661, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
John D.W. Partridge (+1 303-298-5931, [email protected])
Ryan T. Bergsieker (+1 303-298-5774, [email protected])
Laura M. Sturges (+1 303-298-5929, [email protected])

Los Angeles
Nicola T. Hanna (+1 213-229-7269, [email protected])
Debra Wong Yang (+1 213-229-7472, [email protected])
Marcellus McRae (+1 213-229-7675, [email protected])
Michael M. Farhang (+1 213-229-7005, [email protected])
Douglas Fuchs (+1 213-229-7605, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Thad A. Davis (+1 415-393-8251, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Michael Li-Ming Wong (+1 415-393-8333, [email protected])

Palo Alto
Benjamin Wagner (+1 650-849-5395, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charlie Falconer (+44 20 7071 4270, [email protected])
Sacha Harber-Kelly (+44 20 7071 4205, [email protected])
Michelle Kirschner (+44 20 7071 4212, [email protected])
Matthew Nunan (+44 20 7071 4201, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Steve Melrose (+44 20 7071 4219, [email protected])

Paris
Benoît Fleury (+33 1 56 43 13 00, [email protected])
Bernard Grinspan (+33 1 56 43 13 00, [email protected])

Munich
Benno Schwarz (+49 89 189 33-110, [email protected])
Michael Walther (+49 89 189 33-180, [email protected])
Mark Zimmer (+49 89 189 33-130, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Oliver D. Welch (+852 2214 3716, [email protected])

São Paulo
Lisa A. Alfaro (+5511 3521-7160, [email protected])
Fernando Almeida (+5511 3521-7093, [email protected])

Singapore
Joerg Bartz (+65 6507 3635, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This program will provide a comprehensive overview of spoofing and manipulation in the commodities and derivatives markets under the Commodity Exchange Act and other authorities. The panelists, all highly experienced lawyers in this area, will discuss the recent Department of Justice (DOJ) criminal prosecutions for spoofing and market manipulation, and the overlapping and often coordinated investigations conducted simultaneously by the Commodity Futures Trading Commission (CFTC) and other domestic and foreign regulators. We will also explore the strategies used by the government to investigate and prosecute spoofing and other market manipulation cases.

Topics will include:

Overview of commodities and derivatives spoofing and market manipulation
Recent CFTC, DOJ and other agency developments and trends
Government investigation and prosecution strategies
Internal monitoring, protection, and training

View Slides (PDF)

PANELISTS:

David Burns is a partner in the Washington, D.C. office and co-chair of the firm’s National Security Practice Group. He served in senior positions in both the Criminal Division and National Security Division of the U.S. Department of Justice. Most recently, he served as Acting Assistant Attorney General of the Criminal Division, where he led more than 600 federal prosecutors who conducted investigations and prosecutions involving securities fraud, health care fraud, FCPA violations, public corruption, cybercrime, intellectual property theft, money laundering, Bank Secrecy Act violations, child exploitation, international narcotics trafficking, human rights violations, organized and transnational crime, gang violence, and other crimes, as well as matters involving international affairs and sensitive law enforcement techniques.

Joel M. Cohen is a partner in the New York office and co-chair of the firm’s global White Collar Defense and Investigations Practice Group. He is also a member of the Securities Litigation, Class Actions and Antitrust & Competition Practice Groups. He has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts, and he is equally comfortable in leading confidential investigations, managing crises or advocating in court proceedings. Mr. Cohen’s experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery.

Jeffrey L. Steiner is a partner in the Washington, D.C. office, co-chair of the firm’s Derivatives Practice, and co-chair of the firm’s Digital Currencies and Blockchain Technology Practice. He advises financial institutions, dealers, hedge funds, private equity funds, and others on compliance and implementation issues relating to CFTC, SEC, the Dodd-Frank Act, and other banking rules and regulations. He also helps clients to navigate through cross-border issues resulting from global derivatives requirements. He has been recognized by Chambers Global and Chambers USA as an international leading lawyer for his work in derivatives, and was named a Cryptocurrency, Blockchain and Fintech Trailblazer.

Darcy C. Harris is a litigation associate in the New York office. She is a member of the firm’s Securities Enforcement, Securities Litigation, and White Collar Defense and Investigations Practice Groups. Her practice focuses on complex commercial litigation, internal and regulatory investigations, securities litigation, and white collar defense. She has represented clients across a variety of industries, including financial services, insurance, accounting and auditing, healthcare, real estate, consumer goods, media and entertainment, and non-profit.

Amy Feagles is an associate in the Washington, D.C. office. She is a member of the firm’s White Collar Defense and Investigations, and Antitrust and Competition Practice Groups. Her practice encompasses internal investigations, regulatory and criminal investigations, and complex commercial litigation across a range of industries, including financial services, government contracting, healthcare, and international shipping.

Jaclyn Neely is an associate in the New York office. She is a member of the firm’s White Collar Defense and Investigations, Securities Enforcement, Anti-Money Laundering, and Litigation Practice Groups. She represents major multinational corporations, financial institutions, and others in criminal, regulatory, and internal investigations, with a focus on anti-corruption and anti-money laundering issues.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement.

This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an affirmation form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

Following on from the recent launch of our Global Financial Regulatory Practice Group, please join us for the inaugural webcast from our global team, where we will be discussing the latest legal and regulatory developments while identifying key themes and trends across the major financial centers in relation to:

Environmental, Social and Governance (ESG)
Culture and conduct in financial services
Digital assets/cryptocurrencies

We will discuss the supervisory and enforcement approaches and priorities currently being taken by global regulators, including those across the Asia-Pacific region, on these issues and provide views on best practices for managing compliance requirements and the new regulatory risks for firms and their senior management. In addition, the team will bring their predictions for the future of regulatory policy, supervision and enforcement based on their extensive experience in these areas with the key global regulators.

View Slides (PDF)

MODERATOR:

Kelly Austin: The Partner-in-Charge of Gibson Dunn’s Hong Kong office, a Co-Chair of the Firm’s Anti-Corruption & FCPA Practice, and a member of the Firm’s Executive Committee. Her practice focuses on government investigations, regulatory compliance and international disputes. She has extensive expertise in government and corporate internal investigations, including those involving the Foreign Corrupt Practices Act and other anti-corruption laws, and anti-money laundering, securities, and trade control laws. She also regularly guides companies on creating and implementing effective compliance programs.

PANELISTS:

William Hallatt: is a partner in the Hong Kong office and Co-Chair of the firm’s Global Financial Regulatory Practice Group. Mr. Hallatt’s practice includes internal and external regulatory investigations involving high-stakes enforcement matters brought by key financial services regulators, including the Hong Kong Securities & Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA), covering issues such as IPO sponsor conduct, anti-money laundering and terrorist financing compliance, systems and controls failures, and cybersecurity breaches. He has led the financial industry response on a number of the most significant regulatory change issues in recent years, working closely with major regulators, including the SFC, HKMA, Hong Kong Insurance Authority (IA) and the Monetary Authority of Singapore (MAS), together with leading industry associations, including the Asia Securities Industry & Financial Markets Association (ASIFMA) and the Alternative Investment Management Association (AIMA).

Michelle M Kirschner: is a partner in the London office and Co-Chair of the firm’s Global Financial Regulatory Practice Group. Ms. Kirschner advises a broad range of financial institutions and fintech businesses on areas such as systems and controls, market abuse, conduct of business and regulatory change management, and she conducts internal investigations and reviews of corporate governance and systems and controls in the context of EU and UK regulatory requirements and expectations.

Thomas Kim: former Chief Counsel and Associate Director of the SEC’s Division of Corporation Finance, and a former Counsel to the SEC Chairman, is a partner in the Washington D.C. office. He is a member of the firm’s Securities Regulation and Corporate Governance Practice Group. Mr. Kim advises a broad range of clients on SEC enforcement investigations involving disclosure, registration and auditor independence issues. Because of his SEC experience on the question of what is a security, Mr. Kim has advised many cryptocurrency companies on whether their particular digital assets constitute securities.

Matthew Nunan: former Head of Department for Wholesale Enforcement at the UK Financial Conduct Authority (FCA), is a partner in the London office. He is a member of the firm’s Dispute Resolution Group. When at the FCA, Mr. Nunan oversaw a variety of investigations and regulatory actions including LIBOR-related misconduct, insider dealing, and market misconduct matters, many of which involved working extensively with non-UK regulators and prosecuting authorities including the DOJ, SEC, CFTC, and others. Mr. Nunan also was Head of Conduct Risk for Europe, Middle East and Africa at a major global bank. He specializes in financial services regulation and enforcement, investigations and white collar defense.

Jeffrey Steiner: former special counsel at the U.S. Commodity Futures Trading Commission (CFTC), is a partner in the Washington D.C. office. He is Co-Chair of the firm’s Derivatives Practice and Digital Currencies and Blockchain Technologies Practice. Mr. Steiner advises a range of clients on regulatory, legislative, enforcement and transactional matters related to OTC and listed derivatives, commodities and securities. He also advises clients, including exchanges, financial institutions and fintech firms, on matters related to digital assets and cryptocurrencies.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour, of which 1.5 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

Environmental, Social and Governance (ESG)
Culture and conduct in financial services
Digital assets/cryptocurrencies

We will discuss the supervisory and enforcement approaches and priorities currently being taken by global regulators on these issues and provide views on best practices for managing compliance requirements and the new regulatory risks for firms and their senior management. In addition, the team will bring their predictions for the future of regulatory policy, supervision and enforcement based on their extensive experience in these areas with the key global regulators.

View Slides (PDF)

MODERATOR:

Stephanie Brooker: former Director of the Enforcement Division at the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and a former federal prosecutor, is a partner in the Washington, D.C. office. She is Co-Chair of the firm’s White Collar Defense and Investigations, the Financial Institutions, and the Anti-Money Laundering Practice Groups. Ms. Brooker also previously served as the Chief of the Asset Forfeiture and Money Laundering Section in the U.S. Attorney’s Office for the District of Columbia. She has been named a National Law Journal White Collar Trailblazer and a Global Investigations Review Top 100 Women in Investigations. She handles a wide range of white collar matters, including representing financial institutions, multi-national companies, and individuals in connection with criminal, regulatory, and civil enforcement actions. She routinely handles complex cross-border investigations.

PANELISTS:

MCLE CREDIT INFORMATION:

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

We previously reported on the introduction by certain Democrat members of Congress of proposed legislation (H.R.4777, Nondebtor Release Prohibition Act of 2021 (the “NRPA”)) to amend the Bankruptcy Code to prohibit non-consensual third party releases and provide for the dismissal of bankruptcy cases filed after the implementation of a divisional merger transaction (such as the so-called “Texas two-step” transaction). Recently, the House Judiciary Committee voted 23-17 to recommend that the NRPA be considered by the full House of Representatives. A full House vote has not yet been scheduled. The analogous Senate version of the NRPA (S.2497) is still being considered by the Senate Judiciary Committee.

Gibson Dunn lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Business Restructuring and Reorganization practice group, or the following authors:

Michael J. Cohen – New York (+1 212-351-5299, [email protected])
Michael A. Rosenthal – New York (+1 212-351-3969, [email protected])
Matthew J. Williams – New York (+1 212-351-2322, [email protected])

Please also feel free to contact the following practice leaders:

Business Restructuring and Reorganization Group:
David M. Feldman – New York (+1 212-351-2366, [email protected])
Scott J. Greenberg – New York (+1 212-351-5298, [email protected])
Robert A. Klyman – Los Angeles (+1 213-229-7562, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

A main area of focus for public companies this past annual reporting season was the new human capital disclosure requirement for annual reports on Form 10-K. This client alerteviews disclosure trends among S&P 500 companies and provides practical considerations for companies as we head into 2022 and the second year of discussing human capital resources and management.

I. Background on the New Requirements

On August 26, 2020, the U.S. Securities and Exchange Commission (the “Commission”) adopted amendments to Items 101, 103 and 105 of Regulation S-K, which became effective as of November 9, 2020.[1] Among other things, these amendments added human capital resources as a disclosure topic under Item 101, which addresses what companies must include in the “Business” section of their Form 10-K. As amended, Item 101(c) requires a registrant to describe its human capital resources “to the extent material to the understanding of that registrant’s business taken as a whole.”[2] Specifically, the human capital disclosure must include “the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).”[3] Prior to this amendment, Item 101(c) required the registrant to disclose only the number of persons employed by the registrant.

Consistent with the Commission’s stated desire to implement a more “principles-based” disclosure system,[4] the new rules did not define “human capital” or elaborate on specific requirements for human capital disclosures beyond the few examples provided in the rule text. This lack of specific line item requirements was criticized by Democratic Commissioner Caroline Crenshaw, who stated that “I would have supported today’s final rule if it had included even minimal expansion on the topic of human capital to include simple, commonly kept metrics such as part time vs. full time workers, workforce expenses, turnover, and diversity. But we have declined to take even these modest steps.”[5] As discussed below, following the change in presidential administration, the Commission has indicated that it plans to revisit the human capital disclosure requirements and potentially adopt more prescriptive rules in the future.[6]

To understand how companies have responded to the current disclosure requirements, we conducted a survey of the substance and format of human capital disclosures made by the 451 S&P 500 companies that filed an annual report on Form 10-K between the date the new requirements became effective, November 9, 2020, and July 16, 2021.[7] As is to be expected from principles-based rules, companies provided a wide variety of human capital disclosures,[8] with no uniformity in their depth or breadth. The next three sections highlight our observations from this survey.[9]

II. Disclosure Topics

Our survey breaks down companies’ human capital disclosures into 17 topics, each of which is listed in the following chart, along with the number of companies that discussed the topic. Each topic is described more fully in the sections following the chart.

A. Workforce Composition and Demographics

Of the 451 companies surveyed, 419, or 93%, included disclosures relating to workforce composition and demographics in one or more of the following categories:

Diversity and inclusion. This was the most common type of disclosure, with 82% of companies including a qualitative discussion regarding the company’s commitment to diversity, equity, and inclusion. The depth of these disclosures varied, ranging from generic statements expressing the company’s support of diversity in the workforce to detailed examples of actions taken to support underrepresented groups and increase the diversity of the company’s workforce. Many companies also included a quantitative breakdown of the gender or racial representation of the company’s workforce: 41% included statistics on gender and 35% included statistics on race. Most companies provided these statistics in relation to their workforce as a whole, while a subset (21%) included separate statistics for different classes of employees (e.g., managerial, vice president and above, etc.) and/or for their boards of directors. Some companies also included numerical goals for gender or racial representation—either in terms of overall representation, promotions, or hiring—even if they did not provide current workforce diversity statistics.
Full-time / part-time employee split. While most companies provided the total number of full-time employees, only 16% of the companies surveyed included a quantitative breakdown of the number of full-time versus part-time employees the company employed. Similarly, we saw a number of companies that provided statistics on the number of seasonal employees and/or independent contractors.
Unionized employee relations. 37% of the companies surveyed stated that some portion of their employees was part of a union, works council, or similar collective bargaining agreement. These disclosures generally included a statement providing the company’s opinion on the quality of labor relations, and in many cases, disclosed the number of unionized employees. While never expressly required by Regulation S-K, as a result of disclosure review comments issued by the Division of Corporation Finance over the years and a decades-old and since-deleted requirement in Form 1-A, it has been a relatively common practice to discuss collective bargaining and employee relations in the Form 10-K or in an IPO Form S-1, particularly since the threat of a workforce strike could be material.
Quantitative workforce turnover rates. Although a majority of companies discussed employee turnover and the related topics of talent attraction and retention in a qualitative way (as discussed in Section II.B. below), less than 13% of companies surveyed provided specific employee turnover rates (whether voluntary or involuntary).

B. Recruiting, Training, Succession

395, or 88%, of the companies surveyed included disclosures relating to talent and succession planning in one or more of the following categories:

Talent Attraction and Retention. These disclosures were generally qualitative and focused on efforts to recruit and retain qualified individuals. While providing general statements regarding recruiting and retaining talent were relatively common, with 58% of companies including this type of disclosure, quantitative measures of retention, like workforce turnover rate, were uncommon, with less than 13% of companies disclosing such statistics (as noted above).
Talent Development. The most common type of disclosure in this area related to talent development, with 77% of companies including a qualitative discussion regarding employee training, learning, and development opportunities. This disclosure tended to focus on the broader workforce rather than specifically on senior management. Companies generally discussed training programs such as in-person and online courses, leadership development programs, mentoring opportunities, tuition assistance, and conferences, and a minority also disclosed the number of hours employees spent on learning and development.
Succession Planning. Only 18% of companies surveyed addressed their succession planning efforts, which may be a function of succession being a focus area primarily for executives rather than the human capital resources of a company more broadly.

C. Employee Compensation

Of the companies surveyed, 300, or 67%, included disclosures relating to employee compensation. Most of those companies, or 64% of companies surveyed, included a qualitative description of the compensation and benefits program offered to employees. However, only 16% of companies surveyed addressed pay equity practices or assessments, and even fewer companies (4% of companies surveyed) included quantitative measures of the pay gap between diverse and non-diverse employees or male and female employees.

D. Health and Safety

Of the companies surveyed, 288, or 64%, included disclosures relating to health and safety in one or both of the following categories:

Workplace health and safety. 53% of companies surveyed included qualitative disclosures relating to workplace health and safety, typically with statements around the company’s commitment to safety in the workplace generally and compliance with applicable regulatory and legal requirements. However, only 12% of companies surveyed provided quantitative disclosures in this category, generally focusing on historical and/or target incident or safety rates or investments in safety programs. These disclosures generally were more prevalent among industrial and manufacturing companies, as discussed in Section G below. Many companies also provided disclosures on safety initiatives undertaken in connection with COVID-19, which is discussed separately below.
Employee mental health. In connection with disclosures about standard benefits provided to employees, or additional benefits provided as a result of the pandemic, 23% of companies disclosed initiatives taken to support employees’ mental or emotional health.

E. Culture and Engagement

In addition to the many instances where companies mentioned a general commitment to culture and values, 229, or 51%, of the companies surveyed discussed specific initiatives they were taking related to culture and engagement in one or more of the following categories:

Culture and engagement initiatives. Only 20% of companies surveyed included specific disclosures relating to practices and initiatives undertaken to build and maintain their culture and values. These disclosures most commonly discussed company efforts to communicate with employees (e.g., through town halls, CEO outreach, trainings, or conferences and presentations) and to recognize employee contributions (e.g., awards programs and individualized feedback). Many companies also discussed culture in the context of the diversity-related initiatives to help foster an inclusive culture.
Monitoring culture. Disclosures about the ways that companies monitor culture and employee engagement were much more common, with 45% of companies providing such disclosure. Companies generally disclosed the frequency of employee surveys used to track employee engagement and satisfaction, with some reporting on the results of these surveys, sometimes measured against prior year results or industry benchmarks.

F. COVID-19

A majority of companies (67% of those surveyed) included information regarding COVID-19 and its impact on company policies and procedures or on employees generally. COVID-19-related topics addressed ranged from work-from-home arrangements and safety protocols taken for employees who worked in person to additional benefits and compensation paid to employees as a result of the pandemic and contributions made to organizations supporting those affected by the pandemic.

G. Human Capital Management Governance and Organizational Practices

A minority of companies (34% of those surveyed) addressed their governance and organizational practices (such as oversight by the board of directors or a committee and the organization of the human resources function).

III. Industry Trends

One of the main rationales underlying the adoption of principles-based—rather than prescriptive—requirements for human capital disclosures is that the relative significance of various human capital measures and objectives varies by industry. This is reflected in the following industry trends that we observed:[10]

Finance Industries (Asset Management & Custody Activities, Consumer Finance, Commercial Banks and Investment Banking & Brokerage). For the 34 companies in the Finance Industries, a majority included quantitative diversity statistics regarding race (61%) and gender (70%). Most companies also included qualitative disclosures regarding employee compensation (70%), and, compared to other industries discussed below, a relatively higher number discussed pay equity (35%) and quantified their pay gap (17%). Relatively uncommon disclosures among this group included part-time and full-time employee statistics, unionized employee relations, quantitative workforce turnover rates, and succession planning (in each case less than 20%).
Technology Industries (E-Commerce, Internet Media & Services, Hardware, Software & IT Services and Semiconductors). For the 68 companies in the Technology Industries, 66% discussed talent development and training opportunities and 58% discussed talent attraction, recruitment, and retention. Relatively uncommon disclosures among this group included part-time and full-time employee statistics (7%), quantitative workforce turnover rates (16%), workplace health and safety measures (23%), culture initiatives (19%), and quantitative pay gap (2%).
Manufacturing Industries (Industrial Machinery & Goods, Auto Parts, Automobiles, and Appliance Manufacturing). For the 21 companies in the Manufacturing Industries, 85% of the companies discussed their workplace health and safety measures. Other common disclosures included those related to COVID-19 (66%), unionized employee relations (52%), employee training and development (80%), and employee compensation (57%). Relatively uncommon disclosures among this group included those relating to corporate governance, part-time and full-time employee statistics, quantitative measures of diversity like race, ethnicity or gender workforce statistics, quantitative workforce turnover rates, employee mental health, culture initiatives, succession planning, pay equity or quantitative measures of the pay gap (in each case less than 25%).
Travel Industries (Airlines and Cruise Lines). For the 8 companies in the Travel Industries, all but one discussed COVID-19, and all 8 companies discussed their unionized employee relations. Other common disclosures related to diversity and inclusion (87%), talent development (62%), and employee compensation (62%). None of the companies in this group discussed pay equity or provided quantitative workforce turnover rates or pay gap analysis.
Retail Industries (Food Retailers & Distributors and Multiline and Specialty Retailers & Distributors). Of the 22 companies in this Retail Industries category of our survey, 36% included disclosures related to part-time and full-time employee statistics. Relatively uncommon disclosures among this group included quantitative workforce turnover rates, employee mental health, culture initiatives, pay equity, and quantitative pay gap analysis (in each case less than 20%).
Aerospace & Defense Industry. For the 10 companies in the Aerospace & Defense Industry, all but one included a disclosure regarding talent development and training, and 80% of the companies also discussed talent attraction and retention. Other common disclosures include those related to COVID-19 (60%), qualitative discussion of diversity and inclusion (70%), unionized employee relations (60%), workplace health and safety measures (70%), and qualitative discussion of employee compensation (60%). Uncommon disclosures for companies in this group related to part-time and full-time employee statistics, quantitative workforce turnover rates, employee mental health, culture initiatives, pay equity or quantitative measures of the pay gap (in each case 10% or less).
Food & Beverage Industries (Agricultural Products, Alcoholic Beverages, Non-Alcoholic Beverages, Processed Foods, Meat, Poultry & Dairy). For the 17 companies in the Food & Beverage Industries, the most common disclosures included those related to qualitative discussions on diversity and inclusion (94%), workplace health and safety measures (70%), and talent development and training (82%). Less than 20% of the companies in this group included disclosures related to part-time and full-time employee statistics, quantitative workforce turnover rates, succession planning (none of the companies in this group included this type of disclosure), pay equity, or quantitative measures of the pay gap.
Personal Goods Industries (Apparel, Accessories & Footwear, Household & Personal Products, Toys and Sporting Goods). For the 13 companies in the Personal Goods Industries, the most common disclosures were those related to a qualitative discussion on diversity and inclusion (92%), quantitative diversity statistics about gender (61%), COVID-19 (61%), talent attraction and retention (61%), talent development (76%), employee compensation (61%), and corporate governance and organization (61%). Relatively uncommon disclosures for companies in this group include quantitative workforce turnover rates (7%), employee mental health (23%), culture initiative (23%), pay equity (15%), and the quantitative pay gap (0%).
Biotechnology & Pharmaceutical Industry. For the 18 companies in the Biotechnology & Pharmaceutical Industry, 100% included a qualitative discussion of diversity and inclusion, with many including workforce diversity statistics for race (55%) or gender (50%). Other common disclosure topics for this industry were COVID-19 (72%), workplace health and safety measures (66%), monitoring culture (61%), talent development (77%), and employee compensation (72%). Less than 25% of the companies in this industry included disclosures regarding part-time and full-time employee statistics, quantitative workforce turnover rate, culture initiative, succession planning, or quantitative pay gap measures.
Health Care Industries (Drug Retailers, Health Care Delivery, Health Care Distributors, and Medical Equipment & Supplies). For the 37 companies in the Health Care Industries, the most common disclosures were those related to COVID-19 (67%), qualitative discussion of diversity and inclusion (86%), diversity workforce statistics of gender (56%) (statistics about race were only disclosed by 43% of this group), workplace health and safety (59%), talent development and training (83%), and employee compensation (70%). The least common disclosures, with less than 20% each, included quantitative workforce turnover rates, culture initiatives, succession planning, pay equity, and quantitative pay gap measures.
Building Industries (Building Products & Furnishings, Engineering & Construction Services, and Home Builders). For the 11 companies in the Building Industries, the most common disclosures were those related to COVID-19 (63%), workplace health and safety (54%), talent attraction and retention (72%), talent development (72%), and employee compensation (54%). The least common disclosures, with 10% or less of the companies in this group including such disclosures, were part-time and full-time employee statistics, quantitative workforce turnover rate, employee mental health, culture initiatives, pay equity (0%) and quantitative pay gap measures (0%).
Hotel Industries (Casinos & Gaming, Hotels & Lodging, and Leisure Facilities). Of the 9 companies in the Hotel Industries, 100% included COVID-19-related disclosure. Disclosures of over 80% of companies in this group include in their annual report a qualitative discussion on diversity and inclusion, unionized employee relations, and employee compensation. Relatively uncommon disclosures include those related to governance and corporate organization, quantitative diversity statistics regarding race and gender, quantitative workforce turnover rates, culture initiatives, monitoring culture, succession planning, pay equity, and quantitative pay gap (in each case less than 25%).
Utilities Industries (Electric Utilities and Power Generators, Gas Utilities & Distributors, and Water Utilities). For the 26 companies in the Utilities Industries, the most common disclosures included those related to COVID-19 (69%), qualitative discussion regarding diversity and inclusion (88%), unionized employee relations (88%), workplace health and safety (88%) and workforce training (80%). Relatively uncommon disclosures among this group included part-time and full-time employee statistics, quantitative workforce turnover rate, employee mental health, culture initiatives, pay equity, and quantitative pay gap (in each case less than 20%).
Electrical Equipment Industry (Electric & Electrical Equipment (excluding computer or similar technology equipment)). For the 18 companies in the Electrical Equipment Industry, the most common disclosures include qualitative discussion regarding diversity (83%), workplace health and safety (83%), and employee training (89%). The least common disclosures included part-time and full-time workforce statistics, employee mental health, culture initiatives, succession planning, pay equity, and quantitative pay gap measures (in each case less than 25%).
Oil & Gas Industry. For the 21 companies in the Oil & Gas Industry, the most common disclosures included corporate governance and organization measures (57%), COVID-19 (71%), qualitative discussion of diversity (95%), workplace health and safety measures (80%), talent acquisition and retention (80%), talent development and training (80%), and employee compensation (76%). The least common disclosures for the Oil & Gas Industry, in each case less than 20%, were part-time and full-time workforce statistics, unionized workforce relations, quantitative workforce turnover rates, culture initiatives, pay equity, and quantitative pay gap measures (0% for this disclosure).
Real Estate Industry. For the 24 companies in the Real Estate Industry, the most common disclosures included those related to COVID-19 (70%), qualitative discussion of diversity (79%), monitoring culture (67%), talent development (79%), and employee compensation (75%). Relatively uncommon disclosures among this group included unionized workforce relations, quantitative workforce turnover rates, succession planning, pay equity and quantitative pay gap (in each case less than 20%).
Insurance and Professional Industries (Insurance and Professional & Commercial Services). For the 28 companies in the Insurance and Professional Industries, the disclosures with over 70% of occurrence each were those related to qualitative discussions of diversity, talent development and training and employee compensation. The disclosures with a less than 25% rate of inclusion were related to unionized employee relations, employee mental health, succession planning, and the pay gap.

IV. Disclosure Format

The format of human capital disclosures in companies’ annual reports varied greatly.

Word Count. The length of the disclosures ranged from 10 to 2,180 words, with the average disclosure consisting of 797 words and the median disclosure consisting of 765 words.

Metrics. While the disclosure requirement specifically asks for a description of “any human capital measures or objectives that the registrant focuses on in managing the business” (emphasis added), our survey revealed that approximately 25% of companies determined not to include any quantitative metrics in their disclosure beyond headcount numbers. Given the materiality threshold included in the requirement and the fact that it is focused on what is actually used to manage the business, this is not a surprising result. It was common to see companies identify important objectives they focus on, but omit quantitative metrics related to those objectives. For example, while 82% of companies discussed their commitment to diversity, equity, and inclusion, only 41% and 35% of companies disclosed quantitative metrics regarding gender and racial diversity, respectively.

Graphics. Although the minority practice, approximately 25% of companies surveyed also included charts or other graphics, which were generally used to present statistical data, such as diversity statistics or breakdowns of the number of employees by geographic location.

Categories. Most companies organized their disclosures by categories similar to those discussed above and included headings to define the types of disclosures presented.

V. Comment Letter Correspondence

Often times comment letter correspondence from the staff of the Division of Corporation Finance (the “Staff”) helps put a finer point on disclosure requirements like this one that are relatively open-ended and give companies broad discretion to decide what to disclose. While there have been approximately two dozen comment letters published that address the new human capital requirements, the letters we have seen so far shed relatively little light on how the Staff believes the new requirements should be interpreted. Rather, the comment letters, all of which involved reviews of registration statements, were generally issued to companies whose disclosures about employees were limited to the bare-bones items companies have discussed historically, such as the number of persons employed and the quality of employee relations. From these companies, the Staff simply sought a more detailed discussion of the company’s human capital resources, including any human capital measures or objectives upon which the company focuses in managing its business. In other words, similar to historical Staff comment practices generally in the context of the first year of new disclosure requirements, the Staff targeted “low-hanging fruit,” basically just asking companies that disclosed nothing in response to the new requirements to provide responsive disclosure. Based on our review of the responses to those comment letters, we have not seen a company take the position that a discussion of human capital resources was immaterial and therefore unnecessary.

VI. Conclusion

The principles-based nature of the new human capital requirements predictably resulted in companies providing a wide variety of disclosures, with significant differences in depth and breadth. Companies’ responses to the new requirements underscore some of the potential advantages and disadvantages of principles-based rulemaking. On one hand, the largely principles-based requirements gave each company wide latitude to tailor its discussion to its own circumstances and to highlight the measures and objectives focused on by its management team. The resulting disclosures seemed to provide insight into how each company views its human capital resources and manages that aspect of its business. On the other hand, the general lack of prescriptive requirements limited the comparability of disclosures from one company to another and failed to facilitate quantitative analyses of companies’ human capital resources. While some would argue that precluding surface-level quantitative comparisons across companies is a virtue of the new rule, others, including SEC Chair Gensler, favor more specificity. On August 18, 2020 Chair Gensler tweeted: “Investors want to better understand one of the most critical assets of a company: its people. I’ve asked staff to propose recommendations for the Commission’s consideration on human capital disclosure…. This could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.”[11]

Until the Commission proposes and adopts new rules governing the disclosure of human capital management, however, we expect the wide variance in Form 10-K human capital disclosures to continue. As companies prepare for the upcoming Form 10-K reporting season, they should consider the following:

Confirming (or reconfirming) that the company’s disclosure controls and procedures support the statements made in human capital disclosures so that they are reliable, consistent, and appropriately updated, and that there is a robust verification process in place. While many companies have historically provided information like this in other contexts (e.g., hiring brochures and company websites), given the potential liability attached to disclosures in SEC filings, more rigorous controls will likely need to be put in place to ensure the accuracy and completeness of the information.
Confirming (or reconfirming) that the human capital disclosures included in the Form 10-K remain appropriate and relevant. In this regard, companies may want to compare their own disclosures against what their industry peers did this past year as well as against any internal reporting frameworks (such as the human capital information that is regularly reported to senior management and the board or a committee).
Setting expectations internally that these disclosures likely will evolve. Companies should expect to develop their disclosure over the course of the next couple of annual reports in response to peer practices, regulatory changes and investor expectations, as appropriate. The types of disclosures that are material to each company may also change in response to current events.
Addressing in the upcoming disclosure the progress that management has made with respect to any significant objectives it has set regarding its human capital resources as investors are likely to focus on year-over-year changes and the company’s performance versus stated goals.
Ensuring consistency across disclosures by being mindful of other human capital disclosures the company has already made and what the company has already said about its human capital in other filings or voluntary statements in sustainability reports, investor outreach, college campus recruiting materials or elsewhere (e.g., how is the composition of the company’s workforce described in the CEO pay ratio disclosure?).
Addressing significant areas of focus highlighted in engagement meetings with investors and other stakeholders. In a 2020 survey, 64% of institutional investors surveyed said they planned to focus on human capital management when engaging with boards (second only to climate change, at 91%).[12]
Addressing, to the extent material, the effect that return-to-work policies, vaccine mandates, or other COVID-related policies may have on the workforce.
Revalidating the methodology for calculating quantitative metrics and assessing consistency with the prior year. Former Chairman Clayton commented that he would expect companies to “maintain metric definitions constant from period to period or to disclose prominently any changes to the metrics.”

_____________________________

[1] See, A Double-Edged Sword? Examining the Principles-Based Framework of the SEC’s Recent Amendments to Regulation S-K Disclosure Requirements, available here.

[2] See, 17 C.F.R. § 229.101(c)(2)(ii).

[3] Id.

[4] See, Modernizing the Framework for Business, Legal Proceedings and Risk Factor Disclosures, available at https://www.sec.gov/news/public-statement/clayton-regulation-s-k-2020-08-26.

[5] See, Regulation S-K and ESG Disclosures: An Unsustainable Silence, available at https://www.sec.gov/news/public-statement/lee-regulation-s-k-2020-08-26.

[6] Commission Chair Gary Gensler’s Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions (the “Spring 2021 Reg Flex Agenda”) shows “Human Capital Management Disclosure” as being in the proposed rule stage. Available here.

[7] Our survey captured the following information: company industry, word count of relevant disclosure, category of information covered (e.g., diversity, workplace safety, etc.), and types of metrics included.

[8] See Considerations for Preparing your 2020 Form 10-K, available at https://www.gibsondunn.com/wp-content/uploads/2021/02/considerations-for-preparing-your-2020-form-10-k.pdf; Amit Batish et al., Human Capital Disclosure: What Do Companies Say About Their “Most Important Asset”?, The Harvard Law School Forum on Corporate Governance, May 18, 2021; Marc Siegel et al., How do you value your social and human capital?; Andrew R. Lash et al., Variety of Approaches to New Human Capital Resources Disclosure in 10-K Filings, The Harvard Law School Forum on Corporate Governance, Dec. 13, 2020.

[9] Note that companies often include additional human capital management-related disclosures in their ESG/sustainability/social responsibility reports and websites and sometimes in the proxy statement, but these disclosures are outside the scope of the survey.

[10] For purposes of our survey, we grouped companies in similar industries based on both their four-digit Standard Industrial Classification code and their designated industry within the Sustainable Industry Classification System. The industry groups discussed cover approximately 85% of the companies included in our survey.

[11] Available at https://twitter.com/garygensler/status/1428022885889761292

[12] See Morrow Sodali 2020 Institutional Investor Survey, available at https://morrowsodali.com/insights/institutional-investor-survey-2020.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, or any lawyer in the firm’s Securities Regulation and Corporate Governance practice group:

Elizabeth Ising – Washington, D.C. (+1 202-955-8287, [email protected])
James J. Moloney – Orange County (+1 949-451-4343, [email protected])
Lori Zyskowski – New York (+1 212-351-2309, [email protected])
Thomas J. Kim – Washington, D.C. (+1 202-887-3550, [email protected])
Brian J. Lane – Washington, D.C. (+1 202-887-3646, [email protected])
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, [email protected])
Michael A. Titera – Orange County (+1 949-451-4365, [email protected])
Aaron Briggs – San Francisco, CA (+1 415-393-8297, [email protected])
Julia Lapitskaya – New York, NY (+1 212-351-2354, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Yesterday, November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) released its long-awaited emergency temporary standard (“ETS”) requiring most American workers to be vaccinated or undergo weekly COVID-19 testing. Importantly, the ETS states that it preempts state and local requirements that might stand in the way of employee vaccination (or that regulate testing protocols), even if it is possible for employers to comply with both those state requirements and the ETS.

The ETS applies to employers with more than 100 employees except in workplaces covered by the Safer Federal Workforce Task Force COVID-19 Workplace Safety: Guidance for Federal Contractors and Subcontractors (the “Task Force Guidance”), which implements Executive Order 14042 for federal contractors. Workplaces covered by that Guidance are not covered by the ETS.

As expected, under the ETS employers with 100 or more employees must require employees to either be vaccinated or present a negative COVID-19 test weekly and wear a face covering when indoors. The ETS also requires employers to pay employees for time spent getting vaccinated and recovering from side effects.

By December 6, employers must comply with all requirements other than testing. This includes establishing a vaccination policy, determining employee vaccination status, providing the requisite paid time off, and ensuring that unvaccinated employees are masked.

Beginning on January 4, 2022, unvaccinated employees must undergo weekly testing. Any employee who has received all doses of the vaccine by January 4 does not have to be tested. The Task Force Guidance for Executive Order 14042 will be revised to postpone the current December 8 vaccination deadline and to require, like the ETS, that employees receive all vaccine doses by January 4.

In issuing the ETS, OSHA has also sought notice and comment, so the ETS may be converted to a “permanent” OSHA standard. Under the OSH Act, ETSs are to be in place for only six months. Comments are due December 6, 2021.

Some states and private employers have already announced that they have or will file litigation regarding the ETS, which could potentially result in a stay or in the ETS being invalidated. Litigation that is already pending could have the same impact on Executive Order 14042. Events in court likely will move quickly in the coming weeks.

OSHA has also published FAQs,[1] a summary,[2] and fact sheet.[3] This alert provides an overview of the ETS contents and timing and previews some of its implications for employers.

Who Does (and Doesn’t) the OSHA ETS Cover?

The ETS applies to “all employers with a total of 100 or more employees at any time” the ETS is in effect.

The ETS does not apply to:

Federal contractor workplaces covered under the Task Force Guidance, which we previously discussed here;
Settings where any employee provides healthcare services or healthcare support services subject to the requirements of the Healthcare ETS, issued in June; and
Employees of covered employers:
- Who do not report to a workplace where other individuals such as coworkers or customers are present;
- While working from home; or
- Who work exclusively outdoors.

Can an Employer Require Testing in Lieu of Vaccination?

Yes. Under the OSHA ETS, an employer must either: (1) require that all employees are vaccinated; or (2) require unvaccinated employees to be regularly tested and wear masks in the workplace.

An employee might be exempted from a vaccination requirement if the employee is entitled to reasonable religious or disability accommodations under federal civil rights laws, vaccination is medically contraindicated, or a medical necessity requires delay.
An employer must ensure that each unvaccinated employee regularly submits a negative COVID-19 test result. Testing frequency for unvaccinated employees depends on whether the employee regularly reports to a workplace or was recently diagnosed with COVID-19:
- If an employee regularly reports to a workplace, he must present a COVID-19 test result at least once every 7 days.
- If an employee usually does not report to a workplace, e.g., he regularly works from home, he must test at least 7 days before returning to the workplace.
- If an employee is diagnosed with COVID-19, by a health care professional or by a positive COVID-19 test result, then the employer must not require that employee to undergo testing for 90 days following the date of the positive test or diagnosis.

Must an Employer Pay for Employees’ Time to Get Vaccinated?

The ETS requires that employers compensate employees for the time it takes to get vaccinated and to recover from vaccination side effects. This includes:

Up to four hours paid time, including travel time, at the employee’s regular rate of pay for each vaccination dose; and
Paid sick leave for a “reasonable” amount of time to recover from side effects.
- Employers may require employees to use accrued paid sick leave benefits for recovery from vaccination, but may not require employees to use existing leave entitlements for the time to get vaccinated.
- But if an employee does not have accrued paid sick leave needed to recover from vaccine side effects, an employer may not require the employee to accrue negative paid sick leave or borrow against future paid sick leave.

Must an Employer Pay for Testing Costs?

The ETS does not require employers to pay for any costs associated with testing; however, other laws, regulations, or collective bargaining agreements may require an employer to pay for testing:

California’s Department of Industrial Relations has stated that employers are responsible for the costs of employer-mandated COVID-19 testing under the state’s reimbursable business expense law.
Some other states have business expense reimbursement laws or prohibitions on requiring employees to pay for medical testing in certain circumstances. These types of laws might be interpreted to place the burden on employers to pay for mandated COVID-19 tests.

To What Extent Does the ETS Preempt State Laws?

The ETS states that it preempts all state “workplace requirements relating to the occupational safety and health issues of vaccination, wearing face coverings, and testing for COVID-19, except under the authority of a Federally-approved State Plan.” This includes all “inconsistent state and local requirements relating to these issues . . . regardless of the number of employees.” In the preamble to the ETS, OSHA was clear that it intends for the ETS to preempt state or local requirements that stand in the way of vaccination, testing, or masking, even if it is possible to comply with both the ETS and those state or local requirements. The sweeping language also may be interpreted to preempt state and local anti-discrimination laws that are more accommodating than the federal standard.

The ETS does not purport to preempt more protective generally applicable state and local requirements that apply to the public at large. Such measures might include generally applicable state laws such as vaccine passports and mask mandates or more stringent requirements imposed by OSHA-approved state plans.

Are Masks Required for Unvaccinated Employees?

Under the ETS, employers must ensure that any employee who is not fully vaccinated wear a face covering when indoors or when occupying a vehicle with another person for work purposes.

The ETS includes an exception to the face covering requirement when an employee is alone in a closed room; for a limited time while eating or drinking; for a limited time for identification purposes; when an employee is wearing a respirator or facemask (such as a mask for medical procedures); or where the employer can show that the use of face coverings is not feasible or creates a greater hazard.

The ETS itself “does not require the employer to pay for any costs associated with face coverings.” But, as with other COVID-related costs, other laws or employment agreements may require that employers pay for or provide face coverings.

Notably, the ETS does not require fully vaccinated employees to wear face coverings indoors, even in areas of substantial or high transmission. But other laws or regulations may.

What Recordkeeping Requirements Does the ETS Impose?

The ETS requires employers to maintain a record and roster of each employee’s vaccination status and preserve these records and rosters while the ETS remains in effect. Critically, the ETS provides an exemption from this requirement for employers that previously ascertained (before the ETS was published) and retained records of employee vaccination status through another form of proof (including self-attestation). The ETS also requires employers to make available, for examination and copying by an employee or anyone with written authorization from the employee, the employee’s COVID-19 vaccine documentation and any COVID-19 test results for the employee. Additionally, employers must make available to an employee (or their representative) the aggregate number of fully vaccinated employees and total number of employees at the workplace.

What Else Does the ETS Require?

Employers must require employees to “promptly notify the employer” of a positive test result, remove any employee who receives a positive test from the workplace until the ETS return-to-work criteria are met, and report work-related COVID-19 fatalities and in-patient hospitalizations. The CDC document, “Key Things to Know About COVID-19 Vaccines,” must be provided to all employees, along with the employer’s policies established to comply with the ETS, OSHA’s anti‑discrimination and anti‑retaliation requirements, and information about OSHA’s penalties for supplying false statements or documentation.

What Are the Implications for Federal Contractor Employers?

As noted above, the ETS does not apply to workplaces covered by the Task Force Guidance for federal contractors. But to the extent that a federal contractor has workplaces that are not covered by the Task Force Guidance, it will need to ensure compliance with the ETS for those sites.

The Administration announced that the Task Force Guidance will be revised to mirror the ETS by requiring that covered employees have received all shots by January 4, 2022. That will mean that federal contractor employees, like employees covered by the ETS, would not need to meet the Task Force definition of “fully vaccinated” until January 18, 2022.

How Does the ETS Interact with Accommodation Requirements?

The ETS acknowledges that federal law requires reasonable accommodations for employees who cannot be vaccinated because of a religious belief or medical condition. Employers that elect to comply with the ETS by allowing employees to decide whether to get vaccinated or be tested weekly may not receive many accommodation requests because employees who cannot be vaccinated for medical or religious reasons can choose the weekly testing option.

By contrast, employers that elect to comply with the ETS by adopting a vaccination mandate (rather than opting for testing in lieu) should anticipate and prepare for accommodation requests from their workforces. OSHA predicts that 5% of employees will request accommodations from vaccine requirements, but the actual number may be significantly higher for certain segments of the workforce.

Employers that mandate vaccination should have robust protocols for reviewing and resolving accommodation requests, and should anticipate that such requests will begin immediately upon announcement of their vaccine mandates. For some employers, being prepared to handle accommodation requests will necessitate additional HR personnel training on compliance with federal law in the context of vaccines.

Employers should be aware that the ETS masking and testing requirements for unvaccinated employees will apply to employees who qualify for accommodations. Also of note, the ETS “encourages employers to consider the most protective accommodations such as telework, which would prevent the employee from being exposed at work or from transmitting the virus at work.” Particularly where remote work is not a viable accommodation, compliance with the masking and testing requirements may inform whether an employer can provide accommodations without incurring “undue hardship.”

Additional information about compliance with federal law in the context of employer-mandated vaccines can be found in our client alerts on these topics.

What Impact Could Legal Challenges Have?

Some court challenges to the ETS already have been filed, and more are likely. The challenges are being filed directly in federal courts of appeals, and the challengers are likely to soon seek a stay of the ETS’s requirements pending a decision on the merits. Cases filed in different courts will be consolidated and assigned to a single court by lottery.

The litigation bears watching, since ETSs historically do not have a good track record on judicial review: Of the six challenged in court, only two have been upheld even in part. In the cases now being filed, challengers are likely to argue that OSHA has not met the standard to issue the ETS as an emergency rulemaking without notice and comment. They also are likely to challenge OSHA’s authority to promulgate a vaccine-or-test mandate at all.

In addition, at least twenty-five states have brought challenges to the federal contractor vaccine mandate, which may result in a preliminary injunction prohibiting enforcement of those requirements. If the federal contractor mandate is enjoined, but the ETS is not stayed (or a stay is promptly lifted), federal contractor employers may have to comply with the ETS instead.

Employers should watch these lawsuits and other ETS-related developments carefully. Employers should also continue to monitor for new Task Force Guidance if they are federal contractors.

_____________________________

[1] https://www.osha.gov/coronavirus/ets2/faqs.

[2] https://www.osha.gov/sites/default/files/publications/OSHA4162.pdf.

[3] https://www.osha.gov/sites/default/files/publications/OSHA4161.pdf.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Jason C. Schwartz, Katherine V.A. Smith, Jessica Brown, Lauren Elliot, Amanda C. Machin, Zoë Klein, Andrew Kilberg, Emily Lamm, Hannah Regan-Smith, Marie Zoglo, Josh Zuckerman, Nicholas Zahorodny, and Kate Googins.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following in the firm’s Administrative Law and Regulatory or Labor and Employment practice groups.

Administrative Law and Regulatory Group:
Eugene Scalia – Washington, D.C. (+1 202-955-8543, [email protected])
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, [email protected])

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, [email protected])
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Independent compliance monitors are typically appointed to assess the sufficiency and effectiveness of a company’s compliance program and adherence to the terms of a settlement with an enforcement authority, like the SEC or DOJ. Compliance monitors have been a part of the SEC’s and DOJ’s enforcement arsenal for over two decades, and corporate monitorships are now a mainstay of corporate resolutions. Although monitors have been an oversight vehicle for the SEC and DOJ for years, there has been an explosion of their employment by other governmental agencies.

Monitors are now a feature of enforcement by the Environmental Protection Agency (EPA), the Federal Highway Safety Administration (FHSA), the Federal Trade Commission (FTC), and the Food and Drug Administration (FDA), as well as for non-U.S. authorities, like the World Bank and the United Kingdom’s Financial Conduct Authority. Understanding the requirements and expectations of a monitorship, and how to manage the associated costs and burdens on operations, are crucial to achieving a successful monitorship and compliance enhancement process.

Our panelists have served as DOJ-appointed monitors and DOJ-appointed counsel to the monitor, and have counseled numerous companies under external compliance monitors. As former DOJ officials, they also bring unique perspectives regarding prosecutors’ and regulators’ expectations for various facets of a corporate compliance program.

Please join the panel discussion, which will include:

Use of monitorships in DOJ and SEC resolutions – statistics and terms (including hybrid monitorships)
- Benczkowski Memo and monitorship selection
- DOJ goals in monitorship use and selection
Being the monitor – goals and strategies
Strategies for companies that have a monitorship
Strategies to avoid the imposition of a monitor

View Slides (PDF)

PANELISTS:

F. Joseph Warin is Co-Chair of Gibson Dunn’s global White Collar Defense and Investigations Practice Group, and Chair of the Washington, D.C. office’s 200-person Litigation Department. He holds the distinguished position as the only person ever to serve as a compliance monitor or counsel to the compliance monitor in three separate FCPA monitorships, pursuant to settlements with the SEC and DOJ: Statoil ASA; Siemens AG; and Alliance One International. Mr. Warin also served as post-resolution counsel to Innospec, Weatherford, and Diebold, during their FCPA monitorships.

Michael S. Diamant is a partner in the Washington, D.C. office. He helped to execute two major, multi-year DOJ/SEC-appointed compliance monitorships, each of which ended successfully, on-time, and with praise from DOJ and SEC attorneys for the monitorship team’s effectiveness. He also served as post-resolution counsel to several companies during their monitorships, helping them to successfully navigate the process and ensure successful and timely completion of the monitorship. Mr. Diamant’s practice focuses on white collar criminal defense, internal investigations, and corporate compliance, and he regularly advises major corporations on the structure and effectiveness of their compliance programs.

Kristen Limarzi is a partner Gibson Dunn’s Antitrust Practice Group, based in Washington, D.C. She previously served as the Chief of the Appellate Section of the DOJ’s Antitrust Division, where she litigated challenges to the first antitrust compliance monitor imposed following an Antitrust Division civil enforcement action. Leveraging her experience as a top government enforcer, Kristen’s practice focuses on representing clients in merger and non-merger investigations before the DOJ, the Federal Trade Commission, and foreign antitrust enforcers, as well in as appellate and civil litigation.

Patrick F. Stokes is Co-Chair of the Anti-Corruption and FCPA Practice Group. Previously, he headed the DOJ’s FCPA Unit, managing the DOJ’s FCPA enforcement program and all criminal FCPA matters throughout the United States, covering every significant business sector, and including investigations, trials, and the assessment of corporate anti-corruption compliance programs and monitorships. His practice focuses on internal corporate investigations and enforcement actions regarding corruption, securities fraud, and financial institutions fraud.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hours, of which 1.5 credit hours may be applied toward the areas of professional practice requirement.

This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hours.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

New York Governor Kathy Hochul recently signed a new law dramatically expanding protections for whistleblowers in New York. New York’s whistleblower law (New York Labor Law Section 740) previously limited anti-retaliation protections to employees who raised concerns about “substantial and specific danger to the public health and safety” or “health care fraud”. As outlined below, the amended law, which will go into effect on January 26, 2022, expands the scope of who is protected and what is deemed “protected activity” under Section 740. It also contains additional key changes and requirements for employers.

In sum, the amendments to Section 740:

Broaden the categories of workers protected against retaliation;
Expand the scope of protected activity entitling employees to anti-retaliation protection;
Expand the definition of prohibited retaliatory action;
Require employers to notify their employees of the whistleblower protections;
Lengthen the statute of limitations for bringing a cause of action against an employer;
Allow courts to order additional remedies; and
Entitle plaintiffs to a jury trial.

Key Changes to NYLL Section 740

Below, we outline the key changes to New York’s whistleblower law, effective January 26.

Expanding The Definition of “Employee” – The amendments expand the range of individuals protected from retaliation to include current and former employees as well as independent contractors.

Expanding Protected Activity – The amendments prohibit employers from retaliating against any employee because the employee:

discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety:
provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into such activity, policy or practice by such employer; or
objects to, or refuses to participate in any such activity, policy or practice.

Prior to the new amendments, the law required that, before disclosing violations to a public body, employees first report violations to their employer to afford employers a reasonable opportunity to correct the alleged violation. The new law merely requires employees make a “good faith” effort to notify their employer before disclosing the violation to a public body. Additionally, employer notification is not required for protection under the amended statute if the employee reasonably believes that reporting alleged wrongdoing to their employer will result in the destruction of evidence, other concealment, or harm to the employee, or if the employee reasonably believes that their supervisor is already aware of the practice and will not correct it.

Expanding Prohibited Retaliatory Action – Prior to the amendments, conduct constituting retaliatory action was limited to “discharge, suspension or demotion of an employee, or other adverse employment action taken against an employee in the terms and conditions of employment.” Adverse action now also includes actions that would “adversely impact a former employee’s current or future employment,” including contacting immigration authorities or reporting the immigration status of employees or their family members.

Statute of Limitations – The new law expands the statute of limitations for filing a retaliation claim from one to two years.

Additional Remedies – Aggrieved plaintiffs are entitled to jury trials, and the amendments allow the recovery of front pay, civil penalties not to exceed $10,000, and punitive damages. Prevailing plaintiffs are also entitled injunctive relief, reinstatement, compensation for lost wages, benefits, and other remuneration, and reasonable costs, disbursements, and attorneys’ fees. Notably though, if a court finds that a retaliation claim was brought “without basis in law or in fact,” a court may award reasonable attorneys’ fees and court costs and disbursements to the employer.

Employee Notification – Employers must post notice of the protections, rights, and obligations of employees under the law. Such notice should be posted conspicuously and in “accessible and well-lighted places.” The New York Department of Labor will likely publish a model posting in advance of January 26.

Recommendations for Employers

In addition to complying with the new posting requirement, New York employers should consider steps to prepare for an uptick in internal complaints and potential claims. For example, employers may, as appropriate, consider revisiting their whistleblower and compliance policies, including opening up additional channels for internal reporting of employee concerns. Employers may also consider additional training for managers on receiving and escalating whistleblower complaints, as appropriate.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following authors:

Harris M. Mufson – Co-Head, Whistleblower Team, and Partner, Labor & Employment Group, New York (+1 212-351-3805, [email protected])

Gabrielle Levin – Partner, Labor & Employment Group, New York (+1 212-351-3901, [email protected])

Jason C. Schwartz – Co-Chair, Labor & Employment Group, Washington, D.C. (+1 202-955-8242, [email protected])

Katherine V.A. Smith – Co-Chair, Labor & Employment Group, Los Angeles (+1 213-229-7107, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On October 28, 2021, Deputy Attorney General Lisa Monaco spoke to the ABA’s 36th National Institute on White Collar Crime and announced, among other things, three actions the U.S. Department of Justice (“DOJ”) is taking with respect to its policies on corporate criminal enforcement. These relate to:

Restoring prior DOJ guidance about the need for corporations to provide all non-privileged information about all individuals involved in the misconduct to be eligible for cooperation credit;
Taking account of a corporation’s full criminal, civil, and regulatory record in making charging decisions, even if dissimilar from the conduct at issue; and
Making it clear that prosecutors are free to require the imposition of a corporate monitor when they determine it is appropriate to do so.

In summary, as a result of these actions:

In government investigations, companies will need to identify all individuals involved in the misconduct and provide all non-privileged information about their involvement;
In charging decisions, DOJ will review companies’ entire criminal, civil, and regulatory record; and
In corporate resolutions, there is no presumption against the imposition of a corporate compliance monitor, which may be imposed whenever DOJ prosecutors deem it appropriate to do so.

This announcement is notable both for what it does and what it does not purport to do. This Client Alert provides some initial thoughts on the issues outlined by Deputy Attorney General Monaco.

Notably, thus far, the Biden DOJ has not indicated that it plans to rescind or otherwise revisit what possibly was the most significant corporate criminal enforcement announcement of the Trump DOJ: the so-called anti-“piling on” policy announced by then-Deputy Attorney General Rod Rosenstein in 2018, which directs DOJ to coordinate internally and with other authorities to avoid duplicative fines or penalties for the same underlying conduct. Additionally, although Deputy Attorney General Monaco signaled a reversion to Obama-era requirements for corporate cooperation, she did not suggest revisiting DOJ’s firm guidance to its prosecutors that waiver of the attorney-client privilege shall not be required for an organization to receive full cooperation credit. Nevertheless, this announcement, which reflects the first major announcement of the Biden DOJ about corporate criminal enforcement, will undoubtedly have a meaningful impact on investigations and prosecutions.

Corporate Cooperation Credit

Deputy Attorney General Monaco signaled that the DOJ is reverting to the cooperation requirements as outlined in the Yates Memo—a change to corporate cooperation requirements announced by then-Deputy Attorney General Sally Yates in 2015. As discussed in this Client Alert, the Yates Memo augmented the Justice Manual, which provides a comprehensive collection of standards that guide prosecutors from the start of an investigation through prosecution, to require, among other things, that prosecutors premise cooperation credit on organizations providing “all relevant facts relating to the individuals responsible for the misconduct.” This guidance amended Section 9-28 of the Justice Manual, entitled “Principles of Federal Prosecution of Business Organizations,” which sets forth the factors that prosecutors must consider when determining whether to bring criminal charges against a company. The Trump DOJ subsequently modified the Yates Memo in 2018, in response to concerns that this requirement was inefficiently slowing down corporate investigations. This revision premised cooperation on providing information about individuals who were “substantially” involved in or responsible for the misconduct, rather than requiring information about all individuals involved in the misconduct.

Deputy Attorney General Monaco explained that this is no longer DOJ policy and that the prior guidance on the Yates Memo will control going forward. Specifically, she stated that to receive cooperation credit, organizations must provide to DOJ “all non-privileged information about individuals involved in or responsible for the misconduct at issue.” She underscored that this requirement is irrespective of an individual’s position in the company and observed that the prior standard of “substantially” involved individuals proved unworkable, because the standard was not clear and left too much to the judgment of cooperating companies. Importantly, however, Deputy Attorney General Monaco repeatedly used the phrase “non-privileged information,” strongly signaling no intent to revisit the prohibition on premising cooperation credit on an organization waiving any valid assertion of the attorney-client privilege.

Prior Misconduct

The Justice Manual also advises federal prosecutors to consider a “corporation’s history of similar misconduct” when making a charging decision with regard to an organization. Here too, Deputy Attorney General Monaco announced a shift in DOJ policy. Specifically, no longer will DOJ focus merely on prior misconduct similar to the conduct under investigation. Rather, DOJ will consider other historical misconduct by the corporation. Going forward, “all prior misconduct needs to be evaluated . . . , whether or not that misconduct is similar to the conduct at issue in a particular investigation.”

Deputy Attorney General Monaco explained that, by focusing narrowly only on similar misconduct, the prior guidance failed to consider fully a “company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity.” This approach will sweep broadly to include past regulatory violations and prosecutions by state and local authorities. The speech suggested that prosecutors should exhibit flexibility in recognizing that not all past misconduct is indeed relevant, but provided a baseline at which “prosecutors need to start by assuming all prior misconduct is potentially relevant.” Although Deputy Attorney General Monaco did not indicate how recent past misconduct must be to retain relevance, she gave an example that suggested a focus on more recent violations: “For example, a company might have an antitrust investigation one year, a tax investigation the next, and a sanctions investigation two years after that.”

Monitorships

The final portion of Deputy Attorney General Monaco’s speech focused on corporate compliance monitors, which has been a recurring topic of great interest in corporate enforcement. Corporations that enter into a negotiated resolution with DOJ generally will be required to pay a fine and penalties, admit to wrongdoing, and fulfill a number of obligations, such as regular reports to the government. On occasion, DOJ also imposes an independent, third-party corporate monitor as part of a negotiated resolution. These monitors observe and assess a company’s compliance with the terms of the resolution and make regular reports to DOJ. They are intended to help companies reduce the risk of recurrence of misconduct.

As the imposition of a monitorship can be quite costly and time-consuming for companies, DOJ has established guidelines to create greater transparency concerning the imposition, selection, and use of monitors. In March 2008, then-Acting Deputy Attorney General Craig Morford issued the first policy memorandum (the “Morford Memo”) establishing basic standards surrounding corporate monitorships. In determining the appropriateness of imposing a monitor, the Morford Memo advised prosecutors to consider both the potential benefits of a monitor and “the cost of a monitor and its impact on the operations of a corporation.” The Morford Memo further cautioned that monitors should never be used “to further punitive goals.”

More recently, in October 2018, then-Assistant Attorney General Brian Benczkowski issued a memorandum (the “Benczkowski Memo”), which significantly expanded on the Morford Memo. The Benczkowski Memo further stressed the Morford Memo’s pronouncement that prosecutors should assess both the benefits and the cost of imposing a monitor, stating that monitors should only be favored “where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burden.” Moreover, the Benczkowski Memo explained that if a company has demonstrated that it has a demonstrably effective compliance program and controls, “a monitor will likely not be necessary.”

Deputy Attorney General Monaco’s remarks suggest that DOJ is poised to loosen prior guardrails around the impositions of monitors. Deputy Attorney General Monaco explained that, where trust in a corporation’s commitment to improvement and self-policing is called into question, monitors are a longstanding tool in DOJ’s arsenal to motivate and verify compliance. To that end, Deputy Attorney General Monaco emphasized that DOJ “is free to require the imposition of independent monitors whenever it is appropriate to do so” and made clear that she is “rescinding” any prior DOJ guidance suggesting that monitorships are an exception or disfavored.

Deputy Attorney General Monaco made clear that the decision to impose a monitor must still consider the monitorship’s administration and the standards by which monitors will accomplish their work. With respect to the selection of monitors, Deputy Attorney General Monaco announced that DOJ will study how corporate monitors are chosen and whether that process should be standardized across all DOJ components and offices.

* * * * *

Deputy Attorney General Monaco framed all three of these changes to DOJ policy as part of a broader Biden DOJ initiative to revisit the standards and practices that DOJ has applied to corporate criminal enforcement. Notably, she announced the formation of a Corporate Crime Advisory Group within DOJ, featuring representatives from each portion of DOJ that brings enforcement actions against corporations, to make recommendations on enhancing departmental policy in this area. Among the areas the Advisory Group will consider are the efficacy of the current approach to pretrial diversion (non-prosecution and deferred prosecution agreements), especially in cases of arguably recidivist organizations, and DOJ’s standards and practices for the selection of corporate monitors.

Over the coming weeks and months, we will carefully monitor DOJ implementation of these new measures.

The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, M. Kendall Day, Robert K. Hur, Michael S. Diamant, David P. Burns, Stephanie Brooker, Christopher W.H. Sullivan, and Jason H. Smith.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, the authors, or any of the following leaders and members of the firm’s Anti-Corruption and FCPA or White Collar Defense and Investigations practice groups:

Washington, D.C.
F. Joseph Warin (+1 202-887-3609, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Stephanie L. Brooker (+1 202-887-3502, [email protected])
David P. Burns (+1 202-887-3786, [email protected])
John W.F. Chesley (+1 202-887-3788, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
David Debold (+1 202-955-8551, [email protected])
Michael Diamant (+1 202-887-3604, [email protected])
Richard W. Grime (202-955-8219, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Robert K. Hur (+1 202-887-3674, [email protected])
Judith A. Lee (+1 202-887-3591, [email protected])
Adam M. Smith (+1 202-887-3547, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
Oleh Vretsona (+1 202-887-3779, [email protected])
Courtney M. Brown (+1 202-955-8685, [email protected])
Christopher W.H. Sullivan (+1 202-887-3625, [email protected])
Jason H. Smith (+1 202-887-3576, [email protected])
Ella Alves Capone (+1 202-887-3511, [email protected])
Pedro G. Soto (+1 202-955-8661, [email protected])
Melissa Farrar (+1 202-887-3579, [email protected])

New York
Zainab N. Ahmad (+1 212-351-2609, [email protected])
Matthew L. Biben (+1 212-351-6300, [email protected])
Reed Brodsky (+1 212-351-5334, [email protected])
Joel M. Cohen (+1 212-351-2664, [email protected])
Mylan L. Denerstein (+1 212-351-3850, [email protected])
Lee G. Dunst (+1 212-351-3824, [email protected])
Barry R. Goldsmith (+1 212-351-2440, [email protected])
Christopher M. Joralemon (+1 212-351-2668, [email protected])
Mark A. Kirsch (+1 212-351-2662, [email protected])
Randy M. Mastro (+1 212-351-3825, [email protected])
Karin Portlock (+1 212-351-2666, [email protected])
Marc K. Schonfeld (+1 212-351-2433, [email protected])
Orin Snyder (+1 212-351-2400, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])

Palo Alto
Benjamin Wagner (+1 650-849-5395, [email protected])

Paris
Benoît Fleury (+33 1 56 43 13 00, [email protected])
Bernard Grinspan (+33 1 56 43 13 00, [email protected])

Munich
Benno Schwarz (+49 89 189 33-110, [email protected])
Michael Walther (+49 89 189 33-180, [email protected])
Mark Zimmer (+49 89 189 33-130, [email protected])

Dubai
Graham Lovett (+971 (0) 4 318 4620, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Oliver D. Welch (+852 2214 3716, [email protected])

São Paulo
Lisa A. Alfaro (+5511 3521-7160, [email protected])
Fernando Almeida (+5511 3521-7093, [email protected])

Singapore
Joerg Bartz (+65 6507 3635, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The New York State Department of Financial Services is the state’s primary regulator of financial institutions and activity, with jurisdiction over approximately 1,400 financial institutions and 1,800 insurance companies. This year, the agency will undergo a change in leadership with the appointment of Adrienne Harris as Superintendent. At the same time, the agency stands ready to emerge from the COVID-19 pandemic with a continued focus on consumer protection and assertion of authority over emerging areas of significance to New York’s banking and insurance industries. In this exclusive one-hour presentation, three experienced practitioners—Mylan Denerstein, Akiva Shapiro, and Seth Rokosky—explain key developments at this important financial services regulator. They will discuss not only changes to the agency’s leadership and organizational structure, but also recent developments with respect to the agency’s guidance, regulations, and enforcement matters in a broad array of areas, including insurance, consumer protection, cybersecurity, fintech and cryptocurrency, financial empowerment and inclusion, climate change, and special-purpose national bank charters.

View Slides (PDF)

PANELISTS:

Mylan Denerstein is a litigation partner in the New York office of Gibson, Dunn & Crutcher. Ms. Denerstein is Co-Chair of Gibson Dunn’s Public Policy Practice Group and a member of the Crisis Management, White Collar Defense and Investigations, Labor and Employment, Securities Litigation, and Appellate Practice Groups. Ms. Denerstein leads complex litigation and internal investigations, representing companies in their most critical times, typically involving state, municipal, and federal government agencies. Prior to joining Gibson Dunn, Ms. Denerstein served as Counsel to New York State; in a diverse array of legal positions in New York State and City agencies; and as a federal prosecutor and Deputy Chief of the Criminal Division in the U.S. Attorney’s Office for the Southern District of New York. Ms. Denerstein is ranked as a leading lawyer in White-Collar Crime & Government Investigations by Chambers USA: America’s Leading Lawyers for Business 2021. She was named by Benchmark Litigation to its 2021 “Top 250 Women in Litigation” list, and was also recognized by the publication as a 2021 “Litigation Star” nationally in Appellate, Securities and White-Collar Crime, as well as in New York. Ms. Denerstein was named to the 2020 “Albany Power 100”, 2020 “Law Power 100” and 2019 “Law Power 50” list by City & State and the 2019 list of “Notable Women in Law” by Crain’s New York Business.

Akiva Shapiro is a litigation partner in the New York office of Gibson, Dunn & Crutcher, where he is a member of the firm’s Appellate and Constitutional Law, Media & Entertainment, Securities Litigation, and Betting & Gaming Practice Groups. Mr. Shapiro’s practice focuses on a broad range of high-stakes constitutional, commercial, and appellate litigation matters, successfully representing plaintiffs and defendants in suits involving civil RICO, securities fraud, breach of contract, misappropriation, and many other tort claims, as well as CPLR Article 78, First Amendment, Due Process, and statutory challenges to government actions and regulations. He is regularly engaged in front of New York’s trial courts, federal and state courts of appeal, and the U.S. Supreme Court, and has been named a Super Lawyers New York Metro “Rising Star” in Constitutional Law. Mr. Shapiro was named Litigator of the Week by The American Lawyer in August 2021 for what it called an “extraordinary SCOTUS win for New York landlords,” obtaining an emergency injunction from the Court on due process grounds. He was named a runner-up Litigator of the Week by The American Lawyer in November 2020 for “two big wins . . . scored late on the Wednesday before Thanksgiving,” including obtaining an emergency injunction from the U.S. Supreme Court in The Roman Catholic Diocese of Brooklyn, New York v. Cuomo, a landmark religious liberties decision. He was also named a runner-up Litigator of the Week in August 2019 for a First Amendment and due process victory on behalf of the New York State title insurance industry.

Seth Rokosky is an associate in the New York office of Gibson, Dunn & Crutcher. He is a member of the firm’s Litigation Department and focuses his practice in the Appellate and Constitutional Law group. Mr. Rokosky has extensive experience challenging and defending government policies at the state, local, and federal level. He rejoined Gibson Dunn after serving in the New York Attorney General’s Office. As an Assistant Solicitor General in the Bureau of Appeals and Opinions, his public service included representing the State and its agencies as principal attorney on 43 appellate matters. Mr. Rokosky has conducted more than 20 oral arguments and filed more than 70 appellate briefs in both state and federal court, and he maintains a robust litigation practice in trial courts with a particular focus on complex briefing and providing strategic advice to trial counsel. The Best Lawyers in America® has recognized Mr. Rokosky as “One to Watch” in the Appellate Practice.

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

China’s Anti-Monopoly Law (“AML”) was adopted in 2007 and talks about possible amendments have regularly surfaced in the last few years. The State Administration for Market Regulation (“SAMR”) released a draft amendment for public comments in early 2020. The process is now accelerating with a formal text (“AML Amendment”) submitted to the thirty-first session of the Standing Committee of the National People’s Congress for first reading on 19 October 2021. This client alert summarizes the main proposed changes to the AML, which have been published for comments.[1]

1. Targeting the digital economy

Emphasis on the digital economy. Technology firms and digital markets have been the subject of a broad regulatory assault in China, including one that is based on the AML. SAMR has published specific guidelines on the application of the AML to platforms in early 2021 and has imposed significant fines on these market players in the last months. For example, SAMR fined Meituan, an online food delivery platform provider, RMB 3.44 billion (~$534 million) for abusing its dominant position.[2] The AML Amendment specifically refers to enforcement in the digital economy by making it clear that undertakings shall not exclude or restrict competition by abusing the advantages in data and algorithms, technology and capital and platform rules. At the same time, the objectives to the AML have also been updated to include “encouraging innovation.” Going forward, SAMR will need to tread the delicate line between encouraging digital innovation and curbing such advancement where it constitutes abusive market behaviour. In the most recent year, at least, in practice there has been an emphasis on enforcement rather than fostering innovation, a trend we anticipate will continue.

2. Substantive changes

Cartel facilitators. The AML arguably does not cover the behaviour of undertakings facilitating anticompetitive conduct, in particular cartels. The AML Amendment fills the gap by extending the scope of the AML to the organisation or provision of material assistance in reaching anticompetitive- agreements. This effectively means that the AML will be extended to cover behaviour leading up to the conclusion of such agreements, and third parties may be found in breach by virtue of their role in aiding the conclusion of cartels.

Abandoning per se treatment of resale price maintenance. The application of the AML to resale price maintenance (“RPM”) is confusing. While SAMR seems to apply a strict “per se” approach, the courts have generally adopted a rule of reason analysis, only prohibiting RPM when it led to anticompetitive effects.[3] The AML Amendment seems to favour the courts’ approach by providing that RPM is not prohibited if the supplier can demonstrate the absence of anticompetitive effects.

Safe harbour for anticompetitive agreements. The AML Amendment introduces a safe harbour for anticompetitive agreements. Agreements between undertakings that have a market share lower than a specific threshold to be set by SAMR will not be prohibited unless there is evidence that the agreement has anticompetitive effects. Given that this is not a complete exemption from the prohibition, it is very much the question whether this safe harbour will be at all useful to undertakings.

Merger review of sub-threshold transactions. The State Council Regulation on the Notification Thresholds for Concentrations of Undertakings already provides SAMR with the right to review transactions that do not meet the thresholds for mandatory review. This right would now directly be enshrined in the AML.

Stop-the-clock in merger investigations. SAMR will have the power to suspend the review period in merger investigations under any of the following scenarios: where the undertaking fails to submit documents and materials leading to a failure of the investigation; where new circumstances and facts that have a major impact on the review of the merger need to be verified; or where additional restrictive conditions on the merger need to be further evaluated and the undertakings concerned agree. The clock resumes once the circumstances leading to the suspension are resolved. It seems that this mechanism may be used to replace the “pull-and-refile” in contentious merger investigations.

3. Increased penalties

Penalties on individuals. The AML Amendment would introduce personal liability for individuals. In particular, if the legal representative, principal person-in-charge or directly responsible person of an undertaking is personally responsible for reaching an anticompetitive agreement, a fine of not more than RMB 1 million (~$157,000) can be imposed on that individual. At this stage, however, cartel leniency is not available to individuals.

Penalties on cartel facilitators. As explained above, cartel facilitators will be liable for their conduct. They risk penalties of not more than RMB 1 million (~$157,000).

Increased penalties for merger-related conduct. One of the weaknesses of the AML is the very low fines for gun jumping (limited to RMB 500,000). The AML Amendment now states that where an undertaking implements a concentration in violation of the AML, a fine of less than 10% of the sales from the preceding year shall be imposed. Where such concentration does not have the effect of eliminating or restricting competition, the fine will be less than RMB 5 million (~$780,000).

Superfine. SAMR can multiply the amount of the fine by a factor between 2 and 5 in case it is of the opinion that the violation is “extremely severe”, its impact is “extremely bad” and the consequence is “especially serious.” There is no definition of what these terms mean and this opens the door to very significant and potentially arbitrary fines.

Penalties for failure to cooperate with investigation. Where an undertaking refuses to cooperate in anti-monopoly investigations, e.g. providing false materials and information, or conceals, destroy or transfer evidence, SAMR has the authority to impose a fine of less than 1% of the sales from the preceding year, and where there are no sales or the data is difficult to be assessed, the maximum fine on enterprises or individuals involved is RMB 5 million (~$780,000) and RMB 500,000 (~$70,000) respectively.

Public interest lawsuit. Finally, public prosecutors (i.e. the people’s procuratorate) can bring a civil public interest lawsuit against undertakings they have acted against social and public interests by engaging in anticompetitive conduct.

______________________________

[1] National People’s Congress of the People’s Republic of China, “Draft Amendment to the Anti-Monopoly Law” (中华人民共和国反垄断法(修正草案)) (released on October 25, 2021), available at http://www.npc.gov.cn/flcaw/flca/ff8081817ca258e9017ca5fa67290806/attachment.pdf.

[2] SAMR, “Announcement of SAMR’s Penalty To Penalise Meituan’s Monopolistic Behaviour In Promoting “Pick One Out Of Two” In The Online Food Delivery Platform Service Market” (市场监管总局依法对美团在中国境内网络餐饮外卖平台服务市场实施“二选一”垄断行为作出行政处罚) (released on October 8, 2021), available at http://www.samr.gov.cn/xw/zj/202110/t20211008_335364.html.

[3] Gibson Dunn, “Antitrust in China – 2018 Year in Review” (released on February 11, 2019), available at https://www.gibsondunn.com/antitrust-in-china-2018-year-in-review/.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Sébastien Evrard, Bonnie Tong, and Jane Lu.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition Practice Group, or the following lawyers in the firm’s Hong Kong office:

Sébastien Evrard (+852 2214 3798, [email protected])
Kelly Austin (+852 2214 3788, [email protected])

Please also feel free to contact the following practice leaders:

Antitrust and Competition Group:
Rachel S. Brass – San Francisco (+1 415-393-8293, [email protected])
Ali Nikpay – London (+44 20 7071 4273, [email protected])
Christian Riis-Madsen – Brussels (+32 2 554 72 05, [email protected])
Stephen Weissman – Washington, D.C. (+1 202-955-8678, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On September 16, 2021, Governor Gavin Newsom signed bipartisan legislation intended to expand housing production in California, streamline the process for cities to zone for multi-family housing, and increase residential density, all in an effort to help ease California’s housing shortage. The suite of housing bills includes California Senate Bill (“SB”) 8 (Skinner), SB 9 (Atkins), and SB 10 (Weiner). Each of the bills will take effect on January 1, 2022. Some have characterized the bills as “the end of single family zoning.” In practice the results may be more nuanced, but the net effect will be to allow significantly more development of housing units “by right.”

SB 8

SB 8 is an omnibus clean-up bill impacting several previous housing initiatives. Notably, it extends key provisions of SB 330, also known as the Housing Crisis Act of 2019 (previously set to expire in 2025), until January 1, 2030. That act set limits on the local approval process for housing projects, curtailed local governments’ ability to downzone residential parcels after project initiation, and limited fee increases on housing applications, among other key provisions. If a qualifying preliminary application for a housing development is submitted prior to January 1, 2030, then rights to complete that project can vest until January 1, 2034. The amendment specifies that it does not prohibit a housing development project from being subject to ordinances, policies, and standards adopted after a preliminary application was submitted if the project has not commenced construction within two and a half (2.5) years, or three and a half (3.5) years if the project is an affordable housing project.

Existing law provides that if a proposed housing development project complies with the applicable objective general plan and zoning standards in effect at the time an application is deemed complete, then after the application is deemed complete, a city, county, or city and county shall not conduct more than five hearings pursuant to Section 65905, or any other law requiring a public hearing in connection with the approval of that housing development project. SB 8 expands the definition of “hearing” from any public hearing, workshop, or similar meeting to explicitly include “any appeal” conducted by the city or county with respect to the housing development project. A “housing development project” is also defined to include projects that involve no discretionary approvals, projects that involve both discretionary and nondiscretionary approvals, and projects to construct a single dwelling unit. The receipt of a density bonus does not constitute a valid basis on which to find that a proposed housing project is inconsistent, not in compliance, or not in conformity, with an applicable plan, program, policy, ordinance, standard, requirement, or other similar provision. This section applies to housing development projects that submit a preliminary application after January 1, 2022 and before January 1, 2030.

SB 8 further amends the Government Code to state that with respect to land where housing is an allowable use, an affected city of county, defined as a city, including charter city, that the Department of Housing and Community Development determines is in an urbanized area or urban cluster, as designated by the Census Bureau, shall not enact a development policy, standard or condition that would have the effect of changing the general plan land use designation, specific plan land use designation, or zoning of a parcel or parcels of property to a less intensive use or reducing the intensity of land use within an existing general plan land use designation, specific plan land use designation, or zoning district in effect at the time of the proposed change. “Reducing the intensity of land use” includes, but is not limited to, reductions to height, density, or floor area ratio, new or increased open space or lot size requirements, new or increased setback requirements, minimum frontage requirements, or maximum lot coverage limitations, or any other action that would individually or cumulatively reduce the site’s residential development capacity.

SB 8 further provides that a city or county may not approve a housing development project that will require the demolition of occupied or vacant protected rental units unless all requirements are met. These requirements include that the project will replace all existing or demolished protected units and that the housing development project will include at least as many residential dwelling units as the greatest number of residential dwelling units that existed on the project site within the last five years. “Protected units” means any of the following: (i) residential dwelling units that are or were subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income within the past five years, (ii) residential dwelling units that are or were subject to any form of rent control within the past five years, (iii) residential dwelling units that are or were occupied rented by lower or very low income households within the past five years, and (iv) residential dwelling units that were withdrawn from rent or lease in accordance with the Ellis Act within the past 10 years.

SB 8 adds the general requirement that any existing occupants that are required to leave their units shall be allowed to return at their prior rental rate if the demolition does not proceed and the property is returned to the rental market (with no time limit specified in the bill text). The developer must agree to provide existing occupants of any protected units that are of lower income households: relocation benefits and a right of first refusal for a comparable unit (defined as either a unit containing the same number of bedrooms if the single-family home contains three or fewer bedrooms or a unit containing three bedrooms if the single-family home contains four or more bedrooms) available in the new housing development affordable to the household at an affordable rent (as defined in Section 50053 of the Health and Safety Code).

SB 9

SB 9, the California Housing Opportunity and More Efficiency (“HOME”) Act, facilitates the process for homeowners to subdivide their current residential lot or build a duplex. State law currently provides for the creation of accessory dwelling units by local ordinance, or, if a local agency has not adopted an ordinance, by ministerial approval, in accordance with specified standards and conditions. SB 9 allows for ministerial approval, without discretionary review or hearings, of duplex residential development on single-family zoned parcels.

SB 9 allows housing development projects of no more than two dwelling units on a single-family zoned parcel to be permitted on a ministerial basis if the project satisfies the SB 9 requirements. In order for a housing project to qualify under SB 9 the project must be located within a city, the boundaries of which must include some portion of either urbanized area or urban cluster, as designated by the United States Census Bureau, or, for unincorporated areas, the parcel must be wholly within the boundaries of an urbanized area or urban cluster. The project may not require demolition or alteration of the following types of housing: (i) housing that is subject to a recorded covenant, ordinance, or law that restricts rents to affordable levels, (ii) housing subject to rent control, or (iii) housing that has been tenant-occupied in the last three (3) years (with no distinction drawn between market rate and affordable housing). Further, the project may not have been withdrawn from the rental market under the Ellis Act within the past fifteen (15) years. The proposed development also may not demolish more than twenty-five percent (25%) of existing exterior structural walls, unless expressly permitted by a local ordinance or the project has not been tenant occupied within the past three years.

The project may not be located within a historic district or property included on the State Historic Resources Inventory or within a site that is designated as a city or county landmark or historic property pursuant to local ordinance. A local agency may impose objective zoning standards, subdivision standards, and design standards unless they would preclude either of the two units from being at least 800 square feet in floor area.

No setback may be required for an existing structure or a structure constructed in the same location and dimensions as an existing structure. In other circumstances, a local agency may require a setback of up to four feet (4’) from the side and rear lot lines. Off-street parking of up to one (1) space per unit may be required by the local agency, except if the project is located within a half-mile walking distance of a high-quality transit corridor or a major transit stop, or if there is a car share vehicle within one block of the parcel. If a local agency makes a written finding that a project would create a specific, adverse impact upon public health and safety or the environment without a feasible way to mitigate such impact, the agency still may deny the housing project.

A local agency must require that rental of a unit created pursuant to SB 9 be for a term longer than 30 days, thus preventing application of SB 9 to promote speculation in the short-term rental market.

SB 9 does not supersede the California Coastal Act, except that the local agency is not required to hold public hearings for coastal development permit applications for a housing development pursuant to SB 9. A local agency may not reject an application solely because it proposes adjacent or connected structures, provided that they meet building code safety standards and are sufficient to allow separate conveyance .

Projects that meet the SB 9 requirements must be approved by a local agency ministerially and are not subject to the California Environmental Quality Act (“CEQA”).

SB 9 also allows for qualifying lot splits to be approved ministerially upon meeting the bill requirements. Each parcel may not be smaller than forty (40%) percent of the original parcel size and each parcel must be at least one thousand two hundred (1,200) square feet in size unless permitted by local ordinance. The parcel must also be limited to residential use. Neither the owner of the parcel being subdivided nor any person acting in concert with the owner may have previously subdivided an adjacent parcel using a lot split as provided for in SB 9. The applicant must also provide an affidavit that the applicant intends to use one of the housing units as a principal residence for at least three (3) years from the date of approval.

A local agency may not condition its approval of a project under SB 9 upon a right-of-way dedication, any off-site improvements, or correction of nonconforming zoning conditions. The local agency is not required to approve more than two (2) units on a parcel. The local agency may require easements for public services and facilities and access to the public right-of-way.

SB 9 changes the rules regarding the life of subdivision maps by extending the additional expiration limit for a tentative map that may be provided by local ordinance, from 12 months to 24 months.

SB 10

SB 10 creates a voluntary process for local governments to pass ordinances prior to January 1, 2029 to zone any parcel for up to ten (10) residential units if located in transit rich areas and urban infill sites. Adopting a local ordinance or a resolution to amend a general plan consistent with such an ordinance would be exempt from review under the California Environmental Quality Act (“CEQA”). This provides cities, including charter cities, an increased ability to upzone property for housing without the processing delays and litigation risks associated with CEQA. However, if the new housing authorized by the general plan would require a discretionary approval to actually build the housing (for example, a subdivision map or design review), CEQA review would be required for those subsequent approvals, and the benefits of the law may prove limited. Moreover, in contrast to SB 9, each individual city or county must affirmatively pass an ordinance authorizing the upzoning.

A “transit rich area” means a parcel within one-half mile of a major transit stop, as defined in Section 21064.3 of the Public Resources Code, or a parcel on a high quality bus corridor. A “high quality bus corridor” means a corridor with fixed route bus service that meets all of the following criteria: (i) it has average service intervals of no more than 15 minutes during the three peak hours between 6 a.m. to 10 a.m., inclusive, and the three peak hours between 3 p.m. and 7 p.m., inclusive, on Monday through Friday; (ii) it has average service intervals of no more than 20 minutes during the hours of 6 a.m. to 10 p.m., inclusive, on Monday through Friday; and (iii) it has average intervals of no more than 30 minutes during the hours of 8 a.m. to 10 p.m., inclusive, on Saturday and Sunday. An “urban infill site” is a site that satisfies all of the following: (i) it is a legal parcel or parcels located in a city if, and only if, the city boundaries include some portion of either an urbanized area or urban cluster, or, for unincorporated areas, a legal parcel or parcels wholly within the boundaries of an urbanized area or urban cluster, as designated by the United States Census Bureau; (ii) a site in which at least seventy-five percent (75%) of the perimeter of the site adjoins parcels that are developed with urban uses (parcels that are only separated by a street or highway shall be considered to be adjoined); and (iii) a site that is zoned for residential use or residential mixed-use development, or has a general plan designation that allows residential use or a mix of residential and nonresidential uses, with at least two-thirds of the square footage of the development designated for residential use.

Zoning ordinances adopted pursuant to the authority granted under SB 10 must explicitly declare that the ordinance is adopted pursuant to SB 10 and clearly demarcate the areas that are zoned pursuant to SB 10, and the local legislative body must make a finding that the increased density authorized by such ordinance is consistent with the city or county’s obligations to further fair housing pursuant to Government Code Section 8899.50. A legislative body that approves a zoning ordinance pursuant to SB 10 may not subsequently reduce the density of any parcel subject to the ordinance. The bill text does not explicitly state a sunset on this restriction.

A zoning ordinance adopted pursuant to SB 10 may override a local ballot initiative which restricts zoning only if adopted by a two-thirds vote of the members of the legislative body. The creation of up to two accessory dwelling units (“ADUs”) or junior ADUs (“JADUs”) per parcel is allowed, and these units would not count towards the ten unit count.

SB 10 does not apply to parcels located within a high or very high fire hazard severity zone, as determined by the Department of Forestry and Fire Protection, but this restriction does not apply to sites that have adopted fire hazard mitigation measures pursuant to existing building standards or state fire mitigation measures applicable to the development. SB 10 also does not apply to any local restriction enacted or approved by a local ballot initiative that designates publicly owned land as open-space land, as defined in Section 65560(h), or for park or recreational purposes. Furthermore, a project may not be divided into smaller projects in order to exclude the project from the limitations of SB 10.

The following Gibson Dunn attorneys prepared this client update: Amy Forbes, Doug Champion, and Maribel Garcia Ochoa.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Land Use and Development or Real Estate practice groups in California:

Doug Champion – Los Angeles (+1 213-229-7128, [email protected])
Amy Forbes – Los Angeles (+1 213-229-7151, [email protected])
Mary G. Murphy – San Francisco (+1 415-393-8257, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In a judgment dated 14 October 2021 related to the so-called “Case of the Century”, the Paris Administrative Court (the Court) ordered the State to make good the consequences of its failure to reduce greenhouse gas (GHG) emissions. In this respect, the Court ordered that the excess of the GHG emissions cap set by the first carbon budget be offset by 31 December 2022 at the latest. The French Government remains free to choose the appropriate measures to achieve this result.

I. Background to the Judgment

In March 2019, four non-profit organizations had filed petitions before the Court to have the French State’s failure to combat climate change recognized, to obtain its condemnation to compensate not only their moral prejudice but also the ecological prejudice and to put an end to the State’s failures to meet its obligations.

In a judgment dated February 3, 2021, the Court ruled that the State should compensate for the ecological damage caused by the failure to comply with the objectives set by France in terms of reducing GHG emissions and, more specifically, the objectives contained in the carbon budget for the period 2015-2019. As a reminder, France has defined a National Low-Carbon Strategy, which describes both a trajectory for reducing GHG emissions until 2050 and short- and medium-term objectives. These latter, called carbon budgets, are emission ceilings expressed as an annual average per five-year period, that must not be exceeded. The Court also ordered a further investigation before ruling on the evaluation and concrete methods of compensation for this damage (please see Gibson Dunn’s previous client alert).

In the separate Grande Synthe case, the Council of State – France’s highest administrative court – on 1 July 2021 enjoined the Prime Minister to take all appropriate measures to curb the curve of GHG emissions produced on national territory to ensure its compatibility with the 2030 GHG emission reduction targets set out in Article L. 100-4 of the Energy Code and Annex I of Regulation (EU) 2018/842 of 30 May 2018 before 31 March 2022.

II. The steps in the reasoning followed by the Tribunal

First, the Court considers that it is dealing solely with a dispute seeking compensation for the environmental damage caused by the exceeding of the first carbon budget and the prevention or cessation of the damage found and that it is for the Court to ascertain, at the date of its judgment, whether that damage is still continuing and whether it has already been the subject of remedial measures.

On the other hand, the Court considers that it is not for it to rule on the sufficiency of the measures likely to make it possible to achieve the objective of reducing GHGs by 40% by 2030 compared to their 1990 level, which is a matter for the litigation brought before the Council of State.

Second, the Court considers that it can take into account, as compensation for damage and prevention of its aggravation, the very significant reduction in GHG emissions linked to the Covid 19 crisis and not to the action of the State.

However, the Court finds that the data relating to the reduction of GHG emissions for the first quarter of 2021 do not make it possible to consider as certain, in the state of the investigation, that this reduction would make it possible to repair the damage and prevent it from worsening. It concludes that the injury continues to be 15 Mt CO2eq.

Third, the Court considers that it can apply articles 1246, 1249 and 1252 of the Civil Code, which give it the power to order an injunction in order to put an end to an ongoing injury and prevent its aggravation.

The State argued in its defense that the injunction issued by the Council of State in its decision of 1 July, 2021 already made it possible to repair the ecological damage observed. The Court nevertheless considers that the injunction issued by the Conseil d’Etat aims to ensure compliance with the overall objective of a 40% reduction in GHG emissions in 2030 compared to their 1990 level and that it does not specifically address the compensation of the quantum of the damage associated with exceeding the first carbon budget. Since the injunction sought from the Court is specifically intended to put an end to the damage and prevent it from worsening, the Court considers that it is still useful and that the non-profit organizations are entitled to request that it be granted.

Fourth, the Court indicated that “the ecological damage arising from a surplus of GHG emissions is continuous and cumulative in nature since the failure to comply with the first carbon budget has resulted in additional GHG emissions, which will be added to the previous ones and will produce effects throughout the lifetime of these gases in the atmosphere, i.e. approximately 100 years. Consequently, the measures ordered by the judge in the context of his powers of injunction must be taken within a sufficiently short period of time to allow, where possible, the damage to be made good and to prevent or put an end to the damage observed.

As the State failed to demonstrate that the measures to be taken pursuant to the Climate Act of 20 August 2021 will fully compensate for the damage observed, the Court then ordered “the Prime Minister and the competent ministers to take all appropriate sectoral measures to compensate for the damage up to the amount of the uncompensated share of GHG emissions under the first carbon budget, i.e. 15 Mt CO2eq, and subject to an adjustment in the light of the estimated data of the [Technical Reference Centre for Atmospheric Pollution and Climate Change] known as of 31 January 2022, which make it possible to ensure a mechanism for monitoring GHG emissions“.

In view of (i) the cumulative effect of the harm linked to the persistence of GHGs in the atmosphere and the damage likely to result therefrom, and (ii) the absence of information making it possible to quantify such harm, the Court orders that the abovementioned measures be adopted within a period sufficiently short to prevent their aggravation.

Finally, he adds that:

(i) “the concrete measures to make reparation for the injury may take various forms and therefore express choices which are within the free discretion of the Government“;

(ii) repair must be effective by 31 December 2022, which means that measures must be taken quickly to achieve this objective;

(iii) that no penalty be imposed in addition to the injunction.

III. The aftermath of the Judgment

The Government has two months in which to appeal against the Judgment. If the Judgment is appealed, the application for enforcement will have to be submitted to the Administrative Court of Appeal in Paris.

If the Government decides not to contest the Judgment, it will have to take the necessary measures for each of the sectors identified in the SNBC (transport, agriculture, construction, industry, energy, waste), which will probably mean imposing new standards on economic actors and individuals.

If, on December 31, 2022, the non-profit organizations consider that the Judgment has not been properly executed, i.e., if the measures taken by the Government have not made it possible to repair the damage up to the amount of 15 Mt CO2eq, they will be able to refer the matter to the Tribunal so that it may order, after investigation, a measure to execute the Judgment, which will most likely be a penalty payment.

As a reminder, in a decision of August 4, 2021, the Council of State condemned the State to pay the sum of 10 million euros to various organizations involved in the fight against air pollution for not having fully implemented its previous decisions regarding its failure to improve air quality in several areas in France.

The following Gibson Dunn attorneys assisted in preparing this client update: Nicolas Autet and Grégory Marson.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following lawyers in Paris by phone (+33 1 56 43 13 00) or by email:

Nicolas Autet ([email protected])
Grégory Marson ([email protected])
Nicolas Baverez ([email protected])
Maïwenn Béas ([email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Fourth of Four Industry-Specific Programs

The False Claims Act (FCA) is one of the most powerful tools in the government’s arsenal to combat fraud, waste, and abuse involving government funds. After several years of statements and guidance indicating that the Department of Justice (DOJ) might alter its approach to FCA enforcement, the Biden Administration appears to be taking a different, more aggressive approach. Meanwhile, newly filed FCA cases remain at historical peak levels, and the government has recovered nearly $3 billion or more annually under the FCA for a decade. The government also continues to pursue new, large spending projects in COVID-related stimulus and infrastructure—which may bring yet more vigorous efforts by DOJ to pursue fraud, waste, and abuse in government spending. As much as ever, any company that receives government funds—especially in the health care sector—needs to understand how the government and private whistleblowers alike are wielding the FCA, and how they can defend themselves.

Please join us to discuss developments in the FCA, including:

The latest trends in FCA enforcement actions and associated litigation affecting health care providers;
Updates on the Biden Administration’s approach to FCA enforcement, including developments impacting DOJ’s use of its statutory dismissal authority;
New proposed amendments to the FCA introduced by Senator Grassley; and
The latest trends in FCA jurisprudence, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.

View Slides (PDF)

PANELISTS:

Jonathan M. Phillips is a partner in the Washington, D.C. office where he co-chair of the False Claims Act/Qui Tam Defense practice. Mr. Phillips focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes.

Robert Hur is a partner in the Washington, D.C. office where he is co-chair of the Crisis Management group. A seasoned trial lawyer and advocate, he brings decades of experience in government and in private practice, including service in senior leadership positions with the U.S. Department of Justice, to guide companies and individuals facing white-collar criminal matters, regulatory proceedings and enforcement actions, internal investigations, and related civil litigation.

Brendan Stewart is of counsel in the New York office and a former federal prosecutor. He previously served as an Assistant Chief in the Fraud Section of the U.S. Department of Justice’s Criminal Division where he oversaw a unit of health care fraud prosecutors in the Eastern District of New York from 2017 to 2021. As a prosecutor since 2012, he has led numerous complex investigations—in coordination with the U.S. Attorney’s Office, the FBI, the Department of Health and Human Services’ Office of Inspector General, State Attorneys General —focusing on potential violations of federal statutes barring health care fraud and false medical statements and other crimes.

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hours.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

RELATED WEBCASTS IN THIS SERIES:

The False Claims Act – 2021 Update for Financial Services (October 6, 2021)
The False Claims Act – 2021 Update for Government Contractors (October 14, 2021)
The False Claims Act – 2021 Update for Drug & Device Manufacturers (October 20, 2021)

Please join Jessica Brown and Lauren Elliot, authors of An Employer Playbook for the COVID “Vaccine Wars”: Strategies and Considerations for Workplace Vaccination Policies (Dec. 2020, updated Feb. 2021), for the latest information and trends relating to workplace vaccination policies. This updated briefing is highly relevant in light of the Delta variant and President Biden’s announcement of vaccine and testing mandates. Jessica and Lauren will be joined by their former colleague Jodi Juskie, Vice President and Assistant General Counsel for Keysight Technologies, for an in-house perspective on workplace vaccination and testing policies.

Topics will include the legal and regulatory landscape for vaccine mandates; OSHA’s ETS regarding COVID-19 vaccines/testing and implications for employers; vaccine mandate considerations for employers; pros and cons of different approaches to mandating vaccinations; how to deal with employees who cannot be, or claim they cannot be, vaccinated; collection and handling of vaccine and testing information; liability considerations with and without vaccine mandates; and how to build buy-in and plan for conflict resolution.

View Slides (PDF)

PANELISTS:

Jessica Brown is a partner in the Denver office of Gibson, Dunn & Crutcher and a member of the firm’s Labor and Employment and White Collar Defense and Investigations Practice Groups. Ms. Brown advises corporate clients regarding COVID-19 liability risks, workplace vaccination policies, Colorado Equal Pay for Equal Work Act Transparency Rules, anti-harassment, whistleblower complaints, reductions in force, mandatory arbitration programs, return-to-work protocols, and matters that intersect with intellectual property law, such as noncompete agreements and trade secrecy programs. She has assisted clients to conduct audits of their pay practices for purposes of compliance with state and federal equal pay and wage and hour laws. In addition, Ms. Brown has defended nationwide and state-wide class action and individual lawsuits alleging, for example, gender discrimination under Title VII, failure to permit facility access under the Americans with Disabilities Act, and failure to compensate workers properly under the Fair Labor Standards Act. She has been ranked by Chambers USA as a leading Labor and Employment lawyer in Colorado for 16 consecutive years and is currently ranked in Band 1. She also is the current President of the Colorado Bar Association.

Lauren Elliot is a partner in the New York office of Gibson, Dunn & Crutcher and a member of the firm’s Life Sciences and Labor & Employment Practice Groups. Ms. Elliot has defended pharmaceutical and biotech companies in cases involving a broad spectrum of well-known life sciences products. She successfully defended Wyeth (now Pfizer) in close to 400 product liability actions in which plaintiffs alleged that childhood vaccines cause autism spectrum disorders. Ms. Elliot also has defended labor and employment claims in class actions and individual lawsuits alleging violations of state labor laws and the Fair Labor Standards Act, and has been advising on COVID-19 liability risks and workplace vaccination policies. Legal Media Group has named Ms. Elliot to its Expert Guides Guide to the World’s Leading Women in Business Law for Product Liability three times and she has served two terms as a member of the Product Liability Committee for the Association of the Bar of the City of New York.

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

In honor of Pro Bono Month, celebrated in October each year, we’d like to highlight some of the Firm’s tremendous pro bono achievements from 2021, as well as to recognize our attorneys’ tireless dedication to expanding access to justice, providing high-quality representation to some of the most vulnerable members of our communities, and responding to some of the most urgent issues of our day. Throughout the course of the last few years, as the Firm and the world grappled with a rapidly changing world, we have doubled down on our efforts to fight for racial justice, to bring relief to those most directly impacted by the pandemic, to defend the immigrant community, and, most recently, to tackle head-on the heartbreaking humanitarian crisis unfolding in Afghanistan.

We hope this newsletter gives you a taste of the types of work the Firm takes on through its pro bono practice, including advising small businesses and nonprofits, appellate litigation, immigration, racial justice and criminal justice reform, and veterans advocacy. We are so proud of our attorneys’ work on these issues and look forward to seeing what the rest of the year brings!

View Newsletter

On Friday October 15, 2021, the Commodity Futures Trading Commission (CFTC) issued an enforcement order (Tether Order) against the issuers of the U.S. dollar Tether token (USDT), a leading stablecoin, and fined those issuers $41 million for making untrue or misleading statements about maintaining sufficient fiat currency reserves to back each USDT “one-to-one.”[1] In so doing, the CFTC asserted that USDT is a “commodity” under the Commodity Exchange Act (CEA).

The Tether Order is significant for few reasons. First, it marks the first U.S. enforcement action against a major stablecoin. Second, the CFTC has now asserted that it has some enforcement authority over stablecoins, just at the time that the Biden Administration is gearing up its regulatory approach to digital currencies in general and stablecoins in particular. Securities and Exchange Commission (SEC) Chair Gary Gensler stated earlier this year that he believed that certain stablecoins, such as those backed by securities, are securities,[2] and the President’s Working Group on Financial Markets will soon be issuing a report on stablecoins.[3] Third, the CFTC’s assertion that USDT is a commodity signals that stablecoins that are backed one-to-one with fiat currency are not securities and therefore are not directly subject to the SEC’s jurisdiction.

CFTC Legal Authority

Although the CFTC is principally a regulator of the markets for commodity futures and derivatives such as swaps, it does have certain enforcement authority over commodities in the cash markets (i.e., spot commodities). Section 6(c)(1) of the Commodity Exchange Act, provides that it is “unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in connection with any swap, or a contract of sale of any commodity in interstate commerce, . . . any manipulative or deceptive device or contrivance, in contravention of such rules and regulations as the Commission shall promulgate.”[4] The CFTC has promulgated regulations pursuant to Section 6(c)(1), which render unlawful intentional or reckless statements or omissions “in connection with . . . any contract of sale of any commodity in interstate commerce.”[5] When those regulations were promulgated, the CFTC stated that “[it] expect[ed] to exercise its authority under 6(c)(1) to cover transactions related to the futures or swaps markets, or prices of commodities in interstate commerce, or where the fraud or manipulation has the potential to affect cash commodity, futures, or swaps markets or participants in these markets.”[6]

Tether Order

Prior to the Tether Order, the CFTC had asserted that some digital assets are commodities.[7] The Tether Order definitively states that USDT is a commodity (and, in dicta, asserts that bitcoin, ether, and litecoin are commodities as well). It then alleges that the issuers of USDT made material misstatements under Section 6(c)(1) of the CEA and its implementing regulations regarding whether USDT was backed on a one-to-one basis with fiat currency reserves and whether this reserving would undergo regular professional audits, and the issuers made material omissions regarding the timing of one of the reserve reviews that USDT issuers did take.[8] Without admitting or denying the CFTC’s findings and conclusions, the USDT issuers consented to the entry of a cease-and-desist order and civil money penalty of $41 million.[9]

Conclusion

The recent past has seen the explosive growth of the digital asset markets, with regulators globally seeking to catch up. In the United States, the challenge has been, in the absence of new legislation, to make digital asset transactions fit within existing regulatory schemes. Much initial regulation has been at the state level; most federal financial regulators have initially been attempting to regulate through enforcement. Now, however, there is the prospect of overlapping federal regulation, particularly with respect to stablecoins. The Tether Order comes at a time when media outlets have reported that the U.S. Department of Treasury will be working with U.S. financial regulators to issue a broad report on stablecoins, including how stablecoins should be regulated. And although the CFTC has taken its position on USDT, it is currently still unclear how other U.S. regulators will view stablecoins and other digital assets.

_____________________________

[1] In the Matter of Tether Holdings Limited, Tether Operations Limited, Tether Limited, and Tether International Limited, CFTC Docket No. 22-04 (Oct. 15, 2021), available at https://www.cftc.gov/media/6646/enftetherholdingsorder101521/download.

[2] Gary Gensler, SEC Chair, “Remarks Before the Aspen Security Forum” (August 3, 2021).

[3] See, e.g., Michelle Price, “Explainer: How the U.S. Regulators Are Cracking Down on Cryptocurrencies,” Reuters, September 24, 2021.

[4] 7 U.S.C. § 9(1).

[5] 17 C.F.R. § 180.1(a)(2).

[6] CFTC, Final Rules: Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 Fed. Reg. 41,398, 41,401 (July 14, 2011).

[7] See, e.g., In re Coinflip, Inc., CFTC No. 15-29, 2015 WL 5535736, at * 2 (Sept. 17, 2015) (stating that bitcoin is properly defined as a commodity within the meaning of the CEA).

[8] Tether Order at 8-9.

[9] Also on October 15, the CFTC entered into a consent order with Bitfinex, a leading digital currency exchange that has many management and operational interlocks with the USD Tether issuers, for allegedly permitting U.S. customers that were not eligible contract participants to engage in leveraged, margined or financed commodity transactions that were not carried out on a designated contract market (i.e., a CFTC registered futures exchange) in violation of the CEA’s requirements, and acting as a futures commission merchant (FCM) without being registered with the CFTC as such. The CFTC further asserted that Bitfinex had violated a 2016 CFTC order that had commanded it to cease-and-desist from such activity. Without admitting or denying the CFTC’s findings and conclusions, Bitfinex consented to the entry of the new cease-and-desist order and a $1 million fine. See In the Matter of iFinex Inc., BFXNA Inc., and BFXWW Inc., CFTC Docket No. 22-05 (Oct. 15, 2021), available at https://www.cftc.gov/media/6651/enfbfxnaincorder101521/download.

The following Gibson Dunn lawyers assisted in preparing this client update: Arthur Long and Jeffrey Steiner.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the author, or any of the following members of the firm’s Financial Institutions practice group:

Matthew L. Biben – New York (+1 212-351-6300, [email protected])
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Stephanie Brooker – Washington, D.C. (+1 202-887-3502, [email protected])
M. Kendall Day – Washington, D.C. (+1 202-955-8220, [email protected])
Mylan L. Denerstein – New York (+1 212-351- 3850, [email protected])
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Michelle M. Kirschner – London (+44 (0) 20 7071 4212, [email protected])
Arthur S. Long – New York (+1 212-351-2426, [email protected])
Matthew Nunan – London (+44 (0) 20 7071 4201, [email protected])
Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Third of Four Industry-Specific Programs

The False Claims Act (FCA) is one of the most powerful tools in the government’s arsenal to combat fraud, waste, and abuse involving government funds. After several years of statements and guidance indicating that the Department of Justice (DOJ) might alter its approach to FCA enforcement, the Biden Administration appears to be taking a different, more aggressive approach. Meanwhile, newly filed FCA cases remain at historical peak levels, and the government has recovered nearly $3 billion or more annually under the FCA for a decade. The government also continues to pursue new, large spending projects in COVID-related stimulus and infrastructure—which may bring yet more vigorous efforts by DOJ to pursue fraud, waste, and abuse in government spending. As much as ever, any company that receives government funds—especially in the drug and medical device sector—needs to understand how the government and private whistleblowers alike are wielding the FCA, and how they can defend themselves.

Please join us to discuss developments in the FCA, including:

The latest trends in FCA enforcement actions and associated litigation affecting drug and medical device manufacturers;
Updates on the Biden Administration’s approach to FCA enforcement, including developments impacting DOJ’s use of its statutory dismissal authority;
New proposed amendments to the FCA introduced by Senator Grassley; and
The latest trends in FCA jurisprudence, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.

View Slides (PDF)

PANELISTS:

Winston Y. Chan is a former federal prosecutor and litigation partner in the San Francisco office, and Co-Chair of the Firm’s False Claims Act Practice Group. He has particular experience leading matters for health care and life sciences companies involving government enforcement defense, internal investigations and compliance counseling. From 2003 to 2011, Mr. Chan served as an Assistant United States Attorney in the Eastern District of New York, where he held a number of supervisory positions and investigated a wide range of matters, including False Claims Act violations and health care fraud.

Marian J. Lee is a partner in the Washington, D.C. office and Co-Chair of the Firm’s FDA& Health Care Practice Group. She has significant experience advising clients on FDA regulatory strategy, risk management, and enforcement actions. Her practice spans the product life cycle, including the conduct of preclinical and clinical studies, good manufacturing practices and quality systems, premarket approvals and clearances, scientific communications, product labeling and advertising, and postmarket compliance.

John D. W. Partridge is a partner in the Denver office where he focuses on white collar defense, internal investigations, regulatory inquiries, corporate compliance programs, and complex commercial litigation. He has particular experience with the FCA and the Foreign Corrupt Practices Act (“FCPA”), including advising major corporations regarding their compliance programs.

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hours.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

RELATED WEBCASTS IN THIS SERIES:

The False Claims Act – 2021 Update for Financial Services (October 6, 2021)
The False Claims Act – 2021 Update for Government Contractors (October 14, 2021)
The False Claims Act – 2021 Update for Health Care Providers (October 26, 2021)

Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA) are the principal vehicles for bringing government investigations to closure short of a trial. In this annual presentation, a team of experienced practitioners discuss key considerations when evaluating these agreements and what to expect from the government. Topics will include:

Trends and statistics from 2000 to the present;
Factors that are likely to result in an NPA rather than a DPA;
Recent enforcement developments, including the impact of DOJ’s 2020 corporate compliance program guidelines;
Key terms in these agreements and what to watch out for, including updated compliance obligations;
Cross-border considerations and post-resolution consequences and obligations;
Brief survey of countries and agencies using DPA-or NPA-like resolution vehicles.

View Slides (PDF)

PANELISTS:

Stephanie L. Brooker is co-chair of Gibson Dunn’s global White Collar Defense and Investigations Practice Group and Financial Institutions Practice Group and anti-money laundering practice. She is the former Director of the Enforcement Division at FinCEN, and previously served as the Chief of the Asset Forfeiture and Money Laundering Section in the U.S. Attorney’s Office for the District of Columbia and as a DOJ trial attorney for several years. Ms. Brooker represents multi-national companies and individuals in internal corporate investigations and DOJ, SEC, and other government agency enforcement actions involving, for example, matters involving BSA/AML; foreign influence; sanctions; anti-corruption; securities, tax, and wire fraud; whistleblower complaints; and “me-too” issues. Her practice also includes compliance counseling and deal due diligence and significant criminal and civil asset forfeiture matters. Ms. Brooker has been named a Global Investigations Review “Top 100 Women in Investigations” and National Law Journal White Collar Trailblazer.

Richard W. Grime is co-chair of Gibson Dunn’s Securities Enforcement Practice Group. Mr. Grime’s practice focuses on representing companies and individuals in corruption, accounting fraud, and securities enforcement matters before the SEC and the DOJ, along with advising companies on key aspects of their compliance programs. This year he represented two companies that resolved investigations through DOJ Deferred Prosecution Agreements. Prior to joining the firm, Mr. Grime was Assistant Director in the Division of Enforcement at the SEC, where he supervised a wide range of the Commission’s activities, including many FCPA and financial fraud cases, along with multiple insider trading and Ponzi-scheme cases. He is ranked annually in the top-tier by Chambers USA, and Chambers Global, for his FCPA practice.

Patrick F. Stokes is co-chair of Gibson Dunn’s Anti-Corruption and FCPA Practice Group. Mr. Stokes’ practice focuses on representing corporations and individuals in a wide variety of white collar investigations, including corruption, accounting fraud, securities fraud, money laundering, and financial institutions fraud. Prior to joining the firm, Mr. Stokes headed DOJ’s FCPA Unit, managing the FCPA enforcement program and all criminal FCPA matters throughout the United States covering every significant business sector. Previously, he served as Co-Chief of the DOJ Criminal Division’s Securities and Financial Fraud Unit, and was an Assistant U.S. Attorney in the Eastern District of Virginia. Mr. Stokes is highly ranked by Chambers USA and Chambers Global for his anti-corruption investigations and compliance practice.

F. Joseph Warin is co-chair of Gibson Dunn’s global White Collar Defense and Investigations Practice Group, and chair of the 200-person Litigation Department in Washington, D.C. Mr. Warin’s group is repeatedly recognized by Global Investigations Review as the leading global investigations law firm in the world. Mr. Warin’s practice includes representing corporations in complex civil litigation, white collar crime, and regulatory and securities enforcement – including FCPA investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. He is a former Assistant United States Attorney in Washington, D.C. Mr. Warin is continually ranked annually in the top-tier in multiple practice categories by Chambers USA, Chambers Global, and Chambers Latin America. In 2021, Chambers named him a “Star” in FCPA, a “Leading Lawyer” in the nation in Securities Regulation: Enforcement, and a “Leading Lawyer” in the District of Columbia in Securities Litigation and White Collar Crime and Government Investigations.

Courtney Brown is a senior associate in the Washington, D.C. office of Gibson Dunn, where she practices primarily in the areas of white collar criminal defense and corporate compliance. Ms. Brown has experience representing and advising multinational corporate clients, boards of directors, and individuals in internal and government investigations on a wide range of topics, including anti-corruption, anti-money laundering, sanctions, securities, tax, and whistleblower and workplace matters. Ms. Brown has experience representing clients throughout the lifecycle of a government investigation, from the investigation stage to the completion of the post-resolution reporting period.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2.0 credit hours, of which 2.0 credit hours may be applied toward the areas of professional practice requirement.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 2.0 hours.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.