Have We Reached A FARA “Tipping Point”?

The New York Times, earlier this month, reported that “secret ledgers” in Ukraine show $12.7 million in cash payments designated for former Donald Trump campaign chairman Paul Manafort from Ukraine’s pro-Russian political party. Days later, the Associated Press reported that Manafort helped the pro-Russian party “secretly route at least $2.2 million in payments to two prominent Washington lobbying firms.” These stories sparked a flurry of questions about whether Manafort and others unlawfully failed to register with the Department of Justice as foreign agents. This coverage, in turn, has sent “shockwaves” in Washington, with Politico today noting that “reps from multiple firms who lobby for foreign entities think this might be a tipping point, and the feds might take a broader look at other firms and clients.”  As we face a potential “tipping point” in FARA interest and enforcement, Covington published this advisory which provides a basic compliance primer for those working for or contracting with foreign companies, governments, political parties, and individuals.

China Releases Draft Implementing Regulations for Consumer Rights Protection Law

Against the backdrop of a long string of product safety scandals that have eroded public trust, and a desire to transition China’s economy from an export-driven model to a consumption-driven model, the Chinese government continues to enhance its legal framework for the protection of consumer rights. On August 5, China’s State Administration of Industry and Commerce (“SAIC”) released for public comment the draft Regulations on the Implementation of the Law on the Protection of Consumer Rights and Interests (“Draft Implementing Regulations”; Chinese only), which are intended to implement China’s amended Law on the Protection of Consumer Rights and Interests (“Consumer Rights Protection Law” or “CRPL”; unofficial English translation by Chinalawtranslate.com available here). First enacted in 1993, the CRPL was amended in 2009 and then again in late 2013.

According to SAIC, the Draft Implementing Regulations are meant to enhance the protection of consumer rights in areas of high public concern. The draft addresses, among other issues, the timely recall of defective products, return policies, consumer data protection, and prepaid cards. The Draft Implementation Regulations would impose new obligations on manufacturers, retailers, and service providers (hereinafter referred to as “operators”), with failure to comply resulting in administrative penalties and civil liabilities.

Key provisions in the Draft Implementing Regulations include the following:

  • Recalls.  The Draft Implementing Regulations, echoing the existing Administrative Measures on the Recall of Defective Consumer Products released by the General Administration for Quality Supervision Inspection and Quarantine in October 2015, require that upon discovering potential defects, operators are to immediately initiate an investigation into the matter and, if defects are confirmed, must inform consumers and the relevant authorities while taking steps to halt sales and initiate a recall. Note that the Draft Implementing Regulations for the first time apply consumer rights protections to “defects” in services, not just material goods.
  • Return Policies. The Consumer Protection Law contains a mandatory seven-day “no questions asked” return policy, with exceptions for certain categories of goods: made-to-order goods, perishables, downloaded digital goods (e.g., audiovisual works and computer software), and delivered newspapers and periodicals. he Draft Implementing Regulations expand permitted exceptions to include the following (and make clear that operators may not independently make further exceptions):

a. Goods that might easily deteriorate after unpacking in a way that would affect consumers’ personal health or safety

b. Goods that lose significant value upon activation/trial use

c. Goods that are flawed or close to expiry (and expressly indicated as such)

  • Consumer Data Protection. The CRPL requires operators to inform and obtain consent from consumers regarding the purpose, method, and scope of collection or use of consumer personal information. It further bans them from collecting data unrelated to business operations or using “improper” collection techniques. It also prevents operators from divulging consumer personal information without consent, and imposes data security-related responsibilities.The Draft Implementing Regulations reiterate and supplement the consumer data protection rules contained in the CRPL. Among other things, they require that the collection of consumer personal information be related to business operations, require proof of consumer consent to be retained for at least five years, allow for the transfer to third parties of de-identified information without consumer consent, mandate consumer notice in the event of data leak or loss, and prohibit telemarketing calls without consumer consent.

    For more information on the data privacy implications of the Draft Implementing Regulations, please see our article for Covington’s InsidePrivacy blog.

  • Advance Payments. The draft regulations state that operators receiving advance payments should enter into written contracts with consumers, specifying their business address, contact information, product/service name, product amount, and a whole host of other clarifying information, if requested by the consumer. If an operator plans to shut down or change business locations, it must notify its consumers at least 30 days in advance and refund all advance payments and related costs (interest due, transaction costs). Additionally, the consumer has the right to request a full refund within 15 days of an advance payment if no service has yet been provided.
  • Prepaid Cards. The Draft Implementing Regulations require issuers of multi-purpose business prepaid cards to obtain an operating license from the People’s Bank of China (“PBOC”) and comply with specified regulations. Additionally, issuers of single-purpose business prepaid cards must inform customers about redemption risks, and use insurance and other appropriate measures to guarantee the safety of funds.

The Draft Implementing Regulations further include provisions regarding government coordination and supervision, consumer associations and other consumer organizations, dispute settlement, and penalties. They also include special provisions that apply to over a dozen types of product/service providers including utilities, financial services, beauty/cosmetics, motor vehicle/appliance repair, property management, package delivery, interior design, food services, franchise businesses, passenger transport, training services, and agent services (which may include, for instance, real estate agents). These specific provisions may add an additional layer of regulation onto substantial bodies of existing regulation in many of these areas.

Public comments on the Draft Implementing Regulations are due by September 5. Businesses, industry associations, and trade groups with interests in China are advised to pay close attention to the development of these implementing regulations.

Addison Yang and Zhijing Yu of Covington & Burling LLP assisted with the research and preparation of this article.

The Senate’s District Court Win in the Backpage Subpoena Fight Could Have Significant Implications for Congressional Investigations

Last week, the U.S. District Court for the District of Columbia ruled in favor of the Senate Permanent Subcommittee on Investigations in a rare case that has the potential to contribute significantly to the case law concerning congressional investigations. It is uncommon for a federal court to have an opportunity to rule on a congressional subpoena – congressional subpoenas generally cannot be challenged in court unless the recipient defies Congress and Congress votes to hold the recipient in contempt. Most private sector companies simply cannot endure the bad publicity and reputational damage that accompanies a congressional contempt proceeding.  Backpage, an online forum for classified advertisements that includes advertisements for adult services, and its CEO Carl Ferrer apparently are not swayed by such concerns.

For more than a year, the Senate Permanent Subcommittee on Investigations has been conducting an investigation of Backpage as part of an inquiry into human trafficking. According to the National Center for Missing and Exploited Children, advertisements on Backpage are associated with “a majority of the child sex trafficking cases being reported” to the organization.

After conducting an interview of Backpage’s general counsel in June 2015, the Subcommittee subpoenaed Backpage for documents in July 2015. Almost immediately, Backpage objected to the subpoena on First Amendment grounds. After further back and forth, the Subcommittee subpoenaed Backpage’s CEO Carl Ferrer for a narrower set of documents and ordered him to appear at a hearing on November 19, 2015.  Backpage produced a limited set of documents to the Subcommittee, but it continued to object to a further response on First Amendment grounds.  Ferrer did not appear at the November hearing, and the Subcommittee held a hearing with an empty chair before it – another rarity in congressional investigations.  The Subcommittee approved a resolution to enforce its subpoena, and the resolution was adopted by the full Senate in March 2016.

In its ruling last week, the District Court found for the Subcommittee, rejecting four defenses raised by Ferrer.

First, the court addressed Ferrer’s claim that it lacked jurisdiction to hear the case because the Senate sought to enforce only three of the eight requests contained in the subpoena. Ferrer’s argument was based on a unique aspect of the statute authorizing the Senate to enforce its subpoena in court – the statute states that the court may not “modify” the subpoena. In Ferrer’s view, selective enforcement equates to modification.  The court disagreed, stating that the statute does not constrain the Subcommittee’s ability to seek partial enforcement of its subpoenas.  Therefore, the court was enforcing, unmodified, those parts of the subpoena brought before it by the Senate.

Second, the court rejected Ferrer’s argument that the subpoena was not tied to a legitimate legislative purpose. Under Supreme Court precedents, Congress has the power to investigate any subject on which it can legislate. Given that Congress can legislate on sex trafficking and the internet, and Congress has previously legislated on internet publishers’ immunity for statements of third parties, the court easily concluded that the subpoena was related to a legitimate legislative purpose.

Third, the court examined Ferrer’s First Amendment defenses and concluded that they did not protect him from complying with the subpoena. Ferrer claimed that the Subcommittee’s subpoena encroached on his First Amendment rights, sought to punish disfavored speech, and chilled his exercise of his First Amendment rights. The court was unconvinced.  The court was most critical of Ferrer’s attempted use of the First Amendment to shield Backpage from even searching for materials in response to the subpoena, determining which of the documents reflect speech protected by the First Amendment, and explaining the specific manner in which the subpoena would intrude on First Amendment rights.  The court concluded that Ferrer’s position that “any responsive document that has not been produced contains constitutionally-protected information that no governmental need could possibly overcome” is “untenable and without legal support.”

Finally, the court rejected Ferrer’s claim that the investigation violated his due process rights by being ill-defined in scope and shifting in focus. The court described these arguments as “undeveloped,” “devoid of legal support,” and “unclear.”

The court ordered Ferrer to comply with the Subcommittee’s subpoena within ten days.

Instead of producing the subpoenaed documents, this week, Ferrer appealed the District Court’s decision to the Court of Appeals for the District of Columbia Circuit, and simultaneously sought to postpone his compliance with the subpoena while the appeal is pending. In his motion to stay compliance with the subpoena, Ferrer focused on his First Amendment arguments: The District Court “misapprehends the nature of Mr. Ferrer’s First Amendment claims and undervalued the constitutional interests at stake,” the filing said.

Depending on the outcome of the appeal, this case may contribute significantly to the case law concerning congressional investigations and the enforceability of congressional subpoenas.

Litigation to enforce a congressional subpoena against a private sector company or individual is rare. According to the Senate Legal Counsel’s filings in the case, the Senate has sought to enforce a subpoena under its civil enforcement authority only five times, with the last enforcement proceeding occurring in 1994. This case provides an opportunity for the appellate court to consider aspects of the statute that are rarely addressed in litigation, such as Ferrer’s argument regarding the statute’s limitation on courts modifying a subpoena.

Practitioners and scholars generally consider jurisdictional challenges to congressional investigations to be foreclosed by the modern scope of Congress’s legislative authority. Because Congress’s legislative reach is so broad, and its investigative authority is coextensive with its legislative authority, Congress can investigate practically anything, the reasoning goes. The appellate court may have an opportunity to address these issues if Ferrer continues to argue that the subpoena is not tied to a legitimate legislative purpose.

Finally, and potentially most significant, it appears that the D.C. Circuit will have an opportunity to address the limitations that constitutional protections place on congressional investigations. Although Congress takes a dim view of many privileges and protections, including the attorney-client privilege and executive privilege, Congress readily acknowledges that it is bound by constitutional limitations such as the First Amendment. There is very little recent case law addressing constitutional protections in the context of congressional investigations, even as the Supreme Court’s views on the First Amendment and other constitutional rights have evolved over recent decades.

A summary of Congressional hearings on U.S. sanctions in Sub-Saharan Africa

This past June, the Senate Foreign Relations Subcommittee on Africa and Global Health Policy held a hearing to discuss U.S. sanctions in Sub-Saharan Africa. The United States, the European Union, and the United Nations impose far more sanctions on Sub-Saharan African targets than on any other region, and these sanction regimes have been changing over the last two decades from broader, country-level sanctions to more targeted sanctions on individuals, like asset freezes or travel bans. This hearing provided a timely opportunity to review the evolving role of sanctions in U.S. foreign policy in Africa, their effectiveness, and key areas for improvement and innovation. A range of witnesses from civil society and academia, most of whom worked previously in public service, shared varied perspectives. While, on the whole, the witnesses believed that the results of sanctions in Sub-Saharan Africa have been mixed, they shared a view that clear, well-designed, targeted sanctions, if aggressively implemented as part of a larger strategy, could significantly influence the behavior of targeted entities. We summarize the main take-aways below.

Sanctions as a tool

The strongest point of consensus among the witnesses is that sanctions are—or at least should be—a tool, and not a policy in and of themselves. In other words, sanctions should be just one of many pressure tactics applied to a target as part of a coherent and well-articulated larger strategy. Sanctions should not be implemented just to “make us feel we are doing something” or as substitutes for other actions, but rather as complements to other tools like aggressive diplomacy, peacekeeping, mediation, and support to civil society.

Brad Brooks-Rubin, policy director of the Enough Project, noted that where sanctions have failed in the region, they failed not because sanctions don’t work in Sub-Saharan Africa, but rather because they were applied only in a limited way. As successful examples of sanctions, Dr. Princeton Lyman, Senior Adviser to the United States Institute of Peace, pointed to Sierra Leone, Liberia, and Côte d’Ivoire, where restrictions in the trade of certain commodities helped weaken rebel forces. In his view, sanctions alone would not have worked in these countries if other actions such as international peacekeepers had not also been deployed.

Encourage multilateral approaches

The witnesses also agreed that U.S. sanctions should not be applied in isolation. Sue Eckert, Senior Fellow at the Watson Institute for International and Public Affairs at Brown University, testified to the growing importance of regional entities in exerting political pressure to sway targets’ behavior. When it comes to U.N. sanctions, which the U.S. has a strong role in shaping, regional sanctions from the African Union or ECOWAS actually preceded those sanctions in approximately 75% of the cases. Overall, regional African organizations are involved in about 95% of the U.N.’s sanctions on African targets. Their involvement reduces targets’ ability to evade sanctions and enhances the norm-setting and stigmatizing function of sanctions.

However, it isn’t always easy to get multilateral support on such a politically fraught issue as sanctions, as countries face different cost-benefit analyses in considering whether to impose sanctions. For instance, South Africa has not gone along with sanctions on Zimbabwe, because as a neighboring country, South Africa is concerned with the risks of economic or political collapse in Zimbabwe on its own economy and stability, and sanctions could play a role in causing or accelerating collapse. Or, in the case of the political crisis in the Democratic Republic of Congo (DRC), the U.S. has recently applied new sanctions to one individual and may be poised to impose more, but the African Union remains divided about how to approach the electoral slippage—a particularly complex issue given the DRC’s many neighbors with competing interests in the country. Dr. Lyman urged that effective DRC sanctions would need to have the support of the African Union and the U.N.

Short of obtaining multilateral support, the U.S. has in some cases even started applying “secondary” sanctions, which imposes sanctions on countries for doing business with those targets the U.S. has sanctioned. A few of the witnesses encouraged this practice, noting that it tends to be “highly effective.”

Set realistic and specific targets: regime change should not be the goal

The speakers agreed that effective sanctions require clear and realistic objectives, and that the effectiveness of sanctions should not be measured by regime change. Dr. Lyman, in particular, cautioned against attempts to use sanctions as a means of achieving deep political transformations, and pointed out that a strong sanctions regime cannot substitute for other essential elements of a democracy, like a well-organized democratic movement. Generally, the more effective sanctions are those aimed at specific objectives, such as a cease-fire, and those that do not threaten the political survival of political elites.

Several of the witnesses encouraged innovation in sanctions policy through the use of nimble, step-wise sanctions: instead of all-or-nothing sanctions that may well be ignored by the targets because they require giving up too much power at once, Dr. Lyman encouraged the adoption of “carefully layered sanctions that can be removed as steps toward transformation.” In other words, specific, smaller actions could be explicitly linked to the lifting of particular sanctions, to urge targets to modify their behavior progressively. Similarly, Dr. Todd Moss, the Chief Operating Officer for the Center for Global Development, urged policymakers to adopt a more creative use of sanctions that would “selectively encourage positive behavior.” In the words of Mr. Brad-Rubin, “[w]hen we fail to explain how the sanctions work and show that they can evolve and be nimble over time, rather than become permanent forms of punishment, we give the likes of Bashir and Mugabe easy wins.”

Clear messaging

Finally, the witnesses cautioned that sanctions can create tricky dynamics. Sanctions lose their potency over time, as targets learn to live with or get around them. However, regimes may try to spin any lifting of sanctions as a political coup for them, so removing sanctions when such action would otherwise be desirable can play into certain targets’ propaganda and prove counterproductive for the U.S. In fact, the very imposition of sanctions can be gamed by the targets, who may point to the sanctions to portray themselves—and the entire country—as victims of U.S. aggression, and shift the blame for institutional failures from their own governments to U.S. policy. Robert Mugabe in Zimbabwe frequently makes such claims, for instance. Accordingly, U.S. policymakers need to be mindful of the unintended dynamics of imposing sanctions, and should develop a clear and context-appropriate game plan for the imposition and lifting of each set of sanctions.

The witnesses discussed other unintended consequences of sanctions such as “over-compliance” by private sector actors. Companies may misunderstand the scope of the sanctions and the risks they entail, such that they avoid doing business in an entire country even when only a few individuals in that country are targeted by sanctions. Such over-compliance can result in significant economic and human costs for regular citizens.

To manage the risks of unintended consequences, the witnesses stressed the importance of careful messaging and communication. There should be clear communication—aimed at different audiences, including the targets themselves, businesses, and the greater public—of how the sanctions work, what kind of activities they will not penalize, under what circumstances sanctions will be removed, and what their connection is to underlying policy goals.

This post was written with research assistance from Summer Associate Cristina Alvarez.  It can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.

OGE Updates Rules Governing Recruiting of Federal Employees to Private Sector Jobs

Companies are increasingly hiring out of the federal workforce, only to find that their new hires are restricted by “revolving door” rules that prohibit their participation in certain matters – sometimes for a limited time, sometimes permanently. New rules issued recently by the U.S. Office of Government Ethics (“OGE”) serve as a reminder that, even before hiring a federal employee, a company may find itself entangled in federal ethics rules that regulate the job negotiation process. This advisory outlines the newly issued rules that include substantive additions and changes that will affect employers.

House Clerk’s Office Apparently Sends Out Late Lobbyist Report Notices In Error

Yesterday afternoon, the House Clerk’s Office sent out emails to a number of registered federal lobbyists and lobbyist organizations alerting them to a missing 2016 Mid-Year LD-203 contribution report (due on August 1, 2016).  It appears that this email was sent in error to a batch of registrants who properly filed their reports on time.  We have confirmed with the House Clerk’s office that they are aware of this error.

It is unclear how many of these erroneous LD-203 late notice emails were sent, but if you received one, you should be on the lookout for a clarifying email from the Clerk’s Office. If you call to try to confirm your filings, you may face long hold times.

EU Policy Update

“Brexit”

Following Theresa May’s appointment as UK Prime Minister on July 13, she has formed a new UK Government. The UK’s key Cabinet Ministers with responsibility for Brexit negotiations all campaigned for the UK to Leave the EU: David Davis, the new Secretary of State for Exiting the EU; Boris Johnson, the Foreign Secretary; and Liam Fox, Secretary of State for International Trade. Both Mr. Davis and Mr. Fox have expressed interest in a free trade-style agreement with the EU. However, both Mrs. May and Philip Hammond, Chancellor of the Exchequer (Finance Minister), supported the campaign to Remain in the EU, and are expected to seek to retain single market access, but with concessions on free movement of labor.

Mrs. May has said she does not expect to trigger the formal two-year withdrawal process, under Article 50 of the Treaty on European Union, until she has found consensus on the UK’s negotiating position between central and devolved governments—Scotland, Wales and Northern Ireland. It is therefore unlikely that Article 50 will be triggered before the end of 2016.

Meanwhile, European Commission President Jean-Claude Junker has appointed Michel Barnier as its chief negotiator with the United Kingdom for discussions under Article 50—see the Commission press release here. Mr. Barnier, the French former Commissioner for the Internal Market and Services (2010-2014), will be responsible primarily for coordinating the Commission’s Directorate Generals in their Brexit negotiations. Mr. Barnier’s appointment was greeted coolly in the UK, where he is unpopular: as Commissioner, he implemented various financial regulations after the 2007-2009 financial crisis, a number of which were opposed by the City of London. However, in the latter part of his term as Commissioner, he sided with the UK on key issues—such as opposing the European Central Bank’s attempt to force all clearing operations in euros to be repatriated within the monetary union, which was ultimately struck down by the Court of Justice of the EU.

For more information on the legal, regulatory and policy implications of Brexit, and on Covington’s Brexit Task Force, staffed by senior lawyers and advisors from its offices in London, Brussels and Washington, please see our dedicated webpage here.

Technology and Digital Single Market Policy

Following the announcement of the new EU-U.S. Privacy Shield on July 12—see the Commission’s press release here—the U.S. Department of Commerce will begin accepting self-certifications from Continue Reading

Cartel Damages Claims in Germany

Cartel damages claims are increasingly spreading in Europe. In this rapidly evolving field of law, Germany has emerged to become the second most popular jurisdiction after the UK. It is too early to say whether this might be affected by the Brexit vote.  Yet since the EU’s directive on cartel damages claims (Directive 2014/104/EU) has to be implemented by all EU Member States until 27 December 2016, cartelists may soon face an even broader number of parallel claims in various European jurisdictions. Now, the Administrative Court of Dusseldorf added another claimant-friendly brick to the legal construction site of European cartel damages by its recently published judgment of 7 July 2016 in case 20 K 5425/15.

A public purchaser of rails, switches and railroad ties is suing one of the members of the so-called rail cartel in Germany (see press releases of German Federal Cartel Office/FCO of 23 July 2013, 11 July 2013, 5 July 2012). While German claimants can mostly rely on the cartel authorities’ findings of an antitrust infringement, they still have to prove accrual, amount of damages and causation. The implementation of the damages directive will relieve the claimant’s burden of proof to a certain extent but the difficult question on how to quantify damages and get access to relevant data remains.

Here, the claimant will most likely benefit from a fortunate coincidence. The defendant already sued former managers involved in the rail cartel for damages before German labour courts. The defendant was seeking compensation inter alia for its fine imposed by the FCO in the amount of EUR 191 million. Although the cases were dismissed to the extent the fine was concerned (see Landesarbeitsgericht Dusseldorf – 16 Sa 458-460/14; appeal pending before Bundesarbeitsgericht), the court files certainly contain full details of the defendant’s statement of claim against its former employee, underlying reasoning and evidence.

The claimant applied for access to the labour court’s file which was initially denied by the court’s president. Though it appears exotic to involve administrative courts in civil proceedings, the denial of the court’s president constitutes an administrative act. The claimant was successful to fight the labour court president’s denial in first instance before the Administrative Court of Dusseldorf.

In essence, the administrative court balanced the claimant’s interest of having access to the file with the defendant’s need to protect business secrets, information covered by confidentiality agreements which are unrelated to the cartel and private data concerning its former employee. Except for such information which was considered worth protecting, full access was granted.

Although the Administrative Court’s judgment has not become final yet, cartelists may now think twice in about the strategic consequences of suing their former staff for damages.

IRS Steps into Fray on Political Activities

The Internal Revenue Service (IRS) recently issued two private letter rulings (PLRs) that may be interesting for tax-exempt organizations that engage in political activity.

In the first ruling, the IRS held that a company could not deduct payments made to charity under a PAC matching contribution program as an “ordinary and necessary business expense.”  While the Internal Revenue Code already prohibits income tax deductions for political contributions, the company requested a PLR holding that the charitable contributions are deductible business expenses.  In rejecting the deduction, the PLR reasoned that “the contributions to [the] PAC and [the company’s] matching contributions are inextricably linked,” because the company would not have donated to the charity but for the employees’ contributions to the PAC.   Plus, the letter held, the matching program is intended to incentivize contributions to the PAC,  thus the charitable contributions are clearly “in connection with a political campaign” and not deductible.

The PLR comes on the heels of the FEC’s surprise approval of 2-to-1 corporate charitable PAC match programs this past January and provides some clarity into the tax implications of such matching programs. While campaign finance law now clearly allows corporations to grow their PACs by sponsoring charitable matching programs to incentivize giving, these programs should be viewed with eyes wide open: charitable contributions that help pad a corporate PAC’s coffers are not deductible business expenses.

In a separate ruling, the IRS issued a PLR late last year formally rejecting an organization’s qualification as a 501(c)(4) social welfare organization because it failed to adequately explain what social welfare activities it would undertake.  The organization  applied for (c)(4) status, claiming that its sole activity in the prior year was to hold a candidate forum and that it had no future activities planned.  The organization also acknowledged that it planned to spend money to influence elections, although that was not its primary purpose. The organization repeatedly ignored IRS requests for additional information to verify the social welfare activities of the organization.

Unlike 501(c)(3) charitable organizations, 501(c)(4) organizations may conduct some political activity as long as it is not the organization’s primary purpose.  501(c)(4)s are a common vehicle for lobbying activity, in the form of direct and grassroots advocacy, and some political expenditures; however, the PLR is an important reminder that a (c)(4) must engage in some social welfare activities, which do not include intervention in campaigns for or against candidates.

The PLR also emphasizes the importance of prospectively explaining to the IRS the exempt activities the organization plans to undertake.  While the letter acknowledged that “candidate forums” and similar activities “may meet the definition of social welfare by furthering voter education purposes,” it still faulted the organization for failing to describe its “planned activities for the future.”

Finally, the letter serves as a cautionary tale for (c)(4)s that failure to respond to questions by the IRS could result in the denial of tax-exempt status.  We note that the organization had the option to “self-declare” tax-exempt status as a 501(c)(4) organization rather than filing an application with the IRS.

As Europe divides, Africa unites with common African Union e-passport

In 2015, African Union (AU) Commissioner for Political Affairs, Dr. Aisha Abdullahi, indicated that a plan was underway to implement a single African passport. After recent announcements that the AU passport would be unveiled at the AU Summit in Kigali this month, the long-awaited continental e-passport has finally been revealed. The first recipients of the pan-African passport were Rwandan President Paul Kagame, whose country hosted the summit, and Chadian President Idriss Deby, the chairperson of the AU. Others to receive some of the first pilot passports will include heads of state, foreign ministers and permanent representatives of the member states to the AU’s Addis Ababa headquarters. The timeline for the common passport roll-out to citizens of member countries is uncertain, although AU officials hope that citizens will have access by 2018.

This long-awaited passport is targeted to address the perennial problem of border openness in sub-Saharan Africa; closed borders are cited as a substantial impediment to both intra-African trade and economic growth.

Out of the 54 countries in Africa, to date, only thirteen allow citizens from any other African country to travel without advance visas. These significant barriers to intra-African travel are believed to be a leading cause of the low levels of trade between nations on the continent. Whereas intra-European trade accounts for approximately 60% of all European trade and intra-North American trade accounts for 40% of all trade on the North American continent, intra-African trade only counts for about 13% of African trade. While a small portion of this difference may be explained by unrecorded informal trade across porous borders, the difference is nevertheless notable.

There is evidence that opening borders can lead to economic growth globally, and experiences on the African continent support this contention. For example, in 2013, Rwanda announced that travelers from any African country could receive a visa on arrival. After improving visa openness, Rwanda’s GDP growth increased to 7% in 2014, tourism revenues rose by 4%, and the number of African travelers to Rwanda increased 22%.

Rwanda has led the charge for the creation of an AU passport. Now, the Rwandan Minister of Foreign Affairs, Louise Mushikiwabo, has indicated that Rwanda is fully prepared to begin issuing the common passport to all of its citizens. In contrast, other African nations would need to enact legislation that would allow them to begin issuing the African Union passports to citizens. Based on the general response to the common passport—the AU has been “overwhelmed” by requests for the passport—it is likely that AU member countries will feel pressure from their own citizens to do so quickly.

Interestingly, Morocco—the only African country that is not currently a member of the AU—has asked to rejoin the organization after a decades-long absence during the same summit in which the AU passports were unveiled. The timing of Morocco’s request could allow the county to take advantage of the new common passport and the expanding perks of AU membership.

The unified passport will undoubtedly present challenges for countries with less advanced border-security technology and fewer resources to devote to border control. Currently, only nine African countries offer eVisas. The AU passport is biometric and considered secure, but the issuance and acceptance of these e-passports at entry points of countries currently without e-passports may present a problem.

Relaxed immigration restrictions may also lead to larger inflows of migrant workers to the more economically stable countries on the continent, which may stoke the sort of anti-immigrant sentiment that led to violence in South Africa last year.

Travelers who are not citizens of AU member countries will not be able to benefit from the common passport, and will still face the relatively restrictive entry requirements on the continent. However, the enhanced labor mobility resulting from the AU’s e-passport program  could have a catalytic effect on trans-African investments and commerce.

This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.

 

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