President Biden recently signed bipartisan legislation reinforcing anti-human trafficking prohibitions. The End Human Trafficking in Government Contracts Act of 2022 builds on the existing anti-human trafficking framework at Federal Acquisition Regulation (“FAR”) § 52.222-50 (Combatting Trafficking in Persons) by requiring agencies to refer contractor reports of potential human trafficking activity directly to an agency suspension and debarment official (“SDO”).  Prior to this legislation, contractors have been required to notify their contracting officer and the agency inspector general upon receiving “[a]ny credible information” that a human trafficking violation had occurred.  See FAR § 52.222-50(d)(1).  Now agencies will be required to refer these reports to their SDOs, creating additional risk for contractors that disclose potential violations. 

This legislation – which passed Congress unanimously – demonstrates the federal government’s ongoing focus on anti-human trafficking matters – a focus that has been shared across presidential administrations.  For instance, in 2015, President Obama significantly expanded the FAR’s anti-human trafficking prohibitions, and in 2019, President Trump sought to undertake a comprehensive review of the government’s anti-trafficking efforts and released a list of “best practices” to guide contractors.  President Biden now joins this ongoing, bi-partisan effort to increase government contractors’ focus on human trafficking by signing the recently-passed legislation.

Despite the federal government’s longstanding efforts to prevent human trafficking in its supply chain, many questions remain concerning how to comply with the requirements.  Below are three of the most common questions we encounter in applying the FAR’s anti-human trafficking provision:

Continue Reading New Law Increases Government Scrutiny of Contractor Compliance with Anti-Trafficking Provisions

On 28 October 2022, the European Commission (the “Commission”) adopted the  second amendment to its Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “Framework”). The second amendment to the Framework extends its duration by one year until 31 December 2023.

The four most important things you need to know about this amendment are:

  • Maximum aid amounts have been increased;
  • Guarantees or subsidised interests can now cover larger amounts of loans when taken by large energy utilities companies that provide financial collateral for trading activities on energy markets. Exceptionally, guarantees can also be provided as unfunded financial collateral directly to central counterparts or clearing members to cover the liquidity needs of energy companies, to clear their trading activities on energy markets;
  • To achieve the EU targets of reducing electricity consumption in response to high energy prices, Member States may provide compensation for genuine reductions in electricity consumption; and
  • State recapitalisations are not subject to detailed rules as under the COVID-19 Temporary Framework, however the Commission highlights the general principles it will use to assess them on a case-by-case basis. 
Continue Reading The Commission prolongs and amends its Temporary Crisis Framework relaxing State aid rules to support the economy following the aggression against Ukraine by Russia

On October 26, 2022, the Securities and Exchange Commission (the “SEC”) adopted a long-awaited rule that will require listed companies to adopt and publicly file so-called “clawback” policies.  As we discuss in more detail in this alert, the rule requires listed companies to adopt clawback policies to recover, reasonably promptly, incentive-based compensation that proves to be excessive following an accounting restatement.  The executives covered by the rule are persons who served as an executive officer at any time during the performance period for such incentive-based compensation.  The amount that must be recovered generally includes excess compensation earned during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement.

Among other executive compensation implications, the SEC contemplates that existing contractual arrangements with executives may need to be amended as a result of the new rule.  The rule mandates recovery of erroneously paid compensation, subject to narrow exceptions that generally include a finding that it is impracticable to do so because the cost of recovery exceeds the amount to be recovered.  The SEC’s adopting release states that inconsistency between the rule and existing compensation contracts is not a basis for such an impracticability finding.  As such, listed companies may wish to consider whether existing compensation arrangements should be amended to facilitate compliance with the mandate to recover.  In addition, listed companies may wish to review contractual clawback provisions in existing agreements for conformity with their clawback policies (as may need to be amended to conform with the new rule).  Going forward, where clawbacks are required, there may be complex questions concerning whether there may be additional compensation arrangements not cited in the release that may be subject to clawback, the amount of excess compensation that needs to be recovered, and the methods to satisfy the SEC’s requirement to undertake reasonable efforts to recover such compensation.

On October 26, 2022, the Securities and Exchange Commission (the “SEC”) adopted a long-awaited rule[1] that will require listed companies to adopt and publicly file so-called “clawback” policies to recover erroneously awarded incentive-based compensation following accounting restatements. Companies with securities listed on national securities exchanges, including NYSE and Nasdaq, will be required to implement such policies within 60 days of the effective date of new listing standards, which the exchanges must adopt within 12 months of the new rule’s publication in the Federal Register. Companies who fail to comply will be subject to delisting.

The most significant deviation from the SEC’s initial proposal of the clawback rule in 2015 is that Rule 10D-1 will require companies to conduct a clawback analysis not only for “Big R” accounting restatements, which must be disclosed under Item 4.02(a) of Form 8-K, but also for “little r” accounting restatements, which involve the correction of errors in prior period financial statements when those financial statements are included in a current period filing.

Clawback Policy Requirements

Under the new rule, a listed company’s clawback policy must require the company to recover, reasonably promptly, erroneously awarded incentive-based compensation from persons who served as an executive officer at any time during the performance period for such incentive-based compensation and who received such compensation during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement. The compensation to be recovered is the amount in excess of what would have been paid based on the restated results.

Continue Reading SEC Requires Clawback Policy

The German regulation of pricing and reimbursement of pharmaceuticals is probably one of the most complicated legal areas in the entire world of life sciences laws. Now, the German government is adding another layer of complexity to the existing rules.

On 20 October 2022, the German Parliament has accepted the draft Act for the Financial Stabilization of the German Statutory Health Insurance System („GKV-FinStG“). The new act was subject to month-long controversial discussions within and outside of the Parliament and affected stakeholders. This was due to the fact that the new rules will affect almost all players within the healthcare system, including the health insurers, doctors, hospitals, pharmacies and, especially, the pharmaceutical industry. The new law encompasses significant cost-containment measures as the German healthcare system faces increased costs while, at the same time, the system suffers from a reduced inflow of funds.

According to the explanatory memorandum of the GKV-FinStG, the cost increase is particularly due to the disproportionate increase of expenditures for medicinal products. Correspondingly, a number of new rules specifically target the pricing and reimbursement of pharmaceuticals. Key elements of the GKV-FinStG that apply to the pharmaceutical industry include the following measures:

Continue Reading Germany significantly tightens Drug Pricing and Reimbursement Laws

The District of Columbia’s new pay-to-play law will take effect on November 9, 2022.  As we blogged about here, the Campaign Finance Reform Amendment Act of 2018 prohibits certain campaign contributions by contractors doing or seeking to do business with the D.C. government.  This prohibition applies to entities holding or seeking contracts worth an aggregate of $250,000 or more and extends to contributions by senior officers of the business.  A violation of the law may be considered a breach of the contract and can result in termination of contracts and disqualification from future contracts for up to four years.  This law does not apply to contracts sought, entered into, or executed prior to November 9, 2022.

Last week Finance Ministers, Central Bank Governors and Development Ministers from around the world descended on Washington for the annual meetings of the International Monetary Fund (IMF) and the World Bank.  What did they say, what did they do and what does it mean for international businesses?

Volatility was the word of the hour.  In explaining the unnerving volatility of  world economy, IMF Managing Director Georgieva noted that the economy had endured one shock after another, including COVID, climate change and Russia’s invasion of Ukraine.  More pointedly, a Cambridge University professor asserted that policymakers had amplified volatility, presumably referring to persistent observations that Central Banks had expanded the money supply for too long and that governments had spent too profligately.

In concluding comments, IMF Managing Director predicted “further extraordinary challenges” and warned that policymakers  “have an incredibly narrow path to walk–there is no room for missteps.”  Referring to Russia’s invasion of Ukraine and the disruptions it was adding of a shaky global economy, Spain’s Economy Minster, Nadia Calvino served as Chair of the IMF steering committee and asserted that “Peace is the most important economic policy tool right now.”  Accurate as that statement might be, it may also have served as an inadvertent acknowledgment that this convocation of the world’s top economic policy makers had not been able to project a clear, credible and coordinated strategy for putting the global economy back on track.

Most participating policy leaders agreed that the highest priority at the moment was for Central Banks to suppress inflation by raising interest rates dramatically.  During the week, emerging price data had made clear that inflationary pressures continued  to be strong in the United States, underscoring that interest rates would continue to rise.  For business executives, this is perhaps the most obvious take away from the week of deliberations.

The prospect that the Federal Reserve will continue to raise US interest rates signals that most other Central Banks will be under pressure to do the same, or else face the prospects that their currencies will decline in value.  Policymakers placed considerable attention on the risk that rising interest rates could push some countries into debt distress and possible currency instability.  This is a second take-away for businesses with operations in vulnerable developing and emerging market countries.

While most of the assembled financial officials are not experts in geopolitical questions or policies on food and energy, these issues spilled over into their debates.  For example, finance officials from governments represented in the G7 discussed coordination of their sanctions against Russia and U.S. Secretary Yellen’s proposal for a price cap on certain Russian oil exports.  Managing Director Georgieva and World Bank President Malpas led discussions about how the institutions they lead could help countries cope with high and volatile prices for food and energy. 

Prominent financial leaders from the past expressed concern that current leaders were not adequately addressing the crises of the moment.  Former Bank of England Governor Carney noted somberly that in the current delicate market situation, “Mistakes will be punished.”  Former U.S. Treasury Secretary Summers contrasted the boldness of foreign policy leaders in addressing Russia’s invasion of Ukraine with the “vague, airy, fairy” pronouncements of finance leaders on the economy.  Summers said that, “This is the most complex, disparate and cross cutting set of challenges that I can remember in the 40 years I’ve been paying attention to such things,” while making clear he felt the response he had seen had not been commensurate with the challenge. 

During the week, Indonesia convened the 4th meeting this year of Finance Ministers of the G20, representing the world’s largest economies.  The G20 played a central role in coordinating an international response to the financial crisis and resulting “great recession” of 2007-2009.   The G20 communique issued last week, however, appears to focus on secondary issues fails to convey any sense that the G20 is leading a charge to formulate and help execue an effective international response to the present crisis.  The complexity of the challenges may provide the most important reason for this failure.  Some observers suggested that rising tensions between China and the West, particularly the United States, was another important reason that made the G20 machinery slow to respond.  The fact that China’s all-important Chinese Communist Party Congress would begin on October 16 no doubt made the Chinese government delegates careful not to make news that might be seen as disrupting choreography of President Xi’s election to an unprecedented 3rd term.

The high stakes, intense pressure and speed dating atmosphere of IMF and World Bank annual meetings sometimes creates unanticipated moments of calm and clarity when world economic leaders find the vision and courage to make great decisions for the benefit of the global economy.  Viewed from the outside, the meetings last week did not appear to have such moments or such results.  

On October 12, at the White House and only few blocks away from the IMF meetings, the Biden Administration released its National Security Strategy.  The Strategy was built on the following premise:

“Russia poses an immediate threat to the free and open international system, recklessly flouting the basic laws of the international order today, as its brutal war against Ukraine has shown.  The PRC, by contrast, is the only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military and technological power to advance that objective.”

For business executives, one operational conclusion from the week may be that they should take seriously Managing Director Georgieva’s advice that we all “fasten our seatbelts.”  Boards of Directors, CEOs and General Counsels have been focused on the implications for their businesses of the disruptive geopolitical environment.  Now layered on top of that is the most challenging economic and financial situation of the last eighty years.

General Counsels might take to heart the observation that one of their number made last week about the importance of inculcating an ethos of experimentation, collaboration and problem solving in their legal departments.  And recognizing that the great financial and economic disasters of the last century coincided with a breakdown of effective international cooperation and coordination among major powers, both on geopolitical and economic issues, business leaders may want to consider how they can better assess and guard against the complex geopolitical and economic risks their companies must navigate during the coming decade. Alan Larson is a leader of Covington’s “Global Problem Solving” initiative and served as the State Department’s Under Secretary of State for Economic Affairs in the Bill Clinton and George W. Bush  Administrations.

Alan Larson is a leader of Covington’s “Global Problem Solving” initiative and served as the State Department’s Under Secretary of State for Economic Affairs in the Bill Clinton and George W. Bush  Administrations.

Many employers and employment agencies have turned to artificial intelligence (“AI”) tools to assist them in making better and faster employment decisions, including in the hiring and promotion processes.  The use of AI for these purposes has been scrutinized and will now be regulated in New York City.  The New York City Department of Consumer and Worker Protection (“DCWP”) recently issued a Notice of Public Hearing and Opportunity to Comment on Proposed Rules relating to the implementation of New York City’s law regulating the use of automated employment decision tools (“AEDT”) by NYC employers and employment agencies.  As detailed further below, the comment period is open until October 24, 2022.

NYC’s Local Law 144, which takes effect on January 1, 2023, prohibits employers and employment agencies from using certain AI tools in the hiring or promotion process unless the tool has been subject to a bias audit within one year prior to its use, the results of the audit are publicly available, and notice requirements to employees or job candidates are satisfied.  The DCWP, the New York City agency responsible for administering this law, proposed the new rules to clarify the responsibilities of employers and employment agencies once the statute goes into effect.  

What tools are impacted?  What are “Automated Employment Decision Tools”?  

The law governs “AEDTs,” which are defined as “any computational process, derived from machine learning, statistical modeling, data analytics, or artificial intelligence, that issues simplified output, including a score, classification, or recommendation, that is used to substantially assist or replace discretionary decision making for making employment decisions that impact natural persons.”  The proposed rules outline which tools fall within the scope of the law by defining “to substantially assist or replace discretionary decision making” as:

  1. relying solely on the tool’s output (score, tag, classification, ranking, etc.) without considering other factors;
  2. using the tool’s output as one of a set of criteria where the output is weighted more than any other criterion in the set; or
  3. using the tool’s output to overrule or modify conclusions derived from other factors.

When does the statute apply?  Who are “candidates for employment”?

The new law applies when employers and employment agencies use an AEDT to screen either “candidates for employment” or “employees for promotion” within New York City.  The proposed rules define “candidates for employment” to mean persons who have applied for a specific employment position by submitting the necessary information and/or items in the format required by the employer or employment agency.

What is the “bias audit”?

Local Law 144 prohibits the use of an AEDT unless it has been the subject of a bias audit within one year prior to its use.  Under the proposed rules, the structure and requirements for the bias audit change based on how the AEDT is used.  

  • Where an AEDT selects individuals to move forward in the hiring process or classifies individuals into groups, the bias audit must: (i) calculate the selection rate for each category/classification and (ii) calculate the impact ratio for each category/classification. Categories are the component 1 categories (race, ethnicity and gender) as designated on the federal EEO-1 report.
  • Where the AEDT only scores individuals rather than selecting them, the proposed rules require the bias audit to: (i) calculate the average score for individuals in each category and (ii) calculate the impact ratio for each category.

An “independent auditor” must perform bias audits.  The proposed rules define “independent auditor” as “a person or group that is not involved in using or developing an AEDT that is responsible for conducting a bias audit of such AEDT.”

What happens with the audit results?

The proposed rules clarify Local Law 144’s requirement that the results of a bias audit must be “made publicly available on the website of the employer or employment agency” prior to use by stating that the information must be posted “on the careers or jobs section of their website in a clear and conspicuous manner.”  Additionally, the proposed rule would require the information to remain posted for at least six months after the AEDT was last used to make an employment decision.  

What about the notice requirements?

Local Law 144 requires that any employer or employment agency that uses an AEDT to screen an employee or a candidate who has applied for a position for an employment decision must notify individuals who reside in New York City that the AEDT will be used in connection with their assessment or evaluation, as well as the job qualifications and characteristics that the AEDT will consider.  Notice must be provided at least 10 business days before use of an AEDT and must include instructions for how to request an alternative selection process or accommodation. 

The proposed rules provide guidance to employers and employment agencies on how to satisfy the law’s notice requirements.

  • For candidates for employment, the rules allow notification to impacted individuals through the following means:

(i) on the careers or jobs section of its website in a clear and conspicuous manner,

(ii) in the job posting, or

(iii) via U.S. mail or e-mail.   

  • For existing employees, the law’s notice requirements may be satisfied through:

(i) written policies or procedures,

(ii) in the job posting, or

(iii) written notice in person via U.S. mail or e-mail.

How do I comment on the proposed rules?

Anyone can comment on the proposed rules by:

  1. Submitting Written Comments:  Written comments on the proposed rules must be submitted on or before Monday, October 24, 2022 and may be submitted via email at Rulecomments@dcwp.nyc.gov or through the city’s rules website at http://rules.cityofnewyork.us
  2. Attending the Public Hearing:  Interested parties may attend the public hearing on the proposed rules, which is scheduled to take place on Monday, October 24, 2022 at 11:00 AM.  Additional details on how to access the public hearing via phone or videoconference are available here

In recent weeks, the U.S. Department of the Treasury has further expanded the scope of sanctions targeting Russia in response to its ongoing invasion of Ukraine and its purported annexation of the Kherson, Zaporizhzhya, Donetsk, and Luhansk regions of Ukraine. The U.S. Department of Commerce also has expanded export controls against Russia and Belarus. These measures are in addition to the new EU and UK sanctions and export controls announced last week and covered in our October 10 client alert.

On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued guidance that the United States is prepared to more aggressively use its existing authorities to impose sanctions against persons who provide material support to or for sanctioned persons or sanctionable activity, with a particular emphasis on entities and individuals in jurisdictions outside of Russia that provide political or economic support for Russia’s purported annexation of Ukrainian territory. This guidance was accompanied by a series of new designations to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”), including a Chinese firm and an Armenian firm that were designated for having provided material support to a Russian firm that specializes in procuring foreign items for Russia’s defense industry.

On September 15, OFAC issued two new determinations: a determination pursuant to Executive Order (“E.O.”) 14024 and a determination pursuant to E.O. 14071. The first authorizes the imposition of property-blocking sanctions against persons determined to operate in, or to have operated in, the quantum computing sector of the Russian economy. The second prohibits U.S. persons, with limited exceptions, from providing quantum computing services to any person located in Russia.

On September 9, OFAC issued preliminary guidance concerning a ban on a broad range of services related to the maritime transportation of Russian-origin crude oil and petroleum products (collectively “seaborne Russian oil”). The ban will take effect on December 5, 2022 with respect to maritime transportation of Russian crude oil and on February 5, 2023 with respect to maritime transportation of Russian petroleum products. The ban will include an exception for the receipt of services by jurisdictions or actors that purchase seaborne Russian oil at or below a price cap to be established by a coalition of countries including members of the G7, the EU, and the United States.

Additionally, the Commerce Department’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”) on September 15 to (i) expand the scope of the Russian industry sector export restrictions to cover additional items, including quantum computing and advanced manufacturing-related hardware, software, and technology, and to apply the industry sector export restrictions to Belarus; (ii) add dollar value exclusion thresholds to some earlier restrictions on luxury goods exports to Russia; and (iii) expand the scope of the military end-user and military-intelligence end-user rules to reach entities in third countries, with a particular focus on entities that support military or military-intelligence end users or end uses in Russia or Belarus. On September 30, following Russia’s announcement that it would annex the Donetsk, Luhansk, Kherson, and Zaporizhzhya regions of Ukraine, BIS added dozens of entities to its Entity List, which imposes BIS licensing requirements for the export, reexport, or transfer (in-country) to such entities of any goods, technology, and software that are subject to the EAR.

Continue Reading The United States Imposes Additional Sanctions and Export Controls Against Russia and Belarus

Russia is no longer a partner of the European Union; Ukraine has been accepted as a candidate member; the United States supply weapons and advanced intelligence to an ex-Soviet Union member; NATO is back on the front stage; the UK and Turkey are part of a new ‘European Political Community’… Nobody, a year ago, could have predicted these dramatic changes on the European chessboard. And Vladimir Putin’s behaviour is making these changes increasingly irreversible.

An assessment follows about the current situation, what it means for the transatlantic relationship, what it changes in the debate on enlargement in the European Union and what might be its implications for the future.

The war in Ukraine

The war in Ukraine did not start in February 2022. It started in 2014, when Russia annexed Crimea and launched military operations in the Eastern Ukrainian oblasts of Donetsk and Luhansk. But the reaction of the world at the time was rather subdued: the Obama administration condemned the annexation of Crimea but let France and Germany alone participate in the ‘Minsk process’ with Russia and Ukraine in the so called ‘Normandy format’. This process quickly entered into a deadlock – with Ukraine’s military  only discreetly supported and supplied by Western countries – and Putin concluding that there was therefore no real obstacle to the restoration of Russia’s lost Empire.

The scenario completely changed on February 24, 2022. What Russia called a ‘special military operation’ was seen by the rest of the world as a massive invasion of an independent country, the first ‘war of aggression’ in Europe since the end of world two and a violation of  the most basic principles of the UN charter and the current world order.

Continue Reading Changes on the European chessboard