Forming and Operating Super PACs: A Practical Guide for Political Consultants in 2016

Covington recently released a high-level primer that provides political consultants with a practical resource for creating and running a federal Super PAC in a legally compliant manner.  The primer, which is available here, explains the history and basic rules that apply to federal Super PACs.  The primer then discusses the following key topics:

  • checklist of steps for creating a federal Super PAC;
  • options available to Super PACs for federal reporting;
  • safeguards Super PACs should implement to avoid illegally coordinating with candidates;
  • “do’s” and “don’ts” for candidate involvement in fundraising; and
  • rules governing the operation of Super PACs alongside Section 501(c)(4) social welfare organizations.

This primer draws from Covington’s extensive experience advising federal, state, and local Super PACs and their donors.

This Week in Congress — May 23, 2016

Congress is in for a very busy week before each chamber takes a one-week break for Memorial Day recess. The week is likely to showcase both instances in which Congress has been able to come together and enact important legislation and those in which contentious partisan and ideological cleavages are on display.

The Senate returns to work on Monday and will vote on legislation to reauthorize the Adam Walsh Act, legislation initially enacted in 2006 to address child sex offenses. The major work of the week on the Senate floor will commence on Tuesday when consideration begins on the annual defense authorization bill. The Senate will aim to complete the bill before departing for the week. Debate on the bill is likely to be less contentious than the House’s consideration of its companion bill. As in the House, the most significant issue will be an effort by Armed Services Committee Chairman John McCain (R-AZ) to increase the funding level for the military provided in the bill. The House increased the level of authorized funding by raiding the pool of funds designated for support of overseas operations. If adopted, the House approach would lead to a shortfall in operational funds next year, requiring supplemental appropriations from Congress. The Senate does not plan to raid that account. Instead, Chairman McCain is reported to be planning simply to seek to add new funds to the bill. Democrats have contested Republican efforts to add defense funds without adding like amounts to the domestic programs they tend to support. Some Republican deficit hawks likewise oppose additional defense spending. The fact that Chairman McCain did not seek to add his amendment during the committee’s markup of the bill suggests he did not have the votes in how own committee, and he is similarly unlikely to garner sufficient support on the floor for his effort. The Senate bill would also extend the requirement that 18-year-olds register for the draft to women.

Although the defense bill is likely to consume the balance of the week, it is possible the Senate will interrupt its consideration of the bill and move to the compromise chemical-regulation bill, the reform the Toxic Substances Control Act (TSCA), prior to the end of the week. Reform of the TSCA has been a lengthy process, and after years of deliberation, a bipartisan and bicameral consensus evolved around a compromise effort. The House will take up the bill this week, and once it does, the Senate could enter into a time agreement allowing for the bill’s consideration there as well. Enactment of the TSCA bill will be another in a series of significant accomplishments for the current Congress, a further indication that the Senate is again fulfilling its legislative role after several years in which it was failing as an institution (although Democrats point to the lack of progress on confirmations to argue that the Senate is still not performing its full set of constitutional responsibilities).

The House too returns to work on Monday with an unusually full schedule of 30 bills to be considered under suspension of the rules. Although on the surface this schedule appears very heavy, a large number of the bills simply name federal facilities, primarily post offices and Department of Veterans Affairs facilities. Among the substantive bills, the House will tackle the annual intelligence authorization bill, as well as bills from the Energy & Commerce Committee and two bills to improve the process by which the federal government disposes of excess property.

After the heavy suspension schedule, the House will turn on Tuesday to a bill to address the Zika virus under a rule. Last week, both chambers passed proposals to provide funding to address the Zika virus, but the Senate did so in the form of an amendment to an appropriations bill; the House did so as a freestanding bill. The Senate will need to take up the House-passed bill, amend it to include the Senate proposal, and request a conference before further progress can be made. In the meantime, the House will take up H.R. 897, the Zika Vector Control Act, introduced by Rep. Bob Gibbs (R-OH).

After the Zika bill, the House turns to the TSCA reform bill noted above. Following the TSCA legislation, the House plans to take up a bill to clarify the authority of Congress over the District of Columbia. Congress has authority under the Constitution to control the seat of the national government, but it ceded much of that authority when it approved home rule legislation for D.C. in the early 1970’s. Recently, D.C. voters approved a charter amendment that purports to allow D.C. to expend its own locally raised funds without congressional approval. A judge of the D.C. Superior Court upheld the proposal, but House Republicans believe the charter amendment is invalid and beyond the ability of D.C. voters to adopt. Last week, the Oversight and Government Reform Committee, which oversees D.C. for Congress, reported H.R. 5233 on a party-line vote. The bill would clarify that D.C. must still obtain congressional approval before it may expend funds, even if the funds derive entirely from locally raised revenue. The bill is unlikely to get considered in the Senate, even after it passes the House, as it will.

The House then finishes the week with two energy-related bills. It will take up its version of the Energy & Water Appropriations bill. The Senate passed its version two weeks ago, and the House will aim to complete action on the bill before breaking for Memorial Day. The Energy & Water bill is one of the more popular of appropriations bills, due to the funding contained in it for local projects across the country. In addition to the appropriations bill, the House will also take up its version of the energy bill. The Senate passed a bipartisan energy bill last year. The House will take up the Senate-passed bill but will substitute its own energy-bill text in place of the Senate-approved language. Once it completes consideration of the energy bill, the House plans to move to go to conference with the Senate on the energy legislation, and will likely consider in that context a Democratic motion to instruct conferees. If a conference committee can reach agreement on an energy bill that could pass both chambers, it would be yet another major accomplishment for this Congress, and the Senate, which, despite much maligning in the media has been very productive on a variety of legislative initiatives that have been stalled for many years.

After such a heavy workload on the House floor, members will be eager for a week’s respite back in their districts, seeking to remind voters of their work thus far in this Congress. Of course, the floors of each chamber are not the only place in which Congress conducts business, and the committee schedule is likewise very busy this week. Among the highest profile items is likely to be the House Natural Resources Committee’s markup on Wednesday of the revised bill to assist Puerto Rico tackle its debt situation. After several weeks of intensive negotiations following the introduction of the first version of the bill, last Thursday evening the House introduced a new version of the bill. The negotiations were led by the Speaker’s office and the Committee’s chairman, Rob Bishop (R-UT). The revised bill has garnered cautious support from members on both sides of the aisle. Although there are provisions members of each party dislike, the urgency of the need to help Puerto Rico address its insolvency appears to have brought enough members together to allow the bill to move forward. The first step in the process will be a markup in committee on Wednesday. The full House is likely to turn to the bill when it returns following Memorial Day, and Senate action thereafter prior to the impending July 1 date when Puerto Rico faces a massive debt payment it cannot make, is likely. If Congress succeeds in enacting the bill, it will be a major victory of Speaker Ryan, who staked much on getting a bill done.

Other markups next week will see the Senate Judiciary Committee take up the E-mail Privacy Act on Thursday. The House passed its version of the bill unanimously, but what will happen in the Senate committee is uncertain. The Appropriations Committees in each chamber will be busy this week marking up additional bills for floor consideration. In the Senate, both the relevant subcommittees and the full committee plan to mark up the Defense and Homeland Security bills this week (Tuesday in the subcommittees and Thursday in full committee). On the House side, the full committee plans to mark up the Commerce, Justice, Science and Transportation-Housing and Urban Development bills on Tuesday, and on Wednesday the relevant subcommittees will mark up the Financial Services and Interior bills. Finally, the Senate Homeland Security and Governmental Affairs Committee will mark up pending legislation.

On Tuesday, the House Ways & Means Committee will hold a hearing on welfare reform. Also on Tuesday, the House Judiciary Committee will hold the first hearing it is promising to consider the impeachment of the IRS Commissioner, John Koskinen. Although Speaker Ryan has signaled his opposition to impeachment and senators have dismissed it, House conservatives, led by Freedom Caucus chairman Jim Jordan (R-OH), have been pushing for Commissioner Koskinen’s impeachment in the wake of the scandal over allegations of political targeting of conservative non-profit groups by the IRS. At the initial hearing, the Judiciary Committee expects to hear from members of the Oversight Committee who, along with the Ways & Means Committee, have led the inquiry into political manipulation by the IRS. Other hearings of note this week include a Tuesday Senate Foreign Relations Committee hearing on the U.S.-India relationship; hearings by the Senate Baking and House Foreign Affairs Committees on aspects of the Iran nuclear deal; and a two-day hearing on Wednesday and Thursday by the House Homeland Security Committee into the dramatic airport-screening delays being experienced across the country.

A full schedule of committee activities for the week follows:

Monday, May 23, 2016

House Committees

Navy Force Structure/Readiness
House Armed Services – Subcommittee on Seapower and Projection Forces; House Armed Services – Subcommittee on Readiness
Committee Field Hearing
9:30 a.m., USS Eisenhower, Norfolk, VA

Pending Legislation
House Rules
Full Committee Business Meeting
5 p.m.

Senate Committees
Closed briefing on the Open Skies Treaty, focusing on managing Russia’s request to upgrade sensors
Senate Foreign Relations
Full Committee Briefing
5:30 p.m.

Tuesday, May 24, 2016

House Committees

Focus on the Farm Economy: A View from the Barnyard
House Agriculture – Subcommittee on Livestock and Foreign Agriculture
Subcommittee Hearing
10 a.m., 1300 Longworth HOB

FY 2017 Commerce, Justice, and Science Bill, Transportation, Housing and Urban Development Bill, and Report on the Revised Interim Suballocation of Budget Allocations
House Appropriations
Full Committee Markup
10:30 a.m., 2359 Rayburn HOB

Demanding Accountability at the Corporation for National and Community Service
House Education and the Workforce – Subcommittee on Higher Education and Workforce Training
Subcommittee Hearing
10 a.m.

Medicare-Medicaid Program Integrity
House Energy and Commerce – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10:15 a.m.
Legislative Hearing on 17 FTC Bills
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
10 a.m., 2123 Rayburn HOB

Stopping Terror Finance: A Coordinated Government Effort
House Financial Services – Investigate Terrorism Financing Task Force
Subcommittee Hearing
10 a.m., 2128 Rayburn HOB

Enhancing Preparedness and Response Capabilities to Address Cyber Threats
House Homeland Security – Subcommittee on Emergency Preparedness, Response and Communications; House Homeland Security – Subcommittee on Cybersecurity, Infrastructure Protection and Security Technologies
Committee Joint Hearing
10 a.m., 311 Canon HOB

Examining the Allegations of Misconduct Against IRS Commissioner John Koskinen Part 1
House Judiciary
Full Committee Hearing
10 a.m., 2141 Rayburn HOB

Legislative Hearing on H.R. 3480, H.R. 4202, H.R. 4789 and H.R. 5244
House Natural Resources – Subcommittee on Federal Lands
Subcommittee Hearing
10 a.m., 1324 Longworth HOB

Legislative Hearing on Water Settlements
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
10:30 a.m., 1334 Longworth HOB

H.R. ____ the Networking and Information Technology Research and Development Modernization Act of 2016
House Science, Space and Technology
Full Committee Markup
10 a.m., 2318 Rayburn HOB

The Sharing Economy: A Taxing Experience for New Entrepreneurs, Part I
House Small Business
Full Committee Hearing
11 a.m.

Improving the Safety and Reliability of the Washington Metro
House Transportation and Infrastructure – Subcommittee on Highways and Transit
Subcommittee Hearing
10 a.m.

Legislative Hearing on draft legislation to establish a permanent Veterans Choice Program and H.R. 5083, the VA Appeals Modernization Act of 2016
House Veterans’ Affairs
Full Committee Hearing
10:30 a.m., 334 Cannon HOB

Welfare System Reform
House Ways and Means
Full Committee Hearing
10 a.m.

Border Security Gadgets Gizmos and Information: Using Technology to Increase Situational Awareness and Operational Control
House Homeland Security – Subcommittee on Border and Maritime Security
Subcommittee Hearing
2 p.m., 311 Canon HOB

The U.S.-Saudi Arabia Counterterrorism Relationship
House Foreign Affairs – Subcommittee on Terrorism, Nonproliferation, and Trade
Subcommittee Hearing
2 p.m., 2172 Rayburn HOB

Executive Overreach Task Force- The Federal Government on Autopilot: Delegation of Regulatory Authority to an Unaccountable Bureaucracy
House Judiciary – Executive Overreach Task Force
Subcommittee Hearing
3 p.m., 2141 Rayburn HOB

Oversight Hearing on Investigating the Culture of Corruption at the Department of the Interior
House Natural Resources – Subcommittee on Oversight & Investigations
Subcommittee Hearing
2 p.m.

Remaining Guantanamo Bay Detainees
House Oversight and Government Reform – Subcommittee on National Security
Subcommittee Hearing
2 p.m.

Examining the Future of Recreation.gov
House Oversight and Government Reform – Subcommittee on the Interior
Subcommittee Hearing
2 p.m., 2247 Rayburn

Senate Committees

Fiscal Year 2017 Department of Defense Appropriations
Senate Appropriations – Subcommittee on Defense
Subcommittee Markup
10 a.m., SD-192

Examine understanding the role of sanctions under the Iran Deal.
Senate Banking, Housing and Urban Affairs
Full Committee Hearing
May 24, 10:30 a.m., SD-538

Examine the multistakeholder plan for transitioning the Internet Assigned Numbers Authority.
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., SR-253

Examining debt versus equity, focusing on corporate integration considerations
Senate Finance
Full Committee Hearing
10 a.m., SD-215

Examine United States-India relations, focusing on balancing progress and managing expectations.
Senate Foreign Relations
Full Committee Hearing
10 a.m., SD-419

“Department of Homeland Security Appropriations Act, Fiscal Year 2017
Senate Appropriations – Subcommittee on Homeland Security
Subcommittee Markup
11 a.m., SD-138

Examine the implementation of the definition of Waters of the United States
Senate Environment and Public Works – Subcommittee on Fisheries, Wildlife and Water
Subcommittee Hearing
2:30 p.m., SD-406

Pending Legislation
Senate Veterans’ Affairs
Full Committee Hearing
2:15 p.m., SR-418

Wednesday, May 25, 2016

House Committees

Food Waste from Field to Table
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth HOB

Reclaiming Congressional Authority Through the Power of the Purse
House Budget
Full Committee Hearing
9:30 a.m., 210 Canon HOB

Promoting Safe Workplaces Through Effective and Responsible Recordkeeping Standards
House Education and the Workforce – Subcommittee on Workforce Protections
Subcommittee Hearing
10 a.m.

Examining Cybersecurity Responsibilities at HHS
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn HOB

Iran Nuclear Deal Oversight (Part II)
House Foreign Affairs
Full Committee Hearing
10 a.m.

Long Lines Short Patience: The TSA Airport Screening Experience
House Homeland Security
Full Committee Hearing
10 a.m., 311 Canon HOB

Outdated Government IT
House Oversight and Government Reform
Full Committee Hearing
9 a.m.

Science of Zika: The DNA of an Epidemic
House Science, Space and Technology
Full Committee Hearing
10:15 a.m., 2318 Rayburn HOB

IRS Abuse of Small Businesses
House Ways and Means – Subcommittee on Oversight
Subcommittee Hearing
10 a.m.

Tunisia’s Struggle for Stability Security and Democracy
House Foreign Affairs – Subcommittee on the Middle East and North Africa
Subcommittee Hearing
2:30 p.m., 2172 Rayburn HOB

Oversight Hearing on Exploring Mining Safety and Innovation in the 21st Century
House Natural Resources – Subcommittee on Energy and Mineral Resources
Subcommittee Hearing
2:30 p.m., 1324 Longworth HOB

Tax Reform
House Ways and Means – Subcommittee on Tax Policy
Subcommittee Hearing
2 p.m.

Senate Committees

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

Examine improvements in hurricane forecasting and the path forward
Senate Commerce, Science and Transportation – Subcommittee on Oceans, Atmosphere, Fisheries and Coast Guard
Subcommittee Hearing
2 p.m., SR-253

Examine international cybersecurity strategy, focusing on deterring foreign threats and building global cyber norms
Senate Foreign Relations – Subcommittee on East Asia, the Pacific, and International Cybersecurity Policy
Subcommittee Hearing
10 a.m., SD-419

Understanding the role of sanctions under the Iran Deal, focusing on Administration perspectives
Senate Banking, Housing and Urban Affairs
Full Committee Hearing
2:30 p.m., SD-538

Closed briefing on trafficking in persons, focusing on preparing the 2016 annual report
Senate Foreign Relations
Full Committee Briefing
4:30 p.m., S-116

Thursday, May 26, 2016

House Committees

The ISIS Genocide Declaration: What Next?
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
Noon, 2172 Rayburn HOB

Long Lines Short Patience: Local Perspectives.
House Homeland Security – Subcommittee on Transportation Security
Subcommittee Hearing
9 a.m., 311 Canon HOB

Social Security Information Systems Review
House Oversight and Government Reform
Full Committee Hearing
9 a.m.

Impact of EPAs Clean Power Plan on States
House Science, Space and Technology – Subcommittee on Environment
Subcommittee Hearing
9:30 a.m., 2318 Rayburn HOB

The Sharing Economy: A Taxing Experience for New Entrepreneurs, Part II
House Small Business
Full Committee Hearing
10 a.m.

Senate Committees

Examine a review of the United States livestock and poultry sectors, focusing on marketplace opportunities and challenges
Senate Agriculture, Nutrition and Forestry
Full Committee Hearing
10 a.m., SH-216

“Department of Defense Appropriations Act, 2017”, and an original bill entitled, “Department of Homeland Security Appropriations Act, 2017
Senate Appropriations
Full Committee Markup
10:30 a.m., SD-106

Examine cartels and the United States heroin epidemic, focusing on combating drug violence and the public health crisis
Senate Foreign Relations – Subcommittee on Western Hemisphere, Transnational Crime, Civilian Security, Democracy, Human Rights and Global Women’s Issues
Subcommittee Hearing
9 a.m., SD-419

Examine protecting America from the threat of ISIS
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., SD-342

Pending Legislation
Senate Judiciary
Full Committee Markup
10 a.m., SD-226

Examine the Small Business Administration’s 7(a) loan guaranty program
Senate Small Business and Entrepreneurship
Full Committee Hearing
10 a.m., SR-428A

New Overtime Rules May Spell Trouble For Some Corporate PACs

The Obama Administration’s publication yesterday of a regulation increasing the universe of employees entitled to overtime pay might reduce the number of employees from whom corporate PACs can seek contributions.

The new regulations, which take effect on December 1, 2016, increase the salary level below which certain employees are entitled to overtime pay. Currently, salaried employees are not entitled to overtime pay if they perform certain duties and are paid at least $455 per week (the equivalent of $23,600). Under the new regulations, the duties test would remain the same but the salary threshold would increase to $913 per week, $47,476 annually, adjusted every three years for inflation.

As we described when the regulations were first proposed last year, the increase in the salary threshold should not require companies to stop asking the newly overtime-eligible employees for PAC contributions. When evaluating whether an individual falls within the “restricted class” of employees who may be solicited for PAC contributions, FEC regulations require companies to look at the individual’s job duties, not the compensation amount. And the new regulations do not change this “duties test.”

But even though the rules will not reduce corporate restricted classes as a matter of law, corporate decisions to change compensation structures in response to the rule might effectively shrink the “restricted class.” Federal law provides that corporate PACs generally may only solicit PAC contributions from employees if, among other things, the employees are salaried. If companies respond to the rule by paying the newly overtime-entitled employees on an hourly basis rather than on salary, those hourly employees will need to fall off the restricted class lists even if their job duties would have otherwise placed them in the restricted class.

China Builds New Framework Governing Civil Society Organizations, Part II: Foreign NGO Law

In Part I of this two-part series published on May 12, we described China’s new Charity Law and its implications for charitable organizations operating in the country, both domestic and foreign. On April 28, the Standing Committee of the National People’s Congress enacted another new law, this one governing foreign non-governmental organizations (“NGOs”) operating in China. This new Law on the Management of the Activities of Foreign Non-Governmental Organizations Within China (“Foreign NGO Law”) will go into effect on January 1, 2017 (Chinese text with unofficial English translation available here).

The Foreign NGO Law contains some specific requirements, but like many other high-level Chinese laws, it is relatively general in many respects (for example, with respect to what kinds of activities a representative office of a foreign NGO may conduct). We may get further texture in the coming months as the government is expected to release, first, a list of Frequently Asked Questions with accompanying answers, and then, later, implementing regulations or other forms of guidance. However, it is possible that some aspects will remain unclear, giving regulatory authorities greater discretion in the interpretation and application of the law’s provisions.

The Foreign NGO Law has generated significant criticism in the international community as critics argue that it could have a chilling effect on organizations engaging in or supporting social organizations in China. Chinese authorities, on the other hand, argue that the law lends clarity to a previously ambiguous operating environment for foreign NGOs and serves the government’s need to ensure national security and social stability. We examine some of the key features of the new law here:

  • Definition of “Foreign NGO.” The Foreign NGO Law defines “foreign NGOs” as “not-for-profit, non-governmental social organizations lawfully established outside of China, such as foundations, social groups, and think tanks.” Note that trade associations would likely fall within the jurisdiction of the law.
  • Unclear Treatment of Foreign Schools, Research/Academic Organizations, and Hospitals. In what appears to be a concession to organizations, such as foreign universities, that felt that the definition provided in a draft version of the law circulated last year was overbroad, Article 53 states that “exchanges or cooperation” with corresponding Chinese counterparts conducted by “foreign schools, hospitals, and natural sciences and engineering technology research institutions [and] academic organizations” are to be handled by laws and regulations specifically governing those activities (and presumably, subject to further clarification, do not require the registrations/filings contemplated under this new law). How broadly “exchanges or cooperation” is defined, and how activities outside the scope of “exchanges or cooperation” are to be treated, remains unclear. For example, in the case of universities, it is unclear how the authorities will view student recruiting, alumni engagement, executive education programs, and wholly foreign-owned enterprises (WFOEs) they may have established.
  • Leading Role of Ministry of Public Security. The government’s security concerns are clearly central to the new law, which places the lead responsibility for the registration and supervision of foreign NGOs with the Ministry of Public Security (“MPS”; note that references in this article to the Ministry of Public Security include its local counterparts), which manages the country’s police apparatus. Foreign NGOs have long had an uneasy relationship with the Ministry of Public Security, and are concerned that the new law provides a legal basis for Chinese security authorities to more actively intervene in their activities. The Chinese government acknowledges its security concerns with respect to foreign NGOs, but also claims that the choice of MPS was driven by a determination that it is the agency most competent in addressing issues related to foreigners in China.
  • Representative Offices. Foreign NGOs “that, outside of China, have existed for at least two years and have carried out substantial activities” may now register with MPS in order to set up representative offices in China (they may open multiple representative offices in different parts of the country). Representative offices do not have independent legal person status, meaning that legal responsibility is borne by the foreign NGO. Previously, there was no path for foreign NGOs (except foundations) to set up non-profit entities or offices in China. The only exception was in Yunnan Province.Foreign NGOs may not set up branches (or subsidiaries) in China, and they may not develop a membership consisting of Chinese citizens, unless otherwise prescribed by the State Council.
  • The new law does not explain what activities representative offices of foreign NGOs in China may carry out. For reference, regulations only permit the representative offices of foreign enterprises to engage in (i) market survey, exhibition, and publicity activities related to their products and services, and (ii) liaison activities.
  • Temporary Activities. The new law simplifies the process for foreign NGOs that seek to engage in activities in China without an established representative office. Foreign NGOs may engage in “temporary activities” by partnering with local entities, but such activities may not last for more than one year (unless a refiling is done). Foreign NGOs and partnering Chinese entities are required to file with the relevant public security authorities in advance, and they must report on the activities conducted and the use of funds within 30 days after the conclusion of the temporary activities.
  • Professional Supervisory Units. Before they can register for a representative office with the Ministry of Public Security, foreign NGOs must obtain the approval of the appropriate “professional supervisory unit.” Professional supervisory units are likely to be government agencies responsible for regulating various fields. For instance, an education-related organization would be supervised by the Ministry of Education or its local counterparts. MPS is to issue a catalog of designated professional supervisory units.
  • Professional supervisory units are responsible for reviewing the annual plans and reports (including financial reports audited by Chinese accounting firms) of representative offices under their scope of authority.
  • Broad MPS Enforcement Powers. While MPS previously wielded considerable powers, the new law provides a legal basis for the security authorities to exercise significant powers to discipline foreign NGOs engaging in activities that they (in their broad discretion) suspect or deem to be in violation of the Foreign NGO Law and other laws and regulations. When MPS suspects that a violation may have occurred, security authorities may compel the chief representative and other responsible individuals associated with a foreign NGO to be interviewed; collect any documents and materials related to the potentially infringing activities; freeze bank accounts; and/or seize facilities and other assets. When MPS deems that a violation has, in fact, occurred, the security authorities may issue a warning; deport non-citizens; and revoke the registration of a representative office or terminate temporary activities, and prohibit re-registration or further temporary activities in China for a period of five years. MPS may even add a foreign NGO to a black list, permanently prohibiting the NGO from re-registering or engaging in temporary activities in China. In addition to foreign NGOs deemed to be in violation of the Foreign NGO Law, culpable Chinese collaborators and beneficiaries may also be subject to sanctions under the law.
  • Permitted and Prohibited Activities. The new law provides that MPS will publish catalogues listing fields and types of projects in which foreign NGOs are welcome to engage. Foreign NGOs may carry out activities using their registered name and within their registered operational scope and geographic region.

However, foreign NGOs are prohibited from conducting activities that are for-profit, political, or religious in nature. They are also prohibited from engaging in activities that “endanger China’s national unity, security, or ethnic unity; or harm China’s national interests, the public interest, or the lawful rights and interests of citizens, legal persons, or other organizations.” Combined with the broad conception of “national security” in the new National Security Law passed last July, regulating authorities will likely wield (or continue to wield, but now with greater legal basis) significant discretion in determining which activities they find unacceptable.

  • Fundraising Restrictions. Foreign NGOs may not fundraise in China and may only operate bank accounts in the country that are filed with and can be supervised by MPS. Further, they must publicly disclose their audited financial accounting reports. Despite such restrictions, it appears that foreign NGOs may still partner with Chinese charity organizations whereby a Chinese organization may receive funds and assets raised through a foreign NGO’s efforts and then donate them to activities sponsored or led by the foreign NGO.
  • Limitations on Use of Bank Accounts. Foreign NGOs’ representative offices may only use bank accounts recorded with MPS for activities in China. Unregistered foreign NGOs engaging in temporary activities must use their Chinese partner entities’ bank accounts.
  • Extensive Reporting Requirements. Representative offices of foreign NGOs must submit an annual activity plan to their professional supervisory units for the following year by December 31 of each year (starting in 2017), and then subsequently file with MPS. Any adjustments to the plan require filing as well, and deviations from the plan can have serious consequences.Foreign NGOs’ representative offices must also “report information on employed personnel to the professional supervisory units and [public security authorities].”
  • Representative offices of Foreign NGOs must also submit annual work reports to their professional supervisory units by January 31 of each year, and then to MPS by March 31. These annual work reports must include financial accounting reports audited by Chinese accounting firms together with information on activities, personnel, and organizational changes. Annual work reports are to be published online on a unified MPS website.
  • Employment Procedures. The law states that the chief representative and other foreign representatives who are employees of foreign NGO representative offices are eligible for employment and other work formalities (e.g., work permits).
  • Rumors and Harmful Information. Among other violations of the Foreign NGO Law and other laws and regulations, the law states that foreign NGOs may have their registration or temporary activities canceled, and even responsible personnel detained, for, among other things, “creating rumors, engaging in defamation, or publishing or disseminating other harmful information that endangers state security or damages the national interest.”

While the law may indeed bring greater clarity to the legal and regulatory environment for foreign NGO activities in China, the contours of that environment may be less friendly to foreign NGOs than many in the international community had hoped. As with the Charity Law, much will depend on how the government implements the provisions of this law through implementing regulations, guidance, and practice.

Shirleen Hong, Ning Lu, and Eric Carlson of Covington & Burling LLP assisted with the research and preparation of this article. The unofficial English translation of the law used here is based on that provided by Chinalawtranslate.com here.

This Week in Congress — May 16, 2016

Members have two more weeks of legislative business before the scheduled Memorial Day break with much work to be done before then.

The Senate returns to work on Monday and resumes its consideration of appropriations bills, although it will start the week by voting on a judicial nomination. Having finished the Energy & Water bill last week, the Senate turned to the joint consideration of Fiscal year (FY) 2017 Transportation-Housing and Urban Development and Military Construction-Veterans Affairs bills. It plans to work its way through amendments to those bills this week with the aim of completing work on them this week. The Senate’s consideration of the Energy & Water appropriations bill was almost side-tracked by a contentious amendment offered by Senator Tom Cotton (R-AR) on the Iran nuclear deal. While Senate Majority Leader Mitch McConnell (R-KY) found a path forward, the delay that amendment provoked and the partisan tensions it raised show how tenuous and fraught is the effort by Leader McConnell to pass all 12 appropriations bills before the September 30 end of the current fiscal year.

Also due for a vote this week are three proposals to tackle the growing challenges posed by the Zika virus. The administration and congressional Democrats have been demanding $1.9 billion in funding to address the problem. The Senate is expected to pass a compromise bill worked out between Sen. Roy Blunt (R-MO) and Sen. Patty Murray (D-WA) to provide $1.1 billion in funds, not offset by cuts from other spending. In addition to voting on the Blunt-Murray compromise, the Senate is also expected to vote on amendments to provide the full $1.9 billion requested by the President and to offset the funds to be provided. Waiting in the Senate wings if it succeeds with the T-HUD/MilCon-VA bills this week are the Defense authorization and appropriations bills, which are said to be on tap for the week prior to Memorial Day.

The House also returns on Monday and will take up nine bills under suspension of the rules. On Tuesday, the House will consider another suspension before turning its attention to the heavy legislative lifting of the week. The House is expected first to consider a Democratic motion to instruct conferees on the Comprehensive Addiction and Recovery Act, S. 524. Last week, the House passed numerous bills to address the growing opioid-abuse problem in the country, and thereafter rolled all of the bills together and substituted the entire package of House-passed bills in place of the text of S. 524, the Senate bill on the subject. The two chambers intend to resolve the differences between the two versions of the bill in a conference committee. The Democratic motion to instruct conferees is likely to include Democratic demands for increased funding targeted at opioid issues. Democrats attempted to add such funding to the bills the House considered last week but failed; failure is again likely on the motion to instruct, although the conference committee itself may be more receptive to adding some funding to the House approach.

After the House deals with the motion to instruct, it will turn to consideration of significant legislation subject to rules. Due up first is the annual Defense Authorization Act. The legislation, which always draws a large number of amendments, includes controversial items, including a funding provision that seeks to bolster defense spending by shifting funds intended to support U.S. military operations in the field. Democrats oppose that effort, and the Senate version of the bill does not include it.

Once it completes work on the Defense bill, the House will take up two appropriations measures. The first is the House’s version of a Zika-funding measure. That bill is expected to provide funding only through the end of the current fiscal year, September 30, and not beyond; the Senate compromise bill provides funding for the remainder of this fiscal year and next year as well. In addition, the House bill will include offsets fem current programs to fund the resources to be dedicated to combatting Zika. Democrats are likely to oppose the House Republican bill. With summer nearing and mosquito season upon most parts of the country, Democrats believe they have the upper hand in the debate, so they are likely to be insistent on no less than the Senate compromise approach (which is insufficient for the Democrats). Whether the two chambers can come together and enact legislation remains uncertain.

Finally, the House will itself also begin taking up FY17 appropriations bills. Typically, the House acts first on appropriations due to constitutional requirements. This year, however, because the House was unable to pass a budget resolution, it was not allowed to begin floor consideration of appropriations bills until after May 15. The Senate does not labor under a similar restriction, so it could proceed first, using shell vehicles of House bill numbers from bills the House had previously passed and sent to the Senate. With the May 15 date passed, the House will tackle its version of the Military Construction-Veterans Affairs appropriations bill this week. That bill tends to be among the least controversial, and relatively prompt passage is expected.

Still uncertain is what will happen with legislation to assist Puerto Rico address its economic collapse. The initial bill, released prior to the last recess, drew criticism from the left and the right, and House Resources Committee Chairman Rob Bishop (R-UT) and his staff have been working with conservatives and the Treasury Department, negotiating on behalf of the administration and representing Democratic interests, to come up with a revised bill. A draft was due to be released last Wednesday, but the committee missed that goal. Reports are that the committee is close, but Democrats continue to express concern over some of the bill’s provisions to reduce the minimum wage on the Island and to favor bond holders over union pensions. Democrats also harbor concerns over the power of the proposed financial control board, seeing it as a slap at the elected leaders of the Commonwealth (although it was the elected leaders who created the mismanagement in the first place and caused the current situation). Those provisions, opposed by Democrats, are likely necessary to ensure sufficient Republican support for a bill. Puerto Rico endured a partial default on May 1, but the bond markets reacted with calm. A much larger default is threatened for July 1, and Congress is aiming to enact legislation by that date. The legislation remains a priority for Speaker Paul Ryan, although it remains to be seen whether it is in fact able to find a path forward between the demands of both parties.

A typically busy week in the committees in both chambers is expected. Highlights include a Tuesday markup of the Defense appropriations bill in the House Appropriations Committee. Tuesday afternoon sees the Agriculture Appropriations Subcommittee of the Senate Appropriations Committee mark up the Agriculture spending bill.

Another markup not yet noticed but expected is the Senate Judiciary Committee’s consideration of the E-mail Privacy Act. The House version of the bill passed the House unanimously a couple of weeks ago; Senate Judiciary Committee Chairman Chuck Grassley (R-IA) is known to have reservations about the adverse effects the bill will have on law enforcement, especially civil enforcement efforts by agencies like the Securities & Exchange Commission and the Federal Trade Commission. Observers were surprised when Chairman Grassley announced last week that the committee would mark the bill up next (i.e., this) week. Under the committee’s regular practice, the bill will actually be held over for a week and will not actually see action this week, but the mere fact that the committee will consider it is an indication that after the unanimous House vote it enjoys more momentum than its supporters had dared to hope. Whether it can pass on the Senate floor is unclear, but it is only a matter of time before it or similar legislation becomes law.

On Tuesday the Senate Foreign Relations Committee looks at the situation in Syria; the House Oversight Committee reviews the Iran nuclear deal at the same time, with Iran being the leading supporter of Syrian president Assad. On Wednesday, the Senate Health, Education, Labor and Pensions Committee conducts oversight on the administration’s implementation of the Every Student Succeeds Act, the bipartisan legislation enacted last year to reform the Elementary and Secondary Education Act. Education Department implementation of the new law has stoked controversy; the bill was intended to return greater authority to state and local schools boards and government, but proposed new federal rules move in the opposite direction. On the other side of the Capitol, the House Oversight Committee looks at federal IT issues. On Thursday, the Senate Agriculture Committee review the Farm Credit System.

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

Monday May 16, 2016

House Committees

Pending Legislation
House Rules
Full Committee Business
5 p.m.

Tuesday, May 17, 2016

House Committees

Safeguarding our Symbol of Democracy: U.S. Capitol Polices Management Plan for 2017 and Beyond
House Administration
Full Committee Hearing
11:15 a.m., 1310 Longworth HOB

Focus on the Farm Economy: Impacts of Environmental Regulations and Voluntary Conservation Solutions
House Agriculture – Subcommittee on Conservation and Forestry
Hearing
10 a.m., 1300 Longworth HOB

Assessing the Department of Defense’s Execution of Responsibilities in the U.S. Foreign Military Sales Program
House Armed Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
9 a.m.

Full Committee Markup – FY 2017 Defense Bill, Legislative Branch Bill, and Revised Report on the Interim Suballocation of Budget Allocations
House Appropriations
Full Committee Markup
10:30 a.m., 2359 Rayburn

“Helping Students Succeed by Strengthening the Carl D. Perkins Career and Technical Education Act”
House Education and the Workforce
Full Committee Hearing
10 a.m.

The Obama Administrations Medicare Drug Experiment: The Patient and Doctor Perspective
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn HOB

“Interest on Reserves and the Fed’s Balance Sheet”
House Financial Services – Subcommittee on Monetary Policy and Trade
Subcommittee Hearing
10 a.m., 2128 Rayburn HOB

Oversight of Federal Efforts to Address Electromagnetic Risks
House Homeland Security – Subcommittee on Oversight and Management Efficiency
Subcommittee Hearing
10 a.m., 311 Canon HOB

“Synthetic Drugs Real Danger”
House Judiciary – Subcommittee on Crime, Terrorism, Homeland Security and Investigations
Subcommittee Hearing
10 a.m., 2141 Rayburn HOB

H.R. 4768 the “Separation of Powers Restoration Act of 2016”
House Judiciary – Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Subcommittee Hearing
1 p.m., 2141 Rayburn HOB

The Implications of President Obama’s National Ocean Policy
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
10 a.m., 1324 Longworth HOB

Iran Nuclear Deal
House Oversight and Government Reform
Full Committee Hearing
10 a.m.

A Review of Recently Completed United States Army Corps of Engineers Chief’s Reports
House Transportation and Infrastructure – Subcommittee on Water Resources and Environment
Subcommittee Hearing
10 a.m.

Tax-Related Proposals to Improve Health Care
House Ways and Means – Subcommittee on Health
Subcommittee Hearing
10 a.m.

“Legislative Proposals to Enhance Capital Formation, Transparency, and Regulatory Accountability”
House Financial Services – Subcommittee on Capital Markets and Government Sponsored Enterprises
Subcommittee Hearing
2 p.m., 2128 Rayburn HOB

U.S. Department of State Counterterrorism Bureau: FY 2017 Budget
House Foreign Affairs – Subcommittee on Terrorism, Nonproliferation, and Trade
2 p.m., 2172 Rayburn HOB

Veterans in Tech: Innovative Careers for All Generations of Veterans
House Veterans’ Affairs – Subcommittee on Economic Opportunity
Subcommittee Hearing
2 p.m., 334 Cannon HOB

Energy and Commerce Committee Vote on H.R. 4775 and H.R. 4979
House Energy and Commerce
Markup
5 p.m., 2123 Rayburn HOB

Senate Committees

Examining the status of advanced nuclear technologies.
Senate Energy and Natural Resources
Full Committee Hearing
10 a.m., 366 Dirksen Bldg.

Marine debris and wildlife, focusing on impacts, sources, and solutions.
Senate Environment and Public Works
Full Committee Hearing
10 a.m., 406 Dirksen Bldg.

Integrating the corporate and individual tax systems, focusing on the dividends paid deduction considered
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

War in Syria, focusing on next steps to mitigate the crisis
Senate Foreign Relations
Full Committee Hearing
11 a.m., 419 Dirksen Bldg.

National Foster Care Month, focusing on supporting youth in the foster care and juvenile justice systems
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Business meeting to markup an original bill entitled, “Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriations Act, 2017”.
Senate Appropriations – Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Subcommittee Markup
4 p.m., 124 Dirksen Bldg.

Pending legislation
Senate Energy and Natural Resources – Subcommittee on Water and Power
Subcommittee Hearing
2 p.m., 366 Dirksen Bldg.

Hearing to examine America’s insatiable demand for drugs, focusing on assessing the Federal response.
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
2:30 p.m., 342 Dirksen Bldg.

Wednesday May 18, 2016

House Committees

Service in the Field: Veteran Contributions to National Food Security
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth HOB

H. Res. 374 H. Res. 650 H. Con. Res. 129 S. 284 and S. 1252
House Foreign Affairs
Full Committee Markup
10 a.m., 2172 Rayburn HOB

Examining Employee Misconduct at EPA
House Oversight and Government Reform
Full Committee Hearing
9 a.m., 2154 Rayburn HOB

Border Station Construction: Minimizing Costs and Leveraging Private Dollars
House Transportation and Infrastructure – Subcommittee on Economic Development, Public Buildings and Emergency Management
Subcommittee Hearing
10 a.m.

Markup of Pending Legislation
House Veterans’ Affairs
Full Committee Markup
10:30 a.m., 334 Cannon HOB

Social Security Waste-Fraud-Abuse
House Ways and Means – Subcommittee on Social Security
Subcommittee Hearing
10 a.m.

Hearing entitled “Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers?”
House Financial Services – Subcommittee on Financial Institutions and Consumer Credit
Subcommittee Hearing
2 p.m., 2128 Rayburn HOB

Democracy Support Strategies in Africa
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
2:30 p.m., 2172 Rayburn HOB

Legislative Hearing on H.R. 4289 and S. 246
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Hearing
2 p.m., 1324 Longworth HOB

Federal IT Reform
House Oversight and Government Reform – Subcommittee on Government Operations & Subcommittee on Information Technology
Committee Joint Hearing
2 p.m.

Hearing: Next Steps to Mars: Deep Space Habitats
House Science, Space and Technology – Subcommittee on Space
Subcommittee Hearing
2 p.m., 2318 Rayburn HOB

Heroin Epidemic and Parental Substance Abuse
House Ways and Means – Subcommittee on Human Resources
Subcommittee Hearing
2 p.m.

Senate Committees

Hearing to examine a review of the Department of Veterans Affairs’ electronic health record (VistA), progress toward interoperability with the Department of Defense’s electronic health record, and plans for the future.
Senate Appropriations – Subcommittee on Military Construction, Veterans Affairs and Related Agencies
Subcommittee Hearing
10:30 a.m., 124 Dirksen Bldg.

Hearing to examine the Telephone Consumer Protection Act at 25, focusing on effects on consumers and business.
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., 253 Russell Bldg.

Hearing to examine Every Student Succeeds Act implementation, focusing on perspectives from education stakeholders.
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Hearing to examine assessing the security of critical infrastructure, focusing on threat, vulnerabilities, and solutions.
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Judicial Nominations
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Hearing on pending leglislation
Senate Indian Affairs
Full Committee Hearing
2:15 p.m., 628 Dirksen Bldg.

Ransomware, focusing on understanding the threat and exploring solutions.
Senate Judiciary – Subcommittee on Crime and Terrorism
Subcommittee Hearing
3 p.m., 226 Dirksen Bldg.

Small business and the Affordable Care Act
Senate Small Business and Entrepreneurship
Full Committee Hearing
2 p.m., 428A Russell Bldg.

Thursday May 19, 2016

House Committees

Examining H.R. 3299 Strengthening Public Health Response Act
House Energy and Commerce-Subcommittee on Health
Hearing
10 a.m. 2123 Rayburn HOB

“Settling the Question: Did Bank Settlement Agreements Subvert Congressional Appropriations Powers?”
House Financial Services
Hearing
9:15 a.m., 2128 Rayburn HOB

Examining Legislation to Promote the Effective Enforcement of the ADA’s Public Accommodation Provisions
House Judiciary-Subcommittee on the Constitution and Civil Justice
Hearing
9 a.m., 2141 Rayburn HOB

Oversight Hearing on Examining Deficiencies in Transparency at the Department of the Interior
House Natural Resources
Hearing
9 a.m., 1324 Longworth HOB

Help Wanted: Small Business Providing Opportunities for All
House Small Business
Full Committee Hearing
10 a.m.

Senate Committees

Farm Credit System
Senate Agriculture, Nutrition and Forestry
Full Committee Hearing
10:15 a.m.

Improving communities and businesses access to capital and economic development.
Senate Banking, Housing and Urban Affairs – Subcommittee on Securities, Insurance and Investment
Subcommittee Hearing
10 a.m., 538 Dirksen Bldg.

Examining the Bureau of Ocean Energy Management’s 2017-2022 OCS Oil and Gas Leasing Program.
Senate Energy and Natural Resources
Full Committee Hearing
10 a.m., 366 Dirksen Bldg.

Friday May 20, 2016

Denver Field Hearing
House Veterans’ Affairs
Hearing
9:30 a.m.

China Builds New Framework Governing Civil Society Organizations, Part I: Charity Law

Since the Xi administration’s pledge during the Fourth Plenum of the 18th Central Committee of the Chinese Communist Party in October 2014 to promote the rule of law (or, as the ambiguous language was interpreted by many, “rule by law”), China has issued a number of final and draft laws and regulations of significance to Chinese society and the foreign and foreign-invested entities that see China as an integral part of their own strategies. These laws and regulations include a new National Security Law, new Counter-Terrorism Law, draft Network Security Law, and draft Foreign Investment Law. These new laws and regulations may increase transparency and consistency in the regulation of some aspects of Chinese society and economy. However, through explicit language or broad or vague terms, many of the legislative highlights from the past 18 months provide a greater legal basis for significant government action and discretion.

New laws governing civil society in China are a case in point. During its meetings in March 2016, the National People’s Congress passed a new Charity Law that will go into effect on September 1, 2016 and govern all charity organizations in China. Thereafter, on April 28th, the Standing Committee of the National People’s Congress passed a controversial new Law on the Management of the Activities of Foreign Non-Governmental Organizations Within China (“Foreign NGO Law”).

This article examines the new Charity Law; a follow-on article will analyze the new Foreign NGO Law.

Charity Law

The stated goal of the new Charity Law (official Chinese version available here; unofficial English translation available here) is to build a single, comprehensive regime for the regulation and management of charity organizations in China. For decades, charities and, more broadly, civil society organizations have found themselves operating and fundraising in gray areas. The new law and subsequent implementing regulations will likely bring a (somewhat) greater measure of clarity to the regulatory environment. However, critics worry that more thorough management of civil society will provide the Chinese government with more tools for constraining civil society to achieve political goals.

Eleven years in the making, the Charity Law is China’s first comprehensive national-level legislation governing the charitable sector. The law’s provisions affect not only domestic and foreign non-profits, but also a wide range of companies and corporate social responsibility (CSR) initiatives. The law touches on a number of hot-button issues including direct registration, donation management, and transparency. Some highlights are as follows:

  • Broad scope. The first chapter of the law broadens the definition of what constitutes “charitable activities,” including within its scope “public interest activities voluntarily carried out…through the donation of property, the provision of services, or other means” related to poverty relief; environmental protection; care for the elderly and orphans; disaster relief; the development of science, education, culture, health, sports; and “other causes,” as well as “other public interest activities in accordance with this law.” Charitable organizations are defined as “legally established non-profit organizations that…aim to carry out charitable activities catering to society” and may include “foundations, social groups, social service organizations, and other forms of organization.”
  • Single Registration. Previously, charitable organizations needed to register both with the Ministry of Civil Affairs or relevant local counterpart thereof (“civil affairs department”) and also with a “professional supervisory unit” — in other words, a sponsoring government agency. Under the new law, Chinese charitable organizations no longer need to find a government sponsor. They will merely need to register with the appropriate civil affairs department. The Charity Law does not mention foreign charitable organizations, but under the new Foreign NGO Law — discussed in our next post in this two-part series — most foreign NGOs may only set up representative offices (or engage in temporary activities), which is handled by the Ministry of Public Security and its local counterparts rather than the civil affairs authorities.
  • Public Fundraising Rules. The new law attempts to provide more structure and clarity with respect to fundraising within China. While the new rules may represent an easing over the status quo in some respects, public fundraising in China will remain severely restricted and tightly managed by the government. While charities previously engaged in some online fundraising under the argument that online fundraising was not covered by previous rules (many of which were issued before online fundraising became mainstream), the new law removes any such ambiguity by explicitly covering fundraising over the Internet. Only charitable organizations that have applied for and received public fundraising certificates may fundraise. Those without such qualifications may fundraise publicly only if they do so in cooperation with an entity approved for public fundraising. Charitable organizations, which previously had limited and obscure paths to obtaining public fundraising status, may now apply for public fundraising certificates to the civil affairs department under which they are registered — after they have been operational for two years. The registering civil affairs department needs to deem the applicant organization as having sound internal governance and a good record of legal compliance. Certificates may be immediately granted to foundations and other social organizations that are permitted to fundraise under other laws and regulations. Once an organization receives a public fundraising certificate, each of its public fundraising activities must be filed with the registering civil affairs department. Online fundraising activities must be published on an online platform designated by civil affairs authorities.Charitable organizations are encouraged to conduct on-site fundraising activities within the geographic area covered by the registering civil affairs department; if the fundraising must be conducted outside of those geographic boundaries, then the record filing must be made with the civil affairs department governing that location.
  • Limitations on Administrative Costs. Public foundations are required to keep their administrative costs at a level no greater than 10% of overall expenditures for a given year. The new law does not set out specific limits for the administrative costs of other charitable organizations, but it is possible that implementing regulations may do so.
  • Volunteer Management Rules. The new law sets out rules for the management of volunteers, requiring charitable organizations to conduct real-name registration of volunteers and to record information including the time and substance of volunteer activities performed by each volunteer and an evaluation of volunteers’ contributions.
  • Tax Incentives. Charitable organizations are to be given tax benefits, as are those who make charitable contributions. However, the law does not explain what exactly those tax benefits are. It also states that overseas donations are eligible for a reduction or exemption from import duties and import VAT “in accordance with the law.”

As is common in China’s unique legal system, the Charity Law provides high-level guidance.

The full impact of the law will not be known until regulating government agencies issue implementing regulations. Companies, organizations, and individuals — both domestic and foreign — with interests in China’s social sector should closely monitor these developments.

Special thanks to the Center for Charity Law at the Beijing Normal University Philanthropy Research Institute for providing useful legal and technical information regarding the Charity Law. 

Shirleen Hong of Covington & Burling LLP assisted with the research and preparation of this article.  

The unofficial English translation of the law used in this article is based on that provided by Chinalawtranslate.com here.

 

 

Business Opportunities in Latin America

There is considerable turmoil in several Latin American countries including Brazil, Argentina and Venezuela. To gain some insight into what lies ahead in our southern hemisphere and the likely impact on business in the area, Global Policy Watch (GPW) spoke with Dr. Arturo Valenzuela, former Assistant Secretary of State for Western Hemisphere Affairs and Georgetown University Professor.

GPW: Dr. Valenzuela, we read about the winds of change sweeping through Latin America.  Is this a fair characterization?

Dr. Valenzuela: The current situation in Latin America must be viewed in the context of what has been occurring in the last 25 years.  A continent that was governed primarily by military authoritarian regimes is today governed by elected governments.  Extreme poverty rates have declined dramatically and greater prosperity has encouraged the rise of a new middle class.  That progress was aided by significant economic reforms, particularly the Washington Consensus, which opened up the markets and stabilized fiscal and monetary policies as well as structural policies that led do the privatization of state-owned enterprises.

GPW: Do you attribute this change to the end of the cold war?

Dr. Valenzuela: During the bipolar world dominated by the US and Soviet rivalry, leftist groups in many countries pushed a pro-Moscow agenda.  This led to fears of left wing insurrection aided and abetted by Cuba.  To head off communist insurrections, which in many cases were unlikely to succeed,  the military nevertheless took control, thwarting efforts to establish incipient democracies.  These authoritarian regimes were often encouraged and supported  by the US government, which sought to hold the line against Soviet expansion in the Americas.  With the end of the Cold War, this changed.  Constitutional government and the rule of law began taking hold throughout the region.  For the first time in history, in what came to be described as the Third Wave of Democratization, throughout the Americas countries either returned to well-honed democratic traditions, such as in Chile and Uruguay, or began the arduous task of fully implementing democratic constitutions adopted early in the 19th Century.

GPW: How did the Latin American economies perform during the decade of the 1980s under authoritarian rule and before the end of the Cold War?

Dr. Valenzuela: Horribly.  After the great depression, most countries in the region encouraged state owned industrial projects protected by high tariffs barriers.  This pattern of import substitution industrialization ran out of steam because it fostered inefficient industries shielded from international competition.  While major economies, such as Mexico did build an industrial base, they fell prey to economic stagnation coupled with hyperinflation.  For the most part authoritarian regimes, dominated by military establishments heavily intertwined with state owned corporations, combined economic mismanagement with dictatorial rule.

GPW: Let’s fast forward to the 1990s after the end of the Cold War.  What happened then?

Dr. Valenzuela: Military regimes gave way to elected governments strongly supported by the United States.  These governments sought to strengthen democratic institutions as they implemented economic policies aimed at stabilizing fiscal and monetary policy while encouraging economic development by opening markets.

GPW: Did those adjustments work?  What is the verdict in hindsight?

Dr. Valenzuela: The original reforms were necessary but not sufficient to improve the lot of average citizens.  Fortunately, governments in many countries went further by implementing innovative policies such as conditional cash transfers to alleviate extreme poverty while taking additional steps to improve social services and basic infrastructure, ushering-in an era of economic progress that reached sectors that had been historically marginalized.  Having said this, it is important to underscore that the consolidation of democratic institutions and the rule of law take time.  While classic military coups disappeared, with a couple notable exceptions, a series of elected presidents had to resign before their terms expired because of political deadlock with legislatures dominated by opposition forces in the face of growing civil unrest.  A new generation of leaders in several countries abandoned the discipline of careful economic management and sought in several countries to increase their standing by turning to populist measures that further weakened the progress of democratic consolidation.  Their irresponsible policies were temporarily papered over by the commodities boom that benefited the region.

GPW: How has China’s mushrooming economy impacted Latin America?

Dr. Valenzuela: Initially, China’s insatiable demand for commodities was a boon to commodity rich Latin America. For almost a decade, the economies of the Atlantic grew very quickly as a result of the mounting commodity prices mainly driven by Chinese demand.  Aided both by sound economic management and increased raw materials exports, the countries of Latin America managed to avoid the severe global downturn in the aftermath of the 2008 financial crisis that hit Europe and the United States; and the second decade of the new century looked bright for the Americas.  But what goes up has to come down and the sharp decline in Chinese demand for commodities, particularly oil, iron ore, copper and soybeans, has severely impacted Latin Americas economies.

GPW: Do you think the economic downturn will adversely affect the political situation in Latin America?

Dr. Valenzuela: The sharp drop in commodity exports has severely impacted growth in the region which contracted by 0.1% in 2015.  Lower commodity prices, financial volatility in financial markets, and lack of investor confidence contributed to further weakness in the first quarter of 2016 and it is likely to be negative for a second year.  The political effect of the economic downturn, however, has been disparate, affecting South American countries of the Atlantic more than those of the Pacific.  It has also affected the commodity exporters in South America more than the countries of Central America and Mexico whose fortunes have been more closely tied to the gradual but steady improvement of the US economy.

The situation is particularly dramatic in Venezuela where a collapse in oil prices coupled with a severe downturn in production has aggravated a string of poor policy choices, contributing to a severe economic downturn (-6.9%) with rampant inflation and heightened political instability.

In Brazil, it is not clear that President Rousseff will be able to finish her term in office because a corruption scandal tied to the State Oil Companies has shaken the country’s entire political and business establishment. The Brazilian economy is expected to contract 3.5%.  A side benefit to the Brazilian crisis is that it should help usher-in significant improvement in the rule of law.

The economic downturn was partly responsible for the election of a new government in Argentina that has taken giant strides to institute sounder economic management, rein in inflation, and make the country attractive again to foreign investment. Although President Macri’s recently elected new government faces many challenges, that change of government augurs well for a return to sounder economic management.

GPW: Dr. Valenzuela, what do you see as the bottom line going forward?

Dr. Valenzuela: Politically, governments are working to consolidate democratic institutions and the rule of law.  The progress, though slow, is a steady one that gives confidence in the future.  Economically, South America is a continent with huge opportunities for multinational businesses.  Natural resources are prevalent. Labor productivity is generally high and the competitiveness of the region  is increasing, particularly with the greater engagement of countries with the global economy based on platforms of free trade.  Latin America has another huge advantage.  As the oldest continuous independent republics in the world, each country’s nationalism is firmly entrenched.  There are no separatist movements driving people apart.  All of these factors point toward democratic consolidation and economic growth.

This Week in Congress – May 9, 2016

Members return to Capitol Hill this week after a one-week break and settle in for three weeks of legislative business before the scheduled Memorial Day recess. The Senate is still working to find a path forward on the Energy and Water Appropriations measure for Fiscal Year (FY) 2017 and other FY 2017 spending bills, while the House will take up several measures to address opioid abuse and provide addiction-recovery assistance. In the background looms the now-settled selection of Donald Trump as the Republican presidential nominee and a split in Republican ranks over whether to support him, raising questions on the potential impact Trump will have on Senate and House races in November.

The Senate returns to legislative business on Monday and resumes consideration of the legislative vehicle (H.R. 2028) for the FY 2017 Energy and Water appropriations bill, a $37.5 billion funding measure that had previously been viewed as fairly non-controversial and appeared set for final passage before last week’s recess. The appropriations bill is now held up over an amendment offered by Senator Tom Cotton (R-AR) that would prevent the Administration from spending any funds to purchase heavy water from Iran. Senator Cotton has been a leading opponent of the President’s deal with Iran. Opponents of the amendment, all likely to be Democrats, argue it would directly and adversely affect the implementation of the President’s nuclear deal with Iran. The amendment has prompted a veto threat over the underlying bill from the Administration, and Senate Democrats have called Senator Cotton’s amendment a “poison pill.” Prior to the recess, Majority Leader Mitch McConnell twice attempted to achieve cloture on the Energy and Water bill, but failed to achieve the necessary 60 votes to limit debate. Democrats fear the amendment will pass and will force some of their members, especially those up for reelection, to cast a difficult vote. Leader McConnell will likely try for a third cloture vote this week, although he has given no indication that an agreement has been reached to move forward.

Should the issue over Senator Cotton’s amendment be resolved, the Senate expects to complete action on the Energy and Water appropriations bill this week. Leader McConnell previously indicated that the Senate will likely take up the Transportation, Housing and Urban Development (T-HUD) funding bill as its second FY 2017 appropriations measure. The legislation, reported unanimously out of the Senate Appropriations Committee in April, provides over $56 billion in funding for the Departments of Transportation, Housing, Urban Development, and other related agencies for the fiscal year that begins on October 1. The Military Construction and Veterans Affairs appropriations bill and the Commerce, Justice, and Science appropriations bill have also been reported favorably by the Senate Appropriations Committee and await action by the full Senate. The ability of the Senate to tackle these appropriations bills depends on whether it can find a path forward on the Energy and Water bill. If it cannot, then Leader McConnell’s hopes for completing Senate action on all 12 appropriations bills are likely to collapse amid partisan rancor and recrimination.

If the Senate is unable to move forward on the appropriations front, it is likely to turn its attention to criminal-justice and sentencing-reform legislation. The legislation was favorably reported by the Judiciary Committee several months ago on a 15-5 vote, but the Republicans on the committee split 5-5. Since then, Judiciary Committee Chairman Chuck Grassley (R-IA) has been seeking further compromises to attract more Republican support. Prior to last week’s recess, he announced a compromise agreement that has attracted some additional Republican support, making the bill a realistic candidate for floor consideration if the appropriations process on the floor collapses.

On the other side of the Capitol, the House is scheduled to return on Tuesday and begin what Majority Leader Kevin McCarthy (R-CA) has dubbed “opioid week,” taking up more than a dozen bills related to opioid abuse and recovery assistance, reported with overwhelming bipartisan support out of the House Energy and Commerce, Judiciary, Veterans Affairs, and Education and Workforce Committees prior to last week’s recess. This issue that has been a top priority for both chambers this year and for many members, whose constituencies are struggling to counter widespread opioid and heroin abuse. On Tuesday House members will consider 10 bills under suspension of the rules, including H.R. 5052, the Opioid Program Evaluation (OPEN) Act, legislation that would require the Attorney General and Secretary of Health and Human Services to evaluate the effectiveness of existing federal programs that provide grants for assistance in addressing opioid abuse.

On Wednesday, House members will consider another 11 bills under suspension of the rules related to opioid abuse and recovery assistance. The proposals range from expanding access to Naloxone (medication that reverses the effects of an opioid overdose) and improving care for pregnant and postpartum mothers and infants affected by substance abuse or withdrawal symptoms, to increasing access to medication-assisted treatment and allowing prescriptions for certain controlled substances to be partially filled. The House will also consider H.R. 4641, subject to a rule. This legislation would establish an inter-agency task force to review, modify, and update best practices for pain management and how pain medication is prescribed.

During the remainder of the week, the House is expected to consider H.R. 5046, subject to a rule. H.R. 5046 would authorize annual appropriations to the Attorney General to make grants to state, local, and tribal governments for programs to combat opioid abuse.

Following the expected passage by the House of these opioid-abuse and recovery-assistance bills, the House plans to request a conference with the Senate to resolve the differences between the House-passed bills and the Senate version, the Comprehensive Addiction and Recovery Act (CARA), which passed in March by a vote of 94-1.

On the committee front this week, the subcommittees of the Senate Armed Services Committee will begin marking up the Senate version of the National Defense Authorization Act for 2017. On Monday and Tuesday, each of the six subcommittees will meet to consider its portion of the annual defense spending blueprint. The full committee will meet in closed session to mark up the bill on Wednesday, Thursday, and Friday. The Armed Services Committee is expected to complete its markup this week, allowing for consideration in the full Senate prior to Memorial Day; House action on its version of the bill is also expected this month.

The Senate Judiciary Committee will be considering privacy issues at two hearings this week. The full committee meets on Tuesday to discuss oversight and reauthorization of the FISA Amendments Act, the law governing federal surveillance of electronic communications. The current law, which came to widespread public attention through the Edward Snowden leaks, will expire at the end of next year. Leaders of the House and Senate intelligence committees have identified reauthorization as a major priority, though other committees share jurisdiction over the authority and agencies involved. Privacy and civil liberties experts and a representative from cybersecurity industry are scheduled to provide testimony before the committee on Tuesday. The House Judiciary Committee held a closed hearing on the FISA Amendments Act reauthorization in February. The Senate Judiciary Subcommittee on Privacy, Technology, and Law meets on Wednesday afternoon to examine the Federal Communications Commission’s (FCC’s) proposed privacy rules for internet service providers (ISPs). The privacy proposal, adopted by the FCC on March 31, would limit the ability of ISPs to track the web history of subscribers for targeted advertising purposes by allowing subscribers to opt out, or by requiring the ISPs to obtain express consent before using and sharing the customer data with third parties. The FCC is currently accepting public comments on the proposal through May 27. FCC Chairman Tom Wheeler and Commissioner Ajit Pai are scheduled to testify at the Wednesday hearing, as are Federal Trade Commission (FTC) Chairwoman Edith Ramirez and Commissioner Maureen Ohlhausen.

The House Judiciary Committee Executive Overreach Task Force continues its series of hearings on “overreach” by the Executive Branch this week. A hearing scheduled for Thursday will focus on presidential actions in foreign affairs; two previous hearings focused on executive actions involving domestic affairs.

On Wednesday, the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade (CMT) will host a highly anticipated hearing on daily fantasy sports, a multi-billion dollar industry whose popularity has surged in recent years. Despite the activity’s very large and growing following (an estimated 60 million online users), public debate over whether fantasy sports activities qualify as gambling has led to increased scrutiny, with several states battling industry leaders FanDuel and DraftKings in court over their legality and others passing legislation to establish regulations and consumer protections. In announcing the CMT Subcommittee hearing, the first congressional hearing on daily fantasy sports, Subcommittee Chairman Michael Burgess (R-TX) stated that the event will provide “a forum for all stakeholders to discuss the many aspects of this complicated issue” and “consider whether there is a federal role to play” in oversight.

Continuing the recent trend of hearings focused on the U.S. tax code and tax reform, the House Ways and Means Tax Policy Subcommittee is scheduled to meet Thursday to discuss member proposals on how to improve the tax code.

On Wednesday the House Oversight and Government Reform Committee meets to discuss potential reforms to the U.S. Postal Service, an agency that has been plagued with operations issues and financial losses in recent years, largely stemming from the increase in technology and electronic communications.

By its own rules, the House is unable to consider any annual spending bills on the floor prior to May 15, as Congress has not adopted a budget resolution, but this restriction has not stopped the House Appropriations Committee from moving forward with the annual appropriations process. The full committee has already approved its Agriculture, Energy and Water, and Military Construction and Veterans Affairs Appropriations bills for the upcoming fiscal year. The Defense Subcommittee is scheduled to meet Thursday evening to consider its funding bill for FY 2017.

Of final note this week are press reports indicating that a new draft of legislation designed to assist Puerto Rico restructure its debt is likely to be released on Wednesday and potentially marked up by the House Natural Resources Committee next week. The initial draft, H.R. 4900, released in April, was met with criticism from both sides of the aisle. Conservatives worried about the impact of language that would allow Puerto Rico to seek bankruptcy-like protection in federal court and whether support for the debt restructuring package would appear as a “bailout,” (even though no taxpayer funds would be authorized for Puerto Rico), while Democrats wanted to include language on prioritization payments for pensioners over bondholders, a provision that is not included in H.R. 4900. In a letter to congressional leaders last week Secretary of the Treasury Jack Lew warned that “[o]ur worst enemy at the moment is politics” and without legislative action to restructure Puerto Rico’s debt, a “taxpayer-funded bailout may become the only legislative course available.” A major bond payment by the Commonwealth was due on May 1, but the territory opted to default instead of making cuts to essential services for its residents. Bond markets have not yet had a severe reaction to the default because it had already been priced into bond prices. July 1 is the next deadline for congressional action, when another $2 billion in debt is due, a payment Puerto Rico’s Governor Alejandro Garcia Padilla has already said it cannot afford to pay.

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

Monday, May 9, 2016

House Committees

Life on the Border: Examining Border Security through the Eyes of Local Residents and Law Enforcement
House Homeland Security – Subcommittee on Border and Maritime Security
Subcommittee Field Hearing
1 p.m., Sahuarita Town Hall Building, 375 West Sahuarita Center Way, Council Chambers, Sahuarita, Arizona

Senate Committees

Defense Authorization Act
Senate Armed Services – Subcommittee on Airland
Subcommittee Markup (CLOSED)
2:30 p.m., 232-A Russell Bldg.

Tuesday, May 10, 2016

House Committees

Will President Obama Prioritize the Release of Prisoners of Conscience in Vietnam?
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
4 p.m.

Senate Committees

Defense Authorization Act
Senate Armed Services – Subcommittee on Seapower
Subcommittee Markup (CLOSED)
9:30 a.m., 232-A Russell Bldg.

Evaluating China’s Financial Risks
Senate Banking, Housing and Urban Affairs
Full Committee Hearing
10 a.m., 538 Dirksen Bldg.

Gustafson Nomination (IG for the Dept. of Commerce)
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., 253 Russell Bldg.

Can Evidence Based Practices Improve Outcomes for Vulnerable Individuals and Families?
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Terrorism and Instability in Sub-Sahara Africa
Senate Foreign Relations
Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Understanding Dyslexia: The Intersection of Scientific Research & Education
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Oversight and Reauthorization of the FISA Amendments Act: The Balance between National Security, Privacy and Civil Liberties
Senate Judiciary
Full Committee Hearing
10 a.m., 226 Dirksen Bldg.

Defense Authorization Act
Senate Armed Services – Subcommittee on Personnel
Subcommittee Markup
11 a.m., G-50 Dirksen Bldg.

Defense Authorization Act
Senate Armed Services – Subcommittee on Readiness and Management Support
Subcommittee Markup
2 p.m., G-50 Dirksen Bldg.

Intelligence Matters
Senate Select Intelligence
Full Committee Briefing (CLOSED)
2:30 p.m.

Defense Authorization Act
Senate Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Markup
3:30 p.m., G-50 Dirksen Bldg.

Defense Authorization Act
Senate Armed Services – Subcommittee on Strategic Forces
Subcommittee Markup (CLOSED)
5:30 p.m., 232-A Russell Bldg.

Wednesday, May 11, 2016

House Committees

Foreign Military Sales
House Armed Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10 a.m.

Health Care Solutions: Increasing Patient Choice and Plan Innovation
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m.

Daily Fantasy Sports: Issues and Perspectives
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
10:15 a.m.

Reforming the Postal Service
House Oversight and Government Reform
Full Committee Hearing
10 a.m.

Dept. of Energy Oversight: Office of Fossil Energy
House Science, Space and Technology – Subcommittee on Energy
Subcommittee Hearing
10 a.m.

Inspiring Entrepreneurs: Learning from the Experts
House Small Business
Full Committee Hearing
11 a.m.

Pending Legislation
House Veterans’ Affairs – Subcommittee on Economic Opportunity
Subcommittee Markup
11 a.m.

FY 2017 Budget Priorities for South Asia: Recovery, Development, and Engagement
House Foreign Affairs – Subcommittee on Asia and the Pacific
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

The U.S. Role in Helping Nigeria Confront Boko Haram and Other Threats
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
2:30 p.m., 2255 Rayburn Bldg.

Pending Legislation
House Veterans’ Affairs – Subcommittee on Disability Assistance and Memorial Affairs
Subcommittee Markup
1 p.m.

Implementation of the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA)
House Ways and Means – Subcommittee on Health
Subcommittee Hearing
2 p.m., 1100 Longworth Bldg.

Defense Appropriations
House Appropriations – Subcommittee on Defense
Subcommittee Markup
5:30 p.m., H-140

Senate Committees

Defense Authorization Act
Senate Armed Services
Full Committee Markup (CLOSED)
9:30 a.m., 222 Russell Bldg.

Leveraging U.S. Science and Technology Enterprise
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., 253 Russell Bldg.

Oversight of the U.S. Customs and Border Protection Agency
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Pending Nominations
Senate Finance
Full Committee Hearing
3 p.m., 215 Dirksen Bldg.

Pending Legislation
Senate Indian Affairs
Full Committee Hearing
2:15 p.m.

Examining the Proposed FCC Privacy Rules
Senate Judiciary – Subcommittee on Privacy, Technology and the Law
Subcommittee Hearing
2:30 p.m., 226 Dirksen Bldg.

Thursday, May 12, 2016

House Committees

The Past, Present, and Future of SNAP: The Retailer Perspective
House Agriculture
Full Committee Hearing
10 a.m.

A Comparison of United Kingdom-U.S. Affordable Housing Models
House Financial Services – Subcommittee on Housing and Insurance
Subcommittee Hearing
10 a.m.

Terrorism, Missiles and Corruption: The Risks of Economic Engagement with Iran
House Foreign Affairs
Full Committee Hearing
10 a.m., 2172 Rayburn Bldg.

Current Terrorist Financing Trends and the Threat to the Homeland
House Homeland Security – Subcommittee on Counterterrorism and Intelligence
Subcommittee Hearing
10 a.m., 311 Cannon Bldg.

Executive Overreach in Foreign Affairs
House Judiciary – Executive Overreach Task Force
Subcommittee Hearing
10 a.m., 2141 Rayburn Bldg.

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

TSA Management and Misconduct (Part II)
House Oversight and Government Reform
Full Committee Hearing
9 a.m.

FDIC Data Breaches: Can Americans Trust that Their Private Banking Information Is Secure?
House Science, Space and Technology – Subcommittee on Oversight
Subcommittee Hearing
10 a.m.

Committee Documents Access Request
House Select Intelligence
Full Committee Business Meeting (CLOSED)
9 a.m.

The New Faces of American Manufacturing
House Small Business
Full Committee Hearing
11 a.m.

Controlling the Rising Costs of Federal Disaster Response
House Transportation and Infrastructure – Subcommittee on Economic Development, Public Buildings and Emergency Management
Subcommittee Hearing
10 a.m.

Combating the Crisis: Evaluating Efforts to Prevent Veteran Suicide
House Veterans’ Affairs
Full Committee Hearing
10 a.m.

Member Tax Improvement Proposals
House Ways and Means – Subcommittee on Tax Policy
Subcommittee Hearing
10 a.m.

Local and State Perspectives on BLM’s Draft Planning 2.0 Rule
House Natural Resources – Subcommittee on Oversight & Investigations
Subcommittee Hearing
2 p.m.

D.C. Home Rule: Examining the Intent of Congress in the District of Columbia Home Rule Act of 1973
House Oversight and Government Reform
Full Committee Hearing
2 p.m., 2154 Rayburn Bldg.

Senate Committees

Defense Authorization Act
Senate Armed Services
Full Committee Markup (CLOSED)
9:30 a.m., 222 Russell Bldg.

Beard Nomination (IG for the Dept. of Energy)
Senate Energy and Natural Resources
Full Committee Hearing
10 a.m.

Due Process in Administrative Hearings
Senate Homeland Security and Governmental Affairs – Subcommittee on Regulatory Affairs and Federal Management
Subcommittee Hearing
9 a.m., 342 Dirksen Bldg.

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

Intelligence Matters
Senate Select Intelligence
Full Committee Hearing (CLOSED)
2 p.m.

Friday, May 13, 2016

House Committees

Using Social Media in Federal Background Checks
House Oversight and Government Reform – Subcommittee on Government Operations; House Oversight and Government Reform – Subcommittee on National Security
Subcommittees Joint Hearing
9 a.m.

Concussions in Youth Sports: Evaluating Prevention and Research
House Energy and Commerce – Subcommittee on Oversight and Investigations
Subcommittee Hearing
9:30 a.m.

Senate Committees

Defense Authorization Act
Senate Armed Services
Full Committee Markup (CLOSED)
9:30 a.m., 222 Russell Bldg.

Leadership In The European Union, A Book Review

The governing structure of the European Union is undoubtedly the most complex in the history of the world. In his new book, Leadership in the European Union, Jean De Ruyt has done an outstanding job of explaining the evolution of the EU institutions from 1963 to the present, as well as what they now can and cannot do.  At the same time, De Ruyt focuses specifically on leadership, past and present in the EU, and provides candid assessments of the strengths and weaknesses of many who have occupied the top positions.

De Ruyt is uniquely qualified to undertake this analysis. Throughout his long diplomatic career, he has been widely regarded as an expert on the intricacies of the European Union.  Among his many governmental posts, De Ruyt was the Permanent Representative of Belgium to the EU between 2007 and 2011; and he has published texts on the European Union.  Currently, he is a senior European Advisor for the law firm of Covington & Burling and is on the Board of Advisors of McLarty Associates.

On the matter of complexity, De Ruyt doesn’t pull any punches. He asserts that “very few people understand the complex workings of the European institutions.”  And for good reason.  There is an European Council which has a President; a European Commission with its own President; a Parliament; and a High Representative For Foreign Affairs and Security Policy with very extensive responsibilities “on paper.”

The core reason for this hodgepodge, as De Ruyt points out, is the reluctance of the individual members of the EU to cede power to the Union. According to De Ruyt, “Institutional leaders have only been given real power in a piecemeal, step-by-step fashion.”  The EU members would like the benefits that cooperation can provide while retaining their sovereignty.  Unfortunately, as estates law professor Clark of Yale once said, “You can’t both give it and keep it.”

For Americans, De Ruyt’s book comes at a timely moment. The hugely successful Broadway show, Hamilton, has focused attention on the formation of our political union.  At the end of the day, Virginia, Massachusetts, and the other states were willing to yield their independence in ways that the European nations have thus far not been willing to do.

To some extent, leadership is a critical factor. We were fortunate to have individuals with powerful leadership abilities at the time that the institutions were still in the formative stage.  The individuals were able to shape the institutions.

In Europe, in contrast, De Ruyt discusses some outstanding leaders such as Herman Von Rompuy. But they were limited in what they could accomplish because the institutional structure already in place was a virtual strait jacket.  An exception is Mario Draghi, the head of the European Central Bank who has acted far beyond the limits imposed on the ECB; and he has not been challenged in his exercise of power.

The reality is that Europe already has two presidents: the president of the council and the president of the commission.  But on the other hand, as De Ruyt opines, “the institutional leadership in the Union would obviously be enhanced if there was a real ‘President of Europe.’”  Similarly, the High Representative has responsibility for security and foreign affairs.  Yet, in the refugee crisis, German Chancellor Merkel operated as the de facto European President and Foreign Minister.  And rather than seeking joint EU action, “France did not hesitate to deploy troops unilaterally in Africa,” De Ruyt writes.

Jean De Ruyt’s book is even more remarkable because he is characterizing a Union in great flux. First, the fiscal austerity crisis and then the Middle Eastern refugee issue have threatened to rip the EU apart.  Now Europe is confronting the looming vote on Brexit.  Developments in Europe have a considerable impact on the United States.  For this reason, Leadership in the European Union is essential reading.

EU Policy Update

Digital Single Market Policy

On April 19, the European Commission launched its “Digitising European Industry” package, a series of industry related initiatives aimed at “updating Europe’s digital infrastructure”.  The package includes reports and proposals addressing cloud computing, ICT standardization, eGovernment, Internet of Things (“IoT”), quantum technologies and high performance computing / big data.

As part of the package, the Commission announced the creation of a European Open Science Cloud, which is intended to “offer 1.7 million European researchers and 70 million professionals in science and technology a virtual environment, free at the point of use, open and seamless services for storage, management, analysis and re-use of research data, across borders and scientific disciplines.”  In its Communication on ICT standardisation (see here), the Commission has identified five priority areas for standardization: 5G, the Internet of Things, cloud computing, cybersecurity and data technologies.  Please find the press release here, Q&A here, and the homepage for the package here.

In April, a draft communication on Online Platforms and the Digital Single Market strategy was leaked from the European Commission, see here.  In the draft document, post-dated May 25, the Commission outlines its political approach to supporting the development of online platforms in Europe.  The document defines online platforms as “undertakings capable of facilitating direct interactions between users via online systems, and that capitalize on data-driven efficiencies enabled by network effects”.

In the second half of 2016, the Commission is also expected to publish studies on the asymmetry of information between platforms and their users, as well as on intermediary liability and notice-and-action.

On April 11, the Commission launched a public consultation to review and propose changes to the ePrivacy Directive (2002/58/EC).  The consultation will run until July 5, 2016.  After this period ends, the Commission will review responses and is likely to table a draft legislative proposal by the end of the year.  The ePrivacy Directive sets out specific rules concerning the processing of personal data in the electronic communication sector, which supplement the general European data protection framework (the same framework that will be revised by the General Data Protection Regulation).  The ePrivacy Directive was last updated in 2009 and is perhaps best known for the so-called “cookie rule” (a law that requires many websites to gather specific consent when using certain cookies and similar technologies) and provisions that address the confidentiality of electronic communications.  Please find the Commission’s consultation questionnaire here, and a background document here.

On April 13, the Article 29 Data Protection Working Party (“Working Party”), a group consisting of representatives from the European data protection authorities, the European Data Protection Supervisor, and the European Commission, published its opinion on the EU-U.S. Privacy Shield draft adequacy decision.  According to the Working Party, the Privacy Shield contains significant improvements compared to the now-defunct EU-U.S. Safe Harbor framework; however, they had certain outstanding concerns and requests for clarification.  In particular, the Working Party were concerned that some of the key EU data protection principles are not sufficiently reflected in the Privacy Shield, or have been “inadequately substituted by alternative notions” and that the recourse mechanisms are unclear.  The Article 31 Committee (made up of representatives of the Member States) will now meet to analyze the Privacy Shield on April 29 and May 19, when they will vote on the adequacy of the proposed Privacy Shield.  Please find the Working Party’s opinion here, the press release here, and the respective Covington Inside Privacy blogpost here.

Energy and Climate Change Policy

On April 7, the European Commission published a Roadmap outlining its upcoming Communication on Decarbonizing the Transport Sector.  The Communication will address how the EU’s inland transport sector should contribute to the EU’s greenhouse gas emission reduction target of 40% by 2030.   According to the Roadmap, transport emissions will reduce with 12% by 2030 compared to 2005 under existing policies and trends, whereas a 17% to 20% reduction is needed to meet the target.

The Communication is expected to be accompanied by legislative and non-legislative initiatives to reduce transport emissions, including the further promotion of carbon-free or less carbon intensive fuels, vehicle efficiency, and managing transport demand.  Please find the Roadmap here.

On April 28, the Court of Justice of the European Union declared invalid the maximum annual amount of free allowances for greenhouse gas emissions determined by the Commission for the period 2013-2020.  In particular, the Court declared invalid Article 4 and Annex II to Decision 2013/448, which implements a correction factor for the purpose of calculating the maximum amount of free allowances that Member States can distribute.  The Court held that the Commission is required to refer only to the emissions of the installations included in the Community system from 2013 onwards, and not to certain other emissions that had been included in the calculation, when establishing the maximum annual amount of allowances.  It also held that the Commission is responsible for ensuring that data sent in by Member States is correct.

The consequence of the ruling is that the maximum annual amount of free allowances granted in the EU may rise or drop.  The Court’s ruling also impacts the current debate in the European Parliament on the next phase of the ETS, after 2020, as the legislative proposals are based on the same calculation of maximum annual emission allowances.  Please find the full judgment here, and an overview of the progress of the proposals for the next phase of the ETS here.

Internal Market and Financial Services Policies

On April 15, the European Parliament adopted the Trade Secrets Directive, paving the way for its formal adoption by the Council on May 17, 2016.  The Directive seeks to harmonize the national trade secrets laws of the Member States, establishing common definitions, procedures and sanctions.  It defines “Trade Secrets” as information which: (i) is secret in the sense that it is not generally known or readily accessible to persons within the circles that normally deal with the kind of information in question; (ii) has commercial value because it is secret; and (iii) has been subject to reasonable steps to keep it secret.  The Directive should provide companies with a means of redress for theft or misuse of Trade Secrets.  The European Parliament inserted provisions regarding freedom of expression and information, seeking to ensure that the rules do not restrict the work of journalists.  Following its formal adoption, Member States will have two years to implement the provisions of the Directive in national law.  Please find the Directive here, and the Parliament’s press release here.

On April 25, 2016, the European Commission published its first report on the implementation of the Capital Markets Union in Europe.  The Capital Markets Union is the Action Plan of the Commission to integrate capital markets and to develop alternative sources of finance, complementary to the traditionally strong bank financing in the EU.  Since its announcement in September 2015, the Commission presented legislative proposals on the calibration of capital requirements for banks (see here), common EU rules on securitization; a simplification of the Prospectus Directive (see here), and a revision of the delegated act on regulatory capital requirements held by insurance and reinsurance undertakings (see here).  Please find the first status report here, and the Commission’s press release here.

Meanwhile, the Commission has started a public consultation on business restructuring and insolvency rules in Europe.  Stakeholders have until June 14, 2016 to provide input to the Commission. The public consultation will contribute to a legislative proposal announced for the end of this year.  Please find the consultation here.

In 2016, the Commission intends to present legislative proposals to upgrade rules on European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF), as well as a review of the Capital Requirements Regulation (CRR) for banks as regards infrastructure calibration.  Please find the full report here, and the press release here.

At the end of March, Cyprus exited its 2013 Eurozone bailout program, turning down the last € 2.7 billion of the € 10 billion package.  The news was hailed as a success by the Commission.  The bailout was made up of loans of € 6.3 billion from the European Stability Mechanism (ESM) and € 1 billion from the International Monetary Fund (IMF) under its Extended Fund Facility.  The fourth country to exit the Eurozone bailout program, after Ireland (in 2013), Spain and Portugal (both in 2014), Cyprus is due to finish repaying the loans granted by the ESM by 2031.  On April 6, meanwhile, Hungary made a € 1.5 billion payment to the EU, the final repayment for loans of € 15.6 billion granted in its 2008 bailout programme from the IMF, the EU and the World Bank.

Meanwhile, the outlook for Greece remains difficult. The latest round of negotiations with its creditors – EU, IMF, European Central Bank and the ESM – on a third bailout package have been clouded by a damaging leak of a discussion within the IMF, published April 2, in which its officials speculated that Greece would need a new “crisis event” to spur it to action. The two real sticking points in the negotiation appear to be more substantive: apparent disagreements between the creditors on the economic outlook for Greece – where the IMF sees the EU as overly optimistic – and on the IMF’s recommendation that the EU grant Greece a measure of debt relief – which certain Member States, including Germany, are said to have resisted. The remarks of Jeroen Dijsselbloem, the Dutch Finance Minister and president of the Eurogroup of Eurozone finance ministers, following their April 22 meeting (see here), suggested however that there may be some movement on reprofiling Greece’s debts, which could help ease repayments.

On April 7, 2016, the European Commission presented its Action Plan on Value Added Tax (VAT), outlining a set of measures intended to modernise VAT in the EU.  The Plan outlines four areas on which the Commission plans to act, to resolve the difficulties it sees for businesses and consumers operating cross-border.  The first encompasses a proposal to modernise and simplify VAT for cross-border e-commerce and measures to simplify VAT compliance for small and medium enterprises.  The second contains various proposals to tackle the estimated € 170 billion in VAT revenue that the Commission judges is lost every year (see the Commission’s 2013 Report, here).  The third would establish a definitive VAT system for cross-border trade.  The fourth would grant Member States more freedom in setting VAT rates – including a zero rate of tax on sanitary products, as noted in the Council conclusions of March 17 (see here).  This had been a political priority for the UK, and a sticking point in the Brexit debate.  The Commission will present its detailed proposals in 2016 and 2017.  For the Action Plan, see here; for the Commission’s press release, see here.

On April 12, the European Commission proposed a Directive that would boost corporate tax transparency by introducing public reporting requirements for multinationals operating in the EU.  In line with global OECD initiatives on tax transparency (see here), it would require all corporate groups with global revenues exceeding € 750 million a year to publish key information on where they make their profits and where they pay their tax in the EU.  For every country in which they operate, such groups would have to publish the nature of their activities; staff numbers; net turnover; profit before tax; all tax due based on yearly profits; all tax actually paid in that same year; and their accumulated earnings.  They would also have to disclose the total tax they pay outside the EU.  The proposed Directive will now be considered by the European Parliament and the Council.  Please find the proposed Directive here.

Life Sciences and Healthcare Policies

On April 15, 2016, the European Medicines Agency’s Pharmacovigilance Risk Assessment Committee (“PRAC”) adopted rules of procedure on the organization and conduct of public hearings in the context of safety referral procedures.  The hearings mainly aim to assess “the acceptability of the risks associated with the medicinal product/medicinal substance/class of medicinal products concerned, particularly in relation to its therapeutic effects and therapeutic alternatives available, as well as to seek suggestions and recommendations on the feasibility and acceptability of risk management and minimisation activities.”  Public hearings will be held on a case-by-case basis depending on the seriousness of the safety concern, among other criteria.  A dry run of the process for such hearings will take place on July 4 to 7, 2016.

These public hearings represent a new means of involving all members of the public, including EU citizens, patients and healthcare practitioners, in the assessment and supervision of medicines.  This system has been made possible by the Pharmacovigilance legislation.  The EMA’s Management Board had already endorsed the rules of procedure in March 2016.  For further information, see here.

Trade Policy and Sanctions

In April, the European Commission and China reached an agreement for China to Participate in Juncker’s investment fund.  Through its “Silk Road Fund,” China will contribute to the so called European Fund for Strategic Investments (EFSI), the fund set up to implement the investment plan for Europe launched last year by EU Commission president Jean Claude Juncker.  A working group had been set up in September 2015 to find the best solution to channel the impressive contribution – between 5 and 10 Billion Euros – that China was prepared to offer.  The agreement provides that China will have to fulfil the same rules applicable to private investors, a Commission official explained.  In addition, China will have to meet all EU rules on public procurement, labour law or environmental regulations, when investing under the scheme.

On April 16, High representative for EU Foreign Policy Federica Mogherini led an important delegation of European Commissioners to Tehran.  It included Elzbieta Bieńkowska (Internal Market), Miguel Arias Cañete (Climate Action and Energy), Christos Stylianides (Humanitarian Aid), Violeta Bulc (Transport), Carlos Moedas (Research), Karmenu Vella (Environment, Maritime Affairs and Fisheries) and Tibor Navracsics (Education and Culture).  Their visit took place in the framework of the Joint Comprehensive Plan of Action implemented in January 2016, after the successful conclusion of the negotiations on Iran’s nuclear program.  The Commissioners all met with their Iranian counterparts.

Mere days earlier, on April 11, Member States extended targeted sanctions on Tehran in response to serious human rights violations.  The sanctions include an asset freeze and visa ban on 82 persons and one entity responsible for “grave human rights violations,” as well as a ban on exports to Iran of equipment which might be used for internal repression and monitoring telecommunications.

On April 24, in Hanover, President Barack Obama and Chancellor Angela Merkel made a joint pitch for more transatlantic trade, a day after a huge demonstration in the same city echoed the mounting opposition to the Transatlantic Trade and Investment Partnership (TTIP) deal on both sides of the Atlantic.  Obama said he anticipated the agreement could be concluded by the end of this year, noting that “time is not on our side […]  if we don’t complete negotiations this year, then upcoming political transitions in the United States and Europe would mean this agreement won’t be finished for quite some time”. Merkel declared that the deal would be “extremely helpful for growth in Europe”.  But the 13th round of talks, which took place in New York the following week, did not mark any clear breakthrough.  It rather confirmed substantive divergences on key issues like agriculture, geographical indications, public procurement and even tariffs.

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