By Esther Slater McDonald, Seth J. Fortin, Wan LiRhea Yu, and Craig B. Simonsen

Seyfarth Synopsis:  The People’s Republic of China is making progress in implementing its mandatory “social credit system.”  Multinational businesses in China should be watchful of this system, and ready for it when it rolls out – if it hasn’t already.

In June 2014 China’s State Council issued a notice regarding the establishment of a “social credit system”–essentially, a national credit score for each citizen and business, but one reflecting more than just creditworthiness: the notice states that the goal of the system is to “[c]omprehensively move forward the construction of social sincerity” in order to “create harmonious and amicable interpersonal relationships” and “stimulate the progress of society and civilization.”  “State Council Notice concerning Issuance of the Planning Outline for the Construction of a Social Credit System (2014-2020),” GF No. (2014)21 (Jun. 14, 2014).

While the system is voluntary during an initial pilot stage, and run by nominally private entities like Alibaba, the Chinese government has indicated that by 2020 it will have “established fundamental laws, regulations and standard systems for social credit” and will “giv[e] complete rein to mechanisms to encourage keeping trust and punish breaking trust.”  Media sources have indicated that the government will at that point officially control the system, which will then be mandatory.  Local governments are also presently working to set up their own social credit systems.  Information collected in the systems of local governments, government agencies, and private entities will eventually be funneled into a national database.

According to a recent article in Wired, the score will ultimately be based on a multitude of factors, including the following:

  • Credit history — Does an individual or business pay its debts?
  • Personal habits — Does an individual engage in productive activity? Buying baby products reflects a sense of personal responsibility while playing video games reflects an idle nature.
  • Treatment of others — Does an individual respect others?
  • Civic obedience — Does an individual or business adhere to local and national laws?
  • Loyalty to party and country — Does an individual or business support the Communist Party and Chinese government? Does an individual or business purchase Chinese brands or partner with Chinese companies?
  • Network — With whom does an individual or business associate? Who are their partners, friends, and acquaintances, and what are their ratings?

Rachel Botsman, “Big Data Meets Big Brother as China Moves to Rate its Citizens,” Wired (Oct. 21, 2017).

A government official with the National Development and Reform Commission, which is charged with implementing the national system, noted that a “nation-wide information sharing platform” has been set up “to connect 37 government departments[,] and it has collected more than 640 million pieces of information on credit.”  Zhao Yusha, “4.9m People with Poor Credit Record Barred from Taking Planes,” Global Times (Nov. 2, 2016).  According to the Chinese government, the goal of this program is for “the whole society to pursue the common value[s] and code of conduct, and actively create a ‘trustworthy glor[ious], dishonesty shameful’ good social atmosphere.” “State Council General Office on Strengthening Guiding Opinions on Building a System of Personal Integrity” (Guidance Opinion), No. 98 (Dec. 30, 2016). Our translation.  Other observers have a different view, believing the system is more about social control than credit in the ordinary sense.  Asan Institute for Policy Studies, “Orwell’s Nightmare: China’s Social Credit System” (Feb. 28, 2017).

At the moment, pilot-stage credit systems like Alibaba’s Sesame Credit do not “directly penalise people for being ‘untrustworthy.’”  Botsman, supra.  But the system provides incentives to fall in line with the values the government seeks to inculcate:  A “good” score makes it easier to find a job, rent a car, check in at the airport, or obtain a travel visa; the corollary is that it is harder to do such things with a “bad” score.  Once the system is mandatory, though, those with low ratings may have “slower internet speeds; restricted access to restaurants, nightclubs or golf courses; and the removal of the right to travel freely abroad.”  Id.

At present, however, the social credit system cannot by itself inflict such penalties; rather, the judiciary can place companies or individuals who fail to meet their obligations on the official  “List of Dishonest Persons Subject to Enforcement”, published by the Supreme People’s Court.  “Several Provisions of the Supreme People’s Court on Announcement of the List of Dishonest Persons subject to Enforcement,” Interpretation No. 17 (2013).  Those on the list are subject to various restrictions, including limitations on travel, employment, financing and credit, market access, and government support.  Chinese news sources report that, by late 2016, nearly 5 million citizens were barred from air travel, and over a million were barred from train travel based on the information already in the system.  Zhao, supra.

And because the system looks at more than just debt payment history, one’s score can go down if one associates with the wrong people or, potentially, even just ends up in the wrong physical place.  As the country turns more toward app-based commerce, there will be a significant amount of data available on nearly every aspect of a citizen’s life. One locality included “not visiting your parents often” as a negative factor in computing credit scores.  Asan Institute, supra.  Even expressing the wrong thoughts could bring your score down; as a Chinese professor working with the government to develop the system explains: “The behaviour of the majority is determined by their world of thoughts. A person who believes in socialist core values is behaving more decently.”  Botsman, supra.

For businesses, the same system of rewards and punishments applies.  A corporation may be rewarded with a higher credit score for having reduced energy consumption, promoting local or national government projects, or partnering with Chinese businesses.  In contrast, a company that lacks a robust safety program, refuses to support a local government’s pet project, or balks at disclosing big data to the Chinese government may be downgraded.

The Mercator Institute for China Studies writes that, as to businesses, the system is designed “to constantly monitor and evaluate companies’ economic as well as non-economic behavior” and to create incentives for companies to comply “not just with laws and regulations but also with the industrial and technological policy targets laid down by the Chinese government.”  “MERICS China Monitor: China’s Social Credit System” (May 24, 2017).  Although the system will purportedly treat Chinese and foreign companies the same, there is a concern that foreign companies will be disadvantaged.

If all that sounds Orwellian, the flip side is that the new credit system might also make credit easier to obtain and business less costly in China.  Unlike the U.S., with its well-established credit bureau system, China has never had a comprehensive, national credit reporting scheme.  Moreover, the system goes beyond mere borrowing and lending and, according to the Chinese government, aims to promote a global concept of “trustworthiness.”  So, for example, one of the goals is to punish and isolate not only individuals and businesses who don’t pay their bills but also those who sell counterfeit or shoddy goods, breach contracts, or who otherwise fail to make good on their consumer or business obligations.

Making Chinese business trustworthy and attractive to foreign investment is an explicit goal of the credit system plan: as the State Council recognized in its “Planning Outline,” “[p]erfecting the social credit system is a necessary condition to deepen[ing] international cooperation and exchange, establishing international brands and reputations, reducing foreign-related transaction costs, and improving the country’s soft power and international influence . . . .”   Supra. However, investment freedom will be linked to businesses’ social credit scores; only companies with high credit scores will benefit from reduced regulation and greater investment opportunities.

What are the takeaways for multinationals in China?  At a minimum, companies will likely want to consider some of the following:

  • The BBC reports that “each citizen and Chinese organisation will be rated.” “China ‘Social Credit’: Beijing Sets Up Huge System” (Oct. 26, 2016).  This raises the question of whether the credit scoring system will also apply to foreign businesses operating in China.  To the extent that it does, will there be required disclosures or reporting that a business will need to make to the system?  Compliance may raise unique legal issues for foreign companies, and the cost of compliance may be prohibitive for some.
  • Will foreign companies or their affiliates operating in China have to disclose information about employees in China? If yes, will that include non-citizens working in China or only Chinese nationals?  What about non-citizens working temporarily in China (e.g., an foreign executive who regularly travels to China for extended business trips)?
  • If foreign employers have to disclose information about individuals working in China, does such conduct violate other law, such as federal or state privacy laws in the United States? Does furnishing information to or obtaining information from the Chinese social credit system expose foreign companies to liability in other jurisdictions?  For example, can companies participating in the social credit system be sued in the United States for violations of the Fair Credit Reporting Act?
  • Will foreign employers operating in China be required to obtain social credit scores on job applicants or current employees? Even if not required to do so, will it be to a company’s advantage to avoid hiring employees with low scores, not only because of whatever the scores actually reveal about the recruits’ trustworthiness and diligence, but also because an employee with a low score could bring the company’s own score down?
  • To the extent that the social credit system scrapes social media for data about people and companies, will that include social media worldwide? If so, do multinational companies have to worry about their political or other media positions in other countries affecting their social credit score in China?

Finally, companies should pay attention to the social credit system as a source of useful business information.  It remains to be seen whether the system will be reliable enough to provide useful information about potential employees or business partners (separate from the question of how any potential associations affect the company’s own score).  Will this system actually be helpful in sorting the wheat from the chaff–the diligent employees from the layabouts, the solid businesses from the scam artists?  That remains to be seen, but if American and other multinational companies can actually benefit from the transparency that the social credit system promises, it might remove some of the sting from the added level of regulatory hassle that it otherwise seems to portend.

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 or the Background Screening Compliance & Litigation Team.

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 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 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 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.

By Wan Li and Craig B. Simonsen

This just in from our CHINA correspondence desk…. Actually, we wanted to make you’re aware that Seyfarth has offices in China, Australia and United Kingdom. From time-to-time we will let you know about topics that are impacting our international counterparts and our clients that do business there.  Read on and Enjoy!

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The State Council recently announced new Guidelines for pilot programs for trading emissions permits to reduce air and water pollution.

Key pollutants to be traded under the pilot programs include sulfur dioxide and nitrogen oxide in the air, and chemical oxygen demand and ammonia nitrogen in wastewater. Speaking of these pollutants, Huang Xiaozeng, Deputy Head of the Pollution Emission Control Department of the Environmental Protection Ministry, said earlier this year that “all kinds of measures will be implemented to ensure the tough targets are met.”

The pilot programs had begun in 2007, with areas now or soon to be running pilot trading programs for emissions permits including Tianjin, Hebei province, the Inner Mongolia autonomous region, and the provinces of Shanxi, and Hunan. Under the Guidelines the eleven pilot regions must establish mechanisms for the purchase and trading of emissions by 2017, which is then expected to lay a foundation for the program to be rolled out nationwide.

According to the Ministry of Environmental Protection’s website, during the past year, on Shanxi’s provincial emissions permit trading system alone, over $60 million in emissions permits have been traded between 400 companies. Regions may apply the permits to the pollutants that affect them most, with revenues intended to be provided to local governments to further fund pollution control.

According to the recent State Council statement, “trading of emissions rights must be done in a voluntary, fair and environment-oriented way and trading prices will be decided by the buyer and the seller.” Additionally, “the pilots aim to allow the market to play a decisive role in resources allocation, encourage firms to actively cut pollutant discharges, speed up industrial restructuring and clean the environment.”

The State Council statement, though, differs from a statement offered by Ma Zhong, the Dean of the School of Environment and Natural Resources, at Renmin University, in Beijing, to Reuters. “Emission trading in China is not strictly a market activity and it is more like paying for emitting. It is [currently] just a few regions running some test trading.”

Businesses with interests in China, and especially in these pilot trading program areas, may wish to fully investigate and explore their options when dealing with facility and process permitting requirements. The new Guidelines do create a scheme where facilities will be required to pay for their emissions, but doing so will be necessary to avoid even higher potential penalties for not having the required emissions permits. In the meantime, facilities that participate in the emissions trading permits program will be taking steps toward helping to clean the environment.