Controversial Provisions Research Articles

SEC Crowdfunding Rulemaking Under the Jobs Act -- An Opportunity Lost?

On April 5, 2012, President Barack Obama signed into law the JOBS Act of 2012, intended to facilitate capital formation for small business, widely viewed as the principal engine of job creation in the United States. One of the JOBS Act’s more controversial provisions, Title III, created an exemption from registration of the offer and sale of crowdfunded securities under the Securities Act of 1933, allowing the sale of securities to an unlimited number of unaccredited investors without registration, on an Internet-based platform, through intermediaries which are either registered broker-dealers or SEC licensed funding portals. Title III provided for a number of built-in investor protections, including limitations on the amount invested, limitation on the amount an issuer may raise in a 12 month period ($1 million), detailed financial and non-financial disclosure in connection with the offering, and ongoing annual issuer disclosure. Congress left much of the details of Title III in the hands of the SEC, to be fleshed out in the rulemaking process.More than 18 months later, on October 23, 2013, in a 585 page release, the Commission approved the issuance of proposed Title III rules for public comment, with the comment period expiring in February 2014.The following commentary addresses certain choices and challenges of the SEC in the ongoing Title III rulemaking process, evaluating a number of key areas where proposed rulemaking has in many instances exacerbated the inherent cost and complexity inherent in the Title III structure created by Congress, and suggesting alternative approaches in the rulemaking process as the SEC undertakes to finalize Title III rules.

The Language of Compromise in International Agreements

To reach agreement, international negotiators often compromise by introducing flexibility in language: they make controversial provisions vague, or add options and caveats. Does flexibility in agreement language influence subsequent state behavior? If so, do states follow both firm and flexible language somewhat, as negotiators hope? Or do governments respond strategically, increasing their energies on firmly specified tasks, and reducing their efforts on flexibly specified ones? Testing claims about agreement language is challenging, because states often reserve flexible language for controversial provisions. To make causal claims, we study an unusually drafted agreement, in which states had almost no opportunity to water down controversial provisions. We examine the influence of the 1991 Paris Principles on the Design of National Human Rights Institutions (NHRIs), using an original dataset of 22 institutional safeguards of NHRIs in 107 countries, and case studies. We find that variations in agreement language can have large effects on state behavior, even when the entire agreement is non-binding. Both democracies and authoritarian states followed the Principles’ firm terms closely. However, authoritarian states either ignored or reduced their efforts on flexibly specified tasks. If flexibly specifying a task is no different from omitting it altogether, as our data suggest, the costs of compromise are much larger than previously believed.

Umbrella Clauses Since SGS v. Pakistan and SGS v. Philippines - A Developing Consensus

This paper conducts a review of all publicly available international arbitral decisions to address the ‘umbrella clause’, a controversial provision found in many bilateral investment treaties. ‘Function’, ‘scope’, ‘jurisdictional precedence’ and ‘privity’ are identified as the four key considerations in the operation of the umbrella clause, and the jurisprudence is discussed in relation to these considerations. It is found that the vast majority of tribunals have favoured an interpretation giving the umbrella clause an essentially jurisdictional function. A general consensus has developed that the scope of the umbrella clause extends at least to contractual obligations and potentially beyond provided that a specific obligation is entered into with regard to an investment. A consensus also appears to be developing that the jurisdiction of an international arbitral tribunal to hear umbrella clause claims is not affected by the presence of a contractual forum selection clause in an underlying contract. No consensus appears to have developed in relation to the issue of privity, with the jurisprudence being evenly divided both in relation to the ability of investors to base umbrella clause claims on underlying contracts they are not party to and the applicability of the established principles of international law on attribution to the State of actions by sub-state entities.

EU proposal for regulation on money market funds

On 4 September 2013 the European Commission released a proposal that seeks to restructure the entire European money market fund (MMF) industry. This article outlines the premises of the proposal and discusses concerns related to the most controversial provisions. We believe that economically unfeasible requirements for constant net asset value (CNAV) MMFs will result in the exit of these funds. We believe that the primary objective of financial market stability cannot be achieved by eliminating CNAV MMFs in favour of variable net asset value (VNAV) MMFs. There is simply no evidence that VNAV MMFs are immune to runs. New systemic risk will emerge as a result. Other types of investment products will proliferate, including private liquidity funds, which the existing EU regulation is not addressing. The focus of the proposal is misplaced. Runs in a single fund, whether CNAV or VNAV, due to a credit event should not be the primary regulatory concern. Investing is always a risky business and regulation ought to empower investors with complete information to adequately manage these risks. We recognise that any regulatory rules will be imperfect. The never-ending search for the most efficient allocation of resources will drive investors away should the post-reform MMF structure prove too costly. The solution can be found in the balance between long-term funding needs of the real economy and the utility of these funds.

The Protection Offered by “Umbrella Clauses” in Korean Investment Treaties

Korea is, after China, the Asian country with the largest number of concluded investment treaties. One of the protections that Korean investment treaties frequently afford to foreign investors and their investment is the so?called “umbrella clause,” which requires the host state of the investment to observe the commitments that it has undertaken toward the foreign investor or its investment. This is a potentially very powerful protection. Umbrella clauses, however, have proven to be amongst the most controversial provisions in investment treaties, giving rise to diverging interpretations by tribunals and commentators that are still not reconciled today.

The Wild Has No Words: Environmental NGOs Empowered to Speak for Protected Species as Swedish Courts Apply EU and International Environmental Law

The Stockholm Administrative Court recently ruled that Sweden’s wolf management policies are incompatible with the Habitats Directive. These policies are also the subject of an on-going infringement proceeding by the European Commission. The administrative court’s decision has been appealed. This case is significant for two reasons. First, it interprets controversial provisions of the Habitats Directive. But perhaps more importantly, it demonstrates the growing impact of EU law in a member state. This was the first major case in which the national courts were able to review a hunting decision pertaining to a species protected under EU law because standing to bring public interest lawsuits for the protection of species has been recognized only very recently. Under traditional Swedish procedural law, only the government can represent the public interest in administrative decision making and in court. Here, Swedish courts finally applied to hunting decisions the CJEU’s holding in Slovak Brown Bear, which says that national procedural law must be interpreted so as to allow environmental NGOs to challenge administrative decisions that might contravene EU environmental law. The court did not request a preliminary ruling despite that fact that controversial questions of EU law were implicated however. While the court applied EU law, it preferred to maintain control over its interpretation.

Schedule UTP: Stock Price Reaction and Economic Consequences

ABSTRACT: In 2010, the Internal Revenue Service (IRS) announced the requirement to disclose uncertain tax positions (UTP) on a new schedule (Schedule UTP) to be filed with federal corporate income tax returns. Schedule UTP could increase a firm's tax burden by providing a roadmap for the IRS to identify firms' tax-planning strategies. We find that stock returns around the development of Schedule UTP are negative, consistent with investors' concern that Schedule UTP would impose costs on firms. However, we document a significant positive stock price reaction to the release of the final draft of Schedule UTP in which the IRS relaxed many of the controversial provisions of Schedule UTP. Additionally, we find this positive reaction is incrementally larger for more tax-aggressive firms. Finally, we find a significant decrease in reported unrecognized tax benefits (UTBs) and additions to UTBs after the adoption of Schedule UTP in 2010.

Bank monitoring incentives and optimal ABS

Abstract The paper examines a continuous-time delegated monitoring problem between competitive investors and an impatient bank monitoring a pool of long-term loans subject to Markovian “contagion.” Moral hazard induces a foreclosure bias unless the bank is compensated with the right incentive-compatible contract. Fees are paid when the bank’s performance is on target and liquidation arises when the bank’s performance is sufficiently poor. I show that the optimal contract can be implemented with a whole loan sale involving both credit risk retention based on ABS credit default swaps and credit enhancement in the form of a reserve account. The optimal securitization bears out rulemaking recently proposed in the wake of the Dodd-Frank Act on a number of controversial provisions. I argue that further efficiency gains could be reaped by extending the role of the “premium capture” account into a liquidity buffer capturing performance-based compensation as a way of increasing skin in the game over the life of the transaction.

Seeing Human Rights in 3(D): Modeling India's Controversial Patent Law to Improve Access to Medicines in Vietnam

A patent strategy known as evergreening contributes to increased medical costs by keeping lower-cost generic alternatives out of the marketplace, and criticism of the strategy is warranted in asking whether its abuse amounts to overzealous profiteering that disproportionately affects poor populations. Without addressing the potential dangers that evergreening poses, the most recent amendments to Vietnam’s Law on Intellectual Property came into effect in early 2010. What follows is the possibility for pharmaceutical patent holders to squeeze generic competition out of the Vietnamese market, putting increased pressure on a nation already strained by the price of medicines. The price of medicines in Vietnam remains high in comparison with average incomes, and the Vietnamese people bear the lion’s share of healthcare expenses while government spending on health is insubstantial.Meanwhile, India has already ventured to avoid the threat that evergreening once posed to its relatively poor population. Under the auspice of public health, the 2005 Indian Patent Act outlawed patentability for minor, insignificant alterations to known pharmaceutical inventions under Section 3(d). The controversial provision has been challenged on the grounds that it violates the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) as promulgated by the World Trade Organization. But the provision has survived legal scrutiny in India and is being looked at by other developing countries as a model provision for their own patent laws.By amending its Law on Intellectual Property to include an explicit prohibition on evergreening that is based on Section 3(d) of India’s Patent Act, Vietnam can lay the foundation for an intellectual property regime that adequately respects patent rights while enhancing access to affordable medicines for its people. Though importing a provision akin to Section 3(d) into Vietnamese patent law is not without challenge, doing so is i) doctrinally sound under international agreements and domestic law, ii) morally grounded in the maxim that all people have a right to health and iii) practically attainable without offending Vietnam’s socialist orientation and centralized government.

Bank Monitoring Incentives and Optimal Abs

The paper examines a continuous-time delegated monitoring problem between a competitive investor and an impatient bank monitoring a pool of long-term loans subject to Markovian contagion. Moral hazard induces a foreclosure bias unless the bank is compensated with the right incentive-compatible contract. Fees are paid when the bank's performance is on target and liquidation arises when the bank's performance is sufficiently poor. I show that the optimal contract can be implemented with a whole loan sale involving both credit risk retention based on ABS credit default swaps and credit enhancement in the form of a reserve account. The optimal securitization bears out rulemaking recently proposed in the wake of the Dodd-Frank Act on a number of controversial provisions. I argue that further efficiency gains could be reaped by extending the role of the premium capture account into a liquidity buffer capturing performance-based compensation as a way to increase skin in the game over the life of the deal.

Join the Club: The Implications of the Anti-Counterfeiting Trade Agreement's Enforcement Measures for Canadian Copyright Law

The Anti-Counterfeiting Trade Agreement (ACTA) is the most recent international agreement by which Canada and other countries have sought to strengthen the protection and enforcement of intellectual property rights. While it was originally feared that ACTA would impose obligations that are in tension with the principles of Canadian copyright law, the final outcome of the ACTA negotiations moderated or removed many of the most controversial provisions in the agreement and thus has alleviated many of the concerns about the impact of ACTA on Canadian copyright law. Canada has taken the first steps toward satisfying ACTA’s copyright obligations with Bill C-11, the Copyright Modernization Act, which addresses some of the agreement’s digital copyright measures. Some legislative change still remains before Canada will have fully met ACTA’s copyright obligations, in particular to enhance the powers of customs and border authorities to enforce intellectual property rights. This article discusses ACTA’s evolution, negotiations, final text, and the extent of its rightsholder orientation. It then details the differences between ACTA’s provisions and the current Canadian Copyright Act, as amended by the Copyright Modernization Act, identifies which obligations in ACTA require further amendment, and suggests how these obligations may best be implemented to reflect important values and principles underlying Canadian copyright law.

Schedule UTP: Stock Price Reaction and Economic Consequences

In 2010, the Internal Revenue Service (IRS) announced the requirement to disclose uncertain tax positions (UTP) on a new schedule (Schedule UTP) to be filed with federal corporate income tax returns. Schedule UTP could increase firm's tax burden by providing a roadmap of tax planning strategies directly to the IRS. Stock returns around the development of Schedule UTP are negative; consistent with investors' concern that Schedule UTP would impose costs on firms. However, we document a significant positive stock price reaction to the release of the final draft of Schedule UTP in which the IRS relaxed many of the controversial provisions of Schedule UTP. Additionally, we find this positive reaction is incrementally larger for more tax aggressive firms. Finally, we find a significant decrease in reported uncertain tax benefits (UTBs) and additions to UTBs after the adoption of Schedule UTP in 2010.

Health Reform and the Constitutionality of the Individual Mandate

The Patient Protection and Affordable Care Act (ACA) of 2010 is landmark legislation designed to expand access to health care for virtually all legal U.S. residents. A vital but controversial provision of the ACA requires individuals to maintain health insurance coverage or face a tax penalty-the individual mandate. We examine the constitutionality of the individual mandate by analyzing relevant court decisions. A critical issue has been defining the "activities" Congress is authorized to regulate. Some judges determined that the mandate was constitutional because the decision to go without health insurance, that is, to self-insure, is an activity with substantial economic effects within the overall scheme of the ACA. Opponents suggest that Congress overstepped its authority by regulating "inactivity," that is, compelling people to purchase insurance when they otherwise would not. The U.S. Supreme Court is set to review the issues and the final ruling will shape the effectiveness of health reform.

How Effective is the New EU Timber Regulation in the Fight against Illegal Logging?

On 20 October 2010, a new European Union Regulation was adopted detailing the obligations of operators who place timber and timber products on the market. This landmark legislation aims to eliminate illegal timber from the European markets by introducing ‘due diligence’ requirements and prohibition requirement to place illegal timber on the market. Despite its far‐reaching objectives, the decision‐making process within the EU has led to significant compromises that could, in the future, hinder the Regulation's effectiveness. This article analyzes controversial provisions of the Regulation, such as the ‘simple prohibition requirement’ and the penalty system, as well as their history. The Regulation is also compared to the Lacey Act in the United States, and differences between these two pieces of legislation and their significance are explained. The author draws preliminary conclusions and poses questions to be taken into account by the Member States before the Regulation enters into force in 2013.

Administration Defends LTC in Reform Fight

Administration Defends LTC in Reform Fight

The Icelandic Regulatory Responses to the Financial Crisis

Iceland was hit hard by the financial crisis in 2008, especially by the spill-over effects of its banking failure when all of its three major banks collapsed. This article examines the Icelandic regulatory response to the crisis. The Icelandic case is special as the banks were not only too big to fail but also too big to rescue. Thus, legislation dealt with the failure of the banks and the aftermath of the crisis. First, the most important legislation was the Emergency Act that provided the Financial Supervisory Authority (FME) with emergency authority over banks in danger of becoming insolvent. The role of banks is integral to any economy. In order to ensure normal banking services and the safety of deposits in Iceland, three new banks fully owned by the Icelandic government were established on the basis of the Emergency Act. The most controversial provision of the Emergency Act granted depositors’ claims priority over other unsecured claims in the winding up of the collapsed banks. Now the EFTA Surveillance Authority has concluded that this did not constitute a breach of the EEA Agreement. The Emergency Act made necessary amendments to the Act on Financial Undertakings concerning the reorganisation and winding up of financial undertakings. Second, a Special Investigation Commission was established by law. To enable a search for the truth, the legislation was far-reaching. The primary role of the Commission was to seek the truth. The report of the Commission discloses information that otherwise would not have been disclosed because of bank secrecy laws and sheds a unique light on the practices of the banks. Third, it was considered important that the law would be enforced by all necessary means. Thus, the temporary position of Special Prosecutor was established by law. Fourth, cross-border banking in the EU/EEA is examined in the light of the so-called Icesave dispute between Iceland on the one hand and the UK and the Netherlands on the other. It sheds a light on some of the major flaws of cross-border banking in the EU/EEA already known and criticised long before the crisis. When the Icelandic banks collapsed, the government of Iceland declared that all deposits in domestic banks and branches were guaranteed but not those in foreign branches. This gave rise to the question of whether Iceland could be held liable on the basis of the EU Deposit Guarantee Directive or because of discrimination of depositors based on nationality. In any case, the financial crisis has shown that there is a gap between law and reality. The conclusion of this article is that it is questionable whether the potential economic benefits of full integration in the field of cross-border banking outweigh the dangers and risks that come with it. If not, the price of full integration may be too high.

Immunities in the Name of ‘Liability’: A Critique on Indian Nuclear Law

This article examines the crucial questions raised by the Civil Liability for Nuclear Damage Act, 2010 regarding liability or immunity for suppliers of nuclear power plant equipments to India. While the west wanted immunity the opposition and civil society in India insisted on liability, because of disastrous experience from defective UCC pesticide plant in Bhopal killing thousands of people. Principles of product liability, strict liability and absolute liability were developed in courts of law, where the producers and operators of industrial machinery would be liable without any exception. The Parliament has codified this principle of absolute liability by enacting the Public Liability Insurance Act 1991. In contrast, the Civil Liability for Nuclear Damage Act, 2010 offers ‘immunity’ to suppliers or producers while the Government takes up responsibility of compensating the victims from public exchequer in their anxiety to invite foreign nuclear equipment suppliers. To convince resisting opposition and to get the Bill passed the UPA Coalition Government of India made some changes in law which still left some doubts and uncertainties. Another controversial provision of the Act was limiting the liability up to 300 million USD, which critics say is much less than what Indian victims got for Bhopal disaster. This is not in tune with accepted liability jurisprudence. None of the international nuclear liability conventions prescribed any cap on total liability, but only set a floor. Countries like South Korea and Sweden have set operator’s liability at 300 million SDRs, not total liability. The operator’s liability in the US is $ 11.9 billion. Agreeing for a cap on nuclear disaster from large nuclear power plants is not in the interest of nation. But the nuclear supplying nations are considering this Indian legislation as diluting immunity and impeding the transfer of nuclear power technology.

Speaking in Name of the Constituent Power: The Spanish Constitutional Court and the New Catalan Estatut

In June 2010 the Spanish Constitutional Court rendered a very important judgment on the constitutional legitimacy of the new fundamental charter (Estatut) of the Autonomous Community of Catalonia. Faced with a very long and ambitious legal document, the Court succeeded in not condemning as illegitimate most of its controversial provisions by means of interpretation consistent with the Constitution. Thus, those provisions aiming at ‘constitutionalizing’ Catalan identity have been widely neutralized or deprived of their legal significance. By doing so, however, the Court has attracted widespread criticism, possibly paving the way for further conflicts.

“Director's Duty to Promote the Success of the Company”: Should Hong Kong Implement a Similar Provision?

Section 172 of the UK Companies Act 2006 is arguably one of the most controversial provisions that has been introduced into the company law of the UK. It incorporates the concept of enlightened shareholder value, together with a list of non-exhaustive factors that directors ought to take into account in promoting the success of the company. The discussion focuses on a recent review undertaken by the Hong Kong Standing Committee on Company Law Reform (SCCLR) as to whether Hong Kong should follow the UK by incorporating a similar provision to section 172 of the Companies Act 2006 in its Companies Bill. Contrary to the SCCLR recommendation, the primary conclusion drawn is that it makes commercial sense for a similar provision to be introduced in Hong Kong. A careful examination of section 172 of the Companies Act 2006 shows that it simply reflects existing law and modern business practices. Therefore, the purpose of implementing such duty on directors does no more than reinstate the practical reality.

27 Years of Truth-in-Evidence: The Expectations and Consequences of Proposition 8's Most Controversial Provision

27 Years of Truth-in-Evidence: The Expectations and Consequences of Proposition 8's Most Controversial Provision