Phone Companies Urge US Government To Loosen Telecommunications Regulations For Cuba

Several of the largest telecommunications companies in the United States including AT&T, Verizon, and Nokia are urging the US government to ease regulations which currently prevent them from operating in Cuba. The regulations stem from the 47 year old trade embargo the US has enforced against Cuba due to the oppressive Castro regime. AT&T and Verizon are seeking a loosening of regulations to make it easier for telecommunications companies to directly connect calls to and from Cuba, while Nokia, the worlds largest mobile-phone manufacturer, is urging Washington to ease the embargo so it can export mobile-phone accessories from its US locations.

Under current rules, the Federal Communications Commission (“FCC”) has established a rate cap on the fee telecoms can pay the Cuban government for direct calls to Cuba which hampers the telecommunications industrys ability to do business in Cuba. Currently, US providers are only allowed to pay the Cuban government a fee no higher than 19 cents per call, however, Cuba demands 84 cents a call.

In June, Verizon wrote the FCC asking it to grant requests by others in the telecom industry for the FCC to waive its maximum rate cap rules. A copy of Verizons comments can be read at: Verizons reply to the FCC.

US telecoms are also interested in establishing roaming services on the island for US customers who visit the island as a first step to expanding cell phone services. Analysts believe that the mobile phone market in Cuba has the potential to be profitable given the islands population, 11.4 million, and the relative few between, 10 and 20 percent, who currently use mobile phone services.

The telecoms requests for greater access to Cuba come several months after the idea was first presented by the Obama administration. On April 13, 2009, President Obama issued a memorandum to the Secretaries of State, Treasury, and Commerce entitled “Promoting Democracy and Human Rights in Cuba” in which the President said that increased contacts between Cuba and the outside world would reduce Cubans dependency on the Castro regime. President Obama directed his Secretaries to take such actions as necessary to authorize US telecommunications providers to enter into agreements to establish fiber-optic cable and satellite telecommunications facilities linking the US and Cuba and to license US telecom service providers to enter into and operate roaming services agreements with Cubas telecommunications service providers. The Presidents full memorandum can be read at: White House Memo on Promoting Democracy and Human Rights in Cuba.

However, while an easing of telecommunications regulations may be in the near future, US companies looking to do business in Cuba still risk violating sanctions still in place, such as the Cuban Democracy Act of 1992 that prohibits investment in Cubas telecommunications network.

For guidance on how your import/export business, or related business, can take advantage of the surging trade economy while maintaining strong regulatory compliance, contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Distinguished Orthopaedic Surgeon Joins NeoStem’s Medical Advisory Board

NeoStem, Inc. (“NeoStem”) recently announced the appointment of Thomas Einhorn, M.D., Chairman of Orthopaedic Surgery at Boston University to its Medical Advisory Board. NeoStem is an international biopharmaceutical company that is engaged in the development of stem cell-based therapies and building a network of adult stem cell collection centers in the United States and China that allow people to donate and store their own stem cells for their personal use in the event of a future medical need. Dr. Einhorns professional focus has been on the repair and regeneration of bone and cartilage using autologous adult stem cells, reconstructive surgery of the hip and knee, and the treatment of metabolic bone disease making him an excellent addition to NeoStems Medical Advisory Board.

Dr. Einhorn is Chairman of the Department of Orthopaedic Surgery and Professor of Orthopaedic Surgery, Biochemistry and Biomedical Engineering at Boston University. To date, he has authored over 200 peer-reviewed articles during his career. Dr. Einhorn has a distinguished career which includes serving as Chairman and President of numerous orthopaedic research societies and foundations. In addition, he has won numerous awards and served as Deputy Editor for Current Concepts Reviews for The Journal of Bone and Joint Surgery, and on the Editorial Boards of The Journal of Bone and Mineral Research, Journal of Orthopaedic Research and Bone.

Wayne A. Marasco, M.D., Ph.D., Chairman of NeoStems Advisory Boards, stated, “We are extremely pleased to have Dr. Einhorn join our medical advisory board. His in-depth understanding of orthopaedic injuries and the use of adult stem cells to regenerate damaged bone and cartilage will be a tremendous asset in our development of applications of adult stem cells for orthopedic injuries.”

Dr. Einhorn stated, “I am excited to join the Medical Advisory Board of an innovative, forward-looking company like NeoStem and be part of the team of experts to help advance stem cell technologies in the field of orthopaedics and assist in developing VSEL┞¢ Technology applications for orthopaedic disease. Not only has [NeoStem] put together a promising base of technologies for future stem cell treatment in orthopaedics, cardiac, skin rejuvenation and the treatment of wounds but it continues to partner with experts in other areas to facilitate meaningful [Research and Development]. This should encourage people to collect, process, and store their stem cells through NeoStems existing network of collection centers in anticipation of a variety of future personalized medicine applications.”

Federal Prosecutors Drop Charges Against Former Westar Executives

On August 20, 2010, U.S. District Court Judge Julie Robinson for the District of Kansas granted the United States Department of Justices motion to dismiss the charges against former Westar executives David Wittig and Douglas Lake. The charges were dismissed without prejudice, meaning they could be filed again.

Wittig and Lake were charged with conspiracy and circumvention of internal controls. The former executives were accused of manipulating a proposed merger for personal benefit and using Westars legal counsel to remove other directors who challenged their actions. Authorities also alleged that Wittig and Lake submitted false reports to the Securities and Exchange Commission (“SEC”) about their personal use of corporate aircraft. The SEC requires such reports if the added cost to the corporation for air travel exceeds $50,000. Prosecutors alleged that Wittig and Lake conspired to inflate their compensation from the company and took steps to hide their actions.

This case was the third attempt by the U.S. Department of Justice to try Wittig and Lake. The first case ended in a hung jury in December 2004. The government retried the case in early 2005 and in that second trial a jury found Wittig and Lake guilty of wire fraud, money laundering, circumvention of internal controls and conspiracy. The court also ordered millions of dollars in restitution. However, the U.S. Court of Appeals for the 10th Circuit reversed the convictions in January of 2007. The 10th Circuit threw out the money laundering and wire fraud convictions because of a lack of evidence and found that jury instructions for the circumvention and conspiracy charges were flawed.

After the 10th Circuit had ruled, prosecutors announced they would seek a third trial for the charges of conspiracy and circumvention. However, prior to trial, the Supreme Court announced its decision in Skilling v United States. Defense attorneys believe that the dismissal of this most recent case is byproduct of the recent Supreme Court decision that changed the landscape of the “honest services” fraud statute.

The decision of prosecutors to drop the charges comes less than two months after the Supreme Courts landmark decision in Skilling v United States. In Skilling, the Court severely narrowed the scope of the “theft of honest services” fraud statue, 18 U.S.C. Sec. 3146, by ruling that it is unconstitutionally vague except in cases involving bribery and kickback schemes. The Court ruled that federal prosecutors can no longer rely on the “theft of honest services” charge in cases involving private sector employees charged with self-dealing or undisclosed conflicts of interest without a bribery or kickback scheme. As a result of the Skilling decision, a once flexible tool in the arsenal of the federal prosecutors office has been sharply limited.

For information about Fuerst Ittlemans experience litigating white collar criminal cases please contact us at contact@fidjlaw.com.

FDA Busy Crafting Calorie Court Regulations

The FDA has begun the process of establishing regulations to implement recent federal law that mandates calorie information be posted at many chain restaurants and vending machines throughout the United States. The mandate was signed into law on March 23, 2010, as part of the Patient Protection and Affordable Care Act, (“PPACA”) and requires that all restaurants with 20 or more locations post calorie counts of their products on menus, menu boards, and drive-through menus. Other nutritional information, including amounts of sodium, saturated fats and cholesterol must be made available to consumers in written form upon request. Additionally, all chain restaurants must include on their menus the Secretary of the Department of Health and Human Services statement on suggested daily calorie intake.

The PPACA requires chain restaurants to label the calorie content for standard menu items and self-service foods, such as buffets and salad bars. However, foods that are daily specials, limited-time offerings, or seasonal items are exempt from the calorie count legislation. Also, vending machines must display calorie disclosures for each item offered for sale unless the Nutritional Facts panel for a food is available for the customer to view prior to purchasing.

The federal calorie count legislation is intended to create a uniform national policy on nutritional information available on chain restaurant menus. PPACA is similar in design and purpose to several state laws and local ordinances requiring calorie count displays at chain restaurants. New York City currently has such a calorie count display law in effect. The National Restaurant Association supported the implementation of a federal guideline as an alternative to numerous labeling schemes that could vary from state to state.

The FDA has until March 2011, one year from the passage of the PPACA, to develop and implement regulations to enforce the calorie count mandate. Once implemented, the FDA will be in charge of enforcement and penalties for violations. On July 7, 2010, the FDA began receiving public comments on how to implement section 4205 of the PPACA. The comment period runs for 60 days and will close on September 5, 2010.

For more information regarding current FDA authority, procedure, or regulations please contact us at contact@fidjlaw.com.

Banco Colpatria, S.A. Settles Narcotics Trafficking Sanctions Violations

On August 19, 2010, the Office of Foreign Assets Control, (“OFAC”), of the U.S. Department of the Treasury announced that it has reached a settlement with Banco Colpatria, S.A., (“Colpatria”), for alleged violations of OFACs Narcotics Trafficking Sanctions Regulations. The alleged violations stem from activities of Colpatrias Miami Agency which discontinued operations in 2007. OFAC is a part of the U.S. Department of the Treasury and administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

OFAC alleged that Colpatria Miami violated the Narcotics Regulations through a series of wire transfers which occurred between November 22, 2004 and May 24, 2005. OFAC stated that Colpatria Miami made 26 wire transfers on behalf of one corporate client after OFAC had designated the clients beneficial owners are Special Designated Narcotics Traffickers, (“SDN”).

Colpatria initially screened the names of the beneficial owners against the Specially Designated Nationals and Blocked Persons List when the account was opened; however, it did not screen the names after the list was updated by OFAC.

The penalty for these violations was initially set at $229,623; however, this amount was reduced by OFAC to $91,849. OFAC stated that the settlement amount was reduced because Colpatria voluntarily self reported to OFAC though it did not admit or deny liability, Colpatria revised its software to review automatically the names of beneficial owners of accounts rather than just names of account holders when performing account opening and periodic name checks, and because Colpatria signed a tolling agreement with OFAC.

This case highlights the importance of 2 crucial aspects of international banking. First, this case highlights the importance of monitoring government announcements, such as OFACs SDN list which is regularly updated and publicly available. Additionally, this case highlights the importance of self reporting OFAC violations. Indeed, self reporting can help otherwise compliant banks avoid criminal prosecution and aggravated fines, and can also help banks maintain good working relationships with OFAC and other agencies within the Department of Treasury.

For more information regarding OFAC and the laws governing international banking please contact us at contact@fidjlaw.com.

Barclays Bank PLC Reaches Settlement With US Authorities

On August 18, 2010, the United States Department of Treasury Office of Foreign Assets Control announced that it has reached a settlement with Barclays Bank PLC to settle allegations of violations of multiple sanctions programs relating to transactions Barclays conducted with customers from Cuba, Sudan, Burma, and Iran. Barclays Bank is the United Kingdoms second largest bank earning $14.8 billion in net income last year. The Office of Foreign Assets Control (“OFAC”) administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

On August 16, 2010, a criminal information was filed in the U.S. District Court for the District of Columbia charging Barclays with one count of violating the International Emergency Economic Powers Act (“IEEPA”) and one count of violating the Trading with the Enemy Act (“TWEA”). It is a crime to willfully violate, or attempt to violate, any regulation issued under IEEPA and TWEA. Barclays has waived indictment and accepted responsibility for the criminal violations.

Barclays has agreed to forfeit $298,000,000 to the Department of Justice and the New York County District Attorneys Office for violations of the Sudanese Sanctions Regulations, the Iranian Transactions Regulations, and the Cuban Assets Control Regulations promulgated pursuant to IEEPA and TWEA.

According to the complaint, Barclays intentionally engaged in banking practices designed to avoid filters at U.S. Banks created to detect transactions in violation of OFAC regulations. Such practices included not naming or removing the names in payment messages in order to conceal the identity of sanctioned entities, routing payments through internal Barclays accounts to hide connections to sanctioned entities, and using cover payments to hide referencing parties targeted by U.S. sanctions.

Barclays voluntarily self-disclosed the violations under the terms of OFACs Economic Sanctions Enforcement Guidelines. In addition to forfeiting $298 million U.S.D., Barclays has also agreed to enter into a Deferred Prosecution Agreement for the next 2 years. This will require Barclays to improve its U.S. economic sanctions compliance programs as well as require Barclays to conduct annual reviews of its policies and procedures in regards to OFAC compliance. The British Financial Services Authority will assist OFAC in assuring future compliance by Barclays.

For more information regarding OFAC please contact us at contact@fidjlaw.com.

Drug Recalls Increase 309% in 2009

August 19, 2010

The U.S. Food and Drug Administration (FDA) reported more than 1,742 prescription and over-the-counter (OTC) drug recalls in 2009. That number is a huge increase from the 426 recalls reported in 2008 and the 391 recalls reported in 2007. With the spike in the number of drug product recalls, product and manufacturing quality is being called into question in the media and in the public.

Recalls are actions taken by a drug manufacturer, repackager, or distributor to remove a drug from the market. Recalls may be conducted on a firm’s own initiative, by FDA request, or by FDA order under statutory authority. The FDA publishes information regarding recalls, market withdrawals, and safety alerts here.

The increase in drug recalls has continued into 2010 with 296 recalls reported in the months of January through June. This rapid increase in drug recalls likely prompted two bills that have been introduced this year in Congress that would impose stricter regulations on the drug industry (see here and here). The bills would also give the FDA authority to mandate drug recalls.

Recent recalls of drug products by Tylenol and McNeil Consumer Healthcare, a Johnson & Johnson unit, (see here and here) have brought concerns regarding manufacturing and product quality to the publics attention. The quality of raw materials used in manufacture as well as contamination and faulty labeling and packaging could be to blame for the lack of manufacturing quality. This lapse in quality could be credited to the fierce competition in the drug manufacturing industry. Drugmakers are cutting costs and cutting back on manufacturing investments to stay competitive.

The generic drug market also fuels the competition in the industry. Generic drugs muake up approximately 75% of all prescription drug sales. The rush by generic drug manufacturers to be the first to market a generic version of a drug after the drug loses patent protection can create a deficit in manufacturing quality.

Advantage Dose, a drug repackager, accounted for more than 1,000 of the reported recalls in 2009. Repackagers that relabel drugs into smaller resale units have also drawn attention for increased recalls due to flawed labeling and packaging.

In an industry that is already rife with competition, drugmakers must be conscientious of quality control. In light of the new attention given to manufacturing quality by the public, policy makers and the media, drugmakers, more than ever, must ensure they are producing compliant, quality products.

For information on how Fuerst Ittleman, PL can help your company with issues surrounding drug manufacturing, repackaging, importing, and distribution, contact us at contact@fidjlaw.com.

Justice Sandra Day O’Conner sides with a Small Business Against the IRS

Recently, the Internal Revenue Service (IRS) has been on a rampage targeting banks and tax preparers, but a recent 11th Circuit decision might force the IRS to reconsider this strategy.

The IRS sought to shut down a local Miami tax preparation facility, Nations Business Center, owed by Abelardo Ernest Cruz. However, last month Cruz won a huge battle against the IRS setting forth negative precedent for the service and putting a halt to the “business death penalty.”

The 11th US Circuit Court of Appeals, with retired Supreme Court Justice Sandra Day OConner writing for the three-judge panel, upheld a district court order asserting that the IRS was not entitled to shut down Cruzs tax preparation company nor its affiliates, including Nations Tax Services. See opinion. The Justice Department, on behalf of the IRS, sued Cruzs company in the district court seeking a civil injunction to shut it down. However, US District Judge William Zloch denied the motion, finding the company had submitted bad returns for customers, but was mending its ways. Judge Zloch found the “death penalty” would be an extreme remedy and instead barred the company from engaging in deceptive practices and mandated IRS monitoring for compliance.

The 11th Circuit said the IRS launched its investigation of Cruzs company because Cruzs clients were receiving refunds and claiming earned-income tax credits at rates far beyond the national average. The 11th Circuit further stated that an audit revealed “numerous and repeated understatements of tax liability.” Cruz, however, changed preparing procedures and continuing education policies after learning of the IRS investigation, thus leading the 11th Circuit to conclude that the district court had correctly deduced that Cruzs company had significantly reformed its deceptive practices.

Before the 11th Circuit, the government argued that Judge Zloch abused his discretion by failing to enjoin the defendants from acting as tax preparers and failing to require the company to notify customers of the injunction. However, Justice OConner found that “the district court was within its discretion in finding that such a broad injunction was not warranted.” Justice OConner further stated that “[t]here is nothing illogical in finding that education programs could curb negligent misconduct while relying on the added sanctions of the district courts limited injunction to curb any excess of international misconduct.” Former Justice OConner did send one aspect of the case back to Judge Zloch because Judge Zloch gave no reason for rejecting the injunction requested by the IRS compelling Cruz to notify customers of the courts injunction.

Present and Future Regulations

In the past, tax preparers have not only faced civil fines and the business death penalty but criminal prosecution as well. Dan Boone, spokesperson for the IRS civil division, said the service is dedicated to bringing more regulation to the tax preparation industry. Training is currently not required in the State of Florida for one to establish a tax preparation facility. Yet, starting in September, anyone who is paid to prepare federal tax returns must register and receive a tax identification number. Then next year, all tax preparers must pass a competency test.

If you have any questions about the new rules and regulations tax preparers must abide by or if you are a tax preparer under audit, please contact us at contact@fidjlaw.com.

Pistachios in a Pinch

Tougher Sanctions Close Pipeline for Trade in Food, Carpets and Financial Transactions from Iran

On August 16, 2010, the Department of Treasurys Office of Foreign Assets Control (OFAC) promulgated new regulations to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).  President Obama signed CISADA into law on July 1st with the goal to enforce U.N. Security Council sanctions and “to protect the international financial system from abuse by Iran,” according to OFAC Director Adam Szubin.

American financial institutions operating correspondent accounts or payable-through accounts for foreign financial institutions as well as companies currently importing food and carpets from Iran must take note of these provisions, which go into effect on September 29, 2010.

Before these implementing regulations, there was a “general license” issued by OFAC authorizing the importation of certain foodstuffs (like caviar and pistachios) and carpets from Iran into the United States.  However, the new regulations eliminate the general license and prohibit all such imports beginning on September 29, 2010.  OFAC has also indicated that it will no longer issue specific licenses for such products after that date.  Therefore, according to the OFAC guidance, “any such goods for commercial importation into the United States must be entered for consumption before that date.”

For financial institutions, the new regulations either outright prohibit, or impose strict conditions on, the opening or maintaining of a U.S. correspondent account or payable-through account for a foreign financial institution that the government finds have knowingly aided or facilitated certain activities benefitting the Government of Iran, Iran’s Islamic Revolutionary Guard Corps (IRGC), or Iranian financial institutions.  CISADA also makes it easier for state and local governments to prohibit investments of public funds in companies which are investing in Iran.

The penalties for institutions or companies found violating these new regulatory provisions are severe.  Civil penalties may be imposed up to $250,000 or twice the value of the transaction involved.  In addition, criminal penalties for willful violations of the law include fines of up to $1 million and prison sentences of up to 20 years.

One key provision of CISADA is the civil and criminal liability for parent companies for acts by subsidiaries that the parent had “reason to know” could lead to a violation of the law.  This is an attempt by the government to close one of the many loopholes which have allowed U.S. companies to benefit for years from trade with Iranian which arguably violated previous sanctions.

Health Care Reform Strengthens Fraud Prosecutions and Expands Scope of False Claims Act

The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, will make it easier for the federal government to investigate and prosecute health care fraud and increase penalties for violations. The new bill provides for more than $350 million over 10 years to reduce healthcare fraud and abuse while easing prosecutions, strengthening sentencing guidelines, and expanding the False Claims Act.

The bill eliminates the need for prosecutors to prove actual knowledge of or specific intent to violate the law under the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b) and the federal health care fraud statute (18 U.S.C. § 1347). The Bill is likely in response to the 9th Circuit Case, Hanlester Network v. Shalala, which provided for heightened standards of intent. Prosecutors will also be able to issue administrative subpoenas for the production of documents.

Kickbacks and offenses in violation of Section 301 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 331) will now be considered Federal Health Care Fraud Offenses. Further, those suspected of obstructing a criminal investigation of federal health care fraud may have their assets frozen, while those who obtain property from the commission of fraud w have their personal property subject to forfeiture.

The bill will also change the definition of “intended loss” under the Federal Sentencing Guidelines. Section 2B1.1(b)(1) of the guidelines provides that the loss from fraud is calculated as either the actual loss or intended loss whichever is greater. While courts in the past have calculated “intended loss” as the amount actually paid by the government or payable under government fee schedules, the new bill allows for the dollar amount of fraudulent bills submitted to constitute prima facie evidence of intended loss. The result will be heightened sentencing for white collar criminals in health care. Further, the statute will increase the offense level for defendants convicted. Changes include:
¢ A two-level increase in the offense level for losses of $1 million or more.
¢ A three-level increase in the offense level for losses of $7 million or more.
¢ A four-level increase in the offense level for losses of $20 million or more.

The False Claims Act will also be strengthened by the reform statute. Claims arising from a violation of the Ant-Kickback statute will now expressly constitute violations of the False Claims Act, regardless of whether the wrongdoer submits the claim. The bill also strengthens the Act by allowing for whistleblowers to bring suits and restricting the public disclosure bar (providing that disclosures made in criminal, civil or administrative hearing or in government reports, hearings, audits and investigations bar a federal FCA suit) to federal government hearings, reports, audits and investigations. Finally, the FCA will be applicable to payments made by the American Health Benefit Exchanges if they include federal funds and civil penalties for exchange-related FCA liability will be 3 to 6 times the amount of damages.

Additional Provisions include:
¢ The ability to suspend pending Medicare and Medicaid payments to providers and suppliers pending investigations into allegations of fraud.
¢ Civil monetary penalties for knowingly making false statements to enroll as a provider or supplier in a federal health care program.
¢ Mandatory compliance programs for providers and suppliers.
¢ HHS oversight of Medicaid and Medicare Parts C and D.
¢ Exclusions from Medicaid for companies or individuals that control entities that have not repaid overpayments, have been suspended, terminated, or excluded from participation, or are affiliated with an entity that has.
For more information regarding Health Care Reform please contact us at contact@fidjlaw.com.