By Ming Henderson and Clothilde Verdier

Seyfarth Synopsis: French Employers should brace themselves for changes in the employment and labour law arena. However at this stage nothing is set in stone, and any reforms may be slow in coming.  As France does not have the equivalent of a US “Presidential Decree,” Macron’s government will need to get the Parliament’s buy in.

On 14 May 2017, French President-elect Emmanuel Macron with a strong 66% majority will officially start his five year mandate. His first duty was to appoint a Prime Minister to form a new government. Following the Parliamentary elections of 11 and 18 June 2017 where Macron’s newly created party obtained a strong majority , the government was reshuffled, and the work can now begin.

Employment and Labour is one of the three key focus areas for President Macron – he has pledged to simplify French laws, reform the labour market and show France is open to business. Macron widely communicated his ambitious programme during his campaign, so as he prepares to move into the Presidential Palace what are the potential reforms multinationals employing staff in France or companies considering opening for business in France should expect? The overview that follows is based on Macron’s official programme, to which we added our comments for background purposes.

Employment Reforms – Mixed Messages to Employers and Employees

Macron has vowed to make French employment laws more business friendly, and this is clearly apparent from the following proposals:

  • Capping damages granted to employees for unfair dismissal claims. By introducing an upper and a lower limit for such damages, the cost of redundancies will be more predictable. Currently damages are uncapped, and the published guidelines can go up to 24 months’ salary on top of notice period and statutory indemnity.
  • Cutting payroll taxes on overtime. A similar measure on voluntary overtime was put in place by Conservative President Sarkozy in 2007 under the slogan “Work More to Earn More”, but removed by François Hollande as soon as he came into power. In practice given the cost of payroll taxes, employees’ net salary was not proportional to the number of hours worked – the reform would hopefully aim to correct this flaw and encourage productivity; and
  • Enabling employers to depart from the mandatory minimum protection under the applicable national collective agreement, by signing a collective agreement at company or workplace level, in areas such as working time, minimum wage, and overtime This was already introduced by the 2016 Macron Law, however employers still need to negotiate with employee representatives or unions, not just introduce new policies.
  • Introduce a two-strike rule so employers who on a single occasion slip up on tax filings or payments are just reminded, not penalised.
  • There are however a number of reforms which will be less pleasing to employers, and are less obvious as to how they will make the French labour market more competitive, such as:
  • Capping the duration of inbound international assignments to France to one year – thereafter, employees will need to be on a local French contract. Macron also intends to renegotiate the EU Posted Workers Directive for France to reduce the number of employees working in France but remaining on their home payroll, and not being fully subject to French labour laws;
  • Taxing employers who frequently use temporary contracts instead of permanent employment contracts through an additional levy at company level ;
  • Publishing on a “shame list” the name of companies who do not comply with equal pay – this will force companies to focus more actively on their data, and may in the short term increase salary costs, red tape and lead to a negative public image, but if properly managed could be positive long term;
  • Encourage a better representation of employees on the Board of companies by creating encouraging measures for such representation at Board level;
  • Reducing payroll taxes for employees on minimum wage (currently 1480 Euros per month), and providing for the payment of a 13th month bonus;
  • Increasing employees’ net salary by lowering the amount of employees’ contributions e.g. an employee currently earning a monthly salary of 2,200 Euros will earn an additional 500 Euros net a year – this measure will not reduce employment costs in France for employers. Typically total payroll taxes in France amount to around 70% of gross salary before income tax (compared with around 16% in the UK for a similar level of pay);
  • Removing the tax credit for research programmes in France, which have in the past proved popular in the Pharmaceutical and Tech industries – this reform is to balance the books with the reduced taxes on low salaries; and
  • Extending unemployment benefits to all ‘workers’ such as independent contractors, entrepreneurs or employees who resign from their job – such measures, which are likely to be very popular, may impact employee retention and ultimately push up the cost of employment for employers, though Macron also announced his intention to restrict both the duration and the conditions under which unemployment benefits are paid out.

What to Expect Next?

Employers and employees alike should brace themselves for changes in the employment and labour law arena. However at this stage nothing is set in stone, and the reforms may be slow and more modest than as described above. France does not have the equivalent of a US “Presidential Decree” so Macron and his government will need to get the Parliament’s buy in. Though the strong majority achieved in Parliament may not require this, there are broadly two significant tools Macron and his Government may use to push the reforms through in Parliament. Firstly, getting a law voted by Parliament allowing the government to implement employment and labour law reforms by way of Ordinances. Secondly, using the famous “Article 49.3” process which enables a government to agree to step down if the Law does not obtain a majority vote in Parliament, thus avoiding lengthy debates and limiting the amount of amendments made to a bill.

Last but not least, two additional considerations are of significant importance in France: “the power of the street”, i.e. strikes and demonstrations coordinated by unions that can bring France to a halt for weeks or months; and the Constitutional Council, that can annul any law deemed unconstitutional.

By Wan Li

Seyfarth Synopsis: A new Work Permit Policy (Policy) is being implemented in China.  The Policy had been initially implemented, from October 2016 to March 2017, through a pilot program in a number of regions including Shanghai, Beijing, Tianjin, and Shenzhen.  Nationwide implementation of the Policy commenced on April 1, 2017.

Policy Features 

The Policy consists of two main features: (1) expats working in China will now be issued a single multipurpose “Work Permit”, and (2) expats will be categorized into three different groups that will now affect how easy it is for them to get a Work Permit.

Multipurpose Work Permit

Expat workers in China were classified previously as either (i) foreign employees eligible for an “Employment Permit,” or (ii) foreign employees eligible for an “Expert Permit.” These two permits are now combined into one “Work Permit” that will be assigned to foreign applicants through the issuance of identification (ID) cards with unique ID numbers. Each ID card will belong to one foreign individual for life. Foreign employees with existing work permits may elect to maintain their existing permits until their expiration dates or may convert them to new Work Permits.

Shanghai, assuming a leading role in the Policy, issued its first Work Permit to a faculty member of the SJTU-ParisTech Elite Institute of Technology at Shanghai Jiaotong University in November 2016.

Since the full implementation of the unified application across the country on April 1, the new multipurpose Work Permit Policy has been well received and instituted in more than ten provinces of China.

3-Tier Classification System

Under the Policy, foreign applicants will be divided into three categories based on a scoring system. Credits will be assigned to applicants for Work Permits based on their education, background, salary level, age, time spent working in China, and Chinese language fluency. Many cities now operating under the Policy have issued local standards for the scoring system.

Category A applies to foreign high-end talent, such as expats selected by China’s talent-import plan, expats with internationally recognized awards, leading figures in the science and technology industry, and successful entrepreneurs.  There is no limit to the number of expats in this category who may receive Work Permits.

Category B applies to foreign professionals. Examples include workers who hold a bachelor’s (or higher) degree and have two years of full time experience related to the work to be performed. The number of expats in this category who may receive Work Permits will vary depending on market demand.

Category C applies to the remaining types of foreign workers, who are typically non-technical or service workers hired on a temporary or seasonal basis. The number of expats in this category who may receive Work Permits is significantly restricted and subject to a quota.

Implications for Multinational Employers

The Policy aims to both streamline current administrative procedures and attract high-end foreign talent to China. Expats whose skills are urgently needed in Chinese labor markets are being encouraged to work in China through the now less restrictive permitting process and easier application protocols.

Multinational employers should note that the Policy is early in the implementation process.  Employers should pay close attention to the changing application rules and procedures, and be mindful that when hiring foreign workers in different parts of China the rules will be different.

If you would like further information, please contact Wan Li at LWan@seyfarth.com, or any member of our International Employment Law Team.

By Jason E. Burritt, Michelle Gergerian, and Dawn M. Lurie

Seyfarth Synopsis: If Congress fails to pass a funding bill by midnight on Friday, April 28, resulting in a federal government shutdown, it would trigger numerous immigration-related ripple effects on employers, both large and small. The federal government, through its various agencies, plays a key role in authorizing and regulating the employment of foreign citizens in the United States. Employers should be aware of how the federal government shutdown could affect their ability to hire, verify and maintain the status of foreign national employees.

Background

A federal government shutdown could begin at midnight on Friday, April 28 if Congress fails to pass a funding bill. This means that, effective Monday, May 1, only “essential” government workers would report to work until Congress passes a spending bill.

U.S. Citizenship and Immigration Services (USCIS)

USCIS would be minimally impacted because it is largely a user-fee funded service. The vast majority of USCIS workers would continue to report to work during a shutdown. This means USCIS would continue to process applications and petitions for immigration benefits, with some processing delays possible. As explained below, however, petitions for which a Department of Labor (DOL) certification is required — such as the H-1B that requires a Labor Condition Application (LCA) -­may be adversely affected. USCIS has not yet announced whether it would temporarily accept extensions without DOL-certified LCAs, although historically USCIS has not.

E-Verify, USCIS’ free, internet-based system that allows businesses to determine the eligibility of their employees to work in the United States, would be inaccessible during the shutdown. However employers are reminded that they must continue to complete I-9 forms in compliance with the law and when E-Verify becomes available, create cases in the E-Verify system. During a prior shutdown, USCIS issued guidance suspending the “three day rule” for any case affected by the shutdown.  Historically employees caught in the Tentative Non-Confirmations (TNCs) process were provided an extended time period to resolve the issue.

Again, employees would still be required to complete Section 1 of the Form I-9 on or before the first day of employment and employers would still need to complete Section 2 of the Form I-9 no later than the third business day after an employee begins working for pay.

Other components of the Department of Homeland Security (DHS), such as Customs and Border Protection (CBP) and Immigration Customs Enforcement (ICE) are expected to retain most of their essential staff. CBP has not yet indicated whether it would process immigration applications at the border, such as initial TN and Blanket L applications for Canadian nationals, but it is expected that these adjudications would continue.

Department of Labor

Office of Foreign Labor Certification (OFLC) employees, who fall under the umbrella of DOL, are considered non-essential and would be placed in furlough status during the government shutdown. OFLC would neither accept nor process any applications or related materials, including LCAs, applications for a prevailing wage determination, applications for temporary employment certification, PERM audit responses or applications for permanent employment certification (.e.g PERM applications). OFLC’s web site, including the iCERT Visa Portal System, would become static and unable to process any requests or allow authorized users to access their online accounts. Employers with concerns about these deadline-specific functions should consult an immigration attorney with questions about proper maintenance of status during these uncertain times.

Department of State (DOS)

Visa issuance should continue, at least temporarily. Domestic and overseas Consular operations should remain fully operational as long as sufficient fees exist to support operations. However, if a passport agency is located in a government building affected by a lapse in appropriations, that facility may become unsupported. The continuance of consular operations in such instances would be treated on a case-by-case basis by the Under Secretary for Management.

Department of Justice (DOJ)

DOJ trial attorneys and immigration judges should conduct removal (deportation proceedings) only for individuals in federal custody at least for a short period of time. All other cases would likely be suspended during the shutdown. Similarly, furloughed would be attorneys and staff within the Immigrant and Employee Rights section of DOJ charged with accepting and investigating charges of workplace discrimination arising under the immigration laws.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Business Immigration Group.

To stay up-to-date on immigration developments, sign up for Seyfarth’s new BIG Immigration Law Blog.

 

By Wan Li and Darren G. Gardner

Seyfarth Synopsis: With these new measures applied to employers, it’s recommended that enterprises conduct self-evaluations of their employment law compliance, and remediate any problems as soon as possible.

The Chinese Ministry of Human Resources and Social Security (MHRSS) has launched a new nationwide grading system to evaluate employers’ employment law compliance. This system has been put in place via the Measures for the Grading of Enterprises’ Employment Law Compliance (the “Grading Measures”) and is effective January 1, 2017.

Prior to 2017, 24 Chinese provinces and cities each had individual schemes to evaluate employment law compliance. These schemes varied widely and were not compatible with counterpart government schemes, e.g., those administered by the State Tax Bureau (taxpayer credit evaluation system ), the Administration of Industry and Commerce (business credit evaluation system ) and the People’s Bank of China (enterprise credit evaluation system).

The Grading Measures will standardize the disparate evaluation systems and may become a key determinant of an employer’s compliance status.

Grading Scope and Criteria

Employers will now receive an annual grade (A, B or C) for employment law compliance in any given year based on (i) the local authority’s routine and random inspection, (ii) review of employment records and (iii) investigations of filed complaints.

The criteria for assessing compliance include reviews of:

  • the availability of internal employment policies and regulations within the employer;
  • proper enrollment and participation in statutory social security insurance programs;
  • compliance with key employment laws and regulations, especially regarding salary payment;
  • female employee protection; and
  • working hours.

Employers with perfect compliance during the year will receive an “A”. Employers that have been disciplined for “non-serious” violations (as enumerated in the Grading Measures) by the local labor authority will receive a “B”.  Employers with “serious” violations will receive a “C”.

Impact on Employers

Grade A employers will be subject to fewer routine checks by the local authority in the following calendar year, while Grade C employers will be monitored more closely, meaning more frequent routine and random inspections.

A different regulation provides that a labor authority may publish on its website the serious violations leading to a designation of Grade C. This could of course adversely impact the reputation and good standing of the employer.

Recommendations for Employers

It is recommended that all enterprises conduct a self-evaluation of their employment law compliance, especially the key issues highlighted by the Grading Measures, and remediate any problems as soon as possible.

Detailed implementation rules and launch schedules for the Grading Measures are not yet available. We will keep an eye on further developments.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team,

By Andrew S. Boutros and Craig B. Simonsen

Seyfarth Synopsis: Federal whistleblower laws collide with the in-house attorney-client privilege. The trial round goes to the whistleblower.  The expected appellate round still has not been fought.

In a February 7, 2017 jury verdict, the plaintiff, Sanford S. Wadler, the former General Counsel of Bio-Rad Laboratories, Inc., was awarded $7.29 million for compensatory and punitive damages in a case alleging Sarbanes-Oxley and Dodd-Frank Acts whistleblower retaliation – Foreign Corrupt Practices Act (FCPA) claims, in the United States District Court for the Northern District of California.  It is exceedingly rare for a general counsel of a public company to be a whistleblower, much less file a lawsuit, take it to trial, and be awarded anti-retaliation whistleblower fees.

Whether unique in its own facts or a watershed case that will serve as a precursor for more to come, the case will surely be studied for both its impact and implications. And, given the high stakes, it is expected that the legal saga will continue on appeal.  If it does, until the Ninth Circuit Court of Appeals rules on whether federal whistleblower laws preempt state ethics and privilege rules, it is unclear whether Wadler’s victory will stand the test of time.

With that: Law360 notes that “the case’s turning point came in late December, when U.S. Magistrate Judge Joseph C. Spero ruled that the Sarbanes-Oxley Act’s whistleblower protections preempt attorney-client privilege, thus allowing Wadler to use otherwise privileged information as evidence in the case. ” (Emphasis in the original.)  The ruling bucked a Second Circuit decision from 2013 that found that the former General Counsel of Unilab, which was later acquired by Quest Diagnostics, could not bring a qui tam whistleblower suit against Quest under the False Claims Act because “the allegations relied on privileged information,” amounting to a finding that “privilege took precedent over whistleblower protections,” as noted by Law360. See United States ex rel. Fair Lab. Practices Assoc. v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013).

Wadler, who had worked at Bio-Rad for some 25 years, specifically alleged that “after learning of his employer Bio-Rad Laboratories, Inc.’s involvement in extensive bribery occurring in Russia, Thailand, and Vietnam, [he] investigated evidence of similar violations of the FCPA in China, where corruption is notoriously endemic.” According to Wadler’s Complaint, key Bio-Rad officers and directors wanted him to “turn a blind eye to this misconduct or sweep it under the rug, but he refused. Instead, and following his mandatory duties under federal securities laws as the Company’s chief legal officer, Wadler investigated this potential criminal activity and reported it up the ladder.” Wadler v. Bio-Rad Laboratories, Inc., et al., No. 15-cv-02356-JCS, Complaint, p. 1.

Wadler’s above-the-fold Complaint allegations went even further: “When Wadler began to believe that the conspiracy to violate the FCPA went all the way to the top of the corporate hierarchy, he reported his concerns to the Company’s audit committee. Then, just shortly before Bio-Rad was scheduled to present to the SEC and DOJ regarding the Company’s investigation into potential FCPA violations, the Company fired Wadler precisely because he refused to be complicit in its wrongdoing.” Complaint, p. 1.

Law360 observed that the unique role of the general counsel came up prominently during the nearly three-week trial, as Bio-Rad defended its termination of Wadler. “The company argued that his incompetence had led him to misconstrue normal business practices as FCPA violations. One board member testified that when Wadler had raised FCPA concerns with the board, his initial reaction that Wadler had made a courageous move gave way to a belief that Wadler’s suspicions actually stemmed from a misunderstanding of the FCPA. Others testified that Wadler wasn’t a team player.” Even Bio-Rad’s outside counsel testified as a defense witness against Wadler.  But that strand of argument was met by another, this one raised by Wadler, as noted by Law360:  That the role of the general counsel is “that of a generalist who is trained to spot issues and call in specialized experts when necessary” and that an attorney’s duty is to “bring attention to legal risks even when management doesn’t want to hear about them.”

Although a plaintiff’s victory at trial is a critical statement to legal observers and practitioners on both sides of the “v” in a whistleblower claim, the legal battle over Wadler’s allegations and treatment is far from over. With competing precedent out of the Second Circuit, Bio-Rad is surely expected to appeal the jury’s verdict and ask the Ninth Circuit to toss out the verdict and either dismiss the case entirely or return the case to the district court for a retrial.  How the Ninth Circuit will rule remains to be seen, but the legal saga is sure to continue until then and the state of the law on whistleblower preemption can hardly be viewed as settled.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team, Securities Litigation Team, or Whistleblower Team.

By Jason E. Burritt

Seyfarth Synopsis: In light of recent events related to the most recent Executive Order banning travel to the United States for nationals from certain countries, please continue reading for more detailed information regarding this Executive Order and what employers may wish to consider in response. 

On Friday, January 27, President Trump signed an Executive Order that suspended travel into the United States for nationals from certain designated countries, specifically Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen. This suspension in travel is already in place.  If nationals from these countries, including those who are lawful permanent residents (i.e. green card holders), are currently present in the United States, they can remain here lawfully but should not travel outside the U.S. at this time.

This suspension will remain in place for at least 90 days — until April 27, 2017 — during which time the Department of Homeland Security (“DHS”) must assess and identify any countries that do not currently provide adequate information to enable proper screening of nationals from those countries; the affected countries would thereafter have 60 days within which to begin providing the necessary information. Presumably, if a country failed to adequately provide the requested information, the travel ban would then become indefinite.

The Executive Order does not clearly define the circumstances under which an individual is considered to be “from a designated” country. However, the language and subsequent actions by Customs and Border Protection (“CBP”) at the border suggests that the travel ban will apply to nationals from the seven countries, and may include lawful permanent residents.

Following actions by CBP, several lawsuits have been filed and subsequent rulings have been made, starting with an emergency ruling issued in Brooklyn, New York on January 28, 2017. As of this writing, at least four temporary restraining orders (“TROs”) are in place, each with varying specificity and reach.  We have highlighted the key points of the three most prominent orders below:

  • Massachusetts – On Sunday, January 29, 2017, U.S. District Judge Allison Burroughs and Magistrate Judge Judith G. Dein of the U.S. District Court of Massachusetts issued a seven-day stay on removal, detainment and additional screening. Perhaps the most far reaching order to date, the TRO is in effect for seven days and applies to lawful permanent residents, citizens, visa holders, approved refugees, and other individuals from the identified countries subject to the Executive Order. The ruling also (1) limits secondary inspection screening; (2) bars DHS from detaining or removing foreign nationals who would otherwise be legally authorized to enter the U.S. in the absence of the Executive Order with approved refugees applications, immigrant and nonimmigrant visas; (3) requires CBP to notify airlines that individuals on flights to Logan Airport will not be detained or returned based solely on the basis of the Executive Order.
  • New York- On Saturday, January 28, 2017, Judge Ann M. Donnelly of the U.S. District Court in Brooklyn enjoined and restrained DHS from “removing individuals with refugee applications . . . , holders of valid immigrant and non-immigrant visas, and other individuals . . . legally authorized to enter the United States.” The Court orders the U.S. Marshal for the Eastern District of New York to enforce the ruling. While the ruling blocks removal of the individuals, it does not order the release of any segment of the affected population.
  • Virginia – On Saturday, January 28, 2017, U.S. District Court Judge Leinie Brinkeman for the Eastern District of Virginia issued an order blocking removal of lawful permanent residents detained at Dulles International Airport. The order remains in effect for seven days and does not require release of lawful permanent residents, but does require that all lawful permanent residents detained at Dulles International Airport be given access to lawyers.

The President’s Executive Order is not the first time in the post-9/11 era that the U.S. has focused on citizens of particular nations to try and identify and eliminate potential threats to homeland security. In 2002, the George W. Bush administration created a program of special vetting of foreign citizens, known as the National Security Entry-Exit Registration System (“NSEERS”), to record and monitor the arrival, stay, and departure of certain foreign citizens from the very same seven countries named in the most recent Executive Order.

NSEERS, however, was far broader. It also applied to categories of foreign citizens from several other countries, namely, Afghanistan, Algeria, Bahrain, Bangladesh, Egypt, Eritrea, Indonesia, Jordan, Kuwait, Lebanon, Morocco, North Korea, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, and United Arab Emirates. DHS suspended NSEERS in 2011, however, and President Obama formally terminated it on December 22, 2016.

Given this history, as a precautionary measure, U.S. lawful permanent residents and foreign nationals from countries not included in President Trump’s Executive Order but included in the NSEERS list of countries should consider postponing all non-emergency travel from, and accelerating their return travel to the United States.  In addition, employers of U.S. lawful permanent residents and foreign nationals who are from Afghanistan, Algeria, Bahrain, Bangladesh, Egypt, Eritrea, Indonesia, Jordan, Kuwait, Lebanon, Morocco, North Korea, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, and United Arab Emirates, should consider (a) canceling all trips abroad for these employees, and (b) instructing them to return as soon as possible to the United States.

In light of these developments, and in response to the rapidly changing immigration climate, employers should strongly consider the following actions:

  • Advise any foreign national employees from the seven designated countries listed above — this includes U.S. lawful permanent residents who are nationals from these countries — to avoid travel outside of the United States. If a U.S. lawful permanent resident from these countries is currently outside of the U.S., s/he should seek to return as soon as possible.
  • Advise any affected individuals from the seven designated countries, other than lawful permanent residents, who are currently outside of the United States that they should not return to the U.S. at this time. Seyfarth Shaw attorneys have first-hand knowledge of individuals being detained upon arrival to the United States.
  • Consider advising U.S. lawful permanent residents and foreign national employees from countries not included in the Executive Order but included in NSEERS to postpone non-emergency international travel.
  • Identify all employees currently holding any nonimmigrant visa status (this includes L-2s, H-4s, and TNs) and consider sponsoring these employees for H-1B status under the April 1 H-1B lottery.
  • Advise caution to all foreign national employees who may be traveling internationally to renew a visa at a United States consular post. Individuals who are employed, or who hold academic degrees, in a field that appears on the government’s Technology Alert List, should delay their visa appointments at U.S. consular posts in order to avoid potentially lengthy administrative processing or related screening delays.  Click here for more information on the Department of State’s Technology Alert List.
  • For any affected employees who have current green card priority dates and are able to file Adjustment of Status applications, file the applications as soon as possible.

Please bear in mind, however, that each employer’s and affected employee’s situation may present special circumstances that may warrant consideration of an alternative approach in lieu of the recommended strategy above.

We will continue to monitor the situation and will reach out with additional details as they become available.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Workplace Counseling & Solutions Team.

 

By Andrew S. Boutros and Craig B. Simonsen

Graduation cap and books. The concept education. Stack of books,Seyfarth Synopsis: No differently than companies doing business overseasespecially in high-risk marketsAmerican colleges and universities who do business overseas face real risks of violating the Foreign Corrupt Practices Act and must be mindful of the enforcement landscape that applies to these criminal violations. Robust and effective compliance programs remain the antidote to the corruption scourge.

As reported in its recent SEC filing, Laureate Education, Inc., is under scrutiny for potential Foreign Corrupt Practices Act (FCPA) violations after it disclosed FCPA related conduct to the statute’s twin enforcers, the U.S. Department of Justice and the Securities and Exchange Commission. Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team blogged previously about “FCPA Compliance-Recent Department of Justice Initiatives,” and how the DOJ had initiated a one-year pilot program to encourage entities to self-report violations of the FCPA and cooperate fully with federal prosecutors.

Set to expire in April 2017, any entity—whether public or private, for-profit or not-for-profit, a company or some other business organization, such as a higher education institution—contemplating self-reporting an FCPA violation to the DOJ needs to carefully consider participating in the pilot program. As part of that analysis, an organization naturally will need to weigh the pros and cons of voluntary self-disclosure, as well as the government’s expectation of full institutional cooperation, including complying with Department policies regarding the decision to prosecute business organizations (as reflected in  United States Attorneys’ Manual) as well as the still fairly recent and high-profile Yates Memorandum, which addresses individual accountability for corporate wrongdoing.

Here, we note an FCPA Professor blog about a Wall Street Journal article titled “American Colleges Pay Agents to Woo Foreigners Despite Fraud Risk.”  These pieces discuss the applicability of the FCPA to higher education institutions.   Specifically, the blog notes that in recent years, several U.S. higher education institutions have opened foreign campuses (either directly or through affiliates) in places such as China, India, and the Middle East—all regarded as high-risk regions for public and commercial corruption.  To open up campuses and do business in these parts of the world, the entities required relevant government approvals, licenses, permits, and certifications—no differently than a company needing government approvals to establish a manufacturing presence in a foreign country.  These government approvals require colleges and universities to interface with foreign government officials, which in turn increases the risk that higher education institutions will fold to pressures of commission or kickback requests, or hidden payments for expediency.

Opening foreign campuses is not the only area of FCPA risk that colleges and universities face. According to the WSJ article, American colleges and universities also face corruption risks when they interface with overseas third-party agents, again, no differently than any other traditional business organization.  Specifically, according to the WSJ:

Like many U.S. colleges, Wichita State University wants more foreign students but isn’t a brand name abroad.  So the school . . . , in late 2013[,] started paying agents to recruit in places like China and India. The independent agents assemble candidates’ documents and urge them to apply to the Kansas school, which pays the agents $1,000 to $1,600 per enrolled student.  Overseas applications “shot up precipitously,” says Vince Altum, Wichita State’s executive director for international education.  But there is a down side:  Wichita State rejected several Chinese applications this year from an agency it suspected of falsifying transcripts, Mr. Altum says, adding that it terminates ties with agencies found to violate its code of conduct by faking documents.  Paying agents a per-student commission is illegal under U.S. law when recruiting students eligible for federal aid—that is, most domestic applicants.  But paying commissioned agents isn’t illegal when recruiting foreigners who can’t get federal aid.  So more schools like Wichita State are relying on such agents, saying the intermediaries are the most practical way to woo overseas youths without the cost of sending staff around the world.  No one officially counts how many U.S. campuses pay such agents, most of whom operate abroad, but experts estimate at least a quarter do so.

Although few higher education institutions are for-profit companies, Laureate Education, Inc., is, and earlier this month the company made an eye-catching disclosure in an SEC Form S-1 filing about an $18 million (US) “charitable donation” in Turkey.

The disclosure states:

We are conducting an internal investigation of one of our network institutions for violations of the Company’s policies, and possible violations of the U.S. Foreign Corrupt Practices Act and other applicable laws….

As previously disclosed, during the fourth quarter of 2014, we recorded an operating expense of $18.0 million (the value of 40.0 million Turkish Liras at the date of donation) for a donation by our network institution in Turkey to a charitable foundation. We believed the donation was encouraged by the Turkish government to further a public project supported by the government and expected that it would enhance the position and ongoing operations of our institution in Turkey.  The Company has learned that the charitable foundation which received the donation disbursed the funds at the direction of a former senior executive at our network institution in Turkey and other external individuals to a third party without our knowledge or approval.

In June 2016, the Audit Committee of the Board of Directors initiated an internal investigation into this matter with the assistance of external counsel. The investigation concerns the facts surrounding the donation, violations of the Company’s policies, and possible violations of the FCPA and other applicable laws in what appears to be a fraud perpetrated by the former senior executive at our network institution in Turkey and other external individuals.  This includes an investigation to determine if the diversion was part of a scheme to misappropriate the funds and whether any portion of the funds was paid to government officials.  As of the date of this prospectus, we have not identified that any other officers or employees outside of Turkey were involved in the diversion of the intended donation….

We have been advised by Turkish counsel that, under Turkish law, a Foundation University may not make payments that cause a decrease in the university’s wealth or do not otherwise benefit the university. Given the uncertainty of recovery of the diverted donation and to mitigate any potential regulatory issues in Turkey relating to the donation, certain Laureate-owned entities that are members of the foundation that controls our network institution in Turkey have contributed an amount of approximately $13.0 million (the value of 40.0 million Turkish Liras on November 4, 2016, the date of contribution) to our network institution in Turkey to reimburse it for the donation.

As a result of the investigation, which is ongoing, we took steps to remove the former senior executive at our network institution in Turkey. Because of the complex organizational structure in Turkey, this took approximately one month and during that period our access to certain aspects of the business including the financial and other records of the university was interrupted.  The former senior executive is now no longer affiliated with our network institution and we again have access to the financial and other records of the university.

In September 2016, we voluntarily disclosed the investigation to the [DOJ] and the SEC. The Company intends to fully cooperate with these agencies and any other applicable authorities in any investigation that may be conducted in this matter by them.  The Company has internal controls and compliance policies and procedures that are designed to prevent misconduct of this nature and support compliance with laws and best practices throughout its global operations….  If we are found to have violated the FCPA or other laws governing the conduct of our operations, we may be subject to criminal and civil penalties and other remedial measures, which could materially adversely affect our business, financial condition, results of operations and liquidity.

Long gone are the days where the FCPA was viewed as practically applying only to large multinational companies with significant overseas business activity.  As the FCPA matures—and the FCPA bar and government enforcers continues to evolve alongside with it—a growing number of entities can expect to see the FCPA applied more widely to “non-traditional” organizations otherwise subject to the FCPA’s reach.  In the FCPA world, proactive compliance, monitoring, and risk-appreciation applies with equal vigor to educators, administrators, and trustees as it does to C-suite executives and corporate boards.  The old adage that “an ounce of prevention is worth a pound of cure,” should guide American colleges and educators in the same way it guides American businesses.  As higher education institutions teach and train our next generation of leaders, they, themselves, must lead by example in this ever-expanding fight against public and commercial corruption.

Seyfarth Shaw is a full-service firm with leading FCPA, white collar, and higher education practitioners. Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team.

By Paul Whinder and Tessa Cranfield

Seyfarth Synopsis: The trend of increased regulation of the financial services industry continues apace in the UK with the recent introduction of mandatory rules on whistleblowing governance. .

New rules on whistleblowing have come into effect which impact certain Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) regulated financial services firms. The aim of these rules is to promote a change in workplace culture to encourage workers to raise concerns and challenge poor practices or behaviours.

These new rules came into effect on September 7, 2016. The changes are recapped below.

Which firms are obliged to implement these new rules?

The new rules apply to firms which are UK entities and which:

  • Take deposits and have assets of £250 million or more (including banks, building societies and credit unions);
  • Are PRA-designated investment firms; or
  • Are insurance and reinsurance firms within the scope of the Solvency II Directive, the Society of Lloyds and managing agents.

Although the rules are not mandatory for other FCA and PRA regulated firms, they have non-binding guidance status and may be taken into account in the event of a regulator investigation compliance or governance issues.

What are firms required to do?

Relevant firms must create and maintain an independent whistleblowing channel, i.e. a means through which disclosures can be made and are then effectively assessed and dealt with. The channel must permit anonymous and confidential disclosures and cannot be limited to matters which the firm believes would amount to ‘whistleblowing’. It must also be open to everyone, including the public. Complaints that would not amount to whistleblowing (for example employee grievances or customer complaints) can however be identified and then dealt with outside the firm’s whistleblowing regime. Whilst there is an obligation to promote the availability of the whistleblowing channel to the firm’s workforce, there is no equivalent obligation to promote its availability to the wider public.

Firms are also now obliged to make employees aware of the FCA and PRA’s services as an alternative to their own process. They can no longer instruct employees to raise matters internally before contacting the regulators, although they can still encourage them to do so.

However, importantly, these rules do not introduce a regulatory obligation on the firm’s staff to blow the whistle.

What are the obligations regarding staff training in respect of these new rules?

The workforce must receive bespoke training as follows:

  • UK based employees must receive training that includes the following:
    • A statement that the firm takes the making of reportable concerns seriously;
    • A reference to the ability to report reportable concerns to the firm and the methods for doing so;
    • Examples of events that might prompt the making of a reportable concern;
    • Examples of action that might be taken by the firm after receiving a reportable concern by a whistleblower, including measures to protect the whistleblower’s confidentiality; and
    • Information about sources of external support such as whistleblowing charities.
  • Managers of UK based employees must receive training that includes the following:
    • How to recognise when there has been a disclosure of a reportable concern by a whistleblower;
    • How to protect whistleblowers and ensure their confidentiality is preserved;
    • How to provide feedback to a whistleblower, where appropriate;
    • Steps to ensure fair treatment of any person accused of wrongdoing by a whistleblower; and
    • Sources of internal and external advice and support on the matters referred to above.

Note that this requirement applies, even if the managers are not based in the UK.

  • Employees with responsibility for operating the firm’s internal whistleblowing arrangements must receive training that includes how to:
    • Protect a whistleblower’s confidentiality;
    • Assess and grade the significance of information provided by whistleblowers; and
    • Assist the whistleblowers’ champion when required.

How do these rules fit in with the Senior Manager/Certificate Regime?

  • Whistleblowers’ Champion. As we previously reported, relevant firms also need to appoint a whistleblowers’ ‘champion’ (ordinarily a non-executive director, but otherwise a “senior manager” within the FCA or PRA regimes). The designated “Champion” is tasked with oversight of the whistleblowing policies and procedure and filing an annual report to the Board, to be made available to the FCA or PRA on request.
  • Settlement agreements. A statement must now be included in settlement agreements stating that the agreement does not prevent the individual from making a protected disclosure. This will likely already be familiar to clients operating in the US financial services sector. Further, the agreement must not contain any promise from the employee that they have not made a protected disclosure or know of any information which could lead to such a disclosure being made.
  • Tribunal claims. If the firm loses a “whistleblower” claim (i.e. an employment tribunal claim that a member of staff was subjected to a detriment or unfairly dismissed for “blowing the whistle”) then this must be reported to the FCA/PRA, as appropriate.

Comment

In practice, many firms will already have robust whistleblowing procedures in place, in particular where they are subject to Sarbanes Oxley. Firms should however review their current procedures to check they do comply with the specifics of these new rules – in particular, the fact the whistleblowing channel should be open to the public and the new staff training obligations that may include some non-UK managers. Adequate systems will need to be put in place to identify those UK and non UK employees who will need to be trained (and flag up where employees, such as US managers, move into roles where training is required) and to keep a record what has been delivered. Finally, as noted above, even if certain FCA/PRA regulated firms are not obliged to implement these new rules, they must still be treated as non-binding guidance meaning that they may in fact start to become the norm in the financial services sector.

For more information on this or any related topic please contact the authors, our Seyfarth Partner in London, Ming Henderson, your Seyfarth attorney, or any member of the Whistleblower Team, the International Employment Law Team, or the White Collar, Internal Investigations, and False Claims Team.

By Wan Li, Andrew S. Boutros, Kay R. Bonza, and Craig B. Simonsen

Seyfarth Synopsis: The Chinese Ministry of Environmental Protection has just announced criminal, civil, and administrative enforcement statistics, and put companies on notice that those who violate environmental laws and rules may face blacklisting, including restrictions to their future business endeavors.

We have previously written about the need for multinational companies operating in China to comply with Chinese environmental and workplace safety laws and regulations. See for instance Multinationals in China Should be Aware of Increased Enforcement of Environmental Law, Monitoring Requirements – and Fraud, and International Employers Watch Out: China Will Assign Hefty Fines for Worker Safety Violations.

Now more recently, in the last thirty days, the Ministry of Environmental Protection (MEP) in the People’s Republic of China (PRC) has been publishing notices and warnings to “polluters” and industries about their potentially non-compliant business activities.

For example, the MEP’s just-released news announcement summarizing enforcement actions makes clear just how serious China is taking compliance failures of environmental laws and rules. Specifically, the August 1, 2016, notice, Supreme People’s Court Releasing White Paper on China’s Environmental Resource Trial, provides a progress report “since the establishment of Environmental Resource Courts.” In this regard, the notice provides the following eye-popping statistics about China’s enforcement activities from January 2014 to June 2016 by its courts nationwide:

  • A total of 37,216 criminal cases of first instance trial involving air, water and soil pollution that brought 47,087 people to justice;
  • A total of 195,141 civil cases of first instance trial involving resource ownership, environmental infringement and contract disputes; and
  • The conclusion of 57,738 administrative cases of first instance trial involving the environment and its resources.

Only a few days earlier, on July 28, 2016, the MEP, together with 30 other government agencies, issued another announcement warning companies that those who seriously violate environmental laws and rules will face restrictions to their future business endeavors. Specifically, companies may be barred from entering certain businesses, blocked from applying for business permits, or disqualified from loans. In the words of the MEP, “[t]hey will not qualify for preferential policies.” The MEP also highlights 14 serious violations, including operating or engaging in construction work without environmental assessments or permits, and illegally discharging pollutants.

The MEP notes that it will manage a blacklist of companies with “bad environment records” and will share it with other government agencies.

In fact, in what can be viewed as a prospective “industry sweep,” on July 28, 2016, the MEP announced a “national-scale environmental inspection” in the iron and steel industry. The notice states that local areas will be required to strengthen enforcement activities and inspections in this industry, as well as “make effort to reveal, solve, and expose a batch of prominent environmental violations in this industry.”

According to Tian Weiyong, Director General of the Ministry’s Bureau of Environmental Supervision and Inspection, under this program, local areas are required to organize inspectors and inspections involving the “main firms in the iron and steel industry” within their administrative regions. The inspections will also assess how well the iron and steel makers have “attained emission standards and installed and run the automatic monitoring equipment.”  The inspections are slated to occur between June and October 2016.

Multinational businesses and industries that have interests and facilities in China–especially now in the iron and steel industries– may wish to examine the extent of any potential liability in their holdings, in particular since companies with “bad environment records” may be subject to business-disrupting (if not ending) blacklisting.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team, the Environmental Compliance, Enforcement & Permitting Team, or the White Collar, Internal Investigations, and False Claims Team.

 

 

 

 

By Andrew S. Boutros, Wan Li, and Craig B. Simonsen

The U.S. Financial Crimes Enforcement Network (FinCEN) and the China Anti-Money Laundering Monitoring and Analysis Center (CAMLMAC) recently signed a Memorandum of Understanding (MOU) to create a “framework to facilitate expanded U.S.-China collaboration, communication, and cooperation” between each agency’s financial intelligence units (FIUs). News Release (December 11, 2015).

In announcing the MOU, FinCEN Director Jennifer Shasky Calvery stated that “this MOU provides an important foundation for a reciprocal exchange of extremely valuable financial information to help thwart terrorism and money laundering in these perilous times…. Building this mutually beneficial bridge of cooperation will serve each country’s vital interests and help protect the citizens of both of our countries from the damage that criminals and terrorist financiers can inflict.”

As an increasing amount of business is conducted between the United States and China, the MOU serves important investigative interests shared by both countries, namely, to allow for the sharing of “extremely valuable information to provide leads, expose criminal networks, and help thwart illicit activity in the vast and interconnected global economy,” as stated by the FinCEN press release.  For China, signing the MOU is also an important action to push forward its domestic anti-corruption campaign, internationally.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the White Collar, Internal Investigations, and False Claims Team.