In an article published in the May/June 2017 issue of ABA Bank Compliance (a publication of the American Bankers Association), I provided insight on how banks can mitigate violations with the Office of Foreign Assets Control (OFAC). In January 2017, OFAC announced a settlement in which a large Canadian bank agreed to pay more than $500,000 in monetary penalties for 170 alleged violations of U.S. sanctions against Iran and Cuba. This especially costly example of financial stakes for banks and other financial institutions illustrates the importance of compliance, despite the challenges they face as they process millions of transactions on a daily basis and across international boundaries. While all risks cannot be eliminated, through careful investigation, compliance enhancements, monitoring and record keeping, financial institutions can help mitigate most risks.

For more details on key strategies to protect against violations and to remediate them when they do occur, access the PDF of the article, “Mitigating Economic Sanctions Risk,” below.

Download Document – ABA Bank Compliance May June 2017

On April 18, President Trump signed the “Presidential Executive Order on Buy American and Hire American” (the Order), which declares the Executive branch’s policy to buy American goods and rigorously enforce and administer laws governing entry into the United States of workers from abroad.  The Order is keeping with President Trump’s campaign promises regarding hiring American workers and promoting U.S. manufacturing, and signals a renewed focus on domestic sourcing requirements as well as the likelihood of greater restrictions on work visas for non-U.S. citizens.

Continue Reading Buy American Executive Order Means Renewed Obligations for Government Contractors

On March 31, 2017, the United States Civilian Board of Contract Appeals (CBCA) dismissed a contractor’s claims against the Department of Veterans Affairs (VA) for a lack of jurisdiction, stating that the contractor should have secured a final decision from the General Services Administration (GSA) prior to filing its claim. According to the CBCA, since the dispute was over the terms of a GSA Schedule contract and not over contract performance, proper procedures call for a decision from the GSA Schedule contracting officer before the CBCA can weigh in on the dispute.

Continue Reading Agency First! – CBCA Refuses Jurisdiction over Contractor’s Challenge of Wage Rate Adjustments Despite Final Decision from Contracting Officer

  • One of largest export and sanctions penalties ever imposed
  • Reminder of U.S. government’s broad jurisdiction over export and sanctions matters
  • Cooperation could have helped ease the penalty significantly

On March 7, 2017, Chinese telecommunications company, Zhongxing Telecommunications Equipment Corp. (ZTE), signed on to three separate settlement agreements with the United States, agreeing to pay $892 million for violations of U.S. sanctions and export controls. Even more could be due if ZTE strays from the commitments it has made under the settlement agreements.  This is one of the largest penalties ever imposed by the U.S. government for export and sanctions violations.

It is impossible in the space of this blog article to provide a detailed summary of this matter.  In addition, while the details of the matter would make good copy, we think (hope!) that this is something of an isolated incident.  At the same time, we think several lessons can be derived from this action.

Continue Reading Lessons from the Historic ZTE Enforcement Action

In an article published by BNA’s Federal Contracts Report, I discussed three of the most costly of President Obama’s 2016 Executive Orders impacting government contractors, orders that are likely to be overturned by President-elect Trump. In the article, I argue that, while the Executive Orders – Fair Pay and Safe Workplaces, Minimum Wage, and Sick Leave – may have been intended to improve the federal acquisition process, they place expensive and burdensome compliance obligations on contractors, particularly those providing commercial goods and services, and may therefore be amended or overturned. In total, the Obama Administration estimated the regulations implementing just these three Executive Orders would cost $12 billion over the next decade, costs that will ultimately be borne by taxpayers, and there is reason to believe that estimate is low.

The full article, “The (Hopefully) Short, Costly Life of President Obama’s Executive Orders,” was published by BNA’s Federal Contracts Report on January 19, 2017, and is available online (subscription required) or in the PDF below.

Download Document – The (Hopefully) Short, Costly Life of President Obama’s Executive Orders (January 19, 2017)

I also provided comments on this topic for a February article in BNA’s Federal Contracts Report, “Executive Orders: Contractors in Regulatory Limbo Under Trump, Lawyers Say.” That article was published February 2, 2017 and is available online.

Civil Investigative Demands (CIDs) are powerful pre-litigation tools the government frequently utilizes to investigate potential allegations of FCA liability. CIDs can be broad and invasive, time-consuming and expensive. What’s a company to do upon receipt of a CID? Is there any recourse? Unfortunately, neither case law nor published guidance offers the recipient much in the way of a formal, timely mechanism to challenge the scope or appropriateness of a CID. Nevertheless, there are certain practical steps one can take to reduce a CID’s scope that, in turn, will reduce disruption and expenses associated with CID compliance.

Continue Reading The Civil Investigative Demand: An Increasingly Aggressive Investigative Tool and Common-Sense Scope-Reduction Strategies

On July 26, 2016, responding to rising cyber attacks and public criticism, the federal government issued a Presidential Policy Directive (PPD-41), to clarify the role of law enforcement agencies, to increase coordination across the government, and to divide cybersecurity efforts into three categories: asset response, threat response and intelligence support. PPD-41 outlines five key principles for the federal government and federal agencies in complying with the “whole-government” approach to cybersecurity. Although the initiative is directed at the federal government and sector-specific agencies, private entities are also likely to be affected and are instructed on the best practice for cyber incident reporting.

PPD-41 emphasizes unity in the government’s response to cybersecurity incidents, outlining five guiding principles of the directive. In structuring incident reporting and protection mechanisms, the government seeks to emphasize shared responsibility, increased awareness, risk-based responses, respect to entities affected by the incident, unity in governmental efforts in responding to an incident, and allowing effective restoration and recovery following a cybersecurity breach. In distributing the responsibilities of cybersecurity, the government delineates specific agencies to take charge of the three categories of protection. The Department of Homeland Security (DHS) will lead asset response activities and post-breach recovery needs, the Department of Justice (DOJ) in collaboration with the FBI will be in charge of threat response, and the Office of the Director of National Intelligence (ODNI) will head intelligence support.

Continue Reading Federal Government Restructures Its Approach to Cybersecurity

I offered insights for an article outlining the May 11 proposed rule on recruitment fees and recent guidance on implementation of anti-trafficking compliance programs. The new guidance was issued to clarify a 2012 executive order on human trafficking, which “‘[u]ntil two weeks ago, there really wasn’t any guidance on how to navigate any of this.'”

The full article, “Questions Remain for Contractors about Human Trafficking Order,” was published by Bloomberg BNA on June 6, 2016, and is available online (subscription required).

On May 11, 2016, the Defense Security Service (DSS) released a new guide on mitigating and managing affiliate operations for entities bound by a Foreign Ownership, Control, or Influence (FOCI) mitigation agreement. The guide, titled Navigating the Affiliated Operations Plan: A Guide for Industry, outlines how companies can identify whether they are engaging in affiliated operations, submit an Affiliated Operations Plan (AOP), and ensure that they are properly mitigating potential risks. In compiling an AOP, a company is expected to describe all operations and services it intends to share with affiliates, as well as the potential risks of the collaboration and how those risks will be mitigated. The guide emphasizes that, unless there are special circumstances, an AOP must be provided before a company can start leveraging any affiliated operations.

Continue Reading DSS Releases New Guide to Help Cleared Contractors Meet Requirements of FOCI Mitigation Agreements

Contractors may be familiar with receiving a long list of flow-down provisions from their prime contractor that don’t seem to apply to them or are burdensome to comply with. This entails pushback to tailor flow-downs or even acts as a barrier for some companies to enter into the federal marketplace at all. The House Armed Services Chairman apparently agrees this may be the case, and pursuant to his proposed NDAA 2017, the Secretary of Defense would be required to enter into a contract with an independent entity to:

  1. Identify the required flow-downs in the FAR and DFARS;
  2. Identify flow-down provisions critical for national security;
  3. Examine which clauses are applied inappropriately to subcontracts;
  4. Assess applicability of flow-downs for the purchase of commodity items that are acquired in bulk for multiple acquisition programs;
  5. Determine unnecessary costs or burdens flow-downs place on the supply chain; and
  6. Determine the effect of flow-downs on the participation rate of small businesses and non-traditional defense contractors in defense procurements.

If this provision makes its way into the final version of the NDAA for 2017, we can expect a briefing on interim findings by March 1, 2017, and a final report to the congressional defense committees by August 1, 2017. So, don’t expect the flow-downs to be eliminated anytime soon!