How Mozambique Can Realize IMF’s Recent Predictions of Exponential Economic Growth

Early last month, the International Monetary Fund (IMF) caught the attention of investors when it issued a report predicting that Mozambique’s average economic growth rate between 2021-2025 could reach as high as 24 percent per annum and liquefied natural gas projects (LNG) could reach more than 50 percent of the country’s nominal output by the mid-2020s.  While this growth and these production levels are attainable, they are based on a number of assumptions and what the IMF describes as “various risk factors [which] could significantly change the long-term projections.”

First, gas processing facilities in the Rovuma Basin will need to begin production by 2021.  The Mozambican government already has made a significant step forward by approving the Decree-Law nº 2/2014 of 2 of December, which establishes the legal and contractual regime applicable to the LNG projects in the Areas 1 and 4 of the Rovuma Basin. According to the IMF, the total investment in these two areas could exceed one hundred billion dollars and Mozambique would become the world’s third largest LNG exporter.

Second, peace and security based on inclusive growth must be one of the government’s top priorities in the short term.  The opposition party Renamo is putting an increasing amount of pressure on the governing Frelimo party and threatening to use force to achieve its political objectives.  An unstable political situation, whether real or perceived, could deter foreign investment thereby threatening the development of the country’s gas sector and other economic development goals.

Finally, the government has been engaged in an  economic and social reform process, which will lead to significant poverty reduction in the country, although other development challenges remain such as fighting corruption.

The government will continue to  invest heavily in  public sector reform and capacity development, with the objective of improving efficiency, enhancing transparency and devolving responsibility from the highly centralized ministries to the provinces and districts. The government, according to the IMF, also needs to develop and consolidate a macroeconomic policy focused on three main goals: (i) diversification into an economy that is sustainable and not overly reliant on the mega-LNG projects; (ii) proper management of the expected financial windfalls from the gas sector; and (iii) investment in infrastructure and other critical sectors of the economy. Implementing these policies will be critical to Mozambique achieving its long-term high-growth potential.

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

 

This Week in Congress – February 8, 2106

The release of President Obama’s eighth and final budget requesting funds for Fiscal Year (FY) 2017 is likely to take up a great deal of attention in Washington, D.C. this week, but on Capitol Hill the Senate will be attempting to forge a path forward on comprehensive energy legislation that has stalled after two weeks of consideration, while the House will be taking up a number of suspensions related to veterans affairs and delving into legislation on scientific research and disclosure of nutrition information to consumers.

The Senate returns on Monday with a vote scheduled on a judicial nomination. On Wednesday, the Senate will consider H.R. 757, legislation to impose stricter sanctions on North Korea. Introduced earlier last year, the legislation is moving forward due to North Korea’s alleged hydrogen bomb test in January (although public reporting indicates that experts are uniformly agreed that the test was too small to be a hydrogen device). North Korea is now planning a test of a long-range ballistic missile, so the timing of the consideration of the legislation is not accidental. The House-passed sanctions legislation being considered in the Senate would require the Administration to sanction any person or entity that has engaged in activities or transactions in North Korea related to weapons of mass destruction, significant arms, luxury goods, money laundering, counterfeiting, censorship, or human rights abuses. The bill also extends authority to the President to sanction individuals engaging in financial transactions to support any of North Korea’s illicit activities or cyber-threats.

It is likely the Senate will also consider the conference report to the Trade Facilitation and Trade Enforcement Act of 2015. The customs bill is the final piece of a major four-part trade package, which included Trade Promotion Authority, that moved through Congress last year. In addition to funding the U.S. Customs and Border Protection agency, the customs bill also provides streamlined rules to stop importers from evading U.S. antidumping and countervailing duties, provides stronger protections for intellectual property and includes language intended to address currency manipulation. The customs conference report passed the House in December by a vote of 256-158. It is has been delayed in the Senate over its inclusion of language making permanent the ban on taxing the Internet. Proponents of legislation to allow states to impose a sales tax on remote sales, led by Senate Democratic Whip Dick Durbin (D-IL) and Republicans Mike Enzi (R-WY) and Lamar Alexander (R-TN), had sought to use the permanent extension of the Internet-tax ban as a vehicle for their legislation and have sought to block the customs bill in order to peel that section out of the bill. They appear to have failed and the bill is poised to pass the Senate and be signed into law by President Obama.

As mentioned above, behind the scenes in the Senate this week, leadership will be attempting to find some path forward on S. 2012, a comprehensive, bipartisan energy bill that has been the pending business before the chamber over the past two weeks. After working through numerous amendments, action on the bill hit an impasse over an amendment to provide $600 million in federal emergency assistance to Flint, Michigan to address lead contamination in the city’s drinking water. Senate Majority Leader Mitch McConnell attempted two cloture votes on S. 2012 last Thursday, but Democrats filibustered both attempts to close debate on the bill, stating they would not move forward without including adequate assistance for Flint. Press reports indicate negotiations over the funding continued into the weekend, and Majority Leader McConnell expressed his hope to “salvage” the underlying energy bill. Either way, further floor action on the bill is unlikely until after the Senate returns from its one-week break for President’s Day the week of February 15.

On the other side of the Capitol, the House is scheduled to convene for legislative business on Tuesday, with votes expected on a dozen bills under suspension of the rules, a majority of which were reported favorably by the Veterans Affairs Committee.

On Wednesday, the House is scheduled to consider H.R. 3293, the Scientific Research in the National Interest Act, subject to a rule. The controversial legislation sponsored by House Science Committee Chairman Lamar Smith (R-TX) would require the National Science Foundation to make “an affirmative determination, justified in writing, that the grant or agreement promotes the progress of science in the United States […]” prior to awarding federal funds through a grant or cooperative agreement for basic scientific research or education. This language was included in the House-passed America COMPETES Act, a broader research-funding reform bill that passed the House on a partisan vote last May. While intended to ensure greater accountability in the federal funding of research, many in the scientific community are opposed to what they fear will produce political interference in the award of federal grants. The Democratic conference is expected to oppose the bill.

Following the conclusion of the debate on H.R. 3293, the House will begin consideration of H.R. 3442, the Debt Management and Fiscal Responsibility Act, a bill that would restructure the manner in which increases in the federal debt limit are considered. Instead of simply providing to Congress a date at which the Treasury would reach its borrowing limit and requesting a debt limit increase, under this legislation the Secretary of the Treasury would be required to submit to Congress reports on the state of the national debt, drivers and composition of the debt, and future debt projections, as well as a plan for how the U.S. will meet debt obligations if the debt limit is raised. The Treasury Secretary would also be required to appear before House and Senate committees to testify about the national debt and the administration’s debt-reduction proposals. Congressional approval of a debt-limit increase would still be necessary, although U.S. borrowing authority is currently authorized through March 2017 under a budget agreement negotiated last October by former Speaker of the House John Boehner. Consideration of H.R. 3293 will be subject to a rule and is expected to stretch into Thursday.

The final item on the House agenda before its scheduled President’s Day recess will be consideration of H.R. 2017, the Common Sense Nutrition Disclosure Act of 2015, subject to a rule. This legislation would amend the Federal Food, Drug, and Cosmetics Act to revise the information certain restaurants and retail food establishments must disclose about nutrition to the consumer. Under the Affordable Care Act, the Food and Drug Administration (FDA) was authorized to issue new rules on the disclosure of nutritional information for menu items. The FDA issued two new rules in 2014 requiring that certain chain restaurants and similar retail food establishments, grocery, and convenience stores with 20 or more locations disclose certain nutrient information for standard menu items. Both rules were scheduled to be implemented at the end of last year. After a great deal of push back from the restaurant, fast food, and retail communities over the requirements due to the costs and burdens they imposed, Congress authorized a delay in their implementation until December 2016. The delay was mandated so that Congress could itself play a role in the resolution of the issue, and key legislators have been working with industry, trade, and other groups to navigate a path forward. H.R. 2017 would clarify the FDA requirements and facilitate compliance for certain industry sectors without undoing the regulatory scheme to provide consumers with adequate nutritional information. The legislation was reported favorably out of the House Energy & Commerce Committee by a 36-12 vote.

The President is expected to release his final budget request, for FY2017, on Tuesday morning and many congressional committees will meet this week to review various provisions of the request. Treasury Secretary Jacob Lew will appear before the Senate Finance Committee Wednesday to discuss revenue proposals in the President’s budget, and before the House Ways and Means Committee on Thursday to discuss President Obama’s budget proposals for the Department of Treasury. Sylvia Burwell, Secretary Of Health And Human Services, is also scheduled to appear before the Senate Finance Committee and House Ways and Means Committee. IRS Commissioner John Koskinen is also scheduled to appear before Senate Finance Committee as well as the House Appropriations Subcommittee on Financial Services.

The House Transportation and Infrastructure Committee meets Wednesday morning to review Air Traffic Control Reform Proposals, a provision of a new Federal Aviation Administration (FAA) reauthorization bill. The current authorization for FAA activity and funding is set to expire March 31, a six-month extension that was enacted last year as a stopgap measure to give legislators more time to work through an agreement on a long-term reauthorization. House Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) introduced the Aviation Innovation, Reform and Reauthorization, or AIRR Act, in the House last week. This legislation would reauthorize the Federal Aviation Administration and its funding until 2022. His legislation, however contains a controversial proposal to remove air traffic control from FAA ownership and authority and place it under the control of a new non-profit, non-governmental organization, which many in the industry and the committee’s Ranking Member Peter DeFazio (D-OR) oppose.

Also on the hearing schedule are several House events focused on international visas. The House Oversight & Government Reform Subcommittee on Government Operations and the full Homeland Security Committee have scheduled Wednesday hearings on recent visa waiver program restrictions that have been reformed by the White House to add exceptions for Iran. The House Judiciary Committee is also scheduled to meet on Thursday to review the Investor Visa, or EB-5 Visa Program. The program, designed to allow foreign investors to gain permanent residence in the United States, has been reauthorized by Congress several times, and is currently set to expire on September 30. Congress is considering potential reforms and oversight mechanisms to the program, likely to be highlighted in the House Judiciary Committee hearing. The EB-5 visa program was the subject of a Senate Judiciary Committee hearing last week.

A full schedule of events for the week ahead is included below:

Tuesday, February 9, 2016

Senate Committees

Examining Worldwide Threats
Senate Armed Services
Full Committee Hearing
9:30 a.m., G-50 Dirksen Bldg.

Consideration of 6 Biomedical Innovation Bills
Senate Health, Education, Labor and Pensions
Full Committee Markup
10 a.m., 430 Dirksen Bldg.

Department of Defense Nuclear Acquisition Programs and the Nuclear Doctrine
Senate Armed Services – Subcommittee on Strategic Forces
Subcommittee Hearing
2:30 p.m., 232-A Russell

Federal-State Fish/Wildlife Management Interactions
Senate Environment and Public Works
Full Committee Hearing
2:30 p.m., 406 Dirksen Bldg.

The Way Forward in Syria and Iraq
Senate Foreign Relations
Full Committee Closed Briefing
5 p.m., SVC-217

Wednesday, February 10, 2016

House Committees

2016 Agenda for CFTC
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth Bldg.

Nuclear Regulatory Commission Budget
House Appropriations
Full Committee Hearing
10:30 a.m., 2362-B Rayburn Bldg.

Next Steps for K-12 Education: Implementing the Promise to Restore State/Local Control
House Education and the Workforce – Subcommittee on Early Childhood, Elementary and Secondary Education
Subcommittee Hearing
10 a.m.

Medicaid/CHIP Federal Assistance Percentage
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m.

Monetary Policy and the State of the Economy
House Financial Services
Full Committee Hearing
10 a.m.

From Iraq and Syria to Libya and Beyond: Evolving ISIL Threat
House Foreign Affairs
Full Committee Hearing
10 a.m.

National Security and Law Enforcement: Breaking the New Visa Waiver Law to Appease Iran
House Homeland Security
Full Committee Hearing
11 a.m.

The Costly Impacts of Predation and Conflicting Federal Statutes on Native/Endangered Fish Species
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
10 a.m.

Midnight Regulations: Examining Executive Branch Overreach
House Science, Space and Technology
Full Committee Hearing
10 a.m.

Export Control Reform (Part I): Challenges for Small Business
House Small Business – Subcommittee on Agriculture, Energy and Trade
Subcommittee Hearing
10 a.m.

Air Traffic Control Reform Proposals
House Transportation and Infrastructure
Full Committee Hearing
10 a.m.

Veterans’ Affairs Budget Request
House Veterans’ Affairs
Full Committee Hearing
10 a.m.

Commodity Futures Trading Commission Budget
House Appropriations – Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Subcommittee Hearing
2:30 p.m.

Countering Weapons of Mass Destruction
House Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Hearing
3:30 p.m.

Future of the Army
House Armed Services – Subcommittee on Tactical Air and Land Forces
Subcommittee Hearing
2 p.m.

CPSC Industry Perspectives
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
2 p.m.

Global Zika Epidemic: Emerging in the Americas
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
1:15 p.m.

ISIS-Inspired Attacks
House Foreign Affairs – Subcommittee on Terrorism, Nonproliferation, and Trade
Subcommittee Hearing
2 p.m.

Visa Waiver Program Restrictions
House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittee Hearing
2 p.m.

Oversight of SBA Advocacy/Ombudsman Offices
House Small Business – Subcommittee on Investigations, Oversight and Regulations
Subcommittee Hearing
1 p.m.

A Review of VA’s Loan Guarantee Program and Specially Adaptive Housing Grant Program
House Veterans’ Affairs – Subcommittee on Economic Opportunity
Subcommittee Hearing
2 p.m.

HHS Budget
House Ways and Means
Full Committee Hearing
2 p.m.

Senate Committees

Air Force Budget Estimates
Senate Appropriations – Subcommittee on Defense
Subcommittee Hearing
10:30 a.m., 192 Dirksen Bldg.

Importance of Enacting a New Water Resources Development Act
Senate Environment and Public Works
Full Committee Hearing
10 a.m., 406 Dirksen Bldg.

Budget Revenue Proposals
Senate Finance
Full Committee Hearing
10:30 a.m., 215 Dirksen Bldg.

Iran-Robert Levinson Resolution
Senate Foreign Relations
Full Committee Markup
10 a.m.

U.S. Policy in Central Africa
Senate Foreign Relations
Full Committee Hearing
11 a.m.

Pending Legislation
Senate Homeland Security and Governmental Affairs
Full Committee Markup
10 a.m., 342 Dirksen Bldg.

Mental Health and the Justice System
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

FY2017 Budget
Senate Veterans’ Affairs
Full Committee Hearing
10 a.m.

IRS Budget
Senate Finance
Full Committee Hearing
2 p.m., 215 Dirksen Bldg.

Global Drug Trafficker Scam on Seniors
Senate Special Aging
Full Committee Hearing
2:30 p.m., 562 Dirksen Bldg.

Thursday, February 11, 2016

House Committees

EPA Actions and the Rural Economy
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth Bldg.

Internal Revenue Service Budget
House Appropriations – Subcommittee on Financial Services and General Government
Subcommittee Hearing
10 a.m., 2359 Rayburn Bldg.

U.S. Engagement in Central America
House Appropriations – Subcommittee on State, Foreign Operations, and Related Programs
Subcommittee Hearing
10 a.m., B-308 Rayburn Bldg.

Agriculture Department Budget
House Appropriations – Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Subcommittee Hearing
10:30 a.m., 2362-A Rayburn Bldg.

Afghanistan Security Forces Development
House Armed Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10:30 a.m.

Air Force Budget and Readiness
House Armed Services – Subcommittee on Readiness
Subcommittee Hearing
8 a.m.

Iran Nuclear Deal Oversight: Implementation and its Consequences
House Foreign Affairs
Full Committee Hearing
10 a.m.

The Future of Iranian Terror Threats to the Homeland
House Homeland Security – Subcommittee on Counterterrorism and Intelligence
Subcommittee Hearing
10 a.m.

Is the Investor Visa Program an Underperforming Asset?
House Judiciary
Full Committee Hearing
10:15 a.m.

Pending Legislation
House Natural Resources – Subcommittee on Federal Lands
Subcommittee Hearing
10 a.m.

Export Control Reform (Part II)
House Small Business
Full Committee Hearing
10 a.m.

Choice Consolidation: Improving VA Community Care Billing/Reimbursement
House Veterans’ Affairs – Subcommittee on Health
Subcommittee Hearing
10 a.m.

Treasury Budget
House Ways and Means
Full Committee Hearing
10 a.m.

Foot and Mouth Disease Preparedness
House Agriculture – Subcommittee on Livestock and Foreign Agriculture
Subcommittee Hearing
2 p.m., 1300 Longworth Bldg.

Bureau of Reclamation Budget
House Appropriations
Full Committee Hearing
1:30 p.m., 2362-B Rayburn Bldg.

Atomic Energy Defense Budget
House Armed Services – Subcommittee on Strategic Forces
Subcommittee Hearing
2 p.m.

Biological Detection/Surveillance Programs
House Homeland Security – Subcommittee on Emergency Preparedness, Response and Communications
Subcommittee Hearing
2 p.m.

Resolving Issues With Confiscated Property in Cuba
House Judiciary – Subcommittee on Courts, Intellectual Property and the Internet
Subcommittee Hearing
1 p.m.

Carrier Air Wing/Future of Naval Aviation
House Armed Services – Subcommittee on Seapower and Projection Forces
Subcommittee Hearing
3:30 p.m.

Senate Committees

Future of the Army
Senate Armed Services
Full Committee Hearing
9:30 a.m., G-50 Dirksen Bldg

“The Semiannual Monetary Policy Report to the Congress”
Senate Banking, Housing and Urban Affairs
Full Committee Hearing
10 a.m., 538 Dirksen Bldg.

HHS Budget
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Enforcing Regulatory Fines and Penalties
Senate Homeland Security and Governmental Affairs – Subcommittee on Regulatory Affairs and Federal Management
Subcommittee Hearing
9:30 a.m., 342 Dirksen Bldg.

Pending Legislation
Senate Judiciary
Full Committee Markup
10:30 a.m., 226 Dirksen Bldg.

Friday, February 12, 2016

House Committees

Agriculture Inspector General Budget
House Appropriations – Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Subcommittee Hearing
9:30 a.m., 2362-A Rayburn Bldg.

California Regulation, Proposed Statute Add to State’s Reputation for Complex, Detailed Disclosure

California is already home to some of the most complicated and searching political regulations in the country, especially in its efforts to expose “dark money” and other undisclosed political spending.  A newly-amended lobbying regulation and proposed campaign finance law will enhance that reputation.  The practical effect of each is to invite deeper scrutiny of not only the regulated entity,  but also of its donors, employees, consultants, and other affiliates, all of whom face much greater exposure under the new laws.

First, the state’s Fair Political Practices Commission recently voted to amend regulation 18616.  The amendments are specifically designed to target and expose payments for “shadow lobbying” and grassroots campaigns.  Effective July 1, if a lobbyist employer pays over $2,500 in a quarter to a person to influence lawmaking, it must disclose the recipient, amount, and purpose of those payments.  This could include payments for, among other purposes:

  • salaries for non-lobbyist employees who spend 10% or more of their time in a month lobbying or supporting lobbying;
  • directly billed lobbyist expenses;
  • government relations consulting, strategic advice, and other “shadow lobbying” legislative services;
  • grassroots campaigns;
  • advertising and media campaigns; and
  • polling and other research.

Second, the Assembly has passed, and the Senate has taken up, AB-700, the “California DISCLOSE Act.”  The Act would require many political advertisements to prominently display or announce the names of the ad sponsor’s top donors of $50,000 or more.  Adding another layer of disclosure, the bill also makes clear that efforts to hide contributions using middleman organizations or earmarked funds are impermissible — the true source of funds must be disclosed.  While the bill could be killed or amended before passage, this is a major broadening of California’s current on-advertisement disclosure laws and another blow at undisclosed funders.

A new settlement for the United Kingdom within the European Union

The President of the European Council Donald Tusk presented his proposals on February 2 for a ‘new settlement of the United Kingdom within the European Union’.  If accepted, they would allow David Cameron to campaign in the announced ‘Brexit referendum’ for continuing membership of the UK in the bloc.

You will find here, the letter sent by the former Prime Minister of Poland to all EU members and here the text of the draft ‘decision’ which should be adopted by the Heads of State and Government in a meeting on February 18.

This draft is by no means a shot in the air: three months of talks were needed to arrive at this balanced compromise, which still leaves a few issues sufficiently open as to convince those skeptics that the final deal will be ‘the best possible’ for everyone.  These talks involved high-level officials from the EU Commission and the Council Secretariat as well as close advisors of David Cameron.  The Prime Minister himself toured the Member States in a declared effort to rally support for his requests for a ‘reformed Union’.

What are these Requests?

They are grouped in four baskets: ‘Economic Governance’, ‘Competitiveness’, ‘Sovereignty’ and – the most tricky – ‘Social Benefits and Free Movement’.  Tusk’s draft decision addresses each of them in order, but it is important first to read the recitals which precede.

They first state clearly that the decision is in conformity with the Treaties; it will just ‘clarify certain questions … so that such clarification will have to be taken into consideration as being an instrument for the interpretation of the Treaties’.  This is the maximum those who asked for Treaty change could get.  The vast majority of the EU members had indeed told Cameron in his tour that a new Treaty is out of the question in today’s circumstances.

Tusk however suggests a few openings: a sentence in square brackets states that the substance of the section on Economic Governance as well as the interpretation of the ‘ever closer Union’ sentence will be incorporated in the Treaties at the time of their next revision – a formula similar to the one used for the ‘changes’ Denmark had asked for in order to encourage a Yes vote in its second referendum on the Maastricht Treaty.  For the social benefits to European Union workers, the draft suggests that new rules might be introduced in future Acts of accession.

The rest of the recitals enumerate the impressive list of opt outs that the UK has already obtained with regard to EU policies in the past: on adopting the Euro, on participating in Schengen, on measures decided in the framework of ‘freedom, security and justice’ … and so on.  The draft contains the most elaborate presentation to date of the ‘two speed Europe’, as it already exists and as it may develop further.  The aim is to reassure those still concerned with the famous sentence in the Treaty preamble that variable geometry is now as much an EU slogan as the ‘ever closer Union’.

The section on Economic Governance addresses the difficult issue of the rights and duties of countries not participating in the Euro.  Cameron had first asked for the Euro no longer to be considered as the currency of the Union – which would have required a Treaty change and was, for obvious reasons, not acceptable to the current members of the club.  He then asked for a sort of veto right on decisions made at the level of the Eurozone members, a suggestion which was difficult to formulate; indeed, the latest formulation suggested infuriated the French, creating a last minute row which explains the late publication of Tusk’s proposals.  The text of the draft reflects the difficulty of finding a compromise.  In fact, the coexistence of bodies and rules established at the level of the Union with bodies and rules with similar objectives established at the level of the Eurozone – like the banking union institutions – is an issue which needs to be addressed even outside the Brexit context.  At first sight, the proposed text looks well balanced, but further negotiation will probably be needed in the days to come.

On Competitiveness, the deal was easier to make.  The Union is already engaged in the ‘better regulation’ process advocated by the Juncker Commission and the ‘active and ambitious policy of trade’ reflects the various bilateral negotiations under way, of which, as was abundantly commented, the UK will no longer be part of in case of Brexit.

The section on ‘Sovereignty’ addresses several issues.  First, the ‘ever closer union’, a favorite of the Eurosceptics which has been discussed at length in all possible EU academic circles since Cameron opened a debate on the meaning of the sentence in 2014, in the European Council meeting which appointed Jean Claude Juncker.  At the time, the Council stated that: ‘the concept of ever closer union allows for different paths of integration for different countries, allowing those that want to deepen integration to move ahead, while respecting the wish of those who do not want to deepen any further’.  The Tusk draft goes further in stating explicitly that the UK is not committed to further political integration of the European Union, but adds subtly that this is due to ‘the specific situation it has under the Treaties’, which seems to imply that this does not apply to other Member States.  The other issues mentioned in this section are subsidiarity, a precise procedure to strengthen the ability of national parliaments to challenge EU legislation in the making – which should not be objected to by many -, a confirmation that the UK is not bound by policies of which a protocol exempts it and… a confirmation of an evident truth – that national security remains the sole responsibility of the Member States.

And then the ‘Social benefits and free movement’.  A request was made, rather foolishly, when the debate about the referendum started, to stop the (numerous) citizens from the ‘new’ Member States who came to London in the last decade from enjoying social benefits in the UK as soon as they arrive.  The arguments that discriminating against workers from other Member States is contrary to the basic EU treaty principles, that these migrants rather contribute positively to prosperity in the country, and – as was confirmed later – that the real problem is rather the migrants from outside the EU, did not succeed in removing this request from the table.  Since it was not possible to give the UK satisfaction under the Treaties, a formula had to be invented to address the substance of the problem.  The draft decision first elaborates on limits to the free movement of workers which could be considered as ‘legitimate’ – when social benefits are abused or when they face ‘flows of workers of such a scale that they have negative effects’.  It then introduces the idea of an ‘alert and safeguard mechanism’ when the flow is of ‘an exceptional magnitude over an extended period of time’.  All Member States could use this mechanism to limit access to in-work benefits ‘for a total period of up to four years from the commencement of employment’; but it would only apply to workers ‘newly entering’ the country’s labor market.  Precisions in the timings are left for the final negotiation.  Resistance from the new EU members can be expected, but Cameron might count on sympathy from Eurosceptics in Poland, Hungary and others for the overall ‘spirit’ of his proposals.

What Happens Next ?

Permanent Representatives and heads of governments’ ‘Sherpas’ will have a first look at the text on Friday, February 5.  There will be little time after that for further negotiation before the February 18 European Council.  But, according to Tusk, there is no other choice than success: ‘to fail would be compromising our common future’.  If the text is adopted, Cameron will probably announce the date of the referendum at the end of the European Council.  His colleagues will press him to choose the earliest possible: the Union is faced with other problems of a magnitude which allows to consider Cameron’s demands as secondary and not really timely.  He is expected to announce that the referendum will take place on June 23, 2016.

It is now fairly clear that Cameron will play a strong, personal role in making the case for the UK to ‘remain’ in the EU.  But at the same time, his colleagues will know that he will need their help in the campaign to make the scale weigh in favor of Britain staying in the Union – which will remain uncertain until the vote.  They will know also, in looking at various exit scenarios developed recently, that a Brexit would be catastrophic for the UK – and a further blow to the Union, which is already suffering one of the toughest periods in its history.

This Week in Congress – February 1, 2016

Now that Washington, D.C. has largely recovered from the impact of Winter Storm Jonas, lawmakers can expect a flurry of activity to resume in the House and Senate to make up for the postponed votes, hearings, and other events that were canceled due to the storm; many of these have simply been pushed into this week’s schedule.  Both chambers are scheduled to return on Monday with much on their respective agendas.

The Senate plans to resume consideration of bipartisan, comprehensive energy legislation, S. 2012, when it returns to session on Monday.  The bill is the pending business, debate having started on it last week, and consideration of amendments is expected throughout the course of the week.  More than 100 amendments are currently pending to the bill, and while a number of non-controversial amendments were approved last week, several controversial (and partisan) proposals could be considered this week.  Among these are a Republican amendment to reverse a recent Interior Department moratorium on new coal mine leases on public lands; other Republicans amendments to obstruct energy and environmental regulations; and Democratic amendments on climate change.

As discussed in last week’s column, Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R-AK) and Ranking Member Maria Cantwell (D-WA) will be seeking to manage the open amendment process (itself a reflection of the continued Republican leadership’s commitment to restoring the more traditional approaches to Senate debate after years in which then-Majority Leader Harry Reid (D-NV) continually blocked consideration of amendments on almost all legislative vehicles) in order to maintain the bipartisan support for S. 2012 seen during the Committee’s markup of the bill last summer.

A new challenge to passage of S. 2012 was introduced last week when several Democratic members introduced an amendment aimed at providing emergency resources to the Flint, Michigan community to address severe contamination from lead and other contaminants in the city’s drinking water.  Michigan Senators Debbie Stabenow and Gary Peters are proposing that the $600 million assistance provided through the amendment be considered emergency funding and therefore would not need to be offset by cuts elsewhere.  Republicans, however, are likely to oppose the funding without an offset.  Press reports indicate that negotiations over the Flint amendment are ongoing but, as with the other pending partisan amendments, its inclusion or rejection could shift support for the underlying bill.

The House is scheduled to return on Monday, with votes expected on eight bills under suspension of the rules, with four of these reported out of the Financial Services Committee and three out of the Foreign Affairs Committee.  On Tuesday the House will consider H.R. 3700, the Housing Opportunity Through Modernization Act of 2015, a broad and bipartisan bill to overhaul housing assistance programs.  Consideration of H.R. 3700 will be subject to a rule.

Members will then turn their attention to two bills aimed at thwarting two policy initiatives of President Obama and his Administration.  The debate will provide two messaging opportunities for Republican members in this election year.

The first is H.R. 3662, the Iran Terror Finance Transparency Act.  The bill would prevent the Administration from offering any sanctions relief to individuals or financial institutions in Iran until it can certify to Congress that the particular individual or institution has not had involvement with terrorist groups, including the Iranian Revolutionary Guard, or Iran’s ballistic missile or conventional weapons programs.  The bill is an effort by Republicans in Congress to reassert some relevance in foreign policy matters.  A prior vote on H.R. 3662 that occurred in January was declared void and a new vote scheduled in order to garner the support of a two-thirds majority necessary to override a presidential veto, one that has already been threatened by President Obama.  The earlier vote on the bill, on January 13, came less than one day after a tense international incident in which Iran detained ten American sailors and two U.S. Navy vessels that had wandered into Iranian waters.  Consideration of the legislation is also occurring as Iran is re-entering the global economy after sanctions were lifted in the wake of the international agreement on Iran’s nuclear program.  On January 16, the U.S., China, Russia, Britain, France, and Germany lifted some economic sanctions against Tehran after the country fulfilled necessary obligations agreed to in the July 2015 multilateral nuclear agreement which required the country to disable portions of its existing nuclear infrastructure.

The second item to roll back the President’s agenda is a vote to override the President’s veto of H.R. 3762, the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, the reconciliation bill passed and vetoed last year.  The measure  repeals five core provisions of the Affordable Care Act and places a moratorium on federal funding of Planned Parenthood for one year.  The bill initially passed the House of Representatives by a vote of 240-181, which is short of the necessary two-thirds majority to override the President’s veto.

During the remainder of the week, the House is expected to resume consideration of legislation reported favorably out of the House Financial Services Committee.  On Wednesday the House will take up  H.R. 1675, the Encouraging Employee Ownership Act, subject to a rule.  This legislation would make it easier for private companies to award stock as part of an employee’s compensation.  On Thursday, the House is expected to vote on H.R. 766, the Financial Institution Customer Protection Act of 2015, subject to a rule.  The bill would prevent government agencies from using their regulatory powers to force businesses in certain industries to stop doing business.  H.R. 766 “prohibits a federal banking agency from formally or informally suggesting, requesting, or ordering a depository institution to terminate … specific customer account” without good reason, and excludes “reputation risk” as a reason.

House and Senate Committees will be very active this week.  Several House committees are meeting to mark up their budget views and estimates for Fiscal Year (FY) 2017.  As part of the annual budget and appropriations process, congressional committees submit their legislative and budgetary preferences for the fiscal year ahead to the House and Senate Budget Committees in preparation for the consideration of a budget resolution.  This week the House Agriculture, Financial Services, Select Intelligence, and Small Business Committees will be marking up their respective reports.

The threat of terrorism in the United States and instability in the Middle East remain subjects of hearings on both sides of the Capitol.  The Senate Homeland Security and Government Affairs (HSGAC) Committee has rescheduled a hearing for Tuesday morning regarding the frontline response to terrorism in America, with police and fire chiefs and homeland security experts scheduled to appear as witnesses, including New York City Police Commissioner Bill Bratton.  The HSGAC Committee is also scheduled to meet Wednesday to review Canada’s fast-track policy for Syrian refugee resettlement and potential security implications for the U.S.  The House Homeland Security Committee will review methods to further strengthen visa and refugee security in the United States to prevent infiltration from terrorists.  This hearing will be held in the wake of Republican congressional claims that the President and his administration are ignoring a law passed late in 2015 to toughen visa standards in order to combat terrorist travel into the United States.

U.S. strategy in Afghanistan in 2016 is the topic of a House Armed Services Committee hearing on Tuesday and the Senate Armed Services Committee on Thursday.  The Senate committee last week heard from the nominee to become the new U.S. commander in Afghanistan and is likely to report out that nomination shortly for consideration by the full Senate.  The House Foreign Affairs Subcommittee on Europe, Eurasia and Emerging Threats meets Wednesday afternoon to review Turkey’s political trends for 2016.  Additionally the Senate Armed Services Subcommittee on Emerging Threats and Capabilities will host a closed hearing on Wednesday to discuss the Islamic State and counterterrorism strategy.

A full schedule of events is included below:

 
Monday, February 1, 2016

House Committees

Budget Views and Estimates
House Select Intelligence
Full Committee Markup (Closed)
5 p.m.,

Senate Committees

Opioid Abuse Among Older Americans
Senate Special Aging
Full Committee Field Hearing
10:30 a.m., 21170 Ashby Ponds Blvd Ashburn, VA 20147 Great Oak Club House

Tuesday, February 2, 2016

House Committees

Budget Views and Estimates
House Agriculture
Full Committee Business Meeting
9:30 a.m., 1300 Longworth Bldg.

Direct Marketing Opportunities and Challenges
House Agriculture – Subcommittee on Biotechnology, Horticulture and Research
Subcommittee Hearing
10 a.m., 1300 Longworth Bldg.

Afghanistan in 2016: The Evolving Security Situation and U.S. Policy, Strategy, and Posture
House Armed Services
Full Committee Hearing
10 a.m., 2118 Rayburn Bldg.

Retirement Security Legislation Markup
House Education and the Workforce
Full Committee Markup
10 a.m., HVC-210

A Legislative Hearing on 8 Energy Infrastructure Bills
House Energy and Commerce – Subcommittee on Energy and Power
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Status of the Public Safety Broadband Network
House Energy and Commerce – Subcommittee on Communications and Technology
Subcommittee Hearing
10:15 a.m., 2322 Rayburn Bldg.

FY17 Budget Views and Estimates
House Financial Services
Full Committee Markup
10 a.m., 2128 Rayburn Bldg.

Classified: FISA Amendments Act
House Judiciary
Full Committee Closed Hearing
10 a.m., 2141 Rayburn Bldg.

Legislative Hearing on H.R. 3070 and H.R. 4245
House Natural Resources – Subcommittee on Water, Power, and Oceans
Subcommittee Hearing
10 a.m., 1324 Longworth Bldg.

The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Hearing
11 a.m., 1334 Longworth Bldg.

U.S. Dept. of Education Department: Investigation of the CIO
House Oversight and Government Reform
Full Committee Hearing
10 a.m., 2154 Rayburn Bldg.

Paris Climate Promise: A Bad Deal for America
House Science, Space and Technology
Full Committee Hearing
10 a.m., 2318 Rayburn Bldg.

SBA Entrepreneurial Development Oversight
House Small Business – Subcommittee on Economic Growth, Tax and Capital Access
Subcommittee Hearing
11 a.m.

Building Upon Success: Priorities for the Water Resources Development Act of 2016
House Transportation and Infrastructure – Subcommittee on Water Resources and Environment
Subcommittee Business Meeting
10:30 a.m., 2167 Rayburn Bldg.

Choice Consolidation: Evaluating Eligibility Requirements for Care in the Community
House Veterans’ Affairs – Subcommittee on Health
Subcommittee Hearing
10 a.m., 334 Cannon Bldg.

Economic Pro-Growth Opportunities
House Ways and Means
Full Committee Hearing
10 a.m., 1100 Longworth Bldg.

Federal Spending and the Debt Limit
House Financial Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
2 p.m., 2128 Rayburn Bldg.

Assessing TSA Management and Implementation of the Screening Partnership Program (Part II)
House Homeland Security – Subcommittee on Transportation Security
Subcommittee Hearing
2 p.m., 311 Cannon Bldg.

H.R. 1057, Promoting Automotive Repair, Trade, and Sales Act (PARTS Act)
House Judiciary – Subcommittee on Courts, Intellectual Property and the Internet
Subcommittee Hearing
2 p.m., 2141 Rayburn Bldg.

Full Committee Markup on 18 Bills
House Natural Resources
Full Committee Markup
4 p.m., 1324 Longworth Bldg.

Seeking Justice for Victims of Overseas Terrorism
House Oversight and Government Reform – Subcommittee on National Security
Subcommittee Hearing
2 p.m., 2154 Rayburn Bldg.

Senate Committees

Opening Ground Combat Units to Women
Senate Armed Services
Full Committee Hearing
10 a.m.. G-50 Dirksen Bldg.

Response to Terrorism in America
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10:15 a.m., 342 Dirksen Bldg.

EB-5 Immigrant Investor Program
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Occupational Licensing and State Action Doctrine
Senate Judiciary – Subcommittee on Antitrust, Competition Policy and Consumer Rights
Subcommittee Hearing
2 p.m., 226 Dirksen Bldg.

Wednesday, February 3, 2016

House Committees

Reviewing Purchasing Power of Fruit/Vegetable Programs for Low-Income Families
House Agriculture – Subcommittee on Nutrition
Subcommittee Hearing
10 a.m., 1300 Longworth Bldg.

Assistance to Combat Wildlife Trafficking
House Appropriations – Subcommittee on State, Foreign Operations, and Related Programs
Subcommittee Hearing
10:30 a.m., H-140

Acquisition Reform: Starting Programs Well
House Armed Services
Full Committee Hearing
10 a.m., 2118 Rayburn Bldg.

Expanding Educational Opportunity Through School Choice
House Education and the Workforce
Full Committee Hearing
10 a.m., HVC-210

Emissions Rules Limitation
House Energy and Commerce – Subcommittee on Energy and Power
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance
House Financial Services – Investigate Terrorism Financing Task Force
Subcommittee Hearing
10 a.m., 2128 Rayburn Bldg.

Preventing Terrorist Infiltration Through U.S. Refugee and Visa Programs
House Homeland Security
Full Committee Hearing
10 a.m., 311 Cannon Bldg.

Full Committee Markup on 18 Bills (cont’d)
House Natural Resources
Full Committee Markup
10 a.m., 1324 Longworth Bldg.

Examining Administration of the Safe Drinking Water Act in Flint, Mich.
House Oversight and Government Reform
Full Committee Hearing
9 a.m. 2154, Rayburn Bldg.

Expert Perspectives on NASA’s Human Exploration Proposals
House Science, Space and Technology
Full Committee Hearing
10 a.m. 2318 Rayburn Bldg.

Status of Coast Guard Cutter Acquisition Programs
House Transportation and Infrastructure – Subcommittee on Coast Guard and Maritime Transportation
Subcommittee Hearing
10 a.m., 2167 Rayburn Bldg.

Lost Opportunities for Veterans: An Examination of VA’s Technology Transfer Program
House Veterans’ Affairs
Full Committee Hearing
10:30 a.m., 334 Cannon Bldg.

Military Treatment Facilities
House Armed Services – Subcommittee on Military Personnel
Subcommittee Hearing
2 p.m., 2212 Rayburn Bldg.

Outside Views on Biodefense
House Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Hearing
3:30 p.m., 2118 Rayburn Bldg.

Turkey’s Political Trends in 2016
House Foreign Affairs – Subcommittee on Europe, Eurasia and Emerging Threats
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

Oversight of Aviation Credentials
House Oversight and Government Reform
Full Committee Hearing
1 p.m., 2154 Rayburn Bldg.

Senate Committees

U.S. Defense Policy in the Asia-Pacific
Senate Armed Services
Full Committee Hearing
9:30 a.m., G-50 Dirksen Bldg.

Spending on Unauthorized Programs
Senate Budget
Full Committee Hearing
10 a.m., 608 Dirksen Bldg.

EPA Stream Protection Rule
Senate Environment and Public Works
Full Committee Hearing
9:30 a.m., 406 Dirksen Bldg.

Strains on the European Union and Implications for U.S. Foreign Policy
Senate Foreign Relations
Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Canada’s Fast-Track Refugee Plan and Implications for U.S. National Security
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Examining the Need for Transparency in Asbestos Trusts
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Counterterrorism Strategy: Understanding ISIL
Senate Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Hearing
2:30 p.m., SVC-217

Indian Water Rights
Senate Indian Affairs
Full Committee Markup
2:15 p.m.

Great Plains Indian Healthcare Quality
Senate Indian Affairs
Full Committee Hearing
2:15 p.m.

Thursday, February 4, 2016

House Committees

Naval Strike Fighters: Issues and Concerns
House Armed Services – Subcommittee on Tactical Air and Land Forces
Subcommittee Hearing
10:30 a.m., 2118 Rayburn Bldg.

CBO’s Budget and Economic Outlook
House Budget
Full Committee Hearing
9:30 a.m., 210 Cannon Bldg.

Examining Implementation of the Biologics Price Competition and Innovation Act
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Southwest Border Immigrant Surge
House Judiciary – Subcommittee on Immigration and Border Security
Subcommittee Hearing
9 a.m., 2141 Rayburn Bldg.

Developments in the Prescription Drug Market: Oversight
House Oversight and Government Reform
Full Committee Hearing
9 a.m., 2154 Rayburn Bldg.

A Review of Recommendations for NSF Project Management Reform
House Science, Space and Technology – Subcommittee on Oversight
Subcommittee Hearing
9:30 a.m., 2318 Rayburn Bldg.

Consideration of a Committee Report
House Select Intelligence
Full Committee Business Meeting
9 a.m.

Budget Views and Estimates
House Small Business
Full Committee Markup
9 a.m., 2360 Rayburn Bldg.

Senate Committees

Situation in Afghanistan
Senate Armed Services
Full Committee Hearing
10 a.m., G-50 Dirksen Bldg.

Rural Telecommunications
Senate Commerce, Science and Transportation – Subcommittee on Communications, Technology, Innovation and the Internet
Subcommittee Hearing
10:30 a.m., 253 Russell Bldg.

Pending Nominations
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Cobert Nomination (OPM Director)
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

UN Secretary-General Election

After ten years in office, Ban Ki-moon, the UN Secretary General (UNSG),  will retire from the UN at the end of 2016. The race for his successor is already underway. Last December, the Presidents of the Security Council (UNSC) and of the UN General Assembly (UNGA) sent out a joint letter soliciting candidates from member countries.

The UN consists of 193 member states, traditionally divided into geographical groups, such as African, Latin American, etc. Certain important positions, including that of the UNSG, rotate among these groups, although this happens by custom and precedent rather than by some written rule of the UN Charter. After the Middle Eastern group (Boutros Boutros-Ghali), the African group (Kofi Annan) and the Asian group (the incumbent), the rotation system would have the Eastern European group take up the office of the Secretary General for the next four years (with the possibility of reelection).

Several candidates have already been put forward in response to the letter of the two presidents. Croatia has nominated Vesna Pusić, until recently the country’s first deputy prime minister and minister for foreign affairs. Alas, her government collapsed soon after her nomination was submitted and it is unclear whether she still enjoys her country’s support.

The former Yugoslav Republic of Macedonia has nominated its former foreign minister and a former UNGA President, Srgjan Kerim. And Montenegro has nominated Igor Lukšić, its current foreign minister.

The letter of the two presidents invites candidates to come forward by the end of July, though it doesn’t actually specify when the nomination process would close. A number of other candidates will emerge, and several are waiting in the wings. The ex-Yugoslav contingent is complemented by Danilo Türk from Slovenia, a former UN Assistant Secretary-General and a former President of his country, who declared his candidacy some two years ago, as well as by Vuk Jeremić, the former Serbian Foreign Minister who is reputed to have made quite a mess of his job as President of the UN General Assembly (2012-13).

Bulgaria is the home of no fewer than two potential candidates: Irina Bokova, the Director-General of UNESCO, and Kristalina Georgieva, a second-term European Commissioner and currently a Vice-President of the Commission. Bokova used to be favored by her government – but her government, too, has since changed and the new Bulgarian government, with a right-of-center orientation, prefers Georgieva.

Nowhere is it stated that a country could not put forward two candidates (however strange that would be). This sheds some light on the situation in Slovakia which also features two potential candidates: Miroslav Lajčák and Ján Kubiš. Lajčák is currently the country’s Deputy Prime Minister and Foreign Minister. Kubiš is a veteran of a number of international organizations. He has served as the Secretary General of the Organization for Security and Cooperation in Europe (OSCE), as EU’s special envoy for Central Asia, as Slovak Foreign Minister, etc. Currently, he serves as Ban Ki-moon’s Special Representative in Afghanistan.

This plethora of candidates and possible candidates may thin out as months pass – while others may throw their hat in. Consider that none of the past eight Secretaries-General has been a female. Is it a woman’s turn now? As much sympathy as the idea evokes, there is no rule to force it. Kristalina Georgieva, however, is considered by many as the ideal candidate, gender considerations aside.

In a novel approach, candidates will be asked to make presentations during open hearings that the current UNGA President intends to hold. Following Art. 97 of the UN Charter, their merits will then be considered by the Security Council which will recommend its favorite to the General Assembly. It has not been specified when this is supposed to happen but late fall is the likely time. This is based on the assumption that the US would want the decision made before its own elections. Also, Russia will want to take care of the matter during its October chairmanship of the Security Council.

Even though the UNSC only makes a recommendation, its views are critical. Its recommendation has always been followed. Moreover, the UNSC customarily submits only a single recommendation – no options left for the 193 nations. This follows from a 1946 resolution of the UNGA according to which submitting a single recommendation is “desirable”. And in the Security Council, it will be its five permanent members (the “P5”) who will carry the day.

Some skeptical but wise voices argue that the whole selection may boil down to a bargain between the US and Russia. In the past, the US has not expressed its views before actual decision time.  It might be inclined toward a female candidate and Kristalina Georgieva could be viewed favorably.

On the other hand, the Russians often oppose any European Union diplomat, for any position. This logic would make them oppose just about anyone mentioned above, except for some of the West Balkan candidates – after all, it was a powerful Russian lobbying campaign which hoisted Vuk Jeremić of Serbia into the GA Presidency a couple of years ago. Additionally, the Russians might support someone who studied in Moscow, in their Diplomatic Institute (MGIMO), including the two Slovak diplomats or Irina Bokova. They have their files.

So – the race for the next UN Secretary General is in flux and nothing will be decided very soon. Before the end of the year, however, one of the fairly obscure Eastern European names mentioned above may turn into an important international actor.

AfDB President Launches “New Deal on Energy in Africa”

New African Development Bank President Akinwumi Adesina chose last week’s World Economic Forum at Davos for the official launch of the Bank’s New Deal on Energy for Africa, along with a Transformative Partnership for Energy in Africa (TPEA).  While a candidate for the AfDB president position a year ago, Adesina placed energy at the top of his list of priorities for the bank and continent.  Now as president he is acting on his promises and positioning the AfDB to play the leading role on energy expansion and access in Africa.

The New Deal aims to reach universal access of power for Africans by 2025.  Today, nearly 660 million Africans lack access to reliable power.  To achieve the New Deal’s goals, Adesina says Africa needs to add 160,000 MWs of on-grid power (about 800 new power plants) for 130 million new connections.  In addition, off-grid power solutions will provide another 75 million connections.  The AfDB, and other donors, are banking on “pay-as-you-go” home solar systems as a quick fix to the power deficit in rural and peri-urban areas.  Although the systems offer commercial scalability — quick roll-out and a good financing model — they do not generate sufficient power for small businesses and agro-processors.  Mini- and micro-power grids, which can actually stimulate economic growth, will need to be factored into the New Deal’s mix of solutions.

Borrowing from the model of the G-8’s New Alliance for Food Security, Adesina, the former Minister of Agriculture from Nigeria, is turning to the private sector for investment and know-how.  Development banks will continue to perform critical roles, however.  According to Adesina, the African Development Bank has invested a total of $34 billion in infrastructure (all forms of infrastructure) over the last ten years.  For the next five years, as part of the New Deal, the Bank will double the amount of money it spends on energy from $6 billion to $12 billion.  Equally important, he is on a campaign to persuade other development finance institutions and donors to increase their funding commitments for power.  As for the private sector, the new TPEA, a virtual investment platform, is expected to leverage an annual minimum of $40 billion in investment through the use of innovative de-risking instruments, such as credit enhancements, early stage equity, political risk insurance, and partial risk guarantees.

Do Africa’s political leaders share this same sense of urgency?  Adesina gives a resounding “yes” to the question, but he adds, they will have to live up to their commitments by making tough decisions.  First, government spending in the energy sector will need to increase from what is now 0.3 percent of GDP to 3.4 percent.  By doing so, Adesina estimates that an additional $50 billion a year would be available for allocation into the energy sector.  Equally difficult for leaders will be the tough policy decisions required to attract more private capital into bankable energy deals, everything from improving the legal and regulatory environment to de-politicizing tariffs by creating independent regulatory boards to set pricing.

A critical question is whether the Bank — and everyone else — can actually do what Adesina has envisaged.  Success will hinge not only on the Bank’s ability to increase its absorptive capacity, speed up its execution rates, and integrate its numerous instruments more holistically to meet the needs of its clients (i.e. the private sector and governments), but also on the ability of partners to structure bankable projects, build the necessary backbone infrastructure, mobilize vast sums of money, and execute.  Some changes in the Bank’s structure and leadership might be needed to break old habits and systems and streamline decision making.  It is a long shot that the New Deal will achieve its highly aspirational vision of universal access by 2025, which coincidentally would mark the end of a second term for Adesina as the Bank’s president.  It is the boldest initiative ever for the Bank, and Adesina’s presidency will most likely be judged against the goals he announced in Davos.

The AfDB president also acknowledged the importance of the many energy initiatives that seek to increase energy access in Africa, such as “SE4ALL”, the Obama Administration’s “Power Africa”, and the U.K.’s recently announced initiative, “Energy Africa”, among several others.   The New Deal, through the Transformative Partnership on Energy for Africa, builds on those initiatives — one could actually say integrates them — lays out a bold vision, and places the AfDB at the helm by bridging donors, the private sector, and African governments.

Can Adesina pull off all the changes necessary for success; or will the New Deal become a reshuffling of the same deck?

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

 

Poland under scrutiny in the European Union

On January 13, the European Commission applied for the first time a mechanism aimed at addressing threats to the rule of law in a Member State of the Union.

This mechanism had been adopted in 2014 having in mind certain measures taken by Hungary under Prime Minister Viktor Orban. But the dubious honor to inaugurate the so-called ‘Rule of Law Framework’ went to another member of the ‘New Europe’, Poland, where troubling initiatives were taken by the ‘law and justice Party’ in the months following its return to power after the legislative elections of October 2015.

1. A booming economy, growing twice as fast as the EU average

For the past decade, Poland has been the best success story of the European Union. It was the only Member State with continued economic growth throughout the financial crisis. Its GDP per capita based on purchasing power exceeded $24,000 and reached 65 percent of the EU level of income. The Polish economy grew by 3.3 percent in 2014 and is estimated to have grown by 3.2 percent in 2015. This growth was nearly twice as the average in the European Union.

Donald Tusk, head of the center right “Civic Platform” (PO) and Prime Minister during most of that period, was duly rewarded by being appointed President of the European Council of Heads of State and Government in 2014.

Nevertheless, in May 2015, voters chose as the new President of the country the candidate of the opposition Law and Justice Party (PIS) and gave this extreme-conservative, fundamentalist catholic and populist party an absolute majority in the new Parliament elected in October.

2. Why this dramatic change defying political logic?

PIS represents the ‘poor’ Eastern part of Poland. Its main argument for attracting voters was that the economic growth the country enjoyed in the last years went only to the middle class in the West of the country (close to Germany), neglecting the more agricultural – and more conservative – catholic East.

Another reason for the ruling PO’s ‘descent to hell’ is the scandal of leaked secret recordings of conversations in a restaurant that hit some of their most prominent leaders (including the brilliant former Foreign Minister Radek Sikorski). Civic Platform’s voters were genuinely shocked by the words used and the bluntness and cynicism of some of the statements. The leader of PIS Jaroslav Kaczynski, being a recognized political genius, took advantage of these weaknesses to promote his party as the guardian of the ‘values’ of the country.

Last December’s election results also confirmed that Poland’s democratic system is not yet well rooted in society. Parties appear and disappear and the classic left/right balance is regularly challenged: the political parties on the left have lost all appeal and are not even represented in the new Parliament.

3. Who is leading the country?

What makes the new Polish political scene even more special is that the politicians elected are not necessarily those who make the political decisions. The real leader of the country since the end of last year is neither the President or the Prime Minister. It is the President of the Law and Justice Party Jaroslav Kaczynski. Some commentators have gone so far as to say that he is the most powerful Polish leader since the end of the Cold War.

Kaczynski is responsible for crafting the strategy that has allowed his party to reach this extraordinary success. However, conscious that he is not personally very popular, he cleverly announced that he would not lead the government. He pushed to the forefront younger and more appealing figures – like the new President and the new Prime Minister – who had better chances of getting a broad support beyond the traditional party base. But as soon as the government was in place he let it be known clearly that he would be very much the sole behind-the-scenes decision maker.

4. What is the program of the new Government?

As mentioned above, much of the PiS program aims at defending its base electorate, which includes the poorer and ‘neglected’ East and the traditional mining sector, threatened by the EU climate policy. It is thus quite different from the liberal progressive Civic Platform’s: they are openly for state intervention and want to reverse measures which were taken by PO to enhance Poland’s competitivity. Their program includes increased exemptions from the income tax, the lowering of the retirement age, taxes on (foreign-owned) department stores and the ‘re-nationalization’ of privatized companies. A new bank tax has been voted in January requiring Polish lenders to contribute 0.44 per cent of their adjusted assets every year.

If the PIS program is implemented as announced, it might annihilate the successes of the last years. It would also have Poland lose its prominent and positive role in the European Union.

Indeed, as soon as it was in power, the new government joined the group of Eastern European countries opposing solidarity in the EU current migration crisis. For ‘nationalistic’ reasons, some PIS politicians want Poland to distance itself from Germany. The PIS is openly hostile to the EU position on climate change (which threatens Poland’s outdated coal industry), and has promised a referendum for accession to the Euro. They might even help the supporters of a Brexit.

On defense policy, the Law and Justice agenda is in line with PO’s but more radical. They are asking explicitly for permanent NATO bases in Poland and continue to blame Russia for the Smolensk accident in which Lech Kaczynski, Jaroslav’ twin brother, then President of Poland, died in 2010.

The new Foreign Minister, who was the head of Poland’s mission to NATO before Poland joined, wants Poland to be closer to the United States than to its European partners. M. Waszczykowski also contributed to the break with the past in removing from their post key ambassadors who were considered close to ex-Foreign Minister Radek Sikorski.

5. What triggered the intervention of the EU?

As soon as ‘his’ new government was in place, Jaroslav Kaczynski took initiatives aimed at consolidating its power which were at the limit of the EU rule of law principles. Indeed, he knew that implementation of the party’s program could make it rapidly lose its popularity with an important part of the electorate. And opponents as well as many outside observers anticipated from the beginning that, after a short period, the new regime would lose all appeal and be replaced by a more mainstream regime. This is indeed what happened when the Kaczynski brothers won elections in 2005 but had to abandon the government to PO after less than two years.

This time however, probably conscious of this precedent, Jaroslav Kaczynski is clearly intent on staying and acted swiftly to consolidate his power.

His two (first?) targets were the Constitutional Court and the media.

Kaczynski took advantage of the fact that the previous government had appointed five new judges right at the end of its term to challenge the authority of the Court. With the support of the president Andrzej Duda (who is one of his creatures), he had other judges sworn in and brought changes to the organization of the Court aiming at preventing it from playing its role of controlling the constitutionality of new laws: all votes now require a 2/3 majority and the mandatory participation of at least 13 instead of 9 of the 15 judges.

The new media law aims at giving the government more latitude to control state-run television and radio. All journalists in public media were fired and many replaced by political appointees. The independent press was deprived from state subsidies, which might asphyxiate those who criticize the government.

6. The reaction of the EU

These moves violate if not the letter at least the spirit of the European democratic system, which rests on basic pillars such as the independence of the judiciary, the respect of the constitution and the freedom of the press.

Members of the EU are supposed to respect a certain number of values enumerated in the Union Treaty and the EU Charter of Fundamental rights to which it refers. This obligation is not just theoretical. A mechanism involving inquiries, recommendations and even sanctions was introduced in the Treaty at the end of the nineties when an extreme rightist party was associated to a coalition government in Austria.

Article 7 of the Union Treaty allows the Council (with a 4/5 majority and the consent of the Parliament) to suspend certain of the rights deriving from the application of the treaties to a member state, including its voting rights in the Council.

This article is rightly considered as an ‘atomic bomb’ and, except for a few human rights activists, most people responsible within the institutions, as well as in the Member States, agree it should only be used in extreme circumstances. This is the reason why it was not used for Hungary. And this is also why the previous Commission, to fill the vacuum, introduced the ‘Framework for addressing systemic breaches in the rule of law’, which is merely a monitoring tool and could be triggered more easily – as it was on January 13 for Poland.

7. Risks of destabilization?

On January 15, Standard and Poor’s unexpectedly cut Poland’s credit rating to BBB+ with a negative outlook (from A-), saying that the new government has weakened the independence of key institutions and that the rating could fall further. The credit rating agency probably had also in sight the new tax law then in preparation, which would affect the still very important foreign participation in Polish financial institutions.

But I do not believe that this move is the beginning of a more general reaction of panic related to the recent actions by the government or the EU. There are good reasons why the EU will not go much further in the process started on January 13: firstly, Poland is a ‘strategic’ member, notably for the relationship with Russia and Ukraine – and will host the next NATO summit later this year. But it is also visible that the current criticism might backfire: Poles are deeply nationalistic and if they do not hesitate to demonstrate against the PIS in the streets, the same will tend to support the government in case of foreign interference.

The most efficient tool the EU might use is to deprive Poland from part of the ‘structural funds’ from the EU ‘Cohesion’ budget, of which Poland is the first beneficiary.

What could over time have a very negative effect on the economic situation of the country is the implementation of certain measures included in the PIS program (see above 4) which could discourage foreign investment in the country. Poland’s record in dealing with foreign investors is already rather weak; the bureaucracy is very cumbersome and the decision-making system at local level quite arbitrary. A worsening might have very damaging effects.

The best hope is that at one point Kaczynski and the people around him understand that the vast majority of the voters who supported them in the election might change their mind if their actions have as a consequence reduced growth or higher unemployment. The members of the government dealing with the economy and finance are not Party doctrinaires but technocrats and, if they get the upper hand, they are well capable of keeping the Polish economy on the positive track it was on until last year.

This Week in Congress – January 25, 2016

What was going already to be a shortened week on Capitol Hill due to the Democrats’ annual conference became even shorter when Washington was hit by a major snow storm on Friday evening and all day Saturday.  On Friday, the House preemptively canceled Monday votes and several committees postponed hearings based on the forecast; on Sunday the House announced it would cancel all votes for the week.  This announcement is less dramatic than it appears, because, as noted, the House was not going to be in session on Thursday or Friday to allow Democratic members to attend their annual policy conference.  Due to the House’s announcement on Sunday, only the Senate is currently scheduled to return and hold votes this week.

The Senate was scheduled to convene on Tuesday and vote on a judicial nomination in the afternoon, but that vote has been postponed to Wednesday evening.  The Senate intends to begin consideration of S. 2012, Energy Policy Modernization Act of 2015.  The broad, bipartisan energy policy measure, reported 18-4 out of the Senate Energy and Natural Resources Committee last summer, will be the Senate’s first attempt at action on comprehensive energy legislation since 2007.  The five titles of S. 2012 provide updates and improvements to national energy efficiency, grid infrastructure, energy supply, government accountability, and land conservation.  Senate Majority Leader Mitch McConnell has pledged to keep an open amendment process during consideration of S. 2012, and press reports indicate senators have plenty of  additional provisions they would like to offer as amendments to the bill, many of them highly partisan.

Senator John Barrasso (R-WY) has discussed his intent to offer an amendment to reverse a three-year moratorium on new coal leasing on public land announced by the Obama Administration last week and opposed by many members that represent coal-producing states.  Other potential amendments to curb agency regulations are expected, as well as statements on climate change and an amendment providing reforms to the hydroelectric power permitting process, provisions which were removed from the bill during committee markup due to partisan differences.  It will be a fine line for bill managers to navigate the amendment process while ensuring that the current bipartisan support does not completely disintegrate.

The House of Representatives passed its own version of energy modernization legislation in December, by a largely partisan vote of 249-174.  Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R-AK) managed a process that produced the Senate bill which was favorably reported on a bipartisan 18-4 votes.  Chairman Murkowski has indicated she would like to take S. 2012 to a conference committee with the House bill in order to reconcile differences between the two versions, should the Senate bill pass.

Also possible this week or in the near future is a resolution to authorize the use of military force against the terrorist entity that calls itself the Islamic State.  Although some members of both parties in both chambers have been calling for consideration of such a resolution, Leader McConnell surprised his chamber and observers by adding such a resolution to the Senate calendar last week.  Timing of the consideration of the resolution is unclear. The hearing schedule is highly uncertain, especially on the House side, in light of Sunday’s cancellation of votes for the week.  The brief discussion of key hearings that follows should be read with an understanding that many, or perhaps all, of the House hearings listed and discussed will be postponed, as is likely true for the Senate hearings scheduled prior to Wednesday afternoon.

Related to the federal debt and deficit, House and Senate Committees plan to review the Congressional Budget Office (CBO) Outlook this week, as the agency within the legislative branch is scheduled to release its ten-year projections.  Although the projections are due for release today, expect a delay in that release as well.  A brief summary and projections report released last week warned that the federal budget deficit will rise this year for the first time since 2009, to $544 billion and the national debt to rise to $23.8 trillion by 2026.  The ten-year projection for the deficit for fiscal years 2016 – 2026, without any major policy changes enacted, is an increase to $9.4 trillion. CBO Director Keith Hall is currently scheduled to appear before the Senate Budget Committee on Tuesday and House Budget Committee on Wednesday.

Health-related issues are a focus of hearings on both sides of the Capitol this week.  The opioid epidemic in America is the topic of two separate Senate hearings.  The Senate Special Aging Committee is currently scheduled to hold a field hearing in Ashburn, Virginia on Monday regarding the misuse and abuse of opioids among older Americans, while the Senate Judiciary Committee will meet Wednesday to discuss methods of confronting the prescription drug and heroin abuse crisis.  The Senate Judiciary Committee will also meet Tuesday to discuss mental health issues as they relate to the criminal justice system.  The Senate HELP Committee has scheduled a hearing related to generic prescription drugs.

Several committees are meeting this week to mark up legislation.  The House Small Business Committee was planning to meet Thursday morning to mark up the President’s Fiscal Year (FY) 2017 Budget for the Small Business Administration.  After postponing a mark-up last Thursday due to the absence of several members, the Senate Judiciary Committee has rescheduled consideration of House-passed legislation allowing citizens of European countries access to U.S. courts to protect their on-line privacy interests, a bill of interest to tech companies and European governments.  Also on the agenda is legislation to allow federal court jurisdiction for the theft of trade secrets, a bill of widespread interest to U.S. businesses fending off efforts, often driven by foreign competitors, to steal their trade secrets.

The full schedule of events is included below, although as noted it is subject to change as the nation’s capital continues to dig out from under the massive snowfall:

Monday, January 25, 2016

Senate Committees

Fighting Against a Growing Epidemic: Opioid Misuse and Abuse Among Older Americans
Senate Special Aging
Full Committee Field Hearing
10:30 a.m. 21170 Ashby Ponds Blvd Ashburn, VA 20147 Great Oak Club House

Tuesday, January 26, 2016

House Committees

To consider the impacts of the Environmental Protection Agency’s actions on the rural economy
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth Bldg.

Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance
House Financial Services – Investigate Terrorism Financing Task Force
Subcommittee Hearing
10 a.m., 2128 Rayburn Bldg.

The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Hearing
11 a.m., 1334 Longworth Bldg.

Jordan: A Key U.S. Partner
House Foreign Affairs – Subcommittee on the Middle East and North Africa
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

Legislative Hearing on H.R. 3070 and H.R. 4245
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
2 p.m., 1334 Longworth Bldg.

A Review of VA’s Loan Guaranty and Specially Adaptive Housing Grant Programs (SAH)
House Veterans’ Affairs – Subcommittee on Economic Opportunity
Subcommittee Hearing
2 p.m., 334 Cannon Bldg.

Senate Committees

The Role of the Service Chiefs in Defense Acquisition in Review of the Defense Authorization Request for Fiscal Year 2017 and the Future Years Defense Program
Senate Armed Services
Full Committee Hearing
9:30 a.m., G-50 Dirksen Bldg.

Examining CBO’s Budget and Economic Outlook
Senate Budget
Full Committee Hearing
10:30 a.m., 608 Dirksen Bldg.

Examining Mental Health and the Justice System
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Cobert Nomination (OPM Director)
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Helping Americans Prepare for Retirement: Increasing Access, Participation and Coverage in Retirement Savings Plans
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Economic Opportunities from Land Cleanup Programs and Legislative Hearing on 3 Measures
Senate Environment and Public Works
Full Committee Hearing
10 a.m., 406 Dirksen Bldg.

Future Nuclear Posture of the United States
Senate Armed Services – Subcommittee on Strategic Forces
Subcommittee Hearing
2:30 p.m., 222 Russell Bldg.

The Way Forward in Syria and Iraq
Senate Foreign Relations
Full Committee Closed Briefing
4 p.m., SVC-217

Wednesday, January 27, 2016

House Committees

Assistance to Combat Wildlife Trafficking
House Appropriations – Subcommittee on State, Foreign Operations, and Related Programs
Subcommittee Hearing
9:15 a.m., H-140

The Congressional Budget Office’s Budget and Economic Outlook
House Budget
Full Committee Hearing
9:30 a.m., 210 Cannon

After San Bernardino: The Future of ISIS-Inspired Attacks
House Foreign Affairs – Subcommittee on Terrorism, Nonproliferation, and Trade
Subcommittee Hearing
9 a.m., 2172 Rayburn Bldg.

The Growing Threat of Cholera and Other Diseases in the Middle East
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
10 a.m., 2200 Rayburn Bldg.

Triple Threat to Workers and Households: Impacts of Federal Regulations on Jobs Wages and Startups
House Judiciary – Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Subcommittee Hearing
9 a.m., 2141 Rayburn Bldg.

Examining the Renewable Fuel Standard
House Oversight and Government Affairs Committee – Subcommittee on the Interior; Subcommittee on Health Care, Benefits, and Administrative Rules
Subcommittees Joint Hearing
9 a.m., 2154 Rayburn Bldg.

Seeking Justice for Victims of Palestinian Terrorism in Israel
House Oversight and Government Affairs Committee – Subcommittee on National Security
Subcommittee Hearing
9 a.m., 2247 Rayburn House Bldg.

Budget Views and Estimates on the President’s FY 2017 Budget for the Small Business Administration
House Small Business
Full Committee Markup
10 a.m., 2360 Rayburn Bldg.

Senate Committees

Military Space Programs and the Use of Russian-Made Rockets
Senate Armed Services
Full Committee Hearing
9:30 a.m., 216 Hart Bldg.

Canada’s Fast-Track Refugee Plan and Implications for U.S. National Security
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

America’s Epidemic of Heroin and Prescription Drug Abuse
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Hearing to Examine the Substandard Quality of Indian Healthcare in the Great Plains/ Indian Water Rights Act Markup
Senate Indian Affairs
Full Committee Hearing
2:15 p.m., 838 Hart Bldg.

Pending Nominations
Senate Judiciary
Full Committee Hearing
2 p.m., 226 Dirksen Bldg.

Thursday, January 28, 2016

Senate Committees

Generic Drug User Fee Amendments
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Adequacy of HHS Efforts to Protect Unaccompanied Alien Children From Human Trafficking
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Small Business Tech-Innovation Programs
Senate Small Business and Entrepreneurship
Full Committee Hearing
10 a.m., 428-A Russell Bldg.

Pending Legislation/Nominations
Senate Judiciary
Full Committee Markup
10 a.m., 226 Dirksen Bldg.

Intelligence Matters
Senate Select Intelligence
Full Committee Closed Briefing
2:15 p.m., 219 Hart Bldg.
 

 

SEC Issues Fines for Pay-to-Play Violations That Predate Its Pay-to-Play Rule

A $12 million settlement announced last week by the Securities & Exchange Commission suggests that the SEC will aggressively pursue alleged schemes connecting political contributions to government contracts even if the political contributions do not violate its 2010 pay-to-play rule.  According to the settlement order, in 2010, the head of Public Funds at State Street Bank and Trust Company arranged to make payments, through an intermediary lobbyist, to the Ohio deputy state treasurer “in exchange for several lucrative subcustodian contracts awarded by the Office of the Treasurer of the State of Ohio.”  In addition to these cash payments, the executive also allegedly arranged for others to make at least $60,000 in political contributions to the Treasurer’s election campaign.  Based on these allegations, the SEC and State Street entered into a settlement order requiring State Street to disgorge $4 million and pay penalties of $8 million.  The conduct, the SEC alleged, “violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities.”

In announcing the settlement, the SEC provided more evidence that schemes connecting the award of public contracts to political contributions and fundraising are an enforcement priority: “Pay-to-play schemes are intolerable, and lobbyists and their clients should understand that the SEC will be aggressive in holding participants accountable.”  The case follows on the heels of its first major pay-to-play enforcement case in 2014.

Importantly, the conduct at issue in this case took place before the SEC pay-to-play rule was effective.  The settlement therefore suggests that even if a political contribution is not technically covered by the SEC’s specialized pay-to-play rule, it still might lead to an enforcement action under the Exchange Act’s general anti-fraud provisions.  Some of the contributions made in the State Street case, for example, were not made by “covered associates” who are subject to the SEC pay-to-play rule.  Nevertheless, the SEC apparently believed that the contribution scheme still violated general statutory and regulatory prohibitions on fraudulent conduct.  When reviewing contributions for pay-to-play compliance, compliance departments should therefore pay careful attention to the surrounding facts.  Even if the SEC pay-to-play rule technically does not apply, if facts suggest the contribution was intended to secure or retain public contracts, the contribution could still result in potentially crippling penalties.

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