Beneficial Ownership Reporting Requirements under the Corporate Transparency Act as of January 1, 2024

In 2020, Congress adopted the Corporate Transparency Act (the “CTA”) to strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder money or hide assets.  Unless a newly formed or existing entity in the U.S. can claim an exemption, the CTA will require that they report to the U.S. government specified information about themselves and their controlling persons and owners. The CTA will go into effect on January 1, 2024. Existing companies will have to report by the end of 2024, and newly formed companies will have to report shortly after formation (90 days if during 2024, or 30 days after 2024).

On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued the final rule (the “Rule”) implementing the CTA’s beneficial ownership information (“BOI”) reporting provisions.  Among other things, the Rule details who must file a BOI report, what information must be reported, and when a report is due. On September 18, 2023, FinCEN released a Small Entity Compliance Guide explaining in detail the reporting requirements in the Rule.

Which companies must report?

The Rule applies to any domestic or foreign limited liability company (LLC), corporation or other entity that is registered to do business in any state or tribal jurisdiction.

The Rule requires a reporting company to report basic information about itself and its “beneficial owners.” These generally include any individuals who, directly or indirectly, either (1) exercise substantial control over the reporting company, or (2) own or control at least 25% of the ownership interests of the reporting company.

·         “Substantial control” captures anyone who is able to make important decisions on behalf of the reporting company.  This includes senior officers and directors, anyone with authority to appoint senior officers or directors, and anyone who has any other substantial control of the company through contractual arrangements, ownership of voting shares, or otherwise. 

·         “25% ownership” is determined based on economic ownership and control.  In most cases, determining 25% ownership will be simple.  However, if ownership is tiered, or held in a trust or through a mix of exempt and non-exempt entities, determining the 25% owners will require a more detailed analysis.

Exemptions:

Exemptions from the CTA reporting requirements are available for various entities, including (A) companies that have at least 20 full time employees in the U.S., and have filed U.S. federal tax returns reporting more than $5,000,000 in gross receipts or sales in the prior year, (B) government entities, (C) banks and other financial institutions, such as broker-dealers and registered investment companies, registered investment advisers, and insurance companies, (D) accounting firms, (E) tax exempt companies, and (F) reporting issuers under the Securities Exchange Act of 1934.

Further Information

Attorneys at our firm are available to assist with any questions you may have regarding the CTA and related legal guidance. For additional information, please contact the undersigned or any other attorney at our firm.

Jake Brown

Christophe Durrer

Travis L. Gering

Jascha D. Preuss

Carl van der Zandt

Daniel A. Wuersch

Rowena Duncga

Claudio A. Guler

This summary has been prepared for general informational purposes only and does not constitute legal advice.  It is intended only as a summary of the CTA and does not contain all details applicable to the CTA.  This summary may be construed as attorney advertising.

SEC charges FinTech investment adviser Titan for misrepresenting hypothetical performance of investments (and other violations)

On August 21, 2023, the Securities and Exchange Commission (the “SEC”) announced the settlement of charges against Titan Global Capital Management USA LLC, a New York-based FinTech investment adviser (“Titan”), pursuant to Section 206(4)-1 (the “Marketing Rule”) under the U.S. Investment Advisers Act of 1940 (the “Advisers Act”).  Among other things, Titan was charged with marketing its Titan Crypto strategy using misleading hypothetical performance.  This case is the first reported by the SEC under the Marketing Rule, which became effective on May 4, 2021.

U.S. Supreme Court Holds that Section 1782 Discovery does not Apply to Private Foreign or International Arbitration Proceedings

On June 13, 2022, the U.S. Supreme Court issued a long-awaited opinion on the scope of 28 U.S.C. § 1782 (“Section 1782”), unanimously holding that only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” for purposes of Section 1782.Thus, Section 1782 applications cannot be used to obtain discovery in aid of private arbitration proceedings abroad. The two consolidated cases before the Court both involved parties seeking discovery in the United States for the use in foreign private arbitrations, but involved different tribunals; one case involved a private commercial arbitration, while the other involved an ad hoc investment arbitration.

SEC Considering a Proposed Exemptive Order for Finders

On October 7, 2020, the Securities and Exchange Commission (the “SEC”) voted to propose a new, limited, conditional exemption from broker registration requirements for “finders” who help issuers raise capital in private markets from accredited investors. (See https://www.sec.gov/news/press-release/2020-248).

Under Section 15(a)(1) of the Securities Exchange Act of 1934, finders and solicitors of investors are required to register as broker-dealers.  Historically, the SEC has acknowledged that finders may be exempt from broker registration under certain very limited conditions, and the SEC staff from time to time has issued “no action” letters to such effect.  However, to date the SEC has never provided general exemptions for finders.  Because the broker-dealer registration requirements are onerous, the proposed rule is welcome news for would-be finders.

SEC Proposes Amendments to Accredited Investor and Qualified Institutional Buyer Definitions

The Securities and Exchange Commission (the “SEC”) recently proposed amendments to the definitions of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act of 1933, and “qualified institutional buyer” (QIB) in Rule 144A under the Securities Act. (See https://www.sec.gov/rules/proposed/2019/33-10734.pdf). The proposed rule would create additional categories of accredited investors, make the QIB categories more consistent with the accredited investor categories and codify some existing SEC staff interpretive positions relating to these definitions.Qualifying as an accredited investor is significant because accredited investors may participate in private investment opportunities not available to other investors, such as investments in startup companies and private investment funds. Qualifying as a QIB allows an investor to participate in certain investment opportunities available only to large institutional investors.

PROPOSED CHANGES TO “ACCREDITED INVESTOR” DEFINITIONS

The “accredited investor” definition is intended to identify financially sophisticated investors who can analyze investment opportunities with less government oversight. However, as the SEC notes in the proposed rule, in most cases the current accredited investor categories use “wealth” – measured by income level, net worth, or assets – as a proxy for sophistication. The proposed rule would create the following new categories of accredited investors – items (1) through (5) could be viewed as new exemptions for financially sophisticated investors who do not necessarily meet the current wealth thresholds, while items (6) through (8) could be viewed more as technical fixes to the rule:

1. Individuals who hold certain professional certifications, designations or credentials. These individuals would qualify as accredited investors without regard to any wealth requirements. The SEC would establish the exact certifications or designations satisfying this requirement from time to time through SEC order, and would make the list available on its website. This approach would allow the SEC to update the list without amending the definition. The SEC preliminarily expects that an initial SEC order accompanying the final rule would include FINRA Series 7 (licensed general securities representatives), Series 65 (licensed investment adviser representatives) and Series 82 (licensed private securities offerings representatives).

2. Registered investment advisers. SEC-registered investment advisers and state-registered investment advisers would qualify as accredited investors without regard to any wealth requirements.

3. Rural Business Investment Companies. USDA-licensed Rural Business Investment Companies would qualify as accredited investors without regard to any wealth requirements.

4. Knowledgeable employees. The proposed rule would create a new category for individuals who meet the definition of “knowledgeable employee” under the Investment Company Act of 1940 with respect to a private fund. “Knowledgeable employee” is an existing designation determined by an individual’s role for a private fund, and does not impose any wealth thresholds. Currently, an employee of an investment manager might qualify under the Investment Company Act to invest in a “3(c)(7) Fund” as a knowledgeable employee, but not qualify as an accredited investor. This change would eliminate that gap.

5. Family offices and family clients. The proposed rule would create a new category for “family offices” with at least $5 million in assets under management and their “family clients”, each as defined in the Investment Advisers Act of 1940. Currently, a family office might manage accounts for some family clients that do not separately qualify as accredited investors. This change would allow a family office and family clients to count their collective investments to satisfy the $5 million threshold, subject to a few additional conditions.

6. Limited liability companies. The proposed rule would codify a long-standing SEC staff interpretive position that includes limited liability companies in the enumeration of legal entities that qualify as accredited investors if they satisfy the other requirements of Rule 501(a)(3), i.e., they have not been formed for the specific purpose of acquiring the securities offered and have assets in excess of $5 million.

7. Catch-all provision. The proposed rule would create a new category for any entity owning more than $5 million in investments and which was not formed for the specific purpose of investing in the securities offered. This provision is intended to allow for new and foreign types of entities to qualify as accredited investors without being enumerated in Rule 501(a).

8. Spousal equivalents. Currently, a natural person may include a spouse’s resources when calculating income under Rule 501(a)(6) and net worth under Rule 501(a)(5). The proposal would amend those provisions to permit a natural person to include the income and net worth of a “spousal equivalent”, defined as “a cohabitant occupying a relationship generally equivalent to that of a spouse”.

PROPOSED CHANGES TO “QUALIFIED INSTITUTIONAL BUYER” DEFINITION

A “Qualified Institutional Buyer” or “QIB” other than a dealer registered with the SEC must in the aggregate own and invest on a discretionary basis at least $100 million in securities of issuers that are not affiliated with that QIB. Banks and other specified financial institutions are subject to an additional minimum audited net worth requirement of $25 million. Rule 144A specifies the types of entities that are eligible for QIB status if they meet the $100 million threshold. The proposed rule would expand that list to include several categories from the updated accredited investor definition, including the “catch-all” category described above.The SEC’s rationale is that an entity that meets the $100 million threshold is likely to have the financial sophistication and resources necessary to protect itself with less government oversight, and the exact type of entity is much less critical than the financial threshold.

OTHER MATTERS

Notably, the SEC considered but decided not to propose increasing the current financial thresholds or adjusting them for inflation.The SEC requests and encourages comments regarding the proposed rule amendments, specific issues discussed in this release and other matters that may affect the proposed rule amendments.This summary is intended to provide general information only on the matters presented. It is not a comprehensive analysis of these matters and should not be relied upon as legal advice.For further information please contact:Travis L. Gering: travis.gering@wg-law.com | (212) 509-4723Daniel A. Wuersch: daniel.wuersch@wg-law.com | (212) 509-4722Janet R. Murtha: janet.murtha@wg-law.com | (212) 509-6314Jake Brown: jake.brown@wg-law.com | (212) 509-4741Marco E. Palmese: marco.palmese@wg-law.com | (212) 509-6310

Patent litigation in the United States: overview

By Maria Luisa Palmese

US patent laws stem from the patent clause in the US Constitution, which provides that Congress has the power "to promote the progress of … useful arts, by securing for limited times to … inventors the exclusive right to their … discoveries". Therefore, patents are exclusively governed by federal law and state law has little or no role in patent litigation, except, for example, where the issue is one of contract or ownership. The principal source of federal law governing patents is Title 35 of the US Code.The US has a common law system that relies on judicial precedent. Therefore, federal court decisions also play a vital role in US patent law and litigation, by interpreting the Constitution and federal statutes, and in some cases, creating law themselves. For example, the "doctrine of equivalents", which was first adopted by the US Supreme Court, has no independent statutory basis. Federal courts have exclusive jurisdiction over patent infringement cases, and the Federal Rules of Civil Procedure and the Federal Rules of Evidence apply in these proceedings. In addition, many district courts have instituted local rules specific to patent litigation.To continue reading: Follow this link to the article

Why U.S. Export Control Laws Are Relevant to Non-U.S. Companies

It is not unusual for European and other non-U.S. companies to ignore U.S. export control laws, including for the re-export of U.S.-originated goods or components. Such an approach can turn out to be shortsighted.  Generally, while the U.S. is very export-friendly, it controls how and to which countries its products are directly or indirectly exported.  The U.S. export control laws have a wide ranging extraterritorial reach, and the U.S. government seeks to penalize companies and individuals who breach the export control laws, regardless of where they are located.

 INTRODUCTION

There are many reasons as to why the U.S. controls exports – they range from the fight against organized crime and terrorism, nuclear non-proliferation and the control of chemical and biological weapons, to foreign policy and regional stability concerns, and national security considerations. Multiple U.S. departments and agencies are involved in export control. The three primary authorities are:

• the Department of State’s Directorate of Defense Trade Controls (DDTC) which is in charge of the application and the enforcement of the International Traffic in Arms Regulations (ITAR);

• the Department of Commerce’s Bureau of Industry and Security (BIS) which is responsible for implementing and enforcing the Export Administration Regulations (EAR); and

• the Department of the Treasury’s Office of Foreign Assets Control (OFAC) which administers and enforces U.S. embargoes and sanctions against specific countries and individuals.

EXPORT ADMINISTRATION REGULATIONS (EAR)

Whereas the ITAR pertains to defense articles, defense services and related technical data, items subject to the EAR include civilian items, items with both civil and military application and items exclusively used for military applications but which do not warrant control under the ITAR, i.e., less sensitive military items (also note that in 2013 certain articles were moved from the ITAR to the EAR). This article focuses on the EAR.

The types of items subject to the EAR are commodity, software and technology. The EAR contain the Commerce Control List (CCL) which lists all items that are subject to the export licensing authority of the BIS.  All of these items have an Export Control Classification Number (ECCN) which indicates their level of control.  This in turn determines whether the export of an item to a certain country requires a license from the BIS.  In case a license is required, the EAR set forth a number of license exceptions which might apply depending on the product, the country of destination and other factors.

The EAR distinguishes among “export,” “re-export,” and “release.” Export means the actual shipment or transmission of items out of the U.S. Re-export means the actual shipment or transmission of items subject to the EAR from one non-U.S. country to another non-U.S. country. Release (or deemed export) means the release of technology or software to a non-U.S. person in the U.S.

RE-EXPORT OF U.S. GOODS UNDER THE EAR

Companies may not assume that the permitted export of goods from the U.S. means that these goods may then be re-exported to a third country without further consideration of U.S. export control laws. Rather, the EAR require that the export and re-export of goods are assessed separately.  The same licensing requirements apply to re-exports as to exports because the U.S. export control laws regulate U.S.-origin products regardless of where they are located.

Example: A German company purchased specific mechanical high speed cameras from a U.S. company. The U.S. seller determined that while the camera in question is subject to the EAR, no license was required for an export of the camera to Germany based on the CCL and the Commerce Country Chart which is a look-up table in the EAR listing all countries.  The German company now plans to sell these mechanical high speed cameras to a customer in Brazil, which from an EAR perspective would be a re-export.  Even though no license was required for the initial export to Germany, the German company would need a license from the BIS for the re-export of the cameras to Brazil because the export licensing requirements for this product are different for Germany and Brazil.

EXPORT OF NON-U.S. PRODUCTS WITH U.S. COMPONENTS OR TECHNOLOGY

The EAR may also apply to non-U.S. companies that manufacture goods which contain U.S. components or technology. The EAR set forth de minimis thresholds based on the value of the U.S. components or technology incorporated into a non-U.S.-made product to determine if the product is subject to the EAR.  The threshold rules apply in case (i) a non-U.S.-made commodity “incorporates” controlled U.S.-origin commodities or is “bundled” with controlled U.S.-origin software, (ii) non-U.S.-made software “incorporates” controlled U.S.-origin software, or (iii) non-U.S.-made technology is commingled with or drawn from controlled U.S.-origin technology.  For most destinations and items, a non-U.S.-made product or software is subject to the EAR if the value of the U.S.-origin controlled content exceeds 25% of the total value of the finished item.  For some destinations (e.g., Iran, Syria), the de minimis threshold is 10%.  The application of the threshold depends on the ECCN of the U.S.-origin controlled content and the ultimate destination to which the non-U.S.-made item is exported; special rules apply to high performance computers and encryption commodities and software.  By comparison, there is no de minimis rule for defense articles, defense services and related technical data under the ITAR.  As soon as a single ITAR component is installed in a non-U.S.-made product, the ITAR applies.

Example: A French company purchased software designed for the operation of numerically controlled finishing machine tools from a U.S. company. The U.S. seller determined that while the software in question was subject to the EAR, no license was required for an export to France.  The French company would like to use the U.S.-origin software with its own hardware and sell the bundled products to a company based in Haiti (“bundled” means that the software that is re-exported together with the item is configured for the item but not necessarily physically integrated into the item). If the value of the software exceeds 25% of the value of the bundled product, the French company would need a license from the BIS before being able to lawfully export the product because the export licensing requirements for this software are different for France and Haiti.

ENFORCEMENT ACTIVITIES

In recent years, the U.S. government has been placing more and more pressure on businesses outside the U.S. to comply with U.S. export control laws. In 2017, 31 individuals and businesses were convicted and there were 52 administrative cases which resulted in large fines.  By way of example, in March 2017, ZTE Corporation, a Chinese telecommunications company, pleaded guilty to conspiring to violate U.S. export control laws by illegally shipping U.S.-origin items to Iran and North Korea and agreed to pay the U.S. government a record-high combined civil and criminal penalty of $1.19 billion.  In April 2017, a Chinese national pleaded guilty to violating U.S. laws in connection with a scheme to illegally export to China, without a license, high-grade carbon fiber, which is used primarily in aerospace and military applications.  In October 2015, three individuals were convicted of conspiring to illegally export controlled technology to Russia.

Non-U.S. companies which are involved in the re-export of U.S. goods or technology or use U.S.-origin components or technology in their products are well-advised to familiarize themselves with U.S. export control laws and seek legal advice.

For further information, please contact:
Christophe Durrer, christophe.durrer@wg-law.com, + 1 212-509-4713

The information contained in this article is provided for informational purposes only and should not be understood or construed as legal advice. The examples are only provided for illustrational purposes and cannot be relied upon in the determination of whether an item might be subject to the EAR and/or whether a license from the BIS (or another U.S. government agency) would be required.

Copyright litigation in the United States: overview

By Maria Luisa Palmese

In the US, there are two types of statutory laws, federal laws enacted by the US Congress and state laws enacted by individual states.

US copyright law stems from Article 1, section 8, clause 8, of the US Constitution, which is often referred to as the Copyright Clause. This clause gives the US Congress the "power to promote the progress of Science and useful Arts, by securing for limited times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries".

The principal source of copyright law in the US is the Copyright Act 1976 (17 USC 101 et seq), which took effect on 1 January 1978 and is often referred to as the Copyright Act. Other important sources of US copyright law include the Digital Millennium Copyright Act 1998, codified in the Copyright Act at 17 USC 512, 1201-1205, 1301-1332, which relates to software protection and digital technology, and 18 USC 2319, which provides for additional penalties for criminal copyright infringement, including imprisonment.

 To continue reading: Follow this link to the article

New Law Permits Denial or Revocation of US Passports Due to Significant Federal Tax Delinquencies

Under the Fixing America’s Surface Transportation Act, which President Obama signed on December 4, 2015, an individual’s US passport can, for the first time, be denied or revoked because the individual has a significant US tax liability.  This provision became effective on January 1, 2016. The liability does not have to be for US income tax; it includes, for example, an excise tax imposed on an individual who engages in certain “prohibited transactions” with a qualified retirement plan or IRA.The liability amount which triggers this exposure is $50,000 (including interest and penalties). This amount will be adjusted annually for inflation.A taxpayer need not fear that his or her passport might be denied or revoked merely because an IRS agent determines on audit that the taxpayer owes federal tax.  Rather, the new law jeopardizes a passport only where: the liability has been assessed; and the IRS has either issued a notice of lien to the taxpayer or levied on the taxpayer’s property to satisfy the tax debt.In addition, a passport cannot be denied or revoked where the taxpayer is paying off his or her debt under an installment agreement or offer in compromise entered into with the Internal Revenue Service.  Similarly, while a taxpayer is in the process of appealing the IRS’s tax determination to a court such as the US Tax Court, the taxpayer’s passport is safe.Under the new law, the IRS first must issue a certification to the Treasury Department that a particular individual has a “seriously delinquent tax debt.” The taxpayer must be notified that such certification has been issued.  The Treasury Department is then authorized to transmit this certification to the Department of State. Once the State Department has received the delinquency certification it must deny any application by the taxpayer for a passport; and it may (not required) revoke a passport previously issued to that taxpayer.Procedures are authorized for a taxpayer’s seriously delinquent tax status to be decertified under circumstances which include the taxpayer’s payment of the tax liability after he or she has been certified as seriously delinquent.This summary is intended to provide general information only on the matters presented. It is not a comprehensive analysis of these matters and should not be relied upon as legal advice. If you have any questions about the matters covered in this publication, please contact:

Maureen R. Monaghan:       maureen.monaghan@wg-law.com I (212) 509 6312
Charles E. Chromow:            charles.chromow@wg-law.com I (212) 509 4712

Using Your Drone for Your Business – The Sky is NOT the Limit

Anyone watching or reading the news over the last few months will have noticed an increase in stories concerning drones. These stories reach from the mundane (drones being used to inspect pipelines and powerlines) to the ridiculous (a man shooting down his neighbor’s drone with a shotgun). Drones are a fairly new technical innovation and, unfortunately, the laws concerning safe drone operations, both for pleasure and profit, have not caught up. Nevertheless, there are some rules and regulations in place and the U.S. government agency responsible for the safety of U.S. airspace, the Federal Aviation Administration (“FAA”) has not been idle. This article shall provide a very general overview of what rules and regulations must be observed when operating a drone for commercial purposes.

By some estimates, one million drones or more may be sold this holiday season. When operated for pleasure by hobbyists, there are very few pitfalls for drone operators, as long as common sense prevails. Drones cannot be operated near airports and no higher than 400 feet above ground level, to assure that the drone does not enter the national airspace. Other restrictions also apply, such as operating a drone over a sports event or other large gathering of people, which is generally prohibited.Drones can have many uses in the business environment. From taking aerial shots of homes for real estate companies, pipeline and power line inspections, replacing security foot patrols in large industrial establishments, for television and movie productions, and for landscape and cityscape photography, the advantages of using a drone are clear. Technology has advanced to the point where certain drones can operate entirely autonomously, following a pre-programmed flight path before returning to the point of origin, taking video or still pictures along the way. For some tasks, the cost savings are potentially significant. It is, therefore, not surprising that many companies are hoping to use drones in one way or another.However, when a drone is used for a commercial purpose, the operator can easily find him or herself in hot water.

Recently, in a much publicized case, the FAA proposed to fine SkyPan International, a Chicago-based drone operator, $1.9 million for repeatedly violating FAA regulations and flying drones in restricted airspace. The FAA contends that SkyPan conducted 65 flights over Chicago and New York, all without clearance from air traffic controllers. While the fine will probably be appealed and may be reduced, this case highlights why the issue of commercial drone operations is one that must be taken seriously.The FAA is currently working on new rules specifically for the commercial operation of small (less than 55lb total weight) drones. Pending promulgation of such rules, which may include a requirement that all drones – private and commercial – must be registered with the FAA, certain existing laws are being used by the FAA to impose rules and limitations on how, when and by whom drones can be flown commercially. In order to avoid being fined, every commercial drone operator must be aware of these rules and follow them to the letter.

There are presently three methods of gaining FAA approval for flying civil (non-governmental) drones for commercial purposes:

1. Special Airworthiness Certificates – Experimental Category (SAC-EC) for civil aircraft to perform research and development, crew training, and market surveys;

2. obtaining a type and airworthiness certificate for a drone in the Restricted Category (14 CFR § 21.25(a)(2) and § 21.185) for a special purpose or a type certificate for production of the drone under 14 CFR § 21.25(a)(1) or § 21.17; and

3. filing a Petition for Exemption with a civil Certificate of Waiver or Authorization (COA) for civil aircraft to perform commercial operations in low-risk, controlled environments. This is commonly referred to as the “Section 333 Exemption” and will, for most operators, be the easiest to comply with.

Section 333 of the FAA Modernization and Reform Act of 2012 grants the Secretary of Transportation the authority to determine whether an airworthiness certificate is required for a drone to operate safely. It authorizes the FAA to grant exemptions from FAA rules limiting commercial operation of Unmanned Aerial Systems (drones) pending the adoption of permanent rules. To obtain a Section 333 Exemption, a petition is filed with the FAA. The information submitted with the petition must include, among other items, information about the drone itself, the operator of the drone, the pilot in command and the nature of the operations to be conducted with the drone. The petitioner must also state with specificity with regard to which rules and regulations the exemption is sought. Petitioners should allow at least 120 days for processing and review of any exemption requests.Once granted, the exemption will be specific to the drone or drones named (usually by the manufacturer’s name/type) in the petition and will spell out all restrictions regarding use of the drone(s) for the purposes specified in the petition. Most exemptions will include the following pre-defined restrictions:

• Drones may not be operated in excess of 400 feet above ground level.

• Drones may not exceed a ground speed of 100 mph.

• Operations authorized by the grant of exemption are limited to the drone or drones named in the petition, which must weigh less than 55 pounds including payload.

• All operations must be “line-of-sight” from the Pilot in Command (PIC).

• In addition to the PIC, there must be a second person, who acts as an observer.

• The PIC (but not the observer) must hold any one of the following certifications (licenses): airline transport pilot, commercial pilot, private pilot, recreational pilot, or sport pilot. This means that when a drone is operated for a commercial or business purpose, the PIC must in all cases be a licensed pilot.

• The PIC must hold a current FAA airman medical certificate or a valid U.S. driver’s license issued by a state, the District of Columbia, Puerto Rico, a territory, a possession, or the Federal government (note that Sport Pilot licenses do not require that the pilot obtain an FAA airman medical certificate).

• The PIC must meet the flight review requirements specified in 14 CFR §61.56 in an aircraft in which the PIC is rated on his or her pilot certificate.

• The drone must be registered with the FAA and the registration number (commonly referred to as an “N-number”) must be affixed to the drone. The numbers on the drone must be as large as practicable.

• Night flight will generally be prohibited, though it may be possible to obtain an exemption specifically for night operations, in which case the FAA will likely require that the drone be equipped with a rotating beacon and other position and navigation lights.

Depending on the purpose of and the manner in which the drone is to be operated, more specific restrictions and may also be included.Of these restrictions, the most difficult to comply with would appear to be that the PIC must hold at least a sport pilot license. It means that where commercial drone operations are concerned, the drone cannot be flown by just anyone. A company wishing to employ drones must, as a logical consequence, also employ a licensed pilot.

One might be tempted to argue that this requirement is unnecessary, considering that these are “toys” that can be flown by anyone, requiring very little skill to operate. However, since drones have been observed flying as high as 2000 feet above ground and can weigh 50 pounds or more, the potential consequences of a collision with an aircraft are apparent and there have been reports of near misses. The ingestion of a 50 pound machine into a jet engine could have fatal consequences. It should not surprise anyone that the FAA, having as one of its primary tasks the safeguarding of the national airspace, would seek to minimize the risk by regulating drone use.The FAA is keenly aware that not only commercial drones can present risks to airspace users, but privately used drones as well. It is for these reasons that new rules are currently being written that will in all likelihood require the registration of every drone that is privately owned and operated, even if for pleasure only. The FAA has assembled a task force of government and industry stakeholders to work out the details of these new requirements. It is likely that registration will take place at the time of sale. Retroactive application of the registration requirement to drones sold prior to December 2015 should be expected, though that is among the details to be decided. The task force is to propose specifics by November 20, 2015, with the registration requirement to be in place by mid-December. Whether this timeline is realistic remains to be seen.Considering all of the foregoing, it becomes obvious that anyone wishing to use their drone in a commercial enterprise of any kind will have to comply with some more or less burdensome regulations or run a substantial risk of being fined or otherwise punished by the FAA. We urge all parties considering the commercial use of drones to obtain legal guidance before doing so.

For more information please contact Thilo C. Agthe at 212-509-4714 or via email at thilo.agthe@wg-law.com.

Securities and Exchange Commission Adopts Final Rules to Permit Crowdfunding

On October 30, 2015 the Securities and Exchange Commission (the “Commission”) adopted its long-awaited final crowdfunding rules under “Regulation Crowdfunding.”All transactions relying on Regulation Crowdfunding must take place through a registered intermediary, either a broker­dealer registered with the Commission or a funding portal registered with the Commission.  Companies are not permitted to undertake any crowdfunding initiatives without the required intermediation.  A company relying on Regulation Crowdfunding will be required to conduct its offering exclusively through one intermediary platform at a time.In summary, Regulation Crowdfunding permits companies to crowdfund capital subject to the following conditions:

• A company may raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12­month period;

• Individual investors, over a 12­month period, may invest in the aggregate across all crowdfunding offerings up to:

  • If either their annual income or net worth is less than $100,000, than the greater of:

• $2,000 or

• 5% of the lesser of their annual income or net worth.

  • If both their annual income and net worth are equal to or more than $100,000, 10% of the lesser of their annual income or net worth; and

• During the twelve month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Required Disclosures by Crowdfunding Companies

Companies that rely on Regulation Crowdfunding to conduct an offering must file the following information with the Commission and also provide it to investors and the intermediary facilitating the offering:

• The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;

• A discussion of the company’s financial condition;

• Financial statements of the company that, depending on the amount offered and sold during a 12­month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor. A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;

• A description of the business and the use of proceeds from the offering;

• Information about officers and directors as well as owners of 20% or more of the company; and

• Certain related ­party transactions.

Companies relying on the crowdfunding exemption must file an annual report with the Commission and provide it to investors.

Regulation of Crowdfunding Platforms

All funding portals must register with the Commission on the new “Form Funding Portal”, and become a member of a national securities association, currently, the Financial Industry Regulatory Authority (“FINRA”).  The rules require intermediaries to, among other things:

• Provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered and information a company must provide to investors, resale restrictions, and investment limits;

• Take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with Regulation Crowdfunding and that the company has established means to keep accurate records of securities holders;

• Make information that a company is required to disclose available to the public on its platform throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;

• Provide communication channels to permit discussions about offerings on the platform;

• Provide disclosure to investors about the compensation the intermediary receives;

• Accept an investment commitment from an investor only after that investor has opened an account;

• Have a reasonable basis for believing an investor complies with the investment limitations;

• Provide investors notices once they have made investment commitments and confirmations at or before completion of a transaction;

• Comply with maintenance and transmission of funds requirements; and

• Comply with completion, cancellation and reconfirmation of offerings requirements.

The rules also prohibit intermediaries from engaging in certain activities, such as:

• Providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;

• Having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and

• Compensating any person for providing the intermediary with personally identifiable information of any investor or potential investor.

Regulation Crowdfunding contains certain rules that prohibit funding portals from offering investment advice or making recommendations; soliciting purchases, sales or offers to buy securities; compensating promoters and other persons for solicitations or based on the sale of securities; and holding, possessing, or handling investor funds or securities.The rules provide a safe harbor under which funding portals can engage in certain activities consistent with these restrictions.

Disqualified Companies

Under the Regulation Crowdfunding, certain companies will not be eligible to use the exemption, including non­U.S. companies, reporting companies registered under the Securities Exchange Act of 1934, as amended, certain investment companies, companies that are subject to disqualification, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

Effectiveness

The new Regulation Crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register, except that the forms enabling funding portals to register with the Commission will be effective January 29, 2016.

Additional Proposed Amendments

In a related action, the Commission also proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions.  The proposal also would amend Rule 504 promulgated under the Securities Act of 1933, as amended, to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.

*          *          *

This summary is intended to provide general information only on the matters presented. It is not a comprehensive analysis of these matters and should not be relied upon as legal advice. If you have any questions about the matters covered in this memorandum, please contact:

Travis L. Gering:          travis.gering@wg-law.com| (212) 509-4723
Daniel A. Wuersch:     daniel.wuersch@wg-law.com|(212) 509-4722
Peter C. Noyes:           peter.noyes@wg-law.com|(212) 509-0913
Janet R. Murtha:         janet.murtha@wg-law.com|(212) 509-6314
Marco E. Palmese:      marco.palmese@wg-law.com|(212) 509-6310

The IRS Presumption Rules and the Withholding Certificate (Form W-8) Dilemma: A Solution for Foreign Partnerships Providing Services to U.S. Clients

Compensation paid to a nonresident alien or foreign entity for services performed outside the United States is not U.S. source income and is therefore not subject to nonresident alien/foreign entity withholding or FATCA withholding.  Nonetheless, a U.S. payer may still be required to backup withhold at the rate of 28% on non-U.S. source payments if it does not receive a Form W-8 from each beneficial owner of the payment certifying his or her foreign status.  This means that a foreign partnership (e.g., a foreign law firm) providing services to U.S. clients through a foreign office could be asked to provide a withholding certificate (Form W-8) from each individual partner in order to avoid backup withholding on the payment.  For large partnerships with multiple offices this can present a daunting, if not wholly unrealistic, task.  Fortunately, the U.S. Treasury Department has provided a solution to this problem by issuing regulations containing presumption rules that a U.S. payer must apply when it does not receive withholding certificate(s) from the beneficial owner(s) of a payment.  By following the presumption rules, a U.S. payer may wholly avoid liability for tax, interest, and penalties when it does not obtain withholding certificate(s) from certain beneficial owner(s) of a payment.

The U.S. Accounts Payable Department Quagmire

Why is it so difficult dealing with U.S. accounts payable?  A U.S. payer is required to apply the 28% backup withholding rate to a reportable payment made to a U.S. person (such as a payment for services made to a non-employee) if the U.S. payer has not received a valid U.S. taxpayer identification number from the payee.  U.S. payers (and certain individual officers) are themselves held liable for the backup withholding tax that they incorrectly fail to collect if they do not precisely follow the IRS regulations.  One way that liability for backup withholding may be avoided is by obtaining a valid Form W-8 from each beneficial owner of the payment certifying his or her foreign status.  Thus, when making a payment for services to a foreign partnership, the legal department of a U.S. payor will typically instruct its accounts payable department to obtain a withholding certificate from each partner of the foreign partnership certifying his or her foreign status.

The Presumption Rules Pertaining to Partners of Foreign Partnerships

The IRS regulations provide that if a U.S. payer cannot reliably associate a payment with valid documentation, the U.S. payer must apply certain presumption rules in order to avoid liability for tax, interest, and penalties.  If the U.S. payer complies with the presumption rules, it is not liable for tax, interest, and penalties even if the rate of withholding that should have been applied based on the payee's actual status is different from that presumed.  The presumption rules apply to determine the status of the recipient of a payment as a U.S. or foreign person and other relevant characteristics, such as whether the payee is a beneficial owner or intermediary, and whether the payee is an individual, corporation, partnership, or trust.

Temporary regulations that became effective for payments made on or after June 30, 2014 provide presumption rules for the determination of a partner’s status as U.S. or foreign in the absence of documentation.  These rules provide that so long as a foreign partnership provides a certificate certifying its foreign status, the individual partners of the partnership will be presumed to be foreign payees (assuming the U.S. payer does not have actual knowledge that any of the partners are U.S. persons).  This means that a U.S. payor will not be held liable for backup withholding on payments for services made to a nonwithholding foreign partnership so long as the partnership furnishes a valid Form W-8 certifying its foreign status.  Accordingly, by relying on the presumption rules, a U.S. payor can obviate the necessity of obtaining withholding certificates from each partner of a foreign partnership.

The real challenge for a foreign partnership, of course, is making this clear to U.S. accounts payable.  The IRS regulations describing the documentation required from various foreign payees are exceedingly complex, which is why the accounts payable departments of U.S. businesses are instructed to obtain withholding certificates rather than determine when a withholding certificate may not be necessary.  A foreign payee must therefore be in a position to pinpoint to the applicable regulatory authority if it believes it should not be required to provide a Form W-8.

*  *  *

This summary is intended to provide general information only on the matters presented. It is not a comprehensive analysis of these matters and should not be relied upon as legal advice. If you have any questions about the matters covered in this publication, please contact:

Maureen R. Monaghan:         maureen.monaghan@wg-law.com | (212) 509 6312
Charles E. Chromow:            charles.chromow@wg-law.com  | (212) 509 4712

ACCESSING GLOBAL MARKETS THROUGH UCITS FUNDS

Global Appeal of UCITS Funds

Undertakings for Collective Investments in Transferable Securities (“UCITS”) are among the most popular forms of investment funds.  The UCITS framework was originally developed to facilitate cross-border European fund investments by providing a single investment fund standard (European passport) for all European Union (“EU”) member states.  Along with simplifying EU cross-border marketing of investment funds, the European Parliament’s UCITS Directive, which has been amended several times over the years (the “UCITS Directive”)[1], also introduced investor protection standards.  

UCITS funds were designed for retail investors in Europe, and the overwhelming majority of fund investments made by smaller European investors are indeed made in UCITS funds.  Because of their transparency, liquidity and regulations governing their structure, investment activities and supervision, UCITS funds have also become popular with institutional investors both in Europe and globally outside of the United States.  The reasons that fueled UCITS funds’ global popularity are attractive to U.S. institutional investors, particularly U.S. tax-exempt investors.  

Using UCITS Funds to Increase a U.S. based Investment Advisor’s Global Reach

The widespread global appeal of the UCITS brand make UCITS funds an interesting vehicle for U.S. fund managers who wish to market their investment strategies to investors outside of the U.S.  Because UCITS funds can be marketed to U.S. institutional investors, seed funding for such a global strategy can be raised in the U.S., primarily from tax-exempt investors such as endowments or foundations that will not subject the UCITS fund to ERISA.  For the effective use of UCITS funds as part of a strategy to expand a U.S. fund manager’s global reach, a thorough understanding of their foreign and domestic regulatory framework and their U.S. tax implication is required. 

Key Features of UCITS Funds and UCITS Fund Management

UCITS funds are mutual funds with significant investor protection features mandated by the UCITS Directive, including investment and leverage limitations, and risk concentration, management, and transparency standards.  A key benefit of a UCITS fund from an investor perspective is the requirement to provide fortnightly liquidity.  Despite the highly regulated environment in which they operate, there is flexibility in structuring UCITS funds.  Notably, UCITS funds can accommodate master-feeder structures familiar to U.S. fund managers. 

Under the UCITS Directive, a UCITS fund is required to be domiciled in an EU member state.  Because each individual EU country has its own domestic rules and regulations regarding funds and fund management, UCITS funds and UCITS management companies are governed both by the UCITS Directive (as implemented into the domestic laws of the applicable member state) and the member state’s existing internal law.  Consequently, a U.S. fund manager wishing to establish a UCITS fund will need to comply with the laws of the relevant EU jurisdictions where the UCITS fund is established and is being marketed, as well as the requirements of the UCITS Directive. 

A key requirement of the UCITS Directive for U.S.-based fund managers is the requirement that a UCITS fund must be managed by an EU domiciled management company that is authorized under its jurisdiction to serve as a UCITS management company.  Therefore, the first step for a U.S. fund manager wishing to manage and/or advise a UCITS fund is to either set up an EU-based management company or enter into a partnership with an EU domiciled management company that will serve as the management company to the UCITS fund.  Under such an arrangement the U.S. fund manager may serve as an adviser to the EU-based management company or, possibly, the UCITS fund, or manage one or more portfolios within an existing UCITS fund. 

U.S. Regulatory Aspects Pertaining to UCITS Funds

In addition to complying with the UCITS Directive and the domestic law of the applicable EU member state, U.S. fund managers who are managing or advising UCITS funds also must comply with applicable U.S. federal and state regulation.  

For example, a U.S. fund manager should comply with the requirements of Regulation S under the Securities Act of 1933, as amended (the “Securities Act”) when marketing investments in a UCITS fund to European and other non-U.S. investors.  While a UCITS fund may be marketed to European retail investors, a UCITS fund may not be marketed to U.S. retail investors without registration of the offering under the Securities Act, and registration of the UCITS fund under the Investment Company Act of 1940, as amended (the “Investment Company Act”).  To avoid these registration requirements, the securities of a UCITS fund may only be offered to U.S. investors in a private offering in accordance with Regulation D or Section 4(2) of the Securities Act, and the UCITS fund must satisfy the conditions of the exemptions from Investment Company Act registration under either Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.  

U.S. fund managers sponsoring UCITS funds that are marketed to U.S. investors also must evaluate the eligibility of the European based management company for an exemption from registration as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).  UCITS fund management companies with their principal place of business in an EU member state can qualify for the private fund adviser exemption from the registration requirement under the Advisers Act if they (i) have no clients that are U.S. persons other than private funds, and (ii) manage only private fund assets from a place of business in the U.S. with a total value of less than $150 million. 

Depending on the type of relationship and interaction between a SEC registered U.S. fund manager and the unregistered European UCITS fund management company, the SEC’s practice under the Unibanco series of no action letters may have to be complied with.  This can pose somewhat of a challenge until the SEC adopts a formal position of the application of the Unibanco doctrine in the context of the post Dodd-Frank adviser registration regime. 

One favorable aspect of the UCITS structure is that a UCITS fund is not a “covered fund” as defined in §619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”) as long as the UCITS fund (a) limits U.S. shareholdings to 15% of the securities of the UCITS fund, and (b) is predominantly offered to persons other than the sponsoring banking entity, its affiliates and their employees and directors.  Consequently, an adviser or fund manager that is a “banking entity” (as defined in the Volcker Rule) and is generally prohibited from sponsoring a Section 3(c)(1) or 3(c)(7) private fund may nonetheless sponsor a UCITS fund that meets these conditions. 

Depending on the nature of the UCITS funds’ investments, a U.S. fund manager who is marketing a UCITS fund to U.S. investors may also have to comply with the regulatory regime under the Commodity Futures Exchange Act.  

Moreover, unless U.S. plan asset investors who invest in a UCITS are below the 25% threshold in the aggregate under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), it will be necessary to comply with ERISA. 

U.S. Tax Considerations

Most forms of UCITS funds, such as public limited companies, are considered per se corporations under U.S. tax laws that are not eligible to “check the box” to elect to be treated as a partnership for U.S. income tax purposes.  Generally, a UCITS fund that is considered a corporation for U.S. income tax purposes will be a “passive foreign investment company” or “PFIC.”  Because the PFIC regime is not favorable to U.S. taxable investors, these UCITS funds are better suited for U.S. tax-exempt investors (such as endowments or foundations) which are not affected by the PFIC rules.  U.S. taxable investors could be accommodated by structuring the UCITS fund as a legal entity that is eligible to elect partnership tax treatment in the U.S. such as an Irish SICAV.    

As an offshore fund, the UCITS fund will need to conduct due diligence on its investors and otherwise comply with the Foreign Account Tax Compliance Act (FATCA). 

*  *  * 

This summary is intended to provide only general information on the legal matters addressed herein.  It is not a comprehensive analysis of these matters and should not be relied upon as legal advice.  If you have any questions about the matters covered in this summary, please contact: 

Janet R. Murtha:         janet.murtha@wg-law.com | (212) 509 6314

Daniel A. Wuersch:     daniel.wuersch@wg-law.com | (212) 509 4722

[1]       Currently, UCITS funds are governed by Directive 2009/65/EC (referred to as UCITS IV). The most recent amendment to the UCITS Directive, Directive 2014/91/EU (commonly referred to as UCITS V), was adopted by the EU Parliament on July 23, 2014, and came into force on September 17, 2014.  EU member states have until March 18, 2016 to implement national laws affecting the changes mandated by UCITS V. 

U.S. Entry - The Do's and Don'ts - Important Entry Rules, Regulations and Consequences for Violators

We are sending you this memo due to an apparent recent trend concerning U.S. admissions of Visa Waiver Program ("VWP") Applicants and B-1 Travelers who are relying on improper information about their eligibility for U.S. immigration benefits through various sources, including Consular Call Centers and the Internet. 

We encourage all B-1 visa applicants and VWP travelers to consult with, and rely on, the information given to them by their U.S. immigration attorneys, since, typically, information on the Internet is general in nature, not keyed to the traveler's unique circumstances, often not accurate, and often not up-to-date. Additionally, other individuals providing advice concerning a traveler's eligibility for U.S. immigration benefits do not necessarily represent the traveler and, therefore, may not understand, or be aware of, all of the circumstances involved in U.S. travel,  and they may not have the traveler's best interest at heart. 

It is absolutely crucial that you or your company be vigilant in order to avoid violations of U.S. immigration laws by allowing "stealth" workers to masquerade as U.S. business visitors. Increasingly, the United States is tightening its laws, and is even imposing criminal sanctions and fines on companies and individuals who try to circumvent the rules requiring work permits by pretending to enter for business visits which can even lead to a lifelong ban from the United States. Extreme competitive pressures and deadlines on businesses are no excuse to violate U.S. immigration laws by abusing the U.S.'s business-visitor visa category.  Wuersch & Gering's immigration team can help you and/or your company prevent, and/or spot, misuses of the U.S. business-visitor category. We can also analyze and propose possible avenues to procuring legitimate work visas and residency in the United States. 

U.S. Entry Under the VWP For Business and Tourism 

If  a U.S. traveler is from a visa waiver program country (currently including Andorra, Australia, Austria, Belgium, Brunei, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, The Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom), and is coming for tourism or business (but not for employment or as a working member of the media), he/she may enter into the U.S. (including Hawaii, Alaska, Puerto Rico and the U.S. Virgin Islands) for up to 90 days. If the traveler wishes to visit the U.S. for a longer period of time, he/she will need to obtain a B-1 visa. If visiting the U.S. under the visa waiver program, the traveler cannot apply for an extension of stay and must leave the U.S. on or before the date set forth on the U.S. visa stamp entry document.

It should further be noted that a Visa Waiver Traveler does not have the right to a hearing pertaining to a denial of admission, and, in that case, should adamantly request a voluntary withdrawal of his/her U.S. entry application, if the entry officer so permits. We also recommend that the Visa Waiver Traveler who is being denied entry into the United States should request to be seen by a CBP supervisor. In the case of entry refusal, the officer will prepare a report which should be carefully reviewed by the entry applicant, errors should be corrected or if the entry officer declines requested correction(s), the traveler should not sign the report inasmuch as the report can be used by either party in future proceedings.

While in the U.S., the traveler may go to Canada, Mexico or the Caribbean and adjacent islands and re-enter the U.S. using the visa stamp or I-94 entry admission notation he/she was issued on the VWP passport when he/she first arrived in the U.S., although the time spent there is included in the overall 90 days allotted for the visit. Consequently, it is important to note that short visits to Canada or Mexico will not result in the issuance of a new U.S. entry document providing a "fresh" stay of 90 days.

The terms of the VWP are very clear - it is only to be used for occasional, short visits to the United States. If a U.S Customs and Border Protection ("CBP") officer believes that a traveler is trying to "reset" the clock by making a short trip out of the U.S. and then re-enter for another 90-day period, he/she can be denied entry. In this case, the traveler will have to obtain a visa for any future travel to the U.S. in order to be re-admitted to the U.S. To re-enter the U.S. shortly after a previous admission expired, the traveler will have to convince the CBP officer that he/she has a bona fide purpose for the new entry, and should be documented accordingly.

Travelers seeking to enter the U.S. under the VWP must first apply for an Electronic System Travel Authorization ("ESTA") (see: https://esta.cbp.dhs.gov/esta/). ESTA is an automated system that determines the eligibility of visitors to travel to the U.S. under the VWP. Authorization via ESTA does not determine whether a traveler is admissible to the United States. CBP officers determine admissibility upon the traveler's arrival. The ESTA application collects biographic information and answers VWP eligibility questions. ESTA applications may be submitted at any time prior to travel, though it is recommended that travelers apply as soon as they begin preparing travel plans or prior to purchasing airline tickets, but at least 72 hours in advance of the intended travel.

For Canadian citizens, the length of stay for tourists is up to 6 months. Canadians may file for an extension of stay with the U.S. Citizenship and Immigration Services.

While a VWP traveler can enter the United States for short bona fide business purposes, he/she is not permitted to engage in any gainful employment or productive work, and must: maintain nonimmigrant intent; return to his/her home country after the completion of travel; maintain a foreign residence; and travel with a valid roundtrip ticket within the permissible period of time for VWP travel. The VWP business traveler's permissible business activities are similar to the below-described activities defined by the Department of State for a B-1 business traveler.

U.S. Entry Under B-1/B-2 Visas as a Bona Fide Business Traveler or Tourist

Generally, a citizen of a foreign country (that is not part of the VWP) who wishes to enter the United States must first obtain a visa. Visitor visas are nonimmigrant visas for persons who want to enter the United States temporarily for business (visa category B-1), tourism, pleasure or visiting (visa category B-2), or a combination of both purposes (B-1/B-2). Generally, stays in the United States in this category are brief, and involve such activities as touring, visiting family members, obtaining health care, or conducting business on behalf of an overseas employer, and the traveler intends to depart the U.S. after the expiration of his/her stay and maintains a foreign residence. The trips are temporary and cannot involve employment in the United States, which is a key condition of the B visa category. That said, the alien cannot engage in productive work or gainful salaried employment. In fact, the Department of State has listed the acceptable B-1 activities as "engaging in commercial transactions not involving gainful employment or productive work". Permissible activities under B-1 include merchants taking orders for goods manufactured abroad, negotiating contracts, consulting with clients or business associates, litigating claims, and/or undertaking independent research.

We have become aware of a recent trend concerning the U.S. business entry of managers and executives in VW or B-1 status.  Immigration officers have been asking whether such individuals have "direct reports" (i.e. U.S. personnel directly reporting to them) in the United States, and if so, have been requested to obtain a work visa.  Our belief is that the officer is concerned that the business traveler will be engaging in gainful employment which is contrary to the purpose of the VW and/or B-1 visa.  For those who may be concerned that they may encounter such questions, and maybe denied entry into the U.S., we recommend seeking legal advice well in advance of any intended U.S. business travel. 

Individuals that apply for a B-2 visa are permitted to enter the U.S. for 90 days for the following purposes: tourism, vacation (holiday), visiting friends or relatives, medical treatment, participation in social events hosted by fraternal, social, or service organizations, participation by amateurs in musical, sports, or similar events or contests, if not being paid for participating, and enrollment in a short recreational course of study, not for credit toward a degree (for example, a two-day cooking class while on vacation).

It is imperative that the traveler provides honest information at the time of entry, and indicates the truthful purposes of his/her visit. B-1 business travelers should ideally be carrying a letter from the foreign employer, explaining the need for the business travel, confirming the U.S. traveler's employment abroad, stating that the traveler will not be engaging in productive work, will remain on a foreign payroll and will not derive any kind of remuneration subject to his/her U.S. visit.  If the B-1/B-2 traveler intends to stay longer than 90 days, documentary evidence for his/her continued "nonimmigrant intent" and financial security should be presented, such as employment agreements, proof of continued foreign residency (lease/deed), and proof of sufficient funding for the extended trip (i.e. bank statement, credit card info).

B1-B-2 travelers can also extend their U.S. stay while they are in the United States through the filing of an I-539 Petition with USCIS, providing convincing documentation in demonstration of the need for a stay extension. Also, B-1/B-2 visa holder have a right to request a hearing before an Immigration Judge in the United States pertaining to a denial of admission. It is also prudent to ask to speak to a CBP supervisor should the entry officer be inclined to refuse B-1/B-2 entry. As with VW travelers, in the event of a denial of admission, the officer will issue a report which should be thoroughly reviewed, revised, if necessary, and only be signed if the report appears to be correct.

Naturally, our team of experts stands ready to assist you or your company with any questions you may have regarding lawful U.S. entry for business or pleasure. 

*  *  *  *

This summary is intended to provide general information only on the matters presented. It is not a comprehensive analysis of these matters and should not be relied upon as legal advice. If you have any questions about the matters covered in this publication, please contact:

 Hilde Holland:     hilde.holland@wg-law.com  | (212) 509 4715 

Foreign Investment Advisers: Traps for the Unwary in the Proposed SEC Rules

December 13, 2010 -- On November 19, 2010, the SEC proposed rules implementing the new exemption for foreign private advisers from SEC registration introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new exemption will become effective on July 21, 2011. It relies in substantial part on the SEC's current position with respect to the registration requirements for foreign investment advisers, but expands the universe of foreign investment advisers required to register with the SEC by including the number of investors and the assets under management in private funds managed by foreign investment advisers in determining their eligibility to rely on the exemption. The proposed SEC rules imlementing the private adviser exemption further expand the number of foreign investment advisers that will in the future be required to register with the SEC. For a detailed description, please download the pdf here.

Proposed SEC Rules for Venture Capital Funds and Private Fund Advisers

December 13, 2010 -- On November 19, 2010, the SEC proposed rules defining the term venture capital fund and implementing the new exemption from SEC registration for advisers to private funds introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new exemptions will become effective on July 21, 2011. For a detailed description, please download the pdf here.

SEC Proposal Defines "Family Offices" to be Excluded from the Investment Advisers Act

October 19, 2010 -- On October 12, 2010, the SEC proposed a rule specifying "family offices" that continue to be exempt from the registration as investment advisers under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The SEC now proposes to adopt a new rule 202(a)(11)(G)-1 under the Advisers Act to define family offices that would be excluded from the definition of "investment adviser" under the Advisers Act. For a detailed description, please download the pdf here.

Dodd-Frank: Outlook for U.S. and Foreign Investment Advisers, Private Funds, and Family Offices

August 17, 2010 -- On July 21, 2010 President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. This act will change the regulation of U.S. and foreign investment advisers, private funds and family offices. For a detailed description of these changes, please download the PDF here.