NTIA’s International Internet Policy Priorities for 2018 and Beyond

On July 20, 2018, the U.S. Department of Commerce’s National Telecommunications and Information Administration (“NTIA”) published comments it received from a wide array of tech and telecom companies, trade groups, civil society, academia, and others regarding its “international Internet policy priorities for 2018 and beyond.”  NTIA’s Office of International Affairs (“OIA”) had requested comments and recommendations from interested stakeholders in four broad categories: (1) free flow of information and jurisdiction; (2) the multistakeholder approach to Internet governance; (3) privacy and security; and (4) emerging technologies and trends.  NTIA plans to harness the comments it received to help it identify “priority” issues, and to leverage its resources and expertise to effectively address stakeholders’ interests.

Free Flow of Information and Jurisdiction

Commentators uniformly expressed concern about limitations of cross-border flows of information, given the numerous economic and policy advantages to digital trade.  Many stakeholders rejected the idea of data localization requirements, which they argued restrict the flow of data unnecessarily while particularly burdening smaller entities that do not have the resources to operate in every country in which their online services may be offered.

In addition, tech companies and civil society organizations called attention to the increased global demand for moderating online content.  Such commentators pointed out that, although well-intentioned, proposals to regulate content such as hate speech and terrorist propaganda may end up having serious consequences for many forms of lawful speech.

Multistakeholder Approach to Internet Governance

Many tech companies and trade groups generally expressed support for a global, multistakeholder approach to Internet governance, particularly when that approach encourages participation in decisionmaking by users themselves and groups that own and operate the Internet infrastructure.  Such commentators therefore encouraged NTIA to continue the IANA Stewardship Transition, which they say will foster such a multistakeholder approach to Internet governance.

Privacy and Cybersecurity

NTIA’s request for comments came shortly after the General Data Protection Regulation’s (“GDPR”) May 25th deadline, and as a result the GDPR was a hot topic for several stakeholders.  Although civil society organizations generally did not endorse the GDPR as a gold-star model for other countries that wish to regulate the online collection, use, and sharing of personal data, many did call attention to the escalating need to address Internet users’ privacy concerns, particularly in the era of Big Data and the Internet of Things.

Industry stakeholders expressed skepticism about the viability of the GDPR in other jurisdictions, and were particularly concerned with the notion that the “right to be forgotten” may be adopted in jurisdictions beyond Europe.  In lieu of GDPR becoming a baseline for international privacy protections, industry stakeholders instead proposed that NTIA encourage collaborative, multi-stakeholder processes for determining ways to protect data without stifling innovation.

With respect to cybersecurity, many tech companies found common ground with civil society groups in rejecting the idea of providing “backdoors” to encryption in order to enable government access – which several tech companies and trade associations said would unavoidably weaken encryption’s ability to effectively protect user data.  Stakeholders largely advocated for strong, end-to-end encryption as a means to promote cybersecurity.

Emerging Technologies and Trends

Several commentators identified artificial intelligence (“AI”) and machine learning (“ML”) as emerging technologies that NTIA should be on the lookout for.  The Internet of Things (“IoT”) was also flagged as an evolving trend, given the ever-increasing number of formerly “offline” products suddenly having a connected component.  Stakeholders encouraged the promotion of responsible, ethical development of such technologies, which should include consideration of economic and human rights implications.

IoT Update: The European Electronic Communications Code – Developing the Future of IoT in the EU

The European Commission estimates that the global market for the Internet of Things (“IoT”) will grow to 75.4 billion devices by 2023. It also estimates that the economic value of spectrum enabled services is at present worth €500 billion per year. This is expected to increase by 200% – up to €1 trillion a year by 2023 – making the availability of spectrum (needed to send and receive data) and the development of 5G technology increasingly significant.

The European Electronic Communications Code, part of the Commission’s Digital Single Market (“DSM”) Strategy, is nearing the end of the legislative process. It contains a range of safeguards aimed at European-level harmonization for 5G and spectrum management, high-speed broadband technology, and seeks to level the regulatory playing field for “Over the Top” (“OTT”) services with that of traditional telecoms services.


The EU’s current regulatory framework on telecommunications consists of four directives adopted in 2002, and last revised in 2009. Since then, technology has significantly evolved and markets have changed considerably, including through the introduction of increasingly popular OTT services. These are known as “over-the-top” since they bypass traditional telecommunications or broadcast operators to deliver similar services, commonly through apps. They include voice over IP calls, internet-based messaging on smartphones and other internet-connected devices, or internet streaming services.

The scattered regulatory framework resulted in varying application of the legislation by national level bodies, and consequent fragmentation and regulatory uncertainty in the sector. A by-product of that fragmentation was a delay in the rollout of 4G technology across the EU – it took the EU an additional 3 years to match the deployment of the technology in the U.S. Looking forward however, the EU is determined to avoid repeating the same mistakes for the rollout of 5G. The Commission has therefore explicitly recognized that, in order to avoid falling behind other countries, the rollout of 5G should strictly not be an exclusively domestic matter for EU Member States, and instead needs EU-level regulation.

The European Electronic Communications Code

To this end, in September 2016, as part of its DSM Strategy, the European Commission proposed a Directive establishing the European Electronic Communications Code (“the Code”) and a Regulation which enhances the role of the Body of European Regulators for Electronic Communications (“BEREC”).

The Code, intended to modernize and harmonize the rules on telecommunications and to make the regulatory framework more effective, focuses on a number of key areas: 5G, spectrum and spectrum management; high-speed broadband technology; and bringing new OTT services within the ambit of the Code.

  • Spectrum

The Code introduces new rules on spectrum management: while previously managed at national level, the Code introduces a framework for facilitating spectrum assignment in the EU. This aims to bring about the simultaneous release of spectrum frequencies throughout the EU’s single market, on the same technical conditions, and thereby attract simultaneous investments in 5G networks across the bloc. The Code seeks to incentivize and increase investment in spectrum – in part based on longer license durations (of 20 years) – and to provide clarity on license renewals. This all has the goal of ensuring the rapid deployment of 5G technology across the EU from 2020.

  • High-speed broadband technology

The Code also promotes increased access to high-speed broadband networks (both fixed broadband and mobile broadband) by incentivizing investments. It aims to encourage telecoms operators with significant market power to invest in high-capacity broadband networks. In return, such telecoms operators will benefit from reduced price and access regulation. It is envisaged that European businesses will thrive with widespread access to high-speed broadband connections, in turn fostering innovation.

  • OTT Services regulated as electronic communications services

The Code also amended the definition of “electronic communications services” to include:

  1. internet access services;
  2. interpersonal communications services, further split into two subcategories (number-based and number-independent);
  3. services consisting wholly or mainly of the conveyance of signals, such as transmission services that are used for broadcasting.

Through these provisions, the European Commission integrated OTT services into the larger regulatory framework. In doing so, the Commission intended to “level the playing field” between traditional telecoms and popular OTT services – and consequently the Code will apply to both. However, only telephone number-based services will be regulated like traditional telecoms operators, meaning that they will be bound by the same obligations, including providing access to emergency services. Telephone number-independent services will have no such obligations.

Recent developments in the legislative process

In the early hours of June 6, 2018, EU negotiators reached a political agreement on the Code during “trilogue” negotiations. One of the outstanding points of the telecoms reform concerned a cap on intra-EU international calls. Negotiators finally agreed to prohibit high costs of calls to other EU Member States, setting a  maximum cost of 19 cents per minute for intra-EU international calls, and 6 cents per SMS, applicable from Spring 2019.

The provisional agreement reached during the trilogue negotiations was an informal one – it then had to be approved through formal procedures in both the Council and the European Parliament.

In the Council, on June 29, 2018, the Committee of Permanent Representatives of the Council of the European Union (“Coreper”) provisionally approved the final compromise texts of both the Directive establishing the European Electronic Communications Code and the BEREC Regulation. This must now be formally adopted by national Ministers.

In the European Parliament, the Committee on Industry, Research and Energy (the leading Committee on the legislation) confirmed the two provisional agreements on July 10, 2018. This must now be confirmed by the plenary session of the European Parliament, which is expected to vote on the final text in Autumn 2018.

Once it is formally adopted by both the European Parliament and the Council, EU Member States will be required to transpose the Directive on the Electronic Communications Code into domestic law within two years.

More Officials Appointed to Lead Film and Media Authorities in China

On May 24, 2018, China filled the top positions at the State Bureau of Film (Film Bureau) and State Administration of Press and Publication (SAPP). Both appointments fill vacancies created by the dismantling of the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) and continue apparent Communist Party of China (CPC) efforts to assert greater control over the film and media industries.

Propaganda Department Officials to Lead Film Bureau and SAPP

Mr. Wang Xiaohui has been appointed to lead the Film Bureau, while Mr. Zhuang Rongwen will lead SAPP. These developments follow the earlier appointment of Mr. Nie Chenxi, who ran SAPPRFT prior to its elimination earlier this year, to lead the State Administration of Radio and Television (SART).

With these appointments, all three leaders of China’s principal film and media authorities (Wang, Zhuang, and Nie) now concurrently hold positions in the Propaganda Department of the CPC. The same is true of Mr. Shen Haixiong, the top official for the Central Station for Radio and Television (CSRT). Such dual postings for these officials, and the government reorganization in March, appear indicative of CPC efforts to more tightly regulate and exert influence over these key industries. These appointments and reforms are likely to manifest in a number of ways moving forward, perhaps including tighter censorship of films and other media and stricter adherence to Party ideology.

Background on Reform of Film, Television, and Related Authorities

Among other substantial institutional reforms initiated in March, Chinese authorities eliminated SAPPRFT and announced a major restructuring of government oversight over film, radio and television, and press and publishing at the national level. Such reforms resulted in three new authorities in lieu of SAPPRFT:

  • SART: SART was established as a new agency directly under the State Council to regulate radio and television matters other than broadcast news. However, as such radio and television oversight was under the State Council before the restructuring, SART’s similar organizational placement may indicate possible continuity of the regulation of such radio and television matters.

The agency will be responsible for functions including drafting and overseeing implementation of policies for the radio and television industry, managing content review and censorship of radio, television, and online audiovisual programs, supervising the importation of radio and television programs, and coordinating and promoting the exposure of Chinese radio and television programs worldwide. The foregoing applies whether such content is live action or animated.

  • Film Bureau: Rather than the prior approach that placed theatrical film-related authorities within an agency directly under the State Council, the newly-formed Film Bureau is now within the Propaganda Department of the CPC. For reference, another example of a state function that is somewhat analogously under the direct control of the CPC is Internet/cybersecurity regulation.

Following the government reorganization, the Propaganda Department will be responsible for theatrical film-related functions such as managing film administrative affairs, guiding and supervising film production, distribution, and exhibition, coordinating content review and censorship of films (both live action and animated), arranging festivals and other film events of national significance, and carrying out international cooperation including film co-productions.

  • SAPP: Similar to changes implemented for film, the press and publishing functions of SAPPRFT are now within the Propaganda Department and will be carried out by the newly-established SAPP. This office also takes the title National Copyright Administration of China (NCAC).

Press and publishing-related functions of the Propaganda Department now include drafting and overseeing implementation of policies for the press and publishing industry, coordinating content review and censorship of publications (including those containing cartoons), and supervising the importation of such publications.

Copyright-related functions of the Propaganda Department include registering certain copyrights at the national level and administration of related matters. Specifically, works (excepting software) owned by non-mainland Chinese parties are registered at the national level, while such works owned by mainland Chinese parties are registered locally. The Copyright Protection Center of China or its local offices will handle copyright registrations relating to software.

Additionally, the Ministry of Culture and Tourism (MOCT) will continue to have a role in coordinating content review and censorship of online games. MOCT will also continue to regulate music that is produced for or disseminated over the Internet. However, other forms of music fall within SAPP’s purview. Industrial policy for the animation industry also remains under MOCT’s management and supervision.

Radio and television broadcast news was previously regulated by several authorities. Such oversight is now carried out by the newly-formed CSRT. CSRT’s organizational placement is somewhat unique among the authorities discussed in this client alert: while established directly under the State Council (like SART and MOCT), CSRT reports to the Propaganda Department (like SAPP and the Film Bureau). This hybrid approach is not without precedent. For example, the Cyberspace Administration of China (an agency established under the State Council) has reported to the CPC’s Office of the Central Leading Group for Cyberspace Affairs for some time.

Local Implementation

Chinese authorities have not yet released their plans for implementing these reforms at the local level. Until those plans are finalized and made public (likely late in 2018), we anticipate continued uncertainty about the current and future organizational structure of local authorities. For example, some national level authorities have identified information about local branches on their respective websites (e.g., SART, NCAC). In other instances, some local authorities have advised that the longstanding organizational structure (which groups functions relating to press, publication, radio, film and television all together) remains intact at the local level.

Overview Chart

The following chart summarizes at a high-level certain details about the foregoing agencies, current as of the date of this alert:

SART Mr. Nie Chenxi Deputy Minister, Propaganda Department State Council Regulate radio and television matters other than broadcast news
Film Bureau Mr. Wang Xiaohui Deputy Minister, Propaganda Department CPC Propaganda Department Theatrical film-related oversight, including film co-productions


Mr. Zhuang Rongwen Deputy Minister, Propaganda Department CPC Propaganda Department Press and publishing-related oversight;

National-level copyright registrations and administration

MOCT Mr. Luo Shugang n/a State Council Content review and censorship of online games;

Regulate Internet music

CSRT Mr. Shen Haixiong Deputy Minister, Propaganda Department Hybrid (under State Council, but reports to CPC Propaganda Department) Regulate radio and television broadcast news


India’s Committee of Experts Releases Draft Personal Data Protection Bill

On July 27, 2018, the Government of India’s Committee of Experts released a draft Protection of Personal Data Bill. Together with an accompanying report, the draft bill moves India one step closer towards enacting a comprehensive data protection regime.

Last year, the Supreme Court of India issued a landmark decision holding that privacy is a fundamental right under India’s Constitution. In that opinion, the Court invited the Government of India to formulate “a regime for data protection.” As a result, the Government established the Committee of Experts “to study various issues relating to data protection in India, make specific suggestions on principles underlying a data protection bill and draft such a bill.”

In November 2017, that Committee released a White Paper that outlined its views on data protection and solicited public comments. The draft bill incorporates those comments as well as the Committee’s own analysis.

As the Committee’s report explains, the draft bill outlines an approach to data protection that is “distinct from the approaches in the US, EU and China and represents a fourth path.” That said, much of the content of the draft bill resembles the European Union’s General Data Protection Regulation (GDPR).

If enacted, the 67-page bill would:

  • Grant rights to data principals (the equivalent of “data subjects” in EU nomenclature), including the right to access, the right to portability, and the right to be forgotten;
  • Require that certain organizations hire Data Protection Officers, perform Data Protection Impact Assessments, and notify regulators in the event of a data breach;
  • Establish a Data Protection Authority (“DPA”), with the power to investigate, enjoin, and fine non-compliant entities;
  • Mandate that organizations store copies of personal data in India (“data localization”), and;
  • Provide for significant penalties, including fines of up to 4% of total worldwide turnover and criminal penalties for intentional, knowing, or reckless violations.

The Committee has submitted the draft bill to India’s Ministry of Electronics and Information Technology (“MeitY”), which will review the proposal and consider next steps.


The GDPR and Blockchain

Blockchain technology has the potential to revolutionise many industries; it has been said that “blockchain will do to the financial system what the internet did to media”.  Its most famous use is its role as the architecture of the cryptocurrency Bitcoin, however it has many other potential uses in the financial sector, for instance in trading, clearing and settlement, as well as various middle- and back-office functions.  Its transformative capability also extends far beyond the financial sector, including in smart contracts and the storage of health records to name just a few.

A blockchain is a shared immutable digital ledger that records transactions / documents / information in a block which is then added to a chain of other blocks on a de-centralised network.  Blockchain technology operates through a peer network, where transactions must be verified by participants before they can be added to the chain.

Notwithstanding its tremendous capabilities, in order for the technology to unfold its full potential there needs to be careful consideration as to how the technology can comply with new European privacy legislation, namely the General Data Protection Regulation (the “GDPR”) which came into force on 25 May 2018.  This article explores some of the possible or “perceived” challenges blockchain technology faces when it comes to compliance with the GDPR.

Personal data

The GDPR applies to the processing of “personal data” by controllers established in the European Union (EU), as well as companies outside the EU where their processing activities relate to offering goods or services to data subjects in the EU or to the monitoring of their behaviour.

The GDPR defines personal data as “any information relating to an identified or identifiable natural person.”  The GDPR will apply to any personal data that is stored or transmitted using a blockchain network.  Blockchain technology can be used to hide the actual identity of individuals using the network by assigning them a unique identifier such as an encrypted key, but if someone holds the code to decrypt that key, then the encrypted key may still constitute personal data under the GDPR.

There may be other instances, however, in which personal data (e.g., a person’s name or address) is directly shared through the network and stored in blocks.

Features of the blockchain network

Blockchain networks can either be public, in that everyone can access the network, or they can be private, as in closed to a certain set of individuals (or institutions) who have to be authorised to access the network.  They can also either be permissioned, so an individual or institution needs authorisation to be able to access and add to the network, or they can be permissionless, as in anyone can post to the network.  Bitcoin is an example of a public and permissionless blockchain, whereas a company that utilises blockchain technology as a proprietary back-office function to process their own data would most likely apply private and permissioned features to the network, as it is only that company that wishes to access and add to the network.

There are various ways in which blockchain technology is being used, with different features.  As discussed further below, which features apply will have an impact on how the technology can comply with the requirements under the GDPR.

De-centralised network

Blockchain technology is essentially a de-centralised network in which transactions / documents / information are recorded.  Especially for a public blockchain, no one individual is the ultimate keeper / owner of the ledger.  Instead, everyone who has access to the network can access, store and add to the ledger.  The GDPR, however, is very much tailored towards centralised networks, where there is a clear controller of the data (“data controller”) and defined third parties who merely process the data (“data processors”).  Under the GDPR these relationships are clearly defined and carry with them certain obligations and responsibilities.  In addition, data controllers and data processors are expected to govern their relationships under contract.  However, in a de-centralised network, who falls within these defined roles is far more unclear.  In essence, every person who accesses the network may be considered a data controller.

These relationships may be easier to reconcile with the GDPR under a private and permissioned blockchain network, for example a company’s own proprietary use of the technology to process information where only certain individuals within the organisation can access and post to the ledger.  However, where the blockchain network is public and permissionless, such as Bitcoin, managing these relationships will be far more difficult.  If you are not aware of every person using the network, how can you be clear on whom the GDPR obligations lie, and how can you ensure contracts are in place to define these relationships?

In addition, it may be difficult for a regulator to determine who is liable where a network is in breach of the GDPR.  Would it be the case that everyone is liable?

Immutable ledger

One of the most widely perceived challenges of blockchain and the GDPR is the inability to delete data.  The main benefit of blockchain technology is that the blocks in the chain cannot be deleted or modified, to ensure the security and accuracy of the record.  However, under the GDPR, data subjects have the right to rectification, where the personal data concerning them is inaccurate, and they may have the right to have their data erased (“right to be forgotten”).

For any blockchain network, both public or private, permissioned or permissionless, that directly stores personal data in a block the ability to comply with these rights may be more challenging.  However, it has to be remembered that the extent to which a data subject is entitled to have their personal data erased is not an absolute right.  The right can only be relied on if certain conditions are satisfied, for example, where the data subject withdraws their consent on which the processing is based.  But to what extent will a blockchain network be relying on consent to process the data?

There are also some possible solutions to avoid the need to consider these questions; the most effective would be to avoid recording any personal data within the blockchain itself.  Another is to anonymise the data, although the robustness of anonymisation techniques is not always fool-proof, making this the least preferred solution of the two.

The FCA and Blockchain

In the UK, the Financial Conduct Authority (“FCA”) has been considering the challenges of how blockchain technology may comply with financial services legislation, including the GDPR.  In April, 2017, the FCA published a Discussion Paper (DP17/03) on Distributed Ledger Technology (“DLT”).  The purpose was to “stimulate a dialogue on the regulatory implications of current and potential developments of DLT in the financial markets”.  The Discussion Paper explored the potential risks and benefits of DLT applications in financial services and whether it could promote the FCA’s statutory objectives of promoting effective competition, financial market integrity and financial consumer protection.  In December, 2017, the FCA published a Feedback Statement (FS17/4) to the Discussion Paper.

One of the issues that was most commented upon in the Discussion Paper was that of data protection in the context of DLT and the potential regulatory challenges of complying with the GDPR, when storing and processing client data.  However, whilst the FCA acknowledged that there are “significant challenges”, it believes that the combination of GDPR and the use of DLT has the potential to improve the way in which firms collect, store and process private information, which it believes would result in “significantly improved consumer outcomes”.

The FCA believes that its Discussion Paper was merely the beginning of the dialogue on the potential benefits and risks associated with the use of DLT in financial services.  The FCA is gathering more information and there will be further publications in due course.

The European Commission and Blockchain

The European Commission has recently launched the EU Blockchain Observatory and Forum which is focused on promoting blockchain throughout Europe.  The Forum recently ran a series of workshops on the impact of the GDPR on blockchain technology.

The use of blockchain technology will need careful consideration, as at this stage, there are several open questions.   Further guidance from the European Data Supervisory Board might in some instances be needed.

We will continue to monitor key developments in relation to the GDPR and blockchain, and will provide further updates.


Congressional Forecast: July

Congress returned from the July 4 recess to the much anticipated announcement by President Donald Trump of his nominee to succeed retiring U.S. Supreme Court Justice Anthony Kennedy. Former Kennedy law clerk Judge Brett Kavanaugh, a highly credentialed Washington, D.C., veteran with a dozen years of service on the D.C. Circuit Court of Appeals, is Trump’s choice. And Senate Majority Leader Mitch McConnell, R-Ky., has assured members of the Senate that the Kavanaugh nomination will be voted on well before the midterm elections in November.

The Senate Judiciary Committee will likely be singularly focused on processing the nomination over the next couple of months, which will capture the attention of senators on and off the committee and the general public. Committee chairman Charles Grassley, R-Iowa, will lead supporters, and ranking member Dianne Feinstein, D-Calif., is expected to lead opponents, setting up a long and contentious summer for the committee as it seeks to replace Kennedy, generally regarded by observers as the most frequent swing vote on the closely divided Roberts court.

While the Kavanaugh nomination will dominate the work of the Senate Judiciary Committee, Congress remains very busy on items such as its attempts to process fiscal year 2019 appropriations bills. The chambers may go to conference during the month of July on the first of several appropriations “minibuses.” The Senate just voted to go to conference on a package containing the energy and water, legislative branch and military construction/Department of Veterans Affairs appropriations bills.

Of note, retiring Sen. Bob Corker, R-Tenn., filed a largely symbolic motion to instruct conferees relating to the administration’s authority to carry out certain of its trade tariffs agenda, and that motion passed 88-11. Corker’s motion focuses on augmenting Congress’s role with respect to actions under Section 232 of the Trade Expansion Act of 1962, but the Senate’s broader discomfort with the administration’s entire trade agenda looms large. The administration’s trade tariff actions pursuant to Section 232 relating to steel and aluminum, and Section 301 of the Trade Act of 1974 relating to goods from China, are highly controversial on Capitol Hill — as evidenced by the strong bipartisan support for the Corker motion. But neither chamber appears prepared to tangle in a more substantive way with the administration on trade before the midterm election, beyond some oversight activity such as the Senate Finance Committee’s recent questioning of Commerce Secretary Wilbur Ross about the Section 232 tariffs, which fall under the U.S. Department of Commerce‘s purview.

The House is preparing a second minibus appropriations package, containing the financial services/general government and U.S. Department of Interior appropriations bills for floor consideration during the July work period. The Senate’s version of that second minibus might also fund the U.S. Departments of Transportation, Housing and Urban Development and Agriculture. Senate Appropriations Committee Chairman Richard Shelby, R-Ala., is considering packaging the appropriations bills for the U.S. Departments of Defense, Labor, Health and Human Services and Education into a subsequent minibus. These measures would have to clear 60-vote thresholds on the Senate floor, requiring bipartisan support.

It is unclear how many of the 12 appropriations bills can be finalized by the two chambers before the end of the fiscal year on Sept. 30, at which time a short-term continuing resolution will be necessary to fund the government into the lame-duck session after the November midterms. Alternatively, Congress could once again flirt with a dramatic shutdown of the government.

The House may also continue to grapple with immigration reform issues, even after two Republican iterations of immigration legislation failed on the House floor during the month of June. In particular, some House Republicans would like to see an effort to address specific immigration issues of interest to members of the Republican conference, such as E-Verify, H-2B temporary non-agricultural worker visas, agriculture worker issues and possibly controversial family reunification issues. House Republicans do not appear likely to try to resolve the status of beneficiaries of the Deferred Action for Childhood Arrivals program, which President Trump has halted. No such action is expected in the Senate either.

Similar to the piecemeal approach that the House may take on specific immigration matters, House Republicans may also seek to legislate on several health care matters during the July work period, some of which are related to the Affordable Care Act. House Republican leadership might approve for full House consideration legislation to address health care premiums, health savings accounts, reinsurance plans and the medical device tax, and might work to reauthorize the Pandemic and All-Hazards Preparedness Reauthorization Act.

The two chambers are likely to go to conference sometime this month on the FY 2019 National Defense Authorization Act, with both chambers having passed their individual versions of the legislation. The Senate embedded a reform of the Committee on Foreign Investment in the United States, called the Foreign Investment Risk Review Modernization Act, in its version of the bill. The House, having worked on its own freestanding version of CFIUS reform, appears likely to accept the Senate’s FIRRMA bill during the course of the NDAA conference, readying CFIUS reform for enactment as part of NDAA.

The Senate has shown willingness to assert itself with the administration relative to the U.S. relationship with North Atlantic Treaty Organization allies. Even as President Trump has traveled to meet with his NATO counterparts in contentious meetings in Brussels, Belgium, the full Senate asserted its support for NATO in a 97-2 vote on a resolution by Senate Armed Services Committee Ranking Member Jack Reed, D-R.I. The Senate Foreign Relations Committee is taking similar action on a separate NATO resolution, S. Res. 557, expressing the sense of the Senate of support for strengthening NATO, through its committee process.

The Senate is moving toward attempts to address two important laws which are soon to expire: one reauthorizing the Federal Aviation Administration and the other reauthorizing the Water Resources Development Act. Senate leadership in both parties is trying to discern how to bring both measures to the Senate floor with agreements on which amendments to consider and potentially with time limitations. WRDA in particular appears to be close to ready for Senate floor consideration, and could be considered during the second week of the July work period. The two chambers might go to conference to resolve differences on their respective versions of the farm bill. The Senate version of the farm bill does not include a House Republican priority: imposing new work requirements on low-income recipients of food assistance.

The 51-member Senate Republican majority continues to focus much of its floor time confirming executive branch and judicial nominations, which can no longer be filibustered by a Senate minority. The Senate returned to Washington after the July 4th recess and confirmed a noncontroversial Ninth Circuit Court of Appeals nominee from Hawaii, Mark Bennett, before turning its attention to the nomination of Paul Ney to be the general counsel of the Department of Defense. While time-consuming, these nominations are sailing through the Senate with majority votes — even controversial ones such as the nomination of former Jeff Sessions aide Brian Benczkowski to be Assistant Attorney General for the Criminal Division of the Justice Department under now-Attorney General Sessions, which skirted through the Senate by a 51-48 margin. Confirming nominations promises to continue to be the top goal for Sen. McConnell in the leadup to the November midterm elections.

This article was originally published in Law360.


IRS Announces Major Change To Nonprofit Donor Disclosure Requirements

In a significant and unexpected development, the U.S. Treasury Department announced yesterday that certain nonprofits — including trade associations and 501(c)(4) social welfare organizations — would no longer be required to disclose the names and addresses of their donors on the annual “Form 990” they file with the Internal Revenue Service. Although the IRS already redacts this donor information before making a Form 990 public, these groups will now no longer need to disclose this information to the IRS in the first place. In this advisory, we discuss the background and implications of this development, which is an important one for trade associations, social welfare organizations, and major donors.

Why Did Treasury Make the Change?

In making the change, the Treasury Department emphasized that donor disclosure for organizations other than 501(c)(3) charities and 527 political organizations is not statutorily mandated. Further, in the press release announcing the change, the Treasury Department explained that the previous policy, which required the IRS to redact donor names and addresses, was not a prudent use of taxpayer dollars and that disclosure of donor names and addresses was not necessary because “the IRS makes no systematic use of Schedule B with respect to these organizations in administering the tax code.” In addition, the government emphasized that the “new policy will better protect taxpayers by reducing the risk of inadvertent disclosure or misuse of confidential information,” acknowledging that the IRS “has accidentally released confidential Schedule B information in the past” and that certain tax-exempt groups had previously received “inappropriate” government inquiries “related to donors.”

Which Groups Are Now Exempt From Disclosing Donor Names?

Once the policy becomes effective, “tax-exempt organizations required to file the Form 990 or Form 990-EZ, other than those described in 501(c)(3), will no longer be required to provide names and addresses of contributors on their Forms 990 or Forms 990-EZ and thus will not be required to complete these portions of their Schedules B.” Thus, the new policy exempts 501(c)(4) social welfare organizations, 501(c)(5) labor organizations, 501(c)(6) trade associations, and lesser-known nonprofits such as social clubs, volunteer fire departments, and fraternal benefit societies.

Which Groups Are Not Exempt From the Change?

As noted, 501(c)(3) charities are still required to disclose donor names and addresses on the Schedule B, unless they qualify for a separate exemption, such as the exemption available to churches. Similarly, 527 political organizations that file a Form 990 (such as the Democratic Governors Association and the Republican Governors Association) will still be required to disclose donor names and addresses.

Does This Change What the Public Sees?

No. Even under the current regulations, donor names and addresses on the “Schedule B’s” filed by the now-exempted nonprofits were redacted by the Internal Revenue Service or by the nonprofit before they were made public.

Is Schedule B Gone?

No. Even though many nonprofits will no longer be required to include donor names and addresses on the Schedule B, it appears they still must complete the Schedule B, itemizing the amounts of contributions from donors who give $5,000 or more in a year. But they would no longer be required to include the names and addresses of donors on this schedule.

When Does The Change Become Effective?

The revised reporting requirements apply to returns for taxable years ending on or after December 31, 2018.

Does This Mean That the IRS Will Never Be Able to See 501(c)(4) and 501(c)(6) Donor Information?

No. The new guidance makes clear that the IRS could conceivably still review this information in connection with an audit or enforcement proceeding: “Organizations relieved of the obligation to report contributors’ names and addresses must continue to keep this information in their books and records in order to permit the IRS to efficiently administer the internal revenue laws through examinations of specific taxpayers.”

Does This Mean That These Groups Will Not Be Required to Disclose Their Donors At The State Level?

It depends. There are several states, including New York and California, that require certain 501(c)(4) social welfare organizations to register as charitable organizations with the state and file detailed reports that include unredacted versions of the Form 990 donor list. Once this policy becomes effective, the Form 990s submitted by 501(c)(4) organizations in these states will no longer contain the names and addresses of donors, which represents a significant shift in those states. However, because this policy does not affect 501(c)(3) charities, similar state-level filings by these public charities will go unchanged.

In addition, we have highlighted in previous client advisories and on our Inside Political Law blog how states are increasing their efforts to compel nonprofits to disclose their donors. Whether it is the DISCLOSE Act in Washington or an Executive Order in Montana, states are finding innovative ways to obtain donor information from nonprofits. These targeted state-level efforts should not be affected by this policy change at the IRS. After this policy change, however, we expect that regulators in states that promote donor transparency will use the opportunity to occupy this space and push for new donor disclosure laws or regulations. Covington will continue to monitor the response at the state level.

Covington Artificial Intelligence Update: China’s Framework of AI Standards Moves Ahead

China has set out on an ambitious agenda of aiming to become the world leader in artificial intelligence by 2030. Policy experiments for a critical part of China’s AI development strategy, and to that end multiple government think tanks have set out formulating standards that may impact AI innovation in China.

The China Electronics Standardization Institute (“CESI”), the major think tank responsible for standardization work under the Ministry of Industry and Information Technology (“MIIT”), is one of the key players in AI standardization in China. On January 24, 2018, CESI released the Artificial Intelligence Standardization Whitepaper, which summarizes current developments in AI technology, standardization processes in other countries, China’s AI standardization framework and China’s plan for developing AI capabilities going forward.

Since the release of that whitepaper, CESI continued its standardization work on two parallel tracks.  As the lead agency for China, CESI has been actively engaged in developing international standards. It is an active member of the ISO/IEC JTC 1/SC 42 subcommittee that develops international standards for the AI industry.

To both support CESI’s international standard-setting work and to develop China’s domestic AI standardization framework, CESI has established three working groups: one working group aiming to produce guidelines for establishing the AI standardization system in China, one working group focusing on AI and open source, and another on AI and social ethics. The three working groups are due to produce papers that will guide China’s standardization efforts in the years to come by the end of this year.  CESI aims to leverage China’s domestic standardization work in the development of international standards, while at the same time to learn from international stakeholders when formulating its own standards.

Some of the national AI standards led by CESI have already been finalized, such as Specification of Programming Interfaces for Chinese Speech Recognition Internet Services. More standards are under development or slated for development in the near future.  These standards cover the categories of testing and evaluation, AI platforms, edge intelligent computing and chip, machine learning, computer vision, human-machine interaction, augmented reality, virtual reality, robotics, smart home, intelligent medicine and AI security.

In parallel, other government think tanks are also moving forward on developing industry standards for AI. The Artificial Intelligence Industry Alliance (AIIA), an industry alliance established by China’s regulators with about 200 members, is seeking to develop industry standards on assessment and certification industry systems for AI products and services. These standards will set out requirements and testing methods for AI hardware and AI platforms for services based on voice, language and images.

Interested stakeholders may wish to closely follow progress being made by CESI, AIIA, and other agencies.

Many thanks to Zhijing Yu and Runze Li for their contributions to this post.

China Issues New Foreign Investment Negative List, New Market Access Openings

Through a newly published foreign investment negative list, the Chinese government is offering incrementally greater market access to foreign investors in China. The 2018 Special Administrative Measures on Access to Foreign Investment (“2018 Foreign Investment Negative List” or “2018 FI Negative list”), issued by the Ministry of Commerce and the National Development and Reform Commission (“NDRC”) will replace the list of restrictions and prohibitions in the 2017 foreign investment negative list, which was part of the broader 2017 Catalogue for Guiding Foreign Investment. The “encouraged” section of that 2017 catalogue will remain in effect when the new negative list takes effect on July 28, 2017.

The introductory note to the 2018 Foreign Investment Negative List for the first time indicates that  “areas outside the negative list will be administered according to the principle of consistency between domestic and foreign investment.” However, the introduction later qualifies this statement by noting that existing rules remain in effect for unlisted sectors such as finance and culture, and those relating to administrative approvals, qualification conditions, and national security. Due to this ambiguous language, foreign investors should be cautious when relying on this negative list when making investment decisions. It may be used for quick reference purposes, but should not be seen as a substitute for careful legal research and analysis.

The new list ostensibly relaxes or removes restrictions or prohibitions on foreign investment in 22 areas. Some openings represent genuine market access opportunities for foreign investors, while others require further analysis to understand their full impact. (Note that some new restrictions were also added to the list, but they do not represent substantive change in practice, as mentioned below.)

Overall, the changes between the 2017 and 2018 foreign investment negative lists fall into one or more of the following categories:

  • Genuine market access openings. See, e.g., the removal of Chinese control requirements on crop breeding and seed production (except for wheat and corn).
  • Roadmaps/timelines for future market access openings. See, e.g., roadmaps for openings in the automobile manufacturing sector and the financial services industry.
  • Negative List Restructuring. In some areas, the removal of a restriction or prohibition does not represent an actual legal opening, but rather a restructuring of investment-related legal documents. The foreign investment negative list is supposed to contain restrictions and prohibitions that apply to foreign investment in addition to those that already apply to private domestic investment—i.e., a negative list that represents exceptions from national treatment (equal treatment for foreign and domestic investment). Some restrictions and prohibitions, such as the prohibition on foreign investment in the manufacturing of weapons and ammunition, were removed as they were already off limits to domestic private investment.Note also that the new negative list also includes some newly added items. Those items to not represent new restrictions. Instead, they appear to represent an effort to ensure that the foreign investment negative list more comprehensively captures restrictions and prohibitions on foreign investment in one place. As the next item suggests, progress towards this goal has been uneven.
  • Unlisted Constraints. Investments for which restrictions or prohibitions appear to have been lifted or relaxed may still be constrained in practice through the operation of (1) unlisted measures (see second paragraph of this article); and (2) discretion granted to officials in administering often opaque approval processes.
  • Lack of opportunity in practice. This category represents openings in areas so dominated by state-owned enterprises that the relaxation of a restriction may not translate into an actual opportunity – see, e.g., the removal of Chinese control requirements in the construction and operation of power grids and railroads.

Foreign investors with interests in China are encouraged to examine the changes to the foreign investment negative list and conduct a deeper analysis of related laws and regulations to determine whether they offer new business opportunities.

Christopher Chen of Covington & Burling LLP assisted with the research and preparation of this article.

Covington Publishes Update on Recent FEC Enforcement Activity

After a surprisingly active 2017, the Federal Election Commission’s enforcement efforts have slowed noticeably in the early months of 2018. In February, former Commission Lee Goodman’s departure from the agency left the Commission with only four members. While the remaining Commissioners can still form a quorum, unanimity is required for all official agency action. Perhaps unsurprisingly, then, the Commission’s enforcement activities have declined during the first half of 2018. Still, while it may be tempting to conclude that the FEC has gone entirely idle, the Commission has pursued a number of recent cases that point to continued areas of enforcement risk. In a newly published client alert, Covington provides an overview of recent FEC enforcement trends and identifies areas of active enforcement at the four-member Commission.