Mapping the U.S. Regulatory Landscape

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Mapping the U.S. Regulatory Landscape

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Today’s Presenter

Travis MillerAssent ComplianceGeneral Counsel

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Agenda

Country of Origin

FCPA Enforcement

Dodd-Frank (CM Rules)

Key State Law Roundup

Questions

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[email protected] / www.assentcompliance.com / 1 866 964 6931 / © Assent Compliance 2016 3












INTRODUCTION

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Assent Product SuitesOur Market Leading Platform

Ethical Sourcing

Materials Management

Supplier Information Management

InspectionsConfigurable Surveys & Declarable Substance

Lists

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Feature PresentationPRESENTER, TITLE & COMPANY Feature Presentation

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Disclaimer

◆ Today’s webinar is based on predictions. The global political climate is in a state of flux, which equates to uncertainty.

◆ With uncertainty comes the needs to mitigate risk and to protect your business and staff from significant changes.

◆ This program is intended to offer you probable realities over the next several years based on expert opinions.

◆ This is not legal advice, and should not be construed as such. Moreover, the factual realities of the coming years will drive action, and we can only presume what those will be at this time.







Reality Check: The Status Quo Will Change But, it won’t change fast…

◆ We are going to use the Trump Administration’s Contract with the American Voter to analyze the likely priorities of the administration.

◆ We will also look at the steps required to achieve these actions in the context of the 2017 U.S. political process.

◆ Lastly, we will look at the corporate actions we should prepare for in 2017 and beyond to plan for and mitigate the risk of these possibilities.







The Proposed Actions

◆ Clean-up corruption and special interest collusion in Washington

◆ Protect American workers◆ Restore security and the constitutional rule of law◆ Tax relief and simplification◆ End offshoring◆ American energy investment◆ School choice◆ Repeal Obamacare◆ Affordable child and elder care◆ End illegal immigration◆ Restore community safety◆ Restore national security







Which of These Impact Supply Chain Regulations?


◆ Protect American workers◆ Restore security and the constitutional rule of law◆ Tax relief and simplification◆ End offshoring◆ American energy and infrastructure investment◆ School choice◆ Repeal Obamacare◆ Affordable child and elder care◆ End illegal immigration◆ Restore community safety◆ Restore national security







Which Can the President Action Without Congress?


◆ Protect American workers◆ Restore security and the constitutional rule of law◆ Tax relief and simplification◆ End offshoring◆ American energy and infrastructure investment◆ School choice◆ Repeal Obamacare◆ Affordable child and elder care◆ End illegal immigration◆ Restore community safety◆ Restore national security







Why Does This Matter?It takes a long time to change laws. The process is called a repeal.A repeal is the removal or reversal of a law. There are two basic types of repeal in the United States, a repeal with re-enactment (or replacement) of the repealed law, or a repeal without replacement. Repeal of an enacted federal law cannot be done by the President of the United States (POTUS). Only the United States Congress (Congress) can repeal enacted law. The processes requires the following actions:

(1) One branch of Congress, either the House of Representatives (House) or the Senate, must draft legislation that orders the law to be repealed.

(2) The drafting branch of Congress will then have to do a reading and schedule a vote on the draft bill. If this is successful, the draft bill can move to the other branch of Congress.

(3) The Senate rules require a “super-majority” vote to block a “filibuster.” A filibuster is basically when an individual or group of individuals continues to speak on the House or Senate floor until the timeframe for voting on proposed legislation has passed. There is not a super-majority (more than 60 of the 100 senators) in the Senate that are likely to agree to repeal many existing laws, so they will filibuster.

(4) If a law to repeal a law makes it through the Congress, it is up to the POTUS to decide if he will veto or sign the draft bill into law.

(5) Once signed into law, the executive branch employees would have to engage in a phased-in approach to remove the law that had been vetoed. The law would remain in effect until it was removed from the code.







Feature PresentationPRESENTER, TITLE & COMPANY Country of Origin

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Trade Is an Area the President Can Impact◆ The President can impact foreign relations

dramatically without the approval of Congress.

◆ A focus of the campaign and the 100-day plan was the renegotiation of trade agreements and to re-invigorate U.S. manufacturing.

◆ The proposed steps to accomplishing this are:◇ Strike down free trade agreements, or

renegotiate them◇ Penalize companies who use non-U.S. labor to

manufacture goods◇ Provide incentives for companies who

manufacture goods in the U.S.◇ Place tariffs on non-U.S. manufactured goods







Trade Is an Area the President Can Impact

◆ If industry wants to avoid tariffs and remain compliant with U.S. origin rules, we will have to re-evaluate our country of origin data and data collection processes.

◆ Two examples of laws that have implemented these types of policies are:◇ Buy America/Buy American laws (U.S. preference)◇ Country of Origin Labeling laws (Non-U.S.

discrimination)

How does this impact supply chain regulations?








◆ There is no single "Buy American" requirement. There are many that cover multiple different procurement activities, for example:◇ Buy American Act (41 U.S.C. §§ 8301-8305)◇ Trade Agreements Act (19 U.S.C. §§ 2501-2581)◇ Buy America Act (49 U.S.C. 5323(j) and 23 U.S.C.

§ 313)◇ Recovery Act (Pub. L. No. 111-5, § 1605)◇ Berry Amendment (10 U.S.C. § 2533a)◇ Many more








◆ These are laws that give a preference or place a requirement on companies to purchase from U.S. manufacturers of goods.

◆ The most recent passage of this type of law was the 2016 Buy America Act.◇ The Buy American Act imposes a two-part test on

Defense Contractors:▪ The end-product must be manufactured in the

United States, and▪ More than 50 percent of the cost of all the

component parts must also be manufactured in the United States.

◇ If a product meets this two-part test, then a product can be considered a "domestic end product" under the Buy American Act.

Buy America/Buy American Laws








◆ Companies in scope have to survey their supply chain to obtain Country of Origin (CO) certificates.

◆ These CO certificates must be matched against products to assess the percentage of a given product that could qualify for “domestic end product” designation.

◆ This implies a company must:◇ Survey its entire in-scope supply chain◇ Place a value against the sourced parts◇ Attach the survey results to the parts in a BoM◇ Calculate the percentage of American-made

product, then claim (1) domestic end product, (2) foreign product, or (3) exemption

Example: Complying with Buy America Act








◆ Exceptions that allow the purchase of a foreign end product are listed at FAR 25.103 and DFARS 225.103, which include:◇ Public Interest: The head of the agency determines that a domestic preference would be

inconsistent with the public interest. This exception applies when an agency has an agreement with a foreign government that provides a blanket exception to the Buy American Act (example NAFTA - listed in DFARs 225.872).

◇ Non-availability: The statute does not apply with respect to articles, materials or supplies not mined, produced or manufactured in the U.S. in sufficient and reasonably-available commercial quantities and of a satisfactory quality. FAR 25.104 and DFARS 225.104 list articles determined to be non-available.

◇ Unreasonable Costs: The unreasonable cost exception is implemented through the use of an evaluation factor applied to low foreign offers. The Contracting Officer may determine unreasonable cost in accordance with FAR 25.105 / Subpart 25.5 and DFARS 225.105 / Subpart 225.5.

◇ Resale: The contracting officer may purchase foreign end products specifically for commissary resale.

◇ Information Technology that is a commercial item.

Example: Exemptions under the Buy American Act








◆ In the United States, the marking statute, Section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304) requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked with its country of origin.◇ For example, goods originating in China must be marked

"Made in China." The marking must be legible and permanent enough for the ultimate purchaser to be made aware of the good’s origin.

◆ Paragraph 1 of Annex 311 of the NAFTA provides that the NAFTA parties shall establish "Marking Rules" to determine when a good is a good of a NAFTA country.

◆ The Marking Rules are all based on a tariff change and are largely the same in all three countries.

What about Country of Origin Labeling (COOL)







Trade Is an Area the President Can ImpactCOOL laws are tricky, because they can be discriminatory or violate FTAs







Trade Is an Area the President Can Impact◆ Companies in scope have to survey their supply chain to

obtain Country of Origin (CO) certificates and label/mark products accordingly.

◆ The customs authorities of the destination country will review the documents and submit questionnaires to the importer.

◆ If insufficient information is available, customs performs a “Verification Visit” to assess the importers program and documentation.

◆ Importers need to:◇ Have supplier documentation available/have conducted

an audit◇ Have a program and system together that demonstrates

adequate due diligence has been performed

Example: COOL laws







Trade Is an Area the President Can ImpactWhat is an audit looking for?







Feature PresentationPRESENTER, TITLE & COMPANY Cleaning Up Corruption

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Corruption Is of Importance to the Administration◆ Many of the stated objectives will require Congressional

action, for example: ◇ Constitutionally mandated Congressional term limits ◇ Restrictions on lobbying◇ Bans on foreign companies being able to lobby◇ Required repeals of regulations to enact new laws

◆ However, the Bribery of Public Officials and Federal Corrupt Practices Act (FCPA) collectively provide significant infrastructure to initiate action related to many proposed initiatives.







Section 201 of Title 18 of the U.S.C.◆ Section 201 of Title 18 is entitled "Bribery of public officials and witnesses." The statute comprises

two distinct offenses, however, and in common parlance only the first of these is true "bribery."

◆ The first offense, codified in section 201(b), prohibits the giving or accepting of anything of value to or by a public official, if the thing is given "with intent to influence" an official act, or if it is received by the official "in return for being influenced."

◇ Briberya. § 201(b)(1): offering a bribe to a public officialb. § 201(b)(2): acceptance of a bribe by a public official

◆ The second offense, codified in section 201(c), concerns what are commonly known as "gratuities," although that word does not appear anywhere in the statute. Section 201(c) prohibits that same public official from accepting the same thing of value, if he does so "for or because of" any official act, and prohibits anyone from giving any such thing to him for such a reason.

◇ Gratuitiesa. § 201(c)(1)(A): offering a gratuity to a public officialb. § 201(c)(1)(B): acceptance of a gratuity by a public official

What Is Bribery of Public Officials and Witnesses?

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Federal Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et. seq.◆ The FCPA was enacted for the purpose of making it unlawful for certain classes of persons and entities to make

payments to foreign government officials to assist in obtaining or retaining business.

◆ The “anti-bribery” provisions of the FCPA prohibit the willful use of the U.S. mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, to induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.

What Is the FCPA?

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Corruption Is of Importance to the Administration

◆ Assuming there is a push to eliminate and/or criminalize an extensive amount of lobbying and the actions by third parties to gain political favor, third-party intermediaries will come under increased scrutiny.

◆ An "intermediary" is a third party who assists the company in some aspect of its foreign business. Examples include, but are not limited too:◇ Consultants◇ Distributors◇ Importers◇ Subsidiaries◇ Joint Ventures

How does this impact supply chain regulations?







Corruption Is of Importance to the Administration

◆ Non-U.S. foreign companies will have to carefully assess the vetting process they currently utilize before engaging third parties.

◆ U.S. companies who have engaged consultants, law firms, lobbyists or overseas operations will likely also need to strongly evaluate compliance programs.

◆ This implies a company must:◇ Survey its entire to identify corruption risk◇ Perform internal training◇ Perform supply chain trainings◇ Closely monitor the activities being performed by overseas

operations and/or any lobbying activities◇ Align to emerging anti-corruption standards

Assessing your third-party intermediaries for corruption risk







Global Perspective Your Operations and Locations Could Make You High Risk

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http://www.transparency.org/cpi2015


Feature PresentationPRESENTER, TITLE & COMPANY Dodd-Frank

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Banking/Consumer Protection Changes Need Congress◆ Dodd-Frank and consumer protection laws

are not on the Trump Administration’s 100 day plan.

◆ This is because the rules are not really a priority and were not discussed much during the campaign, and it is a hot button issue to take away consumer protections.

◆ Due to the conflict minerals tie-in, we will cover them briefly.







We Get the Repeal Question FrequentlyHere is the repeal analysis in the context of Dodd-Frank

(1) One branch of Congress, either the House of Representatives (House) or the Senate, must draft legislation that orders the repeal of the law. In this instance, this is most likely to be the House.

(2) The drafting branch of Congress will then have to do a reading and schedule a vote on the draft bill. If this is successful, the draft bill can move to the other branch of Congress, likely the Senate in this instance.

(3) The Senate rules require a “super-majority” vote to block a “filibuster.”(a) The most likely outcome of any effort to repeal most laws is that the bill will not move past the

Senate.

(4) If a law to repeal a law makes it through the Congress, it is up to the POTUS to decide if he will veto or sign the draft bill into law.

(5) Once signed into law the executive branch employees would have to engage in a phased in approach to remove the law that had been vetoed. The law would remain in effect until it was removed from the code. For the Dodd-Frank Wall Street Reform and Consumer Protection Act this means removing approximately 2,300 pages of text and 24,000 pages of regulations that implement the rules.







Historical ContextRepeals do not happen too often, only a handful of times in history

There are approximately 300 federal laws passed every year in the U.S. There have only been a handful of laws that have ever been fully repealed.

These include: ◆ The 18th amendment (prohibiting alcohol) ◆ The act in relation to service (allowing slavery) ◆ National maximum speed limit law (setting national limit of 55mph)◆ Jim Crow laws (permitting discrimination based on race)◆ Chinese exclusion act (preventing Chinese from entering the country)◆ Sedition act (preventing speech critical of the U.S. government)◆ Anti-gold futures act (preventing future trading of gold to manipulate

the value of the U.S. dollar)







Repealing a Law Requires a Political FightRepeals do not happen too often, only a handful of times in history

◆ The Democrats and Republicans will dig in deep on amendments to the Dodd-Frank law.

◆ We would anticipate prolonged debate, filibusters and political discourse related to any attempt to change the law.







What Does This Mean for Conflict Minerals?Conflict minerals scrutiny will likely get more robust for three reasons

(1) The U.S. Government Accountability Office (GAO) published a detailed report calling for increased oversight and action in relation to the U.S. Conflict Minerals Disclosures.







What Does This Mean for Conflict Minerals?Conflict minerals scrutiny will likely get more robust for three reasons

(2) There is a lot of non-regulatory pressure being exerted on companies to become conflict-free.







What Does This Mean for Conflict Minerals?

(3) The EU rules will be coming into effect in just a few years

Conflict minerals scrutiny will likely get more robust for three reasons







What Does This Mean for Conflict Minerals?

A thought: The devil you do know is often better than the one you don’t.

(3) The EU rules will be coming into effect in just a few years

Conflict minerals scrutiny will likely get more robust for three reasons







Feature PresentationPRESENTER, TITLE & COMPANY State Law Round-Up

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State Chemical Disclosure Laws Are Taking ShapeThe lack of federal action is prompting state action

◆ The United States has been discussing and proposing TSCA reform for a number of years.

◆ The lack of federal action/absence of regulation has led to many states seeking to adopt regulations on their own.

◆ This is often referred to as the “patchwork quilt” of state-based regulations.

◆ The result of the absence of these federal rules is that companies must track, interpret and comply with regulatory regimes in multiple states.

Here are a few critical ones to watch in 2017.







State Obligations: The State of California to publish a list of chemicals known to cause cancer or birth defects or other reproductive harm. This obligation is administered by OEHHA.

Private Business Obligations:Identify any Proposition 65 substances in your product.

Provide a “clear and reasonable” warning before “knowingly and intentionally” exposing a person (consumer) to a listed chemical.

Proposition 65 Is Going To Be a Big DealThe reforms to the law are going to impact most companies







Proposition 65 Is Going To Be a Big DealMany companies used to elect to provide warning labels







Motivation for change ◆ Make warnings more meaningful to the public

◆ Reduce over-warning

◆ Resolve conflict between manufacturer/retailer responsibilities

to provide warnings

◆ Provide more product/place-specific warnings

◆ Update methods to take into account technological advances

(Internet, smart phones)

◆ Provide increased clarity regarding compliance

◇ How and where to provide warnings

Clear and Reasonable Warnings Are ChangingCal. Code of Regs., Title 27, Article 6

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⬥ Product manufacturers have primary responsibility for warning.

⬥ Manufacturer can label product or:⬦ Provide notice to distributor/importer/retail seller that a product may cause an exposure to

a listed chemical.⬦ Provide warning signs and materials (unless they make other arrangements via contract). ⬦ Can modify allocation of responsibility by entering into a written agreement with the retail

seller so long as the consumer receives a warning prior to exposure.

⬥ Retail sellers ⬦ Confirm receipt of notice ⬦ Act as “pass-through” for warning

⬥ Provide non-English language warnings in certain situations.

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Section 25600.2, Cont.Manufacturer/retail seller responsibilities







Safe Harbor Warnings: Comparison of Current & New Content

WARNING: This product can expose you to chemicals including arsenic, which is known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.

WARNING: This product contains a chemical known to the State of California to cause cancer.

Ex. 2 New safe harbor warning

Ex. 1 Current safe harbor warning

WARNING: This product contains a chemical known to the State of California to cause cancer.







Safe Children’s Products Are Pushing AheadVermont and Washington will be impactful in 2017







Safe Children’s Products Are Pushing AheadVermont and Washington will be impactful in 2017

◆ These regulations require a significant level of detail concerning the chemicals in products and EU REACH-style chemical screenings against hazardous substance lists.

◆ A failure to comply can result in manufacturers (broadly defined to catch most entities bringing children’s products into the state) being prohibited from selling those products.

◆ The deadline for disclosing chemicals to the Vermont Department of Health is January 1, 2017.

◆ Washington has a phased in chemical notification schedule with deadlines that have already passed and more approaching in 2017.







Feature PresentationPRESENTER, TITLE & COMPANY Takeaways

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Few Key Points You Should Leave With

◆ No one can predict what regulations will pass Congress in the coming several years.

◆ However, if history is a guide, it is unlikely there will be large-scale decrease in the number of regulations in force.

◆ There are certain existing laws that will likely garner newfound attention, as they align with political objectives.

◆ In terms of repeal, many of the supply chain transparency regulations have already entered the globalization phase, so a repeal will have decreased impact on program requirements.

◆ Expect states to increase regulatory controls. Absent federal government mandates/preemption, they have the power to regulate and will continue to do so.







Upcoming Events: Webinars & Conferences

Learn more about Assent events:www.assentcompliance.com/events

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[Webinar] Compliance Essentials: Conflict Mineral Due Diligence Thursday, December 8th | 1PM EST

[Webinar] Are You In Scope?: China RoHS 2 Tuesday, December 13rd | 1PM EST

Upcoming Educational SummitsFebruary 8, 2017 | San Jose






http://www.assentcompliance.com/events




Q&A Discussion

Questions?

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