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Focus on Regulation

New GSA Sales Reporting Rule Eliminates Onerous Price Reductions Clause and Commercial Sales Practices Disclosure Requirements for Participating Contractors

On June 23, 2016, GSA published a much anticipated final rule that amends the General Services Administration Acquisition Regulation (GSAR) to implement new transactional data reporting requirements in certain GSA contracts. 81 Fed. Reg. 41104 (June 23, 2016), available here. In addition, the rule eliminates the Price Reductions Clause (PRC) reporting and Commercial Sales Practices (CSP) disclosure requirements for Federal Supply Schedule (FSS) contracts that are subject to the new reporting requirements. The rule currently is limited to GSA contracts and does not extend to Department of Veterans Affairs (VA) FSS contracts. This final rule becomes effective on June 23, 2016.

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Energy Department Revises its Part 810 Guidance on Nuclear Export Controls

The Department of Energy (DOE) recently published its revised Part 810 Guidance on compliance with the amended Part 810 Regulations on nuclear export controls (10 C.F.R. Part 810). The 2015 amendments to the Part 810 Regulations represented the first comprehensive updating of DOE nuclear export control policy since 1986. Our previous review of the amended regulations can be found here. The revised Part 810 Guidance is useful to those interested in providing nuclear technology or assistance to foreign nations, as well as to those who work with foreign nationals in the United States that require access to nuclear technology. Continue Reading

A New Regime: Making the Jump from Section 333 UAS Operations to Part 107

We are at a watershed moment in aviation history. As we reported yesterday, the FAA and DOT finally released their Final Rule for the Operation and Certification of Small UAS (Part 107), which will broadly authorize commercial UAS operations in the U.S.

With the release of Part 107, many Section 333 Exemption holders are left wondering how Part 107 will impact their exemptions. And for the 7,000+ petitioners stuck in the FAA’s backlog of pending Section 333 petitions and amendments, many are wondering what the FAA will do with these pending petitions.

Current Section 333 Exemption / COA Holders

Do you currently have a Section 333 Exemption? If so, your exemption is still valid and you may continue to operate under it until it expires (usually 2 years from the date of issuance). Once Part 107 becomes effective (in mid- to late August of this year), you may continue operating under the conditions and limitations of your Exemption / COA, or you may elect to operate under Part 107. Continue Reading

Mobile medical apps are a form of medical device — and are regulated as such

As they grow in popularity and functionality, mobile devices increasingly connect people virtually with the places and institutions they would otherwise visit in person. These include malls, banks, and even their own workplace. More and more, mobile devices are also connecting people with one of the places they least want to go: doctor’s offices.

“Medical companies are looking to leverage mobile platforms to help patients communicate with healthcare providers, capture data about their medical condition and generally improve adherence and access to treatment recommendations,” says Yarmela Pavlovic, a partner in the FDA Medical Devices group at Hogan Lovells. “For example, apps can provide a way to improve adherence for pharmaceutical products by sending reminders, as well important information such as test results, or a new breathing exercise or other therapy that a patient needs—without the hassle of an office visit.” Continue Reading

Court of Appeals Upholds FCC’s Open Internet Order

In a major victory for the Federal Communications Commission’s democratic majority, the U.S. Court of Appeals for the D.C. Circuit upheld the FCC’s 2015 Open Internet Order on June 14, 2016.  The 2-1 decision by the D.C. Circuit Court of Appeals likely is not the last word on net neutrality because broadband service providers will very likely pursue rehearing from the full D.C. Circuit court or the Supreme Court.  The ruling has also renewed calls for congressional action on net neutrality.  For now, the court’s decision paves the way for the Commission to take additional actions to regulate broadband, such as adopting privacy rules for broadband providers.

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Huge News: FAA/DOT Release Small UAS Rule

The commercial UAS industry in the U.S. took a giant leap forward yesterday, as DOT and FAA released its Final Rule for the Operation and Certification of Small UAS (Part 107). At 624 pages long, there is certainly a lot to digest and we will be following up with more analysis of Part 107 throughout this week and next. For the time being, we wanted to provide you with a high-level overview of Part 107 and to identify a few areas where the FAA surprised us (mostly in a good way).

Timeline for Implementation

Part 107 will become effective 60 days after it is officially published in the Federal Register in the next 5-7 days making August the next milestone date for our industry.

Operator Certification

As a threshold matter, we would note that the FAA determined that calling the individual operating the UAS the “operator” might be confusing, so the person operating the UAS will now be referred to as the “Remote Pilot.” The Remote Pilot Certificate will replace current requirements to hold a manned pilot’s license, which is one of the biggest hurdles to operating UAS commercially under a Section 333 Exemption. Continue Reading

Mullet over: Court of Appeal reaffirms judicial respect for expert statutory decision-makers but awards compensation for de facto deprivation of rights

The Court of Appeal found in R. (on the application of Mott) v Environment Agency [2016] EWCA Civ 564 that a decision significantly to reduce the number of salmon the Claimant was permitted to catch was not irrational. However, it did breach his property rights under Article 1 of Protocol 1 (“A1P1”) to the European Convention on Human Rights because he was not compensated. This case confirms previous case law on the margin of appreciation to be given to expert decision makers, and sets out a helpful summary of those cases in the reasoning on that point. This case is particularly interesting as it states that an interference with a person’s “control” of their property on environmental grounds does not necessarily mean that interference can be made without compensation and the principle of “fair balance” will apply.

Facts

The Claimant, Mr Mott, had a leasehold right to fish for salmon in the Severn estuary. Since 2012, the Environment Agency (the “Agency“) has imposed an annual limit on the number of salmon which could be caught with a putcher rank (an ancient method of fishing). The Agency’s decision was largely based on a report it received from The University of Exeter’s College of Life and Environmental Sciences (the “Report“). The Agency considered the change necessary in order to protect salmon fisheries in the River Wye. As a result of the change, Mr Mott’s permissible catch was reduced by around 95%.

Mr Mott raised a collateral challenge to the conditions imposed upon his licence limiting his catch. The High Court held that the decision to impose the limits was unlawful as it was irrational, and because it unlawfully interfered with Mr Mott’s A1P1 rights. The Agency appealed to the Court of Appeal.

Decision

The Court of Appeal considered two key questions:

1. Was the Agency’s approach irrational?

2. In the context of A1P1, was the interference with Mr Mott’s right to catch salmon a “deprivation” or a “control”, and if the limit was imposed without compensation, was it disproportionate and therefore unlawful?

The Court found, on the first question, that the decision to impose a catch limit was not unlawful for being irrational. Judges should have regard to the expertise of expert regulatory bodies, although those bodies must still provide a clear explanation of their decision to the Court. In this case, the evidence was not easily accessible, and did not counter criticisms that Mr Mott had given about the Report. The Court acknowledged that it was, therefore, understandable that the first instance judge had sought to make an educated guess about a number of matters. However, he had erred in doing so. On the facts, the Agency had made its decision against an unchallenged assessment by the Agency as to the risk to the River Wye, and a background assumption (about salmon returning to their river of origin to spawn) on which there was scientific consensus.

Ultimately, the Court found, having summarised the case law on this issue, that judges must give sufficient weight to the nature of the exercise, and expertise of the relevant body. It should be cautious to impugn that body’s decisions and, in particular, its “educated prophecies and predictions for the future“.  Additionally, the Court warned against judges engaging in a detailed examination of the merits of an approach, and accuracy of calculations based on models, in judicial reviews of a scientific topic.

On the second question the Court found that, in this case, a breach of A1P1 could only be prevented by payment of compensation because of the extent of the limit that had been imposed on Mr Mott’s right to catch salmon, and the way in which it had been apportioned. Strasbourg jurisprudence states that where there is no formal expropriation, the Court must look beyond appearances and investigate the realities of the situation. There is a deprivation where the owner is deprived of all meaningful use. Given that the restrictions eliminated 95% of the benefit Mr Mott had, this interference was closer to “deprivation” than to “control”.

Additionally, “even if the interference is only a “control”, it does not follow that because it is made on environmental grounds that any restriction can be made without compensation.” The Court briefly analysed R (Trailer & Marina (Level) Ltd) v Secretary of State for the Environment [2004] EWCA Civ 1580 in which it was said that compensation would be required to redress the balance, and avoid a breach of A1P1, where the state could not properly take the view that the benefit to the community outweighed the detriment to the individual. This is the “fair balance” test which must be applied. However, in Trailer & Marina the A1P1 argument was only considered in principle. Relevantly, on the facts of the current case, there was no evidence that the Agency had considered the extent of the effect on Mr Mott and his livelihood. The way in which the Agency had calculated the levelling of catches meant that there was a lower effect on those whose rights were less extensive, and who may have only used their rights for leisure, and a higher effect on Mr Mott (who had more extensive rights). This meant that, in the circumstances, compensation would be required in order to prevent a breach of Mr Mott’s A1P1 rights.

Comment

This case gives a helpful summary of case law on the margin of appreciation afforded to expert decision makers, particularly where the decision is scientific, technical and/or predictive in nature. It is also interesting because, although the decision to impose a limit was ultimately found not to be irrational (because of the deference shown to the Environment Agency’s decision), the limit was nonetheless a breach of A1P1 rights because Mr Mott was not compensated. This highlights the effectiveness of an A1P1 argument to claimants particularly in the face of the high hurdle of the typical judicial review heads of claim. It is particularly interesting that the Court considered the test for compensation in the event of interference with an individual’s “control” of property under A1P1, because of the finding of “deprivation” on the facts of the case. The indication from this judgment appears to be that the Court will assess whether a “fair balance” has indeed been struck if there is an interference amounting to a “control” of use, and that it will be willing to find that compensation is required to assist in fixing any imbalance.

Quiet Down? US Examines Whether Too Much Noise from Modern-Day Products Might Pose a Risk to Wireless Communications

The Federal Communications Commission (“FCC”) is seeking updated information on how the increased adoption of radiofrequency energy-emitting devices is affecting the level of unwanted RF energy emitted from man-made sources (the “spectrum noise floor”).[1]  The FCC’s Technological Advisory Council (“TAC”) has launched a technical inquiry to study changes to the spectrum noise floor over the past two decades, and the FCC has set August 11, 2016 as the deadline to submit information in response to the inquiry.[2]

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FinCEN Designates North Korea as a Jurisdiction of Primary Money Laundering Concern, Triggering Additional Due Diligence Requirements for Financial Institutions

Pursuant to the North Korea Sanctions and Policy Enhancement Act of 2016’s requirement that the Secretary of the Treasury determine whether North Korea is a jurisdiction of primary money laundering concern, on May 27, 2016, the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) found that the Democratic People’s Republic of Korea (“DPRK” or “North Korea”) is a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act. This designation is due to FinCEN finding that North Korea:

  • uses state-controlled financial institutions and front companies to support proliferation of WMD and development of ballistic missiles;
  • has minimal controls to combat money laundering or the financing of terrorism;
  • does not have a mutual legal assistance treaty with the United States; and
  • relies on corrupt activity to support its government.

United States and United Nations determinations that Korea Mining Development Trading Corporation, Tanchon Commercial Bank, Korea Kwangson Banking Corporation, and Daedong Credit Bank conduct financial transactions in support of North Korea’s proliferation of WMD or ballistic missiles also factored into this finding.

As a result, on June 3, 2016, FinCEN published a notice of proposed rulemaking imposing special measure five under Section 311, which prohibits covered financial institutions from opening or maintaining a correspondent account in the United States for, or on behalf of, North Korean banking institutions and from processing  transactions involving North Korean financial institutions through a United States correspondent account. Covered institutions will also be required to apply special due diligence to their foreign correspondent accounts to prevent processing of transactions on behalf of North Korean financial institutions, including though indirect correspondent accounts. Violation of these requirements could result in the imposition of civil monetary or criminal penalties.

Financial institutions can satisfy these special due diligence requirements by:

  • notifying, and documenting the notification of, foreign correspondent account holders that the institution has reason to believe provide services to North Korean financial institutions;
  • taking steps to identify any use of foreign correspondent accounts by North Korean financial institutions, to the extent that such use can be determined from records maintained in the normal course of business;
  • using a risk-based approach when determining what, if any, other due diligence measures must be adopted to guard against the use of its foreign correspondent accounts to process transactions involving North Korean financial institutions; and,
  • when aware of potential North Korean access, taking all appropriate steps to further investigate and prevent that access, including the notification of its correspondent account holder and, where necessary, termination of the correspondent account.

The one-time notification requirement can be satisfied with the following notification:

Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.659, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for, or on behalf of, a North Korean financial institution. The regulations also require us to notify you that you may not provide a North Korean financial institution, including any of its branches, offices, or subsidiaries, with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving a North Korean financial institution, including any of its branches, offices, or subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.

This finding and the subsequent imposition of special measure five follow United Nations Security Council Resolution 2270, imposing multilateral sanctions against North Korea, and the Financial Action Task Force’s continued statements urging all jurisdictions to advise their financial institutions to protect their correspondent accounts from being used by North Korean financial institutions to evade countermeasures and risk mitigation practices.

These new restrictions are expected to directly impact smaller Chinese banks, primarily those based in the cities of Dandong and Hunchun, which stand to lose several billion U.S. dollars, according to this New York Times report. The United States imposed similar, but more limited, measures in 2005, when it designated Banco Delta Asia (“BDA”) as an entity of primary money laundering concern, which triggered a bank run at BDA. Although China publicly supports the recent U.N. sanctions, the Foreign Ministry has voiced opposition to the new U.S. restrictions.

Financial institutions that have relationships with Chinese banks should review their due diligence policies to determine whether their current practices are in line with these new measures.

The comments period for this proposed rule will close on August 2, 2016.

Special thanks to Lisa Ann Johnson, a summer associate in our Washington, D.C. office, for her contribution to this post.